<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 1, 1997
REGISTRATION NO. 333-35843
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 2
TO
FORM S-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
SOUTHERN MINERAL CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
NEVADA 36-2068676
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
</TABLE>
---------------------
<TABLE>
<C> <C>
STEVEN H. MIKEL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
500 DALLAS, SUITE 2800 500 DALLAS, SUITE 2800
HOUSTON, TEXAS 77002 HOUSTON, TEXAS 77002
(713) 658-9444 (713) 658-9444
(Address Including Zip Code, and Telephone (Name, Address, Including Zip Code, and
Number, Including Area Code, or Telephone Number, Including Area Code,
Registrant's Principal Executive Offices) of Agent for Service)
</TABLE>
---------------------
With copies to:
<TABLE>
<C> <C>
RICK L. BURDICK, P.C. GEORGE G. YOUNG III
RICHARD J. WILKIE BUTLER & BINION, L.L.P.
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P. 1000 LOUISIANA STREET
711 LOUISIANA STREET, SUITE 1900 -- SOUTH TOWER SUITE 1600
HOUSTON, TEXAS 77002 HOUSTON, TEXAS 77002
(713) 220-5800 (713) 237-3605
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable following the effectiveness of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If the Registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may neither be sold
nor may offers to buy be accepted prior to the time the Registration
Statement becomes effective. This prospectus shall neither constitute an
offer to sell or the solicitation of an offer to buy nor shall there be any
sale of these securities in any state in which such offer, solicitation or
sale would be unlawful prior to registration or qualification under the
securities laws of any such state.
SUBJECT TO COMPLETION, DATED OCTOBER 1, 1997
$30,000,000
[SOUTHERN MINERAL CORPORATION LOGO]
SOUTHERN MINERAL CORPORATION
% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2007
Southern Mineral Corporation ("SMC" or the "Company") is offering (the
"Offering") $30,000,000 aggregate principal amount of % Convertible
Subordinated Debentures due 2007 (the "Debentures"). Interest on the Debentures
will be payable semi-annually on and of each year, commencing
, 1998. The Debentures are convertible at any time prior to maturity, unless
previously redeemed or repurchased into shares of Common Stock, par value $0.01
per share (the "Common Stock"), of the Company, at a conversion price of $
per share (equivalent to a conversion rate of shares of Common Stock of the
Company per $1,000 principal amount of Debentures), subject to adjustment under
certain circumstances. The Debentures will mature on , 2007. The
Common Stock is quoted on The Nasdaq Stock Market's National Market (the "Nasdaq
National Market") under the symbol "SMIN." On September 30, 1997, the last
reported sale price of the Common Stock on the Nasdaq National Market was $7.13
per share.
The Debentures are unsecured obligations subordinated in right of payment to
all existing and future Senior Indebtedness (as defined herein) of SMC and are
effectively subordinated in right of payment to all indebtedness and other
liabilities of its subsidiaries. At June 30, 1997, the Company had outstanding
Senior Indebtedness of approximately $20.2 million. See "Description of
Debentures -- Subordination." The Indenture (as defined herein) does not
restrict the incurrence of additional indebtedness by the Company or any of its
subsidiaries. See "Description of Debentures -- Subordination." The Company may
not redeem the Debentures, prior to , 1999. During the period
, 1999 to , 2000, the Company may redeem the Debentures if the
Closing Price Per Share (as defined herein) of the Common Stock exceeds the
conversion price by 30% or more for at least 20 consecutive trading days. After
, 2000 and prior to maturity of the Debentures, the Company may
redeem the Debentures, regardless of the trading price of its Common Stock. Any
optional redemption by the Company of the Debentures will be at the redemption
prices set forth herein, plus accrued and unpaid interest to the redemption
date. See "Description of Debentures -- Optional Redemption by the Company."
Upon a Change of Control (as defined herein), each holder of the Debentures may
require the Company to repurchase its Debentures, in whole or in part, for cash
at a repurchase price of 100% of the principal amount of Debentures to be
repurchased, plus accrued and unpaid interest to the repurchase date. See
"Description of Debentures -- Redemption at Option of Holders Upon a Change of
Control."
The Debentures will be issued in the form of one or more global Debentures
(the "Global Debenture") registered in the name of Cede & Co., as nominee of The
Depository Trust Company, which will act as depositary ("DTC" or the
"Depositary"). Beneficial interest in the Debentures will be shown on, and
transfers thereof will be effected only through, records maintained by the
Depositary and its direct and indirect participants. Except as described herein,
Debentures in definitive form will not be issued. See "Description of
Debentures -- Book-Entry."
Application has been made for approval for quotation of the Debentures on
the Nasdaq Small Cap Market under the symbol "SMING." Because the Debentures are
convertible into Common Stock, the prices at which the Debentures trade in the
market will likely be affected by the price of the Common Stock.
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
TO BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE DEBENTURES.
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.
<TABLE>
<CAPTION>
===========================================================================================================================
PRICE TO PUBLIC(1) UNDERWRITING DISCOUNT(2) PROCEEDS TO THE COMPANY(3)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Debenture....................... % % %
- ---------------------------------------------------------------------------------------------------------------------------
Total(4)............................ $ $ $
===========================================================================================================================
</TABLE>
(1) Plus accrued interest, if any, from , 1997.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(3) Before deducting estimated expenses of $ , payable by the Company.
(4) The Company has granted to the Underwriters an option for 30 days from the
date hereof to purchase up to $4,500,000 aggregate principal amount of
additional Debentures on the same terms set forth above solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discount and Proceeds to the Company will be
$ , $ and $ , respectively. See "Underwriting."
---------------------
The Debentures are offered by the several Underwriters subject to prior
sale, when, as and if delivered to and accepted by the Underwriters, and subject
to their right to reject orders, in whole or in part, and subject to certain
other conditions. It is expected that the Debentures will be ready for delivery
in book-entry form only through the facilities of DTC in New York, New York on
or about , 1997, against payment therefor in immediately available
funds.
---------------------
MORGAN KEEGAN & COMPANY, INC.
MCDONALD & COMPANY
SECURITIES, INC.
RAUSCHER PIERCE REFSNES, INC.
The date of this Prospectus is , 1997
<PAGE> 3
[Graphics include; a map of United States areas of exploitation, exploration
and development activity; a map of Canadian areas of exploitation, exploration
and development activity; a map of South America areas of exploitation,
exploration and development activity; a bar chart depicting reserve life index
and present value (discounted at 10%) of estimated pre-tax future net cash
flows for the fiscal years ended 1994, 1995, 1996 and pro forma 1996; and a
bar chart depicting revenues and net increase for the fiscal years ended 1994,
1995, 1996 and the six month period ended June 30, 1996.]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE DEBENTURES
AND THE COMMON STOCK, INCLUDING OVERALLOTMENT, ENTERING STABILIZING BIDS,
EFFECTING SYNDICATE COVERING TRANSACTIONS AND IMPOSING PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE DEBENTURES AND THE COMMON STOCK ON THE NASDAQ
NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). SEE "UNDERWRITING."
2
<PAGE> 4
SUMMARY
The following summary is qualified in its entirety by the more detailed
information, the historical Consolidated Financial Statements, the Pro Forma
Condensed Consolidated Financial Statements, and the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise specified, the information
contained in this Prospectus assumes no exercise of the Underwriters'
over-allotment option. Unless the context otherwise requires, all references
herein to "SMC" or the "Company" shall mean Southern Mineral Corporation and its
consolidated subsidiaries. Certain terms relating to the oil and gas business
are defined in "Glossary."
THE COMPANY
Southern Mineral Corporation is a Houston based independent oil and gas
company engaged in the acquisition, exploitation, exploration and development of
oil and gas properties in the U.S., Canada and Ecuador, with a primary focus on
the U.S. Gulf Coast Basin, both onshore and offshore. As of December 31, 1996,
the Company had estimated net proved reserves of 38.5 Bcfe and a present value
(discounted at 10%) of estimated pre-tax future net cash flows ("PV-10 Value")
of $64.1 million with a Finding Cost (as defined herein) of $0.54 per Mcfe. The
Company has undergone a transformation over the last two years since the current
management was installed in January of 1995 and began implementing a new growth
strategy. By focusing on acquisitions in the Company's three core business
areas, utilizing advanced technology and controlling capital risk, the Company
has experienced significant increases in reserves, cash flows and production.
From December 31, 1994 to December 31, 1996, the Company has increased:
- estimated net proved reserves from 2.2 Bcfe to 38.5 Bcfe;
- the PV-10 Value from $2.8 million to $64.1 million;
- average oil and gas production from 2.1 MMcfe per day in 1994 to 13.0
MMcfe per day;
- oil and gas revenues from $1.7 million in 1994 to $11.8 million in 1996;
- EBITDA (as defined herein) from $303,000 in 1994 to $8.1 million in 1996;
and
- earnings per share from a loss of $0.78 in 1994 to a profit of $0.34 in
1996.
In addition, the Company consummated three acquisitions during 1997 that
increased estimated net proved reserves on a pro forma basis (giving effect to
such acquisitions as of December 31, 1996) to 53.9 Bcfe with a PV-10 Value of
$87.3 million. Furthermore, the Company has an aggressive capital expenditure
budget targeted towards acquisitions and exploratory drilling. During the first
six months of 1997, the Company expended $16.4 million for acquisitions and $4.3
million for exploratory and development drilling. The Company has budgeted $2.5
million for acquisitions and $10.1 million for exploratory drilling and
follow-on development drilling through the end of 1998.
BUSINESS STRATEGY
The Company's business strategy is to increase reserves and shareholder
value through a balanced program of acquisitions, controlled risk exploration
and management of producing properties. The Company's acquisition strategy is to
pursue properties in areas of its geographic focus where it can obtain operating
control or a significant ownership interest. The Company's exploration
activities focus on identifying higher risk projects with the potential to
significantly increase reserves while reducing the Company's financial exposure
by participating with industry partners. A majority of the Company's exploration
projects were internally generated by the Company's staff of geoscientists using
current evaluation techniques such as 3-D seismic surveys. The primary use of
proceeds from the Offering will be to repay indebtedness incurred to finance
acquisitions during the first six months of 1997. See "Use of Proceeds."
RECENT ACQUISITIONS
Santa Elena Project, Ecuador. In June 1997, the Company acquired a 10%
interest in the Santa Elena Project for approximately $2.5 million (the "Santa
Elena Acquisition"). The Santa Elena Project was originally discovered in 1921
and has produced over 120 MMBbls, with peak production rates of 10,000 Bbls
3
<PAGE> 5
per day in 1955. In July 1996, Compania General de Combustibles. S.A. ("CGC")
acquired the concession for the Santa Elena Project. CGC has implemented a
redevelopment plan consisting primarily of mechanical remediation and
improvements in field delineation. These preliminary activities have doubled
production from 800 Bbls per day in January 1997 to 1,700 Bbls per day in
September 1997. The Company expects these exploitation activities to be expanded
by applying advanced drilling and production techniques, including horizontal
drilling and extensive 2-D seismic surveys. Less than 5% of the Santa Elena
Project has been developed, and the Company believes that, in addition to
providing exploitation and development potential, significant exploration
opportunities exist. On a pro forma basis as of December 31, 1996, the Company
had estimated net proved reserves in the Santa Elena Project of 3.5 Bcfe with a
PV-10 Value of $2.9 million.
Big Escambia Creek Field, Alabama. In two transactions during 1997
(together, the "BEC Acquisition"), the Company acquired various working
interests, averaging approximately 10%, in 13 oil and gas wells and a 37.7%
working interest in the Albert Philyaw Unit 8-1 #1 well for a total of $13.9
million. The Big Escambia Creek Field contains long lived oil reserves, with a
reserve life index of 9 years. On a pro forma basis as of December 31, 1996, the
Company had estimated net proved reserves in the Big Escambia Creek Field of
approximately 12.0 Bcfe with a PV-10 Value of $20.4 million.
EXPLORATION ACTIVITIES
As part of the Company's business strategy of pursuing controlled risk
exploration, the Company has entered into the following exploration projects:
Matthews Project, Texas. The Company owns a 25% interest in the Matthews
Project and has recently completed and interpreted an 18 square mile 3-D seismic
survey of the project. The objective in the Matthews Project is to explore
shallow formations including the Frio, Miocene and Yegua sands and deeper
formations (up to 14,000 feet) in the Upper, Middle and Lower Wilcox sands. The
Company believes that this project has the potential to add significantly to the
Company's reserves if initial interpretations prove correct. The Company expects
to drill two or more initial exploration wells during the fourth quarter of
1997.
Alta Loma Project, Texas. The Company owns a 50% working interest in and is
the operator of the Alta Loma Project. Permitting for a 14 square mile 3-D
seismic survey is underway, with plans for the acquisition of seismic data in
the fourth quarter of 1997. In addition to redevelopment and exploitation of
previously developed zones, the Company believes that significant exploration
potential exists in certain Lower Frio formations at depths of up to 15,000
feet. The Company anticipates commencing drilling in the Alta Loma Project in
early 1998.
Southern Eagle Project, Offshore, Gulf of Mexico. In January 1997, the
Company acquired over 320 square miles of 3-D seismic data covering the shallow
state waters off Matagorda Island, Texas. This area has recently been opened for
extensive exploration as a result of recent advancements in 3-D seismic survey
technology. As a result, the Company has identified a number of large target
exploration prospects and is continuing to analyze the seismic data to identify
additional prospects. The Company intends to participate in the public bid
auction to be conducted by the State of Texas in October 1997 covering mineral
leases in the area.
SIGNIFICANT PRODUCING PROPERTIES
The Company had average production of 15.5 MMcfe per day during June 30,
1997. The Company's largest producing property is the Big Escambia Creek Field,
which currently produces approximately 3.6 MMcfe (net) per day. In addition to
its working interests, the Company owns mineral interests in approximately
347,000 net acres located primarily in Texas, New Mexico and southern
Mississippi. Currently, the Company receives royalties and other payments from
24,536 net acres under lease to other operators, which provides cash flows
without the costs and risks inherent in exploration and production. The Company
received $678,064, $937,870 and $571,751 from royalties in 1995, 1996 and the
first six months of 1997, respectively.
The Company maintains its corporate headquarters at 500 Dallas Street,
Suite 2800, Houston, Texas 77002, and its telephone number is (713) 658-9444.
4
<PAGE> 6
THE OFFERING
Securities Offered......... $30,000,000 aggregate principal amount of %
Convertible Subordinated Debentures due 2007.
Maturity Date.............. , 2007, unless earlier redeemed or
converted.
Interest Payment Dates..... and , commencing ,
1998.
Interest................... % per annum.
Conversion................. The Debentures are convertible at the option of the
holder into Common Stock of the Company at any time
prior to maturity, unless previously redeemed, at a
conversion price of $ per share
(equivalent to a conversion rate of shares per
$1,000 principal amount of Debentures), subject to
adjustment in certain circumstances. See
"Description of Debentures -- Conversion Rights."
Redemption at the Option of
the Company................ The Debentures are not redeemable prior to
, 1999. During the period ,
1999 to 2000, the Debentures are
redeemable, at any time and from time to time, at
the option of the Company, in whole or in part, if
the Closing Price Per Share of the Common Stock
exceeds the conversion price by 30% or more for at
least 20 consecutive Trading Days (as defined in
the Indenture), ending on the date no more than ten
days prior to the date the Debentures are called
for redemption. After , 2000 and prior
to maturity of the Debentures, the Debentures are
redeemable, at any time and from time to time, at
the option of the Company, in whole or in part,
regardless of the Closing Price Per Share of its
Common Stock. Debentures redeemed at the option of
the Company will be at the redemption prices set
forth herein, plus accrued interest to the date of
redemption. See "Description of
Debentures -- Optional Redemption by the Company."
Repurchase at the Option of
Holders Upon Change of
Control.................. In the event of a Change of Control, each holder of
Debentures may require the Company to repurchase
the Debentures, in whole or in part, for cash at a
repurchase price of 100% of the principal amount of
the Debentures to be repurchased, plus accrued
interest to the repurchase date. Among other
events, a merger or consolidation of the Company
resulting in a change or exchange of the Common
Stock (other than a merger to effect a change in
the state of incorporation) will constitute a
Change of Control. See "Description of
Debentures -- Repurchase at Option of Holders Upon
a Change of Control."
Subordination.............. The Debentures are unsecured and subordinate in
right of payment to all existing and future Senior
Indebtedness of the Company. The Debentures also
are effectively subordinated in right of payment to
all indebtedness and other liabilities of the
subsidiaries of the Company. The Indenture will not
restrict the incurrence of additional indebtedness
by the Company or any of its subsidiaries. See
"Description of Debentures -- Subordination,"
"Capitalization" and "Description of Credit
Facility."
5
<PAGE> 7
Use of Proceeds............ To repay all amounts outstanding under the
Company's secured reducing revolving line of credit
(the "Credit Facility"), a substantial portion of
which was used to finance recent acquisitions, to
fund capital expenditures, including possible
future acquisitions of oil and gas properties, and
for general corporate purposes. See "Use of
Proceeds."
Nasdaq National Market
Symbol for the Common
Stock.................... "SMIN"
Proposed Nasdaq Small Cap
Market Symbol for the
Debentures............... "SMING"
6
<PAGE> 8
SUMMARY FINANCIAL, OPERATING AND RESERVE INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, RATIOS AND OPERATING AND RESERVE DATA)
The information presented below should be read in conjunction with the
Consolidated Financial Statements of the Company and the notes thereto,
"Selected Consolidated Historical and Pro Forma Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
the Pro Forma Condensed Consolidated Financial Statements and notes thereto
included elsewhere in this Prospectus. The following financial information is
not necessarily indicative of future results of the Company.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------- -------------------------------------
PRO FORMA PRO FORMA
1994 1995 1996 1996(1) 1996 1997 1997(1)
------- ------ ------- --------- ----------- ----------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Oil and gas revenues......... $ 1,747 $2,044 $11,780 $14,996 $5,433 $ 6,720 $ 7,771
Total revenues............... 1,813 2,214 12,233 15,449 5,829 7,264 8,315
Net income (loss)............ (3,133) (137) 2,434 2,560 1,445 1,662 1,420
Primary net income (loss) per
share...................... $ (0.78) $(0.02) $ 0.34 $ 0.35 $ 0.21 $ 0.16 $ 0.14
Primary weighted average
common shares
outstanding(2)............. 4,162 5,701 7,215 7,215 6,846 10,113 10,113
COVERAGE RATIOS:
EBITDA(3).................... $ 303 $ 885 $ 8,095 $10,541 $3,849 $ 4,641 $ 5,335
EBITDA to fixed charges(4)... -- -- 6.5x 4.0x 6.2x 19.4x 6.7x
Earnings to fixed
charges(4)................. -- -- 3.5x 2.3x 4.2x 12.0x 3.8x
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1997
-------------------------- ----------------------------
1994 1995 1996 HISTORICAL AS ADJUSTED(1)
------ ------- ------- ----------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................................. $1,683 $(3,889) $ 2,235 $ 1,379 $10,479
Property and equipment, net...................... 1,347 18,042 20,599 37,239 37,239
Total assets..................................... 3,370 21,667 24,386 43,702 54,502
Long-term debt................................... -- 9,920 3,900 19,200 30,000
Stockholders' equity............................. 3,080 5,181 18,634 20,246 20,246
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30, 1997
-------------------------------------------- -----------------------
PRO FORMA PRO
1994 1995 1996 1996(1) HISTORICAL FORMA(1)
------- ------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Production
Oil (Bbls)...................... 78,866 84,848 233,418 438,118 122,601 167,511
Gas (Mcf)....................... 300,544 404,319 3,357,906 3,671,006 1,800,967 1,922,051
Total (Mcfe)............. 773,740 913,407 4,758,414 6,299,714 2,536,573 2,927,117
Average sales price
Oil ($ per Bbl)................. $15.31 $16.23 $18.92 $19.20 $20.06 $19.27
Gas ($ per Mcf)................. 1.80 1.65 1.97 2.02 2.24 2.23
Average ($ per Mcfe)............ 2.26 2.24 2.48 2.62 2.65 2.65
Average production expenses and
production taxes ($ per Mcfe)... $0.71 $0.72 $0.58 $0.67 $0.64 $0.67
</TABLE>
7
<PAGE> 9
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
PRO FORMA
1994 1995 1996 1996(5)
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
RESERVE DATA(6)(7):
Proved reserves
Oil (Bbls)......................................... 228,196 1,555,896 1,467,544 3,468,237
Gas (Mcf).......................................... 786,060 26,430,677 29,657,858 33,107,407
Total (Mcfe)................................ 2,155,236 35,766,053 38,463,122 53,916,829
Percent gas reserves................................. 36% 74% 77% 61%
Percent oil reserves................................. 64% 26% 23% 39%
Reserve life index (years)(8)........................ 4.5 8.5 7.1 7.7
PV-10 Value (pre-tax) (in thousands)(9).............. $2,837 $27,415 $64,079 $87,334
Producing wells
Gross.............................................. 48 1,838 1,920 3,629
Net................................................ 5 46 90 260.6
</TABLE>
- ---------------
(1) The summary unaudited pro forma income statement and operating data (i) for
the year ended December 31, 1996 give pro forma effect to the BEC
Acquisition and the SMD Acquisition as if such transactions had occurred on
January 1, 1996, and (ii) for the six months ended June 30, 1997 give pro
forma effect to the BEC Acquisition as if such transaction had occurred on
January 1, 1997. The summary unaudited as adjusted balance sheet data as of
June 30, 1997 adjusts the historical unaudited balance sheet data for the
Offering and the application of the proceeds therefrom. Such pro forma data
are not necessarily indicative of what the Company's results would have
actually been if such events had occurred at the dates indicated.
(2) Does not include shares issuable upon conversion of the Debentures or upon
exercise of outstanding employee stock options.
(3) EBITDA is defined as net income plus income taxes, net interest expense,
depletion, depreciation and amortization, exploration expenses and all
non-recurring items. The Company believes that EBITDA may provide additional
information about the Company's ability to meet its future requirements for
debt service, capital expenditures and working capital. EBITDA is a commonly
used financial measure and should not be considered as a substitute for net
income, operating income, net cash flows provided by operating activities or
any other measure of a company's profitability or liquidity.
(4) For purposes of calculating this ratio, "Earnings" consist of pre-tax income
from continuing operations and fixed charges, excluding capitalized interest
and "Fixed charges" consist solely of interest expense, whether expensed or
capitalized, amortization of debt expense and discount or premium relating
to any indebtedness, whether expensed or capitalized. The Company had no
fixed charges for the years 1994 and 1995.
(5) The summary pro forma reserve data as of December 31, 1996 give effect to
the BEC Acquisition and the Santa Elena Acquisition as if such transactions
had occurred on December 31, 1996.
(6) See "Business -- Oil and Gas Reserve Information."
(7) For limitations on the accuracy and reliability of reserves and pre-tax cash
flow estimates, see "Risk Factors -- Uncertainty of Estimates of Reserves
and Future Net Cash Flows."
(8) The reserve life index is calculated by dividing estimated proved reserves
(on an Mcfe basis) by projected production volumes for the next twelve
months (on an Mcfe basis).
(9) Future cash flows attributable to the Company's historical estimated proved
reserves were based on an average gas price of $3.24 per Mcf and an average
oil price of $24.08 per Bbl at December 31, 1996. The average price received
for production in 1996 was $1.97 per Mcf and $18.92 per Bbl.
8
<PAGE> 10
FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than statements of historical fact included in this Prospectus,
including without limitation, statements under "Prospectus Summary,"
"Management's Discussions and Analysis of Financial Condition and Results of
Operations" and "Business and Properties" regarding the Company's financial
position, estimated quantities of reserves, business strategy and plans and
objectives for future operations are forward-looking statements. These
forward-looking statements are commonly identified by the use of such terms and
phrases as "intends," "estimates," "expects," "projects," "anticipates,"
"foreseeable future," "seeks," "believes" and "scheduled" and, in many cases,
are followed by a cross-reference to "Risk Factors." Although the Company
believes that the assumptions upon which such forward-looking statements are
based are reasonable, it can give no assurance that such assumptions will prove
to be correct. Important factors that could cause actual results to differ
materially from the Company's expectations ("Cautionary Statements") are
disclosed below and elsewhere in this Prospectus. All forward-looking statements
in this Prospectus are expressly qualified by the Cautionary Statements.
RISK FACTORS
Prospective purchasers of the Debentures should carefully review the
information contained elsewhere in this Prospectus and should particularly
consider the following risk factors.
SIGNIFICANT LEVERAGE AND DEBT SERVICE REQUIREMENTS
Following the Offering, the Company will have a higher level of
indebtedness and will have the ability to incur substantial additional
indebtedness. The level of the Company's indebtedness could have several
important effects on the Company's future operations, including, among others,
(i) its ability to obtain additional financing for working capital,
acquisitions, capital expenditures, general corporate and other purposes may be
limited, (ii) a significant portion of the Company's cash flow from operations
may be dedicated to the payment of principal and interest on its indebtedness,
thereby reducing funds available for other purposes and (iii) the Company's
significant leverage could make it more vulnerable to economic downturns. The
Company's ability to meet its debt service obligations and reduce its total
indebtedness will be dependent upon the Company's future performance, which will
be subject to the success of its business strategy, general economic conditions,
industry cycles, interest rates, and financial, business and other factors
affecting the operations of the Company, many of which are beyond its control.
There can be no assurance that the Company's business will generate sufficient
cash flow from operations to meet its debt service requirements and the payment
of principal when due, and, if the Company is unable to do so, it may be
required to sell assets, to refinance all or a portion of its indebtedness, or
to obtain additional financing. There can be no assurance that any such
refinancing would be possible or that any additional financing could be
obtained.
SUBORDINATION
The Debentures are a direct obligation of the Company and will be
subordinated in right of payment to all existing and future Senior Indebtedness
of the Company and effectively subordinated in right of payment to all
indebtedness and other liabilities of the Company's subsidiaries. No payment of
principal, premium if any, or interest on the Debentures may be made if there
shall have occurred and be continuing (i) a default in the payment of principal
of (or premium, if any) or interest on Senior Indebtedness and (ii) an event of
default with respect to any Senior Indebtedness resulting in the acceleration of
the maturity thereof. In addition, for a period of 180 days following notice to
the Trustee (as defined herein) by a holder of certain Senior Indebtedness, no
such payment may be made with respect to the Debentures if there is a default in
such indebtedness which gives the holder thereof the right to accelerate the
maturity or demand payment in full of such Senior Indebtedness. At August 31,
1997, Senior Indebtedness of the Company was $20.7 million, substantially all of
which was guaranteed by subsidiaries of the Company and secured by liens on
substantially all of the assets of the Company.
9
<PAGE> 11
The Company derives a substantial portion of its revenues from the
operations of its subsidiaries. The ability of the Company to make interest
payments on or redeem the Debentures and to pay dividends, if any, on the Common
Stock of the Company will depend, in part, upon the receipt of dividends or
other payments from such subsidiaries. The payment of dividends from the
subsidiaries to the Company and the payment of any interest on or the repayment
of any principal of any loans or advances made by the Company to any of its
subsidiaries may be subject to statutory restrictions and are contingent upon
the earnings of such subsidiaries. Although the Company believes that cash flow
from its operations together with distributions and dividends from its
subsidiaries will be sufficient to make all required payments on the Debentures
as well as to meet the Company's other obligations, there can be no assurance
they will be sufficient. Claims of the creditors of the Company's subsidiaries
will have priority with respect to the assets and earnings of such subsidiaries
over the claims of the creditors of the Company, including holders of
Debentures. The Debentures will not be guaranteed by the Company's subsidiaries
nor will they be secured by any of the assets of the Company or any of its
subsidiaries.
There are no covenants in the Indenture that limit the ability of the
Company to incur additional indebtedness, including indebtedness that ranks
senior to the Debentures or to grant liens to secure outstanding or new
indebtedness. The Indenture and the Debentures do not contain any financial
covenants or similar restrictions respecting the Company or its subsidiaries
and, therefore, the holders of the Debentures will have no protection (other
than rights upon Events of Default as described under the caption "Description
of Debentures") from adverse changes in the Company's financial condition.
FUNDING OF REDEMPTION OBLIGATIONS; ABSENCE OF SINKING FUND
There is no sinking or other fund with respect to the Debentures, and at
maturity the entire outstanding principal amount thereof will become due and
payable by the Company. Upon a Change of Control, each holder of the Debentures
may require the Company to repurchase its Debentures, in whole or in part, for
cash at a repurchase price of 100% of the principal amount of Debentures to be
redeemed, plus accrued interest to the redemption date. See "Description of
Debentures -- Repurchase at Option of Holders Upon a Change of Control." The
source of funds for any such payment at maturity or earlier redemption will be
the Company's available cash or cash generated from operating or other sources,
including, without limitation, borrowings or sales of assets or equity
securities of the Company. There can be no assurance that sufficient funds will
be available at the time of any such maturity or earlier redemption to pay such
principal or to fund any required purchase. Moreover, the purchase of Debentures
as a result of a Change of Control could create an event of default under
existing Senior Indebtedness of the Company, as a result of which any redemption
could, absent a waiver from the lender of the Senior Indebtedness, be blocked by
the subordination provisions of the Debentures. See "Description of
Debentures -- General," "-- Optional Redemption by the Company" and
"-- Redemption at Option of Holders Upon a Change of Control."
LACK OF PUBLIC MARKET
Although application has been made for approval for quotation of the
Debentures on the Nasdaq Small Cap Market, there is no existing market for the
Debentures, and there can be no assurance regarding the future development or
maintenance of a market for the Debentures or the ability of holders of the
Debentures to sell their Debentures or the price at which such holders may be
able to sell their Debentures. If such a market were to develop, the Debentures
could trade at prices that may be lower than the initial offering price
depending on many factors, including interest rates, the trading price of the
Company's Common Stock, the Company's operating results, industry trends and the
market for similar securities.
VOLATILITY OF OIL AND GAS PRICES
The Company's revenues, profitability, future growth and value of its oil
and gas properties are highly dependent upon the prices of oil and gas. In
addition, borrowings under the Company's Credit Facility are limited by a
borrowing base which is determined in part on the prices for oil and gas. Market
conditions make it difficult to estimate future prices of oil and natural gas.
In the past, the Company's average annual sales price for oil and natural gas
has been volatile, and it is likely that oil and gas prices will continue to
fluctuate in
10
<PAGE> 12
the future. Various factors beyond the Company's control affect prices of oil
and natural gas, including worldwide and domestic supplies of oil and natural
gas, the ability of the members of the Organization of Petroleum Exporting
Countries ("OPEC") to agree to and maintain oil price and production controls,
political instability or armed conflict in oil-producing regions, the price of
foreign imports, the level of consumer demand, the price and availability of
alternative fuels, the availability of pipeline capacity and changes in existing
federal regulation and price controls. A material or extended decline in the
price of oil or gas may render the development of the Company's oil and gas
properties commercially unattractive, have a material adverse effect on its
financial condition and results of operations, and limit its ability to incur
indebtedness or otherwise finance its operations.
SHORTAGES OF RIGS, EQUIPMENT, SUPPLIES AND PERSONNEL
There is a general shortage of drilling rigs, equipment and supplies which
the Company believes may intensify. The costs and delivery times of rigs,
equipment and supplies are substantially greater than in prior periods and are
currently escalating. Shortages of drilling rigs, equipment or supplies could
delay and adversely affect the Company's exploration and development operations,
which could have a material adverse effect on its financial condition and
results of operation.
The demand for, and wage rates of, qualified rig crews have begun to rise
in the drilling industry in response to the increasing number of active rigs in
service. Such shortages have in the past occurred in the industry in times of
increasing demand for drilling services. If the number of active drilling rigs
continues to increase, the oil and gas industry may experience shortages of
qualified personnel to operate drilling rigs, which could delay the Company's
drilling operations and adversely effect the Company's financial condition and
results of operations.
LIMITED HISTORY OF OPERATING PROFITS
The Company incurred net losses from operations of $1,044,000, $537,000,
$3,133,000 and $137,000 for each of the years ended December 31, 1992, 1993,
1994 and 1995, respectively. For the year ended December 31, 1996 and the six
months ended June 30, 1997, the Company reported net income of $2,434,000 and
$1,662,000, respectively. No assurance can be made that the Company will operate
profitably in the future. The likelihood of the Company's future profitability
must be considered in light of the financial, business and operating risks,
expenses, difficulties, and delays frequently encountered in connection with the
oil and gas acquisition, exploration, development and production business in
which the Company is engaged. The financial statements included and incorporated
by reference herein do not include any adjustments that may result from these
uncertainties.
UNCERTAINTY OF ESTIMATES OF RESERVES AND FUTURE NET CASH FLOWS
This Prospectus contains the Company's estimated proved oil and gas
reserves and the PV-10 Value of the Company's estimated proved reserves and
related information. The reserve estimate information as of December 31, 1994
was prepared by Hedrick and Associates, which firm is no longer in business.
Netherland, Sewell & Associates ("Netherland, Sewell") prepared the domestic
reserve estimates as of December 31, 1995 and audited the December 31, 1996
domestic reserve estimates that were prepared by the Company. McDaniel &
Associates Consultants Ltd. ("McDaniel & Associates") prepared the Canadian
reserve estimates as of December 31, 1995 and 1996. The pro forma reserve
estimates as of December 31, 1996 give effect to the BEC Acquisition and the
Santa Elena Acquisition as if such transactions occurred on December 31, 1996.
Reserve estimates attributable to the BEC Acquisition were prepared by
Netherland, Sewell and reserve estimates attributable to the Santa Elena
Acquisition were prepared by Ryder Scott Company Petroleum Engineers ("Ryder
Scott").
Estimated proved reserves of oil and natural gas are estimated quantities
that geological and engineering data demonstrate with reasonable certainty to be
economically producible under existing conditions. There are numerous
uncertainties inherent in estimating quantities and values of proved reserves
and in projecting future rates of production and the timing of development
expenditures, including factors involving reservoir engineering, pricing and
operating and regulatory constraints. Reserve assessment is a subjective process
of
11
<PAGE> 13
estimating the recovery from underground accumulations of hydrocarbons that
cannot be measured in an exact way. All reserve estimates are to some degree
speculative, and various classifications of reserves only constitute attempts to
define the degree of speculation involved. The accuracy of any reserve estimate
is a function of available data, engineering and geological interpretations and
judgments based on the data and assumptions regarding oil and gas prices.
Accordingly, as further information is acquired relating to the Company's oil
and gas properties, reserve estimates are likely to differ from the quantities
of hydrocarbons that are ultimately recovered. Results of drilling, testing and
production history from the properties in which the Company has an interest and
changes in oil and gas prices and cost estimates subsequent to the date of its
reserve estimates could require substantial adjustments, either upward or
downward, to such estimates. Any downward adjustment could adversely effect the
Company's financial condition, future prospects and market value of the
Debentures and the Common Stock.
The PV-10 Value attributable to estimated proved reserves disclosed herein
should not be construed as the current market value of the Company's reserves.
In accordance with applicable requirements of the Securities and Exchange
Commission (the "Commission"), the future net cash flows attributable to
estimated net proved reserves are generally based on prices and costs as of the
date of the estimate, whereas actual future prices and costs may be materially
higher or lower. Actual future net cash flows also will be affected by the
amount and timing of both the production and the lifting and development costs.
The 10% discount rate, which is required by the Commission to be used as a
discount rate, is not necessarily the most appropriate discount rate based on
interest rates in effect from time to time and risks associated with the Company
or the oil and gas industry in general. See "Business -- Oil and Gas Reserve
Information."
FINDING AND ACQUIRING ADDITIONAL RESERVES
The Company's future success depends upon its ability to find, develop and
acquire additional oil and gas reserves that are economically recoverable.
Unless the Company conducts successful exploration or development activities or
acquires properties containing reserves, the reserves of the Company will
generally decline as they are produced. There can be no assurance that the
Company's development projects and acquisition, development or exploration
activities will result in additional reserves. If prevailing oil and gas prices
were to increase significantly, the Company's Finding Costs to add new reserves
could increase. The business of purchasing oil and gas properties involves a
high degree of business and financial risk, especially the risk that prices
subsequently decline or that the reserves actually recovered are less than those
anticipated by the Company at the time of purchase. The cost of drilling,
completing and operating wells is uncertain, and drilling or production may be
curtailed or delayed as a result of many factors. See "Business -- Exploitation
and Exploration Activities."
ACQUISITION RISKS
The Company intends to continue acquiring oil and gas properties.
Generally, it is not feasible to review in detail every individual property
involved in an acquisition. Ordinarily, review efforts are focused on the
higher-valued properties. A detailed review of all potential properties and
records may not adequately reveal existing or potential problems or permit the
Company to become sufficiently familiar with the properties to assess fully
their deficiencies and capabilities. Inspections are not always performed on
every well and environmental problems, such as groundwater contamination, are
not necessarily revealed when an inspection is undertaken. Property acquisition
decisions generally are based on various assumptions and subjective judgments
that are speculative. If the Company over-estimates the potential oil and gas
reserves of a property to be acquired or if subsequent operations on the
property are unsuccessful, then acquisition of the property could result in
substantial losses to the Company.
There can be no assurance any acquisitions will be made by the Company.
Additionally, larger acquisitions may involve substantially higher costs and may
pose additional operating issues regarding the integration of operations. The
rate at which the Company is able to sustain any future growth may be limited to
the extent that it requires but is unable to obtain suitable financing or to
timely expand its existing staff and operating capabilities. See
"Business -- Acquisition Activities."
12
<PAGE> 14
OPERATING HAZARDS AND UNINSURED RISKS; PRODUCTION CURTAILMENTS
The oil and gas business involves a variety of operating risks, including,
but not limited to, unexpected formations or pressures, uncontrollable flows of
oil, gas, brine or well fluids into the environment (including groundwater
contamination), blowouts, cratering, fires, explosions, pollution and other
risks, any of which could result in personal injuries, loss of life, damage to
properties and substantial losses. Although the Company carries insurance which
it believes is reasonable, it is not fully insured against all risks. Losses and
liabilities arising from uninsured or under-insured events could have a material
adverse effect on the financial condition and operations of the Company.
From time to time, due to contract terms, pipeline interruptions, weather
conditions or other factors, the producing wells in which the Company owns an
interest may be subject to production curtailments. Such curtailments may range
from production being partially restricted to wells being completely shut-in.
The duration of curtailments may vary from a few days to several months.
DEPENDENCE ON KEY PERSONNEL
The Company depends, and will continue to depend in the foreseeable future,
on the services of its officers and key employees with extensive experience in
the oil and gas business. The ability of the Company to retain its officers and
key employees is important to the continued success and growth of the Company.
The loss of key personnel could have a material adverse effect on the Company.
The Company does not maintain key person life insurance on any of its officers
or employees. See "Management."
NEED FOR ADDITIONAL CAPITAL
The oil and gas industry is capital intensive. The Company's ability to
expand its reserve base is dependent upon the availability of internally
generated cash flow and financing alternatives. Such financing may consist of
bank or other commercial debt, forward sales of production, the issuance of
equity or debt securities or any combination thereof. There can be no assurance
that the Company will be successful in obtaining additional financing if and
when required. Any substantial increase in the Company's level of indebtedness
through borrowings or the issuance of debt securities may significantly decrease
the financial flexibility of the Company. The Company is unable to estimate the
amount of any financing that it may need to acquire and develop additional
properties. If the Company is unable to obtain such financing if and when
needed, the Company may be forced to curtail property acquisition and
development activities. See "Business -- Acquisition Activities" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operation -- Liquidity and Capital Resources."
EXPLORATORY DRILLING ACTIVITIES
Exploratory drilling involves a high degree of financial and operating
risk, including the risk that no commercially productive natural gas or oil
reservoirs will be encountered. The cost of drilling and completing exploratory
and development wells may vary materially from initial estimates. Drilling
operations may be curtailed, delayed or canceled as a result of many factors,
including, but not limited to, unexpected formations and drilling conditions,
pressure or mechanical irregularities in formations, equipment failures or
accidents, as well as title problems, weather conditions, compliance with
governmental requirements, shortages or delays in the delivery of equipment, and
financial instability of well operators, major working interest owners and well
servicing companies. With respect to its properties for which it is not the
operator, the Company is dependent upon the independent operator of wells to
properly conduct leasing, drilling and completion activities. The independent
operator's failure to properly perform could adversely affect the Company. The
Company's decisions to participate in the drilling of exploratory wells, and,
ultimately, the success of the Company's participation depends largely on the
results of seismic survey data and other geological and geophysical data. The
acquisition and interpretation of such data involves subjective professional
judgment. Reliance upon such data and the interpretations thereof poses the risk
that a decision to participate in the drilling of an exploratory well may be
founded on incorrect, insufficient data, erroneous interpretations of the data,
or both. See "Business -- Exploitation and Exploration Activities."
13
<PAGE> 15
MARKET RISKS
The availability of a ready market for the Company's oil and gas production
depends on numerous factors beyond its control, including the demand for and
supply of oil and gas, the proximity of the Company's natural gas reserves to
pipelines, the capacity of such pipelines, fluctuations in production and
seasonal demand, the effects of inclement weather and governmental regulation.
New gas wells may be shut-in for lack of a market until a gas pipeline or
gathering system with available capacity is extended into the area. Successful
exploration wells, especially offshore wells, may have production curtailed
until production facilities and pipelines are constructed. See
"Business -- Marketing."
EXCHANGE RATES
Approximately 31% and 29% of the Company's revenues for the year ended
December 31, 1996 and for the six months ended June 30, 1997, respectively, were
derived from its Canadian properties. The revenues and expenses of the Company's
Canadian operations are denominated in Canadian dollars. The Company records its
transactions and prepares its financial statements in U.S. dollars. Fluctuations
in the value of the two currencies may cause currency translations losses for
the Company or reduced revenues and earnings, or both, with respect to its
Canadian operations. The Company cannot predict the effect of exchange rate
fluctuations upon future operating results.
GOVERNMENTAL AND ENVIRONMENTAL REGULATION
Exploring for, producing and selling oil and gas are subject to a variety
of federal, state, local and international governmental regulations, including
regulation concerning the prevention of waste, the discharge of materials into
the environment, the conservation of natural gas and oil, production, permits
for drilling operations, drilling bonds, reports concerning operations, the
spacing of wells, the unitization and pooling of properties, the clean-up of
well sites, and various other matters, including taxes. Laws and regulations
protecting the environment are stringent and may in certain circumstances impose
strict liability, rendering a person liable for environmental damage without
regard to negligence or fault on the part of such person. Such laws and
regulations may expose the Company to liability for the conduct of operations or
conditions caused by others, or for acts of the Company which were in compliance
with all applicable laws at the time such acts were performed. An increase in
federal, state or local production or property taxes, the modification of
existing laws or regulations or the adoption of new laws or regulations relating
to environmental matters could have a material adverse effect on the Company's
operations. See "Business -- Environmental and Other Regulations."
The Federal Water Pollution Control Act ("FWPCA") imposes restrictions and
strict controls regarding the discharge of produced waters and other oil and gas
wastes into navigable waters. Permits must be obtained to discharge pollutants
to state and federal waters. The FWPCA and analogous state laws provide for
civil, criminal and administrative penalties for any unauthorized discharges of
oil and other hazardous substances in reportable quantities and may impose
substantial potential liability for the costs of removal, remediation and
damages. State water discharge regulations and the federal permits prohibit or
are expected to prohibit within the next year the discharge of water, sand and
certain other substances related to the oil and gas industry, into coastal
waters. Although the costs to comply with zero discharge mandates under federal
or state law may be significant, the entire industry will experience similar
costs and the Company believes that these costs will not have a material adverse
effect on the Company's financial conditions and operations. Some oil and gas
exploration and production facilities are required to obtain permits for their
storm water discharges. Costs may be incurred in connection with treatment of
wastewater or developing storm water pollution prevention plans. See
"Business -- Environmental and Other Regulations."
COMPETITION
The oil and gas industry is highly competitive in many respects, including
identification of attractive oil and gas properties and personnel to conduct
such operations and activities. In seeking suitable opportunities, the Company
competes with a number of other companies, including large oil and gas
companies, numerous
14
<PAGE> 16
independent operators, individual proprietors and others with greater financial
resources and, in some cases, with more experience. Many other oil and gas
companies in the industry have financial resources, personnel and facilities
substantially greater than those of the Company, and there can be no assurance
that the Company can compete effectively with these competitors. See
"Business -- Competition."
DIVIDENDS
The Company does not currently pay cash dividends on its Common Stock and
does not anticipate paying such dividends in the foreseeable future. The
Company's Credit Facility restricts the payment of dividends and other
distributions.
CONCENTRATION OF OWNERSHIP
The Company's directors and officers currently beneficially own, directly
and through incentive stock options, approximately 30% of the Company's
outstanding Common Stock (assuming the exercise of outstanding stock options).
Accordingly, if such stockholders voted together, they could control or
significantly influence the election of the Company's directors and other
matters requiring action by its stockholders.
SHARES ELIGIBLE FOR FUTURE SALE
Each of the Company and its directors and executive officers has agreed not
to dispose of any shares of Common Stock for a period of 90 days from the date
of this Prospectus without the consent of Morgan Keegan & Company, Inc.
Following such period and subject to the volume and other limitations of Rule
144 under the Securities Act, all of the shares of Common Stock beneficially
owned by directors and officers of the Company will be eligible for public sale.
Moreover, the Company may issue shares of Common Stock in the future. Sales of
substantial amounts of Common Stock in the public market, or the perception of
the availability of shares for sale, could adversely affect the prevailing
market price of the Common Stock and the Debentures and could impair the
Company's ability to raise capital through the sale of its securities.
NEVADA TAKEOVER STATUTE
Provisions of Nevada law requiring disinterested director or stockholder
approval of certain business combinations between the Company and holders of 10%
or more of the voting securities could have the effect of delaying, deferring or
preventing a change in control of the Company. See "Description of Capital
Stock -- Certain Provisions of Charter Documents and Nevada Law."
15
<PAGE> 17
PRICE RANGE OF COMMON STOCK
The Common Stock is quoted on the Nasdaq National Market under the symbol
"SMIN." Until July 22, 1997, the Common Stock was quoted on The Nasdaq Stock
Market's SmallCap Market under the same symbol. The following table sets forth
the range of high and low bid prices of the Common Stock as reported by The
Nasdaq SmallCap Market for each of the quarters indicated through July 22, 1997
and the high and low bid prices of the Common Stock on the Nasdaq National
Market from July 23, 1997 for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
1994
First Quarter............................................. $2.13 $1.63
Second Quarter............................................ 2.00 0.69
Third Quarter............................................. 1.38 0.94
Fourth Quarter............................................ 1.13 0.44
1995
First Quarter............................................. $1.25 $0.63
Second Quarter............................................ 1.25 0.94
Third Quarter............................................. 1.06 0.75
Fourth Quarter............................................ 1.63 0.75
1996
First Quarter............................................. $2.13 $1.25
Second Quarter............................................ 3.38 1.81
Third Quarter............................................. 5.00 2.88
Fourth Quarter............................................ 6.00 4.25
1997
First Quarter............................................. $7.75 $4.00
Second Quarter............................................ 5.50 3.50
Third Quarter............................................. 7.13 4.13
</TABLE>
On September 30, 1997, the closing sale price for the Common Stock as
quoted on the Nasdaq National Market was $7.13 per share. As of September 30,
1997, the Company had 627 holders of record of its Common Stock.
DIVIDEND POLICY
The Company has not declared or paid a cash dividend on its Common Stock
since 1994 and it is anticipated that the Company will continue to reinvest its
earnings in its business and will not pay cash dividends. Declaration of
dividends is within the discretion of the Company's Board of Directors. In
addition, declaration of dividends is subject to certain restrictive covenants
contained in the Company's Credit Facility.
USE OF PROCEEDS
The net proceeds from the sale of the Debentures are estimated to be $28.3
million ($32.6 million if the Underwriters' over-allotment option is exercised
in full). The Company intends to use the net proceeds to repay all amounts
outstanding under its Credit Facility and to fund capital expenditures,
including possible future acquisitions of oil and gas properties and businesses,
and for general corporate purposes. To date, the Company has not reached an
agreement in principal with any potential acquisition candidates. Amounts
outstanding under the Credit Facility were used primarily to finance the cost of
the BEC Acquisition and the Santa Elena Acquisition.
On August 31, 1997, $20.7 million was outstanding under the Company's
Credit Facility, which has an initial borrowing base of $25.7 million, which
reduces at the rate of $300,000 per month and bears interest at the option of
the Company, at either the floating prime rate or at the LIBOR rate plus 2.25%
per annum. The effective interest rate on borrowings under the Credit Facility
at August 31, 1997 was 7.9%.
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<PAGE> 18
CAPITALIZATION
The following table sets forth at June 30, 1997 the historical
capitalization of the Company and as adjusted capitalization of the Company
giving effect to the sale of the Debentures offered hereby and the application
of the net proceeds therefrom. This table should be read in conjunction with the
historical Consolidated Financial Statements, the Pro Forma Condensed
Consolidated Financial Statements, and the notes thereto, appearing elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------
HISTORICAL AS ADJUSTED
----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Cash........................................................ $ 168 $ 9,268
======= =======
Short-term debt............................................. $ 809 $ 809
======= =======
Long-term debt:
Credit Facility........................................... $19,200 $ --
Debentures offered hereby(1).............................. -- 30,000
Stockholders' equity:
Common stock, par value $.01 per share; 20,000,000 shares
authorized; 9,108,832 shares issued(2)................. 91 91
Additional paid-in capital................................ 14,025 14,025
Retained earnings......................................... 6,182 6,182
Less: Treasury stock...................................... (52) (52)
------- -------
Total stockholders' equity........................... 20,246 20,246
------- -------
Total capitalization.............................. $39,446 $50,246
======= =======
</TABLE>
- ---------------
(1) Assumes no exercise of the Underwriters' over-allotment option.
(2) Excludes shares of Common Stock reserved for issuance upon conversion of the
Debentures and 1,738,878 shares of Common Stock reserved for issuance upon
the exercise of warrants and options under the Company's various stock
option and compensation plans.
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<PAGE> 19
SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The information presented below should be read in conjunction with the
Consolidated Financial Statements of the Company and the notes thereto, "Summary
Financial, Operating and Reserve Information," and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and the Pro Forma
Condensed Consolidated Financial Statements and the notes thereto included
elsewhere in this Prospectus. The following financial information is not
necessarily indicative of future results of the Company.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------- -------------------------------------
PRO FORMA PRO FORMA
1992 1993 1994 1995 1996 1996(1) 1996 1997 1997(1)
------- ------ ------- ------ ------- --------- ----------- ----------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues
Oil and gas................. $ 2,465 $2,891 $ 1,747 $2,044 $11,780 $14,996 $5,433 $ 6,720 $ 7,771
Gain (loss) on sales of
properties and assets..... (26) 146 66 170 453 453 396 544 544
------- ------ ------- ------ ------- ------- ------ ------- -------
Total revenues........ 2,439 3,037 1,813 2,214 12,233 15,449 5,829 7,264 8,315
Expenses
Production.................. 448 554 548 656 2,742 3,530 1,350 1,611 1,953
Exploration................. 1,626 1,167 1,566 221 865 865 83 283 283
Depletion, depreciation and
amortization.............. 971 1,208 704 792 2,875 3,769 1,181 1,492 1,992
General and
administrative............ 1,003 1,030 903 702 1,682 1,693 823 1,134 1,149
Valuation reduction........... -- -- 1,724 -- -- -- -- -- --
Severance benefit............. -- -- 135 117 -- -- -- -- --
------- ------ ------- ------ ------- ------- ------ ------- -------
Total expenses........ 4,048 3,959 5,580 2,488 8,164 9,857 3,437 4,520 5,377
------- ------ ------- ------ ------- ------- ------ ------- -------
Income (loss) from
operations.................. (1,609) (922) (3,767) (274) 4,069 5,592 2,392 2,744 2,938
Other income, expenses and
deductions
Interest and other income... 78 41 76 146 286 315 193 122 122
Interest and debt expense... -- -- -- -- (1,242) (2,603) (619) (239) (799)
------- ------ ------- ------ ------- ------- ------ ------- -------
Income (loss) before income
taxes....................... (1,531) (881) (3,691) (128) 3,113 3,304 1,966 2,627 2,261
Provision (benefit) for
federal and state income
taxes....................... (487) (279) (558) 9 679 744 521 965 841
Cumulative effect of a change
in accounting for income
taxes....................... -- 65 -- --
------- ------ ------- ------ ------- ------- ------ ------- -------
Net income (loss)............. $(1,044) $ (537) $(3,133) $ (137) $ 2,434 $ 2,560 $1,445 $ 1,662 $ 1,420
======= ====== ======= ====== ======= ======= ====== ======= =======
Primary net income (loss) per
share....................... $ (0.26) $(0.13) $ (0.78) $(0.02) $ 0.34 $ 0.35 $ 0.21 $ 0.16 $ 0.14
Primary weighted average
shares outstanding(2)....... 4,016 4,131 4,162 5,701 7,215 7,215 6,846 10,113 10,113
OTHER DATA:
EBITDA(3)..................... 1,066 1,494 303 885 8,095 10,541 3,849 4,641 5,335
Net cash provided by operating
activities.................. 1,961 1,804 779 823 5,098 -- 1,473 4,124 --
Capital expenditures.......... 4,098 1,519 1,107 19,895 6,506 -- 1,087 20,691 --
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1997
---------------------------- ----------------------------
1994 1995 1996 HISTORICAL AS ADJUSTED(1)
------ ------- ------- ----------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......................................... $1,683 $(3,889) $ 2,235 $ 1,379 10,479
Property and equipment, net............................. 1,347 18,042 20,599 37,239 37,239
Total assets............................................ 3,370 21,667 24,386 43,702 54,502
Long-term debt.......................................... -- 9,920 3,900 19,200 30,000
Stockholders' equity.................................... 3,080 5,181 18,634 20,246 20,246
</TABLE>
- ---------------
(1) The selected unaudited pro forma income statement data (i) for the year
ended December 31, 1996 give pro forma effect to the BEC Acquisition and the
SMD Acquisition as if such transactions had occurred on January 1, 1996 and
(ii) for the six months ended June 30, 1997 give pro forma effect to the BEC
Acquisition as if such transaction had occurred on January 1, 1997. The
selected unaudited as adjusted balance sheet data as of June 30, 1997
adjusts the historical unaudited balance sheet data for the Offering and the
application of the proceeds therefrom. Such pro forma data are not
necessarily indicative of what the Company's results would have actually
been if such events had occurred at the dates indicated.
(2) Does not include shares issuable upon conversion of the Debentures or upon
exercise of outstanding employee stock options.
(3) EBITDA is defined as net income plus income taxes, net interest expense,
depletion, depreciation and amortization, exploration expenses and all
non-recurring items. The Company believes that EBITDA may provide additional
information about the Company's ability to meet its future requirements for
debt service, capital expenditures and working capital. EBITDA is a commonly
used financial measure and should not be considered as a substitute for net
income, operating income, net cash flows provided by operating activities or
any other measure of a company's profitability or liquidity.
18
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis of the Company's financial condition and
historical results of operations should be read in conjunction with the
Company's Consolidated Financial Statements and notes thereto included elsewhere
in this Prospectus.
OVERVIEW
SMC was incorporated in 1937. Since 1995, SMC has engaged in the
acquisition, exploitation, exploration and development of oil and gas properties
in the U.S. Gulf Coast Basin, Canada and Ecuador, with a primary focus on the
U.S. Gulf Coast Basin.
The Company uses the successful efforts method to account for its
investment in oil and gas properties whereby costs of productive wells,
developmental dry holes and productive leases are capitalized and amortized
using the units-of-production method based on estimated net proved reserves. The
costs of development wells are capitalized, whether productive or nonproductive.
Exploratory drilling costs are initially capitalized but charged to expense if
and when the well is determined to be unsuccessful. Geological and geophysical
costs and the costs of carrying and retaining undeveloped properties are
expensed as incurred.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1997 Compared with Six Months Ended June 30, 1996
Oil and gas revenues for the six months ended June 30, 1997, were $6.7
million, up 24% compared to oil and gas revenues for the same period in 1996 of
$5.4 million. The increase in revenues reflects higher production volumes of
both natural gas and crude oil along with higher commodity prices for both
natural gas and crude oil. Higher production volumes were primarily due to the
BEC Acquisition and the Santa Elena Acquisition.
Natural gas production in the first six months of 1997 was 1,801 MMcf, a
17% increase compared to 1996 production of 1,543 MMcf. The Company's crude oil
production in the first six months of 1997 increased 6% to 122,601 Bbls compared
to 115,638 Bbls in 1996.
The average natural gas price in the first six months of 1997 increased 19%
to $2.24 per Mcf compared to $1.88 per Mcf in the same period of 1996. Crude oil
prices increased 13% in the first six months of 1997 to $20.06 compared to
$17.83 per Bbl in the same period of 1996.
As part of the Company's on-going operations, the Company may sell
non-strategic assets of oil and gas properties. The proceeds would be used to
pay down debt or redeploy capital to opportunities that may have a higher rate
of return. These activities resulted in gains on sales of assets of $544,000 in
the first six months of 1997, and $396,000 in the same period of 1996. The gain
on sale in 1997 was primarily the result of the sales of an oil and gas prospect
located in the state waters offshore Texas and a working interest in a oil and
gas property in Canada, which the Company has agreed to sell for approximately
$360,000. The gain on sale in 1996 was primarily the result of the sale of
Ventures Resources, Inc. ("Venture") for $1.1 million.
Production costs, including production and ad valorem taxes, increased in
the first six months of 1997 to $1.6 million, up 19% from $1.4 million in the
same period of 1996, primarily due to the BEC Acquisition and the Santa Elena
Acquisition. On a cost per Mcfe basis, production costs for 1997 increased to
$0.64 per Mcfe, or 7%, from $0.60 per Mcfe in 1996.
General and administrative expenses increased as a result of increased
staffing to facilitate future growth to $1.1 million in the first six months of
1997, up 38% from $823,000 in 1996. On a cost per Mcfe basis, general and
administrative expenses increased 22% in 1997 to $0.45 per Mcfe from $0.37 Mcfe
in 1996.
Exploration, dry hole and lease impairment expenses increased in the six
months of 1997 to $283,000, compared to $83,000 in the same period of 1996,
which was due primarily to a dry hole drilled in Jefferson Parish, Louisiana,
recognized during the second quarter of 1997. Since the Company uses the
successful
19
<PAGE> 21
efforts method of accounting, exploration expenses may vary greatly from year to
year based upon the level of exploration activity during the year.
Depreciation, depletion and amortization ("DD&A") expense for the first six
months of 1997 increased to $1.5 million, up 26% from $1.2 million in 1996,
primarily due to the above mentioned acquisitions. The Company computes
depreciation and depletion on each producing property on a unit-of-production
method. Since this method employs estimates of remaining reserves, depreciation
and depletion expenses may vary from period to period because of revisions to
reserve estimates, production rates and other factors. DD&A expenses increased
in the first six months of 1997 to $0.59 per Mcfe, up 11% from $0.53 per Mcfe in
1996.
Interest and debt expense decreased in the first six months of 1997 to
$239,000, down 61% compared to $619,000 in 1996. The decline resulted from a
reduction in bank debt, which was reduced from the net proceeds of approximately
$10.6 million from the Company's private placement of 2,500,000 shares of common
stock in December 1996. Bank debt increased in the second quarter primarily to
fund the above mentioned acquisitions.
Tax expense in 1997 and 1996 was $965,000 and $521,000, respectively, with
the increase related to higher 1997 net income before taxes and a net operating
loss carryforward that was available in the 1996 six month period, which was not
available in the six months ended June 30, 1997.
The Company reported earnings in 1997 of $1.7 million, or $0.16 per share,
compared to earnings of $1.4 million, or $0.21 per share in 1996. The number of
shares outstanding increased by 2,500,000 in December of 1996 as a result of the
private placement of common stock.
Year Ended December 31, 1996 Compared With Year Ended December 31, 1995
Oil and gas revenues for 1996 were $11,780,000, up 476% compared to oil and
gas revenues for 1995 of $2,044,000. The increase in revenues reflects higher
production volumes of both natural gas and crude oil and higher commodity prices
for both natural gas and oil. Higher production volumes were primarily due to
the acquisition of certain assets and companies of Stone & Webster, Inc. ("Stone
& Webster") acquired in December 1995 (the "Stone & Webster Acquisition") and
the acquisition of the limited partnership interest in SMC Development, L.P., a
Texas limited partnership ("SMD"), in August 1996 (the "SMD Acquisition").
Natural gas production in 1996 was 3,358 MMcf, a 731% increase compared to
1995 production of 404 MMcf. The Company's crude oil production in 1996
increased 175% to 233,418 Bbls compared to 84,848 Bbls in 1995.
The average natural gas price in 1996 increased 19% to $1.97 per Mcf
compared to $1.65 per Mcf in 1995. Crude oil prices increased 17% in 1996 to
$18.92 per Bbl, compared to $16.23 per Bbl in 1995.
As part of the Company's on-going operations, it may, from time to time,
sell non-strategic assets or oil and gas properties. These activities resulted
in gains on sale of assets of $453,000 and $170,000 in 1996 and 1995,
respectively. The gain on sale in 1996 was primarily the result of the sale of
Venture for $1.1 million. The gain on sale in 1995 was primarily the result of
the sale of non-strategic oil and gas interests in the Bandera and Equipo
prospects located in Maverick County, Texas.
Production costs, including production and ad valorem taxes, increased in
1996 to $2.7 million, up 318% from $656,000 in 1995, primarily due to the Stone
& Webster Acquisition and SMD Acquisition. The cost on a per Mcfe basis,
production costs for 1996 declined to $0.58 per Mcfe, or 19%, from $0.72 per
Mcfe in 1995, as a result of higher production.
General and administrative expenses, including severance benefits,
increased as a result of the Stone & Webster Acquisition and SMD Acquisition to
$1.7 million in 1996, up 105% from $819,000 in 1995. Due to increased
production, general and administrative expenses, on a per Mcfe basis, declined
to $0.35 per Mcfe, or 61%, from $0.90 per Mcfe in 1995.
20
<PAGE> 22
Exploration, dry hole and lease impairment expenses increased in 1996 to
$865,000, up 291% compared to $221,000 in 1995, which was primarily due to lease
impairment expenses of approximately $600,000 in the fourth quarter of 1996.
Since the Company uses the successful efforts method of accounting, exploration
expenses may vary greatly from year to year based upon the level of exploration
activity during the year.
DD&A expense for 1996 increased to $2.9 million, up 263% from $792,000 in
1995, which was due primarily to the above mentioned acquisitions and downward
revisions to reserve estimates in the Company's oil and gas property located in
Yoakum, Texas. The Company computes depreciation and depletion on each producing
property on a unit-of-production method. Since this method employs estimates of
remaining reserves, depreciation and depletion expenses may vary from year to
year because of revisions to reserve estimates, production rates and other
factors. DD&A expenses declined per Mcfe in 1996 to $0.60 per Mcfe, down 31%
from $0.87 per Mcfe in 1995.
Interest and debt expense in 1996 was $1.2 million, which was a result of
the bank debt incurred to consummate the above mentioned acquisitions. The
Company had no interest expense in 1995.
The Company had a net operating loss carryforward of approximately $2.3
million at the end of 1995, which was fully utilized in 1996. Tax expense in
1996 and 1995 was $679,000 and $9,000, respectively, with the increase related
to higher 1996 net income before taxes.
The Company reported earnings in 1996 of $2.4 million or $0.34 per share
compared to a loss of $137,000 or $0.02 per share in 1995 primarily as a result
of the factors discussed above.
Year Ended December 31, 1995 Compared with Year Ended December 31, 1994
Revenues, including interest and other income, for 1995 were $2.4 million,
up 25% compared to revenues for 1994 of $1.9 million. Expenses for 1995 were
$2.5 million, down 55% compared to expenses of $5.6 million for 1994.
The increase in revenues reflects higher production volumes of both natural
gas and crude oil and higher prices for crude oil. Natural gas production in
1995 was 404 MMcf, a 34% increase compared to 1994 production of 301 MMcf. The
Company's crude oil production in 1995 increased 8% to 84,848 Bbls compared to
78,866 Bbls in 1994. The Company's average gas price in 1995 decreased 8% to
$1.65 per Mcf compared to $1.80 per Mcf in 1994. Offsetting lower gas prices,
crude oil prices in 1995 increased 6% to $16.23 per Bbl as compared to $15.31
per Bbl in 1994. Higher production volumes were primarily due to the acquisition
of an interest in Diverse GP III, which was acquired in April of 1995. Revenues
also increased as a result of an increase in the gain on the sale of assets to
$170,000 in 1995 from $66,000 in 1994. The gain in 1995 was primarily a result
of the Company's sale of its interest in the Bandera and Equipo prospects.
The reduction in expenses in 1995 was primarily the result of special
charges of $1.7 million related to write-downs in valuation of three producing
properties in 1994, which were non-recurring in 1995. Substantial exploration
losses in early 1994 caused the Company to reexamine its exploration and
production strategy. The Company decided that non-core properties should be
sold, and accordingly wrote-down the assets to the estimated sales price.
Production expenses increased 20% to $656,000 in 1995 from $548,000 in 1994. The
increase in production expenses was primarily due to the acquisition of Diverse
GP III in 1995. Exploration expenses declined 86% to $221,000 in 1995 from $1.6
million in 1994. Since the Company uses the successful efforts method of
accounting, exploration expenses may generally vary greatly from year to year
based upon the level of exploration activity during the year. The decline in
exploration expenses in 1995 was primarily the result of decreased exploration
activity due to a change in the Company's focus away from higher risk
exploration and towards the acquisition of existing reserves, exploitation and
controlled risk exploration. The Company participated in the drilling of three
gross wells drilled in 1995 compared to nine gross wells in 1994. Drilling
results in 1995 included one dry hole drilled in Refugio County, Texas and two
development wells drilled in Roger Mills County, Oklahoma and Lavaca County,
Texas, respectfully. Depreciation and depletion increased 13% to $792,000 in
1995 from $704,000 in 1994, due to the acquisition of Diverse GP III in 1995 and
adjustments in reserve estimates for certain properties owned by the Company.
General and administrative costs, including severance benefits, were $819,000 in
1995, down 21% from $1.0 million in 1994. The
21
<PAGE> 23
decline in general and administrative expenses was a result of the Company's
ongoing cost cutting plans implemented in 1994 and carried out in 1995.
The revisions in the Company's estimated reserves in 1994 were primarily
the result of downward adjustments to the Company's oil and gas properties in
the Bandera, Stateline and Cascade Deep fields. Production from these fields was
substantially below those projected by the Company's independent petroleum
engineering firm due primarily to water encroachment and lack of production
facilities in the Stateline field and lower than projected production in the
Bandera and Cascade Deep fields, resulting in the downward adjustments.
The Company reported a net loss in 1995 of $137,000 or $0.02 per share
compared to a loss of $3.1 million or $0.78 per share in 1994 primarily as a
result of the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded its operations, acquisitions,
exploration and development expenditures from cash flows from operating
activities, bank borrowings, issuance of common stock and sales of non-strategic
assets and oil and gas properties.
Cash provided by operating activities for the six months ended June 30,
1997 and for the year ended December 31, 1996 was $4.1 million and $5.1 million,
respectively. Additional cash in the amounts of $1.0 million and $1.4 million
was realized in the first six months of 1997 and for the year ended 1996,
respectively, from sales of non-strategic properties.
In December 1996, the Company completed a private placement of Common
Stock, the $10.6 million of net proceeds from which were used to repay amounts
outstanding under the Credit Facility.
As of August 31, 1997, the total borrowing base under the Credit Facility
was $25.7 million, of which outstanding borrowings thereunder were $20.7
million, leaving an available borrowing base of $5.0 million. The borrowing base
under the Credit Facility reduces $300,000 per month and is reviewed by the bank
semi-annually until maturity on June 1, 2000. The obligations under the Credit
Facility are secured by substantially all of the assets of the Company and its
subsidiaries. The Credit Facility contains certain covenants relating to the
financial condition of the Company and bears interest at the Company's option,
at the bank's prime or LIBOR rate plus 2.25% per annum. The Company intends to
repay all amounts outstanding under the Credit Facility with a portion of the
proceeds of the Offering.
Capital spending in 1996 for acquisitions, exploitation, exploration and
development totaled $6.0 million, and was primarily funded from cash from
operating activities. The Company's capital expenditure budget for 1997 is $27.3
million and for 1998 is $6.0 million. For the first six months of 1997, the
Company expended approximately $16.4 million for acquisitions and $4.3 million
for exploration and development, primarily in the U.S. Gulf Coast Basin. Due to
the speculative nature of potential acquisitions, the Company does not generally
budget for acquisitions. The Company will continue to evaluate its level of
capital spending throughout the year based upon drilling results, commodity
prices, cash flows from operations and property acquisitions.
The Company believes that it will have sufficient capital available from
the Credit Facility, the proceeds of this Offering and cash flows from operating
activities to fund its 1997 and 1998 capital expenditure program, and to meet
the Company's other anticipated obligations. The Company believes that the funds
available from such sources will enable the Company to continue to pursue
strategic acquisitions; however, since the Company's future cash flows are
subject to a number of uncertainties, there can be no assurance that such
sources will continue to be sufficient to fund the Company's cash requirements.
CHANGE IN ACCOUNTING METHODS
In the fourth quarter of 1997, the Company will be required to adopt
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
128"). This statement establishes standards for computing and presenting
earnings per share and requires, among other things, dual presentations of basic
and diluted
22
<PAGE> 24
earnings per share on the face of the statement of operations. SFAS 128
introduces the concept of basic earnings per share, which represents net income
divided by the weighted average common shares outstanding without the dilutive
effects of common stock equivalents. In accordance with SFAS 128, diluted
earnings per share, giving effect for common stock equivalents, will be reported
in the fourth quarter of 1997.
Effective December 1997, the Company will be required to adopt Statement of
Financial Accounting Standards No. 129, "Disclosure of Information about Capital
Structure" ("SFAS 129"). SFAS 129 requires that all entities disclose in summary
form within the financial statement the pertinent rights and privileges of the
various securities outstanding. An entity is to disclose within the financial
statement the number of shares issued upon conversion, exercise, or satisfaction
of required conditions during at least the most recent annual fiscal period and
any subsequent interim period presented. Other special provisions apply to
preferred and redeemable stock. The Company will adopt SFAS 129 in the fourth
quarter of 1997.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"), which establishes standards for reporting and display of
comprehensive income and its components. The components of comprehensive income
refer to revenues, expenses, gains and losses that are excluded from net income
under current accounting standards, including foreign currency translation
items, minimum pension liability adjustments and unrealized gains and losses on
certain investments in debt and equity securities. SFAS 130 requires that all
items that are recognized under accounting standards as components of
comprehensive income be reported in a financial statement displayed in equal
prominence with other financial statements; the total of other comprehensive
income for a period is required to be transferred to a component of equity that
is separately displayed in a statement of financial position at the end of an
accounting period. SFAS 130 is effective for both interim and annual periods
beginning after December 15, 1997.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 establishes standards for the way public enterprises are
to report information about operating segments in annual financial statements
and requires the reporting of selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. SFAS 131 is effective for periods beginning after December 15, 1997.
EFFECT OF INFLATION
Current economic conditions indicate that the costs of exploration and
development are increasing gradually; however, the oil and gas industry
historically has experienced periods of rapid cost increases from time to time,
and within short periods of time as demand for drilling rigs, drilling pipe and
other materials and supplies increases. The oil and gas industry is currently
experiencing such increases in demand which have historically lead to rapid
increases in costs. Increases in the cost of exploration and development could
adversely affect the ability of the Company to acquire additional oil and gas
properties, equipment, and supplies and conduct exploration and development
activities.
FORWARD-LOOKING STATEMENTS
The Management's Discussion and Analysis of Financial Condition and Results
of Operations ("MD&A") contains "forward-looking statements" within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than statements of historical fact included in MD&A, including
statements regarding the Company's operating strategy, plans, objectives and
beliefs of management for future operations, planned capital expenditures and
acquisitions are forward-looking statements. Although the Company believes that
the assumptions upon which such forward-looking statements are based are
reasonable, it can give no assurance that such assumptions will prove to be
correct. See "Risk Factors" for a discussion of important factors that could
cause actual results to differ materially from the Company's expectations. Also
see "Forward-Looking Statements."
23
<PAGE> 25
BUSINESS
GENERAL
SMC is a Houston based independent oil and gas company engaged in the
acquisition, exploitation, exploration and development of oil and gas properties
in the U.S., Canada and Ecuador, with a primary focus on the U.S. Gulf Coast
Basin, both onshore and offshore. As of December 31, 1996, the Company had
estimated net proved reserves of 38.5 Bcfe and a PV-10 Value of $64.1 million
with a Finding Cost of $0.54 per Mcfe.
The Company consummated three acquisitions during 1997 that increased
estimated net proved reserves on a pro forma basis (giving effect to such
acquisitions as of December 31, 1996) to 53.9 Bcfe with a PV-10 Value of $87.3
million. Furthermore, the Company has an aggressive capital expenditure budget
targeted towards acquisitions and exploratory drilling. During the first six
months of 1997, the Company expended $16.4 million for acquisitions and $4.3
million for exploratory and development drilling. The Company has budgeted $2.5
million for acquisitions and $10.1 million for exploratory drilling and
follow-on development drilling through the end of 1998.
BUSINESS STRATEGY
The Company's business strategy is to increase reserves and shareholder
value through a balanced program of acquisitions, controlled risk exploration
and management of producing properties. The Company's acquisition strategy is to
pursue properties in areas of its geographic focus where it can obtain operating
control or a significant ownership interest. The Company's exploration
activities focus on identifying higher risk projects with the potential to
significantly increase reserves while reducing the Company's financial exposure
by participating with industry partners. A majority of the Company's exploration
projects were internally generated by the Company's staff of geoscientists using
current evaluation techniques such as 3-D seismic surveys. The primary use of
proceeds from the Offering will be to repay indebtedness incurred to finance
acquisitions during the first six months of 1997. See "Use of Proceeds."
ACQUISITION ACTIVITIES
Santa Elena Project, Ecuador. In June 1997, the Company acquired a 10%
interest in the Santa Elena Project for approximately $2.5 million. The Santa
Elena Project was originally discovered in 1921 and has produced over 120
MMBbls, with peak production rates of 10,000 Bbls per day in 1955. In July 1996,
CGC acquired the concession for the Santa Elena Project. CGC has implemented a
redevelopment plan consisting primarily of mechanical remediation and
improvements in field delineation. These preliminary activities have doubled
production from 800 Bbls per day in January 1997 to 1,700 Bbls per day in
September 1997. The Company expects these exploitation activities to be expanded
by applying advanced drilling and production techniques, including horizontal
drilling and extensive 2-D seismic surveys. Less than 5% of the Santa Elena
Project has been developed, and the Company believes that, in addition to
providing exploitation and development potential, significant exploration
opportunities exist. On a pro forma basis as of December 31, 1996, the Company
had estimated net proved reserves in the Santa Elena Project of 3.5 Bcfe with a
PV-10 Value of $2.9 million.
Big Escambia Creek Field, Alabama. In the BEC Acquisition, the Company
acquired various working interests, averaging approximately 10%, in 13 oil and
gas wells and a 37.7% working interest in the Albert Philyaw Unit 8-1 #1 well
for a total of $13.9 million. The Big Escambia Creek Field contains long lived
oil reserves, with a reserve life index of 9 years. On a pro forma basis as of
December 31, 1996, the Company had estimated net proved reserves in the Big
Escambia Creek Field of approximately 12.0 Bcfe with a PV-10 Value of $20.4
million.
24
<PAGE> 26
EXPLORATION ACTIVITIES
As part of the Company's business strategy of pursuing controlled risk
exploration, the Company has entered into the following exploration projects:
Matthews Project, Texas. The Company owns a 25% interest in the Matthews
Project and has recently completed and interpreted an 18 square mile 3-D seismic
survey of the project. The objective in the Matthews Project is to explore
shallow formations including the Frio, Miocene and Yegua sands and deeper
formations (up to 14,000 feet) in the Upper, Middle and Lower Wilcox sands. The
Company believes that this project has the potential to add significantly to the
Company's reserves if initial interpretations prove correct. The Company expects
to drill two or more initial exploration wells during the fourth quarter of
1997.
Alta Loma Project, Texas. The Company owns a 50% working interest in and is
the operator of the Alta Loma Project. Permitting for a 14 square mile 3-D
seismic survey is underway, with plans for the acquisition of seismic data in
the fourth quarter of 1997. In addition to redevelopment and exploitation of
previously developed zones, the Company believes that significant exploration
potential exists in certain Lower Frio formations at depths of up to 15,000
feet. The Company anticipates commencing drilling in the Alta Loma Project in
early 1998.
Southern Eagle Project, Offshore, Gulf of Mexico. In January 1997, the
Company acquired over 320 square miles of 3-D seismic data covering the shallow
state waters off Matagorda Island, Texas. This area has recently been opened for
extensive exploration as a result of recent advancements in 3-D seismic survey
technology. As a result, the Company has identified a number of large target
exploration prospects and is continuing to analyze the seismic data to identify
additional prospects. The Company intends to participate in the public bid
auction to be conducted by the State of Texas in October 1997 covering mineral
leases in the area.
OIL AND GAS RESERVE INFORMATION
The following table sets forth the estimated net proved reserves and the
PV-10 Value attributable to such reserves for the Company's significant
producing properties on a pro forma basis as of December 31, 1996 after giving
effect to the Santa Elena Acquisition and the BEC Acquisition.
<TABLE>
<CAPTION>
PRO FORMA
AS OF DECEMBER 31, 1996
----------------------------------------------
% OF TOTAL PV-10
NET PROVED NET PROVED VALUE
RESERVES (BCFE) RESERVES (PRE-TAX)(1)
--------------- ---------- -------------
(IN MILLIONS)
<S> <C> <C> <C>
Big Escambia Creek Field...................... 12.00 22.3% $20.4
South Texas Wilcox............................ 13.65 25.3 23.4
Canada........................................ 11.37 21.1 12.7
Ecuador....................................... 3.46 6.4 2.9
Other......................................... 13.44 24.9 28.0
----- ----- -----
Total............................... 53.92 100.0% $87.3
===== ===== =====
</TABLE>
- ---------------
(1) Future cash flows attributable to the Company's estimated proved reserves
were based on an average gas price of $3.24 per Mcf and an average oil price
of $24.08 per Bbl at December 31, 1996. The average price received for
production in 1996 was $1.97 per Mcf and $18.92 per Bbl.
The following table sets forth the estimated net proved reserves of the
Company and PV-10 Value of the Company's estimated net proved reserves and
related information. The reserve estimate information as of December 31, 1994
was prepared by Hedrick and Associates, which firm was no longer in business at
December 31, 1995. Netherland, Sewell prepared the domestic reserve estimates as
of December 31, 1995 and audited the December 31, 1996 domestic reserve
estimates which were prepared by the Company. McDaniel & Associates prepared the
Canadian reserve estimates as of December 31, 1995 and 1996. The pro forma
25
<PAGE> 27
reserve estimates as of December 31, 1996 give effect to properties acquired in
the BEC Acquisition and the Santa Elena Acquisition as if such transactions
occurred on December 31, 1996. The BEC Acquisition pro forma reserve estimates
and PV-10 Values were prepared by Netherland, Sewell and the Santa Elena
Acquisition pro forma reserve estimates and PV-10 Values were prepared by Ryder
Scott.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------
PRO FORMA
1994 1995 1996 1996
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
RESERVE DATA:(1)
Oil (Bbls)........................ 228,196 1,555,896 1,467,544 3,468,237
Gas (Mcf)......................... 786,060 26,430,677 29,657,858 33,107,407
Total (Mcfe)............ 2,155,236 35,766,053 38,463,122 53,916,829
Proved developed reserves
(Mcfe).......................... 2,155,236 35,414,826 34,383,537 49,837,244
PV-10 Value (pre-tax) (in
thousands)(2)................... $2,837 $27,415 $64,079 $87,334
Production Replacement............ 0.6x 38.2x 1.6x 4.6x
Reserve life index (years)(3)..... 4.5 8.5 7.1 7.7
</TABLE>
- ---------------
(1) For limitations on the accuracy and reliability of reserves and pre-tax cash
flow estimates, see "Risk Factors -- Uncertainty of Estimates of Reserves
and Future Net Cash Flows."
(2) Future cash flows attributable to the Company's historical estimated proved
reserves were based on an average gas price of $3.24 per Mcf and an average
oil price of $24.08 per Bbl at December 31, 1996. The average price received
for production in 1996 was $1.97 per Mcf and $18.92 per Bbl.
(3) The reserve life index is calculated by dividing estimated proved reserves
(on an Mcfe basis) by projected production volumes for the next twelve
months (on an Mcfe basis).
In general, estimates of recoverable oil and gas reserves and of the future
net cash flows therefrom are based upon a number of variable factors and
assumptions, such as historical production from the properties, assumptions
concerning future oil and natural gas prices and future operating costs and the
assumed effects of regulation by governmental agencies, all of which may vary
considerably from actual results. All such estimates are to some degree
speculative, and classifications of reserves are only attempts to define the
degree of speculation involved. Estimates of oil and gas reserves attributable
to any group of properties, classifications of such reserves based on risk of
recovery and estimates of future net cash flows expected therefrom prepared by
different engineers, or the same engineers at different times, may vary
substantially. The Company's actual production, revenues, severance and excise
taxes and development and operating expenditures with respect to its reserves
may vary from such estimates and such variances may be material.
Estimates of oil and gas reserves that may be developed and produced in the
future are often based on volumetric calculations and upon analogy to similar
types of reserves rather than actual production history. Estimates based on
these methods are generally less reliable than those based on actual production
history. Subsequent evaluation of the same reserves based upon production
history will result in variations in the estimated reserves, which may be
substantial.
In accordance with the applicable requirements of the Commission, the PV-10
Value of the estimated proved reserves are based on prices and costs as of the
date of the estimate, unless such prices or costs are contractually determined
at such date. Actual future prices and costs will be different than those used
in the reserve estimates, perhaps materially. Actual future net cash flows will
also be affected by factors such as actual production, supply and demand for oil
and gas, curtailments or increases in consumption by oil and gas purchasers,
changes in governmental regulations or taxation and the impact of inflation on
costs. See "Risk Factors -- Uncertainty of Estimates of Reserves and Future Net
Cash Flows." All statements set forth herein regarding reserves are forward
looking statements. See "Forward-Looking Statements."
For additional information concerning the PV-10 Value to be derived from
these reserves and the disclosure of the Standardized Measure information in
accordance with the provisions of Statement of Financial Accounting Standards
No. 69, "Disclosures about Oil and Gas Producing Activities," see Note 12
26
<PAGE> 28
"Oil and Gas Producing Activities" to the Company's Consolidated Financial
Statements included elsewhere in this Prospectus.
PRODUCTION, PRICE AND LIFTING COSTS HISTORY
The following table sets forth certain information concerning the Company's
annual net oil and gas production, and average sales prices and average lifting
costs:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------- SIX MONTHS ENDED
1994 1995 1996 JUNE 30, 1997
------- ------- --------- ----------------
<S> <C> <C> <C> <C>
Production:
Oil (Bbls)
U.S............................. 78,866 84,848 120,855 78,152
Canada.......................... -- -- 112,563 44,449
------- ------- --------- ---------
Total...................... 78,866 84,848 233,418 122,601
Gas (Mcf)
U.S............................. 300,544 404,319 2,396,379 1,290,239
Canada.......................... -- -- 961,527 510,728
------- ------- --------- ---------
Total...................... 300,544 404,319 3,357,906 1,800,967
======= ======= ========= =========
Average sales price:
Oil ($ per Bbl)
U.S............................. $15.31 $16.23 $19.69 $19.50
Canada.......................... -- -- 18.09 20.17
------- ------- --------- ---------
Average....................... 15.31 16.23 18.92 19.74
Gas ($ per Mcf)
U.S............................. 1.80 1.65 2.29 2.49
Canada.......................... -- -- 1.17 1.61
------- ------- --------- ---------
Average....................... 1.80 1.65 1.97 2.24
Average costs ($ per Mcfe):
Production expenses and production
taxes........................... 0.71 0.72 0.58 0.64
Depreciation, depletion and
amortization.................... 0.91 0.87 0.60 0.59
</TABLE>
PRODUCTIVE WELLS STATISTICS
The following table sets forth information concerning productive wells in
which the Company has an interest as of December 31, 1996 on a pro forma basis
giving effect to the BEC and Santa Elena Acquisitions:
<TABLE>
<CAPTION>
OIL(1) GAS(1) TOTAL
-------------- ------------- --------------
GROSS NET GROSS NET GROSS NET
----- ----- ----- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Canada.............................. 699 15.1 510 6.5 1,209 21.6
U. S.(2)............................ 238 16.7 487 52.8 725 69.5
Ecuador............................. 1,695 169.5 -- -- 1,695 169.5
----- ----- --- ---- ----- -----
Total..................... 2,632 201.3 997 59.3 3,629 260.6
===== ===== === ==== ===== =====
</TABLE>
- ---------------
(1) Many of the Company's wells produce both oil and gas. A well is classified
as an oil well or gas well under applicable reporting regulations based upon
the ratio of oil to gas produced when the well first commenced production,
and such designation may not be indicative of current production. Multiple
completions in the same well bore are counted as one well.
(2) Includes producing units that contain numerous wells. Each unit is counted
as one gross well and the unit working interest is included in the net
wells.
27
<PAGE> 29
DEVELOPMENT AND EXPLORATORY WELLS DRILLED
The following table includes the drilling results of wells in which the
Company has a working interest for the year ended December 31:
<TABLE>
<CAPTION>
1994 1995 1996
------------- ------------- -------------
GROSS NET GROSS NET GROSS NET
----- ---- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C>
EXPLORATORY
Oil..................................... -- -- -- -- -- --
Gas..................................... 3 .307 -- -- 1 .150
Dry hole................................ 3 .430 -- -- 3 .335
DEVELOPMENT
Oil..................................... 1 .250 -- -- 21 .246
Gas..................................... -- -- 2 .020 15 .257
Dry hole................................ 2 .068 1 .150 6 .174
TOTAL
Productive.............................. 4 .557 2 .020 37 .653
Dry hole................................ 5 .498 1 .150 9 .509
</TABLE>
DEVELOPED AND UNDEVELOPED LEASEHOLD ACREAGE
The following table shows the Company's leasehold interest in developed and
undeveloped oil and gas acreage as of December 31, 1996 on a pro forma basis
giving effect to the BEC Acquisition and the Santa Elena Acquisition.
<TABLE>
<CAPTION>
DEVELOPED ACREAGE UNDEVELOPED ACREAGE
----------------- -------------------
GROSS NET GROSS NET
------- ------ -------- -------
<S> <C> <C> <C> <C>
UNITED STATES
Alabama....................................... 8,971 858 188 7
Arkansas...................................... 1,040 247 1,799 450
Colorado...................................... 288 21 -- --
Kansas........................................ 204 53 -- --
Louisiana..................................... 4,895 765 1,337 656
Michigan...................................... 96 2 -- --
Mississippi................................... 972 115 1,207 132
Montana....................................... 24 2 -- --
New Mexico.................................... 3,012 213 -- --
North Dakota.................................. 400 177 -- --
Oklahoma...................................... 2,360 379 -- --
Texas......................................... 19,577 3,555 4,228 1,260
Texas -- Offshore............................. 5,760 105 4,480 3,616
Wyoming....................................... 10,384 500 -- --
Utah.......................................... 672 148 -- --
------- ------ ------- ------
Total Domestic...................... 58,655 7,140 13,239 6,121
------- ------ ------- ------
Canada........................................ 89,526 3,318 238,851 14,695
------- ------ ------- ------
Ecuador....................................... 15,400 1,540 279,819 27,982
------- ------ ------- ------
Total Leasehold Acreage............. 163,581 11,998 531,909 48,798
======= ====== ======= ======
</TABLE>
"Developed acreage" consists of lease acres spaced or assignable to
production on which wells have been drilled or completed to a point that would
permit production of commercial quantities of oil or gas.
28
<PAGE> 30
The Company's ownership of mineral rights as of December 31, 1996 is set
forth below:
<TABLE>
<CAPTION>
STATE GROSS NET
----- ------- -------
<S> <C> <C>
Mississippi................................................. 262,000 118,000
Wisconsin................................................... 121,000 110,000
Texas....................................................... 212,514 84,183
New Mexico.................................................. 67,634 32,577
Other....................................................... 2,000 2,000
------- -------
Total............................................. 665,148 346,760
======= =======
</TABLE>
The Company is not aware of any valuable minerals underlying the mineral
rights in Wisconsin, and therefore has no plans to develop minerals on such
properties. Currently, the Company has 3,165 net mineral acres in southern
Mississippi, 18,194 net mineral acres in Texas and 3,177 net mineral acres in
New Mexico under lease to others.
COMPETITION
Competition in the oil and gas business is intense, particularly with
respect to the acquisition of producing properties, proved undeveloped acreage
and leases. In addition, recent competition for the acquisition of drill pipe,
drilling rigs and related supplies and services has become more intense. Major
and independent oil companies regularly bid for desirable oil and gas properties
and for the equipment and labor required for their operation and development.
Many of these competitors have capital resources and other competitive
advantages much greater than that of the Company. Many such companies will be
better able than the Company to withstand and compete during adverse market
conditions. The Company's ability to generate revenues and reserves in the
future will be dependent upon, among other things, its success in competing with
these competitors, as to which there can be no assurances.
MARKETING
The Company's gas production is sold primarily on the spot market to a
variety of purchasers, including interstate and intrastate pipelines, their
marketing affiliates and independent marketing companies. Generally, the
Company's domestic and Canadian oil production is sold under short term
contracts at posted prices plus a premium in some cases. The Company's
production from the Santa Elena Project is sold to a refinery owned by the
national oil company of Ecuador at spot market prices. The Company is not a
party to any long-term contracts obligating it to sell oil or gas at prices
other than short-term market prices.
During the fiscal year ended December 31, 1996, the only material
purchasers of the Company's production were GC Marketing Company and Mike Rogers
Drilling Company, which purchased production representing 27.3% and 5.0%,
respectively, of the Company's 1996 revenues. The Company believes that it could
find replacements for the current purchasers of its production and does not
believe that the loss of any single purchaser of its production would have a
material effect on the Company.
The Company has not historically engaged in hedging transactions which were
material to its operations.
ENVIRONMENTAL AND OTHER REGULATIONS
Domestic Environmental Regulation. Operations of the Company are subject to
numerous federal, state, and local laws and regulations governing the discharge
of materials into the environment or otherwise relating to environmental
protection. These laws and regulations may require the acquisition of a permit
before drilling commences, restrict or prohibit the types, quantities and
concentration of substances that can be released into the environment in
connection with drilling and production activities, prohibit drilling activities
on certain lands lying within wetlands or other protected areas and impose
substantial liabilities for pollution resulting from drilling and production
operations. Federal and state environmental laws and regulations may become more
stringent and may affect the Company's operations. Legislation has been proposed
in Congress from time to time that would amend the Federal Resource Conservation
and Recovery Act of 1976 to reclassify oil and gas production wastes as
"hazardous waste." If such legislation were enacted, it could have a significant
impact on the Company's operating costs, as well as on the oil and gas industry
in general. It is not anticipated
29
<PAGE> 31
that the Company will be required in the near future to expend amounts that are
material in relation to its total capital expenditure program by reason of
environmental laws and regulations, but inasmuch as such laws and regulations
are frequently changed, the Company is unable to predict the ultimate cost of
compliance. In addition, the Comprehensive Environmental Response, Compensation
and Liability Act of 1980 and certain state laws and regulations impose
liability for cleanup of waste sites.
Water. FWPCA imposes restrictions and strict controls regarding the
discharge of produced waters and other oil and gas wastes into navigable waters.
Permits must be obtained to discharge pollutants to state and federal waters.
FWPCA and analogous state laws provide for civil, criminal and administrative
penalties for any unauthorized discharges of oil and other hazardous substances
in reportable quantities and, may impose substantial potential liability for the
costs of removal, remediation and damages. State water discharge regulations and
permits under FWPCA may prohibit the discharge of produced water and sand, and
some other substances related to the oil and gas industry, to coastal waters.
Although the costs to comply with zero discharge mandates under federal or state
law may be significant, the entire industry will experience similar costs, and
the Company believes that these costs will not have a material adverse impact on
the Company's results of operations or financial condition. Some of the
Company's oil and gas exploration and production facilities are required to
obtain permits for their storm water discharges. Costs may be incurred in
connection with treatment of wastewater or developing storm water pollution
prevention plans. The Oil Pollution Act of 1990 (the "OPA"), imposes substantial
potential liability for the costs of removal, remediation and damages for the
discharge of oil into or upon navigable waters or adjoining shorelines. Among
other things, the OPA raises liability limits, narrows defenses to liability and
provides instances in which a responsible party is subject to unlimited
liability. One provision of the OPA requires that offshore facilities establish
and maintain evidence of financial responsibility of $150 million. Further, the
Coastal Zone Management Act authorizes state implementation and development of
programs containing management measures for the control of nonpoint source
pollution to restore and protect coastal waters.
Solid Waste. The Company's operations may generate or transport both
hazardous and nonhazardous solid wastes that are subject to the requirements of
the federal Resource Conservation and Recovery Act ("RCRA"), and its regulations
and comparable state statutes and regulations. Further, it is possible that some
wastes that are currently classified as nonhazardous, via exemption or
otherwise, may, in the future, be designated as "hazardous waste," which are
subject to more rigorous and costly treatment, storage, transportation and
disposal requirements. Such changes in the regulations may result in additional
expenditures or operating expenses by the Company and its affiliates.
Hazardous Substances. The comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") and comparable state statutes, also
known as "Superfund" laws, impose liability, without regard to fault or the
legality of the original conduct, on certain classes of persons that cause or
contribute to the release of a "hazardous substance" into the environment. These
persons include the owner or operator of a site, the past owners or operator of
a site, and companies that transport, dispose of, or arrange for the disposal of
the hazardous substances found at the site. CERCLA also authorizes the
Environmental Protection Agency (the "EPA"), state agencies and, in some cases,
third parties, to take actions in response to threats to the public health or
the environment and to seek to recover from the responsible classes of persons
the costs they incur. Despite the "petroleum exclusion" of Section 101(14) that
currently encompasses most oil and gas wastes, the Company may nonetheless
generate or transport "hazardous substances" within the meaning of CERCLA, or
comparable state statutes, in the course of its ordinary operations. Thus, the
Company may be responsible under CERCLA or the state equivalents for all or part
of the costs required to cleanup sites where a release of a hazardous substances
has occurred.
Air. The Company's operations may be subject to the Clean Air Act ("CAA").
The 1990 CAA amendments and accompanying regulations, state or federal, may
impose certain pollution control requirements with respect to air emissions from
operations, particularly in instances where a company constructs a new facility
or modifies an existing facility. The Company may also be required to incur
certain capital expenditures in the next several years for air pollution control
equipment in connection with maintaining or obtaining operating permits and
approvals addressing other air emission-related issues. However, the Company
does not believe its operations will be materially adversely affected by any
such requirements.
30
<PAGE> 32
Endangered Species. The Endangered Species Act ("ESA") seeks to ensure that
activities do not jeopardize endangered or threatened plant and animal species,
nor destroy or modify the critical habitat of such species. Under the ESA,
certain exploration and production operations, as well as actions by federal
agencies, may not significantly impair or jeopardize the species or its habitat.
The ESA provides for criminal penalties for willful violations of the Act. Other
statutes which provide protection to animal and plant species may apply to the
Company such as the Marine Mammal Protection Act, the Marine Protection and
Sanctuaries Act, the Fish and Wildlife Coordination Act, the Fishery
Conservation and Management Act and the Migratory Bird Treaty Act. The National
Historic Preservation Act may impose similar requirements.
Communication of Hazards. The Occupational Safety and Health Act ("OSHA"),
the Emergency Planning and Community Right-To-Know Act ("EPCRA"), and comparable
state statutes require the Company to organize and disseminate information to
employees, state and local organizations, and the public about the hazardous
materials used in its operations and its emergency planning.
Canadian Environmental Regulation. Operations of the Company are subject to
numerous federal, provincial and local laws and regulations. Environmental
legislation provides for restrictions and prohibitions on releases or emissions
of various substances produced in association with certain oil and gas industry
operations and can affect the location and operation of wells and other
facilities and the extent to which exploration and development is permitted.
Legislation also requires that well and facility sites be abandoned and
reclaimed to the satisfaction of provincial authorities and local landowners. A
breach of such legislation may result in the suspension or revocation of
licenses and authorizations, and the suspension of operations, as well as the
imposition of clean-up orders, fines and penalties. In addition, certain types
of operations may require environmental assessment and reviews to be completed
before approvals are obtained and before exploration or development projects are
begun. The Company does not anticipate that it will be required to make capital
or other expenditures by reason of environmental laws and regulations that are
material in relation to the Company's total capital expenditure program or that
would have a material adverse effect on the Company's operations or financial
condition. Since such laws and regulation are frequently changed, the Company is
unable to predict the ultimate cost of compliance.
Domestic Oil and Gas Regulation. Complex federal, state and local
regulations concerning all phases of energy development apply to the Company's
operations and often require interpretation by the Company's professional staff
or outside advisors. The federal government and various state governments have
adopted numerous laws and regulations respecting the production, transportation,
marketing and sale of oil and natural gas. Regulation by state and local
governments usually covers matters such as the spacing of wells, allowable
production rates, environmental protection, pollution control, taxation and
other related matters. Moreover, future changes in local, state or federal laws
and regulations could adversely affect the Company's results of operations and
financial condition.
The Federal Energy Regulatory Commission ("FERC") regulations require
interstate and certain intrastate gas pipelines to transport gas on a
nondiscriminatory basis. FERC Order Nos. 636, 636-A, and 636-B ("Order No.
636"), require interstate pipelines to provide transportation separate, or
"unbundled", from the pipelines' sales of gas. As a result, many interstate
pipelines have become transporters of gas owned by others and have steadily
reduced their purchases of gas for resale. Order No. 636 also requires pipelines
to provide open-access transportation on a basis that is equal for all gas
shippers. Order No. 636 does not directly regulate the Company's activities but
Order No. 636 is intended to foster increased competition within all phases of
the natural gas industry. It is unclear what impact, if any, increased
competition within the natural gas industry under Order No. 636 will have on the
Company's activities. Although Order No. 636, could provide the Company with
additional market access and more fairly applied transportation service rates,
Order No. 636 could also subject the Company to more restrictive pipeline
imbalance tolerances and greater penalties for violation of those tolerances. In
July 1996, the United States Court of Appeals for the District of Columbia
Circuit ("D.C. Circuit") largely upheld Order No. 636. The D.C. Circuit remanded
several relatively narrow issues to the FERC for further explanation. On remand,
the FERC issued Order No. 636-C in February 1997, which, in large part,
reaffirmed the initiatives of Order No. 636. A petition for certiorari of the
D.C. Circuit decision was denied by the Supreme Court in 1997. However, the D.C.
Circuit decision did not resolve all restructuring issues as they are applied to
individual pipelines. The application of Order No. 636
31
<PAGE> 33
to individual pipelines is the subject of numerous separate appeals relating to
approximately 25 pipelines currently pending before the D.C. Circuit, and the
Company cannot predict the ultimate outcome of court review in these
proceedings. FERC Order No. 547 governs the issuance of blanket marketer sales
certificates to all natural gas sellers other than interstate pipelines. Order
No. 547 applies to non-first sales that remain subject to FERC's NGA
jurisdiction. FERC intends Order No. 547, in tandem with Order No. 636, to
foster a competitive market for natural gas by giving natural gas purchasers
access to multiple supply sources at market-driven prices. Order No. 547 may
increase competition in markets in which the Company's natural gas is sold which
may negatively affect revenues in the future. FERC has issued a series of orders
in individual cases delineating its gathering policy for onshore and offshore
natural gas facilities. Among other matters, FERC further refined its statutory
tests for establishing gathering status, which were upheld by the D.C. Circuit
in 1996, and reaffirmed that it does not have jurisdiction over natural gas
gathering facilities and services and that such facilities and services are
properly regulated by state authorities. As a result, natural gas gathering may
receive greater regulatory scrutiny by state agencies. FERC has approved several
transfers by interstate pipelines of gathering facilities to unregulated
gathering companies, including affiliates. This could allow such companies to
compete more effectively with independent gatherers. FERC has announced its
intention to reexamine certain of its transportation related policies, including
the appropriate manner for setting rates for new and existing interstate
pipeline facilities and the manner in which interstate pipelines release
transportation capacity under Order No. 636. While any resulting FERC action
would affect the Company only indirectly, these inquiries are intended to
further enhance competition in natural gas markets.
Canadian Oil and Gas Regulation. The oil and natural gas industry is
subject to extensive legislation and regulation governing its operations
including land tenure, exploration, development, production, refining,
transportation, marketing, environmental protection, exports, taxes, labor
standards and health and safety standards imposed by legislation enacted by
various levels of government. In addition, extensive legislation and regulation
exists with respect to pricing and taxation of oil and natural gas and related
products.
LEGAL PROCEEDINGS
From time to time, the Company may be involved in legal actions and claims
arising in the ordinary course of business. In the opinion of management, such
litigation and claims will be resolved without having a material adverse effect
on the Company's results of operations or financial condition.
EMPLOYEES
At September 1, 1997, the Company employed 21 full-time persons.
32
<PAGE> 34
MANAGEMENT
The executive officers and directors of the Company are:
<TABLE>
<CAPTION>
NAME AGE CURRENT POSITION
---- --- ----------------
<S> <C> <C>
Steven H. Mikel......... 46 President, Chief Executive Officer and Director
James H. Price.......... 47 Vice President, Finance
John A. Walker.......... 47 Vice President, Exploration
Billy W. Lee............ 51 Vice President of Engineering
M. Michael Jenson....... 46 Treasurer
Howell H. Howard........ 69 Chairman of the Board and Director
B. Travis Basham........ 57 Director
Thomas R. Fuller........ 49 Director
Robert R. Hillery....... 69 Director
E. Ralph Hines, Jr...... 68 Director
James E. Nielson........ 66 Director
Donald H. Wiese, Jr..... 55 Director
Spencer L. Youngblood... 52 Director
</TABLE>
STEVEN H. MIKEL is President and Chief Executive Officer and Director of
the Company, joining it in January 1995 to redirect its focus into the
acquisition and exploitation of oil and gas properties. From May 1993 to
December 1994, Mr. Mikel was an independent consultant in the oil and gas
industry, acting as a financial advisor to small and medium sized independents
in their capital formation activities. Mr. Mikel was a co-founder and served as
the Managing Director of Resource Investors Management Company (RIMCO), an oil
and gas investment management company, from October 1985 to April 1993. Mr.
Mikel began his career as a corporate finance attorney in Hartford, Connecticut,
and moved into finance with Aetna Life and Casualty, where he specialized in
natural resource industries. Mr. Mikel received his BA and JD degrees from
Syracuse University and his MBA from the University of Connecticut.
JAMES H. PRICE joined the Company in March 1996 as its Vice
President-Finance and Treasurer. From January 1990 to March 1996, Mr. Price
managed his personal investments in oil and gas properties and was President and
Chief Executive Officer of Fannin Energy, Inc. and Grover G. Stanford Oil
Company L.L.C. Mr. Price has in excess of 20 years of experience in the oil and
gas finance industry, beginning his career in the Energy Department of First
City National Bank of Houston, then as Chief Financial Officer of Alliance Well
Service, Inc. and as Senior Vice President-Finance with TGX Corporation. Mr.
Price holds a BBA in Finance from the University of Houston.
JOHN A. WALKER, Vice President-Exploration, joined the Company in January
1996. Prior to joining the Company, Mr. Walker served as Exploration Manager for
Stone & Webster Oil Company, Inc. from January 1994 to December 1995. From March
1987 to December 1993, Mr. Walker was a self-employed geological/geophysical
consultant. He has 22 years of petroleum exploration and production experience
with major and independent companies. Mr. Walker began his technical career with
Conoco, Inc. He received a BS in Geology and an MS in Geology from Ohio
University. Mr. Walker is an AAPG Certified Petroleum Geologist.
BILLY W. LEE joined the Company in May 1996 as a full time consultant, and
became the Vice President of Engineering on July 1, 1997. For more than five
years prior to joining the Company, Mr. Lee served as President and Chief
Executive Officer of Resource Reserves, Co., a private independent oil and gas
company. Mr. Lee has also previously worked for Marathon Oil Company, Tenneco
Oil Company and BP Huddleston & Company in Houston. Mr. Lee earned a BS in
Petroleum Engineering and an MBA from Texas A&M University.
M. MICHAEL JENSON joined the Company in September 1997 as its Treasurer.
Prior to joining the Company, Mr. Jenson was the Chief Financial Officer and
Assistant Secretary for BecField Drilling Services and Phoenix Drilling
Services, Inc. from 1992 to 1996. From May 1996 to September 1997, Mr. Jenson
served as Controller for Equitable Resources Energy Company. He has over 22
years of domestic and international
33
<PAGE> 35
oil field experience with Equitable Resources Energy Company, BecField Drilling
Services, Phoenix Drilling Services, Bechtel Energy Resources Corporation and
Pend Oreille Oil & Gas Company. Mr. Jenson is a Certified Public Accountant and
has earned BBA and MBA degrees from the University of Houston.
HOWELL H. HOWARD has been Trustee of the Ehlco Liquidating Trust since
January 1989, and he was Chairman of the Board of Edward Hines Lumber Company
from 1981 until its liquidation in January 1989. Mr. Howard has been a director
of the Company since 1960 and has served as Chairman of the Board of the Company
since July 1981.
B. TRAVIS BASHAM has been Manager of four Texas general partnerships since
1988, operating under the Diverse name and headquartered in San Antonio, Texas,
all of which are engaged in the oil and gas, exploration and production business
(collectively, the "Diverse Partnerships"). Mr. Basham also has been President
of Venucot, Inc., an oil and gas production and management company, since 1992.
Mr. Basham is a CPA with prior administrative and financial positions with
Ensearch Energy, Gulf Energy and Development Corp., and New London, Inc. Mr.
Basham received his undergraduate degree from Southern Methodist University. Mr.
Basham has been a director of the Company since 1995.
THOMAS R. FULLER has been a Manager of the Diverse Partnerships since 1990.
Since 1980, he has been President of Wyogram Oil Company which is engaged in the
oil and gas production business. He has been a vice president of Hillin Oil
Company from 1980 to 1986 and First City National Bank from 1974 to 1980, and a
drilling and reservoir engineer with Exxon Company, U.S.A. from 1970 to 1974. He
holds a B.S. in petroleum engineering from the University of Wyoming, and
attended Louisiana State University's Graduate School of Banking.
ROBERT R. HILLERY has served as President and Chief Executive Officer of
The Links Group, Inc. ("LGI") since 1993. From 1984 until 1992, Mr. Hillery was
Director and president of Gulf Exploration Consultants, Inc. ("GEC"). Both LGI
and GEC are engaged in oil and gas exploration. He also has been a member of the
Board of Trustees of Phillips University since 1982. Mr. Hillery graduated from
Phillips University with a B.A. in Geology, Mathematics and Physics.
E. RALPH HINES, JR. has been a partner of Moon & Hines, an oil and gas
exploration partnership, since 1972. For more than six years, he has also held
the positions of Director and Vice President of Moon-Hines-Tigrett Operating
Co., Inc., and oil and gas operating company. Mr. Hines has been a director of
the Company since 1985.
JAMES E. NIELSON has held the position of President and Chief Executive
Officer of Nielson & Associates, Inc. since 1992. From 1979 through 1992, Mr.
Nielson was President and Chief Executive Officer of JN Oil and Gas Company, an
oil and gas exploration company. He has served as director of the American
Petroleum Institute, Rocky Mountain Oil and Gas Association, and Shoshone First
Bank since 1974, 1989, and 1992, respectively. Mr. Nielson has been a director
of the Company since 1993.
DONALD H. WIESE, JR. has been a manager of the Diverse Partnerships since
1988, and since 1980, he has been President of Heathery Resources, Inc., an oil
and gas consulting company. Mr. Wiese was previously retained by Primary Fuels,
Inc. to establish and manage it oil and gas acquisition program, where he was
responsible for the acquisition of $240,000,000 in producing properties. He held
executive positions as President of Nord Petroleum Corporation and as Vice
President of American Express' international oil and gas project financing
group. His technical training includes evaluation and appraisal experience as
Vice President of DeGolyer and MacNaughton; and oil and gas operations with
Texaco, Inc. Mr. Wiese is a graduate of New Mexico State University and a
registered professional engineer. Mr. Wiese has been a director of the Company
since 1995.
SPENCER L. YOUNGBLOOD has been a manager of the Diverse Partnerships since
1990 and President of Kona, Inc., an oil and gas production company since 1992.
Mr. Youngblood began his career at Aminoil prior to joining Gulf Energy and
Development Corporation, where he worked with Mr. Basham. Before joining the
Diverse Partnerships, Mr. Youngblood was a senior vice president with Geodyne
Resources, Inc., where he directed acquisitions over a six-year period. Mr.
Youngblood earned a BS in petroleum engineering from Louisiana State University
and an MBA from Florida Technological University. Mr. Youngblood has been a
director of the Company since 1995.
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<PAGE> 36
DESCRIPTION OF DEBENTURES
The Debentures are to be issued under an Indenture, to be dated as of
, 1997 (the "Indenture"), between SMC and American Stock Transfer &
Trust Company, as Trustee (the "Trustee"), a copy of which is filed as an
exhibit to the Registration Statement. For purposes of this Description of
Debentures, the term "Company" or "SMC" refers to Southern Mineral Corporation
and does not include its subsidiaries. Wherever particular defined terms of the
Indenture (including the Debentures) are referred to, such defined terms are
incorporated herein by reference (the Debentures and various terms relating to
the Debentures being referred to in the Indenture as "Securities"). The
following summaries of certain provisions of the Indenture do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, the detailed provisions of the Debentures and the Indenture, including the
definitions therein of certain terms.
GENERAL
The Debentures will be general unsecured subordinated obligations of SMC,
will be limited to $30,000,000 aggregate principal amount (plus up to an
additional $4,500,000 as may be issued under the Underwriters' over-allotment
option), and will mature on , 2007. The Debentures will bear interest
at the rate per annum shown on the front cover of this Prospectus from
, 1997, payable semiannually on and of each year,
commencing on , 1998 to the persons in whose name the Debentures are
registered at the close of business on and as the case may be,
next preceding such interest payment date. Interest will be computed on the
basis of a 360-day year composed of twelve 30 day months. Interest payable per
$1,000 principal amount of Debentures for the period from , 1997 to
, 1998 will be $ .
The Debentures will be convertible into shares of Common Stock initially at
the conversion price stated on the cover page hereof, subject to adjustment upon
the occurrence of certain events described under "--Conversion Rights," at any
time prior to the close of business on the Business Day immediately preceding
the maturity date, unless previously redeemed or repurchased.
The Debentures are redeemable under the circumstances and at the redemption
prices set forth below under " -- Optional Redemption by the Company," plus
accrued interest to the redemption date.
The Debentures will be issued only in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple thereof. No
service charge will be made for any registration of transfer or exchange of
Debentures, but SMC may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection therewith.
CONVERSION RIGHTS
A Holder may, at any time prior to maturity, convert the principal amount
of a Debenture (or any portion thereof equal to $1,000 or an integral multiple
of $1,000) into shares of Common Stock at the conversion price set forth on the
cover page of this Prospectus, subject to adjustment as described below (the
"Conversion Price"). The right to convert a Debenture called for redemption will
terminate at the close of business on the Business Day immediately preceding the
Redemption Date or Repurchase Date (as hereinafter defined) for such Debenture
or such earlier date as the Holder presents the Debenture for redemption (unless
the Company shall default in making the redemption payment when due, in which
case the conversion right shall terminate at the close of business on the date
such default is cured and such Debenture is redeemed). A Debenture for which a
Holder has delivered a Change of Control Purchase Notice exercising the option
of such Holder to require the Company to purchase such Debenture may be
converted only if such notice is withdrawn as a result of a Conversion Notice
delivered by the Holder to the Paying Agent prior to the close of business on
the Business Day immediately preceding the Repurchase Date in accordance with
the Indenture.
No payment or adjustment will be made for dividends or distributions with
respect to shares of Common Stock issued upon conversion of a Debenture. Except
as otherwise provided in the Indenture, interest accrued shall not be paid on
Debentures converted. If any Holder surrenders a Debenture (in whole or in part)
for conversion between the record date for the payment of an installment of
interest and the related interest payment date, then, notwithstanding such
conversion, the interest payable on such interest payment date will
35
<PAGE> 37
be paid to the Holder on such record date; provided, however, that in such
event, such Debenture, when surrendered for conversion, must be accompanied by
delivery by such Holder of a check or draft payable in New York Clearing House
(next day) funds or other funds acceptable to the Company in an amount equal to
the interest payable on such interest payment date on the portion so converted.
Notwithstanding the foregoing, if any Debenture is called for redemption on
, 1999 and such Debenture is surrendered for conversion at any time
during the ten business days immediately preceding the date fixed for
redemption, interest shall accrue on such Debenture through, but not including,
the date fixed for redemption and shall be payable on such redemption date to
the person who surrenders such Debenture for conversion and the conversion date
of such Debenture will be deemed to be the redemption date. No fractional shares
will be issued upon conversion, but a cash payment will be made for any
fractional interest based upon the current market price of the Common Stock.
The Conversion Price is subject to adjustment upon the occurrence of
certain events, including (i) the issuance of shares of Common Stock as a
dividend or distribution on the Common Stock, (ii) the subdivision or
combination of the outstanding Common Stock, (iii) the issuance to holders of
Common Stock of rights or warrants to subscribe for or purchase Common Stock (or
securities convertible into Common Stock) at a price per share less than the
then current market price per share, as defined, (iv) the distribution to
holders of Common Stock of shares of capital stock of the Company (other than
Common Stock), evidences of indebtedness, or other non-cash assets (including
securities of any company other than the Company), (v) the distribution to
holders of Common Stock of rights or warrants to subscribe for its securities
(other than those referred to in (iii) above), (vi) the distribution to holders
of Common Stock of cash in an aggregate amount that (together with (a) all other
cash distributions to holders of Common Stock made within the preceding 12
months not triggering a Conversion Price adjustment and (b) any cash and the
fair market value of other consideration payable in respect of any tender offer
by the Company or any of its subsidiaries for Common Stock concluded within the
preceding 12 months in respect of which no adjustment has been made) exceeds an
amount equal to 15% of the Company's market capitalization on the Business Day
immediately preceding the day on which the Company declares such distribution
and (vii) the successful completion of a tender offer made by the Company or any
of its subsidiaries for Common Stock which involves an aggregate consideration
that, together with (a) any cash and other consideration payable in a tender
offer by the Company or any of its subsidiaries for Common Stock expiring within
the 12 months preceding the expiration of such tender offer in respect of which
no adjustment has been made and (b) the aggregate amount of any such all-cash
distributions referred to in (vi) above to all holders of Common Stock within
the 12 months preceding the expiration of such tender offer in respect of which
no adjustments have been made, exceeds 15% of the Company's market
capitalization on the expiration of such tender offer. In the event of a
distribution pro rata to holders of Common Stock of rights to subscribe for
additional shares of the Company's capital stock (other than those referred to
in (iii) above), the Company may, instead of making any adjustment in the
Conversion Price, make proper provisions so that each Holder who converts a
Debenture (or any portion thereof) after the record date for such distribution
and prior to the expiration or redemption of such rights shall be entitled to
receive upon such conversion, in addition to the shares of Common Stock issuable
upon conversion, an appropriate number of such rights. No adjustment of the
Conversion Price will be required to be made until the cumulative adjustments
require an increase or decrease of at least 1% in the Conversion Price as last
adjusted.
Subject to any applicable right of the Holders upon a Change of Control, if
the Company reclassifies or changes its outstanding Common Stock, or
consolidates with or merges into or sells or conveys all or substantially all of
the assets of the Company as an entirety to any person, or is a party to a
merger that reclassifies or changes its outstanding Common Stock, the Debentures
will become convertible into the kind and amount of shares of stock and other
securities and property (including cash) that the Holders would have owned
immediately after the transaction if the Holders had converted the Debentures
immediately before the effective date of the transaction.
Certain adjustments to the Conversion Price to reflect the Company's
issuance of certain rights, warrants, evidences of indebtedness, securities, or
other property (including cash) to holders of the Common Stock may result in
constructive distributions taxable as dividends to Holders of the Debentures.
Similarly, if instead of adjusting the Conversion Price upon a pro rata
distribution of rights to subscribe for additional shares of the
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<PAGE> 38
Company's capital stock, as described above, the Company elects at such time to
alter the consideration receivable by the holders of the Debentures upon
conversion to include the rights such holders would have been entitled to if
conversion had occurred prior to the record date for such distribution of
rights, the alteration may result in constructive distributions taxable as
dividends to Holders of the Debentures.
SUBORDINATION
The payment of the principal of, premium, if any, and interest on, the
Debentures will be subordinated in right of payment, to the extent set forth in
the Indenture, to the prior payment in full in cash of the principal of,
premium, if any, interest and other amounts in respect of all Senior
Indebtedness of SMC. "Senior Indebtedness" is defined in the Indenture to mean
the principal of (and premium, if any) and interest (including all interest
accruing subsequent to the commencement of any bankruptcy or similar proceeding,
whether or not a claim for post-petition interest is allowable as a claim in any
such proceeding) on, and all fees and other amounts payable in connection with,
the following, whether absolute or contingent, secured or unsecured, due or to
become due, outstanding on the date of the Indenture or thereafter created,
incurred or assumed: (a) indebtedness of the Company to banks, insurance
companies and other financial institutions evidenced by credit or loan
agreements, notes or other written obligations, (b) all other indebtedness of
the Company (including indebtedness of others guaranteed by the Company) other
than the Debentures, whether outstanding on the date of this Indenture or
thereafter created, incurred or assumed, which is (i) for money borrowed or (ii)
evidenced by a note, security, debenture, bond or similar instrument given in
connection with the acquisition of any businesses, properties or assets of any
kind, (c) obligations of the Company as lessee under leases required to be
capitalized on the balance sheet of the lessee under generally accepted
accounting principles, (d) obligations of the Company under interest rate,
currency swaps, and oil, gas and other product price hedging arrangements, caps,
floors, collars or similar agreements or arrangements intended to protect the
Company against fluctuations in interest, currency exchange rates, or oil, gas
and other product prices, and (e) renewals, extensions, modifications,
restatements and refundings of, or any indebtedness or obligation issued in
exchange for, any such indebtedness or obligation described in clauses (a)
through (d) of this paragraph; provided, however, that Senior Indebtedness shall
not include any such indebtedness or obligation (i) if the terms of such
indebtedness or obligation (or the terms of the instrument under which, or
pursuant to which, it is issued) expressly provide that such indebtedness or
obligation is not superior in right of payment to the Debentures, or expressly
provide that such indebtedness or obligation is pari passu with or junior to the
Debentures, (ii) if such indebtedness or obligation is non-recourse to the
Company, (iii) if such indebtedness or obligation is a conditional sale contract
or any account payable or any other similar indebtedness created or assumed by
the Company in the ordinary course of business in connection with the obtaining
of materials, inventories or services, or (iv) any liability for Federal, state,
provincial, local or other taxes owed or owing by the Company.
No payment on account of principal, premium, if any, or interest on, the
Debentures may be made by SMC if there shall have occurred (i) a default in the
payment of principal, premium, if any, or interest (including a default under
any repurchase or redemption obligation) with respect to any Senior Indebtedness
or (ii) there shall exist a default in any covenant with respect to Designated
Senior Indebtedness (other than as specified in clause (i) of this sentence),
and, in such event, such default shall not have been cured or waived or shall
not have ceased to exist, the Trustee and the Company shall have received
written notice from any holder of such Designated Senior Indebtedness (a "Senior
Default Notice") stating that no payment shall be made with respect to the
Debentures and such default would permit the maturity of such Designated Senior
Indebtedness to be accelerated, provided that no such default will prevent any
payment on, or in respect of, the Debentures for more than 180 days, unless the
maturity of such Senior Indebtedness has been accelerated; provided, however,
that not more than one Senior Default Notice shall be given during any period of
360 consecutive days, regardless of the number of defaults with respect to
Designated Senior Indebtedness during such 360-day period. "Designated Senior
Indebtedness" is defined as any Senior Indebtedness which the Company designated
to the Trustee as Designated Senior Indebtedness. Upon any acceleration of the
principal due on the Debentures or payment or distribution of assets of SMC to
creditors upon any dissolution, winding up, liquidation or reorganization,
whether voluntary or involuntary, or in bankruptcy, insolvency, receivership or
other similar proceedings of SMC, all principal, premium, if any, and interest
or other amounts
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<PAGE> 39
due on all Senior Indebtedness must be paid in full in cash or other immediately
available funds, or provision shall be made for such payment in cash or other
immediately available funds or otherwise in a manner satisfactory to each holder
of Senior Indebtedness with respect to its indebtedness, before the Holders of
the Debentures are entitled to receive any payment (except that Holders of the
Debentures may receive and retain shares of stock and any debt securities that
are subordinated to Senior Indebtedness to at least the same extent as the
Debentures). By reason of such subordination, in the event of insolvency,
creditors of SMC who are holders of Senior Indebtedness are likely to recover
more, ratably, than the Holders of the Debentures, and such subordination may
result in a reduction or elimination of payments to the Holders of the
Debentures.
In addition, the Debentures will be structurally subordinated to all
indebtedness and other liabilities (including trade payables) of SMC's
subsidiaries, as any right of SMC to receive any assets of its subsidiaries upon
their liquidation or reorganization (and the consequent right of the Holders of
the Debentures to participate in those assets) will be effectively subordinated
to the claims of that subsidiary's creditors (including trade creditors), except
to the extent that SMC itself is recognized as a creditor of such subsidiary, in
which case the claims of SMC would still be subordinate to any security interest
in the assets of such subsidiary and any indebtedness of such subsidiary senior
to that held by SMC. As of June 30, 1997, the amount of indebtedness and other
liabilities of SMC's subsidiaries to which the Debentures are structurally
subordinated were $345,000 (excluding intercompany obligations).
The Indenture does not limit SMC's ability to incur Senior Indebtedness or
any other indebtedness.
OPTIONAL REDEMPTION BY THE COMPANY
The Debentures may not be redeemed prior to , 1999. Thereafter,
the Debentures may be redeemed, in whole or in part, at the option of SMC, upon
not less than 30 nor more than 60 days' prior notice as provided under
"-- Notices" below, at the redemption prices set forth below, together with
interest accrued and unpaid to the Redemption Date; provided that from
1999 to 2000, the Company may redeem the Debentures if the
Closing Price Per Share of Common Stock for at least 20 consecutive trading days
ending on a date no more than 10 days prior to the date that notice of
redemption is given to Holders as provided in the Indenture exceeds 130% of the
conversion price in effect on each of such 20 consecutive trading days.
"Closing Price Per Share" is defined in the Indenture to mean with respect
to the Common Stock of the Company, for any day, the reported last sales price
regular way per share or, in case no such reported sale takes place on such day,
the average of the reported closing bid and asked prices regular way, in either
case (i) on the New York Stock Exchange or, if the Common Stock is not listed or
admitted to trading on the New York Stock Exchange, on the principal national
securities exchange on which the Common Stock is listed or admitted to trading,
or (ii) if not listed on or admitted to trading on any national securities
exchange, then on the Nasdaq National Market or (iii) if the Common Stock is not
listed or admitted to trading on any national securities exchange or quoted on
such National Market, the average of the closing bid and asked prices in the
over-the-counter market as furnished by any New York Stock Exchange member firm
selected from time to time by the Company for that purpose.
The redemption prices (expressed as a percentage of principal amount) are
as follows for the 12-month period beginning on of the following years:
<TABLE>
<S> <C>
1999......................... %
2000......................... %
2001......................... %
2002......................... %
2003......................... %
2004......................... %
2005......................... %
2006......................... 100%
</TABLE>
No sinking fund is provided for the Debentures.
REPURCHASE AT OPTION OF HOLDERS UPON A CHANGE OF CONTROL
If a Change of Control occurs, each Holder of Debentures shall have the
right, at the Holder's option, to require SMC to repurchase all of such Holder's
Debentures, or any portion of the principal amount thereof
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<PAGE> 40
that is equal to $1,000 or an integral multiple of $1,000 in excess thereof, on
the date (the "Repurchase Date") that is 45 days after the date of the Company
Notice (as defined herein), at a price equal to 100% of the principal amount of
the Debentures to be repurchased, together with interest accrued and unpaid to
the Repurchase Date (the "Repurchase Price").
Within 30 days after the occurrence of a Change of Control, SMC is
obligated to give to all Holders of the Debentures notice, as provided in the
Indenture (the "Company Notice"), of the occurrence of such Change of Control
and of the repurchase right arising as a result thereof, or, at the request of
SMC on or before the 15th day after such occurrence, the Trustee shall give the
Company Notice. SMC must also deliver a copy of the Company Notice to the
Trustee and to the office of each Paying Agent. To exercise the repurchase
right, a Holder of Debentures must deliver on or before the 30th day after the
date of the Company Notice irrevocable written notice to the Trustee or any
Paying Agent of the Holder's exercise of such right, together with the
Debentures with respect to which the right is being exercised.
A Change of Control shall be deemed to have occurred at such time after the
original issuance of the Debentures as there shall occur when:
(i) the acquisition by any Person (including any syndicate or group
deemed to be a "person" under Section 13(d)(3) of the Exchange Act) of
beneficial ownership, directly or indirectly, through a purchase, merger or
other acquisition transaction or series of transactions, of shares of
capital stock of SMC entitling such Person to exercise more than a majority
of the total voting power of all shares of capital stock of SMC entitled to
vote generally in elections of directors, other than any such acquisition
by SMC, any subsidiary of SMC or any employee benefit plan of SMC; or
(ii) any consolidation or merger of SMC with or into any other Person,
any merger of another Person with or into SMC, or any conveyance, sale,
transfer or lease of all or substantially all of the assets of SMC to
another Person (other than (a) any such transaction which does not result
in any reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock and (b) any merger which is effected
solely to change the jurisdiction of incorporation of SMC and results in a
reclassification, conversion or exchange of outstanding shares of Common
Stock into solely shares of common stock).
"Beneficial owner" shall be determined in accordance with Rule 13d-3 promulgated
by the Commission under the Exchange Act, as in effect on the date of original
execution of the Indenture.
Any repurchase in connection with a Change of Control could, depending on
the circumstances and absent a waiver from the holders of Senior Indebtedness,
be blocked by the subordination provisions of the Debentures. See
" -- Subordination." Failure by SMC to repurchase the Debentures when required
may result in an Event of Default with respect to the Debentures whether or not
such repurchase is permitted by the subordination provisions. See " -- Events of
Default."
Rule 13e-4 under the Exchange Act requires the dissemination of certain
information to security holders in the event of an issuer tender offer and may
apply in the event that the repurchase option becomes available to Holders of
the Debentures. SMC will comply with this rule to the extent applicable at that
time.
The foregoing provisions would not necessarily afford Holders of the
Debentures protection in the event of highly leveraged or other transactions
involving SMC that may adversely affect Holders.
MERGERS AND SALES OF ASSETS BY SMC
SMC may not consolidate or merge with or into any other Person or, directly
or indirectly, convey, transfer, sell, lease or otherwise dispose of its
properties and assets substantially as an entirety to any Person, and SMC may
not permit any Person to consolidate or merge with or into SMC or convey,
transfer, sell, lease or otherwise dispose such Person's properties and assets
substantially as an entirety to SMC, unless (a) the Person formed by such
consolidation or into or with which SMC is merged or the Person to which the
properties and assets of SMC are so conveyed, transferred, sold, leased or
otherwise disposed of is a corporation, limited liability company, partnership
or trust organized and existing under the laws of the United States, any State
thereof or the District of Columbia and has expressly assumed the due and
punctual
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<PAGE> 41
payment of the principal of, premium, if any, and interest on the Debentures and
the performance of the other covenants of SMC under the Indenture, (b)
immediately after giving effect to such transaction and treating any
indebtedness which becomes due as an obligation of the Company at the time of
such transaction, no Event of Default, and no event which, after notice or lapse
of time or both, would become an Event of Default, shall have occurred and be
continuing, and (c) SMC has provided to the Trustee an officer's certificate and
opinion of counsel as provided in the Indenture.
LIMITATION ON DIVIDEND RESTRICTIONS AFFECTING SUBSIDIARIES
Without the consent of the Holders of a majority in aggregate principal
amount of the Debentures then outstanding the Company may not, and may not
permit any of its Subsidiaries to, create or otherwise cause or suffer to exist
or become effective any encumbrance or restriction of any kind on the ability of
any Subsidiary to (a) pay to the Company or any other Subsidiary dividends or
make to the Company or any other Subsidiary any other distribution of its
capital stock, (b) pay any debt owed to the Company or any other Subsidiary, (c)
make loans or advances to the Company or any other Subsidiary or (d) transfer
any of its property or assets to the Company or any other Subsidiary, other than
such encumbrances or restrictions existing or created under or by reason of (i)
applicable laws, (ii) the Indenture, (iii) covenants, liens or restrictions
contained in any instrument governing debt of the Company or any of the
Subsidiaries existing on the date of the Indenture, or covenants or restrictions
in any loan documents relating to Senior Indebtedness incurred after the date
hereof, provided that in the absence of a default under any such loan documents,
no such restriction shall prevent a Subsidiary from paying dividends or
otherwise distributing funds to the Company in amounts sufficient to enable the
Company to make interest and principal payments on the Debentures as and when
due, (including repurchase upon a Change of Control pursuant to the terms of the
Indenture), (iv) customary provisions restricting subletting, assignment and
transfer of any lease governing a leasehold interest of the Company or any of
the Subsidiaries or in any license or other agreement entered into in the
ordinary course of business, (v) any agreement governing debt of a person
acquired by the Company or any of the Subsidiaries in existence at the time of
such acquisition (but not created in connection with or in contemplation
thereof), which encumbrances or restrictions are not applicable to any person,
or the property or assets of any person, other than the person, or the property
or assets of the person, so acquired, (vi) any restriction with respect to a
Subsidiary imposed pursuant to an agreement entered into in accordance with the
terms of the Indenture for the sale or disposition of capital stock or property
or assets of such Subsidiary, pending the closing of such sale or disposition or
(vii) any agreement that extends, renews, refinances or replaces the agreements
containing the restrictions in the foregoing clauses (ii) through (v); provided,
however, that the terms and conditions of any such restrictions shall be no more
restrictive to the Company or any Subsidiary than the restrictions in the
agreement so extended, renewed, refinanced or replaced.
EVENTS OF DEFAULT
The following will be Events of Default under the Indenture: (a) failure to
pay principal or redemption price of any Debenture when due, whether or not such
payment is prohibited by the subordination provisions of the Indenture; (b)
failure to pay any interest on any Debenture when due, continuing for 30 days,
whether or not such payment is prohibited by the subordination provisions of the
Indenture; (c) default in SMC's obligation to provide a Company Notice of a
Change of Control; (d) failure to perform any other covenant of SMC in the
Indenture, continuing for 60 days after written notice as provided in the
Indenture; (e) default in respect of any indebtedness for money borrowed by SMC
at final maturity thereof or that results in acceleration of the maturity of an
amount in each case in excess of $1,000,000 of indebtedness if such indebtedness
is not discharged, or such acceleration is not annulled, within 30 days after
written notice as provided in the Indenture; (f) final unsatisfied judgments not
covered by insurance aggregating in excess of $1,000,000, at any one time
rendered against the Company or any of its Subsidiaries and not stayed, bonded
or discharged within 30 days; and (g) certain events of bankruptcy, insolvency
or reorganization. Subject to the provisions of the Indenture relating to the
duties of the Trustee in case an Event of Default shall occur and be continuing,
the Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request or direction of any of the Holders, unless
such Holders shall have offered to the Trustee reasonable indemnity. Subject to
such provisions for the indemnification of the Trustee, the Holders of a
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<PAGE> 42
majority in aggregate principal amount of the Outstanding Debentures will have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee or exercising any trust or power conferred
on the Trustee.
If an Event of Default (other than an Event of Default specified in
subsection (g) above) occurs and is continuing, either the Trustee or the
Holders of not less than 25% in aggregate principal amount of the Outstanding
Debentures, may by notice in writing to SMC, declare the principal of all the
Debentures to be due and payable immediately, and upon any such declaration such
principal and any accrued interest thereon will become immediately due and
payable. If an Event of Default specified in subsection (g) occurs and is
continuing, the principal and any accrued interest on all of the then
Outstanding Debentures shall automatically become due and payable immediately
without any declaration or other Act on the part of the Trustee or any Holder.
At any time after a declaration of acceleration has been made but before a
judgment or decree based on acceleration, the Holders of a majority in aggregate
principal amount of Outstanding Debentures may, under certain circumstances,
rescind and annul such acceleration if all Events of Default, other than the
nonpayment of accelerated principal and interest have been cured or waived as
provided in the Indenture.
No Holder of any Debenture 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 Debentures 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 Debentures a direction
inconsistent with such request and shall have failed to institute such
proceeding within 60 days; provided, however, that such limitations do not apply
to a suit instituted by a Holder of a Debenture for the enforcement of payment
of the principal of, premium, if any, or interest on such Debenture on or after
the respective due dates expressed in such Debenture or of the right to convert
such Debenture in accordance with the Indenture.
SMC will be required to furnish to the Trustee annually a statement as to
the performance by SMC of certain of its obligations under the Indenture and as
to any default in such performance.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made, and certain past
defaults by SMC may be waived with the written consent of the Holders of not
less than a majority in aggregate principal amount of the Debentures at the time
Outstanding; provided, however, that no such modification or amendment may,
without the consent of the Holder of each outstanding Debenture affected
thereby, (a) change the Stated Maturity of the principal of, or any installment
of interest on, any Debenture, (b) reduce the principal amount of, or the
premium, if any, or rate of interest on, any Debenture, (c) reduce the amount
payable upon redemption or repurchase, (d) modify the provisions with respect to
the repurchase right of the Holders in a manner adverse to the Holders, (e)
change the place or currency of payment of principal of, premium, if any, or
interest on, any Debenture, (f) impair the right to institute suit for the
enforcement of any payment on or with respect to any Debenture (including any
payment of the Repurchase Right in respect of such Debenture), (g) modify the
obligation of SMC to maintain an office or agency in New York City, (h) except
as otherwise permitted or contemplated by provisions concerning consolidation,
merger, conveyance, transfer, sale or lease of all or substantially all of the
property and assets of SMC, adversely affect the right of Holders to convert any
of the Debentures, (i) modify the subordination provisions in a manner adverse
to the Holders of the Debentures, (j) reduce the above-stated percentage of
Outstanding Debentures necessary to modify or amend the Indenture, or (k) reduce
the percentage of aggregate principal amount of Outstanding Debentures necessary
for waiver of compliance with certain provisions of the Indenture or for waiver
of certain defaults.
The Holders of a majority in aggregate principal amount of the Outstanding
Debentures may waive compliance by SMC with certain restrictive provisions of
the Indenture. The Holders of a majority in aggregate principal amount of the
Outstanding Debentures also may waive any past default under the Indenture,
except a default in the payment of principal, premium, if any, or interest.
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<PAGE> 43
TRANSFER AND EXCHANGE
SMC has initially appointed the Trustee as security registrar and transfer
agent, acting through its Corporate Trust Office in The City of New York. SMC
reserves the right to vary or terminate the appointment of the security
registrar or of any transfer agent or to appoint additional or other transfer
agents.
TITLE
SMC and the Trustee may treat the registered owner (as reflected in the
Security Register) of any Debenture as the absolute owner thereof (whether or
not such Debenture shall be overdue) for the purpose of making payment and for
all other purposes.
NOTICES
Notice to Holders of the Debentures will be given by mail to the addresses
of such Holders as they appear in the Security Register.
Notice of a redemption of Debentures will be given not less than 30 nor
more than 60 days prior to the redemption date (which notice shall be
irrevocable) and will specify the redemption date.
REPLACEMENT OF DEBENTURES
Debentures that become mutilated, destroyed, stolen or lost will be
replaced by SMC at the expense of the Holder upon delivery to the Trustee of the
mutilated Debentures or evidence of the loss, theft or destruction thereof
satisfactory to SMC and the Trustee. In the case of a lost, stolen or destroyed
Debenture indemnity satisfactory to the Trustee and SMC may be required at the
expense of the Holder of such Debenture before a replacement Debenture will be
issued.
SATISFACTION AND DISCHARGE
The Indenture shall cease to be of further effect (except as to any
surviving rights of conversion, or registration of transfer or exchange of the
Debentures therein expressly provided for), when (1) either (A) all Debentures
theretofore authenticated and delivered (other than (i) Debentures which have
been destroyed, lost or stolen and which have been replaced or paid and (ii)
Debentures for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation; or (B) all such Debentures not theretofore delivered to the
Trustee for cancellation (i) have become due and payable, or (ii) will become
due and payable at their Stated Maturity within one year, or (iii) are to be
called for redemption within one year under arrangements satisfactory to the
Trustee for the giving of notice of redemption by the Trustee in the name, and
at the expense, of the Company, and the Company, in the case of (i), (ii) or
(iii) above, has deposited or caused to be deposited with the Trustee as trust
funds in trust for the purpose an amount sufficient to pay and discharge the
entire indebtedness on such Debentures not theretofore delivered to the Trustee
for cancellation, for principal (and premium, if any) and interest to the date
of such deposit (in the case of Debentures which have become due and payable) or
to the Stated Maturity or Redemption Date, as the case may be; (2) the Company
has paid or caused to be paid all other sums payable under the Indenture by the
Company; and (3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent under the Indenture relating to the satisfaction and discharge of the
Indenture have been complied with.
PAYMENT OF STAMP AND OTHER TAXES
SMC shall pay all stamp and other duties, if any, which may be imposed by
the United States or any political subdivision thereof or taxing authority
thereof or therein with respect to the issuance of the Debentures. SMC will not
be required to make any payment with respect to any other tax, assessment or
governmental charge imposed by any government or any political subdivision
thereof or taxing authority therein.
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GOVERNING LAW
The Indenture and the Debentures will be governed by and construed in
accordance with the laws of the State of New York without regard to the
principles of conflicts of law.
THE TRUSTEE
In case an Event of Default shall occur (and shall not be cured), the
Trustee will be required to use the degree of care of a prudent person in the
conduct of his own affairs in the exercise of its powers. Subject to 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 of the Holders of
Debentures, unless they shall have offered to the Trustee security or indemnity
satisfactory to it.
BOOK-ENTRY
The Debentures will be issued in the form of a global Debenture or
Debentures (together, the "Global Debenture") deposited with, or on behalf of,
The Depository Trust Company ("DTC") and registered in the name of Cede & Co. as
DTC's nominee. Owners of beneficial interests in the Debentures represented by
the Global Debenture will hold such interests pursuant to the procedures and
practices of DTC and must exercise any rights in respect of their interests
(including any right to convert or require repurchase of their interests) in
accordance with those procedures and practices. Such beneficial owners will not
be Holders, and will not be entitled to any rights under the Global Debenture or
the Indenture, with respect to the Global Debenture and SMC and the Trustee, and
any of their respective agents, may treat DTC as the sole Holder and owner of
the Global Debenture.
DTC has advised the Company as follows: DTC is a limited-purpose trust
company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and a "clearing agency" registered pursuant to the provisions
of Section 17A of the Exchange Act. DTC holds securities that its participants
deposit with DTC. DTC also facilitates the settlement among participants of
securities transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in participants' accounts,
thereby eliminating the need for physical movement of securities certificates.
Direct participants include securities brokers and dealers (including Morgan
Keegan & Company, Inc.), banks, trust companies, clearing corporations, and
certain other organizations. DTC is owned by a number of its direct participants
and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and
the National Association of Securities Dealers, Inc. Access to the DTC system is
also available to others such as securities brokers and dealers, banks, and
trust companies that clear through or maintain a custodial relationship with a
direct participant, either directly or indirectly. The rules applicable to DTC
and its participants are on file with the Securities and Exchange Commission.
Unless and until they are exchanged in whole or in part for certificated
Debentures in definitive form as set forth below, the Global Debenture may not
be transferred except as a whole by DTC to a nominee of DTC, or by a nominee of
DTC to DTC or another nominee of DTC.
The Debentures represented by the Global Debenture will not be exchangeable
for certificated Debentures, provided that if (i) DTC is at any time unwilling,
unable or ineligible to continue as depositary and a successor is not appointed
within 90 days of such notice or (ii) there shall have occurred and be
continuing an Event of Default with respect to the Debentures represented by the
Global Debenture, SMC will issue individual Debentures in definitive form in
exchange for the Global Debenture. In addition, SMC may at any time and in its
sole discretion determine not to have a Global Debenture, and, in such event,
will issue individual Debentures in definitive form in exchange for the Global
Debenture previously representing all such Debentures. In such instances, an
owner of a beneficial interest in a Global Debenture will be entitled to
physical delivery of Debentures in definitive form equal in principal amount to
such beneficial interest and to have such Debentures registered in its name.
Individual Debentures so issued in definitive form will be
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<PAGE> 45
issued in denominations of $1,000 and any larger amount that is an integral
multiple of $1,000 and will be issued in registered form only, without coupons.
Payments of principal of and interest on the Debentures will be made by SMC
through the Trustee to DTC or its nominee, as the case may be, as the registered
owner of the Global Debenture. Neither SMC nor the Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests of the Global
Debenture or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests. SMC expects that DTC, upon receipt of any
payment of principal or interest in respect of the Global Debenture, will credit
the accounts of the related participants with payment in amounts proportionate
to their respective holdings in principal amount of beneficial interest in the
Global Debenture as shown on the records of DTC. SMC also expects that payments
by participants to owners of beneficial interests in the Global Debenture will
be governed by standing customer instructions and customary practices, as is now
the case with securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of such
participants.
So long as the Debentures are represented by a Global Debenture, DTC or its
nominee will be the only entity that can exercise a right to repayment pursuant
to the Holder's option to elect repayment of its Debentures or the right of
conversion of the Debentures. Notice by participants or by owners of beneficial
interests in a Global Debenture held through such participants of the exercise
of the option to elect repayment, or the right of conversion, of beneficial
interests in Debentures represented by the Global Debenture must be transmitted
to DTC in accordance with its procedures on a form required by DTC and provided
to participants. In order to ensure that DTC's nominee will timely exercise a
right to repayment, or the right of conversion, with respect to a particular
Debenture, the beneficial owner of such Debentures must instruct the broker or
other participant through which it holds an interest in such Debentures to
notify DTC of its desire to exercise a right to repayment, or the right of
conversion. Different firms have different cut-off times for accepting
instructions from their customers and, accordingly, each beneficial owner should
consult the broker or other participant through which it holds an interest in a
Debenture in order to ascertain the cut-off time by which such an instruction
must be given in order for timely notice to be delivered to DTC. SMC will not be
liable for any delay in delivery of such notice to DTC.
DESCRIPTION OF CREDIT FACILITY
On December 20, 1995, the Company as borrower and SMC Production Co.,
Spruce Hills Production Company and BEC Energy, Inc. as co-borrowers entered
into a senior secured reducing revolving credit facility with Compass Bank as
lender. The maximum borrowing ("Borrowing Base") that may be outstanding under
the Credit Facility may not exceed the present value of the Company's oil and
gas reserves based on assumptions regarding prices, costs and discount rates
approved by the bank group. At August 31, 1997, the Borrowing Base was $25.7
million. The Borrowing Base reduces $300,000 per month and is reviewed by the
bank semi-annually until maturity on June 1, 2000.
As of August 31, 1997, $20.7 million was outstanding under the Credit
Facility. Borrowings under the Credit Facility bear interest at either the
bank's prime rate or the LIBOR plus 2.25%. At August 31, 1997, borrowings under
the Credit Facility had an interest rate of 7.9%.
The Credit Facility has affirmative and negative covenants, including
without limitation, those relating to the following matters (i) information,
(ii) limitation on liens, (iii) limitations on consolidations, mergers and sales
of assets, (iv) compliance with laws, (v) limitations on total consolidated
debt, and (vi) restrictions on investments. The Company will also be required to
maintain certain financial ratios.
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<PAGE> 46
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Company's authorized capital stock consists of 20,000,000 shares of
common stock, par value $.01 per share, of which as of June 30, 1997, 9,108,832
shares were issued and outstanding and 1,738,878 shares were reserved for
issuance upon exercise of outstanding options and warrants and for issuance
under the Company's various stock option and compensation plans. All outstanding
shares of Common Stock are fully paid and nonassessable.
Holders of Common Stock are entitled to receive dividends, if, as and when
declared by the Board of Directors of the Company out of funds legally available
therefor, and are entitled on liquidation to share ratably in all assets of the
Company remaining after the payment of liabilities. Since 1994, the Company has
reinvested all earnings in the Company and, accordingly, has not paid any
dividends on Common Stock of the Company. Although the Company intends to
continue to reinvest future earnings the Company may determine to pay dividends
in the future. The Company's ability to declare and pay any such dividends will
depend upon, among other things, the earnings and financial condition of the
Company, and restrictive provisions the Company's Credit Facility and any other
financing arrangements to which the Company may be subject from time to time.
Each share of Common Stock has one vote on all matters presented to the
stockholders. A majority of issued and outstanding shares of Common Stock
entitled to vote and represented at a stockholders meeting in person or by proxy
constitutes a quorum for the transaction of business. The affirmative vote of a
majority of shares present and entitled to vote at a meeting at which a quorum
is present generally will constitute stockholder action. Certain fundamental
corporate changes such as amending the articles of incorporation, a merger or a
disposition of all of the Company's assets, require the approval of a majority
of outstanding shares entitled to vote thereon. Directors are elected by a
plurality of votes cast by stockholders entitled to vote therefor. Since the
Common Stock does not have cumulative voting rights, holders of more than 50% of
the shares present and entitled to vote for directors at a meeting at which a
quorum is present may, if they choose to do so, elect all of the directors and,
in that event, the holders of the remaining shares will not be able to elect any
directors.
Since the Company's Amended and Restated Articles of Incorporation do not
deny preemptive rights, under Section 78.265 of the General Corporation Law of
Nevada (the "NGCL"), holders of Common Stock have preemptive rights to acquire
unissued shares, treasury shares or securities convertible into such shares
except with respect to (i) shares issued to directors, officers or employees
pursuant to approval by the affirmative vote of the holders of a majority of the
shares entitled to vote or when authorized by a plan approved by such a vote of
shareholders, (ii) shares sold for a consideration other than cash, (iii) shares
issued at the same time that the shareholder who claims a preemptive right
acquired his shares, (iv) shares issued as part of the same offering in which
the shareholder who claims a preemptive right acquired his shares, (v) shares
(or shares into which convertible securities may be converted) which upon
issuance are registered pursuant to Section 12 of the Exchange Act or (vi)
shares of any class that is preferred or limited as to dividends or assets or to
any obligations, unless convertible into Common Stock or carrying a right to
subscribe to or acquire Common Stock. To the extent any preemptive right exists,
it only is an opportunity to acquire shares or other securities upon such terms
as the board of directors may fix for the purpose of providing a fair and
reasonable opportunity for the exercise of such right. The Common Stock of the
Company is registered under Section 12 of the Exchange Act and holders thereof
will have no preemptive rights in respect of Common Stock issuances for so long
as the Common Stock remains so registered.
American Stock Transfer & Trust Company, New York, New York, is the
transfer agent and registrar for the Common Stock.
CERTAIN PROVISIONS OF CHARTER DOCUMENTS AND NEVADA LAW
Liability Limitation. As permitted by Section 78.037 of the NGCL, the
Company's Amended and Restated Articles of Incorporation eliminate the liability
of its directors and officers to the Company and its stockholders for damages
for breach of fiduciary duty, except for acts or omissions which involve
intentional
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<PAGE> 47
misconduct, fraud or a knowing violation of law, or for the payment of
distributions in violation of the NGCL. To the extent that this provision limits
the remedies of the Company and its Stockholders to equitable remedies, it might
reduce the likelihood of derivative litigation and discourage the Company's
management or stockholders from initiating litigation against its directors or
officers for breach of their fiduciary duties. Additionally, equitable remedies
may not be effective in many situations. If a stockholder's only remedy is to
enjoin the completion of an act, such remedy would be ineffective if the
stockholder does not become aware of a transaction or event until after it has
been completed. In such a situation, it is possible that the Company and its
stockholders would have no effective remedy against directors or officers.
Indemnification. The Bylaws of the Company make mandatory the
indemnification permitted by the NGCL and the Company's Amended and Restated
Articles of Incorporation. Accordingly, the Company generally must indemnify its
directors, officers, employees and agents against liabilities and expenses to
which they may become subject or which they may incur as a result of being or
having been a director, officer, employee or agent of the Company. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions, or otherwise, the Company has been advised that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
Nevada Takeover Statute. The Company is subject to provisions of the NGCL
which generally restrict business combinations between the Company and those of
its stockholders who beneficially own 10% or more of the voting power of its
outstanding voting shares. The effect of these provisions is to permit friendly,
negotiated transactions which are approved in advance by the Board of Directors
while restricting a hostile acquiror's flexibility in acquiring the Company. The
following discussion of these provisions is qualified in its entirety by
reference to Nevada Revised Statues 78.411 through 78.444 (collectively, the
"Takeover Statute"). References to Sections are to sections of the Takeover
Statute. Combinations covered by the Takeover Statute and generally include
transactions involving the Company's assets or securities. Subject to certain
exceptions, the Takeover Statute prohibits the Company from engaging in any
combination with any interested stockholder for three years after the Interested
Stockholder's (as defined herein) date of acquiring shares unless the
combination or the purchase of shares made by the Interested Stockholder is
approved by the Board of Directors of the Company. The Takeover Statute also
prohibits any combination with an Interested Stockholder following the
expiration of three years after the date the Interested Stockholder acquired
such shares, unless the combination complies with the Company's Amended and
Restated Articles of Incorporation and either (i) the combination or the
purchase of shares by the Interested Stockholder is approved by the Board of
Directors prior to such acquisition of Shares by the Interest Stockholder, (ii)
the combination is approved by the affirmative vote of the holders of capital
stock representing a majority of the outstanding voting power not beneficially
owned by the Interested Stockholder at a meeting called for that purpose no
earlier than three years after the note the Interested Stockholder's acquisition
of such, or (iii) the aggregate value of consideration to be received by the
holders of the Common Stock and by the holders of any other class or series of
capital stock satisfies certain standards specified in the Takeover Statute, the
consideration to be received by the stockholders is distributed promptly and is
in cash or the same form as the Interested Stockholder used to acquire the
largest number of shares previously acquired by such stockholder, and except as
specified in the Takeover Statute, the interested stockholder has not become the
beneficial owner of any additional voting shares of the Company after the date
of acquiring shares and before the date of consummation of the combination.
"Interested Stockholder" is defined in the Takeover Statute as any person (other
than the Company or any of its subsidiaries) who beneficially owns, directly or
indirectly, 10% or more of the voting power of the Company's outstanding voting
shares, or any affiliate or associate of the Company who, at any time within
three years immediately before the date in question, was the beneficial owner of
10% or more of the voting power of the Company's then outstanding shares.
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<PAGE> 48
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
relating to the Debentures, the Company has agreed to sell to the several
Underwriters named below, and the several Underwriters have agreed to purchase,
the principal amounts of the Debentures set forth opposite their respective
names:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITER DEBENTURES
----------- -----------
<S> <C>
Morgan Keegan & Company, Inc................................ $
McDonald & Company Securities, Inc..........................
Rauscher Pierce Refsnes, Inc................................
-----------
Total............................................. $30,000,000
===========
</TABLE>
The Underwriters have advised the Company that they propose initially to
offer the Debentures to the public at the public offering price set forth on the
cover page of this Prospectus, and to certain dealers at such price less a
concession not in excess of % of the principal amount of the Debentures. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of % of the principal amount of the Debentures to certain other dealers.
After the Offering, the public offering price, concession and discount may be
changed.
Pursuant to the Underwriting Agreement, the Company has granted to the
Underwriters an option, exercisable for 30 days from the date hereof, to
purchase up to an additional $4,500,000 principal amount of Debentures at the
public offering price less the underwriting discounts and commissions set forth
on the cover page hereof. The Underwriters may exercise such option to purchase
additional Debentures solely for the purpose of covering over-allotments, if
any, made in connection with the sale of the Debentures offered hereby. To the
extent such over-allotment options is exercised, each Underwriter will become
obligated, subject to certain conditions, to purchase the same percentage of
such additional Debentures as the number set forth next to such Underwriter's
name in the preceding table bears to the total number of Debentures.
During and after the Offering, the Underwriters may purchase and sell the
Debentures in the open market. These transactions may include over-allotment and
stabilizing transactions and purchases to cover syndicate short positions
created in connection with the Offering. The Underwriters may also impose a
penalty bid, whereby selling concessions allowed to syndicate members or other
broker-dealers for the Debentures sold in the Offering for their account may be
reclaimed by the syndicate if such Debentures are repurchased by the syndicate
in stabilizing or covering transactions. These activities may stabilize,
maintain or otherwise affect the market price of the Debentures, which may be
higher than the price that might otherwise prevail in the open market, and, if
commenced, may be discontinued at any time.
The Company has agreed to indemnify the Underwriters against or make
contributions relating to certain liabilities, including liabilities under the
Securities Act.
The Underwriting Agreement will provide that the obligations of the several
Underwriters to pay for and accept delivery of the Debentures are subject to the
approval of certain legal matters by counsel to the Underwriters and to certain
other conditions. The Underwriters are committed to take and pay for all of the
Debentures if any are taken.
The Company has agreed that for a period of 90 days following the date of
this Prospectus it will not, directly or indirectly, issue any Common Stock or
any securities convertible into, exchangeable for or representing the right to
acquire Common Stock, without the written consent of Morgan Keegan & Company,
Inc., other than pursuant to existing stock options and warrants. In addition,
each of the Company's officers and directors has agreed that, for a period of 90
days from the date of this Prospectus, he will not, directly or indirectly,
offer, sell, offer to sell, contract to sell, grant any option to purchase, or
otherwise dispose (or announce any offer, sale, grant of any option to purchase
or other disposition) of any shares of Common Stock, or any securities
convertible into, or exercisable or exchangeable for, shares of Common Stock,
without the written consent of the Morgan Keegan & Company, Inc.
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<PAGE> 49
Prior to this Offering, there has been no public market for the Debentures.
Consequently, the initial public offering price was determined through
negotiations among the Company and the Underwriters. Among the factors
considered in making such determination were the prevailing market conditions,
the Company's financial and operating history and conditions, the Company's
prospects and the prospects for its industry in general, the management of the
Company, and the market prices of securities for companies in businesses related
to that of the Company.
The Debentures have been approved for quotation on the Nasdaq National
Market under the symbol "SMING." The Company has been advised by the
Underwriters that the Underwriters intend to make a market in the Debentures,
but are not obligated to do so and may discontinue market making at any time
without notice. There can be no assurance that an active public market for the
Debentures will develop and continue after the Offering.
Morgan Keegan & Company, Inc. from time to time provides the Company with
investment banking services in the ordinary course of its business.
LEGAL MATTERS
Certain legal matters related to the Debentures offered hereby and the
Common Stock issuable upon the conversion of the Debentures are being passed
upon for the Company by Akin, Gump, Strauss, Hauer & Feld, L.L.P., Houston,
Texas. Certain legal matters will be passed upon for the Underwriters by Butler
& Binion, L.L.P., Houston, Texas.
EXPERTS
The financial statements of Southern Mineral Corporation as of December 31,
1996 and for the year then ended have been included herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
The Consolidated Financial Statements of the Company, as of December 31,
1995 and for each of the two years in the period ended December 31, 1995,
included in this Prospectus, have been audited by Grant Thornton LLP,
independent certified public accountants, as stated in their report thereon
included in this Prospectus, and so included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
The financial statements of BEC Energy Inc. as of December 31, 1996, and
for the year then ended have been incorporated by reference herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
Information as of December 31, 1994 relating to the estimated net proved
reserves and the related present value of estimated pre-tax cash flows included
herein and in the notes to the Company's Consolidated Financial Statements have
been prepared by Hedrick and Associates. Information relating to the domestic
estimated net proved reserves and the related present values of estimate pre-tax
net cash flows included herein and in the notes to the Company's Consolidated
Financial Statements as of December 31, 1995 were prepared by Netherland, Sewell
and as of December 31, 1996 were prepared by the Company and audited by
Netherland, Sewell. Information as of December 31, 1995 and December 31, 1996
relating to the Canadian estimated net proved reserves and related present
values of estimated pre-tax net cash flows included herein and in the notes to
the Company's Consolidated Financial Statements were prepared by McDaniel &
Associates. The Santa Elena Acquisition proforma reserve estimates and PV-10
Value were prepared by Ryder Scott. Such information is included herein in
reliance upon the authority of such firms as experts in petroleum engineering.
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<PAGE> 50
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy statements and other
information with the Commission. The reports, proxy statements and other
information filed by the Company, may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located at 7 World Trade Center, New York, New York 10048, and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can be
obtained at prescribed rates from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549. The Company Common Stock is
quoted on the Nasdaq National Market and reports and other information herein
and therein concerning the Company can also be inspected at offices of The
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20546. Such material may also be accessed electronically by
means of the Commission's home page on the Internet at http://www.sec.gov.
The Company has filed with the Commission a registration statement on Form
S-2 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act with respect to the
securities offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information, reference
is hereby made to the Registration Statement which may be inspected and copied
in the manner and at the sources described above. With respect to each such
agreement, instrument, or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference.
The Company intends to furnish holders of the Debentures with annual
reports containing consolidated financial statements audited by the Company's
independent accountants and quarterly reports for the first three quarters of
each fiscal year containing unaudited consolidated financial information.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents and information heretofore filed with the
Commission by the Company are hereby incorporated by reference into this
Prospectus:
1. The Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1996.
2. The Company's Quarterly Reports on Form 10-QSB for the fiscal
quarter ended March 31, 1997 and June 30, 1997.
3. The Company's Current Reports on Form 8-K, dated April 10, 1997,
April 14, 1997 and May 20, 1997, respectively, and Form 8-K/A dated
February 10, 1997, February 13, 1997, April 3, 1997 and July 31, 1997,
respectively.
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus
and prior to the termination of the Offering shall be deemed to be incorporated
by reference into this Prospectus and to be a part hereof from the respective
dates of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is, or is deemed to be, incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
49
<PAGE> 51
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus has been delivered, on the
written or oral request of any such person, a copy of any or all of the
documents referred to above which have been or may be incorporated in this
Prospectus by reference, other than exhibits to such documents (unless such
exhibits are specifically incorporated by reference in such documents). Written
or telephone requests for such copies should be directed to the Company at its
principal executive offices located at 500 Dallas Street, Suite 2800, Houston,
Texas 77002, Attention: Chief Financial Officer (telephone number (713)
658-9444).
50
<PAGE> 52
GLOSSARY
The following terms defined in this glossary are used throughout this
Prospectus:
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.
Bcfe: One billion cubic feet of gas equivalent.
Crude oil or oil: Crude oil, including condensate and natural gas liquids.
Development well: A well drilled within the proved area of an oil or
natural gas reservoir to the depth of a stratographic horizon known to be
productive.
Dry hole: A well found to be incapable of producing either oil or natural
gas in sufficient quantities to justify completion as an oil or gas well.
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 Costs: Expressed in dollars per Mcfe, finding costs are calculated
by dividing the capitalized costs of oil and gas properties as of a particular
date by the amount of net proved reserves shown in the Company's reserve report
at the same date.
Gas or natural gas: Any hydrocarbons or mixture of hydrocarbons and other
gases consisting primarily of methane which at normal operating conditions are
in a gaseous state.
Gross acres or gross wells: The total acres or wells, as the case may be,
in which a working interest is owned.
MBbl: One thousand barrels of crude oil or other liquid hydrocarbons.
Mcf: One thousand cubic feet.
Mcfe: One thousand cubic feet of gas equivalent. Oil is converted to
natural gas at the rate of one Bbl of oil to six Mcf of natural gas. This
conversion ratio represents the approximate energy equivalent of oil and gas on
a British thermal unit basis but does not necessarily reflect the economic
equivalent of a barrel of oil to an Mcf of gas.
MMBbl: One million barrels of crude oil or other liquid hydrocarbons.
MMcf: One million cubic feet.
MMcfe: One million cubic feet of gas equivalent.
Net acres or net wells: The portion of gross acres or gross wells
attributed to the Company's interest.
Operator: The company appointed to conduct operations under a lease or
concession.
PV-10 Value: The present value of proved reserves is an estimate of the
discounted pre-tax cash flows attributable to estimated net proved reserves.
Pre-tax cash flow is defined as net revenues less production and ad valorem
taxes, future capital costs and operating expenses, but before deducting federal
income taxes. Estimated pre-tax cash flows have been discounted at an annual
rate of 10% to determine their "present value." The present value is shown to
indicate the effect of the value of the revenue and should not be construed as
being the fair market value of the properties. Estimates of reserve quantities
and future net cash flows have been made using oil and gas prices and operating
costs held constant at prices in effect on the date of the report.
Production Replacement: Reserve additions from acquisitions, extensions,
discoveries and additions and revisions of previous estimates during a year
divided by annual production for such year on an Mcfe basis.
Productive well: A well that is producing oil or gas or that is capable of
production.
G-1
<PAGE> 53
Proved developed reserves: The oil and gas reserves expected to be produced
through existing wells with existing equipment and operating methods (additional
oil and gas reserves expected to be obtained through the application of fluid
injection or other improved recovery techniques for supplementing the natural
forces and mechanisms of primary recovery are included only after testing by a
pilot project or after the operation of an installed program has confirmed
through production response that increased recovery will be achieved).
Proved reserves: The estimated quantities of crude oil and natural gas
which geological and engineering data demonstrate with reasonable certainty to
be recoverable in future years from known reservoirs under existing economic and
operating conditions (i.e., prices and costs as of the date the estimate is
made). Prices include consideration of changes in existing prices provided only
by contractual agreements, but not escalations based upon future conditions.
Proved undeveloped reserves: The oil and gas reserves expected to be
recovered from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for completion, but not including
reserves attributable to any acreage for which an application of fluid
interjection or other improved recovery technique is contemplated, unless such
techniques have been proved effective by actual tests in the area and in the
same reservoir (reserves on undrilled acreage are limited to those drilling
units offsetting productive units that are reasonably certain of production when
drilled; however, proved reserves for other undrilled units can be claimed only
where it can be demonstrated with certainty that there is continuity of
production from the existing formation).
Recompletion: The completion for production of an existing wellbore in
another formation from that in which the well has previously been completed.
2-D seismic: Seismic data that is run, acquired and processed to yield a
two-dimensional picture of the subsurface.
3-D seismic: Seismic data that is run, acquired and processed to yield a
three-dimensional picture of the subsurface.
Working interest: The operating interest that gives the owner the right to
drill, produce and conduct operating activities on the property and to receive a
share of production, subject to all royalties, overriding royalties and other
burdens and to all costs of exploration, development and operations and all
risks in connection therewith.
G-2
<PAGE> 54
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Pro Forma Condensed Consolidated Financial Statements
(unaudited):
Pro Forma Condensed Consolidated Statement of Operations
for the Six Months Ended June 30, 1997................. F-2
Pro Forma Condensed Consolidated Statement of Operations
for the Year Ended December 31,
1996................................................... F-3
Notes to Pro Forma Condensed Consolidated Financial
Statements............................................. F-4
Interim Condensed Consolidated Financial Statements
(unaudited):
Condensed Consolidated Balance Sheets as of June 30, 1997
and December 31, 1996.................................. F-5
Condensed Consolidated Statements of Operations for the
Six Months Ended June 30, 1997 and 1996................ F-6
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1997 and 1996................ F-7
Notes to Condensed Consolidated Financial Statements...... F-8
Consolidated Financial Statements:
Independent Auditors' Report.............................. F-9
Report of Independent Certified Public Accountants........ F-10
Consolidated Balance Sheets as of December 31, 1996 and
1995................................................... F-11
Consolidated Statements of Operations for the Three Years
Ended December 31, 1996................................ F-12
Consolidated Statements of Stockholders' Equity for the
Three Years Ended December 31,
1996................................................... F-13
Consolidated Statements of Cash Flows for the Three Years
Ended December 31, 1996................................ F-14
Notes to Consolidated Financial Statements................ F-15
</TABLE>
F-1
<PAGE> 55
SOUTHERN MINERAL CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SOUTHERN TOTAL
MINERAL BEC ENERGY, A. PHILYAW PRO FORMA NOTE PRO FORMA
CORPORATION INC. UNIT 8-1 #1 ADJUSTMENTS REFERENCE CONSOLIDATED
----------- ----------- ----------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Oil & Gas.................... $ 6,720 $539 $289 $ 223 (6) $7,771
Gain on Sale................. 544 0 0 0 544
------- ---- ---- ----- ------
7,264 539 289 223 8,315
Expenses
Production................... 1,611 189 46 107 (6) 1,953
Exploration.................. 283 0 0 0 283
Depreciation, depletion and
amortization.............. 1,492 159 0 341 (3) 1,992
General & administrative..... 1,134 15 0 0 1,149
------- ---- ---- ----- ------
4,520 363 46 448 5,377
------- ---- ---- ----- ------
Income from operations......... 2,744 176 243 (225) 2,938
Other income, expenses and
deductions
Interest and other income.... 122 0 0 0 122
Interest and debt expense.... (239) (66) 0 (494) (2) (799)
------- ---- ---- ----- ------
Income before income taxes..... 2,627 110 243 (719) 2,261
Income tax expense (benefit)... 965 0 0 (124) (5) 841
------- ---- ---- ----- ------
Net income..................... $ 1,662 $110 $243 $(595) $1,420
======= ==== ==== ===== ======
Net income per share........... $ 0.16 $ 0.14
======= ======
Weighted average shares
outstanding.................. 10,113 10,113
======= ======
</TABLE>
F-2
<PAGE> 56
SOUTHERN MINERAL CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SOUTHERN JAN-AUG SMC BEC TOTAL
MINERAL DEVELOPMENT, ENERGY, A. PHILYAW PRO-FORMA NOTE PRO FORMA
CORPORATION L.P. INC. UNIT 8-1 #1 ADJUSTMENTS REFERENCE CONSOLIDATED
----------- ------------ ------- ----------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Oil and Gas.................. $11,780 $220 $1,061 $ 1,015 $ 920 (6) $14,996
Gain on sale................. 453 0 0 0 0 453
------- ---- ------ ------- ------- -------
12,233 220 1,061 1,015 920 15,449
Expenses
Production................... 2,742 87 363 143 195 (6) 3,530
Exploration.................. 865 0 0 0 0 865
Depletion, depreciation and
amortization.............. 2,875 61 264 0 569 (3) 3,769
General & administrative..... 1,682 6 53 0 (48) (4) 1,693
------- ---- ------ ------- ------- -------
8,164 154 680 143 716 9,857
------- ---- ------ ------- ------- -------
Income from operations......... 4,069 66 381 872 204 5,592
Other income, expenses and
deductions
Interest and other income.... 286 29 0 0 0 315
Interest and debt expense.... (1,242) 0 (211) 0 (1,150) (2) (2,603)
------- ---- ------ ------- ------- -------
Income before income taxes..... 3,113 95 170 872 (946) 3,304
Income tax..................... 679 0 0 0 65 (5) 744
------- ---- ------ ------- ------- -------
Net income..................... $ 2,434 $ 95 $ 170 $ 872 $(1,011) $ 2,560
======= ==== ====== ======= ======= =======
Net income per share........... $ 0.34 $ 0.35
======= =======
Weighted average shares
outstanding.................. 7,215 7,215
======= =======
</TABLE>
F-3
<PAGE> 57
SOUTHERN MINERAL CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1: On April 8, 1997, Southern Mineral Corporation acquired a 22.68% working
interest in the Albert Philyaw Unite 8-1 #1 well, for $3,300,000. On May
20, 1997, Southern Mineral Corporation acquired the oil and gas assets
and outstanding capital stock of BEC Energy, Inc. ("BEC") from Mario
Garcia and Dolores E. Garcia for $10,640,000. The acquisitions include
interests in fourteen wells located in the Big Escambia Creek Field in
Escambia County, Alabama. Both acquisitions will be recorded using the
purchase price method of accounting.
The pro forma statement of operations for the twelve months ended
December 31, 1996, and for the six months ended June 30, 1997, present
the acquisitions and consumption of the offering as if they had occurred
at January 1, 1996. The pro forma statement of operations for the twelve
months ended December 31, 1996, includes the results of SMC Development,
L.P., for the period prior to its acquisition by the Company on August
30, 1996.
These statements should be read in conjunction with the separate
financial statements and notes thereto of Southern Mineral's previously
filed statements. The pro forma statement of operations is not
necessarily indicative of the results of operations of the Company as it
may be in the future or as if it might have been had the acquisition
been effective at January 1, 1996.
Note 2: Reflects effect of interest expense at 7% for the Offering. Proceeds
from the Offering of $19,200,000 are assumed utilized to retire debt
balances related to the Company's revolving line of credit. Estimated
offering costs of $1,700,000 are amortized over the life of the
debentures issued in the Offering.
Note 3: Reflects additional depreciation, depletion and amortization related to
oil and gas properties step-up in basis for the effect of the
acquisitions.
Note 4: Reflects elimination of $48,000 payment of management fees to related
parties.
Note 5: Tax adjustment to reflect taxes computed as if the combining entity were
a single tax paying entity.
Note 6: Reflects subsequent acquisition by BEC of additional property interests
in A. Philyaw 8-1 #1 and the Turner 6-1 on April 8, 1997.
F-4
<PAGE> 58
SOUTHERN MINERAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current Assets
Cash...................................................... $ 168 $ 471
Receivables & other....................................... 3,679 2,447
------- -------
Total current assets.............................. 3,847 2,918
Property and equipment, at cost using the successful efforts
method for oil and gas activities
Property, plant and equipment............................. 43,901 25,831
Accumulated depreciation, depletion and amortization...... (6,662) (5,232)
------- -------
37,239 20,599
Properties held for sale & other............................ 2,616 869
------- -------
Total assets...................................... $43,702 $24,386
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable & accrued liabilities.................... $ 1,659 $ 683
Note payable.............................................. 809 0
------- -------
Total current liabilities......................... 2,468 683
Long term debt.............................................. 19,200 3,900
Deferred income taxes....................................... 1,788 1,169
Shareholders' equity
Common stock, par value $.01 per share; 20,000,000
authorized shares at June 30, 1997, and December 31,
1996, respectively; issued 9,108,832 and 9,088,519
shares at June 30, 1997, and December 31, 1996,
respectively........................................... 91 91
Additional paid-in capital................................ 14,025 14,030
Retained earnings......................................... 6,182 4,565
------- -------
20,298 18,686
Less: Treasury stock........................................ (52) (52)
------- -------
Total shareholders' equity........................... 20,246 18,634
------- -------
Total liabilities and shareholders' equity........ $43,702 $24,386
======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE> 59
SOUTHERN MINERAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1997 1996
------- ------
<S> <C> <C>
Revenues
Oil and gas............................................... $ 6,720 $5,433
Gain on sale.............................................. 544 396
------- ------
7,264 5,829
Expenses
Production................................................ 1,611 1,350
Exploration............................................... 283 83
Depreciation, depletion and amortization.................. 1,492 1,181
General & administrative.................................. 1,134 823
------- ------
Income from operations...................................... 2,744 2,392
Other income, expenses and deductions
Interest and other income................................. 122 193
Interest and debt expense................................. (239) (619)
Income before income taxes.................................. 2,627 1,966
Provision for federal & state income taxes
Current provision......................................... 338 353
Deferred provision........................................ 627 168
------- ------
Net income.................................................. $ 1,662 $1,445
======= ======
Net income per share........................................ $ 0.16 $ 0.21
======= ======
Weighted average shares outstanding......................... 10,113 6,846
======= ======
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE> 60
SOUTHERN MINERAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1997 1996
-------- -------
<S> <C> <C>
Cash Flows from Operating Activities
Net income................................................ $ 1,662 $ 1,445
Adjustments to net income, net of the effects of
disposition in 1996.................................... 2,462 28
-------- -------
Net cash provided by operating activities................. 4,124 1,473
-------- -------
Cash Flows from Investing Activities
Proceeds from sales of properties......................... 1,038 183
Capital expenditures...................................... (20,691) (846)
Net cash received on disposition of assets................ 0 1,143
-------- -------
Net cash (used in) provided by investing activities....... (19,653) 480
-------- -------
Cash Flows from Financing Activities
Payments of long term debt................................ (1,900) (2,315)
Proceeds from long term debt.............................. 17,200 0
Proceeds from issuance of common stock.................... (74) 0
-------- -------
Net cash used in financing activities..................... 15,226 (2,315)
-------- -------
Net increase (decrease) in cash............................. (303) (362)
Cash at beginning of period................................. 471 562
-------- -------
Cash at end of period....................................... $ 168 $ 200
======== =======
Supplemental Disclosure of Cash Flow Information
During 1996, the Company issued 175,000 shares of common
stock with a value of $241,000 in exchange for properties.
Cash paid for interest...................................... $ 221 $ 553
Cash paid for taxes......................................... $ 411 $ 317
</TABLE>
The accompanying notes are an integral part of this statement.
F-7
<PAGE> 61
SOUTHERN MINERAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, though the Company believes that the
disclosures are adequate to make the information presented not misleading. These
condensed consolidated financial statements should be read in conjunction with
the financial statements and the notes thereto included elsewhere herein in the
Company's latest Annual Report to shareholders and the Form 10-KSB for the year
ended December 31, 1996. In the opinion of the Company, all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
financial position as of June 30, 1997 and December 31, 1996, the results of
operations for the six months ended June 30, 1997 and 1996 and statements of
cash flows for the six months then ended have been included.
NOTE 2 -- ACQUISITIONS
On May 20, 1997, the Company purchased from Mario Garcia and Dolores E.
Garcia, the outstanding capital stock of BEC Energy, Inc. ("BEC"). The purchase
price was $10,640,000. BEC's assets consist of a working interest in fourteen
oil and gas wells located in the Big Escambia Creek Field in Escambia County,
Alabama. The Company financed the acquisition with a $10,600,000 advance under
the Company's Credit Facility with Compass Bank-Houston.
On August 30, 1996, the Company acquired for $3,000,000 the limited
partnership interest in SMD, which then was dissolved. The Company previously
owned a 7% general partnership interest in the partnership. The partnership
assets consisted of proved undeveloped oil and gas properties, with most of the
value related to the proved undeveloped properties that were drilled in 1996.
The acquisition was financed through an increase in the Company's Revolving Bank
Note of $1,600,000 and from internally generated working capital.
In addition, the Company has acquired other interests, including a 10%
interest in a concession in the Santa Elena Peninsula in Ecuador for
approximately $2,500,000, none of which have had a material effect on the
historical results of the Company.
The following summarizes pro forma (unaudited) information and assumes the
acquisitions of BEC and SMD had occurred on January 1, 1996.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
-----------------------
1997 1996
--------- ---------
(000'S OMITTED, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Revenues.................................................... $8,026 $6,568
Net income.................................................. 1,549 1,506
Net income per share........................................ $ 0.17 $ 0.23
</TABLE>
These pro forma results are not necessarily indicative of those that would
have occurred had the acquisitions taken place at the beginning of 1996 and
1997. The above amounts reflect adjustments for interest on notes payable issued
as part of the purchase price and depreciation on revalued property.
NOTE 3 -- NOTE PAYABLE
The Company acquired 3-D seismic data in January of 1997 for $1,394,000
payable in 14 monthly payments commencing January 31, 1997 of $105,000 per
month, with an imputed interest rate of 10% per annum. The note balance at June
30, 1997 is $809,200 and the purchase is included in properties held for sale as
of June 30, 1997.
F-8
<PAGE> 62
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Southern Mineral Corporation:
We have audited the accompanying consolidated balance sheet of Southern
Mineral Corporation and subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Southern
Mineral Corporation and subsidiaries as of December 31, 1996, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
August 28, 1997
F-9
<PAGE> 63
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of
Southern Mineral Corporation:
We have audited the accompanying consolidated balance sheets of Southern
Mineral Corporation (a Nevada corporation) and subsidiaries as of December 31,
1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the two years in the period ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Southern Mineral Corporation
and subsidiaries as of December 31, 1995, and the consolidated results of their
operations and their consolidated cash flows for each of the two years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
Grant Thornton LLP
Houston, Texas
February 21, 1996
F-10
<PAGE> 64
SOUTHERN MINERAL CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Current Assets
Cash and cash equivalents................................. $ 471 $ 562
Receivables............................................... 2,292 1,122
Other..................................................... 155 387
------- -------
Total current assets.............................. 2,918 2,071
Property and equipment, at cost using successful efforts
method for oil and gas activities
Oil and gas producing properties.......................... 24,888 20,530
Mineral rights............................................ 167 167
Unproven properties....................................... 525 15
Office equipment.......................................... 251 178
Accumulated depreciation, depletion and amortization...... (5,232) (2,848)
------- -------
20,599 18,042
Properties held for sale and other.......................... 869 1,554
------- -------
Total assets...................................... $24,386 $21,667
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable.......................................... $ 683 $ 665
Note payable bank......................................... -- 3,500
Current maturities of long-term debt...................... -- 1,795
------- -------
Total current liabilities......................... 683 5,960
Long-term debt.............................................. 3,900 9,920
Deferred income taxes....................................... 1,169 606
Stockholders' equity
Common stock -- par value $.01 per share; authorized
20,000,000 and 10,000,000 shares at December 31, 1996
and 1995, respectively; issued 9,088,519 and 6,369,519
at December 31, 1996 and 1995, respectively............ 91 64
Additional paid-in capital................................ 14,030 3,038
Retained earnings......................................... 4,565 2,131
------- -------
18,686 5,233
Less: Treasury stock at cost.............................. (52) (52)
------- -------
Total stockholders' equity........................... 18,634 5,181
------- -------
Total liabilities and stockholders' equity........ $24,386 $21,667
======= =======
</TABLE>
The accompanying notes to consolidated financial statements of Southern Mineral
Corporation
and subsidiaries are an integral part of these statements.
F-11
<PAGE> 65
SOUTHERN MINERAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
-------- -------- --------
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues
Oil and gas............................................... $11,780 $ 2,044 $ 1,747
Gain on sales of properties and other assets.............. 453 170 66
------- ------- -------
12,233 2,214 1,813
Expenses
Production................................................ 2,742 656 548
Exploration............................................... 865 221 1,566
Depreciation, depletion and amortization.................. 2,875 792 704
General and administrative................................ 1,682 702 903
Valuation reduction....................................... -- -- 1,724
Severance benefit......................................... -- 117 135
------- ------- -------
8,164 2,488 5,580
------- ------- -------
Income (loss) from operations............................... 4,069 (274) (3,767)
Other income, expenses and deductions
Interest and other income................................. 286 146 76
Interest and debt expense................................. (1,242) -- --
------- ------- -------
Income (loss) before income taxes........................... 3,113 (128) (3,691)
Provision (benefit) for federal and state income taxes
Current provision (benefit)............................... 400 9 (11)
Deferred provision (benefit).............................. 279 -- (547)
------- ------- -------
679 9 (558)
------- ------- -------
Net income (loss)........................................... $ 2,434 $ (137) $(3,133)
======= ======= =======
Primary net income (loss) per share......................... $ 0.34 $ (0.02) $ (0.78)
======= ======= =======
Fully diluted net income (loss) per share................... $ 0.33 $ (0.02) $ (0.78)
======= ======= =======
Primary weighted average number of shares outstanding....... 7,215 5,701 4,162
======= ======= =======
Fully diluted weighted average number of shares
outstanding............................................... 7,336 5,701 4,162
======= ======= =======
</TABLE>
The accompanying notes to consolidated financial statements of Southern Mineral
Corporation
and subsidiaries are an integral part of these statements.
F-12
<PAGE> 66
SOUTHERN MINERAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
--------------- PAID-IN RETAINED ---------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT
------ ------ ---------- -------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994.................... 4,162 $42 $ 843 $ 5,401 137 $73
Net loss...................................... -- -- -- (3,133) -- --
----- --- ------- ------- --- ---
Balance at December 31, 1994.................. 4,162 42 843 2,268 137 73
Stock issued for directors' fees.............. 14 -- 12 -- -- --
Odd lot tender offer.......................... -- -- -- -- 4 6
Sale of treasury stock........................ -- -- 11 -- (50) (27)
Issuance of common stock for acquisition of
Diverse Production Co....................... 2,194 22 2,172 -- -- --
Net loss...................................... -- -- -- (137) -- --
----- --- ------- ------- --- ---
Balance at December 31, 1995.................. 6,370 64 3,038 2,131 91 52
Stock issued for directors' fees.............. 24 -- 72 -- -- --
Issuance of common stock for private placement
of 2,500,000 shares of stock, net........... 2,500 25 10,596 -- -- --
Issuance of common stock for property
acquisitions and acquisition services....... 195 2 324 -- -- --
Net income.................................... -- -- -- 2,434 -- --
----- --- ------- ------- --- ---
Balance at December 31, 1996.................. 9,089 $91 $14,030 $ 4,565 91 $52
===== === ======= ======= === ===
</TABLE>
The accompanying notes to consolidated financial statements of Southern Mineral
Corporation
and subsidiaries are an integral part of these statements.
F-13
<PAGE> 67
SOUTHERN MINERAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss)........................................... $ 2,434 $ (137) $(3,133)
Adjustments to reconcile net income (loss) to cash provided
by operating activities:
Depreciation, depletion and amortization.................. 2,875 792 704
Gain on sales of properties and other assets.............. (453) (170) (66)
Valuation reduction....................................... -- -- 1,724
Exploration expenses...................................... 865 221 1,566
Increase (decrease) in deferred taxes..................... 279 -- (547)
Common stock issued as compensation....................... 72 12 --
Change in assets and liabilities, net of effects of
acquisitions and disposition:
(Increase) decrease in receivables...................... (1,224) 214 216
Decrease (increase) in other current assets............. 231 (39) 259
Increase in other assets................................ (115) -- --
Increase (decrease) in payables......................... 134 (70) 56
-------- -------- -------
Net cash provided by operating activities.......... 5,098 823 779
-------- -------- -------
Cash Flows from Investing Activities
Proceeds from sales of:
Producing properties...................................... 258 511 42
Properties held for sale and unproven properties.......... -- 97 94
Purchases of marketable securities.......................... -- (1,914) (3,810)
Maturities and sales of marketable securities............... -- 3,483 4,201
Acquisition, exploration and development expenditures....... (2,836) (651) (1,107)
Increase in properties held for sale........................ (470) (684) --
Cash paid for partnership interest, net of cash received.... (2,590) -- --
Cash paid for acquisition of Stone & Webster properties, net
of cash received.......................................... -- (16,215) --
Cash received for sale of Venture Resources, Inc., net of
cash transferred.......................................... 1,143 -- --
Other....................................................... -- (63) (8)
-------- -------- -------
Net cash used in investing activities.............. (4,495) (15,436) (588)
-------- -------- -------
Cash Flows from Financing Activities
Proceeds from long-term debt and note payable............... 4,300 15,215 --
Payments on long-term debt and note payable................. (15,615) -- --
Loan acquisition costs...................................... -- (127) --
Proceeds from sale of treasury stock........................ -- 38 --
Purchase of treasury stock.................................. -- (6) --
Proceeds from equity offering, net.......................... 10,621 -- --
Dividends paid.............................................. -- -- (202)
-------- -------- -------
Net cash (used in) provided by financing
activities....................................... (694) 15,120 (202)
-------- -------- -------
Net (decrease) increase in cash and cash equivalents........ (91) 507 (11)
Cash and cash equivalents at beginning of year.............. 562 55 66
-------- -------- -------
Cash and cash equivalents at end of year.................... $ 471 $ 562 $ 55
======== ======== =======
Supplemental disclosure of cash flow information:
Taxes paid in cash........................................ $ 363 $ (5) $ (271)
Interest paid in cash..................................... $ 1,210 $ -- $ --
Non Cash Transactions
Issuance of common stock for property acquisitions and
acquisition services.................................... $ 326 -- --
Change in deferred tax liability on property
acquisitions............................................ $ 284 -- --
</TABLE>
The accompanying notes to consolidated financial statements of Southern Mineral
Corporation
and subsidiaries are an integral part of these statements.
F-14
<PAGE> 68
SOUTHERN MINERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GENERAL BUSINESS -- Southern Mineral Corporation, a Nevada corporation,
with its subsidiaries (the "Company"), is an independent oil and gas company
headquartered in Houston, Texas. The Company is engaged in the acquisition,
exploitation, exploration and operation of oil and gas properties, primarily
along the Gulf Coast, the Mid-continent and in Canada, with a primary focus on
the Gulf Coast Basin, both onshore and offshore. The Company owns interests in
more than 1,900 oil and gas properties in those three regions. The Company's
business strategy is to increase reserves and shareholder value through a
balanced program of acquisitions, exploitation and controlled risk exploration.
In addition to oil and gas leasehold interests, the Company owns fee interests
in the oil and gas under some 665,148 gross surface acres (comprising some
346,760 net mineral acres) in Mississippi, Texas and New Mexico. The Company has
no current development or other plans with respect to these fee interests other
than leasing them to third parties for exploration and development.
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The consolidated financial statements
include the accounts of Southern Mineral Corporation and its wholly-owned
subsidiaries. All significant intercompany transactions have been eliminated.
The Company accounts for its investment in oil and gas partnerships and joint
ventures using the proportional consolidation method.
Revenues -- Natural gas revenues generally are recorded using the sales
method, whereby the Company recognizes natural gas revenues based on the amount
of gas sold to purchasers on its behalf. All other revenues also are recorded
using the sales method. The Company believes that imbalances related to the
sales of natural gas are insignificant.
Property and Equipment -- The Company uses the successful efforts method of
accounting for its oil and gas properties. Under this method of accounting, the
tangible and intangible development costs of productive wells and development
dry holes are capitalized, and dry hole costs on exploratory wells are charged
against income when the well is determined to be non-productive. Other
exploratory expenditures, including geological and geophysical costs and delay
rentals, are expensed as incurred. The cost of unevaluated leasehold
acquisitions and wells in progress are included in unproven properties pending
evaluation.
Depreciation and depletion of producing oil and gas properties are computed
separately on each individual property on the unit-of-production method based on
estimated proved reserves. Depreciation of other property and equipment is
computed on the straight-line method over the estimated useful lives of the
assets ranging from 3 to 7 years.
The Company currently has only onshore producing properties and estimates
that residual salvage values of equipment would approximate any future
dismantlement, restoration or abandonment costs.
Maintenance and repairs are charged to expense as incurred.
Oil and Gas Properties Held for Sale -- The costs of non-producing
exploratory properties held for sale, including lease bonuses and other
acquisition costs, are capitalized. Geological, geophysical, and other
exploration costs of non-producing properties are capitalized to the extent such
costs are reimbursed upon sale of the property, determined by management based
on the attributes of each property. Otherwise, such costs, if any, are expensed.
For those properties in which the Company sells a portion of its interest, the
cost of such properties, net of reimbursements, are removed from this account
and are included in property and equipment.
Producing oil and gas properties, which have been identified for sale, are
carried at the lower of cost or estimated market. The 1994 valuation reduction
is primarily the result of write-downs of producing properties that management
identified for sale.
Properties held for sale and other assets at December 31, 1995, include ten
non-contiguous pipeline and gathering systems, which are not part of the
Company's core business operations. The carrying value of these assets was
$675,000.
F-15
<PAGE> 69
SOUTHERN MINERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes -- The Company accounts for income taxes using the asset and
liability method. The asset and liability method requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
temporary differences between tax bases and financial reporting bases of other
assets and liabilities (See Note 4). The effect on deferred taxes of a change in
tax rates is recognized in income in the period the change occurs. The Company
deducts intangible development costs as incurred and deducts statutory depletion
(percentage depletion) when it exceeds cost depletion for federal income tax
purposes.
Cash Equivalents -- Management considers all highly liquid investments with
a maturity of three months or less when purchased to be cash equivalents.
Use of Estimates in the Preparation of Financial Statements -- The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Statement of Financial Accounting Standards (SFAS) Nos. 121 and
123 -- Effective January 1, 1996, the Company adopted SFAS No. 121, Accounting
for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of. This standard requires that long-lived assets that are held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. When it is
determined that an asset's estimated future net cash flows will not be
sufficient to recover its carrying amount, an impairment charge must be recorded
to reduce the carrying amount for the asset to its estimated fair value. The
effect of the adoption of SFAS 121 was not material to the Company.
During 1996, the Company chose to continue the use of APB No. 25 and
related Interpretations in accounting for stockbased compensation. As required
by SFAS No. 123, Accounting for Stock-Based Compensation, the Company has
disclosed in pro-forma presentation the effects on earnings of calculating the
fair value of a stock option using the method prescribed in SFAS No. 123.
Earnings (loss) per Share -- Earnings (loss) per share is based on the
weighted average number of common shares outstanding during the year.
Outstanding options and warrants are included where they have a dilutive effect.
The share amounts used to compute earnings (loss) per share were 7,214,585,
5,701,400 and 4,161,600 for the years 1996, 1995 and 1994, respectively. The
weighted average number of common shares outstanding on a fully diluted basis
were 7,336,480, 5,701,400 and 4,161,600 for the years 1996, 1995 and 1994
respectively.
Reclassifications -- Certain amounts in prior financial statements have
been reclassified to conform to the 1996 financial statement presentation.
NOTE 2 ACQUISITIONS
On August 30, 1996, the Company acquired the limited partner interest in
SMC Development, L.P., a Texas limited partnership, for approximately
$3,000,000. Upon the acquisition of the limited partner's interest, the
partnership was dissolved, resulting in the Company obtaining a direct working
interest in sixteen oil and gas properties with proved reserves estimated to be
4.2 billion cubic feet of gas and 149,000 barrels of liquids. The acquisition
was financed from proceeds under the Company's bank revolving line of credit.
The acquisition was accounted for as a purchase.
On December 20, 1995, the Company completed the acquisition of certain oil
and gas assets of Stone & Webster Oil Company, Inc., and the outstanding capital
stock of Spruce Hills Production Company, Inc., San Salvador Development
Company, Inc., and Venture Resources, Inc., which are engaged primarily in oil
and gas exploration and production. The total cost of the acquisition was
approximately $16,400,000. The
F-16
<PAGE> 70
SOUTHERN MINERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
acquisition was financed by bank borrowings of $15,215,000 and internally
generated working capital of $1,209,000. The acquisition was accounted for as a
purchase.
On April 6, 1995, the Company completed the acquisition of Diverse
Production Co. (subsequently renamed SMC Production Co.), a Texas corporation,
whose primary asset is its 15% general partner interest in Diverse GP III, a
Texas general partnership. The total cost of the acquisition was approximately
$2,300,000. The Company issued 2,193,919 shares of common stock and 325,000
share options at an exercise price of $1.25 per share for a term of five years.
The acquisition was accounted for as a purchase.
The following summarized pro forma (unaudited) information assumes the
acquisitions had occurred on January 1, 1995.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 31,
----------------------
1996 1995
--------- ---------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Revenues.................................................... $12,000 $ 9,139
Net income (loss)........................................... 2,305 (1,088)
Net income (loss) per share................................. $ .32 $ (.17)
</TABLE>
These pro forma results are not necessarily indicative of those that would
have occurred had the acquisitions taken place at the beginning of 1995 or 1996,
respectively. The above amounts reflect adjustments for interest on notes
payable issued as part of the purchase price and depreciation on revalued
property, plant and equipment.
NOTE 3 LONG-TERM DEBT AND NOTE PAYABLE BANK
On December 17, 1996, the Company entered into a revised credit facility
consisting of a secured reducing revolving line of credit with an initial
borrowing base of $18,000,000 ("Revolver Note"). Proceeds advanced under the
Revolver Note were used to retire an existing Term Note of $4,000,000, which was
increased from $3,500,000, on December 17, 1996. The borrowing base of the
Revolver Note reduces by $300,000 per month commencing August 1, 1997, and is
reviewed by the bank semi-annually until maturity on June 1, 2000. Under the
terms of the Revolver Note, the borrowing base is redetermined semi-annually by
the lending bank based upon its calculation of changes in the underlying reserve
values securing the credit facility. As of December 31, 1996, the Company had
borrowed $3,900,000 under the Revolver Note leaving an unfunded commitment of
$14,100,000. The Revolver Note bears interest at the Company's option, of either
prime rate or at the LIBOR rate plus two and one-quarter percent. The credit
facility contains certain covenants relating to the Company's financial
condition and is secured by substantially all the assets of the Company. The
Revolver Note has no payments due in 1997.
Long-term debt consisted of the following at December 31, 1996 and 1995 (in
thousands)
<TABLE>
<CAPTION>
1996 1995
------ -------
<S> <C> <C>
Revolving Note.............................................. $3,900 $11,715
Less: current maturities.................................... -- 1,795
------ -------
Long-term debt.............................................. $3,900 $ 9,920
====== =======
</TABLE>
F-17
<PAGE> 71
SOUTHERN MINERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 FEDERAL AND STATE INCOME TAXES
Differences between the effective tax rate and the statutory federal rate
are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-----------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Statutory rate for expense (benefit)........................ 34.0% (34.0)% (34.0)%
Valuation allowance......................................... (13.1) 33.6 18.7
Foreign taxes, net of federal benefit....................... 7.6 -- --
State taxes, net of federal benefit......................... 0.7 4.5 0.1
Percentage depletion........................................ (8.1) -- --
Other....................................................... 0.7 2.9 0.1
----- ----- -----
Effective tax rate.......................................... 21.8% 7.0% (15.1)%
===== ===== =====
</TABLE>
The tax effects of temporary differences that result in significant
portions of deferred income tax assets and liabilities and a description of the
financial statement items creating these differences are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------
1996 1995
----------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carry forward......................... $ -- $ 779,000
Alternative minimum tax credits.......................... 92,000 96,000
Other.................................................... 10,000 --
Statutory depletion carry forward........................ 159,000 110,000
----------- ----------
261,000 985,000
Valuation allowance........................................ -- (405,000)
----------- ----------
261,000 580,000
----------- ----------
Deferred tax liabilities:
Oil and gas properties................................... 572,000 580,000
Oil and gas properties -- Canadian taxes................. 858,000 606,000
----------- ----------
1,430,000 1,186,000
----------- ----------
$(1,169,000) $ (606,000)
=========== ==========
</TABLE>
For the year ended December 31, 1995, the income tax benefit was limited by
the Company's inability to recognize all of the tax benefits of its net
operating loss and future deductible temporary differences in the calculation of
its tax expense. The Company had a net operating loss carryforward of
approximately $2,293,000 at December 31, 1995, which was utilized in 1996. The
Company had an alternative minimum tax credit carryforward of approximately
$92,000 and statutory depletion carry forward of $468,000 at December 31, 1996.
The valuation allowance was eliminated during 1996, due to the current earnings
of the Company. Management believes it is more likely than not that the deferred
income tax assets will be realized in future years through the reversal of
taxable temporary differences.
NOTE 5 RELATED PARTY TRANSACTIONS
In September, 1995, the Company entered into a joint venture, Southern
Links Group Joint Venture ("Southern Links"), to acquire, develop and market
exploration prospects. The Company's joint venture partner is The Links Group,
Inc. ("Links"), a company that is controlled by Robert Hillery, a director of
the Company. The Company has agreed to fund third party costs of Southern Links.
Any proceeds from the sale
F-18
<PAGE> 72
SOUTHERN MINERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of prospects or oil and gas from such prospects is distributed 100% to the
Company until it receives an amount equal to the return of its invested capital,
after which time all such proceeds and property interests, if any, are to be
distributed 75% to the Company and 25% to Links. At December 31, 1996 the
Company has funded $552,000 of third party costs of Southern Links, recording
such amounts in properties held for sale.
NOTE 6 MAJOR CUSTOMERS
The Company is principally engaged in a single industry segment, the
exploration, development, and production of oil and gas reserves in the United
States and Canada. Sales of oil and gas to customers accounting for 10% or more
of revenues were as follows:
<TABLE>
<CAPTION>
CUSTOMER 1996 1995 1994
-------- ------ ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
G C Marketing Company..................................... $3,212 $ -- $ --
Mike Rogers Drilling Company.............................. 591 746 651
Ashtola Exploration Company............................... -- 208 283
</TABLE>
NOTE 7 COMMON STOCK
During 1996, the Company adopted the 1996 Stock Option Plan ("1996 Plan")
in which certain key employees of the Company may receive stock options, in
addition to any other compensation they may receive from the Company. An
aggregate of 300,000 shares of the Company's common stock is reserved for
issuance upon the exercise of options granted under the 1996 Plan. Under the
1996 Plan, the exercise price of the option equals the market price of the
Company's stock on the date of grant and an option's maximum term is up to ten
years with varying vesting periods. During 1996, the Company granted 130,000
options under this plan.
During 1996, the Company established the 1996 Stock Purchase Plan, which
covers substantially all employees. An aggregate of 300,000 shares of the
Company's common stock are reserved for issuance upon the exercise of options
granted under the Employee Stock Purchase Plan. Subsequent to 1996, 5,313
options were granted under the Employee Stock Purchase Plan.
During 1995, the Company established the "1995 Non-Employee Director
Compensation Plan" in order to compensate nonemployee Directors with shares of
the Company's common stock in lieu of cash fees. The plan authorizes a total of
100,000 shares of common stock for issuance and provides that for attending a
regular or special meeting of the Board of Directors each non-employee Director
will be issued 1,000 shares of common stock.
The Company applies APB 25 and related Interpretations in accounting for
stock-based compensation. Had compensation costs been determined based on the
fair value at the grant dates for awards consistent with the method of FASB
Statement 123, the Company's pro forma net income (loss) and earnings (loss) per
share would have been as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Net income (loss)
As reported.............................................. $2,434 $ (137)
Pro forma................................................ 2,401 (137)
Primary earnings per share
As reported.............................................. 0.34 (0.02)
Pro forma................................................ 0.34 (0.02)
Fully diluted earnings per share
As reported.............................................. 0.33 (0.02)
Pro forma................................................ $ 0.33 $(0.02)
</TABLE>
F-19
<PAGE> 73
SOUTHERN MINERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for the grants issued in 1996:
<TABLE>
<S> <C>
Expected volatility......................................... 52% to 74%
Risk free rate.............................................. 5.86% to 6.23%
3 to 7 1/2
Expected life of options.................................... years
Expected dividend yield..................................... 0%
</TABLE>
During 1996, the Company entered into an exploration arrangement with Diasu
Oil & Gas Co., Inc. ("Diasu") and Diasu's two principal shareholders. Pursuant
to the arrangement, the Company issued the Diasu shareholders 175,000 shares of
common stock and warrants to purchase up to 600,000 shares at $2.00 a share for
a term of five years.
In connection with the acquisition of Diverse Production Company ("DPC") in
1995, the Company granted options exercisable for 325,000 shares of its common
stock at $1.25 a share through April 2000. Each of the individuals that received
the options became directors of the Company in connection with the acquisition
of DPC.
In consideration for initiating the transactions pursuant to which the
Company acquired DPC, the Company granted a director of the Company an option to
acquire 43,878 shares of the Company's common stock at $1.00 per share
exercisable through April 2000.
In 1994, in connection with the offer and acceptance of employment, the
Company's President was granted a non-qualified option to purchase 450,000
shares of the Company's common stock at a price of $1.00 per share. The option
is non-assignable, and is exercisable until December 2004. Payment for the
option can be made in cash, common stock of the Company, or a combination
thereof.
In consideration for services as financial advisor and placement agent for
the private placement in December, 1996, the Company granted Morgan Keegan &
Company, Inc. 120,000 warrants of the Company's common stock at $4.50 per share
exercisable through December 2001.
A summary of the Company's stock options and warrants of December 31, 1996,
1995 and 1994, and changes during the years ending on those dates is presented
below:
<TABLE>
<CAPTION>
1996 1995 1994
WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- ---------------- ------- ---------------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year.... 818,878 $1.09 450,000 $1.00 -- $ --
Granted................ 850,000 2.49 368,878 1.22 450,000 1.00
Exercised.............. -- -- --
Forfeited.............. -- -- --
--------- ------ ------- ------ ------- ------
Outstanding at end of
year................. 1,668,878 $1.71 818,878 $1.09 450,000 $1.00
========= ====== ======= ====== ======= ======
Options exercisable at
end of year.......... 1,548,878 818,878 450,000
========= ======= =======
</TABLE>
The weighted-average fair value of compensatory options granted during 1996
was $1.54 per option.
F-20
<PAGE> 74
SOUTHERN MINERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On December 23, 1996 the Company issued 2,500,000 shares of common stock at
$4.50 per share for net proceeds of $10,621,000. All of the proceeds from the
Offering were used to retire outstanding debt. Supplemental pro forma earnings
per share data for the year ended December 31, 1996 disclosing the effect of the
issuance of the shares and retirement of the debt as if they had occurred at
January 1, 1996 are as follows:
Primary net income per share.....................................$0.31
Fully diluted net income per share...............................$0.31
The following table summarizes information about options and warrants
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS AND WARRANTS OUTSTANDING OPTIONS AND WARRANTS
-------------------------------- EXERCISABLE
WEIGHTED-AVERAGE ------------------------------
RANGE OF NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE OUTSTANDING EXERCISE PRICE
- --------------- ----------- -------------------------------- ---------------- ----------- ----------------
<C> <C> <C> <C> <C> <C>
$1.00 to 1.50 828,878 5.91 years $1.10 828,878 $1.10
2.00 to 3.00 720,000 4.08 years 2.17 600,000 2.00
3.50 to 4.50 120,000 4.98 years 4.50 120,000 4.50
--------- ---------
1,668,878 1,548,878
========= =========
</TABLE>
NOTE 8 COMMITMENTS AND CONTINGENCIES
The Company leases office space under a noncancellable operating lease
expiring December 31, 1998. Lease commitments at December 31, 1996, are payable
$136,192 in 1997 and $134,184 in 1998. Lease payments in 1996, 1995 and 1994
were $133,755, $66,212 and $84,747, respectively.
No material legal proceedings are pending.
The Company is unaware of any possible exposure from actual or potential
claims or lawsuits involving environmental matters. As such, no liability has
been accrued as of December 31, 1996 and 1995.
NOTE 9 SUBSEQUENT EVENTS (UNAUDITED)
On May 20, 1997, the Company purchased all of the outstanding capital stock
of BEC. The purchase price was approximately $10,640,000. BEC's assets consist
of working interests in fourteen oil and gas wells located in the Big Escambia
Creek Field in Escambia County, Alabama. The acquisition was financed with a
$10,600,000 advance under the Revolver Note. In addition, the Company acquired
other interests in oil and gas properties, including a 10% interest in a
concession in the Santa Elena Peninsula in Ecuador for approximately $2,400,000
and 22.68% working interest in the Albert Philyaw Unit 8-1 #1 well located in
the Big Escambia Creek Field in Escambia County, Alabama, for approximately
$3,300,000. The acquisition of the interests were financed through a combination
of cash flow from operations and advances under the Revolver Note. These
transactions will be accounted for under the purchase method of accounting.
F-21
<PAGE> 75
SOUTHERN MINERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data of the Company are presented below for
the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
FULLY
INCOME PRIMARY DILUTED
(LOSS) NET INCOME INCOME
FROM INCOME (LOSS) (LOSS)
REVENUES OPERATIONS (LOSS) PER SHARE PER SHARE
----------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
1996
QUARTER
March 31...................... $ 3,010,000 $1,006,000 $ 825,000 $ 0.13 $ 0.12
June 30....................... 2,819,000 1,386,000 620,000 0.09 0.09
September 30.................. 3,031,000 1,051,000 627,000 0.09 0.08
December 31................... 3,373,000 626,000 362,000 0.05 0.05
----------- ---------- ---------- ------ ------
12,233,000 4,069,000 2,434,000 0.34 0.33
=========== ========== ========== ====== ======
1995
QUARTER
March 31...................... 441,000 (132,000) (101,000) (0.02) (0.02)
June 30....................... 656,000 (40,000) (9,000) (0.00) (0.00)
September 30.................. 590,000 61,000 92,000 0.01 0.01
December 31................... 527,000 (163,000) (119,000) (0.02) (0.02)
----------- ---------- ---------- ------ ------
$ 2,214,000 $ (274,000) $ (137,000) $(0.02) $(0.02)
=========== ========== ========== ====== ======
</TABLE>
NOTE 11 RETIREMENT BENEFITS
The Company terminated its 401(k) Retirement Plan in 1995, and adopted a
Simplified Employee Pension Plan ("SEP"). The SEP allows employees to defer part
of their salary. Employer contributions are optional, and the Company will
determine annually whether it will contribute and at what level. The maximum
amount that can be contributed annually per SEP plan participant from a
combination of salary deferrals plus Company optional contributions is $22,500.
In 1996, the Company's contribution, totaling $22,554, was 50% of the amount
contributed by each of the participants in the plan.
Prior to October 1, 1995, the Company had a 401(k) retirement plan covering
all of its eligible employees. Under the 401(k) plan, subject to certain plan
limitations and certain provisions of the Internal Revenue Code, plan
participants could contribute up to 15% of their pre-tax compensation. For the
years ended December 31, 1994 and 1995, the Company contributed a matching
contribution limited to 5% of each plan participant's compensation, except an
additional qualified non-elective contribution of 3% of participant's
compensation was made for non-key employees. The Company's contributions
amounted to $5,000 and $16,000 in 1995 and 1994, respectively.
NOTE 12 GEOGRAPHIC DATA
The Company is an independent oil and gas company engaged in the
acquisition, development and exploration of oil and natural gas properties. All
earnings before January 1, 1996 were domestic earnings.
F-22
<PAGE> 76
SOUTHERN MINERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information about the Company's operations by geographic area for the year ended
December 31, 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
U. S. CANADA TOTAL
------- ------- -------
<S> <C> <C> <C>
Year ended December 31, 1996
Oil and gas sales........................................... $ 8,136 $ 3,644 $11,780
Gain on sales of properties and other assets................ 424 29 453
------- ------- -------
Total revenue..................................... 8,560 3,673 12,233
------- ------- -------
Expense:
Production................................................ 1,880 862 2,742
Exploration............................................... 821 44 865
Depreciation, depletion and amortization.................. 1,896 979 2,875
General and administrative................................ 802 880 1,682
------- ------- -------
5,399 2,765 8,164
------- ------- -------
Interest and other income................................... 99 187 286
Interest expense............................................ (1,242) 0 (1,242)
------- ------- -------
Income before income taxes.................................. 2,018 1,095 3,113
Income taxes................................................ 319 360 679
------- ------- -------
Net income.................................................. $ 1,699 $ 735 $ 2,434
======= ======= =======
Identifiable assets as of December 31, 1996................. $17,646 $ 6,269 $23,915
Corporate assets-cash and cash equivalents.................. 471
-------
Total assets...................................... $24,386
=======
Identifiable assets as of December 31, 1995................. $14,878 $ 6,227 $21,105
Corporate assets-cash and cash equivalents.................. 562
-------
Total assets...................................... $21,667
=======
</TABLE>
NOTE 13 OIL AND GAS PRODUCING ACTIVITIES
The Company's capitalized costs of all oil and gas properties and related
allowances for depreciation and depletion are as follows at December 31 (in
thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Proved properties........................................... $24,888 $20,530
Unproved properties......................................... 525 15
Less accumulated depreciation, depletion and amortization... (5,072) (2,758)
------- -------
Total............................................. $20,341 $17,787
======= =======
</TABLE>
The Company's share of oil and gas revenues produced from its royalty
interests was $979,000, $169,000 and $170,000 for the years ended December 31,
1996, 1995, and 1994, respectively.
F-23
<PAGE> 77
SOUTHERN MINERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Costs incurred in oil and gas property acquisition, exploration and
development activities were as follows (in thousands):
<TABLE>
<CAPTION>
UNITED STATES CANADA TOTAL
------------- ------- -------
<S> <C> <C> <C>
AS OF DECEMBER 31, 1996
Property acquisition costs
Proved........................................... $ 4,595 $ -- $ 4,595
Unproved......................................... -- -- --
Exploration costs.................................. 373 -- 373
Development cost................................... 426 642 1,068
------- ------- -------
Total costs incurred..................... 5,394 642 6,036
======= ======= =======
AS OF DECEMBER 31, 1995
Property acquisition costs
Proved........................................... 17,785 -- 17,785
Unproved......................................... 876 -- 876
Exploration costs.................................. 214 -- 214
Development cost................................... 248 -- 248
------- ------- -------
Total costs incurred..................... 19,123 -- 19,123
======= ======= =======
AS OF DECEMBER 31, 1994
Property acquisition costs
Proved........................................... -- -- --
Unproved......................................... 225 -- 225
Exploration costs.................................. 657 -- 657
Development cost................................... 225 -- 225
------- ------- -------
Total costs incurred..................... $ 1,107 $ -- $ 1,107
======= ======= =======
</TABLE>
RESERVE QUANTITY INFORMATION (UNAUDITED) -
The following two tables reflect the estimated proved reserves of the
Company. The oil and gas reserves are principally located onshore in the
continental United States and Canada. The information is provided by the Company
and audited by the independent petroleum engineering firms Netherland, Sewell
and McDaniel & Associates for the United States and Canadian reserves,
respectively.
F-24
<PAGE> 78
SOUTHERN MINERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
U.S. CANADA TOTAL
----------------------- --------------------- ------------------------
OIL GAS OIL GAS OIL GAS
PROVED RESERVES (BBLS) (MCF) (BBLS) (MCF) (BBLS) (MCF)
--------------- --------- ---------- -------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993............. 474,486 1,238,857 -- -- 474,486 1,238,857
Extensions, discoveries and
additions............................ 45,834 245,190 -- -- 45,834 245,190
Revisions of previous estimates........ (213,258) (397,443) -- -- (213,258) (397,443)
Production............................. (78,866) (300,544) -- -- (78,866) (300,544)
--------- ---------- -------- --------- ---------- ----------
Balance, December 31, 1994............. 228,196 786,060 -- -- 228,196 786,060
Extensions, discoveries and
additions............................ 66 8,449 -- -- 66 8,449
Revisions of previous estimates........ (24,715) (145,903) -- -- (24,715) (145,903)
Purchases of minerals in place......... 568,702 20,400,151 868,495 5,786,239 1,437,197 26,186,390
Production........................... (84,848) (404,319) -- -- (84,848) (404,319)
--------- ---------- -------- --------- ---------- ----------
Balance, December 31, 1995............. 687,401 20,644,438 868,495 5,786,239 1,555,896 26,430,677
Extensions, discoveries and
additions............................ 6,081 479,336 31,351 1,506,458 37,432 1,985,794
Revisions of previous estimates........ 33,975 (519,051) (35,593) 528,330 (1,618) 9,279
Purchase of minerals in place.......... 109,252 4,590,014 -- -- 109,252 4,590,014
Production............................. (120,855) (2,396,379) (112,563) (961,527) (233,418) (3,357,906)
--------- ---------- -------- --------- ---------- ----------
Balance, December 31, 1996............. 715,854 22,798,358 751,690 6,859,500 1,467,544 29,657,858
========= ========== ======== ========= ========== ==========
Proved Developed Reserves
Balance, December 31, 1994............. 228,196 786,060 -- -- 228,196 786,060
Balance, December 31, 1995............. 661,852 20,446,505 868,495 5,786,239 1,530,347 26,232,744
Balance, December 31, 1996............. 608,705 19,361,667 751,690 6,859,500 1,360,395 26,221,167
</TABLE>
The revisions in the Company's estimated reserves in 1994 were primarily
the result of downward adjustments to the Company's oil and gas properties in
the Hub, Bandera, Stateline and Cascade Deep fields. Production from these
fields was substantially below those projected by an independent petroleum
engineering firm, resulting in subsequent downward adjustments.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (UNAUDITED)
The information that follows has been developed by the Company pursuant to
procedures prescribed by Statement No. 69 of the Financial Accounting Standards
Board and utilizes reserve data estimated by Netherland, Sewell and McDaniel &
Associates, independent petroleum engineering firms and by the Company. The
information may be useful for certain comparison purposes, but should not be
solely relied upon in evaluating the Company or its performance. Moreover, the
projections should not be construed as realistic estimates of future cash flows,
nor should the standardized measure be viewed as representing current value.
The future cash flows are based on sales prices, costs, and statutory
income tax rates in existence at the dates of the projections. Since future
projections are inherently imprecise, material revisions to reserve estimates
may occur in the future. Further, production of the oil and gas reserves may not
occur in the periods assumed, and actual prices realized and actual costs
incurred are expected to vary from those used. Management does not rely upon the
information that follows in making investment and operating decisions; rather,
those decisions are based upon a wide range of factors, including estimates of
probable reserves, proved reserves, and price and cost assumptions different
from those reflected herein.
F-25
<PAGE> 79
SOUTHERN MINERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the standardized measure of discounted
future net cash flows from projected production of the Company's proved oil and
gas reserves as of December 31 (all Company reserves were located in the United
States prior to 1995):
<TABLE>
<CAPTION>
U.S. CANADA TOTAL
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
AT DECEMBER 31, 1996
Future cash inflows................................ $109,510 $ 29,283 $138,793
Future production and development costs............ (22,340) (10,569) (32,909)
Future income taxes................................ (22,719) (4,869) (27,588)
-------- -------- --------
Future net cash flows.................... 64,451 13,845 78,296
10% annual discount................................ (24,842) (4,119) (28,961)
-------- -------- --------
Standardized measure of discounted future
net cash flows................................... 39,609 9,726 49,335
======== ======== ========
AT DECEMBER 31, 1995
Future cash inflows................................ 53,075 21,063 74,138
Future production and development costs............ (12,827) (9,520) (22,347)
Future income taxes................................ (9,165) (1,938) (11,103)
-------- -------- --------
Future net cash flows.................... 31,083 9,605 40,688
10% annual discount................................ (13,793) (2,295) (16,088)
-------- -------- --------
Standardized measure of discounted future
net cash flows................................... 17,290 7,310 24,600
======== ======== ========
AT DECEMBER 31, 1994
Future cash inflows................................ 4,891 -- 4,891
Future production and development costs............ (1,412) -- (1,412)
Future income taxes................................ (697) -- (697)
-------- -------- --------
Future net cash flows.................... 2,782 -- 2,782
10% annual discount................................ (448) -- (448)
-------- -------- --------
Standardized measure of discounted future
net cash flows................................... $ 2,334 $ -- $ 2,334
======== ======== ========
</TABLE>
F-26
<PAGE> 80
SOUTHERN MINERAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following are the principal sources of change in the standardized
measure of discounted future net cash flows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Standardized measure -- beginning of year............ $ 24,600 $ 2,334 $ 4,035
Oil and gas sales, net of production costs........... (9,038) (1,388) (1,199)
Sales of reserves in place........................... (166) -- --
Purchases of reserves in place....................... 13,001 25,346 --
Net changes in prices, net of production costs....... 21,735 (73) (78)
Extensions and discoveries........................... 6,259 14 810
Revisions to previous quantity estimates............. (1,528) (390) (1,835)
Net change in income taxes........................... (11,930) (2,311) --
Accretion of discount................................ 2,725 284 454
Changes in estimated future development costs........ (786) 230 27
Developmental costs incurred during the period that
reduced future development costs................... 480 -- --
Changes in production rates and other................ 3,983 554 120
-------- ------- -------
Standardized measure -- end of year.................. $ 49,335 $24,600 $ 2,334
======== ======= =======
</TABLE>
F-27
<PAGE> 81
================================================================================
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, THE UNDERWRITERS OR ANY OTHER PERSON. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES
OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER TO SELL OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
QUALIFIED SOLICITATION IS NOT TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH SOLICITATION OR OFFER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE OF SECURITIES MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Forward-Looking Statements............ 9
Risk Factors.......................... 9
Price Range of Common Stock........... 16
Dividend Policy....................... 16
Use of Proceeds....................... 16
Capitalization........................ 17
Selected Consolidated Historical and
Pro Forma Financial Data............ 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 24
Management............................ 33
Description of Debentures............. 35
Description of Credit Facility........ 44
Description of Capital Stock.......... 44
Underwriting.......................... 46
Legal Matters......................... 48
Experts............................... 48
Available Information................. 48
Incorporation of Certain Documents by
Reference........................... 49
Glossary.............................. G-1
Index to Financial Statements......... F-1
</TABLE>
================================================================================
================================================================================
$30,000,000
SOUTHERN MINERAL CORP. LOGO
SOUTHERN MINERAL CORPORATION
% CONVERTIBLE SUBORDINATED
DEBENTURES DUE 2007
-----------------
PROSPECTUS
-----------------
MORGAN KEEGAN & COMPANY, INC.
MCDONALD & COMPANY
SECURITIES, INC.
RAUSCHER PIERCE REFSNES, INC.
, 1997
================================================================================
<PAGE> 82
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the issuance and distribution of the securities being registered hereby.
<TABLE>
<S> <C>
Securities and Exchange Commission Filing Fee............... $10,455
National Association of Securities Dealers, Inc. Filing
Fee....................................................... 3,950
Printing and Engraving Expenses............................. *
Legal Fees and Expenses..................................... *
Accounting Fees and Expenses................................ *
Blue Sky and Related Expenses............................... 3,500
Trustee and Registrar Fee................................... *
Miscellaneous............................................... *
-------
Total............................................. $ *
=======
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Ninth Article of the Registrant's Amended and Restated Articles of
Incorporation permits, and Article VII of Registrant's Bylaws contains
indemnification provisions which make mandatory the indemnification permitted by
Section 78.751 of the General Corporation Law of Nevada ("NGCL"). Accordingly,
the Registrant generally must indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that such person is or was a director, officer, employee or
agent of the Registrant or is or was serving at the request of the Registrant as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding.
However, with respect to an action or suit brought to obtain a judgment in the
Registrant's favor, whether by the Registrant itself or derivatively by a
stockholder, (i) such indemnification is limited to expenses, including amounts
paid in settlement and attorneys' fees actually and reasonably incurred by him
in connection with the defense or settlement of the action or suit, and (ii)
indemnification may not be made for any claim, issue or matter as to which such
a person has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the Registrant or for
amounts paid in settlement to the Registrant, unless and only to the extent that
the court in which the action or suit was brought or other court of competent
jurisdiction determines upon application that in view of all the circumstances
of the case, the person is fairly and reasonably entitled to indemnity for such
expenses as the court deems proper. In all cases, the person seeking
indemnification must have acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the Registrant's best interests. In the
case of criminal actions or proceedings, the person must also have had no
reasonable cause to believe such person's conduct was unlawful. The
determination as to whether a person seeking indemnification has met the
required standard of conduct must be made by the Registrant's stockholders, by a
majority vote of a quorum of its disinterested directors, or by independent
legal counsel in a written opinion if such a quorum does not exist or if the
disinterested directors so direct. To the extent that a director, officer,
employee or agent of the Registrant has been successful on the merits or
otherwise in defending any action, suit or proceeding for which indemnification
is permissible under the NGCL, or in defending any claim, issue or matter
therein, the Registrant must, under both the NGCL and its Bylaws, indemnify such
person against expenses, including attorneys' fees, actually and reasonably
incurred by such person in connection with the defense. As permitted by the
NGCL, the Registrant's Bylaws require it to advance expenses which its officers
and directors incur in
II-1
<PAGE> 83
defending any civil or criminal action, suit or proceeding upon receipt of an
undertaking by such person or on such person's behalf to repay such amounts if
it is ultimately determined by a court of competent jurisdiction that such
person is not entitled to be indemnified by the Registrant. The NGCL and the
Registrant's Bylaws provide that the indemnification and advancement of expenses
authorized therein are not exclusive. Accordingly, the Registrant could provide
for other indemnification of its directors and officers acting in either or both
of their official capacities or other capacities while holding office. Except
for the advancement of expenses and court-ordered indemnification explicitly
provided for by the NGCL, the NGCL and the Registrant's Bylaws prohibit the
Registrant from indemnifying any director or officer if a final adjudication
establishes that his acts or omissions involved intentional misconduct, fraud or
a knowing violation of the law and was material to the cause of action.
Consistent with Section 78.752 of the NGCL, the Registrant's Bylaws empower it
to procure and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Registrant, or at Registrant's
request, of another entity, against any liability asserted against such person
and incurred by such person in such capacity, or arising out of such person's
status as such, regardless of whether the Registrant could indemnify such person
against such liability. The Registrant has purchased insurance on behalf of its
directors and officers against certain liabilities that may be asserted against,
or incurred by, such persons in their capacities as directors or officers of the
Registrant, or that may arise out of their status as directors or officers of
the Registrant, including liabilities under federal and state securities laws.
As permitted by Section 78.037 of the NGCL, the Registrant's Amended and
Restated Articles of Incorporation eliminate the liability of its directors and
officers to the Registrant and its stockholders for damages for breach of
fiduciary duty, except for acts or omissions which involve intentional
misconduct, fraud or a knowing violation of law, or for the payment of
distributions in violation of Section 78.300 of the NGCL. To the extent that
this provision limits the remedies of the Registrant and its stockholders to
equitable remedies, it might reduce the likelihood of derivative litigation and
discourage the Registrant's management or stockholders from initiating
litigation against its directors or officers for breach of their fiduciary
duties. Additionally, equitable remedies may not be effective in many
situations. If a stockholder's only remedy is to enjoin the completion of an
action, such remedy would be ineffective if the stockholder does not become
aware of a transaction or event until after it has been completed. In such a
situation, it is possible that the Registrant and its stockholders would have no
effective remedy against directors or officers. The Registrant has purchased
insurance on behalf of its directors and officers against certain liabilities
that may be asserted against, or incurred by, such persons in their capacities
as directors or officers of the Registrant, or that may arise out of their
status as directors or officers of the Registrant, including liabilities under
the federal and state securities laws.
The above discussion of the NGCL and the Registrant's Amended and Restated
Articles of Incorporation and Bylaws is not intended to be exhaustive and is
qualified in its entirety by the NGCL and such Articles and Bylaws.
ITEM 16. EXHIBITS.
The following exhibits are filed as part of this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<S> <C>
*1.1 -- Form of Underwriting Agreement.
2.1 -- Exchange Agreement by and among Diverse Production Co.,
The Shareholders of Diverse Production Co., and the
Company dated March 2, 1995 (incorporated by reference to
Exhibit (I) to Form 10-K for fiscal year ended December
31, 1994).
2.2 -- Purchase and Sale Agreement, dated as of October 31,
1995, by and among Stone & Webster, Incorporated, Stone &
Webster Oil Company, Inc. and the Company (incorporated
by reference to Exhibit 2.1 to Form 8-K dated October 31,
1995).
</TABLE>
II-2
<PAGE> 84
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
2.3 -- Purchase and Sale Agreement and Assignment of Partnership
Interest, dated August 30, 1996 by and between Torch
Energy Finance Fund Limited Partnership I and the Company
(incorporated by reference to Exhibit 2.1 to Form 8-K
dated August 30, 1996).
2.4 -- Agreement Regarding Dissolution of Partnerships, dated
August 30, 1996, between the Company and Diasu Oil & Gas
Co. (incorporated by reference to Exhibit 2.2 to Form 8-K
dated August 30, 1996).
2.5 -- Purchase and Sale Agreement, dated as of May 20, 1997, by
and among Mario Garcia and Delores E. Garcia and the
Company (incorporated by reference to Exhibit 2.1 to Form
8-K dated May 20, 1997).
3.1 -- Amended and Restated Articles of Incorporation of the
Company, as amended (incorporated by reference to Exhibit
3.1 to Form 8-K dated May 17, 1996).
*3.2 -- Bylaws of the Company, as amended.
*4.5 -- Form of Indenture pursuant to which the Company's
Convertible Subordinated Debentures due 2007 are to be
issued.
4.6 -- Form of Subordinated Debenture (included in Exhibit 4.5).
*5.1 -- Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
10.1 -- Stock Option Agreement made as of December 31, 1994
between the Company and Steven H. Mikel (incorporated by
reference to Exhibit (h) to Form 10-K for fiscal year
ended December 31, 1994).
10.2 -- 1995 Non-Employee Director Compensation Plan
(incorporated by reference to Exhibit (k) to Form 10-K
for fiscal year ended December 31, 1994).
10.3 -- Credit Agreement, dated December 20, 1995, between the
Company, SMC Production Co., San Salvador Development
Company, Inc., Venture Resources, Inc., Venture Pipeline
Company, VenGas Pipeline Company, Spruce Hills Production
Company, Inc., and Compass Bank-Houston for Reducing
Revolver Line of Credit up to $25,000,000 (incorporated
by reference to Exhibit 10.1 to Form 8-K dated December
20, 1995).
10.4 -- Promissory Note, dated December 20, 1995, in the original
principal amount of $25,000,000 made by the Company, SMC
Production Co., San Salvador Development Company, Inc.,
Venture Resources, Inc., Venture Pipeline Company, VenGas
Pipeline Company, Spruce Hills Production Company, Inc.
in favor of Compass Bank-Houston (incorporated by
reference to Exhibit 10.2 to Form 8-K dated December 20,
1995).
10.5 -- Credit Agreement, dated December 20, 1995, between the
Company, SMC Production Co., San Salvador Development
Company, Inc., Venture Resources, Inc., Venture Pipeline
Company, VenGas Pipeline Company, Spruce Hills Production
Company, Inc. and Compass Bank-Houston for Term Loan of
$3,500,000 (incorporated by reference to Exhibit 10.3 to
Form 8-K dated December 20, 1995).
10.6 -- Promissory Note, dated December 20, 1995, in the original
principal amount of $3,500,000 made by the Company, SMC
Production Co., San Salvador Development Company, Inc.,
Venture Resources, Inc., Venture Pipeline Company, VenGas
Pipeline Company, Spruce Hills Production Company, Inc.
in favor of Compass Bank-Houston (incorporated by
reference to Exhibit 10.4 to Form 8-K dated December 20,
1995).
</TABLE>
II-3
<PAGE> 85
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- --------------------------- ------------------------------------------------------------------------------------------
<C> <S>
10.7 -- 1996 Stock Option Plan (incorporated by reference to Exhibit 10.10 to Form 10-KSB for
fiscal year ended December 31, 1995).
10.8 -- 1996 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.11 to Form
10-KSB for fiscal year ended December 31, 1995).
10.9 -- Joint Venture Agreement, dated October 1, 1995, between the Company and The Links
Group, Inc. (incorporated by reference to Exhibit 10.12 to Form 10-KSB for fiscal year
ended December 31, 1995).
10.10 -- Option Agreement, dated January 5, 1996, between the Company and Diasu Oil & Gas
Company, Inc. covering the exploration joint venture (incorporated by reference to
Exhibit 10.13 to Form 10-KSB for fiscal year ended December 31, 1995).
10.11 -- Stock Option Agreement dated April 6, 1995, between the Company and Robert R. Hillery
(incorporated by reference to Exhibit 10.14 to Form 10-KSB for fiscal year ended
December 31, 1995).
10.12 -- Subscription Agreement and Assumption of Obligations, dated January 5, 1995, between
the Company and Gary L. Chitty, and Thomas J. McMinn (incorporated by reference to
Exhibit 10.15 to Form 10-KSB/A for fiscal year ended December 31, 1995).
10.13 -- Amendment to Credit Agreement between the Company and Compass Bank-Houston dated August
30, 1996 (incorporated by reference to Exhibit 10.1 to Form 8-K dated August 30, 1996).
10.14 -- Second Amendment to Credit Agreement between the Company and Compass Bank dated
December 17, 1996 (incorporated by reference to Exhibit 10.14 to Form 10-KSB for the
fiscal year ended December 31, 1996).
+10.15 -- Third Amendment to Credit Agreement between the Company and Compass Bank dated June 10,
1997.
10.16 -- Fourth Amendment to Credit Agreement between the Company and Compass Bank dated June
30, 1997 (incorporated by reference to Exhibit 10.1 to Form 10-QSB for the quarterly
period ended June 30, 1997).
10.17 -- Incentive Stock Option Agreement between the Company and M. Michael Jenson, dated
August 26, 1997.
+11.1 -- Computation of earnings per common and equivalent share.
+12.1 -- Computation of ratios.
*23.1 -- Consent of Grant Thornton LLP.
23.2 -- Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (included in its opinion filed as
Exhibit 5.1).
*23.3 -- Consent of Netherland, Sewell & Associates, Inc.
*23.4 -- Consent of McDaniel & Associates Consultants, Ltd.
*23.5 -- Consent of KPMG Peat Marwick LLP.
*23.6 -- Consent of Ryder Scott Company Petroleum Engineers.
+24.1 -- Power of Attorney.
*25.1 -- Form T-1, Statement of Eligibility and Qualification under the Trust Indenture Act of
1939 of American Stock Transfer & Trust Company, as Trustee.
+27.1 -- Financial Data Schedule.
</TABLE>
II-4
<PAGE> 86
- ---------------
* Filed herewith.
+ Previously filed.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 87
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Amendment No. 2 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Houston, State of Texas, on the 1st
day of October 1997.
SOUTHERN MINERAL CORPORATION
(Registrant)
By: /s/ STEVEN H. MIKEL
----------------------------------
Steven H. Mikel
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated
on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director and President and Chief October 1, 1997
- ----------------------------------------------------- Executive Officer
Steven H. Mikel (principal executive officer)
* Vice President -- Finance October 1, 1997
- ----------------------------------------------------- (principal financial and
James H. Price accounting officer)
* Chairman of the Board and Director October 1, 1997
- -----------------------------------------------------
Howell H. Howard
* Director October 1, 1997
- -----------------------------------------------------
B. Travis Basham
* Director October 1, 1997
- -----------------------------------------------------
Thomas R. Fuller
* Director October 1, 1997
- -----------------------------------------------------
Robert R. Hillery
* Director October 1, 1997
- -----------------------------------------------------
E. Ralph Hines, Jr.
* Director October 1, 1997
- -----------------------------------------------------
James E. Nielson
</TABLE>
II-6
<PAGE> 88
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director October 1, 1997
- -----------------------------------------------------
Donald H. Wiese, Jr.
* Director October 1, 1997
- -----------------------------------------------------
Spencer L. Youngblood
*By /s/ STEVEN H. MIKEL October 1, 1997
-------------------------------------------------
Steven H. Mikel
Attorney-in-Fact
</TABLE>
II-7
<PAGE> 89
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
*1.1 -- Form of Underwriting Agreement.
2.1 -- Exchange Agreement by and among Diverse Production Co.,
The Shareholders of Diverse Production Co., and the
Company dated March 2, 1995 (incorporated by reference to
Exhibit (I) to Form 10-K for fiscal year ended December
31, 1994).
2.2 -- Purchase and Sale Agreement, dated as of October 31,
1995, by and among Stone & Webster, Incorporated, Stone &
Webster Oil Company, Inc. and the Company (incorporated
by reference to Exhibit 2.1 to Form 8-K dated October 31,
1995).
2.3 -- Purchase and Sale Agreement and Assignment of Partnership
Interest, dated August 30, 1996 by and between Torch
Energy Finance Fund Limited Partnership I and the Company
(incorporated by reference to Exhibit 2.1 to Form 8-K
dated August 30, 1996).
2.4 -- Agreement Regarding Dissolution of Partnerships, dated
August 30, 1996, between the Company and Diasu Oil & Gas
Co. (incorporated by reference to Exhibit 2.2 to Form 8-K
dated August 30, 1996).
2.5 -- Purchase and Sale Agreement, dated as of May 20, 1997, by
and among Mario Garcia and Delores E. Garcia and the
Company (incorporated by reference to Exhibit 2.1 to Form
8-K dated May 20, 1997).
3.1 -- Amended and Restated Articles of Incorporation of the
Company, as amended (incorporated by reference to Exhibit
3.1 to Form 8-K dated May 17, 1996).
*3.2 -- Bylaws of the Company, as amended.
*4.5 -- Form of Indenture pursuant to which the Company's
Convertible Debentures due 2007 are to be issued.
4.6 -- Form of Subordinated Debenture (included in Exhibit 4.5).
*5.1 -- Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
10.1 -- Stock Option Agreement made as of December 31, 1994
between the Company and Steven H. Mikel (incorporated by
reference to Exhibit (h) to Form 10-K for fiscal year
ended December 31, 1994).
10.2 -- 1995 Non-Employee Director Compensation Plan
(incorporated by reference to Exhibit (k) to Form 10-K
for fiscal year ended December 31, 1994).
10.3 -- Credit Agreement, dated December 20, 1995, between the
Company, SMC Production Co., San Salvador Development
Company, Inc., Venture Resources, Inc., Venture Pipeline
Company, VenGas Pipeline Company, Spruce Hills Production
Company, Inc., and Compass Bank-Houston for Reducing
Revolver Line of Credit up to $25,000,000 (incorporated
by reference to Exhibit 10.1 to Form 8-K dated December
20, 1995).
10.4 -- Promissory Note, dated December 20, 1995, in the original
principal amount of $25,000,000 made by the Company, SMC
Production Co., San Salvador Development Company, Inc.,
Venture Resources, Inc., Venture Pipeline Company, VenGas
Pipeline Company, Spruce Hills Production Company, Inc.
in favor of Compass Bank-Houston (incorporated by
reference to Exhibit 10.2 to Form 8-K dated December 20,
1995).
</TABLE>
<PAGE> 90
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
10.5 -- Credit Agreement, dated December 20, 1995, between the
Company, SMC Production Co., San Salvador Development
Company, Inc., Venture Resources, Inc., Venture Pipeline
Company, VenGas Pipeline Company, Spruce Hills Production
Company, Inc. and Compass Bank-Houston for Term Loan of
$3,500,000 (incorporated by reference to Exhibit 10.3 to
Form 8-K dated December 20, 1995).
10.6 -- Promissory Note, dated December 20, 1995, in the original
principal amount of $3,500,000 made by the Company, SMC
Production Co., San Salvador Development Company, Inc.,
Venture Resources, Inc., Venture Pipeline Company, VenGas
Pipeline Company, Spruce Hills Production Company, Inc.
in favor of Compass Bank-Houston (incorporated by
reference to Exhibit 10.4 to Form 8-K dated December 20,
1995).
10.7 -- 1996 Stock Option Plan (incorporated by reference to
Exhibit 10.10 to Form 10-KSB for fiscal year ended
December 31, 1995).
10.8 -- 1996 Employee Stock Purchase Plan (incorporated by
reference to Exhibit 10.11 to Form 10-KSB for fiscal year
ended December 31, 1995).
10.9 -- Joint Venture Agreement, dated October 1, 1995, between
the Company and The Links Group, Inc. (incorporated by
reference to Exhibit 10.12 to Form 10-KSB for fiscal year
ended December 31, 1995).
10.10 -- Option Agreement, dated January 5, 1996, between the
Company and Diasu Oil & Gas Company, Inc. covering the
exploration joint venture (incorporated by reference to
Exhibit 10.13 to Form 10-KSB for fiscal year ended
December 31, 1995).
10.11 -- Stock Option Agreement dated April 6, 1995, between the
Company and Robert R. Hillery (incorporated by reference
to Exhibit 10.14 to Form 10-KSB for fiscal year ended
December 31, 1995).
10.12 -- Subscription Agreement and Assumption of Obligations,
dated January 5, 1995, between the Company and Gary L.
Chitty, and Thomas J. McMinn (incorporated by reference
to Exhibit 10.15 to Form 10-KSB/A for fiscal year ended
December 31, 1995).
10.13 -- Amendment to Credit Agreement between the Company and
Compass Bank-Houston dated August 30, 1996 (incorporated
by reference to Exhibit 10.1 to Form 8-K dated August 30,
1996).
10.14 -- Second Amendment to Credit Agreement between the Company
and Compass Bank dated December 17, 1996 (incorporated by
reference to Exhibit 10.14 to Form 10-KSB for the fiscal
year ended December 31, 1996).
+10.15 -- Third Amendment to Credit Agreement between the Company
and Compass Bank dated June 10, 1997.
10.16 -- Fourth Amendment to Credit Agreement between the Company
and Compass Bank dated June 30, 1997 (incorporated by
reference to Exhibit 10.1 to Form 10-QSB for the
quarterly period ended June 30, 1997).
*10.17 -- Incentive Stock Option Agreement between the Company and
M. Michael Jenson.
+11.1 -- Computation of earnings per common and equivalent share.
+12.1 -- Computation of ratios.
*23.1 -- Consent of Grant Thornton LLP.
23.2 -- Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
(included in its opinion filed as Exhibit 5.1).
</TABLE>
<PAGE> 91
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
*23.3 -- Consent of Netherland, Sewell & Associates, Inc.
*23.4 -- Consent of McDaniel & Associates Consultants, Ltd.
*23.5 -- Consent of KPMG Peat Marwick LLP.
*23.6 -- Consent of Ryder Scott Company Petroleum Engineers.
+24.1 -- Power of Attorney.
*25.1 -- Form T-1, Statement of Eligibility and Qualification
under the Trust Indenture Act of 1939 of American Stock
Transfer & Trust Company, as Trustee.
+27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith.
+ Previously filed.
<PAGE> 1
Exhibit 1.1
SOUTHERN MINERAL CORPORATION
$30,000,000 __% Convertible Subordinated Debentures Due 2007
UNDERWRITING AGREEMENT
_____________, 1997
Morgan Keegan & Company, Inc.
McDonald & Company Securities, Inc.
Rauscher Pierce Refsnes Inc.
c/o Morgan Keegan & Company, Inc.
50 North Front Street
Memphis, Tennessee 38103
Ladies and Gentlemen:
Southern Mineral Corporation, a Nevada corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and
sell to the Underwriters named in Schedule I hereto (the "Underwriters")
an aggregate of $30,000,000 principal amount of the Convertible
Subordinated Debentures, convertible into Common Stock, par value $0.01 per
share ("Stock") of the Company, specified above ("Firm Securities") and, at
the option of the Underwriters, up to an aggregate of $4,500,000 additional
aggregate principal amount of Convertible Subordinated Debentures (the
"Optional Securities") of the Company. The Firm Securities and the Optional
Securities that the Underwriters elect to purchase pursuant to Section 2
hereof are herein collectively called the Securities.
1. The Company represents and warrants to, and agrees with, each
of the Underwriters that:
(a) The Company meets the requirements for use of Form
S-2 and a registration statement on Form S-2 (File No. 333-35843) in
respect of the Securities, including a preliminary prospectus and such
amendments to such registration statement as may have been required to
the date of this Agreement, has been prepared by the Company under the
provisions of the Securities Act of 1933, as amended (the "Act"), and
the rules and regulations thereunder (the "Rules and Regulations"), and
has been filed with the Securities and Exchange Commission (the
"Commission"); the registration statement, in the form heretofore
delivered to you, and, excluding exhibits thereto, to you for each of
the other Underwriters, has been declared effective by the Commission
in such form; no other document with respect to the registration
statement has heretofore been filed with the Commission; and no stop
order suspending the effectiveness of the registration statement, any
post-effective amendment thereto or the Rule 462(b) registration
statement, if any, has been issued and no proceeding for that purpose
has been initiated or threatened by the Commission (any preliminary
prospectus included in the registration
<PAGE> 2
statement or filed with the Commission pursuant to Rule 424(a) of the
Rules and Regulations is hereinafter called a Preliminary Prospectus ;
the registration statement as amended at the time it became effective
(the Effective Date ), including all financial statements, schedules
and exhibits thereto and including the information contained in the
form of final prospectus filed with the Commission pursuant to Rule
424(b) under the Act in accordance with Section 5(a) hereof and deemed
by virtue of Rule 430A under the Act to be part of the registration
statement at the time it was declared effective, is hereinafter
collectively called the Registration Statement; and such final
prospectus, in the form first filed pursuant to Rule 424(b) under the
Act, is hereinafter called the Prospectus ); any reference herein to
the Preliminary Prospectus, Registration Statement and Prospectus
shall be deemed to refer to and include the documents incorporated by
reference therein and shall be deemed to refer to and include any
documents filed after the date of such Preliminary Prospectus,
Registration Statement and Prospectus under the Securities Exchange
Act of 1934, as amended (the Exchange Act ); if the Company has filed
an abbreviated registration statement to register additional
Securities pursuant to Rule 462(b) under the Act, then any reference
herein to the Registration Statement shall also be deemed to include
such Rule 462(b) registration statement; any reference herein to the
terms amend, amendment or supplement with respect to the Registration
Statement, the Preliminary Prospectus or the Prospectus shall be
deemed to refer to and include the filing of any document under the
Exchange Act after the Effective Date, or the date of the Preliminary
Prospectus or the Prospectus, as the case may be, and deemed to be
incorporated therein by reference;
(b) On the Effective Date, the date the Prospectus is
first filed with the Commission pursuant to Rule 424(b), at all times
subsequent to and including each Time of Delivery (as defined) and, if
later, when any post-effective amendment to the Registration Statement
becomes effective or any amendment or supplement to the Prospectus is
filed with the Commission, the Registration Statement and the
Prospectus (as amended or as supplemented if the Company shall have
filed with the Commission any amendment or supplement thereto),
including financial statements included or incorporated by reference
in the Prospectus, did or will comply with all applicable provisions
of the Act, the Rules and Regulations, the Exchange Act, the rules and
regulations thereunder (the Exchange Act Rules and Regulations) and
the Trust Indenture Act of 1939, as amended (the Trust Indenture Act )
and the rules and regulations of the Commission thereunder; on the
Effective Date and when any post-effective amendment to the
Registration Statement becomes effective, no part of the Registration
Statement, the Prospectus or any such amendment or supplement did or
will contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary in order to
make the statements therein not misleading; at the Effective Date, the
date the Prospectus or any amendment or supplement to the Prospectus
is filed with the Commission and each Time of Delivery, the Prospectus
did not or will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading;
(c) The documents which are incorporated by reference in
the Preliminary Prospectus and the Prospectus or from which
information is so incorporated by reference, when they became
effective or were filed with the
-2-
<PAGE> 3
Commission, as the case may be, complied in all material respects with
the requirements of the Act, the Rules and Regulations, the Exchange
Act and the Exchange Act Rules and Regulations, as applicable; and any
documents so filed and incorporated by reference subsequent to the
Effective Date shall, when they are filed with the Commission, conform
in all material respects with the requirements of the Act, the Rules
and Regulations, the Exchange Act and the Exchange Act Rules and
Regulations, as applicable; no such documents when they were filed
(or, if amendments with respect to such documents were filed, when
such amendments were filed), contained an untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein, in
light of the circumstances under which they were made, not misleading;
(d) The financial statements, together with related
schedules and notes, included or incorporated by reference in the
Registration Statement or the Prospectus comply as to form in all
material respects with the requirements of the Act and the Exchange
Act, and present fairly the consolidated financial condition of the
Company and its subsidiaries as of the respective dates thereof and
the consolidated results of operations and cash flows of the Company
and its subsidiaries for the respective periods covered thereby, all
in conformity with generally accepted accounting principles applied on
a consistent basis throughout the entire period involved, except as
otherwise disclosed in the Prospectus. The pro forma financial
information set forth or incorporated by reference into the
Registration Statement or Prospectus comply as to form in all material
respects with the requirements of the Act and the Rules and
Regulations. No other financial statements or schedules of the Company
are required by the Act or the Rules and Regulations, the Exchange Act
and the Exchange Act Rules and Regulations to be included in the
Prospectus; all selected financial, operating and statistical data set
forth in the Prospectus under the captions Prospectus Summary,
Selected Consolidated Historical and Pro Forma Financial Data,
Management s Discussion and Analysis of Financial Condition and
Results of Operations, Business and elsewhere in the Prospectus fairly
presents, when read in conjunction with the Companys financial
statements and the related notes and schedules, the information set
forth therein;
(e) The Company maintains a system of internal
accounting control sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and
(iv) the recorded accountability for assets is compared with existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences;
(f) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus
and prior to each Time of Delivery, except as set forth in or
contemplated by the Registration Statement and the Prospectus (i)
neither the Company nor any of its subsidiaries has sustained any
material loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree,
and (ii) there has not been any change in
-3-
<PAGE> 4
the capital stock or long-term debt of the Company or any of
its subsidiaries or any material adverse change, or any development
involving a prospective material adverse change, in or affecting the
general affairs, management, financial position, stockholders' equity
or results of operations of the Company and its subsidiaries;
(g) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of
the State of Nevada, with power and authority (corporate and other) to
own, lease and operate its assets and conduct its business as
described in the Prospectus, and has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of each jurisdiction in which it owns or leases
properties or conducts any business so as to require such
qualification, or is subject to no material liability or disability by
reason of the failure to be so qualified in any such jurisdiction; and
each direct or indirect subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation [or has been
formed and is validly existing as a general or limited partnership, as
the case may be,] has power and authority to own, lease and operate
its assets and conduct its business as described in the Prospectus,
and has been duly qualified for the transaction of business and is in
good standing under the laws of each jurisdiction in which it owns or
leases properties or conducts any business so as to require such
qualification, or is subject to no material liability or disability by
reason of the failure to be so qualified in any such jurisdiction;
(h) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital stock
of the Company have been duly and validly authorized and issued, are
fully paid and non-assessable, free and clear of all liens,
encumbrances, equities or claims, and conform to the description of
the Stock contained in the Prospectus; the shares of Stock initially
issuable upon conversion of the Securities have been duly authorized
and reserved for issuance and, when issued and delivered in accordance
with the provisions of the Securities and the Indenture referred to
below, will be validly issued, fully paid and non-assessable and will
conform to the description of the Stock contained in the Prospectus;
and all of the issued shares of capital stock of, [or partnership or
other equity ownership interest in,] each subsidiary of the Company
have been duly and validly authorized and issued, are fully paid and
non-assessable and are owned directly or indirectly by the Company,
free and clear of all liens, encumbrances, equities or claims; except
as set forth in the Prospectus, the Company does not have outstanding,
and at the Time of Delivery will not have outstanding, any options to
purchase, or any rights or warrants to subscribe for, or any
securities or obligations convertible into, or any contracts or
commitments to issue or sell, or any restrictions upon the voting or
transfer of, any shares of Stock, any shares of capital stock of any
subsidiary or any such warrants, convertible securities or
obligations; the shares of Stock issuable upon conversion of the
Securities have been approved for trading on the Nasdaq National
Market, subject to official notice of issuance;
(i) The Securities have been duly authorized and, when
issued and delivered pursuant to this Agreement, will have been duly
executed, authenticated, issued and delivered and will constitute
valid and legally binding obligations of the Company entitled to the
benefits provided by the indenture dated as of ________, 1997 (the
"Indenture") between the Company and American Stock Transfer and
-4-
<PAGE> 5
Trust Company, as trustee (the Trustee), under which they are to be
issued, which is substantially in the form filed as an exhibit to the
Registration Statement; the Indenture has been duly authorized and
qualified under the Trust Indenture Act and, when executed and
delivered by the Company and the Trustee, will constitute a valid and
legally binding instrument, enforceable in accordance with its terms,
subject as to enforcement, to bankruptcy, insolvency, reorganization
and other laws of general applicability relating to or affecting
creditors rights and to general equity principals; and the Securities
and the Indenture will conform to the descriptions thereof in the
Prospectus;
(j) The issue and sale of the Securities to be sold by
the Company and the compliance by the Company with all of the
provisions of this Agreement and the consummation of the transactions
herein contemplated will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a
default under, or result in the creation of any lien, charge or
encumbrance on any property or assets of the Company or any of its
subsidiaries pursuant to, any indenture, mortgage, deed of trust, loan
agreement, note, lease or other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries is bound or to which any of the property or
assets of the Company or any of its subsidiaries is subject, nor will
such action result in any violation of the provisions of the Restated
Certificate of Incorporation, as amended (Certificate of Incorporation
), or Restated By- laws (By-laws ) of the Company or any statute or
any order, rule or regulation of any court or governmental agency or
body having jurisdiction over the Company or any of its subsidiaries
or any of their properties; and no consent, approval, authorization,
order, registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale of the
Securities or the consummation by the Company of the transactions
contemplated by this Agreement, except the registration of the
Securities and Stock issuable upon conversion thereof under the Act,
such as have been obtained under the Trust Indenture Act and as may be
required under the securities or Blue Sky laws of certain
jurisdictions and the bylaws and rules of the National Association of
Securities Dealers, Inc. ( NASD ) in connection with the purchase and
distribution by the Underwriters of the Securities;
(k) As of the date hereof, and at each Time of Delivery,
neither the Company nor any of its subsidiaries is in violation of its
Certificate of Incorporation or By-laws or other organizational
documents or in default in the performance or observance of any
material obligation, agreement, covenant or condition contained in any
indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which it is a party or by which it or any
of its properties may be bound; each of the Company and its
subsidiaries is in possession of and operating in compliance with all
leases, concessions, franchises, grants, authorizations, licenses,
permits, easements, consents, certificates and orders required for the
conduct of its business as described in the Prospectus, all of which
are valid and in full force and effect other than those which could
not, singly or in the aggregate, have a material adverse effect on the
condition, financial or otherwise, or on the earnings, business
affairs or business prospects of the Company and its subsidiaries
taken as a whole (a Material Adverse Effect ), and neither the Company
nor any of its subsidiaries has received any notice of proceedings
relating to the revocation or modification of any such lease,
-5-
<PAGE> 6
concession, franchise, grant, authorization, license, permit,
easement, consent, certificate or order which, individually or in the
aggregate, if subject to an unfavorable decisions, would result in a
Material Adverse Effect;
(l) The Company has full corporate power and authority to
enter into this Agreement, and this Agreement has been duly
authorized, executed and delivered by the Company;
(m) The statements set forth in the Prospectus under
the captions Deception of the "Debentures and Description of Common
Stock", insofar as they purport to constitute a summary of the terms
of the Securities and the Stock [tax?] are accurate and complete;
(n) Except as described in the Prospectus, each of the
Company and its subsidiaries has (1) generally satisfactory or good
and indefeasible title to all its interest in its oil and gas
properties, title investigations having been carried out by or on
behalf of such person in accordance with good practice in the oil and
gas industry in the areas in which the Company and its subsidiaries
operate and (2) good and indefeasible title to all other real property
and good and marketable title to all other material properties and
assets described in the Prospectus as owned by the Company or its
subsidiaries and valid, subsisting and enforceable leases for all of
the properties and assets, real or personal, described in the
Prospectus as leased by them, in each case free and clear of any
security interests, mortgages, pledges, liens, encumbrances or charges
of any kind, other than those described in the Prospectus;
(o) Except as described in the Prospectus, as of the
date hereof, (i) all royalties, rentals, deposits and other amounts
due on the oil and gas properties of the Company and its subsidiaries
have been properly and timely paid, and no proceeds from the sale or
production attributable to the oil and gas properties of the Company
and its subsidiaries are currently being held in suspense by any
purchaser thereof, and (ii) there are no claims under take-or-pay
contracts pursuant to which natural gas purchasers have any make-up
rights affecting the interest of the Company and its subsidiaries in
its oil and gas properties;
(p) As of the date hereof, the aggregate undiscounted
monetary liability of the Company and its subsidiaries for oil or
natural gas taken or received under any operating or gas balancing and
storage agreement relating to its oil and gas properties that permits
any person to receive any portion of the interest of the Company or
any of its subsidiaries in oil or natural gas or to receive cash or
other payments to balance any disproportionate allocation of oil or
natural gas could not have a Material Adverse Effect;
(q) Other than as set forth in the Prospectus, there
are no legal or governmental actions, suits or proceedings pending or
threatened against or affecting the Company or any of its subsidiaries
or any of their respective officers, directors or partners in their
capacity as such, before or by any federal, state or local court,
commission, regulatory body, administrative agency or other
governmental body, domestic or foreign, which, if determined adversely
to the Company or any of its subsidiaries, would individually or in the
aggregate have a Material Adverse Effect;
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<PAGE> 7
(r) The Company is not and, after giving effect to
the offering and sale of the Securities, will not be an "investment
company" or an entity "controlled" by an "investment company", as such
terms are defined in the Investment Company Act of 1940, as amended
(the "Investment Company Act");
(s) Neither the Company nor any of its affiliates does
business with the government of Cuba or with any person or affiliate
located in Cuba within the meaning of Section 517.075, Florida
Statutes;
(t) KPMG Peat Marwick L.L.P. and Grant Thornton
LLP, who have certified certain financial statements of the Company
and its subsidiaries, are independent public accountants as required
by the Act and the Rules and Regulations;
(u) The information underlying the estimates of the
reserves of the Company and its subsidiaries, which was supplied by
the Company to Netherland, Sewell & Associates, Inc. and McDaniel &
Associates Consultants Ltd. (the "Reserve Engineers"), independent
petroleum engineers, for purposes of preparing the reserve information
referenced in the Prospectus (the "Reserve Information"), including,
without limitation, production, volumes, sales prices for production,
contractual pricing provisions under oil or gas sales or marketing
contracts under hedging arrangements, costs of operations and
development, and working interest and net revenue information relating
to the Company's ownership interests in properties, was true and
correct in all material respects on the date of such Reserve
Information; the estimates of future capital expenditures and other
future exploration and development costs supplied to the Reserve
Engineers were prepared in good faith and with a reasonable basis; the
information provided to the Reserve Engineers for purposes of
preparing the Reserve Information was prepared in accordance with
customary industry practices; the Reserve Engineers were, as of the
date of the Reserve Information prepared by it, and are, as of the
date hereof, independent petroleum engineers with respect to the
Company; other than normal production of the reserves and intervening
spot market product price fluctuations described in the Prospectus,
the Company is not aware of any facts or circumstances that would
result in a materially adverse change in the reserves in the
aggregate, or the aggregate present value of future net cash flows
therefrom, as described in the Prospectus and reflected in the Reserve
Information; estimates of such reserves and the present value of the
future net cash flows therefrom as described in the Prospectus and
reflected in the Reserve Information comply in all material respects
to the applicable requirements of Regulation S-X and Industry Guide 2
under the Act;
(v) The Company and its subsidiaries (A) are in
compliance with any and all applicable federal, state and local laws
and regulations relating to the protection of human health and safety,
the environment or hazardous or toxic substances or waste, pollutants
or contaminants ("Environmental Laws"), (B) have received all permits,
licenses or other approvals required under applicable Environmental
Laws to conduct their respective businesses and (C) are in compliance
with all terms and conditions of any such permit, license or approval,
except for such noncompliance with Environmental Laws, failure to
receive required permits, licenses or other approvals or failure to
comply with the terms and conditions of such permits,
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<PAGE> 8
licenses or approvals that would not, singularly or in the aggregate,
have a Material Adverse Effect. There has been no storage, disposal,
generation, transportation, handling or treatment of hazardous
substances or solid wastes by the Company or its subsidiaries (or to
the knowledge of the Company and its subsidiaries, any of their
respective predecessors in interest) at, upon or from any of the
property now or previously owned or leased by the Company or any
subsidiary in violation of any applicable law, ordinance, rule,
regulation, order, judgment, decree or permit or which would require
remedial action by the Company or any subsidiary under any applicable
law, ordinance, rule, regulation, order, judgment, decree or permit,
except for any violation or remedial action which would not result in,
or which would not be reasonably likely to result in, singularly or in
the aggregate with all such violations and remedial actions, a
Material Adverse Effect; there has been no spill, discharge, leak,
emission, injection, escape, dumping or release of any kind onto such
property or into the environment surrounding such property of any
solid wastes or hazardous substances due to or caused by the Company
or any subsidiary, except for any such spill, discharge, leak,
emission, injection, escape, dumping or release which would not result
in or would not be reasonably likely to result in, singularly or in
the aggregate with all such spills, discharges, leaks, emissions,
injections, escape, dumping or releases, a Material Adverse Effect;
and the terms "hazardous substances" and "solid wastes" shall have the
meanings specified in any applicable local, state and federal laws or
regulations with respect to environmental protection;
(w) There are no persons with registration or similar
rights to require registration of any securities of the Company under
the Act because of the filing of the Registration Statement or the
sale of the shares by the Company to the Underwriters, other than such
rights as are described in the Prospectus and have been duly and
effectively waived;
(x) The Company and its subsidiaries and their
respective directors, officers or controlling persons have not taken,
directly or indirectly, any action intended, or which might reasonably
be expected, to cause or result, under the Act or otherwise, in, or
which has constituted, stabilization or manipulation of the price of
any security of the Company to facilitate the sale or resale of the
Securities;
(y) Neither the Company nor any of its subsidiaries nor,
to the Company s knowledge, any employee or agent of the Company or
any subsidiary has made any payment of funds of the Company or any
subsidiary or received or retained any funds in violation of any law,
rule or regulation or of a character required to be disclosed in the
Prospectus;
(z) There are no contracts or other documents of a
character required to be filed as an exhibit to the Registration
Statement or required to be described in the Registration Statement or
the Prospectus which are not filed or described as required; and
(aa) The Board of Directors of Company has taken all
appropriate action so that (i) neither Morgan Keegan & Company, Inc.
nor any other Underwriter will be an "interested stockholder" within
the meaning of Sections 78.378 to 78.3793 of the Nevada General
Corporation Law by virtue of the execution of this Agreement or the
consummation of the transactions contemplated hereby and (ii) the
entry into
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<PAGE> 9
this Agreement and the consummation of the transactions contemplated
hereunder shall be exempted from the provisions of Sections 78.411 to
78.444 of the Nevada General Corporation Law.
2. Subject to the terms and conditions herein set forth, (a)
the Company agrees to issue and sell to each of the Underwriters, and each of
the Underwriters agrees, severally and not jointly, to purchase from the
Company, at a purchase price of _____% of the principal amount thereof,
plus accrued interest, if any, from ________________________, 1997 to the Time
of Delivery hereunder, the principal amount of Securities set forth opposite
the name of such Underwriter in Schedule I hereto and (b) in the event and to
the extent that the Underwriters shall exercise the election to purchase
Optional Securities as provided below, the Company agrees to issue and sell
to each of the Underwriters, and each of the Underwriters agrees, severally
and not jointly, to purchase from the Company, at the same purchase price
set forth in clause (a) of this Section 2, that portion of the aggregate
principal amount of the Optional Securities as to which such election
shall have been exercised (to be adjusted by you so as to eliminate fractions
of $1,000) determined by multiplying the aggregate principal amount of
Optional Securities by a fraction, the numerator of which is the maximum
aggregate principal amount of Optional Securities which such Underwriter is
entitled to purchase as set forth opposite the name of such Underwriter in
Schedule I hereto and the denominator of which is the maximum aggregate
principal amount of Optional Securities that all of the Underwriters are
entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to
purchase at their election up to $4,500,000 aggregate principal amount
of Optional Securities, at the purchase price set forth in the
paragraph above, for the sole purpose of covering overallotments in the sale
of the Firm Securities. Any such election to purchase Optional Securities
may be exercised only by written notice from you to the Company, given
within a period of 30 calendar days after the date of this Agreement and
setting forth the aggregate principal amount of Optional Securities to be
purchased and the date on which such Optional Securities are to be
delivered, as determined by you but in no event earlier than the First Time
of Delivery (as defined in Section 4 hereof) or, unless you and the Company
otherwise agree in writing, earlier than two
or later than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the
Firm Securities, the several Underwriters propose to offer the Firm
Securities for sale upon the terms and conditions set forth in the
Prospectus.
4. (a) The Securities to be purchased by each Underwriter
hereunder will be represented by one or more definitive global Securities in
book-entry form which will be deposited by or on behalf of the Company
with The Depository Trust Company ("DTC") or its designated custodian. The
Company will deliver the Securities to Morgan Keegan & Company, Inc. ("Morgan
Keegan"), for the account of each Underwriter, against payment by or on
behalf of such Underwriter of the purchase price therefor by wire transfer or
by certified or official bank check or checks, payable to the order of the
Company in [Federal (same day)] [New York Clearing House (next day)] funds,
by causing DTC to credit the Securities to the account of Morgan Keegan at
DTC. The Company will cause the certificates representing the Securities to
be made available for checking and packaging at least twenty-four hours prior
to the Time of Delivery at the office of DTC or its designated custodian (the
"Designated Office"). The time and date of such delivery and
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<PAGE> 10
payment shall be, with respect to the Firm Securities, 8:30 a.m., Central
daylight time on _________________, 1997 or such other time and date as Morgan
Keegan and the Company may agree in writing, and with respect to the Option
Securities, 8:30 a.m., Central daylight time, on the date specified by Morgan
Keegan in the written notice given by Morgan Keegan of the Underwriters'
election to purchase such Optional Securities, or such other time and date as
Morgan Keegan and the Company may agree upon in writing. Such time and date for
delivery of the Firm Securities is herein called the "First Time of Delivery",
such time and date for delivery of the Optional Securities, if not the First
Time of Delivery, is herein called the "Second Time of Delivery", and each such
time and date for delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or
on behalf of the parties hereto pursuant to Section 7 hereof, including the
cross receipt for the Securities and any additional documents requested by
the Underwriters pursuant to Section 7(k) hereof will be delivered at the
offices of Butler & Binion, L.L.P. (the "Closing Location"), and the
Securities will be delivered at the Designated Office, all at the Time of
Delivery. A meeting will be held at the Closing Location at 2:00 p.m.,
Central daylight time, on the business day next preceding such Time of
Delivery, at which meeting the final drafts of the documents to be delivered
pursuant to the preceding sentence will be available for review by the
parties hereto. For the purposes of this Section 4, "business day" shall
mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day
on which banking institutions in New York are generally authorized or
obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters as follows:
(a) To prepare the Prospectus in a form approved by you and to
file such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier time
as may be required by Rule 430A(a)(3) under the Act; to prepare and file with
the Commission, promptly upon your request, any amendments of or supplements to
the Registration Statement or Prospectus which, in your opinion, may be
necessary or advisable in connection with the distribution of the Securities;
to make no further amendment or any supplement to the Registration Statement or
Prospectus or file any document under the Exchange Act before the termination
of the offering of the Securities by the Underwriters if such document would be
deemed to be incorporated by reference into the Prospectus which shall be
disapproved by you promptly after reasonable notice thereof; to advise you,
promptly after it receives notice thereof, of the time when any amendment to
the Registration Statement has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed and to
furnish you with copies thereof; to advise you, promptly after it receives
notice thereof, of the issuance by the Commission of any stop order or of any
order preventing or suspending the use of any Preliminary Prospectus or
Prospectus, of the suspension of the qualification of the Securities for
offering or sale in any jurisdiction, of the initiation or threatening of any
proceeding for any such purpose, or of any request by the Commission for the
amending or supplementing of the Registration Statement or Prospectus or for
additional information; and, in the event of the issuance of any stop order or
of any order preventing or suspending the use of any Preliminary Prospectus or
Prospectus or suspending any such qualification, promptly to use its best
efforts to obtain the withdrawal of such order;
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<PAGE> 11
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Securities and the shares of Stock issuable
upon conversion of the Securities for offering and sale under the securities
laws of such jurisdictions as you may request and to comply with such laws
so as to permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the distribution of
the Securities, provided that in connection therewith the Company shall not
be required to qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction;
(c) Prior to 9:00 a.m., Central daylight time, on the business
day next succeeding the date of this Agreement and from time to time, to
furnish the Underwriters with copies of the Prospectus in such quantities as
you may from time to time reasonably request, and, if the delivery of a
Prospectus is required at any time prior to the expiration of nine months
after the time of issue of the Prospectus in connection with the offering
or sale of the Securities and the shares of Stock issuable upon
conversion of the Securities and if at such time any event shall have
occurred as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made when
such Prospectus is delivered, not misleading, or, if for any other
reason it shall be necessary during such period to amend or supplement the
Prospectus in order to comply with the Act or to file under the Exchange Act
any document which would be deemed to be incorporated by reference in the
Prospectus in order to comply with the Act or the Exchange Act, to notify
you and amend the Registration Statement, supplement the Prospectus or file
such document and upon your request to prepare and furnish without charge to
each Underwriter and to any dealer in securities as many copies as you may
from time to time reasonably request of an amended Prospectus or a
supplement to the Prospectus which will correct such statement or omission
or effect such compliance, and in case any Underwriter is required to
deliver a Prospectus in connection with sales of any of the Securities at any
time nine months or more after the time of issue of the Prospectus, upon
your request but at the expense of such Underwriter, to prepare and
deliver to such Underwriter as many copies as you may request of an amended
or supplemented Prospectus complying with Section 10(a)(3) of the Act;
(d) If the Company elects to rely upon Rule 462(b), the
Company shall both file a Rule 462(b) Registration Statement with the
Commission in compliance with Rule 462(b) and pay the applicable fees in
accordance with Rule 111 of the Act by the earlier of (i) 10:00 p.m.,
Washington, D.C. time, on the date of this Agreement, or (ii) the time that
confirmation is given or sent, as specified by Rule 462(b)(2);
(e) To make generally available to its security holders as soon
as practicable, but in any event not later than eighteen months after the
Effective Date (as defined in Rule 158(c) under the Act), an earnings
statement of the Company and its subsidiaries (which need not be audited)
complying with Section 11(a) of the Act and the rules and regulations of the
Commission thereunder (including, at the option of the Company, Rule 158);
(f) During the period beginning from the date hereof and
continuing to and including the date 90 days after the date of the
Prospectus, not to offer, sell, contract to sell or otherwise dispose of,
except as provided hereunder, any securities of the Company that are
substantially similar to the Securities or the Stock, including but not
limited to any securities that are convertible into or exchangeable for, or
that represent the right to
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<PAGE> 12
receive, Stock or any such substantially similar securities (other than
pursuant to employee stock option plans existing on the date of this
Agreement), without the prior written consent of Morgan Keegan;
(g) To furnish to its stockholders as soon as practicable after
the end of each fiscal year an annual report (including a balance sheet and
statements of income, stockholders' equity and cash flows of the
Company and its consolidated subsidiaries certified by independent public
accountants) and, as soon as practicable after the end of each of the first
three quarters of each fiscal year (beginning with the fiscal quarter ending
after the Effective Date of the Registration Statement), consolidated
summary financial information of the Company and its subsidiaries for such
quarter in reasonable detail;
(h) During a period of five years from the Effective Date of
the Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to deliver
to you (i) as soon as they are available, copies of any reports and
financial statements furnished to or filed with the Commission or any
national securities exchange on which any class of securities of the
Company is listed; and (ii) such additional information concerning the
business and financial condition of the Company as you may from time to time
reasonably request (such financial statements to be on a consolidated basis
to the extent the accounts of the Company and its subsidiaries are consolidated
in reports furnished to its stockholders generally or to the Commission);
(i) To use the net proceeds received by it from the sale of
the Securities pursuant to this Agreement in the manner specified in the
Prospectus under the caption "Use of Proceeds";
(j) To use its best efforts to list for quotation the Stock
issuable upon conversion of the Securities on the Nasdaq National Market; and
(k) To reserve and keep available at all times, free of
preemptive rights, shares of Stock for the purpose of enabling the Company
to satisfy any obligations to issue shares of Stock upon conversion of the
Securities.
6. The Company covenants and agrees with the several
Underwriters that the Company will pay or cause to be paid, the following:
(a) The fees, disbursements and expenses of the Company's
counsel and accountants in connection with the registration of the Securities
and the shares of Stock issuable upon conversion of the Securities under the
Act and all other expenses in connection with the preparation, printing
and filing of the Registration Statement, Preliminary Prospectus and
Prospectus and amendments and supplements thereto and the mailing and
delivering of copies thereof to the Underwriters and dealers;
(b) The cost of printing or producing any Agreement among
Underwriters, this Agreement, the Blue Sky Memorandum, closing documents
(including any compilations thereof) and any other documents in connection
with the offering, purchase, sale and delivery of the Securities;
(c) All fees and expenses in connection with listing the
Securities and the shares of Stock issuable upon conversion of the
Securities on the Nasdaq National Market;
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<PAGE> 13
(d) The filing fees incident to, and the fees and disbursements
of counsel for the Underwriters in connection with, securing any required
review by the NASD of the terms of the sale of the Securities;
(e) Any fees charged by securities rating services for rating the
Securities;
(f) The cost of preparing the Securities;
(g) The cost and charges of any transfer agent or registrar;
(h) The fees and expenses of the Trustee and any agent of
the Trustee and the fees and disbursements of counsel to the Trustee in
connection with the Indenture and the Securities;
(i) All other costs and expenses incident to the performance of
its obligations hereunder.
It is understood, that except as provided in this Section, and
Sections 8 and 11 hereof, the Underwriters will pay all of their own
costs and expenses, including the fees of their counsel, stock transfer
taxes on resale of any of the Securities by them, and any advertising
expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder as to the
Securities to be delivered at each Time of Delivery, shall be subject, in
their discretion, to the condition that all representations and warranties
and other statements of the Company herein are, at and as of such Time of
Delivery, true and correct, the condition that the Company shall have
performed all of its obligations hereunder theretofore to be performed, and
the following additional conditions:
(a) The Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed for
such filing by the rules and regulations under the Act and in
accordance with Section 5(a) hereof; if the Company has elected to rely
upon Rule 462(b), the Rule 462(b) Registration Statement shall have become
effective not later than the earlier of (x) 10:00 p.m., Washington, D.C.
time, on the date of this Agreement; or (y) at such later date and time as
may be approved by a majority in interest of the Underwriters; no stop order
suspending the effectiveness of the Registration Statement or any part
thereof shall have been issued and no proceeding for that purpose shall
have been initiated or threatened by the Commission; and all requests for
additional information on the part of the Commission shall have been complied
with to your reasonable satisfaction;
(b) Butler & Binion, L.L.P., counsel for the Underwriters,
shall have furnished to you such opinion or opinions, dated such Time of
Delivery, with respect to such matters as you may reasonably request, and such
counsel shall have received such papers and information as they may
reasonably request to enable them to pass upon such matters;
(c) Akin, Gump, Strauss, Hauer & Feld, counsel for the
Company, shall have furnished to you their written opinion, dated such Time
of Delivery, in form and substance satisfactory to you, to the effect that:
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<PAGE> 14
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Nevada, with power and authority (corporate and other) to own, lease
and operate its assets and conduct its business as described in the
Prospectus;
(ii) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued and are fully
paid and non-assessable; the shares of Stock initially issuable upon
conversion of the Securities have been duly authorized and reserved for
issuance and, when issued and delivered in accordance with the
provisions of the Securities and the Indenture, will be validly issued,
fully paid and non-assessable; and the shares of Stock initially
issuable upon conversion of the Securities conform to the description of
the Stock contained in the Prospectus;
(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business in, and is in good standing
under the laws of, each jurisdiction in which it owns or leases
properties or conducts any business so as to require such qualification,
or is subject to no material liability or disability by reason of
failure to be so qualified in any such jurisdiction (such counsel being
entitled to rely in respect of the opinion in this clause upon opinions
of local counsel and in respect of matters of fact upon certificates of
officers of the Company, provided that such counsel shall state that
they believe that both you and they are justified in relying upon such
opinions and certificates);
(iv) Each direct or indirect subsidiary of the Company has been
duly incorporated and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation [or is duly
formed and validly existing as a general or limited partnership under
the laws of its state of formation, as the case may be,] has power and
authority to own, lease and operate its assets and conduct its business
as described in the Prospectus, and is duly qualified to transact
business and is in good standing in each jurisdiction in which the
nature of its activities requires such qualification; all of the issued
shares of capital stock of, [or partnership or other equity ownership
interest in,] each such subsidiary have been duly and validly authorized
and issued, are fully paid and non-assessable, and are owned directly or
indirectly by the Company, free and clear of all liens, encumbrances,
equities or claims (such counsel being entitled to rely in respect of
the opinion in this clause upon opinions of local counsel and in respect
of matters of fact upon certificates of officers of the Company or its
subsidiaries, provided that such counsel shall state that they believe
that both you and they are justified in relying upon such opinions and
certificates);
(v) The Company has full corporate power and authority to enter
into this Agreement, and this Agreement has been duly authorized,
executed and delivered by the Company;
(vi) The Securities have been duly authorized and, when executed
and authenticated in accordance with the terms of the Indenture and
issued and delivered to and paid for by the Underwriters pursuant to the
Underwriting Agreement, will constitute valid and legally binding
obligations of the Company
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<PAGE> 15
entitled to the benefits provided by the Indenture; and the Securities
and the Indenture conform to the descriptions thereof in the Prospectus;
(vii) The Indenture has been duly authorized, executed and
delivered by the Company and, assuming due authorization, execution and
delivery by the Trustee, constitutes a valid and legally binding
instrument of the Company, enforceable in accordance with its terms,
subject to bankruptcy, insolvency, reorganization, moratorium and
similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles; and the Indenture
has been duly qualified under the Trust Indenture Act;
(viii) To the best of such counsel's knowledge and other than as
set forth in the Prospectus, there are no legal or governmental actions,
suits or proceedings pending or threatened against or affecting the
Company or any of its subsidiaries, or any of their respective officers,
directors or partners in their capacity as such, before or by any
federal or state court, commission, regulatory body, administrative
agency or other governmental body, domestic or foreign, which, if
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a Material Adverse Effect on the
current or future consolidated financial position, stockholders' equity
or results of operations of the Company and its subsidiaries;
(ix) The issue and sale of the Securities being delivered at
such Time of Delivery to be sold by the Company and the compliance by
the Company with all of the provisions of this Agreement and the
consummation of the transactions herein contemplated will not conflict
with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, or result in the creation
of any lien, charge or encumbrance on any property or assets of the
Company or any of its subsidiaries pursuant to, any indenture, mortgage,
deed of trust, loan agreement, note, lease or other agreement or
instrument known to such counsel to which the Company or any of its
subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, nor will such action
result in any violation of the provisions of the Certificate of
Incorporation or By-laws of the Company or any statute or any order,
rule or regulation known to such counsel of any court or governmental
agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties;
(xi) All contracts and agreements summarized in the Registration
Statement and the Prospectus (other than oil and gas leases and other
oil and gas property interests) are, to the extent summarized therein,
fairly summarized therein,
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<PAGE> 16
conform in all material respects to the descriptions thereof contained
therein, and, to the extent such contracts or agreements or any other
material agreements are required under the Act or the Rules and
Regulations thereunder to be filed as exhibits to the Registration
Statement, they are so filed; and such counsel does not know of any
contracts or other documents required to be summarized or disclosed in
the Prospectus (or required to be filed under the Exchange Act if upon
such filing they would be incorporated, in whole or in part, by
reference therein) or to be so filed as an exhibit to the Registration
Statement, which have not been so summarized, disclosed or filed;
(xii) The statements set forth in the Prospectus under the
caption "Description of Common Stock" and "Description of the Notes",
insofar as they purport to constitute a summary of the terms of the
Stock, are accurate, complete and fair;
(xiii) The Company is not an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in
the Investment Company Act;
(xiv) To the best of such counsel's knowledge, except as have
been waived at the Time of Delivery, there are no persons with
registration or similar rights to have any securities of the Company
registered pursuant to the Registration Statement;
(xv) The Registration Statement is effective under the Act and,
to the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued under the
Act or proceedings therefor initiated or threatened by the Commission;
and
(xvi) Such counsel (A) is of the opinion that the Registration
Statement and the Prospectus and any amendment or supplement thereto
(including any document incorporated by reference into the Prospectus),
as of their respective effective dates and as of each Time of Delivery,
complied in all material respects with the requirements of the
Securities Act, the Rules and Regulations, the Exchange Act and the
Exchange Act Rules and Regulations (it being understood that such
counsel need express no opinion as to the financial statements and
schedules or other financial data contained in the Registration
Statement, the Prospectus or the documents incorporated by reference
therein), and the conditions for use of Form S-2, set forth in the
General Instructions thereto, have been satisfied; and (B) has no reason
to believe that the Registration Statement or any amendment or
supplement thereto, at the time such Registration Statement or amendment
or supplement became effective, or the Prospectus or any amendment or
supplement thereto (including any document filed under the Exchange Act
and deemed to be incorporated by reference into the Prospectus or any
amendment or supplement thereto), as of its date and as of each Time of
Delivery, contained or contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; and
(xvii) The Board of Directors of Company has taken all
appropriate action so that (i) neither Morgan Keegan & Company, Inc. nor
any other Underwriter will
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<PAGE> 17
be an "interested stockholder" within the meaning of Sections 78.378 to
78.3793 of the Nevada General Corporation Law by virtue of the execution
of this Agreement or the consummation of the transactions contemplated
hereby and (ii) the entry into this Agreement and the consummation of
the transactions contemplated hereunder shall be exempted from the
provisions of Sections 78.411 to 78.444 of the Nevada General
Corporation Law.
(d) On the date of the Prospectus, on the effective date of any
post-effective amendment to the Registration Statement filed subsequent to the
date of this Agreement and also at each Time of Delivery, KPMG Peat Marwick
L.L.P. shall have furnished to you a letter or letters, dated the respective
dates of delivery thereof, in form and substance satisfactory to you, to the
effect set forth in Annex I hereto;
(e) The Reserve Engineers, such firms constituting independent
petroleum engineering consultants, shall have each delivered to you on the date
of this Agreement a letter (the "Reserve Letter") and also at each Time of
Delivery a letter dated the date of such Time of Delivery, in each case in form
and substance reasonably satisfactory to you, stating, as of the date of such
letters (or, with respect to matters involving changes or developments since
the respective dates as of which specified information with respect to the oil
and gas reserves is given or incorporated in the Prospectus as of the date not
more than five days prior to the date of such letter), the conclusions and
findings of such firms with respects to the oil and gas reserves of the
Company.
(f)(i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus any loss or interference with its
business from fire, explosion, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus, and
(ii) since the respective dates as of which information is given or
incorporated by reference in the Prospectus there shall not have been any
change in the capital stock or long-term debt of the Company or any of its
subsidiaries or any change, or any development involving a prospective change,
in or affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the Prospectus,
the effect of which, in any such case described in Clause (i) or (ii), is in
the judgment of the Underwriters so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering or the
delivery of the Securities being delivered at such Time of Delivery on the
terms and in the manner contemplated in the Prospectus;
(g) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in securities
generally on the New York Stock Exchange or on the Nasdaq National Market; (ii)
a suspension or material limitation in trading in the Company's securities on
the Nasdaq National Market; (iii) a general moratorium on commercial banking
activities declared by either federal or New York or Tennessee state
authorities; or (iv) the outbreak or escalation of hostilities involving the
United States or the declaration by the United States of a national emergency
or war, or any other crisis or change in political, financial or economic
conditions if the effect of any such event specified in this Clause (iv) in the
judgment of the Underwriters makes it impracticable or inadvisable to proceed
with the public offering
-17-
<PAGE> 18
or the delivery of the Securities being delivered at such Time of Delivery on
the terms and in the manner contemplated in the Prospectus;
(h) The Securities at such Time of Delivery shall have been duly
approved for quotation on the Nasdaq National Market and the shares of Stock
issuable upon conversion of the Securities shall have been duly approved for
quotation on the Nasdaq National Market, subject to notice of issuance;
(i) The Company shall have complied with the provisions of Section 5(c)
hereto with respect to the furnishing of prospectuses on the Business Day next
succeeding the date of this Agreement; and
(j) The Company shall have furnished or caused to be furnished to you
at such Time of Delivery certificates of officers of the Company, satisfactory
to you as to the accuracy of the representations and warranties of the Company
herein at and as of such Time of Delivery, as to the performance by the Company
of all of its obligations hereunder to be performed at or prior to such Time of
Delivery, and as to such other matters as you may reasonably request, and the
Company shall have furnished or caused to be furnished certificates as to the
matters set forth in subsections (a) and (f) of this Section.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities to which such Underwriter
may become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon (i) any untrue statement or alleged untrue statement of a material
fact contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (ii) any untrue statement or alleged untrue statement made by
the Company in Section 1(a) of this Agreement and will reimburse each
Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such action or
claim as such expenses are incurred; provided, however, that the Company shall
not be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by any Underwriter through Morgan Keegan expressly for
use therein.
(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in any Preliminary Prospectus, the Registration Statement or the
Prospectus or any such amendment or
-18-
<PAGE> 19
supplement in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through Morgan Keegan, expressly
for use therein; and will reimburse the Company for any legal or other expenses
reasonably incurred by the Company in connection with investigating or
defending any such action or claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection (a)
or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the
indemnifying party), and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under such
subsection for any legal expenses of other counsel or any other expenses, in
each case subsequently incurred by such indemnified party, in connection with
the defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the written consent of the indemnified party,
effect the settlement or compromise of, or consent to the entry of any judgment
with respect to, any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified party is an actual or potential party to such action or claim)
unless such settlement, compromise or judgment (i) includes an unconditional
release of the indemnified party from all liability arising out of such action
or claim and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and the
Underwriters on the other from the offering of the Securities. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law or if the indemnified party failed to give the notice required
under subsection (c) above, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault
shall be
-19-
<PAGE> 20
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company on the
one hand or the Underwriters on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Underwriters agree that it would not
be just and equitable if contributions pursuant to this subsection (d) were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this
subsection (d). The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Securities underwritten by it and distributed to the public were offered to
the public exceeds the amount of any damages which such Underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who
controls any Underwriter within the meaning of the Act; and the obligations of
the Underwriters under this Section 8 shall be in addition to any liability
which the respective Underwriters may otherwise have and shall extend, upon the
same terms and conditions, to each officer and director of the Company
(including any person who, with his or her consent, is named in the
Registration Statement as about to become a director of the Company) and to
each person, if any, who controls the Company within the meaning of the Act.
9.(a) If any Underwriter shall default in its obligation to purchase
any of the Securities which it has agreed to purchase hereunder at a Time of
Delivery you may in your discretion arrange for you or another party or other
parties to purchase such Securities on the terms contained herein. If within
thirty- six hours after such default by any Underwriter you do not arrange for
the purchase of such Securities, then the Company shall be entitled to a
further period of thirty-six hours within which to procure another party or
other parties satisfactory to you to purchase such Securities on such terms. In
the event that, within the respective prescribed periods, you notify the
Company that you have so arranged for the purchase of such Securities, or the
Company notifies you that it has so arranged for the purchase of such
Securities, you or the Company shall have the right to postpone Time of
Delivery for a period of not more than seven days, in order to effect whatever
changes may thereby be made necessary in the Registration Statement or the
Prospectus, or in any other documents or arrangements, and the Company agrees
to file promptly any amendments to the Registration Statement or the Prospectus
which in your opinion may thereby be made necessary. The term Underwriter as
used in this Agreement shall include any person substituted under this Section
with like effect as if such person had originally been a party to this
Agreement with respect to such Securities.
-20-
<PAGE> 21
(b) If, after giving effect to any arrangements for the purchase of the
Securities of a defaulting Underwriter or Underwriters by you and the Company
as provided in subsection (a) above, the aggregate number of such Securities
which remains unpurchased does not exceed one-eleventh of the aggregate number
of all the Securities to be purchased at such Time of Delivery, then the
Company shall have the right to require each non-defaulting Underwriter to
purchase the number of Securities which such Underwriter agreed to purchase
hereunder at such Time of Delivery and, in addition, to require each
non-defaulting Underwriter to purchase its pro rata share (based on the number
of Securities which such Underwriter agreed to purchase hereunder) of the
Securities of such defaulting Underwriter or Underwriters for which such
arrangements have not been made; but nothing herein shall relieve a defaulting
Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Securities of a defaulting Underwriter or Underwriters by you and the Company
as provided in subsection (a) above, the aggregate principal amount of such
Securities which remains unpurchased exceeds one-eleventh of the aggregate
principal amount of all of the Securities to be purchased at such Time of
Delivery, or if the Company shall not exercise the right described in
subsection (b) above to require non-defaulting Underwriters to purchase
Securities of a defaulting Underwriter or Underwriters, then this Agreement
(or, with respect to the Second Time of Delivery, the obligations of the
Underwriters to purchase and of the Company to sell the Optional Securities)
shall thereupon terminate, without liability on the part of any non-defaulting
Underwriter or the Company, except for the expenses to be borne by the Company
and the Underwriters as provided in Section 6 hereof and the indemnity and
contribution agreements in Section 8 hereof; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the
Company, or any officer or director or controlling person of the Company, and
shall survive delivery of and payment for the Securities.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company shall not then be under any liability to any Underwriter except as
provided in Sections 6 and 8 hereof; but, if for any other reason any
Securities are not delivered by or on behalf of the Company as provided herein,
the Company will reimburse the Underwriters through you for all out-of-pocket
expenses approved in writing by you, including fees and disbursements of
counsel, reasonably incurred by the Underwriters in making preparations for the
purchase, sale and delivery of the Securities not so delivered, but the Company
shall then be under no further liability to any Underwriter in respect of the
Securities not so delivered except as provided in Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Morgan Keegan on behalf of you.
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<PAGE> 22
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex
or facsimile transmission to you in care of Morgan Keegan & Company, Inc., 50
North Front Street, Memphis, Tennessee 38103, Attention: Mike Harris; and if to
the Company shall be delivered or sent by mail, telex or facsimile transmission
to the address of the Company set forth in the Registration Statement,
Attention: Secretary; provided, however, that any notice to an Underwriter
pursuant to Section 8(c) hereof shall be delivered or sent by mail, telex or
facsimile transmission to such Underwriter at its address set forth in its
Underwriters' Questionnaire or telex constituting such Questionnaire, which
address will be supplied to the Company by you on request. Any such statements,
requests, notices or agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters and the Company and, to the extent provided in
Sections 8 and 10 hereof, the officers and directors of the Company and each
person who controls the Company or any Underwriter, and their respective heirs,
executors, administrators, successors and assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement. No purchaser of
any of the Securities from any Underwriter shall be deemed a successor or
assign by reason merely of such purchase.
14. Time shall be of the essence of this Agreement. Except as provided
in Section 4 hereof, as used herein, the term "business day" shall mean any day
when the Commission's office in Washington, D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TENNESSEE.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
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<PAGE> 23
If the foregoing is in accordance with your understanding, please sign
and return to us one for the Company and each of the Underwriters plus one for
each counsel, in any counterparts hereof, and upon the acceptance hereof by
you, on behalf of each of the Underwriters, this letter and such acceptance
hereof shall constitute a binding agreement among each of the Underwriters and
the Company. It is understood that your acceptance of this letter on behalf of
each of the Underwriters is pursuant to the authority set forth in a form of
Agreement among Underwriters, the form of which shall be submitted to the
Company for examination, upon request, but without warranty on your part as to
the authority of the signers thereof.
Very truly yours,
Southern Mineral Corporation
By:
-----------------------------------
Name:
Title:
Accepted as of the date hereof:
Morgan Keegan & Company, Inc.
McDonald & Company Securities, Inc.
Rauscher Pierce Refsnes Inc.
By:
--------------------------------------
Morgan Keegan & Company, Inc.
On behalf of each of the Underwriters
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<PAGE> 24
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL
TOTAL NUMBER OF FIRM SECURITIES TO BE PURCHASED
UNDERWRITER SECURITIES TO BE PURCHASED IF MAXIMUM OPTION EXERCISED
- ----------- -------------------------- ---------------------------
<S> <C> <C>
Morgan Keegan
& Company, Inc. . . .
McDonald & Company
Securities, Inc. . .
Rauscher Pierce
Refsnes Inc. . . . .
</TABLE>
<PAGE> 25
ANNEX I
FORM OF COMFORT LETTER
Pursuant to Section 7(d) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(1) They are independent certified public accountants with respect to
the Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(2) They have audited the financial statements and related schedules
included or incorporated in the Registration Statement and that their reports
with respect thereto are also included in the Registration Statement, and, if
applicable, they have made a review in accordance with standards established by
the American Institute of Certified Public Accountants of the unaudited
consolidated interim financial statements, condensed or complete, that have
been included (or incorporated by reference in) the Registration Statement, and
such unaudited consolidated financial statements provided by the Company that
shall be available for any period or periods after the latest period of such
statements included (or incorporated by reference in) the Registration
Statement, copies of which have been separately furnished to the Underwriters
(the "Underwriters");
(3) In their opinion, the consolidated financial statements and related
schedules audited by them and included or incorporated by reference in the
Registration Statement comply as to form in all material respects with the
applicable accounting requirements of the Act and the Rules and Regulations
thereunder, the Exchange Act and the Exchange Act Rules and Regulations
thereunder;
(4) For purposes of such letters, they have read the 1996 and 1997
minutes of meetings of the stockholders, the board of directors and appropriate
committees of the Company and its subsidiaries as set forth in the minute books
as of a date not more than five days before the Registration Statement is
declared effective (the "Cutoff Date"), officials of the Company having advised
them that the minutes of all such meetings through the Cutoff Date were set
forth therein and that (a) with respect to the six month periods ended June 30,
1997 and 1996, they have (i) performed the procedures specified by the American
Institute of Certified Public Accountants for a review of interim financial
information, on the unaudited condensed consolidated balance sheet dated as of
June 30, 1997, and the unaudited condensed consolidated statements of income,
retained earnings and cash flows for the six month periods ended June 30, 1997
and 1996, included or incorporated by reference in the Registration Statement,
and have (ii) inquired of certain officials of the Company who have
responsibility for financial and accounting matters whether the unaudited
condensed consolidated financial statements referred to in a(i) comply as to
form in all material respects with the applicable accounting requirements of
the Act and the Rules and Regulations thereunder or the Exchange Act and the
Exchange Act Rules and Regulations thereunder and (b) with respect to the
period from July 1, 1997, to the Cutoff Date, they have read all available
unaudited consolidated financial statements of the Company and its subsidiaries
for July through the last month or other period ending before the Cutoff Date
and such corresponding period or periods for 1996 and 1997 furnished to them by
the Company, officials of the Company having advised them that no such
financial statements as of any date or for any period subsequent to such
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<PAGE> 26
last month or other period ending before the Cutoff Date were available, and
(ii) have inquired of certain officials of the Company who have responsibility
for financial and accounting matters whether the unaudited consolidated
financial statements referred to in b(i) are stated on a basis substantially
consistent with that of the audited consolidated financial statements included
or incorporated by reference in the Registration Statement;
(5) Nothing came to their attention as a result of the foregoing
procedures that caused them to believe that (a)(i) any material modifications
should be made to the unaudited condensed consolidated financial statements
described in 4(a)(i) included (or incorporated by reference in) the
Registration Statement for them to be in conformity with generally accepted
accounting principles, (ii) the unaudited condensed consolidated financial
statements described in 4(a)(i) do not comply as to form in all material
respects with the applicable accounting requirements of the Act and the Rules
and Regulations thereunder or the Exchange Act and the Exchange Act Rules and
Regulations thereunder (b)(i) at the end of such last month or other period
ending before the Cutoff Date, there was any change in the capital stock,
increase in long- term debt, or decrease in consolidated net current assets or
stockholders equity, or such other changes specified by the Underwriters in
items, of the Company consolidated with its subsidiaries as compared with
amounts shown in the June 30, 1997 unaudited condensed consolidated balance
sheet included or incorporated by reference in the Registration Statement, or
(ii) for the period from July 1, 1997, to the end of such last month or other
period ending before the Cutoff Date, there were any decreases, as compared to
the corresponding period in the preceding year, in consolidated net sales or in
the total or per-share amounts of income before extraordinary items, of net
income, or in such other items specified by the Underwriters, except in all
instances for changes, increases, or decreases that the Registration Statement
discloses have occurred or may occur;
(6) Company officials have advised them that no consolidated financial
statements as of any date or for any period subsequent the end of such last
month or other period ending before the Cutoff Date are available, and
accordingly, the procedures carried out by them with respect to changes in the
financial statement items after the end of such last month or other period
ending before the Cutoff Date have, of necessity, been even more limited than
those with respect to the periods referred to in 4 above, and they have
inquired of certain officials of the Company who have responsibility for
financial and accounting matters whether (a) at the Cutoff Date, the was any
change in the capital stock, increase in long-term debt or any decreases in
consolidated net current assets or stockholders equity of the Company
consolidated with its subsidiaries as compared with amounts shown on the June
30, 1997 unaudited condensed consolidated balance sheet included in the
Registration Statement or (b) for the period from June 1, 1997 to the Cutoff
Date, there were any decreases, as compared with the corresponding period in
the preceding year, in consolidated net sales or in the total or per-share
amounts of income before extraordinary items or of net income, and on the basis
of theses inquiries and their reading of the minutes as described in 4 above,
nothing came to their attention that caused them to believe that there was any
such change, increase, or decrease, except in all instances for changes,
increases, or decreases that the Registration Statement discloses have occurred
or may occur;
(7) They have compared the information in the Prospectus under selected
captions with the disclosure requirements of Regulation S-K and on the basis of
limited procedures specified in such letter nothing came to their attention as
a result of the foregoing procedures that caused them to believe that this
information does not conform
-2-
<PAGE> 27
in all material respects with the disclosure requirements of Items 301, 302,
402 and 503(d), respectively, of Regulation S-K, if the requirements of such
Items are applicable;
(8) They are qualified to comment with respect to any unaudited pro
forma financial information included (or incorporated by reference) in the
Registration Statement, if applicable, and after application of appropriate
procedures, nothing came to their attention that caused them to believe that
the unaudited pro forma financial statements, if any, do not comply as to form
in all material respects with the applicable accounting requirements of Rule
11-02 of Regulation S-X and that the pro forma adjustments have not been
properly applied to the historical amounts in the compilation of those
statements; and
(9) Other than the procedures and findings or assurances referred to
above, they have carried out certain specified procedures with respect to
certain amounts, percentages and financial information specified by the
Underwriters, which are derived from the general accounting records of the
Company and its subsidiaries, which appear or are incorporated by reference in
the Registration Statement, and have compared certain of such amounts,
percentages and financial information with the accounting records of the
Company and its subsidiaries and have found them to be in agreement or have
performed such other procedures and have made such findings as shall be
specified by the Underwriters.
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<PAGE> 1
EXHIBIT 3.2
SOUTHERN MINERAL CORPORATION
BY-LAWS
(AS AMENDED)
ARTICLE I
OFFICES
SECTION 1. The principal office shall be in the City of Reno,
County of Washoe, State of Nevada.
SECTION 2. The corporation may also have off ices at such other
places both within and without the State of Nevada as the board of directors
may from time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. All meetings of the stockholders may be hold at such
time and place within or without the State of Nevada as shall be stated in the
notice of the meeting, or in a duly executed waiver of notice thereof.
SECTION 2. Annual meetings of stockholders, commencing with the
year 1986, shall be held an the fourth Tuesday of April of each year, if not a
legal holiday, and if a legal holiday then on the next secular day following,
at 10:00 a.m., or at such other date and time as shall be designated from time
to time by the board of directors and stated in the notice of the meeting, at
which they shall elect by a plurality vote a board of directors, and transact
such other business as may properly he brought before the meeting.
SECTION 3. Special meetings of the stockholders,, for any
purpose or purposes, unless otherwise prescribed by statute or by the articles
of incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the board of
directors, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the corporation issued and outstanding
and entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
SECTION 4. Notices of meetings shall be in writing and signed by
the president or a vice president, or the secretary, or an assistant secretary,
or by such other person or persons as the directors shall designate. Such
notice shall state the purpose or purposes for which the meeting is called and
the time when, and the place, which may he with or without this state, where it
is to be held. A copy of such notice shall be either delivered personally to
or shall be mailed, postage prepaid, to each stockholder of record emitted to
vote at such meeting not less than ten nor more than sixty days before such
<PAGE> 2
meeting. If mailed, it shall be directed to a stockholder at his address as it
appears upon the records of the corporation and upon such mailing of any such
notice, the service thereof shall be complete, and the time of the notice shall
begin to run from the date upon which such notice is deposited in the mail for
transmission to such stockholder. Personal delivery of any such notice to any
officer of a corporation or association, or to any member of a partnership
shall constitute delivery of such notice to such corporation, association or
partnership. In the event of the transfer of stock after delivery or mailing
of the notice of and prior to the holding of the meeting it shall not he
necessary to deliver or mail notice of the meeting to the transferee.
SECTION 5. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
SECTION 6. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statue or by the
articles of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum shall be present or represented. At such
adjourned meeting at which a quorum shall be present or represented any
business may be transacted which might have been transacted at the meeting as
originally notified.
SECTION 7. When a quorum is present or represented at any
meeting, the vote of the holders of a majority of the stock having voting power
present in person or represented by proxy shall decide any question brought
before such meeting, unless the question is one upon which by express provision
of the statutes or of the articles of incorporation a different vote is
required in which case such express provision shall govern and control the
decision of such question.
SECTION 8. Every stockholder of record of the corporation shall
be entitled at each meeting of stockholders to one vote for each share of stork
standing in his name on the books of the corporation.
SECTION 9. At any meeting of the stockholders, any stockholder
may be represented and vote by a proxy or proxies appointed by an instrument in
writing. In the event that any such instrument in writing shall designate two
or more persons to act as proxies, a majority of such persons present at the
meeting, or, if only one shall be present, then that one shall have. and may
exercise all of the powers conferred by such written instrument upon all of the
persons so designated unless the instrument shall otherwise provide. No such
proxy shall be valid after the expiration of six months from the date of its
execution, unless coupled with an interest, or unless the person executing it
specifies therein the length of time for which it is to continue in force,
which in no case shall exceed seven years from the date of its execution.
Subject to the above, any proxy duly executed is not revoked and continues in
full force and affect until an instrument revoking it or a duly executed proxy
bearing a later date is filed with the secretary of the corporation.
<PAGE> 3
SECTION 10. Any action, except election of directors, which may
be taken by the vote of the stockholders at a meeting, may be taken without a
meeting if authorized by the written consent of stockholders holding at least a
majority of the voting power, unless the provisions of the, statutes or of the
articles of incorporation require a greater proportion of voting power to
authorize such action in which case such greater proportion of written consent
shall be required.
ARTICLE III
DIRECTORS
SECTION 1. (1) The number of directors which shall constitute
the whole board of directors shall be fixed from time to time by resolution of
the board of directors, provided that (i) such number shall be no more than
twelve and shall be at least the minimum number specified in the articles of
incorporation, or if not so specified, at least three, and (ii) no such
resolution and no amendment to this Section 1 shall shorten the term of any
incumbent director. All directors shall be of full age and at least one
director shall be a citizen of the United States. Directors shall be elected
at the annual meeting of stock-holders, and except as provided in Section 2 of
this Article III, each director shall hold office until his successor is
elected and qualified unless a director sooner resigns. Directors need not be
stockholders.
SECTION 2. Vacancies, including those caused by an increase in
the number of directors, may be filled by a majority of the remaining directors
though less than a quorum. When one or more directors shall give notice of his
or their resignation to the board, effective at a future date, the board shall
have power to fill such vacancy or vacancies to take affect when such
resignation or resignations shall become effective, each director so appointed
to hold office during the remainder of the term of office of the resigning
director or directors.
SECTION 3. The business of the corporation shall be managed by
its board of directors which may exercise all such powers of the corporation
and do all such lawful acts and things as are not by statute or by the articles
of incorporation or by these by-laws directed or required to be exercised or
done by the stockholders.
SECTION 4. The board of directors of the corporation may hold
meetings, both regular and special, either within or without the State of
Nevada.
MEETINGS OF THE BOARD OF DIRECTORS
SECTION 5. The first meeting of each newly elected board of
directors shall be held at such time and place as shall be fixed by the vote of
the stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected
- -------------------------------
(1) As amended by resolution of the Board of Directors adopted on March 30,
1995.
<PAGE> 4
directors in order legally to constitute the meeting, provided a quorum shall
be present. In the event of the failure of the stockholders to fix the time or
place of such first meeting of the newly elected board of directors, the first
meeting of the board of directors may be held at such time and place as shall
be specified in a notice given as hereinafter provided for special meetings of
the board of directors, or as shall he specified in a written waiver signed by
all of the directors.
SECTION 6. Regular meetings of the board of directors may be
held without notice at such time and place as shall from time to time be
determined by the board.
SECTION 7. Special meetings of the board of directors may be
called by president or secretary and shall be called by the president or
secretary on the written request of two directors. Written, hand delivery,
telegram, or facsimile notice of special meetings of the board of directors
shall be given to each director at least two days before the date of the
meeting, unless such notice and time of meeting is waived by all directors.
SECTION 8. A majority of the board of directors, at a meeting
duly assembled, shall be necessary to continue a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which a quorum is present shall be the act of the board of directors, except as
may be otherwise specifically provided by statute or by the articles of
incorporation. Any action required or permitted to be taken at a meeting of
the directors may be taken without a meeting if a consent in writing, setting
forth the action so taken, shall be signed by all of the directors entitled to
vote with respect to the elect matter thereof.
COMMITTEES OF DIRECTORS
SECTION 9. The board of directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee
to consist of one or more of the directors of the corporation, which, to the
extent provided in the resolution, shall have and may exercise the powers of
the board of directors in the management of the business and affairs of the
corporation, and may have power to authorize the seal of the corporation to be
affixed to all papers which may require it. Such committee or committees shall
have such name or names as may be determined from time to time by resolution
adopted by the board of directors.
SECTION 10. The committees shall keep regular minutes of their
proceedings and report the same to the board when required.
COMPENSATION OF DIRECTORS
SECTION 11. The directors may be paid their expenses, if any,
of attendance at each meeting of the board of directors and may be paid a fixed
sum for attendance at each meeting of the board of directors or a stated sum as
director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing
<PAGE> 5
committees may be allowed like compensation for attending meetings.
ARTICLE IV
NOTICES
SECTION 1. Notices to directors and stock-holders shall be in
writing and delivered personally or mailed to the directors or stockholders at
their addresses appearing on the books of the corporation. Notice by mail
shall be deemed to be given at the time when the same shall be mailed. Notice
to directors may also be given by hand, facsimile or telegram.
SECTION 2. Whenever all parties entitled to vote at any
meeting, whether of directors or stockholders, consent, either by a writing on
the records of the meeting or filed with the secretary, or by presence at such
meeting and oral consent entered an the minutes, or by taking part in the
deliberations at such meeting without objection, the doings of such meeting
shall be as valid as if had at a meeting regularly called and noticed, and at
such meeting any business may be transacted ,which in not excepted from the
written consent or to the consideration of which no objection for want of
notice is made at the time, and if any meeting be irregular f or want of notice
or of such consent, provided a quorum was present at such meeting, the
proceedings of said meeting may be ratified and approved and rendered likewise
valid and the irregularity or defect therein waived by a writing signed by all
parties having the right to vote at such meetings; and such consent or approval
of stockholders may be by proxy or attorney, but all such proxies and powers of
attorney must be in writing.
SECTION 3. Whenever any notice whatever is required to be given
under the provisions of the statutes, of the articles of incorporation or of
these by-laws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE V
OFFICERS
SECTION 1. The officers of the corporation shall be chosen
annually by the board of directors at its first meeting after the annual
stockholders' testing and shall be a President, a Vice President, a Secretary
and a Treasurer; and if the board of directors shall so determine, a Chairman
of the Board of Directors or a Senior vice President. The board of directors
may also choose additional Vice Presidents, Assistant secretaries and Assistant
Treasurers. The Vice President, Secretary and Treasurer may be the same
person.
SECTION 2. The board of directors may appoint a General Counsel,
a General Attorney, or such other officers and agents as it shall from time to
time deem necessary, which officers shall hold their offices for such terms and
shall exercise such powers and form such duties as shall be determined from
time to time by the board of directors.
<PAGE> 6
SECTION 3. The salaries of all officers of the corporation
shall be fixed by the board of directors.
SECTION 4. The officers of the corporation shall hold office
Until their successors are chosen and have qualified by entering upon the
duties of their office. Any officer elected or appointed by the board of
directors may be removed at any time by the affirmative vote of a majority of
the board of directors. Should any office be or become vacant, the vacancy may
be filled by the directors at any meeting of the board.
CHAIRMAN OF THE BOARD
SECTION 5. In the event the board elects to fill the office of
chairman of the Board of Directors, such officer shall preside at all meetings
of stockholders and at all meetings of the board. He may, and, in the absence
or unavailability of the President, shall execute such deeds, mortgages, bonds,
contracts and other corporate obligations or instruments as are authorized by
the board of directors.
SECTION 6. The Chairman of the Board shall be vested with such
further responsibilities and powers as shall be delegated to him by the board
of directors.
PRESIDENT AND VICE PRESIDENTS
SECTION 7. (a) The President shall be the Chief Executive
Officer of the corporation and shall have general supervision, direction and
active management of the business of the corporation. In the absence or
disability of the Chairman of the Board he shall preside at all meetings of the
stockholders and all meetings of the board of directors. it shall be his duty
to keep the board of directors informed as to the affairs of the corporation
and at the annual meeting of stockholders he shall submit a report of the
operations and affairs of the corporation of the preceding fiscal year. He
shall see that all orders and resolutions of the board of directors are carried
into affect. He may sign and execute in the name of the corporation all
authorized deeds, mortgages, bond, contracts and other corporate obligations or
instruments. In general, he shall perform all duties incident to the office of
President and such other duties as may be prescribed from time to time by the
board of directors. In the event the office of Chairman of the Board of
Directors shall he left unfilled at any time by the board of directors, or in
the absence of the Chairman of the Board of Directors, or in case of the
chairman's inability or refusal to act, the President shall perform the duties
and shall have and exercise all powers of the Chairman of the Board of
Directors.
(b) In the absence of the President and Chairman of the
Board, or in the event of the President's and Chairman of the Board's refusal
or inability to act, the Vice Presidents, in order of their election, shall
perform the duties of the President and chairman of the Board.
<PAGE> 7
SECRETARY AND ASSISTANT SECRETARIES
SECTION 8. The Secretary shall attend all sessions of the board
and all meetings of the stockholders and record all votes and the minutes of
all proceedings in a book to be kept for that purpose; and shall perform like
duties for the standing committees when required. He shall give, or cause to
be given, notice of all meetings of the stockholders and special meetings of
the board of directors, and shall perform such other duties as may he
prescribed by the board of directors or President, under whose supervision he
shall be. He shall keep in safe custody the seal of the corporation, and when
authorized by the board, affix the same to any instrument requiring it, and
when so affixed, it shall be attested by his signature or by the signature of
the Treasurer or any Assistant Secretary.
SECTION 9. An Assistant Secretary may perform the duties and
exercise the powers of the Secretary, in his absence or disability, and shall
perform such other duties as may be prescribed by the board of directors. In
the event that neither the Secretary nor an Assistant Secretary should be
present or available, then the Treasurer or an Assistant Treasurer may perform
the duties and exercise the powers of the Secretary.
TREASURER AND ASSISTANT TREASURERS
SECTION 10. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys, and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designated by the board of
directors.
SECTION 11. He shall disburse the funds of the corporation as
may be ordered by the board, taking proper vouchers for such disbursements, and
shall render to the President and directors, at the regular meetings of the
board, or whenever they may require it, an account of all his transactions as
Treasurer and of the financial condition of the corporation.
SECTION 12. If required by the board of directors, he shall
give the corporation a bond (which shall be renewed every six years) in such
sum, and with such surety or sureties as shall be satisfactory to the board,
for the faithful performance of the duties of his office, and for the
restoration to the corporation, in case of his death, resignation, retirement
or removal tram office, of all books, papers, vouchers, money and other
property of whatever kind in his possession or under his control belonging to
the corporation.
SECTION 13. An Assistant Treasurer shall perform the duties and
exercise the powers of the Treasurer, in his absence or disability, and shall
perform such other duties as may be prescribed by the board of directors.
<PAGE> 8
ARTICLE VI
CERTIFICATES OF STOCK
SECTION 1. Every stockholder shall be entitled to have a
certificate, signed by the Chairman of the Board or President or a Vice
President and the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary of the corporation, certifying the number of shares owned
by him in the corporation. When the corporation is authorized to issue shares
of more than one class or more than one series of any class, there shall be sat
forth upon the face or back of the certificate, or the certificate shall have a
statement that the corporation will furnish to any stockholders upon request
and, without charge, a full or summary statement of the designations,
preferences and relative, participating, optional or other special rights of
the various classes of stock or series thereof and the qualifications,
limitations or restrictions of such rights, and if the corporation shall he
authorized to issue only special stock, such certificate shall set forth in
full or summarize the rights of the holders of such stock.
SECTION 2. Whenever any certificate is countersigned or
otherwise authenticated by a transfer agent or transfer clerk, and by a
registrar, then a facsimile of the signatures of the officers or agents of the
corporation may be printed or lithographed upon such certificate in lieu of
the. actual signatures. In case any officer or officers who shall have signed,
or whose facsimile signature or signatures shall have been used on, any such
certificate or certificates shall cease to be such officer or officers of the
corporation, whether because of death, resignation or otherwise, before such
certificate or certificates shall have been delivered by the corporation, such
certificate or certificates may nevertheless be adopted by the corporation and
be issued and delivered as though the person or persons who signed such
certificate or certificates, or whose facsimile signature or signatures shall
have been used thereon, had not ceased to be the officer or officers of such
corporation.
LOST CERTIFICATES
SECTION 3. The board of directors may direct a new certificate
or certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost or destroyed,
upon the making of an affidavit of that fact by the person claiming the
certificate of stock to be lost or destroyed. When authorizing such issue of a
new certificate or certificates, the board of directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost or destroyed certificate or certificates, or his legal representative, to
advertise the same in such manner as it shall require and/or give the
corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the corporation with respect to the certificate
alleged to have been lost or destroyed.
TRANSFER OF STOCK
SECTION 4. Upon surrender to the corporation or the transfer
agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence
<PAGE> 9
of succession, assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
CLOSING OF TRANSFER BOOKS
SECTION 5. The directors may prescribe a period not exceeding
sixty days prior to any meeting of the stockholders during which no transfer of
stock on the books of the corporation may be made, or may fix a day not more
than sixty days prior to the holding of any such meeting as the day as of which
stockholders entitled to notice of and to vote at such meeting shall be
determined; and only stockholders of record on such day shall be entitled to
notice or to vote at such meeting.
REGISTERED STOCKHOLDERS
SECTION 6. The corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Nevada.
ARTICLE VII
INDEMNIFICATION
SECTION 1. Litigation Brought by Third Parties. The Corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that he is or was
a director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys/ fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporations and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contender or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct, was unlawful.
SECTION 2. Litigation By or In the Right of the Corporation.
The corporation
<PAGE> 10
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the corporation to procure a judgment in its favor by reason of the fact
that he is or was a director, officer, employee or agent of the corporation or
is or vas serving at the request of the carp-oration as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including amounts paid in settlement and
attorneys fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation except that no indemnification shall be made for any claim,
issue or matter as to which such a person shall have been adjudged by a court
of competent jurisdiction, after exhaustion of all appeals therefrom, to be
liable to the corporation or for amounts paid in settlement to the corporation
unless and only to the extent that a court in which such action or suit was
brought or other course of competent jurisdiction determines upon application
that, in view all the circumstances of the case, such person is fairly and
reasonably entitled to be indemnified for such expenses which such court shall
deem proper.
SECTION 3. Successful Defense. To the extent that a director,
officer, employee or agent of the corporation has been successful an the merits
or otherwise in defense of any action, suit or proceeding referred to above, or
in defense of any claim, issue or matter therein, he must be indemnified by the
corporation against expenses (including attorneys fees) actually and reasonably
incurred by him in connection therewith.
SECTION 4. Determination of Conduct. Any indemnification under
the first two Sections of this bylaw (unless ordered by a court or advanced
pursuant to Section 5 hereof) must be made by the corporation only as
authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper under the circumstances.
Such determination shall be made (1) by the board by a majority vote of a
quorum consisting of directors who were not parties to such an action, suit or
proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable
and a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or (3) by the stockholders.
SECTION 5. Advance Payment. Expenses incurred by any person
who may have a right of indemnification under this bylaw in defending a civil
or criminal action, suit or proceeding shall be paid by the corporation as they
are incurred and in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay such amount if it is ultimately determined
by a court of competent jurisdiction that he is not entitled to be indemnified
by the corporation pursuant to this bylaw.
SECTION 6. By-law not Exclusive. The indemnification and
advancement of expenses authorized in or ordered by a court pursuant to these
by-laws shall not be deemed exclusive of any other rights to which any person
seeking indemnification or advancement of expenses may be entitled under the
certificate or articles of incorporation or any by-law, agreement, vote of
stockholders or disinterested directors, or otherwise,
<PAGE> 11
both as to action in his official capacity or an action in another capacity
while holding such office, except that indemnification, unless ordered by a
court pursuant to Section 2 or for the advancement of expenses made pursuant to
Section 5. may not be made to or on behalf of any director, officer, employee
or agent if a final adjudication establishes that his acts or omissions
involved intentional misconduct, fraud, or a knowing violation of the law and
were material to the cause of action and shall, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
SECTION 7. Insurance. The corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee, agent of or participant in
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability.
ARTICLE VIII
GENERAL PROVISIONS
DIVIDENDS
SECTION 1. Dividends upon the capital stock of the corporation,
subject to the provisions of the articles of incorporation, if any, may be
declared by the board of directors at any regular or special meeting pursuant
to law. Dividends may be paid in cash, in property, or in shares of the
capital stock, subject to the provisions of the articles of incorporation.
SECTION 2. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for, dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserver. to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purpose as the directors shall think conducive to the interest
of the corporation, and the director's may modify or abolish any such reserves
in the manner in which it was created.
CHECKS
SECTION 3. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
FISCAL YEAR
SECTION 4. The fiscal year of the corporation shall begin on the
first day of January in each year.
<PAGE> 12
SEAL
SECTION 5. The corporate seal shall have inscribed thereon the
name of the corporation, the year of its incorporation and the words "Corporate
Seal, Nevada."
ARTICLE IX
AMENDMENTS
These by-laws may be altered or repealed at any regular meeting
of the stockholders or of the board of directors or at any special meeting of
the stockholders or of the board of directors if notice of such alteration or
repeal be contained in the notice of such special meeting.
<PAGE> 1
Exhibit 4.5
Butler & Binion, L.L.P.
Draft - 9/26/97
- --------------------------------------------------------------------------------
SOUTHERN MINERAL CORPORATION
AND
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRUSTEE
________
INDENTURE
____% Convertible Subordinated Debentures due 2007
_______________, 1997
- --------------------------------------------------------------------------------
<PAGE> 2
Certain Sections of this Indenture relating to
Sections 310 through 318 of the
Trust Indenture Act of 1939:
<TABLE>
<CAPTION>
Trust Indenture Act Section Indenture Section
- --------------------------- ------------------
<S> <C>
Sec. 310(a)(1) 609
(a)(2) 609
(a)(3) Not Applicable
(a)(4) Not Applicable
(b) 608, 610
Sec. 311(a) 613
(b) 613
Sec. 312(a) 701, 702(a)
(b) 702(b)
(c) 702(c)
Sec. 313(a) 703(a)
(b) 703(a)
(c) 703(a)
(d) 703(b)
Sec. 314(a) 704
(b) Not Applicable
(c)(1) 102
(c)(2) 102
(c)(3) Not Applicable
(d) Not Applicable
(e) 102
Sec. 315(a) 601, 603(a)
(b) 602
(c) 601
(d) 601
(e) 514
Sec. 316(a)(1)(A) 512
(a)(1)(B) 513
(a)(2) Not Applicable
(b) 508
(c) 104
Sec. 317(a)(1) 503
(a)(2) 504
(b) 1003
Sec. 318(a) 107
</TABLE>
Note: This reconciliation and tie shall not, for any purpose, be deemed to
be a part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 101. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 104. ACTS OF HOLDERS; RECORD DATES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 105. NOTICES, ETC., TO TRUSTEE AND COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 106. NOTICE TO HOLDERS; WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 107. CONFLICT WITH TRUST INDENTURE ACT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 108. EFFECT OF HEADINGS AND TABLE OF CONTENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 109. SUCCESSORS AND ASSIGNS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 110. SEPARABILITY CLAUSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 111. BENEFITS OF INDENTURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 112. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 113. LEGAL HOLIDAYS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 114. INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS OF THE COMPANY EXEMPT
FROM INDIVIDUAL LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 115. EXECUTION IN COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE TWO SECURITY FORMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 201. FORMS GENERALLY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 202. FORM OF FACE OF SECURITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 203. FORM OF REVERSE OF SECURITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 204. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION. . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 205. FORM OF CONVERSION NOTICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE THREE THE SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 301. TITLE AND TERMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 302. DENOMINATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 304. TEMPORARY SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE. . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 307. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 308. PERSONS DEEMED OWNERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 309. CANCELLATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 310. COMPUTATION OF INTEREST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 311. CUSIP NUMBERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE FOUR SATISFACTION AND DISCHARGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 402. APPLICATION OF TRUST MONEY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE FIVE REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 501. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT. . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE. . . . . . . . . . . . . . . . . . 34
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES. . . . . . . . . . . . . . . . . . . . 35
SECTION 506. APPLICATION OF MONEY COLLECTED. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 507. LIMITATION ON SUITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
</TABLE>
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SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM AND INTEREST AND TO CONVERT. . . . . . 37
SECTION 509. RESTORATION OF RIGHTS AND REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 511. DELAY OR OMISSION NOT WAIVER.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 512. CONTROL BY HOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 513. WAIVER OF PAST DEFAULTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 514. UNDERTAKING FOR COSTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 515. WAIVER OF STAY OR EXTENSION LAWS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE SIX THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 602. NOTICE OF DEFAULTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 603. CERTAIN RIGHTS OF TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES. . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 605. MAY HOLD SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 606. MONEY HELD IN TRUST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 607. COMPENSATION AND REIMBURSEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 608. DISQUALIFICATION; CONFLICTING INTERESTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 609. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 610. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR. . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 611. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 612. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS. . . . . . . . . . . . . . . . . . . . 44
SECTION 613. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 614. APPOINTMENT OF AUTHENTICATING AGENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 701. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS. . . . . . . . . . . . . . . . . . . . . 46
SECTION 702. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS. . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 703. REPORTS BY TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 704. REPORTS BY COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE EIGHT CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS. . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 802. SUCCESSOR SUBSTITUTED. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE NINE SUPPLEMENTAL INDENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 906. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES. . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 907. NOTICE OF SUPPLEMENTAL INDENTURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
ARTICLE TEN COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 1003. MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST. . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 1004. STATEMENT BY OFFICERS AS TO DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 1005. EXISTENCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 1006. MAINTENANCE OF PROPERTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 1007. PAYMENT OF TAXES AND OTHER CLAIMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 1008. BOOK-ENTRY SYSTEM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 1009. WAIVER OF CERTAIN COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 1010. LIMITATION ON DIVIDEND RESTRICTIONS AFFECTING SUBSIDIARIES. . . . . . . . . . . . . . . . . . . . . 54
</TABLE>
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ARTICLE ELEVEN REDEMPTION OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 1101. RIGHT OF REDEMPTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 1102. APPLICABILITY OF ARTICLE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 1103. ELECTION TO REDEEM; NOTICE TO TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 1104. SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED. . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 1105. NOTICE OF REDEMPTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 1106. DEPOSIT OF REDEMPTION PRICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 1107. SECURITIES PAYABLE ON REDEMPTION DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 1108. SECURITIES REDEEMED IN PART. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
ARTICLE TWELVE SUBORDINATION OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 1201. SECURITIES SUBORDINATE TO SENIOR INDEBTEDNESS. . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 1202. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 1203. PRIOR PAYMENT TO SENIOR INDEBTEDNESS UPON ACCELERATION OF SECURITIES. . . . . . . . . . . . . . . . 59
SECTION 1204. NO PAYMENT WHEN SENIOR INDEBTEDNESS IN DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 1205. PAYMENT PERMITTED IF NO DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 1206. SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS. . . . . . . . . . . . . . . . . . . . . . 61
SECTION 1207. PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 1208. TRUSTEE TO EFFECTUATE SUBORDINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 1209. NO WAIVER OF SUBORDINATION PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 1210. NOTICE TO TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 1211. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT. . . . . . . . . . . . . . . . . . . 63
SECTION 1212. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR INDEBTEDNESS. . . . . . . . . . . . . . . . . . . . . . 63
SECTION 1213. RIGHTS OF TRUSTEE AS HOLDER OF SENIOR INDEBTEDNESS; PRESERVATION OF TRUSTEE'S RIGHTS. . . . . . . . 63
SECTION 1214. ARTICLE APPLICABLE TO PAYING AGENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 1215. CERTAIN CONVERSIONS DEEMED PAYMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
ARTICLE THIRTEEN CONVERSION OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 1301. CONVERSION PRIVILEGE AND CONVERSION PRICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 1302. EXERCISE OF CONVERSION PRIVILEGE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 1303. FRACTIONS OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 1304. ADJUSTMENT OF CONVERSION PRICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 1305. NOTICE OF ADJUSTMENTS OF CONVERSION PRICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 1306. NOTICE OF CERTAIN CORPORATE ACTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 1307. COMPANY TO RESERVE COMMON STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 1308. TAXES ON CONVERSIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 1309. COVENANT AS TO COMMON STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 1310. CANCELLATION OF CONVERTED SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 1311. PROVISION IN CASE OF CONSOLIDATION, MERGER OR SALE OF ASSETS. . . . . . . . . . . . . . . . . . . . 72
SECTION 1312. RESPONSIBILITY OF TRUSTEE FOR CONVERSION PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . 73
ARTICLE FOURTEEN REPURCHASE OF SECURITIES AT THE OPTION OF THE HOLDER UPON A CHANGE OF CONTROL . . . . . . . . . . 73
SECTION 1401. RIGHT TO REQUIRE REPURCHASE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 1402. NOTICES; METHOD OF EXERCISING REPURCHASE RIGHT, ETC. . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 1403. CERTAIN DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
SECTION 1404. CONSOLIDATION, MERGER, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
</TABLE>
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<PAGE> 6
INDENTURE, dated as of ___________, 1997, between Southern Mineral
Corporation, a corporation duly organized and existing under the laws of the
State of Nevada (herein called the "Company"), having its principal office at
500 Dallas Street, Houston, Texas 77002, and American Stock Transfer & Trust
Company, a New York corporation, as Trustee (herein called the "Trustee")
having its principal corporate trust office at 40 Wall Street, 46th Floor, New
York, New York 10005.
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of its ______%
Convertible Subordinated Debentures Due ___________, 2007 (herein called the
"Securities") of substantially the tenor and amount hereinafter set forth, and
to provide therefor the Company has duly authorized the execution and delivery
of this Indenture.
All things necessary to make the Securities, when executed by the Company
and authenticated and delivered hereunder and duly issued by the Company, the
valid obligations of the Company, and to make this Indenture a valid agreement
of the Company, in accordance with their and its terms, have been done.
Further, all things necessary to duly authorize the issuance of the Common
Stock of the Company issuable upon the conversion of the Securities, and to
duly reserve for issuance the number of shares of Common Stock issuable upon
such conversion, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually agreed, for the equal and
proportionate benefit of all Holders of the Securities, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. DEFINITIONS.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the terms defined in this Article One have the meanings
assigned to them in this Article and include the plural as well as the
singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles, and, except as otherwise herein expressly
provided, the term "generally accepted accounting principles" with
respect to any computation required or permitted hereunder shall mean
such accounting principles as are generally accepted at the date of such
computation;
<PAGE> 7
(4) the words "herein", "hereof" and "hereunder" and other words
of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision;
(5) unless the context otherwise requires, any reference to an
"Article" or a "Section" refers to an Article or a Section, as the case
may be, of this Indenture; and
(6) all dollar amounts are expressed in United States dollars.
"Act", when used with respect to any Holder, has the meaning specified in
Section 104.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control", when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agent Member" means any member of, or participant in, the Depositary.
"Applicable Procedures" means, with respect to any transfer or
transaction involving a Global Security or beneficial interest therein, the
rules and procedures of the Depositary for such Global Security to the extent
applicable to such transaction and as in effect from time to time.
"Authenticating Agent" means any Person authorized by the Trustee
pursuant to Section 614 to act on behalf of the Trustee to authenticate
Securities.
"Board of Directors" means either the board of directors of the Company
or any duly authorized committee of that board.
"Board Resolution" means a resolution duly adopted by the Board of
Directors, a copy of which, certified by the Secretary or an Assistant
Secretary of the Company to have been duly adopted by the Board of Directors
and to be in full force and effect on the date of such certification, shall
have been delivered to the Trustee.
"Business Day" means, with respect to any Place of Payment, Place of
Conversion or any other place, as the case may be, each Monday, Tuesday,
Wednesday, Thursday and Friday, other than any such day on which banking
institutions in The City of New York, New York or in such particular place are
authorized or obligated by law or executive order to close.
"Capital Stock" of any Person means the common stock or preferred stock
of such Person.
"Change of Control" has the meaning specified in Section 1403(b).
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"Closing Price Per Share" means, with respect to the Common Stock of the
Company, for any day, the reported last sales price regular way per share or,
in case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices regular way, in either case (i) on the
New York Stock Exchange or, if the Common Stock is not listed or admitted to
trading on the New York Stock Exchange, on the principal national securities
exchange on which the Common Stock is listed or admitted to trading, or (ii) if
not listed on or admitted to trading on any national securities exchange then
on the Nasdaq National Market or (iii) if the Common Stock is not listed or
admitted to trading on any national securities exchange or quoted on such
National Market, the average of the closing bid and asked prices in the
over-the-counter market as furnished by any New York Stock Exchange member firm
selected from time to time by the Company for that purpose.
"Code" has the meaning specified in Section 201.
"Commission" means the Securities and Exchange Commission, as from time
to time constituted, created under the Exchange Act, or, if at any time after
the execution of this instrument such Commission is not existing and performing
the duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Common Stock" means the Common Stock, par value $0.01 per share, of the
Company authorized at the date of this instrument as originally executed.
Subject to the provisions of Section 1311, shares issuable on conversion of
Securities shall include only shares of Common Stock or shares of any class or
classes of common stock resulting from any reclassification or
reclassifications thereof; provided, however, that if at any time there shall
be more than one such resulting class, the shares so issuable on conversion of
Securities shall include shares of all such classes, and the shares of each
such class then so issuable shall be substantially in the proportion which the
total number of shares of such class resulting from all such reclassifications
bears to the total number of shares of all such classes resulting from all such
reclassifications.
"common stock" includes any stock of any class of capital stock which has
no preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the issuer
thereof and which is not subject to redemption by the issuer thereof.
"Company" means the Person named as the "Company" in the first paragraph
of this instrument until a successor Person shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall
mean such successor Person.
"Company Notice" has the meaning specified in Section 1402(b).
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its Vice
Chairman of the Board, its Chief Executive Officer, its President or a Vice
President, and by its Treasurer, an Assistant Treasurer, its Secretary or an
Assistant Secretary, and delivered to the Trustee.
"Constituent Person" has the meaning specified in Section 1311.
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"Conversion Agent" means any Person authorized by the Company to convert
Securities in accordance with Article Thirteen. The Company has initially
appointed the Trustee as its Conversion Agent.
"Conversion Price" has the meaning specified in Section 1301.
"Corporate Trust Office" means the principal office of the Trustee at
which at any particular time its corporate trust business shall be
administered, which office on the date hereof is located at 40 Wall Street,
46th Floor, New York, New York 10005.
"corporation" means a corporation, association, company, joint-stock
company or business trust.
"CUSIP Number" means, with respect to the Securities, an identification
number assigned to such security pursuant to the procedures of the Committee on
Uniform Security Identification Procedures and by the CUSIP Service Bureau.
"Custodian" means the Trustee, as custodian with respect to any Global
Security, or any successor entity thereto.
"Defaulted Interest" has the meaning specified in Section 307.
"Depositary" means, with respect to any Global Securities, a clearing
agency that is registered as such under the Exchange Act and is designated by
the Company to act as Depositary for such Global Securities (or any successor
securities clearing agency so registered).
"Designated Senior Indebtedness" means Senior Indebtedness of the Company
which the Company designates by an Officer's Certificate delivered to the
Trustee as Designated Senior Indebtedness.
"DTC" means The Depository Trust Company, a New York corporation.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the United States Securities Exchange Act of 1934
(or any successor statute), as amended from time to time.
"Expiration Date" has the meaning specified in Section 104(f).
"Expiration Time" has the meaning specified in Section 1304.
"Global Security" means a Security that is registered in the Security
Register in the name of a Depositary or a nominee thereof.
"Holder" or "Securityholder" means a Person in whose name a Security is
registered in the Security Register.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
including, for all purposes of this
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instrument and any such supplemental indenture, the provisions of the Trust
Indenture Act that are deemed to be a part of and govern this instrument and
any such supplemental indenture, respectively.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
"Maturity", when used with respect to any Security, means the date on
which the principal of such Security becomes due and payable as therein or
herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption, submission for repurchase or otherwise.
"Non-electing Share" has the meaning specified in Section 1311.
"Notice of Default" means a written notice of the kind specified in
Section 501(4) or 501(5).
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, a Vice Chairman of the Board, the Chief Executive Officer, the President
or a Vice President, and by the Treasurer, an Assistant Treasurer, the
Secretary or an Assistant Secretary, of the Company, and delivered to the
Trustee. One of the officers signing an Officers' Certificate given pursuant
to Section 1004 shall be the principal executive, financial or accounting
officer of the Company.
"Opinion of Counsel" means a written opinion of legal counsel, who may
be legal counsel for the Company, and who shall be reasonably acceptable to the
Trustee.
"Outstanding", when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(i) Securities theretofore canceled by the Trustee or delivered to
the Trustee for cancellation;
(ii) Securities for payment or redemption of which money in the
necessary amount has been theretofore deposited with the Trustee or any
Paying Agent (other than the Company) in trust or set aside and
segregated in trust by the Company (if the Company shall act as its own
Paying Agent) for the Holders of such Securities; provided that, if such
Securities are to be redeemed, notice of such redemption has been duly
given pursuant to this Indenture or provision therefor satisfactory to
the Trustee;
(iii) Securities which have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Securities have been authenticated
and delivered pursuant to this Indenture, other than any such Securities
in respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bona fide purchaser
in whose hands such Securities are valid obligations of the Company; and
(iv) Securities converted into Common Stock pursuant to Article
Thirteen;
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provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which a Responsible Officer of the Trustee
actually knows to be so owned shall be so disregarded. Securities so owned
which have been pledged in good faith may be regarded as Outstanding if the
pledgee establishes to the satisfaction of the Trustee the pledgee's right so
to act with respect to such Securities and that the pledgee is not the Company
or any other obligor upon the Securities or any Affiliate of the Company or of
such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of (and premium, if any) or interest on any Securities on behalf of
the Company.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, trust, unincorporated organization or government or
any agency or political subdivision thereof.
"Place of Conversion" has the meaning specified in Section 1302.
"Place of Payment" means any city in which a Paying Agent is located.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Record Date" means any Regular Record Date or Special Record Date.
"Redemption Date", when used with respect to any Security to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the __________ or ________ (whether or not a Business Day), as the
case may be, next preceding such Interest Payment Date.
"Repurchase Date" has the meaning specified in Section 1401.
"Repurchase Price" has the meaning specified in Section 1401.
"Responsible Officer", when used with respect to the Trustee, means any
officer within the Corporate Trust Office including any Vice President,
Assistant Vice President, Secretary, Assistant Secretary, Managing Director or
any other officer of the Trustee
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customarily performing functions similar to those performed by the above
designated officers and also, with respect to a particular matter, any other
officer to whom such matter is referred because of his knowledge and
familiarity with the particular subject.
"Securities" has the meaning ascribed to it in the first paragraph under
the caption "Recitals of the Company", and more particularly means any
Securities authenticated and delivered under this Indenture.
"Securities Act" means the United States Securities Act of 1933 (or any
successor statute), as amended from time to time.
"Security Register" and "Security Registrar" have the respective meanings
specified in Section 305.
"Senior Indebtedness" means the principal of (and premium, if any) and
interest (including all interest accruing subsequent to the commencement of any
bankruptcy or similar proceeding, whether or not a claim for post-petition
interest is allowable as a claim in any such proceeding) on, and all fees and
other amounts payable in connection with, the following, whether absolute or
contingent, secured or unsecured, due or to become due, outstanding on the date
of this Indenture or thereafter created, incurred or assumed: (a) indebtedness
of the Company to banks, insurance companies and other financial institutions
evidenced by credit or loan agreements, notes or other written obligations, (b)
all other indebtedness of the Company (including indebtedness of others
guaranteed by the Company) other than the Securities, whether outstanding on
the date of this Indenture or thereafter created, incurred or assumed, which is
(i) for money borrowed or (ii) evidenced by a note, security, debenture, bond
or similar instrument given in connection with the acquisition of any
businesses, properties or assets of any kind, (c) obligations of the Company as
lessee under leases required to be capitalized on the balance sheet of the
lessee under generally accepted accounting principles, (d) obligations of the
Company under interest rate, currency swaps, and oil, gas and other product
price hedging arrangements, caps, floors, collars or similar agreements or
arrangements intended to protect the Company against fluctuations in interest,
currency exchange rates, or oil, gas and other product prices, and (e)
renewals, extensions, modifications, restatements and refundings of, or any
indebtedness or obligation issued in exchange for, any such indebtedness or
obligation described in clauses (a) through (d) of this paragraph; provided,
however, that Senior Indebtedness shall not include (i) any such indebtedness
or obligation if the terms of such indebtedness or obligation (or the terms of
the instrument under which, or pursuant to which, it is issued) expressly
provide that such indebtedness or obligation is not superior in right of
payment to the Securities, or expressly provide that such indebtedness or
obligation is pari passu with or junior to the Securities, (ii) any such
indebtedness or obligation if such indebtedness or obligation is non-recourse
to the Company, (iii) any such indebtedness or obligation if such indebtedness
or obligation is a conditional sale contract or any account payable or any
other similar indebtedness created or assumed by the Company in the ordinary
course of business in connection with the obtaining of materials, inventories
or services, or (iv) any liability for Federal, state, provincial, local or
other taxes owed or owing by the Company.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 307.
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"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" means (a) a corporation more than 50% of the outstanding
voting stock of which is owned, directly or indirectly, by the Company or by
one or more other Subsidiaries, or by the Company and one or more other
Subsidiaries or (b) any other Person (other than a corporation), including,
without limitation, a joint venture, in which the Company, one or more
Subsidiaries thereof or the Company and one or more Subsidiaries thereof,
directly or indirectly, at the date of determination thereof, have at least
majority ownership interest entitled to vote in the election of directors,
managers or trustees thereof (or other Persons performing similar functions).
For the purposes of this definition, "voting stock" means stock which
ordinarily has voting power for the election of directors, whether at all times
or only so long as no senior class of stock has such voting power by reason of
any contingency.
"Trading Days" means (i) if the Common Stock is listed or admitted for
trading on any national securities exchange, days on which such national
securities exchange is open for business or (ii) if the Common Stock is not
listed or admitted for trading on any national securities exchange, days on
which trades may be made on the Nasdaq National Market or any similar system of
automated dissemination of quotations of securities prices on which the Common
Shares are quoted or (iii) if the Common Stock is not listed or admitted for
trading on any national securities exchange or quoted on the Nasdaq National
Market or any other system of automated dissemination of quotation of
securities prices, days on which the Common Stock is traded regular way in the
over-the-counter market and for which a closing bid and a closing asked price
for the Common Stock are available.
"Trustee" means the Person named as the "Trustee" in the first paragraph
of this instrument until a successor Trustee shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Trustee" shall
mean such successor Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force
at the date as of which this instrument was executed; provided, however, that
in the event the Trust Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939 as so amended.
"Vice President", when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president".
SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee an Officers' Certificate stating that all conditions precedent, if any,
provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate
or opinion need be furnished. Each such Officer's Certificate and Opinion of
Counsel shall
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comply with the requirements of the Trust Indenture Act and any other
requirements set forth in this Indenture.
Every certificate (including certificates provided pursuant to Section
1004) or opinion with respect to compliance with a condition or covenant
provided for in this Indenture shall include, without limitation:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he
has made such examination or investigation as is necessary to enable him
to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which such certificate or opinion is based are
erroneous.
Any such certificate or opinion of counsel may be based, insofar as it
relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
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SECTION 104. ACTS OF HOLDERS; RECORD DATES.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent
duly appointed in writing; and, except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Trustee and, where it is hereby expressly required, to the
Company. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the Holders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for
any purpose of this Indenture and (subject to Section 601) conclusive in favor
of the Trustee and the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(c) The ownership of Securities shall be proved by the Security
Register.
(d) The Company may set any day as a record date for the purpose of
determining the Holders entitled to give, make or take any request, demand,
authorization, direction, notice, consent, waiver or other action provided or
permitted by this Indenture to be given, made or taken by Holders, provided
that the Company may not set a record date for, and the provisions of this
Section 104(d) shall not apply with respect to, the giving or making of any
notice, declaration, request or direction referred to in Section 104(e). If
any record date is set pursuant to this Section 104(d), the Holders of
Outstanding Securities on such record date, and only such Holders, shall be
entitled to take the relevant action, whether or not such Holders remain
Holders after such record date; provided that no such action shall be effective
hereunder unless taken on or prior to the applicable Expiration Date by Holders
of the requisite principal amount of Outstanding Securities on such record
date. Nothing in this Section 104(d) shall be construed to prevent the Company
from setting a new record date for any action for which a record date has
previously been set pursuant to this Section 104(d) (whereupon the record date
previously set shall automatically and with no action by any Person be canceled
and of no effect), and nothing in this Section 104(d) shall be construed to
render ineffective any action taken by Holders of the requisite principal
amount of Securities on the date such action is taken. Promptly after
any record date is set pursuant to this Section 104(d), the Company, at its own
expense, shall cause notice of such record date, the proposed action by Holders
and the applicable Expiration Date to be given to the Trustee in writing and to
each Holder in the manner set forth in Section 106.
(e) The Trustee may set any day as a record date for the purpose of
determining the Holders entitled to join in the giving or making of (i) any
Notice of Default, (ii) any
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declaration of acceleration referred to in Section 502, (iii) any request to
institute proceedings referred to in Section 507(2), or (iv) any direction
referred to in Section 512. If any record date is set pursuant to this Section
104(e), the Holders of Outstanding Securities on such record date, and only
such Holders, shall be entitled to join in such notice, declaration, request or
direction, whether or not such Holders remain Holders after such record date;
provided that no such action shall be effective hereunder unless taken on or
prior to the applicable Expiration Date by Holders of the requisite principal
amount of Outstanding Securities on such record date. Nothing in this Section
104(e) shall be construed to prevent the Trustee from setting a new record date
for any action for which a record date has previously been set pursuant to this
Section 104(e) (whereupon the record date previously set shall automatically
and with no action by any Person be canceled and of no effect), and nothing in
this Section 104(e) shall be construed to render ineffective any action taken
by Holders of the requisite principal amount of Outstanding Securities on the
date such action is taken. Promptly after any record date is set pursuant to
this Section 104(e), the Trustee, at the Company's expense, shall cause notice
of such record date, the proposed action by Holders and the applicable
Expiration Date to be given to the Company in writing and to each Holder of
Securities in the manner set forth in Section 106.
(f) With respect to any record date set pursuant to Sections 104(d) or
104(e), the party hereto which sets such record date may designate any day as
the "Expiration Date" and from time to time may change the Expiration Date to
any earlier or later day; provided that no such change shall be effective
unless notice of the proposed new Expiration Date is given to the other party
hereto in writing, and to each Holder in the manner set forth in Section 106,
on or prior to the existing Expiration Date. If an Expiration Date is not
designated with respect to any record date set pursuant to Sections 104(d) or
104(e), the party hereto which set such record date shall be deemed to have
initially designated the 180th day after such record date as the Expiration
Date with respect thereto, subject to its right to change the Expiration Date
as provided in this Section 104(f). Notwithstanding the foregoing, no
Expiration Date shall be later than the 180th day after the applicable record
date.
(g) Without limiting the foregoing, a Holder entitled to take any action
hereunder with regard to any particular Security may do so with regard to all
or any part of the principal amount of such Security or by one or more duly
appointed agents each of which may do so pursuant to such appointment with
regard to all or any part of such principal amount.
(h) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future
Holder of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made
upon such Security.
SECTION 105. NOTICES, ETC., TO TRUSTEE AND COMPANY.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,
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(1) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or filed
in writing to or with the Trustee at its Corporate Trust Office,
Attention: _________________________, or
(2) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein expressly
provided) if in writing and mailed, first-class postage prepaid, to the
Company to the attention of the Treasurer at the address of the Company's
principal office specified in the first paragraph of this instrument or
at any other address previously furnished in writing to the Trustee by
the Company.
SECTION 106. NOTICE TO HOLDERS; WAIVER.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at his address as it appears in the Security Register, not later
than the latest date (if any), and not earlier than the earliest date (if any),
prescribed for the giving of such notice. In any case where notice to Holders
is given by mail, neither the failure to mail such notice, nor any defect in
any notice so mailed, to any particular Holder shall affect the sufficiency of
such notice with respect to other Holders. Where this Indenture provides for
notice in any manner, such notice may be waived in writing by the Person
entitled to receive such notice, either before or after the event, and such
waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason
of any other cause it shall be impracticable to give such notice by mail, then
such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
SECTION 107. CONFLICT WITH TRUST INDENTURE ACT.
If any provision hereof limits, qualifies or conflicts with a provision
of the Trust Indenture Act that is required under the Trust Indenture Act to be
a part of and govern this Indenture, the latter provision shall control. If
any provision of this Indenture modifies or excludes any provision of the Trust
Indenture Act that may be so modified or excluded, the latter provision shall
be deemed to apply to this Indenture as so modified or to be excluded, as the
case may be.
SECTION 108. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 109. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
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SECTION 110. SEPARABILITY CLAUSE.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 111. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person, other than the parties hereto and their successors
hereunder, the holders of Senior Indebtedness and the Holders of Securities,
any benefit or any legal or equitable right, remedy or claim under this
Indenture.
SECTION 112. GOVERNING LAW.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW.
SECTION 113. LEGAL HOLIDAYS.
In any case where any Interest Payment Date, Redemption Date, Repurchase
Date or Stated Maturity of any Security or the last date on which a Holder has
the right to convert his Securities shall not be a Business Day at a Place of
Payment or place of conversion, as the case may be, then (notwithstanding any
other provision of this Indenture or of the Securities) payment of interest or
principal (and premium, if any) or delivery for conversion of such Security
need not be made on such date, but may be made on the next succeeding Business
Day at such Place of Payment or place of conversion, as the case may be, with
the same force and effect as if made on the Interest Payment Date, Redemption
Date, Repurchase Date or at the Stated Maturity, or on such last day for
conversion, provided that no interest shall accrue for the period from and
after such Interest Payment Date, Redemption Date, Repurchase Date, Stated
Maturity or the last day for conversion, as the case may be, so long as payment
is made on such succeeding Business Day.
SECTION 114. INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS OF THE
COMPANY EXEMPT FROM INDIVIDUAL LIABILITY.
No recourse under or upon any obligation, covenant or agreement in this
Indenture or any indenture supplemental hereto or of any Security, or for any
claim based thereon or otherwise in respect thereof, shall be had against any
incorporator, stockholder, officer or director, as such, past, present or
future, of the Company or of any successor Person, either directly or through
the Company or any successor Person, whether by virtue of any constitution,
statute or rule of law, or by the enforcement of any assessment or penalty or
otherwise; it being expressly understood that this Indenture and the
obligations issued hereunder are solely corporate obligations, and that no such
personal liability whatever shall attach to, or is or shall be incurred by, the
incorporators, stockholders, officers or directors, as such, of the Company or
of any successor Person, or any of them, because of the creation of the
indebtedness hereby authorized, or under or by reason of the obligations,
covenants or agreements contained in this Indenture or in any of the Securities
or implied therefrom; and that any and all such personal liability of every
name
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<PAGE> 19
and nature, either at common law or in equity or by constitution or statute,
of, and any and all such rights and claims against, every such incorporator,
stockholder, officer or director, as such, because of the creation of the
indebtedness hereby authorized, or under or by reason of the obligations,
covenants or agreements contained in this Indenture or in any of the Securities
or implied therefrom are hereby expressly waived and released as a condition
of, and as a consideration for, the execution of this Indenture and the issue
of such Securities.
SECTION 115. EXECUTION IN COUNTERPARTS.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
ARTICLE TWO
SECURITY FORMS
SECTION 201. FORMS GENERALLY.
The Securities and the Trustee's certificates of authentication shall be
in substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange, Depositary, the
Internal Revenue Code of 1986, as amended, and the regulations thereunder (the
"Code"), or as may, consistently herewith, be determined by the officers
executing such Securities, as evidenced by their execution of the Securities.
Any definitive Securities shall be printed, lithographed or engraved or
produced by any combination of these methods or may be produced in any other
manner permitted by the rules of any automated quotation system or securities
exchange on which the Securities may be quoted or listed, as the case may be,
all as determined by the officers executing such Securities, as evidenced by
their execution of such Securities.
SECTION 202. FORM OF FACE OF SECURITY.
[The following legend shall appear on the face of each Global Security:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITARY OR A
NOMINEE OF THE DEPOSITARY, WHICH MAY BE TREATED BY THE COMPANY, THE TRUSTEE AND
ANY AGENT THEREOF AS OWNER AND HOLDER OF THIS SECURITY FOR ALL PURPOSES.]
[The following legend shall appear on the face of each Global Security for
which The Depository Trust Company is to be the Depositary:
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<PAGE> 20
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR REGISTERED
SECURITIES IN DEFINITIVE REGISTERED FORM IN THE LIMITED CIRCUMSTANCES REFERRED
TO IN THE INDENTURE, THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A
WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE
DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE
DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OR SUCH
SUCCESSOR DEPOSITARY.]
SOUTHERN MINERAL CORPORATION
% CONVERTIBLE SUBORDINATED DEBENTURE
DUE _________ __, 2007
No. $________
CUSIP No._______
Southern Mineral Corporation, a corporation duly organized and existing
under the laws of Nevada (herein called the "Company", which term includes any
successor Person under the Indenture hereinafter referred to), for value
received, hereby promises to pay to _____________________________________, or
registered assigns, the principal sum of _____________________ Dollars
($_______) on _________, ____, and to pay interest thereon from _________, ____
or from the most recent Interest Payment Date to which interest has been paid
or duly provided for, semi-annually in arrears on ________ and _________ in
each year (each, an "Interest Payment Date"), commencing _________________ at
the rate of _____% per annum, until the principal hereof is due, and at the
rate of _____% per annum on any overdue principal and premium, if any, and, to
the extent permitted by law, on any overdue interest. The interest so payable,
and punctually paid or duly provided for, on any Interest Payment Date will, as
provided in the Indenture, be paid to the Person in whose name this Security
(or one or more Predecessor Securities) is registered at the close of business
on the Regular Record Date for such interest, which shall be the __________ or
________ (whether or not a Business Day), as the case may be, next preceding
such Interest Payment Date. Except as otherwise provided in the Indenture, any
such interest not so punctually paid or duly provided for will forthwith cease
to be payable to the Holder on such Regular Record Date and may either be paid
to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on a Special Record Date for
the payment
15
<PAGE> 21
of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be
given to Holders of Securities not less than 10 days prior to such Special
Record Date, or be paid at any time in any other lawful manner not inconsistent
with the requirements of any automated quotation system or securities exchange
on which the Securities may be listed, and upon such notice as may be required
by such quotation system or exchange, as the case may be, all as more fully
provided in the Indenture. Payments of principal shall be made upon the
surrender of this Security at the option of the Holder at the Corporate Trust
Office of the Trustee, or at such other office or agency of the Company as may
be designated by it for such purpose in the Borough of Manhattan, The City of
New York, in such coin or currency of the United States of America as at the
time of payment shall be legal tender for the payment of public and private
debts; provided, however, that at the option of the Company payment of interest
may be made by check, mailed to the address of the Person entitled thereto as
such address shall appear in the Security Register, or, upon written
application by the Holder to the Security Registrar.
Except as specifically provided in the Indenture, the Company shall not
be required to make any payment with respect to any tax, assessment or other
governmental charge imposed by any governmental or any political subdivision or
taxing authority thereof or therein.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated:
SOUTHERN MINERAL CORPORATION
[Corporate Seal]
By:________________________________
Title:___________________________________
Name:____________________________________
Attest:
Title:
SECTION 203. FORM OF REVERSE OF SECURITY.
This Security is one of a duly authorized issue of Securities of the
Company designated as its ____% Convertible Subordinated Debentures due
_________ __, 2007 (herein called the "Securities"), limited in aggregate
principal amount to $30,000,000, as
16
<PAGE> 22
such amount may be increased, but not by an amount in excess of $4,500,000,
solely as a result of the exercise of the underwriters' over- allotment option
granted by the Company under the underwriting agreement, dated _________ __,
1997, among the Company, Morgan Keegan & Company, Inc., McDonald & Company
Securities, Inc., and Rauscher Pierce Refsnes Inc, issued and to be issued
under an Indenture, dated as of _________ __, 1997 (herein called the
"Indenture"), between the Company and American Stock Transfer & Trust Company,
as Trustee (herein called the "Trustee", which term includes any successor
trustee under the Indenture), to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the respective
rights, limitations of rights, duties and immunities thereunder of the Company,
the Trustee, the holders of Senior Indebtedness and the Holders of the
Securities and of the terms upon which the Securities are, and are to be,
authenticated and delivered. The Securities are issuable in registered form
only without coupons in denominations of $1,000 and any integral multiple
thereof.
Subject to and upon compliance with the provisions of the Indenture, the
Holder of this Security is entitled, at his option, at any time before the
close of business on _________, ____, or in case this Security or a portion
hereof is called for redemption or the Holder hereof has exercised his right to
require the Company to repurchase this Security or a portion hereof, then in
respect of this Security until and including, but (unless the Company defaults
in making the payment due upon redemption or repurchase, as the case may be)
not after, the close of business on the Business Day immediately preceding the
Redemption Date or Repurchase Date, as the case may be, to convert this
Security (or any portion of the principal amount hereof that is an integral
multiple of $1,000, provided that the unconverted portion of such principal
amount is $1,000 or any integral multiple of $1,000 in excess thereof) into
fully paid and nonassessable shares of Common Stock of the Company at an
initial Conversion Price of _______ (or at the then current adjusted Conversion
Price if an adjustment has been made as provided in the Indenture) by surrender
of this Security, duly endorsed or assigned to the Company or in blank and, in
case such surrender shall be made during the period from the close of business
on any Regular Record Date next preceding any Interest Payment Date to the
opening of business on such Interest Payment Date (except if this Security has
been called for redemption on a Redemption Date or is repurchasable on a
Repurchase Date occurring, in either case, during such period and is
surrendered for such conversion during such period (including any Securities or
portions thereof called for redemption on a Redemption Date that is a Regular
Record Date or an Interest Payment Date, as the case may be)), also accompanied
by payment in New York Clearing House (next day) funds or other funds
acceptable to the Company of an amount equal to the interest payable on such
Interest Payment Date on the principal amount of this Security then being
converted, and also the conversion notice hereon duly executed, to the Company
at the Corporate Trust Office of the Trustee, or at such other office or agency
of the Company, subject to any laws or regulations applicable thereto and
subject to the right of the Company to terminate the appointment of any
Conversion Agent (as defined below) as may be designated by it for such purpose
in the Borough of Manhattan, The City of New York, or at such other offices or
agencies as the Company may designate (each a "Conversion Agent"), provided
further, that if this Security or portion hereof has been called for redemption
on a Redemption Date or is repurchasable on a Repurchase Date occurring, in
either case, during the period from the close of business on any Regular Record
Date next preceding any Interest Payment Date to the opening of business on
such succeeding Interest Payment Date and is surrendered for conversion during
such period, then the Holder of this Security who converts this Security or a
portion hereof during such period will be entitled
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<PAGE> 23
to receive the interest accruing hereon from the Interest Payment Date next
preceding the date of such conversion to such succeeding Interest Payment Date
and shall not be required to pay such interest upon surrender of this Security
for conversion. Subject to the provisions of the preceding sentence and, in the
case of a conversion after the close of business on the Regular Record Date
next preceding any Interest Payment Date and on or before the close of business
on such Interest Payment Date, to the right of the Holder of this Security (or
any Predecessor Security of record as of such Regular Record Date) to receive
the related installment of interest to the extent and under the circumstances
provided in the Indenture, no cash payment or adjustment is to be made on
conversion for interest accrued hereon from the Interest Payment Date next
preceding the day of conversion, or for dividends on the Common Stock issued on
conversion hereof. The Company shall thereafter deliver to the Holder the
fixed number of shares of Common Stock (together with any cash adjustment, as
provided in the Indenture) into which this Security is convertible and such
delivery will be deemed to satisfy the Company's obligation to pay the
principal amount of this Security. No fractions of shares or scrip
representing fractions of shares will be issued on conversion, but instead of
any fractional interest (calculated to the nearest 1/100th of a share) the
Company shall pay a cash adjustment as provided in the Indenture. The
Conversion Price is subject to adjustment as provided in the Indenture. In
addition, the Indenture provides that in the case of certain consolidations or
mergers to which the Company is a party or the conveyance, transfer, sale or
lease of all or substantially all of the property and assets of the Company,
the Indenture shall be amended, without the consent of any Holders of
Securities, so that this Security, if then Outstanding, will be convertible
thereafter, during the period this Security shall be convertible as specified
above, only into the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, conveyance, transfer, sale or lease
by a holder of the number of shares of Common Stock of the Company into which
this Security could have been converted immediately prior to such
consolidation, merger, conveyance, transfer, sale or lease (assuming such
holder of Common Stock is not a Constituent Person, failed to exercise any
rights of election and received per share the kind and amount received per
share by a plurality of Non-electing Shares). No adjustment in the Conversion
Price will be made until such adjustment would require an increase or decrease
of at least one percent of such Conversion Price, provided that any adjustment
that would otherwise be made will be carried forward and taken into account in
the computation of any subsequent adjustment.
The Securities are subject to redemption upon not less than 30 nor more
than 60 days' notice by mail, at any time on or after ___________, 1999, as a
whole or in part, at the election of the Company, at the following Redemption
Prices (expressed as percentages of the principal amount): If redeemed during
the 12-month period beginning ___________ of the years indicated,
18
<PAGE> 24
<TABLE>
<CAPTION>
REDEMPTION REDEMPTION
YEAR PRICE YEAR PRICE
- ---- ----- ---- -----
<S> <C> <C> <C>
1999 ______% 2000 ______%
2001 ______% 2002 ______%
2003 ______% 2004 ______%
2005 ______% 2006 100 %
</TABLE>
and thereafter at a Redemption Price equal to 100% of the principal amount, in
each case together with accrued interest to the Redemption Date; provided,
however, that interest installments whose Stated Maturity is on or prior to
such Redemption Date will be payable to the Holders of such Securities, or one
or more Predecessor Securities, of record at the close of business on the
relevant Record Dates referred to on the face hereof, all as provided in the
Indenture [and provided further that the Securities may not be redeemed
pursuant to this Section on a Redemption Date between _______ 1999 and _______
2000 unless the Closing Price Per Share of Common Stock on twenty consecutive
Trading Days ending no more than ten days prior to the date that notice of
redemption is given to Holders as provided in the Indenture exceeds 130% of the
Conversion Price in effect on each of such twenty consecutive Trading Days.
In the event of redemption, repurchase or conversion of this Security in
part only, a new Security or Securities for the unredeemed, unrepurchased or
unconverted portion hereof will be issued in the name of the Holder hereof upon
the cancellation hereof.
In any case where the due date for the payment of the principal of,
premium, if any, or interest on any Security or the last day on which a Holder
of a Security has a right to convert his Security shall be, at any Place of
Payment or Place of Conversion, as the case may be, a day on which banking
institutions at such Place of Payment or Place of Conversion are authorized or
obligated by law or executive order to close, then payment of principal,
premium, if any, or interest, or delivery for conversion of such Security need
not be made on orby such date at such place but may be made on or by the next
succeeding day at such place which is not a day on which banking institutions
are authorized or obligated by law or executive order to close, with the same
force and effect as if made on the date for such payment or the date fixed for
redemption or repurchase, or by such last day for conversion, and no interest
shall accrue on the amount so payable for the period after such date so long as
payment is made on the next succeeding day at such place which is not a day on
which banking institutions are authorized or obligated by law or executive
order to close.
If a Change of Control occurs, the Holder of this Security, at the
Holder's option, shall have the right, in accordance with the provisions of the
Indenture, to require the Company to repurchase this Security (or any portion
of the principal amount hereof that equal to $1,000 or any integral multiple of
$1,000 in excess thereof) for cash at a Repurchase Price equal to 100% of the
principal amount thereof plus interest accrued to the Repurchase Date.
Whenever in this Security there is a reference, in any context, to the
principal of any Security as of any time, such reference shall be deemed to
include reference to the Repurchase Price payable in respect of such Security
to the extent that such Repurchase Price is, was or would be so payable at such
time, and express mention of the Repurchase Price in any provision of this
Security shall not be construed as
19
<PAGE> 25
excluding the Repurchase Price so payable in those provisions of this Security
when such express mention is not made.
The indebtedness evidenced by this Security is, to the extent provided in
the Indenture, subordinate and subject in right of payment to the prior payment
in full of all Senior Indebtedness, and this Security is issued subject to the
provisions of the Indenture with respect thereto. Each Holder of this
Security, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his behalf to take such
action as may be necessary or appropriate to effectuate the subordination so
provided and (c) appoints the Trustee his attorney-in- fact for any and all
such purposes.
If an Event of Default shall occur and be continuing, the principal of
all the Securities may be declared due and payable in the manner and with the
effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of not
less than a majority in aggregate principal amount of the Securities at the
time Outstanding. The Indenture also contains provisions permitting the
Holders of specified percentages in aggregate principal amount of the
Securities at the time Outstanding, on behalf of the Holders of all the
Securities, to waive compliance by the Company with certain provisions of the
Indenture and certain past defaults under the Indenture and their consequences.
Any such consent or waiver by the Holder of this Security shall be conclusive
and binding upon such Holder and upon all future Holders of this Security and
of any Security issued upon the registration of transfer hereof or in exchange
herefor or in lieu hereof, whether or not notation of such consent or waiver is
made upon this Security.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Security on the respective Stated Maturities expressed herein
(or in the case of redemption or repurchase, on the Redemption Date or
Repurchase Date, as the case may be) or to convert this Security as provided in
the Indenture.
As provided in and subject to the provisions of the Indenture, the Holder
of this Security shall not have the right to institute any proceeding with
respect to the Indenture or for the appointment of a receiver or trustee or for
any other remedy thereunder, unless such Holder shall have previously given the
Trustee written notice of a continuing Event of Default, the Holders of not
less than 25% in principal amount of the Outstanding Securities shall have made
written request to the Trustee to institute proceedings in respect of such
Event of Default as Trustee and offered the Trustee indemnity satisfactory to
it and the Trustee shall not have received from the Holders of a majority in
principal amount of the Securities Outstanding a direction inconsistent with
such request, and shall have failed to institute any such proceeding, for 60
days after receipt of such notice, request and offer of indemnity. The
foregoing shall not apply to any suit instituted by the Holder of this Security
for the enforcement of any payment of principal hereof, premium, if any, or
interest hereon on or after the respective due dates expressed herein or for
the enforcement of the right to convert this Security as provided in the
Indenture.
20
<PAGE> 26
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company maintained for that purpose pursuant to Section
1002, duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Security Registrar duly executed by,
the Holder hereof or his attorney duly authorized in writing, and thereupon one
or more new Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer,
the Company, the Trustee, and any agent of the Company or the Trustee may treat
the Person in whose name this Security is registered as the owner hereof for
all purposes, whether or not this Security be overdue, and none of the Company,
the Trustee and any such agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
ABBREVIATIONS
The following abbreviations, when used in the inscription of the face of
this Security, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- _________________________
(Cust)
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right Custodian ______________________________ under
of survivorship and not as (minor)
tenants in common Uniform Gifts to Minors Act __________________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
ELECTION OF HOLDER TO REQUIRE REPURCHASE
1. Pursuant to Section 1401 of the Indenture, the undersigned hereby
elects to have this Security repurchased by the Company.
2. The undersigned hereby directs the Trustee or the Company to pay it
an amount in cash equal to 100% of the principal amount to be repurchased (as
set forth below), plus interest accrued to the Repurchase Date, as provided in
the Indenture.
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<PAGE> 27
Dated: ____________________________
_____________________________
Signature(s)
Signature(s) must be guaranteed by an Eligible Institution with
membership in an approved signature guarantee program pursuant to Rule
17Ad-15 under the Securities Exchange Act of 1934.
_____________________________
Signature Guaranteed
Principal amount to be repurchased
(an integral multiple of $1,000): _____________________________
Remaining principal amount following such repurchase: ____________________
Notice: The signature to the foregoing Election must correspond to the name as
written upon the face of this Security in every particular, without alteration
or any change whatsoever.
SECTION 204. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
This is one of the Securities referred to in the within-mentioned
Indenture.
American Stock Transfer
& Trust Company, Trustee
By:
------------------------------------
Authorized Signatory
SECTION 205. FORM OF CONVERSION NOTICE.
CONVERSION NOTICE
To: Southern Mineral Corporation
The undersigned Holder of this Security hereby irrevocably exercises the
option to convert this Security, or any portion of the principal amount hereof
(which is an integral multiple of $1,000, provided that the unconverted portion
of such principal amount is $1,000 or any integral multiple of $1,000 in excess
thereof) below designated, into shares of Common Stock in accordance with the
terms of the Indenture referred to in this Security, and directs that such
shares, together with a check in payment for any fractional share and any
Securities representing any unconverted principal amount hereof, be delivered
to and be registered in the name of the undersigned unless a different name has
been indicated below. If shares of Common Stock or Securities are to be
registered in the name of a Person other than the undersigned, (a) the
undersigned will pay all transfer taxes payable with respect thereto and (b)
signature(s) must be guaranteed by an Eligible Guarantor Institution with
membership in an approved signature guarantee program
22
<PAGE> 28
pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934. Any amount
required to be paid by the undersigned on account of interest accompanies this
Security.
Dated:___________________________________ ___________________________________
_______________________________ ___________________________________
(Signature(s))
(If the Applicant is a corporation, partnership or fiduciary, the title
of the Person signing on behalf of the Applicant must be stated.)
Signature Guarantee:___________________________
Fill in for registration of shares of Common Stock if they are to be issued,
and unconverted Securities if they are to be delivered, other than to and in
the name of the registered holder:
______________________________
Name
______________________________
Street Address
______________________________
City, State and Zip Code
Register ____________ Common Stock
____________ Securities
Principal amount to be converted (if less than all) $______,000
______________________________
Social Security or other Taxpayer
Identification Number
ARTICLE THREE
THE SECURITIES
SECTION 301. TITLE AND TERMS.
The aggregate principal amount of Securities which may be authenticated
and delivered under this Indenture is limited to $30,000,000, as such amount
may be increased, but not by an amount in excess of $4,500,000, solely as a
result of the purchase of additional Securities (referred to in the
Underwriting Agreement as "Optional Securities") pursuant to the exercise of
the underwriters' over-allotment option granted by the Company under the
underwriting agreement, dated ___________, 1997 (the "Underwriting Agreement"),
among the Company, Morgan Keegan & Company, Inc.,
23
<PAGE> 29
McDonald & Company Securities, Inc., and Rauscher Pierce Refsnes Inc.
(collectively, the "Underwriters"), except for Securities authenticated and
delivered upon registration of transfer of, or in exchange for, or in lieu of,
other Securities pursuant to Section 304, 305, 306, 906, 1108, 1302 or 1402(e).
The Securities shall be known and designated as the "____% Convertible
Subordinated Debentures due _________ __, 2007" of the Company. Their Stated
Maturity shall be _________ __, 2007, and they shall bear interest at the rate
of _______% per annum, from _________ __, ____ or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, as the case
may be, payable semi-annually in arrears on _________ and __________ in each
year, commencing _________, until the principal thereof is paid or made
available for payment, and, to the fullest extent permitted by law, at the rate
of ____% per annum on any overdue principal and on any overdue installment of
interest.
Upon receipt by the Trustee of an Officers' Certificate stating that the
Underwriters have elected to purchase from the Company a specified aggregate
principal amount of Optional Securities not to exceed a total of $4,500,000 for
all such elections in accordance with this paragraph pursuant to the
Underwriting Agreement, the Trustee shall authenticate and make available for
delivery such specified aggregate principal amount of such Optional Securities
to or upon a Company Request, and such specified aggregate principal amount of
such Optional Securities shall be considered part of the original aggregate
principal amount of the Securities.
The principal of (and premium, if any) and interest on the Securities
shall be payable at the office or agency of the Company maintained for such
purpose pursuant to Section 1002; provided, however, that at the option of the
Company payment of interest may be made by check mailed to the address of the
Person entitled thereto as such address shall appear in the Security Register.
The Securities shall be redeemable as provided in Article Eleven.
The Securities are not entitled to the benefit of any sinking fund.
The Securities shall be subordinated in right of payment to Senior
Indebtedness as provided in Article Twelve.
The Securities shall be convertible as provided in Article Thirteen.
The Securities shall be subject to repurchase at the option of the
Holders upon a Change of Control as provided in Article Fourteen.
SECTION 302. DENOMINATIONS.
The Securities shall be issuable only in registered form without coupons
and only in denominations of $1,000 and any integral multiple thereof.
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Securities shall be executed on behalf of the Company by its Chairman
of the Board, its Vice Chairman of the Board, its Chief Executive Officer, its
President, or one
24
<PAGE> 30
of its Vice Presidents, under its corporate seal reproduced thereon attested by
its Secretary or one of its Assistant Secretaries. The signature of any of
these officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities; and the Trustee in accordance
with such Company Order shall authenticate and deliver such Securities as in
this Indenture provided and not otherwise.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence, and the only evidence, that such
Security has been duly authenticated and delivered hereunder.
SECTION 304. TEMPORARY SECURITIES.
Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as evidenced by their
execution of such Securities.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at any office
or agency of the Company designated pursuant to Section 1002, without charge to
the Holder. Upon surrender for cancellation of any one or more temporary
Securities, the Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor a like principal amount of definitive Securities
of authorized denominations. Until so exchanged the temporary Securities shall
in all respects be entitled to the same benefits under this Indenture as
definitive Securities.
For purposes of this Section 304, each Global Security shall be
considered a definitive Security.
SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office and in any other
office or agency
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designated pursuant to Section 1002 being herein sometimes collectively
referred to as the "Security Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Securities and of transfers of Securities. The Trustee is hereby appointed
"Security Registrar" for the purpose of registering Securities and transfers of
Securities as herein provided.
Upon surrender for registration of transfer of any Security at an office
or agency of the Company designated pursuant to Section 1002 for such purpose,
the Company shall execute, and the Trustee shall authenticate and deliver, in
the name of the designated transferee or transferees, one or more new
Securities of any authorized denominations and of a like aggregate principal
amount.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denominations and of a like aggregate principal
amount, upon surrender of the Securities to be exchanged at such office or
agency. Whenever any Securities are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Securities
which the Holder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed, by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities, other than
exchanges pursuant to Section 304, 906, 1108, 1302 or 1402(e) not involving any
transfer.
The Company shall not be required (i) to issue, register the transfer of
or exchange any Security during a period beginning at the opening of business
15 days before the day of the mailing of a notice of redemption of Securities
selected for redemption under Section 1104 and ending at the close of business
on the day of such mailing, or (ii) to register the transfer of or exchange any
Security so selected for redemption in whole or in part, except the unredeemed
portion of any Security being redeemed in part. The provisions of Clauses (1),
(2), (3), (4) and (5) below shall apply only to Global Securities:
(1) Each Global Security authenticated under this Indenture shall
be registered in the name of the Depositary designated for such Global
Security or a nominee thereof and delivered to such Depositary or a
nominee thereof or Custodian therefor, and each such Global Security
shall constitute a single Security for all purposes of this Indenture.
(2) Notwithstanding any other provision in this Indenture, no
Global Security may be exchanged in whole or in part for Securities
registered, and no transfer of a Global Security in whole or in part may
be registered, in the name of
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any Person other than the Depositary for such Global Security or a
nominee thereof unless (A) such Depositary (i) has notified the Company
that it is unwilling, unable to continue as Depositary for such Global
Security and the Company has not appointed a successor Depositary within
90 days of such notice or (ii) has ceased to be a clearing agency
registered under the Exchange Act, (B) there shall have occurred and be
continuing an Event of Default with respect to the Securities represented
by such Global Security, or (C) the Company executes and delivers to the
Trustee a notice that such Global Security shall so transferable,
registrable, and exchangeable, and such transfers shall be registrable.
(3) Subject to Clause (2) above, any exchange of a Global Security
for other Securities may be made in whole or in part, and all Securities
issued in exchange for a Global Security or any portion thereof shall be
registered in such names as the Depositary for such Global Security shall
direct.
(4) Every Security authenticated and delivered upon registration
of transfer of, or in exchange for or in lieu of, a Global Security or
any portion thereof, whether pursuant to this Article Three or otherwise,
shall be authenticated and delivered in the form of, and shall be, a
Global Security, unless such Security is registered in the name of a
Person other than the Depositary for such Global Security or a nominee
thereof.
(5) The Depositary or its nominee, as registered owner of a Global
Security, shall be the Holder of such Global Security for all purposes
under the Indenture and the Securities, and owners of beneficial
interests in a Global Security shall hold such interests pursuant to the
Applicable Procedures. Accordingly, any such owner's beneficial interest
in a Global Security will be shown only on, and the transfer of such
interest shall be effected only through, records maintained by the
Depositary or its nominee or its Agent Members and such owners of
beneficial interests in a Global Security will not be considered the
owners or holders thereof.
SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES.
If any mutilated Security is surrendered to the Trustee, the Company
shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Security of like tenor and principal amount and bearing a number
not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence
to their satisfaction of the destruction, loss or theft of any Security and
(ii) such security or indemnity as may be satisfactory to them to save each of
them and any agent of either of them harmless, then, in the absence of notice
to the Company or the Trustee that such Security has been acquired by a bona
fide purchaser, the Company shall execute and the Trustee shall authenticate
and deliver, in lieu of any such destroyed, lost or stolen Security, a new
Security of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
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Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses
(including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
Interest on any Security which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name that Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest.
Any interest on any Security which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date (herein called "Defaulted
Interest") shall forthwith cease to be payable to the Holder on the relevant
Regular Record Date by virtue of having been such Holder, and such Defaulted
Interest may be paid by the Company, at its election in each case, as provided
in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company
shall notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each Security and the date of the proposed
payment, and at the same time the Company shall deposit with the Trustee
an amount of money equal to the aggregate amount proposed to be paid in
respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the
proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this
Clause provided. Thereupon the Trustee shall fix a Special Record Date
for the payment of such Defaulted Interest which shall be not more than
15 days and not less than 10 days prior to the date of the proposed
payment and not less than 10 days after the receipt by the Trustee of the
notice of the proposed payment. The Trustee shall promptly notify the
Company of such Special Record Date and, in the name and at the expense
of the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be mailed,
first-class postage prepaid, to each Holder at his address as it appears
in the Security Register, not less than 10 days prior to such Special
Record Date. Notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor having been so mailed, such
Defaulted Interest shall be paid to the Persons in whose names the
Securities (or their respective Predecessor Securities) are
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registered at the close of business on such Special Record Date and shall
no longer be payable pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this Clause,
such manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
In the case of any Security which is converted in accordance with Section
1302 after any Regular Record Date and on or prior to the next succeeding
Interest Payment Date (other than a Security whose Maturity is prior to such
Interest Payment Date), interest whose Stated Maturity is on such Interest
Payment Date shall be payable on such Interest Payment Date notwithstanding
such conversion, and such interest (whether or not punctually paid or duly
provided for) shall be paid to the Person in whose name such Security (or one
or more Predecessor Securities) is registered at the close of business on such
Regular Record Date. Except as otherwise expressly provided in the immediately
preceding sentence or in Section 1302, in the case of any Security which is
converted, interest whose Stated Maturity is after the date of conversion of
such Security shall not be payable.
SECTION 308. PERSONS DEEMED OWNERS.
Prior to due presentment of a Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name such Security is registered as the owner of such Security
for the purpose of receiving payment of principal of (and premium, if any) and
(subject to Section 307) interest on such Security and for all other purposes
whatsoever, whether or not such Security be overdue, and neither the Company,
the Trustee nor any agent of the Company or the Trustee shall be affected by
notice to the contrary.
SECTION 309. CANCELLATION.
All Securities surrendered for payment, redemption, repurchase,
registration of transfer or exchange or conversion shall, if surrendered to any
Person other than the Trustee, be delivered to the Trustee and shall be
promptly canceled by it. The Company may at any time deliver to the Trustee
for cancellation any Securities previously authenticated and delivered
hereunder which the Company may have acquired in any manner whatsoever, and all
Securities so delivered shall be promptly canceled by the Trustee. No
Securities shall be authenticated in lieu of or in exchange for any Securities
canceled as provided in this Section, except as expressly permitted by this
Indenture. All canceled Securities held by the Trustee shall be disposed of in
accordance with the Trustee's normal procedures.
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SECTION 310. COMPUTATION OF INTEREST.
Interest on the Securities shall be computed on the basis of a 360-day
year of twelve 30-day months.
SECTION 311. CUSIP NUMBERS.
The Company in issuing the Securities may use CUSIP numbers, and, if so,
the Trustee shall use CUSIP numbers in notices of redemption or any Company
Notice as a convenience to Holders; provided that any such notice may state
that no representation is made as to the correctness of such numbers either as
printed on the Securities or as contained in any notice of redemption or
Company Notice and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption or prepayment shall
not be affected by any defect in or omission of such numbers.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall upon Company Request cease to be of further effect
(except as to any surviving rights of conversion, or registration of transfer
or exchange of Securities herein expressly provided for), and the Trustee, on
demand of and at the expense of the Company, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated and delivered
(other than (i) Securities which have been destroyed, lost or stolen
and which have been replaced or paid as provided in Section 306 and
(ii) Securities for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the Company
and thereafter repaid to the Company or discharged from such trust,
as provided in Section 1003) have been delivered to the Trustee for
cancellation; or
(B) all such Securities not theretofore delivered to the
Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated
Maturity within one year, or
(iii) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the giving
of notice of redemption by the Trustee in the name, and at the
expense, of the Company,
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and the Company, in the case of (i), (ii) or (iii) above, has
deposited or caused to be deposited with the Trustee as trust
funds in trust for the purpose an amount sufficient to pay and
discharge the entire indebtedness on such Securities not
theretofore delivered to the Trustee for cancellation, for
principal (and premium, if any) and interest to the date of
such deposit (in the case of Securities which have become due
and payable) or to the Stated Maturity or Redemption Date, as
the case may be;
(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge
of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607, the obligations of
the Trustee to any Authenticating Agent under Section 614 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive. Funds held in trust pursuant to this
Section are not subject to the provisions of Article Twelve.
SECTION 402. APPLICATION OF TRUST MONEY.
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 shall be held in trust
and applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee. All moneys deposited with the Trustee pursuant to Section 401 (and
held by it or any Paying Agent) for the payment of Securities subsequently
converted shall be returned to the Company upon Company Request.
The Trustee and the Paying Agent shall pay to the Company upon request
any money held by them for the payment of principal and interest that remains
unclaimed for two years. After payment to the Company, any Holder of
Securities entitled to money must look to the Company for payment of general
creditors unless an applicable abandoned property law designates another
person.
ARTICLE FIVE
REMEDIES
SECTION 501. EVENTS OF DEFAULT.
"Event of Default", wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
occasioned by the provisions of Article Twelve or be voluntary or involuntary
or be effected by operation of
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law or pursuant to any judgment, decree or order of any court or any order,
rule or regulation of any administrative or governmental body):
(1) default in the payment of the principal or Redemption Price of
any Security at its Maturity whether or not such payment is prohibited
pursuant to Article Twelve; or
(2) default in the payment of any interest upon any Security when
it becomes due and payable whether or not such payment is prohibited
pursuant to Article Twelve, and continuance of such default for a period
of 30 days; or
(3) failure by the Company to give the Company Notice in
accordance with Section 1402; or
(4) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture (other than a covenant or
warranty for which a default in performance or breach is elsewhere in
this Section specifically dealt with), and continuance of such default or
breach for a period of 60 days after there has been given, by registered
or certified mail, to the Company by the Trustee or to the Company and
the Trustee by the Holders of at least 25% in aggregate principal amount
of the Outstanding Securities a written notice specifying such default or
breach and requiring it to be remedied and stating that such notice is a
"Notice of Default" hereunder; or
(5) a default under any indebtedness of the Company for money
borrowed or under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
indebtedness for money borrowed by the Company in an aggregate
outstanding principal amount then outstanding in excess of $1,000,000
whether such indebtedness now exists or shall hereafter be created, such
indebtedness is not paid at final maturity (either upon its stated
maturity or acceleration thereof) and such default in payment or
acceleration has not been cured or rescinded, within a period of 30 days
after there shall have been given, by registered or certified mail, to
the Company by the Trustee or to the Company and the Trustee by the
Holders of at least 25% in aggregate principal amount of the Outstanding
Securities, a written notice specifying such default and requiring the
Company to cause such indebtedness to be discharged or cause such default
to be cured or waived or such acceleration to be rescinded or annulled
and stating that such notice is a "Notice of Default" hereunder; or
(6) a final judgment or order or final judgments or orders are
entered against the Company or any Subsidiary of the Company in an
uninsured aggregate amount in excess of $1,000,000 which judgments or
orders are not discharged, waived, stayed, satisfied or bonded within a
period (during which execution shall not be effectively stayed) of 30
consecutive days after the right to appeal all such judgments or orders
has expired; or
(7) the entry by a court having jurisdiction in the premises of
(A) a decree or order for relief in respect of the Company in an
involuntary case or proceeding under any applicable Federal or State
bankruptcy, insolvency, reorganization or other similar law or (B) a
decree or order adjudging the Company
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a bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or composition of or in
respect of the Company under any applicable federal or state law, or
appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or of any
substantial part of its property, or ordering the winding up or
liquidation of its affairs, and the continuance of any such decree or
order for relief or any such other decree or order unstayed and in effect
for a period of 60 consecutive days; or
(8) the commencement by the Company of a voluntary case or
proceeding under any applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding to
be adjudicated a bankrupt or insolvent, or the consent by it to the entry
of a decree or order for relief in respect of the Company in an
involuntary case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against
it, or the filing by it of a petition or answer or consent seeking
reorganization or relief under any applicable federal or state law, or
the consent by the Company to the filing of such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or other similar official of the Company
or of any substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the admission by it in
writing of its inability to pay its debts generally as they become due,
or the taking of corporate action by the Company in furtherance of any
such action.
SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default (other than an Event of Default specified in
Section 501(7) or 501(8)) occurs and is continuing, then and in every such case
the Trustee or the Holders of not less than 25% in aggregate principal amount
of the Outstanding Securities may declare the principal of and accrued and
unpaid interest on all the Securities to be due and payable immediately, by a
notice in writing to the Company (and to the Trustee if given by Holders), and
upon any such declaration such principal and all accrued and unpaid interest
thereon shall become immediately due and payable. If an Event of Default
specified in Section 501(7) or 501(8) occurs and is continuing, the principal
of and any accrued interest on, all Outstanding Securities shall automatically
become immediately due and payable without any declaration or other act on the
part of the Trustee or any Holder.
At any time after such a declaration of acceleration has been made but
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article Five provided, the Holders of a
majority in aggregate principal amount of the Outstanding Securities, by
written notice to the Company and the Trustee, may rescind and annul such
declaration and its consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue interest on all Securities,
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(B) the principal of (and premium, if any, on) any
Securities which have become due otherwise than by such declaration
of acceleration and interest thereon at the rate borne by the
Securities,
(C) to the extent that payment of such interest is lawful,
interest upon overdue interest at a rate of [ ]% per annum, and
(D) all sums paid or advanced by the Trustee hereunder and
the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel;
and
(2) all Events of Default, other than the nonpayment of the
principal of (or premium, if any, on) or interest on Securities which
have become due solely by such declaration of acceleration, have been
cured or waived as provided in Section 513.
No such rescission or annulment referred to above shall affect any subsequent
default or Event of Default or impair any right consequent thereon.
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.
The Company covenants that if
(1) default is made in the payment of any interest on any Security when
such interest becomes due and payable and such default continues for a period
of 30 days, or
(2) default is made in the payment of the principal of (or premium, if
any, on) any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal (and premium, if any) and interest, and, to the extent
that payment of such interest shall be legally enforceable, interest on any
overdue principal (and premium, if any) and on any overdue interest, at a rate
of [ ]% per annum, and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Securities, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any
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such rights, whether for the specific enforcement of any covenant or agreement
in this Indenture or in aid of the exercise of any power granted herein, or to
enforce any other proper remedy.
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or the
creditors of either, the Trustee (irrespective of whether the principal of, and
any interest on, the Securities shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the
Trustee shall have made any demand on the Company for the payment of overdue
principal or interest) shall be entitled and empowered, by intervention in such
proceeding or otherwise,
(1) to file and prove a claim for the whole amount of principal,
premium, if any, and interest owing and unpaid in respect of the
Securities and take such other actions, including participating as a
member, voting or otherwise, of any official committee of creditors
appointed in such matter, and to file such other papers or documents, in
each of the foregoing cases, as may be necessary or advisable in order to
have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel) and of the Holders of Securities allowed in such
judicial proceeding, and
(2) to collect and receive any moneys or other property payable or
deliverable on any such claim and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders,
to pay to the Trustee any amount due to it for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel and
any other amounts due the Trustee under Section 607.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder of a
Security any plan of reorganization, arrangement, adjustment or composition
affecting the Securities or the rights of any Holder thereof or to authorize
the Trustee to vote in respect of the claim of any Holder of a Security in any
such proceeding; provided, however, that the Trustee may, on behalf of such
Holders, vote for the election of a trustee in bankruptcy or similar official.
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
SECURITIES.
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto,
and any such proceeding instituted by the Trustee shall be brought in its own
name as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
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counsel, be for the ratable benefit of the Holders of the Securities in respect
of which such judgment has been recovered.
SECTION 506. APPLICATION OF MONEY COLLECTED.
Subject to Article Twelve, any money collected by the Trustee pursuant to
this Article Five shall be applied in the following order, at the date or dates
fixed by the Trustee and, in case of the distribution of such money on account
of principal (or premium, if any) or interest, upon presentation of the
Securities and the notation thereon of the payment if only partially paid and
upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section 607;
SECOND: To the payment of the amounts then due and unpaid for principal
of (and premium, if any) and interest on the Securities in respect of which or
for the benefit of which such money has been collected, ratably, without
preference or priority of any kind, according to the amounts due and payable on
such Securities for principal (and premium, if any) and interest, respectively;
and
THIRD: Any remaining amounts shall be repaid to the Company.
SECTION 507. LIMITATION ON SUITS.
No Holder of any Security shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee
of a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name
as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a
majority in principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture,
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except in the manner herein provided and for the equal and ratable benefit of
all the Holders.
SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL,
PREMIUM AND INTEREST AND TO CONVERT.
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right, which is absolute and unconditional, to receive
payment of the principal of (and premium, if any) and (subject to Section 307)
interest on such Security on the respective Stated Maturities expressed in such
Security (or, in the case of redemption or repurchase, on the Redemption Date
or Repurchase Date, as the case may be) and to convert such Security in
accordance with Article Thirteen and to institute suit for the enforcement of
any such payment and right to convert, and such rights shall not be impaired
without the consent of such Holder.
SECTION 509. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case, subject to any determination in
such proceeding, the Company, the Trustee and the Holders shall be restored
severally and respectively to their former positions hereunder and thereafter
all rights and remedies of the Trustee and the Holders shall continue as though
no such proceeding had been instituted.
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement or payment
of mutilated, destroyed, lost or stolen Securities in the last paragraph of
Section 306, no right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent
the concurrent assertion or employment of any other appropriate right or
remedy.
SECTION 511. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article Five or
by law to the Trustee or to the Holders may be exercised from time to time, and
as often as may be deemed expedient, by the Trustee or by the Holders, as the
case may be.
SECTION 512. CONTROL BY HOLDERS.
The Holders of a majority in principal amount of the Outstanding
Securities shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee, provided that
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(1) such direction shall not be in conflict with any rule of law
or with this Indenture, and
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
SECTION 513. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in principal amount of the
Outstanding Securities may on behalf of the Holders of all the Securities waive
any past or existing default or Event of Default hereunder and its
consequences, except a default or Event of Default.
(1) in the payment of the principal of (or premium, if any) or
interest on any Security, or
(2) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
SECTION 514. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action taken, suffered or
omitted by it as Trustee, a court may require any party litigant in such suit
to file an undertaking to pay the costs of such suit, and may assess costs
against any such party litigant, in the manner and to the extent provided in
the Trust Indenture Act; provided that the provisions of this Section 514 (to
the extent permitted by law) shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than ten (10) percent in principal amount of Outstanding
Securities, or to any suit instituted by any Holder of any Security for the
enforcement of the payment of the principal of, premium, if any, or interest on
any Security or to any suit for the enforcement of the right to convert any
Security in accordance with the provisions of Article Thirteen or to require
the Company to repurchase any Security in accordance with the provisions of
Article Fourteen.
SECTION 515. WAIVER OF STAY OR EXTENSION LAWS.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, usury or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it
may lawfully do so) hereby expressly waives all benefit or advantage of any
such law and covenants that it will not hinder, delay or impede
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the execution of any power herein granted to the Trustee, but will suffer and
permit the execution of every such power as though no such law had been
enacted.
ARTICLE SIX
THE TRUSTEE
SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise the rights and powers vested in it by this Indenture and use the
same degree of care and skill in its exercise as a prudent person would
exercise or use under the circumstances in the conduct of such person's own
affairs.
(b) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements of the
Indenture; but in the case of any such certificates or opinions which by
any provision hereof are specifically required to be furnished to the
Trustee, the Trustee shall be under a duty to examine the same to
determine whether or not they conform to the requirements of this
Indenture.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that
(1) this paragraph (c) shall not be construed to limit the effect
of paragraph (b) of this Section;
(2) the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer, unless it shall be proved that
the Trustee was negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders of a majority in principal amount of the
Outstanding Securities relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under this
Indenture; and
(4) no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder, or in the exercise of
any of its rights or powers, if it
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shall have reasonable grounds for believing that repayment of such funds
or indemnity satisfactory to it against such risk or liability is not
assured to it.
(d) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section.
SECTION 602. NOTICE OF DEFAULTS.
Within 60 days after the occurrence of any default hereunder as to which
the Trustee has received written notice, the Trustee shall give to all Holders
of Securities, in the manner provided in Section 106, notice of such default,
unless such default shall have been cured or waived; provided, however, that in
the case of any default of the character specified in Section 501(4), no such
notice to Holders of Securities shall be given until at least 30 days after the
occurrence of such default. For the purpose of this Section, the term
"default" means any event which is, or after notice or lapse of time or both
would become, an Event of Default.
SECTION 603. CERTAIN RIGHTS OF TRUSTEE.
Subject to the provisions of Section 601:
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, Officers' Certificate, other certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or presented by
the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its
part, rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders pursuant to this Indenture, unless such Holders shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with such
request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or
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other paper or document, but the Trustee, in its discretion, may make such
further inquiry or investigation into such facts or matters as it may see fit,
and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and premises
of the Company, personally or by agent or attorney; and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder.
SECTION 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.
The recitals contained herein and in the Securities, except the Trustee's
certificates of authentication, shall be taken as the statements of the
Company, and neither the Trustee nor any Authenticating Agent assumes any
responsibility for their correctness. The Trustee makes no representations as
to the validity or sufficiency of this Indenture or of the Securities. Neither
the Trustee nor any Authenticating Agent shall be accountable for the use or
application by the Company of Securities or the proceeds thereof.
SECTION 605. MAY HOLD SECURITIES.
The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to
Sections 608 and 613, may otherwise deal with the Company with the same rights
it would have if it were not Trustee, Authenticating Agent, Paying Agent,
Security Registrar or such other agent.
SECTION 606. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under
no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company in writing.
SECTION 607. COMPENSATION AND REIMBURSEMENT.
The Company agrees
(a) to pay to the Trustee from time to time reasonable compensation for
all services rendered by it hereunder (which compensation shall not be limited
by any provision of law in regard to the compensation of a trustee of an
express trust);
(b) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision of
this Indenture (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to its negligence or bad faith; and
(c) to indemnify the Trustee and its directors, officers, employees and
agents for, and to hold them harmless against, any loss, liability or expense
incurred without
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negligence or bad faith on their part, arising out of or in connection with the
acceptance or administration of this trust, including the costs and expenses of
defending itself against any claim or liability in connection with the exercise
or performance of any of its powers or duties hereunder.
To secure the Company's payment obligations under this Section, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee (except money or property held or collected by the
Trustee in trust for the payment of principal of (and premium, if any, on), or
interest on particular Securities), and such lien shall survive the
satisfaction and discharge of the Indenture and any other termination of the
Indenture including any termination under any bankruptcy law. When the Trustee
incurs expenses or renders services in connection with an Event of Default
specified in Sections 501(7) or (8), the Holders by their acceptance of the
Securities hereby agree that such expenses and the compensation for such
services are intended to constitute expenses of administration under Title 11
of the United States Code or any other applicable Federal or state bankruptcy,
insolvency or similar law. "Trustee" for purposes of this Section 607 shall
include any predecessor Trustee, but the negligence or bad faith of any Trustee
shall not affect the indemnification of any other Trustee.
SECTION 608. DISQUALIFICATION; CONFLICTING INTERESTS.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture.
SECTION 609. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee hereunder which shall be a Person
that is eligible pursuant to the Trust Indenture Act to act as such, having a
combined capital and surplus of at least $10,000,000 subject to supervision or
examination by federal or state authority, in good standing and having an
established place of business in the Borough of Manhattan, The City of New
York. If such Person publishes reports of condition at least annually,
pursuant to law or to the requirements of said supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such Person shall be deemed to be its combined capital and surplus
as set forth in its most recent report of condition so published. If at any
time the Trustee shall cease to be eligible in accordance with the provisions
of this Section 609, it shall resign immediately in the manner and with the
effect hereinafter specified in this Article and a successor shall be appointed
pursuant to Section 610.
SECTION 610. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 611.
(b) The Trustee may resign at any time by giving written notice thereof
to the Company. If an instrument of acceptance by a successor Trustee shall
not have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the
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resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Securities, delivered to the
Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 608 after
written request therefor by the Company or by any Holder who has been a
bona fide Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 609 and
shall fail to resign after written request therefor by the Company or by
any such Holder, or
(3) the Trustee shall become incapable of acting or shall be
adjudged bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 514, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee.
If, within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of
the Holders of a majority in principal amount of the Outstanding Securities
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment, become the
successor Trustee and supersede the successor Trustee appointed by the Company.
If no successor Trustee shall have been so appointed by the Company or the
Holders and accepted appointment in the manner hereinafter provided, any Holder
who has been a bona fide Holder of a Security for at least six months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee to all Holders in
the manner provided in Section 106. Each notice shall include the name of the
successor Trustee and the address of its Corporate Trust Office.
(g) No retiring Trustee shall be liable for the acts or omissions of any
successor Trustee hereunder.
(h) All fees, charges and expenses of the retiring Trustee shall become
immediately due and payable upon the appointment of a successor Trustee
hereunder.
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SECTION 611. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers,
trusts and duties of the retiring Trustee; but, on request of the Company or
the successor Trustee, such retiring Trustee shall, upon payment of its
charges, execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee and shall
duly assign, transfer and deliver to such successor Trustee all property and
money held by such retiring Trustee hereunder. Upon request of any such
successor Trustee, the Company shall execute any and all instruments for more
fully and certainly vesting in and confirming to such successor Trustee all
such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 612. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee (including the trust created by this Indenture), shall be the
successor of the Trustee hereunder, provided such corporation shall be
otherwise qualified and eligible under this Article, without the execution or
filing of any paper or any further act on the part of any of the parties
hereto. In case any Securities shall have been authenticated, but not
delivered, by the Trustee then in office, any successor by merger, conversion
or consolidation to such authenticating Trustee may adopt such authentication
and deliver the Securities so authenticated with the same effect as if such
successor Trustee had itself authenticated such Securities.
SECTION 613. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
If and when the Trustee shall be or become a creditor of the Company (or
any other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims
against the Company (or any such other obligor).
SECTION 614. APPOINTMENT OF AUTHENTICATING AGENT.
The Trustee may appoint an Authenticating Agent or Agents reasonably
acceptable to the Company which shall be authorized to act on behalf of the
Trustee to authenticate Securities issued upon original issue and upon
exchange, registration of transfer, partial conversion or partial redemption or
pursuant to Section 306, and Securities so authenticated shall be entitled to
the benefits of this Indenture and shall be valid and obligatory for all
purposes as if authenticated by the Trustee hereunder. Wherever reference is
made in this Indenture to the authentication and delivery of Securities by the
Trustee or the Trustee's certificate of authentication, such reference shall be
deemed to include authentication and delivery on behalf of the Trustee by an
Authenticating Agent
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and a certificate of authentication executed on behalf of the Trustee by an
Authenticating Agent. Each Authenticating Agent shall be acceptable to the
Company and shall at all times be a corporation organized and doing business
under the laws of the United States of America, any State thereof or the
District of Columbia, authorized under such laws to act as Authenticating
Agent, having a combined capital and surplus of not less than $50,000,000 and
subject to supervision or examination by federal or state authority. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time
an Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice
thereof to such Authenticating Agent and to the Company. Upon receiving such a
notice of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall mail written notice of
such appointment by first-class mail, postage prepaid, to all Holders as their
names and addresses appear in the Security Register. Any successor
Authenticating Agent upon acceptance of its appointment hereunder shall become
vested with all the rights, powers and duties of its predecessor hereunder,
with like effect as if originally named as an Authenticating Agent. No
successor Authenticating Agent shall be appointed unless eligible under the
provisions of this Section.
The Trustee agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section, and the Trustee
shall be entitled to be reimbursed for such payments, subject to the provisions
of Section 607.
An Authenticating Agent hereunder shall be entitled to all of the rights,
protections and immunities of the Trustee hereunder.
If an appointment is made pursuant to this Section, the Securities may
have endorsed thereon, in addition to the Trustee's certificate of
authentication, an alternative certificate of authentication in the following
form:
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This is one of the Securities described in the within-mentioned
Indenture.
American Stock Transfer &
Trust Company, as Trustee
By:
[Authenticating Agent] as Authenticating Agent
By:
Authorized Signatory
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS.
The Company will furnish or cause to be furnished to the Trustee
(a) semi-annually, not more than 15 days after each Regular Record Date,
a list, in such form as the Trustee may reasonably require, of the names and
addresses of the Holders as of such Regular Record Date, and
(b) at such other times as the Trustee may request in writing, within 30
days after the receipt by the Company of any such request, a list of similar
form and content as of a date not more than 15 days prior to the time such list
is furnished; provided that such list need not be furnished by the Company so
long as the Trustee is acting as Security Registrar.
SECTION 702. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with respect
to their rights under this Indenture or under the Securities, and the
corresponding rights and duties of the Trustee, shall be as provided by the
Trust Indenture Act.
(c) Every Holder, by receiving and holding the Securities, agrees with
the Company and the Trustee that neither the Company nor the Trustee nor any
agent of either of them shall be held accountable by reason of any disclosure
of information as to names and addresses of Holders made pursuant to the Trust
Indenture Act.
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SECTION 703. REPORTS BY TRUSTEE.
(a) The Trustee shall transmit to Holders such reports concerning the
Trustee and its actions under this Indenture as may be required pursuant to the
Trust Indenture Act at the times and in the manner provided pursuant thereto.
(b) A copy of each such report shall, at the time of such transmission
to Holders, be filed by the Trustee with each stock exchange upon which the
Securities are listed, with the Commission and with the Company. The Company
will notify the Trustee if and when the Securities are listed on any stock
exchange.
SECTION 704. REPORTS BY COMPANY.
The Company shall file with the Trustee and the Commission, and transmit
to Holders, such information, documents and other reports, and such summaries
thereof, as may be required pursuant to the Trust Indenture Act at the times
and in the manner provided pursuant to the Trust Indenture Act; provided that
any such information, documents or reports required to be filed with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act shall be filed
with the Trustee within 15 days after the same is so required to be filed with
the Commission.
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.
The Company (a) shall not consolidate with or merge into any other Person
or, directly or indirectly, convey, transfer, sell, lease or otherwise dispose
of its properties and assets substantially as an entirety to any Person, and
(b) shall not permit any Person to consolidate or merge with or into the
Company or convey, transfer, sell, lease or otherwise dispose of such Person's
properties and assets substantially as an entirety to the Company, unless:
(1) in case the Company shall consolidate with or merge into
another Person or convey, transfer, sell, lease or otherwise dispose of
its properties and assets substantially as an entirety to any Person, the
Person formed by such consolidation or into or with which the Company is
merged or the Person which acquires by conveyance, transfer or sale, or
which leases or otherwise acquires, the properties and assets of the
Company substantially as an entirety shall be a corporation, limited
liability company, partnership or trust, shall be organized and validly
existing under the laws of the United States of America, any State
thereof or the District of Columbia and shall expressly assume, by an
indenture supplemental hereto, executed and delivered to the Trustee, in
form satisfactory to the Trustee, the due and punctual payment of the
principal of (and premium, if any) and interest on all the Securities and
the performance or observance of every covenant of this Indenture on the
part of the Company to be performed or observed and shall have provided
for conversion rights in accordance with Article Thirteen;
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(2) immediately after giving effect to such transaction and
treating any indebtedness which becomes due an obligation of the Company
at the time of such transaction, no Event of Default, and no event which,
after notice or lapse of time or both, would become an Event of Default,
shall have happened and be continuing; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer or lease and, if a
supplemental indenture is required in connection with such transaction,
such supplemental indenture comply with this Article and that all
conditions precedent herein provided for relating to such transaction
have been complied with.
SECTION 802. SUCCESSOR SUBSTITUTED.
Upon any consolidation or merger of the Company with or into any other
Person, or any conveyance, transfer, sale or lease of the properties and assets
of the Company substantially as an entirety in accordance with Section 801, the
successor Person formed by such consolidation or merger or into or with which
the Company is merged or to which such conveyance, transfer, sale or lease is
made shall succeed to, and be substituted for, and may exercise every right and
power of, the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein, and thereafter, except
in the case of a lease, the predecessor Person shall be relieved of all
obligations and covenants under this Indenture and the Securities.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company
and the assumption by any such successor of the covenants and obligations
of the Company herein and in the Securities; or
(2) to add to the covenants of the Company for the benefit of the
Holders, or to surrender any right or power herein conferred upon the
Company; or
(3) to add any additional Events of Default for the benefit of the
Holders of the Securities; or
(4) to add to or change any of the provisions of this Indenture to
such extent as shall be necessary to permit or facilitate the issuance of
Securities in bearer form, registrable or not registrable as to
principal, and with or without
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interest coupons, or to permit or facilitate the issuance of Securities
in uncertificated form; or
(5) to secure the Securities; or
(6) to make provision with respect to the conversion rights of
Holders pursuant to the requirements of Section 1311 or the repurchase
obligations of the Company pursuant to the requirements of Section 1404;
or
(7) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee pursuant to the requirements of Section
611; or
(8) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising
under this Indenture which shall not be inconsistent with the provisions
of this Indenture, provided that such action pursuant to this Clause (5)
shall not adversely affect the interests of the Holders in any material
respect; or
(9) to comply with any requirements of the Commission in
connection with the qualification of this Indenture under the Trust
Indenture Act.
SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.
With the written consent of the Holders of not less than a majority in
principal amount of the Outstanding Securities, by the Act of said Holders
delivered to the Company and the Trustee, the Company, when authorized by a
Board Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Security affected thereby,
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any Security, or reduce the principal amount
thereof or the rate of interest thereon or the amounts payable upon the
redemption or repurchase thereof, or change the place of payment where,
or the place or currency in which, any Security or any premium or
interest thereon or any other amount in respect thereof is payable, or
impair the right to institute suit for the enforcement of any payment in
respect of any Security on or after the Stated Maturity thereof (or, in
the case of redemption or any repurchase, on or after the Redemption Date
or Repurchase Date, as the case may be), or, except as provided by
Section 1311, adversely affect the right to convert any Security as
provided in Article Thirteen, or modify the provisions of this Indenture
with respect to the subordination of the Securities in a manner adverse
to the Holders, or
(2) reduce the percentage in principal amount of the Outstanding
Securities the consent of whose Holders is required for any such
supplemental indenture or the consent of whose Holders is required for
any waiver (of compliance with certain provisions of this Indenture or
certain defaults hereunder and their consequences) provided for in this
Indenture, or
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(3) modify the obligation of the Company to maintain an office or
agency in the Borough of Manhattan, The City of New York pursuant to
Section 1002, or
(4) modify any of the provisions of this Section, Section 513 or
Section 1009, except to increase any percentage contained herein or
therein or to provide that certain other provisions of this Indenture
cannot be modified or waived without the consent of the Holder of each
Outstanding Security affected thereby; or
(5) modify the provisions of Article Twelve, Article Thirteen or
Article Fourteen in a manner adverse to the Holders.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article Nine or the modifications
thereby of the trusts created by this Indenture, the Trustee shall be entitled
to receive, and (subject to Section 601) shall be fully protected in relying
upon, an Opinion of Counsel stating that the execution of such supplemental
indenture is authorized or permitted by this Indenture and an Officers'
Certificate stating that all conditions precedent to the execution of such
supplemental indenture have been fulfilled. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article Nine,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every
Holder of Securities theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Article Nine shall
conform to the requirements of the Trust Indenture Act, as then in effect.
SECTION 906. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article Nine may, and shall if required
by the Trustee, bear a notation in form approved by the Trustee as to any
matter provided for in such supplemental indenture. If the Company shall so
determine, new Securities so modified as to conform, in the opinion of the
Trustee and the Company, to any such supplemental indenture may be prepared and
executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Securities.
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SECTION 907. NOTICE OF SUPPLEMENTAL INDENTURES.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 902, the Company
shall, or shall cause the Trustee to, give notice to all Holders of Securities
of such fact, setting forth in general terms the substance of such supplemental
indenture, in the manner provided in Section 106. Any failure of the Company
or the Trustee to give such notice, or any defect therein, shall not in any way
impair or affect the validity of any such supplemental indenture.
ARTICLE TEN
COVENANTS
SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.
The Company will duly and punctually pay the principal of (and premium,
if any) and interest on the Securities in accordance with the terms of the
Securities and this Indenture.
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY.
The Company hereby appoints American Stock Transfer & Trust Company, as
its agent in The City of New York where Securities may be presented or
surrendered for payment, where Securities may be surrendered for registration
of transfer or exchange, where conversion notices, certificates and other items
required to be delivered to effect conversion may be delivered and where
notices and demands to or upon the Company in respect of the Securities and
this Indenture may be served.
The Company hereby also appoints the Corporate Trust Office of the
Trustee as Paying Agent for the payment of principal of and interest on the
Securities and as Conversion Agent for the Conversion of any of the Securities
in accordance with Article Thirteen, and appoints the Corporate Trust Office of
the Trustee as transfer agent where Securities may be surrendered for
registration of transfer or exchange.
The Company may at any time and from time to time vary or terminate the
appointment of any such agent or appoint any additional agents with or without
cause for any or all of such purposes; provided, however, that until all of the
Securities have been delivered to the Trustee for cancellation, or moneys
sufficient to pay the principal of and interest on the Securities have been
made available for payment and either paid or returned to the Company pursuant
to the provisions of Section 1003, the Company will maintain in the Borough of
Manhattan, The City of New York, an office or agency where Securities may be
presented or surrendered for payment, where Securities may be surrendered for
registration of transfer or exchange, where Securities may be surrendered for
conversion and where notices and demands to or upon the Company, in respect of
the Securities and this Indenture may be served. The Company will give prompt
written notice to the Trustee, and the Company will, or will cause the Trustee
to, give notice to Holders of Securities in the manner specified in Section
106, of the appointment or termination of any such agents and of the location
and any change in the location of any such office or agency.
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If at any time the Company shall fail to maintain any such required
office or agency, or shall fail to furnish the Trustee with the address
thereof, presentations and surrenders may be made and notices and demands may
be served on and Securities may be surrendered for conversion to the Corporate
Trust Office of the Trustee, and the Company hereby appoints the same as its
agent to receive such respective presentations, surrenders, notices and
demands.
SECTION 1003. MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST.
If the Company shall act as its own Paying Agent, it will, on or before
each due date of the principal of, premium, if any, or interest on any of the
Securities, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum sufficient to pay the principal, premium, if any, or interest so
becoming due until such sums shall be paid to such Persons or otherwise
disposed of as herein provided and the Company will promptly notify the Trustee
of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it will, on or
prior to 10:00 a.m. on each due date of the principal of, premium, if any, or
interest on any Securities (including any Repurchase Date), deposit with such
Paying Agent(s) a sum in immediately available funds on the payment date
sufficient to pay the principal, premium, if any, or interest so becoming due,
such sum to be held as provided by the Trust Indenture Act, and (unless such
Paying Agent is the Trustee) the Company will promptly notify the Trustee of
any failure so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(1) comply with the provisions of the Trust Indenture Act
applicable to it as a Paying Agent;
(2) give the Trustee notice of any default by the Company
(or any other obligor upon the Securities) in the making of any payment
of principal, premium, if any, or interest; and
(3) at any time during the continuance of any such default, upon
the written request of the Trustee, forthwith pay to the Trustee all sums
so held by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held
in trust by the Company or such Paying Agent, such sums to be held by the
Trustee upon the same trusts as those upon which such sums were held by the
Company or such Paying Agent; and, upon such payment by any Paying Agent to the
Trustee, such Paying Agent shall be released from all further liability with
respect to such money.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of, premium, if any, or
interest on any Security and remaining unclaimed for two years after such
principal, premium, if any, or interest has become due and payable shall be
paid to the Company on Company Request,
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or (if then held by the Company) shall be discharged from such trust; and the
Holder of such Security shall thereafter, as an unsecured general creditor,
look only to the Company for payment thereof, and all liability of the Trustee
or such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease; provided, however, that the
Trustee or such Paying Agent, before being required to make any such repayment,
may at the expense of the Company cause to be published once, in a newspaper in
the English language, customarily published on each Business Day and of general
circulation in the Borough of Manhattan, The City of New York, notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Company.
SECTION 1004. STATEMENT BY OFFICERS AS TO DEFAULT.
The Company shall deliver to the Trustee, within 120 days after the end
of each fiscal year of the Company, an Officers' Certificate stating whether or
not to the best knowledge of the signers thereof the Company is in compliance
on such date with all conditions and covenants under the Indenture (without
regard to any period of grace or requirement of notice provided hereunder).
The Company will deliver to the Trustee, forthwith upon becoming aware of
any default or Event of Default under this Indenture, an Officers' Certificate
specifying with particularity such default or Event of Default and further
stating what action the Company has taken, is taking or proposes to take with
respect thereto. For the purpose of this Section, the term "default" means any
event which is, or after notice or lapse of time or both would become, an Event
of Default.
Any notice required to be given under this Section 1004 shall be
delivered to the Trustee at its Corporate Trust Office.
SECTION 1005. EXISTENCE.
Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its existence,
rights (charter and statutory) and franchises; provided, however, that the
Company shall not be required to preserve any such right or franchise if the
Board of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and that the loss
thereof is not disadvantageous in any material respect to the Holders.
SECTION 1006. MAINTENANCE OF PROPERTIES.
The Company will cause all properties used or useful in the conduct of
its business or the business of any Subsidiary to be maintained and kept in
good condition, repair and working order and supplied with all necessary
equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this Section shall prevent the Company from
discontinuing the operation or maintenance of any of such properties if such
discontinuance is, in the judgment of the Company, desirable in the conduct of
its
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business or the business of any Subsidiary and not disadvantageous in any
material respect to the Holders.
SECTION 1007. PAYMENT OF TAXES AND OTHER CLAIMS.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (1) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary, (2) all
lawful claims for labor, materials and supplies which, if unpaid, might by law
become a lien upon the property of the Company or any Subsidiary; provided,
however, that the Company shall not be required to pay or discharge or cause to
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
SECTION 1008. BOOK-ENTRY SYSTEM.
If the Securities cease to trade in DTC's book-entry settlement system,
the Company covenants and agrees that it shall use reasonable efforts to make
such other book-entry arrangements that it determines are reasonable for the
Securities.
SECTION 1009. WAIVER OF CERTAIN COVENANTS.
The Company may omit in any particular instance to comply with any
covenant or condition set forth in Sections 1006 and 1007, inclusive, if before
the time for such compliance the Holders of not less than a majority in
principal amount of the Outstanding Securities shall, by Act of such Holders,
either waive such compliance in such instance or generally waive compliance
with such covenant or condition, but no such waiver shall extend to or affect
such covenant or condition except to the extent so expressly waived, and, until
such waiver shall become effective, the obligations of the Company and the
duties of the Trustee in respect of any such covenant or condition shall remain
in full force and effect.
SECTION 1010. LIMITATION ON DIVIDEND RESTRICTIONS AFFECTING
SUBSIDIARIES.
The Company shall not, and shall not permit any of its Subsidiaries to,
create or otherwise cause or suffer to exist or become effective any
encumbrance or restriction of any kind on the ability of any Subsidiary to (a)
pay to the Company or any other Subsidiary dividends or make to the Company or
any other Subsidiary any other distribution on its Capital Stock, (b) pay any
debt owed to the Company or any other Subsidiary, (c) make loans or advances to
the Company or any other Subsidiary or (d) transfer any of its property or
assets to the Company or any other Subsidiary, other than such encumbrances,
liens or restrictions existing or created under or by reason of (i) applicable
laws, (ii) this Indenture, (iii) covenants or restrictions contained in any
instrument governing debt of the Company or any of the Subsidiaries existing on
the date of this Indenture, or covenants or restrictions in any loan documents
relating to Senior Indebtedness incurred after the date hereof, provided that
in the absence of a default under any such loan documents, no such restriction
shall prevent a Subsidiary from paying dividends or otherwise distributing
funds to the Company in amounts sufficient to enable the Company to make
interest and principal payments on the Securities as and when due, (including a
mandatory redemption pursuant to Section 1401), (iv) customary provisions
restricting subletting, assignment and transfer of any lease governing a
leasehold interest of the Company or any of the Subsidiaries or in any license
or other agreement entered
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into in the ordinary course of business, (v) any agreement governing debt of a
Person acquired by the Company or any of the Subsidiaries in existence at the
time of such acquisition (but not created in connection with or in
contemplation thereof), which encumbrances or restrictions are not applicable
to any Person, or the property or assets of any Person, other than the Person,
or the property or assets of the Person, so acquired, (vi) any restriction with
respect to a Subsidiary imposed pursuant to an agreement entered into in
accordance with the terms of this Indenture for the sale or disposition of
Capital Stock or property or assets of such Subsidiary, pending the closing of
such sale or disposition or (vii) any agreement that extends, renews,
refinances or replaces the agreements containing the restrictions in the
foregoing clauses (ii) through (v); provided that the terms and conditions of
any such restrictions are no more restrictive to the Company or any Subsidiary
than the restrictions in the agreement so extended, renewed, refinanced or
replaced.
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. RIGHT OF REDEMPTION.
The Securities may be redeemed at the election of the Company, as a whole
or from time to time in part, at any time on or after _________, 1999, at the
Redemption Prices specified in the form of Security hereinbefore set forth,
together with accrued interest to the Redemption Date; provided, however, that
the Securities may not be redeemed pursuant to this Section on a Redemption
Date between _________, 1999 and _________, 2000 unless the Closing Price Per
Share of the Common Stock on twenty consecutive Trading Days ending no more
than ten days prior to the date notice of redemption is given under Section
1105 exceeds 130% of the Conversion Price in effect on each of such twenty
consecutive Trading Days.
SECTION 1102. APPLICABILITY OF ARTICLE.
Redemption of Securities at the election of the Company, as permitted or
required by any provision of this Indenture, shall be made in accordance with
such provision and this Article Eleven.
SECTION 1103. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem any Securities pursuant to Section
1101 shall be evidenced by a Board Resolution. In case of any redemption at
the election of the Company, the Company shall, at least 45 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and of
the principal amount of Securities to be redeemed. If the Redemption Date is
on or prior to ________, 2000, the notice to the Trustee shall include an
Officer's Certificate stating that the Closing Price per Share of the Common
Stock on twenty consecutive Trading Days ending no more than ten days prior to
the date notice of redemption was or will be given under Section 1105 exceeded
130% of the Conversion Price on each of such twenty consecutive Trading Days
and setting forth the Closing Price Per Share and the Conversion Price on each
of such twenty consecutive Trading Days.
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SECTION 1104. SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED.
If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not less than 30 days nor more than
45 days prior to the Redemption Date by the Trustee, from the Outstanding
Securities not previously called for redemption, by such method as the Trustee
shall deem fair and appropriate and which may provide for the selection for
redemption of portions (equal to $1,000 or any integral multiple thereof) of
the principal amount of Securities of a denomination larger than $1,000.
If any Security selected for partial redemption is converted in part
before termination of the conversion right with respect to the portion of the
Security so selected, the converted portion of such Security shall be deemed
(so far as may be) to be the portion selected for redemption. Securities which
have been converted during a selection of Securities to be redeemed shall be
treated by the Trustee as Outstanding for the purpose of such selection.
The Trustee shall promptly notify the Company and each Security Registrar
in writing of the Securities selected for redemption and, in the case of any
Securities selected for partial redemption, the principal amount thereof to be
redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall relate,
in the case of any Securities redeemed or to be redeemed only in part, to the
portion of the principal amount of such Securities which has been or is to be
redeemed.
SECTION 1105. NOTICE OF REDEMPTION.
Notice of redemption shall be given by first-class mail, postage prepaid,
mailed not less than 30 nor more than 60 days prior to the Redemption Date, to
each Holder of Securities to be redeemed, at such Holder's address appearing in
the Security Register.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price and accrued interest, if any,
(3) if less than all the Outstanding Securities are to be
redeemed, the identification (and, in the case of partial redemption of
any Securities, the principal amounts) of the particular Securities to be
redeemed,
(4) that on the Redemption Date the Redemption Price and accrued
interest, if any, will become due and payable upon each such Security to
be redeemed and that interest thereon will cease to accrue on and after
said date,
(5) the Conversion Rate, the date on which the right to convert
the Securities to be redeemed will terminate and the place or places
where such Securities may be surrendered for conversion, and
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(6) the place or places where such Securities are to be
surrendered for payment of the Redemption Price and accrued interest, if
any.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's written request, by
the Trustee in the name and at the expense of the Company, and such notice,
when given to the Holders, shall be irrevocable.
SECTION 1106. DEPOSIT OF REDEMPTION PRICE.
Not less than one Business Day prior to any Redemption Date, the Company
shall deposit with the Trustee or with a Paying Agent (or, if the Company is
acting as its own Paying Agent, segregate and hold in trust as provided in
Section 1003) an amount of money (which shall be in immediately available funds
on such Redemption Date) sufficient to pay the Redemption Price of, and (except
if the Redemption Date shall be an Interest Payment Date) accrued interest on,
all the Securities which are to be redeemed on that date other than any
Securities called for redemption on that date which have been converted prior
to the date of such deposit.
If any Security called for redemption is converted, any money deposited
with the Trustee or with any Paying Agent or so segregated and held in trust
for the redemption of such Security shall (subject to any right of the Holder
of such Security or any Predecessor Security to receive interest as provided in
the last paragraph of Section 307) be paid to the Company upon Company Request
or, if then held by the Company, shall be discharged from such trust.
SECTION 1107. SECURITIES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as aforesaid, the Securities so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified (together with accrued and unpaid interest,
if any, to the Redemption Date), and from and after such date (unless the
Company shall default in the payment of the Redemption Price, including accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security
shall be paid by the Company at the Redemption Price, together with accrued
interest to the Redemption Date; provided, however, that installments of
interest whose Stated Maturity is on or prior to the Redemption Date shall be
payable to the Holders of such Securities, or one or more Predecessor
Securities, registered as such at the close of business on the relevant Record
Dates according to their terms and the provisions of Section 307.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal (and premium, if any) shall, until paid,
bear interest from the Redemption Date at a rate of [ ]% per annum.
SECTION 1108. SECURITIES REDEEMED IN PART.
Any Security which is to be redeemed only in part shall be surrendered at
an office or agency of the Company designated for that purpose pursuant to
Section 1002 (with, if the Company or the Trustee so requires, due endorsement
by, or a written instrument of transfer in form satisfactory to the Company and
the Trustee duly executed by, the Holder
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thereof or his attorney duly authorized in writing), and the Company shall
execute, and the Trustee shall authenticate and deliver to the Holder of such
Security without service charge, a new Security or Securities, of any
authorized denomination as requested by such Holder, in aggregate principal
amount equal to and in exchange for the unredeemed portion of the principal of
the Security so surrendered.
ARTICLE TWELVE
SUBORDINATION OF SECURITIES
SECTION 1201. SECURITIES SUBORDINATE TO SENIOR INDEBTEDNESS.
The Company covenants and agrees, and each Holder of a Security, by his
acceptance thereof, likewise covenants and agrees, that, to the extent and in
the manner hereinafter set forth in this Article Twelve (subject to the
provisions of Article Four), the indebtedness represented by the Securities and
the payment of the principal of (and premium, if any) and interest on each and
all of the Securities are hereby expressly made subordinate and subject in
right of payment to the prior payment in full of all Senior Indebtedness.
Whenever in this Article Twelve there is a reference, in any context, to the
principal of any Security as of any time, such reference shall be deemed to
include reference to the Repurchase Price payable in cash or Redemption Price
in respect of such Security to the extent that such Repurchase Price payable in
cash or Redemption Price is, was or would be so payable at such time, and
express mention of the Repurchase Price and the Redemption Price in any
provision of this Article Twelve shall not be construed as excluding the
Repurchase Price payable in cash or Redemption Price in those provisions of
this Article Twelve when such express mention is not made.
SECTION 1202. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC.
In the event of (a) any insolvency or bankruptcy case or proceeding, or
any receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, relative to the Company or to its
creditors, as such, or to its assets, or (b) any liquidation, dissolution or
other winding up of the Company, whether voluntary or involuntary and whether
or not involving insolvency or bankruptcy, or (c) any assignment for the
benefit of creditors or any other marshalling of assets and liabilities of the
Company, then and in any such event the holders of Senior Indebtedness shall be
entitled to receive payment in full of all amounts due or to become due on or
in respect of all Senior Indebtedness in cash or other immediately available
funds, or provision shall be made for such payment in cash or other immediately
available funds or otherwise in a manner satisfactory to each holder of Senior
Indebtedness with respect to its indebtedness, before the Holders of the
Securities are entitled to receive any payment on account of principal of (or
premium, if any) or interest on the Securities, and to that end the holders of
Senior Indebtedness shall be entitled to receive, for application to the
payment thereof, any payment or distribution of any kind or character, whether
in cash, property or securities, which may be payable or deliverable in respect
of the Securities in any such case, proceeding, dissolution, liquidation or
other winding up or event.
In the event that, notwithstanding the foregoing provisions of this
Section, the Trustee or the Holder of any Security shall have received any
payment or distribution of assets of the Company of any kind or character,
whether in cash, securities or other
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property, before all Senior Indebtedness is paid in full or payment thereof
provided for, and if such fact shall, at or prior to the time of such payment
or distribution, have been made known to the Trustee or, as the case may be,
such Holder, then and in such event such payment or distribution shall be paid
over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating
trustee, custodian,assignee, agent or other Person making payment or
distribution of assets of the Company for application to the payment of all
Senior Indebtedness remaining unpaid, to the extent necessary to pay all Senior
Indebtedness in full, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness.
For purposes of this Article only, the words "cash, securities or other
property" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment which
shares of stock are subordinated in right of payment to all then outstanding
Senior Indebtedness to substantially the same extent as, or to a greater extent
than, the Securities are so subordinated as provided in this Article Twelve.
The consolidation of the Company with, or the merger of the Company into,
another Person or the liquidation or dissolution of the Company following the
conveyance or transfer of its properties and assets substantially as an
entirety to another Person upon the terms and conditions set forth in Article
Eight shall not be deemed a dissolution, winding up, liquidation,
reorganization, assignment for the benefit of creditors or marshalling of
assets and liabilities of the Company for the purposes of this Section if the
Person formed by such consolidation or into which the Company is merged or
which acquires by conveyance or transfer such properties and assets
substantially as an entirety, as the case may be, shall, as a part of such
consolidation, merger, conveyance or transfer, comply with the conditions set
forth in Article Eight.
SECTION 1203. PRIOR PAYMENT TO SENIOR INDEBTEDNESS UPON ACCELERATION OF
SECURITIES.
In the event that any Securities are declared due and payable before
their Stated Maturity, then and in such event the holders of the Senior
Indebtedness outstanding at the time such Securities so become due and payable
shall be entitled to receive payment in full of all amounts due or to become
due on or in respect of such Senior Indebtedness, or provision shall be made
for such payment in money or money's worth, before the Holders of the
Securities are entitled to receive any payment by the Company on account of the
principal of (or premium, if any) or interest on the Securities or on account
of the purchase or other acquisition of Securities.
In the event that, notwithstanding the foregoing, the Company shall make
any payment to the Trustee or the Holder of any Security prohibited by the
foregoing provisions of this Section, and if such fact shall, at or prior to
the time of such payment, have been made known to the Trustee or, as the case
may be, such Holder, then and in such event such payment shall be paid over and
delivered forthwith to the Company.
The provisions of this Section shall not apply to any payment with
respect to which Section 1202 would be applicable.
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SECTION 1204. NO PAYMENT WHEN SENIOR INDEBTEDNESS IN DEFAULT.
In the event (i) and during the continuation of any default in the
payment of principal of, premium, if any, or interest on any Senior
Indebtedness, whether at the date of a required payment, maturity, upon
mandatory prepayment redemption or otherwise, or (ii) that any other default
with respect to any Designated Senior Indebtedness shall have occurred and be
continuing, then no payment shall be made by the Company on account of the
principal of or premium, if any, or interest on the Securities or on account of
the purchase, redemption or other acquisition of Securities (x) in the case of
any default described in subclause (i) above, unless and until the Senior
Indebtedness to which such default relates is discharged or such default shall
have been cured or waived or shall have ceased to exist or the holders of such
Senior Indebtedness or their agents have waived the benefits of this Section
1204, and (y) in the case of any default specified in clause (ii) above with
respect to any Designated Senior Indebtedness that would permit the maturity of
such Designated Senior Indebtedness to be accelerated, from the date the
Company or the Trustee receives written notice of such default specifying that
no payment shall be made with respect to the Securities (a "Senior Default
Notice") from any holder of Designated Senior Indebtedness to which such
default relates or any representative of such holders, until the earlier of (A)
180 days after such date or (B) the date, if any, on which the Designated
Senior Indebtedness to which such default relates is discharged or such default
shall have been cured or waived or shall have ceased to exist or the holders of
such Designated Senior Indebtedness or their agents shall have waived the
benefits of this Section 1204; provided, however, that not more than one Senior
Default Notice shall be given during any period of 360 consecutive days,
regardless of the number of defaults with respect to Designated Senior
Indebtedness during such 360-day period.
In the event that, notwithstanding the foregoing, the Company shall make
any payment to the Trustee or the Holder of any Security prohibited by the
foregoing provisions of this Section, and if such fact shall, at or prior to
the time of such payment, have been made known to the Trustee or, as the case
may be, such Holder, then and in such event such payment shall be paid over and
delivered forthwith to the Company, in the case of the Trustee, or the Trustee,
in the case of such Holder.
The provisions of this Section shall not apply to any payment with
respect to which Section 1202 would be applicable.
SECTION 1205. PAYMENT PERMITTED IF NO DEFAULT.
Nothing contained in this Article or elsewhere in this Indenture or in
any of the Securities shall prevent (a) the Company, at any time except during
the pendency of any case, proceeding, dissolution, liquidation or other winding
up, assignment for the benefit of creditors or other marshalling of assets and
liabilities of the Company referred to in Section 1202, or under the conditions
described in Sections 1203 and 1204, from making payments at any time of
principal of (and premium, if any) or interest on the Securities, or (b) the
application by the Trustee of any money deposited with it hereunder to the
payment of or on account of the principal of (and premium, if any) or interest
on the Securities or the retention of such payment by the Holders, if, at the
time of such application by the Trustee, it did not have knowledge that such
payment would have been prohibited by the provisions of this Article.
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SECTION 1206. SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS.
Subject to the payment in full of all Senior Indebtedness, the Holders of
the Securities shall be subrogated to the extent of the payments or
distributions made to the holders of such Senior Indebtedness pursuant to the
provisions of this Article to the rights of the holders of such Senior
Indebtedness to receive payments and distributions of cash, property and
securities applicable to the Senior Indebtedness until the principal of (and
premium, if any) and interest on the Securities shall be paid in full. For
purposes of such subrogation, no payments or distributions to the holders of
the Senior Indebtedness of any cash, property or securities to which the
Holders of the Securities or the Trustee would be entitled except for the
provisions of this Article, and no payments over pursuant to the provisions of
this Article to the holders of Senior Indebtedness by Holders of the Securities
or the Trustee, shall, as among the Company, its creditors other than holders
of Senior Indebtedness and the Holders of the Securities, be deemed to be a
payment or distribution by the Company to or on account of the Senior
Indebtedness.
SECTION 1207. PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS.
The provisions of this Article are intended solely for the purpose of
defining the relative rights of the Holders of the Securities on the one hand
and the holders of Senior Indebtedness on the other hand. Nothing contained in
this Article or elsewhere in this Indenture or in the Securities is intended to
or shall (a) impair, as among the Company, its creditors other than holders of
Senior Indebtedness and the Holders of the Securities, the obligation of the
Company, which is absolute and unconditional, to pay to the Holders of the
Securities the principal of (and premium, if any) and interest on the
Securities as and when the same shall become due and payable in accordance with
their terms; or (b) affect the relative rights against the Company of the
Holders of the Securities and creditors of the Company other than the holders
of Senior Indebtedness; or (c) prevent the Trustee or the Holder of any
Security from exercising all remedies otherwise permitted by applicable law
upon default under this Indenture, subject to the rights, if any, under this
Article of the holders of Senior Indebtedness to receive cash, property and
securities otherwise payable or deliverable to the Trustee or such Holder.
SECTION 1208. TRUSTEE TO EFFECTUATE SUBORDINATION.
Each holder of a Security by his acceptance thereof authorizes and
directs the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article and
appoints the Trustee his attorney-in-fact for any and all such purposes.
SECTION 1209. NO WAIVER OF SUBORDINATION PROVISIONS.
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder of any
Senior Indebtedness, or by any non-compliance by the Company with the terms,
provisions and covenants of this Indenture, regardless of any knowledge thereof
any such holder may have or be otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Indebtedness, in accordance with the terms of the
instrument or agreement
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evidencing their Senior Indebtedness, may, at any time and from time to time,
without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Holders of the Securities
and without impairing or releasing the subordination provided in this Article
or the obligations hereunder of the Holders of the Securities to the holders of
Senior Indebtedness, do any one or more of the following: (i) change the
manner, place or terms of payment or extend the time of payment of, or renew,
increase or alter, Senior Indebtedness, or otherwise amend or supplement in any
manner Senior Indebtedness or any instrument evidencing the same or any
agreement under which Senior Indebtedness is outstanding; (ii) sell, exchange,
release or otherwise deal with any property pledged, mortgaged or otherwise
securing Senior Indebtedness; (iii) release any Person liable in any manner for
the collection of Senior Indebtedness; and (iv) exercise or refrain from
exercising any rights against the Company and any other Person.
SECTION 1210. NOTICE TO TRUSTEE.
The Company shall give prompt written notice to the Trustee of any fact
known to the Company which would prohibit the making of any payment to or by
the Trustee in respect of the Securities. Notwithstanding the provisions of
this Article or any other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Securities, unless
and until the Trustee shall have received written notice thereof from the
Company or a holder of Senior Indebtedness or from any trustee therefor; and,
prior to the receipt of any such written notice, the Trustee, subject to the
provisions of Section 601, shall be entitled in all respects to assume that no
such facts exist; provided, however, that if the Trustee shall not have
received the notice provided for in this Section prior to 11:00 a.m. Eastern
time on the date which is at least two Business Days prior to the date upon
which by the terms hereof any money may become payable for any purpose
(including, without limitation, the payment of the principal of (and premium,
if any) or interest on any Security), then, anything herein contained to the
contrary notwithstanding, the Trustee shall have full power and authority to
receive such money and to apply the same to the purpose for which such money
was received and shall not be affected by any notice to the contrary which may
be received by it on or after 11:00 a.m. Eastern time two Business Days prior
to such date.
Notwithstanding anything in this Article Twelve to the contrary, nothing
shall prevent any payment by the Trustee to the Holders of monies deposited
with it pursuant to Section 401, and any such payment shall not be subject to
the provisions of Sections 1202, 1203 or 1204.
Subject to the provisions of Article Six, the Trustee shall be entitled
to rely on the delivery to it of a written notice by a Person representing
himself to be a holder of Senior Indebtedness (or a trustee therefor) to
establish that such notice has been given by a holder of Senior Indebtedness
(or a trustee therefor). In the event that the Trustee determines in good
faith that further evidence is required with respect to the right of any Person
as a holder of Senior Indebtedness to participate in any payment or
distribution pursuant to this Article, the Trustee may request such Person to
furnish evidence to the reasonable satisfaction of the Trustee as to the amount
of Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article, and if such evidence
is not furnished, the Trustee may defer any payment to such Person pending
judicial determination as to the right of such Person to receive such payment.
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SECTION 1211. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING
AGENT.
Upon any payment or distribution of assets of the Company referred to in
this Article, the Trustee, subject to the provisions of Section 601, and the
Holders of the Securities shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such insolvency,
bankruptcy, receivership, liquidation, reorganization, dissolution, winding up
or similar case or proceeding is pending, or a certificate of the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit
of creditors, agent or other Person making such payment or distribution,
delivered to the Trustee or to the Holders of Securities, for the purpose of
ascertaining the Persons entitled to participate in such payment or
distribution, the holders of the Senior Indebtedness and other indebtedness of
the Company, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this
Article.
SECTION 1212. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR INDEBTEDNESS.
The Trustee shall not be deemed to owe any fiduciary duty to the holders
of Senior Indebtedness and shall not be liable to any such holders if it shall
in good faith mistakenly pay over or distribute to Holders of Securities or to
the Company or to any other Person cash, property or securities to which any
holders of Senior Indebtedness shall be entitled by virtue of this Article or
otherwise.
SECTION 1213. RIGHTS OF TRUSTEE AS HOLDER OF SENIOR INDEBTEDNESS;
PRESERVATION OF TRUSTEE'S RIGHTS.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article with respect to any Senior Indebtedness which
may at any time be held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder.
Nothing in this Article shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 607.
SECTION 1214. ARTICLE APPLICABLE TO PAYING AGENTS.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article shall in such case (unless the context otherwise
requires) be construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article in addition to or in place of the Trustee; provided,
however, that Section 1213 shall not apply to the Company or any Affiliate of
the Company if it or such Affiliate acts as Paying Agent.
SECTION 1215. CERTAIN CONVERSIONS DEEMED PAYMENT.
For the purposes of this Article only, (1) the issuance and delivery of
junior securities upon conversion of Securities in accordance with Article
Thirteen or upon the repurchase of Securities in accordance with Article
Fourteen shall not be deemed to constitute a payment or distribution on account
of the principal of or premium or interest
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on Securities or on account of the purchase or other acquisition of Securities,
and (2) the payment, issuance or delivery of cash, property or securities
(other than junior securities) upon conversion of a Security shall be deemed to
constitute payment on account of the principal of such Security. For the
purposes of this Section, the term "junior securities" means (a) shares of any
stock of any class of the Company and any cash, securities or other property
into which the Securities are convertible pursuant to Article Thirteen and (b)
securities of the Company which are subordinated in right of payment to all
Senior Indebtedness which may be outstanding at the time of issuance or
delivery of such securities to substantially the same extent as, or to a
greater extent than, the Securities are so subordinated as provided in this
Article. Nothing contained in this Article or elsewhere in this Indenture or
in the Securities is intended to or shall impair, as among the Company, its
creditors other than holders of Senior Indebtedness and the Holders of the
Securities, the right, which is absolute and unconditional, of the Holder of
any Security to convert such Security in accordance with Article Thirteen or to
exchange such Security for Common Stock in accordance with Article Fourteen if
the Company elects to satisfy its obligation under Article Fourteen by the
delivery of Common Stock.
ARTICLE THIRTEEN
CONVERSION OF SECURITIES
SECTION 1301. CONVERSION PRIVILEGE AND CONVERSION PRICE.
Subject to and upon compliance with the provisions of this Article
Thirteen, at the option of the Holder thereof, any Security may be converted at
any time into fully paid and nonassessable shares (calculated as to each
conversion to the nearest 1/100th of a share) of Common Stock of the Company at
the Conversion Price, determined as hereinafter provided, in effect at the time
of conversion. Such conversion right shall expire at the close of business on
__________, ____, subject, in the case of conversion of any Global Security, to
any Applicable Procedures. In case a Security or portion thereof is called for
redemption at the election of the Company or the Holder thereof exercises his
right to require the Company to repurchase a Security or portion thereof, such
conversion right in respect of such Security, shall expire (a) at the close of
business on the Business Day immediately preceding the Redemption Date, in the
case of a Security called for redemption, and (b) at the close of business on
the Business Day immediately preceding the Repurchase Date, in the case of a
Security tendered for repurchase, in each case unless the Company defaults in
making the payment due upon redemption or repurchase, as the case may be, and
in each case subject as aforesaid to any Applicable Procedures with respect to
any Global Security.
The Conversion Price shall be initially $__________. The Conversion
Price shall be adjusted in certain instances as provided in this Article
Thirteen.
SECTION 1302. EXERCISE OF CONVERSION PRIVILEGE.
In order to exercise the conversion privilege, the Holder of any Security
to be converted shall surrender such Security, duly endorsed or assigned to the
Company or in blank, at any office or agency of the Company maintained for that
purpose pursuant to Section 1002 (any city in which any Conversion Agent is
located being called herein a "Place of Conversion"), accompanied by a duly
signed conversion notice substantially in
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the form set forth in Section 205 stating that the Holder elects to convert
such Security or, if less than the entire principal amount thereof is to be
converted, the portion thereof to be converted. Each Security surrendered for
conversion (in whole or in part) during the period from the close of business
on any Regular Record Date next preceding any Interest Payment Date to the
opening of business on such Interest Payment Date shall (except in the case of
any Security or portion thereof which has been called for redemption on a
Redemption Date, or which is repurchasable on a Repurchase Date, occurring, in
either case, within such period) be accompanied by payment in New York Clearing
House (next day) funds or other funds acceptable to the Company of an amount
equal to the interest payable on such Interest Payment Date on the principal
amount of such Security (or part thereof, as the case may be) being surrendered
for conversion. The interest so payable on such Interest Payment Date with
respect to any Security (or portion thereof, if applicable) which has been
called for redemption on a Redemption Date, or is repurchasable on a Repurchase
Date, occurring, in either case, during the period from the close of business
on any Regular Record Date next preceding any Interest Payment Date to the
opening of business on such Interest Payment Date, which Security (or portion
thereof, if applicable) is surrendered for conversion during such period, shall
be paid to the Holder of such Security being converted in an amount equal to
the interest that would have been payable on such Security if such Security had
been converted as of the close of business on such Interest Payment Date. The
interest so payable on such Interest Payment Date in respect of any Security
(or portion thereof, as the case may be) which has not been called for
redemption on a Redemption Date, or is not eligible for repurchase on a
Repurchase Date, occurring, in either case, during the period from the close of
business on any Regular Record Date next preceding any Interest Payment Date to
the opening of business on such Interest Payment Date, which Security (or
portion thereof, as the case may be) is surrendered for conversion during such
period, shall be paid to the Holder of such Security as of such Regular Record
Date. Interest payable in respect of any Security surrendered for conversion
on or after an Interest Payment Date shall be paid to the Holder of such
Security as of the next preceding Regular Record Date, notwithstanding the
exercise of the right of conversion. Except as provided in this paragraph and
subject to the last paragraph of Section 307, no cash payment or adjustment
shall be made upon any conversion on account of any interest accrued from the
Interest Payment Date next preceding the conversion date, in respect of any
Security (or part thereof, as the case may be) surrendered for conversion, or
on account of any dividends on the Common Stock issued upon conversion. The
Company's delivery to the Holder of the number of shares of Common Stock (and
cash in lieu of fractions thereof, as provided in this Indenture) into which a
Security is convertible will be deemed to satisfy the Company's obligation to
pay the principal amount of the Security.
Securities shall be deemed to have been converted immediately prior to
the close of business on the day of surrender of such Securities for conversion
in accordance with the foregoing provisions, and at such time the rights of the
Holders of such Securities as Holders shall cease, and the Person or Persons
entitled to receive the Common Stock issuable upon conversion shall be treated
for all purposes as the record holder or holders of such Common Stock at such
time. As promptly as practicable on or after the conversion date, the Company
shall issue and deliver to the Trustee, for delivery to the Holder, a
certificate or certificates for the number of full shares of Common Stock
issuable upon conversion, together with payment in lieu of any fraction of a
share, as provided in Section 1303.
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In the case of any Security which is converted in part only, upon such
conversion the Company shall execute and the Trustee shall authenticate and
deliver to the Holder thereof, at the expense of the Company, a new Security or
Securities of authorized denominations in an aggregate principal amount equal
to the unconverted portion of the principal amount of such Security. A
Security may be converted in part, but only if the principal amount of such
Security to be converted is any integral multiple of $1,000 and the principal
amount of such security to remain Outstanding after such conversion is equal to
$1,000 or any integral multiple of $1,000 in excess thereof.
SECTION 1303. FRACTIONS OF SHARES.
No fractional shares of Common Stock shall be issued upon conversion of
any Security or Securities. If more than one Security shall be surrendered for
conversion at one time by the same Holder, the number of full shares which
shall be issuable upon conversion thereof shall be computed on the basis of the
aggregate principal amount of the Securities (or specified portions thereof) so
surrendered. Instead of any fractional share of Common Stock which would
otherwise be issuable upon conversion of any Security or Securities (or
specified portions thereof), the Company shall calculate and pay a cash
adjustment in respect of such fraction (calculated to the nearest 1/100th of a
share) in an amount equal to the same fraction of the Closing Price Per Share
at the close of business on the day of conversion.
SECTION 1304. ADJUSTMENT OF CONVERSION PRICE.
The Conversion Price shall be subject to adjustments from time to time as
follows:
(1) In case the Company shall pay or make a dividend or other
distribution on any class of capital stock of the Company payable in shares of
Common Stock, the Conversion Price in effect at the opening of business on the
day following the date fixed for the determination of shareholders entitled to
receive such dividend or other distribution shall be reduced by multiplying
such Conversion Price by a fraction of which the numerator shall be the number
of shares of Common Stock outstanding at the close of business on the date
fixed for such determination and the denominator shall be the sum of such
number of shares and the total number of shares constituting such dividend or
other distribution, such increase to become effective immediately after the
opening of business on the day following the date fixed for such determination.
For the purposes of this paragraph (1), the number of shares of Common Stock at
any time outstanding shall not include shares held in the treasury of the
Company but shall include shares issuable in respect of scrip certificates
issued in lieu of fractions of shares of Common Stock. The Company will not
pay any dividend or make any distribution on shares of Common Stock held in the
treasury of the Company.
(2) In case the Company shall issue rights, options or warrants to all
holders of its Common Stock entitling them to subscribe for or purchase shares
of Common Stock at a price per share less than the current market price per
share (determined as provided in paragraph (8) of this Section 1304) of the
Common Stock on the date fixed for the determination of stockholders entitled
to receive such rights, options or warrants, the Conversion Price in effect at
the opening of business on the day following the date fixed for such
determination shall be reduced by multiplying such Conversion Price by a
fraction of which the numerator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such determination
plus the
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number of shares of Common Stock which the aggregate of the offering price of
the total number of shares of Common Stock so offered for subscription or
purchase would purchase at such current market price and the denominator shall
be the number of shares of Common Stock outstanding at the close of business on
the date fixed for such determination plus the number of shares of Common Stock
so offered for subscription or purchase, such reduction to become effective
immediately after the opening of business on the day following the date fixed
for such determination. For the purposes of this paragraph (2), the number of
shares of Common Stock at any time outstanding shall not include shares held in
the treasury of the Company but shall include shares issuable in respect of
scrip certificates issued in lieu of fractions of shares of Common Stock. The
Company will not issue any rights, options or warrants in respect of shares of
Common Stock held in the treasury of the Company.
(3) In case outstanding shares of Common Stock shall be subdivided into
a greater number of shares of Common Stock, the Conversion Price in effect at
the opening of business on the day following the day upon which such
subdivision becomes effective shall be proportionately reduced, and,
conversely, in case outstanding shares of Common Stock shall each be combined
into a smaller number of shares of Common Stock, the Conversion Price in effect
at the opening of business on the day following the day upon which such
combination becomes effective shall be proportionately increased, such increase
or reduction, as the case may be, to become effective immediately after the
opening of business on the day following the day upon which such subdivision or
combination becomes effective.
(4) In case the Company shall, by dividend or otherwise, distribute to
all holders of its Common Stock evidences of its indebtedness, shares of any
class of capital stock, or other property (including cash and securities, but
excluding (i) any rights, options or warrants referred to in paragraph (2) of
this Section, (ii) any dividend or distribution paid exclusively in cash, (iii)
any dividend or distribution referred to in paragraph (1) of this Section and
(iv) any merger or consolidation to which Section 1311 applies), the Conversion
Price shall be reduced so that the same shall equal the rate determined by
multiplying the Conversion Price in effect immediately prior to the close of
business on the date fixed for the determination of stockholders entitled to
receive such distribution by a fraction of which the numerator shall be the
current market price per share (determined as provided in paragraph (8) of this
Section 1304) of the Common Stock on the date fixed for such determination (the
"Reference Date") less the then fair market value (as determined by the Board
of Directors, whose determination shall be conclusive and described in a Board
Resolution filed with the Trustee) on the Reference Date of the portion of the
assets, shares or evidences of indebtedness so distributed applicable to one
share of Common Stock and the denominator shall be the current market price per
share of the Common Stock on the Reference Date, such adjustment to become
effective immediately prior to the opening of business on the day following the
Reference Date.
(5) In case the Company shall, by dividend or otherwise, distribute to
all holders of its Common Stock cash (excluding any cash that is distributed as
part of a distribution referred to in paragraph (4) of this Section) in an
aggregate amount that, combined together with (i) the aggregate amount of any
other cash distributions to all holders of its Common Stock made exclusively in
cash within the 12 months preceding the date of payment of such distribution
and in respect of which no adjustment pursuant to this paragraph (5) has been
made and (ii) the aggregate of any cash plus the fair market value
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(as determined by the Board of Directors, whose determination shall be
conclusive and described in a Board Resolution) of consideration payable in
respect of any tender offer by the Company or any of its subsidiaries for all
or any portion of the Common Stock concluded within the 12 months preceding the
date of payment of such distribution and in respect of which no adjustment
pursuant to paragraph (6) of this Section 1304 has been made (the "combined
cash and tender amount"), exceeds 15% of the product of the current market
price per share (determined as provided in paragraph (8) of this Section 1304)
of the Common Stock on the date for the determination of holders of shares of
Common Stock entitled to receive such distribution times the number of shares
of Common Stock outstanding on such date (the "aggregate current market
price"), then, and in each such case, immediately after the close of business
on such date for determination, the Conversion Price shall be reduced so that
the same shall equal the rate determined by multiplying the Conversion Price in
effect immediately prior to the close of business on the date fixed for
determination of the stockholders entitled to receive such distribution by a
fraction (i) the numerator of which shall be equal to the current market price
per share (determined as provided in paragraph (8) of this Section) of the
Common Stock on the date fixed for such determination less an amount equal to
the quotient of (x) the excess of such combined cash and tender amount over 15%
of such aggregate current market price divided by (y) the number of shares of
Common Stock outstanding on such date for determination and (ii) the
denominator of which shall be equal to the current market price per share
(determined as provided in paragraph (8) of this Section 1304) of the Common
Stock on such date for determination.
(6) In case a tender offer made by the Company or any Subsidiary for all
or any portion of the Common Stock shall expire and such tender offer or
exchange (as amended upon the expiration thereof) shall require the payment to
stockholders (based on the acceptance (up to any maximum specified in the terms
of the tender offer) of Purchased Shares (as defined below)) of an aggregate
consideration having a fair market value (as determined by the Board of
Directors, whose determination shall be conclusive and described in a Board
Resolution) that combined together with (i) the aggregate of the cash plus the
fair market value (as determined by the Board of Directors, whose determination
shall be conclusive and described in a Board Resolution), as of the
expiration of such tender or exchange offer, of consideration payable in respect
of any other tender or exchange offer by the Company or any Subsidiary for all
or any portion of the Common Stock expiring within the 12 months preceding the
expiration of such tender or exchange offer and in respect of which no
adjustment pursuant to this paragraph (6) has been made and (ii) the aggregate
amount of any cash distributions to all holders of the Company's Common Stock
within 12 months preceding the expiration of such tender or exchange offer and
in respect of which no adjustment pursuant to paragraph (5) of this Section has
been made (the "combined tender and cash amount") exceeds 15% of the product of
the current market price per share of the Common Stock (determined as provided
in paragraph (8) of this Section 1304) as of the last time (the "Expiration
Time") tenders or exchanges could have been made pursuant to such tender or
exchange offer (as it may be amended) times the number of shares of Common
Stock outstanding (including any tendered or exchanged shares) as of the
Expiration Time, then, and in each such case, immediately prior to the opening
of business on the day after the date of the Expiration Time, the Conversion
Price shall be reduced so that the same shall equal the rate determined by
multiplying the Conversion Price immediately prior to close of business on the
date of the Expiration Time by a fraction (i) the numerator of which shall be
equal to (A) the product of (i) the current market price per share of the
Common Stock (determined as provided in paragraph (8) of this Section 1304) on
the date of the Expiration Time multiplied by (ii)
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<PAGE> 74
the number of shares of Common Stock outstanding (including any tendered or
exchanged shares) on the date of the Expiration Time less (B) the combined
tender and cash amount, and (ii) the denominator of which shall be equal to the
product of (A) the current market price per share of the Common Stock
(determined as provided in paragraph (8) of this Section 1304) as of the
Expiration Time multiplied by (B) the number of shares of Common Stock
outstanding (including any tendered or exchanged shares) as of the Expiration
Time less the number of all shares validly tendered or exchanged and not
withdrawn as of the Expiration Time (the shares deemed so accepted up to any
such maximum, being referred to as the "Purchased Shares").
(7) The reclassification of Common Stock into securities other than
Common Stock (other than any reclassification upon a consolidation or merger to
which Section 1311 applies) shall be deemed to involve (a) a distribution of
such securities other than Common Stock to all holders of Common Stock (and the
effective date of such reclassification shall be deemed to be "the date fixed
for the determination of stockholders entitled to receive such distribution"
and "the date fixed for such determination" within the meaning of paragraph (4)
of this Section), and (b) a subdivision or combination, as the case may be, of
the number of shares of Common Stock outstanding immediately prior to such
reclassification into the number of shares of Common Stock outstanding
immediately thereafter (and the effective date of such reclassification shall
be deemed to be "the day upon which such subdivision becomes effective" or "the
day upon which such combination becomes effective", as the case may be, and
"the day upon which such subdivision or combination becomes effective" within
the meaning of paragraph (3) of this Section 1304).
(8) For the purpose of any computation under paragraphs (2), (4), (5) or
(6) of this Section 1304, the current market price per share of Common Stock on
any date shall be calculated by the Company and be deemed to be the average of
the daily Closing Prices Per Share for the five consecutive Trading Days
selected by the Company commencing not more than 10 Trading Days before, and
ending not later than, the earlier of the day in question and the day before
the "ex" date with respect to the issuance or distribution requiring such
computation. For purposes of this paragraph, the term "'ex' date", when used
with respect to any issuance or distribution, means the first date on which the
Common Stock trades regular way in the applicable securities market or on the
applicable securities exchange without the right to receive such issuance or
distribution.
(9) No adjustment in the Conversion Price shall be required unless such
adjustment (plus any adjustments not previously made by reason of this
paragraph (9)) would require an increase or decrease of at least one percent in
such rate; provided, however, that any adjustments which by reason of this
paragraph (9) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Article
shall be made to the nearest cent or to the nearest one-hundredth of a share,
as the case may be.
(10) The Company may make such increases in the Conversion Price, for the
remaining term of the Securities or any shorter term, in addition to those
required by paragraphs (1), (2), (3), (4), (5) and (6) of this Section 1304, as
it considers to be advisable in order to avoid or diminish any income tax to
any holders of shares of Common Stock resulting from any dividend or
distribution of stock or issuance of rights or warrants to purchase or
subscribe for stock or from any event treated as such for income tax purposes.
The Company shall have the power to resolve any ambiguity or
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correct any error in this paragraph (10) and its actions in so doing shall,
absent manifest error, be final and conclusive.
SECTION 1305. NOTICE OF ADJUSTMENTS OF CONVERSION PRICE.
Whenever the Conversion Price is adjusted as herein provided:
(1) the Company shall compute the adjusted Conversion Price in
accordance with Section 1304 and shall prepare a certificate signed by
the principal accounting or financial officer of the Company setting
forth the adjusted Conversion Price and showing in reasonable detail the
facts upon which such adjustment is based, and such certificate shall
promptly be filed with the Trustee and with each Conversion Agent; and
(2) a notice stating that the Conversion Price has been adjusted
and setting forth the adjusted Conversion Price shall forthwith be
prepared, and as soon as practicable after it is prepared, such notice
shall be provided by the Company, or the Company shall cause such notice
to be provided by the Trustee to, all Holders in accordance with Section
106.
Neither the Trustee nor any Conversion Agent shall be under any duty or
responsibility with respect to any such certificate or the information and
calculations contained therein, except to exhibit the same to any Holder of
Securities desiring inspection thereof at its office during normal business
hours.
SECTION 1306. NOTICE OF CERTAIN CORPORATE ACTION.
In case:
(a) the Company shall declare a dividend (or any other distribution)
on its Common Stock payable (i) otherwise than exclusively in cash or
(ii) exclusively in cash in an amount that would require any adjustment
pursuant to Section 1304; or
(b) the Company shall authorize the granting to the holders of its
Common Stock generally of rights, options or warrants to subscribe for or
purchase any shares of capital stock of any class or of any other rights;
or
(c) of any reclassification of the Common Stock of the Company, or
of any consolidation, merger or share exchange to which the Company is a
party and for which approval of any stockholders of the Company is
required, or of the conveyance, sale, transfer or lease of all or
substantially all of the assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(e) the Company or any Subsidiary shall commence a tender offer for
all or a portion of the Company's outstanding shares of Common Stock (or
shall amend any such tender offer);
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then the Company shall cause to be filed, or the Company shall cause the
Trustee to cause to be filed, at each office or agency maintained for the
purpose of conversion of Securities pursuant to Section 1002, and the Company
shall cause to be provided, or the Company shall cause the Trustee to cause to
be provided, to all Holders in accordance with Section 106, at least 20 days
(or 10 days in any case specified in clause (a) or (b) above) prior to the
applicable record, expiration or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, rights, options or warrants, or, if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distribution, rights, options or warrants are to be
determined, (y) the date on which the right to make tenders under such tender
offer expires or (z) the date on which such reclassification, consolidation,
merger, conveyance, transfer, sale, lease, dissolution, liquidation or winding
up is expected to become effective, and the date as of which it is expected
that holders of Common Stock of record shall be entitled to exchange their
shares of Common Stock for securities, cash or other property deliverable upon
such reclassification, consolidation, merger, conveyance, transfer, sale,
lease, dissolution, liquidation or winding up. Neither the failure to give
such notice or the notice referred to in the following paragraph nor any defect
therein shall affect the legality or validity of the proceedings described in
clauses (a) through (e) of this Section 1306. If at the time the Trustee shall
not be a Conversion Agent, a copy of such notice shall also forthwith be filed
by the Company with the Trustee.
The preceding paragraph to the contrary notwithstanding, the Company
shall cause to be filed, or the Company shall cause the Trustee to cause to be
filed, at each office or agency maintained for the purpose of conversion of
Securities pursuant to Section 1002, and the Company shall cause to be
provided, or the Company shall cause the Trustee to cause to be provided, to
all Holders in accordance with Section 106, notice of any tender offer by the
Company or any Subsidiary for all or any portion of the Common Stock on or
after the time that such notice of tender offer is provided to the public
generally.
SECTION 1307. COMPANY TO RESERVE COMMON STOCK.
The Company shall at all times reserve and keep available, free from
preemptive rights, out of its authorized but unissued Common Stock, for the
purpose of effecting the conversion of Securities, the full number of shares of
Common Stock then issuable upon the conversion of all Outstanding Securities.
SECTION 1308. TAXES ON CONVERSIONS.
Except as provided in the next sentence, the Company will pay any and all
taxes and duties that may be payable in respect of the issue or delivery of
shares of Common Stock on conversion of Securities pursuant hereto. The
Company shall not, however, be required to pay any tax or duty which may be
payable in respect of (i) income of the holder or (ii) any transfer involved in
the issue and delivery of shares of Common Stock in a name other than that of
the Holder of the Security or Securities to be converted, and no such issue or
delivery shall be made unless and until the Person requesting such issue has
paid to the Company the amount of any such tax or duty, or has established to
the satisfaction of the Company that such tax or duty has been paid.
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SECTION 1309. COVENANT AS TO COMMON STOCK.
The Company agrees that all shares of Common Stock which may be delivered
upon conversion of Securities will be newly issued shares and, upon such
delivery, will have been duly authorized and validly issued and will be fully
paid and nonassessable and, except as provided in Section 1308, the Company
will pay all taxes, liens and charges with respect to the issue thereof.
SECTION 1310. CANCELLATION OF CONVERTED SECURITIES.
All Securities delivered for conversion shall be delivered to the Trustee
to be canceled by or at the direction of the Trustee, which shall dispose of
the same as provided in Section 309.
SECTION 1311. PROVISION IN CASE OF CONSOLIDATION, MERGER OR SALE OF
ASSETS.
In case of any consolidation or merger of the Company with or into any
other Person, any merger of another Person with or into the Company (other than
a merger which does not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of Common Stock of the Company) or any
conveyance, sale, transfer or lease of all or substantially all of the assets
of the Company, the Person formed by such consolidation or resulting from such
merger or which acquires such assets, as the case may be, shall execute and
deliver to the Trustee a supplemental indenture providing that the Holder of
each Security then Outstanding shall have the right thereafter, during the
period such Security shall be convertible as specified in Section 1301, to
convert such Security only into the kind and amount of securities, cash and
other property receivable upon such consolidation, merger, conveyance, sale,
transfer or lease by a holder of the number of shares of Common Stock of the
Company into which such Security might have been converted immediately prior to
such consolidation, merger, conveyance, sale, transfer or lease, assuming such
holder of Common Stock of the Company (i) is not a Person with which the
Company consolidated or merged with or into or which merged into or with the
Company or to which such conveyance, sale, transfer or lease was made, as the
case may be ("Constituent Person"), or an Affiliate of a Constituent Person and
(ii) failed to exercise his rights of election, if any, as to the kind or
amount of securities, cash and other property receivable upon such
consolidation, merger, conveyance, sale, transfer or lease (provided that if
the kind or amount of securities, cash and other property receivable upon such
consolidation, merger, conveyance, sale, transfer, or lease is not the same for
each share of Common Stock of the Company held immediately prior to such
consolidation, merger, conveyance, sale, transfer or lease by others than a
Constituent Person or an Affiliate thereof and in respect of which such rights
of election shall not have been exercised ("Non-electing Share"), then for the
purpose of this Section 1311 the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, conveyance, sale, transfer
or lease by the holders of each Non- electing Share shall be deemed to be the
kind and amount so receivable per share by a plurality of the Non-electing
Shares). Such supplemental indenture shall provide for adjustments which, for
events subsequent to the effective date of such supplemental indenture, shall
be as nearly equivalent as may be practicable to the adjustments provided for
in this Article. The above provisions of this Section 1311 shall similarly
apply to successive consolidations, mergers, conveyances, sales, transfers or
leases. Notice of the execution of such a supplemental indenture shall be
given by the Company, or the Company shall cause the
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Trustee to give such notice, to the Holder of each Security as provided in
Section 106 promptly upon such execution.
Neither the Trustee, any Paying Agent nor any Conversion Agent shall be
under any responsibility to determine the correctness of any provisions
contained in any such supplemental indenture relating either to the kind or
amount of shares of stock or other securities or property or cash receivable by
Holders of Securities upon the conversion of their Securities after any such
consolidation, merger, conveyance, transfer, sale or lease or to any such
adjustment, but may accept as conclusive evidence of the correctness of any
such provisions, and shall be protected in relying upon, an Opinion of Counsel
with respect thereto, which the Company shall cause to be furnished to the
Trustee upon request.
SECTION 1312. RESPONSIBILITY OF TRUSTEE FOR CONVERSION PROVISIONS.
The Trustee, subject to the provisions of Article Six, and any Conversion
Agent shall not at any time be under any duty or responsibility to any Holder
of Securities to determine whether any facts exist which may require any
adjustment of the Conversion Price, or with respect to the nature or extent of
any such adjustment when made, or with respect to the method employed, or
herein or in any supplemental indenture provided to be employed, in making the
same, or whether a supplemental indenture need be entered into. Neither the
Trustee, subject to the provisions of Article Six, nor any Conversion Agent
shall be accountable with respect to the validity or value (or the kind or
amount) of any Common Stock, or of any other securities or property or cash,
which may at any time be issued or delivered upon the conversion of any
Security; and it or they do not make any representation with respect thereto.
Neither the Trustee, subject to the provisions of Article Six, nor any
Conversion Agent shall be responsible for any failure of the Company to make or
calculate any cash payment or to issue, transfer or deliver any shares of
Common Stock or share certificates or other securities or property or cash upon
the surrender of any Security for the purpose of conversion; and the Trustee,
subject to the provisions of Article Six, and any Conversion Agent shall not be
responsible for any failure of the Company to comply with any of the covenants
of the Company contained in this Article.
ARTICLE FOURTEEN
REPURCHASE OF SECURITIES AT THE OPTION
OF THE HOLDER UPON A CHANGE OF CONTROL
SECTION 1401. RIGHT TO REQUIRE REPURCHASE.
In the event that a Change of Control (as hereinafter defined) shall
occur, then each Holder shall have the right, at the Holder's option, to
require the Company to repurchase, and upon the exercise of such right the
Company shall repurchase, all of such Holder's Securities, or any portion of
the principal amount thereof that is equal to $1,000 or any integral multiple
of $1,000 in excess thereof, on the date (the "Repurchase Date") that is 45
days after the date of the Company Notice (as defined in Section 1402) at a
purchase price equal to 100% of the principal amount of the Securities to be
repurchased plus interest accrued to the Repurchase Date (the "Repurchase
Price"); provided, however, that installments of interest on Securities whose
Stated Maturity is on or prior to the
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Repurchase Date shall be payable to the Holders of such Securities, or one or
more Predecessor Securities, registered as such at the close of business on the
relevant Record Date according to their terms and the provisions of Section
307. Such right to require the repurchase of the Securities shall not continue
after a discharge of the Company from its obligations with respect to the
Securities in accordance with Article Four, unless a Change of Control shall
have occurred prior to such discharge. Whenever in this Indenture (including
Sections 202, 301, 501(1) and 508) there is a reference, in any context, to the
principal of any Security as of any time, such reference shall be deemed to
include reference to the Repurchase Price payable in respect of such Security
to the extent that such Repurchase Price is, was or would be so payable at such
time, and express mention of the Repurchase Price in any provision of this
Indenture shall not be construed as excluding the Repurchase Price in those
provisions of this Indenture when such express mention is not made.
SECTION 1402. NOTICES; METHOD OF EXERCISING REPURCHASE RIGHT, ETC.
(a) Unless the Company shall have theretofore called for redemption all
of the Outstanding Securities or unless all of the Outstanding Securities shall
have theretofore been converted in accordance with Article Thirteen, on or
before the 30th day after the occurrence of a Change of Control, the Company
or, at the request and expense of the Company on or before the 15th day after
such occurrence, the Trustee, shall give to all Holders, in the manner provided
in Section 106, notice (the "Company Notice") of the occurrence of the Change
of Control and of the repurchase right set forth herein arising as a result
thereof. The Company shall also deliver a copy of such notice of a repurchase
right to the Trustee.
Each notice of a repurchase right shall state:
(1) the Repurchase Date,
(2) the date by which the repurchase right must be exercised,
(3) the Repurchase Price,
(4) a description of the procedure which a Holder must follow to
exercise a repurchase right, and the place or places where such
Securities are to be surrendered for payment of the Repurchase Price and
accrued interest, if any,
(5) that on the Repurchase Date the Repurchase Price, including
accrued interest, if any, will become due and payable upon each such
Security designated by the Holder to be repurchased, and that interest
thereon shall cease to accrue on and after said date,
(6) the Conversion Rate then in effect, the date on which the
right to convert the principal amount of the Securities to be repurchased
will terminate and the place or places where such Securities may be
surrendered for conversion, and
(7) the place or places that the form of certificate required by
Section 203 shall be delivered, and the form of such certificate.
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No failure of the Company to give the foregoing notices or defect therein
shall limit any Holder's right to exercise a repurchase right or affect the
validity of the proceedings for the repurchase of Securities.
If any of the foregoing provisions or other provisions of this Article
Fourteen are inconsistent with applicable law, such law shall govern.
(b) To exercise a repurchase right, a Holder shall deliver to the
Trustee or any Paying Agent on or before the 30th day after the date of the
Company Notice (i) written notice of the Holder's exercise of such right
("Change in Control Purchase Notice"), which notice shall set forth the name of
the Holder, the principal amount of the Securities to be repurchased (and, if
any Security is to be repurchased in part, the portion of the principal amount
thereof to be repurchased and the name of the Person in which the portion
thereof to remain Outstanding after such repurchase is to be registered) and a
statement that an election to exercise the repurchase right is being made
thereby and (ii) the Securities with respect to which the repurchase right is
being exercised. The Change of Control Purchase Notice shall be irrevocable,
except that the right of the Holder to convert the Securities with respect to
which the repurchase right is being exercised shall continue until the close of
business on the Business Day immediately preceding the Repurchase Date.
(c) In the event a repurchase right shall be exercised in accordance
with the terms hereof, the Company shall pay or cause to be paid to the Trustee
or the Paying Agent the Repurchase Price, as provided above, for payment to the
Holder on the Repurchase Date together with accrued and unpaid interest to the
Repurchase Date payable with respect to the Securities as to which the purchase
right has been exercised; provided, however, that installments of interest that
mature on or prior to the Repurchase Date shall be payable to the Holders of
such Securities, or one or more Predecessor Securities, registered as such at
the close of business on the relevant Regular Record Date according to the
terms and provisions of Section 307.
(d) If any Security (or portion thereof) surrendered for repurchase
shall not be so paid on the Repurchase Date, the principal amount of such
Security (or portion thereof, as the case may be) shall, until paid, bear
interest to the extent permitted by applicable law from the Repurchase Date at
the rate of [ ] per annum, and each Security shall remain convertible into
Common Stock until the principal of such Security (or portion thereof, as the
case may be) shall have been paid or duly provided for.
(e) Any Security which is to be repurchased only in part shall be
surrendered to the Trustee (with, if the Company or the Trustee so requires,
due endorsement by, or a written instrument of transfer in form satisfactory to
the Company and the Trustee duly executed by, the Holder thereof or his
attorney duly authorized in writing), and the Company shall execute, and the
Trustee shall authenticate and make available for delivery to the Holder of
such Security without service charge, a new Security or Securities, containing
identical terms and conditions, each in an authorized denomination in aggregate
principal amount equal to and in exchange for the unrepurchased portion of the
principal of the Security so surrendered.
(f) All Securities delivered for repurchase shall be delivered to the
Trustee, the Paying Agent or any other agents (as shall be set forth in the
Company Notice) to be canceled by or at the direction of the Trustee, which
shall dispose of the same as provided in Section 309.
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SECTION 1403. CERTAIN DEFINITIONS.
For purposes of this Article Fourteen,
(a) the term "beneficial owner" shall be determined in accordance
with Rule 13d-3, as in effect on the date of the original execution of
this Indenture, promulgated by the Commission pursuant to the Exchange
Act;
(b) a "Change of Control" shall be deemed to have occurred at such
time, after the original issuance of the Securities, when:
(i) the acquisition by any Person of beneficial ownership,
directly or indirectly, through a purchase, merger or other
acquisition transaction or series of transactions, of shares of
capital stock of the Company entitling such Person to exercise more
than a majority of the total voting power of all shares of capital
stock of the Company entitled to vote generally in elections of
directors (any shares of voting stock of which such person or group
is the beneficial owner that are not then outstanding being deemed
outstanding for purposes of calculating such percentage), other than
any such acquisition by the Company, any Subsidiary of the Company
or any employee benefit plan of the Company existing on the date of
this Indenture; or
(ii) any consolidation or merger of the Company with or into
any other Person, any merger of another Person with or into the
Company, or any conveyance, sale, transfer, or lease of all or
substantially all of the assets of the Company (other than any
merger which is effected solely to change the jurisdiction of
incorporation of the Company and results in a reclassification,
conversion or exchange of outstanding shares of Common Stock into
solely shares of common stock).
(c) for the purposes of Section 1404(b)(i), the term "Person"
shall include any syndicate or group which would be deemed to be a
"person" under Section 13(d)(3) of the Exchange Act, as in effect on the
date of the original execution of this Indenture.
SECTION 1404. CONSOLIDATION, MERGER, ETC.
In the case of any conveyance, sale, transfer, lease, or merger, to which
Section 1311 applies, in which the Common Stock of the Company is changed or
exchanged as a result into the right to receive shares of stock and other
securities or property or assets (including cash) which includes shares of
Common Stock of the Company or common stock of another person that are, or upon
issuance will be, traded on a United States national securities exchange or
approved for trading on an established automated over-the-counter trading
market in the United States and such shares constitute at the time such change
or exchange becomes effective in excess of 50% of the aggregate fair market
value of such shares of stock and other securities, property and assets
(including cash) (as determined by the Company, which determination shall be
conclusive and binding), then the person formed by such consolidation or
resulting from such merger or combination or which acquires the properties or
assets (including cash) of the Company, as the case may be, shall execute and
deliver to the Trustee a supplemental indenture (which shall comply
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with the Trust Indenture Act as in force at the date of execution of such
supplemental indenture) modifying the provisions of this Indenture relating to
the right of Holders to cause the Company to repurchase the Securities
following a Change of Control, including without limitation the applicable
provisions of this Article Fourteen and the definitions of the Common Stock and
Change of Control, as appropriate, and such other related definitions set forth
herein as determined in good faith by the Company (which determination shall be
conclusive and binding), to make such provisions apply to the common stock and
the issuer thereof if different from the Company and Common Stock of the
Company (in lieu of the Company and the Common Stock of the Company).
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
SOUTHERN MINERAL
CORPORATION
By: ________________________________
[SEAL] Name:
Title:
Attest:
AMERICAN STOCK TRANSFER
& TRUST COMPANY
Trustee:
[SEAL]
By: ________________________________
Name:
Title:
Attest:
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<PAGE> 83
STATE OF NEW YORK )
ss.:
COUNTY OF _______ )
On the _____ day of _____________________, 1997, before me personally
came ___________________________, to me known, who, being by me duly sworn,
did depose and say that he/she is _________________________________ of Southern
Mineral Corporation, one of the corporations described in and which executed
the foregoing instrument; that he/she knows the seal of said corporation; that
the seal affixed to said instrument is such corporate seal; that it was so
affixed by authority of the Board of Directors of said corporation, and that
he/she signed his/her name thereto by like authority.
_____________________________________
Notary Public
STATE OF NEW YORK )
ss.:
COUNTY OF __________ )
On the _____ day of _____________________, 1997, before me personally
came ___________________________, to me known, who, being by me duly sworn,
did depose and say that he/she is
___________________________________________________ of American Stock Transfer
& Trust Company, one of the corporations described in and which executed the
foregoing instrument; that he/she knows the seal of said corporation; that the
seal affixed to said instrument is such corporate seal; that it was so affixed
by authority of the Board of Directors of said corporation, and that he/she
signed his/her name thereto by like authority.
_____________________________________
Notary Public
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<PAGE> 1
EXHIBIT 5.1
September 23, 1997
Southern Mineral Corporation
500 Dallas, Suite 2800
Houston, Texas 77002-4708
RE: REGISTRATION STATEMENT ON FORM S-2
Dear Ladies and Gentlemen:
In connection with the registration under the Securities Act of 1933,
as amended (the "Act"), of $34,500,000 aggregate principal amount of __%
Convertible Subordinated Debentures due 2007 (the "Debentures"), including up
to $4,500,000 in aggregate principal amount of Debentures pursuant to an
over-allotment option granted to the underwriters, and such number of shares of
Common Stock, par value $.01 per share (the "Common Stock"), as may be issuable
upon conversion of the Debentures, of Southern Mineral Corporation, a Nevada
corporation (the "Company"), we, as your counsel, have examined such corporate
records, certificates and other documents and such questions of law as we have
considered necessary or appropriate for the purposes of this opinion:
1. The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of
Nevada.
2. When the Registration Statement has become effective under the
Act, the issuance and sale of the Debentures will not violate any
applicable law or agreement or instrument then binding on the
Company.
3. A sufficient number of shares of Common Stock have been reserved
for issuance upon the conversion of the Debentures, as
contemplated in the Registration Statement.
4. Shares of Common Stock issued and delivered upon conversion of
the Debentures, in accordance the with indenture contemplated in
the Registration Statement, will be duly and validly issued,
fully paid and nonassessable.
<PAGE> 2
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
Southern Mineral Corporation
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement relating to the Debentures and the Common Stock and to
the reference to us under the heading "Legal Matters" in the Prospectus
contained therein. In giving such consent, we do not thereby admit that we are
in the category of person whose consent is required under Section 7 of the Act.
Very truly yours,
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
<PAGE> 1
EXHIBIT 10.17
SOUTHERN MINERAL CORPORATION
INCENTIVE STOCK OPTION AGREEMENT
SOUTHERN MINERAL CORPORATION, a Nevada corporation (the "COMPANY"),
hereby grants to M.M. Jenson (the "OPTIONEE") an incentive stock option (the
"INCENTIVE OPTION") to purchase a total of 15,000 shares (the "SHARES") of the
Company's common stock, par value $.01 per share (the "COMMON STOCK"), at the
price determined as provided herein, and in all respects subject to the terms
and conditions of the Company's 1996 Stock Option Plan (the "Plan"), which is
incorporated herein in its entirety by reference. Capitalized terms not
otherwise defined in this agreement (the "INCENTIVE OPTION AGREEMENT ") shall
have the meaning given to such terms in the Plan.
1. NATURE OF OPTION. This Incentive Option is intended to
qualify as an Incentive Stock Option as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "CODE").
2. EXERCISE PRICE. The exercise price of this Incentive Option is
$5.00 per share of Common Stock acquired on exercise, which price is not less
than 100% (or, if the Optionee, at the date of the grant of this Incentive
Option, owns more than 10% of the total combined voting power of all the
Company's outstanding voting securities, 110%) of the Fair Market Value, as
determined in accordance with the Plan, of a share of Common Stock on the date
of grant of this Incentive Option.
3. TERM OF OPTION. This Incentive Option may not be exercised prior to
six months from the date of grant of this Incentive Option as set forth herein
nor after the expiration of five years from such date of grant; provided, that
this Incentive Option may be exercised during such term only in accordance with
the terms and conditions of the Plan. and this Incentive Option Agreement,
subject specifically to Section 6 of the Plan-
4. EXERCISE OF OPTION. This Incentive Option shall be exercisable
during its term, subject to the provisions of Section 3 hereof and Section 6 of
the Plan, as follows;
(i) Vesting. For as long as the Optionee remains an Employee,
this Incentive Option shall vest cumulatively as follows: 5,000 Shares shall
vest on August 26, 1998, an additional 5,000 Shares shall vest on August 26,
1999 and an additional 5,000 Shares shall vest on August 26, 2000.
(ii) Right of Exercise. This Incentive Option is exercisable
at any time during the term of this Incentive Option Agreement, in whole or in
part, to acquire those Shares that have vested in accordance with this
Incentive Option Agreement; provided, however, that this Incentive Option may
only be exercisable to acquire whole shares of Common Stock.
(iii) Method of Exercise. This Incentive Option is
exercisable by delivery of this Incentive Option Agreement and a written notice
to the attention of the Secretary of the Company, no fewer than five business
days prior to the proposed effective date of exercise, signed by the Optionee,
specifying the number of Shares to be acquired on, and the effective date of,
such exercise. The Optionee may withdraw notice of exercise of this Incentive
Option at any time prior to close of business on the business day preceding the
proposed exercise date, and in this instance, the Company will return this
Incentive Option Agreement to the Optionee.
<PAGE> 2
(iv) Method of Payment. Payment of the exercise price for the
Shares purchased under this Incentive Option shall be delivered, by certified
mail to the attention of the Secretary of the Company, on the effective date of
exercise either (i) in cash, or by certified check, bank cashier's check, or
wire transfer, or (ii) -subject to the approval of the Committee, in whole or
in part in shares of Common Stock owned by the Optionee and valued at their
Fair Market Value on the effective date of exercise. If the payment of the
exercise price is remitted partly in shares of Common Stock, the balance of the
payment of the exercise price shall be paid in either cash, certified check,
bank cashiers' check, or by wire transfer. Such shares must be delivered to the
Secretary, duly endorsed in blank or accompanied by stock powers duly executed
in blank, and any other documents that the Secretary may require,
5. RESTRICTIONS ON EXERCISE. This Incentive Option may not be
exercised if the issuance of such Shares or the method of payment of the
consideration for such Shares would constitute a violation of any applicable
federal or state securities or other laws or regulations, including any rule
under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G")
as promulgated by the Federal Reserve Board, or any rules or regulations of any
stock exchange on which the Common Stock may be listed.
This Incentive Option may only be exercised in accordance with the
terms and conditions of the Plan and this Incentive Option Agreement. If a
conflict exists between any term or provision of this Incentive Option
Agreement and a term or provision of the Plan, the applicable terms and
provisions of the Plan shall govern and prevail.
6. NON-TRANSFERABILITY OF OPTION. During the lifetime of the Optionee,
this Incentive Option may only be exercised by the Optionee. This Incentive
Option is not assignable or transferable otherwise than by will or by the laws
of descent and distribution. The terms of this Incentive Option Agreement shall
be binding on the Optionee's heirs and successors and on the administrators and
executors of the Optionee's estate.
7. QUALIFICATION AS AN INCENTIVE STOCK OPTION. The Optionee
understands that this Incentive Option is intended to qualify as an "incentive
stock option" within the meaning of Section 422 of the Code. The Optionee must
meet certain holding periods under Section 422(a) of the Code to obtain the
federal income tax treatment applicable to the exercise of Incentive Stock
Options and the disposition of shares acquired thereby, The Optionee further
understands that the exercise price of the Shares subject to this Incentive
Option has been set by the Committee of the Board of Directors at a price that
such Committee determined to be not less than 100% (or, if the Optionee, at the
date of grant of this Incentive Option, owned more than 10% of the total
combined voting power of the Company's outstanding voting securities, 110%) of
the Fair Market Value, as determined in accordance with the Plan, of a share of
Common Stock on. the date of grant. The Optionee further understands and
agrees, however, that the Company shall not be liable or responsible for any
additional tax liability incurred by the Optionee in the event that the
Internal Revenue Service for any reason determines that this Incentive Option
does not qualify as an Incentive Stock Option within the meaning of the Code.
8. INDEPENDENT LEGAL AND TAX ADVICE. Optionee acknowledges that
the Company has advised him to obtain independent legal and tax advice
regarding the grant and exercise of this Incentive Option and the disposition
of any Shares acquired thereby.
<PAGE> 3
9. AMENDMENT. This Incentive Option Agreement may not be amended,
modified or waived except by a written instrument signed by the party against
whom enforcement of any such modification, amendment or waiver is sought.
10. GOVERNING LAW. This Incentive Option Agreement shall be
governed by and shall be construed and enforced in accordance with the internal
laws, and not the laws of conflict, of the State of Texas.
11. SUPERSEDES PRIOR AGREEMENTS. This Incentive Option Agreement
shall supersede and replace all prior agreements and understandings, oral or
written, between the Company and the Optionee regarding the grant of the
Incentive Option covered hereby.
IN WITNESS WHEREOF, the Company has, as of August 26,1997, caused this
Incentive Option Agreement to be executed on its behalf by its President or any
Vice President and Optionee has hereunto set his hand as of the same date,
which date is the date of grant of this Incentive Option.
SOUTHERN MINERAL CORPORATION
By: /s/ STEVEN H. MIKEL
---------------------------------
Steven H. Mikel, President
OPTIONEE
/s/ M.M. JENSON
-------------------------------------
M.M. Jenson
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 21, 1996, accompanying the
consolidated financial statements of Southern Mineral Corporation contained in
the Registration Statement and Prospectus. We consent to the use of the
aforementioned report in the Registration Statement and Prospectus, and to the
use of our name as it appears under the caption "Experts".
/s/ GRANT THORNTON LLP
GRANT THORNTON LLP
Houston, Texas
September 29, 1997
<PAGE> 1
EXHIBIT 23.3
Netherland, Sewell & Associates, Inc.
International Petroleum Consultants
Engineering, Geology, Geophysics
CONSENT OF NETHERLAND, SEWELL & ASSOCIATES, INC.
We hereby consent to the incorporation by reference into this Amendment
No. 2 to the Form S-2 Registration Statement, including any amendment thereto,
of Southern Mineral Corporation, a Nevada corporation (the "Company"), of the
references to this firm and to its reports listed below regarding the Southern
Mineral Corporation proved reserves estimates contained in the Company's
Prospectus on Form S-2 to be filed by Southern Mineral Corporation with the
Securities and Exchange Commission.
1. Report of domestic proved reserves estimates as of January 1, 1996
dated March 1, 1996.
2. Audit of domestic proved reserves estimates as of December 31, 1996
dated February 25, 1997.
3. Report of the proved reserves estimates of the Big Escambia Creek
Field Acquisition, as of December 31, 1996, dated September 29, 1997.
NETHERLAND, SEWELL & ASSOCIATES, INC.
By: /s/ DANNY D. SIMMONS
---------------------------------
Danny D. Simmons
Senior Vice President
Houston, Texas
September 29, 1997
<PAGE> 1
EXHIBIT 23.4
[MCDANIEL & ASSOCIATES CONSULTANTS LTD. LETTERHEAD]
Reference: SOUTHERN MINERAL CORPORATION
REGISTRATION STATEMENT FORM S-2, AMENDMENT NO. 2 TO THE FORM S-2
We consent to the reference to our evaluation of "Spruce Hills Production
Company Inc., Evaluation of Oil & Gas Reserves, based on Escalating Price
Assumptions, as of April 1, 1997," dated as of June 13, 1997,in the
Registration Statement on Form S-2 of Southern Mineral Corporation and any
amendments thereto and to all references to this firm in the Prospectus, which
is part of the Registration Statement.
MCDANIEL & ASSOCIATES CONSULTANTS LTD.
B. H. EMSLIE
- ---------------------
B. H. Emslie, P. Eng.
Vice President
Calgary, Alberta
Dated: September 29, 1997
<PAGE> 1
EXHIBIT 23.5
The Board of Directors
Southern Mineral Corporation
We consent to the use of our report included herein, and our report on the
financial statements of BEC Energy Inc. incorporated herein by reference and to
the reference of our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Houston, Texas
September 29, 1997
<PAGE> 1
EXHIBIT 23.6
CONSENT OF RYDER SCOTT COMPANY PETROLEUM ENGINEERS
We hereby consent to the incorporation by reference into this Amendment
No. 2 to the Form S-2 Registration Statement for Southern Mineral Corporation,
a Nevada corporation (the "Company"), to the references to this firm and to its
reports listed below regarding the Southern Mineral Corporation proved reserves
estimates contained in the Company's Prospectus on Form S-2 to be filed by
Southern Mineral Corporation with the Securities and Exchange Commission.
Report of the Ecuadorian proved reserves estimates as of January 1,
1997.
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
Houston, Texas
September 29, 1997
<PAGE> 1
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
--------------------------------------
AMERICAN STOCK TRANSFER & TRUST COMPANY
(Exact name of trustee as specified in its charter)
New York 13-3439945
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)
40 Wall Street 10005
New York, New York (Zip Code)
(Address of trustee's
principal executive offices)
--------------------------------------
SOUTHERN MINERAL CORPORATION
(Exact name of obligor as specified in its charter)
NEVADA 36-2068676
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
500 DALLAS, SUITE 2800
HOUSTON, TEXAS 77002
(Address of principal executive (Zip Code)
offices)
--------------------------------------
CONVERTIBLE SUBORDINATED DEBENTURES DUE 2007
(Title of the Indenture Securities)
<PAGE> 2
-2-
GENERAL
1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The Trustee is authorized to exercise corporate trust
powers.
2. Affiliations with Obligor and Underwriters.
If the obligor or any underwriter for the obligor is an affiliate of the
trustee, describe each such affiliation.
None.
3. Voting Securities of the Trustee.
Furnish the following information as to each class of voting securities
of the trustee:
<TABLE>
<CAPTION>
As of SEPTEMBER 22, 1997
- ------------------------------------------------------------------
COL. A COL. B
- ------------------------------------------------------------------
Title of Class Amount Outstanding
- ------------------------------------------------------------------
<S> <C>
Common Shares - par value $600 per share. 1,000 shares
- ------------------------------------------------------------------
</TABLE>
4. Trusteeships under Other Indentures.
None.
5. Interlocking Directorates and Similar Relationships with the
Obligor or Underwriters.
None.
<PAGE> 3
-3-
6. Voting Securities of the Trustee Owned by the Obligor or its
Officials.
None.
7. Voting Securities of the Trustee Owned by Underwriters or
their Officials.
None.
8. Securities of the Obligor Owned or Held by the Trustee.
None.
9. Securities of Underwriters Owned or Held by the Trustee.
None.
10. Ownership or Holdings by the Trustee of Voting Securities of
Certain Affiliates or Security Holders of the Obligor.
None.
11. Ownership or Holdings by the Trustee of any Securities of
a Person Owning 50 Percent or More of the Voting Securities of the
Obligor.
None.
12. Indebtedness of the Obligor to the Trustee.
None.
13. Defaults by the Obligor.
None.
14. Affiliations with the Underwriters.
None.
15. Foreign Trustee.
Not applicable.
<PAGE> 4
-4-
16. List of Exhibits.
T-1.1 - A copy of the Organization Certificate of American Stock
Transfer & Trust Company, as amended to date including
authority to commence business and exercise trust powers
was filed in connection with the Registration Statement of
Live Entertainment, Inc., File No. 33-54654, and is
incorporated herein by reference.
T-1.4 - A copy of the By-Laws of American Stock Transfer & Trust
Company, as amended to date was filed in connection with
the Registration Statement of Live Entertainment, Inc.,
File No. 33-54654, and is incorporated herein by
reference.
T-1.6 - The consent of the Trustee required by Section 312(b) of
the Trust Indenture Act of 1939. Exhibit A.
T-1.7 - A copy of the latest report of condition of the Trustee
published pursuant to law or the requirements of its
supervising or examining authority. - Exhibit B.
---------------------------------------
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the Trustee,
American Stock Transfer & Trust Company, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of New York, and State of New York,
on the 23rd day of September, 1997.
AMERICAN STOCK TRANSFER
& TRUST COMPANY
Trustee
By: /s/ HERBERT J. LEMMER
-------------------------
Vice President
<PAGE> 5
EXHIBIT A
Securities and Exchange Commission
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321 (b) of the Trust Indenture Act of
1939, and subject to the limitations therein contained, American Stock Transfer
& Trust Company hereby consents that reports of examinations of said
corporation by Federal, State, Territorial or District authorities may be
furnished by such authorities to you upon request therefor.
Very truly yours,
AMERICAN STOCK TRANSFER
& TRUST COMPANY
By /s/ HERBERT J. LEMMER
---------------------------
Vice President
<PAGE> 6
AMERICAN STOCK TRANSFER & TRUST COMPANY
40 WALL ST.
NEW YORK, NY 10005
EXHIBIT B
CONSOLIDATED REPORT OF CONDITION AND INCOME FOR A BANK WITH
DOMESTIC OFFICES ONLY AND TOTAL ASSETS OF LESS THAN $100 MILLION
REPORT AT CLOSE OF BUSINESS ON JUNE 30, 1997
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC - BALANCE SHEET
<TABLE>
<CAPTION>
DOLLAR AMOUNTS IN THOUSANDS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
1. Cash and balances due from depository institutions:
a. Noninterest-bearing balances and currency and coin 433
b. Interest-bearing balances
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A)
b. Available-for-sale securities (from Schedule RC-B, column D)
3. Federal funds sold and securities purchased under agreements to resell 3,537
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income (from Schedule RC-C)
b. LESS: Allowance for loan and lease losses
c. LESS: Allocated transfer risk reserve
d. Loans and leases, net of unearned income, allowance, and reserve
(item 4.a minus 4.b and 4.c
5. Trading assets
6. Premises and fixed assets (including capitalized leases) 3,641
7. Other real estate owned (from Schedule RC-M)
8. Investments in unconsolidated subsidiaries and associated companies
(from Schedule RC-M)
9. Customers' liability to this bank on acceptances outstanding
10. Intangible assets (from Schedule RC-M)
11. Other assets (from Schedule RC-F)
12. a. Total assets (sum of items 1 through 11) 6,678
b. Losses deferred pursuant to 12 U.S.C. 1823 (j)
c. Total assets and losses deferred pursuant to 12 U.S.C. 1823 (j) (sum of 14,289
items 12.a and 12.b) 14,289
</TABLE>
<PAGE> 7
SCHEDULE RC - CONTINUED
<TABLE>
<CAPTION>
DOLLAR AMOUNTS IN THOUSANDS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E)
(1) Noninterest-bearing
(2) Interest-bearing
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs
(1) Noninterest-bearing
(2) Interest-bearing
14. Federal funds purchased and securities sold under agreements to repurchase
15. a. Demand notes issued to the U.S. Treasury
b. Trading liabilities
16. Other borrowed money (includes mortgage indebtedness and obligations under
capitalized leases):
a. With a remaining maturity of one year or less
b. With a remaining maturity of more than one year through three years
c. With a remaining maturity of more than three years
17. Not applicable
18. Bank's liability on acceptances executed and outstanding
19. Subordinated notes and debentures
20. Other liabilities (from Schedule RC-G) 1,851
21. Total liabilities (sum of items 13 through 20) 1,851
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus
24. Common stock 600
25. Surplus (exclude all surplus related to preferred stock) 9,289
26. a. Undivided profits and capital reserves 2,523
b. Net unrealized holding gains (losses) on available-for-sale securities
27. Cumulative foreign currency translation adjustments
28. a. Total equity capital (sum of items 23 through 27)
b. Losses deferred pursuant to 12 U.S.C. 1823(j) 12,438
c. Total equity capital and losses deferred pursuant to 12 U.S.C. 1823(j) (sum
of items 28.a and 28.b) 12,438
29. Total liabilities, equity capital, and losses deferred pursuant to 12 U.S.C.. 1823
(j) (sum of items 21 and 28.c) 14,289
</TABLE>
