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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended September 30, 1996 Commission File No. 0-25214
KELLEY OIL & GAS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 76-0082502
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
601 JEFFERSON ST.
SUITE 1100
HOUSTON, TEXAS 77002
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (713) 652-5200
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
TITLE OF CLASS OUTSTANDING AT OCTOBER 31, 1996
Common Stock 98,287,838
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KELLEY OIL & GAS CORPORATION
INDEX
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION PAGE
Consolidated Balance Sheets as of September 30, 1996 (unaudited)
and December 31, 1995 ................................................... 2
Consolidated Statements of Loss for the three months ended September 30,
1996 and 1995 (unaudited)................................................. 3
Consolidated Statements of Loss for the nine months ended September 30,
1996 and 1995 (unaudited) ................................................ 4
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1996 and 1995 (unaudited) .................................. 5
Notes to Consolidated Financial Statements ................................ 6
Management's Discussion and Analysis of Financial Condition and Results
of Operations ............................................................ 8
PART II. OTHER INFORMATION ................................................... 13
</TABLE>
1
<PAGE>
PART I. FINANCIAL INFORMATION
KELLEY OIL & GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,531 6,352
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,207 13,753
Accounts receivable - drilling programs. . . . . . . . . . . . . . . . . . . . . . 2,413 2,035
Prepaid expenses and other current assets. . . . . . . . . . . . . . . . . . . . . 1,694 557
--------- --------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,845 22,697
--------- --------
Oil and gas properties, successful efforts method:
Unevaluated properties, net. . . . . . . . . . . . . . . . . . . . . . . . . . . 13,342 13,050
Properties subject to amortization . . . . . . . . . . . . . . . . . . . . . . . 330,091 287,970
Pipelines and other transportation assets, at cost . . . . . . . . . . . . . . . . 4,689 4,723
Furniture, fixtures and equipment. . . . . . . . . . . . . . . . . . . . . . . . . 1,468 1,233
--------- --------
349,590 306,976
Less: Accumulated depreciation, depletion and amortization. . . . . . . . . . . . (194,088) (178,334)
--------- --------
Total property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . 155,502 128,642
--------- --------
Other non-current assets (net of accumulated amortization) . . . . . . . . . . . . 1,074 3
--------- --------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 179,421 151,342
--------- --------
--------- --------
LIABILITIES:
Accounts payable and accrued expenses. . . . . . . . . . . . . . . . . . . . . . . $ 28,695 19,500
Accounts payable - drilling programs . . . . . . . . . . . . . . . . . . . . . . . 11,212 12,430
--------- --------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 39,907 31,930
Notes payable - long term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,000 22,000
Senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96,796 95,926
Convertible subordinated debentures. . . . . . . . . . . . . . . . . . . . . . . . 22,605 21,694
Convertible subordinated notes . . . . . . . . . . . . . . . . . . . . . . . . . . 26,948 25,360
--------- --------
TOTAL LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193,256 196,910
--------- --------
STOCKHOLDERS' DEFICIT:
Preferred stock, $1.50 par value--20,000 shares authorized at September 30, 1996
and December 31, 1995; 1,746 and 4,304 shares outstanding at
September 30, 1996 and December 31, 1995, respectively (liquidation value
at September 30, 1996 and December 31, 1995 of $47,074 and $66,532,
respectively). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,618 6,456
Common stock, $.01 par value, 200,000 and 100,000 shares authorized at
September 30, 1996 and December 31, 1995, respectively; 98,288 and 44,041
shares outstanding at September 30, 1996 and December 31, 1995, respectively . . 983 440
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273,088 225,804
Retained earnings (deficit). . . . . . . . . . . . . . . . . . . . . . . . . . . . (290,524) (278,268)
--------- --------
TOTAL STOCKHOLDERS' DEFICIT. . . . . . . . . . . . . . . . . . . . . . . . . . (13,835) (45,568)
--------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT. . . . . . . . . . . . . . . . . . . . $ 179,421 151,342
--------- --------
--------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
2
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KELLEY OIL & GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF LOSS
($ IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------
1996 1995
------- --------
Oil and gas revenues............................. $14,878 7,761
Gas marketing revenues, net...................... 370 247
Gain on sale of oil and gas properties........... --- 777
Interest and other income........................ 409 187
------- --------
Total revenues................................. 15,657 8,972
------- --------
Production expenses.............................. 2,471 2,904
Exploration costs................................ 1,163 3,044
General and administrative expenses.............. 2,124 1,326
Interest and other debt expenses................. 6,067 6,045
Depreciation, depletion and amortization......... 5,740 6,963
------- --------
Total expenses................................. 17,565 20,282
------- --------
Net loss before income taxes..................... (1,908) (11,310)
Income taxes..................................... --- ---
------- --------
Net loss......................................... (1,908) (11,310)
Less: Preferred stock dividends.................. --- (1,765)
------- --------
NET LOSS APPLICABLE TO COMMON STOCK.............. $(1,908) (13,075)
------- --------
------- --------
Loss per share:
Primary and assuming full dilution:
Net loss..................................... $ (.02) (.30)
------- --------
------- --------
Average common and common equivalent
shares outstanding:
Primary and assuming full dilution............. 97,797 43,668
See Notes to Consolidated Financial Statements.
3
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KELLEY OIL & GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF LOSS
($ IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1996 1995
-------- --------
Oil and gas revenues............................. $ 40,201 26,284
Gas marketing revenues, net...................... 1,078 677
Gain on sale of oil and gas properties........... --- 777
Interest and other income........................ 938 727
-------- --------
Total revenues................................. 42,217 28,465
-------- --------
Production expenses.............................. 7,638 7,739
Exploration costs................................ 4,216 10,523
General and administrative expenses.............. 6,950 4,346
Interest and other debt expenses................. 18,376 15,137
Restructuring expense............................ 2,000 ---
Depreciation, depletion and amortization......... 15,293 23,704
-------- --------
Total expenses................................. 54,473 61,449
-------- --------
Net loss before income taxes..................... (12,256) (32,984)
Income taxes..................................... --- ---
-------- --------
Net loss......................................... (12,256) (32,984)
Less: Preferred stock dividends.................. --- (4,867)
-------- --------
NET LOSS APPLICABLE TO COMMON STOCK.............. $(12,256) (37,851)
-------- --------
-------- --------
Loss per share:
Primary and assuming full dilution:
Net loss..................................... $ (.14) (.94)
-------- --------
-------- --------
Average common and common equivalent
shares outstanding:
Primary and assuming full dilution............. 87,368 40,141
See Notes to Consolidated Financial Statements.
4
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KELLEY OIL & GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------
1996 1995
-------- --------
OPERATING ACTIVITIES:
Net loss.......................................... $(12,256) (32,984)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation, depletion and amortization........ 15,293 23,704
Gain on sale of oil and gas properties.......... (77) (777)
Dry hole and impairment costs................... 147 5,576
Debt accretion and amortization................. 4,042 2,494
Restructuring expense........................... 2,000 ---
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable...... (3,115) 11,979
Decrease (increase) in prepaid expenses and
other current assets........................... (1,137) 41
Decrease (increase) in other non-current assets. (1,629) 1,971
Increase (decrease) in accounts payable and
accrued expenses............................... 4,794 (13,365)
-------- --------
Net cash provided by (used in) operating
activities....................................... 8,062 (1,361)
-------- --------
INVESTING ACTIVITIES:
Purchases of property and equipment............... (41,402) (32,295)
Cash received in consolidation.................... --- 1,596
Proceeds from sale of oil and gas properties, net. --- 6,807
Proceeds from sale of equipment................... 530 403
-------- --------
Net cash used in investing activities............. (40,872) (23,489)
-------- --------
FINANCING ACTIVITIES:
Proceeds from long term borrowings................ 29,000 15,100
Principal payments on long term borrowings........ (44,000) (100,000)
Proceeds from sale of senior notes................ --- 99,629
Proceeds from sale of common stock................ 48,052 16,319
Note offering costs............................... --- (4,289)
Dividends paid on preferred stock................. --- (4,867)
Syndication costs charged to equity............... (4,063) (5)
-------- --------
Net cash provided by financing activities......... 28,989 21,887
-------- --------
Decrease in cash and cash equivalents............. (3,821) (2,963)
Cash and cash equivalents, beginning of period.... 6,352 9,268
-------- --------
Cash and cash equivalents, end of period.......... $ 2,531 6,305
-------- --------
-------- --------
See Notes to Consolidated Financial Statements.
5
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KELLEY OIL & GAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements of Kelley Oil & Gas
Corporation (the "Company" or "KOGC") have been prepared by the Company in
accordance with generally accepted accounting principles and reflect all
adjustments (consisting of normal recurring adjustments) necessary for a fair
statement in all material respects of the results for the interim periods
presented. The results of operations for the nine months ended September 30,
1996 are not necessarily indicative of results to be expected for the full
year. The accounting policies followed by the Company are set forth in Note 1
to the financial statements in its Annual Report on Form 10-K for the year
ended December 31, 1995.
Certain financial statement items in the interim 1995 period have been
reclassified to conform to the interim 1996 presentation. In addition, gas
marketing revenues and cost of gas sold have been presented on a net basis
for the periods presented and are reflected in the "Gas marketing revenues,
net" on the Consolidated Statements of Loss.
NOTE 2 - EQUITY INFUSION
In February 1996, the Company entered into agreement with Contour
Production Company L.L.C. ("Contour") for a two stage $75 million equity
investment (the "Contour Transaction"). In the first stage, the Company
issued 48 million shares of common stock at $1.00 per share, which
represented 49.8% of the Company's voting power at the time of the
transaction. In the second stage Contour is committed to acquire an
additional 27 million shares at the same price, prior to or within 30 days
after the satisfaction of certain conditions, but in no event later than
January 2000.
NOTE 3 - PRO FORMA DATA FOR THE CONSOLIDATION AND THE CONTOUR TRANSACTION
THE CONSOLIDATION. The Company was formed in 1994 to consolidate the
equity ownership of Kelley Oil & Gas Partners, Ltd. ("Kelley Partners") and
Kelley Oil Corporation ("Kelley Oil"), the managing general partner of Kelley
Partners (the "Consolidation"). The Consolidation was recorded as of
February 7, 1995 for financial accounting purposes. The following table
presents unaudited pro forma results of the Company's operations for the nine
months ended September 30, 1995 as if the Consolidation had occurred on
January 1, 1995. This information is presented for illustrative purposes
only and is not necessarily indicative of the Company's future financial
performance or results of operations.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS
ENDED
SEPTEMBER 30,
1995
-------------
Revenues..................................................... $ 30,980
Net loss applicable to common stock.......................... (38,502)
Net loss per share........................................... (.90)
The following table reflects the unaudited pro forma results of the
Company's operations for the nine months ended September 30, 1996 and 1995 as
if the Contour Transaction had occurred on January 1, 1995.
6
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1996 1995
-------- --------
Net loss applicable to common and common
equivalent shares......................... $(11,939) (37,342)
Net loss per share......................... (.13) (.41)
NOTE 4 - PREFERRED STOCK
In January 1996, the Company suspended the payment of the quarterly
dividend on its $2.625 Convertible Exchangeable Preferred Stock (the
"Preferred Stock") scheduled for February 1, 1996. Future dividends on the
Preferred Stock are prohibited under the Company's credit facility. As of
September 30, 1996, $3.4 million or $1.97 per share in dividends were in
arrears, increasing the total liquidation value to $47.1 million.
NOTE 5 - EMPLOYEE STOCK OPTIONS
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("FAS 123"), effective for the Company on January
1, 1996, which established financial accounting and reporting standards for
stock-based employee compensation plans and for transactions in which an
entity issues its equity instruments to acquire goods and services from
nonemployees. FAS 123 permits, but does not require, a fair-value based
method of accounting for employee stock option plans, resulting in
compensation expense being recognized in the results of operations when stock
options are granted. The Company has not elected (and does not expect to
elect) to follow the fair-value based method of accounting for stock option
plans, and therefore, no compensation expense is (or will be) recognized.
However, as required by FAS 123, the Company will provide pro forma
disclosure of net income and earnings per share in the notes to its
consolidated financial statements for future periods as if the fair-value
based method of accounting had been applied. In February 1996 in conjunction
with the Contour Transaction, the Company granted options to purchase 2.5
million shares of Common Stock at $1.00 per share. The Company adopted FAS
123 in 1996 and will make the required pro forma disclosures in the notes to
its annual financial statements.
NOTE 6 - RESTRUCTURING EXPENSE
In the second quarter of 1996, the Company incurred a $2 million
restructuring charge associated primarily with staff reductions and related
severance settlements of 12 employees and various reorganization costs, of
which $.5 million has been paid through September 30, 1996. These charges
along with charges incurred in prior periods are included in accounts payable
and accrued expenses on the balance sheet in the amount of $1.8 million, of
which $.1 million is associated with restructuring charges incurred in prior
periods.
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
INTRODUCTION. The Company and its consolidated subsidiaries ("Kelley")
are engaged in oil and natural gas exploration, development, production and
acquisition. Kelley's activities are concentrated primarily in two
geographic areas: north Louisiana and south Louisiana. Approximately 86% of
Kelley's proved reserves are located on 48,620 gross (18,892 net) acres
within four fields in Webster and Bienville Parishes of north Louisiana,
where its activities are focused on lower-risk development drilling.
Substantially all of the balance of Kelley's proved reserves are located in
south Louisiana, primarily in Terrebonne Parish.
PROPERTY ACQUISITION. On September 30, 1996, Kelley closed a $10 million
acquisition, effective as of July 1, 1996, of undeveloped reserves in four
fields in the Vacherie Salt Dome area of north Louisiana (Ada, Sailes, Sibley
and West Bryceland) on properties operated by Kelley. The acquisition is
estimated to have increased Kelley's estimated proved reserves by more than
30 Bcfe (billion cubic feet equivalent). All capital costs, and all
operating revenues and expenses incurred since July 1, 1996, with respect to
the acquired interests are for Kelley's account. The transaction was booked
for accounting purposes in August 1996.
DRILLING OPERATIONS. In the first nine months of 1996, the Company
participated in drilling 44 gross (20.3 net) wells, all of which were found
productive. These results continued an effective turnaround in field
operations during 1995, when the Company completed 31 gross (15.2 net) wells
as producers in 35 attempts. The improvements in drilling performance have
been achieved from lower risk operations in north Louisiana. The Company has
increased its emphasis on north Louisiana operations, participating in
drilling 19 gross (9.9 net) successful wells during the third quarter of
1996. As of the end of the quarter, KOGC was participating in the drilling
of 8 wells.
HEDGING ACTIVITIES. Kelley periodically uses forward sales contracts,
natural gas swap agreements and options to reduce exposure to downward price
fluctuations on its natural gas production. The swap agreements generally
provide for Kelley to receive or make counterparty payments on the
differential between a fixed price and a variable indexed price for natural
gas. Gains and losses realized by Kelley from hedging activities are
included in oil and gas revenues and average sales prices. Kelley's hedging
activities also cover the oil and gas production attributable to the interest
in such production of the public unitholders in Kelley's subsidiary
partnerships. Through a combination of natural gas swap agreements, forward
sales contracts and options, 69.4% of Kelley's natural gas
production for the third quarter of 1996 was affected by hedging transactions
at an average Nymex quoted price of $2.17 per MMBtu, before transaction and
transportation costs on gas delivered under forward sales contracts.
Approximately 57.6% of Kelley's anticipated natural gas production
for the balance of 1996 has been hedged by natural gas swap agreements,
forward sales contracts and options at an average Nymex quoted price of $2.25
per MMBtu, before transaction and transportation costs.
RESULTS OF OPERATIONS
PRO FORMA COMPARISON. The Company's historical results for periods prior
to the Consolidation are not comparable with its operating results after
February 1995. Accordingly, the following discussion of comparative results
of operations for the nine months ended September 30, 1995 and 1996 reflects
pro forma information for the first nine months of 1995, giving effect to the
Consolidation from the beginning of 1995. The Company believes this provides
a more meaningful comparison of results and operational trends than a comparison
based on historical results. The following table sets forth certain operating
data regarding net production, average sales prices, production expenses and
revenues associated with the Company's oil and natural gas operations for the
periods indicated.
8
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<TABLE>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1995 1996 1995 1996
------ ------ ------ ------
PRO FORMA
<S> <C> <C> <C> <C>
NET PRODUCTION DATA:
Oil and other liquid hydrocarbons (Mbbls).... 74 61 273 181
Natural gas (Mmcf) .......................... 4,020 6,317 14,178 16,221
Natural gas equivalent (Mmcfe) .............. 4,463 6,682 15,813 17,307
AVERAGE SALES PRICE PER UNIT:
Oil and other liquid hydrocarbons (per Bbl).. $17.49 21.18 17.53 21.29
Natural gas (per Mcf)........................ 1.63 2.20 1.69 2.27
Natural gas equivalent (per Mcfe)............ 1.76 2.27 1.82 2.35
COST PER MCFE:
Production expenses.......................... $ .65 .37 .53 .44
General and administrative expenses.......... .30 .32 .30 .40
Depreciation, depletion and amortization .... 1.56 .86 1.54 .88
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995. The Company's oil and
gas revenues of $14.9 million for the third quarter of 1996 increased 91.0%
compared to $7.8 million in the same period of 1995 primarily as a result of
increases in both gas production and gas prices.
For the first three quarters of 1996, revenues from natural gas marketing
and transportation operations, net of associated costs, increased 100.0% to
$.4 million from $.2 million for the same period in 1995.
Production expenses for the third quarter of 1996 decreased 13.8% to $2.5
million from $2.9 million in the same period last year, primarily reflecting
lower average costs on north Louisiana production, which is increasing in
proportion to other higher cost production. On a unit basis, production
expenses decreased to $.37 per Mcfe in the third quarter of 1996 compared to
$.65 per Mcfe in the corresponding quarter last year.
Exploration costs totaled $1.2 million in the third quarter of 1996 and
$3.0 million in the corresponding period of 1995, a decrease of 60.0%,
primarily reflecting a suspension of exploratory drilling pending a
reevaluation and reorientation of Kelley's exploration activities in south
Louisiana, including a decrease in geological and geophysical expenses.
General and administrative expenses of $2.1 million in the third quarter
of 1996 increased 61.5% compared to $1.3 million in the corresponding period
last year. The increase was attributable to a decrease in 1996 in the level
of general and administrative expenses either being capitalized or allocated
to exploration expense. The amounts so capitalized or allocated were $.5
million and $.5 million, respectively, less in 1996 than in the corresponding
period of 1995. On a unit basis, these expenses were $.32 per Mcfe in the
third quarter of 1996 compared to $.30 in the corresponding quarter of 1995.
Interest and other debt expenses of $6.1 million in the current quarter
increased slightly from $6.0 million in the same period of 1995. The
increase in interest expense resulted primarily from higher interest rates
under the 13 1/2% Senior Notes than under the $90 million of bank debt
refinanced with proceeds from the offering of such notes in June 1995 and
higher average debt levels during the current period. See "Liquidity and
Capital Resources." In addition to its 1996 interest expense of $4.8 million,
the Company recorded noncash charges in the third quarter of 1996 of $.5
million for amortization of debt issuance costs, $.2 million for accretion of
note discount, $.5 million for accretion of debt valuation discount and $.1
million in imputed interest associated with the acquisition of oil and gas
properties.
Depreciation, depletion and amortization ("DD&A") decreased 18.6% from
$7.0 million in the third quarter of 1995 to $5.7 million in the current
period, primarily as a result of (i) lower depletion rates following
impairment
9
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charges aggregating $150.1 million recognized in the fourth quarter of 1995
against the carrying value of Kelley's oil and gas properties under the
Financial Accounting Standards Board's Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of ("FAS
121") and (ii) an increase in quantities of proved developed reserves. On a
unit basis, DD&A for oil and gas activities decreased from $1.56 per Mcfe in
the third quarter 1995 to $.86 per Mcfe in the current period.
Kelley recognized net losses of $1.9 million in the third quarter of 1996
and $11.3 million in the same period last year. The decline in the net
losses was primarily attributable to higher gas production and oil and gas
prices and lower DD&A and exploration costs, partially offset by slightly
higher interest and general and administrative expenses.
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995. The Company's oil and gas
revenues of $40.2 million for the first nine months of 1996 increased 39.6%
compared to $28.8 million on a pro forma basis in the same period of 1995,
primarily as a result of increased gas prices and production volumes.
For the first nine months of 1996, revenues from natural gas marketing
and transportation operations, net of associated costs, increased 57.1% to
$1.1 million from $.7 million for the same period in 1995.
Production expenses for the first nine months of 1996 decreased 9.5% to
$7.6 million from $8.4 million in the same period last year on a pro forma
basis, reflecting lower average costs on production from north Louisiana,
which is increasing in proportion to other higher cost production. On a unit
basis, production expenses decreased from $.53 per Mcfe in the first nine
months of 1995 to $.44 per Mcfe in the current period.
Exploration costs totaled $4.2 million in the first nine months of 1996
and $10.9 million on a pro forma basis in the corresponding period of 1995, a
decrease of 61.5%, primarily reflecting a suspension of exploratory drilling
by the new senior management team pending a reevaluation and reorientation of
Kelley's exploration activities. The decrease in these expenses also
reflects lower geological and geophysical expenses and unproved leasehold
impairment provisions.
General and administrative expenses of $7.0 million in the first nine
months of 1996 increased 48.9% compared to $4.7 million on a pro forma basis
in the corresponding period last year. The increase was primarily
attributable to bonuses and interim salaries (aggregating $1.0 million) paid
in connection with the Contour transaction to certain members of the
Company's prior management team and a decrease in 1996 in the level of
general and administrative expenses either being capitalized or allocated to
exploration expense. The amounts so capitalized or allocated were $1.4
million and $1.6 million, respectively, less in 1996 than in the
corresponding period of 1995. On a unit basis, these expenses increased from
$.30 per Mcfe in the first nine months of 1995 to $.40 per Mcfe in the
current period.
Interest and other debt expenses of $18.4 million in the current period
increased 15.7% from $15.9 million on a pro forma basis in the first nine
months of 1995. The increase in interest expense resulted primarily from
higher interest rates under the 13 1/2% Senior Notes than under the $90
million of bank debt refinanced with proceeds from the offering of such notes
in June 1995 and higher average debt levels during the current period. See
"Liquidity and Capital Resources" below. Included in its 1996 interest
expense of $14.5 million, the Company recorded noncash charges in the first
three quarters of 1996 of $1.7 million for amortization of debt issuance
costs, $.7 million for accretion of note discount, $1.5 million for accretion
of debt valuation discount and $.1 million in imputed interest associated
with the acquisition of oil and gas properties.
DD&A decreased 37.0% from $24.3 million on a pro forma basis in the first
nine months of 1995 to $15.3 million in the current period, primarily as a
result of (i) lower depletion rates following impairment charges aggregating
$150.1 million recognized in the fourth quarter of 1995 against the carrying
value of Kelley's oil and gas properties under FAS 121 and (ii) an increase
in quantities of proved developed reserves. On a unit basis, DD&A for oil
and gas activities decreased from $1.54 per Mcfe in the first nine months of
1995 to $.88 per Mcfe in the current period.
10
<PAGE>
In the second quarter of 1996, the Company incurred a $2 million
restructuring charge associated primarily with staff reductions and related
severance settlements with certain employees and various reorganization costs.
Kelley recognized net losses of $12.3 million in the first nine months of
1996 and $33.2 million on a pro forma basis in the same period last year.
The decline in the net losses was primarily attributable to higher oil and
gas prices, increased production and lower DD&A and exploration costs,
partially offset by higher interest and general and administrative expenses.
The results of operations for the quarter and nine months ended September
30, 1996 are not necessarily indicative of results to be expected for the
full year.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY. Net cash provided from operations during the first nine
months of 1996 aggregated $8.1 million. The Company's cash position was
increased during the period by $48.0 million of proceeds from the issuance of
48.0 million shares of Common Stock in the Contour transaction. These
increases were offset by $4.1 million of transaction costs. Funds used in
investing and financing activities were comprised of property and equipment
expenditures of $40.9 million and net principal retirements of $15.0 million
on bank borrowings. As a result of these activities, cash and cash
equivalents decreased from $6.4 million at December 31, 1995 to $2.5 million
as of September 30, 1996.
CAPITAL RESOURCES. On September 24, 1996, the Company commensed a debt
refinancing by initiating a cash tender offer for its outstanding $100
million issue of 13 1/2% Senior Notes due 1999 and a related consent
solicitation for amendments to the Indenture providing for those notes. The
Company received tenders aggregating approximately 99.6% of the outstanding
principal amount of those notes along with the requisite consents allowing it
to amend the Indenture. To finance the costs of the tender offer and consent
solicitation, the Company sold $125 million in aggregate principal amount of
its 10 3/8% Senior Subordinated Notes due 2006 ("new notes"), at a price of
99 3/4% of the principal amount (yielding 10.41%). As part of the
refinancing, the Company is obligated to use its best efforts to consummate
an exchange offer pursuant to an effective registration statement or to cause
resales of the new notes to be registered under the Securities Act of 1933,
as amended.
In connection with the repurchase of 13 1/2% Senior Notes and the payment
of consent fees pursuant to the tender offer and consent solicitation, the
Company expects to incur an extraordinary loss in the fourth quarter of 1996
of approximately $17.1 million, representing the excess of the aggregate
purchase price of the new notes (including consent fees) over their carrying
value as of the date of the consummation of the refinancing.
The 8 1/2% Convertible Subordinated Debentures due 2000 and 7 7/8%
Convertible Subordinated Notes due 1999 remain outstanding in the aggregate
principal amounts of $26.9 million and $34.4 million, respectively. These
subordinated debts are convertible into the Company's Common Stock or a
combination of Common and Preferred Stock.
At September 30, 1996, the Company has $161 million face amount of public
debt outstanding, requiring $18.5 million in annual cash interest payments.
The outstanding preferred stock is cumulative, requiring dividends to
accumulate at the rate of $4.6 million annually, and carries liquidation
preferences over the Common Stock totaling $47.1 million at September 30,
1996, including such dividend arrearages. Dividends are prohibited under the
existing credit facility. A new credit facility expected to be executed in
the fourth quarter will permit the Company to make a one-time $4.6 million
payment of such dividend arrearages. The Board of Directors of the Company,
however, has not determined whether to make any payments with respect to
dividend arrearages at this time, and any such payment must not be prohibited
under applicable corporate law.
11
<PAGE>
In February 1996, the Company repaid outstanding bank borrowings of $30.0
million under its prior credit facility with proceeds from the Contour
Transaction. In connection with the Contour Transaction, the Company entered
into the existing credit facility. At September 30, 1996, $7.0 million was
outstanding under the existing credit facility.
Interest on borrowings under the existing credit facility is payable at a
rate equal to (i) the higher of 1/2% above the agent bank's prime rate or 1%
above the federal funds rate in effect from time to time or (ii) at the
Company's election, 1 1/2% above a quoted Libor rate, together with a
quarterly commitment fee equal to 3/8% per annum of the unused portion of the
available borrowing base. The agreement for the existing credit facility
requires the payment of interest only until March 15, 1999, when all
borrowings will be repayable, subject to mandatory prepayment with net
proceeds from asset sales in excess of related borrowing base reductions.
Borrowings under the existing credit facility are secured by mortgages on
substantially all of the oil and gas assets of Kelley, together with a
security interest in production proceeds from oil and gas sales. The
agreement covering the existing credit facility prohibits the payment of
dividends, requires the consent of the lenders for third party borrowings or
extraordinary transactions and provides for restrictive financial covenants,
including a maximum ratio of total funded debt to earnings before interest,
taxes and noncash charges and a minimum interest coverage ratio.
A new credit facility is anticipated to become effective during December
1996. However, while the Company has received a satisfactory term sheet
regarding the new credit facility from its agent bank, there can be no
assurance that definitive agreements will be executed. The Company expects
that the new credit facility will be a revolving credit arrangement with a
four-year term in an amount tied to a borrowing base which will increase from
$35.0 million under its existing credit facility to approximately $60.0
million. The Company expects that the new credit facility will have an
improved fee and interest rate structure compared to its existing credit
facility. Otherwise, it will carry forward the material terms of the
existing credit facility, including guarantees by the significant Kelley
entities and mortgages of substantially all of Kelley's oil and gas
properties and the proceeds therefrom.
Pursuant to the second stage of Contour's equity investment in the
Company, Contour has committed to provide an additional $27.0 million in
equity financing upon satisfaction of certain conditions, including the
absence of any Company debt repurchase or redemption obligations, but in no
event later than January 2000. While exercise of such commitment cannot be
assured prior to January 2000, any proceeds received pursuant to such
commitment will reduce Kelley's dependence on outside financing to support
subsequent drilling and acquisition activities.
During 1996, Kelley's capital expenditures continue to be focused on
development drilling in north Louisiana, where Kelley currently expects to
participate in drilling a total of approximately 70 gross wells, subject to
regulatory and third party consents. In addition, Kelley plans to balance
its drilling strategy by pursuing acquisition opportunities to expand its
reserve base and operating areas, while also exploring various options for
developing its higher potential exploratory prospects in south Louisiana.
Kelley has an active program for ongoing evaluation of opportunities meeting
its acquisition criteria. There can be no assurance that attractive
acquisition candidates will be available to the Company on terms it deems
reasonable or that any completed acquisition will ultimately prove to be a
successful undertaking by the Company.
The Company anticipates that, except for any significant property
acquisitions, business combinations or development required by exploratory
success (and subject to price stability), cash flow from operations, and
borrowings under the new credit facility will be adequate to fund Kelley's
debt service obligations, expected capital expenditure requirements and
working capital needs for the foreseeable future. To fully realize Kelley's
objectives for property development and acquisitions, however, the Company
may be required to pursue additional financing alternatives.
CAPITAL COMMITMENTS. In February 1994, the 1994 DDP completed a public
offering of 20,864,414 units at $3.00 per unit on a preemptive basis to
Unitholders in Kelley Partners. Kelley Oil subscribed for 18,821,655 units
in addition to its 3.94% general partner interest in the 1994 DDP. An
additional 342,234 units were subscribed by
12
<PAGE>
Kelley Oil following investor defaults, increasing its ownership interest to
92.15% and its total investment commitment to $60.1 million. As of September
30, 1996, Kelley Oil's remaining subscription commitment aggregated $5.8
million, on which Kelley Oil is paying interest at a market rate.
INFLATION AND CHANGING PRICES. Oil and natural gas prices, as with most
commodities, are highly volatile, have fluctuated during recent years and
generally have not followed the same pattern as inflation.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
(1) Indenture dated October 15, 1996 by and between the Company and
certain guarantors named therein and the United States Trust Company of
New York.
(2) Registration Agreement dated October 25, 1996 by and between the
Company and Morgan Stanley Inc.
(3) First supplement to the Indenture dated October 28, 1996 by and
between the Company and certain guarantors named therein and The Chase
Manhattan Bank.
(4) Note governing 10-3/8% subordinated debentures.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KELLEY OIL & GAS CORPORATION
Date: November 14, 1996 By: /s/ WILLIAM C. RANKIN
-------------------------------------
William C. Rankin
Senior Vice President and
Chief Financial Officer
(Duly Authorized Officer)
(Principal Accounting Officer)
14
<PAGE>
- -----------------------------------------------------------------------------
KELLEY OIL & GAS CORPORATION,
Issuer
KELLEY OIL CORPORATION,
Subsidiary Guarantor
KELLEY OPERATING COMPANY, LTD.
Subsidiary Guarantor
10 3/8% Senior Subordinated Notes Due 2006
---------------------------
INDENTURE
Dated as of October 15, 1996
---------------------------
UNITED STATES TRUST COMPANY OF NEW YORK,
Trustee
- -----------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE TABLE
TIA Indenture
Section Section
- ------- ---------
310(a)(1) .............................. 7.10
(a)(2) .............................. 7.10
(a)(3) .............................. N.A.
(a)(4) .............................. N.A.
(a)(5) .............................. 7.10
(b) .............................. 7.08; 7.10
(c) .............................. N.A.
311(a) .............................. 7.11
(b) .............................. 7.11
(c) .............................. N.A.
312(a) .............................. 2.05
(b) .............................. 12.03
(c) .............................. 12.03
313(a) .............................. 7.06
(b)(1) .............................. N.A.
(b)(2) .............................. 7.06
(c) .............................. 12.02
(d) .............................. 7.06
314(a) .............................. 4.02; 4.13;
12.02
(b) .............................. N.A.
(c)(1) .............................. 12.04
(c)(2) .............................. 12.04
(c)(3) .............................. N.A.
(d) .............................. N.A.
(e) ............................. 12.05
(f) .............................. N.A.
315(a) .............................. 7.01
(b) .............................. 7.05; 12.02
(c) .............................. 7.01
(d) .............................. 7.01
(e) .............................. 6.11
316(a)(last sentence) ........................... 12.06
(a)(1)(A) .............................. 6.05
(a)(1)(B) .............................. 6.04
(a)(2) .............................. N.A.
(b) .............................. 6.07
(c) .............................. 6.07
317(a)(1) .............................. 6.08
(a)(2) .............................. 6.09
(b) .............................. 2.04
318(a) .............................. 12.01
N.A. means Not Applicable.
- -------------------
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
Page
----
SECTION 1.01. Definitions ............................ 1
SECTION 1.02. Other Definitions ...................... 33
SECTION 1.03. Incorporation by Reference of Trust
Indenture Act ........................ 34
SECTION 1.04. Rules of Construction .................. 34
ARTICLE 2
THE SECURITIES
SECTION 2.01. Form and Dating ........................ 35
SECTION 2.02. Execution and Authentication ........... 36
SECTION 2.03. Registrar and Paying Agent ............. 36
SECTION 2.04. Paying Agent To Hold Money in Trust..... 37
SECTION 2.05. Securityholder Lists ................... 37
SECTION 2.06. Replacement Securities ................. 37
SECTION 2.07. Outstanding Securities ................. 38
SECTION 2.08. Temporary Securities ................... 38
SECTION 2.09. Cancellation ........................... 39
SECTION 2.10. Defaulted Interest ..................... 39
SECTION 2.11. CUSIP Numbers .......................... 39
ARTICLE 3
REDEMPTION
SECTION 3.01. Notices to Trustee ..................... 40
SECTION 3.02. Selection of Securities To Be
Redeemed ............................. 40
SECTION 3.03. Notice of Redemption ................... 40
SECTION 3.04. Effect of Notice of Redemption ......... 41
SECTION 3.05. Deposit of Redemption Price ............ 41
SECTION 3.06. Securities Redeemed in Part ............ 42
<PAGE>
2
ARTICLE 4
COVENANTS
Page
----
SECTION 4.01. Payment of Securities .................. 42
SECTION 4.02. SEC Reports ............................ 42
SECTION 4.03. Limitation on Indebtedness ............. 43
SECTION 4.04. Limitation on Restricted Payments ...... 47
SECTION 4.05. Limitation on Restrictions on
Distributions from Restricted
Subsidiaries ......................... 49
SECTION 4.06. Limitation on Sales of Assets and
Subsidiary Stock ..................... 51
SECTION 4.07. Limitation on Affiliate Transactions.... 53
SECTION 4.08. Change of Control ...................... 55
SECTION 4.09. Limitation on the Sale or Issuance
of Capital Stock of Restricted
Subsidiaries.......................... 56
SECTION 4.10. Limitation on Liens..................... 57
SECTION 4.11. Limitation on Sale/Leaseback
Transactions.......................... 57
SECTION 4.12. Future Guarantors....................... 57
SECTION 4.13. Compliance Certificate ................. 57
SECTION 4.14. Further Instruments and Acts ........... 58
ARTICLE 5
SUCCESSOR COMPANY
SECTION 5.01. When Company May Merge or Transfer
Assets ............................... 58
SECTION 5.02. When Subsidiary Guarantors May
Merge or Transfer Assets.............. 59
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. Events of Default ...................... 60
SECTION 6.02. Acceleration ........................... 62
SECTION 6.03. Other Remedies ......................... 63
SECTION 6.04. Waiver of Past Defaults ................ 63
SECTION 6.05. Control by Majority .................... 64
SECTION 6.06. Limitation on Suits .................... 64
SECTION 6.07. Rights of Holders To Receive Payment ... 65
SECTION 6.08. Collection Suit by Trustee ............. 65
<PAGE>
3
Page
----
SECTION 6.09. Trustee May File Proofs of Claim ....... 65
SECTION 6.10. Priorities ............................. 65
SECTION 6.11. Undertaking for Costs .................. 66
SECTION 6.12. Waiver of Stay or Extension Laws ....... 66
ARTICLE 7
TRUSTEE
SECTION 7.01. Duties of Trustee ...................... 67
SECTION 7.02. Rights of Trustee ...................... 68
SECTION 7.03. Individual Rights of Trustee ........... 69
SECTION 7.04. Trustee's Disclaimer ................... 69
SECTION 7.05. Notice of Defaults ..................... 69
SECTION 7.06. Reports by Trustee to Holders .......... 69
SECTION 7.07. Compensation and Indemnity ............. 70
SECTION 7.08. Replacement of Trustee ................. 71
SECTION 7.09. Successor Trustee by Merger ............ 72
SECTION 7.10. Eligibility; Disqualification .......... 72
SECTION 7.11. Preferential Collection of Claims
Against Company ...................... 72
ARTICLE 8
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01. Discharge of Liability on Securities;
Defeasance ........................... 73
SECTION 8.02. Conditions to Defeasance ............... 74
SECTION 8.03. Application of Trust Money ............. 75
SECTION 8.04. Repayment to Company ................... 76
SECTION 8.05. Indemnity for Government
Obligations .......................... 76
SECTION 8.06. Reinstatement .......................... 76
ARTICLE 9
AMENDMENTS
SECTION 9.01. Without Consent of Holders ............. 77
SECTION 9.02. With Consent of Holders ................ 78
SECTION 9.03. Compliance with Trust Indenture Act .... 79
SECTION 9.04. Revocation and Effect of Consents
and Waivers .......................... 79
<PAGE>
4
Page
----
SECTION 9.05. Notation on or Exchange of
Securities ........................... 80
SECTION 9.06. Trustee To Sign Amendments ............. 80
SECTION 9.07. Payment for Consent .................... 80
ARTICLE 10
SUBORDINATION
SECTION 10.01. Agreement To Subordinate .............. 80
SECTION 10.02. Liquidation, Dissolution,
Bankruptcy .......................... 81
SECTION 10.03. Default on Designated Senior
Indebtedness ........................ 81
SECTION 10.04. Acceleration of Payment of
Securities .......................... 83
SECTION 10.05. When Distribution Must Be Paid
Over ................................ 83
SECTION 10.06. Subrogation ........................... 83
SECTION 10.07. Relative Rights ....................... 83
SECTION 10.08. Subordination May Not Be Impaired
by Company .......................... 84
SECTION 10.09. Rights of Trustee and Paying
Agent ............................... 84
SECTION 10.10. Distribution or Notice to
Representative ...................... 84
SECTION 10.11. Article 10 Not To Prevent Events of
Default or Limit Right To
Accelerate .......................... 84
SECTION 10.12. Trust Moneys Not Subordinated ......... 85
SECTION 10.13. Trustee Entitled To Rely .............. 85
SECTION 10.14. Trustee To Effectuate
Subordination ....................... 85
SECTION 10.15. Trustee Not Fiduciary for Holders
of Senior Indebtedness .............. 86
SECTION 10.16. Reliance by Holders of Senior
Indebtedness on Subordination
Provisions .......................... 86
ARTICLE 11
SUBSIDIARY GUARANTY
SECTION 11.01. Guarantee ............................. 86
SECTION 11.02. Limitation on Liability ............... 89
SECTION 11.03. Successors and Assigns ................ 89
<PAGE>
5
Page
----
SECTION 11.04. No Waiver ............................. 89
SECTION 11.05. Modification .......................... 90
SECTION 11.06. Release of Subsidiary Guarantor ....... 90
ARTICLE 12
MISCELLANEOUS
SECTION 12.01. Trust Indenture Act Controls .......... 90
SECTION 12.02. Notices ............................... 91
SECTION 12.03. Communication by Holders with Other
Holders ............................. 91
SECTION 12.04. Certificate and Opinion as to
Conditions Precedent ................ 91
SECTION 12.05. Statements Required in Certificate
or Opinion .......................... 92
SECTION 12.06. When Securities Disregarded ........... 92
SECTION 12.07. Rules by Trustee, Paying Agent and
Registrar ........................... 93
SECTION 12.08. Legal Holidays ........................ 93
SECTION 12.09. Governing Law ......................... 93
SECTION 12.10. No Recourse Against Others ............ 93
SECTION 12.11. Successors ............................ 93
SECTION 12.12. Multiple Originals .................... 93
SECTION 12.13. Table of Contents; Headings ........... 93
Appendix A - Provisions Relating to Initial Securities
and Exchange Securities.
Exhibit 1 to
Appendix A - Form of Initial Security.
Exhibit 2 to
Appendix A - Form of Exchange Security.
<PAGE>
INDENTURE dated as of October 15, 1996, among KELLEY OIL &
GAS CORPORATION, a Delaware corporation (the "Company"),
KELLEY OIL CORPORATION, a Delaware corporation ("Kelley Oil"
and, individually, a "Subsidiary Guarantor"), KELLEY
OPERATING COMPANY, LTD., a Texas limited partnership
("Kelley Operating" and, individually, a "Subsidiary
Guarantor"), and UNITED STATES TRUST COMPANY OF NEW YORK,
a New York banking corporation (the "Trustee").
Each party agrees as follows for the benefit of the other party and
for the equal and ratable benefit of the holders of the Company's 10 3/8%
Senior Subordinated Notes Due 2006 (the "Initial Securities") and, if and
when issued pursuant to a registered exchange for Initial Securities, the
Company's 10 3/8% Senior Subordinated Notes Due 2006 (the "Exchange
Securities", together with the Initial Securities, the "Securities"):
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. DEFINITIONS.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in the Oil and Gas Business; (ii) the Capital
Stock of a Person that becomes a Restricted Subsidiary as a result of the
acquisition of such Capital Stock by the Company or another Restricted
Subsidiary or (iii) Capital Stock constituting a minority interest in any Person
that at such time is a Restricted Subsidiary; PROVIDED, HOWEVER, that any such
Restricted Subsidiary described in clauses (ii) or (iii) above is primarily
engaged in the Oil and Gas Business.
"Adjusted Consolidated Assets" means at any time the total amount of
assets of the Company and its consolidated Restricted Subsidiaries (less
applicable depreciation, amortization and other valuation reserves), after
deducting therefrom all current liabilities of the Company and its consolidated
Restricted Subsidiaries (excluding intercompany items), all as set forth on the
<PAGE>
2
consolidated balance sheet of the Company and its consolidated Restricted
Subsidiaries as of the end of the most recent fiscal quarter ended at least
45 days prior to the date of determination.
"Adjusted Consolidated Net Tangible Assets" or "CNTA" means (without
duplication), as of the date of determination, (a) the sum of (i) discounted
future net revenues from proved oil and gas reserves of the Company and its
Restricted Subsidiaries calculated in accordance with SEC guidelines before any
state or federal income taxes, as estimated in a reserve report prepared as of
the end of the Company's most recently completed fiscal year, which reserve
report is prepared or reviewed by independent petroleum engineers, as increased
by, as of the date of determination, the discounted future net revenues of
(A) estimated proved oil and gas reserves of the Company and its Restricted
Subsidiaries attributable to any material acquisition consummated since the date
of such year-end reserve report, and (B) estimated oil and gas reserves of the
Company and its Restricted Subsidiaries attributable to material extensions,
discoveries and other additions and upward determinations of estimates of proved
oil and gas reserves due to exploration, development or exploitation, production
or other activities conducted or otherwise occurring since the date of such
year-end reserve report which would, in the case of determinations made pursuant
to clauses (A) and (B), in accordance with standard industry practice, result in
such additions or revisions, in each case calculated in accordance with SEC
guidelines (utilizing the prices utilized in such year-end reserve report), and
decreased by, as of the date of determination, the discounted future net
revenues of (C) estimated proved oil and gas reserves of the Company and its
Restricted Subsidiaries produced or disposed of since the date of such year-end
reserve report and (D) reductions in the estimated oil and gas reserves of the
Company and its Restricted Subsidiaries since the date of such year-end reserve
report attributable to material downward determinations of estimates of proved
oil and gas reserves due to exploration, development or exploitation, production
or other activities conducted or otherwise occurring since the date of such
year-end reserve report which would, in the case of determinations made pursuant
to clauses (C) and (D), in accordance with standard industry practice, result in
such determinations, in each case calculated in accordance with SEC guidelines
(utilizing the prices utilized in such year-end reserve report); provided that,
in the case of each of the determinations made
<PAGE>
3
pursuant to clauses (A) through (D), such increases and decreases shall be as
estimated by the Company's engineers, except that if as a result of such
acquisitions, dispositions, discoveries, extensions or revisions, there is a
Material Change which is an increase, then such increases and decreases in
the discounted future net revenue shall be confirmed in writing by an
independent petroleum engineer, (ii) the capitalized costs that are
attributable to oil and gas properties of the Company and its Restricted
Subsidiaries to which no proved oil and gas reserves are attributed, based on
the Company's books and records as of a date no earlier than the date of the
Company's latest annual or quarterly financial statements, (iii) the Net
Working Capital on a date no earlier than the date of the Company's latest
annual or quarterly financial statements and (iv) the greater of (I) the net
book value on a date no earlier than the date of the Company's latest annual
or quarterly financial statements and (II) the appraised value, as estimated
by independent appraisers, of other tangible assets of the Company and its
Restricted Subsidiaries as of a date no earlier than the date of the
Company's latest audited financial statements (provided that the Company
shall not be required to obtain such an appraisal of such assets if no such
appraisal has been performed), minus (b) the sum of (i) minority interests,
(ii) any gas balancing liabilities of the Company and its Restricted
Subsidiaries reflected in the Company's latest audited financial statements,
(iii) the discounted future net revenue, calculated in accordance with SEC
guidelines (utilizing the same prices utilized in the Company's year-end
reserve report), attributable to reserves subject to participation interests,
overriding royalty interests or other interests of third parties, pursuant to
participation, partnership, vendor financing or other agreements then in
effect, or which otherwise are required to be delivered to third parties,
(iv) the discounted future net revenues, calculated in accordance with SEC
guidelines (utilizing the same prices utilized in the Company's year-end
reserve report), attributable to reserves that are required to be delivered
to third parties to fully satisfy the obligations of the Company and its
Restricted Subsidiaries with respect to Volumetric Production Payments on the
schedules specified with respect thereto and (v) the discounted future net
revenues, calculated in accordance with SEC guidelines, attributable to
reserves subject to Dollar-Denominated Production Payments that, based on the
estimates of production included in determining the discounted future net
revenues specified in the immediately preceding clause
<PAGE>
4
(a)(i) (utilizing the same prices utilized in the Company's year-end reserve
report), would be necessary to satisfy fully the obligations of the Company
and its Restricted Subsidiaries with respect to Dollar-Denominated Production
Payments on the schedules specified with respect thereto.
"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 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. For
purposes of Section 4.04, Section 4.06 and Section 4.07 only, "Affiliate" shall
also mean any beneficial owner of Capital Stock representing 5% or more of the
total voting power of the Voting Stock (on a fully diluted basis) of the Company
or of rights or warrants to purchase such Capital Stock (whether or not
currently exercisable) and any Person who would be an Affiliate of any such
beneficial owner pursuant to the first sentence hereof. Shareholders and
Affiliates of Bessemer Securities Corporation ("BSC") that would not be
Affiliates of the Company other than by reason of being shareholders or
Affiliates of BSC and that neither in fact participate in the management of any
of BSC, Bessemer, Holdings or the Company, nor are controlled by BSC, Bessemer,
Holdings, the Company, or any of their respective Affiliates who in fact
participate in the management of any of BSC, Bessemer, Holdings or the Company,
shall not be deemed to be "Affiliates" of the Company.
"Asset Disposition" means any sale, lease, transfer or other
disposition (or series of related sales, leases, transfers or dispositions) by
the Company or any Restricted Subsidiary, including any disposition by means of
a merger, consolidation or similar transaction (each referred to for the
purposes of this definition as a "disposition"), of (i) any shares of Capital
Stock of a Restricted Subsidiary (other than directors' qualifying shares or
shares required by applicable law to be held by a Person other than the Company
or a Restricted Subsidiary), (ii) all or substantially all the assets of any
division or line of business of the Company or any Restricted Subsidiary or
(iii) any other assets of the
<PAGE>
5
Company or any Restricted Subsidiary outside of the ordinary course of
business of the Company or such Restricted Subsidiary. Notwithstanding the
foregoing, none of the following shall be deemed to be an Asset Disposition:
(1) a disposition by a Restricted Subsidiary to the Company or by the Company
or a Restricted Subsidiary to a Wholly Owned Subsidiary, (2) for purposes of
Section 4.06 only, a disposition that constitutes a Restricted Payment
permitted by Section 4.04, (3) the sale or transfer (whether or not in the
ordinary course of business) of oil and gas properties or direct or indirect
interests in real property; PROVIDED, HOWEVER, that at the time of such sale
or transfer such properties do not have associated with them any proved
reserves, (4) the abandonment, farm-out, lease or sublease of developed or
undeveloped oil and gas properties in the ordinary course of business, (5)
the trade or exchange by the Company or any Restricted Subsidiary of any oil
and gas property owned or held by the Company or such Restricted Subsidiary
for any oil and gas property owned or held by another Person or (6) the sale
or transfer of hydrocarbons or other mineral products or surplus or obsolete
equipment in the ordinary course of business.
"Attributable Debt" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
interest rate implicit in the Sale/Leaseback Transaction, compounded
annually) of the total obligations of the lessee for rental payments during
the remaining term of the lease included in such Sale/Leaseback Transaction
(including any period for which such lease has been extended).
"Average Life" means, as of the date of determination, with respect
to any Indebtedness or Preferred Stock, the quotient obtained by dividing (i)
the sum of the products of numbers of years from the date of determination to
the dates of each successive scheduled principal payment of such Indebtedness
or redemption or similar payment with respect to such Preferred Stock
multiplied by the amount of such payment by (ii) the sum of all such payments.
"Banks" has the meaning specified in the Credit Agreement.
"Board of Directors" means the Board of Directors of the Company or
any committee thereof duly authorized to act on behalf of such Board.
<PAGE>
6
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" means an obligation that is required to
be classified and accounted for as a capital lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented
by such obligation shall be the capitalized amount of such obligation
determined in accordance with GAAP; and the Stated Maturity thereof shall be
the date of the last payment or any other amount due under such lease prior
to the first date upon which such lease may be terminated by the lessee
without payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of
or interests in (however designated) equity of such Person, including any
Preferred Stock, but excluding any debt securities convertible into such
equity.
"Change of Control" means the occurrence of any of the following
events:
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders, is or becomes
the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that for purposes of this clause (i) such person shall
be deemed to have "beneficial ownership" of all shares that such person has
the right to acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of more than 35% of the
total voting power of the Voting Stock of the Company; PROVIDED, HOWEVER,
that the Permitted Holders beneficially own (as defined in Rules 13d-3 and
13d-5 under the Exchange Act), directly or indirectly, in the aggregate a
lesser percentage of the total voting power of the Voting Stock of the
Company than such other person and do not have the right or ability by
voting power, contract or otherwise to elect or designate for election a
majority of the Board of Directors (for the purposes of this clause (i),
such other person shall be deemed to beneficially own any Voting Stock of
a specified corporation held by a parent corporation, if such other person
is the beneficial owner (as defined in this clause (i)), directly or
indirectly, of more
<PAGE>
7
than 35% of the voting power of the Voting Stock of such parent
corporation and the Permitted Holders beneficially own (as
defined in this proviso), directly or indirectly, in the aggregate a
lesser percentage of the voting power of the Voting Stock of such parent
corporation and do not have the right or ability by voting power,
contract or otherwise to elect or designate for election a majority of the
board of directors of such parent corporation);
(ii) during any period of two consecutive years from and after the
Issue Date, individuals who at the beginning of such period constituted
the Board of Directors (together with any new directors whose election by
such Board of Directors or whose nomination for election by the
shareholders of the Company was approved by a vote of a majority of the
directors of the Company then still in office who were either directors at
the beginning of such period or whose election or nomination for election
was previously so approved) cease for any reason to constitute a majority
of the Board of Directors then in office; or
(iii) the merger or consolidation of the Company with or into another
Person or the merger of another Person with or into the Company, or the
sale of all or substantially all the assets of the Company to another
Person (other than a Person that is controlled by the Permitted Holders),
and, in the case of any such merger or consolidation, the securities of the
Company that are outstanding immediately prior to such transaction and
which represent 100% of the aggregate voting power of the Voting Stock of
the Company are changed into or exchanged for cash, securities or property,
unless pursuant to such transaction such securities are changed or
exchanged for, in addition to any other consideration, securities of the
surviving corporation that represent, immediately after such transaction,
at least a majority of the aggregate voting power of the Voting Stock of
the surviving corporation.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means the party named as such in the preamble to this
Indenture until a successor replaces it and, thereafter, means the successor
and, for purposes of
<PAGE>
8
any provision contained herein and required by the TIA, each other obligor on
the indenture securities.
"Consolidated Coverage Ratio" as of any date of determination means
the ratio of (i) the aggregate amount of EBITDA for the period of the most
recent four consecutive fiscal quarters ending at least 45 days prior to the
date of such determination to (ii) Consolidated Interest Expense for such four
fiscal quarters; PROVIDED, HOWEVER, that (1) if the Company or any Restricted
Subsidiary has Incurred any Indebtedness since the beginning of such period that
remains outstanding or if the transaction giving rise to the need to calculate
the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving effect on a pro forma basis to such Indebtedness as if such
Indebtedness had been Incurred on the first day of such period and the discharge
of any other Indebtedness repaid, repurchased, defeased or otherwise discharged
with the proceeds of such new Indebtedness as if such discharge had occurred on
the first day of such period, (2) if the Company or any Restricted Subsidiary
has repaid, repurchased, defeased or otherwise discharged any Indebtedness since
the beginning of such period or if any Indebtedness is to be repaid,
repurchased, defeased or otherwise discharged on the date of the transaction
giving rise to the need to calculate the Consolidated Coverage Ratio, EBITDA and
Consolidated Interest Expense for such period shall be calculated on a pro forma
basis as if such discharge had occurred on the first day of such period and as
if the Company or such Restricted Subsidiary has not earned the interest income
actually earned during such period in respect of cash or Temporary Cash
Investments used to repay, repurchase, defease or otherwise discharge such
Indebtedness, (3) if since the beginning of such period the Company or any
Restricted Subsidiary shall have made any Asset Disposition (other than an Asset
Disposition involving assets having a fair market value of less than the greater
of one percent (1%) of Adjusted Consolidated Net Tangible Assets as of the end
of the Company's then most recently completed fiscal year and $2.0 million),
then EBITDA for such period shall be reduced by an amount equal to EBITDA (if
positive) directly attributable to the assets which are the subject of such
Asset Disposition for such period, or increased by an amount equal to EBITDA (if
negative), directly attributable thereto for such period and Consolidated
Interest Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any
<PAGE>
9
Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased,
defeased or otherwise discharged with respect to the Company and its
continuing Restricted Subsidiaries in connection with such Asset Disposition
for such period (or, if the Capital Stock of any Restricted Subsidiary is
sold, the Consolidated Interest Expense for such period directly attributable
to the Indebtedness of such Restricted Subsidiary to the extent the Company
and its continuing Restricted Subsidiaries are no longer liable for such
Indebtedness after such sale), (4) if since the beginning of such period the
Company or any Restricted Subsidiary (by merger or otherwise) shall have made
an Investment in any Restricted Subsidiary (or any person which becomes a
Restricted Subsidiary) or an acquisition (including by way of lease) of
assets, including any acquisition of assets occurring in connection with a
transaction requiring a calculation to be made hereunder, EBITDA and
Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto (including the Incurrence of any
Indebtedness) as if such Investment or acquisition occurred on the first day
of such period and (5) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period)
shall have made any Asset Disposition, any Investment or acquisition of
assets that would have required an adjustment pursuant to clause (3) or (4)
above if made by the Company or a Restricted Subsidiary during such period,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving pro forma effect thereto as if such Asset Disposition,
Investment or acquisition occurred on the first day of such period. For
purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of income or earnings relating thereto and
the amount of Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, the pro forma calculations shall be
determined in good faith by a responsible financial or accounting Officer of
the Company. If any Indebtedness bears a floating rate of interest and is
being given pro forma effect, the interest on such Indebtedness shall be
calculated as if the rate in effect on the date of determination had been the
applicable rate for the entire period (taking into account any Interest Rate
Agreement applicable to such Indebtedness if such Interest Rate Agreement has
a remaining term in excess of 12 months).
<PAGE>
10
"Consolidated Current Liabilities" as of the date of determination
means the aggregate amount of liabilities of the Company and its consolidated
Restricted Subsidiaries which may properly be classified as current
liabilities (including taxes accrued as estimated), on a consolidated basis,
after eliminating (i) all intercompany items between the Company and any
Restricted Subsidiary and (ii) all current maturities of long-term
Indebtedness, all as determined in accordance with GAAP consistently applied.
"Consolidated Interest Expense" means, for any period, the total
interest expense of the Company and its consolidated Restricted Subsidiaries for
such period, determined on a consolidated basis in accordance with GAAP, plus,
to the extent not included in such total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries, without duplication,
(i) interest expense attributable to capital leases and imputed interest with
respect to Attributable Debt, (ii) capitalized interest, (iii) non-cash interest
expenses, (iv) commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing, (v) net costs
(including amortization of fees and upfront payments) associated with interest
rate caps and other interest rate and currency options that, at the time entered
into, resulted in the Company and its Restricted Subsidiaries being net payees
as to future payouts under such caps or options, and interest rate and currency
swaps and forwards for which the Company or any of its Restricted Subsidiaries
has paid a premium, (vi) Preferred Stock dividends in respect of all Preferred
Stock held by Persons other than the Company or a Wholly Owned Subsidiary to the
extent that, by the terms of the Preferred Stock, failure to pay such dividends
would result in a bankruptcy of the issuer thereof and (vii) interest accruing
on any Indebtedness of any other Person to the extent such Indebtedness is
Guaranteed by the Company or any Restricted Subsidiary or secured by a Lien on
assets of the Company or any Restricted Subsidiary to the extent such
Indebtedness constitutes Indebtedness of the Company or any Restricted
Subsidiary (whether or not such Guarantee or Lien is called upon); PROVIDED,
HOWEVER, "Consolidated Interest Expense" shall not include any (w) amortization
of costs relating to debt issuances (including the amortization of debt
discount) other than the amortization of debt discount related to the issuance
of securities or other securities with an original issue price of not more than
90% of the principal thereof, (x) amortization of debt discount to the extent it
relates
<PAGE>
11
to revaluations of financial instruments recognized in connection with the
Consolidation, (y) Consolidated Interest Expense with respect to any
Indebtedness Incurred pursuant to Section 4.03(b)(8) and (z) noncash interest
expense Incurred in connection with interest rate caps and other interest
rate and currency options that resulted, at the time entered into, in the
Company and its Restricted Subsidiaries being either neutral or net payors as
to future payouts under such caps or options.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; PROVIDED, HOWEVER, that there shall
not be included in such Consolidated Net Income: (i) any net income of any
Person (other than the Company) if such Person is not a Restricted Subsidiary,
except that (A) subject to the exclusion contained in clause (iv) below, the
Company's equity in the net income of any such Person for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution paid to a Restricted Subsidiary, to the
limitations contained in clause (iii) below) and (B) the Company's equity in a
net loss of any such Person for such period shall be included in determining
such Consolidated Net Income; (ii) any net income (or loss) of any Person
acquired by the Company or a Subsidiary in a pooling of interests transaction
for any period prior to the date of such acquisition; (iii) any net income of
any Restricted Subsidiary if such Restricted Subsidiary is subject to
restrictions, directly or indirectly, on the payment of dividends or the making
of distributions by such Restricted Subsidiary, directly or indirectly, to the
Company, except that (A) subject to the exclusion contained in clause (iv)
below, the Company's equity in the net income of any such Restricted Subsidiary
for such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Restricted Subsidiary
during such period to the Company or another Restricted Subsidiary as a dividend
or other distribution (subject, in the case of a dividend or other distribution
paid to another Restricted Subsidiary, to the limitation contained in this
clause) and (B) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such Consolidated
Net Income; (iv) any gain or loss realized upon the sale or other disposition of
any assets of the Company or its
<PAGE>
12
consolidated Subsidiaries (including pursuant to any sale-and-leaseback
arrangement) which is not sold or otherwise disposed of in the ordinary
course of business and any gain or loss realized upon the sale or other
disposition of any Capital Stock of any Person; (v) extraordinary gains or
losses; and (vi) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purposes of Section 4.04 only, there
shall be excluded from Consolidated Net Income any dividends, repayments of
loans or advances or other transfers of assets from Unrestricted Subsidiaries
to the Company or a Restricted Subsidiary to the extent such dividends,
repayments or transfers increase the amount of Restricted Payments permitted
under Section 4.04(a)(3)(E).
"Consolidated Net Tangible Assets", as of any date of determination,
means the total amount of assets (less accumulated depreciation and
amortization, allowances for doubtful receivables, other applicable reserves
and other properly deductible items) which would appear on a consolidated
balance sheet of the Company and its consolidated Restricted Subsidiaries,
determined on a consolidated basis in accordance with GAAP, and after giving
effect to purchase accounting and after deducting therefrom Consolidated
Current Labilities and, to the extent otherwise included, the amounts of:
(i) minority interests in consolidated Subsidiaries held by Persons other
than the Company or a Restricted Subsidiary; (ii) excess of cost over fair
value of assets of businesses acquired, as determined in good faith by the
Board of Directors; (iii) any revaluation or other write-up in book value of
assets subsequent to the Issue Date as a result of a change in the method of
valuation in accordance with GAAP consistently applied; (iv) unamortized debt
discount and expenses and other unamortized deferred charges, goodwill,
patents, trademarks, service marks, trade names, copyrights, licenses,
organization or developmental expenses and other intangible items; (v)
treasury stock; (vi) cash set apart and held in a sinking or other analogous
fund established for the purpose of redemption or other retirement of Capital
Stock to the extent such obligation is not reflected in Consolidated Current
Liabilities; and (vii) Investments in and assets of Unrestricted
Subsidiaries.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its consolidated Subsidiaries, determined on
a consolidated basis in accordance with GAAP, as of the end of the most
<PAGE>
13
recent fiscal quarter of the Company ending at least 45 days prior to the
taking of any action for the purpose of which the determination is being
made, as (i) the par or stated value of all outstanding Capital Stock of the
Company plus (ii) paid-in capital or capital surplus relating to such Capital
Stock plus (iii) any retained earnings or earned surplus less (A) any
accumulated deficit and (B) any amounts attributable to Disqualified Stock.
"Consolidation" means the conversion in 1994 of capital stock of
Kelley Oil and units in Kelley Oil & Gas Partners, Ltd., a Texas limited
partnership, into shares of common stock, Convertible Exchangeable Preferred
Stock and cumulative convertible stock of the Company.
"Contour Option" means that certain Option Agreement, dated as of
February 15, 1996, between the Company and Contour Production Company L.L.C.,
a Delaware limited liability company.
"Convertible Exchangeable Preferred Stock" means the $2.625
Convertible Exchangeable Preferred Stock of the Company.
"Credit Agreement" means that certain Credit Agreement, dated as of
February 14, 1996, by and among the Company and Texas Commerce Bank National
Association (or any successor thereto or replacement thereof) as agent and as
a lender, and certain other institutions, as lenders, including any related
notes, guarantees, collateral documents, instruments and agreements executed
in connection therewith, and in each case as amended, restated, modified,
renewed, refunded, replaced or refinanced, in whole or in part, from time to
time.
"Credit Facilities" means, with respect to the Company or any
Restricted Subsidiary, one or more debt facilities (including the Credit
Agreement) or commercial paper facilities with banks or other institutional
lenders providing for revolving credit loans, term loans, production
payments, receivables financing (including through the sale of receivables to
such lenders or to special purpose entities formed to borrow from such
lenders against such receivables) or letters of credit, in each case, as
amended, restated, modified, renewed, refunded, replaced or refinanced in
whole or in part from time to time.
<PAGE>
14
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) all obligations of the
Company or any Restricted Subsidiary under any Credit Facility and (ii) any
other Senior Indebtedness of the Company which, at the date of determination,
has an aggregate principal amount outstanding of, or under which, at the date of
determination, the holders thereof are committed to lend up to, at least
$25.0 million and is specifically designated by the Company in the instrument
evidencing or governing such Senior Indebtedness as "Designated Senior
Indebtedness" for purposes of this Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital
Stock to the extent that by its terms (or by the terms of any security into
which it is convertible or for which it is exchangeable) or upon the happening
of any event, it (i) matures or is mandatorily redeemable pursuant to a sinking
fund obligation or otherwise, (ii) is convertible or exchangeable for
Indebtedness or Disqualified Stock or (iii) is redeemable, in whole or in part,
at the option of the holder thereof, in each case described in the immediately
preceding clause (i), (ii) or (iii) on or prior to the Stated Maturity of the
Securities; PROVIDED, HOWEVER, that any Capital Stock that would not constitute
Disqualified Stock but for provisions thereof giving holders thereof the right
to require such Person to repurchase or redeem such Capital Stock upon the
occurrence of an "asset sale" or "change of control" occurring prior to the
Stated Maturity of the Securities shall not constitute Disqualified Stock if the
"asset sale" or "change of control" provisions applicable to such Capital Stock
are not more favorable to the holders of such Capital Stock than the provisions
contained in Sections 4.06 and 4.08; PROVIDED FURTHER, HOWEVER, that the
Company's Convertible Exchangeable Preferred Stock outstanding on the Issue Date
shall not be deemed Disqualified Stock.
<PAGE>
15
"Dollar-Denominated Production Payments" means production payment
obligations recorded as liabilities in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"EBITDA" for any period means the sum of Consolidated Net Income,
PLUS Consolidated Interest Expense PLUS the following to the extent deducted
in calculating such Consolidated Net Income: (a) provision for taxes based
on income or profits, (b) depletion and depreciation expense, (c)
amortization expense, (d) exploration costs and (e) all other non-cash
charges (excluding any such non-cash charge to the extent that it represents
an accrual of or reserve for cash charges in any future period or
amortization of a prepaid cash expense that was paid in a prior period except
such amounts as the Company determines in good faith are nonrecurring), and
LESS, to the extent included in calculating such Consolidated Net Income and
in excess of any costs or expenses attributable thereto and deducted in
calculating such Consolidated Net Income, the sum of (x) the amount of
deferred revenues that are amortized during such period and are attributable
to reserves that are subject to Volumetric Production Payments and (y)
amounts recorded in accordance with GAAP as repayments of principal and
interest pursuant to Dollar-Denominated Production Payments. Notwithstanding
the foregoing, the provision for taxes based on the income or profits of, and
the depreciation and amortization and other non-cash charges of, a Subsidiary
of the Company shall be added to Consolidated Net Income to compute EBITDA
only to the extent (and in the same proportion) that the net income of such
Subsidiary was included in calculating Consolidated Net Income and only if a
corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Subsidiary without prior approval (that has
not been obtained), pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to such Subsidiary or its stockholders.
"Equity Offering" means a primary offering, whether public or
private, of shares of common stock of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
<PAGE>
16
"GAAP" means generally accepted accounting principles in the United
States of America as in effect on the Issue Date, including those set forth
in (i) the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession, and (iv) the rules and regulations of the SEC
governing the inclusion of financial statements (including pro forma
financial statements) in periodic reports required to be filed pursuant to
Section 13 of the Exchange Act, including opinions and pronouncements in
staff accounting bulletins and similar written statements from the accounting
staff of the SEC.
"Guarantee" means, without duplication, any obligation, contingent
or otherwise, of any Person directly or indirectly guaranteeing any
Indebtedness of any Person and any obligation, direct or indirect, contingent
or otherwise, of such Person (i) to purchase or pay (or advance or supply
funds for the purchase or payment of) such Indebtedness of such Person
(whether arising by virtue of partnership arrangements, or by agreements to
keep-well, to purchase assets, goods, securities or services, to take-or-pay
or to maintain financial statement conditions or otherwise) or (ii) entered
into for the purpose of assuring in any other manner the obligee of such
Indebtedness of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); PROVIDED, HOWEVER, that the term
"Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning. The term "Guarantor" shall mean any Person
Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such
Person pursuant to any Oil and Gas Hedging Contract, Interest Rate Agreement
or Currency Agreement.
"Holder" or "Securityholder" means the Person in whose name a
Security is registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become
liable for; PROVIDED, HOWEVER, that any Indebtedness or Capital Stock of a
Person existing at the
<PAGE>
17
time such Person becomes a Subsidiary (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary
at the time it becomes a Subsidiary. The term "Incurrence" when used as a
noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security shall not be deemed the
Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if
any) in respect of (A) indebtedness of such Person for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other similar
instruments for the payment of which such Person is responsible or liable;
(ii) all Capital Lease Obligations of such Person and all Attributable Debt
in respect of Sale/Leaseback Transactions entered into by such Person; (iii)
all obligations of such Person issued or assumed as the deferred purchase
price of property (which purchase price is due more than six months after the
date of taking delivery of title to such property), including all obligations
of such Person for the deferred purchase price of property under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business); (iv) all obligations of such Person for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction (other than obligations with respect to letters of
credit securing obligations (other than obligations described in (i) through
(iii) above) entered into in the ordinary course of business of such Person
to the extent such letters of credit are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed no later than the tenth
Business Day following receipt by such Person of a demand for reimbursement
following payment on the letter of credit); (v) the amount of all obligations
of such Person with respect to the redemption, repayment or other repurchase
of any Disqualified Stock or, with respect to any Subsidiary of such Person
the liquidation preference with respect to, any Preferred Stock (but
excluding, in each case, any accrued dividends); (vi) all obligations of such
Person relating to any Production Payment or in respect of production
imbalances (but excluding production imbalances arising in the ordinary
course of business); (vii) all obligations of the type referred to in clauses
(i) through (vi) of other Persons and all dividends of other Persons for the
payment of which, in either case, such Person is responsible or liable,
directly or indirectly, as obligor, guarantor or
<PAGE>
18
otherwise, including by means of any Guarantee (including, with respect to
any Production Payment, any warranties or guarantees of production or payment
by such Person with respect to such Production Payment but excluding other
contractual obligations of such Person with respect to such Production
Payment); (viii) all obligations of the type referred to in clauses (i)
through (vii) of other Persons secured by any Lien on any property or asset
of such first-mentioned Person (whether or not such obligation is assumed by
such first-mentioned Person), the amount of such obligation being deemed to
be the lesser of the value of such property or assets or the amount of the
obligation so secured and (ix) to the extent not otherwise included in this
definition, Hedging Obligations of such Person. The amount of Indebtedness
of any Person at any date shall be the outstanding balance at such date of
all unconditional obligations as described above and the maximum liability,
upon the occurrence of the contingency giving rise to the obligation, of any
contingent obligations at such date.
It is understood that none of the following shall constitute
Indebtedness: (i) indebtedness arising from agreements providing for
indemnification or adjustment of purchase price or from guarantees securing
any obligations of the Company or any of its Subsidiaries pursuant to such
agreements, incurred or assumed in connection with the disposition of any
business, assets or Subsidiary of the Company, other than guarantees or
similar credit support by the Company or any of its Subsidiaries of
Indebtedness incurred by any Person acquiring all or any portion of such
business, assets or Subsidiary for the purpose of financing such acquisition;
(ii) any trade payables and other accrued liabilities incurred in the
ordinary course of business as the deferred purchase price of property; (iii)
obligations arising from guarantees to suppliers, lessors, licensees,
contractors, franchisees or customers incurred in the ordinary course of
business; (iv) obligations (other than express Guarantees of indebtedness for
borrowed money) in respect of Indebtedness of other Persons arising in
connection with (A) the sale or discount of accounts receivable, (B) trade
acceptances and (C) endorsements of instruments for deposit in the ordinary
course of business; (v) obligations in respect of performance bonds provided
by the Company or its Subsidiaries in the ordinary course of business and
refinancings thereof; (vi) obligations arising from the honoring by a bank or
other financial institution of a check, draft or similar instrument drawn
against insufficient funds in the ordinary course of business;
<PAGE>
19
PROVIDED, HOWEVER, that such obligation is extinguished within two business
days of its incurrence; and (vii) obligations in respect of any obligations
under workers' compensation laws and similar legislation.
"Indenture" means this Indenture as amended or supplemented from
time to time, including the provisions of the TIA that are deemed to be a
part of and govern this Indenture and any supplemental indenture,
respectively.
"Interest Rate Agreement" means any interest rate swap agreement,
interest rate cap agreement or other financial agreement or arrangement
designed to protect the Company or any Restricted Subsidiary against
fluctuations in interest rates.
"Investment" in any Person means any direct or indirect advance,
loan (other than advances to customers or joint interest partners or drilling
partnerships sponsored by the Company or any Restricted Subsidiary in the
ordinary course of business that are recorded as accounts receivable on the
balance sheet of the lender) or other extensions of credit (including by way
of Guarantee or similar arrangement) or capital contribution to (by means of
any transfer of cash or other property to others or any payment for property
or services for the account or use of others), or any purchase or acquisition
of Capital Stock, Indebtedness or other similar instruments issued by such
Person. For purposes of the definition of "Unrestricted Subsidiary", the
definition of "Restricted Payment" and Section 4.04, (i) "Investment" shall
include the portion (proportionate to the Company's equity interest in such
Subsidiary) of the fair market value of the net assets of any Subsidiary of
the Company at the time that such Subsidiary is designated an Unrestricted
Subsidiary; PROVIDED, HOWEVER, that upon a redesignation of such Subsidiary
as a Restricted Subsidiary, the Company shall be deemed to continue to have a
permanent "Investment" in an Unrestricted Subsidiary equal to an amount (if
positive) equal to (x) the Company's "Investment" in such Subsidiary at the
time of such redesignation less (y) the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of such Subsidiary at the time of such redesignation; and (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair market value at the time of such transfer, in each case as
determined in good faith by the Board of Directors.
<PAGE>
20
"Issue Date" means the date on which the Securities are originally
issued.
"Kelley Oil" means the party named as such in the preamble to this
Indenture until a successor replaces it and, thereafter, means the successor.
"Kelley Operating" means the party named as such in the preamble to
this Indenture until a successor replaces it and, thereafter, means the
successor.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any conditional sale or other title
retention agreement or lease in the nature thereof).
"Limited Recourse Indebtedness" means, with respect to any
Production Payments, Indebtedness, the terms of which limit the liability of
the Company and its Restricted Subsidiaries solely to the hydrocarbons
covered by such Production Payments; PROVIDED, HOWEVER, that no default with
respect to such Indebtedness would permit any holder of any other
Indebtedness of the Company or any Restricted Subsidiary to declare a default
on such other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity.
"Material Change" means an increase or decrease (excluding changes
that result solely from changes in prices) of more than 15% during a fiscal
quarter in the discounted future net revenues from proved oil and gas
reserves of the Company and its Restricted Subsidiaries, calculated in
accordance with clause (a)(i) of the definition of Adjusted Consolidated Net
Tangible Assets; PROVIDED, HOWEVER, that the following will be excluded from
the calculation of Material Change: (i) any acquisitions during the fiscal
quarter of oil and gas reserves that have been estimated by independent
petroleum engineers and with respect to which a report or reports of such
engineers exist and (ii) any disposition of properties existing at the
beginning of such fiscal quarter that have been disposed of in compliance
with Section 4.06.
"Net Available Cash" from an Asset Disposition means cash payments
received therefrom (including any cash payments received by way of deferred
payment of principal pursuant to a note or installment receivable or
otherwise, but only as and when received, but excluding any other
<PAGE>
21
consideration received in the form of assumption by the acquiring Person of
Indebtedness or other obligations relating to such properties or assets or
received in any other noncash form) in each case net of (i) all legal, title
and recording tax expenses, commissions and other fees (including financial
and other advisory fees) and expenses incurred, and all Federal, state,
provincial, foreign and local taxes required to be accrued as a liability
under GAAP, as a consequence of such Asset Disposition, (ii) all payments
made on any Indebtedness which is secured by any assets subject to such Asset
Disposition, in accordance with the terms of any Lien upon or other security
agreement of any kind with respect to such assets, or which must by its
terms, or in order to obtain a necessary consent to such Asset Disposition,
or by applicable law, be repaid out of the proceeds from such Asset
Disposition, (iii) all distributions and other payments required to be made
to minority interest holders in Subsidiaries or joint ventures as a result of
such Asset Disposition and (iv) the deduction of appropriate amounts provided
by the seller as a reserve, in accordance with GAAP, against any liabilities
associated with the property or other assets disposed in such Asset
Disposition and retained by the Company or any Restricted Subsidiary after
such Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital
Stock, means the cash proceeds of such issuance or sale net of attorneys'
fees, accountants' fees, underwriters' or placement agents' fees, discounts
or commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Net Present Value" means, with respect to any proved hydrocarbon
reserves, the discounted future net revenues associated with such reserves,
determined in accordance with the rules and regulations (including
interpretations thereof) of the SEC in effect on the Issue Date.
"Net Working Capital" means (a) all current assets of the Company
and its Restricted Subsidiaries MINUS (b) all current liabilities of the
Company and its Restricted Subsidiaries, except current liabilities included
in Indebtedness, determined in accordance with GAAP.
<PAGE>
22
"Offering Memorandum" means the Offering Memorandum dated October
25, 1996, in connection with the sale of the Initial Securities.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer, any Assistant Treasurer, the Secretary or any
Assistant Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers.
"Oil and Gas Business" means the business of the exploration for,
and exploitation, development, acquisition, production, processing (but not
refining), marketing, storage and transportation of, hydrocarbons, and other
related energy and natural resource businesses (including oil and gas
services businesses related to the foregoing).
"Oil and Gas Hedging Contract" means any oil and gas purchase or
hedging agreement, and other agreement or arrangement, in each case, that is
designed to provide protection against oil and gas price fluctuations.
"Opinion of Counsel" means a written opinion from legal counsel who
is acceptable to the Trustee. The counsel may be an employee of or counsel
to the Company or the Trustee.
"Permitted Business Investment" means any Investment made in the
ordinary course of, and of a nature that is or shall have become customary
in, the Oil and Gas Business as a means of actively exploiting, exploring
for, acquiring, developing, producing, processing, gathering, marketing or
transporting oil and gas through agreements, transactions, interests or
arrangements which permit one to share risks or costs, comply with regulatory
requirements regarding local ownership or satisfy other objectives
customarily achieved though the conduct of Oil and Gas Business jointly with
third parties, including (i) ownership interests in oil and gas properties,
processing facilities, gathering systems or ancillary real property interests
and (ii) Investments in the form of or pursuant to operating agreements,
processing agreements, farm-in agreements, farm-out agreements, development
agreements, area of mutual interest agreements, unitization agreements,
pooling agreements, joint bidding agreements, service contracts, joint
venture agreements, partnership agreements (whether
<PAGE>
23
general or limited), subscription agreements, stock purchase agreements and
other similar agreements with third parties.
"Permitted Holders" means (i) the members of Contour Production
Company L.L.C., a Delaware limited liability company ("Contour"), as of the
Issue Date (the "Contour Group"), (ii) Contour, so long as Contour is
controlled (as defined in the definition of "Affiliate" above), directly or
indirectly, by the Contour Group, (iii) officers, principals, employees,
direct or indirect owners or Affiliates of Persons described in clauses (i)
or (ii), (iv) Persons who beneficially own Voting Stock of the Company on the
Issue Date and (v) officers or employees of the Company or any of its
Subsidiaries as of the Issue Date.
"Permitted Investment" means an Investment by the Company or any
Restricted Subsidiary in (i) a Restricted Subsidiary or a Person that will,
upon the making of such Investment, become a Restricted Subsidiary; PROVIDED,
HOWEVER, that the primary business of such Restricted Subsidiary is an Oil
and Gas Business; (ii) another Person if as a result of such Investment such
other Person is merged or consolidated with or into, or transfers or conveys
all or substantially all its assets to, the Company or a Restricted
Subsidiary; PROVIDED, HOWEVER, that such Person's primary business is an Oil
and Gas Business; (iii) Temporary Cash Investments; (iv) receivables owing to
the Company or any Restricted Subsidiary if created or acquired in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; PROVIDED, HOWEVER, that such trade terms may include
such concessionary trade terms as the Company or any such Restricted
Subsidiary deems reasonable under the circumstances; (v) payroll, travel and
similar advances to cover matters that are expected at the time of such
advances ultimately to be treated as expenses for accounting purposes and
that are made in the ordinary course of business; (vi) loans or advances to
employees made in the ordinary course of business; (vii) stock, obligations
or securities received in settlement of debts created in the ordinary course
of business and owing to the Company or any Restricted Subsidiary or in
satisfaction of judgments; (viii) any Person to the extent such Investment
represents the non-cash portion of the consideration received for an Asset
Disposition as permitted pursuant to Section 4.06 and (ix) Permitted Business
Investments.
"Permitted Liens" means, with respect to any Person, (a) pledges or
deposits by such Person under
<PAGE>
24
worker's compensation laws, unemployment insurance laws or similar
legislation, or good faith deposits in connection with bids, tenders,
contracts (other than for the payment of Indebtedness) or leases to which
such Person is a party, or deposits to secure public or statutory obligations
of such Person or deposits of cash or United States government bonds to
secure surety or appeal bonds to which such Person is a party, or deposits as
security for contested taxes or import duties or for the payment of rent, in
each case Incurred in the ordinary course of business; (b) Liens imposed by
law, such as carriers', warehousemen's and mechanics' Liens, in each case for
sums not yet due or being contested in good faith by appropriate proceedings
or other Liens arising out of judgments or awards against such Person with
respect to which such Person shall then be proceeding with an appeal or other
proceedings for review; (c) Liens for property taxes not yet subject to
penalties for non-payment or which are being contested in good faith and by
appropriate proceedings; (d) Liens in favor of issuers of surety bonds or
letters of credit issued pursuant to the request of and for the account of
such Person in the ordinary course of its business; PROVIDED, HOWEVER, that
such letters of credit do not constitute Indebtedness; (e) minor survey
exceptions, minor encumbrances, easements or reservations of, or rights of
others for, licenses, rights of way, sewers, electric lines, telegraph and
telephone lines and other similar purposes, or zoning or other restrictions
as to the use of real property or Liens incidental to the conduct of the
business of such Person or to the ownership of its properties which were not
Incurred in connection with Indebtedness and which do not in the aggregate
materially impair their use in the operation of the business of such Person;
(f) Liens securing Indebtedness Incurred to finance the construction,
purchase or lease of, or repairs, improvements or additions to, property of
such Person (including Liens securing Indebtedness of the pollution control
or revenue bond type); PROVIDED, HOWEVER, that the Lien may not extend to any
other property owned by such Person or any of its Subsidiaries at the time
the Lien is Incurred, and the Indebtedness secured by the Lien may not be
Incurred more than 180 days after the later of the acquisition, completion of
construction, repair, improvement, addition or commencement of full operation
of the property subject to the Lien; (g) Liens securing Indebtedness
permitted under Section 4.03(b)(1) or Section 4.03(b)(8); PROVIDED, HOWEVER,
that any such Lien securing Indebtedness described in Section 4.03(b)(8)
shall be limited to the hydrocarbons related thereto and any
<PAGE>
25
gathering systems utilized in gathering and transporting such hydrocarbons;
(h) Liens existing on the Issue Date; (i) Liens on property or shares of
Capital Stock of another Person at the time such other Person becomes a
Subsidiary of such Person; PROVIDED, HOWEVER, that such Liens are not
created, incurred or assumed in connection with, or in contemplation of, such
other Person becoming such a Subsidiary; PROVIDED FURTHER, HOWEVER, that such
Lien may not extend to any other property owned by such Person or any of its
Subsidiaries; (j) Liens on property at the time such Person or any of its
Subsidiaries acquires the property, including any acquisition by means of a
merger or consolidation with or into such Person or a Subsidiary of such
Person; PROVIDED, HOWEVER, that such Liens are not created, incurred or
assumed in connection with, or in contemplation of, such acquisition;
PROVIDED FURTHER, HOWEVER, that the Liens may not extend to any other
property owned by such Person or any of its Subsidiaries; (k) Liens securing
Indebtedness or other obligations of a Subsidiary of such Person owing to
such Person or a wholly owned Subsidiary of such Person (or, in the case of
the Company, to a Wholly Owned Subsidiary); (l) Liens securing Hedging
Obligations so long as such Hedging Obligations relate to Indebtedness that
is, and is permitted to be under this Indenture, secured by a Lien on the
same property securing such Hedging Obligations; (m) Liens arising in the
ordinary course of business in favor of the United States, any state thereof,
any foreign country or any department, agency, instrumentality or political
subdivision of any such jurisdiction, to secure partial, progress, advance or
other payments pursuant to any contract or statute; (n) Liens to secure any
Refinancing (or successive Refinancings) as a whole, or in part, of any
Indebtedness secured by any Lien referred to in the foregoing clauses (f),
(h), (i) and (j); PROVIDED, HOWEVER, that (x) such new Lien shall be limited
to all or part of the same property that secured the original Lien (plus
improvements to or on such property) and (y) the Indebtedness secured by such
Lien at such time is not increased to any amount greater than the sum of (A)
the outstanding principal amount or, if greater, committed amount of the
Indebtedness described under clause (f), (h),(i) or (j) at the time the
original Lien became a Permitted Lien and (B) an amount necessary to pay any
fees and expenses, including premiums, related to such Refinancing; (o) Liens
on, or related to, properties to secure all or part of the costs incurred in
the ordinary course of business of exploration, drilling, development or
operation thereof; (p) Liens on pipeline or pipeline
<PAGE>
26
facilities which arise out of operation of law; (q) Liens reserved in oil and
gas mineral leases for bonus or rental payments and for compliance with the
terms of such leases; and (r) Liens arising under partnership agreements, oil
and gas leases, farm-out agreements, division orders, contracts for the sale,
purchase, exchange, transportation or processing (but not the refining) of
oil, gas or other hydrocarbons, unitization and pooling declarations and
agreements, development agreements, operating agreements, area of mutual
interest agreements, and other similar agreements which are customary in the
Oil and Gas Business. Notwithstanding the foregoing, "Permitted Liens" will
not include any Lien described in clause (f), (i) or (j) above to the extent
(A) such Lien applies to any Additional Assets or Permitted Business
Investment acquired directly or indirectly from Net Available Cash pursuant
to Section 4.06(a)(i)(B) or Section 4.06(c) and (B) the fair value of such
Additional Assets or Permitted Business Investment is less than the sum of
(x) the amount of Indebtedness secured by such Lien plus (y) the amount of
Net Available Cash so invested in such Additional Assets or Permitted
Business Investment.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or
any other entity.
"Preferred Stock", as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however designated)
which is preferred as to the payment of dividends, or as to the distribution
of assets upon any voluntary or involuntary liquidation or dissolution of
such corporation, over shares of Capital Stock of any other class of such
corporation.
"principal" of a Security means the principal of the Security plus
the premium, if any, payable on the Security which is due or overdue or is to
become due at the relevant time.
"Production Payments" means, collectively, Dollar-Denominated
Production Payments and Volumetric Production Payments.
"Programs" means Kelley Partners 1992 Development Drilling Program, a
Texas limited partnership, and Kelley
<PAGE>
27
Partners 1994 Development Drilling Program, a Texas limited partnership,
together with Kelley Partners 1992 Development Drilling Joint Venture, a
Texas general partnership, Kelley Partners 1994 Development Drilling Joint
Venture, a Texas general partnership, and each of their respective successors.
"Public Market" means any time when at least 15% of the total issued
and outstanding common stock of the Company has been distributed by means of
an effective registration statement under the Securities Act or sales
pursuant to Rule 144 under the Securities Act.
"Refinance" means, in respect of any Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue
other Indebtedness in exchange or replacement for, such Indebtedness
(including an Incurrence pursuant to clause (ii) of Section 5.01 or Section
5.02). "Refinanced" and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the
Issue Date or Incurred in compliance with this Indenture including
Indebtedness that Refinances Refinancing Indebtedness and Indebtedness that
is deemed to be Incurred at the time of a merger or consolidation pursuant to
clause (ii) of Section 5.01 or Section 5.02; PROVIDED, HOWEVER, that (i) such
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced, (ii) such Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the
Indebtedness being Refinanced and (iii) such Refinancing Indebtedness has an
aggregate principal amount (or if Incurred with original issue discount, an
aggregate issue price) that is equal to or less than the aggregate principal
amount (or if Incurred with original issue discount, the aggregate accreted
value) then outstanding or committed (plus fees and expenses, including any
premium and defeasance costs) under the Indebtedness being Refinanced;
PROVIDED FURTHER, HOWEVER, that Refinancing Indebtedness shall not include
(x) Indebtedness of a Subsidiary (other than a Subsidiary Guarantor) that
Refinances Indebtedness of the Company or (y) Indebtedness of the Company or
a Restricted Subsidiary that Refinances Indebtedness of an Unrestricted
Subsidiary.
<PAGE>
28
"Representative" means any trustee, agent or representative (if any)
for an issue of Senior Indebtedness of the Company.
"Restricted Payment" with respect to any Person means (i) the
declaration or payment of any dividends or any other distributions of any
sort in respect of its Capital Stock (including any payment in connection
with any merger or consolidation involving such Person) or similar payment to
the direct or indirect holders of its Capital Stock (other than (x) dividends
or distributions payable solely in its Capital Stock (other than Disqualified
Stock), (y) dividends or distributions payable solely to the Company or a
Restricted Subsidiary and (z) pro rata dividends or other distributions made
by a Subsidiary that is not a Wholly Owned Subsidiary to minority
stockholders (or owners of an equivalent interest in the case of a Subsidiary
that is an entity other than a corporation)), (ii) the purchase, redemption
or other acquisition or retirement for value of any Capital Stock of the
Company held by any Person or of any Capital Stock of a Restricted Subsidiary
held by any Affiliate of the Company (other than a Restricted Subsidiary),
including the exercise of any option to exchange any Capital Stock (other
than into Capital Stock of the Company that is not Disqualified Stock), (iii)
the purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment of any Subordinated Obligations (other than
the purchase, repurchase or other acquisition of Subordinated Obligations
purchased in anticipation of satisfying a sinking fund obligation, principal
installment or final maturity, in each case due within one year of the date
of acquisition) or (iv) the making of any Investment in any Person (other
than a Permitted Investment).
"Restricted Subsidiary" means any Subsidiary of the Company that is
not an Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to
property now owned or hereafter acquired whereby the Company or a Restricted
Subsidiary transfers such property to a Person and the Company or a
Restricted Subsidiary leases it from such Person.
"SEC" means the Securities and Exchange Commission.
<PAGE>
29
"Secured Indebtedness" means any Indebtedness of the Company secured
by a Lien.
"Securities" means the Securities issued under this Indenture.
"Senior Indebtedness" means with respect to any Person (i)
Indebtedness of such Person, and all obligations of such Person under any
Credit Facility, whether outstanding on the Issue Date or thereafter
Incurred, and (ii) accrued and unpaid interest (including interest accruing
on or after the filing of any petition in bankruptcy or for reorganization
relating to such Person to the extent post-filing interest is allowed in such
proceeding) in respect of (A) indebtedness of such Person for money borrowed
and (B) indebtedness evidenced by notes, debentures, bonds or other similar
instruments for the payment of which such Person is responsible or liable
unless, with respect to obligations described in the immediately preceding
clause (i) or (ii), in the instrument creating or evidencing the same or
pursuant to which the same is outstanding, it is provided that such
obligations are subordinate in right of payment to the Securities or the
applicable Subsidiary Guaranty, as the case may be; PROVIDED, HOWEVER, that
Senior Indebtedness shall not include (1) any obligation of such Person to
any Subsidiary of such Person, (2) any liability for Federal, state, local or
other taxes owed or owing by such Person, (3) any accounts payable or other
liability to trade creditors arising in the ordinary course of business
(including guarantees thereof or instruments evidencing such liabilities),
(4) any Indebtedness of such Person (and any accrued and unpaid interest in
respect thereof) which is subordinate or junior in any respect to any other
Indebtedness or other obligation of such Person or (5) that portion of any
Indebtedness which at the time of Incurrence is Incurred in violation of this
Indenture (other than, in the case of the Company or any of its Restricted
Subsidiaries, Indebtedness under any Credit Facility that is Incurred on the
basis of a representation by the Company to the applicable lenders that such
person is permitted to Incur such Indebtedness under this Indenture).
"Senior Subordinated Indebtedness" means (i) with respect to the
Company, the Securities and any other Indebtedness of the Company that
specifically provides that such Indebtedness is to rank PARI PASSU with the
Securities in right of payment and is not subordinated by its terms in
<PAGE>
30
right of payment to any Indebtedness or other obligation of the Company which
is not Senior Indebtedness and (ii) with respect to any Subsidiary Guarantor,
the Subsidiary Guaranty of such Subsidiary Guarantor and any other
Indebtedness of such Subsidiary Guarantor that specifically provides that
such Indebtedness is to rank PARI PASSU with such Subsidiary Guaranty in
right of payment and is not subordinated by its terms in right of payment to
any Indebtedness or other obligation of such Subsidiary Guarantor which is
not Senior Indebtedness.
"Significant Subsidiary" means any Restricted Subsidiary that would
be a "Significant Subsidiary" of the Company within the meaning of Rule 1-02
under Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the final payment of
principal of such security is due and payable, including pursuant to any
mandatory redemption provision (but excluding any provision providing for the
repurchase of such security at the option of the holder thereof upon the
happening of any contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Company
(whether outstanding on the Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the Securities pursuant to a
written agreement to that effect.
"Subsidiary" means, in respect of any Person, any corporation,
association, partnership or other business entity of which more than 50% of
the total voting power of shares of Capital Stock or other interests
(including partnership interests) entitled (without regard to the occurrence
of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly,
by (i) such Person, (ii) such person and one or more Subsidiaries of such
Person or (iii) one or more Subsidiaries of such Person.
"Subsidiary Guarantor" means Kelley Operating, Kelley Oil and each
other Restricted Subsidiary of the Company (other than the Programs) that
(i) has total net assets as of the end of the most recent fiscal year (as set
forth on the balance sheet of such Subsidiary prepared in accordance with GAAP)
equal to or greater than the greater
<PAGE>
31
of $2.5 million and one percent (1%) of Adjusted Consolidated Net Tangible
Assets as of such date and (ii) delivers a Subsidiary Guaranty.
"Subsidiary Guaranty" means a Guarantee, pursuant to Article 11 of
this Indenture, by a Subsidiary Guarantor of the Company's obligations with
respect to the Securities, which Guarantee will be subordinated to Senior
Indebtedness of such Subsidiary Guarantor on substantially the same terms as
the Securities are subordinated to Senior Indebtedness of the Company.
"Temporary Cash Investments" means any of the following: (i) any
investment in direct obligations of the United States of America or any
agency thereof or obligations guaranteed by the United States of America or
any agency thereof, (ii) investments in time deposit accounts, certificates
of deposit and money market deposits maturing within 180 days of the date of
acquisition thereof issued by a bank or trust company which is organized
under the laws of the United States of America, any state thereof or any
foreign country recognized by the United States, and which bank or trust
company has capital, surplus and undivided profits aggregating in excess of
$50.0 million (or the foreign currency equivalent thereof) and has
outstanding debt which is rated "A" (or such similar equivalent rating) or
higher by at least one nationally recognized statistical rating organization
(as defined in Rule 436 under the Securities Act) or any money-market fund
sponsored by a registered broker dealer or mutual fund distributor, (iii)
repurchase obligations with a term of not more than 30 days for underlying
securities of the types described in clause (i) above entered into with a
bank meeting the qualifications described in clause (ii) above, (iv)
investments in commercial paper, maturing not more than 180 days after the
date of acquisition, issued by a Person (other than an Affiliate of the
Company) organized and in existence under the laws of the United States of
America or any foreign country recognized by the United States of America
with a rating at the time as of which any investment therein is made of "P-2"
(or higher) according to Moody's Investors Service, Inc. or "A-2" (or higher)
according to Standard & Poor's Ratings Group, and (v) investments in
securities with maturities of six months or less from the date of acquisition
issued or fully guaranteed by any state, commonwealth or territory of the
United States of America, or by any political subdivision or taxing authority
thereof, and rated at least "A" by Standard & Poor's Ratings
<PAGE>
32
Services, a division of the McGraw-Hill Companies Inc., or "A" by Moody's
Investors Service, Inc.
"TIA" means the Trust Indenture Act of 1939, as amended (15 U.S.C.
Sections 77aaa-77bbbb), as in effect on the date of this Indenture except as
provided in Section 9.03.
"Total Assets" of the Company means the total consolidated assets of
the Company and its Restricted Subsidiaries, as shown on the most recent
balance sheet of the Company.
"Trustee" means the party named as such in the preamble to this
Indenture until a successor replaces it and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the President or
any other officer or assistant officer of the Trustee assigned by the Trustee
to administer its corporate trust matters.
"Uniform Commercial Code" means the New York Uniform Commercial Code
as in effect from time to time.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company
that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors in the manner provided below and (ii)
any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may
designate any Subsidiary of the Company (including any newly acquired or
newly formed Subsidiary) to be an Unrestricted Subsidiary unless such
Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness
of, or holds any Lien on any property of, the Company or any other Subsidiary
of the Company that is not a Subsidiary of the Subsidiary to be so
designated; PROVIDED, HOWEVER, that either (A) the Subsidiary to be so
designated has total assets of $1,000 or less or (B) if such Subsidiary has
assets greater than $1,000, such designation would be permitted under Section
4.04. The Board of Directors may designate any Unrestricted Subsidiary to be
a Restricted Subsidiary; PROVIDED, HOWEVER, that immediately after giving
effect to such designation (x) the Company could Incur $1.00 of additional
Indebtedness under Section 4.03(a) and (y) no Default shall have occurred and
be continuing. Any such designation by the Board of Directors shall be
evidenced by the Company to the Trustee by promptly filing with the Trustee a
copy of the board resolution giving effect to such
<PAGE>
33
designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof)
for the payment of which the full faith and credit of the United States of
America is pledged and which are not callable at the issuer's option.
"Volumetric Production Payments" means production payment
obligations recorded as deferred revenue in accordance with GAAP, together
with all undertakings and obligations in connection therewith.
"Voting Stock" of a Person means all classes of Capital Stock or
other interests (including partnership interests) of such Person then
outstanding and normally entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees
thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the
Capital Stock of which (other than directors' qualifying shares and shares
held by other Persons to the extent such shares are required by applicable
law to be held by a Person other than the Company or a Restricted Subsidiary)
is owned by the Company or one or more Wholly Owned Subsidiaries.
Section 1.02. OTHER DEFINITIONS.
Defined in
Term Section
---- -------
"Affiliate Transaction" 4.07
"Bankruptcy Law" 6.01
"Blockage Notice" 10.03
"covenant defeasance option" 8.01(b)
"Custodian" 6.01
"Event of Default" 6.01
"Excess Proceeds" 4.06(a)
"Excess Proceeds Offer" 4.06(b)(i)
"Excess Proceeds Payment" 4.06(b)(i)
"Excess Proceeds Payment Date" 4.06(b)(ii)
"Guaranteed Obligations" 11.01
"legal defeasance option" 8.01(b)
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34
"Legal Holiday" 12.08
"pay the Securities" 10.03
"Paying Agent" 2.03
"Payment Blockage Period" 10.03
"Registrar" 2.03
"Successor Company" 5.01
Additional terms used in this Indenture are defined in Annex A hereto.
Section 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
This Indenture is subject to the mandatory provisions of the TIA which are
incorporated by reference in and made a part of this Indenture. The
following TIA terms have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities and, to the extent
Subsidiary Guaranties are given, such Subsidiary Guaranties.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company and any other
obligor on the indenture securities, including any Subsidiary Guarantors.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule have
the meanings assigned to them by such definitions.
Section 1.04. RULES OF CONSTRUCTION. Unless the context otherwise
requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
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35
(3) "or" is not exclusive;
(4) "including" means including without limitation;
(5) words in the singular include the plural and words in the plural
include the singular;
(6) unsecured Indebtedness shall not be deemed to be subordinate or
junior to Secured Indebtedness merely by virtue of its nature as
unsecured Indebtedness;
(7) the principal amount of any noninterest bearing or other discount
security at any date shall be the principal amount thereof that would
be shown on a balance sheet of the Company dated such date prepared in
accordance with GAAP;
(8) the principal amount of any Preferred Stock shall be (i) the
maximum liquidation value of such Preferred Stock or (ii) the maximum
mandatory redemption or mandatory repurchase price with respect to
such Preferred Stock, whichever is greater; and
(9) all references to the date the Securities were originally issued
shall refer to the date the Initial Securities were originally issued.
ARTICLE 2
THE SECURITIES
Section 2.01. FORM AND DATING. Provisions relating to the Initial
Securities and the Exchange Securities are set forth in Appendix A, which is
hereby incorporated in and expressly made part of this Indenture. The Initial
Securities and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit 1 to Appendix A which is hereby
incorporated in and expressly made a part of this Indenture. The Exchange
Securities and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit 2 to Appendix A, which is hereby
incorporated in and expressly made a part of this Indenture. The Securities
may have notations, legends or
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36
endorsements required by law, stock exchange rule, agreements to which the
Company is subject, if any, or usage (provided that any such notation, legend
or endorsement is in a form acceptable to the Company). Each Security shall
be dated the date of its authentication. The terms of the Securities set
forth in Exhibit 1 and Exhibit 2 to Appendix A are part of the terms of this
Indenture.
Section 2.02. EXECUTION AND AUTHENTICATION. Two Officers shall
sign the Securities for the Company by manual or facsimile signature. The
Company's seal shall be impressed, affixed, imprinted or reproduced on the
Securities and may be in facsimile form.
If an Officer whose signature is on a Security no longer holds that
office at the time the Trustee authenticates the Security, the Security shall
be valid nevertheless.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security.
The signature shall be conclusive evidence that the Security has been
authenticated under this Indenture.
The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate the Securities. Unless limited by
the terms of such appointment, an authenticating agent may authenticate
Securities whenever the Trustee may do so. Each reference in this Indenture
to authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as any Registrar, Paying Agent or
agent for service of notices and demands.
Section 2.03. REGISTRAR AND PAYING AGENT. The Company shall
maintain an office or agency where Securities may be presented for
registration of transfer or for exchange (the "Registrar") and an office or
agency where Securities may be presented for payment (the "Paying Agent").
The Registrar shall keep a register of the Securities and of their transfer
and exchange. The Company may have one or more co-registrars and one or more
additional paying agents. The term "Paying Agent" includes any additional
paying agent.
The Company shall enter into an appropriate agency agreement with
any Registrar, Paying Agent or co-registrar not a party to this Indenture,
which shall incorporate the terms of the TIA. The agreement shall implement
the provisions of this Indenture that relate to such agent. The
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37
Company shall notify the Trustee of the name and address of any such agent.
If the Company fails to maintain a Registrar or Paying Agent, the Trustee
shall act as such and shall be entitled to appropriate compensation therefor
pursuant to Section 7.07. The Company or any of its domestically incorporated
Wholly Owned Subsidiaries may act as Paying Agent, Registrar, co-registrar or
transfer agent.
The Company initially appoints the Trustee as Registrar and Paying
Agent in connection with the Securities.
Section 2.04. PAYING AGENT TO HOLD MONEY IN TRUST. Prior to each
due date of the principal and interest on any Security, the Company shall
deposit with the Paying Agent a sum sufficient to pay such principal and
interest when so becoming due. The Company shall require each Paying Agent
(other than the Trustee) to agree in writing that the Paying Agent shall hold
in trust for the benefit of Securityholders or the Trustee all money held by
the Paying Agent for the payment of principal of or interest on the
Securities and shall notify the Trustee of any default by the Company in
making any such payment. If the Company or a Subsidiary acts as Paying
Agent, it shall segregate the money held by it as Paying Agent and hold it as
a separate trust fund. The Company at any time may require a Paying Agent to
pay all money held by it to the Trustee and to account for any funds
disbursed by the Paying Agent. Upon complying with this Section, the Paying
Agent shall have no further liability for the money delivered to the Trustee.
Section 2.05. SECURITYHOLDER LISTS. The Trustee shall preserve in
as current a form as is reasonably practicable the most recent list available
to it of the names and addresses of Securityholders. If the Trustee is not
the Registrar, the Company shall furnish to the Trustee, in writing at least
five Business Days before each interest payment date and at such other times
as the Trustee may request in writing, a list in such form and as of such
date as the Trustee may reasonably require of the names and addresses of
Securityholders.
Section 2.06. REPLACEMENT SECURITIES. If a mutilated Security is
surrendered to the Registrar or if the Holder of a Security claims that the
Security has been lost, destroyed or wrongfully taken, the Company shall
issue and the Trustee shall authenticate and deliver a replacement Security
if the requirements of Section 8-405 of the Uniform
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38
Commercial Code are met and the Holder satisfies any other reasonable
requirements of the Trustee. If required by the Trustee or the Company, such
Holder shall furnish an indemnity bond sufficient in the judgment of the
Company and the Trustee to protect the Company, the Trustee, the Paying
Agent, the Registrar and any co-registrar from any loss which any of them may
suffer if a Security is replaced. The Company and the Trustee may charge the
Holder for their expenses in replacing a Security.
Every replacement Security is an additional obligation of the Company.
Section 2.07. OUTSTANDING SECURITIES. Securities outstanding at
any time are all Securities authenticated by the Trustee except for those
canceled by it, those delivered to it for cancellation and those described in
this Section as not outstanding. A Security does not cease to be outstanding
because the Company or an Affiliate of the Company holds the Security.
If a Security is replaced pursuant to Section 2.06, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Security is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in accordance
with this Indenture, on a redemption date or maturity date money sufficient
to pay all principal and interest payable on that date with respect to the
Securities (or portions thereof) to be redeemed or maturing, as the case may
be, and the Paying Agent is not prohibited from paying such money to the
Securityholders on that date pursuant to the terms of this Indenture, then on
and after that date such Securities (or portions thereof) cease to be
outstanding and interest on them ceases to accrue.
Section 2.08. TEMPORARY SECURITIES. Until definitive Securities
are ready for delivery, the Company may prepare and the Trustee shall
authenticate and deliver temporary Securities. Temporary Securities shall be
substantially in the form of definitive Securities but may have variations
that the Company considers appropriate for temporary Securities. Without
unreasonable delay, the Company shall prepare and the Trustee shall
authenticate definitive Securities and deliver them in exchange for temporary
Securities.
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39
Section 2.09. CANCELLATION. The Company at any time may deliver
Securities to the Trustee for cancellation. The Registrar and the Paying
Agent shall forward to the Trustee any Securities surrendered to them for
registration of transfer, exchange or payment. The Trustee and no one else
shall cancel and destroy (subject to the record retention requirements of the
Exchange Act) all Securities surrendered for registration of transfer,
exchange, payment or cancellation and deliver a certificate of such
destruction to the Company unless the Company directs the Trustee to deliver
canceled Securities to the Company. The Company may not issue new Securities
to replace Securities it has redeemed, paid or delivered to the Trustee for
cancellation.
Section 2.10. DEFAULTED INTEREST. If the Company defaults in a
payment of interest on the Securities, the Company shall pay defaulted
interest (plus interest on such defaulted interest to the extent lawful) in
any lawful manner. The Company may pay the defaulted interest to the persons
who are Securityholders on a subsequent special record date. The Company
shall fix or cause to be fixed any such special record date and payment date
to the reasonable satisfaction of the Trustee and shall mail promptly to each
Securityholder a notice that states the special record date, the payment date
and the amount of defaulted interest to be paid.
Section 2.11. CUSIP NUMBERS. The Company in issuing the Securities
may use "CUSIP" numbers (if then generally in use) and, if so, the Trustee
shall use "CUSIP" numbers in notices of redemption as a convenience to
Holders; PROVIDED, HOWEVER, 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 a redemption and
that reliance may be placed only on the other identification numbers printed
on the Securities, and any such redemption shall not be affected by any
defect in or omission of such numbers.
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40
ARTICLE 3
REDEMPTION
Section 3.01. NOTICES TO TRUSTEE. If the Company elects to redeem
Securities pursuant to paragraph 5 of the Securities, it shall notify the
Trustee in writing of the redemption date, the principal amount of Securities
to be redeemed and the paragraph of the Securities pursuant to which the
redemption will occur.
The Company shall give each notice to the Trustee provided for in
this Section at least 45 days before the redemption date unless the Trustee
consents to a shorter period. Such notice shall be accompanied by an
Officers' Certificate and an Opinion of Counsel from the Company to the
effect that such redemption will comply with the conditions herein.
Section 3.02. SELECTION OF SECURITIES TO BE REDEEMED. If fewer
than all the Securities are to be redeemed, the Trustee shall select the
Securities to be redeemed pro rata or by lot or by a method that complies
with applicable legal and securities exchange requirements, if any, and that
the Trustee in its sole discretion considers fair and appropriate. The
Trustee shall make the selection from outstanding Securities not previously
called for redemption. The Trustee may select for redemption portions of the
principal of Securities that have denominations larger than $1,000.
Securities and portions of them the Trustee selects shall be in amounts of
$1,000 or a whole multiple of $1,000. Provisions of this Indenture that apply
to Securities called for redemption also apply to portions of Securities
called for redemption. The Trustee shall notify the Company and the
Registrar and Paying Agent promptly of the Securities or portions of
Securities to be redeemed.
Section 3.03. NOTICE OF REDEMPTION. At least 30 days but not more
than 60 days before a date for redemption of Securities, the Company shall
mail a notice of redemption by first-class mail to each Holder of Securities
to be redeemed.
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41
The notice shall identify the Securities to be redeemed and shall
state:
(1) the redemption date;
(2) the redemption price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(5) if fewer than all the outstanding Securities are to be redeemed,
the identification and principal amounts of the particular Securities
to be redeemed;
(6) that, unless the Company defaults in making such redemption
payment or the Paying Agent is prohibited from making such payment
pursuant to the terms of this Indenture, interest on Securities (or
portion thereof) called for redemption ceases to accrue on and after
the redemption date; and
(7) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Securities.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. In such
event, the Company shall provide the Trustee with the information required by
this Section.
Section 3.04. EFFECT OF NOTICE OF REDEMPTION. Once notice of
redemption is mailed, Securities called for redemption become due and payable
on the redemption date and at the redemption price stated in the notice,
subject to any condition or contingency stated therein. Upon surrender to
the Paying Agent, such Securities shall be paid at the redemption price
stated in the notice, plus accrued interest to the redemption date. Failure
to give notice or any defect in the notice to any Holder shall not affect the
validity of the notice to any other Holder.
Section 3.05. DEPOSIT OF REDEMPTION PRICE. Prior to the redemption
date, the Company shall deposit with the Paying Agent (or, if the Company or
a Subsidiary is the Paying Agent, shall segregate and hold in trust) money
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42
sufficient to pay the redemption price of and accrued interest on all
Securities to be redeemed on that date other than Securities or portions of
Securities called for redemption which have been delivered by the Company to
the Trustee for cancellation.
Section 3.06. SECURITIES REDEEMED IN PART. Upon surrender of a
Security that is redeemed in part, the Company shall execute and the Trustee
shall authenticate and deliver to the Holder (at the Company's expense) a new
Security equal in principal amount to the unredeemed portion of the Security
surrendered.
ARTICLE 4
COVENANTS
Section 4.01. PAYMENT OF SECURITIES. The Company shall promptly
pay the principal of and interest on the Securities on the dates and in the
manner provided in the Securities and in this Indenture. Principal and
interest shall be considered paid on the date due if on such date the Trustee
or the Paying Agent holds in accordance with this Indenture money sufficient
to pay all principal and interest then due and the Trustee or the Paying
Agent, as the case may be, is not prohibited from paying such money to the
Securityholders on that date pursuant to the terms of this Indenture.
The Company shall pay interest on overdue principal at the rate
specified therefor in the Securities, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
Section 4.02. SEC REPORTS. Notwithstanding that the Company may
not at any time be subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act, the Company shall file with the SEC and provide
the Trustee and Noteholders with such annual reports and such information,
documents and other reports as are specified in Sections 13 and 15(d) of the
Exchange Act (excluding however information with respect to benefit plans and
long-term compensation arrangements) and applicable to a U.S. corporation
subject to such Sections, such information, documents and other reports to be
so filed and provided at the times specified for the filing of such
information, documents and reports under such Sections.
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43
Section 4.03. LIMITATION ON INDEBTEDNESS. (a) The Company shall
not, and shall not permit any Restricted Subsidiary to, Incur, directly or
indirectly, any Indebtedness; PROVIDED, HOWEVER, that the Company or a
Subsidiary Guarantor may Incur Indebtedness if, on the date of such
Incurrence and after giving effect thereto, the Consolidated Coverage Ratio
equals or exceeds (i) 2.0 to 1.0, if such Indebtedness is Incurred on or
prior to September 30, 1999, (ii) 2.25 to 1.0, if such Indebtedness is
Incurred after September 30, 1999 and on or prior to September 30, 2001, and
(iii) 2.5 to 1.0 if such Indebtedness is Incurred after September 30, 2001.
(b) Notwithstanding the foregoing paragraph (a), the Company and
any Restricted Subsidiary may Incur the following Indebtedness:
(1) Indebtedness of the Company Incurred pursuant to any Credit
Facility, so long as the aggregate principal amount of all Indebtedness
outstanding under all Credit Facilities does not, at any one time, exceed
the aggregate amount of borrowing availability as of such date under all
Credit Facilities that determine availability on the basis of a borrowing
base or other asset-based calculation; PROVIDED, HOWEVER, that in no event
shall the aggregate principal amount of Indebtedness Incurred pursuant to
this Section 4.03(b)(1) outstanding at any one time exceed $250.0 million;
PROVIDED FURTHER, HOWEVER, that if the Company or a Subsidiary Guarantor
Incurs any Indebtedness pursuant to this Section 4.03(b)(1) that would
cause the total principal amount of Indebtedness outstanding under this
Section 4.03(b)(1) to exceed an amount equal to $150.0 million (less the
aggregate amount of all Net Available Cash of Asset Dispositions applied to
reduce Senior Indebtedness pursuant to Section 4.06(a)(i)(A), the
Consolidated Coverage Ratio on the date of such Incurrence must be at least
2.0 to 1.0;
(2) Indebtedness owed to and held by the Company or a Wholly Owned
Subsidiary; PROVIDED, HOWEVER, that any subsequent issuance or transfer of
any Capital Stock which results in any such Wholly Owned Subsidiary ceasing
to be a Wholly Owned Subsidiary or any subsequent transfer of such
Indebtedness (other than to the Company or another Wholly Owned Subsidiary)
shall be
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44
deemed, in each case, to constitute the Incurrence of such Indebtedness
by the issuer thereof;
(3) the Securities and the Subsidiary Guaranties;
(4) Indebtedness outstanding on the Issue Date (other than
Indebtedness described in Section 4.03(b)(1), (2) or (3));
(5) Indebtedness or Preferred Stock of a Restricted Subsidiary
Incurred and outstanding on or prior to the date on which such Restricted
Subsidiary was acquired by the Company (other than Indebtedness or
Preferred Stock Incurred in connection with, or to provide all or any
portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such
Restricted Subsidiary became a Restricted Subsidiary or was acquired by the
Company); PROVIDED, HOWEVER, that on the date of such acquisition and after
giving effect thereto, the Consolidated Coverage Ratio equals or exceeds
(i) 1.8 to 1.0, if such Indebtedness is Incurred on or prior to September
30, 1999, (ii) 2.05 to 1.0, if such Indebtedness is Incurred after
September 30, 1999 and on or prior to September 30, 2001, and (iii) 2.3 to
1.0, if such Indebtedness is Incurred after September 30, 2001;
(6) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to Section 4.03(a) or pursuant to Section 4.03(b)(3), (4) or (5),
this Section 4.03(b)(6) or Section 4.03(b)(7) or (13); PROVIDED, HOWEVER,
that to the extent such Refinancing Indebtedness directly or indirectly
Refinances Indebtedness or Preferred Stock of a Restricted Subsidiary
described in Section 4.03(b)(5), such Refinancing Indebtedness shall be
Incurred only by such Restricted Subsidiary or the Company;
(7) Indebtedness of the Company or a Restricted Subsidiary represented
by Capital Lease Obligations, mortgage financings or purchase money
obligations, in each case Incurred for the purpose of financing all or any
part of the purchase price or cost of construction or improvement of
property used in an Oil and Gas Business and in each case Incurred no later
than 365 days after the date of such acquisition or the date of completion
of such construction or improvement;
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PROVIDED, HOWEVER, that the principal amount of any Indebtedness Incurred
pursuant to this Section 4.03(b)(7) in any single calendar year shall not
exceed $15.0 million;
(8) Indebtedness with respect to Production Payments; PROVIDED,
HOWEVER, that any such Indebtedness shall be Limited Recourse Indebtedness;
PROVIDED FURTHER, HOWEVER, that the Net Present Value of the reserves
related to such Production Payments shall not exceed 30% of the Total
Assets of the Company at the time of Incurrence;
(9) Indebtedness consisting of Interest Rate Agreements directly
related to Indebtedness permitted to be Incurred by the Company and its
Restricted Subsidiaries pursuant to this Indenture;
(10) Indebtedness under Oil and Gas Hedging Contracts and Currency
Agreements entered into in the ordinary course of business for the purpose
of limiting risks that arise in the ordinary course of business of the
Company;
(11) Indebtedness in respect of letters of credit issued for the
benefit of the Company or any of its Restricted Subsidiaries to the extent
they are issued in connection with the ordinary course of business of the
Company and its Restricted Subsidiaries, Incurred in an aggregate principal
amount which, when taken together with the principal amount of all other
Indebtedness Incurred pursuant to this Section 4.03(b)(11) and then
outstanding, does not exceed $15.0 million;
(12) Indebtedness of the Company or a Restricted Subsidiary Incurred
to finance capital expenditures (or Refinancings thereof) in an aggregate
principal amount which, when taken together with the principal amount of
all other Indebtedness Incurred pursuant to this Section 4.03(b)(12) and
then outstanding, does not exceed $10.0 million;
(13) Indebtedness of the Company or a Restricted Subsidiary Incurred
for the purpose of financing all or any part of the cost of acquiring oil
and gas reserves, another Person (other than a Person that was, immediately
prior to such acquisition, a Subsidiary
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46
of the Company) engaged in the Oil and Gas Business or all or
substantially all the assets of such a Person; PROVIDED, HOWEVER, that on
the date of such Incurrence and after giving effect thereto, the
Consolidated Coverage Ratio equals or exceeds (i) 1.8 to 1.0, if such
Indebtedness is Incurred on or prior to September 30, 1999, (ii) 2.05 to
1.0, if such Indebtedness is Incurred after September 30, 1999 and on or
prior to September 30, 2001, and (iii) 2.3 to 1.0 if such Indebtedness is
Incurred after September 30, 2001; and
(14) Indebtedness in an aggregate principal amount which, together
with the principal amount of all other Indebtedness of the Company and its
Restricted Subsidiaries outstanding on the date of such Incurrence (other
than Indebtedness permitted by Section 4.03(b)(1) through (13) above or
Section 4.03(a)) does not exceed the greater of 6% of Adjusted Consolidated
Net Tangible Assets as of the end of the most recent fiscal year ending at
least 90 days prior to the date of such Incurrence and $15.0 million.
(c) Notwithstanding the foregoing, the Company shall not Incur any
Indebtedness pursuant to the foregoing Section 4.03(b) if the proceeds
thereof are used, directly or indirectly, to Refinance any Subordinated
Obligations unless such Indebtedness shall be subordinated to the Securities
to at least the same extent as such Subordinated Obligations; PROVIDED,
HOWEVER, that this Section 4.03(c) shall not prohibit the Company from
refinancing at maturity any of its Subordinated Obligations outstanding on
the Issue Date; PROVIDED FURTHER, HOWEVER, that this Section 4.03(c) shall
not prohibit the Refinancing of the Company's 7-7/8% Convertible Subordinated
Securities due 1999, provided that within 30 days thereafter the Company
receives $27.0 million Net Cash Proceeds from the exercise of the Contour
Option.
(d) For purposes of determining compliance with this Section 4.03,
(i) in the event that an item of Indebtedness meets the criteria of more than
one of the types of Indebtedness described above, the Company, in its sole
discretion, will classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of the above clauses
and (ii) an item of Indebtedness may be divided and classified in more than
one of the types of Indebtedness described above.
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(e) Notwithstanding Sections 4.03(a) and (b) above, the Company shall
not, and the Company shall not permit any Subsidiary Guarantor to, Incur (i) any
Indebtedness if such Indebtedness is subordinate or junior in ranking in any
respect to any Senior Indebtedness of such Person, unless such Indebtedness is
Senior Subordinated Indebtedness of such Person or is expressly subordinated in
right of payment to Senior Subordinated Indebtedness of such Person or (ii) any
Secured Indebtedness that is not Senior Indebtedness of such Person unless
contemporaneously therewith effective provision is made to secure the Securities
equally and ratably with such Secured Indebtedness for so long as such
Indebtedness is secured by a Lien.
Section 4.04. LIMITATION ON RESTRICTED PAYMENTS. (a) The Company
shall not, and shall not permit any Restricted Subsidiary, directly or
indirectly, to make a Restricted Payment if at the time the Company or such
Restricted Subsidiary makes such Restricted Payment: (1) a Default shall have
occurred and be continuing (or would result therefrom); (2) the Company is not
able to Incur an additional $1.00 of Indebtedness pursuant to Section 4.03(a);
or (3) the aggregate amount of such Restricted Payment and all other Restricted
Payments since the Issue Date would exceed the sum of: (A) 50% of the
Consolidated Net Income accrued during the period (treated as one accounting
period) from the beginning of the fiscal quarter immediately following the
fiscal quarter during which the Securities are originally issued to the end of
the most recent fiscal quarter ending at least 45 days prior to the date of such
Restricted Payment (or, in case such Consolidated Net Income shall be a deficit,
minus 100% of such deficit); (B) the aggregate Net Cash Proceeds received by the
Company from the issuance or sale of its Capital Stock (other than Disqualified
Stock) subsequent to the Issue Date (other than an issuance or sale to a
Subsidiary of the Company and other than an issuance or sale to an employee
stock ownership plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees); (C) the aggregate Net Cash
Proceeds received by the Company from the issue or sale subsequent to the Issue
Date of its Capital Stock (other than Disqualified Stock) to an employee stock
ownership plan; PROVIDED, HOWEVER, that if such employee stock ownership plan
incurs any Indebtedness with respect thereto, such aggregate amount shall be
limited to an amount equal to any increase in the Consolidated Net Worth of the
Company resulting from
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principal repayments made by such employee stock ownership plan with respect
to such Indebtedness; (D) the amount by which Indebtedness of the Company is
reduced on the Company's balance sheet upon the conversion or exchange (other
than by a Subsidiary of the Company) subsequent to the Issue Date, of any
Indebtedness of the Company convertible or exchangeable for Capital Stock
(other than Disqualified Stock) of the Company (less the amount of any cash,
or the fair value of any other property, distributed by the Company upon such
conversion or exchange); and (E) an amount equal to the sum of (i) the net
reduction in Investments in Unrestricted Subsidiaries resulting from
dividends, repayments of loans or advances or other transfers of assets, in
each case to the Company or any Restricted Subsidiary from Unrestricted
Subsidiaries, and (ii) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of an
Unrestricted Subsidiary at the time such Unrestricted Subsidiary is
designated a Restricted Subsidiary; PROVIDED, HOWEVER, that the foregoing sum
shall not exceed, in the case of any Unrestricted Subsidiary, the amount of
Investments previously made (and treated as a Restricted Payment) by the
Company or any Restricted Subsidiary in such Unrestricted Subsidiary.
(b) The provisions of Section 4.04(a) shall not prohibit: (i) any
purchase or redemption of Capital Stock or Subordinated Obligations of the
Company made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Capital Stock of the Company (other than Disqualified Stock
and other Capital Stock issued or sold to a Subsidiary of the Company or an
employee stock ownership plan or to a trust established by the Company or any of
its Subsidiaries for the benefit of their employees); PROVIDED, HOWEVER, that
(A) such purchase or redemption shall be excluded in the calculation of the
amount of Restricted Payments and (B) the Net Cash Proceeds from such sale shall
be excluded from the calculation of amounts under Section 4.04(a)(3)(B) (but
only to the extent that such Net Cash Proceeds were used to purchase or redeem
such Capital Stock as provided in this Section 4.04(b)(i)); (ii) any purchase,
repurchase, redemption, defeasance or other acquisition or retirement for value
of Subordinated Obligations made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Indebtedness of the Company which is permitted
to be Incurred pursuant to Section 4.03; PROVIDED, HOWEVER, that such purchase,
repurchase, redemption, defeasance or other acquisition or
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49
retirement for value shall be excluded in the calculation of the amount of
Restricted Payments; (iii) dividends paid within 60 days after the date of
declaration thereof if at such date of declaration such dividend would have
complied with this Section 4.04; PROVIDED, HOWEVER, that at the time of
payment of such dividend, no other Default shall have occurred and be
continuing (or result therefrom); PROVIDED FURTHER, HOWEVER, that such
dividend shall be included in the calculation of the amount of Restricted
Payments; (iv) the repurchase of shares of, or options to purchase shares of,
common stock of the Company or any of its Subsidiaries from employees, former
employees, directors or former directors of the Company or any of its
Subsidiaries (or permitted transferees of such employees, former employees,
directors or former directors), pursuant to the terms of the agreements
(including employment agreements) or plans (or amendments thereto) approved
by the Board of Directors under which such individuals purchase or sell or
are granted the option to purchase or sell, shares of such common stock;
PROVIDED, HOWEVER, that the aggregate amount of such repurchases shall not
exceed $1.0 million in any calendar year and $6.0 million in the aggregate;
PROVIDED FURTHER, HOWEVER, that such repurchases shall be excluded in the
calculation of the amount of Restricted Payments; (v) amounts paid to holders
of the Company's Convertible Exchangeable Preferred Stock to the extent such
amounts do not exceed the amount of dividends in arrears through and
including November 1, 1996 in respect of such Convertible Exchangeable
Preferred Stock; PROVIDED, HOWEVER, that at the time of payment of such
amounts, no Default shall have occurred and be continuing (or result
therefrom); PROVIDED FURTHER, HOWEVER, that such amounts shall be excluded in
the calculation of the amount of Restricted Payments; (vi) dividends paid
from time to time in respect of the Company's Convertible Exchangeable
Preferred Stock (other than amounts permitted by clause (v) above); PROVIDED,
HOWEVER, that at the time of payment of such dividends, no Default shall have
occurred and be continuing (or result therefrom); PROVIDED FURTHER, HOWEVER,
that the amount of such dividends shall be included in the calculation of the
amount of Restricted Payments; or (vii) other Restricted Payments in an
aggregate amount not to exceed $10.0 million; PROVIDED, HOWEVER, that such
Restricted Payment shall be excluded in the calculation of the amount of
Restricted Payments.
Section 4.05. LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM
RESTRICTED SUBSIDIARIES. The Company
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50
shall not, and shall not permit any Restricted Subsidiary to, create or
otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary (a) to
pay dividends or make any other distributions on its Capital Stock or pay any
Indebtedness owed to the Company or a Restricted Subsidiary, (b) to make any
loans or advances to the Company or a Restricted Subsidiary or (c) to
transfer any of its property or assets to the Company or a Restricted
Subsidiary, except: (i) any encumbrance or restriction pursuant to an
agreement in effect at or entered into on the Issue Date; (ii) any
encumbrance or restriction with respect to a Restricted Subsidiary pursuant
to an agreement relating to any Indebtedness Incurred by such Restricted
Subsidiary on or prior to the date on which such Restricted Subsidiary was
acquired by the Company (other than Indebtedness Incurred as consideration
in, or to provide all or any portion of the funds or credit support utilized
to consummate, the transaction or series of related transactions pursuant to
which such Restricted Subsidiary became a Restricted Subsidiary or was
acquired by the Company) and outstanding on such date; (iii) any encumbrance
or restriction pursuant to an agreement effecting a Refinancing of
Indebtedness Incurred pursuant to an agreement referred to in clause (i) or
(ii) of this Section 4.05 or this clause (iii) or contained in any amendment
to an agreement referred to in clause (i) or (ii) of this Section 4.05 or
this clause (iii); PROVIDED, HOWEVER, that the encumbrances and restrictions
with respect to such Restricted Subsidiary contained in any such refinancing
agreement or amendment are no less favorable to the Securityholders than
encumbrances and restrictions with respect to such Restricted Subsidiary
contained in such agreements; (iv) any such encumbrance or restriction
consisting of customary nonassignment provisions in leases governing
leasehold interests to the extent such provisions restrict the transfer of
the lease or the property leased thereunder; (v) in the case of clause (c)
above, restrictions contained in security agreements or mortgages securing
Indebtedness of a Restricted Subsidiary to the extent such restrictions
restrict the transfer of the property subject to such security agreements or
mortgages; and (vi) any restriction with respect to a Restricted Subsidiary
imposed pursuant to an agreement entered into for the sale or disposition of
all or substantially all the Capital Stock or assets of such Restricted
Subsidiary pending the closing of such sale or disposition.
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51
Section 4.06. LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK.
(a) In the event and to the extent that the Net Available Cash received by the
Company or any Restricted Subsidiary from one or more Asset Dispositions
occurring on or after the Issue Date in any period of 12 consecutive months
exceeds 10% of Adjusted Consolidated Assets as of the beginning of such 12-month
period, then the Company shall (i) within 180 days (in the case of clause
(A) below) or 360 days (in the case of clause (B) below) after the date such Net
Available Cash so received exceeds such 10% of Adjusted Consolidated Assets
(A) apply an amount equal to such excess Net Available Cash to repay Senior
Indebtedness of the Company or Indebtedness of a Restricted Subsidiary, in each
case owing to a Person other than the Company or any Affiliate of the Company or
(B) invest an equal amount, or the amount not so applied pursuant to clause (A),
in Additional Assets or a Permitted Business Investment or (ii) apply such
excess Net Available Cash (to the extent not applied pursuant to clause (i)) as
provided in the following paragraphs of this Section 4.06. The amount of such
excess Net Available Cash required to be applied during the applicable period
and not applied as so required by the end of such period shall constitute
"Excess Proceeds".
(b)(i) If, as of the first day of any calendar month, the aggregate
amount of Excess Proceeds not theretofore subject to an Excess Proceeds Offer
(as defined below) totals at least $10.0 million, the Company must, not later
than the fifteenth Business Day of such month, make an offer (an "Excess
Proceeds Offer") to purchase from the Holders on a pro rata basis an aggregate
principal amount of Securities equal to the Excess Proceeds (rounded down to the
nearest multiple of $1,000) on such date, at a purchase price equal to 100% of
the principal amount of such Securities, plus, in each case, accrued interest
(if any) to the date of purchase (the "Excess Proceeds Payment").
(ii) The Company shall commence any Excess Proceeds Offer with
respect to the Securities by mailing a notice to the Trustee and each Holder
stating: (A) that the Excess Proceeds Offer is being made pursuant to this
Section 4.06 and that all Securities validity tendered will be accepted for
payment on a pro rata basis; (B) the purchase price and the date of purchase
(which shall be a Business Day no earlier than 30 days nor later than 60 days
from the date such notice is mailed) (the "Excess Proceeds Payment Date");
(C) that any Security not tendered will
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52
continue to accrue interest pursuant to its terms; (D) that, unless the
Company defaults in the payment of the Excess Proceeds Payment, any Security
accepted for payment pursuant to the Excess Proceeds Offer shall cease to
accrue interest on and after the Excess Proceeds Payment Date; (E) that
Holders electing to have a Security purchased pursuant to the Excess Proceeds
Offer will be required to surrender the Security, together with the form
entitled "Option of Holder to Elect Purchase" on the reverse side of the
Security completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the Business Day immediately
preceding the Excess Proceeds Payment Date; (F) that Holders will be entitled
to withdraw their election if the Paying Agent receives, not later than the
close of business on the third Business Day immediately preceding the Excess
Proceeds Payment Date, a telegram, facsimile transmission or letter setting
forth the name of such Holder, the principal amount of Securities delivered
for purchase and a statement that such Holder is withdrawing his election to
have such Securities purchased; and (G) that Holders whose Securities are
being purchased only in part will be issued new Securities equal in principal
amount to the unpurchased portion of the Securities surrendered; PROVIDED,
HOWEVER, that each Security purchased and each new Security issued shall be
in a principal amount of $1,000 or integral multiples thereof.
(iii) On the Excess Proceeds Payment Date, the Company shall
(A) accept for payment on a pro rata basis Securities or portions thereof
tendered pursuant to the Excess Proceeds Offer, (B) deposit with the Paying
Agent money sufficient to pay the purchase price of all Securities or portions
thereof so accepted, and (C) deliver, or cause to be delivered, to the Trustee
all Securities or portions thereof so accepted together with an Officers'
Certificate specifying the Securities or portions thereof so accepted for
payment by the Company. The Paying Agent shall promptly mail to the Holders of
Securities so accepted payment in an amount equal to the purchase price, and the
Trustee shall promptly authenticate and mail to such Holders a new Security
equal in principal amount to any unpurchased portion of the Security
surrendered; PROVIDED, HOWEVER; that each Security purchased and each new
Security issued shall be in a principal amount of $1,000 or integral multiples
thereof. The Company will publicly announce the results of the Excess Proceeds
Offer as soon as practicable after the Excess Proceeds Payment Date. For
purposes of this Section 4.06, the Trustee shall act as the Paying Agent.
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53
(iv) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations thereunder in the event that such Excess Proceeds are received by
the Company under this Section 4.06 and the Company is required to repurchase
Securities as described above. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of this Section
4.06, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under this
Section 4.06 by virtue thereof.
(c) In the event of the transfer of substantially all (but not all)
the property and assets of the Company as an entirety to a Person in a
transaction permitted by Section 5.01, the Successor Company (as defined
therein) shall be deemed to have sold the properties and assets of the Company
not so transferred for purposes of the covenant described hereunder, and shall
comply with the provisions of the covenant described hereunder with respect to
such deemed sale as if it were an Asset Disposition and the Successor Company
shall be deemed to have received Net Available Cash in an amount equal to the
fair market value (as determined in good faith by the Board of Directors) of the
properties and assets not so transferred or sold.
(d) In the event of an Asset Disposition by the Company or any
Restricted Subsidiary that consists of a sale of hydrocarbons and results in
Production Payments, the Company or such Restricted Subsidiary shall apply an
amount equal to the Net Available Cash received by the Company or such
Restricted Subsidiary to (i) reduce Senior Indebtedness of the Company or
Indebtedness of a Restricted Subsidiary, in each case owing to a Person other
than the Company or any Affiliate of the Company, within 180 days after the date
such Net Available Cash is so received or (ii) invest in Additional Assets or a
Permitted Business Investment within 360 days after the date such Net Available
Cash is so received.
Section 4.07. LIMITATION ON AFFILIATE TRANSACTIONS. (a) The Company
shall not, and shall not permit any Restricted Subsidiary to, enter into or
permit to exist any transaction (including the purchase, sale, lease or exchange
of any property, employee compensation arrangements or the rendering of any
service) with any Affiliate of the Company (an "Affiliate Transaction") unless
the terms
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54
thereof (1) are no less favorable to the Company or such Restricted
Subsidiary than those that could be obtained at the time of such transaction
in arm's-length dealings with a Person who is not such an Affiliate, (2) if
such Affiliate Transaction involves an amount in excess of $1.0 million, is
set forth in writing and has been approved by a majority of the members of
the Board of Directors having no personal stake in such Affiliate Transaction
or (3) if such Affiliate Transaction involves an amount in excess of $10.0
million, has been determined by a nationally recognized investment banking
firm to be fair, from a financial standpoint, to the Company and its
Restricted Subsidiaries.
(b) The provisions of Section 4.07(a) shall not prohibit (i) any sale
of hydrocarbons or other mineral products or the entering into or performance of
Oil and Gas Hedging Contracts, gas gathering, transportation or processing
contracts or oil or natural gas marketing or exchange contracts, in each case,
in the ordinary course of business, so long as the terms of any such transaction
are approved by a majority of the members of the Board of Directors who are
disinterested with respect to such transaction as being the most favorable of at
least (x) two bids, quotes or proposals, at least one of which is from a Person
that is not an Affiliate of the Company (in the event that the Company
determines in good faith that it is able to obtain only two bids, quotes or
proposals with respect to such transaction) or (y) three bids, quotes or
proposals, at least two of which are from Persons that are not Affiliates of the
Company (in all other circumstances), (ii) the sale to an Affiliate of the
Company of Capital Stock of the Company that does not constitute Disqualified
Stock, (iii) transactions contemplated by any employment agreement or other
compensation plan or arrangement entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business and consistent with
industry practice, (iv) transactions between or among the Company and its
Restricted Subsidiaries, (v) Restricted Payments and Permitted Investments that
are permitted by Section 4.04, and (vi) the transactions described in the
Offering Memorandum under the caption "Certain Transactions" and loans or
advances to employees in the ordinary course of business and approved by the
Company's Board of Directors in an aggregate principal amount not to exceed
$1.0 million outstanding at any one time.
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55
Section 4.08. CHANGE OF CONTROL. (a) Upon the occurrence of a
Change of Control, each Holder shall have the right to require that the Company
repurchase such Holder's Securities at a purchase price in cash equal to 101% of
the principal amount thereof plus accrued and unpaid interest, if any, to the
date of purchase (subject to the right of Holders of record on the relevant
record date to receive interest on the relevant interest payment date), in
accordance with the terms contemplated in Section 4.08(b). In the event that at
the time of such Change of Control the terms of the Indebtedness under the
Credit Agreement restrict or prohibit the repurchase of Securities pursuant to
this Section, then prior to the mailing of the notice to Holders provided for in
Section 4.08(b) below but in any event within 30 days following any Change of
Control, the Company shall (i) repay in full all Indebtedness under the Credit
Agreement or offer to repay in full all such Indebtedness and repay such
Indebtedness of each lender which has accepted such offer or (ii) obtain the
requisite consent under the agreements governing the Indebtedness under the
Credit Agreement to permit the repurchase of the Securities as provided for in
Section 4.08(b).
(b) Within 30 days following any Change of Control, the Company shall
mail a notice to each Holder with a copy to the Trustee stating: (1) that a
Change of Control has occurred and that such Holder has the right to require the
Company to purchase such Holder's Securities at a purchase price in cash equal
to 101% of the principal amount thereof plus accrued and unpaid interest, if
any, to the date of purchase (subject to the right of Holders of record on the
relevant record date to receive interest on the relevant interest payment date);
(2) the circumstances and relevant facts regarding such Change of Control
(including information with respect to pro forma historical income, cash flow
and capitalization after giving effect to such Change of Control); (3) the
repurchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed); and (4) the instructions determined by the
Company, consistent with this Section 4.08, that a Holder must follow in order
to have its Securities purchased.
(c) Holders electing to have a Security purchased will be required to
surrender the Security, with an appropriate form duly completed, to the Company
at the address specified in the notice at least three Business days prior to the
purchase date. Holders will be entitled to
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56
withdraw their election if the Trustee or the Company receives not later than
one Business Day prior to the purchase date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Security which was delivered for purchase by the Holder and a
statement that such Holder is withdrawing his election to have such Security
purchased.
(d) On the purchase date, all Securities purchased by the Company
under this Section shall be delivered by the Trustee for cancellation, and the
Company shall pay the purchase price plus accrued and unpaid interest, if any,
to the Holders entitled thereto.
(e) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section 4.08. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
the Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under this Section 4.08 by
virtue thereof.
(f) Notwithstanding the foregoing, the Company shall not be required
to comply with the provisions of this Section 4.08 to the extent any other
Person complies with such provisions as if such Person were the Company.
Section 4.09. LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF
RESTRICTED SUBSIDIARIES. The Company shall not sell or otherwise dispose of any
shares of Capital Stock of a Restricted Subsidiary, and shall not permit any
Restricted Subsidiary, directly or indirectly, to issue or sell or otherwise
dispose of any shares of its Capital Stock except (i) to the Company or a Wholly
Owned Subsidiary, (ii) if, immediately after giving effect to such issuance,
sale or other disposition, the Company and its Restricted Subsidiaries would own
less than 20% of the Voting Stock of such Restricted Subsidiary and have no
greater economic interest in such Restricted Subsidiary, (iii) if, immediately
after giving effect to such issuance, sale or other disposition, the Company and
its Restricted Subsidiaries would own greater than 80% of the Voting Stock of
such Restricted Subsidiary and have no lesser economic interest in such
Restricted Subsidiary or (iv) to the extent such shares represent directors'
qualifying shares or shares
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required by applicable law to be held by a Person other than the Company or a
Restricted Subsidiary.
Section 4.10. LIMITATION ON LIENS. The Company shall not, and shall
not permit any Restricted Subsidiary to, directly or indirectly, Incur or permit
to exist any Lien of any nature whatsoever on any of its properties (including
Capital Stock of a Restricted Subsidiary), whether owned at the Issue Date or
thereafter acquired, to secure Indebtedness that is not Senior Indebtedness of
the Company or such Restricted Subsidiary, other than Permitted Liens, without
effectively providing that the Securities or the applicable Subsidiary Guaranty
shall be secured equally and ratably with (or prior to) the obligations so
secured for so long as such obligations are so secured.
Section 4.11. LIMITATION ON SALE/LEASEBACK TRANSACTIONS. The Company
shall not, and shall not permit any Restricted Subsidiary to, enter into any
Sale/Leaseback Transaction with respect to any property unless (i) the Company
or such Restricted Subsidiary would be entitled to (A) Incur Indebtedness in an
amount equal to the Attributable Debt with respect to such Sale/Leaseback
Transaction pursuant to Section 4.03 and (B) create a Lien on such property
securing such Attributable Debt without equally and ratably securing the
Securities or the applicable Subsidiary Guaranty pursuant to Section 4.10,
(ii) the net proceeds received by the Company or any Restricted Subsidiary in
connection with such Sale/Leaseback Transaction are at least equal to the fair
value (as determined by the Board of Directors) of such property and (iii) the
Company applies the proceeds of such transaction in compliance with
Section 4.06.
Section 4.12. FUTURE GUARANTORS. Promptly after the end of the first
fiscal year in which any Restricted Subsidiary (other than the Programs), at the
end of such fiscal year, has total net assets (as set forth on the balance sheet
of such Subsidiary prepared in accordance with GAAP) equal to or greater than
the greater of $2.5 million and one percent (1%) of Adjusted Consolidated Net
Tangible Assets, the Company shall cause such Restricted Subsidiary to issue a
Subsidiary Guaranty for the benefit of the holders of the Securities.
Section 4.13. COMPLIANCE CERTIFICATE. The Company shall deliver to
the Trustee within 120 days after the end of each fiscal year of the Company an
Officers'
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Certificate stating that in the course of the performance by the signers of
their duties as Officers of the Company they would normally have knowledge of
any Default and whether or not the signers know of any Default that occurred
during such fiscal year. If they do, the certificate shall describe the
Default, its status and what action the Company is taking or proposes to take
with respect thereto. The Company also shall comply with TIA Section
314(a)(4).
Section 4.14. FURTHER INSTRUMENTS AND ACTS. Upon request of the
Trustee, the Company will execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
ARTICLE 5
SUCCESSOR COMPANY
Section 5.01. WHEN COMPANY MAY MERGE OR TRANSFER ASSETS. The Company
shall not consolidate with or merge with or into, or convey, transfer or lease,
in one transaction or a series of transactions, all or substantially all its
assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor
Company") shall be a Person organized and existing under the laws of
the United States of America, any State thereof or the District of
Columbia and the Successor Company (if not the Company) shall expressly
assume, by an indenture supplemental hereto, executed and delivered to
the Trustee, in form satisfactory to the Trustee, all the obligations
of the Company under the Securities and this Indenture;
(ii) immediately after giving effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Successor
Company or any Restricted Subsidiary as a result of such transaction as
having been Incurred by the Successor Company or any Subsidiary as a
result of such transaction as having been Incurred by such Successor
Company or such Subsidiary at the time of such transaction), no Default
shall have occurred and be continuing;
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(iii) immediately after giving effect to such transaction, the
Successor Company would be able to incur an additional $1.00 of
Indebtedness pursuant to Section 4.03(a) or, if applicable, Section
4.03(b)(13);
(iv) immediately after giving effect to such transaction, the
Successor Company shall have Adjusted Consolidated Net Tangible Assets
in an amount that is not less than the Adjusted Consolidated Net
Tangible Assets of the Company immediately prior to such transaction;
and
(v) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if
any) comply with this Indenture;
PROVIDED, HOWEVER, that clauses (iii) and (iv) shall not be applicable to any
such transaction solely between the Company and any Restricted Subsidiary.
The Successor Company shall be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under this Indenture, but the predecessor Company in the case of a
conveyance, transfer or lease of all or substantially all its assets shall not
be released from the obligation to pay the principal of and interest on the
Securities.
Section 5.02. WHEN SUBSIDIARY GUARANTORS MAY MERGE OR TRANSFER
ASSETS. The Company will not permit any Subsidiary Guarantor to consolidate
with or merge with or into, or convey, transfer or lease, in one transaction or
series of transactions, all or substantially all its assets to any Person
unless: (i) the resulting, surviving or transferee Person shall expressly
assume by a guaranty agreement, in a form acceptable to the Trustee, all the
obligations of such Subsidiary Guarantor, if any, under its Subsidiary Guaranty;
(ii) immediately after giving effect to such transaction or transactions on a
pro forma basis (and, treating any Indebtedness which becomes an obligation of
the resulting, surviving or transferee Person as a result of such transaction as
having been issued by such Person at time of such transaction), no Default shall
have occurred and be continuing; and (iii) the Company delivers to the Trustee
an Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and
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such guaranty agreement, if any, complies with this Indenture.
Notwithstanding the foregoing, if any Subsidiary Guarantor is released from
its obligations under its Subsidiary Guaranty pursuant to Section 11.06, then
such Subsidiary Guarantor's successor or transferee shall be released from
all of such Subsidiary Guarantor's obligations under its Subsidiary Guaranty.
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. EVENTS OF DEFAULT. An "Event of Default" occurs if:
(1) the Company defaults in any payment of interest on any Security
when the same becomes due and payable, whether or not such payment shall be
prohibited by Article 10, and such default continues for a period of
30 days;
(2) the Company (i) defaults in the payment of the principal of any
Security when the same becomes due and payable at its Stated Maturity, upon
optional redemption, upon required repurchase, upon declaration or
otherwise, whether or not such payment shall be prohibited by Article 10 or
(ii) fails to redeem or purchase Securities when required pursuant to this
Indenture or the Securities, whether or not such redemption or purchase
shall be prohibited by Article 10;
(3) the Company fails to comply with Section 5.01;
(4) the Company fails to comply with Section 4.02, 4.03, 4.04, 4.05,
4.06 (other than a failure to purchase Securities when required under
Section 4.06), 4.07, 4.08 (other than a failure to purchase Securities when
required under Section 4.08), 4.09, 4.10, 4.11 or 4.12 and such failure
continues for 30 days after the notice specified below;
(5) the Company fails to comply with any of its agreements contained
in the Securities or in this Indenture (other than those referred to in
(1), (2), (3) or (4) above) and such failure continues for 60 days after
the notice specified below;
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(6) Indebtedness of the Company or any Significant Subsidiary (other
than Limited Recourse Indebtedness) is not paid within any applicable grace
period after final maturity or is accelerated by the holders thereof
because of a default and the total amount of such Indebtedness unpaid or
accelerated exceeds $10.0 million or its foreign currency equivalent at the
time;
(7) the Company or any Significant Subsidiary pursuant to or within
the meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against it in an
involuntary case;
(C) consents to the appointment of a Custodian of it or for any
substantial part of its property; or
(D) makes a general assignment for the benefit of its creditors;
or takes any comparable action under any foreign laws relating to
insolvency;
(8) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(A) is for relief against the Company or any Significant
Subsidiary in an involuntary case;
(B) appoints a Custodian of the Company or any Significant
Subsidiary or for any substantial part of its property; or
(C) orders the winding up or liquidation of the Company or any
Significant Subsidiary;
or any similar relief is granted under any foreign laws and the
order or decree remains unstayed and in effect for 60 days;
(9) any judgment or decree for the payment of money in excess of $10.0
million or its foreign currency equivalent at the time is rendered against
the Company or a Significant Subsidiary and is not
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discharged and either (A) an enforcement proceeding has been commenced
by any creditor upon such judgment or decree or (B) there is a period
of 60 days following the entry of such judgment or decree during which
such judgment or decree is not discharged, waived or the execution
thereof stayed, in either case 10 days after the notice specified
below; or
(10) any Subsidiary Guaranty ceases to be in full force and effect
(other than in accordance with the terms of such Subsidiary Guaranty) or a
Subsidiary Guarantor denies or disaffirms its obligations under its
Subsidiary Guaranty if such default continues for a period of 10 days after
the notice specified below.
The foregoing will constitute Events of Default whatever the reason
for any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body.
The term "Bankruptcy Law" means Title 11, UNITED STATES CODE, or any
similar Federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator, custodian or similar official
under any Bankruptcy Law.
A Default under clause (4), (5), (9) or (10) is not an Event of
Default until the Trustee or the Holders of at least 25% in principal amount of
the Securities notify the Company of the Default and the Company does not cure
such Default within the time specified after receipt of such notice. Such
notice must specify the Default, demand that it be remedied and state that such
notice is a "Notice of Default".
The Company shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any Event of Default under clause (6) and any event which with the giving of
notice or the lapse of time would become an Event of Default under clause (4) or
(5), its status and what action the Company is taking or proposes to take with
respect thereto. The Trustee shall not be deemed to have knowledge of any
Default or Event of Default unless one of its Trust Officers receives written
notice thereof from the Company or any of the Holders.
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Section 6.02. ACCELERATION. If an Event of Default (other than an
Event of Default specified in Section 6.01(7) or (8) with respect to the
Company) occurs and is continuing, the Trustee by written notice to the
Company, or the Holders of at least 25% in principal amount of the
outstanding Securities by written notice to the Company and the Trustee, may
declare the principal of and accrued but unpaid interest on all the
Securities to be due and payable. Upon such a declaration, such principal and
interest shall be due and payable immediately. If an Event of Default
specified in Section 6.01(7) or (8) with respect to the Company occurs and is
continuing, the principal of and interest on all the Securities shall IPSO
FACTO become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any Securityholders. The Holders of
a majority in principal amount of the outstanding Securities by written
notice to the Trustee may rescind any such acceleration and its consequences
if the rescission would not conflict with any judgment or decree and if all
existing Events of Default have been cured or waived except nonpayment of
principal or interest that has become due solely because of acceleration. No
such rescission shall affect any subsequent Default or impair any right
consequent thereto.
Section 6.03. OTHER REMEDIES. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the
payment of principal of or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Securities or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any Securityholder in exercising any
right or remedy accruing upon an Event of Default shall not impair the right
or remedy or constitute a waiver of or acquiescence in the Event of Default.
No remedy is exclusive of any other remedy. All available remedies are
cumulative.
Section 6.04. WAIVER OF PAST DEFAULTS. The Holders of a majority
in principal amount of the Securities by written notice to the Trustee may
waive an existing Default and its consequences except (i) a Default in the
payment of the principal of or interest on a Security or (ii) a Default in
respect of a provision that under Section 9.02 cannot be amended without the
consent of each
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Securityholder affected. When a Default is waived, it is deemed cured, but
no such waiver shall extend to any subsequent or other Default or impair any
consequent right.
Section 6.05. CONTROL BY MAJORITY. The Holders of a majority in
principal amount of the outstanding Securities may direct the time, method
and place of conducting any proceeding for any remedy available to the
Trustee or of exercising any trust or power conferred on the Trustee. The
Trustee, however, may refuse to follow any direction that conflicts with law
or this Indenture or, subject to Section 7.01, that the Trustee determines is
unduly prejudicial to the rights of other Securityholders or would involve
the Trustee in personal liability; PROVIDED, HOWEVER, that the Trustee may
take any other action deemed proper by the Trustee that is not inconsistent
with such direction. Prior to taking any action hereunder, the Trustee shall
be entitled to indemnification satisfactory to it in its sole discretion
against all losses and expenses caused by taking or not taking such action.
Section 6.06. LIMITATION ON SUITS. A Securityholder may not pursue
any remedy with respect to this Indenture or the Securities unless:
(1) the Holder gives to the Trustee written notice stating that an
Event of Default is continuing;
(2) the Holders of at least 25% in principal amount of the Securities
make a written request to the Trustee to pursue the remedy;
(3) such Holder or Holders offer to the Trustee reasonable security or
indemnity against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of security or indemnity; and
(5) the Holders of a majority in principal amount of the outstanding
Securities do not give the Trustee a direction inconsistent with the
request during such 60-day period.
A Securityholder may not use this Indenture to prejudice the rights
of another Securityholder or to obtain a preference or priority over another
Securityholder.
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Section 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of any
Holder to receive payment of principal of, premium (if any) or interest on
the Securities held by such Holder, on or after the respective due dates
expressed in the Securities, or to bring suit for the enforcement of any such
payment on or after such respective dates, shall not be impaired or affected
without the consent of such Holder.
Section 6.08. COLLECTION SUIT BY TRUSTEE. If an Event of Default
specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against
the Company for the whole amount then due and owing (together with interest
on any unpaid interest to the extent lawful) and the amounts provided for in
Section 7.07.
Section 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee may
file such proofs of claim and other papers or documents as may be necessary
or advisable in order to have the claims of the Trustee and the
Securityholders allowed in any judicial proceedings relative to the Company,
its creditors or its property and, unless prohibited by law or applicable
regulations, may vote on behalf of the Holders in any election of a trustee
in bankruptcy or other Person performing similar functions, and any Custodian
in any such judicial proceeding is hereby authorized by each Holder to make
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 it for the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and its counsel, and any other
amounts due the Trustee under Section 7.07.
Section 6.10. PRIORITIES. If the Trustee collects any money or
property pursuant to this Article 6, it shall pay out the money or property
in the following order:
FIRST: to the Trustee for amounts due under Section 7.07;
SECOND: to holders of Senior Indebtedness to the extent required by
Article 10;
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THIRD: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Securities for principal and interest, respectively; and
FOURTH: to the Company.
The Trustee may fix a record date and payment date for any payment
to Securityholders pursuant to this Section. At least 15 days before such
record date, the Company shall mail to each Securityholder and the Trustee a
notice that states the record date, the payment date and amount to be paid.
Section 6.11. UNDERTAKING FOR COSTS. In any suit for the
enforcement of any right or remedy under this Indenture or in any suit
against the Trustee for any action taken or omitted by it as Trustee, a court
in its discretion may require the filing by any party litigant in the suit of
an undertaking to pay the costs of the suit, and the court in its discretion
may assess reasonable costs, including reasonable attorneys' fees, against
any party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section
does not apply to a suit by the Trustee, a suit by a Holder pursuant to
Section 6.07 or a suit by Holders of more than an aggregate of 10% in
principal amount of the Securities.
Section 6.12. WAIVER OF STAY OR EXTENSION LAWS. The Company (to
the extent it may lawfully do so) shall not at any time insist upon, or
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay 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 shall not hinder, delay
or impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law had
been enacted.
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ARTICLE 7
TRUSTEE
Section 7.01. DUTIES OF TRUSTEE. (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
their 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 this Indenture. However,
the Trustee shall examine such certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful
misconduct, except that:
(1) this paragraph does not 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 Trust Officer unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
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(d) Every provision of this Indenture that in any way relates to
the Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
(f) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
(g) No provision of this Indenture shall require the Trustee to
advance, expend or risk its own funds or otherwise incur financial liability
in the performance of any of its duties hereunder or in the exercise of any
of its rights or powers. The Trustee, however, may so advance or expend its
own funds if, in its own reasonable judgment, the Trustee believes that
repayment of such funds or adequate indemnity against such risk or liability
has been reasonably assured to it.
(h) 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 and to the provisions of the TIA.
(i) Notwithstanding anything to the contrary herein, the Trustee
shall have no duty to review the reports and information documents required
to be provided by Section 4.02 for the purposes of determining compliance
with any provisions of this Indenture.
Section 7.02. RIGHTS OF TRUSTEE. (a) The Trustee may rely on any
document believed by it to be genuine and to have been signed or presented by
the proper person. The Trustee need not investigate any fact or matter
stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on
the Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due care.
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(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers; PROVIDED, HOWEVER, that the Trustee's conduct does not
constitute wilful misconduct or negligence.
(e) The Trustee may consult with counsel, and the advice or opinion
of counsel with respect to legal matters relating to this Indenture and the
Securities shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it hereunder
in good faith and in accordance with the advice or opinion of such counsel.
Section 7.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its
individual or any other capacity may become the owner or pledgee of
Securities and may otherwise deal with the Company or its Affiliates with the
same rights it would have if it were not Trustee. Any Paying Agent,
Registrar, co-registrar or co-paying agent may do the same with like rights.
However, the Trustee must comply with Sections 7.10 and 7.11.
Section 7.04. TRUSTEE'S DISCLAIMER. The Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the
Company's use of the proceeds from the Securities, and it shall not be
responsible for any statement of the Company in the Indenture or in any
document issued in connection with the sale of the Securities or in the
Securities other than the Trustee's certificate of authentication.
Section 7.05. NOTICE OF DEFAULTS. If a Default occurs and is
continuing and if it is known to the Trustee, the Trustee shall mail to each
Securityholder notice of the Default within 90 days after it occurs. Except
in the case of a Default in payment of principal of or interest on any
Security (including payments pursuant to the mandatory redemption provisions
of such Security, if any), the Trustee may withhold the notice if and so long
as the Trust Officer responsible for administering this Indenture and the
Securities in good faith determines that withholding notice is not opposed to
the interests of Securityholders.
Section 7.06. REPORTS BY TRUSTEE TO HOLDERS. Within sixty (60)
days after May 15 of each year, beginning with May 15, 1997, the Trustee
shall mail to each
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Securityholder a brief report dated as of May 15 of such year, that complies
with TIA Section 313(a). The Trustee also shall comply with TIA Section
313(b).
A copy of each report at the time of its mailing to Securityholders
shall be filed with the SEC and each stock exchange (if any) on which the
Securities are listed. The Company agrees to notify promptly the Trustee
whenever the Securities become listed on any stock exchange and of any
delisting thereof.
Section 7.07. COMPENSATION AND INDEMNITY. The Company shall pay to
the Trustee from time to time and upon its request reasonable compensation
for its services. The Trustee's compensation shall not be limited by any law
on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee upon request for all reasonable out-of-pocket expenses
incurred or made by it, including costs of collection, in addition to the
compensation for its services. Such expenses shall include the reasonable
compensation and expenses, disbursements and advances of the Trustee's
agents, counsel, accountants and experts. The Company shall indemnify the
Trustee against any and all loss, liability or expense (including attorneys'
fees) incurred by it in connection with the administration of this trust and
the performance of its duties hereunder, including the costs and expenses of
enforcing this Indenture against the Company (including under Section 7.07).
The Trustee shall notify the Company promptly of any claim (whether asserted
by any Securityholder or the Company) for which it may seek indemnity.
Failure by the Trustee to so notify the Company shall not relieve the Company
of its obligations hereunder. The Company shall defend the claim and the
Trustee may have separate counsel and the Company shall pay the fees and
expenses of such counsel. The Company need not reimburse any expense or
indemnify against any loss, liability or expense incurred by the Trustee
through the Trustee's own wilful misconduct, negligence or bad faith.
To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the Securities on all money or property
held or collected by the Trustee other than money or property held in trust
to pay principal of and interest on particular Securities.
The Company's payment obligations pursuant to this Section shall
survive the discharge of this Indenture. When the Trustee incurs expenses
after the occurrence of a
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Default specified in Section 6.01(7) or (8) with respect to the Company, the
expenses are intended to constitute expenses of administration under the
Bankruptcy Law.
Section 7.08. REPLACEMENT OF TRUSTEE. The Trustee may resign at
any time by so notifying the Company. The Holders of a majority in principal
amount of the Securities may remove the Trustee by so notifying the Trustee
and may appoint a successor Trustee. The Company shall remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the Trustee
or its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns, is removed by the Company or by the Holders
of a majority in principal amount of the Securities and such Holders do not
reasonably promptly appoint a successor Trustee, or if a vacancy exists in
the office of Trustee for any reason (the Trustee in such event being
referred to herein as the retiring Trustee), the Company shall promptly
appoint a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and
the successor Trustee shall have all the rights, powers and duties of the
Trustee under this Indenture. The successor Trustee shall mail a notice of
its succession to Securityholders. The retiring Trustee shall promptly
transfer all property held by it as Trustee to the successor Trustee, subject
to the lien provided for in Section 7.07.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee or the Holders
of 10% in principal amount of the Securities may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent
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jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to this
Section, the Company's obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
Section 7.09. SUCCESSOR TRUSTEE BY MERGER. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee.
In case at the time such successor or successors by merger,
conversion or consolidation to the Trustee shall succeed to the trusts
created by this Indenture any of the Securities shall have been authenticated
but not delivered, any such successor to the Trustee may adopt the
certificate of authentication of any predecessor trustee, and deliver such
Securities so authenticated; and in case at that time any of the Securities
shall not have been authenticated, any successor to the Trustee may
authenticate such Securities either in the name of any predecessor hereunder
or in the name of the successor to the Trustee; and in all such cases such
certificates shall have the full force which it is anywhere in the Securities
or in this Indenture provided that the certificate of the Trustee shall have.
Section 7.10. ELIGIBILITY; DISQUALIFICATION. The Trustee shall at
all times satisfy the requirements of TIA Section 310(a). The Trustee shall
have a combined capital and surplus of at least $50.0 million as set forth in
its most recent annual report of condition. The Trustee shall comply with
TIA Section 310(b); PROVIDED, HOWEVER, that there shall be excluded from the
operation of TIA Section 310(b)(1) any indenture or indentures under which
other securities or certificates of interest or participation in other
securities of the Company are outstanding if the requirements for such
exclusion set forth in TIA Section 310(b)(1) are met.
Section 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or
been removed shall be subject to TIA Section 311(a) to the extent indicated.
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ARTICLE 8
DISCHARGE OF INDENTURE; DEFEASANCE
Section 8.01. DISCHARGE OF LIABILITY ON SECURITIES; DEFEASANCE.
(a) When (i) the Company delivers to the Trustee all outstanding Securities
(other than Securities replaced pursuant to Section 2.06) for cancellation or
(ii) all outstanding Securities have become due and payable, whether at maturity
or as a result of the mailing of a notice of redemption pursuant to Article 3
hereof and the Company irrevocably deposits with the Trustee funds sufficient to
pay at maturity or upon redemption all outstanding Securities, including
interest thereon to maturity or such redemption date (other than Securities
replaced pursuant to Section 2.06), and if in either case the Company pays all
other sums payable hereunder by the Company, then this Indenture shall, subject
to Section 8.01(c), cease to be of further effect. The Trustee shall
acknowledge satisfaction and discharge of this Indenture on demand of the
Company accompanied by an Officers' Certificate and an Opinion of Counsel and at
the cost and expense of the Company.
(b) Subject to Sections 8.01(c) and 8.02, the Company at any time may
terminate (i) all its obligations under the Securities and this Indenture
("legal defeasance option") or (ii) its obligations under Sections 4.02, 4.03,
4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.10, 4.11 and 4.12 and the operation of
Sections 6.01(4), 6.01(6), 6.01(7) (but only with respect to Significant
Subsidiaries), 6.01(8) (but only with respect to Significant Subsidiaries),
6.01(9) and 6.01(10) and its obligations under Sections 5.01(iii) and (iv)
("covenant defeasance option"). The Company may exercise its legal defeasance
option notwithstanding its prior exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the
Securities may not be accelerated because of an Event of Default. If the
Company exercises its covenant defeasance option, payment of the Securities may
not be accelerated because of an Event of Default specified in Section 6.01(4),
6.01(6), 6.01(7) (but only with respect to Significant Subsidiaries), 6.01(8)
(but only with respect to Significant Subsidiaries), 6.01(9) or 6.01(10) or
because of the failure of the Company to comply with Section 5.01(iii) or (iv).
If the Company exercises
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its legal defeasance option or its covenant defeasance option, each
Subsidiary Guarantor, if any, will be released from all its obligations with
respect to its Subsidiary Guaranty.
Upon satisfaction of the conditions set forth herein and upon request
of the Company, the Trustee shall acknowledge in writing the discharge of those
obligations that the Company terminates.
(c) Notwithstanding clauses (a) and (b) above, the Company's
obligations in Sections 2.03, 2.04, 2.05, 2.06, 7.07, 7.08 and this Article 8
shall survive until the Securities have been paid in full. Thereafter, the
Company's obligations in Sections 7.07, 8.04 and 8.05 shall survive.
Section 8.02. CONDITIONS TO DEFEASANCE. The Company may exercise its
legal defeasance option or its covenant defeasance option only if:
(1) the Company irrevocably deposits in trust with the Trustee money
or U.S. Government Obligations for the payment of principal and interest on
the Securities to maturity or redemption, as the case may be;
(2) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent accountants expressing their
opinion that the payments of principal of and interest when due and without
reinvestment on the deposited U.S. Government Obligations plus any
deposited money without investment will provide cash at such times and in
such amounts as will be sufficient to pay principal and interest when due
on all the Securities to maturity or redemption, as the case may be;
(3) 123 days pass after the deposit is made and during the 123-day
period no Default specified in Section 6.01(7) or (8) with respect to the
Company occurs which is continuing at the end of the period;
(4) the deposit does not constitute a default under any other
agreement binding on the Company and is not prohibited by Article 10;
(5) the Company delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from
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the deposit does not constitute, or is qualified as, a regulated investment
company under the Investment Company Act of 1940;
(6) in the case of the legal defeasance option, the Company shall have
delivered to the Trustee an Opinion of Counsel stating that (i) the Company
has received from, or there has been published by, the Internal Revenue
Service a ruling, or (ii) since the date of this Indenture there has been a
change in the applicable Federal income tax law, in either case to the
effect that, and based thereon such Opinion of Counsel shall confirm that,
the Securityholders will not recognize income, gain or loss for Federal
income tax purposes as a result of such defeasance and will be subject to
Federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such defeasance had not occurred;
(7) in the case of the covenant defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Securityholders will not recognize income, gain or loss for Federal income
tax purposes as a result of such covenant defeasance and will be subject to
Federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such covenant defeasance had not
occurred; and
(8) the Company delivers to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent to the
defeasance and discharge of the Securities as contemplated by this
Article 8 have been complied with.
Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future date
in accordance with Article 3.
Section 8.03. APPLICATION OF TRUST MONEY. The Trustee shall hold in
trust money or U.S. Government Obligations deposited with it pursuant to this
Article 8. It shall apply the deposited money and the money from U.S.
Government Obligations through the Paying Agent and in accordance with this
Indenture to the payment of principal of and interest on the Securities.
Money and securities so held in trust are not subject to Article 10.
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Section 8.04. REPAYMENT TO COMPANY. The Trustee and the Paying Agent
shall promptly turn over to the Company upon request any excess money or
securities held by them at any time.
Subject to any applicable abandoned property law, the Trustee and the
Paying Agent shall pay to the Company upon request any money held by them for
the payment of principal or interest that remains unclaimed for two years, and,
thereafter, Securityholders entitled to the money must look to the Company for
payment as general creditors.
Section 8.05. INDEMNITY FOR GOVERNMENT OBLIGATIONS. The Company
shall pay and shall indemnify the Trustee against any tax, fee or other charge
imposed on or assessed against deposited U.S. Government Obligations or the
principal and interest received on such U.S. Government Obligations.
Section 8.06. REINSTATEMENT. If the Trustee or Paying Agent is
unable to apply any money or U.S. Government Obligations in accordance with this
Article 8 by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to this Article 8 until such time as the Trustee
or Paying Agent is permitted to apply all such money or U.S. Government
Obligations in accordance with this Article 8; PROVIDED, HOWEVER, that, if the
Company has made any payment of interest on or principal of any Securities
because of the reinstatement of its obligations, the Company shall be subrogated
to the rights of the Holders of such Securities to receive such payment from the
money or U.S. Government Obligations held by the Trustee or Paying Agent.
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ARTICLE 9
AMENDMENTS
Section 9.01. WITHOUT CONSENT OF HOLDERS. The Company and the
Trustee may amend this Indenture or the Securities without notice to or consent
of any Securityholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article 5;
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities; PROVIDED, HOWEVER, that the
uncertificated Securities are issued in registered form for purposes of
Section 163(f) of the Code or in a manner such that the uncertificated
Securities are described in Section 163(f)(2)(B) of the Code;
(4) to make any change in Article 10 that would limit or terminate the
benefits available to any holder of Senior Indebtedness (or Representatives
therefor) under Article 10;
(5) to add guarantees with respect to the Securities, including adding
any Subsidiary of the Company as a Subsidiary Guarantor under Article 11,
or to secure the Securities;
(6) 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;
(7) to comply with any requirements of the SEC in connection with
qualifying this Indenture under the TIA; or
(8) to make any change that does not adversely affect the rights of
any Securityholder.
An amendment under this Section may not make any change that adversely
affects the rights under Article 10 of any holder of Senior Indebtedness then
outstanding unless the holders of such Senior Indebtedness (or any group or
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representative thereof authorized to give a consent) consent to such change.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
Section 9.02. WITH CONSENT OF HOLDERS. The Company and the Trustee
may amend this Indenture or the Securities without notice to any Securityholder
but with the written consent of the Holders of at least a majority in principal
amount of the Securities. Without the consent of each Securityholder affected,
however, an amendment may not:
(1) reduce the amount of Securities whose Holders must consent to an
amendment;
(2) reduce the rate of or extend the time for payment of interest on
any Security;
(3) reduce the principal of or extend the Stated Maturity of any
Security;
(4) reduce the premium payable upon a required purchase (to the extent
the Company has at the time become obligated by the terms of the Indenture
to effect a required purchase) or the redemption of any Security or change
the time at which any Security may be redeemed in accordance with
Article 3;
(5) make any Security payable in money other than that stated in the
Security;
(6) make any change in Article 10 or that adversely affects the rights
of any Securityholder under Article 10;
(7) make any change in Section 6.04 or 6.07 or the second sentence of
this Section; or
(8) make any change in any Subsidiary Guaranty that would adversely
affect the Securityholders.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of
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any proposed amendment, but it shall be sufficient if such consent approves
the substance thereof.
An amendment under this Section may not make any change that adversely
affects the rights under Article 10 or the fourth paragraph of Section 11.01 of
any holder of Senior Indebtedness then outstanding unless the holders of such
Senior Indebtedness (or any group or representative thereof authorized to give a
consent) consent to such change.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
Section 9.03. COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment
to this Indenture or the Securities shall comply with the TIA as then in effect.
Section 9.04. REVOCATION AND EFFECT OF CONSENTS AND WAIVERS. A
consent to an amendment or a waiver by a Holder of a Security shall bind the
Holder and every subsequent Holder of that Security or portion of the Security
that evidences the same debt as the consenting Holder's Security, even if
notation of the consent or waiver is not made on the Security. However, any
such Holder or subsequent Holder may revoke the consent or waiver as to such
Holder's Security or portion of the Security if the Trustee receives the notice
of revocation before the date the amendment or waiver becomes effective. After
an amendment or waiver becomes effective, it shall bind every Securityholder.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Securityholders entitled to give their consent or
take any other action described above or required or permitted to be taken
pursuant to this Indenture. If a record date is fixed, then notwithstanding the
immediately preceding paragraph, those Persons who were Securityholders at such
record date (or their duly designated proxies), and only those Persons, shall be
entitled to give such consent or to revoke any consent previously given or to
take any such action, whether or not such Persons continue to be Holders
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after such record date. No such consent shall be valid or effective for more
than 120 days after such record date.
Section 9.05. NOTATION ON OR EXCHANGE OF SECURITIES. If an amendment
changes the terms of a Security, the Trustee may require the Holder of the
Security to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Security regarding the changed terms and return it to the
Holder. Alternatively, if the Company or the Trustee so determines, the Company
in exchange for the Security shall issue and the Trustee shall authenticate a
new Security that reflects the changed terms. Failure to make the appropriate
notation or to issue a new Security shall not affect the validity of such
amendment.
Section 9.06. TRUSTEE TO SIGN AMENDMENTS. The Trustee shall sign any
amendment authorized pursuant to this Article 9 if the amendment does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may but need not sign it. In signing such amendment the
Trustee shall be entitled to receive indemnity reasonably satisfactory to it and
to receive, and (subject to Section 7.01) shall be fully protected in relying
upon, an Officers' Certificate and an Opinion of Counsel stating that such
amendment is authorized or permitted by this Indenture.
Section 9.07. PAYMENT FOR CONSENT. Neither the Company nor any
Affiliate of the Company shall, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any Holder
for or as an inducement to any consent, waiver or amendment of any of the terms
or provisions of this Indenture or the Securities unless such consideration is
offered to be paid or agreed to be paid to all Holders that so consent, waive or
agree to amend in the time frame set forth in solicitation documents relating to
such consent, waiver or agreement.
ARTICLE 10
SUBORDINATION
Section 10.01. AGREEMENT TO SUBORDINATE. The Company agrees, and
each Securityholder by accepting a Security agrees, that the Indebtedness
evidenced by the Securities is subordinated in right of payment, to the
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extent and in the manner provided in this Article 10, to the prior payment of
all Senior Indebtedness of the Company or the applicable Subsidiary
Guarantor, whether outstanding on the Issue Date or thereafter incurred,
including the Company's and such Subsidiary Guarantor's obligations under the
Credit Agreement, and that the subordination is for the benefit of and
enforceable by the holders of Senior Indebtedness. The Securities shall in
all respects rank PARI PASSU with all other Senior Subordinated Indebtedness
of the Company and only Indebtedness of the Company which is Senior
Indebtedness shall rank senior to the Securities in accordance with the
provisions set forth herein. All provisions of this Article 10 shall be
subject to Section 10.12.
Section 10.02. LIQUIDATION, DISSOLUTION, BANKRUPTCY. Upon any
payment or distribution of the assets of the Company to creditors upon a total
or partial liquidation or a total or partial dissolution of the Company or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its property:
(1) holders of Senior Indebtedness shall be entitled to receive
payment in full of the Senior Indebtedness before Securityholders shall be
entitled to receive any payment of principal of or interest on the
Securities; and
(2) until the Senior Indebtedness is paid in full, any payment or
distribution to which Securityholders would be entitled but for this
Article 10 shall be made to holders of Senior Indebtedness as their
interests may appear, except that Securityholders may receive shares of
stock and any debt securities that are subordinated to Senior Indebtedness
to at least the same extent as the Securities.
Section 10.03. DEFAULT ON DESIGNATED SENIOR INDEBTEDNESS. The
Company may not pay the principal of, premium (if any) or interest on the
Securities or make any deposit pursuant to Section 8.01 and may not repurchase,
redeem or otherwise retire any Securities (collectively, "pay the Securities")
if (i) any Designated Senior Indebtedness is not paid when due or (ii) any other
default on Designated Senior Indebtedness occurs and the maturity of such
Designated Senior Indebtedness is accelerated in accordance with its terms
unless, in either case, (x) the default has been cured or waived and any such
acceleration
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has been rescinded or (y) such Designated Senior Indebtedness has been paid
in full; PROVIDED, HOWEVER, that the Company may pay the Securities without
regard to the foregoing if the Company and the Trustee receive written notice
approving such payment from the Representative of the Designated Senior
Indebtedness with respect to which either of the events set forth in clause
(i) or (ii) of this sentence has occurred and is continuing. During the
continuance of any default (other than a default described in clause (i) or
(ii) of the preceding sentence) with respect to any Designated Senior
Indebtedness pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods,
the Company may not pay the Securities for a period (a "Payment Blockage
Period") commencing upon the receipt by the Trustee (with a copy to the
Company) of written notice (a "Blockage Notice") of such default from the
Representative of the holders of such Designated Senior Indebtedness
specifying an election to effect a Payment Blockage Period and ending 179
days thereafter (or earlier if such Payment Blockage Period is terminated (i)
by written notice to the Trustee and the Company from the Person or Persons
who gave such Blockage Notice, (ii) because the default giving rise to such
Blockage Notice is no longer continuing or (iii) because such Designated
Senior Indebtedness has been repaid in full. Notwithstanding the provisions
described in the immediately preceding sentence (but subject to the
provisions contained in the first sentence of this Section), unless the
holders of such Designated Senior Indebtedness or the Representative of such
holders shall have accelerated the maturity of such Designated Senior
Indebtedness, the Company shall resume payments on the Securities after the
end of such Payment Blockage Period. Not more than one Blockage Notice may
be given in any consecutive 360-day period, irrespective of the number of
defaults with respect to Designated Senior Indebtedness during such period;
PROVIDED, HOWEVER, that if any Blockage Notice within such 360-day period is
given by or on behalf of any holders of Designated Senior Indebtedness (other
than the lenders under any Credit Agreement), the Representative of the
lenders under any Credit Agreement may give another Blockage Notice within
such period; PROVIDED FURTHER, HOWEVER, that in no event may the total number
of days during which any Payment Blockage Period or Periods is in effect
exceed 179 days in the aggregate during any 360 consecutive day period. For
purposes of this Section, no default or event of default
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which existed or was continuing on the date of the commencement of any
Payment Blockage Period with respect to the Designated Senior Indebtedness
initiating such Payment Blockage Period shall be, or be made, the basis of
the commencement of a subsequent Payment Blockage Period by the
Representative of such Designated Senior Indebtedness, whether or not within
a period of 360 consecutive days, unless such default or event of default
shall have been cured or waived for a period of not less than 90 consecutive
days.
Section 10.04. ACCELERATION OF PAYMENT OF SECURITIES. If payment of
the Securities is accelerated because of an Event of Default, the Company or the
Trustee shall promptly notify the holders of the Designated Senior Indebtedness
(or their Representative) of the acceleration.
Section 10.05. WHEN DISTRIBUTION MUST BE PAID OVER. If a distribution
is made to Securityholders that because of this Article 10 should not have
been made to them, the Securityholders who receive the distribution shall
hold it in trust for holders of Senior Indebtedness and pay it over to them
as their interests may appear.
Section 10.06. SUBROGATION. After all Senior Indebtedness is paid in
full and until the Securities are paid in full, Securityholders shall be
subrogated to the rights of holders of Senior Indebtedness to receive
distributions applicable to Senior Indebtedness. A distribution made under this
Article 10 to holders of Senior Indebtedness which otherwise would have been
made to Securityholders is not, as between the Company and Securityholders, a
payment by the Company on Senior Indebtedness.
Section 10.07. RELATIVE RIGHTS. This Article 10 defines the relative
rights of Securityholders and holders of Senior Indebtedness. Nothing in this
Indenture shall:
(1) impair, as between the Company and Securityholders, the obligation
of the Company, which is absolute and unconditional, to pay principal of
and interest on the Securities in accordance with their terms; or
(2) prevent the Trustee or any Securityholder from exercising its
available remedies upon a Default, subject to the rights of holders of
Senior Indebtedness to
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receive distributions otherwise payable to Securityholders.
Section 10.08. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY. No
right of any holder of Senior Indebtedness to enforce the subordination of the
Indebtedness evidenced by the Securities shall be impaired by any act or failure
to act by the Company or by its failure to comply with this Indenture.
Section 10.9. RIGHTS OF TRUSTEE AND PAYING AGENT. Notwithstanding
Section 10.03, the Trustee or Paying Agent may continue to make payments on the
Securities and shall not be charged with knowledge of the existence of facts
that would prohibit the making of any such payments unless, not less than two
Business Days prior to the date of such payment, a Trust Officer of the Trustee
receives notice satisfactory to it that payments may not be made under this
Article 10. The Company, the Registrar or co-registrar, the Paying Agent, a
Representative or a holder of Senior Indebtedness may give the notice; PROVIDED,
HOWEVER, that, if an issue of Senior Indebtedness has a Representative, only the
Representative may give the notice.
The Trustee in its individual or any other capacity may hold Senior
Indebtedness with the same rights it would have if it were not Trustee. The
Registrar and co-registrar and the Paying Agent may do the same with like
rights. The Trustee shall be entitled to all the rights set forth in this
Article 10 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 Article 7 shall deprive the Trustee of any of its rights as such
holder. Nothing in this Article 10 shall apply to claims of, or payments to,
the Trustee under or pursuant to Section 7.07.
Section 10.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE. Whenever a
distribution is to be made or a notice given to holders of Senior Indebtedness,
the distribution may be made and the notice given to their Representative (if
any).
Section 10.11. ARTICLE 10 NOT TO PREVENT EVENTS OF DEFAULT OR LIMIT
RIGHT TO ACCELERATE. The failure to make a payment pursuant to the Securities
by reason of any provision in this Article 10 shall not be construed as
preventing the occurrence of a Default. Nothing in this
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Article 10 shall have any effect on the right of the Securityholders or the
Trustee to accelerate the maturity of the Securities.
Section 10.12. TRUST MONEYS NOT SUBORDINATED. Notwithstanding
anything contained herein to the contrary, payment from the money or the
proceeds of U.S. Government Obligations deposited in trust with the Trustee in
accordance with the provisions of Article 8 for the payment of principal of and
interest on the Securities shall not be subordinated to the prior payment of any
Senior Indebtedness or subject to the restrictions set forth in this Article 10,
and none of the Securityholders shall be obligated to pay over any such amount
to the Company or any holder of Senior Indebtedness of the Company or any other
creditor of the Company.
Section 10.13. TRUSTEE ENTITLED TO RELY. Upon any payment or
distribution pursuant to this Article 10, the Trustee and the Securityholders
shall be entitled to rely (i) upon any order or decree of a court of competent
jurisdiction in which any proceedings of the nature referred to in Section 10.02
are pending, (ii) upon a certificate of the liquidating trustee or agent or
other Person making such payment or distribution to the Trustee or to the
Securityholders or (iii) upon the Representatives for the holders of Senior
Indebtedness 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 10. In the event that the Trustee determines, in
good faith, that 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 10, 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 other facts
pertinent to the rights of such Person under this Article 10, 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. The provisions of Sections 7.01 and 7.02 shall be applicable to all
actions or omissions of actions by the Trustee pursuant to this Article 10.
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Section 10.14. TRUSTEE TO EFFECTUATE SUBORDINATION. Each
Securityholder by accepting a Security authorizes and directs the Trustee on his
behalf to take such action as may be necessary or appropriate to acknowledge or
effectuate the subordination between the Securityholders and the holders of
Senior Indebtedness as provided in this Article 10 and appoints the Trustee as
attorney-in-fact for any and all such purposes.
Section 10.15. 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. The Trustee undertakes to perform or to observe
only such of the covenants and obligations as are specifically set forth in this
Article 10, and no implied covenants or obligations with respect to such holders
of Senior Indebtedness shall be implied in this Indenture against the Trustee.
Section 10.16. RELIANCE BY HOLDERS OF SENIOR INDEBTEDNESS ON
SUBORDINATION PROVISIONS. Each Securityholder by accepting a Security
acknowledges and agrees that the foregoing subordination provisions are, and are
intended to be, an inducement and a consideration to each holder of any Senior
Indebtedness, whether such Senior Indebtedness was created or acquired before or
after the issuance of the Securities, to acquire and continue to hold, or to
continue to hold, such Senior Indebtedness and such holder of Senior
Indebtedness shall be deemed conclusively to have relied on such subordination
provisions in acquiring and continuing to hold, or in continuing to hold, such
Senior Indebtedness.
ARTICLE 11
SUBSIDIARY GUARANTY
Section 11.01. GUARANTEE. Each Subsidiary Guarantor, as primary
obligor and not merely as surety, hereby irrevocably and unconditionally
guarantees, jointly and severally, on a senior subordinated basis to each Holder
and to the Trustee and its successors and assigns (a) the full and punctual
payment of principal of and interest on the Securities when due, whether at
Stated Maturity, by acceleration, by redemption or otherwise, and all other
monetary obligations of the Company under this Indenture and the Securities and
(b) the full and punctual performance within applicable grace periods of all
other obligations of
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the Company under this Indenture and the Securities (all the foregoing being
hereinafter collectively called the "Guaranteed Obligations"). Each
Subsidiary Guarantor further agrees that the Guaranteed Obligations of the
Company may be extended or renewed, in whole or in part, without notice or
further assent from such Subsidiary Guarantor, and that such Subsidiary
Guarantor shall remain bound under this Article 11 notwithstanding any
extension or renewal of any such Guaranteed Obligation.
Each Subsidiary Guarantor waives presentation to, demand of, payment
from and protest to the Company of any of the Guaranteed Obligations and also
waives notice of protest for nonpayment. Each Subsidiary Guarantor waives
notice of any default under the Securities or the Guaranteed Obligations. The
obligations of each Subsidiary Guarantor hereunder shall not be affected by
(a) the failure of any Holder or the Trustee to assert any claim or demand or to
enforce any right or remedy against the Company or any other Person under this
Indenture, the Securities or any other agreement or otherwise; (b) any extension
or renewal of any thereof; (c) any rescission, waiver, amendment or modification
of any of the terms or provisions of this Indenture, the Securities or any other
agreement; (d) the release of any security held by any Holder or the Trustee for
the Guaranteed Obligations or any of them; (e) the failure of any Holder or
Trustee to exercise any right or remedy against any other Subsidiary Guarantor
of the Guaranteed Obligations or (f) any change in the ownership of such
Subsidiary Guarantor.
Each Subsidiary Guarantor further agrees that its Subsidiary Guaranty
herein constitutes a guarantee of payment, performance and compliance when due
(and not a guarantee of collection) and waives any right to require that any
resort be had by any Holder or the Trustee to any security held for payment of
the Guaranteed Obligations.
Each Subsidiary Guaranty, as it relates to the principal of, premium
(if any) and interest on the Securities shall be, to the extent and manner set
forth in Article 10, subordinated in right of payment to the prior payment in
full of all Senior Indebtedness of such Subsidiary Guarantor and each such
Subsidiary Guarantor's Subsidiary Guaranty is made subject to such provisions of
this Indenture.
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The obligations of each Subsidiary Guarantor hereunder shall not be
subject to any reduction, limitation, impairment or termination for any reason,
including any claim of waiver, release, surrender, alteration or compromise, and
shall not be subject to any defense of setoff, counterclaim, recoupment or
termination whatsoever or by reason of the invalidity, illegality or
unenforceability of the Guaranteed Obligations or otherwise. Without limiting
the generality of the foregoing, the obligations of each Subsidiary Guarantor
herein shall not be discharged or impaired or otherwise affected by the failure
of any Holder or the Trustee to assert any claim or demand or to enforce any
remedy under this Indenture, the Securities or any other agreement, by any
waiver or modification of any thereof, by any default, failure or delay, wilful
or otherwise, in the performance of the obligations, or by any other act or
thing or omission or delay to do any other act or thing which may or might in
any manner or to any extent vary the risk of such Subsidiary Guarantor or would
otherwise operate as a discharge of such Subsidiary Guarantor as a matter of law
or equity.
Each Subsidiary Guarantor further agrees that its Subsidiary Guaranty
shall continue to be effective or be reinstated, as the case may be, if at any
time payment, or any part thereof, of principal of or interest on any Guaranteed
Obligation is rescinded or must otherwise be restored by any Holder or the
Trustee upon the bankruptcy or reorganization of the Company or otherwise.
In furtherance of the foregoing and not in limitation of any other
right which any Holder or the Trustee has at law or in equity against any
Subsidiary Guarantor by virtue hereof, upon the failure of the Company to pay
the principal of or interest on any Guaranteed Obligation when and as the same
shall become due, whether at maturity, by acceleration, by redemption or
otherwise, or to perform or comply with any other Guaranteed Obligation, each
Subsidiary Guarantor shall, upon receipt of written demand by the Trustee,
forthwith pay, or cause to be paid, in cash, to the Holders or the Trustee an
amount equal to the sum of (i) the unpaid principal amount of such Guaranteed
Obligations, (ii) accrued and unpaid interest on such Guaranteed Obligations
(but only to the extent not prohibited by law) and (iii) all other monetary
Guaranteed Obligations of the Company to the Holders and the Trustee.
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Each Subsidiary Guarantor agrees that it shall not be entitled to any
right of subrogation in relation to the Holders in respect of any Guaranteed
Obligations guaranteed hereby until payment in full of all Guaranteed
Obligations. Each Subsidiary Guarantor further agrees that, as between it, on
the one hand, and the Holders and the Trustee, on the other hand, (x) the
maturity of the Guaranteed Obligations Guaranteed hereby may be accelerated as
provided in Article 6 for the purposes of such Subsidiary Guarantor's Subsidiary
Guaranty, notwithstanding any stay, injunction or other prohibition preventing
such acceleration in respect of the Guaranteed Obligations Guaranteed hereby,
and (y) in the event of any declaration of acceleration of such Guaranteed
Obligations as provided in Article 6, such obligations (whether or not due and
payable) shall forthwith become due and payable by the Subsidiary Guarantor for
the purposes of this Section.
Each Subsidiary Guarantor also agrees to pay any and all costs and
expenses (including reasonable attorneys' fees) incurred by the Trustee or any
Holder in enforcing any rights under this Section.
Section 11.02. LIMITATION ON LIABILITY. Any term or provision of
this Indenture to the contrary notwithstanding, the maximum, aggregate amount of
the Guaranteed Obligations guaranteed hereunder by any Subsidiary Guarantor
shall not exceed the maximum amount that can, after giving effect to all other
contingent and fixed liabilities of such Subsidiary Guarantor (other than any
liabilities of such Subsidiary Guarantor with respect to any Subordinated
Obligation), be hereby guaranteed without rendering this Indenture, as it
relates to the Subsidiary Guarantor, voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally.
Section 11.03. SUCCESSORS AND ASSIGNS. This Article 11 shall be
binding upon each Subsidiary Guarantor and its respective successors and assigns
and shall enure to the benefit of the successors and assigns of the Trustee and
the Holders and, in the event of any transfer or assignment of rights by any
Holder or the Trustee, the rights and privileges conferred upon that party in
this Indenture and in the Securities shall automatically extend to and be vested
in such transferee or assignee, all subject to the terms and conditions of this
Indenture.
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Section 11.04. NO WAIVER. Neither a failure nor a delay on the part
of either the Trustee or the Holders in exercising any right, power or privilege
under this Article 11 shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercise of any right,
power or privilege. The rights, remedies and benefits of the Trustee and the
Holders herein expressly specified are cumulative and not exclusive of any other
rights, remedies or benefits which either may have under this Article 11 at law,
in equity, by statute or otherwise.
Section 11.05. MODIFICATION. No modification, amendment or waiver of
any provision of this Article 11, nor the consent to any departure by any
Subsidiary Guarantor therefrom, shall in any event be effective unless the same
shall be in writing and signed by the Trustee, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. No notice to or demand on any Subsidiary Guarantor in any case shall
entitle such Subsidiary Guarantor to any other or further notice or demand in
the same, similar or other circumstances.
Section 11.06. RELEASE OF SUBSIDIARY GUARANTOR. Upon the sale or
disposition (by merger or otherwise) of any Subsidiary Guarantor to an entity
which is neither the Company nor a Subsidiary Guarantor and which sale is
otherwise in compliance with the terms of this Indenture, such Subsidiary
Guarantor shall be deemed released from all obligations under this Article 11
without any further action required on the part of the Trustee, or any Holder.
At the request of the Company, the Trustee shall execute and deliver an
appropriate instrument evidencing such release.
ARTICLE 12
MISCELLANEOUS
Section 12.01. TRUST INDENTURE ACT CONTROLS. If any provision of
this Indenture limits, qualifies or conflicts with another provision which is
required to be included in this Indenture by the TIA, the required provision
shall control.
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Section 12.02. NOTICES. Any notice or communication shall be in
writing and delivered in person or mailed by first-class mail addressed as
follows:
if to the Company:
Kelley Oil & Gas Corporation
601 Jefferson, Suite 1100
Houston, TX 77002
Attention of Corporate Secretary
if to the Trustee:
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
Attention of Corporate Trust Department
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Securityholder shall be mailed
to the Securityholder at the Securityholder's address as it appears on the
registration books of the Registrar and shall be sufficiently given if so mailed
within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
Section 12.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.
Securityholders may communicate pursuant to TIA Section 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA Section 312(c).
Section 12.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take or refrain
from taking
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any action under this Indenture, the Company shall furnish to the Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of the signers,
all conditions precedent, if any, provided for in this Indenture relating
to the proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such counsel,
all such conditions precedent have been complied with.
Section 12.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each
certificate or opinion with respect to compliance with a covenant or condition
provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such 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 or not, in the opinion of such
individual, such covenant or condition has been complied with.
Section 12.06. WHEN SECURITIES DISREGARDED. In determining whether
the Holders of the required principal amount of Securities have concurred in any
direction, waiver or consent, Securities owned by the Company or by any Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company shall be disregarded and deemed not to be
outstanding, except that, for the purpose of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Securities which the Trustee knows are so
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owned shall be so disregarded. Also, subject to the foregoing, only
Securities outstanding at the time shall be considered in any such
determination.
Section 12.07. RULES BY TRUSTEE, PAYING AGENT AND REGISTRAR. The
Trustee may make reasonable rules for action by or a meeting of Securityholders.
The Registrar and the Paying Agent may make reasonable rules for their
functions.
Section 12.08. LEGAL HOLIDAYS. A "Legal Holiday" is a Saturday, a
Sunday or a day on which banking institutions are not required to be open in the
State of New York. If a payment date is a Legal Holiday, payment shall be made
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period. If a regular record date is a Legal Holiday,
the record date shall not be affected.
Section 12.09. GOVERNING LAW. This Indenture and the Securities
shall be governed by, and construed in accordance with, the laws of the State of
New York but without giving effect to applicable principles of conflicts of law
to the extent that the application of the laws of another jurisdiction would be
required thereby.
Section 12.10. NO RECOURSE AGAINST OTHERS. A director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under the Securities or this Indenture or for
any claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Securityholder shall waive and release
all such liability. The waiver and release shall be part of the consideration
for the issue of the Securities.
Section 12.11. SUCCESSORS. All agreements of the Company in this
Indenture and the Securities shall bind its successors. All agreements of the
Trustee in this Indenture shall bind its successors.
Section 12.12. MULTIPLE ORIGINALS. The parties may sign any number
of copies of this Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement. One signed copy is enough to prove
this Indenture.
Section 12.13. TABLE OF CONTENTS; HEADINGS. The table of contents,
cross-reference sheet and headings of the
<PAGE>
94
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not intended to be considered a part hereof and shall not
modify or restrict any of the terms or provisions hereof.
<PAGE>
95
IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed as of the date first written above.
KELLEY OIL & GAS CORPORATION,
by
/s/ WILLIAM C. RANKIN
------------------------------------
Name: William C. Rankin
Title: Senior Vice
President and Chief
Financial Officer
KELLEY OIL CORPORATION,
by
/s/ WILLIAM C. RANKIN
------------------------------------
Name: William C. Rankin
Title: Senior Vice
President and Chief
Financial Officer
KELLEY OPERATING COMPANY, LTD.,
by Kelley Oil Corporation,
its General Partner
by
/s/ WILLIAM C. RANKIN
------------------------------------
Name: William C. Rankin
Title: Senior Vice
President and Chief
Financial Officer
UNITED STATES TRUST COMPANY
OF NEW YORK, as Trustee,
by
/s/ PETER C. GERRER
------------------------------------
Name: Peter C. Gerrer
Title: Vice President
<PAGE>
APPENDIX A
PROVISIONS RELATING TO INITIAL SECURITIES AND
EXCHANGE SECURITIES
1. DEFINITIONS
1.1 DEFINITIONS
For the purposes of this Appendix A the following terms shall have the
meanings indicated below:
"Definitive Security" means a certificated Initial Security bearing
the restricted securities legend set forth in Section 2.3(e) and which is held
by an IAI in accordance with Section 2.1(c).
"Depository" means The Depository Trust Company, its nominees and
their respective successors.
"Exchange Securities" means the 10 3/8% Senior Subordinated Notes Due
2006 to be issued pursuant to this Indenture in connection with a Registered
Exchange Offer pursuant to the Registration Agreement.
"IAI" means an institutional "accredited investor" as described in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act.
"Initial Purchasers" means Morgan Stanley & Co. Incorporated, Chase
Securities Inc. and Lazard Fr res & Co. LLC.
"Initial Securities" means the 10 3/8% Senior Subordinated Notes Due
2006 issued under this Indenture on or about the date hereof.
"Placement Agreement" means the Placement Agreement dated October 25,
1996, among the Company and the Initial Purchasers.
"Private Exchange" means the offer by the Company pursuant to the
Registration Agreement, to the Initial Purchasers, to issue and deliver to each
Initial Purchaser, in exchange for the Initial Securities held by each Initial
Purchaser as part of its initial distribution, a like aggregate principal amount
of Private Exchange Securities.
"Private Exchange Securities" means the 10 3/8% Senior Subordinated
Notes Due 2006 to be issued pursuant to
<PAGE>
2
this Indenture in connection with a Private Exchange pursuant to the
Registration Agreement.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Registered Exchange Offer" means the offer by the Company, pursuant
to the Registration Agreement, to certain Holders of Initial Securities, to
issue and deliver to such Holders, in exchange for the Initial Securities, a
like aggregate principal amount of Exchange Securities registered under the
Securities Act.
"Registration Agreement" means the Registration Agreement dated
October 25, 1996, among the Company and the Initial Purchasers.
"Securities" means the Initial Securities, the Exchange Securities and
the Private Exchange Securities, treated as a single class.
"Securities Act" means the Securities Act of 1933.
"Securities Custodian" means the custodian with respect to a
Regulation S Global Security or a Restricted Global Security (as appointed by
the Depository), or any successor person thereto and shall initially be the
Trustee.
"Shelf Registration Statement" means the registration statement issued
by the Company, in connection with the offer and sale of Initial Securities or
Private Exchange Securities, pursuant to the Registration Agreement.
"Transfer Restricted Securities" means Definitive Securities and
Securities that bear or are required to bear the legend set forth in
Section 2.3(e) hereto.
<PAGE>
3
1.2 OTHER DEFINITIONS
Defined in
Term Section:
---- ----------
"Agent Members" . . . . . . . . . . . . . . . . . . . . . .2.1(b)
"Cedel" . . . . . . . . . . . . . . . . . . . . . . . . . .2.1(a)
"Euroclear" . . . . . . . . . . . . . . . . . . . . . . . .2.1(a)
"Global Security" . . . . . . . . . . . . . . . . . . . . .2.1(b)
"Regulation S". . . . . . . . . . . . . . . . . . . . . . .2.1(a)
"Regulation S Global Security". . . . . . . . . . . . . . .2.1(a)
"Restricted Global Security". . . . . . . . . . . . . . . .2.1(a)
"Rule 144A" . . . . . . . . . . . . . . . . . . . . . . . .2.1(a)
2. THE SECURITIES.
2.1 FORM AND DATING.
The Initial Securities are being offered and sold by the Company
pursuant to the Placement Agreement.
(a) GLOBAL SECURITIES. Initial Securities offered and sold to a QIB
in reliance on Rule 144A under the Securities Act ("Rule 144A") as provided in
the Placement Agreement, shall be issued initially in the form of one or more
permanent global Securities in definitive, fully registered form without
interest coupons with the global securities legend and restricted securities
legend set forth in Exhibit 1 hereto (each, a "Restricted Global Security"),
which shall be deposited on behalf of the purchasers of the Initial Securities
represented thereby with the Trustee, at its New York office, as custodian for
the Depository (or with such other custodian as the Depository may direct), and
registered in the name of the Depository or a nominee of the Depository, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided. The aggregate principal amount of the Restricted Global Securities
may from time to time be increased or decreased by adjustments made on the
records of the Trustee and the Depository or its nominee, as the case may be, as
hereinafter provided.
Initial Securities offered and sold in reliance on Regulation S under
the Securities Act ("Regulation S"), as provided in the Placement Agreement,
shall be issued initially in the form of one or more permanent global Securities
in definitive, fully registered form without interest coupons with the global
securities legend and restricted securities legend set forth in Exhibit 1 hereto
(the "Regulation S Global
<PAGE>
4
Security"), which shall be deposited on behalf of the purchasers of the
Initial Securities represented thereby with the Trustee, as custodian, for
the Depository (or with such other custodian as the Depository may direct),
and registered in the name of the Depository or the nominee of the Depository
duly executed by the Company and authenticated by the Trustee as hereinafter
provided. Prior to the commencement of the Exchange Offer or the
effectiveness of the Shelf Registration Statement, beneficial interests in
the Regulation S Global Security may only be held for the accounts of
designated agents holding on behalf of the Euroclear System ("Euroclear") or
Cedel, S.A. ("Cedel"). Following the commencement of the Registered Exchange
Offer or the effectiveness of the Shelf Registration Statement, beneficial
interests in the Regulation S Global Security may be held through Euroclear,
Cedel or other participants having accounts at the Depository. The aggregate
principal amount of the Regulation S Global Security may from time to time be
increased or decreased by adjustments made on the records of the Trustee and
the Depository or its nominee, as the case may be, as hereinafter provided.
(b) BOOK-ENTRY PROVISIONS. This Section 2.1(b) shall apply only to a
Regulation S Global Security and the Restricted Global Security ("Global
Securities") deposited with or on behalf of the Depository.
The Company shall execute and the Trustee shall, in accordance with
this Section 2.1(b), authenticate and deliver initially one or more Global
Securities that (a) shall be registered in the name of the Depository for such
Global Security or Global Securities or the nominee of such Depository and
(b) shall be delivered by the Trustee to such Depository or pursuant to such
Depository's instructions or held by the Trustee as custodian for the
Depository.
Members of, or participants in, the Depository ("Agent Members") shall
have no rights under this Indenture with respect to any Global Security held on
their behalf by the Depository or by the Trustee as the custodian of the
Depository or under such Global Security, and the Depository may be treated by
the Company, the Trustee and any agent of the Company or the Trustee as the
absolute owner of such Global Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depository
or impair, as
<PAGE>
5
between the Depository and its Agent Members, the operation of customary
practices of such Depository governing the exercise of the rights of a holder
of a beneficial interest in any Global Security.
(c) CERTIFICATED SECURITIES. Except as provided in this Section 2.1
or Section 2.3 or 2.4, owners of beneficial interests in Global Securities will
not be entitled to receive physical delivery of certificated Securities.
Purchasers of Initial Securities who are IAIs and are not QIBs and did not
purchase Initial Securities sold in reliance on Regulation S will receive
Definitive Securities; PROVIDED, HOWEVER, that upon transfer of such Definitive
Securities to a QIB or in accordance with Regulation S, such Definitive
Securities will, unless the relevant Global Security has previously been
exchanged, be exchanged for an interest in a Global Security pursuant to the
provisions of Section 2.3.
2.2 AUTHENTICATION. The Trustee shall authenticate and deliver:
(1) Initial Securities for original issue in an aggregate principal amount of
$125,000,000 and (2) Exchange Securities or Private Exchange Securities for
issue only in a Registered Exchange Offer or a Private Exchange, respectively,
pursuant to the Registration Agreement, for a like principal amount of Initial
Securities, in each case upon a written order of the Company signed by two
Officers or by an Officer and either an Assistant Treasurer or an Assistant
Secretary of the Company. Such order shall specify the amount of the Securities
to be authenticated and the date on which the original issue of Securities is to
be authenticated and whether the Securities are to be Initial Securities,
Exchange Securities or Private Exchange Securities. The aggregate principal
amount of Securities outstanding at any time may not exceed $125,000,000 except
as provided in Section 2.07 of this Indenture.
2.3 TRANSFER AND EXCHANGE. (a) TRANSFER AND EXCHANGE OF DEFINITIVE
SECURITIES. When Definitive Securities are presented to the Registrar or a
co-registrar with a request:
(x) to register the transfer of such Definitive Securities; or
(y) to exchange such Definitive Securities for an equal principal
amount of Definitive Securities of other authorized denominations,
<PAGE>
6
the Registrar or co-registrar shall register the transfer or make the exchange
as requested if its reasonable requirements for such transaction are met;
PROVIDED, HOWEVER, that the Definitive Securities surrendered for transfer or
exchange:
(i) shall be duly endorsed or accompanied by a written instrument of
transfer in form reasonably satisfactory to the Company and the Registrar
or co-registrar, duly executed by the Holder thereof or his attorney duly
authorized in writing; and
(ii) are being transferred or exchanged pursuant to an effective
registration statement under the Securities Act, pursuant to Section 2.3(b)
or pursuant to clause (A), (B) or (C) below, and are accompanied by the
following additional information and documents, as applicable:
(A) if such Definitive Securities are being delivered to the
Registrar by a Holder for registration in the name of such Holder,
without transfer, a certification from such Holder to that effect (in
the form set forth on the reverse of the Security); or
(B) if such Definitive Securities are being transferred to the
Company, a certification to that effect (in the form set forth on the
reverse of the Security); or
(C) if such Definitive Securities are being transferred
(x) pursuant to an exemption from registration in accordance with
Rule 144; or (y) in reliance on another exemption from the
registration requirements of the Securities Act; or (z) to an IAI that
is acquiring the Security for its own account, or for the account of
such an IAI, in each case for investment purposes and not with a view
to, or for an offer or sale in connection with, any distribution in
violation of the Securities Act: (i) a certification to that effect
(in the form set forth on the reverse of the Security) and (ii) such
other certifications as the Trustee may reasonably request and (ii) in
the case of clause (z), if the aggregate principal amount of such
Definitive Securities being transferred is less than $250,000, an
opinion of counsel addressed to the Company as to
<PAGE>
7
the compliance with the restrictions set forth in the legend set forth
in Section 2.3(e).
(b) RESTRICTIONS ON TRANSFER OF A DEFINITIVE SECURITY FOR A
BENEFICIAL INTEREST IN A GLOBAL SECURITY. A Definitive Security may not be
exchanged for a beneficial interest in a Global Security except upon
satisfaction of the requirements set forth below. Upon receipt by the Trustee
of a Definitive Security, duly endorsed or accompanied by appropriate
instruments of transfer, in form satisfactory to the Trustee, together with:
(i) certification, in the form set forth on the reverse of the
Security, that such Definitive Security is being transferred (A) to a QIB
in accordance with Rule 144A, or (B) outside the United States in an
offshore transaction within the meaning of Regulation S and in compliance
with Rule 904 under the Securities Act; and
(ii) written instructions directing the Trustee to make, or to direct
the Securities Custodian to make, an adjustment on its books and records
with respect to the Regulation S Global Security or the Restricted Global
Security, as the case may be, to reflect an increase in the aggregate
principal amount of the Securities represented by such Global Security,
such instructions to contain information regarding the Depository account
(or in the case of the Regulation S Global Security only, Euroclear or
Cedel account) to be credited with such increase,
then the Trustee shall cancel such Definitive Security and cause, or direct the
Securities Custodian to cause, in accordance with the standing instructions and
procedures existing between the Depository and the Securities Custodian
(including the rules of Euroclear and Cedel, if applicable), the aggregate
principal amount of Securities represented by the Regulation S Global Security
or the Restricted Global Security, as the case may be, to be increased by the
aggregate principal amount of the Definitive Security to be exchanged and shall
credit or cause to be credited to the account of the Person specified in such
instructions a beneficial interest in such Global Security equal to the
principal amount of the Definitive Security so cancelled. If no applicable
Global Securities are then outstanding, the Company shall issue and the Trustee
shall authenticate, upon written order of the Company in the form of an
Officers' Certificate, a new
<PAGE>
8
Regulation S Global Security or Restricted Global Security, as the case may
be, in the appropriate principal amount.
(c) TRANSFER AND EXCHANGE OF GLOBAL SECURITIES. (i) The transfer
and exchange of Global Securities or beneficial interests therein shall be
effected through the Depository, in accordance with this Indenture (including
applicable restrictions on transfer set forth herein, if any) and the procedures
of the Depository therefor, including the rules and procedures of Euroclear and
Cedel, if applicable. A transferor of a beneficial interest in a Global
Security to another Global Security shall deliver to the Registrar:
(A) if applicable, instructions given in accordance with the
Depository's procedures directing the Trustee to credit or cause to be
credited a beneficial interest in the applicable Global Security in an
amount equal to the beneficial interest in the Global Security to be
exchanged; and
(B) a written order given in accordance with the Depository's
procedures containing information regarding the Euroclear, Cedel or
other participant account of the Depository to be credited with such
increase.
The Registrar shall, in accordance with such instructions, instruct
the Depository to increase and reduce, as applicable, the principal amount of
each applicable Global Security to the extent required and to credit to the
account of the Person specified in such instructions a beneficial interest in
the applicable Global Security and to debit the account of the Person making the
transfer the beneficial interest in the Global Security being transferred.
(ii) Notwithstanding any other provisions of this Appendix A (other
than the provisions set forth in Section 2.4), a Global Security may not be
transferred as a whole except by the Depository to a nominee of the
Depository or by a nominee of the Depository to the Depository or another
nominee of the Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository.
(iii) Prior to the commencement of the Registered Exchange Offer or
the effectiveness of the Shelf Registration Statement, transfers of
interests in the Regulation S Global Security to "U.S. persons" (as
<PAGE>
9
defined in Regulation S) shall be limited to transfers to QIBs pursuant
to Rule 144A which Persons shall thereby acquire a beneficial interest
in the Restricted Global Security. The Company shall advise the Trustee
as to the commencement of the Registered Exchange Offer or the
effectiveness of the Shelf Registration Statement and the Trustee may
rely conclusively thereon.
(iv) In the event that a Global Security is exchanged for Securities
in definitive registered form pursuant to Section 2.4 or Section 2.09 of
the Indenture, prior to the consummation of a Registered Exchange Offer or
the effectiveness of a Shelf Registration Statement with respect to such
Securities, such Securities may be exchanged only in accordance with such
procedures as are substantially consistent with the provisions of this
Section 2.3 (including the certification requirements set forth on the
reverse of the Initial Securities intended to ensure that such transfers
comply with Rule 144A or Regulation S, as the case may be) and such other
procedures as may from time to time be adopted by the Company.
(d) TRANSFER OF A BENEFICIAL INTEREST IN A GLOBAL SECURITY FOR A
DEFINITIVE SECURITY.
(i) Subject to Section 2.3(c)(iii), any person having a beneficial
interest in a Transfer Restricted Security that is a Global Security may
transfer such beneficial interest to an IAI that is acquiring the Security
for its own account, or for the account of such an IAI, in each case for
investment purposes and not with a view to, or for offer or sale in
connection with, any distribution in violation of the Securities Act;
PROVIDED HOWEVER, that any written order or such other form of instructions
as is customary for the Depository from the Depository or its nominee on
behalf of any Person having a beneficial interest in such Global Security
shall be accompanied by (i) a certification from the transferee or
transferor with respect to the transfer (in the form set forth on the
reverse of the Security) and such other certifications as the Trustee may
reasonably request and (ii) if the aggregate principal amount of the
applicable Global Security being transferred is less than $250,000, an
opinion of counsel addressed to the Company as to the compliance with the
restrictions set forth in the legend set forth in Section 2.3(e).
<PAGE>
10
Upon receipt by the Trustee of such information and documents, the
Trustee or the Securities Custodian, at the direction of the Trustee, will
cause, in accordance with the standing instructions and procedures existing
between the Depository and the Securities Custodian, including the rules
and procedures of Euroclear or Cedel, if applicable, the aggregate
principal amount of the Global Security to be reduced on its books and
records and, following such reduction, the Company will execute and the
Trustee will authenticate and deliver to the transferee a Definitive
Security.
(ii) Definitive Securities issued in exchange for a beneficial
interest in a Global Security pursuant to this Section 2.3(d) shall be
registered in such names and in such authorized denominations as Euroclear
or Cedel, if applicable, and the Depository, pursuant to instructions from
its direct or indirect participants or otherwise, shall instruct the
Trustee. The Trustee shall deliver such Definitive Securities to the
persons in whose names such Securities are so registered in accordance with
the instructions of the Depository.
(e) LEGEND.
(i) Except as permitted by the following paragraphs (ii), (iii) and
(iv), each Security certificate evidencing the Global Securities and the
Definitive Securities (and all Securities issued in exchange therefor or in
substitution thereof) shall bear a legend in substantially the following
form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT
OF 1933 (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED
OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT
OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY
ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT), (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE
SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS
NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT,
(2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD
<PAGE> 11
REFERRED TO IN RULE 144(k) UNDER THE SECURITIES ACT AS IN EFFECT
WITH RESPECT TO SUCH TRANSFER, RESELL OR OTHERWISE TRANSFER
THIS SECURITY EXCEPT (A) TO KELLEY OIL & GAS CORPORATION OR ANY
SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED
INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES
ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED
INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A
SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM
OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND IF SUCH
TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF SECURITIES
AT THE TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL
ACCEPTABLE TO KELLEY OIL & GAS CORPORATION THAT SUCH TRANSFER IS IN
COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN
AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS
SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN THE
TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE
BOX SET FORTH ON THE REVERSE SIDE HEREOF RELATING TO THE MANNER OF
SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. IF THE
PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE
HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND
KELLEY OIL & GAS CORPORATION SUCH CERTIFICATIONS, LEGAL OPINIONS OR
OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM
THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION",
"UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY
REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A
PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF
THIS SECURITY IN VIOLATION OF THE FOREGOING RESTRICTIONS."
<PAGE>
12
Each Regulation S Global will also bear the following additional
legend:
"PRIOR TO THE COMMENCEMENT OF THE REGISTERED EXCHANGE OFFER OR THE
EFFECTIVENESS OF THE SHELF REGISTRATION STATEMENT, TRANSFERS OF
INTERESTS IN THE REGULATION S GLOBAL SECURITY TO U.S. PERSONS SHALL BE
LIMITED TO TRANSFERS TO QUALIFIED INSTITUTIONAL BUYERS PURSUANT TO
RULE 144A."
(ii) Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by a Global
Security) pursuant to Rule 144 under the Securities Act:
(A) in the case of any Transfer Restricted Security that is a
Definitive Security, the Registrar shall permit the Holder thereof to
exchange such Transfer Restricted Security for a certificated Security
that does not bear the legend set forth above and rescind any
restriction on the transfer of such Transfer Restricted Security; and
(B) in the case of any Transfer Restricted Security that is
represented by a Global Security, the Registrar shall permit the
Holder thereof to exchange such Transfer Restricted Security for a
certificated Security that does not bear the legend set forth above
and rescind any restriction on the transfer of such Transfer
Restricted Security, if the Holder certifies in writing to the
Registrar that its request for such exchange was made following a sale
or transfer in reliance on Rule 144 (such certification to be in the
form set forth on the reverse of the Security).
(iii) After a transfer of any Initial Securities or Private Exchange
Securities during the period of the effectiveness of a Shelf Registration
Statement with respect to such Initial Securities or Private Exchange
Securities, as the case may be, all requirements pertaining to legends on
such Initial Security or such Private Exchange Security will cease to
apply, the requirements requiring any such Initial Security or such Private
Exchange Security issued to certain Holders be issued in global form will
cease to apply, and a certificated Initial Security or Private Exchange
Security without legends will be available to the
<PAGE>
13
transferee of the Holder of such Initial Securities or Private Exchange
Securities upon exchange of such transferring Holder's certificated Initial
Security or Private Exchange Security or directions to transfer such
Holder's interest in the Global Security, as applicable.
(iv) Upon the consummation of a Registered Exchange Offer with
respect to the Initial Securities pursuant to which Holders of such Initial
Securities are offered Exchange Securities in exchange for their Initial
Securities, all requirements pertaining to such Initial Securities that
Initial Securities issued to certain Holders be issued in global form will
cease to apply and certificated Initial Securities with the restricted
securities legend set forth in Exhibit 1 hereto will be available to
Holders of such Initial Securities that do not exchange their Initial
Securities, and Exchange Securities in certificated or global form without
any restrictive legends will be available to Holders that exchange such
Initial Securities in such Registered Exchange Offer.
(e) Upon the consummation of a Private Exchange with respect to the
Initial Securities pursuant to which Holders of such Initial Securities are
offered Private Exchange Securities in exchange for their Initial Securities,
all requirements pertaining to such Initial Securities that Initial Securities
issued to certain Holders be issued in global form will still apply, and Private
Exchange Securities in global form with the Restricted Securities Legend set
forth in Exhibit 1 hereto will be available to Holders that exchange such
Initial Securities in such Private Exchange.
(f) CANCELLATION OR ADJUSTMENT OF GLOBAL SECURITY. At such time as
all beneficial interests in a Global Security have either been exchanged for
certificated or Definitive Securities, redeemed, repurchased or canceled, such
Global Security shall be returned to the Depository for cancellation or retained
and canceled by the Trustee. At any time prior to such cancellation, if any
beneficial interest in a Global Security is exchanged for certificated or
Definitive Securities, redeemed, repurchased or canceled, the principal amount
of Securities represented by such Global Security shall be reduced and an
adjustment shall be made on the books and records of the Trustee (if it is then
the Securities Custodian for such Global Security) with respect to such Global
Security, by the Trustee or the Securities Custodian, to reflect such reduction.
<PAGE>
14
(g) OBLIGATIONS WITH RESPECT TO TRANSFERS AND EXCHANGES OF
SECURITIES.
(i) To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate certificated Securities,
Definitive Securities and Global Securities at the Registrar's or
co-registrar's request.
(ii) No service charge shall be made for any registration of transfer
or exchange, but the Company may require payment of a sum sufficient to
cover any transfer tax, assessments, or similar governmental charge payable
in connection therewith (other than any such transfer taxes, assessments or
similar governmental charge payable upon exchange or transfer pursuant to
Sections 3.06, 4.08 and 9.05 of the Indenture.
(iii) The Registrar or co-registrar shall not be required to register
the transfer of or exchange of (a) any certificated or Definitive Security
selected for redemption in whole or in part pursuant to Article 3 of this
Indenture, except the unredeemed portion of any certificated or Definitive
Security being redeemed in part, or (b) any Security for a period beginning
15 Business Days before the mailing of a notice of an offer to repurchase
or redeem Securities or 15 Business Days before an interest payment date.
(iv) Prior to the due presentation for registration of transfer of
any Security, the Company, the Trustee, the Paying Agent, the Registrar or
any co-registrar may deem and treat the person in whose name a Security is
registered as the absolute owner of such Security for the purpose of
receiving payment of principal of and interest on such Security and for all
other purposes whatsoever, whether or not such Security is overdue, and
none of the Company, the Trustee, the Paying Agent, the Registrar or any
co-registrar shall be affected by notice to the contrary.
(v) All Securities issued upon any transfer or exchange pursuant to
the terms of this Indenture shall evidence the same debt and shall be
entitled to the same benefits under this Indenture as the Securities
surrendered upon such transfer or exchange.
<PAGE>
15
(h) NO OBLIGATION OF THE TRUSTEE.
(i) The Trustee shall have no responsibility or obligation to any
beneficial owner of a Global Security, a member of, or a participant in the
Depository or other Person with respect to the accuracy of the records of
the Depository or its nominee or of any participant or member thereof, with
respect to any ownership interest in the Securities or with respect to the
delivery to any participant, member, beneficial owner or other Person
(other than the Depository) of any notice (including any notice of
redemption) or the payment of any amount, under or with respect to such
Securities. All notices and communications to be given to the Holders and
all payments to be made to Holders under the Securities shall be given or
made only to or upon the order of the registered Holders (which shall be
the Depository or its nominee in the case of a Global Security). The
rights of beneficial owners in any Global Security shall be exercised only
through the Depository subject to the applicable rules and procedures of
the Depository. The Trustee may rely and shall be fully protected in
relying upon information furnished by the Depository with respect to its
members, participants and any beneficial owners.
(ii) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer
imposed under this Indenture or under applicable law with respect to any
transfer of any interest in any Security (including any transfers between
or among Depository participants, members or beneficial owners in any
Global Security) other than to require delivery of such certificates and
other documentation or evidence as are expressly required by, and to do so
if and when expressly required by, the terms of this Indenture, and to
examine the same to determine substantial compliance as to form with the
express requirements hereof.
2.4 CERTIFICATED SECURITIES.
(a) A Global Security deposited with the Depository or with the
Trustee as custodian for the Depository pursuant to Section 2.1 shall be
transferred to the beneficial owners thereof in the form of certificated
Securities in an aggregate principal amount equal to the principal amount of
such Global Security, in exchange for such Global Security, only if such
transfer complies with Section 2.3 and (i) the Depository
<PAGE>
16
notifies the Company that it is unwilling or unable to continue as Depository
for such Global Security or if at any time such Depository ceases to be a
"clearing agency" registered under the Exchange Act and a successor
depositary is not appointed by the Company within 90 days of such notice, or
(ii) an Event of Default has occurred and is continuing or (iii) the Company,
in its sole discretion, notifies the Trustee in writing that it elects to
cause the issuance of certificated Securities under this Indenture.
(b) Any Global Security that is transferable to the beneficial owners
thereof pursuant to this Section shall be surrendered by the Depository to the
Trustee located in the Borough of Manhattan, The City of New York, to be so
transferred, in whole or from time to time in part, without charge, and the
Trustee shall authenticate and deliver, upon such transfer of each portion of
such Global Security, an equal aggregate principal amount of certificated
Initial Securities of authorized denominations. Any portion of a Global
Security transferred pursuant to this Section shall be executed, authenticated
and delivered only in denominations of $1,000 and any integral multiple thereof
and registered in such names as the Depository shall direct. Any certificated
Initial Security delivered in exchange for an interest in the Global Security
shall, except as otherwise provided by Section 2.3(e), bear the restricted
securities legend set forth in Exhibit 1 hereto.
(c) Subject to the provisions of Section 2.4(b), the registered
Holder of a Global Security may grant proxies and otherwise authorize any
Person, including Agent Members and Persons that may hold interests through
Agent Members, to take any action which a Holder is entitled to take under this
Indenture or the Securities.
(d) In the event of the occurrence of any of the events specified in
Section 2.4(a), the Company will promptly make available to the Trustee a
reasonable supply of certificated Securities in definitive, fully registered
form without interest coupons.
<PAGE>
EXHIBIT 1
to
APPENDIX A
[FORM OF FACE OF INITIAL SECURITY]
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK,
NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE
OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE &
CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC
(AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL
BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Securities Legend]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT
OF 1933 (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION
HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (B) IT IS AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3)
OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL
ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS
SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE
SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED
TO IN RULE 144(k) UNDER THE SECURITIES ACT AS IN EFFECT WITH RESPECT TO SUCH
TRANSFER, RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO KELLEY OIL
& GAS CORPORATION OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO
A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE
SECURITIES ACT,
<PAGE>
2
(C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT,
PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON
TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE
TRUSTEE) AND IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT
OF SECURITIES AT THE TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF
COUNSEL ACCEPTABLE TO KELLEY OIL & GAS CORPORATION THAT SUCH TRANSFER IS IN
COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT,
(E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER
THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL
DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER
OF THIS SECURITY WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST
CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE SIDE HEREOF RELATING TO
THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. IF
THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER
MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND KELLEY OIL & GAS
CORPORATION SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS
EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING
MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS
"OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS
GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE
CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER
OF THIS SECURITY IN VIOLATION OF THE FOREGOING RESTRICTIONS.
[Regulation S Transfer Legend]
PRIOR TO THE COMMENCEMENT OF THE REGISTERED EXCHANGE OFFER OR THE
EFFECTIVENESS OF THE SHELF REGISTRATION STATEMENT, TRANSFERS OF INTERESTS IN
THIS REGULATION S GLOBAL SECURITY TO U.S. PERSONS SHALL BE LIMITED TO
TRANSFERS TO QUALIFIED INSTITUTIONAL BUYERS PURSUANT TO RULE 144A.
<PAGE>
3
No. $
CUSIP:
ISIN:
10 3/8% Senior Subordinated Note Due 2006
KELLEY OIL & GAS CORPORATION, a Delaware corporation, promises to
pay to , or registered assigns, the principal sum of
Dollars on October 15, 2006.
Interest Payment Dates: April 15 and October 15.
Record Dates: April 1 and October 1.
Additional provisions of this Security are set forth on the other
side of this Security.
KELLEY OIL & GAS CORPORATION,
by
--------------------------
Authorized Officer
--------------------------
Authorized Officer
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
UNITED STATES [Seal]
TRUST COMPANY OF NEW YORK,
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture.
by
-------------------------
Authorized Signatory
Dated: October 29, 1996
<PAGE>
4
[FORM OF REVERSE SIDE OF INITIAL SECURITY]
10 3/8% Senior Subordinated Note Due 2006
1. INTEREST
Kelley Oil & Gas Corporation, a Delaware corporation (such
corporation, and its successors and assigns under the Indenture hereinafter
referred to, being herein called the "Company"), promises to pay interest on
the principal amount of this Security at the rate per annum shown above;
PROVIDED, HOWEVER, that if by May 29, 1997, neither the Registered Exchange
Offer is consummated nor, if required in lieu thereof pursuant to the
Registration Agreement, the Shelf Registration Statement is declared
effective by the Commission, interest will accrue on this Security from and
including such date until such date as either the Registered Exchange Offer
is consummated or the Shelf Registration Statement is declared effective by
the Commission at a rate of 0.50% per annum in excess of the interest rate
per annum shown above; PROVIDED FURTHER, HOWEVER, that if by November 29,
1997, neither the Registered Exchange Offer is consummated nor, if required
in lieu thereof pursuant to the Registration Agreement, the Shelf
Registration Statement is declared effective by the Commission, interest will
accrue on this Security from and including such date until such date as
either the Registered Exchange Offer is consummated or the Shelf Registration
Statement is declared effective by the Commission at a rate of 1.00% per
annum in excess of the interest rate per annum shown above. The Company will
pay interest semiannually on April 15, and October 15 of each year. Interest
on the Securities will accrue from the most recent date to which interest has
been paid or, if no interest has been paid, from October 29, 1996. Interest
will be computed on the basis of a 360-day year of twelve 30-day months. The
Company shall pay interest on overdue principal at the rate borne by the
Securities plus 1% per annum, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
<PAGE>
5
2. METHOD OF PAYMENT
The Company will pay interest on the Securities (except defaulted
interest) to the Persons who are registered holders of Securities at the
close of business on the April 1 or October 1 next preceding the interest
payment date even if Securities are canceled after the record date and on or
before the interest payment date. Holders must surrender Securities to a
Paying Agent to collect principal payments. The Company will pay principal
and interest in money of the United States that at the time of payment is
legal tender for payment of public and private debts. Payments in respect of
the Securities represented by a Global Security (including principal, premium
and interest) will be made by wire transfer of immediately available funds to
the accounts specified by The Depository Trust Company. The Company will
make all payments in respect of a certificated Security (including principal,
premium and interest), by mailing a check to the registered address of each
Holder thereof; PROVIDED, HOWEVER, that payments on a certificated Security
will be made by wire transfer to a U.S. dollar account maintained by the
payee with a bank in the United States if such Holder elects payment by wire
transfer by giving written notice to the Trustee or the Paying Agent to such
effect designating such account no later than 30 days immediately preceding
the relevant due date for payment (or such other date as the Trustee may
accept in its discretion).
3. PAYING AGENT AND REGISTRAR
Initially, United States Trust Company of New York, a New York
banking corporation ("Trustee"), will act as Paying Agent and Registrar. The
Company may appoint and change any Paying Agent, Registrar or co-registrar
without notice. The Company or any of its domestically incorporated Wholly
Owned Subsidiaries may act as Paying Agent, Registrar or co-registrar.
4. INDENTURE
The Company issued the Securities under an Indenture dated as of
October 15, 1996 ("Indenture"), between the Company and the Trustee. The
terms of the Securities include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of
<PAGE>
6
1939, as amended (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date
of the Indenture (the "Act"). Terms defined in the Indenture and not defined
herein have the meanings ascribed thereto in the Indenture. The Securities
are subject to all such terms, and Securityholders are referred to the
Indenture and the Act for a statement of those terms.
The Securities are general unsecured obligations of the Company
limited to $125,000,000 aggregate principal amount (subject to Section 2.06
of the Indenture). The Indenture imposes certain limitations on the
Incurrence of Indebtedness by the Company and certain of its Subsidiaries,
the payment of dividends and other distributions on the Capital Stock of the
Company and certain of its Subsidiaries, the purchase or redemption of
Capital Stock of the Company and of certain Capital Stock of such
Subsidiaries, the sale or transfer of assets and Subsidiary stock, the
creation of Liens, the entering into of Sale/Leaseback Transactions and
transactions with Affiliates. In addition, the Indenture limits the ability
of the Company and certain of its Subsidiaries to restrict distributions and
dividends from Subsidiaries. The Indenture also restricts the ability of the
Company and any Subsidiary Guarantor to consolidate or merge with or into, or
to transfer all or substantially all their assets to, another person.
The Indenture also provides that the Company shall cause each
Subsidiary Guarantor, and each Restricted Subsidiary of the Company (other
than the Programs) that has total net assets as of the end of the most recent
fiscal year (as set forth on the balance sheet of such Restricted Subsidiary
prepared in accordance with GAAP) equal to or greater than the greater of
$2.5 million and one percent (1%) of Adjusted Consolidated Net Tangible
Assets as of such date, to Guarantee the Securities pursuant to a Subsidiary
Guaranty. Any such Subsidiary Guaranty will secure the due and punctual
payment of the principal of and interest, if any, on the Securities and all
other amounts payable by the Company under the Indenture and the Securities
when and as the same shall be due and payable, whether at maturity, by
acceleration or otherwise. Any Subsidiary Guaranty will unconditionally
guarantee the Obligations on a senior subordinated basis pursuant to the
terms of the Indenture.
<PAGE>
7
5. OPTIONAL REDEMPTION
Except as set forth in the next paragraph, the Securities shall not
be redeemable at the option of the Company prior to October 15, 2001.
Thereafter, the Securities shall be redeemable, at the Company's option, in
whole or in part, at any time or from time to time at the following
redemption prices (expressed in percentages of principal amount), plus
accrued interest to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date), if redeemed during the 12-month period commencing on
October 15 of the years set forth below:
Period Percentage
------ ----------
2001. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105.188%
2002. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102.594%
2003 and thereafter . . . . . . . . . . . . . . . . . . . . . . . 100.000%
In addition, at any time and from time to time prior to October 15,
1999, the Company may redeem in the aggregate up to 35% of the principal
amount of Securities with the proceeds of one or more Equity Offerings
following which there is a Public Market, at a redemption price (expressed as
a percentage of principal amount) of 110.375% plus accrued interest to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date);
PROVIDED, HOWEVER, that either at least $75.0 million aggregate principal
amount of Securities must remain outstanding after each such redemption or
such redemption must retire the Securities in their entirety.
6. NOTICE OF REDEMPTION
Notice of redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to each Holder of Securities to be
redeemed at his registered address. Securities in denominations larger than
$1,000 may be redeemed in part but only in whole multiples of $1,000. If
money sufficient to pay the redemption price
<PAGE>
8
of and accrued interest on all Securities (or portions thereof) to be
redeemed on the redemption date is deposited with the Paying Agent on or
before the redemption date and certain other conditions are satisfied, on and
after such date interest ceases to accrue on such Securities (or such
portions thereof) called for redemption.
7. PUT PROVISIONS
Upon a Change of Control, any Holder of Securities will have the
right, subject to certain conditions, to cause the Company to repurchase all
or any part of the Securities of such Holder at a repurchase price equal to
101% of the principal amount of the Securities to be repurchased plus accrued
interest to the date of repurchase (subject to the right of holders of record
on the relevant record date to receive interest due on the related interest
payment date) as provided in, and subject to the terms of, the Indenture.
8. SUBORDINATION
The Securities are subordinated to Senior Indebtedness, as defined
in the Indenture. To the extent provided in the Indenture, Senior
Indebtedness must be paid before the Securities may be paid. The Company
agrees, and each Securityholder by accepting a Security agrees, to the
subordination provisions contained in the Indenture and authorizes the
Trustee to give it effect and appoints the Trustee as attorney-in-fact for
such purpose.
9. DENOMINATIONS; TRANSFER; EXCHANGE
The Securities are in registered form without coupons in
denominations of $1,000 (or in the case of Definitive Securities sold to
institutional accredited investors as described in Rule 501(a)(1), (2), (3)
or (7) under the Securities Act, minimum denominations of $250,000) and whole
multiples of $1,000. A Holder may transfer or exchange Securities in
accordance with the Indenture. The Registrar may require a Holder, among
other things, to furnish appropriate endorsements or transfer documents and
to pay any taxes and fees required by law or permitted by the Indenture. The
Registrar need not register the transfer of or exchange any Securities
selected for redemption (except, in the case of a Security to be redeemed in
part,
<PAGE>
9
the portion of the Security not to be redeemed) or any Securities for a
period of 15 days before a selection of Securities to be redeemed or 15 days
before an interest payment date.
10. PERSONS DEEMED OWNERS
The registered Holder of this Security may be treated as the owner
of it for all purposes.
11. UNCLAIMED MONEY
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its request unless an abandoned property law designates another
Person. After any such payment, Holders entitled to the money must look only
to the Company and not to the Trustee for payment.
12. DISCHARGE AND DEFEASANCE
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Securities and the Indenture if the
Company deposits with the Trustee money or U.S. Government Obligations for
the payment of principal and interest on the Securities to redemption or
maturity, as the case may be.
13. AMENDMENT, WAIVER
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount of the Securities then
outstanding and (ii) any default or noncompliance with any provisions may be
waived with the written consent of the Holders of at least a majority in
principal amount of the Securities then outstanding. Subject to certain
exceptions set forth in the Indenture, without notice to or the consent of
any Securityholder, the Company and the Trustee may amend the Indenture or
the Securities to cure any ambiguity, omission, defect or inconsistency, or
to comply with Article 5 of the Indenture, or to provide for uncertificated
Securities in addition to or in place of certificated
<PAGE>
10
Securities (provided that the uncertificated Securities are issued in
registered form for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated Securities are described in Section 163(f)(2)(B)
of the Code), or to make any change to the subordination provisions of the
Indenture that would limit or terminate the benefits available to any holder
of Senior Indebtedness (or its Representative), or to add guarantees with
respect to the Securities, or to secure the Securities, or to add to the
covenants of the Company for the benefit of the Holders, or to surrender any
right or power conferred on the Company, or to make any change that does not
adversely affect the rights of any Securityholder, or to comply with any
requirement of the SEC in connection with qualifying the Indenture under the
Act. No amendment may be made to the subordination provisions of the
Indenture that adversely affects the rights of any holder of Senior
Indebtedness then outstanding unless the holders of such Senior Indebtedness
(or their representative) consent to such change.
14. DEFAULTS AND REMEDIES
Under the Indenture, Events of Default include (i) default for 30
days in payment of interest on the Securities when due; (ii) default in
payment of principal on the Securities at maturity, upon redemption pursuant
to paragraph 5 or 6 of the Securities, upon declaration or otherwise, or
failure by the Company to redeem or purchase Securities when required; (iii)
failure by the Company to comply with its obligations under certain
covenants, (iv) failure by the Company to comply with other agreements in the
Indenture or the Securities, in certain cases subject to notice and lapse of
time; (v) certain accelerations (including failure to pay within any grace
period after final maturity) of other Indebtedness of the Company or any
Significant Subsidiary (other than Limited Recourse Indebtedness) if the
amount accelerated (or so unpaid) exceeds $10.0 million; (vi) certain events
of bankruptcy, insolvency or reorganization with respect to the Company or a
Significant Subsidiary; (vii) any judgment or decree for the payment of money
in excess of $10.0 million is rendered against the Company or a Significant
Subsidiary, remains outstanding for a period of 60 days following such
judgment or decree and is not discharged, waived or stayed within 10 days
after notice or (viii) a Subsidiary Guaranty ceases to be in full force and
effect (other than in accordance with the terms of such Subsidiary Guaranty)
or a Subsidiary
<PAGE>
11
Guarantor denies or disaffirms its obligations under its Subsidiary Guaranty
if such default continues for a period of 10 days after notice thereof to the
Company. If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the outstanding Securities may
declare the principal of and accrued but unpaid interest on all the
Securities to be due and payable immediately. Certain events of bankruptcy,
insolvency or reorganization are Events of Default which will result in the
Securities being due and payable immediately upon the occurrence of such
Events of Default. A default under clauses (iii) (except for the covenants
referred to in the preceding sentence), (iv), (vii) or (viii) will not
constitute an Event of Default until the Trustee or the Holders of 25% in
principal amount of the outstanding Securities notifies the Company of the
default and the Company does not cure such default within the time specified
after receipt of such notice.
Securityholders may not enforce the Indenture or the Securities
except as provided in the Indenture. The Trustee may refuse to enforce the
Indenture or the Securities unless it receives reasonable indemnity or
security. Subject to certain limitations, Holders of a majority in principal
amount of the Securities may direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Securityholders notice of any
continuing Default (except a Default in payment of principal or interest) if
it determines that withholding notice is in the interest of the Holders.
15. TRUSTEE DEALINGS WITH THE COMPANY
Subject to certain limitations imposed by the Act, the Trustee
under the Indenture, in its individual or any other capacity, may become the
owner or pledgee of Securities and may otherwise deal with and collect
obligations owed to it by the Company or its Affiliates and may otherwise
deal with the Company or its Affiliates with the same rights it would have if
it were not Trustee.
16. NO RECOURSE AGAINST OTHERS
A director, officer, employee or stockholder, as such, of the
Company or the Trustee shall not have any liability for any obligations of
the Company under the
<PAGE>
12
Securities or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. By accepting a Security, each
Securityholder waives and releases all such liability. The waiver and
release are part of the consideration for the issue of the Securities.
17. AUTHENTICATION
This Security shall not be valid until an authorized signatory of
the Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
18. ABBREVIATIONS
Customary abbreviations may be used in the name of a Securityholder
or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by
the entireties), JT TEN (=joint tenants with rights of survivorship and not
as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to
Minors Act).
19. CUSIP NUMBERS
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers
in notices of redemption as a convenience to Securityholders. No
representation is made as to the accuracy of such numbers either as printed
on the Securities or as contained in any notice of redemption and reliance
may be placed only on the other identification numbers placed thereon.
20. HOLDERS' COMPLIANCE WITH REGISTRATION AGREEMENT
Each Holder of a Security, by acceptance hereof, acknowledges and
agrees to the provisions of the Registration Agreement, including, without
limitation, the obligations of the Holders with respect to a registration and
the indemnification of the Company to the extent provided therein.
<PAGE>
13
21. GOVERNING LAW
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO
APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION
OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
<PAGE>
14
The Company will furnish to any Securityholder upon written request
and without charge to the Securityholder a copy of the Indenture. Requests
may be made to:
Kelley Oil & Gas Corporation
601 Jefferson, Suite 1100
Houston, Texas 77002
Attention of Manager, Investor Relations
<PAGE>
15
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this
Security on the books of the Company. The agent may substitute another to
act for him.
- -------------------------------------------------------------------------------
Date: Your Signature:
---------------------- -----------------------------------
- -------------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Security.
Signature Guarantee:
-------------------------------------------------------
(Signature must be guaranteed by an "eligible guarantor
institution", that is, a bank, stockbroker, saving and
loan association or credit union meeting the
requirements of the Registrar, which requirements
include membership or participation in the Securities
Transfer Agents Medallion Program ("STAMP") or such
other "signature guarantee program" as may be
determined by the Registrar in addition to, or in
substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.)
<PAGE>
16
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER RESTRICTED SECURITIES
In connection with any transfer of any of the Securities evidenced
by this certificate occurring prior to the expiration of the period referred
to in Rule 144(k) under the Securities Act after the later of the date of
original issuance of such Securities and the last date, if any, on which such
Securities were owned by the Company or any Affiliate of the Company, the
undersigned confirms that such Securities are being transferred in accordance
with its terms:
CHECK ONE BOX BELOW:
(1) / / to the Company or any of its Subsidiaries; or
(2) / / pursuant to an effective registration statement under the
Securities Act of 1933; or
(3) / / inside the United States to a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act of 1933) that
purchases for its own account or for the account of a qualified
institutional buyer to whom notice is given that such transfer is
being made in reliance on Rule 144A, in each case pursuant to and
in compliance with Rule 144A under the Securities Act of 1933; or
(4) / / inside the United States to an institutional "accredited
investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of
Regulation D under the Securities Act of 1933) that, prior to
such transfer, furnishes to the Trustee a signed letter
containing certain representations and agreements (the form of
which letter can be obtained from the Trustee) and, if such
transfer is in respect of an aggregate principal amount of
Securities at the time of transfer of less than $250,000, an
opinion of counsel acceptable to the Company that such transfer
is in compliance with the Securities Act of 1933; or
<PAGE>
17
(5) / / outside the United States in an offshore transaction within the
meaning of Regulation S under the Securities Act in compliance
with Rule 904 under the Securities Act of 1933; or
(6) / / pursuant to another available exemption from registration
provided by Rule 144 under the Securities Act of 1933.
Unless one of the boxes is checked, the Trustee will refuse to register any
of the Securities evidenced by this certificate in the name of any person
other than the registered holder thereof; PROVIDED, HOWEVER, that if box
(4) or (5) is checked, the Trustee may require, prior to registering any
such transfer of the Securities, such legal opinions, certifications and
other information as the Company has reasonably requested to confirm that
such transfer is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities
Act of 1933, such as the exemption provided by Rule 144 under such Act.
-------------------------------------
Signature
Signature Guarantee:
-------------------------------------------------------
(Signature must be guaranteed by an "eligible guarantor
institution", that is, a bank, stockbroker, saving and
loan association or credit union meeting the
requirements of the Registrar, which requirements
include membership or participation in the Securities
Transfer Agents Medallion Program ("STAMP") or such
other "signature guarantee program" as may be
determined by the Registrar in addition to, or in
substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.)
<PAGE>
18
[TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED]
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
of 1933, and is aware that the sale to it is being made in reliance on Rule
144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has
determined not to request such information and that it is aware that the
transferor is relying upon the undersigned's foregoing representations in
order to claim the exemption from registration provided by Rule 144A.
Dated:
-------------------- -------------------------------
NOTICE: To be executed by
an executive officer
<PAGE>
19
OPTION OF HOLDER TO ELECT PURCHASE
If you elect to have this Security purchased by the Company pursuant
to Section 4.06 or 4.08 of the Indenture, check the box:
/ /
If you elect to have only part of this Security purchased by the
Company pursuant to Section 4.06 or 4.08 of the Indenture, check the box and
state the amount in principal amount at maturity:
/ / $
-----------------
Date: Your Signature:
------------------------ ---------------------------
(Sign exactly as your name
appears on the other side of
this Security.)
Signature Guarantee:
-----------------------------------------------------
(Signature must be guaranteed by an "eligible guarantor
institution", that is, a bank, stockbroker, saving and
loan association or credit union meeting the
requirements of the Registrar, which requirements
include membership or participation in the Securities
Transfer Agents Medallion Program ("STAMP") or such
other "signature guarantee program" as may be
determined by the Registrar in addition to, or in
substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.)
<PAGE>
20
[TO BE ATTACHED TO GLOBAL SECURITIES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The following increases or decreases in this Global Security have
been made:
<TABLE>
<S> <C> <C> <C> <C>
Principal Amount
Amount of decrease Amount of increase at Maturity of Signature of
in Principal in Principal this Global authorized officer
Amount at Maturity Amount at Security following of Trustee or
of this Global Maturity of this such decrease or Securities
Date of Exchange Security Global Security increase Custodian
- ---------------- ------------------ ------------------ ------------------ ------------------
</TABLE>
<PAGE>
EXHIBIT 2
to
APPENDIX A
[FORM OF FACE OF EXCHANGE SECURITY]
[1/]
[2/]
No. $
CUSIP:
ISIN:
10 3/8% Senior Subordinated Note Due 2006
KELLEY OIL & GAS CORPORATION, a Delaware corporation, promises to pay
to , or registered assigns, the principal sum
of Dollars on October 15, 2006.
Interest Payment Dates: April 15 and October 15.
Record Dates: April 1 and October 1.
Additional provisions of this Security are set forth on the other side of this
Security.
KELLEY OIL & GAS CORPORATION,
by
-------------------------
Authorized Officer
-------------------------
Authorized Officer
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
UNITED STATES [Seal]
TRUST COMPANY OF NEW YORK,
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture.
by
-----------------------------
Authorized Signatory
Dated:
<PAGE>
2
______________
1/ [If the Security is to be issued in global form add the Global
Securities Legend from Exhibit 1 to Appendix A and the attachment from such
Exhibit 1 captioned "[TO BE ATTACHED TO GLOBAL SECURITIES] - SCHEDULE OF
INCREASES OR DECREASES IN GLOBAL SECURITY".]
2/ [If the Security is a Private Exchange Security issued in a Private
Exchange to an Initial Purchaser holding an unsold portion of its initial
allotment, add the Restricted Securities Legend from Exhibit 1 to Appendix A and
replace the Assignment Form included in this Exhibit 2 with the Assignment Form
included in such Exhibit 1.]
<PAGE>
3
[FORM OF REVERSE SIDE OF EXCHANGE SECURITY]
10 3/8% Senior Subordinated Note Due 2006
1. INTEREST
Kelley Oil & Gas Corporation, a Delaware corporation (such
corporation, and its successors and assigns under the Indenture hereinafter
referred to, being herein called the "Company"), promises to pay interest on the
principal amount of this Security at the rate per annum shown above; PROVIDED,
HOWEVER, that if by May 29, 1997, neither the Registered Exchange Offer is
consummated nor, if required in lieu thereof pursuant to the Registration
Agreement, the Shelf Registration Statement is declared effective by the
Commission, interest will accrue on this Security from and including such date
until such date as either the Registered Exchange Offer is consummated or the
Shelf Registration Statement is declared effective by the Commission at a rate
of 0.50% per annum in excess of the interest rate per annum shown above;
PROVIDED FURTHER, HOWEVER, that if by November 29, 1997, neither the Registered
Exchange Offer is consummated nor, if required in lieu thereof pursuant to the
Registration Agreement, the Shelf Registration Statement is declared effective
by the Commission, interest will accrue on this Security from and including such
date until such date as either the Registered Exchange Offer is consummated or
the Shelf Registration Statement is declared effective by the Commission at a
rate of 1.00% per annum in excess of the interest rate per annum shown
above. 3/] The Company will pay interest semiannually on April 15 and
October 15 of each year. Interest on the Securities will accrue from the
most recent date to which interest has been paid or, if no interest has
been paid, from October 29, 1996. Interest will be computed on the basis of
a 360-day year of twelve 30-day months. The Company shall pay interest on
overdue principal at the rate borne by the Securities plus 1.00% per annum,
and it shall pay interest on overdue installments of interest at the same
rate to the extent lawful.
_____________
3/ Insert if at the time of issuance of the Exchange Security neither the
Registered Exchange Offer has been consummated nor a Shelf Registration
Statement has been declared effective in accordance with the Registration
Agreement.
<PAGE>
4
2. METHOD OF PAYMENT
The Company will pay interest on the Securities (except defaulted
interest) to the Persons who are registered holders of Securities at the close
of business on the April 1 or October 1 next preceding the interest payment date
even if Securities are canceled after the record date and on or before the
interest payment date. Holders must surrender Securities to a Paying Agent to
collect principal payments. The Company will pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts. Payments in respect of Securities
(including principal, premium and interest) will be made by wire transfer of
immediately available funds to the accounts specified by the holders thereof or,
if no U.S. dollar account maintained by the payee with a bank in the
United States is designated by any holder to the Trustee or the Paying Agent at
least 30 days prior to the relevant due date for payment (or such other date as
the Trustee may accept in its discretion), by mailing a check to the registered
address of such holder.
3. PAYING AGENT AND REGISTRAR
Initially, United States Trust Company of New York, a New York banking
corporation ("Trustee"), will act as Paying Agent and Registrar. The Company
may appoint and change any Paying Agent, Registrar or co-registrar without
notice. The Company or any of its domestically incorporated Wholly Owned
Subsidiaries may act as Paying Agent, Registrar or co-registrar.
4. INDENTURE
The Company issued the Securities under an Indenture dated as of
October 15, 1996 ("Indenture"), between the Company and the Trustee. The terms
of the Securities include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939, as amended (15
U.S.C. Sections 77aaa-77bbbb) as in effect on the date of the Indenture (the
"Act"). Terms defined in the Indenture and not defined herein have the meanings
ascribed thereto in the Indenture. The Securities are subject to all such
terms, and Securityholders are referred to the Indenture and the Act for a
statement of those terms.
<PAGE>
5
The Securities are general unsecured obligations of the Company
limited to $125,000,000 aggregate principal amount (subject to Section 2.06 of
the Indenture). The Indenture imposes certain limitations on the Incurrence of
Indebtedness by the Company and certain of its Subsidiaries, the payment of
dividends and other distributions on the Capital Stock of the Company and
certain of its Subsidiaries, the purchase or redemption of Capital Stock of the
Company and of certain Capital Stock of such Subsidiaries, the sale or transfer
of assets and Subsidiary stock, the creation of Liens, the entering into of
Sale/Leaseback Transactions and transactions with Affiliates. In addition, the
Indenture limits the ability of the Company and certain of its Subsidiaries to
restrict distributions and dividends from Subsidiaries. The Indenture also
restricts the ability of the Company and any Subsidiary Guarantor to consolidate
or merge with or into, or to transfer all or substantially all their assets to,
another person.
The Indenture also provides that the Company shall cause each
Subsidiary Guarantor, and each Restricted Subsidiary of the Company (other than
the Programs) that has total net assets as of the end of the most recent fiscal
year (as set forth on the balance sheet of such Restricted Subsidiary prepared
in accordance with GAAP) equal to or greater than the greater of $2.5 million
and one percent (1%) of Adjusted Consolidated Net Tangible Assets as of such
date, to Guarantee the Securities pursuant to a Subsidiary Guaranty. Any such
Subsidiary Guaranty will secure the due and punctual payment of the principal of
and interest, if any, on the Securities and all other amounts payable by the
Company under the Indenture and the Securities when and as the same shall be due
and payable, whether at maturity, by acceleration or otherwise. Any Subsidiary
Guaranty will unconditionally guarantee the Obligations on a senior subordinated
basis pursuant to the terms of the Indenture.
5. OPTIONAL REDEMPTION
Except as set forth in the next paragraph, the Securities shall not be
redeemable at the option of the Company prior to October 15, 2001. Thereafter,
the Securities shall be redeemable, at the Company's option, in whole or in
part, at any time or from time to time at the following redemption prices
(expressed in percentages of principal amount), plus accrued interest to the
redemption
<PAGE>
6
date (subject to the right of Holders of record on the relevant record date
to receive interest due on the relevant interest payment date), if redeemed
during the 12-month period commencing on October 15 of the years set forth
below:
Period Percentage
------ ----------
2001. . . . . . . . . . . . . . . . . . . . 105.188%
2002. . . . . . . . . . . . . . . . . . . . 102.594%
2003 and thereafter . . . . . . . . . . . . 100.000%
In addition, at any time and from time to time prior to October 15,
1999, the Company may redeem in the aggregate up to 35% of the principal amount
of Securities with the proceeds of one or more Equity Offerings following which
there is a Public Market, at a redemption price (expressed as a percentage of
principal amount) of 110.375% plus accrued interest to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date); PROVIDED, HOWEVER,
that either at least $75.0 million aggregate principal amount of Securities must
remain outstanding after each such redemption or such redemption must retire the
Securities in their entirety.
6. NOTICE OF REDEMPTION
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each Holder of Securities to be redeemed
at his registered address. Securities in denominations larger than $1,000 may
be redeemed in part but only in whole multiples of $1,000. If money sufficient
to pay the redemption price of and accrued interest on all Securities (or
portions thereof) to be redeemed on the redemption date is deposited with the
Paying Agent on or before the redemption date and certain other conditions are
satisfied, on and after such date interest ceases to accrue on such Securities
(or such portions thereof) called for redemption.
<PAGE>
7
7. PUT PROVISIONS
Upon a Change of Control, any Holder of Securities will have the
right, subject to certain conditions, to cause the Company to repurchase all
or any part of the Securities of such Holder at a repurchase price equal to
101% of the principal amount of the Securities to be repurchased plus accrued
interest to the date of repurchase (subject to the right of holders of record
on the relevant record date to receive interest due on the related interest
payment date) as provided in, and subject to the terms of, the Indenture.
8. SUBORDINATION
The Securities are subordinated to Senior Indebtedness, as defined
in the Indenture. To the extent provided in the Indenture, Senior
Indebtedness must be paid before the Securities may be paid. The Company
agrees, and each Securityholder by accepting a Security agrees, to the
subordination provisions contained in the Indenture and authorizes the
Trustee to give it effect and appoints the Trustee as attorney-in-fact for
such purpose.
9. DENOMINATIONS; TRANSFER; EXCHANGE
The Securities are in registered form without coupons in
denominations of $1,000 (or in the case of Definitive Securities sold to
institutional accredited investors as described in Rule 501(a)(1), (2), (3)
or (7) under the Securities Act, minimum denominations of $250,000) and whole
multiples of $1,000. A Holder may transfer or exchange Securities in
accordance with the Indenture. The Registrar may require a Holder, among
other things, to furnish appropriate endorsements or transfer documents and
to pay any taxes and fees required by law or permitted by the Indenture. The
Registrar need not register the transfer of or exchange any Securities
selected for redemption (except, in the case of a Security to be redeemed in
part, the portion of the Security not to be redeemed) or any Securities for a
period of 15 days before a selection of Securities to be redeemed or 15 days
before an interest payment date.
<PAGE>
8
10. PERSONS DEEMED OWNERS
The registered Holder of this Security may be treated as the owner of
it for all purposes.
11. UNCLAIMED MONEY
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its request unless an abandoned property law designates another
Person. After any such payment, Holders entitled to the money must look only
to the Company and not to the Trustee for payment.
12. DISCHARGE AND DEFEASANCE
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Securities and the Indenture if the
Company deposits with the Trustee money or U.S. Government Obligations for
the payment of principal and interest on the Securities to redemption or
maturity, as the case may be.
13. AMENDMENT, WAIVER
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount of the Securities then
outstanding and (ii) any default or noncompliance with any provisions may be
waived with the written consent of the Holders of at least a majority in
principal amount of the Securities then outstanding. Subject to certain
exceptions set forth in the Indenture, without notice to or the consent of
any Securityholder, the Company and the Trustee may amend the Indenture or
the Securities to cure any ambiguity, omission, defect or inconsistency, or
to comply with Article 5 of the Indenture, or to provide for uncertificated
Securities in addition to or in place of certificated Securities (provided
that the uncertificated Securities are issued in registered form for purposes
of Section 163(f) of the Code, or in a manner such that the uncertificated
Securities are described in Section 163(f)(2)(B) of the Code), or to make any
change to the subordination provisions of the Indenture that would limit or
terminate the benefits
<PAGE>
9
available to any holder of Senior Indebtedness (or its Representative), or to
add guarantees with respect to the Securities, or to secure the Securities,
or to add to the covenants of the Company for the benefit of the Holders, or
to surrender any right or power conferred on the Company, or to make any
change that does not adversely affect the rights of any Securityholder, or to
comply with any requirement of the SEC in connection with qualifying the
Indenture under the Act. No amendment may be made to the subordination
provisions of the Indenture that adversely affects the rights of any holder
of Senior Indebtedness then outstanding unless the holders of such Senior
Indebtedness (or their Representative) consent to such change.
14. DEFAULTS AND REMEDIES
Under the Indenture, Events of Default include (i) default for 30
days in payment of interest on the Securities when due; (ii) default in
payment of principal on the Securities at maturity, upon redemption pursuant
to paragraph 5 or 6 of the Securities, upon declaration or otherwise, or
failure by the Company to redeem or purchase Securities when required; (iii)
failure by the Company to comply with its obligations under certain
covenants, (iv) failure by the Company to comply with other agreements in the
Indenture or the Securities, in certain cases subject to notice and lapse of
time; (v) certain accelerations (including failure to pay within any grace
period after final maturity) of other Indebtedness of the Company or any
Significant Subsidiary (other than Limited Recourse Indebtedness) if the
amount accelerated (or so unpaid) exceeds $10.0 million; (vi) certain events
of bankruptcy, insolvency or reorganization with respect to the Company or a
Significant Subsidiary; (vii) any judgment or decree for the payment of money
in excess of $10.0 million is rendered against the Company or a Significant
Subsidiary, remains outstanding for a period of 60 days following such
judgment or decree and is not discharged, waived or stayed within 10 days
after notice or (viii) a Subsidiary Guaranty ceases to be in full force and
effect (other than in accordance with the terms of such Subsidiary Guaranty)
or a Subsidiary Guarantor denies or disaffirms its obligations under its
Subsidiary Guaranty if such default continues for a period of 10 days after
notice thereof to the Company. If an Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the outstanding Securities may declare the principal of and
<PAGE>
10
accrued but unpaid interest on all the Securities to be due and payable
immediately. Certain events of bankruptcy, insolvency or reorganization are
Events of Default which will result in the Securities being due and payable
immediately upon the occurrence of such Events of Default. A default under
clauses (iii) (except for the covenants referred to in the preceding
sentence), (iv), (vii) or (viii) will not constitute an Event of Default
until the Trustee or the Holders of 25% in principal amount of the
outstanding Securities notifies the Company of the default and the Company
does not cure such default within the time specified after receipt of such
notice.
Securityholders may not enforce the Indenture or the Securities
except as provided in the Indenture. The Trustee may refuse to enforce the
Indenture or the Securities unless it receives reasonable indemnity or
security. Subject to certain limitations, Holders of a majority in principal
amount of the Securities may direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Securityholders notice of any
continuing Default (except a Default in payment of principal or interest) if
it determines that withholding notice is in the interest of the Holders.
15. TRUSTEE DEALINGS WITH THE COMPANY
Subject to certain limitations imposed by the Act, the Trustee
under the Indenture, in its individual or any other capacity, may become the
owner or pledgee of Securities and may otherwise deal with and collect
obligations owed to it by the Company or its Affiliates and may otherwise
deal with the Company or its Affiliates with the same rights it would have if
it were not Trustee.
16. NO RECOURSE AGAINST OTHERS
A director, officer, employee or stockholder, as such, of the
Company or the Trustee shall not have any liability for any obligations of
the Company under the Securities or the Indenture or for any claim based on,
in respect of or by reason of such obligations or their creation. By
accepting a Security, each Securityholder waives and releases all such
liability. The waiver and release are part of the consideration for the
issue of the Securities.
<PAGE>
11
17. AUTHENTICATION
This Security shall not be valid until an authorized signatory of
the Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
18. ABBREVIATIONS
Customary abbreviations may be used in the name of a Securityholder
or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by
the entireties), JT TEN (=joint tenants with rights of survivorship and not
as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to
Minors Act).
19. CUSIP NUMBERS
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers
in notices of redemption as a convenience to Securityholders. No
representation is made as to the accuracy of such numbers either as printed
on the Securities or as contained in any notice of redemption and reliance
may be placed only on the other identification numbers placed thereon.
20. HOLDERS' COMPLIANCE WITH REGISTRATION AGREEMENT
Each Holder of a Security, by acceptance hereof, acknowledges and
agrees to the provisions of the Registration Agreement, including, without
limitation, the obligations of the Holders with respect to a registration and
the indemnification of the Company to the extent provided therein.
<PAGE>
12
21. GOVERNING LAW
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
<PAGE>
13
The Company will furnish to any Securityholder upon written request
and without charge to the Securityholder a copy of the Indenture. Requests
may be made to:
Kelley Oil & Gas Corporation
601 Jefferson, Suite 1100
Houston, Texas 77002
Attention of Manager, Investor Relations
<PAGE>
14
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this
Security on the books of the Company. The agent may substitute another to act
for him.
- -----------------------------------------------------------------------------
Date: Your Signature:
---------------------- --------------------------------
- -----------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Security.
Signature Guarantee: -------------------------------------------------
(Signature must be guaranteed by an "eligible
guarantor institution", that is, a bank,
stockbroker, saving and loan association or credit
union meeting the requirements of the Registrar,
which requirements include membership or
participation in the Securities Transfer Agents
Medallion Program ("STAMP") or such other
"signature guarantee program" as may be determined
by the Registrar in addition to, or in
substitution for, STAMP, all in accordance with
the Securities Exchange Act of 1934, as amended.)
<PAGE>
15
OPTION OF HOLDER TO ELECT PURCHASE
If you elect to have this Security purchased by the Company pursuant
to Section 4.06 or 4.08 of the Indenture, check the box:
/ /
If you elect to have only part of this Security purchased by the
Company pursuant to Section 4.06 or 4.08 of the Indenture, check the box and
state the amount in principal amount at maturity:
/ /
$
---------------------
Date: Your Signature:
------------------ -------------------------------------
(Sign exactly as your name appears
on the other side of this Security.)
Signature Guarantee:
---------------------------------------------------------
(Signature must be guaranteed by an "eligible guarantor
institution", that is, a bank, stockbroker, saving and
loan association or credit union meeting the
requirements of the Registrar, which requirements
include membership or participation in the Securities
Transfer Agents Medallion Program ("STAMP") or such
other "signature guarantee program" as may be
determined by the Registrar in addition to, or in
substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.)
<PAGE>
16
[TO BE ATTACHED TO GLOBAL SECURITIES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The following increases or decreases in this Global Security have been
made:
<TABLE>
<CAPTION>
Principal Amount
Amount of decrease Amount of incrase at Maturity Signature of
in Principal in Principal this Global authorized officer
Amount at Maturity Amount at Security following of Trustee or
of this Global Maturity of this such decrease or Securities
Date of Exchange Security Global Security increase Custodian
- ---------------- ------------------ ------------------- ----------------- ------------------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
KELLEY OIL & GAS CORPORATION
REGISTRATION AGREEMENT
October 25, 1996
Morgan Stanley & Co.
Incorporated for itself
and the other several Purchasers
named below
1585 Broadway
New York, New York 10036
Ladies and Gentlemen:
Kelley Oil & Gas Corporation, a Delaware corporation (the
"Company"), proposes to issue and sell to certain purchasers (the
"Purchasers"), upon the terms set forth in a placement agreement of even date
hereof (the "Placement Agreement"), $125,000,000 principal amount of its
10-3/8% Senior Subordinated Notes Due 2006 (the "Notes"). The Notes will be
issued pursuant to an Indenture, dated as of October 15, 1996 (the
"Indenture") between the Company, as issuer, and United States Trust Company
of New York, as trustee (in such capacity, the "Trustee"). As an inducement
to the Purchasers to enter into the Placement Agreement and in satisfaction
of a condition to your obligations thereunder, the Company agrees with the
Purchasers, for the benefit of the registered holders of the Notes (including
the Purchasers) and the Exchange Notes (as defined below) (collectively, the
"Holders"), as follows:
SECTION 1. REGISTERED EXCHANGE OFFER. The Company shall use its
best efforts to prepare and file with the Securities and Exchange Commission
(the "Commission") a registration statement (the "Exchange Offer Registration
Statement") on an appropriate form under the Securities Act of 1933 (the
"Securities Act"), with respect to an offer (the "Registered Exchange Offer")
to the Holders of Transfer Restricted Notes (as defined in Section 6 hereof),
who are not prohibited by any law or policy of the Commission from
participating in the Registered Exchange Offer, to issue and deliver to such
Holders, in exchange for the Notes, a like
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aggregate principal amount of debt securities (the "Exchange Notes") of the
Company issued under the Indenture and identical in all material respects to
the Notes (except for the transfer restrictions relating to the Notes) that
would be registered under the Securities Act. The Company shall use its best
efforts to cause such Exchange Offer Registration Statement to become
effective under the Securities Act within 180 days after the date of original
issue of the Notes and shall keep the Exchange Offer Registration Statement
effective for not less than 20 Business Days (as defined in the Indenture)(or
longer, if required by applicable law) after the date notice of the
Registered Exchange Offer is mailed to the Holders (such period being called
the "Exchange Offer Registration Period").
If the Company effects the Registered Exchange Offer, the Company
will be entitled to close the Registered Exchange Offer 20 Business Days
after the commencement thereof provided that the Company has accepted all the
Notes theretofore validly tendered in accordance with the terms of the
Registered Exchange Offer.
Following the declaration of the effectiveness of the Exchange Offer
Registration Statement, the Company shall promptly commence the Registered
Exchange Offer, it being the objective of such Registered Exchange Offer to
enable each Holder of Transfer Restricted Notes electing to exchange such
Transfer Restricted Notes for Exchange Notes (assuming that such Holder is
not an affiliate of the Company within the meaning of the Securities Act,
acquires the Exchange Notes in the ordinary course of such Holder's business
and has no arrangements with any person to participate in the distribution of
the Exchange Notes and is not prohibited by any law or policy of the
Commission from participating in the Registered Exchange Offer) to trade such
Exchange Notes from and after their receipt without any limitations or
restrictions under the Securities Act and without material restrictions under
the securities laws of the several states of the United States. In
connection with such Registered Exchange Offer, the Company shall use its
best efforts to consummate the Registered Exchange Offer and shall comply
with the applicable requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and other applicable laws and regulations in
connection with the Registered Exchange Offer.
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The Company and the Purchasers acknowledge that, pursuant to current
interpretations by the Commission's staff of Section 5 of the Securities Act,
in the absence of an applicable exemption therefrom, (i) each Holder,
including any Purchaser, which is a broker-dealer electing to exchange Notes,
acquired for its own account as a result of market making activities or other
trading activities, for Exchange Notes (an "Exchanging Dealer"), is required
to deliver a prospectus containing the information set forth in Annex A
hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures"
section and the "Purpose of the Exchange Offer" section, and in Annex C
hereto in the "Plan of Distribution" section of such prospectus in connection
with a sale of any such Exchange Notes received by such Exchanging Dealer
pursuant to the Registered Exchange Offer and (ii) if the Purchasers are
permitted to and elect to sell Exchange Notes acquired in exchange for Notes
constituting any portion of an unsold allotment, they are required to deliver
a prospectus containing the information required by Items 507 or 508 of
Regulation S-K under the Securities Act, as applicable, in connection with
such sale.
The Company also shall include within the prospectus contained in
the Exchange Offer Registration Statement statements as are currently
customary to be contained therein, reasonably acceptable to the Purchasers,
summarizing the positions taken or policies made by the staff of the
Commission with respect to the potential "underwriter" status of any
broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under
the Exchange Act) of Exchange Notes received by such broker-dealer in the
Registered Exchange Offer (a "Participating Broker-Dealer"), whether such
positions or policies have been publicly disseminated by the staff of the
Commission or such positions or policies, in the reasonable judgment of the
Purchasers based upon advice of counsel (which may be in-house counsel),
represent the prevailing views of the staff of the Commission.
The Company shall use its best efforts to keep the Exchange Offer
Registration Statement effective and to amend and supplement the prospectus
contained therein, in order to permit such prospectus to be lawfully
delivered by the Purchasers and all Exchanging Dealers subject to the
prospectus delivery requirements of the Securities Act and shall make such
prospectuses available to the Purchasers and such Exchanging Dealers for such
period of time after the consummation of the Registered Exchange Offer as
such
<PAGE>
persons must comply with such requirements in order to resell the Exchange
Notes; PROVIDED, HOWEVER, that such period shall not exceed 180 days (unless
extended pursuant to Section 3(j) below); PROVIDED FURTHER, HOWEVER, that
such persons shall not be authorized by the Company to deliver and shall not
deliver any such prospectus after the expiration of such period in connection
with the resales contemplated by this paragraph.
The Company shall make available for a period of 90 days after the
consummation of the Registered Exchange Offer, a copy of the prospectus, and
any amendment or supplement thereto, forming part of the Exchange Offer
Registration Statement to any broker-dealer for use in connection with any
resale of any Exchange Notes. The Notes and the Exchange Notes are herein
collectively called the "Securities".
In connection with the Registered Exchange Offer, the Company shall:
(a) mail to each Holder a copy of the prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter
of transmittal and related documents;
(b) keep the Registered Exchange Offer open for not less than 20
Business Days (or longer, if required by applicable law) after the date
notice thereof is mailed to the Holders;
(c) utilize the services of a depositary for the Registered Exchange
Offer with an address in the Borough of Manhattan, the City of New York,
which may be the Trustee or an affiliate of the Trustee;
(d) permit Holders to withdraw tendered Notes at any time prior to the
close of business, New York time, on the last business day on which the
Registered Exchange Offer shall remain open; and
(e) otherwise comply in all material respects with all applicable
laws.
As soon as practicable after the close of the Registered Exchange
Offer, the Company shall:
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(i) accept for exchange all the Notes validly tendered and not
withdrawn pursuant to the Registered Exchange Offer;
(ii) deliver, or cause to be delivered, to the Trustee for cancellation
all the Notes so accepted for exchange; and
(iii) issue, and cause the Trustee to authenticate and deliver promptly
to each Holder of the Notes, Exchange Notes equal in principal amount to
the Notes of such Holder so accepted for exchange.
The Indenture will provide that the Exchange Notes will not be
subject to the transfer restrictions set forth in the Indenture and that the
Exchange Notes and the Notes will vote and consent together on all matters as
one class and that none of the Exchange Notes or the Notes will have the
right to vote or consent as a class separate from one another on any matter.
Interest on each Exchange Note issued pursuant to the Registered
Exchange Offer will accrue from the last interest payment date on which
interest was paid on the Notes surrendered in exchange therefor or, if no
interest has been paid on the Notes, from the date of original issue of the
Notes.
Each Holder participating in the Registered Exchange Offer shall be
required to represent to the Company that at the time of the consummation of
the Registered Exchange Offer (i) any Exchange Notes received by such Holder
will be acquired in the ordinary course of business, (ii) such Holder will
have no arrangements or understanding with any person to participate in the
distribution of the Notes or the Exchange Notes within the meaning of the
Securities Act, (iii) such Holder is not an "affiliate," as defined in Rule
405 of the Securities Act, of the Company or if it is an affiliate, such
Holder will comply with the registration and prospectus delivery requirements
of the Securities Act to the extent applicable, (iv) if such Holder is not a
broker-dealer, that it is not engaged in, and does not intend to engage in,
the distribution of the Exchange Notes and (v) if such Holder is a
broker-dealer, that it will receive Exchange Notes for its own account in
exchange for Notes that were acquired as a result of market-making activities
or other trading activities and that it will be
<PAGE>
required to acknowledge that it will deliver a prospectus in connection with
any resale of such Exchange Notes.
Notwithstanding any other provisions hereof, the Company will ensure
that (i) any Exchange Offer Registration Statement and any amendment thereto
and any prospectus forming part thereof and any supplement thereto complies
in all material respects with the Securities Act and the rules and
regulations thereunder, (ii) any Exchange Offer Registration Statement and
any amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading and (iii) any
prospectus forming part of any Exchange Offer Registration Statement, and any
supplement to such prospectus, at the time of issuance does not include an
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, in
the light of the circumstances under which they were made, not misleading.
SECTION 2. SHELF REGISTRATION. If (i) the Company determines that
a Registered Exchange Offer, as contemplated by Section 1 hereof, is not
available or may not be consummated as soon as practicable after the last
date the Registered Exchange Offer is open because it would violate
applicable law or the applicable interpretations of the staff of the
Commission, (ii) the Registered Exchange Offer is not consummated within 210
days of the date of this Agreement, (iii) the Purchasers so request with
respect to the Notes not eligible to be exchanged for Exchange Notes in the
Registered Exchange Offer and held by them following consummation of the
Registered Exchange Offer or (iv) any Holder (other than an Exchanging
Dealer) is not eligible to participate in the Registered Exchange Offer or,
in the case of any Holder (other than an Exchanging Dealer) that participates
in the Registered Exchange Offer, such Holder does not receive freely
tradeable Exchange Notes on the date of the exchange for validly tendered
(and not withdrawn) Notes, the Company shall take the following actions:
(a) The Company shall use its best efforts to prepare and file, as
promptly as practicable (but in no event more than 60 days after so
required or requested pursuant to this Section 2), with the Commission and
thereafter to cause to be declared effective a
<PAGE>
registration statement (the "Shelf Registration Statement" and,
together with the Exchange Offer Registration Statement, a "Registration
Statement") on an appropriate form under the Securities Act relating to
the offer and sale of the Transfer Restricted Notes by the Holders thereof
from time to time in accordance with the methods of distribution set
forth in the Shelf Registration Statement and Rule 415 under the
Securities Act (hereinafter, the "Shelf Registration"); PROVIDED, HOWEVER,
that no Holder (other than the Purchasers) shall be entitled to have any
Securities held by it covered by such Shelf Registration Statement unless
such Holder agrees in writing to be bound by all the provisions of this
Agreement applicable to such Holder.
(b) The Company shall use its best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the
prospectus included therein to be lawfully delivered by the Holders of the
relevant Securities, until the period referred to in Rule 144(k) under the
Securities Act after the original issue date of the Notes expires (or for
such longer period if extended pursuant to Section 3(j) below) or such
shorter period that will terminate when all the Securities covered by the
Shelf Registration Statement have been sold pursuant thereto.
(c) Notwithstanding any other provisions of this Agreement to the
contrary, the Company shall cause the Shelf Registration Statement and the
related prospectus and any amendment or supplement thereto, as of the
effective date of the Shelf Registration Statement, amendment or
supplement, (i) to comply in all material respects with the applicable
requirements of the Securities Act and the rules and regulations of the
Commission and (ii) not to 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, in light of the circumstances
under which they were made, not misleading.
No Holder may include any of its Transfer Restricted Notes in any
Shelf Registration pursuant to this Agreement unless and until such Holder
furnishes to the Company in writing, within 30 days after receipt of a request
therefor, such information with respect to such
<PAGE>
Holder as required by applicable law to be contained in any Shelf
Registration Statement. Each Holder of Transfer Restricted Notes as to which
any Shelf Registration is being effected must agree, in order to enjoy the
benefits thereof, to furnish promptly to the Company all additional
information necessary to make the information previously furnished to the
Company by such holder not misleading.
SECTION 3. REGISTRATION PROCEDURES. In connection with any Shelf
Registration contemplated by Section 2 hereof and any Registered Exchange Offer
contemplated by Section 1 hereof, the following provisions, to the extent
applicable, shall apply:
(a) The Company shall (i) furnish to the Purchasers, prior to the
filing thereof with the Commission, a copy of the Registration Statement
and each amendment thereof and each supplement, if any, to the prospectus
included therein and shall not file any such Registration Statement or
amendment thereto or any prospectus or any supplement thereto (including
such documents which, upon filing, would be incorporated or deemed to be
incorporated by reference therein and amendments to such documents other
than documents required to be filed pursuant to the Exchange Act) to which
the Purchasers shall reasonably object, except for any Registration
Statement or amendment thereto or prospectus or supplement thereto (a copy
of which has been previously furnished to the Purchasers and their counsel
(and, in the case of a Shelf Registration Statement, the Holders and their
counsel)) which counsel to the Company has advised the Company in writing
is required to be filed in order to comply with applicable law; (ii)
include, in the prospectus forming a part of the Exchange Offer
Registration Statement, information substantially to the effect set forth
(A) in Annex A hereto on the cover, (B) in Annex B hereto in the "Exchange
Offer Procedures" section and the "Purpose of the Exchange Offer" section,
(C) in Annex C hereto in the "Plan of Distribution" section of the
prospectus forming a part of the Exchange Offer Registration Statement and
(D) include the information set forth in Annex D hereto in the Letter of
Transmittal delivered pursuant to the Registered Exchange Offer; (iii) to
the extent required by law or interpretation of the staff of the
Commission, if requested by the Purchasers, include the information
required by Items 507 or 508 of Regulation S-K under
<PAGE>
the Securities Act, as applicable, in the prospectus forming a part of
the Exchange Offer Registration Statement; and (iv) to the extent required
by law or interpretation of the staff of the Commission, in the case of a
Shelf Registration Statement, include the names of the Holders who propose
to sell Securities pursuant to the Shelf Registration Statement as selling
securityholders.
(b) The Company shall notify the Purchasers, the Holders and any
Participating Broker-Dealer from whom the Company has received prior
written notice stating that it will be a Participating Broker-Dealer in
the Registered Exchange Offer (which notice pursuant to clauses (ii)-(v)
hereof shall be accompanied by an instruction to suspend the use of the
prospectus until the requisite changes have been made) promptly, and, if
requested by the Purchasers, the Holders or any such Participating
Broker-Dealer, confirm such notice in writing:
(i) when the Registration Statement or any amendment thereto has
been filed with the Commission and when the Registration Statement or
any post-effective amendment thereto has become effective;
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the prospectus included
therein or for additional information;
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose;
(iv) of the receipt by the Company or its legal counsel of any
notification with respect to the suspension of the qualification of
the Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose;
(v) of the happening of any event that requires the Company to
make changes in the Registration Statement or the prospectus in order
that the Registration Statement or the prospectus
<PAGE>
do not contain an untrue statement of a material fact nor omit to
state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under
which they were made, not misleading; and
(vi) of any determination by the Company that a post-effective
amendment to a Registration Statement would be appropriate.
(c) The Company shall make every reasonable effort to prevent the
issuance, and if issued to obtain the withdrawal at the earliest possible
time, of any order suspending the effectiveness of the Registration
Statement and shall provide prompt written notice to the Purchasers and
each Holder of the withdrawal of any such order.
(d) The Company shall furnish to each Holder of Securities included
within the coverage of the Shelf Registration, without charge, at least one
conformed copy of the Shelf Registration Statement and any post-effective
amendment thereto, including financial statements and schedules (without
documents incorporated therein by reference or exhibits thereto, unless a
Holder so requests in writing).
(e) The Company shall deliver to the Purchasers, and to any other
Holder that so requests, without charge, at least one conformed copy of the
Exchange Offer Registration Statement and any post-effective amendment
thereto, including financial statements and schedules (without documents
incorporated therein by reference or exhibits thereto, unless the
Purchasers or any such Holder so request in writing).
(f) The Company shall deliver to each Holder of Securities included
within the coverage of the Shelf Registration, without charge, as many
copies of the prospectus (including each preliminary prospectus) included
in the Shelf Registration Statement and any amendment or supplement thereto
as such person may reasonably request. The Company consents, subject to
the provisions of this Agreement, to the use of the prospectus or any
amendment or supplement thereto by each of the selling Holders of the
Securities in connection with the offering and sale of the Securities
<PAGE>
covered by, and as contemplated by, the prospectus, or any amendment or
supplement thereto, included in the Shelf Registration Statement.
(g) The Company shall deliver to the Purchasers, any Participating
Broker-Dealer or any Exchanging Dealer, without charge, as many copies of
the final prospectus included in the Exchange Offer Registration Statement
and any amendment or supplement thereto as such person may reasonably
request, during the period not exceeding 180 days following the
consummation of the Registered Exchange Offer. The Company consents,
subject to the provisions of this Agreement, to the use of the prospectus
or any amendment or supplement thereto by the Purchasers, if necessary, any
Participating Broker-Dealer or Exchanging Dealer and such other persons
required to deliver a prospectus following the Registered Exchange Offer in
connection with the offering and sale of the Exchange Notes covered by the
prospectus, or any amendment or supplement thereto, included in such
Exchange Offer Registration Statement; PROVIDED, HOWEVER, that such persons
shall not be authorized by the Company to deliver and shall not deliver any
such prospectus after the expiration of the period referred to in the
immediately preceding sentence, in connection with the resales contemplated
by this paragraph.
(h) Prior to any public offering of the Securities pursuant to any
Registration Statement, the Company shall use its best efforts to register
or qualify or cooperate with the Holders of the Securities included therein
and their respective counsel in connection with the registration or
qualification of the Securities for offer and sale under the securities or
Blue Sky laws of such states of the United States as any Holder of the
Securities reasonably requests in writing and do any and all other acts or
things necessary or advisable to enable such Holder to offer and sell in
such jurisdictions the Securities covered by such Registration Statement
owned by such Holder; PROVIDED, HOWEVER, that the Company shall not be
required to (i) qualify generally or as a foreign corporation to do
business in any jurisdiction where it is not then so qualified or (ii) take
any action which would subject it to general service of process or to
taxation in any jurisdiction where it is not then so subject.
<PAGE>
(i) The Company shall cooperate with the Holders of the Securities to
facilitate the timely preparation and delivery of certificates representing
the Securities to be sold pursuant to any Shelf Registration Statement free
of any restrictive legends and in such denominations (consistent with the
provisions of the Indenture) and registered in such names as the Holders
may request at least two business days prior to closing of any sale of the
Securities pursuant to such Shelf Registration Statement.
(j) Upon the occurrence of any event contemplated by paragraphs (ii)
through (vi) of Section 3(b) above during the period for which the Company
is required to maintain an effective Registration Statement, the Company
shall promptly prepare and file a post-effective amendment to the
Registration Statement or a supplement to the related prospectus and any
other required document so that, as thereafter delivered to Holders of the
Notes or purchasers of Securities, the prospectus will not contain an
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
If the Company notifies the Purchasers, the Holders of the Securities and
any known Participating Broker-Dealer in accordance with paragraphs (ii)
through (v) of Section 3(b) above to suspend the use of the prospectus
until the requisite changes to the prospectus have been made, then the
Purchasers, the Holders of the Securities and any such Participating
Broker-Dealers shall suspend use of such prospectus until the Company has
amended or supplemented the prospectus to correct such misstatement or
omission, and the period of effectiveness of the Shelf Registration
Statement provided for in Section 2(b) above and the Exchange Offer
Registration Statement provided for in Section 1 above shall each be
extended by the number of days from and including the date of the giving of
such notice to and including the date when the Purchasers, the Holders of
the Securities and any known Participating Broker-Dealer shall have
received such amended or supplemented prospectus pursuant to this Section
3(j); PROVIDED, HOWEVER, that the minimum time period before the Company
shall be entitled to close the Registered Exchange Offer shall be extended
only to the extent required by the Commission. The Purchasers, each
<PAGE>
Holder and any Participating Broker-Dealers agree that upon receipt of
any such notice from the Company it will not distribute copies of the
prospectus that are the subject of such notice and will retain such
copies in its files.
(k) Not later than the effective date of the applicable Registration
Statement, the Company will obtain a CUSIP number for the applicable
Securities and provide the Trustee with printed certificates for the
applicable Securities in a form eligible for deposit with The Depository
Trust Company.
(l) The Company will comply with all rules and regulations of the
Commission to the extent and so long as they are applicable to the
Registered Exchange Offer or the Shelf Registration and will make generally
available to its securities holders (or otherwise provide in accordance
with Section 11(a) of the Securities Act) an earnings statement satisfying
the provisions of Section 11(a) of the Securities Act, no later than 45
days after the end of a 12-month period (or 90 days, if such period is a
fiscal year) beginning with the first month of the Company's first fiscal
quarter commencing after the effective date of the Registration Statement,
which statement shall cover such 12-month period.
(m) The Company shall cause the Indenture to be qualified under the
Trust Indenture Act of 1939, as amended, in a timely manner and containing
such changes, if any, as shall be necessary for such qualification. In the
event that such qualification would require the appointment of a new
trustee under the Indenture, the Company shall appoint a new trustee
thereunder pursuant to the applicable provisions of the Indenture.
(n) The Company may require each Holder of Securities to be sold
pursuant to the Shelf Registration Statement to furnish to the Company such
information regarding the Holder and the distribution of the Securities as
the Company may from time to time reasonably request for inclusion in the
Shelf Registration Statement, and the Company may exclude from such
registration the Securities of any Holder that unreasonably fails to
furnish such information within a reasonable time after receiving such
request.
<PAGE>
(o) In the case of any Shelf Registration, the Company shall enter
into such customary agreements (including if requested an underwriting
agreement in customary form) and take all such other action, if any, as the
Holders of a majority of the Securities being sold shall reasonably request
in order to facilitate the disposition of the Securities pursuant to such
Shelf Registration.
(p) In the case of any Shelf Registration, the Company shall make
available for inspection by a representative of the Holders of Securities
being sold, its counsel and an accountant retained by such Holders, in a
manner designed to permit underwriters to satisfy their due diligence
investigation under the Securities Act, all financial and other records,
pertinent corporate documents and properties of the Company customarily
inspected by underwriters in primary underwritten offerings and cause the
officers, directors and employees of the Company and its subsidiaries to
supply all information reasonably requested by, and customarily supplied in
connection with primary underwritten offerings to, any such representative,
attorney or accountant in connection with such registration; PROVIDED,
HOWEVER, such person shall agree in writing that any records, information
or documents that are designated by the Company as confidential at the time
of delivery of such records, information or documents shall be kept
confidential by such persons, unless (i) such records, information or
documents are in the public domain or otherwise publicly available, (ii)
disclosure of such records, information or documents is required by court
or administrative order, (iii) disclosure of such records, information or
documents, in the written opinion of counsel to such person, is otherwise
required by law (including, without limitation, pursuant to the
requirements of the Securities Act) or (iv) disclosure of such records,
information or documents is necessary to avoid or correct a misstatement or
omission in such Registration Statement, prospectus supplement or any
post-effective amendment.
(q) In the case of any Shelf Registration, the Company, if requested
by any Holder of Securities covered thereby, shall (i) to the extent
possible, make such representations and warranties to the Holders and any
underwriter of the Securities being sold, with
<PAGE>
respect to the business of the Company, the Shelf Registration Statement,
the prospectus included therein and documents incorporated by
reference therein, in each case in form, substance and scope as are
customarily made by issuers to underwriters in underwritten offerings
and confirm the same if and when requested, (ii) cause its counsel to
deliver an opinion and updates thereof relating to the Securities in
customary form addressed to such Holders and the managing
underwriters, if any, and dated, in the case of the initial opinion,
the effective date of such Shelf Registration Statement covering
matters customarily covered in opinions requested in underwritten
offerings, (iii) cause its officers to execute and deliver such documents
and certificates and updates thereof as may be reasonably requested by any
underwriters of the applicable Securities, and which are customarily
delivered in underwritten offerings, to evidence the continued validity of
the representations and warranties of the Company made pursuant to clause
(i) above and to evidence compliance with any customary conditions
contained in an underwriting agreement and (iv) cause its independent
public accountants to provide to the selling Holders of the applicable
Securities and any underwriter therefor a comfort letter in customary form
and covering matters of the type customarily covered in comfort letters in
connection with primary underwritten offerings, subject to receipt of
appropriate documentation as contemplated, and only if permitted, by
Statement of Auditing Standards No. 72.
(r) If a Registered Exchange Offer is to be consummated, upon
delivery of the Notes by Holders to the Company (or to such other Person as
directed by the Company) in exchange for the Exchange Notes, the Company
shall mark, or caused to be marked, on the Notes so exchanged that such
Notes are being canceled in exchange for the Exchange Notes, and in no
event shall the Notes be marked as paid or otherwise satisfied.
(s) The Company will use reasonable efforts to cause the Securities
covered by a Registration Statement to be rated by two nationally
recognized statistical rating organizations (as such term is defined in
Rule 436(g)(2) under the Securities Act) if so requested by Holders of a
majority in aggregate
<PAGE>
principal amount of Securities covered by such Registration Statement, or
by the managing underwriters, if any.
(t) In the event that any broker-dealer registered under the Exchange
Act shall underwrite any Securities or participate as a member of an
underwriting syndicate or selling group or "assist in the distribution"
(within the meaning of the Rules of Fair Practice and the By-Laws of the
National Association of Securities Dealers, Inc. ("NASD")) thereof, whether
as a Holder of such Securities or as an underwriter, a placement or sales
agent or a broker or dealer in respect thereof, or otherwise, the Company
shall assist such broker-dealer in complying with the requirements of such
Rules and By-Laws, including by (i) if such Rules or By-Laws, including
Schedule E thereto, shall so require, cooperating in the engagement by such
broker-dealer of a "qualified independent underwriter" (as defined in such
Schedule) to participate in the preparation of the Registration Statement
relating to such Securities, to exercise usual standards of due diligence
in respect thereto and, if any portion of the offering contemplated by such
Registration Statement is an underwritten offering or is made through a
placement or sales agent, to recommend the yield of such Securities,
(ii) indemnifying any such qualified independent underwriter to the extent
of the indemnification of underwriters provided in Section 5 hereof and
(iii) providing such information to such broker-dealer as may be required
in order for such broker-dealer to comply with the requirements of the
Rules of Fair Practice of the NASD.
SECTION 4. REGISTRATION EXPENSES. The Company shall pay all fees and
expenses incident to the performance of or compliance with this Agreement by the
Company including, without limitation, (i) all Commission, stock exchange or
NASD registration and filing fees, (ii) all fees and expenses incurred in
connection with compliance with state securities or Blue Sky laws (including
reasonable fees and disbursements of counsel for any underwriters or holders in
connection with Blue Sky qualification of any of the Securities), (iii) all
expenses of any persons in preparing or assisting in preparing, word processing,
printing and distributing any Registration Statement, any prospectus, any
amendments or supplements thereto, any underwriting
<PAGE>
agreements, securities sales agreements and other documents relating to the
performance of and compliance with this Agreement, (iv) all rating agency
fees and (v) the fees and disbursements of counsel for the Company and in the
event of a Shelf Registration, the reasonable fees and disbursements of one
firm of counsel designated by the Holders of a majority in principal amount
of the Securities covered thereby and of the independent public accountants
of the Company, including the expense of any special audits or "cold comfort"
letters required by or incident to such performance and compliance, but
excluding fees and expenses of counsel to the underwriters and underwriting
discounts and commissions and transfer taxes, if any, relating to the sale or
disposition of Securities by a Holder.
SECTION 5. INDEMNIFICATION. (a) The Company agrees to indemnify
and hold harmless each Holder of the Securities, any Participating
Broker-Dealer, and each person, if any, who controls such Holder or such
Participating Broker-Dealer within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, or is under common control
with, or is controlled by, such Holder or such Participating Broker-Dealer,
from and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably
incurred by such Holder or Participating Broker-Dealer or any such
controlling or affiliated person in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in a Registration
Statement or prospectus (as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto), or caused by any omission
or alleged omission to state therein 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, except insofar as
such losses, claims, damages or liabilities are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information relating to such Participating Broker-Dealer or any Holder
furnished to the Company in writing by such Holder or Participating
Broker-Dealer expressly for use therein; PROVIDED that the foregoing
indemnity agreement with respect to any preliminary prospectus shall not
inure to the benefit of any Holder or Participating Broker-Dealer from whom
the person asserting any such losses, claims, damages or liabilities
purchased Securities, or any person controlling or
<PAGE>
affiliated with such Holder or Participating Broker-Dealer, if a copy of the
final prospectus (as then amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) was not sent or given by or on
behalf of such Holder or Participating Broker-Dealer to such person, if required
by law so to have been delivered, at or prior to the written confirmation of the
sale of the Securities to such person, and if the final prospectus (as so
amended or supplemented) would have cured the defect giving rise to such loss,
claim, damage or liability.
(b) As a condition to the enjoyment of the benefit of any
Registration Statement, prospectus or preliminary prospectus or any amendment or
supplement thereto, each Holder of the Securities, severally and not jointly,
shall agree to indemnify and hold harmless the Company, other selling Holders,
directors of the Company, the officers of the Company who sign a Registration
Statement and each person, if any, who controls the Company or any selling
Holders, within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act to the same extent as the foregoing indemnity
from the Company to such Holder, but only with reference to information relating
to such Holder furnished to the Company in writing by such Holder expressly for
use in a Registration Statement, any preliminary prospectus, prospectus or any
amendments or supplements thereto.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to either paragraph (a) or (b) above, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the reasonable fees and expenses of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel, but the fees and expenses of such counsel shall be at
the expense of such indemnified party unless (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such counsel or
(ii) the named parties to any such proceeding (including any impleaded parties)
include
<PAGE>
both the indemnifying party and the indemnified party and representation
of both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that the
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and expenses of
more than one separate firm (in addition to any local counsel) for all such
indemnified parties and that all such fees and expenses shall be reimbursed as
they are incurred. If an indemnified party includes (x) the Purchasers or such
controlling persons of the Purchasers, such firm shall be designated in writing
by Morgan Stanley & Co. Incorporated or (y) Holders of Securities (other than
the Purchasers) or controlling persons of such Holders, such firm shall be
designated in writing by Holders of a majority in aggregate principal amount of
such Securities. In all other cases, such firm shall be designated by the
Company. The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel as contemplated by the second and third sentences of this paragraph, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 90 days after receipt by such indemnifying party of the
aforesaid request and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of such
settlement, unless the reasonableness of such fees and expenses is being
challenged in good faith by the indemnifying party. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
(d) To the extent the indemnification provided for in paragraph (a)
or (b) of this Section 5 is unavailable
<PAGE>
to an indemnified party or insufficient in respect of any losses, claims,
damages or liabilities, then each indemnifying party under such paragraph, in
lieu of indemnifying such indemnified party thereunder, shall contribute to
the amount paid or payable by such indemnified party as a result of such
losses, claims, damages or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the indemnifying
party on the one hand and the indemnified party on the other hand from the
exchange of the Notes pursuant to the Registered Exchange Offer or (ii) if
the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
indemnifying party on the one hand and the indemnified party on the other
hand in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative fault of the parties shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Company or by
such Holder, Participating Broker-Dealer or other indemnified party and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
(e) The Company and each Holder agree that it would not be just or
equitable if contribution pursuant to this Section 5 were determined by PRO RATA
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in paragraph (d) above. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages and liabilities referred to in paragraph (d) above shall be deemed to
include, subject to the limitations set forth above, 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
Section 5, the Holders of Securities shall not be required to contribute any
amount in excess of the amount by which the total price at which the Notes were
sold by such Holder pursuant to a Registration Statement exceeds the amount of
any damages that such Holders have 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
<PAGE>
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The indemnity and contribution provisions contained in
this Section 5 shall remain operative and in full force and effect regardless
of (i) any termination of this Agreement, (ii) any investigation made by or
on behalf of any indemnified party and (iii) the sale of the Securities. The
remedies provided for in this Section 5 are not exclusive and shall not limit
any rights or remedies which may otherwise be available to any indemnified
party at law or in equity.
SECTION 6. ADDITIONAL INTEREST UNDER CERTAIN CIRCUMSTANCES.
(a) Additional interest (the "Additional Interest") with respect to the
Securities shall be assessed if on or prior to the date that is seven months
after the Issue Date, neither the Registered Exchange Offer is consummated nor,
if required in lieu thereof, the Shelf Registration Statement is declared
effective by the Commission (each such event being a "Registration Default").
Additional Interest shall accrue on the Securities over and above the interest
rate set forth in the title of the Securities from and including such date for
so long as the Securities remain outstanding at a rate of 0.5% per annum;
PROVIDED, HOWEVER, if a Registration Default has occurred and is continuing at
and after the date that is thirteen months after the Issue Date, then Additional
Interest shall accrue on the Securities over and above the interest rate set
forth in the title of the Securities from and including such date for so long as
the Securities remain outstanding at a rate of 1.0% per annum.
Any amount of Additional Interest due pursuant to the foregoing
paragraph will be payable in cash on the regular interest payment dates with
respect to the Securities. The amount of Additional Interest will be determined
by multiplying the applicable Additional Interest rate by the principal amount
of the Notes, multiplied by a fraction, the numerator of which is the number of
days such Additional Interest rate was applicable during such period (determined
on the basis of a 360-day year comprised of twelve 30-day months), and the
denominator of which is 360.
(b) "Transfer Restricted Notes" means each Security until (i) the
date on which such Transfer Restricted Note has been exchanged by a person other
than a broker-dealer for a freely transferrable Exchange Note in the Registered
Exchange Offer, (ii) following the exchange
<PAGE>
by a broker-dealer in the Registered Exchange Offer of a Transfer Restricted
Note for an Exchange Note, the date on which such Exchange Note is sold to a
purchaser who receives from such broker-dealer on or prior to the date of
such sale a copy of the prospectus contained in the Exchange Offer
Registration Statement, (iii) the date on which such Transfer Restricted Note
has been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement or (iv) the date on which
such Transfer Restricted Note is distributed to the public pursuant to Rule
144 (or any similar provision then in force) under the Securities Act or is
saleable pursuant to Rule 144(k) (or any similar provision then in force)
under the Securities Act.
SECTION 7. RULES 144 AND 144A. The Company shall use its best
efforts to file the reports required to be filed by it under the Securities Act
and the Exchange Act in a timely manner and, if at any time the Company is not
required to file such reports, it will, upon the request of any Holder of
Transfer Restricted Notes, make publicly available other information so long as
necessary to permit sales of Securities pursuant to Rules 144 and 144A provided
that sales could otherwise be made under such rules. The Company covenants that
it will take such further action as any Holder of Transfer Restricted Notes may
reasonably request, all to the extent required from time to time to enable such
Holder to sell Transfer Restricted Notes without registration under the
Securities Act within the limitation of the exemptions provided by Rules 144 and
144A (including the requirements of Rule 144A(d)(4)). Upon the request of any
Holder of Transfer Restricted Notes, the Company shall deliver to such Holder a
written statement as to whether it has complied with such requirements.
Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to
require the Company to register any of its securities pursuant to the Exchange
Act. The Company will provide a copy of this Agreement to prospective
purchasers of Notes identified to the Company by the Purchasers upon request.
SECTION 8. UNDERWRITTEN REGISTRATIONS. If any of the Transfer
Restricted Notes covered by any Shelf Registration are to be sold in an
underwritten offering, the investment banker or investment bankers and manager
or managers that will administer the offering ("Managing Underwriters") will be
selected by the Holders of a majority in aggregate principal amount of such
Transfer Restricted Notes included in such offering, but such selection must be
<PAGE>
approved by the Company, which approval will not be unreasonably withheld or
delayed.
No person may participate in any underwritten registration hereunder
unless such person (i) agrees to sell such person's Transfer Restricted Notes on
the basis reasonably provided in any underwriting arrangements approved by the
persons entitled hereunder to approve such arrangements and (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements.
SECTION 9. MISCELLANEOUS. (a) AMENDMENTS AND WAIVERS. The
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
except by the Company and the written consent of the Holders of a majority in
principal amount of the Securities affected by such amendment, modification,
supplement, waiver or consent.
(b) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, first-class mail,
facsimile transmission, or air courier which guarantees overnight delivery:
(1) if to a Holder of the Securities, at the most current address
given by such Holder to the Company in accordance with the provisions of
this Section 9(b), which address initially is, with respect to each Holder,
the address of such Holder to which confirmation of the sale of the Notes
to such Holder was first sent by the Purchasers, with a copy in like manner
to you as follows:
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Fax No.: (212) 761-0260
Attention: Managing Director, Syndicate
<PAGE>
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Fax No.: (212) 474-3700
Attention: Kris F. Heinzelman
(2) if to the Company, at the following address:
Kelley Oil & Gas Corporation
601 Jefferson
Suite 1100
Houston, TX 77002
Fax No.: (713) 652-5200
Attention: Thomas E. Baker
with a copy to:
Fulbright & Jaworski L.L.P.
1301 McKinney St., Suite 5100
Houston, TX 77010-3095
Fax No.: (713) 651-5246
Attention: Charles H. Still
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; three business
days after being deposited in the mail, postage prepaid, if mailed; when receipt
is acknowledged by recipient's facsimile machine operator, if sent by facsimile
transmission; and on the day following the day sent, if sent by overnight air
courier guaranteeing next day delivery.
(c) NO INCONSISTENT AGREEMENTS. The Company has not, as of the date
hereof, entered into, nor shall it, on or after the date hereof, enter into, any
agreement with respect to its Securities that is inconsistent with the rights
granted to the Holders herein or otherwise conflicts with the provisions hereof.
(d) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Company and its successors and assigns.
(e) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall
<PAGE>
be deemed to be an original and all of which taken together shall constitute
one and the same agreement.
(f) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAW.
(h) SEVERABILITY. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions contained
herein shall not be affected or impaired thereby.
(i) SECURITIES HELD BY THE COMPANY. Whenever the consent or approval
of Holders of a specified percentage of principal amount of Securities is
required hereunder, Securities held by the Company or its affiliates (other than
Holders of Securities if such Holders are deemed to be affiliates solely by
reason of their holdings of such Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Purchasers and the Company in accordance with its terms.
Very truly yours,
KELLEY OIL & GAS CORPORATION,
by
/s/ WILLIAM C. RANKIN
----------------------------
Name: William C. Rankin
Title: Senior Vice
President and Chief
Financial Officer
Accepted as of the date hereof
MORGAN STANLEY & CO. INCORPORATED
CHASE SECURITIES INC.
LAZARD FRERES & CO. LLC
Acting severally on behalf
of themselves and the
several Purchasers
named herein
by MORGAN STANLEY & CO.
INCORPORATED,
by
/s/ DARREN S. THOMPSON
------------------------------
Name: Darren S. Thompson
Title: Vice President
<PAGE>
ANNEX A
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter
of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
brokerdealer in connection with resales of Exchange Notes received in
exchange for Existing Notes where such Existing Notes were acquired by such
broker-dealer as a result of marketmaking activities or other trading
activities. The Company has agreed that, for a period of 90 days after the
Expiration Date (as defined herein), it will make this Prospectus available
to any broker-dealer for use in connection with any such resale. See "Plan
of Distribution".
<PAGE>
ANNEX B
Each broker-dealer that receives Exchange Notes for its own account
in exchange for Notes, where such Notes were acquired by such broker-dealer
as a result of marketmaking activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale
of such Exchange Notes. See "Plan of Distribution".
<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Notes received
in exchange for Existing Notes where such Existing Notes were acquired as a
result of marketmaking activities or other trading activities. The Company
has agreed that, for a period of 90 days after the Expiration Date, it will
make this prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale. In addition, until
, 199 , all dealers effecting transactions in the Exchange Notes may be
required to deliver a prospectus.*
The Company will not receive any proceeds from any sale of Exchange
Notes by broker-dealers. Exchange Notes received by broker-dealers for their
own account pursuant to the Exchange Offer may be sold from time to time in
one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices prevailing at the
time of resale, at prices related to such prevailing market prices or
negotiated prices. Any such resale may be made directly to purchasers or to
or through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer or the purchasers of
any such Exchange Notes. Any broker-dealer that resells Exchange Notes that
were received by it for its own account pursuant to the Exchange Offer and
any broker or dealer that participates in a distribution of such Exchange
Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of Exchange Notes and any
commission or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of
Transmittal states that, by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that
- ------------------------
* In addition, the legend required by Item 502(e) of Regulation S-K will
appear on the back cover page of the Exchange Offer prospectus.
<PAGE>
it is an "underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such
documents in the Letter of Transmittal. The Company has agreed to pay all
expenses incident to the Exchange Offer (including the expenses of one
counsel for the Holders of the Notes) other than commissions or concessions
of any brokers or dealers and will indemnify the Holders of the Securities
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
<PAGE>
ANNEX D
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY
AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
------------------------------------------------------
Address:
---------------------------------------------------
---------------------------------------------------
If the undersigned is not a broker-dealer, the undersigned represents that it
is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes. If the undersigned is a broker-dealer that will receive
Exchange Notes for its own account in exchange for Notes that were acquired
as a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale
of such Exchange Notes; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
<PAGE>
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK,
NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT
OF 1933 (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS
EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE
HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (B) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF
REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR")
OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES
THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO IN RULE 144(k) UNDER THE
SECURITIES ACT AS IN EFFECT WITH RESPECT TO SUCH TRANSFER, RESELL OR OTHERWISE
TRANSFER THIS SECURITY EXCEPT (A) TO KELLEY OIL & GAS CORPORATION OR ANY
SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL
BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE
UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH
TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS
SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND IF SUCH
TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF SECURITIES AT THE
TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO
KELLEY OIL & GAS CORPORATION THAT SUCH
<PAGE>
2
TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED
STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY
RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT
IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER
OF THIS SECURITY WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST
CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE SIDE HEREOF RELATING TO
THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. IF
THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER
MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND KELLEY OIL & GAS
CORPORATION SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS
EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING
MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS
"OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS
GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE
CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER
OF THIS SECURITY IN VIOLATION OF THE FOREGOING RESTRICTIONS.
<PAGE>
3
No. 1 $125,000,000
CUSIP: 487906AB5
ISIN: USU24569AA04
10 3/8% Senior Subordinated Note Due 2006
KELLEY OIL & GAS CORPORATION, a Delaware corporation, promises to pay
to CEDE & CO., or registered assigns, the principal sum of ONE HUNDRED TWENTY
FIVE MILLION Dollars on October 15, 2006.
Interest Payment Dates: April 15 and October 15.
Record Dates: April 1 and October 1.
Additional provisions of this Security are set forth on the other side
of this Security.
KELLEY OIL & GAS CORPORATION,
by
------------------------------
Authorized Officer
------------------------------
Authorized Officer
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
UNITED STATES [Seal]
TRUST COMPANY OF NEW YORK,
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture.
by
------------------------------
Authorized Signatory
Dated: October 29, 1996
<PAGE>
4
10 3/8% Senior Subordinated Note Due 2006
1. INTEREST
Kelley Oil & Gas Corporation, a Delaware corporation (such
corporation, and its successors and assigns under the Indenture hereinafter
referred to, being herein called the "Company"), promises to pay interest on the
principal amount of this Security at the rate per annum shown above; PROVIDED,
HOWEVER, that if by May 29, 1997, neither the Registered Exchange Offer is
consummated nor, if required in lieu thereof pursuant to the Registration
Agreement, the Shelf Registration Statement is declared effective by the
Commission, interest will accrue on this Security from and including such date
until such date as either the Registered Exchange Offer is consummated or the
Shelf Registration Statement is declared effective by the Commission at a rate
of 0.50% per annum in excess of the interest rate per annum shown above;
PROVIDED FURTHER, HOWEVER, that if by November 29, 1997, neither the Registered
Exchange Offer is consummated nor, if required in lieu thereof pursuant to the
Registration Agreement, the Shelf Registration Statement is declared effective
by the Commission, interest will accrue on this Security from and including such
date until such date as either the Registered Exchange Offer is consummated or
the Shelf Registration Statement is declared effective by the Commission at a
rate of 1.00% per annum in excess of the interest rate per annum shown above.
The Company will pay interest semiannually on April 15, and October 15 of each
year. Interest on the Securities will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from October 29, 1996.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months. The Company shall pay interest on overdue principal at the rate borne
by the Securities plus 1% per annum, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
2. METHOD OF PAYMENT
The Company will pay interest on the Securities (except defaulted
interest) to the Persons who are registered holders of Securities at the close
of business on the April 1 or October 1 next preceding the interest payment date
even if Securities are canceled after the record date
<PAGE>
5
and on or before the interest payment date. Holders must surrender
Securities to a Paying Agent to collect principal payments. The Company will
pay principal and interest in money of the United States that at the time of
payment is legal tender for payment of public and private debts. Payments in
respect of the Securities represented by a Global Security (including
principal, premium and interest) will be made by wire transfer of immediately
available funds to the accounts specified by The Depository Trust Company.
The Company will make all payments in respect of a certificated Security
(including principal, premium and interest), by mailing a check to the
registered address of each Holder thereof; PROVIDED, HOWEVER, that payments
on a certificated Security will be made by wire transfer to a U.S. dollar
account maintained by the payee with a bank in the United States if such
Holder elects payment by wire transfer by giving written notice to the
Trustee or the Paying Agent to such effect designating such account no later
than 30 days immediately preceding the relevant due date for payment (or such
other date as the Trustee may accept in its discretion).
3. PAYING AGENT AND REGISTRAR
Initially, United States Trust Company of New York, a New York banking
corporation ("Trustee"), will act as Paying Agent and Registrar. The Company
may appoint and change any Paying Agent, Registrar or co-registrar without
notice. The Company or any of its domestically incorporated Wholly Owned
Subsidiaries may act as Paying Agent, Registrar or co-registrar.
4. INDENTURE
The Company issued the Securities under an Indenture dated as of
October 15, 1996 ("Indenture"), between the Company and the Trustee. The terms
of the Securities include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939, as amended (15
U.S.C. Sections 77aaa-77bbbb) as in effect on the date of the Indenture (the
"Act"). Terms defined in the Indenture and not defined herein have the meanings
ascribed thereto in the Indenture. The Securities are subject to all such
terms, and Securityholders are referred to the Indenture and the Act for a
statement of those terms.
<PAGE>
6
The Securities are general unsecured obligations of the Company
limited to $125,000,000 aggregate principal amount (subject to Section 2.06 of
the Indenture). The Indenture imposes certain limitations on the Incurrence of
Indebtedness by the Company and certain of its Subsidiaries, the payment of
dividends and other distributions on the Capital Stock of the Company and
certain of its Subsidiaries, the purchase or redemption of Capital Stock of the
Company and of certain Capital Stock of such Subsidiaries, the sale or transfer
of assets and Subsidiary stock, the creation of Liens, the entering into of
Sale/Leaseback Transactions and transactions with Affiliates. In addition, the
Indenture limits the ability of the Company and certain of its Subsidiaries to
restrict distributions and dividends from Subsidiaries. The Indenture also
restricts the ability of the Company and any Subsidiary Guarantor to consolidate
or merge with or into, or to transfer all or substantially all their assets to,
another person.
The Indenture also provides that the Company shall cause each
Subsidiary Guarantor, and each Restricted Subsidiary of the Company (other than
the Programs) that has total net assets as of the end of the most recent fiscal
year (as set forth on the balance sheet of such Restricted Subsidiary prepared
in accordance with GAAP) equal to or greater than the greater of $2.5 million
and one percent (1%) of Adjusted Consolidated Net Tangible Assets as of such
date, to Guarantee the Securities pursuant to a Subsidiary Guaranty. Any such
Subsidiary Guaranty will secure the due and punctual payment of the principal of
and interest, if any, on the Securities and all other amounts payable by the
Company under the Indenture and the Securities when and as the same shall be due
and payable, whether at maturity, by acceleration or otherwise. Any Subsidiary
Guaranty will unconditionally guarantee the Obligations on a senior subordinated
basis pursuant to the terms of the Indenture.
5. OPTIONAL REDEMPTION
Except as set forth in the next paragraph, the Securities shall not be
redeemable at the option of the Company prior to October 15, 2001. Thereafter,
the Securities shall be redeemable, at the Company's option, in whole or in
part, at any time or from time to time at the following redemption prices
(expressed in percentages of principal amount), plus accrued interest to the
redemption
<PAGE>
7
date (subject to the right of Holders of record on the relevant record date
to receive interest due on the relevant interest payment date), if redeemed
during the 12-month period commencing on October 15 of the years set forth
below:
Period Percentage
------ ----------
2001. . . . . . . . . . . . . . . . 105.188%
2002. . . . . . . . . . . . . . . . 102.594%
2003 and thereafter . . . . . . . . 100.000%
In addition, at any time and from time to time prior to October 15,
1999, the Company may redeem in the aggregate up to 35% of the principal amount
of Securities with the proceeds of one or more Equity Offerings following which
there is a Public Market, at a redemption price (expressed as a percentage of
principal amount) of 110.375% plus accrued interest to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date); PROVIDED, HOWEVER,
that either at least $75.0 million aggregate principal amount of Securities must
remain outstanding after each such redemption or such redemption must retire the
Securities in their entirety.
6. NOTICE OF REDEMPTION
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each Holder of Securities to be redeemed
at his registered address. Securities in denominations larger than $1,000 may
be redeemed in part but only in whole multiples of $1,000. If money sufficient
to pay the redemption price of and accrued interest on all Securities (or
portions thereof) to be redeemed on the redemption date is deposited with the
Paying Agent on or before the redemption date and certain other conditions are
satisfied, on and after such date interest ceases to accrue on such Securities
(or such portions thereof) called for redemption.
<PAGE>
8
7. PUT PROVISIONS
Upon a Change of Control, any Holder of Securities will have the
right, subject to certain conditions, to cause the Company to repurchase all or
any part of the Securities of such Holder at a repurchase price equal to 101% of
the principal amount of the Securities to be repurchased plus accrued interest
to the date of repurchase (subject to the right of holders of record on the
relevant record date to receive interest due on the related interest payment
date) as provided in, and subject to the terms of, the Indenture.
8. SUBORDINATION
The Securities are subordinated to Senior Indebtedness, as defined in
the Indenture. To the extent provided in the Indenture, Senior Indebtedness
must be paid before the Securities may be paid. The Company agrees, and each
Securityholder by accepting a Security agrees, to the subordination provisions
contained in the Indenture and authorizes the Trustee to give it effect and
appoints the Trustee as attorney-in-fact for such purpose.
9. DENOMINATIONS; TRANSFER; EXCHANGE
The Securities are in registered form without coupons in denominations
of $1,000 (or in the case of Definitive Securities sold to institutional
accredited investors as described in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act, minimum denominations of $250,000) and whole multiples of
$1,000. A Holder may transfer or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements or transfer documents and to pay any taxes and fees
required by law or permitted by the Indenture. The Registrar need not register
the transfer of or exchange any Securities selected for redemption (except, in
the case of a Security to be redeemed in part, the portion of the Security not
to be redeemed) or any Securities for a period of 15 days before a selection of
Securities to be redeemed or 15 days before an interest payment date.
<PAGE>
9
10. PERSONS DEEMED OWNERS
The registered Holder of this Security may be treated as the owner of
it for all purposes.
11. UNCLAIMED MONEY
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its request unless an abandoned property law designates another
Person. After any such payment, Holders entitled to the money must look only to
the Company and not to the Trustee for payment.
12. DISCHARGE AND DEFEASANCE
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Securities and the Indenture if the
Company deposits with the Trustee money or U.S. Government Obligations for the
payment of principal and interest on the Securities to redemption or maturity,
as the case may be.
13. AMENDMENT, WAIVER
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount of the Securities then
outstanding and (ii) any default or noncompliance with any provisions may be
waived with the written consent of the Holders of at least a majority in
principal amount of the Securities then outstanding. Subject to certain
exceptions set forth in the Indenture, without notice to or the consent of any
Securityholder, the Company and the Trustee may amend the Indenture or the
Securities to cure any ambiguity, omission, defect or inconsistency, or to
comply with Article 5 of the Indenture, or to provide for uncertificated
Securities in addition to or in place of certificated Securities (provided that
the uncertificated Securities are issued in registered form for purposes of
Section 163(f) of the Code, or in a manner such that the uncertificated
Securities are described in Section 163(f)(2)(B) of the Code), or to make any
change to the subordination provisions of the Indenture that would limit or
terminate the benefits
<PAGE>
10
available to any holder of Senior Indebtedness (or its Representative), or to
add guarantees with respect to the Securities, or to secure the Securities,
or to add to the covenants of the Company for the benefit of the Holders, or
to surrender any right or power conferred on the Company, or to make any
change that does not adversely affect the rights of any Securityholder, or to
comply with any requirement of the SEC in connection with qualifying the
Indenture under the Act. No amendment may be made to the subordination
provisions of the Indenture that adversely affects the rights of any holder
of Senior Indebtedness then outstanding unless the holders of such Senior
Indebtedness (or their representative) consent to such change.
14. DEFAULTS AND REMEDIES
Under the Indenture, Events of Default include (i) default for 30 days
in payment of interest on the Securities when due; (ii) default in payment of
principal on the Securities at maturity, upon redemption pursuant to paragraph 5
or 6 of the Securities, upon declaration or otherwise, or failure by the Company
to redeem or purchase Securities when required; (iii) failure by the Company to
comply with its obligations under certain covenants, (iv) failure by the Company
to comply with other agreements in the Indenture or the Securities, in certain
cases subject to notice and lapse of time; (v) certain accelerations (including
failure to pay within any grace period after final maturity) of other
Indebtedness of the Company or any Significant Subsidiary (other than Limited
Recourse Indebtedness) if the amount accelerated (or so unpaid) exceeds
$10.0 million; (vi) certain events of bankruptcy, insolvency or reorganization
with respect to the Company or a Significant Subsidiary; (vii) any judgment or
decree for the payment of money in excess of $10.0 million is rendered against
the Company or a Significant Subsidiary, remains outstanding for a period of 60
days following such judgment or decree and is not discharged, waived or stayed
within 10 days after notice or (viii) a Subsidiary Guaranty ceases to be in full
force and effect (other than in accordance with the terms of such Subsidiary
Guaranty) or a Subsidiary Guarantor denies or disaffirms its obligations under
its Subsidiary Guaranty if such default continues for a period of 10 days after
notice thereof to the Company. If an Event of Default occurs and is continuing,
the Trustee or the Holders of at least 25% in principal amount of the
outstanding Securities may declare the principal of and
<PAGE>
11
accrued but unpaid interest on all the Securities to be due and payable
immediately. Certain events of bankruptcy, insolvency or reorganization are
Events of Default which will result in the Securities being due and payable
immediately upon the occurrence of such Events of Default. A default under
clauses (iii) (except for the covenants referred to in the preceding
sentence), (iv), (vii) or (viii) will not constitute an Event of Default
until the Trustee or the Holders of 25% in principal amount of the
outstanding Securities notifies the Company of the default and the Company
does not cure such default within the time specified after receipt of such
notice.
Securityholders may not enforce the Indenture or the Securities except
as provided in the Indenture. The Trustee may refuse to enforce the Indenture
or the Securities unless it receives reasonable indemnity or security. Subject
to certain limitations, Holders of a majority in principal amount of the
Securities may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Securityholders notice of any continuing Default
(except a Default in payment of principal or interest) if it determines that
withholding notice is in the interest of the Holders.
15. TRUSTEE DEALINGS WITH THE COMPANY
Subject to certain limitations imposed by the Act, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or its Affiliates and may otherwise deal with the Company
or its Affiliates with the same rights it would have if it were not Trustee.
16. NO RECOURSE AGAINST OTHERS
A director, officer, employee or stockholder, as such, of the Company
or the Trustee shall not have any liability for any obligations of the Company
under the Securities or the Indenture or for any claim based on, in respect of
or by reason of such obligations or their creation. By accepting a Security,
each Securityholder waives and releases all such liability. The waiver and
release are part of the consideration for the issue of the Securities.
<PAGE>
12
17. AUTHENTICATION
This Security shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
18. ABBREVIATIONS
Customary abbreviations may be used in the name of a Securityholder or
an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
19. CUSIP NUMBERS
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
20. HOLDERS' COMPLIANCE WITH REGISTRATION AGREEMENT
Each Holder of a Security, by acceptance hereof, acknowledges and
agrees to the provisions of the Registration Agreement, including, without
limitation, the obligations of the Holders with respect to a registration and
the indemnification of the Company to the extent provided therein.
21. GOVERNING LAW
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
<PAGE>
13
The Company will furnish to any Securityholder upon written request
and without charge to the Securityholder a copy of the Indenture. Requests may
be made to:
Kelley Oil & Gas Corporation
601 Jefferson, Suite 1100
Houston, Texas 77002
Attention of Manager, Investor Relations
<PAGE>
14
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this
Security on the books of the Company. The agent may substitute another to act
for him.
____________________________________________________________
Date: ________________ Your Signature: _____________________
____________________________________________________________
Sign exactly as your name appears on the other side of this Security.
Signature Guarantee: _______________________________________________________
(Signature must be guaranteed by an "eligible guarantor
institution", that is, a bank, stockbroker, saving and
loan association or credit union meeting the
requirements of the Registrar, which requirements
include membership or participation in the Securities
Transfer Agents Medallion Program ("STAMP") or such
other "signature guarantee program" as may be
determined by the Registrar in addition to, or in
substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.)
<PAGE>
15
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER RESTRICTED SECURITIES
In connection with any transfer of any of the Securities evidenced by
this certificate occurring prior to the expiration of the period referred to in
Rule 144(k) under the Securities Act after the later of the date of original
issuance of such Securities and the last date, if any, on which such Securities
were owned by the Company or any Affiliate of the Company, the undersigned
confirms that such Securities are being transferred in accordance with its
terms:
CHECK ONE BOX BELOW:
(1) / / to the Company or any of its Subsidiaries; or
(2) / / pursuant to an effective registration statement under the
Securities Act of 1933; or
(3) / / inside the United States to a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act of 1933) that
purchases for its own account or for the account of a qualified
institutional buyer to whom notice is given that such transfer is
being made in reliance on Rule 144A, in each case pursuant to and
in compliance with Rule 144A under the Securities Act of 1933; or
(4) / / inside the United States to an institutional "accredited
investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of
Regulation D under the Securities Act of 1933) that, prior to
such transfer, furnishes to the Trustee a signed letter
containing certain representations and agreements (the form of
which letter can be obtained from the Trustee) and, if such
transfer is in respect of an aggregate principal amount of
Securities at the time of transfer of less than $250,000, an
opinion of counsel acceptable to the Company that such transfer
is in compliance with the Securities Act of 1933; or
<PAGE>
16
(5) / / outside the United States in an offshore transaction within the
meaning of Regulation S under the Securities Act in compliance
with Rule 904 under the Securities Act of 1933; or
(6) / / pursuant to another available exemption from registration
provided by Rule 144 under the Securities Act of 1933.
Unless one of the boxes is checked, the Trustee will refuse to register any
of the Securities evidenced by this certificate in the name of any person
other than the registered holder thereof; PROVIDED, HOWEVER, that if box
(4) or (5) is checked, the Trustee may require, prior to registering any
such transfer of the Securities, such legal opinions, certifications and
other information as the Company has reasonably requested to confirm that
such transfer is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities
Act of 1933, such as the exemption provided by Rule 144 under such Act.
------------------------------------
Signature
Signature Guarantee: -------------------------------------------------------
(Signature must be guaranteed by an "eligible guarantor
institution", that is, a bank, stockbroker, saving and
loan association or credit union meeting the
requirements of the Registrar, which requirements
include membership or participation in the Securities
Transfer Agents Medallion Program ("STAMP") or such
other "signature guarantee program" as may be
determined by the Registrar in addition to, or in
substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.)
<PAGE>
17
[TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED]
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, and is aware that the sale to it is being made in reliance on Rule 144A
and acknowledges that it has received such information regarding the Company as
the undersigned has requested pursuant to Rule 144A or has determined not to
request such information and that it is aware that the transferor is relying
upon the undersigned's foregoing representations in order to claim the exemption
from registration provided by Rule 144A.
Dated:
------------------- -----------------------------------------------
NOTICE: To be executed by
an executive officer
<PAGE>
18
OPTION OF HOLDER TO ELECT PURCHASE
If you elect to have this Security purchased by the Company pursuant
to Section 4.06 or 4.08 of the Indenture, check the box:
/ /
If you elect to have only part of this Security purchased by the
Company pursuant to Section 4.06 or 4.08 of the Indenture, check the box and
state the amount in principal amount at maturity:
/ / $
---------------------------
Date: Your Signature:
----------------- -------------------------
(Sign exactly as your name appears on
the other side of this Security.)
Signature Guarantee:
-------------------------------------------------------
(Signature must be guaranteed by an "eligible guarantor
institution", that is, a bank, stockbroker, saving and
loan association or credit union meeting the
requirements of the Registrar, which requirements
include membership or participation in the Securities
Transfer Agents Medallion Program ("STAMP") or such
other "signature guarantee program" as may be
determined by the Registrar in addition to, or in
substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.)
<PAGE>
19
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The following increases or decreases in this Global Security have been
made:
<TABLE>
<S> <C>
Principal Amount
Amount of decrease Amount of increase at Maturity of Signature of
in Principal in Principal this Global authorized officer
Amount at Maturity Amount at Security following of Trustee or
of this Global Maturity of this such decrease or Securities
Date of Exchange Security Global Security increase Custodian
- ---------------- ---------------- ---------------- ---------------- ----------------
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
KELLEY OIL & GAS CORPORATION,
COMPANY
VARIOUS SUBSIDIARIES,
GUARANTORS
AND
THE CHASE MANHATTAN BANK,
TRUSTEE
------------------------------
FIRST SUPPLEMENT TO
INDENTURE
DATED AS OF OCTOBER 28, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
13 1/2% SENIOR NOTES DUE 1999
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1
INCORPORATION OF INDENTURE; DEFINITIONS. . . . . . . . . . 2
1.1 INCORPORATION OF INDENTURE. . . . . . . . . . . . . . 2
1.2 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 2
AMENDING AND MODIFYING PROVISIONS. . . . . . . . . . . . . 2
2.1 EFFECTIVENESS OF AMENDMENTS TO THE INDENTURE. . . . . 2
2.2 AMENDMENTS TO DEFINITIONS . . . . . . . . . . . . . . 2
2.3 AMENDMENTS AND MODIFICATIONS TO ARTICLE 4 . . . . . . 6
2.4 AMENDMENTS AND MODIFICATIONS TO ARTICLE SIX . . . . . 7
2.5 AMENDMENTS TO CERTAIN CROSS-REFERENCES. . . . . . . . 8
2.6 AMENDMENTS TO EXHIBIT A: FORM OF SECURITY. . . . . . 9
ARTICLE 3
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . 10
3.1 FULL FORCE AND EFFECT . . . . . . . . . . . . . . . . 10
3.2 MULTIPLE COUNTERPARTS . . . . . . . . . . . . . . . . 10
3.3 HEADINGS FOR CONVENIENCE ONLY . . . . . . . . . . . . 10
3.4 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . 10
3.5 The Trustee . . . . . . . . . . . . . . . . . . . . . 10
EXHIBIT A Form of Security . . . . . . . . . . . . . . . . A-1
-i-
<PAGE>
FIRST SUPPLEMENT TO INDENTURE
This First Supplement to Indenture (this "First Supplement") is dated and,
subject to the terms hereof, effective as of October 28, 1996, and is by and
between KELLEY OIL & GAS CORPORATION, a Delaware corporation (hereinafter
referred to as the "Corporation", which term includes any successor corporation
permitted under the Indenture), the GUARANTORS listed as signatories hereto and
THE CHASE MANHATTAN BANK, a New York banking corporation (formerly known as
Chemical Bank) ("Chase"), as trustee (in such capacity, and together with any
successor to the trust granted under the Indenture, herein referred to as the
"Trustee").
W I T N E S S E T H:
WHEREAS, the Company and the Guarantors have heretofore entered into an
Indenture dated as of June 15, 1995, with the Trustee (hereinafter called the
"Indenture"), under which there was issued $100,000,000 principal amount of the
Company's 13 % Senior Notes Due 1999 (hereinafter called the "Notes");
WHEREAS, Notes in the aggregate principal amount of $100,000,000 are
outstanding as of the date of execution hereof;
WHEREAS, the Company, pursuant to an Offer to Purchase and Consent
Solicitation dated September 24, 1996, as amended (the "Offer/Solicitation"),
offered to purchase for cash (the "Tender Offer"), upon the terms and subject to
the conditions set forth in the Offer/Solicitation, any and all of the Notes at
a cash price equal to $1,110 per $1,000 principal amount, plus accrued and
unpaid interest through the payment date (the "Tender Offer Consideration"), and
solicited consents from Holders of the Notes to certain proposed amendments (the
"Proposed Amendments") to the Indenture and offered to pay to each Holder of
Notes validly consenting to the Proposed Amendments prior to 5:00 p.m., New York
City time on October 9, 1996, $30 for each $1,000 principal amount of Notes so
validly consenting (the "Consent Payments");
WHEREAS, it is the desire of the Company and the Holders of not less than a
majority in aggregate principal amount of the Notes to make certain changes in
the provisions of the Indenture by amending the Indenture to reflect the
Proposed Amendments, which changes have been approved by a resolution of the
respective board of directors of the Company and of Kelley Oil Corporation and
by the written consent, filed with the Trustee, of the Holders of not less than
a majority in aggregate principal amount of the Notes outstanding;
WHEREAS, there has been filed with the Trustee the certificate and opinion
of counsel required by section 9.05 of the Indenture; and
WHEREAS, all the requirements of law and the by-laws and Certificates of
Incorporation of the Company have been fully complied with and all other acts
and things necessary to make this Supplemental Indenture a valid, binding and
legal instrument for the benefit of the Holders of the Notes have been done and
performed;
<PAGE>
NOW, THEREFORE, in consideration of the premises herein contained, and for
other valuable considerations, the receipt and sufficiency of which are hereby
acknowledged, the Corporation, the Guarantors and the Trustee have joined in the
execution and delivery of this First Supplement.
ARTICLE 1
INCORPORATION OF INDENTURE; DEFINITIONS
1.1 INCORPORATION OF INDENTURE. This First Supplement constitutes a
supplement to the Indenture, and the Indenture and this First Supplement
shall be read together and shall have effect so far as practicable as though
all of the provisions thereof and hereof are contained in one instrument.
1.2 DEFINITIONS. All capitalized terms used herein and not otherwise
defined herein shall have the respective meanings assigned to such terms in the
Indenture.
ARTICLE 2
AMENDING AND MODIFYING PROVISIONS
2.1 EFFECTIVENESS OF AMENDMENTS TO THE INDENTURE. Notwithstanding anything
contained herein to the contrary, the amendments and modifications to the
Indenture contained in Sections 2.2, 2.3 and 2.4 hereof shall not become
operative until the delivery to the Trustee of an Officer's Certificate of the
Company certifying as to the Company's payment of, or deposit with the
Depositary under the Offer/Solicitation of an amount of money sufficient to pay,
the Tender Offer Consideration and the Consent Payments.
2.2 AMENDMENTS TO DEFINITIONS. (a) Section 1.01 of the Indenture is
amended by deleting in their entirety the following definitions: "Attributable
Indebtedness", "Change of Control", "Dollar Equivalent", "ESOP Preferred Stock",
"Net Cash Proceeds", "Oil and Gas Liens", "Permitted Convertible Exchangeable
Preferred Stock Dividends" and "Senior Indebtedness"
(b) The definitions of each of "Bank Credit Facilities", "Capital Lease
Obligation", "Lien", "Permitted Indebtedness" and "Permitted Investment"
contained in Section 1.01 of the Indenture are amended and restated in their
entirety to read as follows:
" "BANK CREDIT FACILITIES" means, with respect to any Person, one
or more revolving or term debt facilities or commercial paper
facilities with banks or other institutional lenders, whether or not
in effect on the date of this Indenture, providing for revolving
credit loans, term loans, receivables financing (including through the
sale of receivables to the lenders or to special purpose entities
-2-
<PAGE>
formed to borrow from the lenders against those receivables) or
letters of credit."
" "CAPITAL LEASE OBLIGATION" of any Person means the obligation to
pay rent or other payment amounts under a lease of (or other
arrangement conveying the right to use) real or personal property that
is required to be classified and accounted for as a capitalized lease
or a liability on the face of a balance sheet of such Person in
accordance with GAAP, to the extent required pursuant to GAAP."
" "LIEN" means, with respect to any Property, any mortgage or deed
of trust, pledge, hypothecation, assignment, deposit arrangement,
security interest, lien (statutory or other), charge, easement,
encumbrance, preference, priority or other security or similar
agreement or preferential arrangement of any kind or nature whatsoever
on or with respect to such Property (including, without limitation,
any conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing)."
" "PERMITTED INDEBTEDNESS" means any and all of the following:
(a) Indebtedness Incurred if, after giving pro forma effect to the
Incurrence of such Indebtedness and the receipt and application of the
proceeds thereof, (i) the Consolidated Interest Coverage Ratio would
not be less than 2.5 to 1.0 and (ii) the ratio of CNTA to Indebtedness
would not be less than 1.50 to 1.00; (b) Indebtedness under Bank
Credit Facilities but only to the extent that the aggregate principal
amount thereof equals or is less than the greater of (i) $30 million
and (ii) 12.5% of CNTA; (c) Capital Expenditure Indebtedness but only
to the extent that (A) commencing January 1, 1996, such Capital
Expenditure Indebtedness is Incurred during a calendar year in which
the aggregate amount of estimated proved reserves of the Company and
its Subsidiaries as reflected in the most recent reserve report dated
not earlier than December 31 of the immediately preceding calendar
year, together with the aggregate amount of estimated proved reserves
of the Company and its Subsidiaries that were the subject of one or
more Asset Sales after the date of this Indenture (in each case,
determined on the basis of audited reserve reports), exceeds the
aggregate amount of estimated proved reserves of the Company and its
Subsidiaries as of January 1, 1995, and (B) the aggregate principal
amount of all Capital Expenditure Indebtedness incurred under this
clause (c) during 1995 or any calendar year thereafter does not exceed
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<PAGE>
$5 million plus, with respect to calendar years subsequent to 1995,
the aggregate amount of all Capital Expenditure Indebtedness that
would have constituted Capital Expenditure Indebtedness permitted
under this clause (c) during any prior calendar year beginning in 1995
but that was not Incurred during such prior calendar year or any
subsequent calendar year preceding the calendar year in which the
determination is being made; (d) Indebtedness outstanding on the date
of this Indenture; (e) Indebtedness of (i) the Company evidenced by
the Securities and (ii) the Guarantors evidenced by the Subsidiary
Guarantees; (f) Indebtedness in connection with one or more standby
letters of credit, Guarantees or performance bonds issued in the
ordinary course of business and not in connection with the borrowing
of money or the obtaining of advances or credit (other than advances
or credit on open account, includable in current liabilities, for
goods and services in the ordinary course of business and on terms and
conditions which are customary in the Oil and Gas Business and other
than the extension of credit represented by such letter of credit,
Guarantee or performance bond itself), PROVIDED that the aggregate
face amount of all such standby letters of credit and performance
bonds, together with the aggregate principal amount of all
Indebtedness covered by such Guarantees, at any time outstanding shall
not exceed $2.5 million; (g) Indebtedness under (i) Interest Rate
Protection Agreements, PROVIDED that the obligations under such
agreements are related to payment obligations on Indebtedness
otherwise permitted by the terms of this covenant, and (ii) Oil and
Gas Purchase and Sales Contracts; (h) Indebtedness of the Company owed
to any of its Wholly Owned Subsidiaries and Indebtedness of any
Subsidiary of the Company owed to the Company or a Wholly Owned
Subsidiary of the Company; (i) Indebtedness Incurred in exchange for,
or the proceeds of which are used to refinance, Indebtedness referred
to in the immediately preceding clauses (a) through (h) or
Indebtedness previously Incurred pursuant to this clause (i), PROVIDED
that the Indebtedness so Incurred (i) is in an aggregate principal
amount not in excess of the aggregate principal amount then
outstanding of the Indebtedness being exchanged or refinanced (or, if
such Indebtedness being refinanced provides for an amount less than
the principal amount thereof to be due and payable upon a declaration
of acceleration thereof, such lesser amount as of the date of
determination), plus the amount of expenses reasonably incurred by the
Company in connection with such refinancing, (ii) has a Stated
Maturity no earlier than the
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<PAGE>
Stated Maturity of the Indebtedness being exchanged or refinanced,
(iii) has an Average Life at the time it is Incurred that is equal
to or greater than the Average Life of the Indebtedness being
exchanged or refinanced and (iv) is subordinated in right of
payment to the Securities to at least the same extent, if any, as
the Indebtedness being exchanged or refinanced; and (j) accounts
payable or other obligations of the Company or any of its
Subsidiaries to trade creditors created or assumed by such Persons
in the ordinary course of business in connection with the
obtaining of goods or services. The Company may Incur
Indebtedness under a single debt facility or instrument in
reliance on two or more clauses within the definition of Permitted
Indebtedness."
" "PERMITTED INVESTMENT" means (a) Permitted Short-Term
Investments, (b) Investments in property, plant, equipment and
other assets used in the ordinary course of the Oil and Gas
Business and Permitted Business Investments, (c) negotiable
instruments held for collection, outstanding travel, moving and
other like advances to officers, employees and consultants, lease,
utility and other similar deposits, or stock, obligations or
securities received in settlement of debts owing to the Company as
a result of the foreclosure, perfection or enforcement of any Lien
or Indebtedness, in each of the forgoing cases in the ordinary
course of business of the Company, (d) the acquisition of Capital
Stock and Redeemable Stock of either of the Programs from the
holders thereof (other than the Company or any of its
Subsidiaries), (e) Investments in the form of securities received
from Asset Sales, (f) Incurring or advancing Permitted
Indebtedness and (g) Investments by the Company in the form of one
or more promissory notes issued to the Company by the Plan for the
purpose of financing purchases of common Capital Stock of the
Company otherwise issued in accordance with the terms of this
Indenture, PROVIDED that the aggregate outstanding principal
amount of all such promissory notes may not at any time exceed
$7.5 million."
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<PAGE>
(c) Section 1.02 of the Indenture is amended and restated in its
entirety to read as follows:
"SECTION 1.02. OTHER DEFINITIONS.
Defined
in
Term Section
- ---- -------
"Bankruptcy Law" . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01
"covenant defeasance option" . . . . . . . . . . . . . . . . . . . . . 8.01(b)
"Custodian". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01
"DTC". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.03
"Event of Default" . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01
"legal defeasance option". . . . . . . . . . . . . . . . . . . . . . . 8.01(b)
"Paying Agent" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.03
"Registrar". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.03
"Surviving Entity" . . . . . . . . . . . . . . . . . . . . . . . . . . 5.01"
2.3 AMENDMENTS AND MODIFICATIONS TO ARTICLE 4. Article 4 of the
Indenture is amended and restated in its entirety to read as follows:
"ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF SECURITIES. The Company shall promptly pay
the principal of and interest on the Securities on the dates and in the
manner provided in the Securities and in this Indenture. Principal and
interest shall be considered paid on the date due if on such date the
Trustee or the Paying Agent holds in accordance with this Indenture money
sufficient to pay all principal and interest then due and the Trustee or
the Paying Agent, as the case may be, is not prohibited from paying such
money to the Securityholders on that date pursuant to the terms of this
Indenture.
The Company shall pay interest on overdue principal at the rate
specified therefor in the Securities, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
SECTION 4.02. SEC REPORTS. The Company shall file with the Trustee
and provide Securityholders, within 30 days after it files them with the
SEC, copies of its annual report and the information, documents and other
reports which the Company is required to file with the SEC pursuant to
Section 13 or 15(d) of the Exchange Act. Notwithstanding that the Company
may not be required to remain subject to the reporting requirements of
Section 13 or 15(d) of the
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<PAGE>
Exchange Act, the Company shall continue to file with the SEC and provide
the Trustee and Securityholders with the annual reports and the information,
documents and other reports which are specified in Sections 13 and 15(d)
of the Exchange Act. The Company also shall comply with the other
provisions of TIA Section 314(a).
SECTION 4.03. COMPLIANCE CERTIFICATE. The Company shall deliver to
the Trustee within 120 days after the end of each fiscal year of the
Company an Officers' Certificate stating that in the course of the
performance by the signers of their duties as Officers of the Company they
would normally have knowledge of any Default and whether or not the signers
know of any Default that occurred during such period. If they do, the
certificate shall describe the Default, its status and what action the
Company is taking or proposes to take with respect thereto. The Company
also shall comply with TIA Section 314(a)(4).
SECTION 4.04. FURTHER INSTRUMENTS AND ACTS. Upon request of the
Trustee, the Company will execute and deliver such further instruments and
do such further acts as may be reasonably necessary or proper to carry out
more effectively the purpose of this Indenture.
SECTION 4.05. LIMITATION ON CONDUCT OF BUSINESS. The Company and its
Subsidiaries will be operated in a manner such that their business
activities will be the Oil and Gas Business."
2.4 AMENDMENTS AND MODIFICATIONS TO ARTICLE SIX. Section 6.01 of the
Indenture is amended and restated in its entirety to read as follows:
"SECTION 6.01. EVENTS OF DEFAULT. An "Event of Default" occurs if:
(a) the Company fails to make any payment of interest on any
Security when the same becomes due and payable and such failure
continues for a period of 30 days;
(b) the Company (i) fails to make any payment of the principal
of (or premium, if any, on) any Security when the same becomes due and
payable at its Stated Maturity, upon redemption, upon declaration or
otherwise, or (ii) fails to redeem Securities when required pursuant
to this Indenture or the Securities;
(c) the Company or any of its Subsidiaries pursuant to or within
the meaning of any Bankruptcy Law:
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<PAGE>
(i) commences a voluntary case;
(ii) consents to the entry of an order for relief against it
in an involuntary case;
(iii) consents to the appointment of a Custodian of it or
for any substantial part of its property; or
(iv) makes a general assignment for the benefit of its
creditors;
or takes any comparable action under any foreign laws relating to
insolvency; or
(d) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(i) is for relief against the Company or any of its
Subsidiaries in an involuntary case;
(ii) appoints a Custodian of the Company or any of its
Subsidiaries or for any substantial part of its property; or
(iii) orders the winding up or liquidation of the Company or
any Guarantor;
or any similar relief is granted under any foreign laws and the order or
decree remains unstayed and in effect for 60 days.
The foregoing will constitute Events of Default whatever the reason
for any such Event of Default and whether it is voluntary or involuntary or
is effected by operation of law or pursuant to any judgment, decree or
order of any court or any order, rule or regulation of any administrative
or governmental body.
The term "Bankruptcy Law" means Title 11, UNITED STATES CODE, or any
similar Federal or state law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator, custodian or
similar official under any Bankruptcy Law."
2.5 AMENDMENTS TO CERTAIN CROSS-REFERENCES. (a) All cross-references
contained in the Indenture to Section 6.01(f) are hereby amended so that such
cross-references are to Section 6.01(c).
(b) All cross-references contained in the Indenture to Section 6.01(g) are
hereby amended so that such cross-references are to Section 6.01(d).
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<PAGE>
(c) Section 8.01(b) of the Indenture is hereby amended and restated in its
entirety to read as follows:
" (b) Subject to Sections 8.01(c), 8.02 and 8.06, the Company at
any time may terminate (i) all its obligations under the Securities
and this Indenture ("legal defeasance option") or (ii) its obligations
under Sections 4.04 and 4.05 and clauses (c) and (d) of Section 5.01
("covenant defeasance option"). The Company may exercise its legal
defeasance option notwithstanding its prior exercise of its covenant
defeasance option.
Subject to Section 8.06, if the Company exercises its legal
defeasance option, payment of the Securities may not be accelerated
because of an Event of Default. Subject to Section 8.06, if the
Company exercises its covenant defeasance option, payment of the
Securities may not be accelerated because of an Event of Default
specified in Sections 6.01(c) or 6.01(d) (except to the extent
covenants or agreements referenced in such Sections remain
applicable).
Upon satisfaction of the conditions set forth herein and upon
request of the Company, the Trustee shall acknowledge in writing the
discharge of those obligations that the Company terminates."
(d) Section 10.02(b) is hereby amended and restated in its entirety to
read as follows:
" (b) In the event of a sale or other disposition of all or
substantially all of the assets of any Guarantor, by way of merger,
consolidation or otherwise, or a sale or other disposition of all of
the Capital Stock of such Guarantor, then such Guarantor (in the event
of a sale or other disposition, by way of such a merger, consolidation
or otherwise, of all of the Capital Stock of such Guarantor) or the
Person acquiring the property (in the event of a sale or other
disposition of all or substantially all of the assets of such
Guarantor) will be released and relieved of any obligations under its
Subsidiary Guarantees."
2.6 AMENDMENTS TO EXHIBIT A: FORM OF SECURITY. Exhibit A to the
Indenture, containing the Form of Security is hereby amended and restated in its
entirety as set forth on EXHIBIT A hereto.
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<PAGE>
ARTICLE 3
MISCELLANEOUS
3.1 FULL FORCE AND EFFECT. The Indenture, as supplemented by this First
Supplement, remains in full force and effect and is hereby ratified and
confirmed as the valid and binding obligation of the parties hereto. Except as
expressly modified herein, all terms, provisions and conditions of the Indenture
will remain unchanged and are and shall remain in full force and effect for the
full term thereof, and this First Supplement shall be interpreted with the
Indenture as one and the same instrument.
3.2 MULTIPLE COUNTERPARTS. This First Supplement may be executed in
multiple counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument.
3.3 HEADINGS FOR CONVENIENCE ONLY. The headings of the Sections of this
First Supplement are used for convenience of reference only and shall not be
deemed to affect the meaning or construction of any of the provisions hereof.
3.4 GOVERNING LAW. This First Supplement shall be governed by, and
construed in accordance with, the laws of the State of New York but without
giving effect to the applicable principles of conflicts of law to the extent
that the application of laws of another jurisdiction would be required thereby.
3.5 THE TRUSTEE. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this First
Supplement or for or in respect of the recitals contained herein, all of which
recitals are made solely by the Company and the Guarantors.
(SIGNATURES ON FOLLOWING PAGE)
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Supplement to
be executed and delivered effective as of the date first mentioned hereinabove.
KELLEY OIL & GAS CORPORATION
By /s/ WILLIAM C. RANKIN
-----------------------------
Name: William C. Rankin
--------------------------
Title: Senior Vice President
-------------------------
THE CHASE MANHATTAN BANK, as
Trustee
By /s/ ANDREW M. DECK
-----------------------------
Authorizing Signatory
GUARANTORS:
KELLEY OPERATING COMPANY, LTD.
By: Kelley Oil Corporation
Managing General Partner
By /s/ WILLIAM C. RANKIN
-----------------------------
Name: William C. Rankin
--------------------------
Title: Senior Vice President
-------------------------
KELLEY OIL CORPORATION
By /s/ WILLIAM C. RANKIN
--------------------------
Name: William C. Rankin
-----------------------
Title: Senior Vice President
----------------------
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<PAGE>
EXHIBIT A
[FORM OF FACE OF SECURITY]
Unless this certificate is presented by an authorized representative of
The Depository Trust Company (55 Water Street, New York, New York) ("DTC"),
to the issuer or its agent for registration of transfer, exchange or payment,
and any certificate issued is registered in the name of Cede & Co. or such
other name as may be requested by an authorized representative of DTC (and
any payment is made to Cede & Co. or such other entity as may be 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.(1)
CUSIP NO. 487906 AA 7
No. $
13 1/2% Senior Notes Due 1999
Kelley Oil & Gas Corporation, a Delaware corporation, promises to pay to
, or registered assigns, the principal sum of
Dollars on June 15, 1999.
Interest Payment Dates: June 15 and December 15.
Record Dates: June 1 and December 1.
Additional provisions of this Security are set forth on the other side of
this Security.
Dated:
------------------------
KELLEY OIL & GAS CORPORATION
By
-----------------------------
President
--------------------------------
Secretary
- ---------------------------
(1) This paragraph should be included only if the Security is issued
in global form.
A-1
<PAGE>
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
THE CHASE MANHATTAN BANK,
as Trustee, certifies that this
is one of the Securities referred
to in the Indenture.
By
-----------------------------
Authorized Officer
A-2
<PAGE>
[FORM OF REVERSE SIDE OF SECURITY]
13 1/2% Senior Notes Due 1999
1. INTEREST
Kelley Oil & Gas Corporation, a Delaware corporation (such corporation,
and its successors and assigns under the Indenture hereinafter referred to,
being herein called the "Company"), promises to pay interest on the principal
amount of this Security at the rate per annum shown above. The Company will
pay interest semiannually on June 15 and December 15 of each year. Interest
on the Securities will accrue from the most recent date to which interest has
been paid or, if no interest has been paid, from June 19, 1995. Interest
will be computed on the basis of a 360-day year of twelve 30-day months. The
Company shall pay interest on overdue principal at the rate borne by the
Securities, and it shall pay interest on overdue installments of interest at
the same rate to the extent lawful.
2. METHOD OF PAYMENT
The Company will pay interest on the Securities (except defaulted
interest) to the Persons who are registered holders of Securities at the
close of business on the June 1 or December 1 next preceding the interest
payment date even if Securities are canceled after the record date and on or
before the interest payment date. Holders must surrender Securities to a
Paying Agent to collect principal payments. The Company will pay principal
and interest in money of the United States of America that at the time of
payment is legal tender for payment of public and private debts. However,
the Company may pay principal and interest by check payable in such money.
It may mail an interest check to a Holder's registered address.
3. PAYING AGENT AND REGISTRAR
Initially, the Trustee will act as Paying Agent and Registrar. The
Company may appoint and change any Paying Agent or Registrar without notice.
The Company or any of its domestically incorporated Wholly Owned Subsidiaries
may act as Paying Agent or Registrar.
4. INDENTURE
The Company issued the Securities under an Indenture dated as of June
15, 1995, as amended by the First Supplement thereto dated October 28, 1996
(the "Indenture"), among the Company, the Guarantors and the Trustee. The
terms of the Securities include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (15
U.S.C. Sections 77aaa-77bbbb) as in effect on the date of the Indenture (the
"Act"). Terms defined in the Indenture and not defined herein have the
meanings ascribed thereto in the Indenture. The Securities are subject to
all such terms, and Securityholders are referred to the Indenture and the Act
for a statement of those terms.
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<PAGE>
The Securities are general unsecured obligations of the Company limited
to $100,000,000 aggregate principal amount (subject to Section 2.07 of the
Indenture).
5. OPTIONAL REDEMPTION
In the event the Company consummates one or more Equity Offerings before
June 15, 1997, the Company may, at its option, prior to June 15, 1997, redeem
up to $25 million of the aggregate principal amount of the Securities with
all or a portion of the aggregate net proceeds to the Company from such
Equity Offerings at a redemption price of 112% of the aggregate principal
amount of the Securities so redeemed, plus accrued and unpaid interest due
thereon to the date of redemption; PROVIDED, HOWEVER, that following any such
redemption, at least $75 million in aggregate principal amount of the
Securities remains outstanding.
6. NOTICE OF REDEMPTION
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each Holder of Securities to be
redeemed at his registered address. Securities in denominations larger than
$1,000 may be redeemed in part but only in whole multiples of $1,000. If
money sufficient to pay the redemption price of and accrued interest on all
Securities (or portions thereof) to be redeemed on the redemption date is
deposited with the Paying Agent on or before the redemption date and certain
other conditions are satisfied, on and after such date interest ceases to
accrue on such Securities (or such portions thereof) called for redemption.
7. RANKING AND GUARANTEES.
The Securities are general senior unsecured obligations of the Company.
The Company's obligation to pay principal, premium, if any, and interest with
respect to the Securities is unconditionally guaranteed on a senior basis,
jointly and severally, by the Guarantors pursuant to Article 10 of the
Indenture. Certain limitations to the obligations of the Guarantors are set
forth in further detail in the Indenture.
8. DENOMINATIONS; TRANSFER; EXCHANGE
The Securities are in registered form without coupons in denominations
of $1,000 and whole multiples of $1,000. A Holder may register the transfer
of or exchange Securities in accordance with the Indenture. The Registrar
may require a Holder, among other things, to furnish appropriate endorsements
or transfer documents and to pay any taxes and fees required by law or
permitted by the Indenture. The Registrar need not register the transfer of
or exchange any Securities selected for redemption (except, in the case of a
Security to be redeemed in part, the portion of the Security not to be
redeemed) or any Securities for a period of 15 days before a selection of
Securities to be redeemed or 15 days before an interest payment date.
A-4
<PAGE>
9. PERSONS DEEMED OWNERS
The registered Holder of this Security may be treated as the owner of it
for all purposes.
10. UNCLAIMED MONEY
If money for the payment of principal or interest remains unclaimed for
two years, the Trustee or Paying Agent shall pay the money back to the
Company at its request unless an abandoned property law designates another
Person. After any such payment, Holders entitled to the money must look only
to the Company and not to the Trustee for payment.
11. DISCHARGE AND DEFEASANCE
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Securities and the Indenture if the
Company deposits with the Trustee money or U.S. Government Obligations for
the payment of principal and interest on the Securities to redemption or
maturity, as the case may be.
12. AMENDMENT, WAIVER
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount outstanding of the
Securities and (ii) any default or noncompliance with any provision may be
waived with the written consent of the Holders of a majority in principal
amount outstanding of the Securities. Subject to certain exceptions set
forth in the Indenture, without the consent of any Securityholder, the
Company and the Trustee may amend the Indenture or the Securities to cure any
ambiguity, omission, defect or inconsistency, or to comply with Article 5 of
the Indenture, or to provide for uncertificated Securities in addition to or
in place of certificated Securities, or to add guarantees with respect to the
Securities or release any guaranty to the extent permitted in the Indenture,
or to secure the Securities, or to add additional covenants or surrender
rights and powers conferred on the Company, or to comply with any request of
the SEC in connection with qualifying the Indenture under the Act, or to make
certain changes in the subordination provisions, or to make any change that
does not adversely affect the rights of any Securityholder.
13. DEFAULTS AND REMEDIES
Under the Indenture, Events of Default include (i) default for 30 days
in payment of interest on the Securities; (ii) default in payment of
principal on the Securities at maturity, upon redemption pursuant to
paragraph 5 of the Securities, upon acceleration or otherwise, or failure by
the Company to redeem Securities when required; and (iii) certain events of
bankruptcy or insolvency with respect to the Company and any Subsidiary. If
an Event of Default occurs and is continuing, the Trustee or the Holders of
at least 25% in principal amount of
A-5
<PAGE>
the Securities may declare all the Securities to be due and payable. Certain
events of bankruptcy or insolvency are Events of Default which will result in
the Securities being due and payable immediately upon the occurrence of such
Events of Default.
Securityholders may not enforce the Indenture or the Securities except
as provided in the Indenture. The Trustee may refuse to enforce the
Indenture or the Securities unless it receives reasonable indemnity or
security. Subject to certain limitations, Holders of a majority in principal
amount of the Securities may direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Securityholders notice of any
continuing Default (except a Default in payment of principal or interest) if
it determines that withholding notice is in the interest of the Holders.
14. TRUSTEE DEALINGS WITH THE COMPANY
Subject to certain limitations imposed by the Act, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner
or pledgee of Securities and may otherwise deal with and collect obligations
owed to it by the Company or its Affiliates and may otherwise deal with the
Company or its Affiliates with the same rights it would have if it were not
Trustee.
15. NO RECOURSE AGAINST OTHERS
A director, officer, employee or stockholder, as such, of the Company, a
Guarantor or the Trustee shall not have any liability for any obligations of
the Company or the Guarantors under the Securities or the Indenture or for
any claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Securityholder waives and releases
all such liability. The waiver and release are part of the consideration for
the issue of the Securities.
16. AUTHENTICATION
This Security shall not be valid until an authorized officer of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
17. ABBREVIATIONS
Customary abbreviations may be used in the name of a Securityholder or
an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
A-6
<PAGE>
18. CUSIP NUMBERS
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers
in notices of redemption as a convenience to Securityholders. No
representation is made as to the accuracy of such numbers either as printed
on the Securities or as contained in any notice of redemption and reliance
may be placed only on the other identification numbers placed thereon.
THE COMPANY WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN REQUEST AND
WITHOUT CHARGE TO THE SECURITYHOLDER A COPY OF THE INDENTURE WHICH HAS IN IT
THE TEXT OF THIS SECURITY IN LARGER TYPE. REQUESTS MAY BE MADE TO:
Kelley Oil & Gas Corporation
601 Jefferson, Suite 1100
Houston, TX 77002
Attention of Chief Financial Officer
A-7
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this
Security on the books of the Company. The agent may substitute another to
act for him.
- -------------------------------------------------------------------------------
Date: Your Signature:
----------------- --------------------------------------
- -------------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Security.
A-8
<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE SECURITY(2)
The following exchanges of a part of this Global Security for Definitive
Securities have been made:
<TABLE>
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Principal Amount
Amount of decrease Amount of increase of this Global Signature of
in Principal in Principal Security following authorized officer of
Amount of this Amount of this such decrease Trustee or Security
Date of Exchange Global Security Global Security (or increase) Custodian
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------------------
(2) This should be included only if the Security is issued in global form.
A-9
<PAGE>
EXHIBIT A-1
FORM OF NOTATION ON SECURITY
RELATING TO GUARANTEE
The Guarantors (as defined in the Indenture), jointly and severally,
have unconditionally guaranteed the due and punctual payment of the principal
of, premium, if any, and interest on the Securities, and all other amounts
due and payable under the Indenture and the Securities by the Company,
whether at maturity, acceleration, redemption, repurchase or otherwise,
including, without limitation, the due and punctual payment of interest on
the overdue principal of, premium, if any, and interest on the Securities, to
the extent lawful.
The obligations of the Guarantors pursuant to the Subsidiary Guarantee
are subject to the terms and limitations set forth in Article 10 of the
Indenture, and reference is made thereto for the precise terms of the
Subsidiary Guarantee.
[NAME OF EACH GUARANTOR]
By:
----------------------------
Name:
---------------------------
Title:
-------------------------
A-10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,531
<SECURITIES> 0
<RECEIVABLES> 18,620
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 22,845
<PP&E> 349,590
<DEPRECIATION> 194,088
<TOTAL-ASSETS> 179,421
<CURRENT-LIABILITIES> 39,907
<BONDS> 153,349
0
2,618
<COMMON> 983
<OTHER-SE> (17,436)
<TOTAL-LIABILITY-AND-EQUITY> 179,421
<SALES> 41,279
<TOTAL-REVENUES> 42,217
<CGS> 0
<TOTAL-COSTS> 11,854
<OTHER-EXPENSES> 24,243
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,376
<INCOME-PRETAX> (12,256)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,256)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>
