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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST , 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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OCEAN ENERGY, INC.
ISSUER
OCEAN ENERGY, INC.
AS GUARANTOR
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
1311 72-127752
DELAWARE 1311 72-1210660
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
ROBERT K. REEVES
8440 JEFFERSON HIGHWAY, SUITE 420 500 DOVER BLVD., SUITE 300
BATON ROUGE, LOUISIANA 70809 LAFAYETTE, LOUISIANA 70503
(504) 927-1450 (318) 989-5928
(Address, including zip code and telephone (Address, including zip code and telephone
number, including area code, of registrant's number, including area code, of agent for
principal executive office) service)
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COPY TO:
JOHN F. WOMBWELL
ANDREWS & KURTH L.L.P.
4200 TEXAS COMMERCE TOWER
HOUSTON, TEXAS 77002-3090
(713) 220-4200
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable following the effectiveness of this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE(1)
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8 7/8% Senior Subordinated Notes
due 2007, Series B...................... $200,000,000 100% $200,000,000 $60,607
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(1) Estimated solely for the purpose of determining the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST , 1997
PROSPECTUS
[OCEAN ENERGY LOGO]
OFFER TO EXCHANGE
$1,000 PRINCIPAL AMOUNT OF 8 7/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B
FOR EACH $1,000 PRINCIPAL AMOUNT OF OUTSTANDING
8 7/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES A
($200,000,000 IN AGGREGATE PRINCIPAL AMOUNT OUTSTANDING)
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THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1997, UNLESS EXTENDED
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Ocean Energy, Inc., a Delaware corporation (the "Company"), formerly Flores
& Rucks, Inc., hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying Letter of Transmittal, to exchange
$1,000 principal amount of its 8 7/8% Senior Subordinated Notes Due 2007, Series
B (the "Exchange Notes"), in a transaction registered under the Securities Act
of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement
(as defined herein) of which this Prospectus constitutes a part, for each $1,000
principal amount of the outstanding 8 7/8% Senior Subordinated Notes due 2007,
Series A (the "Old Notes"), of which $200,000,000 aggregate principal amount is
outstanding (the "Exchange Offer"). The Exchange Notes and the Old Notes are
sometimes referred to herein collectively as the "Notes."
The Company will accept for exchange any and all Old Notes that are validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on the date
the Exchange Offer expires, which will be , 1997 unless the Exchange
Offer is extended (the "Expiration Date"). Tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date. The
Exchange Offer is not conditioned upon any minimum principal amount of Old Notes
being tendered for exchange. However, the Exchange Offer is subject to certain
conditions that may be waived by the Company and to the terms and provisions of
the Registration Rights Agreement (as defined herein). See "The Exchange Offer."
Old Notes may be tendered only in denominations of $1,000 and integral multiples
thereof. The Company has agreed to pay the expenses of the Exchange Offer. There
will be no cash proceeds to the Company from the Exchange Offer. See "Use of
Proceeds."
The Exchange Notes will be obligations of the Company entitled to the
benefits of the indenture relating to the Notes (the "Indenture"). The form and
terms of the Exchange Notes are identical in all material respects to the form
and terms of the Old Notes, except that (i) the offering of the Exchange Notes
has been registered under the Securities Act, (ii) the Exchange Notes will not
be subject to transfer restrictions and (iii) certain provisions relating to an
increase in the stated interest rate on the Old Notes provided for under certain
circumstances will be eliminated. Following the Exchange Offer, any holders of
Old Notes will continue to be subject to the existing restrictions on transfer
thereof and, as a general matter, the Company will not have any further
obligation to such holders to provide for registration under the Securities Act
of transfers of the Old Notes held by them. To the extent that Old Notes are
tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered and tendered but unaccepted Old Notes could be adversely affected.
See "The Exchange Offer -- Purpose and Effect of the Exchange Offer."
(continued on next page)
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SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH INVESTORS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND AN
INVESTMENT IN THE EXCHANGE NOTES OFFERED HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS , 1997.
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The Old Notes were sold by the Company on July 2, 1997, to Merrill Lynch &
Co., Bear, Stearns & Co., Inc., Chase Securities Inc. Lehman Brothers and Morgan
Stanley Dean Witter (the "Initial Purchasers") in transactions not registered
under the Securities Act in reliance upon the exemption provided in Section 4(2)
of the Securities Act (the "Offering"). The Initial Purchasers placed the Old
Notes with qualified institutional buyers (as defined in Rule 144A under the
Securities Act) ("Qualified Institutional Buyers" or "QIBs"), each of whom
agreed to comply with certain transfer restrictions and other restrictions.
Accordingly, the Old Notes may not be reoffered, resold or otherwise transferred
in the United States unless such transaction is registered under the Securities
Act or an applicable exemption from the registration requirements of the
Securities Act is available. The Exchange Notes are being offered hereby in
order to satisfy the obligations of the Company under a registration rights
agreement among the Company and the Initial Purchasers relating to the Old Notes
(the "Registration Rights Agreement").
The Exchange Notes will bear interest at a rate of 8 7/8% per annum,
payable semi-annually on January 15 and July 15 of each year, commencing January
15, 1998. Holders of Exchange Notes of record on January 1, 1998, will receive
on January 15, 1998, an interest payment in an amount equal to (x) the accrued
interest on such Exchange Notes from the date of issuance thereof to January 15,
1998, plus (y) the accrued interest on the previously held Old Notes from the
date of issuance of such Old Notes (July 2, 1997) to the date of exchange
thereof. Interest will not be paid on Old Notes that are accepted for exchange.
The Notes mature on July 15, 2007.
Old Notes were initially represented by a single, global Old Note (the "Old
Global Note") in registered form, registered in the name of Cede & Co., as
nominee for The Depository Trust Company ("DTC" or the "Depositary"), as
depositary. The Exchange Notes exchanged for Old Notes represented by the Old
Global Note will be initially represented by a single, global Exchange Note (the
"Exchange Global Note") in registered form, registered in the name of the
Depositary. See "Book-Entry; Delivery and Form." References herein to "Global
Note" shall be references to the Old Global Note and the Exchange Global Note.
Based on an interpretation of the Securities Act by the staff of the
Securities and Exchange Commission (the "SEC"), Exchange Notes issued pursuant
to the Exchange Offer in exchange for Old Notes may be offered for resale,
resold and otherwise transferred by a holder thereof (other than (i) a
broker-dealer who purchased such Old Notes directly from the Company for resale
pursuant to Rule 144A or any other available exemption under the Securities Act
or (ii) a person that is an "affiliate" (within the meaning of Rule 405 of the
Securities Act) of the Company), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that the holder
is acquiring the Exchange Notes in its ordinary course of business and is not
participating, and has no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes. Holders of Old Notes
wishing to accept the Exchange Offer must represent to the Company that such
conditions have been met.
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must agree that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Old Notes where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. The Company has agreed that, for a period of 180 days after
the Expiration Date, it will make this Prospectus available to any broker-dealer
for use in connection with any such resale. See "Plan of Distribution."
Prior to the Exchange Offer, there has been no public market for the Old
Notes or the Exchange Notes. The Company does not intend to apply for listing of
the Exchange Notes on any securities exchange or for quotation through The
Nasdaq Stock Market. There can be no assurance that an active market for the
Exchange Notes will develop. To the extent that a market for the Exchange Notes
does develop, future trading prices of the Exchange Notes will depend on many
factors, including, among other things, prevailing interest rates, and the
market for similar securities as well as the Company's results of operations and
its financial condition. See "Risk Factors."
ii
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, THE EXCHANGE NOTES IN ANY JURISDICTION
WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATIONS THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A
SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW
HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT
FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH
FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR
A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE
MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON,
SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY
PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION INCONSISTENT WITH
THE PROVISIONS OF THIS PARAGRAPH.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements and the notes thereto appearing elsewhere
in this Prospectus. Certain terms relating to the oil and gas business are
defined in the "Glossary of Certain Oil and Gas Terms" section of this
Prospectus. Unless the context indicates otherwise, references in this
Prospectus to "OEI" or the "Company" are to Ocean Energy, Inc., a Delaware
corporation, its predecessors and their respective subsidiaries. On June 17,
1997, the Company changed its name from Flores & Rucks, Inc. to Ocean Energy,
Inc. The estimates of the Company's proved reserves as of December 31, 1996 set
forth in this Prospectus are based on the report of Netherland, Sewell &
Associates, Inc. ("Netherland Sewell"). The estimates of the Company's proved
reserves as of March 31, 1997 set forth in this Prospectus were prepared by the
Company.
This Prospectus contains certain forward-looking statements with respect to
the business of the Company and the industry in which it operates. These
forward-looking statements are subject to certain risks and uncertainties which
may cause actual results to differ significantly from such forward-looking
statements. See "Disclosure Regarding Forward-Looking Statements" and "Risk
Factors."
THE COMPANY
The Company is an independent energy company engaged in the exploration,
development, acquisition and production of crude oil and natural gas with
operations focused primarily in the Eastern and Central Gulf of Mexico and on
coastal onshore Louisiana, some of the most prolific oil and gas producing
regions in the United States. As of March 31, 1997, the Company had estimated
proved reserves of approximately 59.9 MMBbls of oil and 167.4 Bcf of natural
gas, or an aggregate of approximately 87.8 MMBOE, with a Present Value of Future
Net Revenues of approximately $498.5 million and a Standardized Measure of
Discounted Future Net Cash Flows of approximately $420.0 million. On a BOE
basis, approximately 68% of the Company's proved reserves on such date were oil.
The majority of the Company's existing proved reserves are attributable to
Company operated wells or leases, and approximately 74% of these reserves were
classified as proved developed at March 31, 1997.
In order to reduce risks and lower drilling costs, the Company uses
state-of-the-art seismic evaluation technology in its exploitation and
exploration activities. The seismic evaluation technology is integrated with
subsurface data to improve the Company's ability to properly define the
structural and stratigraphic features that potentially contain accumulation of
hydrocarbons. As of May 31, 1997, the Company owned approximately 1,700 square
miles of 3-D seismic data and over 20,000 linear miles of 2-D seismic data on
and around its core properties.
The Company's operations are located primarily in three geographically
concentrated areas consisting of the Mississippi River Delta area (the "Delta
Area"), the Central Gulf of Mexico area (the "Central Gulf Area") and onshore
Louisiana. The Delta Area is located primarily in federal and state waters
offshore in the Mississippi River deltaic region and consists of interests in 10
fields and encompasses 108,557 gross (95,277 net) acres. The Delta Area contains
approximately 500 producing wells and includes three of the top 20 fields in the
Gulf of Mexico based on total historical production. The Central Gulf Area,
which contains approximately 50 producing wells, consists of interests in nine
oil and gas producing fields and related production facilities primarily
situated in the shallow federal waters of the central Gulf of Mexico, offshore
Louisiana. The Central Gulf Area encompasses 76,062 gross (50,224 net) acres.
The Louisiana onshore exploratory area (the "Onshore Exploratory Area") consists
of leasehold and seismic lease options totaling 62,143 gross (45,962 net) acres
located within the Mallard Bay and Lacassine fields in Cameron Parish,
Louisiana. The Company's fields provide significant opportunities to enhance
current production and ultimate reserve recoveries through development and
exploratory drilling, recompletions and infill and horizontal drilling.
Primarily by capitalizing on these opportunities, the Company has increased its
average daily production by 133% from 15,047 BOE for the year ended December 31,
1994 to 35,089 BOE for the three months ended March 31, 1997.
RECENT DEVELOPMENTS
Effective January 1, 1997, the Company sold all of its interest in the
South Marsh Island Block 269 field located in federal waters offshore Louisiana
for $37.2 million. This field was acquired in September 1996 as
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part of the acquisition of the Central Gulf Area and was sold primarily due to
its non-strategic nature, given it consisted solely of non-operated minority
working interests.
On March 7, 1997, the Company consummated the acquisition from Chevron USA,
Inc. of certain interests in various state leases in the Main Pass Block 69
field, offshore Plaquemines Parish, Louisiana for a gross purchase price of
$55.7 million. This acquisition consisted of interests in leases which include
interests in 27 producing wells located on 5,898 gross acres strategically
situated contiguous to the Company's existing Main Pass Block 69 holdings. Such
acquisition provides the Company with the opportunity to benefit from
operational leverage and realize economies of scale through the use of current
Delta Area personnel and facilities.
In April of 1997, the Company announced that it had entered into a
deepwater joint venture with a major integrated oil company involving 27 federal
blocks located in the deepwater area of the Gulf of Mexico. The major oil
company currently has production in the deepwater areas of the Gulf of Mexico
and brings a significant deepwater technical effort and secured rig availability
to the joint venture. Preliminary geological review has identified six distinct
plays across the 27 blocks.
STRENGTHS
The Company believes it has unique strengths that position it to continue
as a successful independent operator in the Gulf of Mexico and coastal onshore
Louisiana, including the following:
Quality of existing operations. The Company's Delta Area and Central Gulf
Area fields are among the most productive fields in the Gulf of Mexico based on
total historical production. These fields have extensive production histories
and contain significant reserve and production enhancement opportunities.
Production from these fields has been predominantly from the upper 12,000 feet
of sediment. While cumulative historical production from these horizons has
exceeded one billion BOE, the Company believes that potential may exist for
additional reserves to be found at these horizons, as well as deeper horizons.
As of May 31, 1997, the Company's properties collectively comprised over 208,600
net acres of leases and seismic options (98,876 of which are held by production)
Extensive Technological Database. The Company owns approximately 1,700
square miles of 3-D seismic data and over 20,000 linear miles of 2-D seismic
data in and around its core properties. OEI uses state-of-the-art seismic
evaluation technology in its exploitation and exploration activities in order to
reduce risks and lower costs. The seismic evaluation technology is integrated
with subsurface data from over 12,000 wells to improve the Company's ability to
properly define the structural and stratigraphic features which potentially
contain accumulations of hydrocarbons. The Company employs over 50 geoscientists
and engineers to integrate and evaluate this expansive well and seismic data
base. Management believes the availability of 3-D seismic coverage for the Gulf
of Mexico at reasonable costs enhances the potential for returns on exploration
and development activities.
Efficient operator. The Company is the operator of over 90% of its wells,
allowing it to control expenses, capital allocation and the timing of
development and exploitation of its fields. Since 1992, the Company has
decreased lease operating expenses by 26%, from $5.45 per BOE for the period
from inception (April 20, 1992) through December 31, 1992 to $4.02 per BOE for
the three months ended March 31, 1997. Prior to the Company's ownership, lease
operating expenses for the portion of the Delta Area purchased in 1993 in 1989,
1990, and 1991 were $8.15, $10.58, and $9.74, respectively, per BOE and lease
operating expenses at the portion of the Delta Area purchased in 1992 in 1989,
1990 and 1991 were $6.59, $11.33 and $8.17, respectively, per BOE.
Expertise in the Gulf of Mexico. Management believes the Company's existing
asset base and personnel provide it with competitive advantages for operating in
the Gulf of Mexico. The Company's senior operating personnel as well as its over
50 geoscientists and engineers have substantial experience, largely through
tenure at major oil companies, in the technical challenges arising from
exploitation and exploration of this region. The Company has also assembled a
team of field personnel, most with over 15 years of experience operating in the
Company's core areas. Management has extensive experience and good working
relationships with federal, state and local regulatory agencies in this region.
Expandable base of operations. The Company has additional capacity
available at its Delta Area and Central Gulf Area production facilities, which
can provide a foundation for further acquisition, exploitation and exploration
in the Gulf of Mexico to achieve additional production at relatively low
incremental costs.
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Because of the strategic location of the production facilities in these core
areas, the excess capacity can be used to provide services to third parties
operating in the area. The Company also believes that its operating and
administrative personnel and systems can efficiently manage the addition of
producing properties and related operations through geographic concentration,
technical expertise and economies of scale based on existing infrastructure and
the maintenance of low overhead costs.
BUSINESS STRATEGY
The Company's strategy is to increase shareholder value by increasing its
reserve base and by continuing to decrease unit costs. The Company intends to
grow its oil and gas reserves by capitalizing on its strengths through the
exploitation of its existing properties, the exploration for new oil and gas
reserves on its existing properties and elsewhere and the acquisition of
additional properties with exploitation and exploration potential. The Company
intends to decrease unit costs by increasing production in its existing areas of
operation. The Company is implementing this strategy by:
Continuing development and exploitation of existing properties. The Company
is actively pursuing the development of its existing properties to fully exploit
its reserves through recompletions, horizontal and development drilling,
waterfloods and 3-D seismic enhanced exploitation drilling. OEI uses advanced
technology in its exploitation and exploration activities in order to reduce
risks and lower costs. Further, the Company seeks to drill wells with multiple
pay objectives, allowing it to reduce the risk of exploring deeper prospects by
attempting to exploit shallow reservoirs in the same well. Primarily as a result
of its development and exploitation drilling success, the Company has increased
its average daily production by 133% from 15,047 BOE for the year ended December
31, 1994 to 35,089 BOE for the three months ended March 31, 1997. The Company
currently has an inventory of over 350 reserve and production enhancement
projects on its existing properties. In light of these projects, the Company
increased its development and exploitation drilling capital expenditures from
approximately $82 million in 1996 and has budgeted approximately $120 million
for 1997.
Expanding exploration program. The Company is expanding its exploration
program in the Louisiana Gulf which is designed to provide exposure to selected
higher risk, higher potential rate of return prospects. The Company currently
intends to divide its drilling budget equally between exploratory and
development drilling. The Company has increased its exploratory drilling
expenditures from approximately $32 million in 1996 to approximately $120
million in 1997. In order to reduce exploration risk, the Company will apply
state-of-the-art technology to identify prospects and, where possible, select
well locations with multiple pay objectives. The Company also considers, in
selected circumstances, selling a portion of a prospect to an industry partner
while preferably remaining as operator. The Company has entered into a deepwater
joint venture with a major integrated oil company involving 27 federal blocks
located in the deepwater area of the Gulf of Mexico. The major oil company
currently has production on other blocks in deepwater areas of the Gulf of
Mexico and brings a significant deepwater technical effort and secured rig
availability to the joint venture.
Pursuing strategic acquisitions and joint ventures. The Company is
continually evaluating opportunities to acquire or enter into joint ventures
involving producing and exploratory properties which may possess, among others,
one or more of the following characteristics: (i) close proximity to the
Company's existing operations, (ii) potential opportunities to increase reserves
through exploratory drilling and additional recovery or enhancement techniques
or (iii) potential opportunities to reduce expenses through more efficient
operations. While the Company focuses primarily on acquisitions and joint
ventures involving producing and exploratory properties with large acreage
positions, it evaluates a broad range of potential transactions. Company
personnel have substantial training, experience, and an in-depth knowledge of
the Gulf of Mexico area, as well as established relationships with a number of
major and large independent energy companies operating in this region. These
factors, in combination with the utilization of state-of-the-art geological and
engineering technology, assist in identifying properties that meet the Company's
acquisition and joint venture objectives.
The Company is a corporation organized under the laws of the State of
Delaware. The Company's principal executive offices are located at 8440
Jefferson Highway, Suite 420, Baton Rouge, Louisiana 70809, and its telephone
number is (504) 927-1450.
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SUMMARY OF TERMS OF EXCHANGE OFFER
The Exchange Offer relates to the exchange of up to $200,000,000 aggregate
principal amount of Exchange Notes for up to an equal aggregate principal amount
of Old Notes. The Exchange Notes will be obligations of the Company entitled to
the benefits of the Indenture. The form and terms of the Exchange Notes are
identical in all material respects to the form and terms of the Old Notes,
except that (i) the offering of the Exchange Notes has been registered under the
Securities Act, (ii) the Exchange Notes will not be subject to transfer
restrictions and (iii) certain provisions relating to an increase in the stated
interest rate on the Old Notes provided for under certain circumstances will be
eliminated. See "Description of the Notes."
REGISTRATION RIGHTS
AGREEMENT.................. The Old Notes were sold by the Company on July 2,
1997 to the Initial Purchasers pursuant to a
Purchase Agreement, dated July 2, 1997 (the
"Purchase Agreement"). Pursuant to the Purchase
Agreement, the Company and the Initial Purchasers
entered into the Registration Rights Agreement
which, among other things, grants the holders of
the Old Notes certain exchange and registration
rights. The Exchange Offer is intended to satisfy
certain obligations of the Company under the
Registration Rights Agreement.
THE EXCHANGE OFFER......... $1,000 principal amount of Exchange Notes will be
issued in exchange for each $1,000 principal amount
of Old Notes validly tendered and accepted pursuant
to the Exchange Offer. As of the date hereof,
$200,000,000 in aggregate principal amount of Old
Notes are outstanding. The Company will issue the
Exchange Notes to tendering holders of Old Notes
promptly following the Expiration Date. The terms
of the Exchange Notes are identical in all material
respects to the Old Notes except for certain
transfer restrictions and registration rights
relating to the Old Notes.
In addition, to comply with the securities laws of
certain states of the United States, it may be
necessary to qualify for sale or register
thereunder the Exchange Notes prior to offering or
selling such Exchange Notes. The Company has
agreed, pursuant to the Registration Rights
Agreement, subject to certain limitations specified
therein, to register or qualify the Exchange Notes
for offer or sale under the securities laws of such
states as any holder reasonably requests in
writing. Unless a holder so requests, the Company
does not intend to register or qualify the offer or
sale of the Exchange Notes in any such
jurisdiction.
RESALE..................... Based on existing interpretations of the Securities
Act by the staff of the SEC set forth in several
no-action letters to third parties, and subject to
the immediately following sentence, the Company
believes that Exchange Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise
transferred by a holder thereof (other than (i) a
broker-dealer who purchased such Old Notes directly
from the Company for resale pursuant to Rule 144A
or any other available exemption under the
Securities Act or (ii) a person that is an
"affiliate" (within the meaning of Rule 405 of the
Securities Act) of the Company), without compliance
with the registration and prospectus delivery
provisions of the Securities Act, provided that the
holder is acquiring the Exchange Notes in its
ordinary course of business and is not
participating, and has no arrangement or
understanding with any person to participate, in
the distribution of the Exchange Notes. However,
any purchaser of Notes who is an affiliate of the
Company or who intends to participate in the
Exchange Offer for the purpose of
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<PAGE> 9
distributing the Exchange Notes, or any
broker-dealer who purchased the Old Notes from the
Company to resell pursuant to Rule 144A or any
other available exemption under the Securities Act,
(i) will not be able to rely on the interpretations
by the staff of the SEC set forth in the
above-mentioned no-action letters, (ii) will not be
able to tender its Old Notes in the Exchange Offer
and (iii) must comply with the registration and
prospectus delivery requirements of the Securities
Act in connection with any sale or transfer of the
Notes unless such sale or transfer is made pursuant
to an exemption from such requirements. The Company
does not intend to seek its own no-action letter
and there is no assurance that the staff of the SEC
would make a similar determination with respect to
the Exchange Notes as it has in such no-action
letters to third parties. See "The Exchange
Offer -- Purpose and Effect of the Exchange Offer"
and "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. The Letter
of Transmittal states that by so acknowledging and
by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer
in connection with resales of Exchange Notes
received in connection with resales of Exchange
Notes received in exchange for Old Notes where such
Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading
activities. The Company has agreed that, for a
period of 180 days after the Expiration Date, it
will make this Prospectus available to any
broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
EXPIRATION DATE............ 5:00 p.m., New York City time, on ,
1997, unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date and time to which the Exchange Offer is
extended. See "The Exchange Offer -- Expiration
Date; Extensions; Amendments."
ACCRUED INTEREST ON THE
EXCHANGE NOTES AND THE
OLD NOTES................ The Exchange Notes will bear interest at a rate of
8 7/8% per annum, payable semi-annually on January
15 and July 15 of each year, commencing January,
1998. Holders of Exchange Notes of record on
January 1, 1998, will receive on January 15, 1998,
an interest payment in an amount equal to (x) the
accrued interest on such Exchange Notes from the
date of issuance thereof to January 15, 1998, plus
(y) the accrued interest on the previously held Old
Notes from the date of issuance of such Old Notes
(July 2, 1997) to the date of exchange thereof.
Interest will not be paid on Old Notes that are
accepted for exchange. The Notes mature on July 15,
2007.
CONDITIONS TO THE EXCHANGE
OFFER.................... The Company may terminate the Exchange Offer if it
determines that its ability to proceed with the
Exchange Offer could be materially impaired due to
the occurrence of certain conditions. The Company
does not expect any of such conditions to occur,
although there can be no assurance that such
conditions will not occur. Holders of Old Notes
will
5
<PAGE> 10
have certain rights under the Registration Rights
Agreement should the Company fail to consummate the
Exchange Offer. See "The Exchange
Offer -- Conditions to the Exchange Offer" and
"Description of the Notes -- Registered Exchange
Offer; Registration Rights."
PROCEDURES FOR TENDERING
OLD NOTES.................. Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with the Old Notes to be exchanged and any other
required documentation, to The Bank of New York, as
Exchange Agent, at the address set forth herein and
therein or effect a tender of Old Notes pursuant to
the procedures for book-entry transfer as provided
for herein and therein. By executing the Letter of
Transmittal, each holder will represent to the
Company that, among other things, the Exchange
Notes acquired pursuant to the Exchange Offer are
being acquired in the ordinary course of business
of the person receiving such Exchange Notes,
whether or not such person is the holder, that
neither the holder nor any such other person has
any arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes and that neither the holder nor any such
other person is an "affiliate," as defined in Rule
405 under the Securities Act, of the Company. See
"The Exchange Offer -- Procedures for Tendering."
Following consummation of the Exchange Offer,
holders of Old Notes not tendered as a general
matter will not have any further registration
rights, and the Old Notes will continue to be
subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for the
Old Notes could be adversely affected. see "The
Exchange Offer -- Consequences of Failure to
Exchange."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS.......... Any beneficial owner whose Old Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender in the Exchange Offer should contact such
registered holder promptly and instruct such
registered holder to tender on his behalf. If such
beneficial owner wishes to tender on his own
behalf, such beneficial owner must, prior to
completing and executing the Letter of Transmittal
and delivering his Old Notes, either (a) make
appropriate arrangements to register ownership of
the Old Notes in such holder's name or (b) obtain a
properly completed bond power from the registered
holder or endorsed certificates representing the
Old Notes to be tendered. The transfer of record
ownership may take considerable time, and
completion of such transfer prior to the Expiration
Date may not be possible. See "The Exchange
Offer -- Procedures for Tendering."
GUARANTEED DELIVERY
PROCEDURES................. Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available, or who cannot deliver their Old Notes
(or complete the procedure for book-entry transfer)
and deliver a properly completed Letter of
Transmittal and any other documents required by the
Letter of Transmittal to the Exchange Agent prior
to the Expiration Date may tender their Old Notes
according to the guaranteed
6
<PAGE> 11
delivery procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures."
WITHDRAWAL RIGHTS.......... Tenders of Old Notes may be withdrawn at any time
prior to the Expiration Date by furnishing a
written or facsimile transmission notice of
withdrawal to the Exchange Agent containing the
information set forth in "The Exchange
Offer -- Withdrawal of Tenders."
ACCEPTANCE OF OLD NOTES AND
DELIVERY OF EXCHANGE
NOTES.................... Subject to certain conditions (as summarized above
in "Termination of the Exchange Offer" and
described more fully in "The Exchange
Offer -- Termination"), the Company will accept for
exchange any and all Old Notes that are properly
tendered in the Exchange Offer prior to the
Expiration Date. See "The Exchange
Offer -- Procedures for Tendering." The Exchange
Notes issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date.
EXCHANGE AGENT............. State Street Bank and Trust Company, the Trustee
under the Indenture, is serving as exchange agent
(the "Exchange Agent") in connection with the
Exchange Offer. The mailing and hand delivery
address of the Exchange Agent is State Street Bank
and Trust Company, 777 Main Street, MSN 238,
Hartford, Connecticut, 06115, Attention: Elizabeth
Hammer. For assistance and request for additional
copies of this Prospectus, the Letter of
Transmittal or the Notice of Guaranteed Delivery,
the telephone number for the Exchange Agent is
(860) 986-2064, and the facsimile number for the
Exchange Agent is (860)986-7920. All communications
should be directed to the attention of Elizabeth
Hammer.
EFFECT ON HOLDERS OF OLD
NOTES.................... Holders of Old Notes who do not tender their Old
Notes in the exchange offer will continue to hold
their Old Notes and will be entitled to all the
rights and limitations applicable thereto under the
Indenture. All untendered, and tendered but
unaccepted, Old Notes will continue to be subject
to the restrictions on transfer provided for in the
Old Notes and the Indenture. To the extent that Old
Notes are tendered and accepted in the Exchange
Offer, the trading market, if any, for the Old
Notes could be adversely affected. See "Risk
Factors -- Consequences of Exchange and Failure to
Exchange."
See "The Exchange Offer" for more detailed information concerning the terms of
the Exchange Offer.
7
<PAGE> 12
SUMMARY OF TERMS OF EXCHANGE NOTES
Securities Offered......... $200,000,000 principal amount of 8 7/8% Senior
Subordinated Notes due 2007 Series B.
Maturity Date.............. July 15, 2007.
Interest Payment Dates..... Interest on the Notes will be payable semi-annually
in arrears on January 15 and July 15 of each year,
commencing January 15, 1998.
Optional Redemption........ The Exchange Notes will be redeemable at the option
of the Company, in whole or in part, at any time on
or after July 15, 2002 at the redemption prices set
forth herein, together with accrued and unpaid
interest, if any, to the date of redemption. In
addition, at any time and from time to time prior
to July 15, 2000, the Company may, subject to
certain requirements, redeem up to $70 million of
the aggregate principal amount of the Notes
originally issued with the net cash proceeds of one
or more Public Equity Offerings by the Company at a
redemption price equal to 108.875% of the principal
amount thereof, together with accrued and unpaid
interest, if any, to the date of redemption,
provided that at least $130 million of the
aggregate principal amount of the Notes remains
outstanding after each such redemption. See
"Description of the Notes -- Redemption."
Guarantee.................. The Exchange Notes will be initially guaranteed
(the "Subsidiary Guarantee") by Ocean Energy, Inc.,
a Louisiana corporation (the "Subsidiary
Guarantor"), the sole operating subsidiary of the
Company. The Subsidiary Guarantee will be a general
unsecured senior subordinated obligation of the
Subsidiary Guarantor and will be subordinated in
right of payment to all existing or future senior
indebtedness of the Subsidiary Guarantor, pari
passu with all existing and future senior
subordinated indebtedness of the Subsidiary
Guarantor, and senior in right of payment to all
future subordinated indebtedness of the Subsidiary
Guarantor. The Subsidiary Guarantee may be released
under certain circumstances. See "Description of
the Notes -- Subsidiary Guarantees of Notes." The
Subsidiary Guarantee is limited to the extent of
any payment that would constitute a fraudulent
transfer or conveyance under federal or state law.
See "Risk Factors -- Fraudulent Conveyance
Considerations Relating to Subsidiary Guarantee"
and "Description of the Notes -- Subsidiary
Guarantees of Notes."
Certain Covenants.......... The Indenture pursuant to which the Exchange Notes
will be issued (the "Indenture") contains certain
covenants, including, without limitation, covenants
with respect to the following matters: (i)
limitation on indebtedness; (ii) limitation on
restricted payments; (iii) limitation on issuances
and sales of restricted subsidiary stock; (iv)
limitation on transactions with affiliates; (v)
limitation on liens; (vi) disposition of proceeds
of asset sales; (vii) limitation on guarantees of
indebtedness by subsidiaries; (viii) limitation on
dividends and other payment restrictions affecting
subsidiaries; and (ix) limitation of mergers,
consolidations and transfers of assets. During any
time the ratings assigned to the Exchange Notes are
no less than BBB- and Baa3, except subsequent to a
Change of Control, and provided that no Default or
Event of Default has occurred or is occurring, the
covenants described under (i), (ii), (iv), (vi) and
(viii) above will be suspended. See "Description of
the Notes -- Certain Covenants."
Mandatory Offers to
Purchase................... Upon a Change of Control (as defined), each holder
of the Exchange Notes may require the Company to
purchase all or a portion of such holder's Exchange
Notes at a purchase price equal to 101% of the
8
<PAGE> 13
principal amount thereof, together with accrued and
unpaid interest, if any, to the date of purchase.
See "Description of the Notes -- Certain
Definitions." In the event of certain asset
dispositions, the Company will be required to make
an offer to purchase the Notes at 100% of the
principal amount thereof, together with accrued and
unpaid interest, if any, to the date of purchase.
See "Description of the Notes -- Certain
Covenants -- Change of Control" and "-- Limitation
on Disposition of Proceeds of Asset Sales."
Ranking.................... The Exchange Notes will be general unsecured senior
subordinated obligations of the Company which will
be subordinated in right of payment to all existing
or future senior indebtedness of the Company, pari
passu with all existing and future senior
subordinated indebtedness of the Company, and
senior in right of payment to all future
subordinated indebtedness of the Company. As of
March 31, 1997, on a pro forma basis after giving
effect to the Offering, and assuming substantially
all of the Company's 13 1/2% Senior Notes due 2004
(the "Senior Notes") were tendered in the Company's
offer (the "Tender Offer") to purchase the Senior
Notes, the Company and its Restricted Subsidiaries
would have had no material indebtedness that
effectively would rank senior to the Notes. Subject
to certain limitations set forth in the Indenture,
the Company and its subsidiaries may incur
additional Indebtedness. See "Capitalization,"
"Description of the Notes -- Subordination" and
"Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity
and Capital Resources."
RISK FACTORS
An investment in the Exchange Notes involves certain risks that a potential
investor should carefully evaluate prior to making such an investment. See "Risk
Factors."
9
<PAGE> 14
SUMMARY HISTORICAL FINANCIAL AND OPERATING DATA
The summary historical financial data set forth below for the period from
inception (April 20, 1992) through December 31, 1992, and the years ended
December 31, 1993, 1994, 1995 and 1996 for the Company have been derived from
the audited financial statements and notes thereto contained elsewhere in this
Prospectus. The financial data for the three months ended March 31, 1996 and
1997 are derived from unaudited financial statements of the Company. The summary
historical financial data are qualified in their entirety by, and should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and the notes thereto
included elsewhere in this Prospectus. For additional information relating to
the Company's operations, see "Business."
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION THREE
(APRIL 20, 1992) YEAR ENDED MONTHS ENDED
THROUGH DECEMBER 31, MARCH 31,
DECEMBER 31, ------------------------------------------ ------------------
1992 1993 1994 1995 1996 1996 1997
---------------- -------- --------- -------- -------- ------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS AND OTHER
FINANCIAL DATA:
REVENUES & EXPENSE DATA:
Revenues.................................. $13,279 $ 47,483 $ 75,395 $127,970 $188,451 $36,829 $ 64,477
Direct Operating Expenses................. 6,687 19,201 30,324 40,047 47,098 11,331 15,383
General & Administrative Expenses......... 385 5,032 10,351 11,312 16,154 3,258 4,355
Depreciation, Depletion & Amortization.... 3,420 20,140 36,459 54,084 74,652 14,350 22,895
Interest Expense.......................... 241 1,055 4,507 17,620 17,954 4,512 6,460
Loss on Production Payment Repurchase and
Refinancing(1).......................... -- -- 16,681 -- -- -- --
Net Income (Loss) Before Income Tax
Expense (Benefit)....................... 2,584 2,227 (22,179) 5,210 32,988 3,120 15,890
Income Tax Expense (Benefit)(2)........... -- -- -- (4,692) 12,037 1,219 5,959
Net Income (Loss)......................... 2,584 2,227 (22,179) 9,902 20,951 1,901 9,931
Earnings per Common Share(3)
Primary................................. -- -- -- $ 0.65 $ 1.07 $ 0.12 $ 0.48
Fully diluted........................... -- -- -- 0.65 1.05 0.12 0.48
OTHER FINANCIAL DATA:
EBITDA(4)................................. $ 6,245 $ 23,422 $ 35,855 $ 77,645 $129,100 $22,158 $ 45,734
Net Cash Provided By (Used In) Operating
Activities(5)........................... 38,042 103,112 (115,485) 58,880 125,989 19,790 50,493
Capital Expenditures(6)................... 34,978 123,600 74,477 73,652 251,305 21,552 118,405
Ratio of EBITDA to Interest Expense....... -- -- -- 4.4x 7.2x 4.9x 7.1x
Ratio of Earnings to Fixed Charges(7)..... 11.1x 3.0x N.M. 1.3x 2.8x 1.7x 3.4x
OPERATING DATA:
Sales Volumes:
Oil (MBbls)............................. 670 2,850 4,286 6,057 7,149 1,558 2,032
Gas (MMcf).............................. 1,484 3,704 7,234 12,393 18,720 3,310 6,755
MBOE.................................... 917 3,467 5,492 8,123 10,269 2,110 3,158
Average Prices(8):
Oil (per Bbl)........................... $ 16.18 $ 13.82 $ 14.24 $ 17.39 $ 21.58 $ 19.25 $ 21.99
Gas (per MCF)........................... 1.64 1.81 1.76 1.82 2.79 3.22 2.99
BOE (per BOE)........................... 14.48 13.30 13.42 15.75 20.10 19.28 20.55
Lease Operating Expenses (per BOE)........ $ 5.45 $ 4.10 $ 4.29 $ 3.70 $ 3.52 $ 4.00 $ 4.02
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31,
1997
---------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Oil and Gas Assets, Net..................................... $451,208
Total Assets................................................ 508,770
Long-Term Debt.............................................. 301,164
Stockholders' Equity........................................ 115,101
</TABLE>
- ---------------
(1) The amount shown for the year ended December 31, 1994 represents primarily
the excess of the purchase price of production payments over the book value
of such production payments liability as of December 7, 1994.
10
<PAGE> 15
(2) The Company was formed as an S corporation under the Internal Revenue Code
and, as such, all income taxes were the obligation of the Company's
stockholders. Therefore, through the date of the Initial Offerings (as
defined herein), no historical federal or state income tax expense has been
provided for in the financial statements. In conjunction with the Company's
initial public offering, the Company converted to a C corporation under the
Internal Revenue Code. The Company recorded a deferred tax asset of $6.3
million, offset by a valuation allowance of $6.3 million at December 31,
1994 and a deferred tax asset of $4.7 million at December 31, 1995. As a
result of the reversal of the valuation allowance, the Company recorded a
net income tax benefit of $4.7 million in the year ended December 31, 1995.
(3) If the Company had recognized a tax provision at statutory rates for the
year ended December 31, 1995, rather than an income tax benefit, earnings
per common share would have been $0.22 for such period. Earnings per share
has not been presented for periods prior to or including the date of the
Initial Offerings, as these amounts would not be meaningful or indicative of
the ongoing entity.
(4) Earnings before interest, taxes, depreciation, depletion and amortization.
EBITDA has not been reduced for the recognition of noncash revenues
associated with production payments. EBITDA is not intended to represent
cash flow in accordance with generally accepted accounting principles and
does not represent the measure of cash available for distribution. EBITDA is
not intended as an alternative to earnings from continuing operations or net
income.
(5) Cash flow from operating activities in 1992 and 1993 includes $36.8 million
and $95.7 million, respectively, from the sale of production payments. Cash
flow from operating activities for the year ended December 31, 1994 was
reduced by $123.6 million related to the repurchase of such production
payments.
(6) Includes $34.3 million in the year ended December 31, 1992 related to the
acquisition of properties in the Delta Area, $115.5 million in the year
ended December 31, 1993 related to the acquisition of additional properties
in the Delta Area, and $117.6 million in the year ended December 31, 1996
related to the acquisition of Central Gulf Area properties and $55.9 million
in the quarter ended March 31, 1997 related to the acquisition of additional
properties in the Delta Area.
(7) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as earnings from continuing operations before income taxes, plus
fixed charges. Fixed charges consist of interest expense on all
indebtedness. The ratio for the year ended December 31, 1994 is not
meaningful because earnings were inadequate to cover charges by $22.3
million.
(8) Excludes results of hedging activities which increased (decreased) revenue
recognized in the 1993, 1994, 1995 and 1996 periods by $1.2 million, $1.7
million, $(0.5) million and $(18.7) million, respectively and by $(3.9)
million and $(0.6) million in the three months ended March 31, 1996 and
1997. Including the effect of hedging activities, the Company's average oil
price per Bbl received was $14.23, $14.56, $17.27 and $19.70 in the years
ended December 31, 1993, 1994, 1995 and 1996, respectively, and the average
gas price per Mcf received was $1.81, $1.84 and $2.50 in the years ended
December 31, 1994, 1995 and 1996, respectively. In the three months ended
March 31, 1996 and 1997, the Company's average oil price including hedging
activities per Bbl received was $18.71 and $21.69, respectively, and the
average gas price per Mcf received was $2.31 in the three months ended March
31, 1996. The Company did not enter into any hedging activities relating to
oil during 1992 or relating to gas during 1992, 1993 and in the three months
ended March 31, 1997.
11
<PAGE> 16
SUMMARY HISTORICAL RESERVE INFORMATION
The following tables set forth information with respect to the Company's
proved reserves as of December 31, 1996, as estimated by Netherland Sewell,
independent petroleum engineers for the Company and as of March 31, 1997, as
estimated by the Company. As of December 31, 1996 and March 31, 1997, the
average sales prices used for purposes of estimating the Company's proved
reserves, the future net revenues therefrom and present value of such future net
revenues were $4.17 and $1.89 per Mcf of gas and $25.52 and $19.52 per Bbl of
oil, respectively (excluding the effect of net price hedging positions). For
additional information relating to the Company's reserves, see "Risk
Factors -- Reliance on Estimates of Proved Reserves," "Business and
Properties -- Oil and Natural Gas Reserves" and Notes 13 and 15 to the Company's
consolidated financial statements.
<TABLE>
<CAPTION>
MARCH 31, 1997
PROVED RESERVES(1)
-------------------------------------
DEVELOPED UNDEVELOPED TOTAL
---------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net Proved Reserves:
Oil (MBbls)............................................ 45,181 14,721 59,902
Gas (MMcf)............................................. 116,424 50,992 167,416
MBOE (6 Mcf per Bbl)................................... 64,585 23,220 87,805
Estimated Future Net Revenues (Before Income Taxes)...... $ 364,394 $229,573 $ 593,967
Present Value of Future Net Revenues (Before Income
Taxes; Discounted at 10%).............................. $ 331,189 $167,272 $ 498,461
Standardized Measure of Discounted Future Net Cash
Flows(2)............................................... $ 419,950
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
PROVED RESERVES(3)
-------------------------------------------------
DEVELOPED DEVELOPED
PRODUCING NONPRODUCING UNDEVELOPED TOTAL
--------- ------------ ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net Proved Reserves:
Oil (MBbls).................................. 27,029 11,318 12,429 50,776
Gas (MMcf)................................... 56,836 52,738 35,784 145,358
MBOE (6 Mcf per Bbl)......................... 36,490 20,120 18,393 75,003
Estimated Future Net Revenues (Before Income
Taxes)....................................... $306,470 $285,671 $289,633 $881,774
Present Value of Future Net Revenues (Before
Income Taxes; Discounted at 10%)............. $295,668 $188,764 $209,083 $693,515
Standardized Measure of Discounted Future Net
Cash Flows(2)................................ $532,492
</TABLE>
- ---------------
(1) The reserve information as of March 31, 1997 was prepared by the Company's
engineers in accordance with the rules and regulations of the Commission;
however, such reserve information has not been reviewed by independent
reserve engineers. In accordance with rules and regulations of the
Commission, the pre-tax estimated future net revenues, pre-tax present value
of future net revenues and the Standardized Measure of Discounted Future Net
Cash Flows for the Company have been decreased by approximately $2.5
million, $2.2 million and $1.4 million, respectively, representing the
effect of hedging transactions entered into as of March 31, 1997.
(2) The Standardized Measure of Discounted Future Net Cash Flows represents the
Present Value of Future Net Revenues after income taxes discounted at 10%.
(3) In accordance with rules and regulations of the Commission, the pre-tax
estimated future net revenues, pre-tax present value of future net revenues
and the Standardized Measure of Discounted Future Net Cash Flows prepared by
the Company have been decreased by approximately $20.5 million, $18.6
million and $12.4 million, respectively, representing the effect of hedging
transactions entered into as of December 31, 1996.
12
<PAGE> 17
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). All statements other than statements of historical facts included in this
Prospectus, including without limitation, statements under "Prospectus Summary,"
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" regarding the planned capital
expenditures, increases in oil and gas production, the number of anticipated
wells to be drilled in 1997 and thereafter, the Company's financial position
(including the purchase of the Senior Notes pursuant to the Tender Offer),
business strategy and other plans and objectives for future operations, are
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to have been correct. There are
numerous uncertainties inherent in estimating quantities of proved oil and
natural gas reserves and in projecting future rates of production and timing of
expenditures, including many factors beyond the control of the Company. Reserve
engineering is a subjective process of estimating underground accumulations of
oil and natural gas that cannot be measured in an exact way, and the accuracy of
any reserve estimate is a function of the quality of available data and of
engineering and geological interpretation and judgment. As a result, estimates
made by different engineers often vary from one another. In addition, results of
drilling, testing and production subsequent to the date of an estimate may
justify revisions of such estimate and such revisions, if significant, would
change the schedule of any further production and development drilling.
Accordingly, reserve estimates are generally different from the quantities of
oil and natural gas that are ultimately recovered. Additional important factors
that could cause actual results to differ materially from the Company's
expectations are disclosed under "Risk Factors" and elsewhere in this
Prospectus, including without limitation in conjunction with the forward looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by such factors.
RISK FACTORS
An investment in the Company involves a significant degree of risk.
Prospective purchasers should give careful consideration to the specific factors
set forth below, as well as the other information set forth in this Prospectus.
CONSEQUENCES OF EXCHANGE AND FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register the Old Notes under the Securities Act. In addition, upon the
consummation of the Exchange Offer holders of Old Notes which remain outstanding
will not be entitled to any rights to have such Old Notes registered under the
Securities Act or to any similar rights under the Registration Rights Agreement,
subject to certain exceptions. To the extent that Old Notes are tendered and
accepted in the Exchange Offer, a holder's ability to sell untendered, or
tendered but unaccepted, Old Notes could be adversely affected.
13
<PAGE> 18
REPLACEMENT OF RESERVES
The Company's future success depends upon its ability to find, develop or
acquire additional oil and gas reserves that are economically recoverable. The
proved reserves of the Company will generally decline as reserves are depleted,
except to the extent that the Company conducts successful exploration or
development activities or acquires properties containing proved reserves, or
both. In order to increase reserves and production, the Company must continue
its development and exploration drilling and recompletion programs or undertake
other replacement activities. The Company's current strategy includes increasing
its reserve base through acquisitions of producing properties and by continuing
to exploit its existing properties. There can be no assurance, however, that the
Company's planned development and exploration projects and acquisition
activities will result in significant additional reserves or that the Company
will have continuing success drilling productive wells at low finding and
development costs. Furthermore, while the Company's revenues may increase if
prevailing oil and gas prices increase significantly, the Company's finding
costs for additional reserves could also increase. For a discussion of the
Company's reserves, see "Business -- Oil and Natural Gas Reserves."
PRICE FLUCTUATIONS AND MARKETS
The Company's results of operations are highly dependent upon the prices
received for the Company's oil and natural gas. Substantially all of the
Company's sales of oil and natural gas are made in the spot market, or pursuant
to contracts based on spot market prices and not pursuant to long-term,
fixed-price contracts. Accordingly, the prices received by the Company for its
oil and natural gas production are dependent upon numerous factors beyond the
control of the Company. These factors include, but are not limited to, the level
of consumer product demand, governmental regulations and taxes, the price and
availability of alternative fuels, the level of foreign imports of oil and
natural gas, and the overall economic environment. Any significant decline in
prices for oil and natural gas could have a material adverse effect on the
Company's financial condition, results of operations and quantities of reserves
recoverable on an economic basis. Should the industry experience significant
price declines from current levels or other adverse market conditions, the
Company may not be able to generate sufficient cash flow from operations to meet
its obligations and make planned capital expenditures. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," "Business -- Oil and Gas
Marketing and Major Customers," and "-- Governmental Regulation."
The availability of a ready market for the Company's oil and natural gas
production also depends on a number of factors, including the demand for and
supply of oil and natural gas and the proximity of reserves to, and the capacity
of, oil and gas gathering systems, pipelines or trucking and terminal
facilities. Wells may be shut-in for lack of a market or due to inadequacy or
unavailability of pipeline or gathering system capacity.
In order to manage its exposure to price risks in the sale of its crude oil
and natural gas, the Company from time to time enters into energy price swap
arrangements. The Company believes that its hedging strategies are generally
conservative in nature. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Other Matters."
EFFECTS OF LEVERAGE
After giving pro forma effect to the Offering and the assumed application
of the net proceeds therefrom, the Company will be highly leveraged, with
outstanding long-term indebtedness of approximately $359 million as of March 31,
1997. The Company's level of indebtedness has several important effects on its
future operations, including (i) a substantial portion of the Company's cash
flow from operations is dedicated to the payment of interest on its indebtedness
and is not available for other purposes, (ii) the indenture (the "Prior
Indenture") related to the Company's 9 3/4% Senior Subordinated Notes due 2006
(the "Senior Subordinated Notes"), and the Indenture will contain, other
restrictions that limit the Company's ability to borrow additional funds or to
dispose of assets and affect the Company's flexibility in planning for, and
reacting to, changes in its business, including possible acquisition activities
and (iii) the Company's ability to obtain additional financing in the future for
working capital, capital expenditures, acquisitions, general corporate
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purposes or other purposes may be impaired. Moreover, future acquisition or
development activities may require the Company to alter its capitalization
significantly. See "-- Substantial Capital Requirements," and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The Company's ability to meet its debt service obligations and to reduce
its total indebtedness will be dependent upon the Company's future performance,
which will be subject to oil and gas prices, general economic conditions and to
financial, business and other factors affecting the operations of the Company,
many of which are beyond its control. There can be no assurance that the
Company's future performance will not be adversely affected by such economic
conditions and financial, business and other factors. See "-- Price Fluctuations
and Markets" and "Capitalization."
DRILLING RISKS
Drilling activities are subject to many risks, including the risk that no
commercially productive reservoirs will be encountered. There can be no
assurance that new wells drilled by the Company will be productive or that the
Company will recover all or any portion of its investment. Drilling for oil and
natural gas may involve unprofitable efforts, not only from dry wells, but from
wells that are productive but do not produce sufficient net revenues to return a
profit after drilling, completing, operating, and other costs. The cost of
drilling, completing and operating wells is often uncertain. The Company's
drilling operations may be curtailed, delayed or canceled as a result of
numerous factors, many of which are beyond the Company's control, including
title problems, weather conditions, compliance with governmental requirements
and shortages or delays in the delivery of equipment and services.
SUBSTANTIAL CAPITAL REQUIREMENTS
The Company makes, and will continue to make, substantial capital
expenditures for the acquisition, exploration, development, production and
abandonment of its oil and natural gas reserves. The Company intends to finance
such capital expenditures primarily with funds provided by operations and
borrowings under its Revolving Credit Facility. The Company has budgeted $360
million for direct capital expenditures in 1997.
The Company believes that, after debt service, it will have sufficient cash
provided by operating activities and availability under its Revolving Credit
Facility to fund planned capital expenditures in 1997. If revenues decrease as a
result of lower oil and gas prices or otherwise, the Company may have limited
ability to expend the capital necessary to replace its reserves or to maintain
production at current levels, resulting in a decrease in production over time.
If the Company's cash flow from operations is not sufficient to satisfy its
capital expenditure requirements, there can be no assurance that additional debt
or equity financing will be available to meet these requirements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
ACQUISITION RISKS
The Company constantly evaluates acquisition and joint venture
opportunities and frequently engages in bidding and negotiation for
acquisitions, many of which are substantial. If successful in this process, the
Company may be required to alter or increase its capitalization substantially to
finance these acquisitions or joint ventures through the issuance of additional
debt or equity securities, the sale of production payments or otherwise. These
changes in capitalization may significantly affect the risk profile of the
Company. Additionally, significant acquisitions or joint ventures can change the
nature of the operations and business of the Company depending upon the
character of the properties, which may be substantially different in operating
or geologic characteristics or geographic location than existing properties.
While it is the Company's current intent to concentrate on acquisitions and
joint ventures involving producing properties with development and exploration
potential located in the Gulf of Mexico, there is no assurance that the Company
would not pursue acquisitions of properties and joint ventures located in other
geographic regions. Moreover, there can be no assurance that the Company will be
successful in the acquisition of, or joint ventures related to, any
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<PAGE> 20
material property interests. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
RELIANCE ON ESTIMATES OF PROVED RESERVES
There are numerous uncertainties inherent in estimating quantities of
proved reserves, including many factors beyond the control of the Company. The
Company historical reserve information set forth in this Prospectus represents
only estimates based on reports prepared by Netherland Sewell, as of December
31, 1996, and by the Company, as of March 31, 1997.
Petroleum engineering is not an exact science. Information relating to the
Company's proved oil and gas reserves is based upon engineering estimates.
Estimates of economically recoverable oil and gas reserves and of future net
cash flows necessarily depend upon a number of variable factors and assumptions,
such as historical production from the area compared with production from other
producing areas, the assumed effects of regulations by governmental agencies and
assumptions concerning future oil and gas prices, future operating costs,
severance and excise taxes, development costs and workover and remedial costs,
all of which may in fact vary considerably from actual results. For these
reasons, estimates of the economically recoverable quantities of oil and gas
attributable to any particular group of properties, classifications of such
reserves based on risk of recovery and estimates of the future net cash flows
expected therefrom prepared by different engineers or by the same engineers at
different times may vary substantially. Actual production, revenues and
expenditures with respect to the Company's reserves will likely vary from
estimates, and such variances may be material. See "Business -- Oil and Natural
Gas Reserves."
The Present Value of Future Net Revenues referred to in this Prospectus
should not be construed as the current market value of the estimated oil and gas
reserves attributable to the Company's properties. In accordance with applicable
requirements of the Commission, the estimated discounted future net cash flows
from proved reserves are generally based on prices and costs as of the date of
the estimate, whereas actual future prices and costs may be materially higher or
lower. Actual future net cash flows also will be affected by factors such as the
amount and timing of actual production, supply and demand for oil and gas,
curtailments or increases in consumption by gas purchasers and changes in
governmental regulations or taxation. The timing of actual future net cash flows
from proved reserves, and thus their actual present value, will be affected by
the timing of both the production and the incurrence of expenses in connection
with development and production of oil and gas properties. In addition, the 10%
discount factor, which is required by the Commission to be used to calculate
discounted future net cash flows for reporting purposes, is not necessarily the
most appropriate discount factor based on interest rates in effect from time to
time and risks associated with the Company or the oil and gas industry in
general.
COMPETITION
The Company operates in the highly competitive areas of oil and natural gas
exploration, development and production with other companies, many of which may
have substantially larger financial resources, staffs, and facilities. See
"Business -- Competition."
OPERATING HAZARDS AND UNINSURED RISKS
The Company's operations are subject to hazards and risks inherent in
drilling for and production and transportation of oil and natural gas, such as
fires, natural disasters, explosions, encountering formations with abnormal
pressures, blowouts, cratering, pipeline ruptures, and spills, any of which can
result in loss of hydrocarbons, environmental pollution, personal injury claims,
and other damage to properties of the Company and others. Additionally, the
Company's oil and gas operations are located in an area that is subject to
tropical weather disturbances, some of which can be severe enough to cause
substantial damage to facilities and possibly interrupt production. As
protection against operating hazards, the Company maintains insurance coverage
against some, but not all, potential losses. The Company's coverages include,
but are not limited to, operator's extra expense, physical damage on certain
assets, employer's liability, comprehensive general liability, automobile,
workers' compensation and loss of production income insurance. The Company
believes
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that its insurance is adequate and customary for companies of a similar size
engaged in operations similar to those of the Company, but losses could occur
for uninsurable or uninsured risks or in amounts in excess of existing insurance
coverage. The occurrence of an event that is not fully covered by insurance
could have an adverse impact on the Company's financial condition and results of
operations.
ABANDONMENT COSTS
Due to the Company's large number of offshore producing wells and expansive
production facilities, government regulations and lease terms will require the
Company to incur substantial abandonment costs. As of December 31, 1996, total
abandonment costs for the Company's properties estimated to be incurred through
2011 were approximately $84.0 million. Estimated abandonment costs have been
included in determining estimates of the Company's future net revenues from
proved reserves included herein, and the Company accounts for such costs through
its provision for depreciation, depletion and amortization. Under the terms of
the acquisition agreements for the Company's principal producing properties, the
Company is required to periodically fund restricted cash accounts as a reserve
for abandonment costs on such properties. See "Business -- Abandonment Costs"
and Note 12 to the audited consolidated financial statements of the Company
included elsewhere herein.
COMPLIANCE WITH GOVERNMENT REGULATIONS
The Company's business is subject to certain Federal, state, and local laws
and regulations relating to the exploration for, and the development, production
and transportation of, oil and natural gas, as well as environmental and safety
matters. Many of these laws and regulations have become more stringent in recent
years, often imposing greater liability on a larger number of potentially
responsible parties. Although the Company believes it is in substantial
compliance with all applicable laws and regulations, the requirements imposed by
such laws and regulations are frequently changed and subject to interpretation,
and the Company is unable to predict the ultimate cost of compliance with these
requirements or their effect on its operations. Under certain circumstances, the
Minerals Management Service ("MMS"), an agency of the U.S. Department of the
Interior, may require any Company operations on federal leases to be suspended
or terminated. Any such suspensions, terminations or inability to meet
applicable bonding requirements could materially and adversely affect the
Company's financial condition and operations. Although significant expenditures
may be required to comply with governmental laws and regulations applicable to
the Company, to date such compliance has not had a material adverse effect on
the earnings or competitive position of the Company. It is possible that such
regulations in the future may add to the cost of operating offshore drilling
equipment or may significantly limit drilling activity. See
"Business -- Abandonment Costs," "-- Governmental Regulation" and
"-- Environmental Matters."
DEPENDENCE UPON KEY PERSONNEL
The success of the Company has been and will continue to be highly
dependent on the Company's founder, James C. Flores, its Chairman of the Board,
President and Chief Executive Officer, and a limited number of other senior
management personnel. Loss of the services of Mr. Flores or any of those other
individuals could have a material adverse effect on the Company's operations.
The Company can make no assurance regarding the future affiliation of Mr. Flores
with the Company. See "Management."
RESTRICTIONS ON PAYMENT OF DIVIDENDS AND DIVIDEND POLICY
The Company does not currently intend to pay regular cash dividends on the
Common Stock. This policy will be reviewed by the Board of Directors of the
Company from time to time in light of, among other things, the Company's
earnings and financial position and limitations imposed by the Company's debt
instruments.
SUBORDINATION OF NOTES; HOLDING COMPANY STRUCTURE
The Indenture governing the Notes limits, but does not prohibit, the
incurrence by the Company of additional indebtedness that is senior in right of
payment to the Notes (including by reason of structural
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<PAGE> 22
subordination of the Notes to the indebtedness and other liabilities of the
Company's subsidiaries). In the event of bankruptcy, liquidation, reorganization
or other winding up of the Company, the assets of the Company will be available
to pay the Company's obligations on the Notes only after all Senior Indebtedness
(as defined) has been paid in full, and there may not be sufficient assets
remaining to pay amounts due on the Notes. In addition, under certain
circumstances, no payments may be made with respect to principal of, premium, if
any, or interest on the Notes if a default exists with respect to any Senior
Indebtedness. See "Description of Notes -- Subordination."
All of the Company's operating income and cash flow is generated by Ocean
Energy, Inc., a Louisiana corporation ("Ocean Louisiana"), and a wholly owned
subsidiary and Restricted Subsidiary. As a result, funds necessary to meet the
Company's debt service obligations, including the payment of principal and
interest on the Notes, will be provided by distributions or advances from this
subsidiary. In addition, for state income tax purposes Ocean Louisiana will
covenant with the Company to assume, as between the Company and Ocean Louisiana,
the payment obligations under the Notes in exchange for effecting the Tender
Offer and advancing the balance of the net proceeds of the Offering to Ocean
Louisiana. Such intercompany assumption will not affect the primary liability of
the Company under the Notes.
As of March 31, 1997, after giving pro forma effect to the Offering and the
tender of substantially all of the 13 1/2% Senior Notes, the Company and its
Restricted Subsidiaries would have had no material indebtedness that effectively
would rank senior to the Notes.
The Prior Indenture imposes limits on the ability of the Company and its
subsidiaries to incur additional indebtedness and liens and to enter into
agreements that would restrict the ability of such subsidiaries to make
distributions, loans or other payments to the Company. The Indenture contains
similar provisions. However, these limitations are subject to various
qualifications. Subject to certain limitations, the Company and its subsidiaries
may incur additional secured indebtedness. For additional details of these
provisions and the applicable qualifications, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources," and "Description of the Notes -- Subordination" and
"-- Certain Covenants."
FRAUDULENT CONVEYANCE CONSIDERATIONS RELATING TO SUBSIDIARY GUARANTEE
The Company's obligations under the Notes will be guaranteed on an
unsecured senior subordinated basis by the Subsidiary Guarantor. Various
fraudulent conveyance laws have been enacted for the protection of creditors and
may be utilized by a court of competent jurisdiction to subordinate or avoid any
Subsidiary Guarantee issued by a Subsidiary Guarantor. It is also possible that
under certain circumstances a court could hold that the direct obligations of
the Subsidiary Guarantor could be superior to the obligations under the
Subsidiary Guarantee.
To the extent that a court were to find that (x) a Subsidiary Guarantee was
incurred by the Subsidiary Guarantor with the intent to hinder, delay or defraud
any present or future creditor or that the Subsidiary Guarantor contemplated
insolvency with a design to favor one or more creditors to the exclusion in
whole or in part of others or (y) the Subsidiary Guarantor did not receive fair
consideration or reasonably equivalent value for issuing the Subsidiary
Guarantee and, at the time it issued the Subsidiary Guarantee, the Subsidiary
Guarantor (i) was insolvent or rendered insolvent by reason of the issuance of
the Subsidiary Guarantee, (ii) was engaged or about to engage in a business or
transaction for which the remaining assets of the Subsidiary Guarantor
constituted unreasonably small capital or, (iii) intended to incur, or believed
that it would incur, debts beyond its ability to pay such debts as they matured,
the court could avoid or subordinate the Subsidiary Guarantee in favor of the
Subsidiary Guarantor's other creditors. Among other things, a legal challenge of
the Subsidiary Guarantee issued by the Subsidiary Guarantor on fraudulent
conveyance grounds may focus on the benefits, if any, realized by the Subsidiary
Guarantor as a result of the issuance by the Company of the Notes. To the extent
the Subsidiary Guarantee is avoided as a fraudulent conveyance or held
unenforceable for any other reason, the holders of the Notes would cease to have
any claim in respect of such Subsidiary Guarantor and would be creditors solely
of the Company.
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<PAGE> 23
On that basis of financial information and other information currently
available to it, the Company believes that the Notes and the Subsidiary
Guarantee issued concurrently with the issuance of the Notes are being incurred
for proper purposes and in good faith and that, after giving effect to
indebtedness incurred in connection with the issuance of the Notes and the
issuance of the Subsidiary Guarantee, the Company and the Subsidiary Guarantor
are solvent and will continue to be solvent, will have sufficient capital for
carrying on their respective business and will be able to pay their debts as
such debts become absolute and mature. Further, since the Company has effected
the Tender Offer and advanced the balance of the net proceeds from the Offering
to Ocean Louisiana in order to apply such proceeds to their intended uses, the
Company believes that Ocean Louisiana received fair consideration or reasonably
equivalent value for the issuance of the Subsidiary Guarantee. There can be no
assurance, however, that a court passing on such questions would reach the same
conclusions. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Description of the Notes."
ABSENCE OF A PUBLIC MARKET FOR THE EXCHANGE NOTES
There is no existing trading market for the Exchange Notes and there can be
no assurance regarding the future development of such a market for the Exchange
Notes, the ability of holders of the Exchange Notes to sell their Exchange Notes
or the price at which such holders may be able to sell their Exchange Notes. If
a market for the Exchange Notes does develop, future trading prices will depend
on many factors, including, among other things, prevailing interest rates, the
operating results of the Company, and the market for similar securities. The
Company does not intend to apply for listing of the Exchange Notes on any
securities exchange or for quotation through The Nasdaq Stock Market.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by the Company on July 2, 1997, to the Initial
Purchasers pursuant to a Purchase Agreement, dated July 2, 1997, between the
Company and the Initial Purchasers (the "Purchase Agreement"). The Initial
Purchasers subsequently resold all of the Old Notes to Qualified Institutional
Buyers, each of whom agreed to comply with certain transfer restrictions and
other conditions. As a condition to the purchase of the Old Notes by the Initial
Purchasers, the Company entered into a registration rights agreement with the
Initial Purchasers (the "Registration Rights Agreement"), which requires, among
other things, that promptly following the issuance and sale of the Old Notes,
the Company file with the SEC the Registration Statement with respect to the
Exchange Notes, use its best efforts to cause the Registration Statement to
become effective under the Securities Act and, upon the effectiveness of the
Registration Statement, offer to the holders of the Old Notes the opportunity to
exchange their Old Notes for a like principal amount of Exchange Notes, which
will be issued without a restrictive legend and may be reoffered and resold by
the holder without restrictions or limitations under the Securities Act subject
to certain exceptions described below. A copy of the Registration Rights
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. The term "holder" with respect to the Exchange Offer
means any person in whose name Old Notes are registered on the Company's books
or any other person who has obtained a properly completed bond power from the
registered holder or any person whose Old Notes are held of record by the
Depositary who desires to deliver such Old Notes by book-entry transfer of the
Depositary.
Based on existing interpretations of the Securities Act by the staff of the
SEC set forth in several no-action letters to third parties, and subject to the
immediately following sentence, the Company believes that Exchange Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold and otherwise transferred by a holder thereof (other than (i) a
broker-dealer who purchased such Old Notes directly from the Company for resale
pursuant to Rule 144A or any other available exemption under the Securities Act
or (ii) a person that is an "affiliate" (within the meaning of Rule 405 of the
Securities Act) of the Company), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that the holder
is acquiring the Exchange Notes in its ordinary course of business and is not
participating, and has no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes. However, any purchaser
of Old Notes who is an affiliate of the Company or who intends to participate in
the Exchange Offer for the purpose of distributing the Exchange Notes, or any
broker-dealer who purchased the Old Notes from the Company to resell pursuant to
Rule 144A or any other available exemption under the Securities Act, (i) will
not be able to rely on the interpretations by the staff of the SEC set forth in
the above-mentioned no-action letters, (ii) will not be able to tender its Old
Notes in the Exchange Offer and (iii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
sale or transfer of the Old Notes unless such sale or transfer is made pursuant
to an exemption from such requirements. Accordingly, any holder who tenders in
the Exchange Notes must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. See "Plan of Distribution."
As a result of the filing and effectiveness of the Registration Statement
of which this Prospectus is a part, the Company will not be required to pay an
increased interest rate on the Old Notes. Following the consummation of the
Exchange Offer, holders of Old Notes not tendered will not have any further
registration rights except in certain limited circumstances requiring the filing
of a Shelf Registration Statement (as defined herein), and the Old Notes will
continue to be subject to certain restrictions on transfer. See "Description of
the Notes -- Registered Exchange Offer; Registration Rights." Accordingly, the
liquidity of the market for the Old Notes could be adversely affected.
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TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept all Old Notes properly
tendered and not withdrawn prior to 5:00 p.m. New York City time, on the
Expiration Date. After authentication of the Exchange Notes by the Trustee or an
authenticating agent, the Company will issue and deliver $1,000 principal amount
of Exchange Notes in exchange for each $1,000 principal amount of outstanding
Old Notes accepted in the Exchange Offer. Holders may tender some or all of
their Old Notes pursuant to the Exchange Offer in denominations of $1,000 and
integral multiples thereof.
Each holder of Old Notes who wishes to exchange Old Notes for Exchange
Notes in the Exchange Offer will be required to represent that (i) it is not an
affiliate of the Company, (ii) any Exchange Notes to be received by it were
acquired in the ordinary course of its business and (iii) it has no arrangement
or understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Notes.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. See "Plan of Distribution."
The form and terms of the Exchange Notes are identical in all material
respects to the form and terms of the Old Notes, except that (i) the offering of
the Exchange Notes has been registered under the Securities Act, (ii) the
Exchange Notes will not be subject to transfer restrictions and (iii) certain
provisions relating to an increase in the stated interest rate on the Old Notes
provided for under certain circumstances will be eliminated. The Exchange Notes
will evidence the same debt as the Old Notes. The Exchange Notes will be issued
under and entitled to the benefits of the Indenture.
As of the date of this Prospectus, $200,000,000 aggregate principal amount
of the Old Notes is outstanding. In connection with the issuance of the Old
Notes, the Company arranged for the Old Notes to be issued and transferable in
book-entry form through the facilities of the Depositary, acting as depositary.
The Exchange Notes will also be issuable and transferable in book-entry form
through the Depositary.
This Prospectus, together with the accompanying Letter of Transmittal, is
initially being sent to all registered holders of the Old Notes as of the close
of business on August , 1997. The Company intends to conduct the Exchange
Offer in accordance with the applicable requirements of the Exchange Act, and
the rules and regulations of the SEC thereunder, including Rule 14e-1, to the
extent applicable. The Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Old Notes being tendered, and holders of the Old
Notes do not have any appraisal or dissenters' rights under the General
Corporation Law of the State of Delaware or under the Indenture in connection
with the Exchange Offer. The Company shall be deemed to have accepted validly
tendered Old Notes when, as and if the Company has given oral or written notice
thereof to the Exchange Agent. See "-- Exchange Agent." The Exchange Agent will
act as agent for the tendering holders for the purpose of receiving Exchange
Notes from the Company and delivering Exchange Notes to such holders.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted Old Notes will be returned, at the
Company's cost, to the tendering holder thereof as promptly as practicable after
the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer.
See"-- Solicitation of Tenders, Fees and Expenses."
NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE COMPANY MAKES ANY
RECOMMENDATION TO HOLDERS OF OLD NOTES AS TO WHETHER TO TENDER OR
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REFRAIN FROM TENDERING ALL OR ANY PORTION OF THEIR OLD NOTES PURSUANT TO THE
EXCHANGE OFFER. MOREOVER, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH
RECOMMENDATION. HOLDERS OF OLD NOTES MUST MAKE THEIR OWN DECISION WHETHER TO
TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF OLD
NOTES TO TENDER AFTER READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND
CONSULTING WITH THEIR ADVISORS, IF ANY, BASED ON THEIR OWN FINANCIAL POSITION
AND REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1997, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date to which the Exchange Offer is extended. The Company may extend the
Exchange Offer at any time and from time to time by giving oral or written
notice to the Exchange Agent and by timely public announcement.
The Company expressly reserves the right, in its sole discretion (i) to
delay acceptance of any Old Notes, to extend the Exchange Offer or to terminate
the Exchange Offer and to refuse to accept Old Notes not previously accepted, if
any of the conditions set forth herein under "-- Conditions of the Exchange
Offer" shall have occurred and shall not have been waived by the Company (if
permitted to be waived by the Company), by giving oral or written notice of such
delay, extension or termination to the Exchange Agent and (ii) to amend the
terms of the Exchange Offer in any manner. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as practicable
by oral or written notice thereof by the Company to the registered holders of
the Old Notes. If the Exchange Offer is amended in a manner determined by the
Company to constitute a material change, the Company will promptly disclose such
amendment in a manner reasonably calculated to inform the holders of such
amendment and the Company will extend the Exchange Offer to the extent required
by law.
Without limiting the manner in which the Company may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the Exchange Offer, the Company shall have no obligation to publish, advise, or
otherwise communicate any such public announcement, other than by making a
timely release thereof to the Dow Jones News Service.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at a rate of 8 7/8% per annum,
payable semi-annually on January 15 and July 15 of each year, commencing January
15, 1998. Holders of Exchange Notes of record on January 1, 1998, will receive
on January 15, 1998, an interest payment in an amount equal to (x) the accrued
interest on such Exchange notes from the date of issuance thereof to January 15,
1998, plus (y) the accrued interest on the previously held Old Notes from the
date of issuance of such Old Notes (July 2, 1997) to the date of exchange
thereof. Interest will not be paid on Old Notes that are accepted for exchange.
The Notes mature on January 15, 2007.
PROCEDURES FOR TENDERING
Each holder of Old Notes wishing to accept the Exchange Offer must
complete, sign and date the Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal, or such facsimile, together with
the Old Notes to be exchanged and any other required documentation, to The Bank
of New York, as Exchange Agent, at the address set forth herein and therein or
effect a tender of Old Notes pursuant to the procedures for book-entry transfer
as provided for herein and therein. By executing the Letter of Transmittal, each
holder will represent to the Company, that, among other things, the Exchange
Notes acquired pursuant to the Exchange Offer are being acquired in the ordinary
course of business of the person receiving such Exchange Notes, whether or not
such person is the holder, that neither the holder nor any such other person has
any arrangement or understanding with any person to participate in the
distribution of such Exchange Notes and that neither the
22
<PAGE> 27
holder nor any such other person is an "affiliate," as defined in Rule 405 under
the Securities Act, of the Company.
Any financial institution that is a participant in the Depositary's
Book-entry Transfer Facility system may make book-entry delivery of the Old
Notes by causing the Depositary to transfer such Old Notes into the Exchange
Agent's account in accordance with the Depositary's procedure for such transfer.
Although delivery of Old Notes may be effected through book-entry transfer into
the Exchange Agent's account at the Depositary, the Letter of Transmittal (or
facsimile thereof), with any required signature guarantees and any other
required documents, must, in any case, be transmitted to and received by the
Exchange Agent at its address set forth herein under "-- Exchange Agent" prior
to 5:00 p.m., New York City time, on the Expiration Date. DELIVERY OF DOCUMENTS
TO THE DEPOSITARY IN ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY
TO THE EXCHANGE AGENT.
Only a holder may tender its Old Notes in the Exchange Offer. To tender in
the Exchange Offer, a holder must complete, sign and date the Letter of
Transmittal or a facsimile thereof, have the signatures thereof guaranteed if
required by the Letter of Transmittal, and mail or otherwise deliver such Letter
of Transmittal or such facsimile, together with the Old Notes (unless such
tender is being effected pursuant to the procedure for book-entry transfer) and
any other required documents, to the Exchange Agent, prior to 5:00 p.m., New
York City time, on the Expiration Date.
The Tender by a holder will constitute an agreement between such holder,
the Company and the Exchange Agent in accordance with the terms and subject to
the conditions set forth herein and in the Letter of Transmittal. If less than
all of the Old Notes are tendered, a tendering holder should fill in the amount
of Old Notes being tendered in the appropriate box on the Letter of Transmittal.
The entire amount of Old Notes delivered to the Exchange Agent will be deemed to
have been tendered unless otherwise indicated.
THE LETTER OF TRANSMITTAL WILL INCLUDE REPRESENTATIONS TO THE COMPANY THAT,
AMONG OTHER THINGS, (1) THE EXCHANGE NOTES ACQUIRED PURSUANT TO THE EXCHANGE
OFFER ARE BEING ACQUIRED IN THE ORDINARY COURSE OF BUSINESS OF THE PERSON
RECEIVING SUCH EXCHANGE NOTES (WHETHER OR NOT SUCH PERSON IS THE HOLDER), (2)
NEITHER THE HOLDER NOR ANY SUCH OTHER PERSON IS ENGAGED IN, INTENDS TO ENGAGE IN
OR HAS ANY ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN THE
DISTRIBUTION OF SUCH EXCHANGE NOTES, (3) NEITHER THE HOLDER NOR ANY SUCH OTHER
PERSON IS AN "AFFILIATE," AS DEFINED IN RULE 405 UNDER THE SECURITIES ACT, OF
THE COMPANY AND (4) IF THE TENDERING HOLDER IS A BROKER OR DEALER (AS DEFINED IN
THE EXCHANGE ACT) (a) IT ACQUIRED THE OLD NOTES FOR ITS OWN ACCOUNT AS A RESULT
OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES AND (b) IT HAS NOT
ENTERED INTO ANY ARRANGEMENT OR UNDERSTANDING WITH THE COMPANY OR ANY
"AFFILIATE" THEREOF (WITHIN THE MEANING OF RULE 405 UNDER THE SECURITIES ACT) TO
DISTRIBUTE THE EXCHANGE NOTES TO BE RECEIVED IN THE EXCHANGE OFFER. IN THE CASE
OF A BROKER-DEALER THAT RECEIVES EXCHANGE NOTES FOR ITS OWN ACCOUNT IN EXCHANGE
FOR OLD NOTES WHICH WERE ACQUIRED BY IT AS A RESULT OF MARKET-MAKING OR OTHER
TRADING ACTIVITIES, THE LETTER OF TRANSMITTAL WILL ALSO INCLUDE AN
ACKNOWLEDGMENT THAT THE BROKER-DEALER WILL DELIVER A COPY OF THIS PROSPECTUS IN
CONNECTION WITH THE RESALE BY IT OF EXCHANGE NOTES RECEIVED PURSUANT TO THE
EXCHANGE OFFER; HOWEVER, BY SO ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS,
SUCH HOLDER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE
MEANING OF THE SECURITIES ACT. SEE "PLAN OF DISTRIBUTION."
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDERS. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ENSURE DELIVERY TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
ALSO REQUEST THAT THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES EFFECT SUCH TENDER FOR HOLDERS, IN EACH CASE AS SET FORTH
HEREIN AND IN THE LETTER OF TRANSMITTAL.
23
<PAGE> 28
Any beneficial owner whose Old Notes are registered in the name of his
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial owner wishes to
tender on his own behalf, such beneficial owner must, prior to completing and
executing the Letter of Transmittal and delivering his Old Notes, either make
appropriate arrangements to register ownership of the Old Notes in such owner's
name or obtain a properly completed bond power from the registered holder. The
transfer of record ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (each an "Eligible Institution"), unless the Old
Notes tendered pursuant thereto are tendered (i) by a registered holder who has
not completed the box entitled "Special Registration Instructions" or "Special
Delivery Instructions" of the Letter of Transmittal or (ii) for the account of
an Eligible Institution. If the Letter of Transmittal is signed by a person
other than the registered holder listed therein, such Old Notes must be endorsed
or accompanied by appropriate bond powers which authorize such person to tender
the Old Notes on behalf of the registered holder, in either case signed as the
name of the registered holder or holders appears on the Old Notes. If the Letter
of Transmittal or any Old Notes or bond powers are signed or endorsed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
person should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with such Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Old Notes will be determined
by the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the absolute right to waive an irregularities or conditions of tender
as to particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Company shall determine. Although the Company intends to
notify holders of defects or irregularities with respect to tenders of Old
Notes, neither the Company, the Exchange Agent nor any other person shall be
under any duty to give notification of defects or irregularities with respect to
tenders of Old Notes, nor shall any of them incur any liability for failure to
give such notification. Tenders of Old Notes will not be deemed to have been
made until such irregularities have been cured or waived. Any Old Notes received
by the Exchange Agent that the Company determines are not properly tendered or
the tender of which is otherwise rejected by the Company and as to which the
defects or irregularities have not been cured or waived by the Company will be
returned by the Exchange Agent to the tendering holder unless otherwise provided
in the Letter of Transmittal, as soon as practicable following the Expiration
Date.
In addition, the Company reserves the right in its sole discretion (a) to
purchase or make offers for any Old Notes that remain outstanding subsequent to
the Expiration Date, or, as set forth under " -- Conditions of the Exchange
Offer," terminate the Exchange Offer and (b) to the extent permitted by
applicable law, to purchase Old Notes in the open market, in privately
negotiated transactions or otherwise. The terms of any such purchases or offers
may differ from the terms of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Old Notes at the DTC (the "Book-Entry Transfer Facility") for the purpose of
facilitating the Exchange Offer, and subject to the establishment thereof, any
financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry deliver of Old Notes by causing such
Book-Entry Transfer Facility to transfer such Old Notes into the
24
<PAGE> 29
Exchange Agent's account with respect to the Old Notes in accordance with the
Book-Entry Transfer Facility's procedures for such transfer. ALTHOUGH DELIVERY
OF OLD NOTES MAY BE EFFECTED THROUGH BOOK-ENTRY TRANSFER INTO THE EXCHANGE
AGENT'S ACCOUNT AT THE BOOK-ENTRY TRANSFER FACILITY, AN APPROPRIATE LETTER OF
TRANSMITTAL PROPERLY COMPLETED AND DULY EXECUTED WITH ANY REQUIRED SIGNATURE
GUARANTEE AND ALL OTHER REQUIRED DOCUMENTS MUST IN EACH CASE BE TRANSMITTED TO
AND RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT AT ITS ADDRESS SET FORTH BELOW
ON OR PRIOR TO THE EXPIRATION DATE, OR, IF THE GUARANTEED DELIVERY PROCEDURES
DESCRIBED BELOW ARE COMPLIED WITH, WITH THE TIME PERIOD PROVIDED UNDER SUCH
PROCEDURES. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, or who cannot complete the procedure for book-entry transfer on
a timely basis, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmittal, mail or hand delivery)
setting forth the name and address of the holder, the certificate number or
numbers of such holder's Old Notes and the principal amount of such Old
Notes tendered, stating that the tender is being made thereby, and
guaranteeing that, within three New York Stock Exchange ("NYSE") trading
days after the Expiration Date, the Letter of Transmittal (or facsimile
thereof), together with the certificate(s) representing the Old Notes to be
tendered in proper form for transfer (or confirmation of a book-entry
transfer into the Exchange Agent's account at the Depositary of Old Notes
delivered electronically) and any other documents required by the Letter of
Transmittal, will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), together with the certificate(s) representing all
tendered Old Notes in proper form for transfer (or confirmation of a
book-entry transfer into the Exchange Agent's account at the Depositary of
Old Notes delivered electronically) and all other documents required by the
Letter of Transmittal are received by the Exchange Agent within three NYSE
trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
For a withdrawal to be effective, a written or facsimile transmission
notice of withdrawal must be received by the Exchange Agent at its address set
forth herein prior to 5:00 p.m., New York City time, on the Expiration Date. Any
such notice of withdrawal must (i) specify the name of the person having
deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old
Notes to be withdrawn (including the certificate number or numbers and principal
amount of such Old Notes or, in the case of Old Notes transferred by book-entry
transfer, the name and number of the account at the Depositary to be credited),
(iii) be signed by the Depositor in the same manner as the original signature on
the Letter of Transmittal by which such Old Notes were tendered (including any
required signature guarantee) or be accompanied by documents of transfer
sufficient to permit the Trustee with respect to the Old Notes to register the
transfer of such Old Notes into the name of the Depositor withdrawing the tender
and (iv) specify the name in which any such Old Notes are to be registered, if
different from that of the Depositor. All questions as to the validity, form and
eligibility (including time of receipt) of such withdrawal notices will be
determined by the Company, whose determination shall be final and binding on all
parties. Any Old Notes so withdrawn will be
25
<PAGE> 30
deemed not to have been validly tendered for purposes of the Exchange Offer, and
no Exchange Notes will be issued with respect thereto unless the Old Notes so
withdrawn are validly retendered. Any Old Notes that have been tendered but are
not accepted for exchange will be returned to the holder thereof without cost to
such holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be
retendered by following one of the procedures described above under
"-- Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or to exchange Exchange Notes for, any Old
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Old Notes if, in the Company's judgment, any of the
following conditions has occurred or exists or has not been satisfied: (i) that
the Exchange Offer, or the making of any exchange by a holder, violates
applicable law or any applicable interpretation of the staff of the SEC, (ii)
that any action or proceeding shall have been instituted or threatened in any
court or by or before any governmental agency or body with respect to the
Exchange Offer, (iii) that there has been adopted or enacted any law, statute,
rule or regulation that can reasonably be expected to impair the ability of the
Company to proceed with the Exchange Offer, (iv) that there has been declared by
United States federal or Texas or New York state authorities a banking
moratorium; or (v) that trading on the New York Stock Exchange or generally in
the United States over-the-counter market has been suspended by order of the SEC
or any other governmental agency, in each of clauses (i) through (iv) which, in
the Company's judgment, would reasonably be expected to impair the ability of
the Company to proceed with the Exchange Offer.
If the Company determines that it may terminate the Exchange Offer for any
of the reasons set forth above, the Company may (i) refuse to accept any Old
Notes and return any Old Notes that have been tendered to the holders thereof,
(ii) extend the Exchange Offer and retain all Old Notes tendered prior to the
Expiration Date of the Exchange Offer, subject to the rights of such holders of
tendered Old Notes to withdraw their tendered Old Notes or (iii) waive such
termination event with respect to the Exchange Offer and accept all properly
tendered Old Notes that have not been withdrawn. If such waiver constitutes a
material change in the Exchange Offer, the Company will disclose such change by
means of a supplement to this Prospectus that will be distributed to each
registered holder, and the Company will extend the Exchange Offer for a period
of five to ten business days, depending upon the significance of the waiver and
the manner of disclosure to the registered holders, if the Exchange Offer would
otherwise expire during such period.
EXCHANGE AGENT
State Street Bank and Trust Company, the Trustee under the Indenture, has
been appointed as Exchange Agent for the Exchange Offer. In such capacity, the
Exchange Agent has no fiduciary duties and will be acting solely on the basis of
directions of the Company. Requests for assistance and requests for additional
copies of this Prospectus or of the Letter of Transmittal should be directed to
the Exchange Agent addressed as follows:
<TABLE>
<CAPTION>
State Street Bank and Trust Company, Exchange Agent
<C> <C>
By Mail or Hand Delivery: By Facsimile Transmission:
State Street Bank and Trust Company (for Eligible Institutions only):
777 Main Street, MSN 238 (860)986-7920
Hartford, Connecticut 06115 Attention: Elizabeth Hammer
Attention: Elizabeth Hammer Confirm by Telephone:
(860)986-2064
</TABLE>
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
Delivery to an address or facsimile number other than those listed above will
not constitute a valid delivery.
26
<PAGE> 31
SOLICITATION OF TENDERS; FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation pursuant to the Exchange Offer
is being made by mail. Additional solicitations may be made by officers and
regular employees of the Company and its affiliates in person, by telegraph,
telephone or telecopier.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or other
persons soliciting acceptances of the Exchange Offer. The Company will, however,
pay the Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for its reasonable out-of-pocket costs and expenses
in connection therewith and will indemnify the Exchange Agent for all losses and
claims incurred by it as a result of the Exchange Offer. The Company may also
pay brokerage houses and other custodians, nominees and fiduciaries the
reasonable out-of-pocket expenses incurred by them in forwarding copies of this
Prospectus, Letters of Transmittal and related documents to the beneficial
owners of the Old Notes and in handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee and accounting and
legal fees and printing costs, will be paid by the Company.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person other than the registered holder of the Old Notes
tendered, or if tendered Old Notes are registered in the name of any person
other than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed by the Company directly to such tendering holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, as reflected in the Company's accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company as a result of the consummation of the Exchange Offer.
The expenses of the Exchange Offer will be amortized by the Company over the
term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Old Notes
are urged to consult their financial and tax advisors in making their own
decisions as to what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Notes pursuant to the terms of, this Exchange Offer, the
Company will have fulfilled a covenant contained in the Registration Rights
Agreement. Holders of the Old Notes who do not tender their Old Notes in the
Exchange Offer will continue to hold such Old Notes and will be entitled to all
the rights, and subject to the limitations applicable thereto, under the
Indenture and the Registration Rights Agreement, except for any such rights
under the Registration Rights Agreement that by their terms terminate or cease
to have further effect as a result of the making of this Exchange Offer. See
"Description of the Notes." All untendered Old Notes will continue to be subject
to the restrictions on transfer set forth in the Indenture. The Old Notes may
not be offered, resold, pledged or otherwise transferred, prior to the date that
is two years after the later of July 2, 1997 and the last date on which the
Company or any "affiliate" (within the meaning of Rule 144 of the Securities
Act) of the Company was the owner of such Old Note except (i) to the Company,
(ii) pursuant to a registration statement which has been declared effective
under the Securities Act, (iii) to Qualified Institutional Buyers in reliance
upon the exemption from the registration requirements of the Securities Act
27
<PAGE> 32
provided by Rule 144A, (iv) to institutional "accredited investors" (as defined
in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) in transactions
exempt from the registration requirements of the Securities Act, (v) in
transactions complying with the provisions of Regulation S under the Securities
Act or (vi) pursuant to any other available exemption from the registration
requirements under the Securities Act. To the extent that Old Notes are tendered
and accepted in the Exchange Offer, the liquidity of the trading market for
untendered Old Notes could be adversely affected.
The Company may in the future seek to acquire untendered Old Notes in the
open market or through privately negotiated transactions, through subsequent
exchange offers or otherwise. The Company intends to make any such acquisitions
of Old Notes in accordance with the applicable requirements of the Exchange Act
and the rules and regulations of the SEC thereunder, including Rule 14e-1, to
the extent applicable. The Company has no present plan to acquire any Old Notes
that are not tendered in the Exchange Offer or to file a registration statement
to permit resales of any Old Notes that are not tendered in the Exchange Offer.
28
<PAGE> 33
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
as contemplated in this Prospectus, the Company will receive in exchange Old
Notes in like principal amount. The form and terms of the Exchange Notes are
identical in all material respects to the form and terms of the Old Notes,
except that (i) the offering of the Exchange Notes has been registered under the
Securities Act, (ii) the Exchange Notes will not be subject to transfer
restrictions and (iii) certain provisions relating to an increase in the stated
interest rate on the Old Notes provided for under certain circumstances will be
eliminated. The Old Notes surrendered in exchange for Exchange Notes will be
retired and canceled and cannot be reissued. Accordingly, issuance of the
Exchange Notes will not result in a change in the indebtedness of the Company.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of March 31, 1997, and as adjusted to give effect to the Offering and
the assumed application of the net proceeds therefrom. The information presented
below should be read in conjunction with the consolidated financial statements
of the Company and notes thereto, "Selected Historical Financial and Operating
Data" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in or incorporated by reference into
this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt:
Revolving Credit Facility(1).............................. $ 17,000 $ --
Senior Notes.............................................. 125,000 245
Senior Subordinated Notes................................. 159,164 159,164
8 7/8% Senior Subordinated Notes due 2007................. -- 199,660
-------- --------
Total long-term debt.............................. 301,164 354,069
Stockholders' Equity:
Preferred stock, $.01 par value, 10,000,000 shares
authorized, no shares issued and outstanding, actual
and as adjusted........................................ -- --
Common stock, $.01 par value, 100,000,000 shares
authorized, 19,641,356 shares issued and outstanding... 196 196
Additional paid-in capital................................ 91,836 91,836
Retained earnings(2)...................................... 23,069 4,344
-------- --------
Total stockholders' equity........................ 115,101 96,376
-------- --------
Total capitalization.............................. $416,265 $455,445
======== ========
</TABLE>
- ---------------
(1) Outstanding borrowings under the Revolving Credit Facility were
approximately $83.5 million at June 15, 1997. Consequently, the net proceeds
of the Offering were insufficient to repay all such indebtedness after
completion of the Tender Offer.
(2) The As Adjusted amount reflects the estimated after-tax loss resulting from
the Tender Offer, including the write-off of deferred financing costs of the
Senior Notes.
29
<PAGE> 34
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA
The summary historical financial data set forth below for the period from
inception (April 20, 1992) through December 31, 1992, and the years ended
December 31, 1993, 1994, 1995 and 1996 for the Company have been derived from
the audited financial statements and notes thereto contained elsewhere in this
Prospectus. The financial data for the three months ended March 31, 1996 and
1997 are derived from unaudited financial statements of the Company. The summary
historical financial data are qualified in their entirety by, and should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and the notes thereto
included elsewhere in this Prospectus. For additional information relating to
the Company's operations, see "Business."
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(APRIL 20, 1992) THREE MONTHS
THROUGH YEAR ENDED DECEMBER 31, ENDED MARCH 31,
DECEMBER 31, ------------------------------------------ ------------------
1992 1993 1994 1995 1996 1996 1997
---------------- -------- --------- -------- -------- ------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS AND OTHER
FINANCIAL DATA:
REVENUES & EXPENSE DATA:
Revenues................................ $13,279 $ 47,483 $ 75,395 $127,970 $188,451 $36,829 $ 64,477
Direct Operating Expenses............... 6,687 19,201 30,324 40,047 47,098 11,331 15,383
General & Administrative Expenses....... 385 5,032 10,351 11,312 16,154 3,258 4,335
Depreciation, Depletion &
Amortization.......................... 3,420 20,140 36,459 54,084 74,652 14,350 22,895
Interest Expense........................ 241 1,055 4,507 17,620 17,954 4,512 6,460
Loss on Production Payment Repurchase
and Refinancing(1).................... -- -- 16,681 -- -- -- --
Net Income (Loss) Before Income Tax
Expense (Benefit)..................... 2,584 2,227 (22,179) 5,210 32,988 3,120 15,890
Income Tax Expense (Benefit)(2)......... -- -- -- (4,692) 12,037 1,219 5,959
Net Income (Loss)....................... 2,584 2,227 (22,179) 9,902 20,951 1,901 9,931
Earnings per Common Share(3)
Primary............................... -- -- -- $ 0.65 $ 1.07 $ 0.12 $ 0.48
Fully diluted......................... -- -- -- 0.65 1.05 0.12 0.48
OTHER FINANCIAL DATA:
EBITDA(4)............................... $ 6,245 $ 23,422 $ 35,855 $ 77,645 $129,100 $22,158 $ 45,734
Net Cash Provided By (Used In) Operating
Activities(5)......................... 38,042 103,112 (115,485) 58,880 125,989 19,790 50,493
Capital Expenditures(6)................. 34,978 123,600 74,477 73,652 251,305 21,552 118,405
Ratio of EBITDA to Interest Expense..... -- -- -- 4.4x 7.2x 4.9x 7.1x
Ratio of Earnings to Fixed Charges(7)... 11.1x 3.0x N.M. 1.3x 2.8x 1.7x 3.4x
OPERATING DATA:
Sales Volumes:
Oil (MBbls)........................... 670 2,850 4,286 6,057 7,149 1,558 2,032
Gas (MMcf)............................ 1,484 3,704 7,234 12,393 18,720 3,310 6,755
MBOE.................................. 917 3,467 5,492 8,123 10,269 2,110 3,158
Average Prices(8):
Oil (per Bbl)......................... $ 16.18 $ 13.82 $ 14.24 $ 17.39 $ 21.58 $ 19.25 $ 21.99
Gas (per MCF)......................... 1.64 1.81 1.76 1.82 2.79 3.22 2.99
BOE (per BOE)......................... 14.48 13.30 13.42 15.75 20.10 19.28 20.55
Lease Operating Expenses (per BOE)...... $ 5.45 $ 4.10 $ 4.29 $ 3.70 $ 3.52 $ 4.00 $ 4.02
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
--------------------------------------------------- MARCH 31,
1992 1993 1994 1995 1996 1997
------- -------- -------- -------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Oil and Gas Assets, Net.............................. $30,998 $122,374 $160,311 $179,944 $355,698 $451,208
Total Assets......................................... 36,837 131,613 181,344 215,457 460,710 508,770
Long-Term Debt....................................... -- 13,448 154,039 171,692 284,142 301,164
Deferred Revenue on Production Payments(9)........... 32,347 108,784 -- -- -- --
Stockholders' Equity................................. 349 (825) 9,703 19,976 105,153 115,101
</TABLE>
30
<PAGE> 35
- ---------------
(1) The amount shown for the year ended December 31, 1994 represents primarily
the excess of the purchase price of production payments over the book value
of such production payments liability as of December 7, 1994.
(2) The Company was formed as an S corporation under the Internal Revenue Code
and, as such, all income taxes were the obligation of the Company's
stockholders. Therefore, through the date of the Initial Offerings (as
defined herein), no historical federal or state income tax expense has been
provided for in the financial statements. In conjunction with the Company's
initial public offering, the Company converted to a C corporation under the
Internal Revenue Code. The Company recorded a deferred tax asset of $6.3
million, offset by a valuation allowance of $6.3 million at December 31,
1994 and a deferred tax asset of $4.7 million at December 31, 1995. As a
result of the reversal of the valuation allowance, the Company recorded a
net income tax benefit of $4.7 million in the year ended December 31, 1995.
(3) If the Company had recognized a tax provision at statutory rates for the
year ended December 31, 1995, rather than an income tax benefit, earnings
per common share would have been $0.22 for such period. Earnings per share
has not been presented for periods prior to or including the date of the
Initial Offerings, as these amounts would not be meaningful or indicative of
the ongoing entity.
(4) Earnings before interest, taxes, depreciation, depletion and amortization.
EBITDA has not been reduced for the recognition of noncash revenues
associated with production payments. EBITDA is not intended to represent
cash flow in accordance with generally accepted accounting principles and
does not represent the measure of cash available for distribution. EBITDA is
not intended as an alternative to earnings from continuing operations or net
income.
(5) Cash flow from operating activities in 1992 and 1993 includes $36.8 million
and $95.7 million, respectively, from the sale of production payments. Cash
flow from operating activities for the year ended December 31, 1994 was
reduced by $123.6 million related to the repurchase of such production
payments.
(6) Includes $34.3 million in the year ended December 31, 1992 related to the
acquisition of properties in the Delta Area, $115.5 million in the year
ended December 31, 1993 related to the acquisition of additional properties
in the Delta Area, $117.6 million in the year ended December 31, 1996
related to the acquisition of Central Gulf Area Properties and $55.9 million
in the quarter ended March 31, 1997 related to the acquisition of additional
properties in the Delta Area.
(7) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as earnings from continuing operations before income taxes, plus
fixed charges. Fixed charges consist of interest expense on all
indebtedness. The ratio for the year ended December 31, 1994 is not
meaningful because earnings were inadequate to cover fixed charges by $22.3
million.
(8) Excludes results of hedging activities which increased (decreased) revenue
recognized in the 1993, 1994, 1995 and 1996 periods by $1.2 million, $1.7
million, $(0.5) million and $(18.7) million, respectively and by $(3.9)
million and $(0.6) million in the three months ended March 31, 1996 and
March 31, 1997. Including the effect of hedging activities, the Company's
average oil price per Bbl received was $14.23, $14.56, $17.27 and $19.70 in
the years ended December 31, 1993, 1994, 1995 and 1996, respectively, and
the average gas price per Mcf received was $1.81, $1.84 and $2.50 in the
years ended December 31, 1994, 1995 and 1996, respectively. In the three
months ended March 31, 1996 and 1997, the Company's average oil price
including hedging activities per Bbl received was $18.71 and $21.69,
respectively, and the average gas price per Mcf received was $2.31 in the
three months ended March 31, 1996. The Company did not enter into any
hedging activities relating to oil during 1992 or relating to gas during
1992, 1993 and in the three months ended March 31, 1997.
(9) Amounts represent deferred revenues recognized from the sale of production
payments. See Note 4 to the consolidated financial statements of the
Company.
31
<PAGE> 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of the Company's financial
condition and results of operations and should be read in conjunction with the
Company's consolidated financial statements and the notes thereto included
elsewhere in or incorporated by reference into this Prospectus.
GENERAL
The Company is an independent energy company engaged in the exploration,
development, acquisition and production of crude oil and natural gas with
operations focused primarily in the Eastern and Central Gulf of Mexico and
coastal onshore Louisiana, some of the most prolific oil and gas producing
regions in the United States. As of March 31, 1997, the Company had estimated
proved reserves of approximately 59.9 MMBbls of oil and 167.4 Bcf of natural
gas, or an aggregate of approximately 87.8 MMBOE, with a Present Value of Future
Net Revenues of approximately $498.5 million and a Standardized Measure of
Discounted Future Net Cash Flows of approximately $420.0 million. On a BOE
basis, approximately 68% of the Company's proved reserves on such date were oil.
The majority of the Company's existing proved reserves are attributable to
Company operated wells or leases and approximately 74% of these reserves were
classified as proved developed at March 31, 1997.
The following table reflects certain information with respect to the
Company's oil and gas properties. Sales volumes, revenues and average sales
prices presented below have been segregated into those subject to production
payments and amounts in excess of production payments in the applicable periods.
On December 7, 1994, the Company purchased an outstanding 12 1/2% minority
interest in a portion of the Delta Area (the "Minority Interest"). The amounts
for the year ended December 31, 1994 do not reflect the Minority Interest prior
to its acquisition.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------
1994 1995 1996 1996 1997
------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C>
SALES VOLUMES
Oil (MBbls)
Excess Over Production
Payments.................... 2,771 6,057 7,149 1,558 2,032
Production Payments........... 1,515 -- -- -- --
------- -------- -------- ------- -------
Total Oil Volumes........ 4,286 6,057 7,149 1,558 2,032
======= ======== ======== ======= =======
Gas (MMcf)
Excess Over Production
Payments.................... 3,456 12,393 18,720 3,310 6,755
Production Payments........... 3,778 -- -- -- --
------- -------- -------- ------- -------
Total Gas Volumes........ 7,234 12,393 18,720 3,310 6,755
======= ======== ======== ======= =======
REVENUES (1)
Oil
Excess Over Production
Payments.................... $43,106(2) $105,360 $154,284 $30,005 $44,694
Production Payments........... 17,906 -- -- -- --
------- -------- -------- ------- -------
Total Oil Revenues....... $61,012 $105,360 $154,284 $30,005 $44,694
======= ======== ======== ======= =======
Gas
Excess Over Production
Payments.................... $ 6,757 $ 22,581 $ 52,175 $10,672 $20,196
Production Payments........... 5,951 -- -- -- --
------- -------- -------- ------- -------
Total Gas Revenues....... $12,708 $ 22,581 $ 52,175 $10,672 $20,196
======= ======== ======== ======= =======
</TABLE>
32
<PAGE> 37
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------
1994 1995 1996 1996 1997
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
AVERAGE SALES PRICES (1)
Oil (per Bbl)
Excess over Production
Payments.................... $ 15.56(2) $ 17.39 $ 21.58 $ 19.25 $ 21.99
Production Payments........... 11.82 -- -- -- --
Net Average Oil Price......... 14.24 17.39 21.58 19.25 21.99
Gas (per Mcf)
Excess over Production
Payments.................... $ 1.96 $ 1.82 $ 2.79 $ 3.22 $ 2.99
Production Payments........... 1.58 -- -- -- --
Net Average Gas Price......... 1.76 1.82 2.79 3.22 2.99
BOE (per BOE)
Excess over Production
Payments.................... $ 14.90 $ 15.75 $ 20.10 $ 19.28 $ 20.55
Production Payments........... 11.12 -- -- -- --
Net Average Price............. 13.42 15.75 20.10 19.28 20.55
Severance Taxes (3)................ $ 6,747 $ 10,023 $ 10,906 $ 2,886 $ 2,672
Lease Operating Expenses (3)....... $23,577 $ 30,023 $ 36,192 $ 8,446 $12,711
Lease Operating Expenses (per
BOE)............................. $ 4.29 $ 3.70 $ 3.52 $ 4.00 $ 4.02
</TABLE>
- ---------------
(1) Excludes results of hedging activities which increased (decreased) revenue
recognized in the 1994, 1995 and 1996 periods by $1.7 million, $(0.5)
million and $(18.7) million, respectively, and by $(3.9) million and $(0.6)
million in the three months ended March 31, 1996 and 1997, respectively.
Including the effect of hedging activities, the Company's average oil price
received was $14.56, $17.27 and $19.70 in the years ended December 31, 1994,
1995 and 1996, respectively, and the average gas price received was $1.81,
$1.84 and $2.50 in the years ended December 31, 1994, 1995 and 1996,
respectively. In the three months ended March 31, 1996 and 1997, including
hedging activities, the Company's average oil price received was $18.71 and
$21.69, respectively, and the average gas price received was $2.31 in the
three months ended March 31, 1996. No gas volumes were hedged in the three
months ended March 31, 1997.
(2) Includes sales of 800 MBbls for the year ended December 31, 1994, subject to
a long-term contract at prices averaging $1.29 per Bbl for the eleven months
ended November 30, 1994. See "Business -- Oil and Gas Marketing and Major
Customers."
(3) Volumes delivered under production payments were received by Enron Reserve
Acquisition Corp. free and clear of severance taxes and lease operating
expenses. These costs were borne in full by the Company under the terms of
the production payments.
33
<PAGE> 38
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997
Revenues. The following table reflects an analysis of differences in the
Company's oil and gas revenues (expressed in thousands of dollars) between the
three months ending March 31, 1997 and the comparable period in 1996:
<TABLE>
<CAPTION>
FIRST QUARTER 1997
COMPARED TO
FIRST QUARTER 1996
------------------
<S> <C>
Increase (decrease) in oil and gas revenues resulting from
differences in:
Crude oil and condensate --
Price.................................................. $ 5,565
Production............................................. 9,124
-------
14,689
Natural gas --
Price.................................................. (1,580)
Production............................................. 11,105
-------
9,525
-------
Hedging and other, net.................................... 3,434
-------
Increase in oil and gas revenues............................ $27,648
=======
</TABLE>
The Company's total revenues increased approximately $27.6 million, or 75%,
to $64.5 million for the three months ended March 31, 1997, from $36.8 million
for the comparable period in 1996. Production levels for the three months ended
March 31, 1997, increased 50% to 3,158 MBOE from 2,110 MBOE for the comparable
period in 1996. The Company's average sales prices (excluding hedging
activities) for oil and natural gas for the three months ended March 31, 1997
were $21.99 per Bbl and $2.99 Mcf versus $19.25 per Bbl and $3.22 per Mcf in the
prior period. Revenues increased by $20.2 million due to the aforementioned
production increases and by $4.0 million as a result of increased oil and gas
prices. The increases for the three months ended March 31, 1997, included
additional production of 576 MBOE and related revenues of $11.6 million
associated with the acquisition of certain interests in the Central Gulf Area on
September 26, 1996. For the three months ended March 31, 1997, the Company's
total revenues were further affected by a $3.3 million increase related to
hedging activities. In order to manage its exposure to price risks in the sale
of its crude oil and natural gas, the Company from time to time enters into
price hedging arrangements. See "-- Other Matters -- Energy Swap Agreements."
The Company's average sales prices (including hedging activities) for oil for
the three months ended March 31, 1997, were $21.69 per Bbl versus $18.71 per Bbl
in the prior year period. The average sales price (including hedging activities)
for gas for the three months ended March 31, 1996, was $2.31 per Mcf. No gas
volumes were hedged in the three months ended March 31, 1997.
Lease operating expenses. On a BOE basis, lease operating expense remained
relatively unchanged at $4.02 per BOE for the three months ended March 31, 1997
from $4.00 per BOE in the comparable 1996 period. For the three months ended
March 31, 1997, lease operating expenses were $12.7 million, as compared to $8.4
million in the comparable 1996 period. This increase partially results from
fluctuations in operating expenses associated with increased production and an
increase of approximately $3.2 million relating to lease operating expenses
associated with the newly acquired Central Gulf Area. In addition, workover
expenses for the three months ended March 31, 1997, increased by $.6 million to
$1.7 million, as compared to $1.1 million in the comparable 1996 period.
Severance taxes. The effective severance tax rate as a percentage of oil
and gas revenues (excluding the effect of hedging activities) decreased to 4.1%
for the three months ended March 31, 1997, from 7.1% in the comparable period in
1996. The decrease was primarily due to increased production from new wells on
federal leases, including wells located on the Central Gulf Area, and from state
leases which were exempt from the state severance tax under Louisiana's
severance tax abatement program.
34
<PAGE> 39
General and administrative expenses. For the three months ended March 31,
1997, general and administrative expenses were $4.4 million as compared to $3.3
million in the comparable 1996 period. This increase is primarily due to costs
associated with increased corporate staffing associated with both an increase in
drilling activities and the Company's acquisition of the Central Gulf Area and
an increase in franchise taxes, partially offset in the 1997 period by an
increase in the capitalization of a portion of the salaries paid to employees
directly engaged in the acquisition, exploration and development of oil and gas
properties.
Depreciation, depletion, and amortization expense. For the three months
ended March 31, 1997, depreciation, depletion and amortization ("DD&A") expense
was $22.9 million as compared to $14.4 million in the comparable 1996 period. On
a BOE basis, DD&A for the three months ended March 31, 1997, was $7.25 per BOE
as compared to $6.80 per BOE for the three months ended March 31, 1996. This
variance can primarily be attributed to (i) the Company's increased production
and related current and future capital costs from the 1996 and 1997 drilling
programs and (ii) the Company's purchase of the Central Gulf Area, partially
offset by the increase to proved reserves resulting from such drilling programs
and the acquisition.
Interest expenses. For the three months ended March 31, 1997, interest
expense increased to $6.5 million from interest expense of $4.5 million in the
comparable 1996 period. This increase in interest expense can primarily be
attributed to interest expense of approximately $3.9 million in the three months
ended March 31, 1997, relating to the issuance of the Senior Subordinated Notes
on September 26, 1996, partially offset by increases in the amount of interest
capitalized in the 1997 period, resulting from an increase in the Company's
unevaluated assets, including additional seismic data and acreage.
Income tax expense. For the three months ended March 31, 1997, the Company
recorded income tax expenses of $6.0 million, as compared to $1.2 million in the
1996 period.
Net income. Due to the factors described above, net income increased to
$9.9 million for the three months ended March 31, 1997, from $1.9 million for
the comparable period in 1996.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
Revenues. The following table reflects an analysis of differences in the
Company's oil and gas revenues (expressed in thousands of dollars) between the
year ended December 31, 1996, and the comparable 1995 period:
<TABLE>
<CAPTION>
YEAR ENDED 1996
COMPARED TO
YEAR ENDED 1995
---------------
<S> <C>
Increase (decrease) in oil and gas
revenues resulting from differences
in:
Crude oil and condensate --
Price.............................. $ 29,929
Production......................... 18,995
--------
48,924
Natural gas --
Price.............................. 18,067
Production......................... 11,527
--------
29,594
--------
Hedging and other, net................ (18,037)
--------
Increase in oil and gas revenues........ $ 60,481
========
</TABLE>
The Company's total revenues increased approximately $60.5 million, or 47%,
to $188.5 million for the year ended December 31, 1996, from $128.0 million for
the comparable period in 1995. Production levels for the year ended December 31,
1996, increased 26% to 10,269 MBOE from 8,123 MBOE for the comparable period in
1995. The Company's average sales prices (excluding hedging activities) for oil
and natural gas for the year ended December 31, 1996 were $21.58 per Bbl and
$2.79 per Mcf versus $17.39 per Bbl and $1.82 per Mcf in the prior period.
Revenues increased by $30.5 million due to the aforementioned production
increases
35
<PAGE> 40
and by $48.0 million as a result of increased oil and gas prices. For the year
ended December 31, 1996, the Company recognized additional production of 680
MBOE and related revenues of $14.8 million associated with the acquisition of
the Central Gulf Area.
For the year ended December 31, 1996, the Company's total revenues were
further affected by a $18.2 million decrease in hedging revenues. In order to
manage its exposure to price risks in the sale of its crude oil and natural gas,
the Company from time to time enters into price hedging arrangements. See
"-- Other Matters -- Energy Swap Agreements." The Company's average sales prices
(including hedging activities) for oil and natural gas for the year ended
December 31, 1996, were $19.70 per Bbl and $2.50 per Mcf versus $17.27 per Bbl
and $1.84 per Mcf in the prior period.
Lease operating expenses. Lease operating expenses decreased to $3.52 per
BOE for the year ended December 31, 1996, from $3.70 per BOE in the comparable
1995 period. This decrease is primarily the result of increased production in
the Company's oil and gas fields, which have substantial fixed operating costs
due to the capital intensive nature of the facilities and the underutilization
of capacity. For the year ended December 31, 1996, total lease operating
expenses were $36.2 million, as compared to $30.0 million in the 1995 period.
This increase primarily results from fluctuations in normal operating expenses,
including operating expenses associated with increased production and an
increase of approximately $2.8 million relating to lease operating expenses of
the newly acquired Central Gulf Area. In addition, workover expenses for the
year ended December 31, 1996, increased by $1.1 million to $2.5 million, as
compared to $1.4 million in the comparable 1995 period.
Severance taxes. The effective severance tax rate as a percentage of oil
and gas revenues (excluding the effect of hedging activities) decreased to 5.3%
in the year ended December 31, 1996, from 7.8% in the comparable 1995 period.
The decrease was primarily due to increased production from new wells on federal
leases, including wells located on the Central Gulf Area, and from state leases
which were exempt from state severance tax under Louisiana's severance tax
abatement program.
General and administrative expenses. For the year ended December 31, 1996,
general and administrative expenses were $16.2 million as compared to $11.3
million in the comparable 1995 period. This increase is primarily due to costs
of increased corporate staffing associated with both an increase in drilling
activities and the Company's acquisition of the Central Gulf Area properties,
partially offset in the 1996 period by an increase in the capitalization of a
portion of the salaries paid to employees directly engaged in the acquisition,
exploration and development of oil and gas properties. In addition, the Company
expensed $.9 million relating to costs associated with efforts to purchase an
oil and gas property outside of its United States cost center.
Depreciation, depletion, and amortization expense. For the year ended
December 31, 1996, DD&A expense was $74.7 million as compared to $54.1 million
in the comparable 1995 period. On a BOE basis, DD&A for the year ended December
31, 1996, was $7.27 per BOE as compared to $6.66 per BOE for the year ended
December 31, 1995. This variance can primarily be attributed to the Company's
increased production and related current and future capital costs from the 1995
and 1996 drilling programs and the Company's purchase of the Central Gulf Area,
partially offset by the increase to proved reserves resulting from the programs
and the acquisition.
Interest expense. For the year ended December 31, 1996, interest expense
increased approximately $0.4 million to $18.0 million, from $17.6 million in the
comparable 1995 period. This increase is primarily a result of interest expense
of approximately $4.1 million related to the issuance of the Senior Subordinated
Notes in September 1996. The increase was partially offset by the repayment of a
portion of the Company's debt with proceeds from the common stock offering in
March 1996 and the issuance of the Senior Subordinated Notes. The increase was
also partially offset by increases in the amount of interest capitalized in the
1996 period, as a result of an increase in the Company's unevaluated assets,
including additional acreage and seismic data.
Income tax expense (benefit). For the year ended December 31, 1996, the
Company recorded income tax expense of $12.0 million, as compared to a $4.7
million benefit in the comparable 1995 period during which the Company realized
a deferred tax asset.
36
<PAGE> 41
Net income. Due to the factors described above, net income for the year
ended December 31, 1996, increased to $21.0 million, an increase of $11.1
million or 112% from net income of $9.9 million for the comparable 1995 period.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
Revenues. The following table reflects an analysis of differences in the
Company's oil and gas revenues (expressed in thousands of dollars) between the
year ended December 31, 1995, and the comparable 1994 period:
<TABLE>
<CAPTION>
YEAR ENDED 1995
COMPARED TO
YEAR ENDED 1994
---------------
<S> <C>
Increase (decrease) in oil and gas revenues resulting from
differences in:
Crude oil and condensate --
Price.................................................. $ 19,143
Production............................................. 25,205
--------
44,348
Natural gas --
Price.................................................. 811
Production............................................. 9,062
--------
9,873
--------
Hedging and other, net.................................... (1,646)
--------
Increase in oil and gas revenues............................ $ 52,575
========
</TABLE>
For the year ended December 31, 1995, the Company's total revenues
increased approximately $52.6 million, or 70%, to $128.0 million from $75.4
million for the comparable period in 1994. Production levels for the year ended
December 31, 1995, increased 48% to 8,123 MBOE from 5,492 MBOE for the
comparable period in 1994. The Company's average sales prices (excluding hedging
activities) for oil and natural gas for the year ended December 31, 1995 were
$17.39 per Bbl and $1.82 per Mcf, respectively, versus $14.24 per Bbl and $1.76
per Mcf, respectively, in the comparable 1994 period. Oil and natural gas
volumes sold pursuant to production payment obligations represented
approximately 35% and 52% of total sales volumes, respectively, for the year
ended December 31, 1994. As a result of the repurchase of production payments on
December 7, 1994, the Company was able to sell all of its production at market
prices in 1995 as compared to previously selling a portion of its production
subject to production payments at implicit contractual prices per BOE
substantially below then current market prices.
For the year ended December 31, 1995, the Company recognized additional
production of 950 MBOE and related revenues of $15.0 million associated with the
Minority Interest purchased December 7, 1994. Of the $15.0 million, $12.4
million was primarily related to production associated with the purchased
Minority Interest with the remaining $2.6 million primarily related to increased
oil prices for the 1995 period.
For the year ended December 31, 1995, the Company's total revenues were
further affected by a $2.2 million decrease in hedging revenues. In order to
manage its exposure to price risks in the sale of its crude oil and natural gas,
the Company from time to time enters into price hedging arrangements. See
"-- Other Matters -- Energy Swap Agreements." The Company's average sales prices
(including hedging activities) for oil and natural gas for the year ended
December 31, 1995, were $17.27 per Bbl and $1.84 per Mcf versus $14.56 per Bbl
and $1.81 per Mcf in the prior period.
Lease operating expenses. On a BOE basis, lease operating expenses
decreased 14% in the year ended December 31, 1995, to $3.70 per BOE from $4.29
per BOE in the comparable period of 1994. This decrease was primarily the result
of increased production at the Delta Area, which have substantial fixed
operating costs due to the capital intensive nature of the facilities and the
underutilization of capacity. Total lease operating expenses for the year ended
December 31, 1995 were $30.0 million, as compared to $23.6 million for the
37
<PAGE> 42
comparable 1994 period. The increase was primarily related to the Company's
operating expenses associated with increased production, the purchase of the
Minority Interest in December 1994, an increase in painting and other preventive
maintenance type programs which the Company believed to be cost effective, and
increased workover costs in the 1995 period. Workover expenses increased to $1.4
million for the year ended December 31, 1995, as compared to $0.9 million for
the comparable 1994 period.
Severance taxes. The effective severance tax rate as a percentage of
revenues decreased to 7.8% in the year ended December 31, 1995, from 8.9% in the
comparable period of 1994. This decrease was primarily due to increased
production from new wells on federal leases and from state leases which were
exempt from state severance tax under Louisiana's severance tax abatement
program.
General and administrative expenses. General and administrative expenses
per BOE decreased 26% to $1.39 per BOE in the year ended December 31, 1995 from
$1.88 per BOE in the comparable period of 1994. In the year ended December 31,
1995, general and administrative expenses were $11.3 million, as compared to
$10.4 million in the comparable 1994 period. The increase in general and
administrative expenses was primarily due to increased corporate staffing, an
increase in director and officer insurance premiums, an increase in franchise
taxes and in incentive compensation. These increases were partially offset by
the nonrecurring $0.9 million release and indemnity expenses incurred by the
Company in the year ended December 31, 1994, a decrease in legal and other
professional fees during 1995 and an increase in the capitalization of the
salaries paid to employees directly engaged in the acquisition, exploration and
development of oil and gas properties during 1995.
Depreciation, depletion, and amortization expense. For the year ended
December 31, 1995, DD&A per BOE remained relatively unchanged at $6.66 as
compared to $6.64 in the 1994 period. Total DD&A expense for the 1995 period was
$54.1 million, as compared to $36.5 million for the comparable 1994 period. This
variance was primarily related to the Company's increased production and related
capital costs from the 1994 and 1995 drilling programs, as well as the increase
in proved reserves. Also contributing to increased DD&A expense was the December
1994 acquisition of the Minority Interest.
Interest expense. Interest expense for the year ended December 31, 1995 was
$17.6 million, an increase of approximately $13.1 million from $4.5 million for
the comparable 1994 period. This increase was due primarily to interest expense
relating to the Senior Notes and the Revolving Credit Facility. This increase
was partially offset by interest that was capitalized during the year ended
December 31, 1995, of $2.8 million, as compared to $0.1 million in the 1994
period.
Income tax expense (benefit). The Company was originally formed as an S
corporation under the Internal Revenue Code and, as such, all income taxes were
the obligation of the Company's stockholders. In conjunction with the Company's
initial public offering, the Company converted to a C corporation under the
Internal Revenue Code. Due to a valuation allowance, the Company did not record
a tax benefit for the year ended December 31, 1994. During 1995, due to drilling
successes and increases in realized prices, the Company generated income from
operations. At December 31, 1995, management believed it was more likely than
not that the deferred tax asset would be realized. As a result, in 1995 the
Company reversed the valuation allowance and recognized a tax benefit of $4.7
million.
Net income. Due to the factors described above, net income increased
approximately $32.1 million from a net loss of $22.2 million for the year ended
December 31, 1994 to net income of $9.9 million for the year ended December 31,
1995. For the year ended December 31, 1995, net income before the income tax
benefit was $5.2 million.
38
<PAGE> 43
LIQUIDITY AND CAPITAL RESOURCES
The following summary table reflects comparative cash flows for the Company
for the years ended December 31, 1994, 1995 and 1996, and the three months ended
March 31, 1996 and 1997:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- -------------------
1994 1995 1996 1996 1997
--------- -------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities(1)......................... $(115,485) $ 58,880 $ 125,989 $ 19,790 $ 50,493
Net cash used in investing activities... (46,607) (77,699) (293,132) (14,437) (73,156)
Net cash provided by financing
activities............................ 162,462 18,463 172,689 17,060 17,244
</TABLE>
- ---------------
(1) Cash flow from operating activities for the year ended December 31, 1994 was
reduced by $123.6 million related to the repurchase of production payments.
For the three months ended March 31, 1997, net cash provided by operating
activities increased by $30.7 million. This increase relates primarily to
increased revenues, partially offset by increases in lease operating expenses
and general and administrative expenses. In addition, timing differences on
certain receivable and payable balances affect cash provided by operating
activities at any period ended.
Cash used in investing activities during the three months ended March 31,
1997, increased to $73.2 million as compared to $14.4 million in the comparable
1996 period. This increase is primarily as a result of the Company's acquisition
of properties in the Delta Area for a net purchase price of approximately $55.9
million, as well as increased drilling activity in the 1997 period, partially
offset by the sale of the Company's interest on the South Marsh Island 269 field
which generated cash of $33.5 million in the 1997 period.
Financing activities during the three months ended March 31, 1997,
generated cash of $17.2 million, as compared to $17.1 million in the comparable
1996 period. The increase in cash during the 1997 period was primarily a result
of a $17.0 million increase in net borrowings on the Company's $150 million
Revolving Credit Facility. The cash generated in the comparable 1996 period was
the result of the issuance of 4.5 million shares of common stock at $14.75 per
share on March 19, 1996, of which the Company's net proceeds were approximately
$62.2 million, partially offset by the repayment of debt in the 1996 period
totaling $48.4 million.
39
<PAGE> 44
Capital requirements. The Company's capital investments to date have
focused primarily on exploration, acquisitions and development of proved
properties. The Company's expenditures for property acquisition, exploration and
development for the years ended December 31, 1994, 1995 and 1996 and the three
months ended March 31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- -------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Property acquisition costs of evaluated
properties............................ $25,442 $ 624 $ 59,419 $ -- $ 50,639
Property acquisition costs of
unevaluated properties................ 14,736 2,381 69,766 1,082 8,942
Reclass of properties held for resale... -- -- (37,200) -- --
Exploration costs (drilling and
completion)........................... 8,467 12,153 31,767 5,269 11,521
Development costs (drilling and
completion)........................... 21,634 42,443 81,616 10,878 27,834
Abandonment costs....................... 727 236 352 140 134
Geological and geophysical costs........ 1,362 5,953 13,999 422 8,637
Capitalized interest and general and
administrative costs.................. 660 4,476 9,191 1,245 3,222
Other capital costs..................... 1,449 5,386 22,395 2,516 7,476
------- ------- -------- ------- --------
$74,477 $73,652 $251,305 $21,552 $118,405
======= ======= ======== ======= ========
</TABLE>
A primary component of the Company's strategy is to continue its
exploration and development activities. The Company intends to finance capital
expenditures related to this strategy primarily with funds provided by
operations and borrowings under the Revolving Credit Facility. During the three
months ended March 31, 1997, the Company spent $39.4 million on exploration and
development drilling and $8.6 million on 3-D seismic surveys and other
geological and geophysical costs. Included in property acquisition costs in the
three months ended March 31, 1997, is the $55.9 million net purchase price of
the acquisition of Delta Area properties. Of the total net purchase price for
such acquisition, approximately $50.5 million was allocated to evaluated
properties and $5.4 million was allocated to unevaluated properties. Included in
other capital costs for the three months ended March 31, 1997, is $6.9 million,
which relates primarily to capital costs incurred to install and upgrade
production facilities and flowlines. The Company is also a party to two escrow
agreements which provided for the future plugging and abandonment costs
associated with oil and gas properties. The first agreement requires monthly
deposits of $100,000 through June 30, 1998, and $350,000 thereafter until the
balance in the escrow account equals $40 million, unless the Company commits to
plug and abandonment of a certain number of wells in which case the increase
will be deferred. The second agreement required an initial deposit of $250,000
and monthly deposits thereafter of $50,000 until the balance in the escrow
account equals $7,500,000. As of March 31, 1997, the escrow balances totaled
$6.9 million.
In addition to developing its existing reserves, the Company will continue
to attempt to increase its reserve base, production and operating cash flow by
engaging in strategic acquisitions of oil and gas properties. In order to
finance any such possible future acquisitions, the Company may seek to obtain
additional debt or equity financing. The availability and attractiveness of
these sources of financing will depend upon a number of factors, including the
financial condition and performance of the Company, as well as prevailing
interest rates, oil and gas prices and other market conditions. There can be no
assurance that the Company will acquire any additional producing properties. In
addition, the ability of the Company to incur additional indebtedness and grant
security interests with respect thereto will be subject to the terms of the
Indentures (as defined herein).
The Company has budgeted $240 million for 1997 drilling activities and an
additional $50 million for other direct capital expenditures including lease
acquisitions and seismic purchases. In addition, on March 7, 1997, the Company
completed the acquisition of properties in the Main Pass fields for a net
purchase price of $55.9 million. The Company's other primary capital
requirements for the remainder of 1997 will be for the payment of interest on
the Notes, interest of $15.6 million on its Senior Subordinated Notes and
interest on
40
<PAGE> 45
any borrowings the Company may incur under the Revolving Credit Facility. The
Company expects to fund its current debt service obligations with operating cash
flow.
Liquidity. The ability of the Company to satisfy its obligations and fund
planned capital expenditures will be dependent upon its future performance,
which will be subject to prevailing economic conditions, including oil and gas
prices, and to financial and business conditions and other factors, many of
which are beyond its control, supplemented with existing cash balances and, if
necessary, borrowings under the Revolving Credit Facility. The Company expects
that its cash flow from operations, existing cash balances and availability
under the Revolving Credit Facility will be adequate to execute the remainder of
its 1997 business plan. However, no assurance can be given that the Company will
not experience liquidity problems from time to time in the future or on a
long-term basis. If the Company's cash flow from operations, existing cash
balances and availability under the Revolving Credit Facility are not sufficient
to satisfy its cash requirements, there can be no assurance that additional debt
or equity financing will be available to meet its requirements.
The Revolving Credit Facility currently has a borrowing base of $150
million. The lenders may redetermine the borrowing base at their option once
within any 12-month period, as well as on scheduled redetermination dates as
outlined in the Revolving Credit Facility. The Revolving Credit Facility
terminates on March 27, 2000, unless the Company requests and is granted a
one-year deferral of such termination.
Under the terms of the Revolving Credit Facility, the Company is required
to comply with certain financial tests which may reduce the $150 million
borrowing base. Currently, the Company does not believe that these financial
tests will reduce the borrowing base. As of June 15, 1997, the Company's
outstanding balance on its Revolving Credit Facility was $85.5 million,
including letters of credit of $2.0 million primarily associated with bonding
for future abandonment obligations. The Company had remaining availability of
$64.5 million under the Revolving Credit Facility as of June 15, 1997.
Effects of leverage. The Company is highly leveraged with outstanding
long-term debt of approximately $301.2 million as of March 31, 1997. The
Company's level of indebtedness has several important effects on its future
operations, including (i) a substantial portion of the Company's cash flow from
operations must be dedicated to the payment of interest on its indebtedness and
will not be available for other purposes, (ii) the covenants contained in the
Indentures contain restrictions which may limit its ability to borrow additional
funds or to dispose of assets and may affect the Company's flexibility in
planning for, and reacting to, changes in its business, including possible
acquisition activities and (iii) the Company's ability to obtain additional
financing in the future for working capital, expenditures, acquisitions, general
corporate purposes or other purposes may be impaired.
The Company is required to make semi-annual interest payments of
approximately $7.8 million on its Senior Subordinated Notes each April 1 and
October 1 through the year 2006. In addition, the Company is required to make
quarterly interest payments on the Revolving Credit Facility based on
outstanding borrowings for the quarterly period. The Company may also, at its
discretion, make principal payments on the Revolving Credit Facility.
Pursuant to the indenture governing the Senior Subordinated Notes (the
"Senior Subordinated Notes Indenture", the Company may not incur any
Indebtedness other than Permitted Indebtedness (as defined in the Senior
Subordinated Notes Indenture) unless the Company's Consolidated Fixed Charge
Coverage Ratio (as defined in the Senior Subordinated Notes Indenture) for the
four full fiscal quarters preceding the proposed new Indebtedness is greater
than 2.5 to 1.0 after giving pro forma effect to the proposed new Indebtedness,
the application of the proceeds of such Indebtedness and other significant
transactions during the period.
In accordance with the terms of the Senior Subordinated Notes Indenture, if
the Company disposes of oil and gas assets, it must apply such proceeds to
permanently pay down certain indebtedness or within a specified time from the
date of the asset sale, purchase additional oil and gas assets. If proceeds not
applied as indicated above exceed $15 million, the Company shall be required to
offer to purchase outstanding Senior Subordinated Notes or other pari passu
indebtedness in an amount equal to the unapplied proceeds.
41
<PAGE> 46
The Company believes it is currently in compliance with all covenants
contained in the Senior Subordinated Notes Indenture and has been in compliance
since the issuance of the Senior Subordinated Notes.
The Company's ability to meet its debt service obligations and to reduce
its total indebtedness upon the Company's future performance, which will be
subject to oil and gas prices, general economic conditions and to financial,
business and other factors affecting the operations of the Company, many of
which are beyond its control. There can be no assurance that the Company's
future performance may not be adversely affected by such economic conditions and
financial, business and other factors.
OTHER MATTERS
Energy swap agreements. The Company hedges certain of its production
through master swap agreements ("Swap Agreements"). The Swap Agreements provide
for separate contracts tied to the NYMEX light sweet crude oil and natural gas
futures contracts. The Company has contracts which contain specific contracted
prices ("Swaps") that are settled monthly based on the differences between the
contract prices and the average NYMEX prices for each month applied to the
related contract volumes. To the extent the average NYMEX price exceeds the
contract price, the Company pays the spread, and to the extent the contract
price exceeds the average NYMEX price the Company receives the spread. In
addition, the Company has combined contracts which have agreed upon price floors
and ceilings ("Costless Collars"). To the extent the average NYMEX price exceeds
the contract ceiling, the Company pays the spread between the ceiling and the
average NYMEX price applied to the related contract volumes. To the extent the
contract floor exceeds the average NYMEX price the Company receives the spread
between the contract floor and the average NYMEX price applied to the related
contract volumes. Under the terms of the Swap Agreements, each counterparty has
extended the Company a $5 million line of credit for use in conjunction with its
hedging activities. As of May 6, 1997, the fair market value of all contracts
covered by the Swap Agreements was approximately $.1 million.
As of March 31, 1997, the Company's open forward position on its
outstanding crude oil Swaps was as follows:
<TABLE>
<CAPTION>
AVERAGE
YEAR MBBLS PRICE
---- ----- -------
<S> <C> <C>
1997........................................... 1,425 $19.80
1998........................................... 300 $18.55
1999........................................... 300 $18.55
2000........................................... 300 $18.55
----- ------
2,325 $19.31
===== ======
</TABLE>
The Company currently has no outstanding natural gas Swaps.
42
<PAGE> 47
As of March 31, 1997, the Company's open forward position on its
outstanding Costless Collars was as follows:
<TABLE>
<CAPTION>
EFFECTIVE CONTRACTED CONTRACTED CONTRACTED
------------------ VOLUMES FLOOR CEILING
YEAR FROM THROUGH (MBBLS) PRICE PRICE
---- ----- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1997........................... April June 600 $20.00 $24.25
1997........................... April June 300 $20.00 $25.20
1997........................... April June 75 $20.00 $24.90
1997........................... July September 900 $20.00 $24.40
</TABLE>
On March 7, 1997, the Company entered into a basis swap for 9,000 barrels
of oil per month for the period April, 1997, through July, 1997, with a fixed
price of ($0.11) per barrel basis differential between the monthly calendar
average of Platt's Louisiana Light Sweet and Platt's West Texas Intermediate
crude oil prices.
In addition, on April 7, 1997, the Company entered into a field diesel swap
for 150,000 gallons per month for the month of April 1997, and August 1997
through March 1998, relating to expected future diesel needs. This swap
obligates the Company to make or receive payments on the last day of each
respective calendar month based on the difference between a specified price of
$0.5425 per gallon and the average of the daily settlement price per gallon for
the respective calendar month Platt's Gulf Coast Pipeline mean high sulfur No. 2
oil contract.
As a result of hedging activity under the Swap Agreement, on a BOE basis,
the Company estimates that approximately 26% of its estimated remaining 1997
production which is classified as proved reserves as of March 31, 1997, will not
be subject to price fluctuation for 1997.
Currently, it is the Company's intention to commit no more than 50% of its
total annual production on a BOE basis to such arrangements. Moreover, under the
Revolving Credit Facility, the Company is prohibited from committing more than
80% of its production estimates for the next 24 months to such arrangements at
any point in time. As the current swap agreements expire, the portion of the
Company's oil and natural gas production which is subject to price fluctuations
will increase significantly, unless the Company enters into additional hedging
transactions.
Despite the measures taken by the Company to attempt to control price risk,
the Company remains subject to price fluctuations for natural gas and oil sold
in the spot market. Prices received for natural gas sold on the spot market are
volatile due primarily to seasonality of demand and other factors beyond the
Company's control. Domestic oil prices generally follow worldwide oil prices
which are subject to price fluctuations resulting from changes in world supply
and demand. While the price the Company receives for its oil and natural gas
production has significant financial impact on the Company, no prediction can be
made as to what price the Company will receive for its oil and natural gas
production in the futures.
Gas balancing. It is customary in the industry for various working interest
partners to produce more or less than their entitlement share of natural gas
from time to time. The Company's net overproduced position on its properties
decreased from 2,059,954 Mcf at December 31, 1996, to 1,038,258 Mcf at March 31,
1997. This decrease is primarily the result of the Company's acquisition of
Delta Area properties. During the make-up period for the remaining imbalance,
the Company's gas revenues will be adversely affected minimized by an unjust
enrichment clause contained in the gas balancing agreement. The Company
recognizes revenue and imbalance obligations under the sales method of
accounting.
43
<PAGE> 48
BUSINESS
GENERAL
The Company is an independent energy company engaged in the exploration,
development, acquisition and production of crude oil and natural gas with
operations focused primarily in the Eastern and Central Gulf of Mexico and on
coastal onshore Louisiana, some of the most prolific oil and gas producing
regions in the United States. As of March 31, 1997, the Company had estimated
proved reserves of approximately 59.9 MMBbls of oil and 167.4 Bcf of natural
gas, or an aggregate of approximately 87.8 MMBOE, with a Present Value of Future
Net Revenues of approximately $498.5 million and a Standardized Measure of
Discounted Future Net Cash Flows of approximately $420.0 million. On a BOE
basis, approximately 68% of the Company's proved reserves on such date were oil.
The majority of the Company's existing proved reserves are attributable to
Company operated wells or leases and approximately 74% of these reserves were
classified as proved developed at March 31, 1997.
In order to reduce risks and lower drilling costs, the Company uses
state-of-the-art seismic evaluation technology in its exploitation and
exploration activities. The seismic evaluation technology is integrated with
subsurface data to improve the Company's ability to properly define the
structural and stratigraphic features that potentially contain accumulation of
hydrocarbons. As of May 31, 1997, the Company owned 1,700 square miles of 3-D
seismic data and over 20,000 linear miles of 2-D seismic data on and around its
core properties.
The Company's operations are located primarily in three geographically
concentrated areas consisting of the Mississippi River Delta area (the "Delta
Area"), the Central Gulf of Mexico area (the "Central Gulf Area") and onshore
Louisiana. The Delta Area is located primarily in federal and state waters
offshore in the Mississippi River deltaic region and consists of interests in 10
fields and encompasses 108,557 gross (95,277 net) acres. The Delta Area contains
approximately 500 producing wells and includes three of the top 20 fields in the
Gulf of Mexico based on total historical production. The Central Gulf Area
consists of interests in nine oil and gas producing fields and related
production facilities primarily situated in the shallow federal waters of the
central Gulf of Mexico, offshore Louisiana and contains approximately 50
producing wells. The Central Gulf Area encompasses 76,062 gross (50,224 net)
acres. The Louisiana onshore exploratory area (the "Onshore Exploratory Area")
consists of leasehold and seismic lease options totaling 62,143 gross (45,962
net) acres located within the Mallard Bay and Lacassine fields in Cameron
Parish, Louisiana. The Company's fields provide significant opportunities to
enhance current production and ultimate reserve recoveries through development
and exploratory drilling, recompletions and infill and horizontal drilling.
Primarily by capitalizing on these opportunities, the Company has increased its
average daily production by 133% from 15,047 BOE for the year ended December 31,
1994 to 35,089 BOE for the three months ended March 31, 1997.
RECENT DEVELOPMENTS
Effective January 1, 1997, the Company sold all of its interest in the
South Marsh Island Block 269 field located in federal waters offshore Louisiana
for $37.2 million. This field was acquired in September of 1996 as part of the
acquisition of the Central Gulf Area and was sold primarily due to its
non-strategic nature, given it consisted solely of non-operated minority working
interests.
On March 7, 1997, the Company consummated the acquisition from Chevron USA,
Inc. of certain interests in various state leases in the Main Pass Block 69
field, offshore Plaquemines Parish, Louisiana for a gross purchase price of
$55.7 million. This acquisition consisted of interests in leases which include
interests in 27 producing wells located on 5,898 gross acres strategically
situated contiguous to the Company's existing Main Pass Block 69 holdings. Such
acquisition provides the Company with the opportunity to benefit from
operational leverage and realize economies of scale through the use of current
Delta Area personnel and facilities.
In April of 1997, the Company announced that it had entered into a
deepwater joint venture with a major integrated oil company involving 27 federal
blocks located in the deepwater area of the Gulf of Mexico. The major oil
company currently has production on other blocks in deepwater areas of the Gulf
of Mexico and
44
<PAGE> 49
brings a significant deepwater technical effort and secured rig availability to
the joint venture. Preliminary geological review has identified six distinct
plays across the 27 blocks.
STRENGTHS
The Company believes it has unique strengths that position it to continue
as a successful independent operator in the Gulf of Mexico and coastal onshore
Louisiana, including the following:
Quality of existing operations. The Company's Delta Area and Central Gulf
Area fields are among the most productive fields in the Gulf of Mexico based on
total historical production. These fields have extensive production histories
and contain significant reserve and production enhancement opportunities.
Production from these fields has been predominantly from the upper 12,000 feet
of sediment. While cumulative historical production from these horizons has
exceeded one billion BOE, the Company believes that potential may exist for
additional reserves to be found at these horizons, as well as deeper horizons.
As of May 31, 1997, the Company's properties collectively comprised over 208,600
net acres of leases and seismic options (98,876 of which are held by
production).
Extensive Technological Database. The Company owns approximately 1,700
square miles of 3-D seismic data and over 20,000 linear miles of 2-D seismic
data in and around its core properties. OEI uses state-of-the-art seismic
evaluation technology in its exploitation and exploration activities in order to
reduce risks and lower costs. The seismic evaluation technology is integrated
with subsurface data from over 12,000 wells to improve the Company's ability to
properly define the structural and stratigraphic features which potentially
contain accumulations of hydrocarbons. The Company employs over 50 geoscientists
and engineers to integrate and evaluate this expansive well and seismic data
base. Management believes the availability of 3-D seismic coverage for the Gulf
of Mexico at reasonable costs enhances the potential for returns on exploration
and development activities.
Efficient operator. The Company is the operator of over 90% of its wells,
allowing it to control expenses, capital allocation and the timing of
development and exploitation of its fields. Since 1992, the Company has
decreased lease operating expenses by 26%, from $5.45 per BOE for the period
from inception (April 20, 1992) through December 31, 1992 to $4.02 per BOE for
the three months ended March 31, 1997. Prior to the Company's ownership, lease
operating expenses for the portion of the Delta Area purchased in 1993 in 1989,
1990, and 1991 were $8.15, $10.58 and $9.74, respectively, per BOE and lease
operating expenses at the portion of the Delta Area purchased in 1992 in 1989,
1990 and 1991 were $6.59, $11.33 and $8.17, respectively, per BOE.
Expertise in the Gulf of Mexico. Management believes the Company's existing
asset base and personnel provide it with competitive advantages for operating in
the Gulf of Mexico. The Company's senior operating personnel as well as its over
50 geoscientists and engineers have substantial experience, largely through
tenure at major oil companies, in the technical challenges arising from
exploitation and exploration of this region. The Company has also assembled a
team of field personnel, most with over 15 years of experience operating in the
Company's core areas. Management has extensive experience and good working
relationships with federal, state and local regulatory agencies in this region.
Expandable base of operations. The Company has additional production
capacity available at its Delta Area and Central Gulf Area production
facilities, which can provide a foundation for further acquisition, exploitation
and exploration in the Gulf of Mexico to achieve additional production at
relatively low incremental costs. Because of the strategic location of the
production facilities in these core areas, the excess capacity can be used to
provide services to third parties operating in the area. The Company also
believes that its operating and administrative personnel and systems can
efficiently manage the addition of producing properties and related operations
through geographic concentration, technical expertise and economies of scale
based on existing infrastructure and the maintenance of low overhead costs.
45
<PAGE> 50
BUSINESS STRATEGY
The Company's strategy is to increase shareholder value by increasing its
reserve base and by continuing to decrease unit costs. The Company intends to
grow its oil and gas reserves by capitalizing on its strengths through the
exploitation of its existing properties, the exploration for new oil and gas
reserves on its existing properties and elsewhere and the acquisition of
additional properties with exploitation and exploration potential. The Company
intends to decrease unit costs by increasing production in its existing areas of
operation. The Company is implementing this strategy by:
Continuing development and exploitation of existing properties. The Company
is actively pursuing the development of its existing properties to fully exploit
its reserves through recompletions, horizontal and development drilling,
waterfloods and 3-D seismic enhanced exploitation drilling. OEI uses advanced
technology in its exploitation and exploration activities in order to reduce
risks and lower costs. Further, the Company seeks to drill wells with multiple
pay objectives, allowing it to reduce the risk of exploring deeper prospects by
attempting to exploit shallow reservoirs in the same well. Primarily as a result
of its development and exploitation drilling success, the Company has increased
its average daily production by 133% from 15,047 BOE for the year ended December
31, 1994 to 35,089 BOE for the three months ended March 31, 1997. The Company
currently has an inventory of over 350 reserve and production enhancement
projects on its existing properties. In light of these projects, the Company
increased its development and exploitation drilling capital expenditures from
approximately $82 million in 1996 and has budgeted approximately $120 million
for 1997.
Expanding exploration program. The Company is expanding its exploration
program in the Louisiana Gulf which is designed to provide exposure to selected
higher risk, higher potential rate of return prospects. The Company currently
intends to divide its drilling budget equally between exploration and
development and exploitation drilling in the future. The Company has increased
its exploratory drilling expenditures from approximately $32 million in 1996. In
order to reduce exploration risk, the Company will apply state-of-the-art
technology to identify prospects and, where possible, select well locations with
multiple pay objectives. The Company also considers, in selected circumstances,
selling a portion of a prospect to an industry partner while preferably
remaining as operator. The Company has entered into a deepwater joint venture
with a major integrated oil company involving 27 federal blocks located in the
area of the Gulf of Mexico. The major oil company currently has deepwater
production on other blocks in deepwater areas of the Gulf of Mexico and brings a
significant deepwater technical effort and secured rig availability to the joint
venture.
Pursuing strategic acquisitions and joint ventures. The Company is
continually evaluating opportunities to acquire or enter into joint ventures
involving producing and exploratory properties which may possess, among others,
one or more of the following characteristics: (i) close proximity to the
Company's existing operations, (ii) potential opportunities to increase reserves
through exploratory drilling and additional recovery or enhancement techniques
or (iii) potential opportunities to reduce expenses through more efficient
operations. While the Company focuses primarily on acquisitions and joint
ventures involving producing properties with large acreage positions, it
evaluates a broad range of potential transactions. Company personnel have
substantial training, experience, and an in-depth knowledge of the Gulf of
Mexico area, as well as established relationships with a number of major and
large independent energy companies operating in this region. These factors, in
combination with the utilization of state-of-the-art geological and engineering
technology, assist in identifying properties that meet the Company's acquisition
and joint venture objectives.
PROPERTIES
The information regarding the Company's properties in the following
discussion is as of December 31, 1996.
Mississippi River Delta Area
The Company's Delta Area is comprised of six Company operated
fields -- South Pass 1, South Pass 24, South Pass 27, South Pass 39, Main Pass
69 and Main Pass 138, as well as two non-operated fields -- South Pass 41 and
Main Pass 140. The Delta Area encompasses approximately 75,458 gross leased
acres in state and federal waters situated near the mouth of the Mississippi
River in the Gulf of Mexico. In addition, the
46
<PAGE> 51
Company has interests in approximately 19,230 gross leased acres in the
Chandeleur Sound, Breton Sound and Main Pass 71/75 areas, where there are
currently no productive wells.
At the core of the Delta Area is the East Bay complex. The East Bay complex
is a major oil production facility with daily production capacity for 70 MBbls
of oil, 240 MMcf of gas and 240 MBbls of water. Within the East Bay complex, the
South Pass 24 field, discovered in 1950, has production established from 64
horizons and 268 reservoirs with cumulative production through December 31,
1996, of 321,869 MBbls of oil and 401,924 MMcf of gas. The adjacent South Pass
27 field, discovered in 1954, has production established from 84 horizons and
445 reservoirs with cumulative production through December 31, 1996, of 334,559
MBbls of oil and 798,056 MMcf of gas.
The Company owns an average 96% working interest in these fields, and for
the three months ended December 31, 1996, the Delta Area averaged daily net
sales to the Company of 20.3 MBbls of oil and 56.1 MMcf of gas from 478 gross
productive wells.
Central Gulf Area
The Company's Central Gulf Area is comprised of nine Company operated
fields -- Eugene Island 45, Eugene Island 100, Eugene Island 126, Eugene Island
128, South Marsh Island 235, South Marsh Island 243, Vermilion 215, Vermilion
273 and Ship Shoal 64, as well as one non-operated field -- Vermilion 76. The
Central Gulf Area consists of approximately 76,000 gross leased acres in federal
waters situated in the shallow federal waters of the Central Gulf of Mexico,
offshore Louisiana.
The Company owns an average 45% working interest in these fields, and for
the three months ended December 31, 1996, the Central Gulf Area averaged daily
net sales to the Company of 4.0 MBbls of oil and 17.4 MMcf of gas from 76
productive wells.
Effective January 3, 1997, the Company sold its interest in the South Marsh
Island 269 field for $37.2 million. The South Marsh Island 269 field consisted
of 27 productive wells located on approximately 11,450 gross leased acres and
had average daily sales net to the Company for the three months ended December
31, 1996 of 0.8 MBbls of oil and 7.4 MMcf of gas. The Company owned an average
20% working interest in this field.
Onshore Louisiana
During 1996, the Company extended its operations to include several coastal
onshore exploration projects in the Onshore Exploration Area and believes this
region has been underexplored due to its complex geology and lack of 3-D seismic
data. Advances in 3-D seismic acquisition techniques over the past few years
have led the Company to purchase seismic and lease options to conduct 3-D
seismic survey and explore for oil and gas on 26,945 acres in eastern Cameron
Parish, Louisiana on its Mallard Bay prospect area ("Mallard Bay"). The Company
has completed the acquisition of a 70 square mile proprietary 3-D seismic survey
on Mallard Bay along with its 50% working interest partners, and plans to
commence drilling operations in 1997. Separately, the Company acquired in 1996
seismic and lease options covering 14,060 acres in its Lacassine Refuge prospect
area ("Lacassine") located approximately 6 miles northwest of Mallard Bay, where
it also expects to begin drilling in 1997.
OIL AND NATURAL GAS RESERVES
Presented below are the estimated quantities of proved developed and proved
undeveloped reserves of crude oil and natural gas and the present value of
Future Net Revenues (before income taxes) owned by the Company as of March 31,
1997. Information set forth in the following table is based upon reserve reports
of the Company, prepared in accordance with the rules and regulations of the
Commission. In accordance with such rules and regulations, the pre-tax estimated
Future Net Revenues, the pre-tax present value of Future Net Revenues and the
after-tax present value of Future Net Revenues as prepared by the Company was
47
<PAGE> 52
decreased by approximately $2.5 million, $2.2 million and $1.4 million,
respectively, representing the effect of hedging transactions entered into as of
March 31, 1997.
<TABLE>
<CAPTION>
PROVED RESERVES AT MARCH 31, 1997
--------------------------------------------------
DEVELOPED DEVELOPED
PRODUCING NON-PRODUCING UNDEVELOPED TOTAL
--------- ------------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net Proved Reserves:
Oil (MBbls).............................. 32,960 12,221 14,721 59,902
Gas (MMcf)............................... 69,053 47,371 50,992 167,416
MBOE (6 Mcf per Bbl)..................... 44,469 20,116 23,220 87,805
Estimated Future Net Revenues (Before
Income Taxes)............................ $265,352 $99,042 $229,573 $593,967
Present Value of Future Net Revenues
(Before Income Taxes; Discounted at
10%)..................................... $263,176 $68,013 $167,272 $498,461
Standardized Measure of Discounted Future
Net Cash Flows (1)....................... $419,950
</TABLE>
- ---------------
(1) The Standardized Measure of Discounted Future Net Cash Flows prepared by the
Company represents the Present Value of Future Net Revenues after income
taxes discounted at 10%.
Presented below are the estimated quantities of proved developed and proved
undeveloped reserves of crude oil and natural gas, the Estimated Future Net
Revenues (before income taxes), the Present Value of Future Net Revenues (before
income taxes) and the Standardized Measure of Discounted Future Net Cash Flows
for the Company as of December 31, 1996. A portion of these reserves will be
consumed by the Company in the form of fuel for its oil and gas fields.
Information set forth in the following table is based upon reserve reports
prepared by Netherland Sewell, independent petroleum engineers, in accordance
with the rules and regulations of the Commission. The Company includes as proven
reserves future gas production estimated by Netherland Sewell to be used as fuel
gas. In accordance with such rules and regulations, the pre-tax estimated future
net revenues, the pre-tax present value of future net revenues and the after-tax
present value of future net revenues as prepared by the Company was decreased by
approximately $20.5 million, $18.6 million and $12.4 million, respectively,
representing the effect of hedging transactions entered into as of December 31,
1996.
<TABLE>
<CAPTION>
PROVED RESERVES AT
DECEMBER 31, 1996
--------------------------------------------------
DEVELOPED DEVELOPED
PRODUCING NON-PRODUCING UNDEVELOPED TOTAL
--------- ------------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net Proved Reserves:
Oil (MBbls)............................. 27,029 11,318 12,429 50,776
Gas (MMcf).............................. 56,836 52,738 35,784 145,358
MBOE (6 Mcf per Bbl).................... 36,490 20,120 18,393 75,003
Estimated Future Net Revenues (Before
Income Taxes)........................... $306,470 $285,671 $289,633 $881,774
Present Value of Future Net Revenues
(Before Income Taxes; Discounted at
10%).................................... $295,668 $188,764 $209,083 $693,515
Standardized Measure of Discounted Future
Net Cash Flows (1)...................... $532,492
</TABLE>
- ---------------
(1) The Standardized Measure of Discounted Future Net Cash Flows prepared by the
Company represents the Present Value of Future Net Revenues after income
taxes discounted at 10%.
There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting future rates of production and timing of
development expenditures, including many factors beyond the control of the
Company. Reserve engineering is a subjective process of estimating underground
accumulations of crude oil and natural gas that cannot be measured in an exact
manner, and the accuracy of any reserve estimate is a function of the quality of
available data and of engineering and geological interpretation and
48
<PAGE> 53
judgment. The quantities of oil and natural gas that are ultimately recovered,
production and operating costs, the amount and timing of future development
expenditures and future oil and natural gas sales prices may all differ from
those assumed in these estimates. Therefore, the Present Value of Future Net
Revenues figures shown above should not be construed as the current market value
of the estimated oil and natural gas reserves attributable to the Company's
properties. The information set forth in the foregoing tables includes revisions
of certain volumetric reserve estimates attributable to proved properties
included in the preceding year's estimates. Such revisions are the result of
additional information from subsequent completions and production history from
the properties involved or the result of a decrease (or increase) in the
projected economic life of such properties resulting from changes in product
prices.
In accordance with the Commission's guidelines, the engineers' estimates of
future net revenues from the Company's properties and the Present Value of
Future Net Revenues thereof are made using oil and natural gas sales prices in
effect as of the dates of such estimates and are held constant throughout the
life of the properties except where such guidelines permit alternate treatment,
including the use of fixed and determinable contractual price escalations. The
prices as of March 31, 1997 and December 31, 1996 for production from the
Company's properties were $19.52 and $25.52 per Bbl of crude oil and $1.89 and
$4.17 for Mcf of natural gas. The foregoing prices exclude the effect of net
price hedging positions. Prices for natural gas and, to a lesser extent, oil are
subject to substantial seasonal fluctuations and prices for each are subject to
substantial fluctuations as a result of numerous other factors. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "-- Oil and Gas Marketing and Major Customers."
PRODUCTIVE WELLS AND ACREAGE
Productive Wells
The following table sets forth the Company's existing productive wells as
of December 31, 1996:
<TABLE>
<CAPTION>
GROSS NET
----- ---
<S> <C> <C>
Oil......................................................... 481 458
Gas......................................................... 78 61
--- ---
Total Productive Wells............................ 559 519
=== ===
</TABLE>
Productive wells consist of producing wells and wells capable of
production, including gas wells awaiting pipeline connections. Wells that are
completed in more than one producing horizon are counted as one well. Of the
gross wells reported above, 49 had multiple completions.
Acreage Data
Undeveloped acreage includes leased acres on which wells have not been
drilled or completed to a point that would permit the production of commercial
quantities of oil and gas, regardless of whether or not such acreage contains
proved reserves. A gross acre is an acre in which an interest is owned. a net
acre is deemed to exist when the sum of fractional ownership interests in gross
acres equals one. The number of net acres is the sum of the fractional interests
owned in gross acres expressed as whole numbers and fractions thereof. The
following table sets forth the approximate developed and undeveloped acreage in
which the Company held a leasehold mineral or other interest at December 31,
1996.
<TABLE>
<CAPTION>
DEVELOPED ACRES UNDEVELOPED ACRES
----------------- ------------------
GROSS NET GROSS NET
------- ------ ------- -------
<S> <C> <C> <C> <C>
Federal waters............................... 92,203 53,758 4,994 4,994
State waters and onshore..................... 44,272 38,747 55,861 45,125
------- ------ ------ ------
Total.............................. 136,475 92,505 60,855 50,119
======= ====== ====== ======
</TABLE>
In January 1997, the Company exercised lease options in Cameron Parish,
Louisiana, which increased gross undeveloped acreage by 12,695 acres and net
undeveloped acreage by 6,348 acres. In addition, the Company currently holds
options covering approximately 28,893 gross acres (21,254 net) in Cameron
Parish,
49
<PAGE> 54
Louisiana, and 16,727 gross and net acres in Plaquemines Parish, Louisiana,
which allow the Company to conduct 3-D seismic operations on such acreage and to
subsequently acquire oil and gas leases.
DRILLING ACTIVITIES
Drilling activities are subject to many risks, including the risk that no
commercially productive reservoirs will be encountered. There can be no
assurance that new wells drilled by the Company will be productive or that the
Company will recover all or any portion of its investment. Drilling for oil and
natural gas may involve unprofitable efforts, not only from dry wells, but from
wells that are productive but do not produce sufficient net revenues to return a
profit after drilling, operating, and other costs. The cost of drilling,
completing and operating wells is often uncertain. The Company's drilling
operations may be curtailed, delayed or canceled as a result of numerous
factors, many of which are beyond the Company's control, including title
problems, weather conditions, compliance with governmental requirements and
shortages or delays in the delivery of equipment and services.
The following table sets forth the drilling activity of the Company on its
properties for the period ended December 31, 1994, 1995 and 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1994 1995 1996
------------- ----------- ------------
GROSS NET GROSS NET GROSS NET
----- ----- ----- --- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Exploratory Wells:
Productive............................... 1 .88 1 1 6 5.5
Nonproductive............................ 1 .88 3 2 6 4.6
Development Wells:
Productive............................... 10 8.75 17 17 24 23.7
Nonproductive............................ 1 .43 0 0 1 1
-- ----- -- -- -- ----
Total............................ 13 10.94 21 20 37 34.8
== ===== == == == ====
</TABLE>
NET PRODUCTION, UNIT PRICES AND COSTS
The following table presents certain information with respect to oil and
gas production and lease operating expenses attributable to all oil and gas
property interests owned by the Company for the years ended December 31, 1994,
1995 and 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1995 1996
------ ------- -------
<S> <C> <C> <C>
Production:
Oil (MBbls).......................................... 4,286 6,057 7,149
Gas (MMcf)........................................... 7,234 12,393 18,720
MBOE................................................. 5,492 8,123 10,269
Average Sales Prices(1):
Oil (per Bbl)........................................ $14.24 $ 17.39 $ 21.58
Gas (per Mcf)........................................ $ 1.76 $ 1.82 $ 2.79
Per BOE.............................................. $13.42 $ 15.75 $ 20.10
Average Lease Operating Expenses (per BOE)............. $ 4.29 $ 3.70 $ 3.52
</TABLE>
- ---------------
(1) Excludes results of hedging activities. Including the effect of hedging
activities, the Company's average oil price per Bbl received was $14.56,
$17.27 and $19.70 in the years ended December 31, 1994, 1995 and 1996,
respectively, and the average gas price per Mcf received was $1.81, $1.84
and $2.50 in the years ended December 31, 1994, 1995 and 1996, respectively.
OIL AND GAS MARKETING AND MAJOR CUSTOMERS
The revenues generated by the Company's operations are highly dependent
upon the prices of, and demand for, oil and natural gas. The price received by
the Company for its oil and natural gas production
50
<PAGE> 55
depends on numerous factors beyond the Company's control, including seasonality,
the condition of the United States economy, particularly the manufacturing
sector, foreign imports, political conditions in other oil-producing and natural
gas-producing countries, the actions of the Organization of Petroleum Exporting
Countries and domestic government regulation, legislation and policies.
Decreases in the prices of oil and natural gas could have an adverse effect on
the carrying value of the Company's proved reserves and the Company's revenues,
profitability and cash flow. Although the Company is not currently experiencing
any significant involuntary curtailment of its oil or natural gas production,
market, economic and regulatory factors may in the future materially affect the
Company's ability to sell its oil or natural gas production. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Company has a long term contract to sell all crude oil volumes produced
from its East Bay fields to Shell at a price based on the highest monthly posted
price of a number of principal purchasers of crude oil in the South Louisiana
area. The contract expires in June 2003. The Company markets its remaining crude
oil and natural gas production pursuant to short-term contracts.
Sales to Shell Oil Company, Murphy Oil USA, Inc. and Enron Capital & Trade
Resources Corp. accounted for 54%, 11% and 17%, respectively, of the Company's
oil and gas revenues for the year ended December 31, 1996, and 64%, 19% and 14%,
respectively for the year ended December 31, 1995.
Due to the availability of other markets and pipeline connections, the
Company does not believe that the loss of any single crude oil or natural gas
customer would adversely affect the Company's results of operations.
COMPETITION
The oil and gas industry is highly competitive in all of its phases. The
Company encounters competition from other oil and gas companies in all areas of
its operations, including the acquisition of producing properties. The Company's
competitors include major integrated oil and natural gas companies and numerous
independent oil and natural gas companies, individuals and drilling and income
programs. Many of its competitors are large, well established companies with
substantially larger operating staffs and greater capital resources than the
Company's and which, in many instances, have been engaged in the energy business
for a much longer time than the Company. Such companies may be able to pay more
for productive oil and natural gas properties and exploratory prospects and to
define, evaluate, bid for and purchase a greater number of properties and
prospects than the Company's financial or human resources permit. The Company's
ability to acquire additional properties and to discover reserves in the future
will be dependent upon its ability to evaluate and select suitable properties
and to consummate transactions in a highly competitive environment.
Capital available for investment in the oil and natural gas industry may
decline significantly as a result of decreases in product prices, future changes
in federal income tax laws and adverse economic conditions generally affecting
the industry and the country as a whole.
OPERATING HAZARDS AND UNINSURED RISKS
The Company's operations are subject to hazards and risks inherent in
drilling for and production and transportation of oil and natural gas, such as
fires, natural disasters, explosions, encountering formations with abnormal
pressures, blowouts, cratering, pipeline ruptures, and spills, any of which can
result in loss of hydrocarbons, environmental pollution, personal injury claims,
and other damage to properties of the Company and others. Additionally, the
Company's oil and gas operations are located in an area that is subject to
tropical weather disturbances, some of which can be severe enough to cause
substantial damage to facilities and possibly interrupt production. As
protection against operating hazards, the Company maintains insurance coverage
against some, but not all, potential losses. The Company's coverages include,
but are not limited to, operator's extra expense, physical damage on certain
assets, employer's liability, comprehensive general liability, automobile,
workers' compensation and loss of production income insurance. The Company
believes that its insurance is adequate and customary for companies of a similar
size engaged in operations similar to those of the Company, but losses could
occur for uninsurable or uninsured risks or in amounts in excess of existing
insurance coverage. The occurrence of an event that is not fully covered by
insurance could have an adverse impact on the Company's financial condition and
results of operations.
51
<PAGE> 56
EMPLOYEES
As of June 1, 1997, the Company had 347 full-time employees, none of whom
is represented by any labor union. Included in the total were 145 corporate
employees located in the Company's Baton Rouge, Louisiana and Lafayette,
Louisiana offices, as well as 199 employees who work in the Company's Delta Area
and Central Gulf Area. The Company considers its relations with its employees to
be good.
OTHER FACILITIES
The Company currently leases approximately 8,600 square feet of office
space in Baton Rouge, Louisiana, where its administrative offices are located,
and approximately 42,400 square feet of office space in Lafayette, Louisiana and
approximately 1,150 square feet of office space in New Orleans, Louisiana, where
the Company's technical personnel are collectively located.
The Company also leases dock and warehouse space in Venice, Louisiana and
Morgan City, Louisiana.
TITLE TO PROPERTIES
The Company believes it has satisfactory title to all of its producing
properties in accordance with standards generally accepted in the oil and gas
industry. The Company's properties are subject to customary royalty interests,
liens incident to operating agreements, liens for current taxes and other
burdens which the Company believes do not materially interfere with the use of
or affect the value of such properties. The Company's Revolving Credit Facility
is secured by substantially all of the Company's oil and gas properties. The MMS
and Louisiana State Mineral Board must approve all transfers of record title or
operating rights on its respective leases. The MMS and Louisiana State Mineral
Board approval process can in some cases delay the requested transfer for a
significant period of time.
GOVERNMENTAL REGULATION
The Company's oil and gas exploration, production and related operations
are subject to extensive rules and regulations promulgated by Federal and state
agencies. Failure to comply with such rules and regulations can result in
substantial penalties. The regulatory burden on the oil and gas industry
increases the Company's cost of doing business and affects its profitability.
Because such rules and regulations are frequently amended or reinterpreted, the
Company is unable to predict the future cost or impact of complying with such
laws.
The State of Louisiana and many other states require permits for drilling
operations, drilling bonds, and reports concerning operations and impose other
requirements relating to the exploration and production of oil and gas. Such
states also have statutes or regulations addressing conservation matters,
including provisions for the unitization or pooling of oil and gas properties,
the establishment of maximum rates of production from wells, and the regulation
of spacing, plugging, and abandonment of such wells.
Historically, the transportation and sale for resale of natural gas in
interstate commerce have been regulated pursuant to the Natural Gas Act of 1938,
the Natural Gas Policy Act of 1978 (the "NGPA"), and the regulations promulgated
thereunder by the Federal Energy Regulatory Commission (the "FERC"). In the
past, the federal government has regulated the wellhead price of natural gas.
Deregulation of wellhead sales in the natural gas industry began with the
enactment of the NGPA. In 1989, the Natural Gas Wellhead Decontrol Act was
enacted, which amended the NGPA to remove wellhead price controls on all
domestic natural gas as of January 1, 1993. While sales by producers of natural
gas, and all sales of crude oil, condensate and natural gas liquids, can
currently be made at uncontrolled market prices, Congress could re-enact price
controls in the future.
Several major regulatory changes have been implemented by the FERC from
1985 to the present that have had a major impact on natural gas pipeline
operations, services and rates and thus have significantly altered the marketing
and price of natural gas. Commencing in April 1992, the FERC issued Order Nos.
636, 636-A and 636-B (collectively, "Order No. 636"), which, among other things,
require each interstate pipeline company to "restructure" to provide
transportation separate or "unbundled" from the sale of gas and to make
available on an open and nondiscriminatory basis numerous constituent services
(such as gathering services,
52
<PAGE> 57
storage services, firm and interruptible transportation services, and stand-by
sales and gas balancing services) and to adopt a new ratemaking methodology to
determine appropriate rates for those services. To the extent the pipeline
company or its sales affiliate makes gas sales as a merchant in the future, it
does so in direct competition with all other sellers pursuant to private
contracts; however, pipeline companies and their affiliates were not required to
remain "merchants" of gas and several of the interstate pipeline companies have
become "transporters" only. Following the conclusion of individual restructuring
proceedings for each interstate pipeline pursuant to Order No. 636, the FERC has
approved, with modifications, all of the restructuring plans and generally
accepted compliance filings implementing Order No. 636 on every interstate
pipeline as of the end of 1994.
On July 16, 1996, the Court of Appeals for the District of Columbia Circuit
("D.C. Circuit") issued its opinion on review of Order No. 636. The opinion
upheld most elements of Order No. 636 including the unbundling of sales and
transportation services, curtailment of pipeline capacity, implementation of the
capacity release program and the mandatory imposition of straight-fixed-variable
("SFV") rate design for interstate pipeline companies. The D.C. Circuit did
remand certain aspects of Order No. 636 to the FERC for further explanation
including, inter alia, the FERC's decision to exempt pipelines from sharing in
gas supply realignment ("GSR") costs caused by restructuring; FERC's selection
of a twenty-year term matching cap for the right-of-first-refusal mechanism; the
FERC's restriction on the entitlement of no-notice transportation service to
only those customers receiving bundled sales service at the time of
restructuring; and FERC's determination that pipelines should focus on
individual customers, rather than customer classes, in mitigating the effects of
SFV rate design. On February 27, 1997, the FERC issued its order on remand. The
order reaffirmed the holding of Order No. 636 that pipelines should be entitled
to recover 100 percent of their prudently incurred GSR costs. Moreover, since
Order No. 636, few, if any, pipeline customers have been willing, or required,
to commit to twenty-year contracts for existing capacity. Thus, FERC reduced the
contract matching cap for the right-of-first-refusal mechanism to five years. In
light of the varied post-restructuring experience with no-notice service, the
FERC also decided to no longer limit a pipeline's no-notice service to its
bundled sales customers at the time of restructuring. Finally, the FERC
reaffirmed that pipelines should focus on individual customers, rather that
customer classes, in mitigating the effects of SFV rate design. Four petitions
were filed with the Supreme Court on January 27, 1997 for writ of certiorari to
review those portions of the D.C. Circuit's opinion which affirmed the capacity
release and right-of-first-refusal provisions adopted in Order No. 636. Appeals
of individual pipeline restructuring orders are still pending before the D.C.
Circuit.
The FERC has announced its intention to reexamine certain of its
transportation-related policies, including the appropriate manner in which
interstate pipelines release transportation capacity under Order No. 636, and
the use of market-based rates for interstate gas transmission. While any
resulting FERC action would affect the Company only indirectly, the FERC's
current rules and policy statements may have the effect of enhancing competition
in natural gas markets by, among other things, encouraging non-producer natural
gas marketers to engage in certain purchase and sale transactions. The Company
cannot predict what action the FERC will take on these matters, nor can it
accurately predict whether the FERC's actions will achieve the goal of
increasing the competition in markets in which the Company's natural gas is
sold. However, the Company does not believe that it will be treated materially
differently than other natural gas producers and marketers with which it
competes.
On May 31, 1995, the FERC issued a policy statement on how interstate
natural gas pipelines can recover the costs of new pipeline facilities. The
policy statement focused on whether projects would be priced on a rolled-in
basis (rolling in the expansion costs with the existing facilities) or on an
incremental basis (establishing separate cost-of services and separate rates for
the existing and expansion facilities). The policy statement established a
presumption in favor of rolled-in rates when the rate increase to existing
customers from rolling in the new facilities is 5% or less. While this policy
statement affects the Company only indirectly, the new policy should enhance
competition in natural gas markets and facilitate construction of gas supply
laterals. In the policy statement, the FERC contemplated that the resolution of
pricing methodology would take place in individual proceedings based on the
facts and circumstances of the project. The Company cannot predict what action
the FERC will take in the individual proceedings.
53
<PAGE> 58
In October of 1992 Congress passed the Energy Policy of 1992 ("Energy
Policy Act"). The Energy Policy Act deemed petroleum pipeline rates in effect
for the 365-day period ending on the date of enactment of the Energy Policy Act
or that were in effect on the 365th day preceding enactment and had not been
subject to complaint, protest or investigation during the 365-day period to be
just and reasonable under the Interstate Commerce Act. The Energy Policy Act
also provides that complaints against such rates may only be filed under the
following limited circumstances: (i) a substantial change has occurred since
enactment in either the economic circumstances or the nature of the services
which were a basis for the rate; (ii) the complainant was contractually barred
from challenging the rate prior to enactment; or (iii) the rate is unduly
discriminatory or preferential. The Energy Policy Act further required FERC to
issue rules establishing a simplified and generally applicable ratemaking
methodology for petroleum pipelines, and to streamline procedures in petroleum
pipeline proceedings. On October 22, 1993, the FERC responded to the Energy
Policy Act directive by issuing Order No. 561, which adopts a new indexing rate
methodology for petroleum pipelines. Under the new regulations, which were
effective January 1, 1995, petroleum pipelines are able to change their rates
within prescribed ceiling levels that are tied to the Producer Price Index for
Finished Goods, minus one percent. Rate increases made pursuant to the index
will be subject to protest, but such protests must show that the portion of the
rate increase resulting from application of the index is substantially in excess
of the pipeline's increase in costs. The new indexing methodology can be applied
to any existing rate, even if the rate is under investigation. If such rate is
subsequently adjusted, the ceiling level established under the index must be
likewise adjusted.
In Order No. 561, FERC said that as a general rule pipeliners must utilize
the indexing methodology to change their rates. FERC indicated, however, that it
was retaining cost-of-service ratemaking, market-based rates, and settlement as
alternatives to the indexing approach. a cost-of-service proceeding will be
instituted to determine just and reasonable initial rates for new services. a
pipeline can also follow a cost-of-service approach when seeking to increase its
rates above index levels for uncontrollable circumstances. a pipeline can seek
to charge market-based rates if it can establish that it lacks market power.
Finally, a pipeline can establish rates pursuant to settlement if agreed upon by
all current shippers.
On May 10, 1996, the D.C. Circuit affirmed Order No. 561. The Court held
that by establishing a general indexing methodology along with limited
exceptions to indexed rates, FERC had reasonably balanced its dual
responsibilities of ensuring just and reasonable rates and streamlining
ratemaking through generally applicable procedures. Because of the novelty and
uncertainty surrounding the indexing methodology, as well as the possibility of
the use of cost-of service ratemaking and market-based rates, the Company is not
able at this time to predict the effects of Order No. 561, if any, on the
transportation costs associated with oil production from the Company's oil
producing operations.
Under the Outer Continental Shelf Lands Act ("OCSLA"), the FERC also
regulates certain activities on the Outer Continental Shelf (the "OCS"). Under
OCSLA, all gathering and transporting of oil and natural gas on the OCS must be
performed on an "open and non-discriminatory" basis. Consequently, the Company's
gathering and transportation facilities located on the OCS must be made
available to third parties. In addition, the MMS imposes regulations relating to
development and production of oil and gas properties in federal waters. Under
certain circumstances, the MMS may require any Company operations on federal
leases to be suspended or terminated. Any such suspensions or terminations could
materially and adversely affect the Company's financial condition and
operations.
Certain of the Company's businesses are subject to regulation by the
Federal Natural Gas Pipeline Safety Act of 1968 and other state and Federal
environmental statutes and regulations.
The Oil Pollution Act of 1990 (the "OPA") imposes a variety of regulations
on "responsible parties" related to the prevention of oil spills and liability
for damages resulting from such spills in United States waters. A "responsible
party" includes the owner or operator of an onshore facility, vessel or
pipeline, or the lessee or permittee of an area in which an offshore facility is
located. The OPA assigns liability to each responsible party for oil removal
costs and a variety of public and private damages. While liability limits apply
in some circumstances, a party cannot take advantage of liability limits if the
spill was caused by gross negligence or willful misconduct or resulted from
violation of a federal safety, construction or operating
54
<PAGE> 59
regulation. If the party fails to report a spill or to cooperate fully in its
cleanup, liability limits likewise do not apply. Few defenses exist to the
liability imposed by the OPA.
The OPA also imposes ongoing requirements on a responsible party, including
proof of financial responsibility to cover at least some costs in a potential
spill. For tank vessels, including mobile offshore drilling rigs, the OPA
imposes on owners, operators and charterers of the vessels, an obligation to
maintain evidence of financial responsibility of up to $10 million depending on
gross tonnage. With respect to offshore facilities, proof of greater levels of
financial responsibility may be applicable. For offshore facilities that have a
worst case oil spill potential of more than 1,000 barrels (which includes many
of the Company's offshore producing facilities), certain amendments to the OPA
that were enacted in 1996 provide that the amount of financial responsibility
that must be demonstrated by most facilities range from $10 million in specified
state waters to $35 million in federal OCS waters, with higher amounts, up to
$150 million in certain limited circumstances where the MMS believes such a
level is justified by the risks posed by the quantity or quality of oil that is
handled by the facility. On March 25, 1997, the MMS promulgated a proposed rule
implementing these OPA financial responsibility requirements. Under the proposed
rule, the amount of financial responsibility required for a facility would
depend on the "worst case" oil spill discharge volume calculated for the
facility. For oil and gas producers such as the Company operating offshore
facilities in OCS waters, worst case discharge volumes of up to 35,000 barrels
will require a financial responsibility demonstration of $35.0 million, while
worst case discharge volumes in excess of 35,000 barrels will require
demonstrations ranging from $70.0 million to $150.0 million.
The Company believes that it currently has established adequate proof of
financial responsibility for its offshore facilities at no significant increase
in expense over recent prior years. However, the Company cannot predict whether
these financial responsibility requirements under the OPA amendments or proposed
rule will result in the imposition of substantial additional annual costs to the
Company in the future or otherwise materially adversely effect the Company. The
impact, however, should not be any more adverse to the Company than it will be
to other similarly situated or less capitalized owners or operators in the Gulf
of Mexico. OPA also imposes other requirements on facility operators, such as
the preparation of an oil spill contingency plan. The Company has such plans in
place. The failure to comply with ongoing requirements or inadequate cooperation
in a spill event may subject a responsible party to civil or even criminal
liability.
ENVIRONMENTAL MATTERS
The Company's operations and properties are subject to extensive and
changing federal, state and local laws and regulations relating to environmental
protection, including the generation, storage, handling, emission,
transportation and discharge of materials into the environment, and relating to
safety and health. The recent trend in environmental legislation and regulation
is generally toward stricter standards, and this trend will likely continue.
These laws and regulations may require the acquisition of a permit or other
authorization before construction or drilling commences and for certain other
activities; limit or prohibit construction, drilling and other activities on
certain lands lying within wilderness or wetlands and other protected areas; and
impose substantial liabilities for pollution resulting from the Company's
operations. The permits required for various of the Company's operations are
subject to revocation, modification and renewal by issuing authorities. The
Company believes that its operations currently are in substantial compliance
with applicable environmental regulations.
Governmental authorities have the power to enforce compliance with their
regulations, and violations are subject to fines, injunction, or both. The
Company does not expect environmental compliance matters to have a material
adverse effect on its financial position. It is also not anticipated that the
Company will be required in the near future to expend amounts that are material
to the financial condition or operations of the Company by reason of
environmental laws and regulations, but because such laws and regulations are
frequently changed, and may impose increasingly stricter requirements, the
Company is unable to predict the ultimate cost of complying with such laws and
regulations.
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The following are examples of environmental, safety and health laws that
relate to the Company's operations:
Solid Waste. The Company's operations may generate and result in the
transportation, treatment, and disposal of both hazardous and nonhazardous solid
wastes that are subject to the requirements of the federal Resource Conservation
and Recovery Act and comparable state and local requirements. The Environmental
Protection Agency ("EPA") is currently considering the adoption of stricter
disposal standards for nonhazardous waste. Further, it is possible that some
wastes that are currently classified as nonhazardous, perhaps including wastes
generated during pipeline, drilling and production operations, may in the future
be designated as "hazardous wastes," which are subject to more rigorous and
costly disposal requirements. Such changes in the regulations may result in
additional expenditures or operating expenses by the Company.
Hazardous Substances. The Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") and comparable state statutes, also
known as "Superfund" laws, impose liability, without regard to fault or the
legality of the original conduct, on certain classes of persons for the release
of a "hazardous substance" into the environment. These persons include the owner
or operator of a site, and companies that transport, dispose of or arrange for
the disposal of the hazardous substances found at the site. CERCLA also
authorizes the EPA, and in some cases, third parties to take actions in response
to releases or threats of releases of hazardous substances and to seek to
recover from the classes of responsible persons the costs they incur. Although
"petroleum" is excluded from CERCLA's definition of a "hazardous substance," in
the course of its ordinary operations the Company may generate other materials
which may fall within the definition of a "hazardous substance." The Company may
be responsible under CERCLA for all or part of the costs required to clean up
sites at which such wastes have been disposed and for natural resource damages.
The Company has not received any notification that it may be potentially
responsible for cleanup costs under CERCLA or any comparable state law.
Air. The Company's operations are subject to the Clean Air Act ("CAA") and
comparable state and local requirements. Amendments to the CAA were adopted in
1990 and contain provisions that may result in the gradual imposition of certain
pollution control requirements with respect to air emissions from the operations
of the Company. The EPA has been developing regulations to implement these
requirements. The Company may be required to incur certain capital expenditures
in the next several years for air pollution control equipment in connection with
maintaining or obtaining operating permits and approvals addressing other air
emission-related issues. However, the Company does not believe its operations
will be materially adversely affected by any such requirements.
Water. The Federal Water Pollution Control Act ("FWPCA") imposes
restrictions and strict controls regarding the discharge of produced waters and
other oil and gas wastes into navigable waters. Such discharges are typically
authorized by National Pollutant Discharge Elimination System ("NPDES") permits.
The FWPCA provides for civil, criminal and administrative penalties for any
unauthorized discharges of oil and other hazardous substances in reportable
quantities and, along with the Oil Pollution Act of 1990, imposes substantial
potential liability for the costs of removal, remediation and damages. State
laws for the control of water pollution also provide varying civil, criminal and
administrative penalties and liabilities in the case of a discharge of petroleum
or its derivatives into state waters. In addition, the Coastal Zone Management
Act authorizes state implementation and development of programs of management
measures for non-point source pollution to restore and protect coastal waters.
As of January 1, 1997, the Company's federal NPDES permits prohibit the
discharge of produced water, and other substances generated by the oil and gas
industry from wells located in the coastal waters of Louisiana. The Louisiana
Department of Environmental Quality ("LDEQ"), as administrator of the NPDES
permits in Louisiana, issued on December 30, 1996, and reissued on February 28,
1997, an emergency rule to allow continued discharge of produced waters in the
coastal area, subject to a zero discharge requirement by no later than December
31, 1999 for produced water being currently discharged into major deltaic passes
of the Mississippi River. On February 24, 1997, LDEQ issued to the Company a
compliance order allowing it to temporarily discharge produced water into
Southwest Pass, a major deltaic pass of the Mississippi River. The Company has
submitted to LDEQ a compliance plan for achievement of zero discharge of
produced water at its East Bay Central Facilities by no later than December 31,
1999. Simultaneously, the Company plans to reformat a portion of its East Bay
facilities to
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allow for discharge of produced water in the offshore areas, to the extent
allowed by its NPDES permits. Although the costs to reformat Company operations
to comply with these zero discharge mandates under federal or state law may be
significant, the Company believes that these costs will not have a material
adverse impact on the Company's financial conditions and operations.
Protected Species. The Endangered Species Act ("ESA") seeks to ensure that
activities do not jeopardize endangered or threatened animal, fish and plant
species, nor destroy or modify the critical habitat of such species. Under the
ESA, exploration and production operations, as well as actions by federal
agencies, may not significantly impair or jeopardize the species or its habitat.
The ESA provides for criminal penalties for willful violations of the ESA. Other
statutes which provide protection to animal and plant species and which may
apply to the Company's operations include, but are not necessarily limited to,
the Marine Mammal Protection Act, the Marine Protection, Research and
Sanctuaries Act, the Fish and Wildlife Coordination Act, the Fishery
Conservation and Management Act, the Migratory Bird Treaty Act and the National
Historic Preservation Act.
Wetlands. Pursuant to the FWPCA, the United States Corps of Engineers, with
oversight by the EPA, administers a complex program that regulates activities in
wetland areas. Some of the Company's operations are in areas that have been
designated as wetlands and, as such, are subject to permitting requirements.
Failure to properly obtain a permit or violation of permit terms could result in
the issuance of compliance orders, restorative injunctions and a host of civil,
criminal and administrative penalties. The Company believes that it is currently
in substantial compliance with these permitting requirements.
Wildlife Refuges/Bird Sanctuaries. Portions of the Company's properties are
located in or adjacent to federal and state wildlife refuges and bird
sanctuaries. The Company's operations in such areas must comply with regulations
governing air and water discharge which are more stringent than its other areas
of operations. The Company has not been, and does not anticipate that it will
be, materially affected by any such requirements.
Safety and Health. The Company's operations are subject to the requirements
of the federal Occupational Safety and Health Act ("OSHA") and comparable state
statutes. The OSHA hazard communication standard, the EPA
community-right-to-know regulations under Title III of the Federal Superfund
Amendment and Reauthorization Act, and similar state statutes require that
certain information be organized and maintained about hazardous materials used
or produced in operations. Certain of this information must be provided to
employees, state and local government authorities and citizens.
The Company incurred approximately $620,000, $694,000 and $975,000 relating
to environmental compliance during 1994, 1995 and 1996, respectively.
ABANDONMENT COSTS
The Company is responsible for payment of abandonment costs on the oil and
gas properties it operates. As of December 31, 1996, total abandonment costs on
the Company's oil and gas properties estimated to be incurred through the year
2011 were approximately $84.0 million. Estimates of abandonment costs and their
timing may change due to many factors including actual production results,
inflation rates, and changes in environmental laws and regulations.
In connection with its acquisition of certain properties in the Delta Area,
the Company entered into two escrow agreements to provide for the future
plugging and abandonment costs of these properties. One agreement requires the
Company to make monthly deposits of $100,000 through June 30, 1998, and $350,000
thereafter until the balance in the escrow account equals $40 million unless the
Company commits to the plug and abandonment of a certain number of wells, in
which case the increase will be deferred. The other agreement requires monthly
deposits of $50,000 until the balance in the escrow account equals $7.5 million.
Such funds are restricted as to withdrawal by the agreement. With respect to any
specifically planned plugging and abandonment operation, funds are partially
released to the Company when it presents to the escrow agent the planned
plugging and abandonment operations approved by the applicable governmental
agency, with the balance to be released upon the presentation by the Company to
the trustee of evidence from the
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governmental agency that the operation was conducted in compliance with
applicable laws and regulations. As of December 31, 1996, the escrow balances
totaled $6.3 million.
In addition, the MMS requires lessees of OCS properties to post bonds to
cover the costs of the plugging and abandonment of wells located offshore and
the removal of all production facilities. Operators in the OCS waters of the
Gulf of Mexico are currently required to post area wide bonds of $3 million or
$500,000 per producing lease and supplemental bonds at the discretion of the
MMS. The Company has posted with the MMS an area wide bond of $3.0 million and
supplemental bonds totaling $39.8 million. The Company does not anticipate that
the cost of any such bonding requirements will materially affect the Company's
financial position. Under certain circumstances, the MMS may require any Company
operations on federal leases to be suspended or terminated. Any such suspensions
or terminations could have a material adverse effect on the Company's financial
condition and operations.
LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings, other
than ordinary routine litigation incidental to its business that management
believes would not have a material adverse effect on its financial condition or
results of operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the executive
officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James C. Flores................................. 38 Chairman of the Board of Directors, President
& Chief Executive Officer
Richard G. Zepernick, Jr........................ 36 Executive Vice President -- Exploration &
Production and Director
Robert L. Belk.................................. 48 Executive Vice President, Chief Financial
Officer, Treasurer & Director
Thomas D. Clark, Jr............................. 56 Director
Charles F. Mitchell, M.D........................ 48 Director
William W. Rucks, IV............................ 40 Director
Milton J. Womack................................ 70 Director
Robert K. Reeves................................ 39 Executive Vice President -- Administration,
General Counsel & Secretary
David J. Morgan................................. 49 Executive Vice President -- Geology
Michael O. Aldridge............................. 38 Vice President -- Corporate Communications
William S. Flores, Jr........................... 40 Vice President -- Operations
Doss R. Bourgeois............................... 40 Vice President -- Production
Clint P. Credeur................................ 41 Vice President -- Reservoir Engineering
Stephen T. Laperouse............................ 41 Vice President -- Land and Business
Development
Stephen H. Green................................ 41 Vice President -- Exploration Geology
James H. Painter................................ 40 Vice President -- Exploitation Geology
Frank D. Willoughby............................. 32 Vice President -- Controller
John V. Flores.................................. 31 Vice President & Assistant General Counsel
</TABLE>
The following biographies describe the business experience of the executive
officers of the Company.
James C. Flores has served as Chairman of the Board of the Company since
its inception in 1992 and as Chief Executive Officer since July 1995. Mr. Flores
became President of the Company in 1997. From 1985 to 1992, Mr. Flores served as
Vice President of FloRuxco, Inc., an oil and gas exploration company.
Richard G. Zepernick, Jr. has been with the Company since its inception,
presently serving as Executive Vice President -- Exploration & Production. Mr.
Zepernick became a director of the Company in September 1994. From May 1993
until June 1997, Mr. Zepernick served as Executive Vice President and Chief
Operating Officer. From June 1992 until May 1993, Mr. Zepernick served as Senior
Vice President and Secretary of Flores & Rucks, Inc. From 1985 to 1992, Mr.
Zepernick served as General Manager of FloRuxco, Inc.
Robert L. Belk presently serves as Executive Vice President, Chief
Financial Officer & Treasurer. From May 1993 until June 1997, Mr. Belk served as
Senior Vice President, Chief Financial Officer and Treasurer of the Company. Mr.
Belk became a director of the Company in September 1994. Prior to joining the
Company, Mr. Belk worked in public accounting for H.J. Lowe & Company from 1988
to 1993. Mr. Belk is a Certified Public Accountant.
Thomas D. Clark, Jr. is the Dean of the College of Business Administration
at Louisiana State University in Baton Rouge, Louisiana. Prior to his current
position at Louisiana State University, Mr. Clark was employed with the Florida
State University in Tallahassee where he held a variety of positions including
Professor and Chairman of the Department of Information and Management Services
and Director of the Center for Information Systems Research.
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Charles F. Mitchell, M.D. is a otolaryngologist and plastic surgeon who has
operated a private practice in Baton Rouge, Louisiana since 1978. He is also a
Clinical Assistant Professor at the Louisiana State University Medical School in
New Orleans and Clinical Instructor at the University Medical Center in
Lafayette, Louisiana. Dr. Mitchell became a director of the Company in January
1995.
William W. Rucks, IV has served as a Director of the Company since its
inception. Mr. Rucks is a private venture capital investor. He served as
President and Vice Chairman of the Board of Directors from July 1995 until
September 1996 and as President, Chief Executive Officer and a Director of the
Company from its inception in 1992 until July 1995. From 1985 to 1992, Mr. Rucks
served as President of FloRuxco, Inc. Prior thereto, Mr. Rucks worked as a
petroleum landman with Union Oil Company of California in its Southwest
Louisiana District, serving as Area Land Manager from 1981 to 1984.
Milton J. Womack has owned and operated a general contracting firm in Baton
Rouge, Louisiana since 1955. Mr. Womack is Chairman of the Board of Union
Planters Bank of Louisiana, serves as a member of the Louisiana State University
Board of Supervisors and is a director of Union Planters Corporation. Mr. Womack
became a director of the Company in January 1995.
Robert K. Reeves presently serves as Executive Vice
President -- Administration, General Counsel & Secretary of the Company. From
May 1994 until June 1997, Mr. Reeves served as the Company's Senior Vice
President, General Counsel & Secretary. From November 1993 to May 1994, Mr.
Reeves served as the Company's Vice President & General Counsel. Prior to
joining the Company in 1993, he was a partner in the law firm of Onebane,
Bernard, Torian, Diaz, McNamara & Abell in Lafayette, Louisiana.
David J. Morgan presently serves as Executive Vice President -- Geology.
Mr. Morgan joined the Company in 1993 as Vice President -- Geology and served as
a Senior Vice President from December 1995 until June 1997. Mr. Morgan has 27
years of experience in the oil and gas industry. From 1983 to 1993, Mr. Morgan
served as a geologist for and President of Morgan Resources, LTD., an oil and
gas exploration company.
Michael O. Aldridge joined the Company in 1992 as Vice President and
Controller, and became Vice President -- Corporate Communications in September
1996. From 1991 until 1992, he was Vice President and Chief Financial Officer of
Fleet Petroleum Partners. Mr. Aldridge is a Certified Public Accountant.
William S. Flores, Jr. joined the Company in 1993 as its Vice
President -- Operations. Mr. Flores worked from 1988 to 1993 at CNG Producing
Co. where he served as a Senior Operations Engineer.
Doss R. Bourgeois has served as Vice President -- Production of the Company
since August 1993. From 1982 to 1993 Mr. Bourgeois worked for CNG Producing Co.
until he joined the Company. His positions at CNG Producing Co. included
Production Engineer, Manager Offshore Production, Supervisor Drilling
Engineering, and finally Workovers & Completion/Workover Superintendent.
Clint P. Credeur has served the Company as Vice President -- Reservoir
Engineering since 1993. Mr. Credeur served as a Reservoir Engineer and Special
Projects Engineer with Chevron U.S.A. from November 1987 to December 1992.
Stephen T. Laperouse presently serves as Vice President -- Land & Business
Development. Mr. Laperouse joined the Company in 1995 as Land Manager. From 1980
until 1995, Mr. Laperouse worked as a landman for Conoco Inc.
Stephen H. Green presently serves as Vice President -- Exploration Geology.
Mr. Green joined the Company in 1995 as Manager of Exploration Geology. From
1988 until 1995, Mr. Green was employed as a geologist with Newfield
Exploration. From 1980 until 1988, Mr. Green was employed as a geologist with
Tenneco Exploration & Production, Inc.
James H. Painter presently serves as Vice President -- Exploitation
Geology. Mr. Painter joined the Company in 1995 as Manager of Exploitation
Geology. Prior to joining the Company, Mr. Painter was employed as a staff
geologist with Forest Oil Company from 1985 until 1995. From 1980 until 1985,
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Mr. Painter was an exploration and production geologist with The Superior Oil
Company and Mobil Producing Texas & New Mexico, Inc.
Frank D. Willoughby presently serves as Vice President -- Controller. Mr.
Willoughby joined the Company in 1993 as Manager of Financial Reporting. From
1992 until 1993, Mr. Willoughby was a senior financial analyst for
Freeport-McMoRan, Inc. From 1990 until 1992, Mr. Willoughby was a senior
accountant for British Petroleum. From 1988 until 1990, Mr. Willoughby was
employed by KPMG Peat Marwick where he obtained a position of senior auditor.
Mr. Willoughby is a Certified Public Accountant.
John V. Flores joined the Company in 1997 and presently serves as Vice
President & Assistant General Counsel. From 1992 to 1997, Mr. Flores was in the
private practice of law.
James C. Flores, William S. Flores, Jr. and John V. Flores are brothers;
there are no other family relationships between any of the executive officers of
the Company.
DESCRIPTION OF THE NOTES
The Exchange Notes will be issued, and the Old Notes were issued, pursuant
to the Indenture (the "Indenture") between the Company and State Street Bank &
Trust Company, as trustee (the "Trustee"). The following is a summary of
material provisions of the Indenture. This summary does not purport to be
complete and is subject to and is qualified in its entirety by reference to all
provisions of the Notes and the Indenture (including provisions made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended),
including the definitions therein of terms not defined herein. Certain terms
used herein are defined below under "-- Certain Definitions." Copies of the form
of Indenture and Registration Rights Agreement are available as set forth under
"Available Information."
GENERAL
The Exchange Notes will be issued solely in exchange for an equal principal
amount of Old Notes pursuant to the Exchange Offer. The form and terms of the
Exchange Notes will be identical in all material respects to the form and terms
of the Old Notes except that the offering of the Exchange Notes has been
registered under the Securities Act, and the Exchange Notes will therefore not
be subject to transfer restrictions, registration rights and certain provisions
relating to an increase in the stated interest rate on the Old Notes under
certain circumstances. See "-- Registered Exchange Offer; Registration Rights."
The Notes are subject to the terms stated in the Indenture, a copy of which has
been filed as an exhibit to the Registration Statement, and holders of the Notes
are referred thereto for a statement of those terms. The statements and
definitions of terms under this caption relating to the Notes and the Indenture
described below are summaries and do not purport to be complete. Such summaries
make use of certain terms defined in the Indenture and are qualified in their
entirety by express reference to the Indenture. Certain terms used herein are
defined below under "-- Certain Definitions."
The Old Notes and the Exchange Notes will constitute a single series of
debt securities under the Indenture. If the Exchange Offer is consummated,
holders of Old Notes who do not exchange their Old Notes for Exchange Notes will
vote together with holders of the Exchange Notes for all relevant purposes under
the Indenture. In that regard, the Indenture requires that certain actions by
the holders thereunder (including acceleration following an Event of Default)
must be taken, and certain rights must be exercised, by specified minimum
percentages of the aggregate principal amount of the outstanding securities
issued under the Indenture. In determining whether holders of the requisite
percentage in principal amount have given any notice, consent or waiver or taken
any other action permitted under the Indenture, any Old Notes that remain
outstanding after the Exchange Offer will be aggregated with the Exchange Notes,
and the holders of such Old Notes and the Exchange Notes will vote together as a
single series for all such purposes. Accordingly, all references herein to
specified percentages in aggregate principal amount of the outstanding Notes
shall be deemed to mean, at any time after the Exchange Offer is consummated,
such percentages in aggregate principal amount of the Old Notes and the Exchange
Notes then outstanding.
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The Notes are unsecured senior subordinated obligations of the Company
limited to $200,000,000 aggregate principal amount. The obligations of the
Company under the Notes will be guaranteed on an unsecured senior subordinated
basis by the Subsidiary Guarantor.
MATURITY, INTEREST AND PRINCIPAL PAYMENTS
The Notes will mature on July 15, 2007. Interest on the Notes will accrue
at the rate of 8 7/8% per annum and will be payable semiannually on January 15
and July 15 of each year, commencing January 15, 1998, to the Person in whose
name the Note is registered in the Note Register at the close of business on the
January 1 or July 1 next preceding such interest payment date. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
REDEMPTION
Optional Redemption. The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after July 15, 2002, at the
redemption prices (expressed as percentages of principal amount) set forth
below, plus accrued and unpaid interest, if any, to the redemption date (subject
to the right of Holders of record on the relevant record date to receive
interest due on an interest payment date that is on or prior to the redemption
date), if redeemed during the 12-month period beginning on July 15 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PRICE
---- -------
<S> <C>
2002....................................................... 104.438%
2003....................................................... 102.958%
2004....................................................... 101.479%
2005 and thereafter........................................ 100.000%
</TABLE>
In addition, at any time and from time to time prior to July 15, 2000, the
Company may, at its option, redeem in the aggregate up to $70 million of the
aggregate principal amount of the Notes originally issued under the Indenture
with the proceeds of one or more Public Equity Offerings by the Company at a
redemption price (expressed as a percentage of principal amount) of 108.875%,
plus accrued and unpaid interest, if any, to the date of redemption (subject to
the right of Holders of Notes on the relevant record date to receive interest
due on the relevant interest payment date); provided, however, that at least
$130 million aggregate principal amount of the Notes must remain outstanding
after each such redemption. In order to effect the foregoing redemption, the
Company must mail notice of redemption no later than 60 days after the related
Public Equity Offering and must consummate such redemption within 90 days of the
closing of the Public Equity Offering.
Selection and Notice. In the event that less than all of the Notes are to
be redeemed at any time, selection of such Notes (or any portion thereof that is
an integral multiple of $1,000) for redemption will be made by the Trustee from
the outstanding Notes not previously called for redemption (or otherwise
purchased by the Company) on a pro rata basis, by lot or by such method as the
Trustee shall deem fair and appropriate; provided, however, that no Note with a
principal amount of $1,000 or less shall be redeemed in part. Notice of
redemption shall be mailed by first-class mail at least 30 but not more than 60
days before the redemption date to each bolder of Notes to be redeemed at its
registered address. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in a principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the redemption date, interest
will cease to accrue on Notes or portions thereof called for redemption and
accepted for payment.
Offers to Purchase. As described below, (a) upon the occurrence of a Change
of Control, the Company is obligated to make an offer to purchase all
outstanding Notes at a purchase price equal to 101% of the principal amount
thereof, together with accrued and unpaid interest, if any, to the date of
purchase and (b) upon
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<PAGE> 67
certain sales or other dispositions of assets, the Company may be obligated to
make offers to purchase Notes with a portion of the Net Cash Proceeds of such
sales or other dispositions at a purchase price equal to 100% of the principal
amount thereof, together with accrued and unpaid interest, if any, to the date
of purchase. See "-- Certain Covenants -- Change of Control" and "-- Limitation
on Disposition of Proceeds of Asset Sales."
REGISTERED EXCHANGE OFFER; REGISTRATION RIGHTS
Pursuant to the Registration Rights Agreement, the Company has agreed, for
the benefit of the holders of the Notes, at the Company's cost, to use its
reasonable best efforts (i) to file with the Commission the Exchange Offer
Registration Statement with respect to the Exchange Offer of the Exchange Notes
within 60 days after the date of original issuance of the Notes (the "Issue
Date"), (ii) to cause the Exchange Offer Registration Statement to be declared
effective under the Securities Act within 120 days of the Issue Date, (iii) to
keep the Exchange Offer Registration Statement effective until the closing of
the Exchange Offer, and (iv) to cause the Exchange Offer to be consummated
within 180 days of the Issue Date. Promptly after the Exchange Offer
Registration Statement has been declared effective, the Company will offer the
Exchange Notes in exchange for the surrender of the Notes. The Company will keep
the Exchange Offer open for not less than 30 days (or longer if required by
applicable law) after the date notice of the Exchange Offer has been mailed to
the registered holders of the Notes. For each Note validly tendered to the
Company pursuant to the Exchange Offer and not withdrawn by the holder thereof,
the holder of such Note will receive an Exchange Note having a principal amount
equal to the principal amount of such surrendered Note. Interest on each
Exchange Note will accrue from the last interest payment date to which interest
was paid on the Note surrendered in exchange therefor or, if no interest has
been paid on such Note, from the Issue Date.
Based on existing interpretations of the Securities Act by the staff of the
Commission set forth in several no-action letters to third parties, and subject
to the immediately following sentence, the Company believes that the Exchange
Notes issued pursuant to the Exchange Offer may be offered for resale, resold
and transferred by the holders thereof without further compliance with the
registration and prospectus delivery requirements of the Securities Act.
However, any purchaser of Notes who is an affiliate of the Company or who
intends to participate in the Exchange Offer for the purpose of distributing the
Exchange Notes, or any broker-dealer who purchased the Notes from the Company to
resell pursuant to Rule 144A or any other available exemption under the
Securities Act, (i) will not be able to rely on the interpretations by the staff
of the Commission set forth in the above-mentioned no-action letters; (ii) will
not be able to tender its Notes in the Exchange Offer and (iii) must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any sale or transfer of the Notes unless such sale or transfer
is made pursuant to an exemption from such requirements. The Company does not
intend to seek its own no-action letter and there is no assurance that the staff
of the Commission would make a similar determination with respect to the
Exchange Notes as it has in such no-action letters to third parties.
Each holder of the Notes (other than certain specified holders) who wishes
to exchange Notes for Exchange Notes in the Exchange Offer will be required to
represent that (i) it is not an affiliate of the Company or a broker-dealer
tendering Notes acquired directly from the Company for its own account, (ii) any
Exchange Notes to be received by it were acquired in the ordinary course of its
business and (iii) at the time of the commencement of the Exchange Offer, it has
no arrangement with any person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Notes. In addition, in connection
with any resales of Exchange Notes, any broker-dealer who acquired the Notes for
its own account as a result of market-making activities or other trading
activities (a "Participating Broker-Dealer") must deliver a prospectus meeting
the requirements of the Securities Act. The staff of the Commission has taken
the position that Participating Broker-Dealers may fulfill their prospectus
delivery requirements with respect to the Exchange Notes (other than a resale of
an unsold allotment from the original sale of the Notes) with the prospectus
contained in the Exchange Offer Registration Statement. Under the Registration
Rights Agreement, the Company will be required to allow Participating
Broker-Dealers to use the prospectus contained in the Exchange Offer
Registration Statement, for up to 180 days following the Exchange Offer, in
connection with the resale of Exchange Notes received in exchange for Notes
acquired by such Participating Broker-Dealers for their own account as a result
of market-making or other trading activities.
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In the event that any changes in law or the applicable interpretations of
the staff of the Commission do not permit the Company to effect the Exchange
Offer, or if for any reason the Exchange Offer Registration Statement is not
declared effective within 120 days following the Issue Date or the Exchange
Offer is not consummated within 180 days after such date, or upon the request of
the Initial Purchasers in certain circumstances, the Company will, in lieu of
effecting (or, in the case of such a request by the Initial Purchasers, in
addition to effecting) the registration of the Exchange Notes pursuant to the
Exchange Offer Registration Statement (i) as promptly as practicable, file with
the Commission the Shelf Registration Statement covering resales of the Notes,
(ii) use its reasonable best efforts to cause the Shelf Registration Statement
to be declared effective under the Securities Act by the 180th day after the
Issue Date (or promptly in the event of a request by the Initial Purchasers) and
(iii) use its reasonable best efforts to keep effective the Shelf Registration
Statement until two years after its effective date (or until one year after such
effective date if such Shelf Registration Statement is filed at the request of
the Initial Purchasers) or until all of the Notes covered by such Shelf
Registration Statement have been sold. In the event of the filing of the Shelf
Registration Statement, the Company will provide to each holder of the Notes
copies of the prospectus which is a part of the Shelf Registration Statement and
notify each such holder when the Shelf Registration Statement has become
effective. A holder of Notes that sells such Notes pursuant to the Shelf
Registration Statement generally will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such a
holder (including certain indemnification obligations). In addition, each holder
of the Notes will be required to deliver information to be used in connection
with the Shelf Registration Statement and to provide comments on the Shelf
Registration Statement in order to have its Notes included in the Shelf
Registration Statement and to benefit from the provisions regarding the increase
in the interest rate borne by the Notes described in the second succeeding
paragraph.
The Company may require, as a condition to including the Notes of any
holder in the Shelf Registration Statement, that such holder furnish to the
Company a written agreement to the effect that such holder agrees to comply with
and be bound by the provisions of the Registration Rights Agreement. In that
regard, each holder of Notes registered under the Shelf Registration Statement
will be deemed to have agreed that, upon receipt of notice from the Company of
the occurrence of any event that makes any statement in the prospectus that is a
part of the Shelf Registration Statement (or, in the case of Participating
Broker-Dealers, the prospectus that is a part of the Exchange Offer Registration
Statement) untrue in any material respect or that requires the making of any
changes in such prospectus in order to make the statements therein not
misleading or of certain other events specified in the Registration Rights
Agreement, such holder (or Participating Broker-Dealers, as the case may be)
will suspend the sale of Notes pursuant to such prospectus until the Company has
amended or supplemented such prospectus to correct such misstatement or
omission, has furnished copies of the amended or supplemented prospectus to such
holder (or Participating Broker-Dealer, as the case may be) or the Company has
given notice that the sale of the Notes may be resumed, as the case may be. If
the Company shall give such notice to suspend the sale of the Notes, it shall
extend the relevant period referred to above during which it is required to keep
effective the Shelf Registration Statement (or the period during which
Participating Broker-Dealers are entitled to use the prospectus included in the
Exchange Offer Registration Statement in connection with the resale of Exchange
Notes, as the case may be) by the number of days during the period and including
the date of the giving of such notice to and including the date when holders
shall have received copies of the supplemented or amended prospectus necessary
to permit resales of the Notes or to and including the date on which the Company
has given notice that the sale of Notes may be resumed, as the case may be.
In the event that (a) the Exchange Offer Registration Statement is not
filed with the Commission on or prior to the 60th day following the Issue Date,
(b) the Exchange Offer Registration Statement is not declared effective on or
prior to the 120th day following the Issue Date, (c) the Exchange Offer is not
consummated or a Shelf Registration Statement with respect to the Notes is not
declared effective on or prior to the 180th day following the Issue Date or (d)
any required Exchange Offer Registration Statement or Shelf Registration
Statement is filed and declared effective but shall thereafter either be
withdrawn by the Company or becomes subject to an effective stop order
suspending the effectiveness of such registration statement (except as
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specifically permitted in the Registration Rights Agreement) without being
succeeded immediately by an additional registration statement filed and declared
effective, the interest rate borne by the Notes shall be increased by .50% per
annum following such 60th day in the case of clause (a) above, such 120th day in
the case of clause (b) above and such 180th day in the case of clause (c) above;
provided that the aggregate amount of any such increase in the interest rate on
the Notes pursuant to the foregoing provisions shall in no event exceed .50% per
annum; and provided, further, that if the Exchange Offer Registration Statement
is not declared effective on or prior to the 120th day following the Issue Date
and the Company shall request holders of Notes to provide the information called
for by the Registration Rights Agreement for inclusion in the Shelf Registration
Statement, then Notes owned by holders who do not deliver such information to
the Company or who do not provide comments on the Shelf Registration Statement
when required pursuant to the Registration Rights Agreement will not be entitled
to any such increase in the interest rate for any day after the 180th day
following the Issue Date. Upon (x) the filing of the Exchange Offer Registration
Statement after the 60th day described in clause (a) above, (y) the
effectiveness of the Exchange Offer Registration Statement after the 120th day
described in clause (b) above or (z) the consummation of the Exchange Offer or
the effectiveness of the Shelf Registration Statement, as the case may be, after
the 180th day described in clause (c) above, the interest rate on the Notes from
the date of such filing, effectiveness or consummation, as the case may be, will
be reduced to the original interest rate set forth on the cover page of this
Prospectus; provided, however, that the interest rate on the Notes will be
reduced to the original interest rate only if all of the events set forth in the
immediately preceding sentence causing the rate on the Notes to increase have
been cured.
The Registration Rights Agreement is governed by, and construed in
accordance with, the laws of the State of New York. The summary herein of
certain provisions of the Registration Rights Agreement does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Registration Rights Agreement, a form of which is
available upon request to the Company. In addition, the information set forth
above concerning certain interpretations of and positions taken by the staff of
the Commission is not intended to constitute legal advice and prospective
investors should consult their own legal advisors with respect to such matters.
SUBORDINATION
Payments of and distribution of or with respect to the Senior Subordinated
Note Obligations will be subordinated, to the extent set forth in the Indenture,
in right of payment to the prior payment in full in cash or cash equivalents of
all existing and future Senior Indebtedness, which includes, without limitation,
all Credit Agreement Obligations and Senior Note Obligations of the Company. The
Notes will rank prior in right of payment only to other indebtedness of the
Company which is, by its terms, expressly subordinated in right of payment to
the Notes. There is currently no indebtedness of the Company which would
constitute such subordinated indebtedness. In addition, the Senior Subordinated
Note Obligations will be effectively subordinated to all of the creditors of the
Company's subsidiaries, including trade creditors, except by virtue of a
Subsidiary Guarantee to the extent such Subsidiary is a Subsidiary Guarantor.
See "Risk Factors -- Subordination of Notes; Holding Company Structure."
The Indenture provides that in the event of (a) any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation, reorganization
or other similar case or proceeding in connection therewith, relating to the
Company (or its creditors, as such) or its assets, or (b) any liquidation,
dissolution or other winding-up of the Company, whether voluntary or
involuntary, or (c) any assignment for the benefit of creditors or other
marshaling of assets or liabilities of the Company, all Senior Indebtedness of
the Company must be paid in full in cash or cash equivalents before any direct
or indirect payment or distribution, whether in cash, property or securities
(excluding certain permitted equity and subordinated debt securities referred to
in the Indenture as "Permitted Junior Securities"), is made on account of the
Senior Subordinated Note Obligations. In the event that, notwithstanding the
foregoing, the Trustee or the holder of any Note receives any payment or
distribution of properties or assets of the Company of any kind or character,
whether in cash, property or securities, by set-off or otherwise, in respect of
Senior Subordinated Note Obligations before all Senior Indebtedness is paid or
provided for in full, then the Trustee or the holders of Notes receiving any
such payment or distribution (other than a payment or distribution in the form
of Permitted Junior Securities) will
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be required to pay or deliver such payment or distribution forthwith to the
trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent
or other person making payment or distribution of assets of the Company for
application to the payment of all Senior Indebtedness remaining unpaid, to the
extent necessary to pay all Senior Indebtedness in full.
During the continuance of any default in the payment when due (whether at
Stated Maturity, upon scheduled repayment, upon acceleration or otherwise) of
principal of or premium, if any, or interest on, or of unreimbursed amounts
under drawn letters of credit or fees relating to letters of credit
constituting, any Designated Senior Indebtedness (a "Payment Default"), no
direct or indirect payment or distribution by or on behalf of the Company of any
kind or character shall be made on account of the Senior Subordinated Note
Obligations or any obligation under any Subsidiary Guarantee unless and until
such default has been cured or waived or has ceased to exist or such Designated
Senior Indebtedness shall have been discharged or paid in full in cash or cash
equivalents.
In addition, during the continuance of any default other than a Payment
Default with respect to any Designated Senior Indebtedness pursuant to which the
maturity thereof may then be accelerated (a "Nonpayment Default"), after receipt
by the Trustee from the holders (or their representative) of such Designated
Senior Indebtedness of a written notice of such Non-payment Default, no payment
or distribution of any kind or character may be made by the Company on account
of the Senior Subordinated Note Obligations for the period specified below (the
"Payment Blockage Period").
The Payment Blockage Period shall commence upon the receipt of notice of a
Non-payment Default by the Trustee from the holders (or their representative) of
Designated Senior Indebtedness stating that such notice is a payment blockage
notice pursuant to the Indenture and shall end on the earliest to occur of the
following events: (i) 179 days shall have elapsed since the receipt by the
Trustee of such notice; (ii) the date, as set forth in a written notice to the
Company or the Trustee from the holders (or their representative) of the
Designated Senior Indebtedness initiating such Payment Blockage Period, on which
such default is cured or waived or ceases to exist (provided that no other
Payment Default or Non-payment Default has occurred or is then continuing after
giving effect to such cure or waiver); (iii) the date on which such Designated
Senior Indebtedness is discharged or paid in full in cash or cash equivalents;
or (iv) the date, as set forth in a written notice to the Company or the Trustee
from the holders (or their representative) of the Designated Senior Indebtedness
initiating such Payment Blockage Period, on which such Payment Blockage Period
shall have been terminated by written notice to the Company or the Trustee from
the holders (or their representative) of Designated Senior Indebtedness
initiating such Payment Blockage Period, after which the Company, subject to the
subordination provisions set forth above and the existence of another Payment
Default, shall promptly resume making any and all required payments in respect
of the Notes, including any missed payments. Only one Payment Blockage Period
with respect to the Notes may be commenced within any 360 consecutive day
period. No Non-payment Default with respect to Designated Senior Indebtedness
that 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 will be, or can be, made the basis for the
commencement of a second Payment Blockage Period, whether or not within a period
of 360 consecutive days, unless such default has been cured or waived for a
period of not less than 90 consecutive days (it being acknowledged that any
subsequent action, or any breach of any financial covenant for a period
commencing after the date of commencement of such Payment Blockage Period, that,
in either case, would give rise to a Non-payment Default pursuant to any
provision under which a Non-payment Default previously existed or was continuing
shall constitute a new Non-payment Default for this purpose; provided that, in
the case of a breach of a particular financial covenant, the Company shall have
been in compliance for at least one full 90 consecutive day period commencing
after the date of commencement of such Payment Blockage Period). In no event
will a Payment Blockage Period extend beyond 179 days from the date of the
receipt by the Trustee of the notice and there must be a 181 consecutive day
period in any 360-day period during which no Payment Blockage Period is in
effect. In the event that, notwithstanding the foregoing, the Company makes any
payment or distribution to the Trustee or the holder of any Note prohibited by
the subordination provision of the Indenture, then such payment or distribution
will be required to be paid over and delivered forthwith to the holders (or
their representative) of Designated Senior Indebtedness.
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If the Company fails to make any payment on the Notes when due or within
any applicable grace period, whether or not on account of the payment blockage
provisions referred to above, such failure would constitute an Event of Default
under the Indenture and would enable the holders of the Notes to accelerate the
maturity thereof. See "-- Events of Default."
By reason of such subordination, in the event of liquidation, receivership,
reorganization or insolvency, creditors of the Company who are holders of Senior
Indebtedness may recover more, ratably, than the holders of the Notes, and funds
which would be otherwise payable to the holders of the Notes will be paid to the
holders of the Senior Indebtedness to the extent necessary to pay the Senior
Indebtedness in full, and the Company may be unable to meet its obligations in
full with respect to the Notes.
As of March 31, 1997, on a pro forma basis, after giving pro forma effect
to the Offering and the estimated application of the net proceeds therefrom, and
assuming substantially all of the 13 1/2% Senior Notes were purchased in the
Tender Offer, there would not have been any material Senior Indebtedness
outstanding. See "Capitalization" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources." Although the Indenture contains limitations on the amount of
additional Indebtedness that the Company and the Restricted Subsidiaries may
incur, the amounts of such Indebtedness could be substantial and, in any case,
such Indebtedness may be Senior Indebtedness or Indebtedness of Subsidiaries (to
which the Notes will be structurally subordinated except for Indebtedness of a
Subsidiary Guarantor). The Indenture prohibits the incurrence by the Company of
Indebtedness which is contractually subordinated in right of payment to any
Senior Indebtedness of the Company and senior in right of payment to the Notes.
After giving effect to the Offering and the application of the net proceeds
therefrom, there will be no indebtedness of the Company which is subordinated in
right of payment to the Notes and there will be no indebtedness of the Company
which is pari passu in right of payment with the Notes.
SUBSIDIARY GUARANTEES OF NOTES
Initially, Ocean Louisiana will be the only Subsidiary Guarantor, however,
other Restricted Subsidiaries may in the future incur Subsidiary Guarantees of
the Notes as described herein. Each Subsidiary Guarantor will guarantee, jointly
and severally, to each Holder and the Trustee, the full and prompt performance
of the Company's obligations under the Indenture and the Notes, including the
payment of principal of (premium, if any, on) and interest on the Notes pursuant
to its Subsidiary Guarantee. The Subsidiary Guarantees will be subordinated to
Guarantor Senior Indebtedness of a Subsidiary Guarantor to the same extent and
in the same manner as the Notes are subordinated to Senior Indebtedness. In
addition to the Subsidiary Guarantee, primarily for state income tax purposes,
Ocean Louisiana will covenant with the Company to assume, as between the Company
and Ocean Louisiana, the payment obligations under the Notes in exchange for the
advance of substantially all the net proceeds of the Notes Offering to Ocean
Louisiana. Such intercompany assumption will not affect the primary liability of
the Company under the Notes.
The obligations of each Subsidiary Guarantor are limited to the maximum
amount as will, after giving effect to all other contingent and fixed
liabilities (including, but not limited to, Guarantor Senior Indebtedness) of
such Subsidiary Guarantor and after giving effect to any collections from or
payments made by or on behalf of any other Subsidiary Guarantor in respect of
the obligations of such other Subsidiary Guarantor under its Subsidiary
Guarantee or pursuant to its contribution obligations under the Indenture,
result in the obligations of such Subsidiary Guarantor under the Subsidiary
Guarantee not constituting a fraudulent conveyance or fraudulent transfer under
federal or state law. Each Subsidiary Guarantor that makes a payment or
distribution under a Subsidiary Guarantee shall be entitled to a contribution
from each other Subsidiary Guarantor (if any) in a pro rata amount based on the
Adjusted Net Assets of each Subsidiary Guarantor.
Each Subsidiary Guarantor may consolidate with or merge into or sell all,
substantially all or any portion of its assets to the Company or another
Subsidiary Guarantor without limitation, except to the extent any such
transaction is subject to the "Merger, Consolidation and Sale of Assets"
covenant of the Indenture. Each Subsidiary Guarantor may consolidate with or
merge into or sell all of substantially all of its assets to a
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corporation other than the Company or another Subsidiary Guarantor (whether or
not affiliated with the Subsidiary Guarantor), provided that (a) if the
surviving corporation is not the Subsidiary Guarantor, the surviving corporation
agrees to assume such Subsidiary Guarantor's Subsidiary Guarantee and all its
obligations pursuant to the Indenture (except to the extent the following
paragraph would result in the release of such Subsidiary Guarantee) and (b) such
transaction does not (i) violate any of the covenants described below under
"Certain Covenants" or in the Indenture or (ii) result in a Default or Event of
Default immediately thereafter that is continuing.
Upon the sale or other disposition (by merger or otherwise) of a Subsidiary
Guarantor (or all or substantially all of its Assets) to a Person other than the
Company or another Subsidiary Guarantor and pursuant to a transaction that is
otherwise in compliance with the Indenture (including as described in the
foregoing paragraph), such Subsidiary Guarantor shall be deemed released from
its Subsidiary Guarantee and the related obligations set forth in the Indenture;
provided, however, that any such termination shall occur only to the extent that
all obligations of such Subsidiary Guarantor under all of its guarantees of, and
under all of its pledges of assets or other security interests which secure
other Indebtedness of the Company or any Restricted Subsidiary shall also
terminate or be released upon such sale or other disposition. Each Subsidiary
Guarantor that is designated as an Unrestricted Subsidiary in accordance with
the Indenture shall be released from its Subsidiary Guarantee and related
obligations set forth in the Indenture for so long as it remains an Unrestricted
Subsidiary.
Although the Indenture does not contain any requirement that any Subsidiary
(other than Ocean Louisiana) execute and deliver a Subsidiary Guarantee, certain
covenants described below require a future Restricted Subsidiary to execute and
deliver a Subsidiary Guarantee prior to the guarantee of other Indebtedness. See
"Certain Covenants -- Limitation on Guarantees of Indebtedness by Restricted
Subsidiaries."
CERTAIN COVENANTS
The Indenture provides that the covenants set forth herein will be
applicable to the Company, except that during any period of time that (i) the
ratings assigned to the Notes by both Standard & Poor's Ratings Group ("S&P")
and Moody's Investors Service, Inc. ("Moody's" and, together with "S&P," the
"Rating Agencies") are equal to or higher than BBB- and Baa3, or the equivalents
thereof, respectively (the "Investment Grade Ratings"), except subsequent to a
Change of Control of the Company, and (ii) no Default or Event of Default shall
have occurred and be continuing, the Company and its Subsidiaries will not be
subject to the provisions of the Indenture described under "-- Limitation on
Indebtedness," "-- Limitation on Restricted Payments," "-- Limitation on
Transactions with Affiliates," "-- Limitation on Disposition of Proceeds of
Asset Sales," and "-- Limitation on Dividends and Other Payment Restrictions
Affecting Restricted Subsidiaries" (collectively, the "Suspended Covenants"). In
the event that the Company is not subject to the Suspended Covenants for any
period of time as a result of the preceding sentence and, subsequently, one or
both Rating Agencies withdraws its ratings or downgrades the ratings assigned to
the Notes below the required Investment Grade Ratings, then the Company and its
Subsidiaries will again be subject to the Suspended Covenants and compliance
with the Suspended Covenants with respect to Restricted Payments made after the
time of such withdrawal or downgrade will be calculated in accordance with the
terms of the "Limitation on Restricted Payments" covenant as if such covenant
had been in effect during the entire period of time from the date of the
Indenture.
The Indenture contains, among others, the covenants described below.
Limitation on Indebtedness. (a) The Indenture provides that neither the
Company nor any Restricted Subsidiary will create, incur, issue, assume,
guarantee or in any manner become directly or indirectly liable for the payment
of (collectively "incur") any Indebtedness (including any Acquired
Indebtedness), other than Permitted Indebtedness and Permitted Subsidiary
Indebtedness, as the case may be; provided, however, that the Company and its
Restricted Subsidiaries that are Subsidiary Guarantors may incur Indebtedness if
(x) the Company's Consolidated Fixed Charge Coverage Ratio for the four full
fiscal quarters immediately preceding the incurrence of such Indebtedness (and
for which financial statements are available), taken as one
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period (at the time of such incurrence, after giving pro forma effect to: (i)
the incurrence of such Indebtedness and (if applicable) the application of the
net proceeds therefrom, including to refinance other Indebtedness, as if such
Indebtedness was incurred and the application of such proceeds occurred at the
beginning of such four-quarter period; (ii) the incurrence, repayment or
retirement of any other Indebtedness (including Permitted Indebtedness) by the
Company or its Restricted Subsidiaries since the first day of such four-quarter
period (including any other Indebtedness to be incurred concurrent with the
incurrence of such Indebtedness) as if such Indebtedness was incurred, repaid or
retired at the beginning of such four-quarter period; and (iii) notwithstanding
clause (d) of the definition of Consolidated Net Income, the acquisition
(whether by purchase, merger or otherwise) or disposition (whether by sale,
merger or otherwise) of any Person acquired or disposed of by the Company or its
Restricted Subsidiaries, as the case may be, since the first day of such
four-quarter period, as if such acquisition or disposition occurred at the
beginning of such four-quarter period), would have been equal to at least 2.5 to
1.0.
Limitation on Restricted Payments. (a) The Indenture provides that the
Company will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, take the following actions:
(i) declare or pay any dividend on, or make any distribution to
holders of, any shares of the Company's Capital Stock (other than dividends
or distributions payable solely in shares of Qualified Capital Stock of the
Company or in options, warrants or other rights to purchase Qualified
Capital Stock of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of the Company or any Affiliate thereof (other than any
Wholly Owned Restricted Subsidiary of the Company) or any options, warrants
or other rights to acquire such Capital Stock;
(iii) make any principal payment on or repurchase, redeem, defease or
otherwise acquire or retire for value, prior to any scheduled principal
payment, scheduled sinking fund payment or maturity, any Subordinated
Indebtedness;
(iv) declare or pay any dividend on, or make any distribution to the
holders of, any shares of Capital Stock of any Restricted Subsidiary of the
Company (other than to the Company or any of its Wholly Owned Restricted
Subsidiaries) or purchase, redeem or otherwise acquire or retire for value
any Capital Stock of any Restricted Subsidiary or any options, warrants or
other rights to acquire any such Capital Stock (other than with respect to
any such Capital Stock held by the Company or any Wholly Owned Restricted
Subsidiary of the Company);
(v) make any Investment (other than any Permitted Investment);
(vi) in connection with the acquisition of any property or asset by
the Company or its Restricted Subsidiaries after the date of the Indenture,
which property or asset would secure or be subject to any Production
Payment obligations of the Company or its Restricted Subsidiaries, make any
investment (of cash, property or other assets) in such property or asset so
acquired in addition to the amount of Indebtedness (including Production
Payment obligations) incurred by the Company or its Restricted Subsidiaries
in connection with such acquisition; or
(vii) incur, create, assume or suffer to exist any guarantee of
Indebtedness of any Affiliate (other than (a) guarantees of Indebtedness of
any Restricted Subsidiary by the Company or (b) guarantees of Indebtedness
of the Company by any Restricted Subsidiary, in each case in accordance
with the terms of the Indenture);
(such payments or other actions described in (but not excluded from) clauses (i)
through (vii) are collectively referred to as "Restricted Payments"), unless at
the time of and after giving effect to the proposed Restricted Payment (the
amount of any such Restricted Payment, if other than cash, shall be the amount
determined by the Board of Directors of the Company, whose determination shall
be conclusive and evidenced by a board resolution), (1) no Default or Event of
Default shall have occurred and be continuing, (2) the Company could incur $1.00
of additional Indebtedness (excluding Permitted Indebtedness) in accordance with
the "Limitation on Indebtedness" covenant, and (3) the aggregate amount of all
Restricted Payments
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declared or made after the date of the Indenture shall not exceed the sum
(without duplication) of the following:
(a) 50% of the aggregate cumulative Consolidated Net Income of the
Company accrued on a cumulative basis during the period beginning September
30, 1996 and ending on the last day of the Company's last fiscal quarter
ending prior to the date of such proposed Restricted Payment (or, if such
aggregate cumulative Consolidated Net Income shall be a loss, minus 100% of
such loss), plus
(B) the aggregate net cash proceeds received after the date of the
Indenture by the Company as capital contributions to the Company (other
than from any Restricted Subsidiary), plus
(C) the aggregate net cash proceeds received after the date of the
Indenture by the Company from the issuance or sale (other than to any of
its Restricted Subsidiaries) of shares of Qualified Capital Stock of the
Company or any options, warrants or rights to purchase such shares of
Qualified Capital Stock of the Company, plus
(D) the aggregate net cash proceeds received after the date of the
Indenture by the Company (other than from any of its Restricted
Subsidiaries) upon the exercise of any options, warrants or rights to
purchase shares of Qualified Capital Stock of the Company, plus
(E) the aggregate net cash proceeds received after the date of the
Indenture by the Company from the issuance or sale (other than to any of
its Restricted Subsidiaries) of debt securities or shares of Redeemable
Capital Stock that have been converted into or exchanged for Qualified
Capital Stock of the Company to the extent such debt securities were
originally sold for cash, together with the aggregate cash received by the
Company at the time of such conversion or exchange, plus
(F) To the extent not otherwise included in the Company's Consolidated
Net Income, the net reduction in Investments in Unrestricted Subsidiaries
resulting from the payments of interest on Indebtedness, dividends,
repayments of loans or advances, or other transfers of assets, in each case
to the Company or a Restricted Subsidiary after the date of the Indenture
from any Unrestricted Subsidiary or from the redesignation of an
Unrestricted Subsidiary as a Restricted Subsidiary (valued in each case as
provided in the definition of Investment), not to exceed in the case of any
Unrestricted Subsidiary the total amount of Investments (other than
Permitted Investments) in such Unrestricted Subsidiary made by the Company
and its Restricted Subsidiaries in such Unrestricted Subsidiary after the
date of the Indenture, plus
(G) $25,000,000.
(b) Notwithstanding paragraph (a) above, the Company and its Restricted
Subsidiaries may take the following actions so long as (in the case of clauses
(ii), (iii) and (iv) below) no Default or Event of Default shall have occurred
and be continuing:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such declaration date such declaration complied
with the provisions of paragraph (a) above (and such payment shall be
deemed to have been paid on such date of declaration for purposes of any
calculation required by the provisions of paragraph (a) above);
(ii) the repurchase, redemption or other acquisition or retirement of
any shares of any class of Capital Stock of the Company or any Restricted
Subsidiary, in exchange for, or out of the aggregate net cash proceeds of,
a substantially concurrent issue and sale (other than to a Restricted
Subsidiary) of shares of Qualified Capital Stock of the Company;
(iii) the purchase, redemption, repayment, defeasance or other
acquisition or retirement for value of any Subordinated Indebtedness (other
than Redeemable Capital Stock) in exchange for or out of the aggregate net
cash proceeds of a substantially concurrent issue and sale (other than to a
Restricted Subsidiary) of shares of Qualified Capital Stock of the Company;
and
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(iv) the purchase, redemption, repayment, defeasance or other
acquisition or retirement for value of Subordinated Indebtedness (other
than Redeemable Capital Stock) in exchange for, or out of the aggregate net
cash proceeds of a substantially concurrent incurrence (other than to a
Restricted Subsidiary) of, Subordinated Indebtedness of the Company so long
as (a) the principal amount of such new Indebtedness does not exceed the
principal amount (or, if such Subordinated 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) of the Subordinated Indebtedness being so
purchased, redeemed, repaid, defeased, acquired or retired, plus the amount
of any premium required to be paid in connection with such refinancing
pursuant to the terms of the Subordinated Indebtedness refinanced or the
amount of any premium reasonably determined by the Company as necessary to
accomplish such refinancing, plus the amount of expenses of the Company
incurred in connection with such refinancing, (B) such new Subordinated
Indebtedness is subordinated to the Notes at least to the same extent as
such Subordinated Indebtedness so purchased, redeemed, repaid, defeased,
acquired or retired, (C) such new Subordinated Indebtedness has an Average
Life to Stated Maturity that is longer than the Average Life to Stated
Maturity of the Notes and such new Subordinated Indebtedness has a Stated
Maturity for its final scheduled principal payment that is at least 91 days
later than the Stated Maturity for the final scheduled principal payment of
the Notes.
The actions described in clauses (i), (ii) and (iii) of this paragraph (b) shall
be Restricted Payments that shall be permitted to be taken in accordance with
this paragraph (b) but shall reduce the amount that would otherwise be available
for Restricted Payments under clause (3) of paragraph (a) (provided that any
dividend paid pursuant to clause (i) of this paragraph (b) shall reduce the
amount that would otherwise be available under clause (3) of paragraph (a) when
declared, but not also when subsequently paid pursuant to such clause (i)), and
the actions described in clause (iv) of this paragraph (b) shall be Restricted
Payments that shall be permitted to be taken in accordance with this paragraph
and shall not reduce the amount that would otherwise be available for Restricted
Payments under clause (3) of paragraph (a).
(c) In computing Consolidated Net Income of the Company under paragraph (a)
above, (1) the Company shall use audited financial statements for the portions
of the relevant period for which audited financial statements are available on
the date of determination and unaudited financial statements and other current
financial data based on the books and records of the Company for the remaining
portion of such period and (2) the Company shall be permitted to rely in good
faith on the financial statements and other financial data derived from the
books and records of the Company that are available on the date of
determination. If the Company makes a Restricted Payment which, at the time of
the making of such Restricted Payment would in the good faith determination of
the Company be permitted under the requirements of the Indenture, such
Restricted Payment shall be deemed to have been made in compliance with the
Indenture notwithstanding any subsequent adjustments made in good faith to the
Company's financial statements affecting Consolidated Net Income of the Company
for any period.
Limitation on Issuances and Sales of Restricted Subsidiary Stock. The
Indenture provides that the Company (i) will not permit any Restricted
Subsidiary to issue any Preferred Stock (other than to the Company or a Wholly
Owned Restricted Subsidiary) and (ii) will not permit any Person (other than the
Company and/or one or more Wholly Owned Restricted Subsidiaries) to own any
Capital Stock of any Restricted Subsidiary; provided, however, that this
covenant shall not prohibit (1) the issuance and sale of all, but not less than
all, of the issued and outstanding Capital Stock of any Restricted Subsidiary
owned by the Company or any of its Restricted Subsidiaries in compliance with
the other provisions of the Indenture, or (2) the ownership by directors of
directors' qualifying shares or the ownership by foreign nationals of Capital
Stock of any Restricted Subsidiary, to the extent mandated by applicable law.
Limitation on Transactions with Affiliates. The Indenture provides that the
Company will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, enter into or suffer to exist any transaction or series of related
transactions (including, without limitation, the sale, purchase, exchange or
lease of assets, property or the rendering of any services) with, or for the
benefit of, any Affiliate of the Company (each, other than a Restricted
Subsidiary, being an "Interested Person"), unless (i) such transaction or series
of
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transactions are on terms that are no less favorable to the Company or such
Restricted Subsidiary, as the case may be, than those that would be available in
a comparable arm's length transaction with unrelated third parties who are not
Interested Persons, (ii) with respect to any one transaction or series of
transactions involving aggregate payments in excess of $10,000,000, the Company
delivers an officer's certificate to the Trustee certifying that such
transaction or series of transactions complies with clause (i) above and such
transaction or series of transactions have been approved by the Board of
Directors of the Company, and (iii) with respect to any one transaction or
series of transactions involving aggregate payments in excess of $20,000,000,
the officer's certificate referred to in clause (ii) above also certifies that
such transaction or series of transactions have been approved by a majority of
the Disinterested Directors (or, in the event there are no such Disinterested
Directors, that the Company has obtained a written opinion from an independent
nationally recognized investment banking firm or appraisal firm, in either case
specializing or having a specialty in the type and subject matter of the
transaction or series of transactions at issue, which opinions shall be to the
effect set forth in clause (i) above or shall state that such transaction or
series of transactions are fair from a financial point of view to the Company or
such Restricted Subsidiary); provided, however, that this covenant will not
restrict the Company from (1) paying reasonable and customary regular
compensation and fees to directors of the Company who are not employees of the
Company or any Restricted Subsidiary, (2) paying dividends on, or making
distributions with respect to, shares of Capital Stock of the Company on a pro
rata basis to the extent permitted by the "Limitation on Restricted Payments"
covenant, (3) transactions between or among the Company and/or any of its Wholly
Owned Restricted Subsidiaries, or (4) Restricted Payments permitted by the
provisions of the Indenture described above under the covenant "-- Limitation on
Restricted Payments."
Limitation on Liens. The Indenture provides that the Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, create,
incur, assume, affirm or suffer to exist or become effective any Lien of any
kind, except for Permitted Liens, on or with respect to any of its property or
assets (including any intercompany notes), whether owned at the date of the
Indenture or thereafter acquired, or any income, profits or proceeds therefrom,
or assign or otherwise convey any right to receive income thereon, unless (x) in
the case of any Lien securing Subordinated Indebtedness, the Notes are secured
by a Lien on such property, assets or proceeds that is senior in priority to
such Lien and (y) in the case of any other Lien, the Notes are directly secured
equally and ratably with the obligation or liability secured by such Lien. The
incurrence of additional secured Indebtedness by the Company or any Restricted
Subsidiary is subject to further limitations on the incurrence of Indebtedness
as described under "-- Limitation on Indebtedness."
Change Of Control. Upon the occurrence of a Change of Control, the Company
shall be obligated to make an offer to purchase all of the then outstanding
Notes (a "Change of Control Offer"), and shall purchase, on a business day (the
"Change of Control Purchase Date") not more than 70 nor less than 30 days
following the Change of Control, all of the then outstanding Notes validly
tendered pursuant to such Change in Control Offer, at a purchase price (the
"Change of Control Purchase Price") equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the Change of Control
Purchase Date. The Change of Control Offer is required to remain open for at
least 20 Business Days and until the close of business on the Change of Control
Purchase Date.
In order to effect such Change of Control Offer, the Company shall, not
later than the 30th day after the Change of Control, mail to each Noteholder a
notice of the Change of Control Offer, which notice shall govern the terms of
the Change of Control Offer and shall state, among other things, the procedures
that Noteholders must follow to accept the Change of Control Offer.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Notes that might be delivered by Noteholders
seeking to accept the Change of Control Offer. If on a Change of Control
Purchase Date the Company does not have available funds sufficient to pay the
Change of Control Purchase Price or is prohibited from purchasing the Notes, an
Event of Default would occur under the Indenture. The definition of Change of
Control includes an event by which the Company sells, conveys, transfers or
leases all or substantially all of its properties to any Person; the phrase "all
or substantially all" is subject to applicable legal precedent and as a result
in the future there may be uncertainty as to whether a Change of Control has
occurred.
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The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer at the same
purchase price, at the same times and otherwise in substantial compliance with
the requirements applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
The Company intends to comply with Rule 14e-1 under the Exchange Act and
any other securities laws and regulations thereunder, if applicable, in the
event that a Change of Control occurs and the Company is required to purchase
Notes as described above. The existence of a Holder's right to require, subject
to certain conditions, the Company to repurchase its Notes upon a Change of
Control may deter a third party from acquiring the Company in a transaction that
constitutes, or results in, a Change of Control.
Limitation on Disposition of Proceeds of Asset Sales. (a) The Indenture
provides that the Company will not, and will not permit any Restricted
Subsidiary to, engage in any Asset Sale unless (i) the Company or such
Restricted Subsidiary, as the case may be, receives consideration at the time of
such Asset Sale at least equal to the fair market value of the assets and
properties sold or otherwise disposed of pursuant to the Asset Sale (as
determined by the Board of Directors of the Company, whose determination shall
be conclusive and evidenced by a board resolution) and (ii) at least 75% of the
consideration received by the Company or the Restricted Subsidiary, as the case
may be, in respect of such Asset Sale consists of cash, Cash Equivalents or the
assumption by the purchaser of liabilities of the Company (other than
liabilities of the Company that are by their terms subordinated to the Notes) or
any Restricted Subsidiary as a result of which the Company and its remaining
Restricted Subsidiaries are no longer liable.
(b) If the Company or any Restricted Subsidiary engages in an Asset Sale,
the Company may either (x) apply the Net Cash Proceeds thereof to permanently
reduce Senior Indebtedness or to permanently reduce Guarantor Senior
Indebtedness, or (y) invest all or any part of the Net Cash Proceeds thereof,
within 365 days after such Asset Sale, in properties and assets which replace
the properties and assets that were the subject of the Asset Sale or in
properties and assets that will be used in the business of the Company or its
Restricted Subsidiaries, as the case may be ("Replacement Assets"). The amount
of such Net Cash Proceeds not applied or invested as provided in this paragraph
constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds equals or exceeds
$20,000,000, the Company shall make an offer to purchase, from all Holders of
the Notes and any then outstanding Pari Passu Indebtedness required to be
repurchased or repaid on a permanent basis in connection with an Asset Sale, an
aggregate principal amount of Notes and any then outstanding Pari Passu
Indebtedness equal to such Excess Proceeds as follows:
(i) (a) the Company shall make an offer to purchase (a "Net Proceeds
Offer") from all Holders of the Notes in accordance with the procedures set
forth in the Indenture the maximum principal amount (expressed as a
multiple of $1,000) of Notes that may be purchased out of an amount (the
"Payment Amount") equal to the product of such Excess Proceeds multiplied
by a fraction, the numerator of which is the outstanding principal amount
of the Notes and the denominator of which is the sum of the outstanding
principal amount of the Notes and such Pari Passu Indebtedness, if any
(subject to proration in the event such amount is less than the aggregate
Offered Price (as defined herein) of all Notes tendered), and (B) to the
extent required by such Pari Passu Indebtedness and provided there is a
permanent reduction in the principal amount of such Pari Passu
Indebtedness, the Company shall make an offer to purchase Pari Passu
Indebtedness (a "Pari Passu Offer") in an amount (the "Pari Passu
Indebtedness Amount") equal to the excess of the Excess Proceeds over the
Payment Amount.
(ii) The offer price for the Notes shall be payable in cash in an
amount equal to 100% of the principal amount of the Notes tendered pursuant
to a Net Proceeds Offer, plus accrued and unpaid interest, if any, to the
date such Net Proceeds Offer is consummated (the "Offered Price"), in
accordance with the procedures set forth in the Indenture. To the extent
that the aggregate Offered Price of the Notes tendered pursuant to a Net
Proceeds Offer is less than the Payment Amount relating thereto or the
aggregate amount of the Pari Passu Indebtedness that is purchased or repaid
pursuant to the Pari Passu Offer is less than the Pari Passu Indebtedness
Amount (such shortfall constituting a "Net Proceeds Deficiency"), the
Company may use such Net Proceeds Deficiency, or a portion thereof, for
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general corporate purposes, subject to the limitations of the "Limitation
on Restricted Payments" covenant.
(iii) If the aggregate Offered Price of Notes validly tendered and not
withdrawn by Holders thereof exceeds the Payment Amount, Notes to be
purchased will be selected on a pro rata basis. Upon completion of such Net
Proceeds Offer and Pari Passu Offer, the amount of Excess Proceeds shall be
reset to zero.
The Company will not permit any Subsidiary to enter into or suffer to exist any
agreement that would place any restriction of any kind (other than pursuant to
law or regulation) on the ability of the Company to make a Net Proceeds Offer
following any Asset Sale. The Company intends to comply with Rule 14e-1 under
the Exchange Act, and any other securities laws and regulations thereunder, if
applicable, in the event that an Asset Sale occurs and the Company is required
to purchase Notes as described above.
Limitation on Guarantees of Indebtedness by Restricted Subsidiaries. (a)
The Indenture provides that the Company will not permit any Restricted
Subsidiary that is not a Subsidiary Guarantor to guarantee the payment of any
Indebtedness of the Company unless (i) (a) such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture to the Indenture
providing for a Subsidiary Guarantee of the Notes by such Restricted Subsidiary
which Subsidiary Guarantee will be subordinated to Guarantor Senior Indebtedness
(but no other Indebtedness) to the same extent that the Notes are subordinated
to Senior Indebtedness and (B) with respect to any guarantee of Subordinated
Indebtedness by a Restricted Subsidiary, any such guarantee shall be
subordinated to such Restricted Subsidiary's Subsidiary Guarantee at least to
the same extent as such Subordinated Indebtedness is subordinated to the Notes;
(ii) such Restricted Subsidiary waives and will not in any manner whatsoever
claim or take the benefit or advantage of, any rights of reimbursement,
indemnity or subrogation or any other rights against the Company or any other
Restricted Subsidiary as a result of any payment by such Restricted Subsidiary
under its Subsidiary Guarantee until such time as the obligations guaranteed
thereby are paid in full; and (iii) such Restricted Subsidiary shall deliver to
the Trustee an Opinion of Counsel to the effect that such Subsidiary Guarantee
has been duly executed and authorized and constitutes a valid, binding and
enforceable obligation of such Restricted Subsidiary, except insofar as
enforcement thereof may be limited by bankruptcy, insolvency or similar laws
(including, without limitation, all laws relating to fraudulent transfers) and
except insofar as enforcement thereof is subject to general principles of
equity; provided that this paragraph (a) shall not be applicable to any
guarantee of any Restricted Subsidiary that (x) existed at the time such Person
became a Restricted Subsidiary of the Company and (y) was not incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary of the Company.
(b) Notwithstanding the foregoing and the other provisions of the
Indenture, any Subsidiary Guarantee incurred by a Restricted Subsidiary pursuant
to this covenant shall provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person that is not an Affiliate of the Company, of all of the Company's
Capital Stock in, or all or substantially all the assets of, such Restricted
Subsidiary (which sale, exchange or transfer is not prohibited by the
Indenture), (ii) the merger of such Restricted Subsidiary into the Company or
any other Restricted Subsidiary (provided the surviving Restricted Subsidiary
assumes the Subsidiary Guarantee) or the liquidation and dissolution of such
Restricted Subsidiary (in each case to the extent not prohibited by the
Indenture), or (iii) the release or discharge of the guarantee which resulted in
the creation of such Subsidiary Guarantee of the Notes, except a discharge or
release by or as a result of payment under such guarantee.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Indenture provides that the Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any consensual encumbrance or
restriction of any kind on the ability of any Restricted Subsidiary to (a) pay
dividends, in cash or otherwise, or make any other distributions on or in
respect of its Capital Stock to the Company or any other Restricted Subsidiary,
(b) pay any Indebtedness owed to the Company or any other Restricted Subsidiary,
(c) make an Investment in the Company or any other Restricted Subsidiary or (d)
transfer any of its properties or assets to the Company or any other Restricted
Subsidiary, except for such encumbrances or restrictions (i) pursuant to
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an agreement in effect or entered into on the date of the Indenture, (ii) any
agreement or other instrument of a Person acquired by the Company or any
Restricted Subsidiary in existence at the time of such acquisition (but not
created in contemplation thereof), which encumbrance or restriction is not
applicable to any other Person, or the properties or assets of any other Person,
other than the Person, or the property or assets of the Person, so acquired or
(iii) existing under any agreement that extends, renews, refinances or places
the agreements containing the restrictions in the foregoing clauses (i) and
(ii), provided that the terms and conditions of any such restrictions are not
materially less favorable to the Holders of the Notes than those under or
pursuant to the agreement evidencing the Indebtedness so extended, renewed,
refinanced or replaced.
Limitation on Other Senior Subordinated Indebtedness. The Indenture
provides that the Company will not incur, directly or indirectly, any
Indebtedness which is expressly subordinate or junior in right of payment in any
respect to Senior Indebtedness unless such Indebtedness ranks pari passu in
right of payment with the Notes, or is expressly subordinated in right of
payment to the Notes.
Reports. The Indenture requires that the Company (and the Subsidiary
Guarantors, if applicable) file on a timely basis with the Commission, to the
extent such filings are accepted by the Commission and whether or not the
Company has a class of securities registered under the Exchange Act, the annual
reports, quarterly reports and other documents that the Company would be
required to file if it were subject to Section 13 or 15 of the Exchange Act. The
Company (and the Subsidiary Guarantors, if applicable) will also be required (a)
to file with the Trustee, and provide to each holder of Notes, without cost to
such holder, copies of such reports and documents within 15 days after the date
on which the Company files such reports and documents with the Commission or the
date on which the Company (and the Subsidiary Guarantors, if applicable) would
be required to file such reports and documents if the Company (and the
Subsidiary Guarantors, if applicable) were so required and (b) if filing such
reports and documents with the Commission is not accepted by the Commission or
is prohibited under the Exchange Act, to supply at the Company's cost copies of
such reports and documents to any holder of Notes promptly upon written request.
Future Designation of Restricted and Unrestricted Subsidiaries. The
foregoing covenants (including calculation of financial ratios and the
determination of limitations on the incurrence of Indebtedness and Liens) may be
affected by the designation by the Company of any existing or future Subsidiary
of the Company as an Unrestricted Subsidiary. Generally, a Restricted Subsidiary
includes any Subsidiary of the Company, whether existing on or after the date of
the Indenture, unless the Subsidiary of the Company is designated as an
Unrestricted Subsidiary pursuant to the terms of the Indenture. The definition
of "Unrestricted Subsidiary" set forth under the caption "-- Certain
Definitions" describes the circumstances under which a future Subsidiary of the
Company may be designated as an Unrestricted Subsidiary by the Board of
Directors of the Company.
MERGER, CONSOLIDATION AND SALE OF ASSETS, ETC.
The Company will not, in any single transaction or series of related
transactions, merge or consolidate with or into any other Person, or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially all
of its properties and assets to any Person or group of Affiliated Persons, and
the Company will not permit any of its Restricted Subsidiaries to enter into any
such transaction or series of transactions if such transaction or series of
transactions, in the aggregate, would result in a sale, assignment, conveyance,
transfer, lease or other disposition of all or substantially all of the
properties and assets of the Company and its Restricted Subsidiaries on a
consolidated basis to any other Person or group of Affiliated Persons, unless at
the time and after giving effect thereto (i) either (a) if the transaction or
transactions is a merger or consolidation, the Company shall be the surviving
Person of such merger or consolidation, or (B) the Person (if other than the
Company) formed by such consolidation or into which the Company or such
Restricted Subsidiary is merged or to which the properties and assets of the
Company or such Restricted Subsidiary, as the case may be, are sold, assigned,
conveyed, transferred, leased or otherwise disposed of (any such surviving
Person or transferee Person being the "Surviving Entity") shall be a corporation
organized and existing under the laws of the United States of America, any state
thereof or the District of Columbia and shall, in either case, expressly assume
by a supplemental indenture to the Indenture executed and delivered to the
Trustee, in form satisfactory to the Trustee, all the obligations of the Company
under the Notes and the Indenture, and, in each
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case, the Indenture shall remain in full force and effect; (ii) immediately
before and immediately after giving effect to such transaction or series of
transactions on a pro forma basis (and treating any Indebtedness not previously
an obligation of Company or any of its Restricted Subsidiaries in connection
with or as a result of such transaction as having been incurred at the time of
such transaction), no Default or Event of Default shall have occurred and be
continuing; (iii) except in the case of the consolidation or merger of any
Restricted Subsidiary with or into the Company, immediately after giving effect
to such transaction or transactions on a pro forma basis, the Consolidated Net
Worth of the Company (or the Surviving Entity if the Company is not the
continuing obligor under the Indenture) is at least equal to the Consolidated
Net Worth of the Company immediately before such transaction or transactions;
(iv) except in the case of the consolidation or merger of any Restricted
Subsidiary with or into the Company or any Wholly Owned Restricted Subsidiary,
immediately before and immediately after giving effect to such transaction or
transactions on a pro forma basis (on the assumption that the transaction or
transactions occurred on the first day of the period of four fiscal quarters
ending immediately prior to the consummation of such transaction or
transactions, with the appropriate adjustments with respect to the transaction
or transactions being included in such pro forma calculation), the Company (or
the Surviving Entity if the Company is not the continuing obligor under the
Indenture) could incur $1.00 of additional Indebtedness (excluding Permitted
Indebtedness) pursuant to the "Limitation on Indebtedness" covenant; (v) each
Subsidiary Guarantor, unless it is the other party to the transactions described
above, shall have by supplemental indenture to the Indenture confirmed that its
Subsidiary Guarantee of the Notes shall apply to such Person's obligations under
the Indenture and the Notes; and (vi) if any of the properties or assets of the
Company or any of its Restricted Subsidiaries would upon such transaction or
series of related transactions become subject to any Lien (other than a
Permitted Lien), the creation and imposition of such Lien shall have been in
compliance with the "Limitation on Liens" covenant.
In connection with any consolidation, merger, transfer, lease or other
disposition contemplated hereby, the Company shall deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an Officers' Certificate stating that such consolidation, merger,
transfer, lease or other disposition and the supplemental indenture in respect
thereto comply with the requirements under the Indenture and an Opinion of
Counsel stating that the requirements of clause (i) of the preceding paragraph
have been complied with.
Upon any consolidation or merger or any sale, assignment, transfer, lease
or other disposition of all or substantially all of the assets of the Company in
accordance with the foregoing, in which the Company is not the continuing
corporation, the Surviving Entity shall succeed to, and be substituted for, and
may exercise every right and power of, the Company under the Indenture with the
same effect as if such successor corporation had been named as the Company
therein, and thereafter the Company, except in the case of a lease, will be
discharged from all obligations and covenants under the Indenture and the Notes.
EVENTS OF DEFAULT
The following will be "Events of Default" under the Indenture:
(i) default in the payment of the principal of or premium, if any, on
any of the Notes, whether such payment is due at maturity, upon redemption,
upon repurchase pursuant to a Change of Control Offer or a Net Proceeds
Offer, upon acceleration or otherwise; or
(ii) default in the payment of any installment of interest on any of
the Notes, when it becomes due and payable, and the continuance of such
default for a period of 30 days; or
(iii) default in the performance or breach of the provisions of the
"Merger, Consolidation and Sale of Assets" section of the Indenture, the
failure to make or consummate a Change in Control Offer in accordance with
the provisions of the "Change in Control" covenant or the failure to make
or consummate a Net Proceeds Offer in accordance with the provisions of the
"Limitation on Disposition of Proceeds of Asset Sales" covenant; or
(iv) the Company or any Subsidiary Guarantor shall fail to perform or
observe any other term, covenant or agreement contained in the Notes, any
Subsidiary Guarantee or the Indenture (other than a
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default specified in (i), (ii) or (iii) above) for a period of 30 days
after written notice of such failure requiring the Company to remedy the
same shall have been given (x) to the Company by the Trustee or (y) to the
Company and the Trustee by the holders of at least 25% in aggregate
principal amount of the Notes then outstanding; or
(v) the occurrence and continuation beyond any applicable grace period
of any default in the payment of the principal of (or premium, if any, on)
or interest on any Indebtedness of the Company (other than the Notes) or
any Subsidiary Guarantor or any other Restricted Subsidiary for money
borrowed when due, or any other default causing acceleration of any
Indebtedness of the Company or any Subsidiary Guarantor or any other
Restricted Subsidiary for money borrowed, provided that the aggregate
principal amount of such Indebtedness shall exceed $10,000,000; provided
further that if any such default is cured or waived or any such
acceleration rescinded, or such debt is repaid, within a period of 10 days
from the continuation of such default beyond the applicable grace period or
the occurrence of such acceleration, as the case may be, such Event of
Default under the Indenture and any consequential acceleration of the Notes
shall be automatically rescinded, so long as such rescission does not
conflict with any judgment or decree; or
(vi) the commencement of proceedings, or the taking of any enforcement
action (including by way of set-off), by any holder of at least $10,000,000
in aggregate principal amount of Indebtedness of the Company or any
Subsidiary Guarantor or any other Restricted Subsidiary, after a default
under such Indebtedness, to retain in satisfaction of such Indebtedness or
to collect or seize, dispose of or apply in satisfaction of such
Indebtedness, property or assets of the Company or any Subsidiary Guarantor
or any other Restricted Subsidiary having a fair market value (as
determined by the Board of Directors of the Company and evidenced by a
board resolution) in excess of $10,000,000 individually or in the
aggregate, provided that if any such proceedings or actions are terminated
or rescinded, or such Indebtedness is repaid, such Event of Default under
the Indenture and any consequential acceleration of the Notes shall be
automatically rescinded, so long as (i) such rescission does not conflict
with any judgment or decree and (ii) the holder of such Indebtedness shall
not have applied any such property or assets in satisfaction of such
Indebtedness; or
(vii) any Subsidiary Guarantee shall for any reason cease to be, or be
asserted by the Company or any Subsidiary Guarantor, as applicable, not to
be, in full force and effect, enforceable in accordance with its terms
(except pursuant to the release of any such Subsidiary Guarantee in
accordance with the Indenture); or
(viii) certain events giving rise to ERISA liability; or
(ix) final judgments or orders rendered against the Company or any
Subsidiary Guarantor or any other Restricted Subsidiary that are
unsatisfied and that require the payment in money, either individually or
in an aggregate amount, that is more than $10,000,000 over the coverage
under applicable insurance policies and either (i) commencement by any
creditor of an enforcement proceeding upon such judgment (other than a
judgment that is stayed by reason of pending appeal or otherwise) or (ii)
the occurrence of a 60-day period during which a stay of such judgment or
order, by reason of pending appeal or otherwise, was not in effect; or
(x) the entry of a decree or order by a court having jurisdiction in
the premises (a) for relief in respect of the Company or any Subsidiary
Guarantor or any other Restricted Subsidiary in an involuntary case or
proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or (B) adjudging the Company or any
Subsidiary Guarantor or any other Restricted Subsidiary bankrupt or
insolvent, or approving a petition seeking reorganization, arrangement,
adjustment or composition of the Company or a Restricted Subsidiary under
any applicable federal or state law, or appointing under any such law a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or any Subsidiary Guarantor or any other
Restricted Subsidiary or of a substantial part of their consolidated
assets, or ordering the winding up or liquidation of their affairs, and the
continuance of any such decree or order for relief or any such other decree
or order unstayed and in effect for a period of 60 consecutive days; or
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(xi) the commencement by the Company or any Subsidiary Guarantor or
any other Restricted Subsidiary of a voluntary case or proceeding under any
applicable federal or state bankruptcy, insolvency, reorganization or other
similar law or any other case or proceeding to be adjudicated a bankruptcy
or insolvent, or the consent by the Company or any Subsidiary Guarantor or
any other Restricted Subsidiary to the entry of a decree or order for
relief in respect thereof in an involuntary case or proceeding under any
applicable federal or state bankruptcy, insolvency, reorganization or other
similar law or to the commencement of any bankruptcy or insolvency case or
proceeding against it, or the filing by the Company or any Subsidiary
Guarantor or any other Restricted Subsidiary of a petition or consent
seeking reorganization or relief under any applicable federal or state law,
or the consent by it under any such law to the filing of any such petition
or to the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee or sequestrator (or other similar official)
of any of the Company or any Subsidiary Guarantor or any other Restricted
Subsidiary or of any substantial part of their consolidated assets, or the
making by it of an assignment for the benefit of creditors under any such
law, or the admission by it in writing of its inability to pay its debts
generally as they become due or taking of corporate action by the Company
or any Subsidiary Guarantor or any other Restricted Subsidiary in
furtherance of any such action.
If an Event of Default (other than as specified in clause (x) or (xi)
above) shall occur and be continuing, the Trustee, by written notice to the
Company, or the holders of at least 25% in aggregate principal amount of the
Notes then outstanding, by notice to the Trustee and the Company, may declare
the principal of, premium, if any, and accrued interest on all of the
outstanding Notes due and payable immediately, upon which declaration all
amounts payable in respect of the Notes shall be immediately due and payable. If
an Event of Default specified in clause (x) or (xi) above occurs and is
continuing, then the principal of, premium, if any, and accrued interest on all
of the outstanding Notes shall ipso facto become and be immediately due and
payable without any declaration, notice or other act on the part of the Trustee
or any holder of Notes.
After a declaration of acceleration under the Indenture, but before a
judgment or decree for payment of the money due has been obtained by the
Trustee, the holders of a majority in aggregate principal amount of the
outstanding Notes, by written notice to the Company and the Trustee, may rescind
such declaration if (a) the Company or any Subsidiary Guarantor has paid or
deposited with the Trustee a sum sufficient to pay (i) all sums paid or advanced
by the Trustee under the Indenture and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, (ii) all
overdue interest on all Notes, (iii) the principal of and premium, if any, on
any Notes which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate home by the Notes, and (iv) to the
extent that payment of such interest is lawful, interest upon overdue interest
and overdue principal at the rate borne by the Notes which has become due
otherwise than by such declaration of acceleration; (b) the rescission would not
conflict with any judgment or decree of a court of competent jurisdiction; and
(c) all Events of Default, other than the nonpayment of principal of, premium,
if any, and interest on the Notes that has become due solely by such declaration
of acceleration, have been cured or waived.
The holders of not less than a majority in aggregate principal amount of
the outstanding Notes may on behalf of the holders of all the Notes waive any
past defaults under the Indenture, except a default in the payment of the
principal of, premium, if any, or interest on any Note, or in respect of a
covenant or provision which under the Indenture cannot be modified or amended
without the consent of the holder of each Note outstanding.
No holder of any of the Notes has any right to institute any proceeding
with respect to the Indenture or any remedy thereunder, unless the holders of at
least 25% in aggregate principal amount of the outstanding Notes have made
written request, and offered reasonable indemnity, to the Trustee to institute
such proceeding as Trustee under the Notes and the Indenture, the Trustee has
failed to institute such proceeding within 60 days after receipt of such notice
and the Trustee, within such 60-day period, has not received directions
inconsistent with such written request by holders of a majority in aggregate
principal amount of the outstanding Notes. Such limitations do not apply,
however, to a suit instituted by a holder of a Note for the
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enforcement of the payment of the principal of, premium, if any, or interest on
such Note on or after the respective due dates expressed in such Note.
During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent person would
exercise under the circumstances in the conduct of such person's own affairs.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
under the Indenture is not under any obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any of the Noteholders
unless such holders shall have offered to the Trustee reasonable security or
indemnity. Subject to certain provisions concerning the rights of the Trustee,
the holders of a majority in aggregate principal amount of the outstanding Notes
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or power
conferred on the Trustee under the Indenture.
If a Default or an Event of Default occurs and is continuing and is known
to the Trustee, the Trustee shall mail to each holder of the Notes notice of the
Default or Event of Default within 60 days after the occurrence thereof. Except
in the case of a Default or an Event of Default in payment of principal of,
premium, if any, or interest on any Notes, the Trustee may withhold the notice
to the holders of such Notes if a committee of its Trust Officers in good faith
determines that withholding the notice is in the interest of the Noteholders.
The Company is required to furnish to the Trustee annual and quarterly
statements as to the performance by the Company and the Subsidiary Guarantors of
their respective obligations under the Indenture and as to any default in such
performance. The Company is also required to notify the Trustee within ten days
of any Default.
LEGAL DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, terminate the obligations
of the Company and the Subsidiary Guarantors with respect to the outstanding
Notes ("legal defeasance"). Such legal defeasance means that the Company and the
Subsidiary Guarantors shall be deemed to have paid and discharged the entire
Indebtedness represented by the outstanding Notes, except for (i) the rights of
holders of outstanding Notes to receive payment in respect of the principal of,
premium, if any, on and interest on such Notes when such payments are due, (ii)
the Company's obligations to issue temporary Notes, register the transfer or
exchange of any Notes, replace mutilated, destroyed, lost or stolen Notes and
maintain an office or agency for payments in respect of the Notes, (iii) the
rights, powers, trusts, duties and immunities of the Trustee, and (iv) the
defeasance provisions of the Indenture. In addition, the Company may, at its
option and at any time, elect to terminate the obligations of the Company and
any Subsidiary Guarantor with respect to certain covenants that are set forth in
the Indenture, some of which are described under "-- Certain Covenants" above,
and any omission to comply with such obligations shall not constitute a Default
or an Event of Default with respect to the Notes ("covenant defeasance").
In order to exercise either legal defeasance or covenant defeasance, (i)
the Company or any Subsidiary Guarantor must irrevocably deposit, with the
Trustee, in trust, for the benefit of the holders of the Notes, cash in United
States dollars, U.S. Government Obligations (as defined in the Indenture), or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, on and interest on the outstanding Notes to
redemption or maturity; (ii) the Company shall have delivered to the Trustee an
Opinion of Counsel to the effect that the holders of the outstanding Notes will
not recognize income, gain or loss for federal income tax purposes as a result
of such legal defeasance or 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 legal defeasance or covenant defeasance had not
occurred (in the case of legal defeasance, such opinion must refer to and be
based upon a published ruling of the Internal Revenue Service or a change in
applicable federal income tax laws); (iii) no Default or Event of Default shall
have occurred and be continuing on the date of such deposit; (iv) such legal
defeasance or covenant defeasance shall not cause the Trustee to have a
conflicting interest under the Indenture or the Trust Indenture Act with respect
to any securities of the
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Company or any Subsidiary Guarantor, (v) such legal defeasance or covenant
defeasance shall not result in a breach or violation of, or constitute a default
under, any material agreement or instrument to which the Company or any
Subsidiary Guarantor is a party or by which it is bound; and (vi) the Company
shall have delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel satisfactory to the Trustee, which, taken together, state that all
conditions precedent under the Indenture to either legal defeasance or covenant
defeasance, as the case may be, have been complied with and that no violations
under agreements governing any other outstanding Indebtedness would result
therefrom.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable or will become due and payable at their
Stated Maturity within one year, or are to be called for redemption within one
year under arrangements satisfactory to the Trustee for the serving of notice of
redemption by the Trustee in the name, and at the expense, of the Company, and
the Company has irrevocably deposited or caused to be deposited with the Trustee
funds in an amounts sufficient to pay and discharge the entire indebtedness on
the Notes not theretofore delivered to the Trustee for cancellation, for
principal of (and premium, if any, on) and interest on the Notes to the date of
deposit (in the case of Notes which have become due and payable) or to the
Stated Maturity or Redemption Date, as the case may be, together with
instructions from the Company irrevocably directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be, (ii)
the Company has paid all other sums payable under the Indenture by the Company;
and (iii) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel satisfactory to the Trustee, which, taken together, state
that all conditions precedent under the Indenture relating to the satisfaction
and discharge of the Indenture have been complied with.
AMENDMENTS AND WAIVERS
From time to time, the Company and the Trustee may, without the consent of
the Noteholders, amend, waive or supplement the Indenture or the Notes for
certain specified purposes, including, among other things, curing ambiguities,
defects or inconsistencies, qualifying, or maintaining the qualification of, the
Indenture under the Trust Indenture Act of 1939, or making any change that does
not adversely affect the rights of any Noteholder. Other amendments and
modifications of the Indenture or the Notes may be made by the Company, the
Subsidiary Guarantors and the Trustee with the consent of the holders of not
less than a majority of the aggregate principal amount of the outstanding Notes;
provided, however, that no such modification or amendment may, without the
consent of the holder of each outstanding Note affected thereby, (a) change the
Stated Maturity of the principal of, or any installment of interest on any Note,
(b) reduce the principal amount of (or the premium, if any, on) or interest on
any Note, (c) change the place, coin or currency of payment of principal of (or
the premium, if any, on) or interest on, any Note, (d) impair the right to
institute suit for the enforcement of any payment on or with respect to any
Note, (e) reduce the above stated percentage of aggregate principal amount of
outstanding Notes necessary to modify or amend the Indenture, (f) reduce the
percentage of aggregate principal amount of outstanding Notes necessary for
waiver of compliance with certain provisions of the Indenture or for waiver of
certain defaults, (g) modify any provisions of the Indenture relating to the
modification and amendment of the Indenture or the waiver of past defaults or
covenants, except as otherwise specified, or (h) amend, change or modify the
obligation of the Company to make and consummate a Change of Control Offer in
the event of a Change of Control or make and consummate the Net Proceeds Offer
with respect to any Asset Sale or modify any of the provisions or definitions
with respect thereto.
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The Holders of a majority in aggregate principal amount of the outstanding
Notes may waive compliance by the Company with certain restrictive provisions of
the Indenture. The Holders of a majority in aggregate principal amount of the
outstanding Notes may waive any past default under the Indenture, except a
default in the payment of principal (or premium, if any, on) or interest on the
Notes.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee thereunder will perform only such duties as are
specifically set forth in the Indenture. If an Event of Default has occurred and
is continuing, the Trustee will exercise such rights and powers vested in it
under the Indenture and use the same degree of care and skill in its exercise as
a prudent Person would exercise under the circumstances in the conduct of such
Person's own affairs.
The Indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights of
the Trustee thereunder, should it become a creditor of the Company, to obtain
payment of claims in certain cases or to realize on certain property received by
it in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions; provided, however, that if it
acquires any conflicting interest (as defined) it must eliminate such conflict
or resign.
GOVERNING LAW
The Indenture, the Notes and the Subsidiary Guarantees provide that they
will be governed by the laws of the State of New York, without regard to the
principles of conflicts of law.
BOOK-ENTRY, DELIVERY AND FORM
The Old Notes were initially represented in the form of one registered Note
in global form without coupons (the "Global Old Note"). The Global Old Note was
deposited on the date of the closing of the sale of the Notes (the "Closing
Date") with, or on behalf of, the Depository Trust Company ("DTC") and
registered in the name of Cede & Co., as nominee of DTC, or will remain in the
custody of the Trustee pursuant to the FAST Balance Certificate Agreement
between DTC and the Trustee. The Exchange Notes also will be issued in the form
of one or more Global Notes (the "Global Exchange Notes" and, together with the
Global Old Note, the "Global Notes"). The Global Exchange Notes will be
deposited on the original date of issuance of the Exchange Notes with, or on
behalf of, DTC and registered in the name of Cede & Co., as nominee of DTC.
DTC has advised the Company that it is (i) a limited purpose trust company
organized under the laws of the State of New York, (ii) a "banking organization"
within the meaning of the New York banking law, (iii) a member of the Federal
Reserve System, (iv) a "clearing corporation" within the meaning of the Uniform
Commercial Code, as amended, and (v) a "Clearing Agency" registered pursuant to
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants (collectively, the "Participants") and facilitates the clearance
and settlement of securities transactions between Participants through
electronic book-entry changes to the accounts of its Participants, thereby
eliminating the need for physical transfer and delivery of certificates.
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Indirect access to DTC's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants") that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly. QIBs may elect to hold Notes
through DTC. QIBs who are not Participants may beneficially own securities held
by or on behalf of DTC only through Participants or Indirect Participants.
The Company expects that pursuant to procedures established by DTC (i) upon
deposit of the Global Notes, DTC will credit the accounts of Participants
designated by the Initial Purchasers with an interest in the Global Note and
(ii) ownership of beneficial interests in the Global Notes will be shown on, and
the transfer of beneficial ownership therein will be effected only through,
records maintained by DTC (with respect to the
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interest of the Participants), the Participants and the Indirect Participants.
For certain other restrictions on the transferability of the Notes, see
"Transfer Restrictions."
So long as DTC or its nominee is the registered owner of a Global Note, DTC
or such nominee, as the case may be, will be considered the sole owner or holder
of the Notes represented by the Global Note for all purposes under the Indenture
and the Notes. Except as provided below, owners of beneficial interests in a
Global Note will not be entitled to have Notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of Certificated Securities, and will not be considered the owners or
holders thereof under the Indenture for any purpose, including with respect to
giving of any directions, instruction or approval to the Trustee thereunder. As
a result, the ability of a person having a beneficial interest in Notes
represented by a Global Note to pledge or transfer such interest to persons or
entities that do not participate in DTC's system or to otherwise take action
with respect to such interest, may be affected by the lack of a physical
certificate evidencing such interest.
Accordingly, each QIB owning a beneficial interest in a Global Note must
rely on the procedures of DTC and, if such QIB is not a Participant or an
Indirect Participant, on the procedures of the Participant through which such
QIB owns its interest, to exercise any rights of a holder of Notes under the
Indenture or such Global Note. The Company understands that under existing
industry practice, in the event the Company requests any action of holders of
Notes or a QIB that is an owner of a beneficial interest in a Global Note
desires to take any action that DTC, as the holder of such Global Note, is
entitled to take, DTC would authorize the Participants to take such action and
the Participant would authorize QIBs owning through such Participants to take
such action or would otherwise act upon the instruction of such QIBs. Neither
the Company nor the Trustee will have any responsibility or liability for any
aspect of the records relating to or payments made on account of Notes by DTC,
or for maintaining, supervising or reviewing any records of DTC relating to such
Notes or for any other matter relating to the actions or procedures of DTC.
Payments with respect to the principal of, premium, if any, and interest
on, any Notes represented by a Global Note registered in the name of DTC or its
nominee on the applicable record date will be payable by the Trustee to or at
the direction of DTC or its nominee in its capacity as the registered holder of
the Global Note representing such Notes under the Indenture. Under the terms of
the Indenture, the Company and the Trustee may treat the persons in whose names
the Notes, including the Global Notes, are registered as the owners thereof for
the purpose of receiving such payment and for any and all other purposes
whatsoever. Consequently, neither the Company nor the Trustee has or will have
any responsibility or liability for the payment of such amounts to beneficial
owners of interest in the Global Note (including principal, premium, if any, and
interest), or to immediately credit the accounts of the relevant Participants
with such payment, in amounts proportionate to their respective holdings in
principal amount of beneficial interest in the Global Note as shown on the
records of DTC. The Company expects that payments by the Participants and the
Indirect Participants to the beneficial owners of interests in the Global Note
will be governed by standing instructions and customary practice and will be the
responsibility of the Participants or the Indirect Participants and DTC.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources the Company believes to be reliable, but the
Company takes no responsibility for the accuracy thereof.
CERTIFICATED SECURITIES
Subject to certain conditions, any Person having a beneficial interest in a
Global Note may, upon request to the Company or the Trustee, exchange such
beneficial interest for Notes in the form of Certificated Securities. See
"Notices to Investors." Upon any such issuance, the Trustee is required to
register such Notes in the name of, and cause the same to be delivered to, such
Person or Persons (or the nominee of any thereof). All such Certificated
Securities would be subject to the legend requirements described herein under
"Notices to Investors." In addition, if (a) DTC or any successor depositary (the
"Depositary") notifies the Company in writing that the Depositary is no longer
willing or able to act as a depositary and the Company is unable to locate a
qualified successor within 90 days or (b) the Company, at its option, notifies
the Trustee in writing that it elects to cause the issuance of Notes in the form
of Certificated Securities under the Indenture, then,
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upon surrender by the registered owner or holder of a Global Note (a "Global
Note Holder") of its Global Note, Notes in such form will be issued to each
Person that such Global Note Holder and the Depositary identify as the
beneficial owner of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
related Global Note Holder or the Depositary in identifying the beneficial
owners of the related Notes, and each such Person may conclusively rely on, and
will be protected in relying on, instructions from such Global Note Holder or of
the Depositary for all purposes (including with respect to the registration and
delivery, and the respective principal amounts, of the Notes to be issued).
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a Person (a) assumed in
connection with an Asset Acquisition from such Person, (b) outstanding at the
time such Person becomes a Subsidiary of any other Person (other than any
Indebtedness incurred in Connection with, or in contemplation of, such Asset
Acquisition or such Person becoming such a Subsidiary) or (c) any renewals,
extensions, substitutions, refinancings or replacements (each, for purposes of
this clause, a "refinancing") by the Company of any Indebtedness described in
clause (a) or (b) of this definition, including any successive refinancings, so
long as (A) any such new Indebtedness shall be in a principal amount that does
not exceed the principal amount (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) so refinanced plus the amount of any premium required to
be paid in connection with such refinancing pursuant to the terms of the
Indebtedness refinanced or the amount of any premium reasonably determined by
the Company as necessary to accomplish such refinancing, plus the amount of
expenses of the Company incurred in connection with such refinancing, and (B) in
the case of any refinancing of Subordinated Indebtedness, such new Indebtedness
is made subordinate to the Notes at least to the same extent as the Indebtedness
being refinanced and (C) such new Indebtedness has an Average Life longer than
the Average Life of the Notes and a final Stated Maturity later than the final
Stated Maturity of the Notes.
"Adjusted Consolidated Net Tangible Assets" 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, with no less than 70% of such discounted future net revenues estimated or
audited by one or more nationally recognized firms of independent petroleum
engineers in a reserve report prepared as of the end of the Company's most
recently completed fiscal year, as increased by, as of the date of
determination, the estimated discounted future net revenues from (A) estimated
proved oil and gas reserves acquired since the date of such year-end reserve
report, and (B) estimated oil and gas reserves attributable to upward revisions
of estimates of proved oil and gas reserves since the date of such year-end
reserve report due to exploration, development or exploitation activities, in
each case calculated in accordance with SEC guidelines (utilizing the prices
utilized in such year-end reserve report), and decreased by, as of the date of
determination, the estimated discounted future net revenues from (C) estimated
proved oil and gas reserves produced or disposed of since the date of such
year-end reserve report and (D) estimated oil and gas reserves attributable to
downward revisions of estimates of proved oil and gas reserves since the date of
such year-end reserve report due to changes in geological conditions or other
factors which would, in accordance with standard industry practice, cause such
revisions, in each case calculated in accordance with SEC guidelines (utilizing
the prices utilized in such year-end reserve report); provided that, in the case
of each of the determinations made pursuant to clauses (A) through (D), such
increases and decreases shall be as estimated by the Company's petroleum
engineers, unless in the event that there is a Material Change as a result of
such acquisitions, dispositions or revisions, then the discounted future net
revenues utilized for purposes of this clause (a)(i) shall be confirmed in
writing by estimate or audit of one or more nationally recognized firms of
independent petroleum engineers as to at least 70% of such discounted future net
revenues, (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 attributable, 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
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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 or (ii) the appraised value, as estimated by independent appraisers,
of other tangible assets (including, without duplication, Investments in
unconsolidated Restricted Subsidiaries) of the Company and its Restricted
Subsidiaries, as of the date no earlier than the date of the Company's latest
audited financial statements, minus (b) the sum of (i) minority interests, (ii)
any gas balancing liabilities of the Company and its Restricted Subsidiaries
reflected in the Company's latest audited financial statements, (iii) to the
extent included in (a)(i) above, the discounted future net revenues, calculated
in accordance with SEC guidelines (utilizing the prices utilized in the
Company's year-end reserve report), attributable to reserves which are required
to be delivered to third parties to fully satisfy the obligations of the Company
and its Restricted Subsidiaries with respect to Volumetric Production Payments
on the schedules specified with respect thereto and (iv) the discounted future
net revenues, calculated in accordance with SEC guidelines, attributable to
reserves subject to Dollar-Denominated Production Payments which, based on the
estimates of production and price assumptions included in determining the
discounted future net revenues specified in (a)(i) above, would be necessary to
fully satisfy the payment obligations of the Company and its Restricted
Subsidiaries with respect to Dollar-Denominated Production Payments on the
schedules specified with respect thereto. If the Company changes its method of
accounting from the full cost method to the successful efforts method or a
similar method of accounting, "Adjusted Consolidated Net Tangible Assets" will
continue to be calculated as if the Company was still using the full cost method
of accounting.
"Adjusted Net Assets" of a Subsidiary Guarantor at any date shall mean the
amount by which the fair value of the properties and assets of such Subsidiary
Guarantor exceeds the total amount of liabilities, including, without
limitation, contingent liabilities (after giving effect to all other fixed and
contingent liabilities incurred or assumed on such date), but excluding
liabilities under the Subsidiary Guarantee, of such Subsidiary Guarantor at such
date.
"Affiliate" means, with respect to any specified Person, 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 this definition, beneficial ownership of 10% or more of the voting
common equity (on a fully diluted basis) or options or warrants to purchase such
equity (but only if exercisable at the date of determination or within 60 days
thereof) of a Person shall be deemed to constitute control of such Person.
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or any Restricted Subsidiary shall be merged with
or into the Company or any other Restricted Subsidiary or (b) the acquisition by
the Company or any Restricted Subsidiary of the assets of any Person which
constitute all or substantially all of the assets of such Person or any division
or line of business of such Person.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition to any Person other than the Company or any of its Restricted
Subsidiaries (including, without limitation, by means of a Sale/Leaseback
Transaction or by way of merger or consolidation) (collectively, for purposes of
this definition, a "transfer"), directly or indirectly, in one or a series of
related transactions, of (a) any Capital Stock of any Restricted Subsidiary held
by the Company or any Restricted Subsidiary; (b) all or substantially all of the
properties and assets of any division or line of business of the Company or any
of its Restricted Subsidiaries; or (c) any other properties or assets of the
Company or any of its Restricted Subsidiaries other than a disposition of
hydrocarbons or other mineral products in the ordinary course of business. For
the purposes of this definition, the term "Asset Sale" shall not include (i) any
transfer of properties or assets that is governed by, and made in accordance
with, the provisions described under "Merger, Consolidation and Sale of Assets;"
(ii) any transfer of properties or assets to an Unrestricted Subsidiary, if
permitted under the "Limitation on Restricted Payments" Covenant; (iii) any
trade or exchange by the Company or any Restricted Subsidiary of oil and gas
properties for other oil and gas properties owned or held by another Person
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which the Board of Directors of the Company determines in good faith to be of
approximately equivalent value; or (iv) any transfer of Properties having a fair
market value of less than $5,000,000.
"Attributable Indebtedness" means, with respect to any particular lease
under which any Person is at the time liable and at any date as of which the
amount thereof is to be determined, the present value of the total net amount of
rent required to be paid by such Person under the lease during the primary term
thereof, without giving effect to any renewals at the option of the lessee,
discounted from the respective due dates thereof to such date of determination
at the rate of interest per annum implicit in the terms of the lease. As used in
the preceding sentence, the "net amount of rent" under any lease for any such
period shall mean the sum of rental and other payments required to be paid with
respect to such period by the lessee thereunder, excluding any amounts required
to be paid by such lessee on account of maintenance and repairs, insurance,
taxes, assessments, water rates or similar charges. In the case of any lease
which is terminable by the lessee upon payment of a penalty, such net amount of
rent shall also include the amount of such penalty, but no rent shall be
considered as required to be paid under such lease subsequent to the first date
upon which it may be so terminated.
"Average Life" means, with respect to any Indebtedness, as at any date of
determination, the quotient obtained by dividing (a) the sum of the products of
(i) the number of years (and any portion thereof) from the date of determination
to the date or dates of each successive scheduled principal payment (including,
without limitation, any sinking fund or mandatory redemption payment
requirements) of such Indebtedness multiplied by (ii) the amount of each such
principal payment by (b) the sum of all such principal payments.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in or other equivalents in the equity
interests (however designated) in such Person, and any rights (other than debt
securities convertible into an equity interest), warrants or options exercisable
for, exchangeable for or convertible into such an equity interest in such
Person.
"Capitalized Lease Obligation" means any obligation to pay rent or other
amounts under a lease of (or other agreement conveying the right to use) any
property (whether real, personal or mixed) that is required to be classified and
accounted for as a capital lease obligation under GAAP, and, for the purpose of
the Indenture, the amount of such obligation at any date shall be the
capitalized amount thereof at such date, determined in accordance with GAAP.
"Cash Equivalents" means (i) any evidence of Indebtedness with a maturity
of 365 days or less issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided that
the full faith and credit of the United States of America is pledged in support
thereof); (ii) demand and time deposits and certificates of deposit or
acceptances with a maturity of 365 days or less of any financial institution
that is a member of the Federal Reserve System having combined capital and
surplus and undivided profits of not less than $500,000,000; (iii) commercial
paper with a maturity of 365 days or less issued by a corporation that is not an
Affiliate of the Company and is organized under the laws of any state of the
United States or the District of Columbia and rated at least A-1 by S&P or at
least P-1 by Moody's; (iv) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clause (i) above
entered into with any commercial bank meeting the specifications of clause (ii)
above; and (v) overnight bank deposits and bankers' acceptances at any
commercial bank meeting the qualifications specified in clause (ii) above.
"Change of Control" means the occurrence of any of the following events:
(a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act) other than the F&R Interests is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of more than 50% of the total Voting Stock of the Company; (b) the
Company is merged with or into or consolidated with another Person and,
immediately after giving effect to the merger or consolidation, (A) less than
50% of the total voting power of the outstanding Voting Stock of the surviving
or resulting Person is then "beneficially owned" (within the meaning of Rule
13d-3 under the Exchange Act) in the aggregate by (x) the stockholders of the
Company immediately prior to such merger or consolidation, or (y) if a record
date has been set to determine the stockholders of the Company entitled to vote
with respect to such merger or consolidation, the stockholders of the Company as
of such record date and (B) any "person" or "group" (as
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defined in Section 13(d)(3) or 14(d)(2) of the Exchange Act, other than the F&R
Interests, has become the direct or indirect "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act) of more than 50% of the total voting power of
the Voting Stock of the surviving or resulting Person; (c) the Company, either
individually or in conjunction with one or more Restricted Subsidiaries, sells,
conveys, transfers or leases, or the Restricted Subsidiaries sells, convey,
transfer or lease, all or substantially all of the assets of the Company and the
Restricted Subsidiaries, taken as a whole (either in one transaction or a series
of related transactions), including Capital Stock of the Restricted
Subsidiaries, to any Person (other than the Company or a Wholly Owned Restricted
Subsidiary); (d) during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the stockholders of the Company was approved by
a vote of a majority of the directors 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 of the Company then in office; or (e) the
liquidation or dissolution of the Company.
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Consolidated Fixed Charge Coverage Ratio" means, for any period, the ratio
of (a) the sum of Consolidated Net Income, Consolidated Interest Expense,
Consolidated Income Tax Expense and Consolidated Non-cash Charges deducted in
computing Consolidated Net Income, in each case, for such period, of the Company
and its Restricted Subsidiaries on a consolidated basis, all determined in
accordance with GAAP, decreased (to the extent included in determining
Consolidated Net Income) by 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, to (b) the sum of such Consolidated Interest Expense for
such period; provided that (i) in making such computation, the Consolidated
Interest Expense attributable to interest on any Indebtedness required to be
computed on a pro forma basis in accordance with clause (x) of the "Limitation
on Indebtedness" covenant and bearing a floating interest rate shall be computed
as if the rate in effect on the date of computation had been the applicable rate
for the entire period, (ii) in making such computation, the Consolidated
Interest Expense attributable to interest on any Indebtedness under a revolving
credit facility required to be computed on a pro forma basis in accordance with
clause (x) of the "Limitation on Indebtedness" covenant shall be computed based
upon the average daily balance of such Indebtedness during the applicable
period, provided that such average daily balance shall be reduced by the amount
of any repayment of Indebtedness under a revolving credit facility during the
applicable period, which repayment permanently reduced the commitments or
amounts available to be reborrowed under such facility, (iii) notwithstanding
clauses (i) and (ii) of this proviso, interest on Indebtedness determined on a
fluctuating basis, to the extent such interest is covered by agreements relating
to Interest Rate Protection Obligations, shall be deemed to have accrued at the
rate per annum resulting after giving effect to the operation of such agreements
and (iv) in making such calculation, Consolidated Interest Expense shall exclude
interest attributable to Dollar-Denominated Production Payments.
"Consolidated Income Tax Expense" means, for any period, the provision for
federal, state, local and foreign income taxes of the Company and its Restricted
Subsidiaries for such period as determined on a consolidated basis in accordance
with GAAP.
"Consolidated Interest Expense" means, for any period, without duplication,
the sum of (i) the interest expense of the Company and its Restricted
Subsidiaries for such period as determined on a consolidated basis in accordance
with GAAP, including, without limitation, (a) any amortization of debt discount,
(b) the net cost under Interest Rate Protection Obligations (including any
amortization of discounts), (c) the interest portion of any deferred payment
obligation, (d) all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing and (e) all
accrued interest, in each case to the extent attributable to such period, (ii)
to the extent any Indebtedness of any Person (other than the
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Company or a Restricted Subsidiary) is guaranteed by the Company or any
Restricted Subsidiary, the aggregate amount of interest paid or accrued by such
other Person during such period attributable to any such Indebtedness, in each
case to the extent attributable to that period, (iii) the aggregate amount of
the interest component of Capitalized Lease Obligations paid, accrued and/or
scheduled to be paid or accrued by the Company and its Restricted Subsidiaries
during such period as determined on a consolidated basis in accordance with GAAP
and (iv) the aggregate amount of dividends paid or accrued on Redeemable Capital
Stock or Preferred Stock of the Company and its Restricted Subsidiaries, to the
extent such Redeemable Capital Stock or Preferred Stock is owned by Persons
other than Restricted Subsidiaries.
"Consolidated Net Income" means, for any period, the consolidated net
income (or loss) of the Company and its Restricted Subsidiaries for such period
as determined in accordance with GAAP, adjusted by excluding (a) net after-tax
extraordinary gains or losses (less all fees and expenses relating thereto), (b)
net after-tax gains or losses (less all fees and expenses relating thereto)
attributable to Asset Sales, (c) the net income (or net loss) of any Person
(other than the Company or any of its Restricted Subsidiaries), in which the
Company or any of its Restricted Subsidiaries has an ownership interest, except
to the extent of the amount of dividends or other distributions actually paid to
the Company or its Restricted Subsidiaries in cash by such other Person during
such period (regardless of whether such cash dividends, distributions or
interest on indebtedness is attributable to net income (or net loss) of such
Person during such period or during any prior period), (d) net income (or net
loss) of any Person combined with the Company or any of its Restricted
Subsidiaries on a "pooling of interests" basis attributable to any period prior
to the date of combination, (e) the net income of any Restricted Subsidiary to
the extent that the declaration or payment of dividends or similar distributions
by that Restricted Subsidiary is not at the date of determination permitted,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its stockholders, (f)
income resulting from transfers of assets received by the Company or any
Restricted Subsidiary from an Unrestricted Subsidiary and (g) any write-downs of
non-current assets, provided, however, that any ceiling limitation write downs
under SEC guidelines shall be treated as capitalized costs, as if such write
downs had not occurred.
"Consolidated Net Worth" means, at any date, the consolidated stockholders'
equity of the Company less the amount of such stockholders' equity attributable
to Redeemable Capital Stock or treasury stock of the Company and its Restricted
Subsidiaries, as determined in accordance with GAAP.
"Consolidated Non-cash Charges" means, for any period, the aggregate
depreciation, depletion, amortization and other non-cash expenses of the Company
and its Restricted Subsidiaries reducing Consolidated Net Income for such
period, determined on a consolidated basis in accordance with GAAP (excluding
any such non-cash charge which requires an accrual of or reserve for cash
charges for any future period).
"Credit Agreement" means the Amended and Restated Credit Agreement dated as
of March 27, 1997 among Ocean Louisiana and The Chase Manhattan Bank, N.A., as
agent, as such agreement may be amended, modified, supplemented, extended,
restated, replaced (including replacement after the termination of such
agreement), restructured, increased, renewed or refinanced from time to time in
one or more credit agreements, loan agreements, instruments or similar
agreements, as such may be further amended, modified, supplemented, extended,
restated, replaced (including replacement after the termination of such
agreement), restructured, increased, renewed or refinanced from time to time, in
each case in accordance with and as permitted by the Indenture.
"Credit Agreement Obligations" means all monetary obligations of every
nature of the Company or a Restricted Subsidiary, including without limitation,
obligations to pay principal and interest, reimbursement obligations under
letters of credit, fees, expenses and indemnities, from time to time owed to the
lenders or any agent under or in respect of the Credit Agreement.
"Default" means any event, act or condition that is, or after notice or
passage of time or both would be, an Event of Default.
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"Designated Senior Indebtedness" means (i) all Senior Indebtedness under
the Credit Agreement Obligations (ii) all Senior Indebtedness under the Senior
Note Obligations and (iii) any other Senior Indebtedness which (a) at the time
of incurrence equals or exceeds $10,000,000 in aggregate principal amount and
(b) is specifically designated by the Company in the instrument evidencing such
Senior Indebtedness as "Designated Senior Indebtedness" for purpose of the
Indenture.
"Disinterested Director" means, with respect to any transaction or series
of transactions in respect of which the Board of Directors of the Company is
required to deliver a resolution of the Board of Directors under the Indenture,
a member of the Board of Directors of the Company who does not have any material
direct or indirect financial interest (other than an interest arising solely
from the beneficial ownership of Capital Stock of the Company) in or with
respect to such transaction or series of transactions.
"Dollar-Denominated Production Payments" means production payment
obligations recorded as liabilities in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Event of Default" has the meaning set forth above under the caption
"Events of Default."
"F&R Interests" means, collectively, William W. Rucks, IV and James C.
Flores, together with their respective spouses, lineal descendants and
ascendants, heirs, executors or other legal representatives and any trusts
established for the benefit of the foregoing, or any other Person in which the
Persons referred to in the foregoing are at the time of determination the direct
record and beneficial owners of all of the outstanding Capital Stock.
"GAAP" means generally accepted accounting principles, consistently
applied, that are set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as may be approved by a significant
segment of the accounting profession of the United States of America, which are
applicable as of the date of the Indenture.
"Guarantee" means, as applied to any obligation, (i) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of nonperformance) of all or any
part of such obligation, including, without limiting the foregoing, the payment
of amounts drawn down by letters of credit. When used as a verb, "guarantee"
shall have a corresponding meaning.
"Guarantor Senior Indebtedness" means all Indebtedness of a Subsidiary
Guarantor (present and future) created, incurred, assumed or guaranteed by such
Subsidiary Guarantor (and all renewals, substitutions, refinancings or
replacements thereof) (including the principal of, interest on and fees,
premiums, expenses (including costs of collection), indemnities and other
amounts payable in connection with such Indebtedness) (and including, in the
case of the Credit Agreement and any guarantees related to the Senior Notes,
interest accruing after the filing of a petition by or against such Subsidiary
Guarantor under any bankruptcy law, in accordance with and at the rate,
including any default rate, specified with respect to such indebtedness, whether
or not a claim for such interest is allowed as a claim after such filing in any
proceeding under such bankruptcy law), unless the instrument governing such
Indebtedness expressly provides that such Indebtedness is not senior in right of
payment to its Subsidiary Guarantee. Notwithstanding the foregoing, Guarantor
Senior Indebtedness of a Subsidiary Guarantor will not include (i) Indebtedness
of such Subsidiary Guarantor evidenced by its Subsidiary Guarantee, (ii)
Indebtedness of such Subsidiary Guarantor that is expressly subordinate or
junior in right of payment to any Guarantor Senior Indebtedness of such
Subsidiary Guarantor or its Subsidiary Guarantee, (iii) Indebtedness which, when
incurred and without respect to any election under Section 1111(b) of Title 11
United States Code, is by its terms without recourse to such Subsidiary
Guarantor, (iv) any repurchase, redemption or other obligation in respect of
Redeemable Capital Stock of such Subsidiary Guarantor, (v) to the extent it
might constitute Indebtedness, any liability for federal, state, local or other
taxes owed or owing by such Subsidiary Guarantor, (vi) Indebtedness of such
Subsidiary Guarantor to the Company or any of the Company's other Subsidiaries
or any other Affiliate of the
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Company or any of such Affiliate's Subsidiaries, and (vii) that portion of any
Indebtedness of such Subsidiary Guarantor which at the time of issuance is
issued in violation of the Indenture (but, as to any such Indebtedness, no such
violation shall be deemed to exist for purposes of this clause (vii) if the
holder(s) of such Indebtedness or their representative or such Subsidiary
Guarantor shall have furnished to the Trustee an opinion of counsel unqualified
in all material respects of independent legal counsel, addressed to the Trustee
(which legal counsel may, as to matters of fact, rely upon a certificate of such
Subsidiary Guarantor) to the effect that the incurrence of such Indebtedness
does not violate the provisions of such Indenture); provided that the foregoing
exclusions shall not affect the priorities of any Indebtedness arising solely by
operation of law in any case or proceeding or similar event described in clause
(a), (b) or (c) of the second paragraph of "--Subordination."
"Holder" means a Person in whose name a Note is registered in the Note
Register.
"Indebtedness" means, with respect to any Person, without duplication, (a)
all liabilities of such Person for borrowed money or for the deferred purchase
price of property or services, excluding any trade accounts payable and other
accrued current liabilities incurred in the ordinary course of business, but
including, without limitation, all obligations, contingent or otherwise, of such
Person in connection with any letters of credit, bankers' acceptance or other
similar credit transaction and in connection with any agreement to purchase,
redeem, exchange, convert or otherwise acquire for value any Capital Stock of
such Person, or any warrants, rights or options to acquire such Capital Stock,
now or hereafter outstanding, if, and to the extent, any of the foregoing would
appear as a liability upon a balance sheet of such Person prepared in accordance
with GAAP, (b) all obligations of such Person evidenced by bonds, notes,
debentures or other similar instruments, if, and to the extent, any of the
foregoing would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, (c) all Indebtedness of such Person created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even if the rights and remedies of
the seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), but excluding trade accounts payable
arising in the ordinary course of business, (d) all Capitalized Lease
Obligations of such Person, (e) the Attributable Indebtedness (in excess of any
related Capitalized Lease Obligations) related to any Sale/Leaseback Transaction
of such Person, (f) all Indebtedness referred to in the preceding clauses of
other Persons and all dividends of other Persons, the payment of which is
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon property (including,
without limitation, accounts and contract rights) owned by such Person, even
though such Person has not assumed or become liable for the payment of such
Indebtedness (the amount of such obligation being deemed to be the lesser of the
value of such property or asset or the amount of the obligation so secured), (g)
all guarantees by such Person of Indebtedness referred to in this definition
(including, with respect to any Production Payment, any warranties or guaranties
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), (h) all Redeemable Capital Stock of such Person valued at
the greater of its voluntary or involuntary maximum fixed repurchase price plus
accrued dividends, (i) all obligations of such Person under or in respect of
currency exchange contracts and Interest Rate Protection Obligations and (j) any
amendment, supplement, modification, deferral, renewal, extension or refunding
of any liability of such Person of the types referred to in clauses (a) through
(i) above. For purposes hereof, the "maximum fixed repurchase price" of any
Redeemable Capital Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Redeemable Capital Stock as if
such Redeemable Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the fair market value of such Redeemable Capital
Stock, such fair market value shall be determined in good faith by the board of
directors of the issuer of such Redeemable Capital Stock, provided, however,
that if such Redeemable Capital Stock is not at the date of determination
permitted or required to be repurchased, the "maximum fixed repurchase price"
shall be the book value of such Redeemable Capital Stock. Subject to clause (g)
of the first sentence of this definition, neither Dollar-Denominated Production
Payments nor Volumetric Production Payments shall be deemed to be Indebtedness.
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"Interest Rate Protection Obligations" means the obligations of any Person
pursuant to any arrangement with any other Person whereby, directly or
indirectly, such person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such Person
calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements or arrangements designed to protect
against or manage such Person's and any of its Subsidiaries' exposure to
fluctuations in interest rates.
"Investment" means, with respect to any Person, any direct or indirect
advance, loan guarantee of Indebtedness or other extension of credit or capital
contribution to (by means of any transfer of cash or other property or assets to
others or any payment for property, assets or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities (including derivatives) or
evidences of Indebtedness issued by, any other Person. In addition, the fair
market value of the net assets of any Restricted Subsidiary at the time that
such Restricted Subsidiary is designated an Unrestricted Subsidiary shall be
deemed to be an "Investment" made by the Company in such Unrestricted Subsidiary
at such time. "Investments" shall exclude (a) extensions of trade credit on
commercially reasonable terms in accordance with normal trade practices and (b)
Interest Rate Protection Obligations entered into in the ordinary course of
business or as required by any Permitted Indebtedness or any Indebtedness
incurred in compliance with the "Limitation on Indebtedness" covenant, but only
to the extent that the notional principal amount of such Interest Rate
Protection Obligations does not exceed 105% of the principal amount of such
Indebtedness to which such Interest Rate Protection Obligations relate and (c)
bonds, notes, debentures or other securities received in compliance with the
"Limitation on Disposition of Proceeds of Asset Sales" covenant.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or preference
or priority or other encumbrance or similar agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
agreement to give or grant a Lien or any lease, conditional sale or other title
retention agreement having substantially the same economic effect as any of the
foregoing) upon or with respect to any property of any kind. A Person shall be
deemed to own subject to a Lien any property which such Person has acquired or
holds subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement.
"Material Change" means an increase or decrease (excluding changes that
result solely from changes in prices) of more than 50% during a fiscal quarter
in the estimated discounted future net cash flows 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 quarter of oil
and gas reserves that have been estimated by a nationally recognized firm of
independent petroleum engineers and on which a report or reports exist and (ii)
any disposition of properties existing at the beginning of such quarter that
have been disposed of as provided in the "Limitation on Disposition of Proceeds
of Asset Sales" covenant.
"Maturity" means, with respect to any Note, the date on which any principal
of such Note becomes due and payable as therein or herein provided, whether at
the Stated Maturity with respect to such principal or by declaration of
acceleration, call for redemption or purchase or otherwise.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations when received in the form of cash or Cash
Equivalents (except to the extent that such obligations are financed or sold
with recourse to the Company or any Restricted Subsidiary), net of (i) brokerage
commissions and other fees and expenses (including fees and expenses of legal
counsel and investment banks) related to such Asset Sale, (ii) provisions for
all taxes payable as a result of such Asset Sale, (iii) amounts required to be
paid to any Person (other than the Company or any Restricted Subsidiary) owning
a beneficial interest in the assets subject to the Asset Sale and (iv)
appropriate amounts to be provided by the Company or any Restricted Subsidiary,
as the case may be, as a reserve required in accordance with GAAP consistently
applied against any liabilities associated with
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such Asset Sale and retained by the Company or any Restricted Subsidiary, as the
case may be, after such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as reflected in an Officers' Certificate delivered to the
Trustee; provided, however, that any amounts remaining after adjustments,
revaluations or liquidations of such reserves shall constitute Net Cash
Proceeds.
"Net Working Capital" means (i) all current assets of the Company and its
Restricted Subsidiaries, minus (ii) all current liabilities of the Company and
its Restricted Subsidiaries, except current liabilities included in
Indebtedness, in each case as set forth in financial statements of the Company
prepared in accordance with GAAP.
"Non-recourse Indebtedness" means Indebtedness or that portion of
Indebtedness of the Company incurred in connection with the acquisition by the
Company of any property or assets and as to which (a) the holders of such
Indebtedness agree that they will look solely to the property or assets so
acquired and securing such Indebtedness for payment on or in respect of such
Indebtedness and (b) no default with respect to such Indebtedness would permit
(after notice or passage of time or both), according to the terms thereof, any
holder of any Indebtedness of the Company or a Restricted Subsidiary to declare
a default on such Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity.
"Note Register" means the register maintained by or for the Company in
which the Company shall provide for the registration of the Notes and of
transfer of the Notes.
"Oil and Gas Business" means (i) the acquisition, exploration, development,
operation and disposition of interests in oil, gas and other hydrocarbon
properties, (ii) the gathering, marketing, treating, processing, storage,
refining, selling and transporting of any production from such interests or
properties, (iii) any business relating to or arising from exploration for or
development, production, treatment, processing, storage, refining,
transportation or marketing of oil, gas and other minerals and products produced
in association therewith, and (iv) any activity necessary, appropriate or
incidental to the activities described in the foregoing clauses (i) through
(iii) of this definition.
"Pari Passu Indebtedness" means any Indebtedness of the Company that is
pari passu in right of payment to the Notes.
"Permitted Indebtedness" means any of the following:
(i) Indebtedness of the Company under one or more bank credit or
revolving credit facilities in an aggregate principal amount at any one
time outstanding not to exceed the greater of (A) $250 million and (B) an
amount equal to the sum of (x) $50 million and (y) 25% of Adjusted
Consolidated Net Tangible Assets determined as of the date of the
incurrence of such Indebtedness (such greater amount being referred to as
the "Adjusted Maximum Credit Amount") (plus interest and fees under such
facilities), less any amounts derived from Asset Sales and applied to the
required permanent reduction of Senior Indebtedness (and a permanent
reduction of the related commitment to lend or amount available to be
reborrowed in the case of a revolving credit facility) under such credit
facilities as contemplated by the "Disposition of Proceeds of Asset Sales"
covenant (the "Maximum Credit Amount") (with the Maximum Credit Amount to
be an aggregate maximum amount for the Company and all Restricted
Subsidiaries, pursuant to clause (i) of the definition of "Permitted
Subsidiary Indebtedness"), and any renewals, amendments, extensions,
supplements, modifications, deferrals, refinancings or replacements (each,
for purposes of this clause, a "refinancing") thereof by the Company,
including any successive refinancings thereof by the Company, so long as
the aggregate principal amount of any such new Indebtedness, together with
the aggregate principal amount of all other Indebtedness outstanding
pursuant to this clause (i) (and clause (i) of the definition of "Permitted
Subsidiary Indebtedness"), shall not at any one time exceed the Maximum
Credit Amount;
(ii) Indebtedness of the Company under the Notes;
(iii) Indebtedness of the Company outstanding on the date of the
Indenture;
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(iv) obligations of the Company pursuant to Interest Rate Protection
Obligations, but only to the extent such obligations do not exceed 105% of
the aggregate principal amount of the Indebtedness covered by such Interest
Rate Protection Obligations; obligations under currency exchange contracts
entered into in the ordinary course of business; and hedging arrangements
that the Company enters into in the ordinary course of business for the
purpose of protecting its production against fluctuations in oil or natural
gas prices;
(v) Indebtedness of the Company to any Restricted Subsidiaries;
(vi) in-kind obligations relating to net gas balancing positions
arising in the ordinary course of business and consistent with past
practice;
(vii) Indebtedness in respect of bid, performance or surety bonds
issued for the account of the Company or any Restricted Subsidiary in the
ordinary course of business, including guarantees and letters of credit
supporting such bid, performance, surety or other reimbursement obligations
(in each case other than for an obligation for money borrowed);
(viii) any renewals, extensions, substitutions, refinancings or
replacements (each, for purposes of this clause, a "refinancing") by the
Company of any Indebtedness of the Company other than Indebtedness incurred
pursuant to clauses (iv), (vii) and (viii) of this definition, including
any successive refinancings by the Company, so long as (A) any such new
Indebtedness shall be in a principal amount that does not exceed the
principal amount (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) so refinanced plus the amount of any premium required to be
paid in connection with such refinancing pursuant to the terms of the
Indebtedness refinanced or the amount of any premium reasonably determined
by the Company as necessary to accomplish such refinancing, plus the amount
of expenses of the Company incurred in connection with such refinancing,
and (B) in the case of any refinancing of Subordinated Indebtedness, such
new Indebtedness is made subordinate to the Notes at least to the same
extent as the Indebtedness being refinanced and (C) such new Indebtedness
has an Average Life equal to or longer than the Average Life of the
Indebtedness being refinanced and a final Stated Maturity equal to or later
than the final Stated Maturity of the Indebtedness being refinanced;
(ix) Non-Recourse Indebtedness;
(x) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary providing for indemnification, adjustment of purchase
price or similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, assets or a Subsidiary,
other than guarantees of Indebtedness incurred by any Person acquiring all
or any portion of such business, assets or a Subsidiary for the purpose of
financing such acquisition; and
(xi) other Indebtedness of the Company and the Restricted Subsidiaries
that are Subsidiary Guarantors in an aggregate principal amount not in
excess of $25,000,000 at any one time outstanding.
"Permitted Investments" means any of the following: (i) Investments in Cash
Equivalents; (ii) Investments in the Company or any of its Restricted
Subsidiaries; (iii) Investments in an amount not to exceed 5% of Adjusted
Consolidated Net Tangible Assets at any one time outstanding; (iv) Investments
by the Company or any of its Restricted Subsidiaries in another Person, if as a
result of such Investment (a) such other Person becomes a Restricted Subsidiary
of the Company; or (B) such other Person is merged or consolidated with or into,
or transfers or conveys all or substantially all of its assets to, the Company
or a Restricted Subsidiary, (v) entry into operating agreements, joint ventures,
partnership agreements, working interests, royalty interests, mineral leases,
processing agreements, farm-out agreements, contracts for the sale,
transportation or exchange of oil and natural gas, unitization agreements,
pooling arrangements, area of mutual interest agreements or other similar or
customary agreements, transactions, properties, interests or arrangements, and
Investments and expenditures in connection therewith or pursuant thereto, in
each case made or entered into in the ordinary course of the Oil and Gas
Business, excluding, however, Investments in
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corporations; (vi) shares of Capital Stock or other securities received in
settlement of debts owed to the Company or any of its Restricted Subsidiaries as
a result of foreclosure, perfection or enforcement of any Lien or indebtedness
or in connection with any good faith settlement of a bankruptcy proceeding; or
(vii) entry into any hedging arrangements in the ordinary course of business for
the purpose of protecting the Company's or any Restricted Subsidiary's
production against fluctuations in oil or natural gas prices.
"Permitted Liens" means the following types of Liens:
(a) Liens existing as of the date the Notes are first issued;
(b) Liens securing the Notes;
(c) Liens in favor of the Company or a Restricted Subsidiary that is a
Subsidiary Guarantor;
(d) Liens securing Senior Indebtedness or Guarantor Senior
Indebtedness;
(e) Liens for taxes, assessments and governmental charges or claims
either (i) not delinquent or (ii) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries
shall have set aside on its books such reserves as may be required pursuant
to GAAP;
(f) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof,
(g) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, or to secure the payment or performance of
tenders, statutory or regulatory obligations, surety and appeal bonds,
bids, leases, government contracts and leases, performance and return of
money bonds and other similar obligations (exclusive of obligations for the
payment of borrowed money but including lessee or operator obligations
under statutes, governmental regulations or instruments related to the
ownership, exploration and production of oil, gas and minerals on state,
Federal or foreign lands or waters);
(h) judgment Liens not giving rise to an Event of Default so long as
any appropriate legal proceedings which may have been duly initiated for
the review of such judgment shall not have been finally terminated or the
period within which such proceeding may be initiated shall not have
expired;
(i) easements, rights-of-way, restrictions and other similar charges
or encumbrances not interfering in any material respect with the ordinary
conduct of the business of the Company or any of its Restricted
Subsidiaries;
(j) any interest or title of a lessor under any Capitalized Lease
Obligation or operating lease;
(k) Liens resulting from the deposit of funds or evidences of
Indebtedness in trust for the purpose of defeasing Indebtedness of the
Company or any of the Subsidiaries;
(l) Liens securing obligations under hedging agreements that the
Company or any Restricted Subsidiary enters into in the ordinary course of
business for the purpose of protecting its production against fluctuations
in oil or natural gas prices;
(m) Liens upon specific items of inventory or other goods and proceeds
of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate
the purchase, shipment or storage of such inventory or other goods;
(n) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(o) Liens encumbering property or assets under construction arising
from progress or partial payments by a customer of the Company or its
Restricted Subsidiaries relating to such property or assets;
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(p) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements of the Company
or any of its Restricted Subsidiaries, including rights of offset and
set-off;
(q) Liens securing Interest Rate Protection Obligations which Interest
Rate Protection Obligations relate to Indebtedness that is secured by Liens
otherwise permitted under this Indenture;
(r) Liens on, or related to, properties or assets to secure all or
part of the costs incurred in the ordinary course of business for the
exploration, drilling, development or operation thereof;
(s) Liens on pipeline or pipeline facilities which arise out of
operation of law;
(t) Liens arising under operating agreements, joint venture
agreements, partnership agreements, oil and gas leases, farm-out
agreements, division orders, contracts for the sale, transportation or
exchange of oil and natural gas, unitization and pooling declarations and
agreements, area of mutual interest agreements and other agreements which
are customary in the Oil and Gas Business;
(u) Liens reserved in oil and gas mineral leases for bonus or rental
payments and for compliance with the terms of such leases;
(v) Liens constituting survey exceptions, encumbrances, casements, or
reservations of, or rights to others for, rights-of-way, zoning or other
restrictions as to the use of real properties, and minor defects of title
which, in the case of any of the foregoing, were not incurred or created to
secure the payment of borrowed money or the deferred purchase price of
Property or services, and in the aggregate do not materially adversely
affect the value of Property of the Company and the Restricted
Subsidiaries, taken as a whole, or materially impair the use of such
Properties for the purposes for which such Properties are held by the
Company or any Restricted Subsidiaries; and
(w) Liens securing Non-Recourse Indebtedness; provided, however, that
the related Non-Recourse Indebtedness shall not be secured by any property
or assets of the Company or any Restricted Subsidiary other than the
property and assets acquired by the Company with the proceeds of such
Non-Recourse Indebtedness;
Notwithstanding anything in clauses (a) through (w) of this definition, the term
"Permitted Liens" does not include any Liens resulting from the creation,
incurrence, issuance, assumption or guarantee of any Production Payments other
than Production Payments that are created, incurred, issued, assumed or
guaranteed in connection with the financing of, and within 30 days after, the
acquisition of the properties or assets that are subject thereto.
"Permitted Subsidiary Indebtedness" means any of the following:
(i) Indebtedness of any Restricted Subsidiary under one or more bank
credit or revolving credit facilities (and "refinancings" thereof) in an
amount at any one time outstanding not to exceed the Maximum Credit Amount
(in the aggregate for all Restricted Subsidiaries and the Company, pursuant
to clause (i) of the definition of "Permitted Indebtedness");
(ii) Indebtedness of any Restricted Subsidiary outstanding on the date
of the Indenture;
(iii) obligations of any Restricted Subsidiary pursuant to Interest
Rate Protection Obligations, but only to the extent such obligations do not
exceed the aggregate principal amount of the Indebtedness covered by such
Interest Rate Protection Obligations; and hedging arrangements that any
Restricted Subsidiary enters into in the ordinary course of business for
the purpose of protecting its production against fluctuations in oil or
natural gas prices;
(iv) the Subsidiary Guarantees of the Notes and Senior Notes (and any
assumption of the obligations guaranteed thereby);
(v) Indebtedness of any Restricted Subsidiary relating to guarantees
by such Restricted Subsidiary of Permitted Indebtedness pursuant to Clause
(i) of the definition of "Permitted Indebtedness;"
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(vi) in-kind obligations relating to net gas balancing positions
arising in the ordinary course of business and consistent with past
practice;
(vii) Indebtedness in respect of bid, performance or surety bonds
issued for the account of any Restricted Subsidiary in the ordinary course
of business, including guarantees and letters of credit supporting such
bid, performance, surety or other reimbursement obligations (in each case
other than for an obligation for money borrowed);
(viii) Indebtedness of any Restricted Subsidiary to any other
Restricted Subsidiary or to the Company;
(ix) Indebtedness relating to guarantees by any Restricted Subsidiary
permitted to be incurred pursuant to the "Limitation on Guarantees of
Indebtedness by Subsidiaries" covenant; and
(x) any renewals, extensions, substitutions, refinancings or
replacements (each, for purposes of this clause, a "refinancing") by any
Restricted Subsidiary of any Indebtedness of such Restricted Subsidiary,
including any successive refinancings by such Restricted Subsidiary, so
long as (x) any such new Indebtedness shall be in a principal amount that
does not exceed the principal amount (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) so refinanced plus the amount of
any premium required to be paid in connection with such refinancing
pursuant to the terms of the Indebtedness refinanced or the amount of any
premium reasonably determined by such Restricted Subsidiary as necessary to
accomplish such refinancing, plus the amount of expenses of such Subsidiary
incurred in connection with such refinancing and (y) such new Indebtedness
has an Average Life equal to or longer than the Average Life of the
Indebtedness being refinanced and a final Stated Maturity equal to or later
than the final Stated Maturity of the Indebtedness being refinanced.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock, whether now outstanding or issued after
the date of the Indenture, including, without limitation, all classes and series
of preferred or preference stock of such Person.
"Production Payments" means, collectively, Dollar-Denominated Production
Payments and Volumetric Production Payments.
"Public Equity Offering" means an underwritten public offering for cash by
the Company of its Qualified Capital Stock pursuant to a registration statement
that has been declared effective by the Commission (other than a registration
statement on Form S-8 or any successor form or otherwise relating to equity
securities issuable under any employee benefit plan of the Company).
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any class or series of Capital Stock that,
either by its terms, by the terms of any security into which it is convertible
or exchangeable or by contract or otherwise, is, or upon the happening of an
event or passage of time would be, required to be redeemed prior to the final
Stated Maturity of the Notes or is redeemable at the option of the holder
thereof at any time prior to such final Stated Maturity, or is convertible into
or exchangeable for debt securities at any time prior to such final Stated
Maturity.
"Restricted Subsidiary" means any Subsidiary of the Company, whether
existing on or after the date of the Indenture, unless such Subsidiary of the
Company is an Unrestricted Subsidiary or is designated as an Unrestricted
Subsidiary pursuant to the terms of the Indenture.
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"Sale/Leaseback Transaction" means, with respect to any Person, any direct
or indirect arrangement pursuant to which properties or assets are sold or
transferred by such Person or a Subsidiary of such Person and are thereafter
leased back from the purchaser or transferee thereof by such Person or one of
its Subsidiaries.
"Senior Indebtedness" means the principal of, premium, if any, and interest
on any Indebtedness of the Company (including, in the case of the Credit
Agreement and the Senior Notes, interest accruing after the filing of a petition
by or against the Company under any bankruptcy law, in accordance with and at
the rate, including any default rate, specified with respect to such
indebtedness, whether or not a claim for such interest is allowed as a claim
after such filing in any proceeding under such bankruptcy law), whether
outstanding on the date of the Indenture or thereafter created, incurred or
assumed, unless, in the case of any particular Indebtedness, the instrument
creating or evidencing the same or pursuant to which the same is outstanding
expressly provides that such Indebtedness shall not be senior in right of
payment to the Notes. Without limiting the generality of the foregoing, "Senior
Indebtedness" shall also include the Senior Note Obligations. Notwithstanding
the foregoing, "Senior Indebtedness" shall not include (a) Indebtedness
evidenced by the Notes, (b) Indebtedness that is expressly subordinate or junior
in right of payment to any Senior Indebtedness of the Company, (c) Indebtedness
which, when incurred and without respect to any election under Section 1111(b)
of Title 11 United States Code, is by its terms without recourse to the Company,
(d) any repurchase, redemption or other obligation in respect of Redeemable
Capital Stock of the Company, (e) to the extent it might constitute
Indebtedness, any liability for federal, state, local or other taxes owed or
owing by the Company, (f) Indebtedness of the Company to a Subsidiary of the
Company or any other Affiliate of the Company or any of such Affiliate's
Subsidiaries, and (g) that portion of any Indebtedness of the Company which at
the time of issuance is issued in violation of the Indenture (but, as to any
such Indebtedness, no such violation shall be deemed to exist for purposes of
this clause (g) if the holder(s) of such Indebtedness or their representative or
the Company shall have furnished to the Trustee an opinion of counsel
unqualified in all material respects of independent legal counsel, addressed to
the Trustee (which legal counsel may, as to matters of fact, rely upon a
certificate of the Company) to the effect that the incurrence of such
Indebtedness does not violate the provisions of such Indenture); provided that
the foregoing exclusions shall not affect the priorities of any Indebtedness
arising solely by operation of law in any case or proceeding or similar event
described in clause (a), (b) or (c) of the second paragraph of
" -- Subordination."
"Senior Notes" means the 13 1/2% Senior Notes due 2004 of the Company
issued pursuant to the Indenture, dated as of December 1, 1994, between the
Company, as issuer, Ocean Louisiana, as subsidiary guarantor, and Shawmut Bank
Connecticut, National Association (now known as State Street Bank and Trust
Company), as trustee.
"Senior Note Obligations" means all monetary obligations of every nature of
the Company or a Restricted Subsidiary, including without limitation,
obligations to pay principal and interest, fees, expenses and indemnities, from
time to time owed to the holders or the trustee in respect of the Senior Notes.
"Senior Subordinated Note Obligations" means any principal of, premium, if
any, and interest on, and any other amounts (including, without limitation, any
payment obligations with respect to the Notes as a result of any Asset Sale,
Change of Control or redemption) owing in respect of, the Notes payable pursuant
to the terms of the Notes or the Indenture or upon acceleration of the Notes.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable, and, when used with respect to any other Indebtedness or any
installment of interest thereon, means the date specified in the instrument
evidencing or governing such Indebtedness as the fixed date on which the
principal of such Indebtedness or such installment of interest is due and
payable.
"Subordinated Indebtedness" means Indebtedness of the Company which is
expressly subordinated in right of payment to the Notes.
"Subsidiary" means, with respect to any Person, (i) a corporation a
majority of whose Voting Stock is at the time, directly or indirectly, owned by
such Person, by one or more Subsidiaries of such Person or by such
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Person and one or more Subsidiaries thereof or (ii) any other Person (other than
a corporation), including, without limitation, a joint venture, in which such
Person, one or more Subsidiaries thereof or such Person and one or more
Subsidiaries thereof, directly or indirectly, at the date of determination
thereof, has at least majority ownership interest entitled to vote in the
election of directors, managers or trustees thereof (or other Person performing
similar functions).
"Subsidiary Guarantee" means any guarantee of the Notes by (i) any
Subsidiary Guarantor in accordance with the provisions set forth in "Subsidiary
Guarantees of Notes" and (ii) any Restricted Subsidiary in accordance with the
provisions set forth in the "Limitation on Guarantees of Indebtedness by
Restricted Subsidiaries" covenant.
"Subsidiary Guarantor" means (i) Ocean Louisiana, (h) each of the Company's
Restricted Subsidiaries that becomes a guarantor of the Notes in compliance with
the provisions described under " -- Subsidiary Guarantees of the Notes" or the
provisions of the "Limitation on Guarantees of Indebtedness by Restricted
Subsidiaries" covenant and (iii) each of the Company's Subsidiaries executing a
supplemental indenture in which such Subsidiary agrees to be bound by the terms
of the Indenture and to guarantee on an unsubordinated basis the payment of the
Notes pursuant to the provisions described under " -- Subsidiary Guarantees of
Notes."
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination will be designated an Unrestricted Subsidiary by the
Board of Directors of the Company as provided below and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors of the Company may designate
any Subsidiary of the Company as an Unrestricted Subsidiary so long as (a)
neither the Company nor any Restricted Subsidiary is directly or indirectly
liable pursuant to the terms of any Indebtedness of such Subsidiary; (b) no
default with respect to any Indebtedness of such Subsidiary would permit (upon
notice, lapse of time or otherwise) 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; (c) neither the Company nor any Restricted Subsidiary has
made an Investment in such Subsidiary unless such Investment was made pursuant
to, and in accordance with, the "Limitation on Restricted Payments" covenant
(other than Investments of the type described in clause (iv) of the definition
of Permitted Investments); and (d) such designation shall not result in the
creation or imposition of any Lien on any of the Properties of the Company or
any Restricted Subsidiary (other than any Permitted Lien or any Lien the
creation or imposition of which shall have been in compliance with the
"Limitation on Liens" covenant); provided, however, that with respect to clause
(a), the Company or a Restricted Subsidiary may be liable for Indebtedness of an
Unrestricted Subsidiary if (x) such liability constituted a Permitted Investment
or a Restricted Payment permitted by the "Limitation on Restricted Payments"
covenant, in each case at the time of incurrence, or (y) the liability would be
a Permitted Investment at the time of designation of such Subsidiary as an
Unrestricted Subsidiary. Any such designation by the Board of Directors of the
Company shall be evidenced to the Trustee by filing a board resolution with the
Trustee giving effect to such designation. The Board of Directors of the Company
may designate any Unrestricted Subsidiary as a Restricted Subsidiary if,
immediately after giving effect to such designation, (i) no Default or Event of
Default shall have occurred and be continuing, (ii) the Company could incur
$1.00 of additional Indebtedness (not including the incurrence of Permitted
Indebtedness) under the first paragraph of the "Limitation on Indebtedness"
covenant and (iii) if any of the Properties of the Company or any of its
Restricted Subsidiaries would upon such designation become subject to any Lien
(other than a Permitted Lien), the creation or imposition of such Lien shall
have been in compliance with the "Limitation on Liens" covenant.
"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" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person (irrespective of whether or not, at the time, stock of
any other class or classes shall have, or might have, voting power by reason of
the happening of any contingency).
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"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary to the
extent all of the Capital Stock or other ownership interests in such Restricted
Subsidiary, other than any directors qualifying shares mandated by applicable
law, is owned directly or indirectly by the Company.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will make this
prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until , 1997, all
dealers effecting transactions in the Exchange Notes may be required to deliver
a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer or the purchasers of any such Exchange 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 person may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that, by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter", within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer, other than commissions or concessions of any
broker-dealers, and will indemnify the holders of the Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
Certain legal matters in connection with the Exchange Notes will be passed
upon for the Company by Andrews & Kurth L.L.P., Houston, Texas.
EXPERTS
The financial statements as of December 31, 1996, 1995 and 1994 and each of
the three years in the period ended December 31, 1996, included in this
Prospectus, have been audited by Arthur Andersen LLP, independent public
accountants, as stated in their report appearing herein.
Information relating to the estimated proved reserves of oil and gas and
the related estimates of future net cash flows and present values of future net
revenues thereof at December 31, 1994, 1995 and 1996 included or incorporated
herein and in the notes to the financial statements of the Company have been
prepared by Netherland, Sewell & Associates, Inc., independent petroleum
engineers.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements, and other
information filed by the Company can be inspected and copied at the public
reference facilities of the Commission, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, as well as the following Regional Offices: 7 World Trade
Center, New York, New York 10048; and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511 or may be obtained on
the Internet at http://www.sec.gov. Copies can be obtained by mail at prescribed
rates. Requests for copies should be directed to the Commission's Public
Reference Section, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549. The Company's Common Stock is traded on the New York Stock Exchange and,
as a result, the periodic reports, proxy statements and other information filed
by the Company with the Commission can be inspected at the offices of the New
York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the Commission
pursuant to the Exchange Act are incorporated herein by reference:
a. The Company's Annual Report on Form 10-K/A for the year ended
December 31, 1996;
b. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997; and
c. The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A filed March 8, 1996.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the Offering made hereby shall be deemed to be incorporated
by reference into this Prospectus and to be a part hereof from the date of
filing of such documents. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
ANY PERSON RECEIVING A COPY OF THIS PROSPECTUS MAY OBTAIN WITHOUT CHARGE,
UPON WRITTEN OR ORAL REQUEST, A COPY OF ANY OF THE DOCUMENTS INCORPORATED BY
REFERENCE HEREIN, EXCEPT FOR THE EXHIBITS TO SUCH DOCUMENTS (UNLESS SUCH
EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS).
REQUESTS SHOULD BE ADDRESSED TO INVESTOR RELATIONS, OCEAN ENERGY, INC., 8440
JEFFERSON HIGHWAY, SUITE 420, BATON ROUGE, LOUISIANA 70809, (504) 927-1450.
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GLOSSARY OF CERTAIN OIL AND GAS TERMS
The following are abbreviations and definitions of terms commonly used in
the oil and gas industry and this Prospectus. Unless otherwise indicated in this
Prospectus, natural gas volumes are stated at the legal pressure base of the
state or area in which the reserves are located and at 60 degrees Fahrenheit.
BOEs are determined using the ratio of six Mcf of natural gas to one Bbl of oil.
"Bbl" means a barrel of 42 U.S. gallons of oil.
"Bcf" means billion cubic feet of natural gas.
"BOE" means barrels of oil equivalent.
"Btu" or "British Thermal Unit" means the quantity of heat required to
raise the temperature of one pound of water by one degree Fahrenheit.
"BBtu" means one billion British Thermal Units.
"Completion" means the installation of permanent equipment for the
production of oil or gas.
"Condensate" means a hydrocarbon mixture that becomes liquid and separates
from natural gas when the gas is produced and is similar to crude oil.
"Develocat Drilling" involves evaluating deeper untested sands classified
as exploratory while developing a shallower known reservoir.
"Development well" means a well drilled within the proved area of an oil or
gas reservoir to the depth of a stratigraphic horizon known to be productive.
"Exploration Drilling" are drilled to find and produce oil or gas reserves
not classified as proved, to find a new reservoir in a field previously found to
be productive of oil or gas in another reservoir or to extend a known reservoir.
"Gross," when used with respect to acres or wells, refers to the total
acres or wells in which the Company has a working interest.
"MBbls" means thousands of barrels of oil.
"Mcf" means thousand cubic feet of natural gas.
"MMBbls" means millions of barrels of oil.
"MMBOE" means million barrels of oil equivalent.
"MMBtu" means one million British Thermal Units.
"MMcf" means million cubic feet of natural gas.
"Net" when used with respect to acres or wells, refers to gross acres of
wells multiplied, in each case, by the percentage working interest owned by the
Company.
"Net production" means production that is owned by the Company less
royalties and production due others.
"Oil" means crude oil or condensate.
"Operator" means the individual or company responsible for the exploration,
development, and production of an oil or gas well or lease.
"Present Value of Future Net Revenues" or "Present Value of Proved
Reserves" means the present value of estimated future revenues to be generated
from the production of proved reserves calculated in accordance with Commission
guidelines, net of estimated production and future development costs, using
prices and costs as of the date of estimation without future escalation, without
giving effect to non-property related expenses
101
<PAGE> 106
such as general and administrative expenses, debt service, future income tax
expense and depreciation, depletion and amortization, and discounted using an
annual discount rate of 10%.
"Project" means a proposal to add a producing completion of oil or gas. A
proposal may vary in range from work authorized to be performed to proposals
that are founded in geologic and engineering principles yet require further
research before funds are authorized.
"Proved developed reserves" means reserves that can be expected to be
recovered through existing wells with existing equipment and operating methods.
Additional oil and gas expected to be obtained through the application of fluid
injection or other improved recovery techniques for supplementing the natural
forces and mechanisms of primary recovery will be included as "proved developed
reserves" only after testing by a pilot project or after the operation of an
installed program has confirmed through production response that increased
recovery will be achieved.
"Proved reserves" means the estimated quantities of crude oil, natural gas,
and natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions, i.e., prices and costs as of
the date the estimate is made. Prices include consideration of changes in
existing prices provided only by contractual arrangements, but not on
escalations based upon future conditions.
i. Reservoirs are considered proved if economic producibility is
supported by either actual production or conclusive formation test. The
area of a reservoir considered proved includes (A) that portion delineated
by drilling and defined by gas-oil and/or oil-water contacts, if any; and
(B) the immediately adjoining portions not yet drilled, but which can be
reasonably judged as economically productive on the basis of available
geological and engineering data. In the absence of information on fluid
contacts, the lowest known structural occurrence of hydrocarbons controls
the lower proved limit of the reservoir.
ii. Reserves which can be produced economically through application of
improved recovery techniques (such as fluid injection) are included in the
"proved" classification when successful testing by a pilot project, or the
operation of an installed program in the reservoir, provides support for
the engineering analysis on which the project or program was based.
iii. Estimates of proved reserves do not include the following: (A)
oil that may become available from known reservoirs but is classified
separately as "indicated additional reserves"; (B) crude oil, natural gas,
and natural gas liquids, the recovery of which is subject to reasonable
doubt because of uncertainty as to geology, reservoir characteristics, or
economic factors; (C) crude oil, natural gas, and natural gas liquids that
may occur in undrilled prospects; and (D) crude oil, natural gas, and
natural gas liquids that may be recovered from oil shales, coal, gilsonite
and other such sources.
"Proved undeveloped reserves" means reserves that are expected to be
recovered from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for recompletion. Reserves on undrilled
acreage shall be limited to those drilling units offsetting productive units
that are reasonably certain of production when drilled. Proved reserves for
other undrilled units can be claimed only where it can be demonstrated with
certainty that there is continuity of production from the existing productive
formation. Under no circumstances should estimates for proved undeveloped
reserves be attributable to any acreage for which an application of fluid
injection or other improved recovery technique is contemplated, unless such
techniques have been proved effective by actual tests in the area and in the
same reservoir.
"Recompletion" means the completion for production of an existing well bore
in another formation from that in which the well has been previously completed.
"Reserves" means proved reserves.
"Royalty" means an interest in an oil and gas lease that gives the owner of
the interest the right to receive a portion of the production from the leased
acreage (or of the proceeds of the sale thereof), but generally does not require
the owner to pay any portion of the costs of drilling or operating the wells on
the leased acreage. Royalties may be either landowner's royalties, which are
reserved by the owner of the leased acreage at the
102
<PAGE> 107
time the lease is granted, or overriding royalties, which are usually reserved
by an owner of the leasehold in connection with a transfer to a subsequent
owner.
"Spud" means to start drilling a new well (or restart).
"3-D seismic" means seismic data that are acquired and processed to yield a
three-dimensional picture of the subsurface.
"Waterflood" means the injection of water into a reservoir to fill pores
vacated by produced fluids, thus maintaining reservoir pressure and assisting
production.
"Working interest" means an interest in an oil and gas lease that gives the
owner of the interest the right to drill for and produce oil and gas on the
leased acreage and requires the owner to pay a share of the costs of drilling
and production operations. The share of production to which a working interest
owner is entitled will always be smaller than the share of costs that the
working interest owner is required to bear, with the balance of the production
accruing to the owners of royalties. For example, the owner of a 100% working
interest in a lease burdened only by a landowner's royalty of 12.5% would be
required to pay 100% of the costs of a well but would be entitled to retain
87.5% of the production.
"Workover" means operations on a producing well to restore or increase
production.
103
<PAGE> 108
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of December 31, 1996 and
1995...................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994.......................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996, 1995 and 1994.............. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
Consolidated Balance Sheet as of March 31, 1997............. F-26
Consolidated Statements of Operations for the three months
ended March 31, 1997 and 1996............................. F-27
Consolidated Statements of Cash Flows for the three months
ended March 31, 1997 and 1996............................. F-28
Notes to Consolidated Financial Statements.................. F-29
</TABLE>
F-1
<PAGE> 109
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Ocean Energy, Inc. and subsidiaries:
We have audited the accompanying consolidated balance sheets of Ocean
Energy, Inc. (a Delaware corporation, formerly Flores & Rucks, Inc.) and
subsidiaries, as of December 31, 1996 and 1995 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Ocean Energy, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
February 24, 1997
F-2
<PAGE> 110
OCEAN ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1996 1995
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents............. $ 5,758,978 $ 212,238
Joint interest receivables............ 2,001,605 390,275
Oil and gas sales receivables......... 33,770,044 17,546,127
Notes and accounts
receivable -- stockholders......... -- 129,129
Accounts receivable -- other.......... 1,500,000 --
Assets held for resale................ 37,200,000 --
Prepaid expenses...................... 1,213,143 390,412
Other current assets.................. 2,414,803 424,824
------------- -------------
Total current assets.......... 83,858,573 19,093,005
Oil and gas properties -- full cost
method:
Evaluated............................. 464,485,367 274,942,435
Less accumulated depreciation,
depletion, and amortization........ (188,692,223) (114,040,044)
------------- -------------
275,793,144 160,902,391
Unevaluated properties excluded from
amortization....................... 79,904,974 19,041,148
Other assets:
Furniture and equipment, less
accumulated depreciation of
$2,772,983 and $1,258,225 in 1996
and 1995, respectively............. 4,286,773 2,340,641
Restricted deposits................... 6,323,515 4,259,182
Deferred financing costs.............. 10,543,226 5,127,974
Deferred tax asset.................... -- 4,692,263
------------- -------------
Total assets.................. $ 460,710,205 $ 215,456,604
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities........................ $ 47,718,102 $ 15,090,791
Oil and gas sales payable............. 7,830,415 5,177,277
Accrued interest...................... 5,521,070 2,651,097
Current notes payable................. 127,154 --
Deposit on assets held for resale..... 3,720,000 --
------------- -------------
Total current liabilities..... 64,916,741 22,919,165
Long-term debt.......................... 284,141,999 157,391,556
Notes payable to be refinanced under
revolving line of credit.............. -- 14,300,000
Deferred hedge revenue.................. 400,000 870,333
Deferred tax liability.................. 6,098,144 --
Stockholders' equity:
Preferred stock, $.01 par value;
authorized 10,000,000 shares, no
shares issued or outstanding at
December 31, 1996 and 1995......... -- --
Common stock, $.01 par value;
authorized 100,000,000 shares;
issued and outstanding 19,640,656
shares and 15,044,125 shares at
December 31, 1996 and 1995,
respectively....................... 196,407 150,441
Paid-in capital....................... 91,819,465 27,638,465
Retained earnings (deficit)........... 13,137,449 (7,813,356)
------------- -------------
Total stockholders' equity.... 105,153,321 19,975,550
------------- -------------
Total liabilities and
stockholders' equity........ $ 460,710,205 $ 215,456,604
============= =============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-3
<PAGE> 111
OCEAN ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Oil and gas sales....................... $188,451,215 $127,970,126 $ 75,395,112
Operating expenses:
Lease operations...................... 36,192,253 30,023,426 23,577,089
Severance taxes....................... 10,905,731 10,023,104 6,746,928
Depreciation, depletion and
amortization....................... 74,652,179 54,083,782 36,459,029
------------ ------------ ------------
Total operating expenses...... 121,750,163 94,130,312 66,783,046
General and administrative expenses..... 16,153,823 11,312,153 10,350,572
Interest expense........................ 17,954,053 17,620,226 4,507,307
Interest income and other............... (394,909) (302,597) (748,479)
Loss on production payment repurchase
and refinancing....................... -- -- 16,681,211
------------ ------------ ------------
Net income (loss) before income taxes... 32,988,085 5,210,032 (22,178,545)
Income tax expense (benefit)............ 12,037,280 (4,692,263) --
------------ ------------ ------------
Net income (loss)....................... $ 20,950,805 $ 9,902,295 $(22,178,545)
============ ============ ============
Earnings per common share
Primary............................... $ 1.07 $ .65 N.M.
Fully diluted......................... 1.05 .65 N.M.
Weighted average common and common
equivalent shares outstanding
Primary............................... 19,639,942 15,158,514 N.M.
Fully diluted......................... 19,901,461 15,329,740 N.M.
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-4
<PAGE> 112
OCEAN ENERGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
COMMON EARNINGS
STOCK PAID-IN CAPITAL (DEFICIT) TOTAL
-------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993............ $ 1,000 $ -- $ (825,702) $ (824,702)
Sale of stock......................... 149,000 52,657,553 -- 52,806,553
Repurchase of common stock............ -- (18,700,000) -- (18,700,000)
Net loss.............................. -- -- (22,178,545) (22,178,545)
Distributions......................... -- -- (1,400,000) (1,400,000)
Reclassification of accumulated
deficit at date of conversion to a
subchapter C corporation........... -- (6,688,596) 6,688,596 --
-------- ------------ ------------ ------------
Balance at December 31, 1994............ $150,000 $ 27,268,957 $(17,715,651) $ 9,703,306
Sale of stock......................... 441 369,508 -- 369,949
Net income............................ -- -- 9,902,295 9,902,295
-------- ------------ ------------ ------------
Balance at December 31, 1995............ $150,441 $ 27,638,465 $ (7,813,356) $ 19,975,550
Sale of stock -- public offering...... 45,000 62,146,285 -- 62,191,285
Sale of stock -- exercise of stock
options............................ 966 2,034,715 -- 2,035,681
Net income............................ -- -- 20,950,805 20,950,805
-------- ------------ ------------ ------------
Balance at December 31, 1996............ $196,407 $ 91,819,465 $ 13,137,449 $105,153,321
======== ============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-5
<PAGE> 113
OCEAN ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994
------------- ------------ -------------
<S> <C> <C> <C>
Operating activities:
Net income (loss)..................... $ 20,950,805 $ 9,902,295 $ (22,178,545)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation, depletion and
amortization..................... 76,166,937 54,751,429 36,845,015
Deferred hedge revenue............. (470,333) 203,666 (565,180)
Deferred tax expense (benefit)..... 10,790,407 (4,692,263) --
Recognition of deferred revenue on
sale of production payment
interest......................... -- -- (23,857,212)
Repurchase of production payment
interests.......................... -- -- (107,951,703)
Changes in operating assets and
liabilities:
Accrued interest................... 1,569,973 1,555,132 1,947,489
Receivables........................ (19,206,115) (7,055,051) (6,208,990)
Prepaid expenses................... (822,731) 126,106 --
Other current assets............... (1,989,979) (352,106) (139,976)
Accounts payable and accrued
liabilities...................... 32,627,311 1,957,344 5,155,926
Oil and gas sales payable.......... 2,653,135 2,483,037 1,468,107
Deposit on assets held for
resale........................... 3,720,000 -- --
------------- ------------ -------------
Net cash provided by (used in) operating
activities............................ 125,989,410 58,879,589 (115,485,069)
============= ============ =============
Investing activities:
Additions to oil and gas properties
and furniture and equipment........ (291,067,648) (75,740,369) (39,408,546)
Increase in restricted deposits....... (2,064,333) (1,958,884) (1,221,377)
Purchase of minority interest......... -- -- (5,977,097)
------------- ------------ -------------
Net cash used in investing activities... (293,131,981) (77,699,253) (46,607,020)
------------- ------------ -------------
Financing activities:
Sale of stock......................... 64,226,966 369,949 52,806,553
Borrowings on notes payable........... 242,120,000 99,000,020 181,014,776
Payments of notes payable............. (128,264,402) (81,357,944) (55,632,361)
Deferred financing costs.............. (5,393,253) 451,187 (5,626,787)
Repurchase of common stock............ -- -- (8,700,000)
Distributions to stockholders......... -- -- (1,400,000)
------------- ------------ -------------
Net cash provided by financing
activities............................ 172,689,311 18,463,212 162,462,181
------------- ------------ -------------
Increase (decrease) in cash and cash
equivalents........................... 5,546,740 (356,452) 370,092
Cash and cash equivalents, beginning of
the period............................ 212,238 568,690 198,598
------------- ------------ -------------
Cash and cash equivalents, end of the
period................................ $ 5,758,978 $ 212,238 $ 568,690
============= ============ =============
Interest paid during the period......... $ 20,896,826 $ 18,288,156 $ 2,808,721
============= ============ =============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-6
<PAGE> 114
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Ocean Energy, Inc., formerly Flores & Rucks, Inc., a Delaware corporation
(the "Company"), is an independent energy company engaged in the exploration,
development, acquisition and production of crude oil and natural gas, with
operations primarily in the shallow offshore regions of Louisiana. The Company
was formed on September 22, 1994, to succeed to the business of Ocean Energy,
Inc., formerly Flores & Rucks, Inc., a Louisiana corporation ("Ocean Louisiana")
and Flores & Rucks LLC ( the "LLC"). Concurrent with the closing of the Initial
Offerings (See Note 2) on December 7, 1994, Ocean Louisiana was merged into a
wholly owned subsidiary of the Company. Because the transaction represented the
reorganization of entities under common control, the merger was treated in a
manner similar to a pooling of interests.
During 1996, the Company issued 4.5 million additional shares of common
stock and $160 million of 9 3/4% Senior Subordinated Notes through public
offerings (See Note 2).
Hereinafter, the "Company" refers to Ocean Energy, Inc., a Delaware
corporation, its predecessors and their respective subsidiaries.
Effective January 1, 1993, Ocean Louisiana issued 2,000 shares of common
stock to the two stockholders of an entity which held the rights under an
operating agreement to operate substantially all of Ocean Louisiana's oil and
gas properties. These two stockholders were deemed co-promoters of Ocean
Louisiana upon the exchange. As no tangible assets, or any assets with
predecessor basis, were acquired by Ocean Louisiana in connection with the
exchange, no value was attributed to the stock issued. These shares were
subsequently reacquired (See Note 7).
On December 28, 1993, Ocean Louisiana transferred its interests in
substantially all of its oil and gas properties to the LLC in return for an
87.5% ownership interest. The remaining 12.5% interest (the "Minority Interest")
was owned by an unrelated party, Franks Petroleum, Inc. ("Franks"). Ocean
Louisiana proportionately consolidated its interest in LLC.
The Company is substantially leveraged. As such, a significant portion of
the Company's cash flow from operations will be dedicated to debt service. As
with other independent oil and gas producers, the Company is subject to numerous
uncertainties and commitments associated with its operations. For example, the
Company's results of operations are highly dependent upon the prices received
for oil and gas. In addition, the Company will be required to make substantial
future capital expenditures for the acquisition, exploration, development,
production and abandonment of its oil and gas properties.
Subsidiary Guaranty
All of the Company's operating income and cash flow is generated by Ocean
Louisiana, a wholly owned subsidiary and the Subsidiary Guarantor of the
Company. The separate financial statements of Ocean Louisiana are not included
herein because (i) Ocean Louisiana is the only direct active subsidiary of the
Company; (ii) Ocean Louisiana has fully and unconditionally guaranteed the
Senior Notes and the Senior Subordinated Notes (as defined in Note 2); (iii) the
aggregate assets, liabilities, earnings, and equity of Ocean Louisiana are
substantially equivalent to the assets, liabilities, earnings and equity of the
Company on a consolidated basis; and (iv) the presentation of separate financial
statements and other disclosures concerning Ocean Louisiana are not deemed
material.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the
F-7
<PAGE> 115
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Oil and Gas Properties
The Company's exploration and production activities are accounted for under
the full cost method. Under this method, all acquisition, exploration and
development costs, including certain related employee costs, incurred for the
purpose of finding oil and gas are capitalized. Such amounts include the cost of
drilling and equipping productive wells, dry hole costs, lease acquisition
costs, delay rentals, and costs related to such activities. Employee costs
associated with production operations and general corporate activities are
expensed in the period incurred. The Company capitalized $3,893,000, $1,643,000
and $535,000 of employee related costs directly associated with the acquisition,
development or exploration of oil and gas properties during the years ended
December 31, 1996, 1995 and 1994, respectively. The Company's proportionate
interests in properties held under joint venture, partnership or similar
arrangements are included in oil and gas properties. Transactions involving
sales of reserves in place, unless unusually significant, are recorded as
adjustments to oil and gas properties. Capitalized costs are limited to the sum
of the present value of future net revenues discounted at 10% related to
estimated production of proved reserves (which includes deferred hedge revenue)
and the lower of cost or estimated fair value of unevaluated properties.
Depreciation, depletion and amortization of oil and gas properties are
computed on a composite unit-of-production method based on estimated proved
reserves. All costs associated with oil and gas properties, including an
estimate of future development, restoration, dismantlement and abandonment costs
of proved properties, are included in the computation base, with the exception
of certain costs associated with unevaluated oil and gas properties. The oil and
gas reserves are estimated periodically by independent petroleum engineers. The
Company evaluates all unevaluated oil and gas properties on a quarterly basis to
determine if any impairment has occurred. Any impairment to unevaluated
properties will be reclassified as a proved oil and gas property, and thus
subject to amortization if there are proved reserves associated with the related
cost center. Otherwise, such impairment will be recognized in the period in
which it occurs.
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121 ("SFAS 121") regarding
accounting for the impairment of long-lived assets. The Company adopted SFAS 121
in 1996. The effect of adopting SFAS 121 did not materially impact the Company's
results of operations or financial position as of December 31, 1996.
Furniture and Equipment
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, which range from 3 to 5 years.
Oil and Gas Revenue
The Company records oil and gas revenue on the sales method. As a result of
this policy, the Company did not record revenues of $642,663 and $20,000 for the
years ended December 31, 1996 and 1995, respectively, on gas volumes that the
Company was entitled to, but which were sold by a joint owner in order to reduce
previous gas imbalances. The Company recorded revenue of $376,000 during the
year ended December 31, 1994, on gas volumes sold in excess of its entitled
share of production. As of December 31, 1996, the Company is in a net
overdelivered position of 2,059,954 Mcf, which will reduce future oil and gas
revenue as the underdelivered parties recoup their share of production. In
connection with acquisitions, under the sales method the Company records a gas
balancing liability only to the extent any net gas imbalance acquired exceeds
the reserves acquired.
F-8
<PAGE> 116
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company records as oil and gas revenue the payments received from (or
made to) a third party under contracts to hedge future oil and gas production
(See Note 13).
Statements of Cash Flows
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Earnings Per Common Share
Primary and fully diluted earnings per common share are based on the
weighted average number of shares of common stock outstanding for the periods,
including common equivalent shares which reflect the dilutive effect of stock
options granted to certain employees and outside directors on various dates
through December 31, 1996. Dilutive options that are issued during a period or
that expire or are canceled during a period are reflected in both primary and
fully diluted earnings per share computations for the time they were outstanding
during the periods being reported.
Earnings per common share has not been presented for the Company for the
year ended December 31, 1994, as this amount would not be meaningful or
indicative of the ongoing entity due to the Initial Offerings (See Note 2) and
related transactions.
Deferred Financing Costs
The Company has $10,543,226, net of accumulated amortization of $1,423,572,
recorded as deferred financing costs as of December 31, 1996, which is related
to the sale of the Senior Notes and the sale of the Senior Subordinated Notes
(See Note 2) and the senior revolving bank credit facility (the "Revolving
Credit Facility"). In conjunction with the Initial Offerings (See Note 2), a
balance of $1,007,114, which represented deferred financing costs associated
with the term and development loans, discussed in Note 9, was expensed in the
fourth quarter of 1994. Deferred financing costs are being amortized on a
straight-line basis over the life of the related loans.
Fair Value of Financial Instruments
Fair value of cash, cash equivalents, accounts receivable and accounts
payable approximate book value at December 31, 1996. Fair value of debt is
determined based upon market value, if traded, or discounted at the estimated
rate the Company would incur currently on similar debt.
Reclassifications
Certain reclassifications have been made to conform financial statement
presentation between periods.
In addition, prior year oil and gas reserve quantity information in Note 15
has been restated to include estimated future reserves expected to be consumed
by the Company as fuel gas.
2. INITIAL AND SUBSEQUENT PUBLIC OFFERINGS
On December 7, 1994, the Company closed initial public offerings (the
"Initial Offerings") issuing 5,750,000 shares of common stock at $10 per share
and $125 million of 13 1/2% Senior Notes due December 1, 2004 (the "Senior
Notes"), and concurrently exchanged the Enron Option (See Note 4) and $1,000 for
one million shares of common stock. Additionally, the Company acquired the
Franks interest (for $6.0 million cash) and the LLC was merged into the Company.
Also, concurrent with the closing of the Initial Offerings, the Company acquired
the production payment obligations for East Bay Complex and Main Pass 69 (See
F-9
<PAGE> 117
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Notes 3 and 4), repaid the term loan and development loans (See Note 9) and paid
off notes to current and former stockholders (See Note 7).
In January 1995, the Company issued an additional 40,000 shares of common
stock relating to the exercise of the underwriters over allotment option. Net
proceeds to the Company from the issuance of these shares was $372,000.
On March 19, 1996, the Company completed a public offering of 4,500,000
shares of common stock at a price of $14.75 per share (the "Offering"). Net
proceeds of the Offering were approximately $62.2 million, of which $15.4
million was used to repay a note payable to Shell Offshore, Inc. and
approximately $33.0 million was used to repay indebtedness under the Revolving
Credit Facility.
On September 26, 1996, the Company completed an offering of $160,000,000 of
9 3/4% Senior Subordinated Notes at a discount (the "Senior Subordinated Notes")
for proceeds of $159,120,000 (before offering costs). The principal is due
October 1, 2006. Interest on the notes will be payable semi-annually in arrears
on April 1 and October 1 of each year, commencing April 1, 1997. Net proceeds to
the Company were approximately $154 million, which was used primarily to
complete the acquisition of the Central Gulf Properties (See Note 3) and to
repay outstanding indebtedness of $25.1 million under the Company's Revolving
Credit Facility.
3. INVESTMENT IN OIL AND GAS PROPERTIES
On June 11, 1992, the Company acquired a producing oil and gas property
("Main Pass 69") from Shell Oil Company, its affiliates and subsidiaries
("Shell"), for $39.2 million. On June 10, 1993, the Company acquired a second
producing property (the "East Bay Complex") from Shell for $131.9 million.
Concurrent with these acquisitions, the Company assigned overriding royalty
interests burdening one-eighth of the working interests to a company owned by a
stockholder for services rendered in connection with the acquisitions. In
addition, the Company sold to Franks the one-eighth working interests subject to
the override in return for the assumption of one-eighth of the volumetric
production payment liabilities related thereto (See Note 4) and, for the East
Bay Complex, one-eighth of a note payable to Shell (Note 9). In addition, see
Note 4 for a discussion of the sale of an option to Enron Financial Corporation
related to the East Bay Complex.
On December 7, 1994, the Company acquired Franks' interest in the LLC for
$6 million and recorded the acquisition using the purchase method. Included in
the purchase the Company acquired cash totaling $23,000, other current assets
totaling $56,000, the Minority Interest's share of a plug and abandonment escrow
totaling $269,000 and other assets totaling $124,000. In addition, the Company
assumed accrued interest payable of $53,000, notes payable on JEDI loans (as
defined in Note 9) of approximately $4.4 million, deferred hedge revenue of
$85,000, an approximate $1.8 million liability owed to the Company and deferred
production payment revenues of approximately $15.5 million, as well as the
assumption of a $710,000 liability owed to the LLC. The Company recorded an
increase in the full cost pool of $28.1 million. The Company allocated the
purchase price between evaluated and unevaluated properties based on estimated
relative fair market value.
On September 26, 1996, the Company acquired from Mobil Oil and Producing
Southeast, Inc. ("Mobil"), certain interests in eleven oil and gas producing
fields and related production facilities primarily situated in the shallow
federal waters of the central Gulf of Mexico, offshore Louisiana, (the "Central
Gulf Properties") for approximately $117.6 million. The Company financed the
acquisition with proceeds from the issuance of the Senior Subordinated Notes
(See Note 2). At December 31, 1996, one of the eleven Central Gulf Properties
was reclassified as "Assets held for resale". The subject property was sold on
January 3, 1997, for $37.2 million. No gain or loss was recognized on the sale.
F-10
<PAGE> 118
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following pro forma information gives effect to the acquisition of the
Central Gulf Properties by the Company as if it had occurred on January 1, 1995.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
Total revenues.......................................... $216,528,093 $168,829,040
Net income.............................................. 24,854,741 13,840,044
Earnings per common share:
Primary............................................... $ 1.27 $ 0.91
Fully diluted......................................... 1.25 0.90
</TABLE>
The following table discloses certain financial data relative to the
Company's oil and gas producing activities, substantially all of which are
located in the offshore waters of the continental United States.
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Costs incurred during period:
Capitalized
Purchase of producing properties........ $ 59,419,082 $ 624,097 $ 25,441,295
Purchase of unevaluated properties...... 69,765,719 2,381,227 14,736,334
Properties held for resale.............. (37,200,000) -- --
Exploration costs....................... 45,765,965 18,106,000 9,829,000
Development costs, including capitalized
workovers............................. 104,010,914 47,829,175 23,083,108
Plugging and abandonment costs.......... 352,043 236,000 727,370
Capitalized interest on unevaluated
properties and capitalized general and
administrative costs.................. 9,191,313 4,475,979 659,552
------------ ------------ ------------
$251,305,036.. $ 73,652,478 $ 74,476,659
============ ============ ============
Charged to expense
Operating costs:
Recurring lease operating expenses.... $ 33,709,222 $ 28,648,019 $ 22,709,507
Major maintenance expenses............ 2,483,031 1,375,407 867,582
------------ ------------ ------------
Total operating costs.............. $ 36,192,253 $ 30,023,426 $ 23,577,089
============ ============ ============
Severance taxes....................... $ 10,905,731 $ 10,023,104 $ 6,746,928
============ ============ ============
Oil and gas properties:
Balance, beginning of period............... $293,983,583 $220,331,105 $145,934,272
Additions.................................. 287,606,758 73,652,478 74,396,833
Properties held for resale................. (37,200,000) -- --
------------ ------------ ------------
Balance, end of period..................... $544,390,341 $293,983,583 $220,331,105
============ ============ ============
Accumulated depreciation, depletion and
amortization:
Balance, beginning of period............... $114,040,044 $ 60,019,583 $ 23,560,554
Provision for depreciation, depletion and
amortization............................ 74,652,179 54,020,461 36,459,029
------------ ------------ ------------
Balance, end of period..................... 188,692,223 114,040,044 60,019,583
------------ ------------ ------------
Net capitalized costs.............. $355,698,118 $179,943,539 $160,311,522
============ ============ ============
</TABLE>
F-11
<PAGE> 119
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table discloses financial data associated with capitalized
unevaluated costs as of December 31, 1996.
<TABLE>
<CAPTION>
COSTS INCURRED DURING THE
BALANCE AT YEARS ENDED DECEMBER 31,
DECEMBER 31, -------------------------------------
1996 1996 1995 1994
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
Acquisition costs..................... $54,710,827 $45,864,414 $2,232,685 $6,613,728
Exploration costs..................... 18,196,979 13,267,654 4,929,325 --
Development costs..................... 2,291,218 2,291,218 -- --
Capitalized interest.................. 4,705,950 3,478,046 1,170,301 57,603
----------- ----------- ---------- ----------
$79,904,974 $64,901,332 $8,332,311 $6,671,331
=========== =========== ========== ==========
</TABLE>
4. PRODUCTION PAYMENTS
Concurrent with the Main Pass 69 and East Bay Complex acquisitions, the
Company sold to Enron Reserve Acquisition Corp. ("ERAC") nonrecourse volumetric
production payment interests of approximately $36.7 million and $95.7 million,
respectively, net of the amounts assumed by Franks.
The Company deferred the revenue associated with the sale of these
production payment interests because a substantial obligation for future
performance existed. Under the terms of the sales, the Company was obligated to
deliver the production payment volumes free and clear of lease operating
expenses, production taxes, plugging and abandonment and other capital costs.
The deferred revenue was amortized on the unit-of-production method and
recognized as oil and gas revenues as the associated hydrocarbons were
delivered. In addition, under separate agreements, the Company was required to
sell all excess production over production payment volumes from the subject
properties to an affiliate of ERAC during the same periods. Sales from the East
Bay Complex were made at market prices, whereas sales from Main Pass 69 were
made at the affiliate's posted price, which during the eleven months ended
November 30, 1994 was approximately $1.29 per barrel below other buyers'
postings for similar crude oil. Sales from Main Pass 69 for December 1994 were
made to the affiliate at market prices.
In connection with the East Bay Complex production payment, Enron Finance
Corp. ("Enron") obtained from the Company the right to acquire during a ten-year
period commencing January 1, 1996 (or upon a registration of securities), at a
nominal cost, a one-eighth working interest in the East Bay Complex or a 9%
interest in LLC (the "Enron Option"). If the working interest was acquired, it
would have been burdened by its share of the production payment. For accounting
purposes, the total proceeds received by the Company from ERAC related to the
East Bay Complex production payment were allocated between deferred revenue from
the sale of the production payment interest ($95.7 million) and a reduction in
the full cost pool resulting from the sale of a portion of the Company's
interest in East Bay Complex ($7.5 million) based upon the relationship of
one-eighth of post-January 1, 1996 reserves to total reserves, as determined at
the date of acquisition. The production payment volumes attributed to this
interest were 401 MBbls and 1,369 MMcf. In December 1994 Enron contributed its
Enron Option and $1,000 in exchange for one million shares of the Company's
common stock. As a result of the exchange, the Company recorded a $7.5 million
increase to oil and gas properties as well as an increase of $7.5 million for
the related production payment obligation, which were originally reduced from
the respective accounts.
Concurrent with the Initial Offerings, the Company repurchased the
production payment interests. The cost to acquire the production payment
liability exceeded its book value by approximately $15.7 million. This excess
represented the difference between the amount paid and the book value of the
production payment liability as of December 7, 1994. This excess was recorded as
an expense in the period acquired.
F-12
<PAGE> 120
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. RESTRICTED DEPOSITS
The Company, as the operator of the acquired oil and gas properties, is a
party to two escrow agreements, the first, related to East Bay, requires monthly
deposits of $100,000 through June 30, 1998, and $350,000 thereafter until the
balance in the escrow account equals $40 million unless the Company commits to
the plug and abandonment of a certain number of wells in which case the increase
will be deferred. The second agreement, related to Main Pass, required an
initial deposit of $250,000 and monthly deposits thereafter of $50,000 until the
balance in the escrow account equals $7,500,000. These deposits are to provide
for the future plugging and abandonment costs associated with the oil and gas
properties. Such funds are restricted as to withdrawal by the agreements. With
respect to any specifically planned plugging and abandoning operation, funds are
partially released when the Company presents to the escrow agent the planned
plugging and abandoning operations approved by the applicable governmental
agency, with the balance released upon the presentation by the Company to the
escrow agent of evidence from the governmental agency that the operation was
conducted in compliance with applicable laws and regulations. The escrow agent
for both agreements is an unrelated financial institution. As of December 31,
1996 and 1995, the escrow balances were approximately $6.3 million and $4.3
million, respectively.
6. INCOME TAXES
The Company was formed as an S corporation under the Internal Revenue Code
and, as such, all income taxes were the obligation of the Company's
stockholders. Therefore, through December 7, 1994, no historical federal or
state income tax expense has been provided for in the financial statements. In
conjunction with the Initial Offerings, the Company converted to a C corporation
under the Internal Revenue Code.
The Company has adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires deferred tax
liabilities or assets be recognized for the anticipated future tax effects of
temporary differences that arise as a result of the difference in the carrying
amounts and the tax bases of assets and liabilities. The components of the
income tax provision (benefit) for each of the periods presented are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Current................................... $ -- $ -- $ --
Deferred.................................. 12,037,280 (4,692,263) --
----------- ----------- -----------
Total........................... $12,037,280 $(4,692,263) $ --
=========== =========== ===========
</TABLE>
Deferred income taxes are provided to reflect temporary differences in the
basis of net assets for income tax and financial reporting purposes. The tax
effected temporary differences and tax loss carryforwards which comprise
deferred taxes are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- -----------
<S> <C> <C> <C>
Net operating loss carryforward............ $11,271,173 $3,849,463 $ 6,019,935
Temporary differences:
Oil and gas properties................... (17,369,317) 1,734,991 (1,598,426)
Other.................................... -- (892,191) 1,882,490
----------- ---------- -----------
Total deferred tax (liability) asset....... (6,098,144) 4,692,263 6,303,999
Valuation allowance........................ -- -- (6,303,999)
----------- ---------- -----------
Net deferred tax (liability) asset......... $(6,098,144) $4,692,263 $ --
=========== ========== ===========
</TABLE>
A valuation allowance is provided for that portion of the asset for which
it is deemed more likely than not that it will not be realized. Due to the
Company's losses in 1994 and the substantial volatility in oil and gas
F-13
<PAGE> 121
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
prices, management provided a valuation allowance for the entire deferred tax
asset at December 31, 1994. During the second half of 1995, due to drilling
successes and increases in oil and gas prices, the Company generated income from
operations. Based upon estimates, management believed it was more likely than
not that the deferred tax asset as of December 31, 1995 would be realized, and
thus eliminated the valuation allowance in 1995.
The principal reasons for the differences between income taxes computed at
the statutory federal income tax rate and the income tax provision (benefit) are
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- ---------------------- ----------------------
% OF % OF % OF
NET NET NET
INCOME INCOME INCOME
BEFORE BEFORE BEFORE
AMOUNT TAXES AMOUNT TAXES AMOUNT TAXES
----------- -------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Income tax expense (benefit) computed at
the statutory federal income tax
rate.................................. $11,545,830 35 $ 1,823,511 35 $(7,762,491) (35)
Increase attributable to nontaxable
period................................ -- -- -- -- 1,622,168 8
Cumulative temporary differences upon
conversion to a "C" corporation....... -- -- -- -- (729,312) (3)
Change in valuation allowance........... -- -- (6,303,999) (121) 6,303,999 28
Other, net.............................. 491,450 1 (211,775) (4) 565,636 2
----------- -- ----------- ---- ----------- ---
Income tax provision (benefit).......... $12,037,280 36 $(4,692,263) (90) $ -- --
=========== == =========== ==== =========== ===
</TABLE>
At December 31, 1996, the Company had regular tax net operating loss
carryforwards of approximately $29.0 million and alternative minimum tax net
operating loss carryforwards of approximately $12.6 million. These loss
carryforward amounts will expire during the years 2009 through 2111.
7. STOCKHOLDERS' EQUITY
In February 1994, the Company agreed to reacquire 1,000 shares of stock
from a former stockholder discussed in Note 1, for a total of $10.0 million (two
notes in the amount of $5 million each). The notes bore interest at 8% and were
paid on March 1, 1995. In June 1994, the Company agreed to reacquire 1,000
shares of stock from the other former stockholder discussed in Note 1 for $8.7
million, $5.0 million of which was paid in June 1994, and the remainder of which
was paid with the proceeds of the Initial Offerings.
8. RELATED PARTY TRANSACTIONS
Effective July 1, 1994, the Company acquired indirectly from stockholders
various overriding royalty interests for $1.2 million.
During 1994, the Company forgave $500,000 due from two stockholders. The
amounts related to promissory notes which bore interest at 8% per annum and were
due upon demand, and if no demand, then by December 31, 1994. On March 1, 1995,
$250,000 due from a former stockholder was received.
In July 1994, the Company purchased a portion of the overriding royalty
interests previously assigned to an affiliate of a stockholder for $3 million
(See Note 3). At that time, two stockholders loaned the Company $5 million to
make a payment to a former stockholder (See Note 7). In September 1994, the
stockholder affiliate exercised its right to repurchase the overriding royalty
interest from the Company for $3 million and
F-14
<PAGE> 122
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Company repaid $3 million of the loans by the stockholders. The Company
utilized a portion of the net proceeds of the Initial Offerings to repay the
remaining $2 million in loans to stockholders.
During 1994, the Company contracted with oilfield service companies
previously owned by current and former stockholders. The total amounts paid for
these services was $1,091,152 during the first six months of 1994 (at June 30,
1994, the stockholders assigned their interest in such companies to a former
stockholder). The Company believes that the cost of such services would have
been substantially similar to costs that would have been charged by unaffiliated
third parties for such services.
During 1994, the Company was assigned an oil and gas prospect from an
officer of the Company, who retained an overriding royalty interest. In
addition, the Company paid the officer $50,000 for services rendered in
connection therewith as well as $108,000 to a third party for acquisition of the
leases. During 1996, the Company purchased a working interest ownership in a
field where the Company had an existing working interest from the officer for
$188,026.
During 1996, 1995 and 1994, the Company paid $1,430,089, $1,041,088 and
$635,960, respectively, to an affiliate of a stockholder associated with an
overriding royalty interest owned by it. In addition, during 1995 and 1994, the
Company paid $4,753 and $124,376, respectively, with respect to oil and gas
properties previously owned by the affiliate. These amounts are included in
accounts receivable from stockholders at December 31, 1995 and 1994, and were
repaid in full on March 27, 1996.
During 1994, the Company obtained a loan from Union Planters Bank in
connection with the purchase of a seaplane. During 1995, Mr. Flores was named a
member of the Board of Directors of that bank. The loan was made to the Company
for the amount of $132,500, bearing interest at the Wall Street Prime rate.
Principal and interest payments were payable monthly, with the balance due on
February 10, 1997. The outstanding principal balance plus accrued interest at
December 31, 1996, was $92,133. On February 10, 1997, the balance of the loan
was paid in full. In addition, Union Planters Bank is a member of the syndicate
under the Revolving Credit Facility. Effective December 31, 1996, Mr. Flores
resigned as a member of the Board of Directors of Union Planters Bank.
Effective November 1, 1995, the Company entered into a consulting agreement
for geological services with a party related to an officer of the Company. The
original term of this agreement expired on October 31, 1996, and the term was
extended for a one year period. In 1995, the Company paid $5,200 pursuant to the
agreement as well as $5,000 for other miscellaneous geological consulting
services received. In addition, in 1995 the Company paid $50,000 for services
rendered in connection with an oil and gas prospect assigned to it by such
party. In 1996, the Company paid $110,565 relating to the agreement.
On September 13, 1996, the Company entered into a retainer agreement for
legal services to be rendered by a law firm owned by a party related to an
officer of the Company. This agreement is automatically extended for successive
3 month periods unless terminated by one of the parties. Legal fees paid by the
Company relating to this retainer during 1996 totaled $25,196.
F-15
<PAGE> 123
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. LONG-TERM DEBT
Long-term debt consisted of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Note payable to Shell, including accrued
interest of $2,183,735 in 1995, with
interest payable at a rate of 6% per
annum principal and interest paid
March 29, 1996, collateralized by the
vendor's lien and privilege retained
by Shell which was subordinate to the
Revolving Credit Facility............. $ -- $ 15,183,735
$50,000,000 revolving line of credit
with a bank, bearing interest as
described below, collateralized by
first mortgage on the Main Pass and
East Bay properties................... -- 32,200,000
Senior unsecured notes bearing interest
at 13 1/2% payable semi-annually on
June 1 and December 1 of each year,
commencing June 1, 1995, due December
1, 2004............................... 125,000,000 125,000,000
$160,000,000 Senior subordinated
unsecured notes bearing interest at
9 3/4% payable semi-annually on April
1 and October 1 of each year,
commencing April 1, 1997, due October
1, 2006, issued at a discount for
proceeds of $159,120,000.............. 159,141,999 --
Promissory note to Union Planters Bank
bearing interest at Wall Street Prime
due February 10, 1997, collateralized
by a Company owned seaplane........... 91,492 106,478
Capital lease from Green Tree Vendor
Services Corp. due August 1997,
collateralized by certain computer
equipment............................. 35,662 85,078
------------ ------------
Total debt.................... 284,269,153 172,575,291
Less: Current portion......... 127,154 883,735
------------ ------------
Total long-term debt.......... $284,141,999 $171,691,556
============ ============
</TABLE>
The Revolving Credit Facility was committed for up to a five-year period.
The Revolving Credit Facility had an initial borrowing base of $50 million. The
Chase Manhattan Bank (the "Agent"), with the concurrence of majority lenders (as
defined in the $50,000,000 Credit Agreement among Flores & Rucks, Inc. and The
Chase Manhattan Bank) (the "Credit Agreement"), can redetermine the borrowing
base at its option once within any 12-month period as well as on scheduled
redetermination dates as outlined in the Credit Agreement. The borrowing base
automatically reduces by an amount equal to one-sixteenth ( 1/16) of the
borrowing base in effect on each quarter beginning March 31, 1998, unless the
Company requests and is granted a one-year deferral of such reductions. In
addition, the borrowing base may be reduced if the Company sells a portion of
its oil and gas properties. As of December 31, 1996, the borrowing base under
the Revolving Credit Facility remained at $50 million.
As of February 24, 1997, the Company was in the process of amending and
restating its Revolving Credit Facility and had obtained commitments from all
lenders which will increase the facility size to $150 million and the borrowing
base to $100 million.
The Company's ability to draw additional amounts on the Revolving Credit
Facility is limited to the extent that adjusted consolidated net tangible assets
(as defined in the Credit Agreement) minus $25 million
F-16
<PAGE> 124
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
exceeds 110% of all indenture indebtedness (as defined in the Credit Agreement),
excluding subordinated indebtedness. Adjusted consolidated net tangible assets
is determined quarterly, utilizing certain financial information, and is
primarily based on a quarterly estimate of the present value of future net
revenues of the Company's proved oil and gas reserves. Such quarterly estimates
utilize the most recent year end oil and gas prices and vary based on additions
to proved reserves and net production. As of December 31, 1996, the Company's
outstanding balance was $2.0 million, all of which represented letters of
credit, primarily associated with bonding for future abandonment obligations,
and thus the Company had remaining availability of $48.0 million.
At the Company's option, borrowings under the Revolving Credit Facility
bear interest either at the base rate (the higher of the federal funds rate plus
0.5% per annum or the Agent's prime commercial lending rate) or the London
Interbank Offered Rate ("LIBOR"), in each case plus the applicable margin. The
applicable margin will be from 125 to 175 basis points for LIBOR loans and from
zero to 50 basis points for the base rate loans.
The loan agreement for the Revolving Credit Facility contains restrictive
covenants substantially similar to those for the Senior Notes. The Revolving
Credit Facility also includes certain additional covenants and restrictions
relating to the activities of the Company which are customary for similar credit
facilities and are not expected to have a material adverse effect on the conduct
of the Company's business.
The Indentures relating to the Senior Notes and the Senior Subordinated
Notes contain certain covenants, including, with limitation, covenants with
respect to the following matters: (i) limitation on indebtedness; (ii)
limitation on restricted payments; (iii) limitation on issuances and sales of
restricted subsidiary stock; (iv) limitation on sale/leaseback transactions; (v)
limitation on transactions with affiliates; (vi) limitation on liens; (vii)
disposition of proceeds of asset sales; (viii) limitation on dividends and other
payment restrictions affecting subsidiaries; and (ix) limitation of mergers,
consolidations and transfers of assets. In addition, the Indenture related to
the Senior Notes includes a covenant with respect to maintenance of adjusted
consolidated net tangible assets, as defined.
Aggregate minimum principal payments for debt and the capital lease at
December 31, 1996, for the next five years are as follows:
<TABLE>
<S> <C>
1997.................................... $127,154
1998.................................... --
1999.................................... --
2000.................................... --
2001.................................... --
--------
$127,154
========
</TABLE>
On June 11, 1994, LLC entered into two loan agreements with Joint Energy
Development Investments Limited Partnership ("JEDI"), a venture between
California Public Employees Retirement System and Enron Capital Corp. The first
was a $20 million term loan, bearing interest at 12.5% payable monthly, maturing
on June 11, 1997. The second loan, the development loan, provided for draws up
to a maximum of $40 million, bearing interest at 15% payable monthly. In
connection with this loan, LLC conveyed to JEDI a 20% overriding royalty
interest (defined to be net of production costs) on certain unevaluated
interests (computed prior to the one-eighth override conveyed to a related party
discussed in Note 3) which commenced upon payment in full of the development
loan. This interest was purchased from JEDI in December 1994, for $4.25 million.
Proceeds from the Initial Offerings were used to repay these loans in December
1994.
F-17
<PAGE> 125
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. EMPLOYEE BENEFIT PLANS
The Company has a 401(K) plan which covers all employees. The Company's
contributions to the plan during 1996, 1995 and 1994 were $521,619, $513,690 and
$432,202, respectively.
Stock-Based Compensation Plans
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation,"
effective for the Company for 1996. Under SFAS 123, companies can either record
expense based on the fair value of stock-based compensation upon issuance or
elect to remain under the current "APB Opinion No. 25" method whereby no
compensation cost is recognized upon grant if certain requirements are met. The
Company is continuing to account for its stock-based compensation plans under
APB Opinion No. 25. However, proforma disclosures as if the Company adopted the
cost recognition requirements under SFAS 123 are presented below.
Had compensation for the Company's 1996 and 1995 grants for stock-based
compensation plans been determined consistent with SFAS 123, the Company's net
income and earnings per common share for the years ended December 31, 1996 and
1995 would have approximated the proforma amounts below:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1996 1995
------------------------- ------------------------
AS REPORTED PROFORMA AS REPORTED PROFORMA
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Net income.............................. $20,950,805 $19,544,426 $9,902,295 $9,779,272
Earnings per common share
Primary............................... $ 1.07 $ 1.00 $ .65 $ .65
Fully diluted......................... 1.05 0.98 .65 .64
</TABLE>
The effects of applying SFAS 123 in this proforma disclosure are not
indicative of future amounts. SFAS 123 does not apply to grants prior to 1995,
and additional awards in the future are anticipated.
F-18
<PAGE> 126
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Prior to consummation of the Initial Offerings, the Board of Directors
adopted and the stockholders approved a long-term incentive plan. The plan
provides for not more than 1,500,000 shares of common stock to be issued to
employees and directors of the Company. In 1995, the Board of Directors also
adopted and the stockholders approved a long-term incentive plan for
non-executive employees. This plan has an evergreen provision which replenishes
options available for grant to 300,000 on January 1 of each year. In 1996,
pending approval of the stockholders at the Annual Meeting, the Board of
Directors adopted a plan which provides for not more than 1,000,000 shares of
common stock to be issued to employees of the Company. Upon consummation of the
Initial Offerings, the Company issued 645,000 stock options with an exercise
price of $10.00 per share, the fair value at the date of grant. The options vest
equally over a three-year period and terminate ten years from date of grant. A
summary of the Company's stock options under both plans as of December 31, 1996
and 1995 and changes during the years ended on those dates is presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
1996 1995
----------------------- -----------------------
NUMBER OF WGTD. AVG. NUMBER OF WGTD. AVG.
OPTIONS EXER. PRICE OPTIONS EXER. PRICE
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Outstanding at beginning of year........ 1,495,500 $11.13 645,000 $10.00
Granted................................. 693,500 24.91 856,500 11.97
Canceled................................ (195,167) 11.09 (6,000) 9.38
Exercised............................... (96,531) 10.06 -- --
--------- ---------
Outstanding at end of year.............. 1,897,302 $16.23 1,495,500 $11.13
Options exercisable at year-end......... 565,580 $11.01 261,667 $10.31
Options available for future grant...... 542 131,042
Weighted average fair value of options
granted during the year............... $ 11.48 $ 4.66
</TABLE>
The fair value of each option granted during the periods presented is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions: (i) dividend yield of 0%, (ii) expected volatility of
41.16% and 35.07% in the years 1996 and 1995, respectively, (iii) risk-free
interest rate of 6.21% and 5.58% in the years 1996 and 1995, respectively, and
(iv) expected life of 5 years.
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- -----------------------
NUMBER WGTD. AVG. WGTD. AVG. NUMBER WGTD AVG.
RANGE OF OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT 12/31/96 CONTRACTUAL LIFE PRICE AT 12/31/96 PRICE
- ---------------------------------------- ----------- ---------------- ---------- ----------- ---------
<C> <C> <C> <C> <C> <C>
$9 - $19 1,214,802 8 11.26 565,580 11.01
$19 - $29 389,500 10 19.40 -- --
$29 - $39 293,000 10 32.59 -- --
--------- -- ----- ------- -----
$9 - $39 1,897,302 9 16.23 565,580 11.01
========= == ===== ======= =====
</TABLE>
In addition, in 1995, the Company issued 4,125 shares of stock which are
considered bonus shares.
The Company is self-insured for employee medical benefits up to certain
stop-loss limits.
The Company has no other significant formal benefit plans.
F-19
<PAGE> 127
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. MAJOR CUSTOMERS
The Company sold the majority of its oil and gas to a few customers based
on long-term contracts in 1996 and prior years. Sales to the following customers
exceeded 10% of revenues during the years indicated (expressed in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Enron Corp., its subsidiaries and
affiliates............................ $ 33,074 $17,431 $73,658
Shell Oil Company....................... 110,131 79,927 --
Murphy Oil USA, Inc..................... 23,338 24,193 --
</TABLE>
12. COMMITMENTS AND CONTINGENCIES
While the Company is a defendant in various lawsuits in the ordinary course
of business, management believes the potential liability in such lawsuits is not
material. The Company maintains liability and other insurance customary in its
industry. The Company is also subject to contingencies as a result of
environmental laws and regulations. The related future cost is indeterminable
due to such factors as the unknown timing and extent of the corrective actions
that may be required and the application of joint and several liability.
However, the Company believes that such costs will not have a material adverse
effect on its operations or financial position.
The Company, as operator, is responsible for payment of plugging and
abandonment costs on its properties. As of December 31, 1996, the total estimate
of these costs on the Company's oil and gas properties was approximately $84.0
million, estimated to be incurred through the year 2011. The provision for such
costs is recorded through depreciation, depletion and amortization expense. The
estimates of plugging and abandonment costs and their timing may change due to
many factors including, among others, actual production results, inflation
rates, and changes in environmental laws and regulations.
In August 1993, the Minerals Management Service ("MMS") provided notice to
lessees of Outer Continental Shelf ("OCS") leases that new levels of lease and
area wide bonds would be required effective November 26, 1993, in connection
with the plugging and abandoning of wells located offshore and the removal of
all production facilities. The coverage is designed to reflect an appropriate
balance between encouraging the maximum economic recovery of oil and natural gas
from federal offshore leases while providing the federal government an adequate
level of protection in the event the lessee defaults on its obligations to
properly abandon lease wells and remove platforms and other structures from the
property.
The MMS requires lessees of OCS properties to post bonds in connection with
the plugging and abandonment of wells located offshore and the removal of all
production facilities. Operators in the OCS waters of the Gulf of Mexico are
currently required to post area wide bonds of $3 million or $500,000 per
producing lease and supplemental bonds at the discretion of the MMS. On January
17, 1995, the Company entered into an agreement with Planet Indemnity Company
("Planet") whereby Planet agreed to issue $11.7 million of MMS surety bonds for
the Company and the Company agreed to post collateral for same in favor of
Planet. The collateral includes a mortgage on the Company's federal OCS leases
in the amount of $8.2 million, a letter of credit for $2.0 million and a pledge
of certain rights to escrowed funds. The Company has posted with the MMS an area
wide bond of $3.0 million and supplemental bonds totaling $17.1 million.
Pursuant to a schedule previously imposed by the MMS, the Company will be
required to post additional supplemental bonds up to a level of $24.6 million by
January 1999, unless the Company is determined by the MMS to be exempt from such
requirement due to certain financial tests. In addition, the Company is
currently working with the MMS to determine the level of supplemental bonding
(and the timing thereof) which will be required for some of the recently
acquired Central Gulf Properties. The Company does not anticipate that the cost
of any such bonding requirements will materially affect the Company's financial
position. Under certain circumstances, the MMS may require any Company
operations on federal leases to be
F-20
<PAGE> 128
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
suspended or terminated. Any such suspensions or terminations could have a
material adverse effect on the Company's financial condition and operations. The
MMS also intends to adopt financial responsibility regulations under the Oil
Pollution Act of 1990 (the "OPA"). The OPA regulations impose a variety of
regulations on "responsible parties" related to the prevention of oil spills and
liability for damages resulting from such spills in United States waters. A
"responsible party" includes the owner or operator of a facility or vessel, or
the lessee or permittee of an area in which an offshore facility is located. The
OPA assigns liability to each responsible party for oil removal costs and a
variety of public and private damages. While liability limits apply in some
circumstances, a party cannot take advantage of liability limits if the spill
was caused by gross negligence or willful misconduct or resulted from violation
of a federal safety, construction or operating regulation. If the party fails to
report a spill or to cooperate fully in the cleanup, liability limits likewise
do not apply. Few defenses exist to the liability imposed by the OPA.
The OPA also imposes ongoing requirements on a responsible party, including
proof of financial responsibility to cover at least some costs in a potential
spill. As amended by the Coast Guard Authorization Act of 1996, OPA requires
responsible parties for offshore facilities to provide financial assurance in
the amount of $35 million to cover potential OPA liabilities. This amount is
subject to upward regulatory adjustment up to $150 million.
In 1996, Statement of Position 96-1 ("SOP 96-1") -- Environmental
Remediation Liabilities was issued. The Company is required to adopt SOP 96-1 in
1997. The Company believes adoption of SOP 96-1 will not have a material effect
on its results of operations or financial position.
Total rental expenses under operating leases amounted to approximately
$690,000, $527,000 and $297,000 in 1996, 1995 and 1994, respectively.
In connection with the Initial Offerings, the Company entered into a
Registration Rights Agreement (the "Registration Agreement") entitling Enron to
require the Company to register common stock of the Company owned by Enron with
the Securities and Exchange Commission (the "SEC") for sale to the public in a
public offering, at no cost to Enron except for discounts and commissions, if
any. During 1996, the unregistered shares subject to the Registration Agreement
were transferred by Enron to Merrill Lynch Capital Markets, plc., together with
Enron's rights under the Registration Agreement.
13. HEDGING ACTIVITIES
The Company hedges certain of its production through master swap agreements
("Swap Agreements"). The Swap Agreements provide for separate contracts tied to
the NYMEX light sweet crude oil and natural gas futures contracts. The Company
has contracts which contain specific contracted prices ("Swaps") that are
settled monthly based on the differences between the contract prices and the
average NYMEX prices for each month applied to the related contract volumes. To
the extent the average NYMEX price exceeds the contract price, the Company pays
the spread, and to the extent the contract price exceeds the average NYMEX price
the Company receives the spread. In addition, the Company has combined contracts
which have agreed upon price floors and ceilings ("Costless Collars"). To the
extent the average NYMEX price exceeds the contract ceiling, the Company pays
the spread between the ceiling and the average NYMEX price applied to the
related contract volumes. To the extent the contract floor exceeds the average
NYMEX price, the Company receives the spread between the contract floor and the
average NYMEX price applied to the related contract volumes. Under the terms of
the Swap Agreements, each counterparty has extended the Company a $5 million
line of credit for use in conjunction with its hedging activities. As of
February 24, 1997, the fair market value of all contracts covered by the Swap
Agreements was approximately $0.6 million.
F-21
<PAGE> 129
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1996, after giving effect to three additional oil Swaps
that the Company entered into in February 1997, the Company's open forward
position on its outstanding crude oil Swaps was as follows:
<TABLE>
<CAPTION>
AVERAGE
YEAR MBBLS PRICE
---- ----- -------
<S> <C> <C>
1997........................................ 1,500 $19.73
1998........................................ 300 18.55
1999........................................ 300 18.55
2000........................................ 300 18.55
----- ------
2,400 $19.29
===== ======
</TABLE>
The Company currently has no outstanding natural gas Swaps.
As of December 31, 1996, after giving effect to three additional Costless
Collars entered into through February 24, 1997, the Company's open forward
position on its outstanding Costless Collars was as follows:
<TABLE>
<CAPTION>
EFFECTIVE CONTRACTED CONTRACTED CONTRACTED
-------------------- VOLUMES FLOOR CEILING
YEAR FROM THROUGH (MBBLS) PRICE PRICE
---- ---- ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1997........................ January March 600 $21.00 $24.45
1997........................ January June 1,200 $20.00 $24.25
1997........................ April June 375 $20.00 $25.14
1997........................ July September 900 $20.00 $24.40
</TABLE>
Revenue was increased (decreased) under the Swap Agreements by
approximately $(18.7) million, $(0.5) million and $1.7 million, respectively,
for the years ended December 31, 1996, 1995 and 1994.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value as of December 31, 1996 and 1995, of financial
instruments other than current assets and liabilities is presented in the
following table:
<TABLE>
<CAPTION>
AS OF DECEMBER 31
-------------------------------------------------------------
1996 1995
----------------------------- -----------------------------
ESTIMATED ESTIMATED
BOOK VALUE FAIR VALUE BOOK VALUE FAIR VALUE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Debt
Senior Notes..................... $(125,000,000) $(149,375,000) $(125,000,000) $(141,875,000)
Senior Subordinated Notes........ (159,141,999) (168,690,519) -- --
Shell Note....................... -- -- (15,183,735) (15,094,232)
Revolving Credit Facility........ -- -- (32,200,000) (32,200,000)
------------- ------------- ------------- -------------
$(284,141,999) $(318,065,519) $(172,383,735) $(189,169,232)
============= ============= ============= =============
Hedges
Gas.............................. $ -- $ -- $ -- $ (2,423,240)
Oil.............................. -- (4,555,720) -- 950,750
------------- ------------- ------------- -------------
$ -- $ (4,555,720) $ -- $ (1,472,490)
============= ============= ============= =============
</TABLE>
15. OIL AND GAS RESERVE INFORMATION -- UNAUDITED
The Company's net proved oil and gas reserves at December 31, 1996, 1995
and 1994, have been determined by independent petroleum consultants in
accordance with guidelines established by the SEC and the Financial Accounting
Standards Board. Accordingly, the following reserve estimates are based upon
F-22
<PAGE> 130
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
existing economic and operating conditions at the respective dates. Future cash
flows from oil and natural gas reserves were computed on the basis of prices
being received at year end for oil and natural gas, adjusted for hedges in place
at that date and the Company's policy regarding fuel gas.
There are many uncertainties inherent in estimating quantities of proved
reserves and in providing the future rates of production and timing of
development expenditures. The following reserve data represent estimates only
and should not be construed as being exact. In addition, the present values
should not be construed as the current market value of the Company's oil and gas
properties or the cost that would be incurred to obtain equivalent reserves.
The following tables set forth an analysis of the Company's estimated
quantities of net proved and proved developed oil (includes condensate) and gas,
all located offshore in the continental United States:
<TABLE>
<CAPTION>
OIL NATURAL GAS(1)
(MBBL) (MMCF)
------ --------------
<S> <C> <C>
Proved reserves as of December 31,
1993.................................. 21,093 52,724
Revisions of previous estimates....... 1,979 7,294
Extensions, discoveries, and other
additions.......................... 688 2,775
Repurchase of production payment...... 6,111 19,523
Purchase of producing properties...... 5,944 7,708
Production (sold by the Company)...... (2,771) (3,456)
Production (consumed by the
Company)........................... -- (3,220)
------ -------
Proved reserves as of December 31,
1994.................................. 33,044 83,348
Revisions of previous estimates....... 4,857 9,093
Extensions, discoveries, and other
additions.......................... 1,640 10,647
Purchase of producing properties...... 345 85
Production (sold by the Company)...... (6,057) (12,393)
Production (consumed by the
Company)........................... -- (3,576)
------ -------
Proved reserves as of December 31,
1995.................................. 33,829 87,204
Revisions of previous estimates....... 2,546 23,935
Extensions, discoveries, and other
additions.......................... 9,766 31,060
Sale of producing properties.......... (450) (9,929)
Purchase of producing properties...... 12,234 35,171
Production (sold by the Company)...... (7,149) (18,720)
Production (consumed by the
Company)........................... -- (3,363)
------ -------
Proved reserves as of December 31,
1996.................................. 50,776 145,358
====== =======
Proved developed reserves:
As of December 31, 1994............... 30,088 77,019
As of December 31, 1995............... 31,702 84,258
As of December 31, 1996............... 38,347 109,574
</TABLE>
- ---------------
(1) The Company includes as proven reserves, future gas production estimated by
Netherland, Sewell & Associates, Inc., to be used as fuel gas.
F-23
<PAGE> 131
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents the standardized measure of future net cash
flows related to proved oil and gas reserves together with changes therein, as
defined by the Financial Accounting Standards Board. The oil, condensate and gas
price structure utilized to project future net cash flows reflects current
prices at each year end and have been escalated only where known and
determinable price changes are provided by contracts and law. Crude prices have
declined significantly from December 31, 1996. Accordingly, the discounted
future net cash flows would be reduced if the standardized measure was
calculated at the latter date. Future production and development costs are based
on current costs with no escalations. Estimated future cash flows have been
discounted to their present values based on a 10% annual discount rate.
<TABLE>
<CAPTION>
STANDARDIZED MEASURE AS OF DECEMBER 31,
----------------------------------------
1996 1995 1994
------------ ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Future cash flows....................... $1,789,544 $ 762,488 $ 645,091
Future production, development and
abandonment costs..................... (907,770) (482,658) (433,193)
Income tax provision.................... (204,733) (36,712) (11,530)
---------- --------- ---------
Future net cash flows................... 677,041 243,118 200,368
10% annual discount..................... (144,549) (39,178) (35,390)
---------- --------- ---------
Standardized measure of discounted
future net cash flows................. $ 532,492 $ 203,940 $ 164,978
========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
CHANGES IN STANDARDIZED MEASURE
PERIODS ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Standardized measure at beginning of
period................................ $ 203,940 $164,978 $ 13,175
Sales and transfers of oil and gas
produced, net of production costs..... (159,361) (87,924) (21,214)
Changes in price, net of future
production costs...................... 242,943 61,865 34,412
Extensions and discoveries, net of
future production and development
costs................................. 215,013 46,429 14,397
Repurchase of production payment........ -- -- 106,572
Reserves transferred for resale......... (10,009) -- --
Previously estimated development and
abandonment costs incurred during the
period................................ 10,453 19,132 8,606
Revisions of quantity estimates......... 88,994 46,761 8,184
Accretion of discount................... 20,394 17,474 2,352
Net change in income taxes.............. (130,226) (21,034) (9,762)
Purchase of reserves in place........... 123,284 3,193 17,564
Changes in production rates (timing),
estimated development and abandonment
costs, and other...................... (72,933) (46,934) (9,308)
--------- -------- --------
Standardized measure at end of year..... $ 532,492 $203,940 $164,978
========= ======== ========
</TABLE>
F-24
<PAGE> 132
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. QUARTERLY FINANCIAL DATA -- UNAUDITED
Summarized unaudited quarterly financial data for 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1996 1996 1996
--------- -------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales................................... 36,829 32,253 47,589 71,780
Gross profit................................ 11,147 6,918 16,487 32,148
Net income.................................. 1,901 435 5,363 13,252
Earnings per common share:
Primary................................... $.12 $.02 $.26 $.63
Fully diluted............................. $.12 $.02 $.26 $.63
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1995 1995 1995 1995
--------- -------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales................................... 26,034 29,838 34,609 37,489
Gross profit................................ 6,354 7,381 8,089 12,016
Net income (loss)........................... (1,062) 811 1,052 9,101
Earnings per common share:
Primary................................... $(.07) $.05 $.07 $.60
Fully diluted............................. $(.07) $.05 $.07 $.59
</TABLE>
17. EVENTS SUBSEQUENT TO DATE OF AUDITOR'S REPORT -- UNAUDITED
On March 7, 1997, the Company completed an acquisition of certain interests
in various state leases in the Main Pass 69 field, offshore Plaquemines Parish,
Louisiana, from Chevron U.S.A. Inc. for a gross purchase price of $55.7 million.
The acquisition includes interests in 27 producing wells located on 5,898 gross
acres. Post acquisition, the Company owns a 100% working interest in the 27
wells. Current estimated production from the newly acquired interest is
approximately 3,000 BOE per day net to the Company. The Company's ownership now
encompasses a total of approximately 22,000 gross acres in the Main Pass 69
field.
F-25
<PAGE> 133
OCEAN ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
1997
-------------
(UNAUDITED)
<S> <C>
Current assets:
Cash and cash equivalents............. $ 340,472
Joint interest receivables............ 3,171,881
Oil and gas sales receivables......... 25,965,815
Accounts receivable -- other.......... 1,779,943
Assets held for resale................ --
Prepaid expenses...................... 1,354,613
Other current assets.................. 3,239,606
-------------
Total current assets.......... 35,852,330
Oil and gas properties -- full cost
method:
Evaluated............................. 571,790,053
Less accumulated depreciation,
depletion, and amortization........ (211,587,517)
-------------
360,202,536
Unevaluated properties excluded from
amortization....................... 91,005,543
Other assets:
Furniture and equipment, less
accumulated depreciation of
$3,293,121 and $2,772,983 at March
31, 1997 and December 31, 1996,
respectively....................... 4,607,954
Restricted deposits................... 6,867,972
Deferred financing costs.............. 10,233,389
-------------
Total assets.................. $ 508,769,724
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities........................ $ 60,323,568
Oil and gas sales payable............. 6,103,370
Accrued interest...................... 13,639,370
Current notes payable................. 22,519
Deposit on assets held for resale..... --
-------------
Total current liabilities..... 80,088,827
Long-term debt.......................... 301,163,998
Deferred hedge revenue.................. 366,667
Deferred tax liability.................. 12,048,836
Stockholders equity:
Preferred stock, $.01 par value;
authorized 10,000,000 shares, no
shares issued or outstanding at
March 31, 1997 and December 31,
1996............................... --
Common stock, $.01 par value;
authorized 100,000,000 shares;
issued and outstanding 19,641,356
shares and 19,640,656 shares at
March 31, 1997, and December 31,
1996, respectively................. 196,414
Paid-in capital....................... 91,836,382
Retained earnings..................... 23,068,600
-------------
Total stockholders' equity.... 115,101,396
-------------
Total liabilities and
stockholders' equity......... $ 508,769,724
=============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-26
<PAGE> 134
OCEAN ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
Oil and gas sales....................... $64,476,673 $36,828,857
Operating expenses:
Lease operations...................... 12,710,704 8,445,683
Severance taxes....................... 2,672,434 2,885,699
Depreciation, depletion and
amortization....................... 22,895,295 14,350,248
----------- -----------
Total operating expenses...... 38,278,433 25,681,630
General and administrative expenses..... 4,355,141 3,257,725
Interest expense........................ 6,460,184 4,511,758
Other expense (income).................. (506,926) 257,922
----------- -----------
Net income before income taxes.......... 15,889,841 3,119,822
Income tax expense...................... 5,958,690 1,219,314
----------- -----------
Net income.............................. $ 9,931,151 $ 1,900,508
=========== ===========
Earnings per common share:
Primary............................... $ 0.48 $ 0.12
Fully diluted......................... 0.48 0.12
Weighted average common and common
equivalent shares outstanding:
Primary............................... 20,890,124 16,093,171
Fully diluted......................... 20,890,124 16,269,574
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-27
<PAGE> 135
OCEAN ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
1997 1996
------------- ------------
<S> <C> <C>
Operating activities:
Net income............................ $ 9,931,151 $ 1,900,508
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation, depletion and
amortization:
Oil and gas properties........... 22,895,295 14,350,248
Furniture and equipment.......... 520,137 293,461
Deferred hedge revenue............. (33,333) (117,583)
Deferred tax expense............... 5,950,693 1,201,127
Changes in operating assets and
liabilities:
Accrued interest................... 8,118,300 1,867,443
Receivables........................ 6,354,012 84,713
Prepaid expenses................... (141,470) (430,304)
Other current assets............... (824,802) (653,284)
Accounts payable and accrued
liabilities...................... (549,659) 1,338,151
Oil and gas sales payable.......... (1,727,050) (44,017)
------------- ------------
Net cash provided by operating
activities............................ 50,493,274 19,790,463
------------- ------------
Investing activities:
Additions to oil and gas properties
and furniture and equipment........ (106,091,449) (13,924,974)
Increase in restricted deposits....... (544,457) (512,203)
Proceeds from sale of oil and gas
properties......................... 33,480,000 --
------------- ------------
Net cash used in investing activities... (73,155,906) (14,437,177)
------------- ------------
Financing activities:
Sale of stock......................... 16,924 62,123,504
Borrowings on notes payable........... 52,500,000 21,000,000
Payments of notes payable............. (35,604,634) (66,215,526)
Deferred financing costs.............. 331,836 152,196
------------- ------------
Net cash provided by financing
activities............................ 17,244,126 17,060,174
------------- ------------
Increase (decrease) in cash and cash
equivalents........................... (5,418,506) 22,413,460
Cash and cash equivalents, beginning of
the period............................ 5,758,978 212,238
------------- ------------
Cash and cash equivalents, end of the
period................................ $ 340,472 $ 22,625,698
============= ============
Interest paid during the period......... $ 231,713 $ 3,176,883
============= ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-28
<PAGE> 136
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. GENERAL INFORMATION
The consolidated financial statements included herein have been prepared by
Ocean Energy, formerly Flores & Rucks, Inc. (the "Company"), without audit and
include all adjustments (of a normal and recurring nature) which are, in the
opinion of management, necessary for the fair presentation of interim results
which are not necessarily indicative of results for the entire year. The
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's latest annual
report.
2. EARNINGS PER SHARE
Earnings per share applicable to common stock are based on the weighted
average number of shares of common stock outstanding for the periods, including
common equivalent shares which reflect the dilutive effect of stock options
granted to certain employees and outside directors on various dates through
March 31, 1997. As of March 31, 1997 and 1996, the Company had 1,896,602 and
1,498,835 stock options outstanding, respectively. The table below reflects the
weighted average common, primary and fully diluted shares outstanding for the
1997 and 1996 periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Weighted average common shares outstanding................ 19,640,709 15,688,083
Primary common equivalent shares.......................... 1,249,415 405,088
---------- ----------
Weighted average common and primary common equivalent
shares outstanding...................................... 20,890,124 16,093,171
Additional fully diluted shares........................... -- 176,403
---------- ----------
Weighted average common and fully diluted common
equivalent shares outstanding........................... 20,890,124 16,269,574
========== ==========
</TABLE>
In February, 1997, the Financial Accounting Standards Board issued
Statement No. 128 ("SFAS 128"), "Earnings Per Share", which simplifies the
computation of earnings per share ("EPS"). SFAS 128 is effective for financial
statements issued for periods ending after December 15, 1997, and requires
restatement for all prior period EPS data presented. Pro forma EPS and EPS
assuming dilution calculated in accordance with SFAS 128 was $0.51 per share and
$0.48 per share, respectively, for the three months ended March 31, 1997, and
$0.12 per share and $0.12 per share, respectively, for the three months ended
March 31, 1996.
3. HEDGING ACTIVITIES
The Company hedges certain of its production through master swap agreements
("Swap Agreements"). The Swap Agreements provide for separate contracts tied to
the NYMEX light sweet crude oil and natural gas futures contracts. The Company
has contracts which contain specific contracted prices ("Swaps") that are
settled monthly based on the differences between the contract prices and the
average NYMEX prices for each month applied to the related contract volumes. To
the extent the average NYMEX price exceeds the contract price, the Company pays
the spread, and to the extent the contract price exceeds the average NYMEX price
the Company receives the spread. In addition, the Company has combined contracts
which have agreed upon price floors and ceilings ("Costless Collars"). To the
extent the average NYMEX price exceeds the contract ceiling, the Company pays
the spread between the ceiling and the average NYMEX price applied to the
related contract volumes. To the extent the contract floor exceeds the average
NYMEX price the Company receives the spread between the contract floor and the
average NYMEX price applied to the related contract volumes. Under the terms of
the Swap Agreements, each counterparty has extended the Company a
F-29
<PAGE> 137
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
$5 million line of credit for use in conjunction with its hedging activities. As
of May 6, 1997, the fair market value of all contracts covered by the Swap
Agreements was approximately $.1 million.
As of March 31, 1997, the Company's open forward position on its
outstanding crude oil Swaps was as follows:
<TABLE>
<CAPTION>
AVERAGE
YEAR MBBLS PRICE
---- ----- -------
<S> <C> <C>
1997................................................ 1,425 $19.80
1998................................................ 300 $18.55
1999................................................ 300 $18.55
2000................................................ 300 $18.55
----- ------
Total............................................... 2,325 $19.31
===== ======
</TABLE>
The Company currently has no outstanding natural gas Swaps.
As of March 31, 1997, the Company's open forward position on its
outstanding Costless Collars was as follows:
<TABLE>
<CAPTION>
EFFECTIVE CONTRACTED CONTRACTED CONTRACTED
------------------ VOLUMES FLOOR CEILING
YEAR FROM THROUGH (MBBLS) PRICE PRICE
---- ----- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1997........................ April June 600 $20.00 $24.25
1997........................ April June 300 $20.00 $25.20
1997........................ April June 75 $20.00 $24.90
1997........................ July September 900 $20.00 $24.40
</TABLE>
On March 7, 1997, the Company entered into a basis swap for 9,000 barrels
of oil per month for the period April 1997, through July 1997, with a fixed
price of ($0.11) per barrel basis differential between the monthly calendar
average of Platt's Louisiana Light Sweet and Platt's West Texas Intermediate
crude oil prices.
In addition, on April 7, 1997, the Company entered into a field diesel swap
for 150,000 gallons per month for the month of April 1997, and August 1997
through March 1998, relating to expected future diesel needs. This swap
obligates the Company to make or receive payments on the last day of each
respective calendar month based on the difference between $0.5425 per gallon and
the average of the daily settlement price per gallon for the respective calendar
month Platt's Gulf Coast Pipeline mean high sulfur No. 2 oil contract.
4. INVESTMENTS IN OIL AND GAS PROPERTIES
On January 3, 1997, the Company completed the sale of its interest in the
South Marsh Island 269 field, located in federal waters offshore Louisiana. The
Company realized proceeds of $37.2 million from the sale. The Company owned a
non-operated working interest of approximately 20% in three blocks in the field.
No gain or loss was recognized on the sale.
On March 7, 1997, the Company completed an acquisition of certain interests
in various state leases in the Main Pass Block 69 field, offshore Plaquemines
Parish, Louisiana for a net purchase price of $55.9 million (the "Main Pass
Acquisition"). The acquisition included interests in 27 producing wells located
on 5,898 gross acres situated contiguous to the Company's pre-existing Main Pass
69 holdings. Following the acquisition, the Company owns a 100% working interest
in the 27 wells.
F-30
<PAGE> 138
================================================================================
ALL TENDERED OLD NOTES, EXECUTED LETTERS OF TRANSMITTAL AND OTHER RELATED
DOCUMENTS SHOULD BE DIRECTED TO THE EXCHANGE AGENT. QUESTIONS AND REQUESTS FOR
ASSISTANCE AND REQUESTS FOR ADDITIONAL COPIES OF THE PROSPECTUS, THE LETTER OF
TRANSMITTAL AND OTHER RELATED DOCUMENTS SHOULD BE ADDRESSED TO THE EXCHANGE
AGENT AS FOLLOWS:
By Mail or Hand Delivery:
State Street Bank & Trust Company
777 Main Street, MSN 238 Hartford, Connecticut 06115 Attention: Elizabeth Hammer
By Facsimile Transmission:
(for Eligible Institutions only)
(860)986-7920
Attention: Elizabeth Hammer
Confirm by Telephone
(860)986-2064
(Originals of all documents submitted by facsimile should be sent promptly by
hand, overnight delivery, or registered or certified mail.)
------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS. IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, THE INITIAL PURCHASERS OR ANY OF THEIR
RESPECTIVE AFFILIATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR
A SOLICITATION TO BUY, THE NOTES IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
================================================================================
================================================================================
$200,000,000
EXCHANGE OFFER
[OCEAN ENERGY, INC.]
8 7/8% SENIOR SUBORDINATED NOTES
DUE 2007, SERIES B
---------------------------------
PROSPECTUS
---------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Disclosure Regarding Forward-Looking
Statements.......................... 13
Risk Factors.......................... 13
The Exchange Offer.................... 20
Use of Proceeds....................... 29
Capitalization........................ 29
Selected Historical Financial and
Operating Data...................... 30
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 32
Business.............................. 44
Management............................ 59
Description of the Notes.............. 61
Plan of Distribution.................. 99
Legal Matters......................... 99
Experts............................... 99
Available Information................. 100
Incorporation of Certain Documents by
Reference........................... 100
Glossary of Certain Oil and Gas
Terms............................... 101
Index to Financial Statements......... F-1
</TABLE>
, 1997
================================================================================
<PAGE> 139
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subsection (a) of Section 145 of the General Corporation Law of the State
of Delaware empowers a corporation to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful on the merits or otherwise in the defense of any
action, suit or proceeding inferred to in subsections (a) and (b) of Section 145
or in the defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith; that indemnification provided for by Section 145
shall not be deemed exclusive of any other rights to which the indemnified party
may be entitled; that indemnification provided by Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of such person's heirs, executors and administrators; and empowers the
corporation to purchase and maintain insurance on behalf of a director or
officer of the corporation against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liabilities under Section 145.
Section 102(b)(7) of the General Corporation Law of the State of Delaware
provides that a certificate of incorporation may contain a provision eliminating
or limiting the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that such provision shall not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to the corporation
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit.
Section 7(d) of the Company's Certificate of Incorporation states that:
"A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
II-1
<PAGE> 140
General Corporation Law of the State of Delaware, or (iv) for any
transaction from which the director derived an improper personal benefit.
If the General Corporation Law of the State of Delaware is amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the
General Corporation Law of the State of Delaware, as so amended. Any repeal
or modification of this Section by the stockholders of the Corporation
shall be prospective only, and shall not adversely affect any limitation on
the personal liability of a director of the Corporation existing at the
time of such repeal or modification.
Section 7(c) of the Company's Certificate of Incorporation and Article IX
of the Company's Bylaws further provides that the Company shall indemnify its
officers and directors to the fullest extent permitted by the General
Corporation Law of the State of Delaware. Pursuant to such provision, the
Company has entered into agreements with its officers and directors which
provide for indemnification of such persons.
The Company maintains $15.0 million in insurance coverage providing
directors and officers with indemnification, subject to certain exclusions and
to the extent not otherwise indemnified by the Company, against loss (including
expenses incurred in the defense of actions, suits or proceeds in connection
therewith) arising from any negligent act, error, omission or breach of duty
while acting in their capacity as directors and officers of the Company. The
policies also reimburse the Company for liability incurred in the
indemnification of its directors and officers.
The Company has entered into indemnification agreements with its directors
and certain executive officers which provide for indemnification of such persons
to the fullest extent allowed by Delaware law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following is a complete list of Exhibits filed as part of, or
incorporated by reference into, this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER OF EXHIBIT
------- -----------
<S> <C>
4.1 -- Indenture, dated as of July 2, 1997 between Ocean Energy,
Inc. and State Street Bank & Trust Company, as Trustee,
with respect to the 8 7/8% Senior Subordinated Notes Due
2007 (including form of 8 7/8% Senior Subordinated Note
Due 2007).
4.2 -- Registration Rights Agreement, dated as of July 2, 1997,
among Ocean Energy, Inc., as issuer, and Merrill Lynch &
Co., Bear Stearns & Co. Inc., Chase Securities Inc.,
Lehman Brothers and Morgan Stanley Dean Witter.
5.1 -- Opinion of Andrews & Kurth L.L.P. as to the legality of
the securities being registered.
12.1 -- Computation of ratio of earnings to fixed charges.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Andrews & Kurth L.L.P. (included in Exhibit
5.1).
23.3 -- Consent of Netherland, Sewell & Associates.
24.1 -- Power of Attorney (set forth on the signature pages
contained in Part II of this Registration Statement).
25.1 -- Statement of Eligibility and Qualification of Form T-1 of
State Street Bank & Trust Company.
99.1 -- Form of Letter of Transmittal.
99.2 -- Form of Notice of Guaranteed Delivery.
</TABLE>
II-2
<PAGE> 141
FINANCIAL STATEMENT SCHEDULES
None.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes that:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement:
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by
II-3
<PAGE> 142
reference in the Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE> 143
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Baton
Rouge, State of Louisiana, on the 30th day of July, 1997.
OCEAN ENERGY, INC., a Delaware
corporation
By: /s/ JAMES C. FLORES
-------------------------------------
James C. Flores
Chairman of the Board, President and
Chief Executive Officer
POWER OF ATTORNEY
Each of the undersigned officers and directors of Ocean Energy, Inc. (the
"Company") hereby constitutes and appoints James C. Flores, Robert L. Belk and
Robert K. Reeves, and each of them (with full power to each of them to act
alone), his true and lawful attorney-in-fact and agent, with full power of
substitution, for him and on his behalf and in his name, place and stead, in any
and all capacities, to sign, execute and file this registration statement under
the Securities Act of 1933, as amended, and any or all amendments (including,
without limitation, post-effective amendments), with all exhibits and any and
all documents required to be filed with respect thereto, with the Securities and
Exchange Commission or any regulatory authority, granting unto such
attorneys-in-fact and agents, and each of them acting alone, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises in order to effectuate the same, as fully
to all intents and purposes as he himself might or could do if personally
present, hereby ratifying and confirming all that such attorneys-in-fact and
agents, or any of them, or their substitute or substitutes, may lawfully do or
cause to be done.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JAMES C. FLORES Chairman of the Board of July 30, 1997
- ----------------------------------------------------- Directors, President and Chief
James C. Flores Executive Officer (Principal
Executive Officer)
/s/ ROBERT L. BELK Executive Vice President, Chief July 30, 1997
- ----------------------------------------------------- Financial Officer, Treasurer and
Robert L. Belk Director (Principal Financial and
Accounting Officer)
/s/ RICHARD G. ZEPERNICK, JR. Executive Vice President -- July 30, 1997
- ----------------------------------------------------- Exploration & Production and
Richard G. Zepernick, Jr. Director
/s/ THOMAS D. CLARK, JR. Director July 30, 1997
- -----------------------------------------------------
Thomas D. Clark, Jr.
/s/ CHARLES F. MITCHELL Director July 30, 1997
- -----------------------------------------------------
Charles F. Mitchell
/s/ WILLIAM W. RUCKS, IV Director July 30, 1997
- -----------------------------------------------------
William W. Rucks, IV
/s/ MILTON J. WOMACK Director July 30, 1997
- -----------------------------------------------------
Milton J. Womack
</TABLE>
II-5
<PAGE> 144
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believes that it meets
all of the requirements for filing on Form S-4 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Baton Rouge, State of Louisiana, on the 30th day
of July, 1997.
OCEAN ENERGY, INC., a Louisiana
corporation
By: /s/ JAMES C. FLORES
-------------------------------------
James C. Flores
Chairman of the Board, President and
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below appoints James C. Flores and
Robert K. Reeves and each of them, any of whom may act without the joinder of
the other, as his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any Registration Statement
(including any amendment thereto) for this offering that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and
to file the same, with all exhibits thereto, and all other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or would do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JAMES C. FLORES Chairman of the Board of July 30, 1997
- ----------------------------------------------------- Directors, President and Chief
James C. Flores Executive Officer (Principal
Executive Officer)
/s/ ROBERT L. BELK Executive Vice President, Chief July 30, 1997
- ----------------------------------------------------- Financial Officer, Treasurer and
Robert L. Belk Director (Principal Financial and
Accounting Officer)
/s/ RICHARD G. ZEPERNICK, JR. Executive Vice President -- July 30, 1997
- ----------------------------------------------------- Exploration & Production and
Richard G. Zepernick, Jr. Director
</TABLE>
II-6
<PAGE> 145
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER OF EXHIBIT
------- -----------
<S> <C>
4.1 -- Indenture, dated as of July 2, 1997 between Ocean Energy,
Inc. and State Street Bank & Trust Company, as Trustee,
with respect to the 8 7/8% Senior Subordinated Notes Due
2007 (including form of 8 7/8% Senior Subordinated Note
Due 2007).
4.2 -- Registration Rights Agreement, dated as of July 2, 1997,
among Ocean Energy, Inc., as issuer, and Merrill Lynch &
Co., Bear Stearns & Co. Inc., Chase Securities Inc.,
Lehman Brothers and Morgan Stanley Dean Witter.
5.1 -- Opinion of Andrews & Kurth L.L.P. as to the legality of
the securities being registered.
12.1 -- Computation of ratio of earnings to fixed charges.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Andrews & Kurth L.L.P. (included in Exhibit
5.1).
23.3 -- Consent of Netherland, Sewell & Associates.
24.1 -- Power of Attorney (set forth on the signature pages
contained in Part II of this Registration Statement).
25.1 -- Statement of Eligibility and Qualification of Form T-1 of
State Street Bank & Trust Company.
99.1 -- Form of Letter of Transmittal.
99.2 -- Form of Notice of Guaranteed Delivery.
</TABLE>
<PAGE> 1
EXHIBIT 4.1
________________________________________________________________________________
OCEAN ENERGY, INC.
SUBSIDIARY GUARANTORS
Named Herein
AND
STATE STREET BANK AND TRUST COMPANY
Trustee
______________________
Indenture
Dated as of July 2, 1997
______________________
$200,000,000
8 7/8% Series A Senior Subordinated Notes due 2007
8 7/8% Series B Senior Subordinated Notes due 2007
________________________________________________________________________________
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
Page
<S> <C>
ARTICLE I - DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Other Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 1.3 Incorporation by Reference of Trust Indenture Act . . . . . . . . . . . . . . . . . . . . 31
Section 1.4 Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE II - SECURITY FORMS
Section 2.1 Forms Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 2.2 Form of Face of Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 2.3 Form of Reverse of Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 2.4 Form of Notation Relating to Subsidiary Guarantees . . . . . . . . . . . . . . . . . . . 44
Section 2.5 Form of Trustee's Certificate of Authentication . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE III - THE SECURITIES
Section 3.1 Title and Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 3.2 Denominations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 3.3 Execution, Authentication, Delivery and Dating . . . . . . . . . . . . . . . . . . . . . 46
Section 3.4 Temporary Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 3.5 Registration, Registration of Transfer and Exchange . . . . . . . . . . . . . . . . . . . 48
Section 3.6 Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 3.7 Additional Provisions for Global Security . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 3.8 Mutilated, Destroyed, Lost and Stolen Securities . . . . . . . . . . . . . . . . . . . . 56
Section 3.9 Payment of Interest; Interest Rights Preserved . . . . . . . . . . . . . . . . . . . . . 57
Section 3.10 Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 3.11 Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 3.12 Computation of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 3.13 CUSIP Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
ARTICLE IV - SATISFACTION AND DISCHARGE
Section 4.1 Satisfaction and Discharge of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 4.2 Application of Trust Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
ARTICLE V - REMEDIES
Section 5.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 5.2 Acceleration of Maturity; Rescission and Annulment . . . . . . . . . . . . . . . . . . . 62
Section 5.3 Collection of Indebtedness and Suits for Enforcement by Trustee . . . . . . . . . . . . . 64
Section 5.4 Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 5.5 Trustee May Enforce Claims Without Possession of Securities . . . . . . . . . . . . . . . 65
Section 5.6 Application of Money Collected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
</TABLE>
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Section 5.7 Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 5.8 Unconditional Right of Holders to Receive Principal, Premium and
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 5.9 Restoration of Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 5.10 Rights and Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 5.11 Delay or Omission Not Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 5.12 Control by Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 5.13 Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 5.14 Waiver of Stay, Extension or Usury Laws . . . . . . . . . . . . . . . . . . . . . . . . . 68
ARTICLE VI - THE TRUSTEE
Section 6.1 Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 6.2 Certain Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 6.3 Trustee Not Responsible for Recitals or Issuance of Securities . . . . . . . . . . . . . 69
Section 6.4 May Hold Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 6.5 Money Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 6.6 Compensation and Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 6.7 Corporate Trustee Required; Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 6.8 Conflicting Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 6.9 Resignation and Removal; Appointment of Successor . . . . . . . . . . . . . . . . . . . . 71
Section 6.10 Acceptance of Appointment by Successor . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 6.11 Merger, Conversion, Consolidation or Succession to Business . . . . . . . . . . . . . . . 72
Section 6.12 Preferential Collection of Claims Against Company . . . . . . . . . . . . . . . . . . . . 73
ARTICLE VII - HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.1 Disclosure of Names and Addresses of Holders . . . . . . . . . . . . . . . . . . . . . . 73
Section 7.2 Reports By Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 7.3 Reports by Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
ARTICLE VIII - CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 8.1 Company May Consolidate, etc., Only on Certain Terms . . . . . . . . . . . . . . . . . . 74
Section 8.2 Successor Substituted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
ARTICLE IX - SUPPLEMENTAL INDENTURES
Section 9.1 Supplemental Indentures Without Consent of Holders . . . . . . . . . . . . . . . . . . . 76
Section 9.2 Supplemental Indentures with Consent of Holders . . . . . . . . . . . . . . . . . . . . . 77
Section 9.3 Execution of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 9.4 Effect of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 9.5 Conformity with Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 9.6 Reference in Securities to Supplemental Indentures . . . . . . . . . . . . . . . . . . . 78
Section 9.7 Notice of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
</TABLE>
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ARTICLE X - COVENANTS
Section 10.1 Payment of Principal, Premium, if any, and Interest . . . . . . . . . . . . . . . . . . . 78
Section 10.2 Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 10.3 Money for Security Payments to Be Held in Trust . . . . . . . . . . . . . . . . . . . . . 79
Section 10.4 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 10.5 Payment of Taxes and Other Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 10.6 Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Section 10.7 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Section 10.8 Statement by Officers as to Default . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Section 10.9 Provision of Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Section 10.10 Limitation on Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Section 10.11 Limitation on Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Section 10.12 Limitation on Guarantees of Indebtedness by Subsidiaries . . . . . . . . . . . . . . . . 86
Section 10.13 Limitation on Issuances and Sale of Capital Stock by Restricted
Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Section 10.14 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Section 10.15 Purchase of Securities Upon Change of Control . . . . . . . . . . . . . . . . . . . . . . 87
Section 10.16 Disposition of Proceeds of Asset Sales . . . . . . . . . . . . . . . . . . . . . . . . . 89
Section 10.17 Limitation on Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . 91
Section 10.18 Limitation on Dividends and Other Payment Restrictions Affecting
Restricted Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Section 10.19 Limitation on Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Section 10.20 Waiver of Certain Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Section 10.21 Suspension of Certain Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
ARTICLE XI - REDEMPTION OF SECURITIES
Section 11.1 Right of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Section 11.2 Applicability of Article . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Section 11.3 Election to Redeem; Notice to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Section 11.4 Selection by Trustee of Securities to Be Redeemed . . . . . . . . . . . . . . . . . . . . 94
Section 11.5 Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Section 11.6 Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Section 11.7 Securities Payable on Redemption Date . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Section 11.8 Securities Redeemed in Part. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
ARTICLE XII - DEFEASANCE AND COVENANT DEFEASANCE
Section 12.1 Company's Option to Effect Defeasance or Covenant Defeasance . . . . . . . . . . . . . . 95
Section 12.2 Defeasance and Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Section 12.3 Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Section 12.4 Conditions to Defeasance or Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . 96
Section 12.5 Deposited Money and U.S. Government Obligations to Be Held in Trust;
Other Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Section 12.6 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
</TABLE>
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ARTICLE XIII - GUARANTEES
Section 13.1 Unconditional Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Section 13.2 Subsidiary Guarantors May Consolidate, etc., on Certain Terms . . . . . . . . . . . . . . 100
Section 13.3 Release of a Subsidiary Guarantor . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Section 13.4 Limitation of Subsidiary Guarantor's Liability . . . . . . . . . . . . . . . . . . . . . 101
Section 13.5 Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Section 13.6 Execution and Delivery of Notation of Subsidiary Guarantee . . . . . . . . . . . . . . . 101
Section 13.7 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Section 13.8 Subsidiary Guarantees Subordinated to Guarantor Senior
Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Section 13.9 Subsidiary Guarantors Not to Make Payments with Respect to Subsidiary
Guarantees in Certain Circumstances . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Section 13.10 Subsidiary Guarantees Subordinated to Prior Payment of All Guarantor
Senior Indebtedness upon Dissolution, etc . . . . . . . . . . . . . . . . . . . . . . . . 104
Section 13.11 Holders to be Subrogated to Rights of Holders of Guarantor Senior
Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Section 13.12 Obligations of the Subsidiary Guarantors Unconditional . . . . . . . . . . . . . . . . . 105
Section 13.13 Trustee Entitled to Assume Payments Not Prohibited in Absence of
Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
Section 13.14 Application by Trustee of Money Deposited with it . . . . . . . . . . . . . . . . . . . . 106
Section 13.15 Subordination Rights Not Impaired by Acts or Omissions of Subsidiary
Guarantors or Holders of Guarantor Senior Indebtedness . . . . . . . . . . . . . . . . . 106
Section 13.16 Holders Authorize Trustee to Effectuate Subordination of Subsidiary
Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Section 13.17 Right of Trustee to Hold Guarantor Senior Indebtedness . . . . . . . . . . . . . . . . . 107
Section 13.18 Article XIII Not to Prevent Events of Default . . . . . . . . . . . . . . . . . . . . . . 107
Section 13.19 Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
ARTICLE XIV - SUBORDINATION OF SECURITIES
Section 14.1 Securities Subordinate to Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . 108
Section 14.2 Payment Over of Proceeds upon Dissolution, etc. . . . . . . . . . . . . . . . . . . . . . 108
Section 14.3 Suspension of Payment When Senior Indebtedness in Default. . . . . . . . . . . . . . . . 109
Section 14.4 Trustee's Relation to Senior Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . 110
Section 14.5 Subrogation to Rights of Holders of Senior Indebtedness. . . . . . . . . . . . . . . . . 110
Section 14.6 Provisions Solely To Define Relative Rights. . . . . . . . . . . . . . . . . . . . . . . 111
Section 14.7 Trustee To Effectuate Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Section 14.8 No Waiver of Subordination Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Section 14.9 Notice to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Section 14.10 Reliance on Judicial Order or Certificate of Liquidating Agent . . . . . . . . . . . . . 113
Section 14.11 Rights of Trustee as Holder of Senior Indebtedness; Preservation of
Trustee's Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Section 14.12 Article Applicable to Paying Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
</TABLE>
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Section 14.13 No Suspension of Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
ARTICLE XV - MISCELLANEOUS
Section 15.1 Compliance Certificates and Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . 114
Section 15.2 Form of Documents Delivered to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . 114
Section 15.3 Acts of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
Section 15.4 Notices, etc. to Trustee, Company and Subsidiary Guarantors . . . . . . . . . . . . . . . 116
Section 15.5 Notice to Holders; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Section 15.6 Effect of Headings and Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . 117
Section 15.7 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Section 15.8 Separability Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Section 15.9 Benefits of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Section 15.10 Governing Law; Trust Indenture Act Controls . . . . . . . . . . . . . . . . . . . . . . . 117
Section 15.11 Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
Section 15.12 No Recourse Against Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
Section 15.13 Duplicate Originals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
Section 15.14 No Adverse Interpretation of Other Agreements . . . . . . . . . . . . . . . . . . . . . . 118
EXHIBITS
Exhibit A Certificate to be Delivered Upon Exchange or Registration or Transfer of Securities
Exhibit B Transferee Letter of Representations
Exhibit C Form of Certificate to be Delivered in Connection with Transfers Pursuant to Regulation S
</TABLE>
NOTE: THIS TABLE OF CONTENTS SHALL NOT, FOR ANY PURPOSE, BE
DEEMED TO BE A PART OF THE INDENTURE.
v
<PAGE> 7
Reconciliation and tie between Trust Indenture Act
of 1939 and Indenture, dated as of July 2, 1997
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
<S> <C>
Section 310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7, 6.8
Section 312(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1
Section 313 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2
Section 314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.8(a)
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.1
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.1
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.1
Section 315(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1
Section 316(a) (last
sentence) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 ("Outstanding")
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2, 5.12
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.13
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.8
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.3(d)
Section 317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3
Section 318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.10(b)
</TABLE>
Note: This reconciliation and tie shall not, for any purpose,
be deemed to be a part of the Indenture.
vi
<PAGE> 8
INDENTURE, dated as of July 2, 1997 between OCEAN ENERGY, INC., a
Delaware corporation (hereinafter called the "Company"), the SUBSIDIARY
GUARANTORS (as defined hereinafter) and STATE STREET BANK AND TRUST COMPANY,
trustee (hereinafter called the "Trustee").
RECITALS OF THE COMPANY
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 8 7/8% Series
A Senior Subordinated Notes due 2007 (the "Series A Securities") and the
Company's 8 7/8% Series B Senior Subordinated Notes due 2007 (the "Series B
Securities" and, collectively with the Series A Securities, the "Securities" or
each, a "Security").
The Company owns beneficially and of record all of the equity
ownership of the outstanding Voting Stock of the initial Subsidiary Guarantor,
and the initial Subsidiary Guarantor is a member of the Company's consolidated
group of companies that are engaged in related businesses. The initial
Subsidiary Guarantor will derive direct and indirect benefit from the issuance
of the Securities; accordingly, the initial Subsidiary Guarantor has authorized
its guarantee of the Company's obligations under this Indenture and the
Securities, and to provide therefor the initial Subsidiary Guarantor has duly
authorized the execution and delivery of this Indenture.
This Indenture is subject to the provisions of the Trust Indenture Act
of 1939, as amended, that are required to be part of this Indenture and shall,
to the extent applicable, be governed by such provisions.
All things necessary have been done to make the Securities, when
executed by the Company and authenticated and delivered hereunder and duly
issued by the Company, the valid obligations of the Company, to make the
Subsidiary Guarantee, when executed by the Subsidiary Guarantor, the valid
obligation of the Subsidiary Guarantor and to make this Indenture a valid
agreement of the Company, the Subsidiary Guarantor and the Trustee, in
accordance with their and its terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities (together with the related Subsidiary Guarantee) by the Holders
thereof, it is mutually covenanted and agreed, for the equal and proportionate
benefit of all Holders of the Securities (together with the related Subsidiary
Guarantee), as follows:
1
<PAGE> 9
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1 Definitions.
"Acquired Indebtedness" means Indebtedness of a Person (a) assumed in
connection with an Asset Acquisition from such Person, (b) outstanding at the
time such Person becomes a Subsidiary of any other Person (other than any
Indebtedness incurred in connection with, or in contemplation of, such Asset
Acquisition or such Person becoming such a Subsidiary) or (c) any renewals,
extensions, substitutions, refinancings or replacements (each, for purposes of
this clause, a "refinancing") by the Company of any Indebtedness described in
clause (a) or (b) of this definition, including any successive refinancings, so
long as (i) any such new Indebtedness shall be in a principal amount that does
not exceed the principal amount (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) so refinanced plus the amount of any premium
required to be paid in connection with such refinancing pursuant to the terms
of the Indebtedness refinanced or the amount of any premium reasonably
determined by the Company as necessary to accomplish such refinancing, plus the
amount of expenses of the Company incurred in connection with such refinancing,
and (ii) in the case of any refinancing of Subordinated Indebtedness, such new
Indebtedness is made subordinate to the Securities at least to the same extent
as the Indebtedness being refinanced and (iii) such new Indebtedness has an
Average Life longer than the Average Life of the Securities and a final Stated
Maturity later than the final Stated Maturity of the Securities.
"Act," when used with respect to any Holder, has the meaning specified
in Section 15.3.
"Adjusted Consolidated Net Tangible Assets" 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, with no less than 70% of such discounted future
net revenues estimated or audited by one or more nationally recognized firms of
independent petroleum engineers in a reserve report prepared as of the end of
the Company's most recently completed fiscal year, as increased by, as of the
date of determination, the estimated discounted future net revenues from (A)
estimated proved oil and gas reserves acquired since the date of such year-end
reserve report, and (B) estimated oil and gas reserves attributable to upward
revisions of estimates of proved oil and gas reserves since the date of such
year- end reserve report due to exploration, development or exploitation
activities, in each case calculated in accordance with SEC guidelines
(utilizing the prices utilized in such year-end reserve report), and decreased
by, as of the date of determination, the estimated discounted future net
revenues from (C) estimated proved oil and gas reserves produced or disposed of
since the date of such year-end reserve report and (D) estimated oil and gas
reserves attributable to downward revisions of estimates of proved oil and gas
reserves since the date of such year-end reserve report due to changes in
geological conditions or other factors which would, in
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<PAGE> 10
accordance with standard industry practice, cause such revisions, 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 pursuant to clauses (A) through (D), such increases and
decreases shall be as estimated by the Company's petroleum engineers, unless in
the event that there is a Material Change as a result of such acquisitions,
dispositions or revisions, then the discounted future net revenues utilized for
purposes of this clause (a)(i) shall be confirmed in writing by estimate or
audit of one or more nationally recognized firms of independent petroleum
engineers as to at least 70% of such discounted future net revenues, (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 attributable, 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 or (II) the appraised
value, as estimated by independent appraisers, of other tangible assets
(including, without duplication, Investments in unconsolidated Restricted
Subsidiaries) of the Company and its Restricted Subsidiaries, as of the date no
earlier than the date of the Company's latest audited financial statements,
minus (b) the sum of (i) minority interests, (ii) any gas balancing liabilities
of the Company and its Restricted Subsidiaries reflected in the Company's
latest audited financial statements, (iii) to the extent included in (a)(i)
above, the discounted future net revenues, calculated in accordance with SEC
guidelines (utilizing the prices utilized in the Company's year-end reserve
report), attributable to reserves which are required to be delivered to third
parties to fully satisfy the obligations of the Company and its Restricted
Subsidiaries with respect to Volumetric Production Payments on the schedules
specified with respect thereto and (iv) the discounted future net revenues,
calculated in accordance with SEC guidelines, attributable to reserves subject
to Dollar-Denominated Production Payments which, based on the estimates of
production and price assumptions included in determining the discounted future
net revenues specified in (a)(i) above, would be necessary to fully satisfy the
payment obligations of the Company and its Restricted Subsidiaries with respect
to Dollar-Denominated Production Payments on the schedules specified with
respect thereto. If the Company changes its method of accounting from the full
cost method to the successful efforts method or a similar method of accounting,
"Adjusted Consolidated Net Tangible Assets" will continue to be calculated as
if the Company was still using the full cost method of accounting.
"Adjusted Net Assets" of a Subsidiary Guarantor at any date shall mean
the amount by which the fair value of the Properties of such Subsidiary
Guarantor exceeds the total amount of liabilities, including, without
limitation, contingent liabilities (after giving effect to all other fixed and
contingent liabilities incurred or assumed on such date), but excluding
liabilities under the Subsidiary Guarantee, of such Subsidiary Guarantor at
such date.
"Affiliate" means, with respect to any specified Person, 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
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<PAGE> 11
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 this definition, beneficial ownership of 10% or
more of the voting common equity (on a fully diluted basis) or options or
warrants to purchase such equity (but only if exercisable at the date of
determination or within 60 days thereof) of a Person shall be deemed to
constitute control of such Person.
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or any Restricted Subsidiary shall be merged
with or into the Company or any other Restricted Subsidiary or (b) the
acquisition by the Company or any Restricted Subsidiary of the Properties of
any Person which constitute all or substantially all of the Properties of such
Person or any division or line of business of such Person.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or
other disposition to any Person other than the Company or any of its Restricted
Subsidiaries (including, without limitation, by means of a Sale/Leaseback
Transaction or by way of merger or consolidation) (collectively, for purposes
of this definition, a "transfer"), directly or indirectly, in one or a series
of related transactions, of (a) any Capital Stock of any Restricted Subsidiary
held by the Company or any Restricted Subsidiary; (b) all or substantially all
of the Properties of any division or line of business of the Company or any of
its Restricted Subsidiaries; or (c) any other Properties of the Company or any
of its Restricted Subsidiaries other than a disposition of hydrocarbons or
other mineral products in the ordinary course of business. For the purposes of
this definition, the term "Asset Sale" shall not include (i) any transfer of
Properties which is governed by, and made in accordance with, the provisions of
Article VIII hereof; (ii) any transfer of Properties to an Unrestricted
Subsidiary, if permitted under Section 10.10 hereof; (iii) any trade or
exchange by the Company or any Restricted Subsidiary of oil and gas Properties
for other oil and gas Properties owned or held by another Person which the
Board of Directors of the Company determines in good faith to be of
approximately equivalent value; or (iv) any transfer of Properties having a
Fair Market Value of less than $5,000,000.
"Attributable Indebtedness" means, with respect to any particular
lease under which any Person is at the time liable and at any date as of which
the amount thereof is to be determined, the present value of the total net
amount of rent required to be paid by such Person under the lease during the
primary term thereof, without giving effect to any renewals at the option of
the lessee, discounted from the respective due dates thereof to such date of
determination at the rate of interest per annum implicit in the terms of the
lease. As used in the preceding sentence, the "net amount of rent" under any
lease for any such period shall mean the sum of rental and other payments
required to be paid with respect to such period by the lessee thereunder,
excluding any amounts required to be paid by such lessee on account of
maintenance and repairs, insurance, taxes, assessments, water rates or similar
charges. In the case of any lease which is terminable by the lessee upon
payment of a penalty, such net amount of rent shall also include the amount of
such penalty, but no rent shall be considered as required to be paid under such
lease subsequent to the first date upon which it may be so terminated.
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<PAGE> 12
"Average Life" means, with respect to any Indebtedness, as at any date
of determination, the quotient obtained by dividing (a) the sum of the products
of (i) the number of years (and any portion thereof) from the date of
determination to the date or dates of each successive scheduled principal
payment (including, without limitation, any sinking fund or mandatory
redemption payment requirements) of such Indebtedness multiplied by (ii) the
amount of each such principal payment by (b) the sum of all such principal
payments.
"Bank Agent" means The Chase Manhattan Bank, N.A. or any successor or
replacement agent under the Credit Agreement.
"Board of Directors" means, with respect to the Company, either the
board of directors of the Company or any duly authorized committee of such
board of directors, and, with respect to any Restricted Subsidiary, either the
board of directors of such Restricted Subsidiary or any duly authorized
committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
its Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee, and with respect to a Restricted
Subsidiary, a copy of a resolution certified by the Secretary or an Assistant
Secretary of such Restricted Subsidiary to have been duly adopted by its Board
of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in the Borough of
Manhattan, The City of New York, New York, or the city in which the Trustee's
Corporate Trust Office is located, are authorized or obligated by law or
executive order to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in or other equivalents in the equity
interests (however designated) in such Person, and any rights (other than debt
securities convertible into an equity interest), warrants or options
exercisable for, exchangeable for or convertible into such an equity interest
in such Person.
"Capitalized Lease Obligation" means any obligation to pay rent or
other amounts under a lease of (or other agreement conveying the right to use)
any Property (whether real, personal or mixed) that is required to be
classified and accounted for as a capital lease obligation under GAAP, and, for
the purpose of this Indenture, the amount of such obligation at any date shall
be the capitalized amount thereof at such date, determined in accordance with
GAAP.
"Cash Equivalents" means (i) any evidence of Indebtedness with a
maturity of 365 days or less issued or directly and fully guaranteed or insured
by the United States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United States of America is
pledged in support thereof); (ii) demand and time deposits and certificates of
deposit or acceptances with a maturity of 365 days or less of any financial
institution that is a member of the Federal
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<PAGE> 13
Reserve System having combined capital and surplus and undivided profits of not
less than $500,000,000; (iii) commercial paper with a maturity of 365 days or
less issued by a corporation that is not an Affiliate of the Company and is
organized under the laws of any state of the United States or the District of
Columbia and rated at least A-1 by S&P or at least P-1 by Moody's; (iv)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clause (i) above entered into with any
commercial bank meeting the specifications of clause (ii) above; and (v)
overnight bank deposits and bankers' acceptances at any commercial bank meeting
the qualifications specified in clause (ii) above.
"Change of Control" means the occurrence of any of the following
events: (a) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act), other than the F&R Interests, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of more than 50% of the total Voting Stock of the Company; (b)
the Company is merged with or into or consolidated with another Person and,
immediately after giving effect to the merger or consolidation, (A) less than
50% of the total voting power of the outstanding Voting Stock of the surviving
or resulting Person is then "beneficially owned" (within the meaning of Rule
13d-3 under the Exchange Act) in the aggregate by (x) the stockholders of the
Company immediately prior to such merger or consolidation, or (y) if a record
date has been set to determine the stockholders of the Company entitled to vote
on such merger or consolidation, the stockholders of the Company as of such
record date and (B) any "person" or "group" (as defined in Section 13(d)(3) or
14(d)(2) of the Exchange Act), other than the F&R Interests, has become the
direct or indirect "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of more than 50% of the total voting power of the Voting Stock of
the surviving or resulting Person; (c) the Company, either individually or in
conjunction with one or more Restricted Subsidiaries, sells, conveys, transfers
or leases, or the Restricted Subsidiaries sell, convey, transfer or lease, all
or substantially all of the Properties of the Company and the Restricted
Subsidiaries, taken as a whole (either in one transaction or a series of
related transactions), including Capital Stock of the Restricted Subsidiaries,
to any Person (other than the Company or a Wholly Owned Restricted Subsidiary);
(d) during any consecutive two-year period, individuals who at the beginning of
such period constituted the Board of Directors of the Company (together with
any new directors whose election by such Board of Directors or whose nomination
for election by the stockholders of the Company was approved by a vote of a
majority of the directors 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 of the Company then in office; or (e) the liquidation or
dissolution of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended, as
now or hereafter in effect, together with all regulations, rulings and
interpretations thereof or thereunder issued by the Internal Revenue Service.
"Commission" or "SEC" means the Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act, or, if at any
time after the execution of this
6
<PAGE> 14
Indenture such Commission is not existing and performing the duties now
assigned to it under the Trust Indenture Act, then the body performing such
duties at such time.
"Common Stock" of any Person means Capital Stock of such Person that
does not rank prior, as to the payment of dividends or as to the distribution
of assets upon any voluntary or involuntary liquidation, dissolution or winding
up of such Person, to shares of Capital Stock of any other class of such
Person.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman, its President, any Vice
President, its Treasurer or an Assistant Treasurer, and delivered to the
Trustee.
"Consolidated Fixed Charge Coverage Ratio" means, for any period, the
ratio of (a) the sum of Consolidated Net Income, Consolidated Interest Expense,
Consolidated Income Tax Expense and Consolidated Non-cash Charges deducted in
computing Consolidated Net Income, in each case, for such period, of the
Company and its Restricted Subsidiaries on a consolidated basis, all determined
in accordance with GAAP, decreased (to the extent included in determining
Consolidated Net Income) by 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, to (b) the sum of such Consolidated
Interest Expense for such period; provided that (i) in making such computation,
the Consolidated Interest Expense attributable to interest on any Indebtedness
required to be computed on a pro forma basis in accordance with clause (x) of
Section 10.11 hereof and bearing a floating interest rate shall be computed as
if the rate in effect on the date of computation had been the applicable rate
for the entire period, (ii) in making such computation, the Consolidated
Interest Expense attributable to interest on any Indebtedness under a revolving
credit facility required to be computed on a pro forma basis in accordance with
clause (x) of Section 10.11 hereof shall be computed based upon the average
daily balance of such Indebtedness during the applicable period, provided that
such average daily balance shall be reduced by the amount of any repayment of
Indebtedness under a revolving credit facility during the applicable period,
which repayment permanently reduced the commitments or amounts available to be
reborrowed under such facility, (iii) notwithstanding clauses (i) and (ii) of
this proviso, interest on Indebtedness determined on a fluctuating basis, to
the extent such interest is covered by agreements relating to Interest Rate
Protection Obligations, shall be deemed to have accrued at the rate per annum
resulting after giving effect to the operation of such agreements and (iv) in
making such calculation, Consolidated Interest Expense shall exclude interest
attributable to Dollar-Denominated Production Payments.
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<PAGE> 15
"Consolidated Income Tax Expense" means, for any period, the provision
for federal, state, local and foreign income taxes of the Company and its
Restricted Subsidiaries for such period as determined on a consolidated basis
in accordance with GAAP.
"Consolidated Interest Expense" means, for any period, without
duplication, the sum of (i) the interest expense of the Company and its
Restricted Subsidiaries for such period as determined on a consolidated basis
in accordance with GAAP, including, without limitation, (a) any amortization of
debt discount, (b) the net cost under Interest Rate Protection Obligations
(including any amortization of discounts), (c) the interest portion of any
deferred payment obligation, (d) all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing and (e) all accrued interest, in each case to the extent attributable
to such period, (ii) to the extent any Indebtedness of any Person (other than
the Company or a Restricted Subsidiary) is guaranteed by the Company or any
Restricted Subsidiary, the aggregate amount of interest paid or accrued by such
other Person during such period attributable to any such Indebtedness, in each
case to the extent attributable to that period, (iii) the aggregate amount of
the interest component of Capitalized Lease Obligations paid, accrued and/or
scheduled to be paid or accrued by the Company and its Restricted Subsidiaries
during such period as determined on a consolidated basis in accordance with
GAAP and (iv) the aggregate amount of dividends paid or accrued on Redeemable
Capital Stock or Preferred Stock of the Company and its Restricted
Subsidiaries, to the extent such Redeemable Capital Stock or Preferred Stock is
owned by Persons other than Restricted Subsidiaries.
"Consolidated Net Income" means, for any period, the consolidated net
income (or loss) of the Company and its Restricted Subsidiaries for such period
as determined in accordance with GAAP, adjusted by excluding (a) net after-tax
extraordinary gains or losses (less all fees and expenses relating thereto),
(b) net after-tax gains or losses (less all fees and expenses relating thereto)
attributable to Asset Sales, (c) the net income (or net loss) of any Person
(other than the Company or any of its Restricted Subsidiaries), in which the
Company or any of its Restricted Subsidiaries has an ownership interest, except
to the extent of the amount of dividends or other distributions actually paid
to the Company or its Restricted Subsidiaries in cash by such other Person
during such period (regardless of whether such cash dividends, distributions or
interest on indebtedness is attributable to net income (or net loss) of such
Person during such period or during any prior period), (d) net income (or net
loss) of any Person combined with the Company or any of its Restricted
Subsidiaries on a "pooling of interests" basis attributable to any period prior
to the date of combination, (e) the net income of any Restricted Subsidiary to
the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary is not at the date of determination
permitted, directly or indirectly, by operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary or its
stockholders, (f) income resulting from transfers of assets received by the
Company or any Restricted Subsidiary from an Unrestricted Subsidiary and (g)
any writedowns of non-current assets, provided, however, that any ceiling
limitation writedowns under SEC guidelines shall be treated as capitalized
costs, as if such writedowns had not occurred.
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<PAGE> 16
"Consolidated Net Worth" means, at any date, the consolidated
stockholders' equity of the Company less the amount of such stockholders'
equity attributable to Redeemable Capital Stock or treasury stock of the
Company and its Restricted Subsidiaries, as determined in accordance with GAAP.
"Consolidated Non-cash Charges" means, for any period, the aggregate
depreciation, depletion, amortization and other non-cash expenses of the
Company and its Restricted Subsidiaries reducing Consolidated Net Income for
such period, determined on a consolidated basis in accordance with GAAP
(excluding any such non-cash charge which requires an accrual of or reserve for
cash charges for any future period).
"Corporate Trust Office" means the corporate trust office of the
Trustee, at which at any particular time its corporate trust business shall be
administered, which office at the date of execution of this Indenture is
located at 225 Asylum Street, Hartford, CT 06103, Attention: Corporate Trust
Administration, except that with respect to presentation of Securities for
payment or for registration of transfer or exchange, such term shall mean the
office or agency of the Trustee at which, at any particular time, its corporate
agency business shall be conducted.
"Credit Agreement" means the Amended and Restated Credit Agreement
dated as of March 27, 1997 among the Company and The Chase Manhattan Bank,
N.A., as Agent, as such agreement may be amended, modified, supplemented,
extended, restated, replaced (including replacement after the termination of
such agreement), restructured, increased, renewed or refinanced from time to
time in one or more credit agreements, loan agreements, instruments or similar
agreements, as such may be further amended, modified, supplemented, extended,
restated, replaced (including replacement after the termination of such
agreement), restructured, increased, renewed or refinanced from time to time,
in each case in accordance with and as permitted by the Indenture.
"Credit Agreement Obligations" means all monetary obligations of every
nature of the Company or a Restricted Subsidiary, including without limitation,
obligations to pay principal and interest, reimbursement obligations under
letters of credit, fees, expenses and indemnities, from time to time owed to
the lenders or any agent under or in respect of the Credit Agreement.
"Default" means any event, act or condition that is, or after notice
or passage of time or both would be, an Event of Default.
"Defaulted Interest" has the meaning specified in Section 3.9 hereof.
"Definitive Securities" means Securities that are in the form set
forth in Section 2.2 hereto (but without including the paragraph referred to in
the footnote in Section 2.2 hereof).
"Depositary" means with respect to the Securities issuable or issued
in whole or in part in global form, the Person specified in Section 3.5 hereof
as the Depositary with respect to the
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<PAGE> 17
Securities, until a successor shall have been appointed and become such
pursuant to the applicable provision of this Indenture, and, thereafter,
"Depositary" shall mean or include such successor.
"Designated Guarantor Senior Indebtedness" means, with respect to a
Subsidiary Guarantor, (i) all Guarantor Senior Indebtedness of such Subsidiary
Guarantor under the Credit Agreement Obligations, (ii) all Guarantor Senior
Indebtedness of such Subsidiary Guarantor under the Senior Note Obligations and
(iii) any other Guarantor Senior Indebtedness which (a) at the time of
incurrence equals or exceeds $10,000,000 in aggregate principal amount and (b)
is specifically designated by such Subsidiary Guarantor in the instrument
evidencing such Guarantor Senior Indebtedness as "Designated Guarantor Senior
Indebtedness" for purposes of this Indenture.
"Designated Senior Indebtedness" means (i) all Senior Indebtedness
under the Credit Agreement Obligations (ii) all Senior Indebtedness under the
Senior Note Obligations and (iii) any other Senior Indebtedness which (a) at
the time of incurrence equals or exceeds $10,000,000 in aggregate principal
amount and (b) is specifically designated by the Company in the instrument
evidencing such Senior Indebtedness as "Designated Senior Indebtedness" for
purpose of this Indenture.
"Disinterested Director" means, with respect to any transaction or
series of transactions in respect of which the Board of Directors of the
Company is required to deliver a Board Resolution hereunder, a member of the
Board of Directors of the Company who does not have any material direct or
indirect financial interest (other than an interest arising solely from the
beneficial ownership of Capital Stock of the Company) in or with respect to
such transaction or series of transactions.
"Dollar-Denominated Production Payments" means production payment
obligations recorded as liabilities in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and all rules, regulations, rulings and
interpretations thereof issued by the Internal Revenue Service or the
Department of Labor thereunder.
"ERISA Affiliate" shall mean any subsidiary or trade or business
(whether or not incorporated) which is a member of a group of which the Company
is a member and which is under common control within the meaning of Section 414
of the Code (such rules and regulations shall also be deemed to apply to
foreign corporations and entities).
"Event of Default" has the meaning specified in Section 5.1 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor act thereto.
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<PAGE> 18
"Exchange Offer" means the offer by the Company to the Holders of all
outstanding Transfer Restricted Securities to exchange all such outstanding
Transfer Restricted Securities held by such Holders for Series B Securities, in
an aggregate principal amount equal to the aggregate principal amount of the
Transfer Restricted Securities tendered in such exchange offer by such Holders.
"Fair Market Value" means the fair market value of a Property
(including shares of Capital Stock) or Redeemable Capital Stock as determined
by a Board Resolution of the Company adopted in good faith, which determination
shall be conclusive for purposes of this Indenture; provided, however, that
unless otherwise specified herein, the Board of Directors shall be under no
obligation to obtain any valuation or assessment from any investment banker,
appraiser or other third party.
"Federal Bankruptcy Code" means the United States Bankruptcy Code of
Title 11 of the United States Code, as amended from time to time.
"F&R Interests" means, collectively, William W. Rucks, IV and James C.
Flores, together with their respective spouses, lineal descendants and
ascendents, heirs, executors or other legal representatives and any trusts
established for the benefit of the foregoing, or any other Person in which the
Persons referred to in the foregoing are at the time of determination the
direct record and beneficial owners of all of the outstanding Capital Stock.
"GAAP" means generally accepted accounting principles, consistently
applied, that are set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as may be
approved by a significant segment of the accounting profession of the United
States of America, which are applicable as of the date of this Indenture.
"Guarantee" means, as applied to any obligation, (i) a guarantee
(other than by endorsement of negotiable instruments for collection in the
ordinary course of business), direct or indirect, in any manner, of any part or
all of such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit. When used as a verb,
"guarantee" shall have a corresponding meaning.
"Guarantor" means any Restricted Subsidiary that incurs a Subsidiary
Guarantee.
"Guarantor Senior Indebtedness" means all Indebtedness of a Subsidiary
Guarantor (present and future) created, incurred, assumed or guaranteed by such
Subsidiary Guarantor (and all renewals, substitutions, refinancings or
replacements thereof) (including the principal of, interest on and fees,
premiums, expenses (including costs of collection), indemnities and other
amounts payable in connection with such Indebtedness) (and including, in the
case of the Credit Agreement and any guarantees related to the Senior Notes,
interest accruing after the filing of a petition by or against
11
<PAGE> 19
such Subsidiary Guarantor under any bankruptcy law, in accordance with and at
the rate, including any default rate, specified with respect to such
indebtedness, whether or not a claim for such interest is allowed as a claim
after such filing in any proceeding under such bankruptcy law), unless the
instrument governing such Indebtedness expressly provides that such
Indebtedness is not senior in right of payment to its Subsidiary Guarantee.
Notwithstanding the foregoing, Guarantor Senior Indebtedness of a Subsidiary
Guarantor will not include (i) Indebtedness of such Subsidiary Guarantor
evidenced by its Subsidiary Guarantee, (ii) Indebtedness of such Subsidiary
Guarantor that is expressly subordinate or junior in right of payment to any
Guarantor Senior Indebtedness of such Subsidiary Guarantor or its Subsidiary
Guarantee, (iii) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11 United States Code, is by its terms
without recourse to such Subsidiary Guarantor, (iv) any repurchase, redemption
or other obligation in respect of Redeemable Capital Stock of such Subsidiary
Guarantor, (v) to the extent it might constitute Indebtedness, any liability
for federal, state, local or other taxes owed or owing by such Subsidiary
Guarantor, (vi) Indebtedness of such Subsidiary Guarantor to the Company or any
of the Company's other Subsidiaries or any other Affiliate of the Company or
any of such Affiliate's Subsidiaries, and (vii) that portion of any
Indebtedness of such Subsidiary Guarantor which at the time of issuance is
issued in violation of the Indenture (but, as to any such Indebtedness, no such
violation shall be deemed to exist for purposes of this clause (vii) if the
holder(s) of such Indebtedness or their representative or such Subsidiary
Guarantor shall have furnished to the Trustee an opinion of counsel unqualified
in all material respects of independent legal counsel, addressed to the Trustee
(which legal counsel may, as to matters of fact, rely upon a certificate of
such Subsidiary Guarantor) to the effect that the incurrence of such
Indebtedness does not violate the provisions of such Indenture); provided that
the foregoing exclusions shall not affect the priorities of any Indebtedness
arising solely by operation of law in any case or proceeding or similar event
described in clause (a), (b) or (c) of the definition of Insolvency or
Liquidation Proceeding.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Indebtedness" means, with respect to any Person, without duplication,
(i) all liabilities of such Person for borrowed money or for the deferred
purchase price of Property or services, excluding any trade accounts payable
and other accrued current liabilities incurred in the ordinary course of
business, but including, without limitation, all obligations, contingent or
otherwise, of such Person in connection with any letters of credit, bankers'
acceptance or other similar credit transaction and in connection with any
agreement to purchase, redeem, exchange, convert or otherwise acquire for value
any Capital Stock of such Person, or any warrants, rights or options to acquire
such Capital Stock, now or hereafter outstanding, if, and to the extent, any of
the foregoing would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, (b) all obligations of such Person evidenced
by bonds, notes, debentures or other similar instruments, if, and to the
extent, any of the foregoing would appear as a liability upon a balance sheet
of such Person prepared in accordance with GAAP, (c) all Indebtedness of such
Person created or arising under any conditional sale or other title retention
agreement with respect to Property acquired by such Person (even if the rights
and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such Property), but excluding
trade accounts payable arising
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<PAGE> 20
in the ordinary course of business, (d) all Capitalized Lease Obligations of
such Person, (e) the Attributable Indebtedness (in excess of any related
Capitalized Lease Obligations) related to any Sale/Leaseback Transaction of
such Person, (f) all Indebtedness referred to in the preceding clauses of other
Persons and all dividends of other Persons, the payment of which is secured by
(or for which the holder of such Indebtedness has an existing right, contingent
or otherwise, to be secured by) any Lien upon Property (including, without
limitation, accounts and contract rights) owned by such Person, even though
such Person has not assumed or become liable for the payment of such
Indebtedness (the amount of such obligation being deemed to be the lesser of
the value of such Property or the amount of the obligation so secured), (g) all
guarantees by such Person of Indebtedness referred to in this definition
(including, with respect to any Production Payment, any warranties or
guaranties 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), (h) all Redeemable Capital Stock of
such Person valued at the greater of its voluntary or involuntary maximum fixed
repurchase price plus accrued dividends, (i) all obligations of such Person
under or in respect of currency exchange contracts and Interest Rate Protection
Obligations and (j) any amendment, supplement, modification, deferral, renewal,
extension or refunding of any liability of such Person of the types referred to
in clauses (a) through (i) above. For purposes hereof, the "maximum fixed
repurchase price" of any Redeemable Capital Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Redeemable Capital Stock as if such Redeemable Capital Stock were purchased on
any date on which Indebtedness shall be required to be determined pursuant to
this Indenture, and if such price is based upon, or measured by, the Fair
Market Value of such Redeemable Capital Stock, such Fair Market Value shall be
determined in good faith by the board of directors of the issuer of such
Redeemable Capital Stock, provided, however, that if such Redeemable Capital
Stock is not at the date of determination permitted or required to be
repurchased, the "maximum fixed repurchase price" shall be the book value of
such Redeemable Capital Stock. Subject to clause (g) of the first sentence of
this definition, neither Dollar-Denominated Production Payments nor Volumetric
Production Payments shall be deemed to be Indebtedness.
"Indenture" means this instrument as originally executed and as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Initial Purchasers" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Bear, Stearns & Co. Inc., Chase Securities Inc., Lehman Brothers
Inc. and Morgan Stanley Dean Witter, as initial purchasers in the Offering.
"Insolvency or Liquidation Proceeding" means, with respect to any
Person, (a) an insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization proceeding or other similar case or
proceeding, relative to such Person or to its creditors, as such, or its
assets, or (b) any liquidation, dissolution or reorganization proceeding of
such Person, whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy, or (c) any general assignment for the benefit of
creditors or any other marshalling of assets and liabilities of such Person.
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<PAGE> 21
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
"Interest Rate Protection Obligations" means the obligations of any
Person pursuant to any arrangement with any other Person whereby, directly or
indirectly, such person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest
on a stated notional amount in exchange for periodic payments made by such
Person calculated by applying a fixed or a floating rate of interest on the
same notional amount and shall include, without limitation, interest rate
swaps, caps, floors, collars and similar agreements or arrangements designed to
protect against or manage such Person's and any of its Subsidiaries' exposure
to fluctuations in interest rates.
"Investment" means, with respect to any Person, any direct or indirect
advance, loan guarantee of Indebtedness or other extension of credit 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 by such Person of any Capital Stock, bonds, notes,
debentures or other securities (including derivatives) or evidences of
Indebtedness issued by, any other Person. In addition, the Fair Market Value
of the net assets of any Restricted Subsidiary at the time that such Restricted
Subsidiary is designated an Unrestricted Subsidiary shall be deemed to be an
"Investment" made by the Company in such Unrestricted Subsidiary at such time.
"Investments" shall exclude (a) extensions of trade credit on commercially
reasonable terms in accordance with normal trade practices, (b) Interest Rate
Protection Obligations entered into in the ordinary course of business or as
required by any Permitted Indebtedness or any Indebtedness incurred in
compliance with Section 10.11 hereof, but only to the extent that the notional
principal amount of such Interest Rate Protection Obligations does not exceed
105% of the principal amount of such Indebtedness to which such Interest Rate
Protection Obligations relate and (c) bonds, notes, debentures or other
securities received as a result of Asset Sales permitted under Section 10.16
hereof.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or preference
or priority or other encumbrance or similar agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation,
any agreement to give or grant a Lien or any lease, conditional sale or other
title retention agreement having substantially the same economic effect as any
of the foregoing) upon or with respect to any Property of any kind. A Person
shall be deemed to own subject to a Lien any Property which such Person has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement.
"Material Change" means an increase or decrease (excluding changes
that result solely from changes in prices) of more than 50% during a fiscal
quarter in the estimated discounted future net cash flows 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 quarter of
oil and gas reserves that have been estimated by
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<PAGE> 22
a nationally recognized firm of independent petroleum engineers and on which a
report or reports exist and (ii) any disposition of Properties existing at the
beginning of such quarter that have been disposed of as provided in Section
10.16 hereof.
"Maturity" means, with respect to any Security, the date on which any
principal of such Security becomes due and payable as therein or herein
provided, whether at the Stated Maturity with respect to such principal or by
declaration of acceleration, call for redemption or purchase or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA, Section 414 of the Code or Section 3(37) of ERISA
(or any similar type of plan established or regulated under the laws of any
foreign country) to which the Company or any ERISA Affiliate is making or
accruing or has made or accrued an obligation to make contributions.
"Multiple Employer Plan" shall mean any employee benefit plan within
the meaning of Section 3(3) of ERISA, other than a Multiemployer Plan, subject
to Title IV of ERISA, to which the Company or any ERISA Affiliate and an
employer other than an ERISA Affiliate or the Company contribute and which is
subject to Section 4064 of ERISA.
"Net Cash Proceeds" means, with respect to any Asset Sale, the
proceeds thereof in the form of cash or Cash Equivalents including payments in
respect of deferred payment obligations when received in the form of cash or
Cash Equivalents (except to the extent that such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary), net of (i)
brokerage commissions and other fees and expenses (including fees and expenses
of legal counsel and investment banks) related to such Asset Sale, (ii)
provisions for all taxes payable as a result of such Asset Sale, (iii) amounts
required to be paid to any Person (other than the Company or any Restricted
Subsidiary) owning a beneficial interest in the Property subject to the Asset
Sale and (iv) appropriate amounts to be provided by the Company or any
Restricted Subsidiary, as the case may be, as a reserve required in accordance
with GAAP consistently applied against any liabilities associated with such
Asset Sale and retained by the Company or any Restricted Subsidiary, as the
case may be, after such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as reflected in an Officers' Certificate delivered to the
Trustee; provided, however, that any amounts remaining after adjustments,
revaluations or liquidations of such reserves shall constitute Net Cash
Proceeds.
"Net Working Capital" means (i) all current assets of the Company and
its Restricted Subsidiaries, minus (ii) all current liabilities of the Company
and its Restricted Subsidiaries, except current liabilities included in
Indebtedness, in each case as set forth in financial statements of the Company
prepared in accordance with GAAP.
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<PAGE> 23
"Non-payment Default" means, for purposes of Article XIV hereof, any
event (other than a Payment Default) the occurrence of which entitles one or
more persons to act to accelerate the maturity of any Designated Senior
Indebtedness.
"Non-recourse Indebtedness" means Indebtedness or that portion of
Indebtedness of the Company incurred in connection with the acquisition by the
Company of any Property and as to which (a) the holders of such Indebtedness
agree that they will look solely to the Property so acquired and securing such
Indebtedness for payment on or in respect of such Indebtedness and (b) no
default with respect to such Indebtedness would permit (after notice or passage
of time or both), according to the terms thereof, any holder of any
Indebtedness of the Company or a Restricted Subsidiary to declare a default on
such Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity.
"Ocean Louisiana" means Ocean Energy, Inc., a Louisiana corporation.
"Offering" means the Offering of the Series A Securities pursuant to
the Offering Memorandum.
"Offering Memorandum" means the Offering Memorandum of the Company,
dated June 26, 1997, relating to the Offering.
"Officer" means, with respect to any Person, the Chairman of the
Board, the President, any Vice President, the Chief Financial Officer or the
Treasurer of such Person.
"Officers' Certificate" means a certificate signed by the Chairman,
the President or a Vice President, and by the Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary of the Company, and
delivered to the Trustee.
"Oil and Gas Business" means (i) the acquisition, exploration,
development, operation and disposition of interests in oil, gas and other
hydrocarbon Properties, (ii) the gathering, marketing, treating, processing,
storage, refining, selling and transporting of any production from such
interests or Properties, (iii) any business relating to or arising from
exploration for or development, production, treatment, processing, storage,
refining, transportation or marketing of oil, gas and other minerals and
products produced in association therewith, and (iv) any activity necessary,
appropriate or incidental to the activities described in the foregoing clauses
(i) through (iii) of this definition.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company (or any Subsidiary Guarantor, if applicable), including
an employee of the Company (or any Subsidiary Guarantor, if applicable), and
who shall be reasonably acceptable to the Trustee.
"Outstanding", when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
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<PAGE> 24
(i) Securities theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Securities, or portions thereof, for whose payment or
redemption money in the necessary amount has been theretofore
deposited with the Trustee or any Paying Agent (other than the
Company) in trust or set aside and segregated in trust by the Company
(if the Company shall act as its own Paying Agent) for the Holders of
such Securities; provided that, if such Securities are to be redeemed,
notice of such redemption has been duly given pursuant to this
Indenture or provision therefor satisfactory to the Trustee has been
made;
(iii) Securities, except to the extent provided in Sections
12.2 and 12.3 hereof, with respect to which the Company has effected
defeasance and/or covenant defeasance as provided in Article XII
hereof; and
(iv) Securities which have been paid pursuant to Section
3.8 hereof or in exchange for or in lieu of which other Securities
have been authenticated and delivered pursuant to this Indenture,
other than any such Securities in respect of which there shall have
been presented to the Trustee proof satisfactory to it that such
Securities are held by a bona fide purchaser in whose hands the
Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, consent, notice or waiver hereunder, and for the
purpose of making the calculations required by TIA Section 313, Securities
owned by the Company, any Subsidiary Guarantor, or any other obligor upon the
Securities or any Affiliate of the Company, any Subsidiary Guarantor, or such
other obligor shall be disregarded and deemed not to be Outstanding, except
that, in determining whether the Trustee shall be protected in making such
calculation or in relying upon any such request, demand, authorization,
direction, consent, notice or waiver, only Securities which the Trustee knows
to be so owned shall be so disregarded. Securities so owned which have been
pledged in good faith may be regarded as Outstanding if the pledgee establishes
to the satisfaction of the Trustee the pledgee's right so to act with respect
to such Securities and that the pledgee is not the Company, any Subsidiary
Guarantor, or any other obligor upon the Securities or any Affiliate of the
Company, any Subsidiary Guarantor, or such other obligor.
"Pari Passu Indebtedness" means any Indebtedness of the Company that
is pari passu in right of payment to the Securities.
"Paying Agent" means any Person (including the Company acting as
Paying Agent) authorized by the Company to pay the principal of (and premium,
if any, on) or interest on any Securities on behalf of the Company.
"Payment Default" means any default in the payment when due (whether
at Stated Maturity, upon scheduled repayment, upon acceleration or otherwise)
of principal of or premium, if any, or
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interest on, or of unreimbursed amounts under drawn letter of credit or fees
relating to letter of credit constituting, any Designated Senior Indebtedness.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"PBGC Plan" shall mean any employee pension benefit plan as defined in
Section 3(2) of ERISA sponsored by the Company or an ERISA Affiliate (excluding
any Multiemployer Plan and any Multiple Employer Plan) and which is subject to
Title IV of ERISA or Section 412 of the Code.
"Permitted Guarantor Junior Securities" means with respect to any
Subsidiary Guarantor, so long as the effect of any exclusion employing this
definition is not to cause such Subsidiary Guarantee to be treated in any case
or proceeding or similar event described in clause (a), (b) or (c) of the
definition of Insolvency or Liquidation Proceeding as part of the same class of
claims as Guarantor Senior Indebtedness of such Subsidiary Guarantor or any
class of claims pari passu with, or senior to, Guarantor Senior Indebtedness of
such Subsidiary Guarantor, for any payment or distribution, debt or equity
securities of such Subsidiary Guarantor or any successor corporation provided
for or by a plan of reorganization or readjustment that are subordinated at
least to the same extent that such Subsidiary Guarantee is subordinated to the
payment of all Guarantor Senior Indebtedness of such Subsidiary Guarantor when
outstanding; provided that (i) if a new corporation results from such
reorganization or readjustment, such corporation assumes any Guarantor Senior
Indebtedness of such Subsidiary Guarantor not paid in full in cash or cash
equivalents in connection with such reorganization or readjustment and (ii) the
rights of the holders of such Guarantor Senior Indebtedness are not, without
the consent of such holders, altered by such reorganization or readjustment.
"Permitted Indebtedness" means any of the following:
(i) Indebtedness of the Company under one or more bank
credit or revolving credit facilities in an aggregate principal amount
at any one time outstanding not to exceed the greater of (A) $250
million and (B) an amount equal to the sum of (x) $50 million and (y)
25% of Adjusted Consolidated Net Tangible Assets determined as of the
date of the incurrence of such Indebtedness (such greater amount being
referred to as the "Adjusted Maximum Credit Amount") (plus interest
and fees payable under such facilities), less any amounts derived from
Asset Sales and applied to the required permanent reduction of Senior
Indebtedness (and a permanent reduction of the related commitment to
lend in the case of a revolving credit facility) under such credit
facilities as contemplated by Section 10.17(b)(i) hereof (the "Maximum
Credit Amount") (with the Maximum Credit Amount to be an aggregate
maximum amount for the Company and all Restricted Subsidiaries,
pursuant to clause (i) of the definition of "Permitted Subsidiary
Indebtedness"), and any renewals, amendments, extensions, supplements,
modifications, deferrals, refinancings or replacements (each, for
purposes of this clause, a "refinancing") thereof by the Company,
including any successive refinancings thereof by the Company, so long
as the aggregate principal amount of any such new Indebtedness,
together with the aggregate principal amount of all other
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<PAGE> 26
Indebtedness outstanding pursuant to this clause (i) (and clause (i)
of the definition of "Permitted Subsidiary Indebtedness") shall not at
any one time exceed the Maximum Credit Amount;
(ii) Indebtedness of the Company under the Securities;
(iii) Indebtedness of the Company outstanding on the date
of this Indenture (and not repaid or defeased with the proceeds of the
offering of the Securities and the concurrent offering of Common Stock
by the Company);
(iv) obligations of the Company pursuant to Interest Rate
Protection Obligations, but only to the extent such obligations do not
exceed 105% of the aggregate principal amount of the Indebtedness
covered by such Interest Rate Protection Obligations; obligations
under currency exchange contracts entered into in the ordinary course
of business; and hedging arrangements that the Company enters into in
the ordinary course of business for the purpose of protecting its
production against fluctuations in oil or natural gas prices;
(v) Indebtedness of the Company to any Restricted
Subsidiaries;
(vi) in-kind obligations relating to net gas balancing
positions arising in the ordinary course of business and consistent
with past practice;
(vii) Indebtedness in respect of bid, performance or surety
bonds issued for the account of the Company or any Restricted
Subsidiary in the ordinary course of business, including guarantees
and letters of credit supporting such bid, performance, surety or
other reimbursement obligations (in each case other than for an
obligation for money borrowed);
(viii) any renewals, extensions, substitutions, refinancings
or replacements (each, for purposes of this clause, a "refinancing")
by the Company of any Indebtedness of the Company other than
Indebtedness incurred pursuant to clauses (iv), (vii) and (viii) of
this definition, including any successive refinancings by the Company,
so long as (A) any such new Indebtedness shall be in a principal
amount that does not exceed the principal amount (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) so refinanced plus the amount of any premium required
to be paid in connection with such refinancing pursuant to the terms
of the Indebtedness refinanced or the amount of any premium reasonably
determined by the Company as necessary to accomplish such refinancing,
plus the amount of expenses of the Company incurred in connection with
such refinancing, (B) in the case of any refinancing of Subordinated
Indebtedness, such new Indebtedness is made subordinate to the
Securities at least to the same extent as the Indebtedness being
refinanced and (C) such new Indebtedness has an Average Life equal to
or longer than the Average Life of the
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<PAGE> 27
Indebtedness being refinanced and a final Stated Maturity equal to or
later than the final Stated Maturity of the Indebtedness being
refinanced;
(ix) Non-recourse Indebtedness;
(x) Indebtedness arising from agreements of the Company
or a Restricted Subsidiary providing for indemnification, adjustment
of the purchase price or similar obligations, in each case, incurred
or assumed in connection with the disposition of any business, assets
or a Subsidiary, other than guarantees of Indebtedness incurred by any
Person acquiring all or any portion of such business, assets or a
Subsidiary for the purpose of financing such acquisition; and
(xi) other Indebtedness of the Company and the Restricted
Subsidiaries that are Subsidiary Guarantors in an aggregate principal
amount not in excess of $25,000,000 at any one time outstanding.
"Permitted Investments" means any of the following: (i) Investments in
Cash Equivalents; (ii) Investments in the Company or any of its Restricted
Subsidiaries; (iii) Investments in an amount not to exceed 5% of Adjusted
Consolidated Net Tangible Assets at any one time outstanding; (iv) Investments
by the Company or any of its Restricted Subsidiaries in another Person, if as a
result of such Investment (A) such other Person becomes a Restricted Subsidiary
of the Company; or (B) such other Person is merged or consolidated with or
into, or transfers or conveys all or substantially all of its assets to, the
Company or a Restricted Subsidiary; (v) entry into operating agreements, joint
ventures, partnership agreements, working interests, royalty interests, mineral
leases, processing agreements, farm-out agreements, contracts for the sale,
transportation or exchange of oil and natural gas, unitization agreements,
pooling arrangements, area of mutual interest agreements or other similar or
customary agreements, transactions, properties, interests or arrangements, and
Investments and expenditures in connection therewith or pursuant thereto, in
each case made or entered into in the ordinary course of the Oil and Gas
Business, excluding, however, Investments in corporations; (vi) shares of
Capital Stock or other securities received in settlement of debts owed to the
Company or any of its Restricted Subsidiaries as a result of foreclosure,
perfection or enforcement of any Lien or indebtedness in connection with any
good faith settlement of a bankruptcy proceeding; or (vii) entry into any
hedging arrangements in the ordinary course of business for the purpose of
protecting the Company's or any Restricted Subsidiary's production against
fluctuations in oil or natural gas prices.
"Permitted Junior Securities" means, so long as the effect of any
exclusion employing this definition is not to cause the Securities to be
treated in any case or proceeding or similar event described in clause (a), (b)
or (c) of the definition of Insolvency or Liquidation Proceeding as part of the
same class of claims as Senior Indebtedness or any class of claims pari passu
with, or senior to, Senior Indebtedness, for any payment or distribution, debt
or equity securities of the Company or any successor corporation provided for
or by a plan of reorganization or readjustment that are subordinated at least
to the same extent that the Securities are subordinated to the payment of all
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<PAGE> 28
Senior Indebtedness when outstanding; provided that (i) if a new corporation
results from such reorganization or readjustment, such corporation assumes any
Senior Indebtedness not paid in full in cash or cash equivalents in connection
with such reorganization or readjustment and (ii) the rights of the holders of
such Senior Indebtedness are not, without the consent of such holders, altered
by such reorganization or readjustment.
"Permitted Liens" means the following types of Liens:
(a) Liens existing as of the date the Securities are
first issued;
(b) Liens securing the Securities;
(c) Liens in favor of the Company or a Restricted
Subsidiary that is a Subsidiary Guarantor;
(d) Liens securing Senior Indebtedness or Guarantor
Senior Indebtedness;
(e) Liens for taxes, assessments and governmental charges
or claims either (i) not delinquent or (ii) contested in good faith by
appropriate proceedings and as to which the Company or its Restricted
Subsidiaries shall have set aside on its books such reserves as may be
required pursuant to GAAP;
(f) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen and other
Liens imposed by law incurred in the ordinary course of business for
sums not delinquent or being contested in good faith, if such reserve
or other appropriate provision, if any, as shall be required by GAAP
shall have been made in respect thereof;
(g) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation,
unemployment insurance and other types of social security, or to
secure the payment or performance of tenders, statutory or regulatory
obligations, surety and appeal bonds, bids, leases, government
contracts and leases, performance and return of money bonds and other
similar obligations (exclusive of obligations for the payment of
borrowed money but including lessee or operator obligations under
statutes, governmental regulations or instruments related to the
ownership, exploration and production of oil, gas and minerals on
state, Federal or foreign lands or waters);
(h) judgment Liens not giving rise to an Event of Default
so long as any appropriate legal proceedings which may have been duly
initiated for the review of such judgment shall not have been finally
terminated or the period within which such proceeding may be initiated
shall not have expired;
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(i) easements, rights-of-way, restrictions and other
similar charges or encumbrances not interfering in any material
respect with the ordinary conduct of the business of the Company or
any of its Restricted Subsidiaries;
(j) any interest or title of a lessor under any
Capitalized Lease Obligation or operating lease;
(k) Liens resulting from the deposit of funds or
evidences of Indebtedness in trust for the purpose of defeasing
Indebtedness of the Company or any of the Subsidiaries;
(l) Liens securing obligations under hedging agreements
that the Company or any Restricted Subsidiary enters into in the
ordinary course of business for the purpose of protecting its
production against fluctuations in oil or natural gas prices;
(m) Liens upon specific items of inventory or other goods
and proceeds of any Person securing such Person's obligations in
respect of bankers' acceptances issued or created for the account of
such Person to facilitate the purchase, shipment or storage of such
inventory or other goods;
(n) Liens securing reimbursement obligations with respect
to commercial letters of credit which encumber documents and other
Property relating to such letters of credit and products and proceeds
thereof;
(o) Liens encumbering Property under construction arising
from progress or partial payments by a customer of the Company or its
Restricted Subsidiaries relating to such Property;
(p) Liens encumbering deposits made to secure obligations
arising from statutory, regulatory, contractual or warranty
requirements of the Company or any of its Restricted Subsidiaries,
including rights of offset and set-off;
(q) Liens securing Interest Rate Protection Obligations
which Interest Rate Protection Obligations relate to Indebtedness that
is secured by Liens otherwise permitted under this Indenture;
(r) Liens on, or related to, Properties to secure all or
part of the costs incurred in the ordinary course of business for the
exploration, drilling, development or operation thereof;
(s) Liens on pipeline or pipeline facilities which arise
out of operation of law;
(t) Liens arising under operating agreements, joint
venture agreements, partnership agreements, oil and gas leases,
farm-out agreements, division orders, contracts
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<PAGE> 30
for the sale, transportation or exchange of oil and natural gas,
unitization and pooling declarations and agreements, area of mutual
interest agreements and other agreements which are customary in the
Oil and Gas Business;
(u) Liens reserved in oil and gas mineral leases for
bonus or rental payments and for compliance with the terms of such
leases;
(v) Liens constituting survey exceptions, encumbrances,
easements or reservations of, or rights to others for, rights-of-way,
zoning or other restrictions as to the use of real properties, and
minor defects of title which, in the case of any of the foregoing,
were not incurred or created to secure the payment of borrowed money
or the deferred purchase price of Property or services, and in the
aggregate do not materially adversely affect the value of Property of
the Company and the Restricted Subsidiaries, taken as a whole, or
materially impair the use of such Properties for the purposes of which
such Properties are held by the Company or any Restricted
Subsidiaries; and
(w) Liens securing Non-recourse Indebtedness; provided,
however, that the related Non-recourse Indebtedness shall not be
secured by any Property of the Company or any Restricted Subsidiary
other than the Property acquired by the Company with the proceeds of
such Non-recourse Indebtedness;
Notwithstanding anything in clauses (a) through (w) of this definition, the
term "Permitted Liens" does not include any Liens resulting from the creation,
incurrence, issuance, assumption or guarantee of any Production Payments other
than Production Payments that are created, incurred, issued, assumed or
guaranteed in connection with the financing of, and within 30 days after, the
acquisition of the Properties that are subject thereto.
"Permitted Subsidiary Indebtedness" means any of the following:
(i) Indebtedness of any Restricted Subsidiary under one
or more bank credit or revolving credit facilities (and "refinancings"
thereof) in an amount at any one time outstanding not to exceed the
Maximum Credit Amount (in the aggregate for all Restricted
Subsidiaries and the Company, pursuant to clause (i) of the definition
of "Permitted Indebtedness");
(ii) Indebtedness of any Restricted Subsidiary outstanding
on the date of this Indenture;
(iii) obligations of any Restricted Subsidiary pursuant to
Interest Rate Protection Obligations, but only to the extent such
obligations do not exceed the aggregate principal amount of the
Indebtedness covered by such Interest Rate Protection Obligations; and
hedging arrangements that any Restricted Subsidiary enters into in the
ordinary course of
23
<PAGE> 31
business for the purpose of protecting its production against
fluctuations in oil or natural gas prices;
(iv) the Subsidiary Guarantees of the Securities and
Senior Notes (and any assumptions of the obligations guaranteed
thereby);
(v) Indebtedness of any Restricted Subsidiary relating to
guarantees by such Restricted Subsidiary of the Indebtedness of the
Company under any bank credit facility that constitutes Permitted
Indebtedness pursuant to clause (i) of the definition of "Permitted
Indebtedness;"
(vi) Indebtedness of any Restricted Subsidiary to any
other Restricted Subsidiary or to the Company;
(vii) Indebtedness relating to guarantees of any Restricted
Subsidiary permitted to be incurred pursuant to Section 10.12 hereof;
and
(viii) any renewals, extensions, substitutions, refinancings
or replacements (each, for purposes of this clause, a "refinancing")
by any Restricted Subsidiary of any Indebtedness of such Restricted
Subsidiary, including any successive refinancings by such Restricted
Subsidiary, so long as (x) any such new Indebtedness shall be in a
principal amount that does not exceed the principal amount (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) so refinanced plus the amount of any premium required
to be paid in connection with such refinancing pursuant to the terms
of the Indebtedness refinanced or the amount of any premium reasonably
determined by such Restricted Subsidiary as necessary to accomplish
such refinancing, plus the amount of expenses of such Subsidiary
incurred in connection with such refinancing and (y) such new
Indebtedness has an Average Life equal to or longer than the Average
Life of the Indebtedness being refinanced and a final Stated Maturity
equal to or later than the final Stated Maturity of the Indebtedness
being refinanced.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 3.8 hereof in exchange for a
mutilated security or in lieu of a lost, destroyed or stolen Security shall be
deemed to evidence the same debt as the mutilated, lost, destroyed or stolen
Security.
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<PAGE> 32
"Preferred Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
such Person's preferred or preference stock, whether now outstanding or issued
after the date of this Indenture, including, without limitation, all classes
and series or preferred or preference stock of such Person.
"Production Payments" means, collectively, Dollar-Denominated
Production Payments and Volumetric Production Payments.
"Property" means, with respect to any Person, any interest of such
Person in any kind of property or asset, whether real, personal or mixed, or
tangible or intangible, including, without limitation, Capital Stock in any
other Person.
"Public Equity Offering" means an underwritten public offering for
cash by the Company of its Qualified Capital Stock pursuant to a registration
statement that has been declared effective by the Commission (other than a
registration statement on Form S-8 or any successor form or otherwise relating
to equity securities issuable under any employee benefit plan of the Company).
"Qualified Capital Stock" of any Person means any and all Capital
Stock of such Person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any class or series of Capital Stock
that, either by its terms, by the terms of any security into which it is
convertible or exchangeable or by contract or otherwise, is, or upon the
happening of an event or passage of time would be, required to be redeemed
prior to the final Stated Maturity of the Securities or is redeemable at the
option of the holder thereof at any time prior to such final Stated Maturity,
or is convertible into or exchangeable for debt securities at any time prior to
such final Stated Maturity.
"Redemption Date," when used with respect to any Security to be
redeemed, in whole or in part, means the date fixed for such redemption by or
pursuant to this Indenture.
"Redemption Price," when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Registrable Securities" shall have the meaning assigned to such term
in the Registration Rights Agreement.
"Registration Rights Agreement" means that certain Registration Rights
Agreement dated as of July 2, 1997, among the Company and the Initial
Purchasers.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the January 1 or July 1 (whether or not a Business Day), as the case
may be, next preceding such Interest Payment Date.
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<PAGE> 33
"Reportable Event" shall mean any event described in Section 4043
(excluding subsections (b)(7) and (b)(9)) of ERISA and the regulations issued
thereunder (other than a Reportable Event not subject to the provision for
thirty-day notice to the PBGC under such regulations).
"Responsible Officer," when used with respect to the Trustee, means
any officer in the Corporate Trust Administration Department of the Trustee,
and also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of his knowledge of and
familiarity with the particular subject.
"Restricted Subsidiary" means any Subsidiary of the Company, whether
existing on or after the date of this Indenture, unless such Subsidiary of the
Company is an Unrestricted Subsidiary or is designated as an Unrestricted
Subsidiary pursuant to the terms of this Indenture.
"Rule 144A" means Rule 144A under the Securities Act.
"S&P" means Standard and Poor's Ratings Group and its successors.
"Sale/Leaseback Transaction" means, with respect to any Person, any
direct or indirect arrangement pursuant to which Properties are sold or
transferred by such Person or a Subsidiary of such Person and are thereafter
leased back from the purchaser or transferee thereof by such Person or one of
its Subsidiaries.
"Securities" has the meaning stated in the first recital of this
Indenture and more particularly means any Securities authenticated and
delivered under this Indenture.
"Securities Act" means the Securities of 1933, as amended, or any
successor statute.
"Security Custodian" means the Trustee, as custodian with respect to
the Global Securities, or any successor entity thereto.
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 3.5 hereof.
"Senior Indebtedness" means the principal of, premium, if any, and
interest on any Indebtedness of the Company (including, in the case of the
Credit Agreement and the Senior Notes, interest accruing after the filing of a
petition by or against the Company under any bankruptcy law, in accordance with
and at the rate, including any default rate, specified with respect to such
indebtedness, whether or not a claim for such interest is allowed as a claim
after such filing in any proceeding under such bankruptcy law), whether
outstanding on the date of the Indenture or thereafter created, incurred or
assumed, unless, in the case of any particular Indebtedness, the instrument
creating or evidencing the same or pursuant to which the same is outstanding
expressly provides that such Indebtedness shall not be senior in right of
payment to the Notes. Notwithstanding the foregoing, "Senior Indebtedness"
shall not include (a) Indebtedness evidenced
26
<PAGE> 34
by the Notes, (b) Indebtedness that is expressly subordinate or junior in right
of payment to any Senior Indebtedness of the Company, (c) Indebtedness which,
when incurred and without respect to any election under Section 1111(b) of
Title 11 United States Code, is by its terms without recourse to the Company,
(d) any repurchase, redemption or other obligation in respect of Redeemable
Capital Stock of the Company, (e) to the extent it might constitute
Indebtedness, any liability for federal, state, local or other taxes owed or
owing by the Company, (f) Indebtedness of the Company to a Subsidiary of the
Company or any other Affiliate of the Company or any of such Affiliate's
Subsidiaries, and (g) that portion of any Indebtedness of the Company which at
the time of issuance is issued in violation of the Indenture (but, as to any
such Indebtedness, no such violation shall be deemed to exist for purposes of
this clause (g) if the holder(s) of such Indebtedness or their representative
or the Company shall have furnished to the Trustee an opinion of counsel
unqualified in all material respects of independent legal counsel, addressed to
the Trustee (which legal counsel may, as to matters of fact, rely upon a
certificate of the Company) to the effect that the incurrence of such
Indebtedness does not violate the provisions of such Indenture); provided that
the foregoing exclusions shall not affect the priorities of any Indebtedness
arising solely by operation of law in any case or proceeding or similar event
described in clause (a), (b) or (c) of the definition of Insolvency or
Liquidation Proceeding.
"Senior Notes" means the 13 1/2% Senior Notes due 2004 of the Company
issued pursuant to the Indenture, dated as of December 1, 1994, between the
Company, as issuer, Ocean Louisiana, as subsidiary guarantor, and State Street
Bank and Trust Company (successor to Shawmut Bank Connecticut, National
Association, as trustee.
"Senior Note Obligations" means all monetary obligations of every
nature of the Company or a Restricted Subsidiary, including without limitation,
obligations to pay principal and interest, fees, expenses and indemnities, from
time to time owed to the holders or the trustee in respect of the Senior Notes.
"Senior Representative" means the Bank Agent or any other
representatives designated in writing to the Trustee of the holders of any
class or issue of Designated Senior Indebtedness; provided that, in the absence
of a representative of the type described above, any holder or holders of a
majority of the principal amount outstanding of any class or issue of
Designated Senior Indebtedness may collectively act as Senior Representative
for such class or issue, subject to the provisions of any agreements relating
to such Designated Senior Indebtedness.
"Senior Subordinated Note Obligations" means any principal of,
premium, if any, and interest on, and any other amounts (including, without
limitation, any payment obligations with respect to the Securities as a result
of any Asset Sale, Change of Control or redemption) owing in respect of, the
Securities payable pursuant to the terms of the Securities or the Indenture or
upon acceleration of the Securities.
"Series A Securities" means the Company's 8 7/8% Series A Senior Notes
due 2007 to be issued pursuant to this Indenture.
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<PAGE> 35
"Series B Securities" means the Company's 8 7/8% Series B Senior Notes
due 2007 to be issued pursuant to this Indenture in the Exchange Offer.
"Special Record Date" for the payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 3.9 hereof.
"Stated Maturity" means, when used with respect to any Security or any
installment of interest thereon, the date specified in such Security as the
fixed date on which the principal of such Security or such installment of
interest is due and payable, and, when used with respect to any other
Indebtedness or any installment of interest thereon, means the date specified
in the instrument evidencing or governing such Indebtedness as the fixed date
on which the principal of such Indebtedness or such installment of interest is
due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company which is
expressly subordinated in right of payment to the Securities.
"Subsidiary" means, with respect to any Person, (i) a corporation a
majority of whose Voting Stock is at the time, directly or indirectly, owned by
such Person, by one or more Subsidiaries of such Person or by such Person and
one or more Subsidiaries thereof or (ii) any other Person (other than a
corporation), including, without limitation, a joint venture, in which such
Person, one or more Subsidiaries thereof or such Person and one or more
Subsidiaries thereof, directly or indirectly, at the date of determination
thereof, has at least majority ownership interest entitled to vote in the
election of directors, managers or trustees thereof (or other Person performing
similar functions).
"Subsidiary Guarantee" has the meaning specified in Section 13.1
hereof.
"Subsidiary Guarantor" means (i) Ocean Louisiana, (ii) each of the
Company's Restricted Subsidiaries that becomes a guarantor of the Securities in
compliance with the provisions of Section 10.12 or Section 13.1 hereof and
(iii) each of the Company's Subsidiaries executing a supplemental indenture in
which such Subsidiary agrees to be bound by the terms of this Indenture and to
guarantee on an unsubordinated basis the payment of the Securities pursuant to
the provisions of Article XIII hereof.
"Transfer Restricted Securities" means the Registrable Securities
under the Registration Rights Agreement.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939,
as amended and in force at the date as of which this Indenture was executed,
except as provided in Section 9.5 hereof.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
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"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that
at the time of determination will be designated an Unrestricted Subsidiary by
the Board of Directors of the Company as provided below and (ii) any Subsidiary
of an Unrestricted Subsidiary. The Board of Directors of the Company may
designate any Subsidiary of the Company as an Unrestricted Subsidiary so long
as (a) neither the Company nor any Restricted Subsidiary is directly or
indirectly liable pursuant to the terms of any Indebtedness of such Subsidiary;
(b) no default with respect to any Indebtedness of such Subsidiary would permit
(upon notice, lapse of time or otherwise) 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; (c) neither the Company nor any Restricted Subsidiary has
made an Investment in such Subsidiary unless such Investment was made pursuant
to, and in accordance with, Section 10.10 hereof (other than Investments of the
type described in clause (iv) of the definition of Permitted Investments); and
(d) such designation shall not result in the creation or imposition of any Lien
on any of the Properties of the Company or any Restricted Subsidiary (other
than any Permitted Lien or any Lien the creation or imposition of which shall
have been in compliance with Section 10.14 hereof); provided, however, that
with respect to clause (a), the Company or a Restricted Subsidiary may be
liable for Indebtedness of an Unrestricted Subsidiary if (x) such liability
constituted a Permitted Investment or a Restricted Payment permitted by Section
10.10 hereof, in each case at the time of incurrence, or (y) the liability
would be a Permitted Investment at the time of designation of such Subsidiary
as an Unrestricted Subsidiary. Any such designation by the Board of Directors
of the Company shall be evidenced to the Trustee by filing a Board Resolution
with the Trustee giving effect to such designation. The Board of Directors of
the Company may designate any Unrestricted Subsidiary as a Restricted
Subsidiary if, immediately after giving effect to such designation, (i) no
Default or Event of Default shall have occurred and be continuing, (ii) the
Company could incur $1.00 of additional Indebtedness (not including the
incurrence of Permitted Indebtedness) under Section 10.11(a) hereof and (iii)
if any of the Properties of the Company or any of its Restricted Subsidiaries
would upon such designation become subject to any Lien (other than a Permitted
Lien), the creation or imposition of such Lien shall have been in compliance
with Section 10.14 hereof.
"Vice President," when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
"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" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person (irrespective of whether or not, at the time, stock
of any other class or classes shall have, or might have, voting power by reason
of the happening of any contingency).
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"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary
to the extent all of the Capital Stock or other ownership interests in such
Restricted Subsidiary, other than any directors qualifying shares mandated by
applicable law, is owned directly or indirectly by the Company.
Section 1.2 Other Definitions.
<TABLE>
<CAPTION>
Defined
Term in Section
---- ----------
<S> <C>
"Agent Members . . . . . . . . . . . . . . . . . . . . . . . . 3.6
"Change of Control Notice" . . . . . . . . . . . . . . . . . . 10.15(c)
"Change of Control Offer" . . . . . . . . . . . . . . . . . . . 10.15(a)
"Change of Control Purchase Date" . . . . . . . . . . . . . . . 10.15(c)
"Change of Control Purchase Price" . . . . . . . . . . . . . . 10.15(a)
"Defaulted Interest" . . . . . . . . . . . . . . . . . . . . . 3.8
"Global Security" . . . . . . . . . . . . . . . . . . . . . . . 2.1
"Funding Guarantor" . . . . . . . . . . . . . . . . . . . . . . 13.5
"Excess Proceeds" . . . . . . . . . . . . . . . . . . . . . . . 10.16(b)
"Investment Grade Ratings" . . . . . . . . . . . . . . . . . . 10.21
"Net Proceeds Deficiency" . . . . . . . . . . . . . . . . . . . 10.16(c)
"Net Proceeds Offer" . . . . . . . . . . . . . . . . . . . . . 10.16(c)
"Net Proceeds Payment Date" . . . . . . . . . . . . . . . . . . 10.16(c)
"Offered Price" . . . . . . . . . . . . . . . . . . . . . . . . 10.16(c)
"Pari Passu Indebtedness Amount" . . . . . . . . . . . . . . . 10.16(c)
"Pari Passu Offer" . . . . . . . . . . . . . . . . . . . . . . 10.16(c)
"Payment Amount" . . . . . . . . . . . . . . . . . . . . . . . 10.16(b)
"Payment Blockage Notice" . . . . . . . . . . . . . . . . . . . 14.3(b)
"Payment Blockage Period" . . . . . . . . . . . . . . . . . . 14.3(b)
"Physical Securities" . . . . . . . . . . . . . . . . . . . . . 2.1
"Permitted Payments" . . . . . . . . . . . . . . . . . . . . . 10.10(b)
"Purchase Notice" . . . . . . . . . . . . . . . . . . . . . . . 10.16(c)
"Rating Agencies" . . . . . . . . . . . . . . . . . . . . . . . 10.21
"Restricted Payment" . . . . . . . . . . . . . . . . . . . . . 10.10(a)
"Subsidiary Guarantor Non-payment Default" . . . . . . . . . . 13.9(b)
"Subsidiary Guarantor Payment Default" . . . . . . . . . . . . 13.9(a)
"Subsidiary Guarantor Payment Notice" . . . . . . . . . . . . . 13.9(b)
"Surviving Entity" . . . . . . . . . . . . . . . . . . . . . . 8.1(a)
"Suspended Covenants" . . . . . . . . . . . . . . . . . . . . . 10.21
"Trigger Date" . . . . . . . . . . . . . . . . . . . . . . . . 10.16(c)
"U.S. Government Obligations" . . . . . . . . . . . . . . . . . 12.4(a)
</TABLE>
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<PAGE> 38
Section 1.3 Incorporation by Reference of Trust Indenture
Act. Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture. The
following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Securities,
"indenture security holder" means a Holder,
"indenture to be qualified" means this Indenture,
"indenture trustee" or "institutional trustee" means the
Trustee, and
"obligor" on the indenture securities means the Company or any
other obligor on the Securities.
All other TIA terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by Commission
rule and not otherwise defined herein have the meanings assigned to them
therein.
Section 1.4 Rules of Construction. For all purposes of
this Indenture, except as otherwise expressly provided or unless the context
otherwise requires:
(a) The terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular;
(b) all accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with GAAP;
(c) the words "herein", "hereof" and "hereunder" and
other words of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision;
(d) unless the context otherwise requires, the word "or"
is not exclusive;
(e) provisions apply to successive events and
transactions; and
(f) references to agreements and other instruments
include subsequent amendments and waivers but only to the extent not prohibited
by this Indenture.
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<PAGE> 39
ARTICLE II
SECURITY FORMS
Section 2.1 Forms Generally. The Definitive Securities
shall be printed, lithographed or engraved on steel-engraved borders or may be
produced in any other manner, all as determined by the officers executing such
Securities or notations of Subsidiary Guarantees, as the case may be, as
evidenced by their execution of such Securities or notations of Subsidiary
Guarantees, as the case may be.
Securities (including the notations thereon relating to the
Subsidiary Guarantees and the Trustees certificate of authentication) bought
and sold in reliance on Rule 144A shall be issued initially in the form of one
or more permanent global Securities substantially in the form set forth in
Sections 2.2 through 2.5 hereof (the "Global Security") deposited with the
Trustee, as custodian for the Depositary, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. Subject to the
limitation set forth in Section 3.1, the principal amount of the Global
Securities may be increased or decreased from time to time by adjustments made
on the records of the Trustee as custodian for the Depositary, as hereinafter
provided.
Securities (including the notations thereon relating to the
Subsidiary Guarantees and the Trustees certificate of authentication) offered
and sold other than as described in the preceding paragraph shall be issued in
the form of permanent certificated Securities in registered form in
substantially the for set forth in Sections 2.2 through 2.5 hereto ("Physical
Securities").
The Securities, the notations thereon relating to the
Subsidiary Guarantees and the Trustee's certificate of authentication shall be
in substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such Securities
or notations of Subsidiary Guarantees, as the case may be, as evidenced by
their execution of the Securities or notations of Subsidiary Guarantees, as the
case may be. Any portion of the text of any Security may be set forth on the
reverse thereof, with an appropriate reference thereto on the face of the
Security. In addition to the requirements of Section 2.3, the Securities may
also have set forth on the reverse side thereof a form of assignment and forms
to elect purchase by the Company pursuant to Sections 10.15 and 10.16 hereof.
Section 2.2 Form of Face of Security.
OCEAN ENERGY, INC.
8 7/8% Series [A/B] Senior Subordinated Note due 2007
32
<PAGE> 40
No. _____ $__________
CUSIP No. [Series A:__________]
[Series B:__________]
Ocean Energy, Inc., a Delaware corporation (herein called the
"Company," which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
________________________ or registered assigns the principal sum of
_______________ Dollars on July 15, 2007, at the office or agency of the
Company referred to below, and to pay interest thereon, commencing on January
15, 1998 and continuing semiannually thereafter, on January 15 and July 15 in
each year, from July 2, 1997, or from the most recent Interest Payment Date to
which interest has been paid or duly provided for, at the rate of 8 7/8% per
annum, until the principal hereof is paid or duly provided for, and (to the
extent lawful) to pay on demand interest on any overdue interest at the rate
borne by the Securities from the date on which such overdue interest becomes
payable to the date payment of such interest has been made or duly provided
for. The interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the January 1 or July 1 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Any such
interest not so punctually paid or duly provided for shall forthwith cease to
be payable to the Holder on such Regular Record Date, and such defaulted
interest, and (to the extent lawful) interest on such defaulted interest at the
rate borne by the Securities, may be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice whereof shall be given to Holders of Securities
not less than 10 days prior to such Special Record Date, or may be paid at any
time in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such notice
as may be required by such exchange, all as more fully provided in said
Indenture.
Payment of the principal of (and premium, if any, on) and
interest on this Security will be made at the office or agency of the Company
maintained for that purpose in The City of New York, or at such other office or
agency of the Company as may be maintained for such purpose, in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts; provided however, that payment
of interest may be made at the option of the Company (i) by check mailed to the
address of the Person entitled thereto as such address shall appear on the
Security Register or (ii) with respect to any Holder owning Securities in the
principal amount of $500,000 or more, by wire transfer to an account maintained
by the Holder located in the United States, as specified in a written notice to
the Trustee by any such Holder requesting payment by wire transfer and
specifying the account to which transfer is requested.
[Unless and until it is exchanged in whole or in part for Securities in
definitive form, this Security may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the
33
<PAGE> 41
Depositary or any such nominee to a successor Depositary or a nominee of such
successor Depositary. The Depository Trust Company shall act as the Depositary
until a successor shall be appointed by the Company and the Registrar. 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)
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER
THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF
THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE
TRANSFER SUCH SECURITY, PRIOR TO THE DATE THAT IS TWO YEARS AFTER THE LATER OF
THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DAY ON WHICH OCEAN ENERGY, INC.
(THE "COMPANY") OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY
(OR ANY PREDECESSOR OF THIS SECURITY) (THE "RESALE RESTRICTION TERMINATION
DATE") EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THIS SECURITY IS
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE
144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER"
AS DEFINED IN RULE 144A THAT IS ACQUIRING SUCH SECURITY FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT
THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a)(1), (2), (3) OR
(7) OF RULE 501 UNDER THE SECURITIES ACT ("INSTITUTIONAL ACCREDITED INVESTOR")
THAT IS ACQUIRING SUCH SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF
ANOTHER INSTITUTIONAL ACCREDITED INVESTOR, 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 THAT CERTAIN HOLDERS SPECIFIED IN THE
INDENTURE MAY NOT TRANSFER THIS SECURITY PURSUANT TO THIS CLAUSE (D) PRIOR TO
THE EXPIRATION OF THE "40-DAY RESTRICTED PERIOD" (WITHIN THE MEANING OF RULE
903(c)(3) OF REGULATION S
- ---------------------------------
(1) This paragraph should be included only if the Security
is issued in global form.
34
<PAGE> 42
UNDER THE SECURITIES ACT), (E) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH
REGULATION S UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECK CHECKED BY
THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS NOTE),
AND, IF SUCH TRANSFER IS BEING EFFECTED BY CERTAIN TRANSFERORS SPECIFIED IN THE
INDENTURE (AS DEFINED BELOW) PRIOR TO THE EXPIRATION OF THE "40-DAY RESTRICTED
PERIOD" (WITHIN THE MEANING OF RULE 903(C)(3) OF REGULATION S UNDER THE
SECURITIES ACT), A CERTIFICATE WHICH MAY BE OBTAINED FROM THE COMPANY OR THE
TRUSTEE IS DELIVERED BY THE TRANSFEREE TO THE COMPANY AND THE TRUSTEE, OR (F)
PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
UNDER THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT
PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSES (D) OR (E) TO
REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER
INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii) IN EACH OF THE FOREGOING
CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS
SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS
LEGEND WILL BE REMOVED UPON THE REQUEST OF A HOLDER AFTER THE RESALE
RESTRICTION TERMINATION DATE. THE HOLDER HEREOF, BY PURCHASING THIS SECURITY,
REPRESENTS AND AGREES FOR THE BENEFIT OF THE COMPANY THAT IT IS (1) A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A OR (2) AN INSTITUTION THAT
IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2), (3), OR (7)
UNDER THE SECURITIES ACT AND THAT IT IS HOLDING THIS SECURITY FOR INVESTMENT
PURPOSES AND NOT FOR DISTRIBUTION OR (3) A NON-U.S. PERSON OUTSIDE THE UNITED
STATES WITHIN THE MEANING OF (OR AN ACCOUNT SATISFYING THE REQUIREMENTS OF)
PARAGRAPH (o)(2) OF RULE 902 UNDER REGULATION S UNDER THE SECURITIES ACT.
Reference is hereby made to the further provisions of this
Security set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof by manual signature,
this Security shall not be entitled to any benefit under the Indenture, or be
valid or obligatory for any purpose.
35
<PAGE> 43
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed under its corporate seal.
OCEAN ENERGY, INC.
By:
-------------------------------------
Chairman of the Board
Attest:
- ------------------------------
Secretary
Section 2.3 Form of Reverse of Security. This Security
is one of a duly authorized issue of securities of the Company designated as
its 8 7/8% Series [A/B] Senior Notes due 2007 (herein called the "Securities"),
limited (except as otherwise provided in the Indenture referred to below) in
aggregate principal amount to $200,000,000, which may be issued under an
indenture (herein called the "Indenture") dated as of July 2, 1997 between the
Company, the Subsidiary Guarantors and State Street Bank and Trust Company, as
trustee (herein called the "Trustee," which term includes any successor trustee
under the Indenture), to which Indenture and all indentures supplemental
thereto reference is hereby made for a statement of the respective rights,
limitations of rights, duties, obligations and immunities thereunder of the
Company, the Subsidiary Guarantors, the Trustee and the Holders of the
Securities, and of the terms upon which the Securities are, and are to be,
authenticated and delivered.
The Indebtedness evidenced by the Securities is, to the extent
and in the manner provided in the Indenture, subordinate and subject in right
of payment to the prior payment in full of all Senior Indebtedness (as defined
in the Indenture) and this Security is issued subject to such provisions. Each
Holder of this Security, by accepting the same, (i) agrees to and shall be
bound by such provisions, (ii) authorizes and directs the Trustee on his behalf
to take such action as may be necessary or appropriate to effectuate the
subordination as provided in the Indenture and (iii) appoints the Trustee as
his attorney-in-fact for such purpose.
The Securities are subject to redemption, at the option of the
Company, in whole or in part, at any time on or after July 15, 2002, upon not
less than 30 or more than 60 days' notice at the following Redemption Prices
(expressed as percentages of principal amount) set forth below if redeemed
during the 12-month period beginning July 15 of the years indicated below:
36
<PAGE> 44
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104.438%
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102.958%
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101.479%
2005 and thereafter . . . . . . . . . . . . . . . . . . . . . . . 100.000%
</TABLE>
together in the case of any such redemption with accrued and unpaid interest,
if any, to the Redemption Date (subject to the right of Holders of record on
the relevant Regular Record Date to receive interest due on an Interest Payment
Date that is on or prior to the Redemption Date), all as provided in the
Indenture.
At any time and from time to time prior to July 15, 2000, the
Company may, at its option, redeem Securities in an amount in the aggregate
equal to up to $70,000,000 of the aggregate principal amount of Securities
originally issued under the Indenture with the proceeds of one or more Public
Equity Offerings by the Company at a redemption price (expressed as a
percentage of principal amount) of 108.875% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the applicable Redemption Date
(subject to the right of Holders of Securities on the relevant record date to
receive interest due on the relevant Interest Payment Date); provided, however,
that at least $130,000,000 million aggregate principal amount of the Securities
must remain outstanding after each such redemption. In order to effect the
foregoing redemption, the Company must mail notice of redemption no later than
60 days after the related Public Equity Offering and must consummate such
redemption within 90 days of the closing of the Public Equity Offering.
In the case of any redemption of Securities, interest
installments whose Stated Maturity is on or prior to the Redemption Date will
be payable to the Holders of such Securities, or one or more Predecessor
Securities, of record at the close of business on the relevant Record Date
referred to on the face hereof. Securities (or portions thereof) for whose
redemption and payment provision is made in accordance with the Indenture shall
cease to bear interest from and after the Redemption Date. In the event of
redemption or purchase of this Security in part only, a new Security or
Securities for the unredeemed or unpurchased portion hereof shall be issued in
the name of the Holder hereof upon the cancellation hereof.
The Securities do not have the benefit of any sinking fund
obligations.
In the event of a Change of Control of the Company, and
subject to certain conditions and limitations provided in the Indenture, the
Company will be obligated to make an offer to purchase, on a Business Day not
more than 70 or less than 30 days following the occurrence of a Change of
Control of the Company, all of the then outstanding Securities at a purchase
price equal to 101% of the principal amount thereof, together with accrued and
unpaid interest to the Change of Control Purchase Date, all as provided in the
Indenture.
37
<PAGE> 45
In the event of Asset Sales, under certain circumstances, the
Company will be obligated to make a Net Proceeds Offer to purchase all or a
specified portion of each Holder's Securities at a purchase price equal to 100%
of the principal amount of the Securities, together with accrued and unpaid
interest to the Net Proceeds Payment Date.
As set forth in the Indenture, an Event of Default is
generally (i) failure to pay principal upon maturity, redemption or otherwise
(including pursuant to a Change of Control Offer or a Net Proceeds Offer); (ii)
default for 30 days in payment of interest on any of the Securities; (iii)
default in the performance of agreements relating to mergers, consolidations
and sales of all or substantially all assets or the failure to make or
consummate a Change of Control Offer or a Net Proceeds Offer; (iv) failure for
30 days after notice to comply with any other covenants in the Indenture or the
Securities; (v) certain payment defaults under, the acceleration prior to the
maturity of, and the exercise of certain enforcement rights with respect to,
certain Indebtedness of the Company or any Subsidiary Guarantor in an aggregate
principal amount in excess of $10,000,000; (vi) the failure of any Subsidiary
Guarantee to be in full force and effect or otherwise to be enforceable (except
as permitted by the Indenture); (vii) certain events giving rise to ERISA
liability; (viii) certain final judgments against any Subsidiary Guarantor or
other Restricted Subsidiary in an aggregate amount of $10,000,000 or more which
remain unsatisfied and either become subject to commencement or enforcement
proceedings or remain unstayed for a period of 60 days; and (ix) certain events
of bankruptcy, insolvency or reorganization of the Company, any Subsidiary
Guarantor or any other Restricted Subsidiary. If any Event of Default occurs
and is continuing, the Trustee or the holders of at least 25% in aggregate
principal amount of the Outstanding Securities may declare the principal amount
of all the Securities to be due and payable immediately, except that (i) in the
case of an Event of Default arising from certain events of bankruptcy,
insolvency or reorganization of the Company or any Restricted Subsidiary, the
principal amount of the Securities will become due and payable immediately
without further action or notice, and (ii) in the case of an Event of Default
which relates to certain payment defaults, acceleration or the exercise of
certain enforcement rights with respect to certain Indebtedness, any
acceleration of the Securities will be automatically rescinded if any such
Indebtedness is repaid or if the default relating to such Indebtedness is cured
or waived and if the holders thereof have accelerated such Indebtedness then
such holders have rescinded their declaration of acceleration or if in certain
circumstances the proceedings or enforcement action with respect to the
Indebtedness that is the subject of such Event of Default is terminated or
rescinded. No Holder may pursue any remedy under the Indenture unless the
Trustee shall have failed to act after notice of an Event of Default and
written request by Holders of at least 25% in principal amount of the
Outstanding Securities, and the offer to the Trustee of indemnity reasonably
satisfactory to it; however, such provision does not affect the right to sue
for enforcement of any overdue payment on a Security by the Holder thereof.
Subject to certain limitations, Holders of a majority in principal amount of
the Outstanding Securities may direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Holders notice of any continuing
default (except default in payment of principal, premium or interest) if it
determines in good faith that withholding the notice is in the interest of the
Holders. The Company is required to file quarterly reports with the Trustee as
to the absence or existence of defaults.
38
<PAGE> 46
The Indenture contains provisions for defeasance at any time
of (i) the entire indebtedness of the Company on this Security and (ii) certain
restrictive covenants and the related Defaults and Events of Default, upon
compliance by the Company with certain conditions set forth therein, which
provisions apply to this Security.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the Subsidiary Guarantors and the rights of the
Holders under the Indenture at any time by the Company, the Subsidiary
Guarantors and the Trustee with the consent of the Holders of a majority in
aggregate principal amount of the Securities at the time Outstanding. The
Indenture also contains provisions permitting the Holders of specified
percentages in aggregate principal amount of the Securities at the time
Outstanding, on behalf of the Holders of all the Securities, to waive
compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver by or on behalf of the Holder of this Security shall be conclusive and
binding upon such Holder and upon all future Holders of this Security and of
any Security issued upon the registration of transfer hereof or in exchange
herefor or in lieu hereof whether or not notation of such consent or waiver is
made upon this Security. Without the consent of any Holder, the Company, the
Subsidiary Guarantors and the Trustee may amend or supplement the Indenture or
the Securities to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Securities in addition to or in place of certificated Securities
and to make certain other specified changes and other changes that do not
adversely affect the rights of any Holder.
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of (and
premium, if any, on) and interest on this Security at the times, place, and
rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain
limitations therein set forth, the transfer of this Security is registerable on
the Security Register of the Company, upon surrender of this Security for
registration of transfer at the office or agency of the Company maintained for
such purpose in The City of New York, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company and the
Security Registrar duly executed by, the Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Securities, of authorized
denominations and for the same aggregate principal amount, will be issued to
the designated transferee or transferees.
The Securities are issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof. As
provided in the Indenture and subject to certain limitations therein set forth,
the Securities are exchangeable for a like aggregate principal amount of
Securities of a different authorized denomination, as requested by the Holder
surrendering the same.
39
<PAGE> 47
No service charge shall be made for any registration of
transfer or exchange of Securities, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
A director, officer, incorporator, or stockholder of the
Company or any Subsidiary Guarantor, as such, shall not have any personal
liability under this Security or the Indenture by reason of his or its status
as such director, officer, incorporator or stockholder. Each Holder, by
accepting this Security with the notation of Subsidiary Guarantee endorsed
hereon, waives and releases all such liability. Such waiver and release are
part of the consideration for the issuance of this Security with the notation
of Subsidiary Guarantee endorsed hereon.
Prior to the time of due presentment of this Security for
registration of transfer, the Company, the Subsidiary Guarantors, the Trustee
and any agent of the Company or the Trustee may treat the Person in whose name
this Security is registered as the owner hereof for all purposes, whether or
not this Security is overdue, and neither the Company, the Subsidiary
Guarantors, the Trustee nor any agent shall be affected by notice to the
contrary.
All terms used in this Security which are defined in the
Indenture shall have the meanings assigned to them in the Indenture. The
Company will furnish to any Holder upon written request and without charge a
copy of the Indenture. Requests may be made to the Company at 8440 Jefferson
Highway., Suite 420, Baton Rouge, Louisiana 70809.
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 as a convenience to the Holders
thereof. No representation is made as to the accuracy of such numbers as
printed on the Securities and reliance may be placed only on the other
identifying information printed hereon.
This Security shall be governed by and construed in accordance
with the laws of the State of New York, without regard to conflicts of law
principles.
40
<PAGE> 48
ASSIGNMENT FORM
To assign this Security, fill in the form below: (I) or (we)
assign and transfer this Security to ___________________________________________
________________________________________________________________________________
(Insert assignee's social security or tax I.D. number)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________________________
_________________ as 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 face
of this Security)
Signature Guarantee:
------------------------------------------------------------
(Participant in a Recognized Signature
Guaranty Medallion Program)
41
<PAGE> 49
FORM OF OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 10.15 or Section 10.16 of the Indenture, check the
appropriate box:
Section 10.15 [ ] Section 10.16 [ ]
If you want to have only part of this Security purchased by the
Company pursuant to Section 10.15 or Section 10.16 of the Indenture, state the
amount in integral multiples of $1,000:
$________________
Date: Your Signature:
----------------------------- --------------------------
(Sign exactly as your
name appears on the face
of this Security)
Signature
Guarantee:
----------------------------------------------------------------------
(Participant in a Recognized Signature
Guaranty Medallion Program)
42
<PAGE> 50
SCHEDULE OF EXCHANGES OF DEFINITIVE SECURITY(*)
The following exchanges of a part of this Global Security for Definitive
Securities have been made:
<TABLE>
<CAPTION>
Principal Amount
Amount of Amount of of this Global Signature of
decrease in increase in Security following authorized signatory
Principal Amount Principal Amount such decrease of Trustee or
Date of Exchange of this Global Security of this Global Security (or increase) Security Custodian
---------------- ----------------------- ----------------------- ----------------------- ------------------
<S> <C> <C> <C> <C>
</TABLE>
- ----------------------------------------
(*) This should be included only if the Security is issued in global form.
43
<PAGE> 51
Section 2.4 Form of Notation Relating to Subsidiary
Guarantees. The form of notation to be set forth on each Security relating to
the Subsidiary Guarantees shall be in substantially the following form:
SUBSIDIARY GUARANTEE
Subject to the limitations set forth in the Indenture, the
Subsidiary Guarantors (as defined in the Indenture referred to in the Security
upon which this notation is endorsed and each hereinafter referred to as a
"Subsidiary Guarantor," which term includes any successor or additional
Subsidiary Guarantor under the Indenture) have, jointly and severally,
unconditionally guaranteed (a) the due and punctual payment of the principal
(and premium, if any) of and interest on the Securities, whether at maturity,
acceleration, redemption or otherwise, (b) the due and punctual payment of
interest on the overdue principal of and interest on the Securities, if any, to
the extent lawful, (c) the due and punctual performance of all other
obligations of the Company to the Holders or the Trustee, all in accordance
with the terms set forth in the Indenture, and (d) in case of any extension of
time of payment or renewal of any Securities or any of such other obligations,
the same will be promptly paid in full when due or performed in accordance with
the terms of the extension or renewal, whether at Stated Maturity, by
acceleration or otherwise. Capitalized terms used herein shall have the
meanings assigned to them in the Indenture unless otherwise indicated.
The obligations of each Subsidiary Guarantor are limited to
the maximum amount as will, after giving effect to all other contingent and
fixed liabilities and after giving effect to any collections from or payments
made by or on behalf of any other Subsidiary Guarantor in respect of the
obligations of such other Subsidiary Guarantor under its Subsidiary Guarantee
or pursuant to its contribution obligations under the Indenture, result in the
obligations of such Subsidiary Guarantor under the Subsidiary Guarantee not
constituting a fraudulent conveyance or fraudulent transfer under federal or
state law. Each Subsidiary Guarantor that makes a payment or distribution
under a Subsidiary Guarantee shall be entitled to a contribution from each
other Subsidiary Guarantor in a pro rata amount based on the Adjusted Net
Assets of each Subsidiary Guarantor.
The obligations of the Subsidiary Guarantors to the Holders or
the Trustee pursuant to the Subsidiary Guarantee and the Indenture are
expressly subordinate to all Guarantor Senior Indebtedness to the extent set
forth in Article XIII of the Indenture and reference is made to such Indenture
for the precise terms of such subordination.
No stockholder, officer, director or incorporator, as such,
past, present or future, of the Subsidiary Guarantors shall have any personal
liability under the Subsidiary Guarantee by reason of his or its status as such
stockholder, officer, director or incorporator.
Any Subsidiary Guarantor may be released from its Subsidiary
Guarantee upon the terms and subject to the conditions provided in the
Indenture.
44
<PAGE> 52
All terms used in this notation of Subsidiary Guarantee which
are defined in the Indenture referred to in this Security upon which this
notation of Subsidiary Guarantee is endorsed shall have the meanings assigned
to them in such Indenture.
The Subsidiary Guarantee shall be binding upon each Subsidiary
Guarantor and its successors and assigns and shall inure to the benefit 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 herein conferred
upon that party shall automatically extend to and be vested in such transferee
or assignee, all subject to the terms and conditions hereof and in the
Indenture.
The Subsidiary Guarantee shall not be valid or obligatory for
any purpose until the certificate of authentication on the Security upon which
this Subsidiary Guarantee is noted shall have been executed by the Trustee
under the Indenture by the manual signature of one of its authorized officers.
OCEAN ENERGY, INC.
Attest: By:
------------------------------ -------------------------------------
Secretary President
Section 2.5 Form of Trustee's Certificate of
Authentication. The Trustee's certificate of authentication shall be in
substantially the following form:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 8 7/8% Series [A/B] Senior Subordinated
Notes due 2007 referred to in the within- mentioned Indenture.
Authenticated:
Dated:
--------------------
State Street Bank and Trust Company
Trustee
By:
-------------------------------------
Authorized Officer
45
<PAGE> 53
ARTICLE III
THE SECURITIES
Section 3.1 Title and Terms. The aggregate principal
amount of Securities which may be authenticated and delivered under this
Indenture is limited to $200,000,000 except for Securities authenticated and
delivered upon registration of transfer of, or in exchange for, or in lieu of,
other Securities pursuant to Section 3.4, 3.5, 3.6, 3.7, 3.8, 9.6, 10.15, 10.16
or 11.8 hereof.
The Securities shall be known and designated as the "8 7/8%
Series A Senior Subordinated Notes Due 2007" and the "8 7/8% Series B Senior
Subordinated Notes due 2007" of the Company. Their Stated Maturity shall be
July 15, 2007, and they shall bear interest at the rate of 8 7/8% per annum
from July 2, 1997, or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, payable semiannually on January 15
and July 15 in each year, commencing January 15, 1998, and at said Stated
Maturity, until the principal thereof is paid or duly provided for.
The principal of (and premium, if any, on) and interest on the
Securities shall be payable at the office or agency of the Company maintained
for such purpose in The City of New York, or at such other office or agency of
the Company as may be maintained for such purpose; provided, however, that, at
the option of the Company, interest may be paid (i) by check mailed to
addresses of the Persons entitled thereto as such addresses shall appear on the
Security Register, or (ii) with respect to any Holder owning Securities in the
principal amount of $500,000 or more, by wire transfer to an account maintained
by the Holder located in the United States, as specified in a written notice to
the Trustee by any such Holder requesting payment by wire transfer and
specifying the account to which transfer is requested.
The Securities shall be redeemable as provided in Article XI
hereof.
The Securities shall be subject to defeasance at the option of
the Company as provided in Article XII hereof.
The Securities shall be guaranteed by the Subsidiary
Guarantors as provided in Article XIII hereof.
The Securities shall be subordinated in right of payment to
Senior Indebtedness as provided in Article XIV hereof.
Section 3.2 Denominations. The Securities shall be
issuable only in registered form without coupons and only in denominations of
$1,000 and any integral multiple thereof.
Section 3.3 Execution, Authentication, Delivery and
Dating. The Securities shall be executed on behalf of the Company by its
Chairman, its President or a Vice President of the Company, under its corporate
seal reproduced thereon and attested by its Secretary or an Assistant Secretary
or a Vice President of the Company. The signature of any of these officers on
the Securities may be manual or facsimile signatures of the present or any
future such authorized officer and may be imprinted or otherwise reproduced on
the Securities.
46
<PAGE> 54
Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased
to hold such offices prior to the authentication and delivery of such
Securities or did not hold such offices at the date of such Securities.
At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Securities executed by the
Company and having the notation of Subsidiary Guarantees executed by the
Subsidiary Guarantors to the Trustee for authentication, together with a
Company Order for the authentication and delivery of such Securities, and the
Trustee in accordance with such Company Order shall authenticate and deliver
such Securities with the notation of Subsidiary Guarantees thereon as provided
in this Indenture.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there appears on
such Security a certificate of authentication substantially in the form
provided for herein duly executed by the Trustee by manual signature of an
authorized officer, and such certificate upon any Security shall be conclusive
evidence, and the only evidence, that such Security has been duly authenticated
and delivered hereunder and is entitled to the benefits of this Indenture.
In case the Company, pursuant to and in compliance with
Article VIII hereof, shall be consolidated or merged with or into any other
Person or shall convey, transfer, lease or otherwise dispose of its Properties
substantially as an entirety to any Person, and the successor Person resulting
from such consolidation, or surviving such merger, or into which the Company
shall have been merged, or the Person which shall have received a conveyance,
transfer, lease or other disposition as aforesaid, shall have executed an
indenture supplemental hereto with the Trustee pursuant to Article VIII hereof,
any of the Securities authenticated or delivered prior to such consolidation,
merger, conveyance, transfer, lease or other disposition may, from time to
time, at the request of the successor Person, be exchanged for other Securities
executed in the name of the successor Person with such changes in phraseology
and form as may be appropriate, but otherwise in substance of like tenor as the
Securities surrendered for such exchange and of like principal amount; and the
Trustee, upon Company Request of the successor Person, shall authenticate and
deliver Securities as specified in such request for the purpose of such
exchange. If Securities shall at any time be authenticated and delivered in
any new name of a successor Person pursuant to this Section in exchange or
substitution for or upon registration of transfer of any Securities, such
successor Person, at the option of the Holders but without expense to them,
shall provide for the exchange of all Securities at the time Outstanding for
Securities authenticated and delivered in such new name.
Section 3.4 Temporary Securities. Pending the
preparation of Definitive Securities, the Company may execute, and upon Company
Order the Trustee shall authenticate and deliver, temporary Securities which
are printed, lithographed, typewritten, mimeographed or otherwise produced, in
any authorized denomination, substantially of the tenor of the Definitive
Securities in lieu of which they are issued and having the notations of
Subsidiary Guarantees thereon and with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Securities
and notations of Subsidiary Guarantees may determine, as conclusively evidenced
by their execution of such Securities and notations of Subsidiary Guarantees.
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If temporary Securities are issued, the Company will cause
Definitive Securities to be prepared without unreasonable delay. After the
preparation of Definitive Securities, the temporary Securities shall be
exchangeable for Definitive Securities upon surrender of the temporary
Securities at the office or agency of the Company designated for such purpose
pursuant to Section 10.2 hereof, without charge to the Holder. Upon surrender
for cancellation of any one or more temporary Securities, the Company shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
like principal amount of Definitive Securities of authorized denominations
having notations of Subsidiary Guarantees thereon. Until so exchanged, the
temporary Securities shall in all respects be entitled to the same benefits
under this Indenture as Definitive Securities.
Section 3.5 Registration, Registration of Transfer and
Exchange. The Company shall cause to be kept at the Corporate Trust Office a
register (the register maintained in such office and in any other office or
agency designated pursuant to Section 10.2 hereof being herein sometimes
referred to as the "Security Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Securities and of transfers of Securities. The Security Register shall be
in written form or any other form capable of being converted into written form
within a reasonable time. At all reasonable times and during normal business
hours, the Security Register shall be open to inspection by the Trustee. The
Trustee is hereby initially appointed as security registrar (the "Security
Registrar") for the purpose of registering Securities and transfers of
Securities as herein provided.
The Company initially appoints The Depository Trust Company to
act as Depositary with respect to the Global Security.
Section 3.6 Transfer and Exchange.
(a) Transfer and Exchange of Definitive Securities. When
Definitive Securities are presented to the Securities Registrar with the
request:
(x) to register the transfer of the Definitive
Securities, or
(y) to exchange such Definitive Securities for an equal
principal amount of Definitive Securities of other authorized
denominations,
the Securities Registrar shall register the transfer or make the exchange as
requested if its requirement for such transactions are met; provided, however,
that the Definitive Securities presented or surrendered for registration of
transfer or exchange:
(i) shall be duly endorsed or accompanied by a
written instrument of transfer in form satisfactory to the Securities
Registrar duly executed by the Holder thereof or by his attorney, duly
authorized in writing; and
(ii) in the case of Transfer Restricted Securities
that are Definitive Securities, shall be accompanied by the following
additional information and documents, as applicable, upon which the
Securities Registrar may conclusively rely:
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(A) if such Transfer Restricted 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 substantially the form of
Exhibit A hereto); or
(B) if such Transfer Restricted Securities are
being transferred (1) to a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act) in accordance
with Rule 144A under the Securities Act or (2) pursuant to an
exemption from registration in accordance with Rule 144 under
the Securities Act (and based upon an opinion of counsel if
the Company or the Trustee so requests) or (3) pursuant to an
effective registration statement under the Securities Act, a
certification to that effect from such Holder (in
substantially the form of Exhibit A hereto); or
(C) if such Transfer Restricted Securities are
being transferred to an institutional "accredited investor,"
within the meaning of Rule 501(a)(1), (2), (3) or (7) under
the Securities Act pursuant to a private placement exemption
from the registration requirements of the Securities Act, a
certification to that effect from such Holder (in
substantially the form of Exhibit A hereto) and a
certification from the applicable transferee (in substantially
the form of Exhibit B hereto) and an opinion of counsel to
that effect if the Company or the Trustee so requests;
(D) if such Transfer Restricted Securities are
being transferred pursuant to an exemption from registration
in accordance with Rule 904 under the Securities Act,
certifications to that effect from such Holder (in
substantially the form of Exhibits A and C hereto) and an
opinion of counsel to that effect if the Company or the
Trustee so requests; or
(E) if such Transfer Restricted Securities are
being transferred in reliance on another exemption from the
registration requirements of the Securities Act, a
certification to that effect from such Holder (in
substantially the form of Exhibit A hereto) and an opinion of
counsel to that effect if the Company or the Trustee so
requests.
(b) Restriction 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 the
following additional information and documents, as applicable, upon which the
Trustee may conclusively rely:
(i) if such Definitive Security is a Transfer
Restricted Security, certification, substantially in the form of
Exhibit A hereto that such Definitive Security is being transferred to
a "qualified institutional buyer" (as defined in Rule 144A under the
Securities Act) in accordance with Rule 144A under the Securities Act;
or
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(ii) if such Definitive Security is a Transfer
Restricted Security and is being transferred pursuant to an exemption
from registration in accordance with Rule 904 under the Securities
Act, certifications to that effect from such Holder (in substantially
the form of Exhibits A and C hereto) and an opinion of counsel to that
effect if the Company or Trustee so requests; and
(iii) whether or not such Definitive Security is a
Transfer Restricted Security written instructions directing the
Trustee to make, or direct the Security Custodian to make, an
endorsement on the Global Security to reflect an increase in the
aggregate principal amount of the Securities represented by the Global
Security;
then the Trustee shall cancel such Definitive Security in accordance with
Section 3.10 hereof and cause, or direct the Security Custodian to cause, in
accordance with the standing instructions and procedures existing between the
Depositary and the Security Custodian, the aggregate principal amount of
Securities represented by the Global Security to be increased accordingly. If
no Global Securities are then outstanding, the Company shall issue and the
Trustee shall authenticate a new Global Security in the appropriate principal
amount.
(c) Transfer and Exchange of Global Securities. The
transfer and exchange of Global Securities or beneficial interests therein
shall be effected through the Depositary, in accordance with this Indenture
(including the restrictions on transfer set forth herein) and the procedures of
the Depositary therefor, which shall include restrictions on transfer
comparable to those set forth herein to the extent required by the Securities
Act.
(d) Transfer of a Beneficial Interest in a Global
Security for a Definitive Security.
(i) Any Person having a beneficial interest in a
Global Security may upon request exchange such beneficial interest for
a Definitive Security. Upon receipt by the Trustee of written
instructions or such other form of instructions as is customary for
the Depositary, from the Depositary or its nominee on behalf of any
Person having a beneficial interest in a Global Security, and in the
case of a Transfer Restricted Security, the following additional
information and documents (all of which may be submitted by
facsimile), upon which the Trustee may conclusively rely:
(A) if such beneficial interest is being
transferred to the Person designated by the Depositary as
being the beneficial owner, a certification from such Person
to that effect (in substantially the form of Exhibit A
hereto); or
(B) if such beneficial interest is being
transferred (1) to a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act) in accordance
with Rule 144A under the Securities Act or (2) pursuant to an
exemption from registration in accordance with Rule 144 under
the Securities Act (and based upon an opinion of counsel to
that effect if the Company or the Trustee so requests) or (3)
pursuant to an effective registration statement under the
Securities Act, a certification to that effect from the
transferor (in substantially the form of Exhibit A hereto); or
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(C) if such beneficial interest is being
transferred to an institutional "accredited investor," within
the meaning of Rule 501(a)(1), (2), (3) or (7) under the
Securities Act pursuant to a private placement exemption from
the registration requirements of the Securities Act (and based
upon an opinion of counsel to that effect if the Company or
the Trustee so requests), a certification to that effect from
such transferor (in substantially the form of Exhibit A
hereto) and a certification from the applicable transferee (in
substantially the form of Exhibit B hereto); or
(D) if such beneficial interest is being
transferred pursuant to an exemption from registration in
accordance with Rule 904 under the Securities Act (and based
upon an opinion to that effect of counsel if the Company or
the Trustee so requests), certifications to that effect from
such transferor (in substantially the form of Exhibits A and C
hereto); or
(E) if such beneficial interest is being
transferred in reliance on another exemption from the
registration requirements of the Securities Act (and based
upon an opinion of counsel to that effect if the Company or
the Trustee so requests), a certification to that effect from
such transferor (in substantially the form of Exhibit A
hereto);
the Trustee or the Security Custodian, at the direction of the Trustee, shall,
in accordance with the standing instructions and procedures existing between
the Depositary and the Security Custodian, cause the aggregate principal amount
of Global Securities to be reduced accordingly and, following such reduction,
the Company shall execute and the Trustee shall authenticate and deliver to the
transferee a Definitive Security in the appropriate principal amount.
(ii) Definitive Securities issued in exchange for
a beneficial interest in a Global Security pursuant to this Section
3.6(d) shall be registered in such names and in such authorized
denominations as the Depositary, 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.
(e) Restrictions on Transfer and Exchange of Global
Securities. Notwithstanding any other provisions of this Indenture (other than
the provisions set forth in subsection (f) of this Section 3.6), a Global
Security may not be transferred as a whole except by the Depositary to a
nominee of the Depositary or by a nominee of the Depositary to the Depositary
or another nominee of the Depositary or by the Depositary or any such nominee
to a successor Depositary or a nominee of such successor Depositary.
(f) Authentication of Definitive Securities in Absence of
Depositary. If at any time:
(i) the Depositary for the Securities notifies
the Company that the Depositary is unwilling or unable to continue as
Depositary for the Global Securities and a successor Depositary for
the Global Securities is not appointed by the Company within 90 days
after delivery of such notice;
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(ii) an Event of Default has occurred and is
continuing and the Security Registrar has received a request from the
Depositary to issue Definitive Securities in lieu of all or a portion
of the Global Security (in which case the Company shall deliver
Definitive Securities within 30 days of such request); or
(iii) the Company, at its sole discretion, notifies
the Trustee in writing that it elects to cause the issuance of
Definitive Securities under this Indenture,
then the Company will execute, and the Trustee will authenticate and deliver
Definitive Securities, in an aggregate principal amount equal to the principal
amount of the Global Securities, in exchange for such Global Securities and
registered in such names as the Depositary shall instruct the Trustee or the
Company in writing.
(g) Legends.
(i) Except as permitted by the following
paragraphs (ii) and (iii) immediately below, each Security certificate
evidencing the Global Securities and the Definitive Securities (and
all Securities issued in exchange therefor or substitution thereof)
shall bear a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER
THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF
THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE
TRANSFER SUCH SECURITY, PRIOR TO THE DATE THAT IS TWO YEARS AFTER THE LATER OF
THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DAY ON WHICH OCEAN ENERGY, INC.
(THE "COMPANY") OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY
(OR ANY PREDECESSOR OF THIS SECURITY) (THE "RESALE RESTRICTION TERMINATION
DATE") EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THIS SECURITY IS
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE
144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER"
AS DEFINED IN RULE 144A THAT IS ACQUIRING SUCH SECURITY FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT
THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a)(1), (2), (3) OR
(7) OF RULE 501 UNDER THE SECURITIES ACT ("INSTITUTIONAL ACCREDITED INVESTOR")
THAT IS ACQUIRING SUCH SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF
ANOTHER INSTITUTIONAL ACCREDITED INVESTOR, 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 THAT CERTAIN HOLDERS SPECIFIED IN THE
INDENTURE MAY NOT TRANSFER THIS SECURITY
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PURSUANT TO THIS CLAUSE (D) PRIOR TO THE EXPIRATION OF THE "40-DAY RESTRICTED
PERIOD" (WITHIN THE MEANING OF RULE 903(c)(3) OF REGULATION S UNDER THE
SECURITIES ACT), (E) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S
UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECK CHECKED BY THE
TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS NOTE), AND, IF
SUCH TRANSFER IS BEING EFFECTED BY CERTAIN TRANSFERORS SPECIFIED IN THE
INDENTURE (AS DEFINED BELOW) PRIOR TO THE EXPIRATION OF THE "40-DAY RESTRICTED
PERIOD" (WITHIN THE MEANING OF RULE 903(C)(3) OF REGULATION S UNDER THE
SECURITIES ACT), A CERTIFICATE WHICH MAY BE OBTAINED FROM THE COMPANY OR THE
TRUSTEE IS DELIVERED BY THE TRANSFEREE TO THE COMPANY AND THE TRUSTEE, OR (F)
PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
UNDER THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT
PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSES (D) OR (E) TO
REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER
INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii) IN EACH OF THE FOREGOING
CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS
SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS
LEGEND WILL BE REMOVED UPON THE REQUEST OF A HOLDER AFTER THE RESALE
RESTRICTION TERMINATION DATE. THE HOLDER HEREOF, BY PURCHASING THIS SECURITY,
REPRESENTS AND AGREES FOR THE BENEFIT OF THE COMPANY THAT IT IS (1) A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A OR (2) AN INSTITUTION THAT
IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2), (3), OR (7)
UNDER THE SECURITIES ACT AND THAT IT IS HOLDING THIS SECURITY FOR INVESTMENT
PURPOSES AND NOT FOR DISTRIBUTION OR (3) A NON-U.S. PERSON OUTSIDE THE UNITED
STATES WITHIN THE MEANING OF (OR AN ACCOUNT SATISFYING THE REQUIREMENTS OF)
PARAGRAPH (o)(2) OF RULE 902 UNDER REGULATION S UNDER THE SECURITIES ACT.
Each Security certificate evidencing the Global Securities also shall bear the
paragraph referred to in the first footnote of the form of Security in Section
2.2 hereof.
(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 or an effective registration statement under the
Securities Act, which shall be certified to the Trustee and Security
Registrar upon which each may conclusively rely:
(A) in the case of any Transfer Restricted
Security that is a Definitive Security, the Security Registrar
shall permit the Holder thereof to exchange such Transfer
Restricted Security for a Definitive Security that does not
bear the legend set forth in (i) above and rescind any
restriction on the transfer of such Transfer Restricted
Security; and
(B) in the case of any Transfer Restricted
Security represented by a Global Security, such Transfer
Restricted Security shall not be required to bear the legend
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set forth in (i) above if all other interests in such Global
Security have been or are concurrently being sold or
transferred pursuant to Rule 144 under the Securities Act or
pursuant to an effective registration statement under the
Securities Act, but such Transfer Restricted Security shall
continue to be subject to the provisions of Section 3.6(c)
hereof; provided, however, that with respect to any request
for an exchange of a Transfer Restricted Security that is
represented by a Global Security for a Definitive Security
that does not bear a legend set forth in (i) above, which
request is made in reliance upon Rule 144 under the Securities
Act, the Holder thereof shall certify in writing to the
Security Registrar that such request is being made pursuant to
Rule 144 under the Securities Act (such certification to be
substantially in the form of Exhibit A hereto and upon which
the Security Registrar may conclusively rely).
(iii) Notwithstanding the foregoing, upon
consummation of the Exchange Offer, the Company shall issue and, upon
receipt of an authentication order in accordance with Section 3.3
hereof, the Trustee shall authenticate Series B Securities in exchange
for Series A Securities accepted for exchange in the Exchange Offer,
which Series B Securities shall not bear the legend set forth in (i)
above, and the Security Registrar shall rescind any restriction on the
transfer of such Securities, in each case unless the Holder of such
Series A Securities is either (A) a broker-dealer, (B) a Person
participating in the distribution of the Series A Securities or (C) a
Person who is an affiliate (as defined in Rule 144 under the
Securities Act) of the Company. The Company shall identify to the
Trustee such Holders of the Securities in a written certification
signed by an Officer of the Company and, absent certification from the
Company to such effect, the Trustee shall assume that there are no
such Holders.
(h) Cancellation and/or Adjustment of Global Security.
At such time as all beneficial interests in a Global Security have either been
exchanged for Definitive Securities, redeemed, repurchased or canceled, such
Global Security shall be returned to 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 Definitive Securities, redeemed, repurchased or
canceled, the principal amount of Securities represented by such Global
Security shall be reduced and an endorsement shall be made on such Global
Security, by the Trustee or the Security Custodian, at the direction of the
Trustee to reflect such reduction.
(i) General Provisions with respect to Transfer and
Exchanges.
(i) To permit registrations of transfers and
exchanges, the Company shall execute and the Trustee shall
authenticate Definitive Securities and Global Securities at the
Security Registrar's request.
(ii) No service charge shall be made to a Holder
for any registration of transfer or exchange or redemption of
Securities (except as otherwise permitted herein), but the Company may
require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith (other
than such transfer tax or similar governmental charge payable upon
exchanges pursuant to the last paragraph of Section 3.3 or Sections
3.4, 9.6 or 11.8 hereof).
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(iii) The Trustee shall authenticate Definitive
Securities and Global Securities in accordance with the provisions of
Section 3.3 hereof.
(iv) Notwithstanding any other provisions of this
Indenture to the contrary, the Company shall not be required to
register the transfer or exchange of a Security between a Regular
Record Date and the next succeeding Interest Payment Date.
(v) Neither the Company nor the Trustee will have
any responsibility or liability for any aspect of the records relating
to, or payments made on account of, Securities by the Depositary, or
for maintaining, supervising or reviewing any records of the
Depositary relating to such Securities. Neither the Company nor the
Trustee shall be liable for any delay by the related Global Security
Holder or the Depositary in identifying the beneficial owners of the
related Securities and each such Person may conclusively rely on, and
shall be protected in relying on, instructions from such Global
Security Holder or the Depositary for all purposes (including with
respect to the registration and delivery, and the respective principal
amounts, of the Securities to be issued).
(vi) Neither the Trustee, the Security Registrar
nor the Company shall be required (A) to issue, register the transfer
of or exchange any Security during a period beginning at the opening
of business 15 days before the mailing of a notice of redemption of
Securities selected for redemption under Section 11.4 hereof and
ending at the close of business on the day of such mailing of the
relevant notice of redemption, or (B) to register the transfer of or
exchange any Security so selected for redemption in whole or in part,
except the unredeemed portion of any Security being redeemed in part.
(vii) All Securities and the Subsidiaries
Guarantees, if any, noted thereon issued upon any registration of
transfer or exchange of Securities shall be the valid obligations of
the Company and the respective Subsidiary Guarantors, if any,
evidencing the same debt, and entitled to the same benefits under this
Indenture, as the Securities surrendered upon such registration of
transfer or exchange.
(viii) Each Holder of a Security agrees to indemnify
the Company and the Trustee against any liability that may result from
the transfer, exchange or assignment of such Holder's Security in
violation of any provision of this Indenture and/or applicable federal
or state securities law.
(ix) 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 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.
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Section 3.7 Additional Provisions for Global Security.
(a) The Global Security initially shall be registered in
the name of the Depositary for such Global Security or the nominee of such
Depositary and be delivered to the Trustee as custodian for such Depositary.
Members of, or participants in, the Depositary ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Security held on their behalf by the Depositary, or the Trustee as its
custodian, or under the Global Security, and the Depositary 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 Depositary
or shall impair, as between the Depositary and its Agent Members, the operation
of customary practices governing the exercise of the rights of a holder of any
Security.
(b) The registered holder of the 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.
Section 3.8 Mutilated, Destroyed, Lost and Stolen
Securities. If (i) any mutilated Security is surrendered to the Trustee or
(ii) the Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, and there is delivered to the
Company and the Trustee such security or indemnity as may be required by them
to save each of them harmless, then, in the absence of notice to the Company or
the Trustee that such Security has been acquired by a bona fide purchaser, the
Company shall execute, the Subsidiary Guarantors shall execute the notations of
Subsidiary Guarantees, and upon Company Order the Trustee shall authenticate
and deliver, in exchange for any such mutilated Security or in lieu of any such
destroyed, lost or stolen Security, a new Security of like tenor and principal
amount, having the notations of Subsidiary Guarantees thereon bearing a number
not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security
has become or is about to become due and payable, the Company in its discretion
may, instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of
any mutilated, destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company and the respective Subsidiary
Guarantors, whether or not the mutilated, destroyed, lost or stolen Security
shall be at any time enforceable by anyone, and shall be entitled to all
benefits of this Indenture equally and proportionately with any and all other
Securities duly issued hereunder.
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The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Securities.
Section 3.9 Payment of Interest; Interest Rights
Preserved. Interest on any Security which is payable, and is punctually paid
or duly provided for, on any Interest Payment Date shall be paid to the Person
in whose name such Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest at the office or agency of the Company maintained for such purpose
pursuant to Section 10.2 hereof.
Any interest on any Security which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date shall
forthwith cease to be payable to the Holder on the Regular Record Date by
virtue of having been such Holder, and such defaulted interest and (to the
extent lawful) interest on such defaulted interest at the rate borne by the
Securities (such defaulted interest and interest thereon herein collectively
called "Defaulted Interest") may be paid by the Company, at its election in
each case, as provided in clause (a) or (b) below:
(a) The Company may elect to make payment of any
Defaulted Interest to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest, which shall be
fixed in the following manner. The Company shall notify the Trustee in writing
of the amount of Defaulted Interest proposed to be paid on each Security and
the date of the proposed payment, and at the same time the Company shall
deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the date of
the proposed payment, such money when deposited shall be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this clause
provided. Thereupon the Trustee shall fix a Special Record Date for the
payment of such Defaulted Interest which shall be not more than 15 days and not
less than 10 days prior to the date of the proposed payment and not less than
10 days after the receipt by the Trustee of the notice of the proposed payment.
The Trustee shall promptly notify the Company of such Special Record Date, and
in the name and at the expense of the Company, shall cause notice of the
proposed payment of such Defaulted Interest and the Special Record Date
therefor to be given in the manner provided for in Section 15.5 hereof, not
less than 10 days prior to such Special Record Date. Notice of the proposed
payment of such Defaulted Interest and the Special Record Date therefor having
been so given, such Defaulted Interest shall be paid to the Persons in whose
names the Securities (or their respective Predecessor Securities) are
registered at the close of business on such Special Record Date and shall no
longer be payable pursuant to the following clause (b).
(b) The Company may make payment of any Defaulted
Interest in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this clause, such
manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall
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carry the rights to interest accrued and unpaid, and to accrue, which were
carried by such other Security.
Section 3.10 Persons Deemed Owners. Prior to the due
presentment of a Security for registration of transfer, the Company, the
Subsidiary Guarantors, the Security Registrar, the Trustee and any agent of the
Company, the Subsidiary Guarantors or the Trustee may treat the Person in whose
name such Security is registered as the owner of such Security for the purpose
of receiving payment of principal of (and premium, if any, on) and (subject to
Section 3.9 hereof) interest on such Security and for all other purposes
whatsoever, whether or not such Security be overdue, and none of the Company,
the Subsidiary Guarantors, the Security Registrar, the Trustee or any agent of
the Company, the Subsidiary Guarantors or the Trustee shall be affected by
notice to the contrary.
Section 3.11 Cancellation. All Securities surrendered for
payment, redemption, registration of transfer or exchange shall, if surrendered
to any Person other than the Trustee, be delivered to the Trustee and shall be
promptly cancelled by it. The Company may at any time deliver to the Trustee
for cancellation any Securities previously authenticated and delivered
hereunder which the Company may have acquired in any manner whatsoever, and all
Securities so delivered shall be promptly cancelled by the Trustee. No
Securities shall be authenticated in lieu of or in exchange for any Securities
cancelled as provided in this Section, except as expressly permitted by this
Indenture. All cancelled Securities held by the Trustee shall be destroyed and
a certificate of their destruction delivered to the Company unless by a Company
Order the Company shall direct that cancelled Securities be returned to it.
Section 3.12 Computation of Interest. Interest on the
Securities shall be computed on the basis of a 360-day year comprised of twelve
30-day months.
Section 3.13 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, 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. The Company will promptly notify the Trustee of any change in the
CUSIP numbers.
ARTICLE IV
SATISFACTION AND DISCHARGE
Section 4.1 Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to be of further effect (except
as to surviving rights of registration of transfer or exchange of Securities,
as expressly provided for in this Indenture) as to all outstanding Securities,
and the Trustee, at the expense of the Company, shall, upon payment of all
amounts due
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the Trustee under Section 6.6 hereof, execute proper instruments acknowledging
satisfaction and discharge of this Indenture when
(a) either
(1) all Securities theretofore authenticated and
delivered (other than (i) Securities which have been
mutilated, destroyed, lost or stolen and which have been
replaced or paid as provided in Section 3.8 hereof and (ii)
Securities for whose payment money or United States
governmental obligations of the type described in clause (i)
of the definition of Cash Equivalents has theretofore been
deposited in trust with the Trustee or any Paying Agent or
segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust, as
provided in Section 10.3 hereof) have been delivered to the
Trustee for cancellation, or
(2) all such Securities not theretofore delivered
to the Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their
Stated Maturity within one year, or
(iii) are to be called for redemption
within one year under arrangements satisfactory to
the Trustee for the giving of notice of redemption by
the Trustee in the name, and at the expense, of the
Company,
and the Company, in the case of (2)(i), (2)(ii) or (2)(iii)
above, has irrevocably deposited or caused to be deposited
with the Trustee as trust funds in trust for the purpose an
amount sufficient to pay and discharge the entire indebtedness
on such Securities not theretofore delivered to the Trustee
for cancellation, for principal (and premium, if any) and
interest to the date of such deposit (in the case of
Securities which have become due and payable) or to the Stated
Maturity or Redemption Date, as the case may be, together with
instructions from the Company irrevocably directing the
Trustee to apply such funds to the payment thereof at maturity
or redemption, as the case may be; and
(b) the Company has paid or caused to be paid all
other sums payable hereunder by the Company.
(c) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel each
satisfactory in form to the Trustee, which, taken together,
state that all conditions precedent herein relating to the
satisfaction and discharge of this Indenture have been
complied with.
Notwithstanding the satisfaction and discharge of this
Indenture, the obligations of the Company to the Trustee under Section 6.6
hereof and, if money shall have been deposited with
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the Trustee pursuant to subclause (ii) of clause (1) of this Section, the
obligations of the Trustee under Section 4.2 hereof and the last paragraph of
Section 10.3 hereof shall survive.
Section 4.2 Application of Trust Money. Subject to the
provisions of the last paragraph of Section 10.3 hereof, all money deposited
with the Trustee pursuant to Section 4.1 hereof shall be held in trust and
applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee.
ARTICLE V
REMEDIES
Section 5.1 Events of Default. "Event of Default,"
wherever used herein, means any one of the following events (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be 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):
(a) default in the payment of the principal of or
premium, if any, on any of the Securities, whether such payment is due at
maturity, upon redemption, upon repurchase pursuant to a Change of Control
Offer or a Net Proceeds Offer, upon acceleration or otherwise; or
(b) default in the payment of any installment of interest
on any of the Securities, when it becomes due and payable, and the continuance
of such default for a period of 30 days; or
(c) default in the performance or breach of the
provisions of Article VIII hereof, the failure to make or consummate a Change
in Control Offer in accordance with the provisions of Section 10.15 or the
failure to make or consummate a Net Proceeds Offer in accordance with the
provisions of Section 10.16; or
(d) the Company or any Subsidiary Guarantor in this
Indenture shall fail to perform or observe any other term, covenant or
agreement contained in the Securities, any Subsidiary Guarantee or this
Indenture (other than a default specified in (a), (b) or (c) above) for a
period of 30 days after written notice of such failure requiring the Company to
remedy the same shall have been given (x) to the Company by the Trustee or (y)
to the Company and the Trustee by the holders of at least 25% in aggregate
principal amount of the Securities then Outstanding; or
(e) the occurrence and continuation beyond any applicable
grace period of any default in the payment of the principal of (or premium, if
any, on) or interest on any Indebtedness of the Company (other than the
Securities) or any Subsidiary Guarantor or any other Restricted Subsidiary for
money borrowed when due, or any other default causing acceleration of any
Indebtedness of the Company or any Subsidiary Guarantor or any other Restricted
Subsidiary for money borrowed, provided, that the aggregate principal amount of
such Indebtedness shall exceed $10,000,000; or
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(f) the commencement of proceedings, or the taking of any
enforcement action (including by way of set-off), by any holder of at least
$10,000,000 in aggregate principal amount of Indebtedness of the Company or any
Subsidiary Guarantor or any other Restricted Subsidiary, after a default under
such Indebtedness, to retain in satisfaction of such Indebtedness or to collect
or seize, dispose of or apply in satisfaction of such Indebtedness, Property or
assets of the Company or any Subsidiary Guarantor or any other Restricted
Subsidiary having a Fair Market Value in excess of $10,000,000 individually or
in the aggregate; or
(g) any Subsidiary Guarantee shall for any reason cease
to be, or be asserted by the Company or any Subsidiary Guarantor, as
applicable, not to be, in full force and effect, enforceable in accordance with
its terms (except pursuant to the release of any such Subsidiary Guarantee in
accordance with this Indenture); or
(h) if (i) any material "accumulated funding deficiency"
(as defined in Section 302 of ERISA or Section 412 of the Code), shall exist
with respect to any PBGC Plan or Multiple Employer Plan (unless a waiver or
extension is obtained under Section 412(d) or (e) of the Code and Sections 303
and 304 of ERISA), if such accumulated funding deficiency would give rise to a
material liability of the Company, (ii) a Reportable Event shall occur with
respect to any PBGC Plan or Multiple Employer Plan, which Reportable Event is
likely to result in the termination of such PBGC Plan or Multiple Employer Plan
for purposes of Title IV of ERISA and to give rise to a material liability of
the Company, (iii) proceedings to have a trustee appointed, or proceedings to
have a trustee appointed shall commence, or a trustee shall be appointed to
terminate or administer a PBGC Plan or Multiple Employer Plan which proceeding
is likely to result in the termination of such PBGC Plan or Multiple Employer
Plan and to give rise to a material liability of the Company with respect to
such termination, (iv) a notice of intent to terminate a PBGC Plan or Multiple
Employer Plan in a distress termination under Section 4041(c) of ERISA is
furnished to participants, (v) any Multiemployer Plan is in reorganization or
is insolvent and the circumstances are such that such reorganization or
insolvency will likely result in a material liability to the Company, (vi)
there is a complete or partial withdrawal from a Multiemployer Plan under
circumstances that would likely subject the Company to material liability, or
(vii) any event or condition described in (i) through (vi) above (determined
without regard to whether the event or condition taken alone would or could
result in a material liability) shall occur or exist with respect to a PBGC
Plan, Multiple Employer Plan or Multiemployer Plan which in combination with
one or more of any events described in (i) through (vi) above (determined
without regard to whether the event or condition taken alone would or could
result in a material liability) that has occurred or exists, would likely
subject the Company, any Subsidiary Guarantor or any other Restricted
Subsidiary to any material tax, penalty or other liability (for purposes of
this paragraph (i) the term "material" and "material liability" shall mean any
tax, penalty or liability in excess of $10,000,000); or
(i) final judgments or orders rendered against the
Company or any Subsidiary Guarantor or any other Restricted Subsidiary that are
unsatisfied and that require the payment in money, either individually or in an
aggregate amount, that is more than $10,000,000 over the coverage under
applicable insurance policies and either (i) commencement by any creditor of an
enforcement proceeding upon such judgment (other than a judgment that is stayed
by reason of pending appeal or otherwise) or (ii) the occurrence of a 60-day
period during which a stay of such judgment or order, by reason of pending
appeal or otherwise, was not in effect; or
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(j) the entry of a decree or order by a court having
jurisdiction in the premises (i) for relief in respect of the Company or any
Subsidiary Guarantor or any other Restricted Subsidiary in an involuntary case
or proceeding under the Federal Bankruptcy Code or any other applicable federal
or state bankruptcy, insolvency, reorganization or other similar law or (ii)
adjudging the Company or any Subsidiary Guarantor or any other Restricted
Subsidiary bankrupt or insolvent, or approving a petition seeking
reorganization, arrangement, adjustment or composition of the Company or a
Restricted Subsidiary under the Federal Bankruptcy Code or any applicable
federal or state law, or appointing under any such law a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official of the
Company or any Subsidiary Guarantor or any other Restricted Subsidiary or of a
substantial part of their consolidated assets, or ordering the winding up or
liquidation of their affairs, and the continuance of any such decree or order
for relief or any such other decree or order unstayed and in effect for a
period of 60 consecutive days; or
(k) the commencement by the Company or any Subsidiary
Guarantor or any other Restricted Subsidiary of a voluntary case or proceeding
under the Federal Bankruptcy Code or any applicable federal or state
bankruptcy, insolvency, reorganization or other similar law or any other case
or proceeding to be adjudicated a bankrupt or insolvent, or the consent by the
Company or any Subsidiary Guarantor or any other Restricted Subsidiary to the
entry of a decree or order for relief in respect thereof in an involuntary case
or proceeding under the Federal Bankruptcy Code or any applicable federal or
state bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against it, or
the filing by the Company or any Subsidiary Guarantor or any other Restricted
Subsidiary of a petition or consent seeking reorganization or relief under any
applicable federal or state law, or the consent by it under any such law to the
filing of any such petition or to the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee or sequestrator (or other
similar official) of any of the Company or any Subsidiary Guarantor or any
other Restricted Subsidiary or of any substantial part of their consolidated
assets, or the making by it of an assignment for the benefit of creditors under
any such law, or the admission by it in writing of its inability to pay its
debts generally as they become due or taking of corporate action by the Company
or any Subsidiary Guarantor or any other Restricted Subsidiary in furtherance
of any such action.
Section 5.2 Acceleration of Maturity; Rescission and
Annulment. If an Event of Default (other than an Event of Default specified in
Section 5.1(j) or (k) hereof) occurs and is continuing, the Trustee or the
Holders of not less than 25% in aggregate principal amount of the Securities
then Outstanding, by written notice to the Company (and to the Trustee if such
notice is given by the Holders), may, and the Trustee upon the request of the
Holders of not less than 25% in principal amount of the Outstanding Securities
shall, by a notice in writing to the Company (and to the Trustee if given by
the Holders), declare all unpaid principal of, premium, if any, and accrued
interest on all the Securities to be due and payable immediately, upon which
declaration all amounts payable in respect of the Securities shall be
immediately due and payable. If an Event of Default specified in Section
5.1(j) or (k) hereof occurs and is continuing, the amounts described above
shall ipso facto become and be immediately due and payable without any
declaration, notice or other act on the part of the Trustee or any Holder.
At any time after a declaration of acceleration has been made
and before a judgment or decree for payment of the money due has been obtained
by the Trustee as hereinafter in this Article provided, the Holders of a
majority in principal amount of the Securities Outstanding, by
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written notice to the Company, the Subsidiary Guarantors and the Trustee, may
rescind and annul such declaration and its consequences if
(a) the Company or any Subsidiary Guarantor has paid or
deposited with the Trustee a sum sufficient to pay,
(1) all overdue interest on all Outstanding
Securities,
(2) all unpaid principal of (and premium, if any,
on) any Outstanding Securities which has become due otherwise
than by such declaration of acceleration including any
Securities required to have been purchased on a Change of
Control Date or a Net Proceeds Payment Date pursuant to a
Change of Control Offer or a Net Proceeds Offer, as
applicable, and interest on such unpaid principal at the rate
borne by the Securities,
(3) to the extent that payment of such interest
is lawful, interest on overdue interest and overdue principal
at the rate borne by the Securities (without duplication of
any amount paid or deposited pursuant to clauses (1) and (2)
above), and
(4) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel;
(b) the rescission would not conflict with any judgement
or decree of a court of competent jurisdiction as certified to the Trustee by
the Company; and
(c) all Events of Default, other than the non-payment of
amounts of principal of (or premium, if any, on) or interest on Securities
which have become due solely by such declaration of acceleration, have been
cured or waived as provided in Section 5.13 hereof.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Notwithstanding the foregoing, in the event of a declaration
of acceleration in respect of the Securities because of an Event of Default
specified in (i) Section 5.1(e) hereof shall have occurred and be continuing,
such declaration of acceleration and any consequential acceleration shall be
automatically rescinded if the Indebtedness that is the subject of such Event
of Default has been repaid, or if the default relating to such Indebtedness is
waived or cured and if such Indebtedness has been accelerated, then the holders
thereof have rescinded their declaration of acceleration in respect of such
Indebtedness (provided, in each case, that such repayment, waiver, cure or
rescission is effected within a period of 10 days from the continuation of such
default beyond the applicable grace period or the occurrence of such
acceleration), or (ii) Section 5.1(f) hereof shall have occurred and be
continuing, such declaration and any consequential acceleration shall be
automatically rescinded if the proceedings or enforcement action with respect
to the Indebtedness that is the subject of such Event of Default are terminated
or rescinded, or such Indebtedness has been repaid and only so long as the
Holder of such Indebtedness shall not have applied any Property referenced in
such Section 5.1(f) hereof in satisfaction of such Indebtedness, and, in the
case of both (i) and (ii) above, written
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notice of such repayment, or cure or waiver and rescission, as the case may be,
shall have been given to the Trustee by the Company and countersigned by the
holders of such Indebtedness or a trustee, fiduciary or agent for such holders
or other evidence satisfactory to the Trustee of such events is provided to the
Trustee, within 30 days after such declaration of acceleration in respect of
the Securities, and no other Event of Default has occurred during such 30-day
period which has not been cured or waived during such period, and so long as
such recision of the declaration of acceleration of the Securities does not
conflict with any judgement or decree as certified to the Trustee by the
Company.
Section 5.3 Collection of Indebtedness and Suits for
Enforcement by Trustee. The Company covenants that if
(a) default is made in the payment of any installment of
interest on any Security when such interest becomes due and payable and such
default continues for a period of 30 days, or
(b) default is made in the payment of the principal of
(or premium, if any, on) any Security at the Maturity thereof or with respect
to any Security required to have been purchased by the Company on the Change of
Control Purchase Date or the Net Proceeds Payment Date pursuant to a Change of
Control Offer or a Net Proceeds Offer, as applicable,
the Company will, upon demand of the Trustee, pay to the Trustee for the
benefit of the Holders of such Securities, the whole amount then due and
payable on such Securities for principal (and premium, if any) and interest,
and interest on any overdue principal (and premium, if any) and, to the extent
that payment of such interest shall be legally enforceable, upon any overdue
installment of interest, at the rate borne by the Securities, and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name as trustee of an express trust, may
institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company or any other obligor upon the Securities
and collect the moneys adjudged or decreed to be payable in the manner provided
by law out of the Property of the Company or any other obligor upon the
Securities, wherever situated.
If an Event of Default occurs and is continuing, the Trustee
may in its discretion proceed to protect and enforce its rights and the rights
of the Holders by such appropriate judicial proceedings as the Trustee shall
deem most effectual to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Indenture or in aid
of the exercise of any power granted herein, or to enforce any other proper
remedy.
Section 5.4 Trustee May File Proofs of Claim. In case of
the pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
proceeding relative to the Company, the Subsidiary Guarantors or any other
obligor upon the Securities or the Property of the Company, the Subsidiary
Guarantors or of such other obligor or their creditors, the Trustee
(irrespective of whether the principal of the Securities shall then be due and
payable as therein expressed or by declaration or otherwise and
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irrespective of whether the Trustee shall have made any demand on the Company,
the Subsidiary Guarantors or such other obligor for the payment of overdue
principal, premium, if any, or interest) shall be entitled and empowered, by
intervention in such proceeding or otherwise,
(a) to file and prove a claim for the whole amount of
principal (and premium, if any) and interest owing and unpaid in respect of the
Securities and to file such other papers or documents and take any other
actions including participation as a full member of any creditor or other
committee as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and of the
Holders allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other Property
payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay
the Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any
other amounts due the Trustee under Section 6.6 hereof.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting
the Securities or the Subsidiary Guarantees or the rights of any Holder
thereof, or to authorize the Trustee to vote in respect of the claim of any
Holder in any such proceeding.
Section 5.5 Trustee May Enforce Claims Without Possession
of Securities. All rights of action and claims under this Indenture or the
Securities or the Subsidiary Guarantees may be prosecuted and enforced by the
Trustee without the possession of any of the Securities or the production
thereof in any proceeding relating thereto, and any such proceeding instituted
by the Trustee shall be brought in its own name and as trustee of an express
trust, and any recovery of judgment shall, after provision for the payment of
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, be for the ratable benefit of the Holders of
the Securities in respect of which such judgment has been recovered.
Section 5.6 Application of Money Collected. Any money
collected by the Trustee pursuant to this Article shall be applied in the
following order, at the date or dates fixed by the Trustee and, in the case of
the distribution of such money on account of principal (or premium, if any) or
interest, upon presentation of the Securities and the notation thereon of the
payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 6.6 hereof;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any, on,) and interest on the Securities
in respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind,
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according to the amounts due and payable on such Securities for
principal (and premium, if any) and interest, respectively; and
THIRD: The balance, if any, to the Company.
Section 5.7 Limitation on Suits. No Holder of any
Securities shall have any right to institute any proceeding, judicial or
otherwise, with respect to this Indenture, or for the appointment of a receiver
or trustee, or for any other remedy hereunder, unless
(a) such Holder has previously given written notice to
the Trustee of a continuing Event of Default;
(b) the Holders of not less than 25% in principal amount
of the Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder;
(c) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be incurred
in compliance with such request;
(d) the Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute any such
proceeding; and
(e) no direction inconsistent with such written request
has been given to the Trustee during such 60-day period by the Holders of a
majority or more in principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
Section 5.8 Unconditional Right of Holders to Receive
Principal, Premium and Interest. Notwithstanding any other provision in this
Indenture, the Holder of any Security shall have the right, which is absolute
and unconditional, to receive payment, as provided herein (including, if
applicable, Article XII hereof) and in such Security of the principal of (and
premium, if any, on) and (subject to Section 3.9 hereof) interest on, such
Security on the respective Stated Maturities expressed in such Security (or, in
the case of redemption, on the Redemption Date) and to institute suit for the
enforcement of any such payment, and such rights shall not be impaired without
the consent of such Holder.
Section 5.9 Restoration of Rights and Remedies. If the
Trustee or any Holder has instituted any proceeding to enforce any right or
remedy under this Indenture and such proceeding has been discontinued or
abandoned for any reason, or has been determined adversely to the Trustee or to
such Holder, then and in every such case, subject to any determination in such
proceeding, the Company, the Subsidiary Guarantors, the Trustee and the Holders
shall be restored severally and
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respectively to their former positions hereunder and thereunder and all rights
and remedies of the Trustee and the Holders shall continue as though no such
proceeding had been instituted.
Section 5.10 Rights and Remedies Cumulative. Except as
otherwise provided with respect to the replacement or payment of mutilated,
destroyed, lost or stolen Securities in the last paragraph of Section 3.8
hereof, no right or remedy herein conferred upon or reserved to the Trustee or
to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
Section 5.11 Delay or Omission Not Waiver. No delay or
omission of the Trustee or of any Holder of any Security to exercise any right
or remedy accruing upon any Event of Default shall impair any such right or
remedy or constitute a waiver of any such Event of Default or an acquiescence
therein. Every right and remedy given by this Article or by law to the Trustee
or to the Holders may be exercised from time to time, and as often as may be
deemed expedient, by the Trustee or by the Holders, as the case may be.
Section 5.12 Control by Holders. The Holders of not less
than a majority in principal amount of the Outstanding Securities shall have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee, or exercising any trust or power conferred
on the Trustee, provided that
(a) such direction shall not be in conflict with any rule
of law or with this Indenture,
(b) the Trustee may take any other action deemed proper
by the Trustee which is not inconsistent with such direction, and
(c) the Trustee need not take any action which might
involve it in personal liability or be unduly prejudicial to the Holders not
joining therein.
Section 5.13 Waiver of Past Defaults. The Holders of not
less than a majority in principal amount of the Outstanding Securities may on
behalf of the Holders of all the Securities waive any existing Default or Event
of Default hereunder and its consequences, except a Default or Event of Default
(a) in respect of the payment of the principal of (or
premium, if any, on) or interest on any Security, or
(b) in respect of a covenant or provision hereof which
under Article IX hereof cannot be modified or amended without the consent of
the Holder of each Outstanding Security affected.
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Upon any such waiver, such Default or Event of Default shall
cease to exist for every purpose under this Indenture, but no such waiver shall
extend to any subsequent or other Default or Event of Default or impair any
right consequent thereon.
Section 5.14 Waiver of Stay, Extension or Usury Laws.
Each of the Company and the Subsidiary Guarantors covenants (to the extent that
each may lawfully do so) that it will not at any time insist upon, plead or in
any manner whatsoever claim or take the benefit or advantage of, any stay,
extension, or usury law or other law, which would prohibit or forgive the
Company or any Subsidiary Guarantor from paying all or any portion of the
principal of (premium, if any, on) and/or interest on the Securities as
contemplated herein, wherever enacted, now or at any time hereafter in force,
or which may affect the covenants or the performance of this Indenture; and (to
the extent that it may lawfully do so) each of the Company and the Subsidiary
Guarantors hereby expressly waives all benefit or advantage of any such law,
and covenant that they will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution
of every such power as though no such law had been enacted.
ARTICLE VI
THE TRUSTEE
Section 6.1 Notice of Defaults. Within 60 days after the
occurrence of any Default hereunder, the Trustee shall transmit in the manner
and to the extent provided in TIA Section 313(c), notice of such Default
hereunder known to the Trustee, unless such Default shall have been cured or
waived; provided, however, that, except in the case of a Default in the payment
of the principal of (or premium, if any, on) or interest on any Security, the
Trustee shall be protected in withholding such notice if and so long as the
board of directors, the executive committee or a trust committee of directors
and/or Responsible Officers of the Trustee in good faith determines that the
withholding of such notice is in the interest of the Holders; and provided,
further, that in the case of any Default of the character specified in Section
5.1(e) hereof, no such notice to Holders shall be given until at least 60 days
after the occurrence thereof.
Section 6.2 Certain Rights of Trustee. Subject to the
provisions of TIA Sections 315(a) through 315(d):
(a) the Trustee may rely and shall be protected in acting
or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or document
believed by it to be genuine and to have been signed or presented by the proper
party or parties;
(b) any request or direction of the Company mentioned
herein shall be sufficiently evidenced by a Company Request or Company Order
and any resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(c) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action
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hereunder, the Trustee (unless other evidence be herein specifically
prescribed) may, in the absence of bad faith on its part, rely upon an
Officers' Certificate;
(d) the Trustee may consult with counsel and the written
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders pursuant to this Indenture, unless such Holders
shall have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction;
(f) the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit, and, if the Trustee
shall determine to make such further inquiry or investigation, it shall be
entitled to examine the books, records and premises of the Company, personally
or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys and the Trustee shall not be responsible for any misconduct
or negligence on the part of any agent or attorney appointed with due care by
it hereunder; and
(h) the Trustee shall not be liable for any action taken,
suffered or omitted by it in good faith and believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this Indenture.
The Trustee shall not be required to advance, expend or risk
its own funds or otherwise incur any financial liability in the performance of
any of its duties hereunder, or in the exercise of any of its rights or powers
if it shall have reasonable grounds for believing that repayment of such funds
or adequate indemnity against such risk or liability is not reasonably assured
to it.
Section 6.3 Trustee Not Responsible for Recitals or
Issuance of Securities. The recitals contained herein and in the Securities
and the notations of Subsidiary Guarantees thereon, except for the Trustee's
certificates of authentication, shall be taken as the statements of the Company
or the Subsidiary Guarantors, as the case may be, and the Trustee assumes no
responsibility for their correctness. The Trustee makes no representations as
to the validity or sufficiency of this Indenture or of the Securities, except
that the Trustee represents that it is duly authorized to execute and deliver
this Indenture, authenticate the Securities and perform its obligations
hereunder, and that the statements made by it in a Statement of Eligibility and
Qualification on Form T-1 supplied to the Company are true and accurate,
subject to the qualifications set forth herein. The Trustee shall not be
accountable for the use or application by the Company of Securities or the
proceeds thereof.
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Section 6.4 May Hold Securities. The Trustee, any Paying
Agent, any Security Register or any other agent of the Company, any Subsidiary
Guarantor or of the Trustee, in its individual or any other capacity, may
become the owner or pledgee of Securities and, subject to TIA Sections 310(b)
and 311, may otherwise deal with the Company and the subsidiary Guarantors with
the same rights it would have if it were not the Trustee, Paying Agent,
Security Registrar or such other agent.
Section 6.5 Money Held in Trust. Money held by the
Trustee in trust hereunder need not be segregated from other funds except to
the extent required by law. The Trustee shall be under no liability for
interest on any money received by it hereunder except as otherwise agreed with
the Company or any Subsidiary Guarantor.
Section 6.6 Compensation and Reimbursement. The Company
agrees:
(a) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which compensation
shall not be limited by any provision of law in regard to the compensation of a
trustee of an express trust);
(b) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance with
any provision of this Indenture (including the reasonable compensation and the
expenses and disbursements of its agents and counsel, except any such expense,
disbursement or advance as may be attributable to the Trustee's negligence or
bad faith); and
(c) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence or bad
faith on its part, (i) arising out of or in connection with the acceptance or
administration of this trust, including the costs and expenses of defending
itself against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder or (ii) in connection with
enforcing this indemnification provision.
The obligations of the Company under this Section 6.6 to
compensate the Trustee, to pay or reimburse the Trustee for expenses,
disbursements and advances and to indemnify and hold harmless the Trustee shall
constitute additional indebtedness hereunder and shall survive the satisfaction
and discharge of this Indenture or any other termination under any Insolvency
or Liquidation Proceeding. As security for the performance of such obligations
of the Company, the Trustee shall have a claim and lien prior to the Securities
upon all property and funds held or collected by the Trustee as such, except
funds held in trust for payment of principal of (and premium, if any, on) or
interest on particular Securities. Such lien shall survive the satisfaction
and discharge of this Indenture or any other termination under any Insolvency
or Liquidation Proceeding.
When the Trustee incurs expenses or renders services after the
occurrence of an Event of Default specified in paragraphs (j) or (k) of Section
5.1 of this Indenture, such expenses and the compensation for such services are
intended to constitute expenses of administration under any Insolvency or
Liquidation Proceeding.
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Section 6.7 Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be eligible to act
as Trustee under TIA Section 310(a)(1) and shall have a combined capital and
surplus of at least $50,000,000. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of federal,
state, territorial or District of Columbia supervising or examining authority,
then for the purposes of this Section 6.7, the combined capital and surplus of
such corporation shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published. If at any time the
Trustee shall cease to be eligible in accordance with the provisions of this
Section, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article.
Section 6.8 Conflicting Interests. The Trustee shall
comply with the provisions of Section 310(b) of the Trust Indenture Act.
Section 6.9 Resignation and Removal; Appointment of
Successor.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee in
accordance with the applicable requirements of Section 6.10 hereof.
(b) The Trustee may resign at any time by giving written
notice thereof to the Company. If the instrument of acceptance by a successor
Trustee required by Section 6.10 hereof shall not have been delivered to the
Trustee within 30 days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the
Holders of not less than a majority in principal amount of the Outstanding
Securities, delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the
provisions of TIA Section 310(b) after written request
therefor by the Company or by any Holder who has been a bona
fide Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under
Section 6.7 hereof and shall fail to resign after written
request therefor by the Company or by any Holder who has been
a bona fide Holder of a Security for at least six months, or
(3) the Trustee shall become incapable of acting
or shall be adjudged a bankrupt or insolvent or a receiver of
the Trustee or of its property shall be appointed or any
public officer shall take charge or control of the Trustee or
of its property or affairs for the purpose of rehabilitation,
conservation or liquidation,
then, in any such case, (i) the Company, by a Board Resolution, may remove the
Trustee, or (ii) subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a Security for at least
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six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause, the Company, by a Board Resolution, shall promptly appoint a
successor Trustee. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee shall be
appointed by Act of the Holders of a majority in principal amount of the
Outstanding Securities delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee and supersede the successor Trustee
appointed by the Company. If no successor Trustee shall have been so appointed
by the Company or the Holders and accepted appointment in the manner
hereinafter provided, any Holder who has been a bona fide Holder of a Security
for at least six months may, on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the appointment of a
successor Trustee. The evidence of such successorship may, but need not be,
evidenced by a supplemental indenture.
(f) The Company shall give notice of each resignation and
each removal of the Trustee and each appointment of a successor Trustee to the
Holders of Securities in the manner provided for in Section 14.5 hereof. Each
notice shall include the name of the successor Trustee and the address of its
Corporate Trust Office.
Section 6.10 Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge and
deliver to the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act,
deed or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee; but, on request of the Company or the successor
Trustee, such retiring Trustee shall, upon payment of all amounts due it under
Section 6.6 hereof, execute and deliver an instrument transferring to such
successor Trustee all the rights, powers and trusts of the retiring Trustee and
shall duly assign, transfer and deliver to such successor Trustee all property
and money held by such retiring Trustee hereunder. Upon request of any such
successor Trustee, the Company shall execute any and all instruments for more
fully and certainly vesting in and confirming to such successor Trustee all
such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at
the time of such acceptance such successor Trustee shall be qualified and
eligible under this Article.
Section 6.11 Merger, Conversion, Consolidation or
Succession to Business. Any corporation into which the Trustee may be merged
or converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to all or substantially all of the
corporate trust business of the Trustee, shall be the successor of the Trustee
hereunder, provided such corporation shall be otherwise qualified and eligible
under this Article, without the execution or filing of any paper or any further
act on the part of any of the parties hereto. In case any Securities shall
have been authenticated, but not delivered, by the Trustee then in office, any
successor by merger, conversion or consolidation to such authenticating Trustee
may adopt such authentication and deliver the Securities so authenticated with
the same effect as if such successor Trustee had itself
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authenticated such Securities; and in case at that time any of the Securities
shall not have been authenticated, any successor Trustee may authenticate such
Securities either in the name of any predecessor hereunder or in the name of
the successor 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, however, that the right to adopt the certificate of authentication of
any predecessor Trustee or to authenticate Securities in the name of any
predecessor Trustee shall apply only to its successor or successors by merger,
conversion or consolidation.
Section 6.12 Preferential Collection of Claims Against
Company. If and when the Trustee shall be or become a creditor of the Company
(or any other obligor under the Securities), the Trustee shall be subject to
the provisions of the Trust Indenture Act regarding the collection of claims
against the Company or any such other obligor.
ARTICLE VII
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.1 Disclosure of Names and Addresses of Holders.
Every Holder of Securities, by receiving and holding the same, agrees with the
Company, the Subsidiary Guarantors, the Security Registrar and the Trustee that
none of the Company, the Subsidiary Guarantors, the Security Registrar or the
Trustee, or any agent of either of them, shall be held accountable by reason of
the disclosure of any such information as to the names and addresses of the
Holders in accordance with TIA Section 312, regardless of the source from which
such information was derived, and that the Trustee shall not be held
accountable by reason of mailing any material pursuant to a request made under
TIA Section 312(b).
Section 7.2 Reports By Trustee. Within 60 days after May
15 of each year commencing with May 15, 1998, the Trustee shall transmit by
mail to the Holders, as their names and addresses appear in the Security
Register, a brief report dated as May 15 of such in accordance with and to the
extent required under TIA Section 313(a). The Trustee shall also comply with
TIA Sections 313(b) and 313(c).
The Company shall promptly notify the Trustee in writing if
the Securities become listed on any stock exchange or automatic quotation
system.
A copy of each Trustee's report, at the time of its mailing to
Holders of Securities, shall be mailed to the Company and filed with the
Commission and each stock exchange, if any, on which the Securities are listed.
Section 7.3 Reports by Company. The Company (and the
Subsidiary Guarantors, if applicable) shall:
(a) file with the Trustee, within 15 days after the
Company (and the Subsidiary Guarantors, if applicable) is required to file the
same with the Commission, copies of the annual reports and of the information,
documents and other reports (or copies of such portions of any of the foregoing
as the Commission may from time to time by rules and regulations prescribe)
which the
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Company (and the Subsidiary Guarantors, if applicable) may be required to file
with the Commission pursuant to Section 13 or Section 15(d) of the Exchange
Act; or, if the Company (and the Subsidiary Guarantors, if applicable) is not
required to file information, documents or reports pursuant to either of said
Sections, then it shall file with the Trustee and the Commission, in accordance
with the rules and regulations prescribed from time to time by the Commission,
such of the supplementary and periodic information, documents and reports which
may be required pursuant to Section 13 of the Exchange Act in respect of a
security listed and registered on a national securities exchange as may be
prescribed from time to time in such rules and regulations;
(b) file with the Trustee and the Commission, in
accordance with rules and regulations prescribed from time to time by the
Commission, such additional information, documents and reports with respect to
compliance by the Company (and the Subsidiary Guarantors, if applicable) with
the conditions and covenants of this Indenture as may be required from time to
time by such rules and regulations; and
(c) transmit by mail to all Holders, in the manner and to
the extent provided in TIA Section 313(c), within 30 days after the filing
thereof with Trustee, such summaries of any information, documents and reports
required to be filed by the Company (and the Subsidiary Guarantors, if
applicable) pursuant to paragraphs (a) and (b) of this Section as may be
required by rules and regulations prescribed from time to time by the
Commission.
ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 8.1 Company May Consolidate, etc., Only on
Certain Terms. The Company shall not, in any single transaction or a series of
related transactions, merge or consolidate with or into any other Person, or
sell, assign, convey, transfer or lease or otherwise dispose of all or
substantially all its Properties to any Person or group of Affiliated Persons,
and the Company shall not permit any of its Restricted Subsidiaries to enter
into any such transaction or series of transactions if such transaction or
series of transactions, in the aggregate, would result in a sale, assignment,
conveyance, transfer, lease or other disposition of all or substantially all of
the Properties of the Company and its Restricted Subsidiaries on a consolidated
basis to any other Person or group of Affiliated Persons, unless at the time
and after giving affect thereto:
(a) either (i) if the transaction or transactions is a
merger or consolidation, the Company shall be the surviving Person of such
merger or consolidation, or (ii) the Person (if other than the Company) formed
by such consolidation or into which the Company or such Restricted Subsidiary
is merged or to which the Properties of the Company or such Restricted
Subsidiary, as the case may be, are sold, assigned, conveyed, transferred,
leased or otherwise disposed of (any such surviving Person or transferee Person
being the "Surviving Entity") shall be a corporation organized and existing
under the laws of the United States of America, any state thereof or the
District of Columbia and shall, in either case, expressly assume by a
supplemental indenture to this Indenture executed and delivered to the Trustee,
in form satisfactory to the Trustee, all the obligations of the Company for the
due and punctual payment of the principal of (and premium, if any, on) and
interest on all the Securities and the performance and observance of every
covenant of this Indenture on the
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part of the Company to be performed or observed, and this Indenture shall
remain in full force and effect;
(b) immediately before and immediately after giving
effect to such transaction or series of transactions on a pro forma basis (and
treating any Indebtedness not previously an obligation of the Company or any of
its Restricted Subsidiaries which becomes the obligation of the Company or any
of its Restricted Subsidiaries in connection with or as a result of such
transaction or transactions as having been incurred at the time of such
transaction or transactions), no Default or Event of Default shall have
occurred and be continuing;
(c) except in the case of the consolidation or merger of
any Restricted Subsidiary with or into the Company, immediately after giving
effect to such transaction or transactions on a pro forma basis, the
Consolidated Net Worth of the Company (or the Surviving Entity if the Company
is not the continuing obligor under this Indenture) is at least equal to the
Consolidated Net Worth of the Company immediately before such transaction or
transactions (calculated in each case, in accordance with GAAP);
(d) except in the case of the consolidation or merger of
any Restricted Subsidiary with or into the Company or any Wholly Owned
Restricted Subsidiary, immediately before and after giving effect to such
transaction or transactions on a pro forma basis (on the assumption that the
transaction or transactions occurred on the first day of the period of four
full fiscal quarters ending immediately prior to the consummation of such
transaction or transactions with the appropriate adjustments with respect to
the transaction or transactions being included in such pro forma calculation)
the Company (or the Surviving Entity if the Company is not the continuing
obligor under this Indenture) could incur $1.00 of additional Indebtedness
(excluding Permitted Indebtedness) under Section 10.11(a) hereof;
(e) each Subsidiary Guarantor unless it is the party to
the transactions described above, shall have by supplemental indenture
confirmed that its Subsidiary Guarantee shall apply to such Person's
obligations under this Indenture and the Securities;
(f) if any of the Properties of the Company or any of its
Restricted Subsidiaries would upon such transaction or series of related
transactions become subject to any Lien (other than a Permitted Lien), the
creation or imposition of such Lien shall have been in compliance with Section
10.14 hereof; and
(g) the Company or such Person shall have delivered to
the Trustee an Officers' Certificate and an Opinion of Counsel in form and
substance reasonably acceptable to the Trustee, each stating that such
consolidation, merger, conveyance, transfer, lease or other disposition and, if
a supplemental indenture is required in connection with such transaction, such
supplemental indenture, complies with this Indenture and that all conditions
precedent herein relating to such transaction or transactions have been
satisfied.
Section 8.2 Successor Substituted. Upon any
consolidation of the Company with or merger of the Company with or into any
other corporation or any sale, assignment, lease, conveyance, transfer or other
disposition of all or substantially all of the Properties of the Company to any
Person in accordance with Section 8.1 hereof, the successor Person formed by
such
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consolidation or into which the Company is merged or to which such sale,
assignment, conveyance, transfer or other disposition (other than by lease) is
made shall succeed to, and be substituted for, and may exercise every right and
power of, the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein, and in the event of any
such sale, assignment, lease, conveyance, transfer or other disposition, the
Company (which term shall for this purpose mean the Person named as the
"Company" in the first paragraph of this Indenture or any successor Person
which shall theretofore become such in the manner described in Section 8.1
hereof), except in the case of a lease, shall be discharged of all obligations
and covenants under this Indenture and the Securities and the Company may be
dissolved and liquidated and such dissolution and liquidation shall not cause a
Change of Control under clause (e) of the definition thereof to occur unless
the merger, or the sale, assignment, lease, conveyance, transfer or other
disposition of all or substantially all of the Properties of the Company to any
Person otherwise results in a Change of Control.
ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.1 Supplemental Indentures Without Consent of
Holders. Without the consent of any Holders, the Company, when authorized by a
Board Resolution, the Subsidiary Guarantors, when authorized by a Board
Resolution, and the Trustee, at any time and from time to time, may enter into
one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(a) to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants of the
Company contained herein and in the Securities; or
(b) to add to the covenants of the Company for the
benefit of the Holders or to surrender any right or power herein conferred upon
the Company; or
(c) to add any additional Events of Default; or
(d) to evidence and provide for the acceptance of
appointment hereunder by a successor Trustee pursuant to the requirements of
Sections 6.9 and 6.10 hereof; or
(e) to cure any ambiguity, to correct or supplement any
provision herein which may be defective or inconsistent with any other
provision herein, or to make any other provisions with respect to matters or
questions arising under this Indenture; provided that such action shall not
adversely affect the interests of the Holders in any material respect; or
(f) to secure the Securities pursuant to the requirements
of Section 10.14 hereof or otherwise; or
(g) to add any Person as a Subsidiary Guarantor as
provided in Section 13.1 hereof or as contemplated by the definition of
"Permitted Subsidiary Indebtedness" to evidence the
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succession of another Person to any Guarantor and the assumption by any such
successor of the covenants and agreements of such Subsidiary Guarantor
contained herein, in the Securities and in the Subsidiary Guarantee; or
(h) to release a Subsidiary Guarantor from its Guarantee
pursuant to Section 10.12 hereof; or
(i) to provide for uncertificated Securities in addition
to or in place of certificated Securities.
Section 9.2 Supplemental Indentures with Consent of
Holders. With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Securities, by Act of said Holders
delivered to the Company and the Trustee, the Company, when authorized by a
Board Resolution, the Subsidiary Guarantors, when authorized by a Board
Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Security affected thereby:
(a) change the Stated Maturity of the principal of, or
any installment of interest on, any Security, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or change the coin or currency in which any Security or any
premium or the interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment after the Stated Maturity thereof
(or, in the case of redemption, on or after the Redemption Date); or
(b) reduce the percentage of aggregate principal amount
of the Outstanding Securities, the consent of whose Holders is required for any
such supplemental indenture, or the consent of whose Holders is required for
any waiver of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences provided for in this Indenture; or
(c) modify any of the provisions of this Section or
Sections 5.13 and 10.20 hereof, except to increase any such percentage or to
provide that certain other provisions of this Indenture cannot be modified or
waived without the consent of the Holder of each Outstanding Security affected
thereby;
(d) modify Section 10.12 hereof or any provisions of this
Indenture relating to the Subsidiary Guarantees in a manner adverse to the
Holders thereof; or
(e) amend, change or modify the obligation of the Company
to make and consummate a Change of Control Offer in the event of a Change of
Control, or to make and consummate a Net Proceeds Offer with respect to any
Asset Sale or modify any of the provisions or definitions with respect thereto.
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It shall not be necessary for any Act of the Holders under
this Section to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such Act shall approve the substance
thereof.
Section 9.3 Execution of Supplemental Indentures. In
executing, or accepting the additional trusts created by, any supplemental
indenture permitted by this Article or the modifications thereby of the trusts
created by this Indenture, the Trustee shall be entitled to receive, and shall
be fully protected in relying upon, an Opinion of Counsel stating that the
execution of such supplemental indenture is authorized or permitted by this
Indenture. The Trustee may, but shall not be obligated to, enter into any such
supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
Section 9.4 Effect of Supplemental Indentures. Upon the
execution of any supplemental indenture under this Article, this Indenture
shall be modified in accordance therewith, and such supplemental indenture
shall form a part of this Indenture for all purposes; and every Holder of
Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
Section 9.5 Conformity with Trust Indenture Act. Every
supplemental indenture executed pursuant to this Article shall conform to the
requirements of the Trust Indenture Act as then in effect.
Section 9.6 Reference in Securities to Supplemental
Indentures. Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so
determine, new Securities so modified as to conform, in the opinion of the
Trustee and the Company, to any such supplemental indenture may be prepared and
executed by the Company, with the notations of Subsidiary Guarantees thereon
executed by the Subsidiary Guarantors, and authenticated and delivered by the
Trustee in exchange for Outstanding Securities.
Section 9.7 Notice of Supplemental Indentures. Promptly
after the execution by the Company and the Trustee of any supplemental
indenture pursuant to the provisions of Section 9.2 hereof, the Company shall
give notice thereof to the Holders of each Outstanding Security affected, in
the manner provided for in Section 15.5 hereof, setting forth in general terms
the substance of such supplemental indenture.
ARTICLE X
COVENANTS
Section 10.1 Payment of Principal, Premium, if any, and
Interest. The Company covenants and agrees for the benefit of the Holders that
it will duly and punctually pay the principal of (and premium, if any, on) and
interest on the Securities in accordance with the terms of the Securities and
this Indenture.
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Section 10.2 Maintenance of Office or Agency. The Company
shall maintain in the Borough of Manhattan, The City of New York, an office or
agency where Securities may be presented or surrendered for payment, where
Securities may be surrendered for registration of transfer or exchange and
where notices and demands to or upon the Company in respect of the Securities,
the Subsidiary Guarantees and this Indenture may be served. The office of
State Street Bank and Trust Company, N.A. located at 61 Broadway, Concourse
Level, Corporate Trust Window, New York, NY 10006 shall be such office or
agency of the Company, unless the Company shall designate and maintain some
other office or agency for one or more of such purposes. The Company will give
prompt written notice to the Trustee of any change in the location of any such
office or agency. If at any time the Company shall fail to maintain any such
required office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the aforementioned office of the Trustee, and the Company hereby
appoints the Trustee as its agent to receive all such presentations,
surrenders, notices and demands.
The Company may also from time to time designate one or more
other offices or agencies (in or outside of The City of New York) where the
Securities may be presented or surrendered for any or all such purposes and may
from time to time rescind any such designation; provided, however, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in the Borough of Manhattan, The
City of New York for such purposes. The Company will give prompt written
notice to the Trustee of any such designation or rescission and any change in
the location of any such other office or agency.
Section 10.3 Money for Security Payments to Be Held in
Trust. If the Company shall at any time act as its own Paying Agent, it shall,
on or before each due date of the principal of (and premium, if any, on) or
interest on any of the Securities, segregate and hold in trust for the benefit
of the Persons entitled thereto a sum sufficient to pay the principal (and
premium, if any) or interest so becoming due until such sums shall be paid to
such Persons or otherwise disposed of as herein provided and will promptly
notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for
the Securities, it will, on or before 12:00 noon on each due date of the
principal of (and premium, if any, on), or interest on, any Securities, deposit
with a Paying Agent a sum sufficient to pay the principal (and premium, if any)
or interest so becoming due, such sum to be held in trust for the benefit of
the Persons entitled to such principal, premium or interest, and (unless such
Paying Agent is the Trustee) the Company shall promptly notify the Trustee of
such action or any failure so to act.
The Company shall cause each Paying Agent (other than the
Trustee) to execute and deliver to the Trustee an instrument in which such
Paying Agent shall agree with the Trustee, subject to the provisions of this
Section, that such Paying Agent will:
(a) hold all sums held by it for the payment of the
principal of (and premium, if any, on) or interest on Securities in trust for
the benefit of the Persons entitled thereto until such sums shall be paid to
such Persons or otherwise disposed of as herein provided;
(b) give the Trustee notice of any default by the Company
(or any other obligor upon the Securities) in the making of any payment of
principal (and premium, if any) or interest; and
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(c) at any time during the continuance of any such
default, upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held
in trust by the Company or such Paying Agent, such sums to be held by the
Trustee upon the same trusts as those upon which such sums were held by the
Company or such Paying Agent; and, upon such payment by any Paying Agent to the
Trustee, such Paying Agent shall be released from all further liability with
respect to such sums.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of (and
premium, if any, on) or interest on any Security and remaining unclaimed for
two years after such principal (and premium, if any) or interest has become due
and payable shall be paid to the Company on Company Request, or (if then held
by the Company) shall be discharged from such trust; and the Holder of such
Security shall thereafter, as an unsecured general creditor, look only to the
Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Company as
trustee thereof, shall thereupon cease; provided, however, that the Trustee or
such Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in the Borough of Manhattan, The City of New York, notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Company.
Section 10.4 Corporate Existence. Except as expressly
permitted by Article VIII hereof, Section 10.16 hereof or other provisions of
this Indenture, the Company shall do or cause to be done all things necessary
to preserve and keep in full force and effect the corporate existence, rights
(charter and statutory) and franchises of the Company and each Restricted
Subsidiary; provided, however, that the Company shall not be required to
preserve any such existence of its Restricted Subsidiaries, right or franchise,
if the Board of Directors shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company and its
Restricted Subsidiaries, taken as a whole and that the loss thereof is not
disadvantageous in any material respect to the Holders.
Section 10.5 Payment of Taxes and Other Claims. The
Company shall pay or discharge or cause to be paid or discharged, before the
same shall become delinquent, (a) all taxes, assessments and governmental
charges levied or imposed upon the Company or any Restricted Subsidiary or upon
the income, profits or Property of the Company or any Restricted Subsidiary and
(b) all lawful claims for labor, materials and supplies, which, if unpaid,
might by law become a Lien upon the Property of the Company or any Restricted
Subsidiary; provided, however, that the Company shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings and for which appropriate provision has been made in
accordance with GAAP.
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Section 10.6 Maintenance of Properties. The Company shall
cause all material Properties owned by the Company or any Restricted Subsidiary
and used or held for use in the conduct of its business or the business of any
Restricted Subsidiary to be maintained and kept in good condition, repair and
working order (ordinary wear and tear excepted), all as in the judgment of the
Company may be necessary so that its business may be properly and
advantageously conducted at all times; provided, however, that nothing in this
Section shall prevent the Company from discontinuing the maintenance of any of
such Properties if such discontinuance is, in the judgment of the Company,
desirable in the conduct of its business or the business of any Restricted
Subsidiary and not disadvantageous in any material respect to the Holders.
Notwithstanding the foregoing, nothing contained in this Section 10.6 shall
limit or impair in any way the right of the Company and its Restricted
Subsidiaries to sell, divest and otherwise to engage in transactions that are
otherwise permitted by this Indenture.
Section 10.7 Insurance. The Company shall at all times
keep all of its and its Restricted Subsidiaries' Properties which are of an
insurable nature insured with insurers, believed by the Company to be
responsible, against loss or damage to the extent that property of similar
character is usually so insured by corporations similarly situated and owning
like properties.
The Company may adopt such other plan or method of protection,
in lieu of or supplemental to insurance with insurers, whether by the
establishment of an insurance fund or reserve to be held and applied to make
good losses from casualties, or otherwise, conforming to the systems of
self-insurance maintained by corporations similarly situated and owning like
properties, as may be determined by the Board of Directors.
Section 10.8 Statement by Officers as to Default.
(a) The Company shall deliver to the Trustee, within 90
days after the end of each fiscal year of the Company and within 45 days of the
end of each of the first, second and third quarters of each fiscal year of the
Company, an Officers' Certificate stating that a review of the activities of
the Company and its Subsidiaries during the preceding fiscal quarter or fiscal
year, as applicable, has been made under the supervision of the signing
Officers with a view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under this Indenture, and further
stating, as to each such Officer signing such certificate, that to the best of
such Officer's knowledge the Company has kept, observed, performed and
fulfilled each and every covenant contained in this Indenture and is not in
default in the performance or observance of any of the terms, provisions and
conditions hereof (or, if a Default or Event of Default shall have occurred,
describing all such Defaults or Events of Default of which such Officer may
have knowledge and what action the Company is taking or proposes to take with
respect thereto). Such Officers' Certificate shall comply with TIA Section
314(a)(4). For purposes of this Section 10.8(a), such compliance shall be
determined without regard to any period of grace or requirement of notice under
this Indenture.
(b) The Company and the Subsidiary Guarantors shall, so
long as any of the Securities are outstanding, deliver to the Trustee forthwith
upon any Officer becoming aware of any Default or Event of Default or default
in the performance of any covenant, agreement or condition contained in this
Indenture, an Officers' Certificate specifying such Default or Event of Default
and
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what action the Company or any Subsidiary Guarantor proposes to take with
respect thereto within 10 days of its occurrence.
Section 10.9 Provision of Financial Information. The
Company and the Subsidiary Guarantors shall file with the Trustee (with
exhibits) and deliver to each Holder (without exhibits), within 15 days after
it files them with the Commission, copies of the annual and quarterly reports
and of the information, documents and other reports (or copies of such portions
of any of the foregoing as the Commission may by rules and regulations
prescribe) which each of the Company and the Subsidiary Guarantors is required
to file with the Commission pursuant to Section 13 or 15(d) of the Exchange
Act. If the Company is not subject to the requirements of Section 13 or 15(d)
of the Exchange Act, the Company shall nonetheless file with the Commission and
the Trustee copies of such annual reports and such information, documents and
other reports as it would file if it were subject to the requirements of
Section 13 or 15(d) of the Exchange Act. If filing such reports and documents
with the Commission is not accepted by the Commission or is prohibited under
the Exchange Act, the Company shall supply at the Company's cost copies of such
reports and documents to any holder of Securities promptly upon written
request. The Company is obligated to make available, upon request, to any
Holder of Securities the information required by Rule 144A(d)(4) under the
Securities Act, during any period in which the Company is not subject to
Section 13 or 15(d) of the Exchange Act. So long as any Transfer Restricted
Securities remain outstanding during any period in which the Company is not
subject to Section 13 or 15(d) of the Exchange Act, the Company shall furnish
to all Holders and prospective purchasers of the Securities designated by the
Holders of Transfer Restricted Securities, promptly upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) of the
Securities Act. The Company and each Subsidiary Guarantor also shall comply
with the other provisions of TIA Section 314(a).
Section 10.10 Limitation on Restricted Payments.
(a) The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, take the following actions:
(i) declare or pay any dividend on, or make any
distribution to holders of, any shares of the Company's Capital Stock
(other than dividends or distributions payable solely in shares of
Qualified Capital Stock of the Company or in options, warrants or
other rights to purchase Qualified Capital Stock of the Company);
(ii) purchase, redeem or otherwise acquire or retire for
value any Capital Stock of the Company or any Affiliate thereof (other
than any Wholly Owned Restricted Subsidiary of the Company) or any
options, warrants or other rights to acquire such Capital Stock;
(iii) make any principal payment on or repurchase, redeem,
defease or otherwise acquire or retire for value, prior to any
scheduled principal payment, scheduled sinking fund payment or
maturity, any Subordinated Indebtedness;
(iv) declare or pay any dividend on, or make any
distribution to the holders of, any shares of Capital Stock of any
Restricted Subsidiary of the Company (other than to the
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Company or any of its Wholly Owned Restricted Subsidiaries) or
purchase, redeem or otherwise acquire or retire for value any Capital
Stock of any Restricted Subsidiary or any options, warrants or other
rights to acquire any such Capital Stock (other than with respect to
any such Capital Stock held by the Company or any Wholly Owned
Restricted Subsidiary of the Company);
(v) make any Investment (other than any Permitted
Investment);
(vi) in connection with the acquisition of any Property by
the Company or its Restricted Subsidiaries after the date of this
Indenture, which Property would secure or be subject to any Production
Payment obligations of the Company or its Restricted Subsidiaries,
make any investment (of cash, Property or other assets) in such
Property so acquired in addition to the amount of Indebtedness
(including Production Payment obligations) incurred by the Company or
its Restricted Subsidiaries in connection with such acquisition; or
(vii) incur, create, assume or suffer to exist any
guarantee of Indebtedness of any Affiliate (other than (a) guarantees
of Indebtedness of any Restricted Subsidiary by the Company or (b)
guarantees of Indebtedness of the Company by any Restricted
Subsidiary, in each case in accordance with the terms of this
Indenture);
(such payments or other actions described in (but not excluded from) clauses
(i) through (vii) are collectively referred to as "Restricted Payments"),
unless at the time of and after giving effect to the proposed Restricted
Payment (the amount of any such Restricted Payment, if other than cash, shall
be the amount determined by the Board of Directors of the Company, whose
determination shall be conclusive and evidenced by a Board Resolution), (A) no
Default or Event of Default shall have occurred and be continuing, (B) the
Company could incur $1.00 of additional Indebtedness (excluding Permitted
Indebtedness) in accordance with Section 10.11 hereof and (C) the aggregate
amount of all Restricted Payments declared or made after the date of this
Indenture shall not exceed the sum (without duplication) of the following:
(1) 50% of the aggregate cumulative Consolidated Net
Income of the Company accrued on a cumulative basis during the period
beginning on September 30, 1996 and ending on the last day of the
Company's last fiscal quarter ending prior to the date of such
proposed Restricted Payment (or, if such aggregate cumulative
Consolidated Net Income shall be a loss, minus 100% of such loss),
plus
(2) the aggregate net cash proceeds received after the
date of this Indenture by the Company as capital contributions to the
Company (other than from any Restricted Subsidiary), plus
(3) the aggregate net cash proceeds received after the
date of this Indenture by the Company from the issuance or sale (other
than to any of its Restricted Subsidiaries) of shares of Qualified
Capital Stock of the Company or any option, warrants or rights to
purchase such shares of Qualified Capital Stock of the Company, plus
(4) the aggregate net cash proceeds received after the
date of this Indenture by the Company (other than from any of its
Restricted Subsidiaries) upon the exercise of any
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options, warrants or rights to purchase shares of Qualified Capital
Stock of the Company, plus
(5) the aggregate net cash proceeds received after the
date of this Indenture by the Company from the issuance or sale (other
than to any of its Restricted Subsidiaries) of debt securities or
shares of Redeemable Capital Stock that have been converted into or
exchanged for Qualified Capital Stock of the Company to the extent
such debt securities were originally sold for cash, together with the
aggregate cash received by the Company at the time of such conversion
or exchange, plus
(6) To the extent not otherwise included in the Company's
Consolidated Net Income, the net reduction in Investments in
Unrestricted Subsidiaries resulting from the payments of interest on
Indebtedness, dividends, repayments of loans or advances, or other
transfers of Properties, in each case to the Company or a Restricted
Subsidiary after the date of this Indenture from any Unrestricted
Subsidiary or from the redesignation of an Unrestricted Subsidiary as
a Restricted Subsidiary (valued in each case as provided in the
definition of Investment), not to exceed in the case of any
Unrestricted Subsidiary the total amount of Investments (other than
Permitted Investments) in such Unrestricted Subsidiary made by the
Company and its Restricted Subsidiaries in such Unrestricted
Subsidiary after the date of this Indenture, plus
(7) $25,000,000.
(b) Notwithstanding paragraph (a) above, the Company and
its Restricted Subsidiaries may take the following actions so long as (in the
case of clauses (ii), (iii) and (iv) below) no Default or Event of Default
shall have occurred and be continuing:
(i) the payment of any dividend within 60 days after the
date of declaration thereof, if at such declaration date such
declaration complied with the provisions of paragraph (a) above (and
such payment shall be deemed to have been paid on such date of
declaration for purposes of any calculation required by the provisions
of paragraph (a) above);
(ii) the repurchase, redemption or other acquisition or
retirement of any shares of any class of Capital Stock of the Company
or any Restricted Subsidiary, in exchange for, or out of the aggregate
net cash proceeds of, a substantially concurrent issue and sale (other
than to a Restricted Subsidiary) of shares of Qualified Capital Stock
of the Company;
(iii) the purchase, redemption, repayment, defeasance or
other acquisition or retirement for value of any Subordinated
Indebtedness (other than Redeemable Capital Stock) in exchange for or
out of the aggregate net cash proceeds of a substantially concurrent
issue and sale (other than to a Restricted Subsidiary) of shares of
Qualified Capital Stock of the Company; and
(iv) the purchase, redemption, repayment, defeasance or
other acquisition or retirement for value of Subordinated Indebtedness
(other than Redeemable Capital Stock) in exchange for, or out of the
aggregate net cash proceeds of a substantially concurrent
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incurrence (other than to a Restricted Subsidiary) of, Subordinated
Indebtedness of the Company so long as (A) the principal amount of
such new Indebtedness does not exceed the principal amount (or, if
such Subordinated 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) of the Subordinated Indebtedness being so purchased,
redeemed, repaid, defeased, acquired or retired, plus the amount of
any premium required to be paid in connection with such refinancing
pursuant to the terms of the Subordinated Indebtedness refinanced or
the amount of any premium reasonably determined by the Company as
necessary to accomplish such refinancing, plus the amount of expenses
of the Company incurred in connection with such refinancing, (B) such
new Subordinated Indebtedness is subordinated to the Securities at
least to the same extent as such Subordinated Indebtedness so
purchased, redeemed, repaid, defeased, acquired or retired, (C) such
new Subordinated Indebtedness has an Average Life to Stated Maturity
that is longer than the Average Life to Stated Maturity of the
Securities and such new Subordinated Indebtedness has a Stated
Maturity for its final scheduled principal payment that is at least 91
days later than the Stated Maturity for the final scheduled principal
payment of the Securities.
The actions described in clauses (i), (ii) and (iii) of this paragraph (b)
shall be Restricted Payments that shall be permitted to be taken in accordance
with this paragraph (b) but shall reduce the amount that would otherwise be
available for Restricted Payments under clause (C) of paragraph (a) (provided
that any dividend paid pursuant to clause (i) of this paragraph (b) shall
reduce the amount that would otherwise be available under clause (C) of
paragraph (a) when declared, but not also when subsequently paid pursuant to
such clause (i)), and the actions described in clause (iv) of this paragraph
(b) shall be Restricted Payments that shall be permitted to be taken in
accordance with this paragraph and shall not reduce the amount that would
otherwise be available for Restricted Payments under clause (C) of paragraph
(a).
(c) In computing Consolidated Net Income of the Company under
paragraph (a) above, (1) the Company shall use audited financial statements for
the portions of the relevant period for which audited financial statements are
available on the date of determination and unaudited financial statements and
other current financial data based on the books and records of the Company for
the remaining portion of such period and (2) the Company shall be permitted to
rely in good faith on the financial statements and other financial data derived
from the books and records of the Company that are available on the date of
determination. If the Company makes a Restricted Payment which, at the time of
the making of such Restricted Payment would in the good faith determination of
the Company be permitted under the requirements of this Indenture, such
Restricted Payment shall be deemed to have been made in compliance with this
Indenture notwithstanding any subsequent adjustments made in good faith to the
Company's financial statements affecting Consolidated Net Income of the Company
for any period.
Section 10.11 Limitation on Indebtedness.
(a) The Company shall not, and shall not permit any
Restricted Subsidiary to, create, incur, issue, assume, guarantee or in any
manner become directly or indirectly liable for the payment of (collectively
"incur") any Indebtedness (including any Acquired Indebtedness), other than
Permitted Indebtedness and Permitted Subsidiary Indebtedness, as the case may
be; provided,
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however, that the Company and its Restricted Subsidiaries that are Subsidiary
Guarantors may incur Indebtedness if (x) the Company's Consolidated Fixed
Charge Coverage Ratio for the four full fiscal quarters immediately preceding
the incurrence of such Indebtedness, taken as one period (at the time of such
incurrence and after giving pro forma effect to: (i) the incurrence of such
Indebtedness and (if applicable) the application of the net proceeds therefrom,
including to refinance other Indebtedness, as if such Indebtedness was incurred
and the application of such proceeds occurred at the beginning of such
four-quarter period; (ii) the incurrence, repayment or retirement of any other
Indebtedness (including Permitted Indebtedness) by the Company or its
Restricted Subsidiaries since the first day of such four- quarter period
(including any other Indebtedness to be incurred concurrent with the incurrence
of such Indebtedness) as if such Indebtedness was incurred, repaid or retired
at the beginning of such four-quarter period; and (iii) notwithstanding clause
(d) of the definition of Consolidated Net Income, the acquisition (whether by
purchase, merger or otherwise) or disposition (whether by sale, merger or
otherwise) of any Person acquired or disposed of by the Company or its
Restricted Subsidiaries, as the case may be, since the first day of such
four-quarter period, as if such acquisition or disposition occurred at the
beginning of such four-quarter period), would have been equal to at least 2.5
to 1.0.
Section 10.12 Limitation on Guarantees of Indebtedness by
Subsidiaries.
(a) The Company shall not permit any Restricted
Subsidiary that is not a Subsidiary Guarantor to guarantee the payment of any
Indebtedness of the Company unless (i) (A) such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture to this Indenture
providing for a Subsidiary Guarantee of the Securities by such Restricted
Subsidiary which Subsidiary Guarantee shall be subordinated to Guarantor Senior
Indebtedness (but no other indebtedness) to the same extent that the Notes are
subordinated to Senior Indebtedness and (B) with respect to any guarantee of
Subordinated Indebtedness by a Restricted Subsidiary, any such guarantee shall
be subordinated to such Restricted Subsidiary's Subsidiary Guarantee at least
to the same extent as such Subordinated Indebtedness is subordinated to the
Securities; (ii) such Restricted Subsidiary waives and will not in any manner
whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Restricted Subsidiary as a result of any payment by such
Restricted Subsidiary under its Subsidiary Guarantee until such time as the
obligations guaranteed thereby are paid in full; and (iii) such Restricted
Subsidiary shall deliver to the Trustee an Opinion of Counsel to the effect
that such Subsidiary Guarantee has been duly executed and authorized and
constitutes a valid, binding and enforceable obligation of such Restricted
Subsidiary, except insofar as enforcement thereof may be limited by bankruptcy,
insolvency or similar laws (including, without limitation, all laws relating to
fraudulent transfers) and except insofar as enforcement thereof is subject to
general principles of equity; provided that this paragraph (a) shall not be
applicable to any guarantee of any Restricted Subsidiary that (x) existed at
the time such Person became a Restricted Subsidiary of the Company and (y) was
not incurred in connection with, or in contemplation of, such Person becoming a
Restricted Subsidiary of the Company.
(b) Notwithstanding the foregoing and the other
provisions of this Indenture, any Subsidiary Guarantee incurred by a Restricted
Subsidiary pursuant to this Section 10.12 shall provide by its terms that it
shall be automatically and unconditionally released and discharged upon (i) any
sale, exchange or transfer, to any Person that is not an Affiliate of the
Company, of all of the Company's Capital Stock in, or all or substantially all
the Property of, such Restricted Subsidiary
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(which sale, exchange or transfer is not prohibited by this Indenture), (ii)
the merger of such Restricted Subsidiary into the Company or any other
Restricted Subsidiary (provided the surviving Restricted Subsidiary assumes the
Subsidiary Guarantee) or the liquidation and dissolution of such Restricted
Subsidiary (in each case to the extent not prohibited by this Indenture), or
(iii) the release or discharge of the guarantee which resulted in the creation
of such Subsidiary Guarantee of the Securities, except a discharge or release
by or as a result of payment under such guarantee.
Section 10.13 Limitation on Issuances and Sale of Capital
Stock by Restricted Subsidiaries. The Company (a) shall not permit any
Restricted Subsidiary to issue any Preferred Stock (other than to the Company
and/or one or more Wholly Owned Restricted Subsidiaries) and (b) shall not
permit any Person (other than the Company and/or one or more Wholly Owned
Restricted Subsidiaries) to own any Capital Stock of any Restricted Subsidiary;
provided, however, that this Section 10.13 shall not prohibit (1) the issuance
and sale of all, but not less than all, of the issued and outstanding Capital
Stock of any Restricted Subsidiary owned by the Company or any of its
Restricted Subsidiaries in compliance with the other provisions of this
Indenture, or (2) the ownership by directors of director's qualifying shares or
the ownership by foreign nationals of Capital Stock of any Restricted
Subsidiary, to the extent mandated by applicable law.
Section 10.14 Limitation on Liens. The Company shall not,
and shall not permit any Restricted Subsidiary to, directly or indirectly,
create, incur, assume, affirm or suffer to exist or become effective any Lien
of any kind, except for Permitted Liens, on any of its or their respective
Properties (including any intercompany notes), whether now owned or hereafter
acquired, or any income, profits or proceeds therefrom, or assign or otherwise
convey any right to receive income thereon, unless (x) in the case of any Lien
securing Subordinated Indebtedness, the Securities are secured by a Lien on
such Property or proceeds that is senior in priority to such Lien and (y) in
the case of any other Lien, the Securities are directly secured equally and
ratably with the obligation or liability secured by such Lien.
Section 10.15 Purchase of Securities Upon Change of
Control.
(a) Upon the occurrence of a Change of Control, the
Company shall be obligated to make an offer to purchase (a "Change of Control
Offer") all of the then outstanding Securities, in whole or in part, from the
Holders of such Securities in integral multiples of $1,000, at a purchase price
(the "Change of Control Purchase Price") equal to 101% of the aggregate
principal amount of such Securities, plus accrued and unpaid interest, if any,
to the Change of Control Purchase Date (as defined below), in accordance with
the procedures set forth in paragraphs (b), (c) and (d) of this Section. The
Company shall, subject to the provisions described below, be required to
purchase all Securities properly tendered into the Change of Control Offer and
not withdrawn. The Company will not be required to make a Change of Control
Offer upon a Change of Control if a third party makes the Change of Control
Offer at the same purchase price, at the same times and otherwise in
substantial compliance with the requirements applicable to a Change of Control
Offer made by the Company and purchases all Securities validly tendered and not
withdrawn under such Change of Control Offer.
(b) The Change of Control Offer is required to remain
open for at least 20 Business Days and until the close of business on the fifth
Business Day prior to the Change of Control Purchase Date (as defined below).
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(c) Not later than the 30th day following any Change of
Control, the Company shall give to the Trustee in the manner provided in
Section 15.4 and each Holder of the Securities in the manner provided in
Section 15.5, a notice (the "Change of Control Notice") stating:
(1) that a Change in Control has occurred and
that such Holder has the right to require the Company to
repurchase such Holder's Securities, or portion thereof, at
the Change of Control Purchase Price;
(2) any information regarding such Change of
Control required to be furnished pursuant to Rule 14e-1 under
the Exchange Act and any other securities laws and regulations
thereunder;
(3) a purchase date (the "Change of Control
Purchase Date") which shall be on a Business Day and no
earlier than 30 days nor later than 70 days from the date the
Change of Control occurred;
(4) that any Security, or portion thereof, not
tendered or accepted for payment will continue to accrue
interest;
(5) that unless the Company defaults in
depositing money with the Paying Agent in accordance with the
last paragraph of clause (d) of this Section 10.15, or payment
is otherwise prevented, any Security, or portion thereof,
accepted for payment pursuant to the Change of Control Offer
shall cease to accrue interest after the Change of Control
Purchase Date; and
(6) the instructions a Holder must follow in
order to have its Securities repurchased in accordance with
paragraph (d) of this Section.
(d) Holders electing to have Securities purchased will be
required to surrender such Securities to the Company at the address specified
in the Change of Control Notice at least five Business Days prior to the Change
of Control Purchase Date. Holders will be entitled to withdraw their election
if the Company receives, not later than three Business Days prior to the Change
of Control Purchase Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the certificate number(s) and principal
amount of the Securities delivered for purchase by the Holder as to which his
election is to be withdrawn and a statement that such Holder is withdrawing his
election to have such Securities purchased. Holders whose Securities are
purchased only in part will be issued new Securities equal in principal amount
to the unpurchased portion of the Securities surrendered.
On the Change of Control Purchase Date, the Company shall (i)
accept for payment Securities or portions thereof tendered pursuant to a Change
of Control Offer, (ii) deposit with the Paying Agent money sufficient to pay
the purchase price of all Securities or portions thereof so tendered, and (iii)
deliver or cause to be delivered to the Trustee the Securities so accepted.
The Paying Agent shall promptly mail or deliver to Holders of the Securities so
tendered payment in an amount equal to the purchase price for the Securities,
and the Company will promptly execute and the Trustee will promptly
authenticate and mail or make available for delivery to such Holders a new
Security equal in principal amount to any unpurchased portion of the Security
which any such
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Holder did not surrender for purchase. The Company shall announce the results
of a Change of Control Offer on or as soon as practicable after the Change of
Control Purchase Date. For purposes of this Section 10.15, the Trustee will
act as the Paying Agent.
(e) The Company shall comply with Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable, in the event that a Change of
Control occurs and the Company is required to purchase Securities as described
above.
Section 10.16 Disposition of Proceeds of Asset Sales.
(a) The Company shall not, and will not permit any
Restricted Subsidiary to, engage in any Asset Sale unless (i) the Company or
such Restricted Subsidiary, as the case may be, receives consideration at the
time of such Asset Sale at least equal to the Fair Market Value of the
Properties sold or otherwise disposed of pursuant to the Asset Sale and (ii) at
least 75% of the consideration received by the Company or the Restricted
Subsidiary, as the case may be, in respect of such Asset Sale consists of cash,
Cash Equivalents or the assumption by the purchaser of liabilities of the
Company (other than liabilities of the Company that are by their terms
subordinated to the Securities) or any Restricted Subsidiary as a result of
which the Company and its remaining Restricted Subsidiaries are no longer
liable.
(b) If the Company or any Restricted Subsidiary engages
in an Asset Sale, the Company may either (x) apply the Net Cash Proceeds
thereof to permanently reduce Senior Indebtedness or to permanently reduce
Guarantor Senior Indebtedness or (y) invest all or any part of the Net Cash
Proceeds thereof, within 365 days after such Asset Sale, in Properties which
replace the Properties that were the subject of the Asset Sale or in Properties
that will be used in the business of the Company or its Restricted
Subsidiaries, as the case may be ("Replacement Assets"). The amount of such
Net Cash Proceeds not applied or invested as provided in this paragraph shall
constitute "Excess Proceeds" subject to disposition as provided below.
(c) When the aggregate amount of Excess Proceeds equals
or exceeds $20,000,000 (the "Trigger Date"), the Company shall make an offer to
purchase, from all Holders of the Securities and holders of any then
outstanding Pari Passu Indebtedness required to be repurchased or repaid on a
permanent basis in connection with an Asset Sale, an aggregate principal amount
of Securities and any then outstanding Pari Passu Indebtedness equal to such
Excess Proceeds as follows:
(1) Not later than the 30th day following the
Trigger Date, the Company shall (i) give to the Trustee in the
manner provided in Section 15.4 hereof and each Holder of the
Securities in the manner provided in Section 15.5 hereof, a
notice (a "Purchase Notice") offering to purchase (a "Net
Proceeds Offer") from all Holders of the Securities the
maximum principal amount (expressed as a multiple of $1000) of
Securities that may be purchased out of an amount (the
"Payment Amount") equal to the product of such Excess Proceeds
multiplied by a fraction, the numerator of which is the
outstanding principal amount of the Securities and the
denominator of which is the sum of the outstanding principal
amount of the Securities and any then outstanding Pari Passu
Indebtedness (subject to proration in the event such amount
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is less than the aggregate Offered Price (as hereinafter
defined) of all Securities tendered), and (ii) to the extent
required by any then outstanding Pari Passu Indebtedness and
provided there is a permanent reduction in the principal
amount of such Pari Passu Indebtedness, the Company shall make
an offer to purchase such Pari Passu Indebtedness (a "Pari
Passu Offer") in an amount (the "Pari Passu Indebtedness
Amount") equal to the excess of the Excess Proceeds over the
Payment Amount.
(2) The offer price for the Securities shall be
payable in cash in an amount equal to 100% of the principal
amount of the Securities tendered pursuant to a Net Proceeds
Offer, plus accrued and unpaid interest, if any, to the date
such Net Proceeds Offer is consummated (the "Offered Price"),
in accordance with paragraph (d) of this Section. To the
extent that the aggregate Offered Price of the Securities
tendered pursuant to a Net Proceeds Offer is less than the
Payment Amount relating thereto or the aggregate amount of the
Pari Passu Indebtedness that is purchased or repaid pursuant
to the Pari Passu Offer is less than the Pari Passu
Indebtedness Amount (such shortfall constituting a "Net
Proceeds Deficiency"), the Company may use such Net Proceeds
Deficiency, or a portion thereof, for general corporate
purposes, subject to the limitations of Section 10.10 hereof.
(3) If the aggregate Offered Price of Securities
validly tendered and not withdrawn by Holders thereof exceeds
the Payment Amount, Securities to be purchased will be
selected on a pro rata basis by the Trustee based on the
principal amount of Securities so tendered. Upon completion
of a Net Proceeds Offer and a Pari Passu Offer, the amount of
Excess Proceeds shall be reset to zero.
(4) The Purchase Notice shall set forth a
purchase date (the "Net Proceeds Payment Date"), which shall
be on a Business Day no earlier than 30 days nor later than 70
days from the Trigger Date. The Purchase Notice shall also
state (i) that a Trigger Date with respect to one or more
Asset Sales has occurred and that such Holder has the right to
require the Company to repurchase such Holders Securities at
the Offered Price, subject to the limitations described in the
forgoing paragraph (3), (ii) any information regarding such
Net Proceeds Offer required to be furnished pursuant to Rule
14e-1 under the Exchange Act and any other securities laws and
regulations thereunder, (iii) that any Security, or portion
thereof, not tendered or accepted for payment will continue to
accrue interest, (iv) that, unless the Company defaults in
depositing money with the Paying Agent in accordance with the
last paragraph of clause (d) of this Section 10.16, or payment
is otherwise prevented, any Security, or portion thereof,
accepted for payment pursuant to the Net Proceeds Offer shall
cease to accrue interest after the Net Proceeds Payment Date,
and (v) the instructions a Holder must follow in order to have
its Securities repurchased in accordance with paragraph (d) of
this Section.
(d) Holders electing to have Securities purchased will be
required to surrender such Securities to the Company at the address specified
in the Purchase Notice at least five Business Days prior to the Net Proceeds
Payment Date. Holders will be entitled to withdraw their election if the
Company receives, not later than three Business Days prior to the Net Proceeds
Payment Date, a telegram, telex, facsimile transmission or letter setting forth
the name of the Holder, the certificate
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number(s) and principal amount of the Securities delivered for purchase by the
Holder as to which his election is to be withdrawn and a statement that such
Holder is withdrawing his election to have such Securities purchased. Holders
whose Securities are purchased only in part will be issued new Securities equal
in principal amount to the unpurchased portion of the Securities surrendered.
On the Net Proceeds Payment Date, the Company shall (i) accept
for payment Securities or portions thereof tendered pursuant to a Net Proceeds
Offer in an aggregate principal amount equal to the Payment Amount or such
lesser amount of Securities as has been tendered, (ii) deposit with the Paying
Agent money sufficient to pay the purchase price of all Securities or portions
thereof so tendered in an aggregate principal amount equal to the Payment
Amount or such lesser amount and (iii) deliver or cause to be delivered to the
Trustee the Securities so accepted. The Paying Agent shall promptly mail or
deliver to Holders of the Securities so accepted payment in an amount equal to
the purchase price, and the Company shall execute and the Trustee will promptly
authenticate and mail or make available for delivery to such Holders a new
Security equal in principal amount to any unpurchased portion of the Security
which any such Holder did not surrender for purchase. Any Securities not so
accepted will be promptly mailed or delivered to the Holder thereof. The
Company shall announce the results of a Net Proceeds Offer on or as soon as
practicable after the Net Proceeds Payment Date. For purposes of this Section
10.16, the Trustee will act as the Paying Agent.
(e) The Company shall not permit any Subsidiary to enter
into or suffer to exist any agreement that would place any restriction of any
kind (other than pursuant to law or regulation) on the ability of the Company
to make a Net Proceeds Offer following any Asset Sale. The Company intends to
comply with Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder if applicable, in the event that an Asset Sale occurs
and the Company is required to purchase Securities as described above.
Section 10.17 Limitation on Transactions with Affiliates.
The Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, enter into or suffer to exist any transaction or series
of related transactions (including, without limitation, the sale, purchase,
exchange or lease of any Property or the rendering of any service) with or for
the benefit of, any Affiliate of the Company (each, other than a Restricted
Subsidiary, being an "Interested Person"), unless (i) such transaction or
series of transactions are on terms that are no less favorable to the Company
or such Restricted Subsidiary, as the case may be, than those that would be
available in a comparable arm's length transaction with unrelated third parties
who are not Interested Persons, (ii) with respect to any one transaction or
series of transactions involving aggregate payments in excess of $10,000,000,
the Company delivers an Officer's Certificate to the Trustee certifying that
such transaction or series of transactions complies with clause (i) above and
such transaction or series of transactions have been approved by a Board
Resolution of the Board of Directors of the Company, and (iii) with respect to
any one transaction or series of transactions involving aggregate payments in
excess of $20,000,000, the Officer's Certificate referred to in clause (ii)
above also certifies that such transaction or series of transactions have been
approved by a majority of the Disinterested Directors (or, in the event there
are no such Disinterested Directors, that the Company has obtained a written
opinion from an independent nationally recognized investment banking firm or
appraisal firm, in either case specializing or having a specialty in the type
and subject matter of the transaction or series of transactions at issue, which
opinion shall be to the effect set forth in clause (i) above or shall state
that such transaction or series of transactions are fair from a financial
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point of view to the Company or such Restricted Subsidiary); provided, however,
that this Section 10.17 will not restrict the Company from (1) paying
reasonable and customary regular compensation and fees to directors of the
Company who are not employees of the Company or any Restricted Subsidiary, (2)
paying dividends on, or making distributions with respect to, shares of Capital
Stock of the Company on a pro rata basis to the extent permitted by Section
10.10 hereof, (3) transactions between or among the Company and/or any of its
Wholly Owned Restricted Subsidiaries, or (4) Restricted Payments permitted by
the provisions of Section 10.10 hereof.
Section 10.18 Limitation on Dividends and Other Payment
Restrictions Affecting Restricted Subsidiaries. The Company shall not, and
shall not permit any Restricted Subsidiary to, directly or indirectly, create
or otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to (a) pay dividends, in cash or otherwise, or make any other
distributions on or in respect of its Capital Stock to the Company or any other
Restricted Subsidiary, (b) pay any Indebtedness owed to the Company or any
other Restricted Subsidiary, (c) make an Investment in the Company or any other
Restricted Subsidiary or (d) transfer any of its Properties to the Company or
any other Restricted Subsidiary, except for such encumbrances or restrictions
(i) pursuant to an agreement in effect or entered into on the date of this
Indenture, (ii) any agreement or other instrument of a Person acquired by the
Company or any Restricted Subsidiary in existence at the time of such
acquisition (but not created in contemplation thereof), which encumbrance or
restriction is not applicable to any other Person, or the Properties of any
other Person, other than the Person, or the Property of the Person, so acquired
or (iii) existing under any agreement that extends, renews, refinances or
places the agreements containing the restrictions in the foregoing clauses (i)
and (ii), provided that the terms and conditions of any such restrictions are
not materially less favorable to the Holders of the Securities than those under
or pursuant to the agreement evidencing the Indebtedness so extended, renewed,
refinanced or replaced.
Section 10.19 Limitation on Conduct of Business. The
Company shall not, and shall not permit any of its Restricted Subsidiaries to,
engage in the conduct of any business other than the Oil and Gas Business.
Section 10.20 Waiver of Certain Covenants. The Company may
omit in any particular instance to comply with any term, provision or condition
set forth in Sections 10.05 through 10.11, Sections 10.13 and 10.14 and
Sections 10.17 through 10.19 hereof if, before or after the time for such
compliance, the Holders of at least a majority in principal amount of the
Outstanding Securities and the Subsidiary Guarantors, by Act of such Holders
and written agreement of the Subsidiary Guarantors, waive such compliance in
such instance with such term, provision or condition, but no such waiver shall
extend to or affect such term, provision or condition except to the extent so
expressly waived, and, until such waiver shall become effective, the
obligations of the Company and the duties of the Trustee in respect of any such
term, provision or condition shall remain in full force and effect.
Section 10.21 Suspension of Certain Covenants. The
covenants set forth in this Indenture will be applicable to the Company, except
that during any period of time that (i) the ratings assigned to the Securities
by both S&P and Moody's (collectively, the "Rating Agencies") are equal to or
higher than BBB- and Baa3, or the equivalents thereof, respectively (the
"Investment Grade Ratings"), except subsequent to a Change of Control of the
Company, and (ii) no Default or Event
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of Default shall have occurred and be continuing, the Company and its
Subsidiaries shall not be subject to the provisions of Sections 10.10, 10.11,
10.16, 10.17 and 10.18 hereof (collectively, the "Suspended Covenants"). In
the event that the Company is not subject to the Suspended Covenants for any
period of time as a result of the preceding sentence and, subsequently, one or
both Rating Agencies withdraws its ratings or downgrades the ratings assigned
to the Securities below the required Investment Grade Ratings, then the Company
and its Subsidiaries will again be subject to the Suspended Covenants and
compliance with the Suspended Covenants with respect to Section 10.10 hereof
made after the time of such withdrawal or downgrade will be calculated in
accordance with the terms of Section 10.10 hereof as if such covenant had been
in effect during the entire period of time from the date of this Indenture.
ARTICLE XI
REDEMPTION OF SECURITIES
Section 11.1 Right of Redemption. The Securities may be
redeemed, at the election of the Company, as a whole or from time to time in
part, at any time on or after July 15, 2002, upon not less than 30 or more than
60 days' notice to each Holder of Securities to be redeemed, subject to the
conditions and at the Redemption Prices (expressed as percentages of principal
amount) specified in the form of Security, together with accrued and unpaid
interest, if any, to the Redemption Date. In addition, at any time and from
time to time prior to July 15, 2000, the Company may, at its option, redeem
Securities in an amount in the aggregate equal to up to $70,000,000 of the
aggregate principal amount of Securities originally issued under this Indenture
with the net proceeds of one or more Public Equity Offerings by the Company at
a Redemption Price (expressed as a percentage of principal amount) of 108.875%,
plus accrued and unpaid interest, if any, to the applicable Redemption Date
(subject to the right of Holders of Securities on the relevant record date to
receive interest due on the relevant Interest Payment Date); provided, however,
that at least $130,000,000 aggregate principal amount of the Securities must
remain outstanding after each such redemption. In order to effect the
foregoing redemption, the Company must mail notice of redemption under Section
11.5 hereof no later than 60 days after the related Public Equity Offering and
must consummate such redemption within 90 days of the closing of the Public
Equity Offering.
Section 11.2 Applicability of Article. Redemption of
Securities at the election of the Company or otherwise, as permitted or
required by any provision of this Indenture, shall be made in accordance with
such provision and this Article.
Section 11.3 Election to Redeem; Notice to Trustee. The
election of the Company to redeem any Securities pursuant to Section 11.1
hereof shall be evidenced by a Board Resolution. In case of any redemption at
the election of the Company, the Company shall, at least 60 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and of
the principal amount of Securities to be redeemed and shall deliver to the
Trustee such documentation and records as shall enable the Trustee to select
the Securities to be redeemed pursuant to Section 11.4 hereof. Any election to
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redeem Securities shall be revocable until the Company gives a notice of
redemption pursuant to Section 11.5 hereof to the Holders of Securities to be
redeemed.
Section 11.4 Selection by Trustee of Securities to Be
Redeemed. If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not less than 30 days nor more than
60 days prior to the Redemption Date by the Trustee, from the Outstanding
Securities not previously called for redemption, pro rata, by lot or by any
other method as the Trustee shall deem fair and appropriate and which may
provide for the selection for redemption of portions of the principal of
Securities; provided, however, that any such partial redemption shall be in
integral multiples of $1000.
The Trustee shall promptly notify the Company in writing of
the Securities selected for redemption and, in the case of any Securities
selected for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to redemption of Securities shall
relate, in the case of any Security redeemed or to be redeemed only in part, to
the portion of the principal amount of such Security which has been or is to be
redeemed.
Section 11.5 Notice of Redemption. Notice of redemption
shall be given in the manner provided for in Section 15.5 hereof not less than
30 nor more than 60 days prior to the Redemption Date, to each Holder of
Securities to be redeemed.
All notices of redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) if less than all Outstanding Securities are to be
redeemed, the identification (and, in the case of a partial redemption, the
principal amounts) of the particular Securities to be redeemed;
(d) that on the Redemption Date the Redemption Price
(together with accrued interest, if any, to the Redemption Date payable as
provided in Section 11.7 hereof) will become due and payable upon each such
Security, or the portion thereof, to be redeemed, and that, unless the Company
shall default in the payment of the Redemption Price and any applicable accrued
interest, interest thereon will cease to accrue on and after said date; and
(e) the place or places where such Securities are to be
surrendered for payment of the Redemption Price.
Notice of redemption of Securities to be redeemed at the
election of the Company shall be given by the Company or, at the Company's
request, by the Trustee in the name and at the expense of the Company. Failure
to give such notice by mailing to any Holder of Securities or any defect
therein shall not affect the validity of any proceedings for the redemption of
other Securities.
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Section 11.6 Deposit of Redemption Price. On or before
12:00 noon on any Redemption Date, the Company shall deposit with the Trustee
or with a Paying Agent (or, if the Company is acting as its own Paying Agent,
segregate and hold in trust as provided in Section 10.3 hereof) an amount of
money sufficient to pay the Redemption Price of, and accrued and unpaid
interest on, all the Securities which are to be redeemed on such Redemption
Date.
Section 11.7 Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so to be
redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified (together with accrued and unpaid interest,
if any, to the Redemption Date), and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued and
unpaid interest) such Securities shall cease to bear interest. Upon surrender
of any such Security for redemption in accordance with said notice, such
Security shall be paid by the Company at the Redemption Price, together with
accrued and unpaid interest, if any, to the Redemption Date; provided, however,
that installments of interest whose Stated Maturity is on or prior to the
Redemption Date shall be payable to the Holders of such Securities, or one or
more Predecessor Securities, registered as such at the close of business on the
relevant Record Dates according to their terms and the provisions of Section
3.9 hereof.
If any Security called for redemption shall not be so paid
upon surrender thereof for redemption, the principal (and premium, if any)
shall, until paid, bear interest from the Redemption Date at the rate borne by
the Securities.
Section 11.8 Securities Redeemed in Part. Any Security
which is to be redeemed only in part shall be surrendered at the office or
agency of the Company maintained for such purpose pursuant to Section 10.2
hereof (with, if the Company or the Trustee so requires, due endorsement by, or
a written instrument of transfer in form satisfactory to the Company and the
Trustee duly executed by, the Holder thereof or such Holder's attorney duly
authorized in writing), and the Company shall execute, and the Trustee shall
authenticate and deliver to the Holder of such Security without service charge,
a new Security or Securities, of any authorized denomination as requested by
such Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal amount of the Security so surrendered.
ARTICLE XII
DEFEASANCE AND COVENANT DEFEASANCE
Section 12.1 Company's Option to Effect Defeasance or
Covenant Defeasance. The Company may, at its option by Board Resolution, at
any time, with respect to the Securities, elect to have either Section 12.2 or
Section 12.3 hereof be applied to all Outstanding Securities upon compliance
with the conditions set forth below in this Article XII.
Section 12.2 Defeasance and Discharge. Upon the Company's
exercise under Section 12.1 hereof of the option applicable to this Section
12.2, the Company shall be deemed to have been discharged from its obligations
with respect to all Outstanding Securities on the date the conditions set forth
in Section 12.4 hereof are satisfied (hereinafter, "legal defeasance"). For
this purpose, such legal defeasance means that the Company and the Subsidiary
Guarantors shall be
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deemed (i) to have paid and discharged their respective obligations under the
Outstanding Securities; provided, however that the Securities shall continue to
be deemed to be "Outstanding" for purposes of Section 12.5 hereof and the other
Sections of this Indenture referred to in clauses (A) and (B) below, and (ii)
to have satisfied all their other obligations under such Securities and this
Indenture insofar as such Securities are concerned (and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging the
same), except for the following which shall survive until otherwise terminated
or discharged hereunder: (A) the rights of Holders of Outstanding Securities
to receive, solely from the trust fund described in Section 12.4 hereof and as
more fully set forth in such Section, payments in respect of the principal of
(and premium, if any, on) and interest on such Securities when such payments
are due (or at such time as the Securities would be subject to redemption at
the option of the Company in accordance with this Indenture), (B) the
respective obligations of the Company and the Subsidiary Guarantors under
Sections 3.3, 3.4, 3.5, 3.6, 3.7, 3.8, 5.8, 5.14, 6.6, 6.9, 6.10, 10.1, 10.2,
10.3, 10.4, 13.1 (to the extent it relates to the Foregoing Sections and
Article XII hereof), 13.4 and 13.5 hereof, (C) the rights, powers, trusts,
duties and immunities of the Trustee hereunder, and (D) the obligations of the
Company and the Subsidiary Guarantors under this Article XII. Subject to
compliance with this Article XII, the Company may exercise its option under
this Section 12.2 notwithstanding the prior exercise of its option under
Section 12.3 hereof with respect to the Securities.
Section 12.3 Covenant Defeasance. Upon the Company's
exercise under Section 12.1 hereof of the option applicable to this Section
12.3, the Company shall be released from its obligations under any covenant
contained in Article VIII and in Sections 10.6 through 10.19 hereof with
respect to the Outstanding Securities on and after the date the conditions set
forth below are satisfied (hereinafter, "covenant defeasance"), and the
Securities shall thereafter be deemed not to be "Outstanding" for the purposes
of any direction, waiver, consent or declaration or Act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "Outstanding" for all other purposes hereunder. For this
purpose, such covenant defeasance means that, with respect to the Outstanding
Securities, the Company may omit to comply with and shall have no liability in
respect of any term, condition or limitation set forth in any such covenant,
whether directly or indirectly, by reason of any reference elsewhere herein to
any such covenant or by reason of any reference in any such covenant to any
other provision herein or in any other document and such omission to comply
shall not constitute a Default or an Event of Default under Sections 5.1(c) or
5.1(d) hereof, but, except as specified above, the remainder of this Indenture
and such Securities shall be unaffected thereby.
Section 12.4 Conditions to Defeasance or Covenant
Defeasance. The following shall be the conditions to application of either
Section 12.2 or Section 12.3 hereof to the Outstanding Securities:
(a) The Company or any Subsidiary Guarantor shall
irrevocably have deposited or caused to be deposited with the Trustee (or
another trustee satisfying the requirements of Section 6.7 hereof who shall
agree to comply with the provisions of this Article XII applicable to it) as
trust funds in trust for the purpose of making the following payments,
specifically pledged as security for, and dedicated solely to, the benefit of
the Holders of such Securities, (A) cash in U.S. Dollars in an amount, or (B)
U.S. Government Obligations which through the scheduled payment of principal
and interest in respect thereof in accordance with their terms will provide,
not later than one day before the due date of any payment, money in an amount,
or (C) a combination thereof, sufficient, in the
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opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee, to pay
and discharge, and which shall be applied by the Trustee (or other qualifying
trustee) to pay and discharge, the principal of (and premium, if any, on) and
interest on the Outstanding Securities on the Stated Maturity (or Redemption
Date, if applicable) of such principal (and premium, if any) or installment of
interest; provided that the Trustee shall have been irrevocably instructed in
writing by the Company to apply such money or the proceeds of such U.S.
Government Obligations to said payments with respect to the Securities. Before
such a deposit, the Company may give to the Trustee, in accordance with Section
11.03 hereof, a notice of its election to redeem all of the Outstanding
Securities at a future date in accordance with Article XI hereof, which notice
shall be irrevocable. Such irrevocable redemption notice, if given, shall be
given effect in applying the foregoing. For this purpose, "U.S. Government
Obligations" means securities that are (x) direct obligations of the United
States of America for the timely payment of which its full faith and credit is
pledged or (y) obligations of a Person controlled or supervised by and acting
as an agency or instrumentality of the United States of America the timely
payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act of 1933, as amended), as custodian with respect to any such
U.S. Government Obligation or a specific payment of principal of or interest
on any such U.S. Government Obligation held by such custodian for the account
of the holder of such depository receipt, provided that (except as required by
law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by
the custodian in respect of the U.S. Government Obligation or the specific
payment of principal of or interest on the U.S. Government Obligation evidenced
by such depository receipt.
(b) No Default or Event of Default with respect to the
Securities shall have occurred and be continuing on the date of such deposit.
(c) Such legal defeasance or covenant defeasance shall
not cause the Trustee to have a conflicting interest under this Indenture or
the Trust Indenture Act with respect to any securities of the Company.
(d) Such legal defeasance or covenant defeasance shall
not result in a breach or violation of, or constitute a default under any other
material agreement or instrument to which the Company or any Subsidiary
Guarantor is a party or by which it is bound, as evidenced to the Trustee in an
Officer's Certificate delivered to the Trustee concurrently with such deposit.
(e) In the case of an election under Section 12.2 hereof,
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 laws; in either
case providing that the Holders of the Outstanding Securities will not
recognize income, gain or loss for federal income tax purposes as a result of
such legal defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such legal defeasance had not occurred (it being understood that (x) such
Opinion of Counsel shall also state that such ruling or applicable law is
consistent with the conclusions reached in such Opinion
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of Counsel and (y) the Trustee shall be under no obligation to investigate the
basis of correctness of such ruling).
(f) In the case of an election under Section 12.3 hereof,
the Company shall have delivered to the Trustee an Opinion of Counsel to the
effect that the Holders of the Outstanding Securities 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.
(g) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to either the legal defeasance under
Section 12.2 hereof or the covenant defeasance under Section 12.3 (as the case
may be) have been complied with.
Section 12.5 Deposited Money and U.S. Government
Obligations to Be Held in Trust; Other Miscellaneous Provisions. Subject to
the provisions of the last paragraph of Section 10.3 hereof, all money and U.S.
Government Obligations (including the proceeds thereof) deposited with the
Trustee (or other qualifying trustee-- collectively for purposes of this
Section 12.5, the "Trustee") pursuant to Section 12.4 hereof in respect of the
Outstanding Securities shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Holders of
such Securities of all sums due and to become due thereon in respect of
principal (and premium, if any) and interest, but such money need not be
segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the U.S. Governmental
Obligations deposited pursuant to Section 12.4 hereof or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the Outstanding
Securities.
Anything in this Article XII to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 12.4 hereof which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent legal defeasance or
covenant defeasance, as applicable, in accordance with this Article.
Section 12.6 Reinstatement. If the Trustee or any Paying
Agent is unable to apply any money in accordance with Section 12.5 hereof by
reason of any order or judgment of any court or governmental authority
enjoining, restraining or otherwise prohibiting such application, then the
Company's and the Subsidiary Guarantors' obligations under this Indenture and
the Securities shall be revived and reinstated as though no deposit had
occurred pursuant to Section 12.2 or 12.3 hereof, as the case may be, until
such time as the Trustee or Paying Agent is permitted to apply all such money
in accordance with Section 12.5 hereof; provided, however, that if the Company
or any Subsidiary Guarantor makes any payment of principal of (or premium, if
any, on) or interest on any
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Security following the reinstatement of its obligations, the Company or such
Subsidiary Guarantor shall be subrogated to the rights of the Holders of such
Securities to receive such payment from the money held by the Trustee or Paying
Agent.
ARTICLE XIII
GUARANTEES
Section 13.1 Unconditional Guarantee. Each Subsidiary
Guarantor hereby unconditionally, jointly and severally, guarantees (each such
guarantee to be referred to herein as a "Subsidiary Guarantee", with all such
guarantees being referred to herein as the "Subsidiary Guarantees") to each
Holder of Securities authenticated and delivered by the Trustee and to the
Trustee and its successors and assigns, the full and prompt performance of the
Company's obligations under this Indenture and the Securities and that:
(a) the principal of (premium, if any, on) and interest
on the Securities will be promptly paid in full when due, whether at maturity,
by acceleration, redemption or otherwise, and interest on the overdue principal
of and interest on the Securities, if any, to the extent lawful, and all other
obligations of the Company to the Holders or the Trustee hereunder or
thereunder will be promptly paid in full or performed, all in accordance with
the terms hereof and thereof; and
(b) in case of any extension of time of payment or
renewal of any Securities or of any such other obligations, the same will be
promptly paid in full when due or performed in accordance with the terms of the
extension or renewal, whether at Stated Maturity, by acceleration or otherwise;
subject, however, in the case of clauses (a) and (b) above, to the limitations
set forth in Section 13.4 hereof.
Failing payment when due of any amount so guaranteed or any
performance so guaranteed for whatever reason, the Subsidiary Guarantors will
be jointly and severally obligated to pay the same immediately. Each
Subsidiary Guarantor hereby agrees that its obligations hereunder shall be
unconditional, irrespective of the validity, regularity or enforceability of
the Securities or this Indenture, the absence of any action to enforce the
same, any waiver or consent by any Holder of the Securities with respect to any
provisions hereof or thereof, the recovery of any judgment against the Company,
any action to enforce the same or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a guarantor. Each
Subsidiary Guarantor hereby waives diligence, presentment, demand of payment,
filing of claims with a court in the event of insolvency or bankruptcy of the
Company, any right to require a proceeding first against the Company, protest,
notice and all demands whatsoever and covenants that its Subsidiary Guarantee
will not be discharged except by complete performance of the obligations
contained in the Securities, this Indenture and in this Subsidiary Guarantee.
If any Holder or the Trustee is required by any court or otherwise to return to
the Company, any Subsidiary Guarantor, or any custodian, trustee, liquidator or
other similar official acting in relation to the Company or any Subsidiary
Guarantor, any amount paid by the Company or any Subsidiary Guarantor to the
Trustee or such Holder, this Subsidiary Guarantee, to the extent theretofore
discharged, shall be reinstated
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in full force and effect. Each Subsidiary Guarantor agrees it shall not be
entitled to any right of subrogation in relation to the Holders in respect of
any obligations guaranteed hereby until payment in full of all obligations
guaranteed hereby. Each Subsidiary Guarantor further agrees that, as between
each Subsidiary Guarantor, on the one hand, and the Holders and the Trustee, on
the other hand, (x) the maturity of the obligations guaranteed hereby may be
accelerated as provided in Article V hereof for the purposes of this Subsidiary
Guarantee, notwithstanding any stay, injunction or other prohibition preventing
such acceleration in respect of the obligations guaranteed hereby, and (y) in
the event of any acceleration of such obligations as provided in Article V
hereof, such obligations (whether or not due and payable) shall forthwith
become due and payable by each Subsidiary Guarantor for the purpose of this
Subsidiary Guarantee.
Section 13.2 Subsidiary Guarantors May Consolidate, etc.,
on Certain Terms.
(a) Except as set forth in Articles VIII and X hereof,
nothing contained in this Indenture or in any of the Securities shall prevent
any consolidation or merger of a Subsidiary Guarantor with or into the Company
or another Subsidiary Guarantor or shall prevent any sale or conveyance of the
assets of a Subsidiary Guarantor as an entirety or substantially as an
entirety, to the Company or another Subsidiary Guarantor.
(b) Except as set forth in Articles VIII and X hereof,
nothing contained in this Indenture or in any of the Securities shall prevent
any consolidation or merger of a Subsidiary Guarantor with or into a
corporation or corporations other than the Company or a Subsidiary Guarantor
(whether or not affiliated with the Subsidiary Guarantor), or successive
consolidations or mergers in which a Subsidiary Guarantor or its successor or
successors shall be a party or parties, or shall prevent any sale or conveyance
of the Properties of a Subsidiary Guarantor as an entirety or substantially as
an entirety, to a corporation other than the Company or another Subsidiary
Guarantor (whether or not Affiliated with the Subsidiary Guarantor) authorized
to acquire and operate the same; provided, however, that, subject to Sections
13.2(a) and 13.3 hereof, (i) immediately after such transaction, and giving
effect thereto, no Default or Event of Default shall have occurred as a result
of such transaction and be continuing, (ii) such transaction shall not violate
any of the covenants in Sections 10.1 through 10.19 hereof, and (iii) each
Subsidiary Guarantor hereby covenants and agrees that, upon any such
consolidation, merger, sale or conveyance, such Subsidiary Guarantor's
Subsidiary Guarantee set forth in this Article XIII and in a notation to the
Securities, and the due and punctual performance and observance of all of the
covenants and conditions of this Indenture to be performed by such Subsidiary
Guarantor, shall be expressly assumed (in the event that the Subsidiary
Guarantor is not the surviving corporation in the merger), by supplemental
indenture satisfactory in form to the Trustee, executed and delivered to the
Trustee, by such corporation formed by such consolidation, or into which the
Subsidiary Guarantor shall have merged, or by the corporation that shall have
acquired such Property (except to the extent the following Section 13.3 would
result in the release of such Subsidiary Guarantee in which case such surviving
corporation does not have to execute any such supplemental indenture). In the
case of any such consolidation, merger, sale or conveyance and upon the
assumption by the successor corporation, by supplemental indenture executed and
delivered to the Trustee and satisfactory in form to the Trustee of the due and
punctual performance of all of the covenants and conditions of this Indenture
to be performed by the Subsidiary Guarantor, such successor corporation shall
succeed to and be substituted for the Subsidiary Guarantor with the same effect
as if it had been named herein as a Subsidiary Guarantor.
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Section 13.3 Release of a Subsidiary Guarantor. Upon the
sale or disposition (by merger or otherwise) of a Subsidiary Guarantor (or all
or substantially all of its Properties) to a Person other than the Company or
another Subsidiary Guarantor and pursuant to a transaction that is otherwise in
compliance with the terms of this Indenture, including but not limited to the
provisions of Section 13.2 hereof, such Subsidiary Guarantor shall be deemed
released from all of its Subsidiary Guarantee and related obligations in this
Indenture; provided, however, that any such termination shall occur only to the
extent that all obligations of such Subsidiary Guarantor under all of its
Guarantees of, and under all of its pledges of assets or other security
interests which secure, other Indebtedness of the Company or any Restricted
Subsidiary shall also terminate upon such sale or other disposition. Each
Subsidiary Guarantor that is designated as an Unrestricted Subsidiary in
accordance with the provisions of this Indenture shall be released from all of
its Subsidiary Guarantee and related obligations set forth in this Indenture
for so long as it remains an Unrestricted Subsidiary. The Trustee shall
deliver an appropriate instrument evidencing such release upon receipt of a
Company Request accompanied by an Officers' Certificate and an Opinion of
Counsel certifying that such sale or other disposition was made by the Company
in accordance with the provisions of this Indenture. Any Subsidiary Guarantor
not so released remains liable for the full amount of principal of (and
premium, if any, on) and interest on the Securities as provided in this Article
XIII.
Section 13.4 Limitation of Subsidiary Guarantor's
Liability. Each Subsidiary Guarantor, and by its acceptance hereof each
Holder, hereby confirms that it is the intention of all such parties that the
Guarantee by such Subsidiary Guarantor pursuant to its Subsidiary Guarantee not
constitute a fraudulent transfer or conveyance for purposes of any federal or
state law. To effectuate the foregoing intention, the Holders and each
Subsidiary Guarantor hereby irrevocably agree that the obligations of each
Subsidiary Guarantor under its Subsidiary Guarantee shall be limited to the
maximum amount as will, after giving effect to all other contingent and fixed
liabilities (including, but not limited to, Guarantor Senior Indebtedness) of
such Subsidiary Guarantor and after giving effect to any collections from or
payments made by or on behalf of any other Subsidiary Guarantor in respect of
the obligations of such other Subsidiary Guarantor under its Subsidiary
Guarantee or pursuant to Section 13.5 hereof, result in the obligations of such
Subsidiary Guarantor under its Subsidiary Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under federal or state law. This
Section 13.4 is for the benefit of the creditors of each Subsidiary Guarantor.
Section 13.5 Contribution. In order to provide for just
and equitable contribution among the Subsidiary Guarantors, the Subsidiary
Guarantors agree, inter se, that in the event any payment or distribution is
made by any Subsidiary Guarantor (a "Funding Guarantor") under its Subsidiary
Guarantee, such Funding Guarantor shall be entitled to a contribution from each
other Subsidiary Guarantor (if any) in a pro rata amount based on the Adjusted
Net Assets of each Subsidiary Guarantor (including the Funding Guarantor) for
all payments, damages and expenses incurred by that Funding Guarantor in
discharging the Company's obligations with respect to the Securities or any
other Subsidiary Guarantor's obligations with respect to its Subsidiary
Guarantee.
Section 13.6 Execution and Delivery of Notation of
Subsidiary Guarantee. To evidence its Subsidiary Guarantee set forth in
Section 13.1 hereof, each Subsidiary Guarantor hereby agrees to execute the
notation of Subsidiary Guarantee in substantially the form set forth in Section
2.4 hereof to be endorsed on each Security ordered to be authenticated and
delivered by the Trustee, and each Subsidiary Guarantor agrees that this
Indenture shall be executed on behalf of each
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Subsidiary Guarantor by its President or one of its Vice Presidents and
attested to by one of its Secretaries or Assistant Secretaries. Each
Subsidiary Guarantor hereby agrees that its Subsidiary Guarantee set forth in
Section 13.1 hereof shall remain in full force and effect notwithstanding any
failure to endorse on each Security a notation of such Subsidiary Guarantee.
Each such notation of Subsidiary Guarantee shall be signed on behalf of each
Subsidiary Guarantor by two Officers, or an Officer and an Assistant Secretary
or one Officer shall sign and one Officer or an Assistant Secretary (each of
whom shall, in each case, have been duly authorized by all requisite corporate
actions) shall attest to such notation of Subsidiary Guarantee prior to the
authentication of the Security on which it is endorsed, and the delivery of
such Security by the Trustee, after the authentication thereof hereunder, shall
constitute due delivery of the Subsidiary Guarantee set forth in this Indenture
on behalf of the Subsidiary Guarantors. Such signatures upon the notation of
Subsidiary Guarantee may be by manual or facsimile signature of such officers
and may be imprinted or otherwise reproduced on the Subsidiary Guarantee, and
in case any such officer who shall have signed the notation of Subsidiary
Guarantee shall cease to be such officer before the Security on which such
notation of Subsidiary Guarantee is endorsed shall have been authenticated and
delivered by the Trustee or disposed of by the Company, such Security
nevertheless may be authenticated and delivered or disposed of as though the
person who signed the notation of Subsidiary Guarantee had not ceased to be
such officer of the Subsidiary Guarantor.
Section 13.7 Severability. In case any provision of this
Subsidiary Guarantee shall be invalid, illegal or unenforceable, that portion
of such provision that is not invalid, illegal or unenforceable shall remain in
effect, and the validity, legality, and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
Section 13.8 Subsidiary Guarantees Subordinated to
Guarantor Senior Indebtedness. Each Subsidiary Guarantor covenants and agrees,
and each Holder of a Security, by his acceptance of the Subsidiary Guarantees,
likewise covenants and agrees, for the benefit of the holders, from time to
time, of Guarantor Senior Indebtedness, that the payments by such Subsidiary
Guarantor in respect of its Subsidiary Guarantee are subordinated and subject
in right of payment, to the extent and in the manner provided in this Article
XIII, to the prior payment in full of all Guarantor Senior Indebtedness of such
Subsidiary Guarantor, whether outstanding on the date of this Indenture or
thereafter created, incurred, assumed or guaranteed; provided, however, that
the Subsidiary Guarantee of such Subsidiary Guarantor, the Indebtedness
represented thereby and the payment of the principal of (and premium, if any,
on) and the interest on the Securities pursuant to such Subsidiary Guarantee in
all respects shall rank pari passu with, or prior to, all existing and future
unsecured indebtedness (including, without limitation, Indebtedness) of such
Subsidiary Guarantor that is subordinated to its Guarantor Senior Indebtedness.
This Article XIII shall constitute a continuing offer to all
Persons who, in reliance upon such provisions, become holders of, or continue
to hold, Guarantor Senior Indebtedness, and such provisions are made for the
benefit of the holders of Guarantor Senior Indebtedness, and such holders are
made obligees hereunder and any of them may enforce such provisions.
Section 13.9 Subsidiary Guarantors Not to Make Payments
with Respect to Subsidiary Guarantees in Certain Circumstances.
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(a) No payment or distribution of any Property of any
Subsidiary Guarantor of any kind or character (other than Permitted Guarantor
Junior Securities) may be made by such Subsidiary Guarantor in respect of its
Subsidiary Guarantee upon the happening of any default in respect of the
payment or required prepayment of any of its Guarantor Senior Indebtedness when
the same becomes due and payable (a "Subsidiary Guarantor Payment Default"),
unless and until such Subsidiary Guarantor Payment Default shall have been
cured or waived in writing or shall have ceased to exist or such Guarantor
Senior Indebtedness shall have been paid in full or otherwise discharged, after
which such Subsidiary Guarantor shall resume making any and all required
payments in respect of its Subsidiary Guarantee, including any missed payments.
(b) Upon the happening of any event (other than a
Subsidiary Guarantor Payment Default) the occurrence of which entitles one or
more Persons to accelerate the maturity of any Designated Guarantor Senior
Indebtedness (a "Subsidiary Guarantor Non-payment Default"), and receipt by the
applicable Subsidiary Guarantor and a Responsible Officer of the Trustee, on
behalf of the Trustee, of written notice thereof from one or more of the
holders of such Designated Guarantor Senior Indebtedness or their
representative (a "Subsidiary Guarantor Payment Notice"), then, unless and
until such Subsidiary Guarantor Non-payment Default shall have been cured or
waived in writing or shall have ceased to exist or such Designated Guarantor
Senior Indebtedness is paid in full or otherwise discharged or the holders (or
a representative of the holders) of such Designated Guarantor Senior
Indebtedness give their written approval, no payment or distribution shall be
made by such Subsidiary Guarantor in respect of its Subsidiary Guarantee (other
than Permitted Guarantor Junior Securities); provided, however, that these
provisions will not prevent the making of any payment for more than 179 days
after a Subsidiary Guarantor Payment Notice shall have been given after which,
subject to Section 13.9(a), such Subsidiary Guarantor will resume making any
and all required payments in respect of its Subsidiary Guarantee, including any
missed payments. Notwithstanding any other provision of this Indenture, only
one Subsidiary Guarantor Payment Notice shall be given with respect to any
Subsidiary Guarantee within any 360 consecutive day period. No Subsidiary
Guarantor Non-payment Default with respect to Designated Guarantor Senior
Indebtedness that existed or was continuing on the date of any Subsidiary
Guarantor Payment Notice with respect to the Designated Guarantor Senior
Indebtedness initiating such Subsidiary Guarantor Payment Notice shall be, or
can be, made the basis for the commencement of a subsequent Subsidiary
Guarantor Payment Notice with respect to such Subsidiary Guarantee, whether or
not within a period of 360 consecutive days, unless such default shall have
been cured or waived for a period of not less than 90 consecutive days (it
being acknowledged that any subsequent action, or any breach of any financial
covenant for a period commencing after the date of commencement of such
Subsidiary Guarantor Payment Notice, that, in either case, would give rise to a
Subsidiary Guarantor Non-payment Default pursuant to any provision under which
a Subsidiary Guarantor Non-payment Default previously existed or was continuing
shall constitute a new Subsidiary Guarantor Non-payment Default for this
purpose; provided that, in the case of a breach of a particular financial
covenant, such Subsidiary Guarantor shall have been in compliance for at least
one full 90 consecutive day period commencing after the date of commencement of
such Subsidiary Guarantor Payment Notice). In no event shall a Subsidiary
Guarantor Payment Notice extend beyond 179 days from the date of its receipt
and there must be a 181 consecutive day period in any 360 consecutive day
period during which no Subsidiary Guarantor Payment Notice is in effect with
respect to such Subsidiary Guarantee.
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(c) In the event that, notwithstanding the foregoing, a
Subsidiary Guarantor shall make any payment in respect of its Subsidiary
Guarantee to the Trustee or the Holder of any Security prohibited by the
foregoing provisions of this Section 13.9, then and in such event such payment
shall be paid over and delivered forthwith to the Company. In the event that a
Subsidiary Guarantor shall make any payment in respect of its Subsidiary
Guarantee to the Trustee and a Responsible Officer of the Trustee, on behalf of
the Trustee, shall receive written notice of a Subsidiary Guarantor Payment
Default or a Subsidiary Guarantor Non-payment Default from one or more of the
Holders of Guarantor Senior Indebtedness (or their representative) prior to
making any payment to Holders in respect of the Subsidiary Guarantee and prior
to 11:00 a.m. Eastern Time on the date which is two Business Days prior to the
date upon which by the terms hereof any money may become payable for any
purpose, such payments shall be paid over by the Trustee and delivered
forthwith to the Company. Each Subsidiary Guarantor shall give prompt written
notice to the Trustee of any default under any of its Guarantor Senior
Indebtedness or under any agreement pursuant to which its Guarantor Senior
Indebtedness may have been issued.
Section 13.10 Subsidiary Guarantees Subordinated to Prior
Payment of All Guarantor Senior Indebtedness upon Dissolution, etc. Upon any
distribution of Properties of any Subsidiary Guarantor or payment on behalf of
a Subsidiary Guarantor in the event of any Insolvency or Liquidation Proceeding
with respect to such Subsidiary Guarantor:
(a) the holders of such Subsidiary Guarantor's Guarantor
Senior Indebtedness shall be entitled to receive payment in full of such
Guarantor Senior Indebtedness, or provision must be made for such payment,
before the Holders are entitled to receive any direct or indirect payment or
distribution of any kind or character, whether in cash, property or securities
(other than Permitted Guarantor Junior Securities), on account of any payment
in respect of such Subsidiary Guarantor's Subsidiary Guarantee;
(b) any direct or indirect payment or distribution of
Properties of such Subsidiary Guarantor of any kind or character, whether in
cash, property or securities (other than a payment or distribution in the form
of Permitted Guarantor Junior Securities), by set-off or otherwise, to which
the Holders or the Trustee, on behalf of the Holders, would be entitled except
for the provisions of this Article XIII, shall be paid by the Subsidiary
Guarantor or by any liquidating trustee or agent or other Person making such
payment or distribution, whether a trustee in bankruptcy, a receiver or
liquidating trustee or otherwise, directly to the holders of such Guarantor
Senior Indebtedness or their representative or representatives or to the
trustee or trustees under any indenture under which any instruments evidencing
any of such Senior Guarantor Indebtedness may have been issued, ratably
according to the aggregate amounts remaining unpaid on account of such
Guarantor Senior Indebtedness held or represented by each, to the extent
necessary to make payment in full of all such Guarantor Senior Indebtedness,
after giving effect to any concurrent payment or distribution to the holders of
such Guarantor Senior Indebtedness; and
(c) in the event that, notwithstanding the foregoing
provisions of this Section 13.10, any direct or indirect payment or
distribution of Properties of such Subsidiary Guarantor of any kind or
character, whether in cash, property or securities (other than a payment or
distribution in the form of Permitted Guarantor Junior Securities), shall be
received by the Trustee or the Holders before all such Guarantor Senior
Indebtedness is paid in full or otherwise discharged, such Properties shall be
received and held in trust for and shall be paid over to the holders of such
Guarantor Senior
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Indebtedness remaining unpaid or their representatives, for application to the
payment of such Guarantor Senior Indebtedness until all such Guarantor Senior
Indebtedness shall have been paid or provided for in full, after giving effect
to any concurrent payment or distribution to the holders of such Guarantor
Senior Indebtedness.
The Company or a Subsidiary Guarantor shall give prompt
written notice to a Responsible Officer of the Trustee, on behalf of the
Trustee, of the occurrence of any Insolvency or Liquidation Proceeding with
respect to such Subsidiary Guarantor.
Section 13.11 Holders to be Subrogated to Rights of Holders
of Guarantor Senior Indebtedness. After the payment in full of all Guarantor
Senior Indebtedness of a Subsidiary Guarantor, the Holders shall be subrogated
(equally and ratably with the holders of all other Indebtedness of such
Subsidiary Guarantor which by its express terms is subordinated to such
Guarantor Senior Indebtedness to substantially the same extent as such
Subsidiary Guarantee is so subordinated and which is entitled to like rights of
subrogation as a result of payments made to the holders of such Guarantor
Senior Indebtedness) to the rights of the holders of such Guarantor Senior
Indebtedness to receive payments or distributions of cash, property and
securities of such Subsidiary Guarantor applicable to such Guarantor Senior
Indebtedness until all amounts owing on the Securities shall be paid in full,
and for the purpose of such subrogation no payments or distributions to the
holders of such Guarantor Senior Indebtedness by or on behalf of such
Subsidiary Guarantor or by or on behalf of the Holders by virtue of this
Article XIII which otherwise would have been made to the Holders shall, as
between such Subsidiary Guarantor, its creditors other than the holders of
Guarantor Senior Indebtedness, and the Holders of the Securities, be deemed to
be a payment or distribution by such Subsidiary Guarantor to or on account of
such Guarantor Senior Indebtedness, it being understood that the subordination
provisions of this Article XIII are, and are intended solely for, the purpose
of defining the relative rights of the Holders, on the one hand, and the
holders of Guarantor Senior Indebtedness, on the other hand.
Section 13.12 Obligations of the Subsidiary Guarantors
Unconditional. Nothing contained in this Article XIII or elsewhere in this
Indenture or in any Security is intended to or shall impair, as between
Subsidiary Guarantors and the Holders, the obligation of the Subsidiary
Guarantors under the Subsidiary Guarantees, or is intended to or shall affect
the relative rights of the Holders and creditors of the Subsidiary Guarantors,
nor shall anything herein or therein prevent the Trustee or any Holder from
exercising all remedies otherwise permitted by applicable law upon Default
under this Indenture subject to the rights, if any, under this Article XIII of
the holders of Guarantor Senior Indebtedness in respect of cash, property or
securities of any Subsidiary Guarantor received upon the exercise of any such
remedy. Upon any distribution of Properties of a Subsidiary Guarantor referred
to in this Article XIII, the Trustee, subject to the provisions of Section 6.2
hereof, and the Holders of the Securities shall be entitled to rely upon any
order or decree made by any court of competent jurisdiction in which such
dissolution, winding up, liquidation or reorganization proceedings are pending,
or a certificate of a trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee for the benefit of creditors, or agent or other person
making any distribution to the Trustee or to the Holders of the Securities, for
the purpose of ascertaining the persons entitled to participate in such
distribution, the holders of the related Guarantor Senior Indebtedness and
other indebtedness of such Subsidiary Guarantor, the amount thereof or payable
thereon, the amount or amounts paid or distributed thereon and all other facts
pertinent thereto or to this Article XIII.
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Section 13.13 Trustee Entitled to Assume Payments Not
Prohibited in Absence of Notice. The Trustee shall not at any time be charged
with knowledge of the existence of any facts that would prohibit the making of
any payment to or by the Trustee, unless a Responsible Officer of the Trustee,
on behalf of the Trustee, shall have received at the Corporate Trust Office
written notice thereof from a Subsidiary Guarantor or from one or more holders
of Guarantor Senior Indebtedness or Designated Guarantor Senior Indebtedness,
in the case of a Subsidiary Guarantor Non- payment Default, or from any
representative thereof; and, prior to the receipt of any such written notice,
the Trustee, subject to TIA Sections 315(a) through 315(d), shall be entitled
to assume conclusively that no such facts exist. The Trustee shall be entitled
to rely on the delivery to it of a written notice by a Person representing
himself to be a holder of Guarantor Senior Indebtedness or Designated Guarantor
Senior Indebtedness, in the case of a Subsidiary Guarantor Non-payment Default
(or a representative on behalf of such holder), to establish that such notice
has been given by a holder of Guarantor Senior Indebtedness or Designated
Guarantor Senior Indebtedness, in the case of a Subsidiary Guarantor
Non-payment Default, or a representative on behalf of any such holder or
holders.
Section 13.14 Application by Trustee of Money Deposited
with it. Except as provided in Article XIV, any deposit of money by a
Subsidiary Guarantor with the Trustee or any Paying Agent (whether or not in
trust) for any payment in respect of the related Subsidiary Guarantee shall be
subject to the provisions of Sections 13.8, 13.9, 13.10 and 13.11 hereof except
that, if prior to 11:00 a.m. Eastern time on the date which is two Business
Days prior to the date on which by the terms of this Indenture any such money
may become payable for any purpose, the Trustee or, in the case of any such
deposit of money with a Paying Agent, the Paying Agent shall not have received
with respect to such money the notice provided for in Section 13.13 hereof,
then the Trustee or such Paying Agent, as the case may be, shall have full
power and authority to receive such money and to apply the same to the purpose
for which it was received, and shall not be affected by any notice to the
contrary which may be received by it on or after 11:00 a.m., Eastern time, two
Business Days prior to such payment date. In the event that the Trustee
determines in good faith that further evidence is required with respect to the
right of any Person as a holder of Guarantor Senior Indebtedness to participate
in any payment or distribution pursuant to this Article XIII, the Trustee may
request such Person to furnish evidence to the reasonable satisfaction of the
Trustee as to the amount of Guarantor Senior Indebtedness held by such Person,
the extent to which such Person is entitled to participate in such payment or
distribution and any other facts pertinent to the rights of such Person under
this Article XIII, 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 Trustee, however, shall not be deemed to owe any fiduciary
duty to the holders of Guarantor Senior Indebtedness but shall have only such
obligations to such holders as are expressly set forth in this Article XIII.
Section 13.15 Subordination Rights Not Impaired by Acts or
Omissions of Subsidiary Guarantors or Holders of Guarantor Senior Indebtedness.
No right of any present or future holders of any Guarantor Senior Indebtedness
of a Subsidiary Guarantor to enforce subordination as provided herein shall at
any time in any way be prejudiced or impaired by any act or failure to act on
the part of such Subsidiary Guarantor or by any act or failure to act by any
such
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holder, or by any noncompliance by such Subsidiary Guarantor with the terms of
this Indenture, regardless of any knowledge thereof which any such holder may
have or be otherwise charged with.
Without in any way limiting the generality of the preceding
paragraph of this Section, the holders of Guarantor Senior Indebtedness may, at
any time and from time to time, without the consent of or notice to the Trustee
or the Holders of the Securities, without incurring responsibility to the
Holders of the Securities and without impairing or releasing the subordination
or other benefits provided in this Article, or the obligations hereunder of the
Holders of the Securities to the holders of Guarantor Senior Indebtedness, do
any one or more of the following: (1) change the manner, place or terms of
payment or extend the time of payment of, or renew, exchange, amend, increase
or alter, Guarantor Senior Indebtedness or the term of any instrument
evidencing the same or any agreement under which Guarantor Senior Indebtedness
is outstanding or any liability of any obligor thereon (unless such change,
extension or alteration results in such Indebtedness no longer being Guarantor
Senior Indebtedness as defined in this Indenture); (2) sell, exchange, release
or otherwise deal with any Property pledged, mortgaged or otherwise securing
Guarantor Senior Indebtedness; (3) settle or compromise any Guarantor Senior
Indebtedness or any liability of any obligor thereon or release any Person
liable in any manner for the collection of Guarantor Senior Indebtedness; and
(4) exercise or refrain from exercising any rights against the Company and any
other Person.
Section 13.16 Holders Authorize Trustee to Effectuate
Subordination of Subsidiary Guarantees. Each Holder, by his acceptance
thereof, authorizes and expressly directs the Trustee on his behalf to take
such action as may be necessary or appropriate to effectuate the subordination
provided in this Article XIII and appoints the Trustee as his attorney-in-fact
for such purpose, including, in the event of any Insolvency or Liquidation
Proceeding with respect to any Subsidiary Guarantor, the immediate filing of a
claim for the unpaid balance of his Securities pursuant to the related
Subsidiary Guarantee in the form required in said proceedings and the causing
of said claim to be approved.
Section 13.17 Right of Trustee to Hold Guarantor Senior
Indebtedness. The Trustee shall be entitled to all of the rights set forth in
this Article XIII in respect of any Guarantor Senior Indebtedness at any time
held by it to the same extent as any other holder of Guarantor Senior
Indebtedness, and nothing in this Indenture shall be construed to deprive the
Trustee of any of its rights as such holder.
Section 13.18 Article XIII Not to Prevent Events of
Default. The failure to make a payment on account of the Subsidiary Guarantees
by reason of any provision in this Article XIII shall not be construed as
preventing the occurrence of an Event of Default under this Indenture.
Section 13.19 Payment. For purposes of this Article XIII,
a payment with respect to any Subsidiary Guarantee or with respect to principal
of or interest on any Security or any Subsidiary Guarantee shall include,
without limitation, payment of principal of and interest on any Security, any
depositing of funds under Article IV hereof, any payment on account of any
repurchase or redemption of any Security and any payment or recovery on any
claim (whether for rescission or damages and whether based on contract, tort,
duty imposed by law, or any other theory of liability) relating to or arising
out of the offer, sale or purchase of any Security.
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ARTICLE XIV
SUBORDINATION OF SECURITIES
Section 14.1 Securities Subordinate to Senior
Indebtedness. The Company covenants and agrees, and each Holder of a Security,
by his acceptance thereof, likewise covenants and agrees for the benefit of the
holders, from time to time, of Senior Indebtedness, that, to the extent and in
the manner hereinafter set forth in this Article XIV, the Indebtedness
represented by the Securities and the payment of and distributions of or with
respect to the Senior Subordinated Note Obligations are hereby expressly made
subordinate and subject in right of payment as provided in this Article to the
prior payment in full in cash or cash equivalents of all amounts payable under
all existing and future Senior Indebtedness.
This Article XIV shall constitute a continuing offer to all
persons who, in reliance upon such provisions, become holders of, or continue
to hold Senior Indebtedness; and such provisions are made for the benefit of
the holders of Senior Indebtedness; and such holder are made obligees hereunder
and they or each of them may enforce such provisions.
Section 14.2 Payment Over of Proceeds upon Dissolution,
etc. In the event of an Insolvency or Liquidation Proceeding with respect to
the Company:
(1) the holders of all Senior Indebtedness shall
be entitled to receive payment in full in cash or cash
equivalents of all Senior Indebtedness before the Holders of
the Securities are entitled to receive any direct or indirect
payment or distribution of any kind or character (excluding
Permitted Junior Securities of the Company) on account of
Senior Subordinated Note Obligations; and
(2) any direct or indirect payment or
distribution of assets of the Company of any kind or
character, whether in cash, property or securities (excluding
Permitted Junior Securities of the Company), by set-off or
otherwise, to which the Holders or the Trustee would be
entitled but for the provisions of this Article shall be paid
by the liquidating trustee or agent or other person making
such payment or distribution, whether a trustee in bankruptcy,
a receiver or liquidating trustee or otherwise, directly to
the holders of Senior Indebtedness or their representative or
representatives or to the trustee or trustees under any
indenture under which any instruments evidencing any of such
Senior Indebtedness may have been issued, ratably according to
the aggregate amounts remaining unpaid on account of the
Senior Indebtedness held or represented by each, to the extent
necessary to make payment in full in cash or cash equivalents
of all Senior Indebtedness remaining unpaid, after giving
effect to any concurrent payment or distribution to the
holders of such Senior Indebtedness; and
(3) in the event that, notwithstanding the
foregoing provisions of this Section 14.2, the Trustee or the
Holder of any Note shall have received any payment or
distribution of properties or assets of the Company of any
kind or character, whether in cash, property or securities, by
set off or otherwise, in respect of any Senior Subordinated
Note Obligations before all Senior Indebtedness is paid or
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provided for in full, then and in such event such payment or
distribution (excluding Permitted Junior Securities of the
Company) shall be paid over or delivered forthwith to the
trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee, agent or other person making payment or
distribution of assets of the Company for application to the
payment of all Senior Indebtedness remaining unpaid, to the
extent necessary to pay all Senior Indebtedness in full, after
giving effect to any concurrent payment or distribution to or
for the holders of Senior Indebtedness.
The consolidation of the Company with, or the merger of the
Company with or into, another person or the liquidation or dissolution of the
Company following the conveyance, transfer or lease of its properties and
assets substantially as an entirety to another person upon the terms and
conditions set forth in Article VIII hereof shall not be deemed a dissolution,
winding-up, liquidation, reorganization, assignment for the benefit of
creditors or marshalling of assets and liabilities of the Company for the
purposes of this Article if the person formed by such consolidation or the
surviving entity of such merger or the person which acquires by conveyance,
transfer or lease such properties and assets substantially as an entirety, as
the case may be, shall, as a part of such consolidation, merger, conveyance,
transfer or lease, comply with the conditions set forth in such Article VIII
hereof to the extent applicable.
Section 14.3 Suspension of Payment When Senior
Indebtedness in Default.
(a) Unless Section 14.2 hereof shall be applicable, upon
the occurrence of a Payment Default, no direct or indirect payment or
distribution of any assets of the Company of any kind or character shall be
made by or on behalf of the Company on account of the Senior Subordinated Note
Obligations or on account of the purchase or redemption or other acquisition of
any Senior Subordinated Note Obligations unless and until such Payment Default
shall have been cured or waived or shall have ceased to exist or such Senior
Indebtedness shall have been discharged or paid in full in cash in cash
equivalents, after which, subject to Section 14.2 hereof (if applicable), the
Company shall resume making any and all required payments in respect of the
Notes and the other Senior Subordinated Note Obligations, including any missed
payments.
(b) Unless Section 14.2 hereof shall be applicable, upon
(1) the occurrence of a Non-payment Default and (2) receipt by the Trustee from
a Senior Representative of written notice (a "Payment Blockage Notice") of such
occurrence stating that such notice is a Payment Blockage Notice pursuant to
this Section 14.3(b) of this Indenture, no payment or distribution of any
assets of the Company of any kind or character shall be made by or on behalf of
the Company on account of any Senior Subordinated Note Obligations or on
account of the purchase or redemption or other acquisition of Senior
Subordinated Note Obligations for a period ("Payment Blockage Period")
commencing on the date of receipt by the Trustee of such notice unless and
until the earlier to occur of the following events (subject to any blockage of
payments that may then be in effect under Section 14.2 hereof or subsection (a)
of this Section 14.3 hereof) (w) 179 days shall have elapsed since receipt of
such written notice by the Trustee, (x) the date, as set forth in a written
notice to the Company or the Trustee from the Senior Representative initiating
such Payment Blockage Period, on which such Non-payment Default shall have been
cured or waived or shall have ceased to exist (provided that no other Payment
Default or Non-Payment Default has occurred and is then continuing after giving
effect to such cure or waiver), (y) such Designated Senior Indebtedness shall
have been discharged or paid in full in cash or cash equivalents or (z) such
Payment Blockage Period
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shall have been terminated by written notice to the Company or the Trustee from
the Senior Representative initiating such Payment Blockage Period, after which,
subject to Sections 14.2 and 14.3(a) hereof (if applicable), the Company shall
promptly resume making any and all required payments in respect of the Senior
Subordinated Note Obligations, including any missed payments. Notwithstanding
any other provision of this Indenture, only one Payment Blockage Period may be
commenced within any 360 consecutive day period. No Non-payment Default with
respect to Designated Senior Indebtedness that 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 can be, made the basis for the commencement of a second Payment Blockage
Period, whether or not within a period of 360 consecutive days, unless such
default shall have been cured or waived for a period of not less than 90
consecutive days (it being acknowledged that any subsequent action, or any
breach of any financial covenant for a period commencing after the date of
commencement of such Payment Blockage Period, that, in either case, would give
rise to a Non-payment Default pursuant to any provision under which a
Non-payment Default previously existed or was continuing shall constitute a new
Non-payment Default for this purpose; provided that, in the case of a breach of
a particular financial covenant, the Company shall have been in compliance for
at least one full 90 consecutive day period commencing after the date of
commencement of such Payment Blockage Period). In no event shall a Payment
Blockage Period extend beyond 179 days from the date of the receipt of the
notice referred to in clause (2) hereof and there must be a 181 consecutive day
period in any 360 consecutive day period during which no Payment Blockage
Period is in effect pursuant to this Section 14.3(b).
(c) In the event that, notwithstanding the foregoing, the
Trustee or the Holder of any Security shall have received any payment or
distribution prohibited by the foregoing provisions of this Section 14.3, then
and in such event such payment or distribution shall be paid over and delivered
forthwith to the Senior Representatives or as a court of competent jurisdiction
shall direct for application to the payment of any due and unpaid Senior
Indebtedness, to the extent necessary to pay all such due and unpaid Senior
Indebtedness in cash or cash equivalents, after giving effect to any concurrent
payment to or for the holders of Senior Indebtedness.
Section 14.4 Trustee's Relation to Senior Indebtedness.
With respect to the holders of Senior Indebtedness, notwithstanding any other
provisions of the Indenture, the Trustee undertakes to perform or to observe
only such of its covenants and obligations as are specifically set forth in
this Article XIV, and no implied covenants or obligations with respect to the
holders of Senior Indebtedness shall be read into this Indenture against the
Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness and the Trustee shall not be liable to any
holder of Senior Indebtedness if it shall mistakenly pay over or deliver to
Holders, the Company or any other person moneys or assets to which any holder
of Senior Indebtedness shall be entitled by virtue of this Article XIV or
otherwise.
Section 14.5 Subrogation to Rights of Holders of Senior
Indebtedness. Upon the payment in full of cash or cash equivalents of all
Senior Indebtedness, the Holders of the Securities shall be subrogated (equally
and ratably with the holders of all indebtedness of the Company which by its
express terms is subordinated to Senior Indebtedness to substantially the same
extent as the Securities are so subordinated and which is entitled to like
rights of subrogation as a result of the payments made to the holders of Senior
Indebtedness) to the rights of the holders of such Senior Indebtedness to
receive payments and distributions of cash, property and securities applicable
to the
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Senior Indebtedness until the principal of, premium, if any, and interest on
the Securities shall be paid in full in cash or cash equivalents. For purposes
of such subrogation, no payments or distributions to the holders of Senior
Indebtedness of any cash, property or securities to which the Holders of the
Securities or the Trustee would be entitled except for the provisions of this
Article XIV, and no payments over pursuant to the provisions of this Article
XIV to the holders of Senior Indebtedness by Holders of the Securities or the
Trustee shall, as among the Company, its creditors other than holders of Senior
Indebtedness, and the Holders of the Securities, be deemed to be payment or
distribution by the Company to or on account of the Senior Indebtedness.
If any payment or distribution to which the Holders would
otherwise have been entitled but for the provisions of this Article XIV shall
have been applied, pursuant to the provisions of this Article XIV, to the
payment of all amounts payable under the Senior Indebtedness of the Company and
such payments or distributions received by such holders of such Senior
Indebtedness shall be in excess of the amount sufficient to pay all amounts
payable under or in respect of such Senior Indebtedness in full in cash or cash
equivalents, then and in such case the Holders shall be entitled to receive the
amount of such excess from the Company upon and to the extent of any return of
such excess by the holders of such Senior Indebtedness.
Section 14.6 Provisions Solely To Define Relative Rights.
The provisions of this Article XIV are and are intended solely for the purpose
of defining the relative rights of the Holders of the Securities on the one
hand and the holders of Senior Indebtedness on the other hand. Nothing
contained in this Article XIV or elsewhere in this Indenture or in the
Securities is intended to or shall (a) impair, as among the Company, its
creditors other than holders of Senior Indebtedness and the Holders of the
Securities, the obligation of the Company, which is absolute and unconditional,
to pay to the Holders of the Securities the principal of, premium, if any, and
interest on the Securities as and when the same shall become due and payable in
accordance with their terms; or (b) affect the relative rights against the
Company of the Holders of the Securities and creditors of the Company other
than the holders of the Senior Indebtedness; or (c) prevent the Trustee or the
Holder of any Security from exercising all remedies otherwise permitted by
applicable law upon a Default or an Event of Default under this Indenture,
subject to the rights, if any, under this Article XIV of the holders of Senior
Indebtedness.
The failure to make a payment on account of any Senior
Subordinated Note Obligations by reason of any provision of this Article XIV
shall not be construed as preventing the occurrence of a Default or an Event of
Default hereunder.
Section 14.7 Trustee To Effectuate Subordination. Each
Holder of a Security by his acceptance thereof authorizes and directs the
Trustee on his behalf to take such action as may be necessary or appropriate to
effectuate the subordination provided in this Article XIV and appoints the
Trustee his attorney-in-fact for any and all such purposes, including, in the
event of any dissolution, winding-up, liquidation or reorganization of the
Company whether in bankruptcy, insolvency, receivership proceedings, or
otherwise, the timely filing of a claim for the unpaid balance of the
Indebtedness of the Company owing to such Holder in the form required in such
proceedings and the causing of such claim to be approved. If the Trustee does
not file such a claim prior to 30 days before the expiration of the time to
file such a claim, the holders of Senior Indebtedness, or any Senior
Representative, may file such a claim on behalf of Holders of the Securities.
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Section 14.8 No Waiver of Subordination Provisions.
(a) No right of any present or future holder of any
Senior Indebtedness to enforce subordination as herein provided shall at any
time in any way be prejudiced or impaired by any act or failure to act on the
part of the Company or by any act or failure to act, in good faith, by any such
holder, or by any non-compliance by the Company with the terms, provisions and
covenants of this Indenture, regardless of any knowledge thereof any such
holder may have or be otherwise charged with.
(b) Without limiting the generality of subsection (a) of
this Section 14.8, the holders of Senior Indebtedness may, at any time and from
time to time, without the consent of or notice to the Trustee or the Holders of
the Securities, without incurring responsibility to the Holders of the
Securities and without impairing or releasing the subordination provided in
this Article XIV or the obligations hereunder of the Holders of the Securities
to the holders of Senior Indebtedness, do any one or more of the following:
(1) change the manner, place or terms of payment or extend the time of payment
of, or renew or alter, Senior Indebtedness or any instrument evidencing the
same or any agreement under which Senior Indebtedness is outstanding or any
liability of any obligor thereon; (2) sell, exchange, release or otherwise deal
with any property pledged, mortgaged or otherwise securing Senior Indebtedness;
(3) settle or compromise any Senior Indebtedness or any liability of any
obligor thereon or release any person liable in any manner for the collection
or payment of Senior Indebtedness; and (4) exercise or refrain from exercising
any rights against the Company and any other person; provided, however, that in
no event shall any such actions limit the right of the Holders of the
Securities to take any action to accelerate the maturity of the Notes pursuant
to Article V hereof or to pursue any rights or remedies hereunder or under
applicable laws if the taking of such action does not otherwise violate the
terms of this Indenture.
Section 14.9 Notice to Trustee.
(a) The Company shall give prompt written notice to the
Trustee of any fact known to the Company which would prohibit the making of any
payment to or by the Trustee in respect of the Securities. Notwithstanding the
provisions of this Article XIV or any other provision of this Indenture, the
Trustee shall not be charged with knowledge of the existence of any facts which
would prohibit the making of any payment to or by the Trustee in respect of the
Securities, unless and until a Responsible Officer of the Trustee, on behalf of
the Trustee, shall have received written notice thereof from the Company or a
holder of Senior Indebtedness or from any trustee, fiduciary or agent therefor;
and, prior to the receipt of any such written notice, the Trustee, subject to
the provisions of this Section 14.9, shall be entitled in all respects to
assume that no such facts exist; provided, however, that if the Trustee shall
not have received the notice provided for in this Section 14.9 at least two
Business days prior to the date upon which by the terms hereof any money may
become payable for any purpose under this Indenture (including, without
limitation, the payment of the principal of, premium, if any, or interest on
any Security), then, anything herein contained to the contrary notwithstanding
but without limiting the rights and remedies of the holders of Senior
Indebtedness or any trustee, fiduciary or agent thereof, the Trustee shall have
full power and authority to receive such money and to apply the same to the
purpose for which such money was received and shall not be affected by any
notice to the contrary which may be received by it within two Business Days
prior to such date; nor shall the Trustee be charged with knowledge of the
curing
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of any such default or the elimination of the act or condition preventing any
such payment unless and until the Trustee shall have received an Officers'
Certificate to such effect.
(b) Subject to TIA Sections 315(a) through 315(d), the
Trustee shall be entitled to rely on the delivery to it of a written notice to
a Responsible Officer of the Trustee, on behalf of the Trustee, by a person
representing himself to be a holder of Senior Indebtedness (or a trustee,
fiduciary or agent therefor) to establish that such notice has been given by a
holder of Senior Indebtedness (or a trustee, fiduciary or agent therefor). In
the event that the Trustee determines in good faith that further evidence is
required with respect to the right of any person as a holder of Senior
Indebtedness to participate in any payment or distribution pursuant to this
Article XIV, the Trustee may request such person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such person, the extent to which such person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such person under this Article XIV, 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.
Section 14.10 Reliance on Judicial Order or Certificate of
Liquidating Agent. Upon any payment or distribution of assets of the Company
referred to in this Article XIV, the Trustee, subject to TIA Sections 315(a)
through 315(d), and the Holders, shall be entitled to rely upon any order or
decree entered by any court of competent jurisdiction in which such insolvency,
bankruptcy, receivership, liquidation, reorganization, dissolution, winding-up
or similar case or proceeding is pending, or a certificate of the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit
of creditors, agent or other person making such payment or distribution,
delivered to the Trustee or to the Holders, for the purpose of ascertaining the
persons entitled to participate in such payment or distribution, the holders of
Senior Indebtedness and other Indebtedness of the Company, the amount thereof
or payable thereof, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this Article XIV.
Section 14.11 Rights of Trustee as Holder of Senior
Indebtedness; Preservation of Trustee's Rights. The Trustee in its individual
capacity shall be entitled to all the rights set forth in this Article XIV with
respect to any Senior Indebtedness which may at any time be held by it, to the
same extent as any other holder of Senior Indebtedness, and nothing in this
Indenture shall deprive the Trustee of any of its rights as such holder.
Nothing in this Article XIV shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 6.6 hereof.
Section 14.12 Article Applicable to Paying Agents. In case
at any time any Paying Agent other than the Trustee shall have been appointed
by the Company and be then acting hereunder, the term "Trustee" as used in this
Article XIV shall in such case (unless the context otherwise requires) be
construed as extending to and including such Paying Agent within its meaning as
fully for all intents and purposes as if such Paying Agent were named in this
Article XIV in addition to or in place of the Trustee; provided, however, that
Section 14.11 hereof shall not apply to the Company or any Affiliate of the
Company if it or such Affiliate acts as Paying Agent.
Section 14.13 No Suspension of Remedies. Nothing contained
in this Article XIV shall limit the right of the Trustee or the Holders of
Securities to take any action to accelerate the maturity of the Securities
pursuant to Article V hereof or to pursue any rights or remedies hereunder
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or under applicable law, subject to the rights, if any, under this Article XIV
of the holders, from time to time, of Senior Indebtedness.
ARTICLE XV
MISCELLANEOUS
Section 15.1 Compliance Certificates and Opinions. Upon
any application or request by the Company and/or any Subsidiary Guarantor to
the Trustee to take any action under any provision of this Indenture, the
Company and/or such Subsidiary Guarantor, as the case may be, shall furnish to
the Trustee such certificates and opinions as may be required under the Trust
Indenture Act or this Indenture. Each such certificate and each such opinion
shall be in the form of an Officers' Certificate or an Opinion of Counsel, as
applicable, and shall comply with the requirements of this Indenture.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such
certificate or opinion has read such covenant or condition and
the definitions herein relating thereto;
(2) a brief statement as to the nature and scope
of the examination or investigation upon which the statements
or opinions contained in such certificate or opinion are
based;
(3) a statement that, in the opinion of each such
individual, he has made such examination or investigation as
is necessary to enable him to express an informed opinion as
to whether or not such covenant or condition has been complied
with; and
(4) a statement as to whether, in the opinion of
each such individual, such condition or covenant has been
complied with.
The certificates and opinions provided pursuant to this Section 15.1 and the
statements required by this Section 15.1 shall comply in all respects with TIA
Sections 314(c) and (e).
Section 15.2 Form of Documents Delivered to Trustee. In
any case where several matters are required to be certified by, or covered by
an opinion of, any specified Person, it is not necessary that all such matters
be certified by, or covered by the opinion of, only one such Person, or that
they be so certified or covered by only one document, but one such Person may
certify or give an opinion with respect to some matters and one or more other
such Persons as to other matters, and any such Person may certify or give an
opinion as to such matters in one or several documents.
Any certificate or opinion of an Officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
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representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such Opinion of Counsel may be based,
insofar as it relates to factual matters, upon an Officers' Certificate of an
Officer or Officers of the Company stating that the information with respect to
such factual matters is in the possession of the Company, unless such counsel
knows, or in the exercise of reasonable care should know, that the certificate
with respect to such matters is erroneous.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
Section 15.3 Acts of Holders.
(a) Any request, demand, authorization, direction,
notice, consent, waiver or other action provided by this Indenture to be given
or taken by Holders may be embodied in and evidenced by one or more instruments
of substantially similar tenor signed by such Holders in person or by agents
duly appointed in writing; and, except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Trustee and, where it is hereby expressly required, to the
Company. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the Holders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for
any purpose of this Indenture and conclusive in favor of the Trustee and the
Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of
any such instrument or writing may be proved by the affidavit of a witness of
such execution or by a certificate of a notary public or other officer
authorized by law to take acknowledgments of deeds, certifying that the
individual signing such instrument or writing acknowledged to him the execution
thereof. Where such execution is by a signer acting in a capacity other than
his individual capacity, such certificate or affidavit shall also constitute
sufficient proof of authority. The fact and date of the execution of any such
instrument or writing, or the authority of the Person executing the same, may
also be proved in any other manner which the Trustee deems sufficient.
(c) The ownership, principal amount and serial numbers of
Securities held by any Person, and the date of holding the same, shall be
proved by the Security Register.
(d) If the Company shall solicit from the Holders of
Securities any request, demand, authorization, direction, notice, consent,
waiver or other Act, the Company may, at its option, by or pursuant to a Board
Resolution, fix in advance a record date for the determination of Holders
entitled to give such request, demand, authorization, direction, notice,
consent, waiver or other Act, but the Company shall have no obligation to do
so. Notwithstanding TIA Section 316(c), such record date shall be the record
date specified in or pursuant to such Board Resolution, which shall be a date
not earlier than the date 30 days prior to the first solicitation of Holders
generally in connection therewith and not later than the date such solicitation
is completed. If such a record date is fixed, such request, demand,
authorization, direction, notice, consent, waiver or other Act may be given
before or after such record date, but only the Holders of record at the close
of business on such record date shall be deemed to be Holders for the purposes
of determining whether Holders of the
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<PAGE> 123
requisite proportion of Outstanding Securities have authorized or agreed or
consented to such request, demand, authorization, direction, notice, consent,
wavier or other Act, and for that purpose the Outstanding Securities shall be
computed as of such record date; provided that no such authorization, agreement
or consent by the Holders on such record date shall be deemed effective unless
it shall become effective pursuant to the provisions of this Indenture not
later than eleven months after the record date.
(e) Any request, demand, authorization, direction,
notice, consent, waiver or other Act of the Holder of any Security shall bind
every future Holder of the same Security and the Holder of every Security
issued upon the registration of transfer thereof or in exchange therefor or in
lieu thereof in respect of anything done, omitted or suffered to be done by the
Trustee or the Company in reliance thereon, whether or not notation of such
action is made upon such Security.
Section 15.4 Notices, etc. to Trustee, Company and
Subsidiary Guarantors. Any request, demand, authorization, direction, notice,
consent, waiver or Act of Holders or other document provided or permitted by
this Indenture to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company
or any Subsidiary Guarantor shall be sufficient for every
purpose hereunder if made, given, furnished or filed in
writing and delivered in person or mailed by certified or
registered mail (return receipt requested) to the Trustee at
its Corporate Trust Office; or
(2) the Company or any Subsidiary Guarantor by
the Trustee or by any Holder shall be sufficient for every
purpose hereunder (unless otherwise herein expressly provided)
if in writing and delivered in person or mailed by certified
or registered mail (return receipt requested) to the Company
addressed to it or a Subsidiary Guarantor, as applicable, at
the Company's principal office located at 8440 Jefferson
Highway, Suite 420, Baton Rouge, Louisiana 70809, or at any
other address otherwise furnished in writing to the Trustee by
the Company.
Section 15.5 Notice to Holders; Waiver. Where this
Indenture provides for notice of any event to Holders by the Company or the
Trustee, such notice shall be sufficiently given (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage prepaid, to
each Holder affected by such event, at his address as it appears in the
Security Register, not later than the latest date, and not earlier than the
earliest date, prescribed for the giving of such notice. In any case where
notice to Holders is given by mail, neither the failure to mail such notice,
nor any defect in any notice so mailed, to any particular Holder shall affect
the sufficiency of such notice with respect to other Holders. Any notice
mailed to a Holder in the manner herein prescribed shall be conclusively deemed
to have been received by such Holder, whether or not such Holder actually
receives such notice. Where this Indenture provides for notice in any manner,
such notice may be waived in writing by the Person entitled to receive such
notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with
the Trustee, but such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such waiver.
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<PAGE> 124
In case by reason of the suspension of or irregularities in
regular mail service or by reason of any other cause, it shall be impracticable
to mail notice of any event to Holders when such notice is required to be given
pursuant to any provision of this Indenture, then any manner of giving such
notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice for every purpose hereunder.
Section 15.6 Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
Section 15.7 Successors and Assigns. All covenants and
agreements in this Indenture by the Company and the Subsidiary Guarantors shall
bind their respective successors and assigns, whether so expressed or not. All
agreements of the Trustee in this Indenture shall bind its successor.
Section 15.8 Separability Clause. In case any provision
in this Indenture or in the Securities or the Subsidiary Guarantees shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby,
and a Holder shall have no claim therefore against any party hereto.
Section 15.9 Benefits of Indenture. Nothing in this
Indenture or in the Securities, express or implied, shall give to any Person
(other than the parties hereto, any Paying Agent, any Securities Registrar and
their successors hereunder, the Holders, the holders of Senior Indebtedness,
the holders of Guarantor Senior Indebtedness and, to the extent set forth in
Section 13.4 hereof, creditors of Subsidiary Guarantors) any benefit or any
legal or equitable right, remedy or claim under this Indenture.
Section 15.10 Governing Law; Trust Indenture Act Controls.
(a) THIS INDENTURE, THE SUBSIDIARY GUARANTEES AND THE
SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE
STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. THE
COMPANY AND EACH SUBSIDIARY GUARANTOR IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE
JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW YORK STATE COURT SITTING IN
THE BOROUGH OF MANHATTAN, THE CITY OF NEW YORK IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS INDENTURE, THE SECURITIES OR A SUBSIDIARY
GUARANTEE, AND THE COMPANY AND EACH SUBSIDIARY GUARANTOR IRREVOCABLY AGREE THAT
ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED
BY ANY SUCH COURT.
(b) This Indenture is subject to the provisions of the
Trust Indenture Act of 1939, as amended, that are required to be part of this
Indenture and shall, to the extent applicable, be governed by such provisions.
If and to the extent that any provision of this Indenture limits, qualifies or
conflicts with the duties imposed by Sections 310 and 318, inclusive, of the
Trust Indenture Act, or conflicts with any provision (an "incorporated
provision") required by or deemed
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<PAGE> 125
to be included in this Indenture by operation of such Trust Indenture Act
sections, such imposed duties or incorporated provision shall control. If any
provision of this Indenture modifies or excludes any provision of the Trust
Indenture Act that may be so modified or excluded, the latter provision shall
be deemed to apply to this Indenture as so modified or excluded, as the case
may be.
Section 15.11 Legal Holidays. In any case where any
Interest Payment Date, Redemption Date, or Stated Maturity or Maturity of any
Security shall not be a Business Day, then (notwithstanding any other provision
of this Indenture or of the Securities or the Subsidiary Guarantees) payment of
interest or principal (and premium, if any) need not be made on such date, but
may be made on the next succeeding Business Day with the same force and effect
as if made on the Interest Payment Date, Redemption Date or at the Stated
Maturity or Maturity; provided that no interest shall accrue for the period
from and after such Interest Payment Date, Redemption Date, Stated Maturity or
Maturity, as the case may be.
Section 15.12 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. Each Holder, by accepting any of the Securities,
waives and releases all such liability to the extent permitted by applicable
law.
Section 15.13 Duplicate Originals. The parties may sign
any number of copies or counterparts of this Indenture. Each signed copy shall
be an original, but all of them together represent the same agreement.
Section 15.14 No Adverse Interpretation of Other
Agreements. This Indenture may not be used to interpret another indenture,
loan or debt agreement of the Company or any of its Subsidiaries. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture.
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<PAGE> 126
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.
ISSUER:
OCEAN ENERGY, INC.,
a Delaware corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
SUBSIDIARY GUARANTOR:
OCEAN ENERGY, INC.,
a Louisiana corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
TRUSTEE:
STATE STREET BANK AND TRUST
COMPANY, as Trustee
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
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<PAGE> 127
EXHIBIT A
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF SECURITIES
Re: 8 7/8% Series [A/B] Senior Subordinated Notes due 2007 of Ocean
Energy, Inc. (the "Company")
This Certificate relates to $_____ principal amount of
Securities held in (2)______ book-entry or *______ definitive form by
_____________________ (the "Transferor").
The Transferor*:
[ ] has requested the Trustee by written order to deliver in
exchange for its beneficial interest in the Global Securities held by the
Depositary, a Security or Securities in definitive registered form equal to its
beneficial interest in such Global Securities (or the portion thereof indicated
above); or
[ ] has requested the Trustee by written order to exchange or
register the transfer of a Security or Securities.
In connection with such request and in respect of each such
Security, the Transferor does hereby certify that the Transferor is familiar
with the Indenture relative to the above captioned Securities and that the
transfer of this Security does not require registration under the Securities
Act (as defined below) because:*
[ ] Such Security is being acquired for the Transferor's own
account without transfer (in satisfaction of Section 2.07(a)(ii)(A) or Section
2.07(d)(i)(A) of the Indenture).
[ ] Such Security is being transferred (i) to a "qualified
institutional buyer" (as defined in Rule 144A under the Securities Act of 1933,
as amended (the "Securities Act")), in reliance on Rule 144A under the
Securities Act or (ii) pursuant to an exemption from registration in accordance
with Rule 904 under the Securities Act (and in the case of clause (ii), based
on an opinion of counsel if the Company so requests and together with a
certification in substantially the form of Exhibit C to the Indenture).
[ ] Such Security is being transferred (i) in accordance with Rule
144 under the Securities Act (an d based on an opinion of counsel if the
Company so requests) or (ii) pursuant to an effective registration statement
under the Securities Act.
[ ] Such Security is being transferred to an institutional
"accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7)
under the Securities Act pursuant to a private placement exemption from the
registration requirements of the Securities Act (and based on an opinion of
counsel if the Company so requests) together with a certification in
substantially the form of
- -----------------------------------
(2) Check appropriate box.
A-1
<PAGE> 128
Exhibit B to the Indenture and, to the knowledge of the Transferor, such
institutional accredited investor to whom such Security is to be transferred is
not an "affiliate" (as defined in Rule 144 under the Securities Act) of the
Company.
[ ] Such Security is being transferred in reliance on and in
compliance with another exemption from the registration requirements of the
Securities Act (and based on an opinion of counsel if the Company so requests).
----------------------------------------
[INSERT NAME OF TRANSFEROR]
By:
-------------------------------------
Name:
Title:
Address:
Date:
--------------------------
A-2
<PAGE> 129
EXHIBIT B
TRANSFEREE LETTER OF REPRESENTATIONS
Ocean Energy Inc.
8440 Jefferson Highway
Suite 420
Baton Rouge, LA 70809
Dear Sirs and Madams:
In connection with our proposed purchase of $
million aggregate principal amount of 8 7/8% Senior Subordinated Notes due 2007
(the "Notes") of Ocean Energy, Inc., a Delaware corporation (the "Company"):
1. We understand that the Notes have not been registered
under the Securities Act of 1933, as amended (the "Securities Act"),
or under any other applicable securities laws, and may not be sold
except as permitted in the following sentence. We agree on our own
behalf and on behalf of any investor account for which we are
purchasing the Notes to offer, sell or otherwise transfer such Notes
prior to the date which is two years after the later of the date of
original issue and the last date on which the Company or any affiliate
of the Company was the owner of such Notes, or any predecessor,
thereto (the "Resale Restriction Termination Date") only (a) to the
Company, (b) pursuant to a registration statement that has been
declared effective by the Securities and Exchange Commission (the
"SEC"), (c) for so long as the Notes are eligible for resale pursuant
to Rule 144A under the Securities Act, to a person we reasonably
believe is a qualified institutional buyer under Rule 144A (a "QIB")
that purchases for its own account or for the account of a QIB to whom
notice is given that the transfer is being made in reliance on Rule
144A, (d) pursuant to offers and sales to non-U.S. persons that occur
outside the United States pursuant to Regulation S under the
Securities Act, (e) to an institutional "accredited investor" within
the meaning of subparagraph (a)( 1), (2), (3) or (7) of Rule 501 under
the Securities Act (an "Institutional Accredited Investor") that is
acquiring the Notes for its own account or for the account of another
Institutional Accredited Investor for investment purposes and not with
a view to, or for offer or sale in connection with, any distribution
thereof in violation of the regulations of the Securities Act and any
other applicable securities laws or (f) pursuant to any other
available exemption from the registration requirements of the
Securities Act, subject in each of the foregoing cases to any
requirement of law that the disposition of our property and the
property of such investor account or accounts be at all times within
our or their control. The foregoing restrictions on resale will not
apply subsequent to the Resale Restriction Termination Date. If any
resale or other transfer of the Notes is proposed to be made pursuant
to clause (d) above prior to the Resale Restriction Termination Date,
the transferor shall deliver a letter from the transferee
substantially in the form of this letter to the Trustee, which shall
provide, among other things, that the transferee is an Institutional
Accredited Investor and that it is acquiring such Notes for investment
purposes and not for distribution in violation of the Securities Act.
We acknowledge that the Company and the Trustee
B-1
<PAGE> 130
reserve the right prior to any offer, sale or other transfer pursuant
to clauses (e) or (f) prior to the Resale Restriction Termination Date
of the Notes to require the delivery of an opinion of counsel,
certifications and/or other information satisfactory to the Company
and the Trustee.
2. We are an Institutional Accredited Investor
purchasing for our own account or for the account of another
Institutional Accredited Investor.
3. We are acquiring the Notes purchased by us for our
own account, or for one or more accounts as to each of which we
exercise sole investment discretion, 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. We have such
knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of investment in the Notes,
we invest in securities similar to the Notes in the normal course of
our business and we, and all accounts for which we are acting, are
able to bear the economic risk of investment in the Notes.
4. You are entitled to rely upon this letter and you are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceeding or official
inquiry with respect to the matters covered hereby.
Very truly yours,
By:
-------------------------------------
(Name of Purchaser)
Upon transfer, the Notes should be registered in the name of the new
beneficial owner as follows:
Name:
-------------------------------------
Address:
----------------------------------
----------------------------------
----------------------------------
Taxpayer ID Number:
-----------------------
B-2
<PAGE> 131
EXHIBIT C
FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION
WITH TRANSFERS PURSUANT TO REGULATION S
_____________, ____
State Street Bank and Trust Company
Attention: Corporate Trust Administration
Ladies and Gentlemen:
In connection with our proposed sale of certain 8 7/8% Series [A/B]
Senior Subordinated Notes due 2007 (the "Securities") of Ocean Energy, Inc., a
Delaware corporation (the "Company"), we represent that:
(i) the offer of the Securities was not made to a person
in the United States;
(ii) at the time the buy order was originated, the
transferee was outside the United States or we and any person acting
on our behalf reasonably believed that the transferee was outside the
United States;
(iii) no directed selling efforts have been made by us in
the United States in contravention of the requirements of Rule 903(b)
or Rule 904(b) of Regulation S under the U.S. Securities Act of 1933,
as applicable; and
(iv) the transaction is not part of a plan or scheme to
evade the registration requirements of the U.S. Securities Act of
1933.
You and the Company are entitled to rely upon this letter and you are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Terms used in this certificate
have the meanings set forth in Regulation S under the U.S. Securities Act of
1933.
Very truly yours,
----------------------------------------
[Name]
By:
-------------------------------------
Name:
Title:
Address:
C-1
<PAGE> 1
EXHIBIT 4.2
-----------------------------------
REGISTRATION RIGHTS AGREEMENT
DATED AS OF JULY 2, 1997
AMONG
OCEAN ENERGY, INC.,
ISSUER,
OCEAN ENERGY, INC., LOUISIANA,
SUBSIDIARY GUARANTOR,
AND
MERRILL LYNCH & CO.,
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,
BEAR, STEARNS & CO. INC.,
CHASE SECURITIES INC.,
LEHMAN BROTHERS INC.,
MORGAN STANLEY & CO. INCORPORATED
-----------------------------------
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and
entered into this 2nd day of July, 1997, among OCEAN ENERGY, INC., a Delaware
corporation (the "Company"), and OCEAN ENERGY, INC., a Louisiana corporation
and a direct wholly-owned subsidiary of the Company (the "Subsidiary
Guarantor"), and MERRILL LYNCH & CO., MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED, BEAR, STEARNS & CO. INC., CHASE SECURITIES INC., LEHMAN BROTHERS
INC. and MORGAN STANLEY & CO. INCORPORATED (collectively, the "Initial
Purchasers").
This Agreement is made pursuant to the Purchase Agreement, dated
June 25, 1997, among the Company and the Initial Purchasers (the "Purchase
Agreement"), which provides for the sale by the Company to the Initial
Purchasers of an aggregate of $200 million principal amount of the Company's 8
7/8% Senior Subordinated Notes due 2007 (the "Securities"). In order to induce
the Initial Purchasers to enter into the Purchase Agreement, the Company and
the Subsidiary Guarantor have agreed to provide to the Initial Purchasers and
their direct and indirect transferees the registration rights set forth in this
Agreement. The execution of this Agreement is a condition to the closing under
the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. Definitions.
As used in this Agreement, the following capitalized defined
terms shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended from
time to time.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Closing Date" shall mean the Closing Time as defined in the
Purchase Agreement.
"Company" shall have the meaning set forth in the preamble and
shall also include the Company's successors.
"Depositary" shall mean The Depository Trust Company, or any
other depositary appointed by the Company, provided, however, that such
depositary must have an address in the Borough of Manhattan, in the City
of New York.
"Exchange Offer" shall mean the exchange offer by the Company of
Exchange Securities for Registrable Securities pursuant to Section 2.1
hereof.
<PAGE> 3
"Exchange Offer Registration" shall mean a registration under
the 1933 Act effected pursuant to Section 2.1 hereof.
"Exchange Offer Registration Statement" shall mean an exchange
offer registration statement on Form S-4 (or, if applicable, on another
appropriate form), and all amendments and supplements to such
registration statement, including the Prospectus contained therein, all
exhibits thereto and all documents incorporated by reference therein.
"Exchange Period" shall have the meaning set forth in Section 2.1
hereof.
"Exchange Securities" shall mean the 8 7/8% Senior Subordinated
Notes due 2007, issued by the Company under the Indenture containing
terms identical to the Securities in all material respects (except for
references to certain interest rate provisions, restrictions on
transfers and restrictive legends) and the related guarantee of the
Securities by the Subsidiary Guarantor, to be offered to Holders of
Securities in exchange for Registrable Securities pursuant to the
Exchange Offer.
"Holder" shall mean an Initial Purchaser, for so long as it owns
any Registrable Securities, and each of its successors, assigns and
direct and indirect transferees who become registered owners of
Registrable Securities under the Indenture.
"Indenture" shall mean the Indenture relating to the Securities,
dated as of July 2, 1997, between the Company, the Subsidiary Guarantor
and State Street Bank and Trust Company as trustee, as the same may be
amended, supplemented, waived or otherwise modified from time to time in
accordance with the terms thereof.
"Initial Purchaser" or "Initial Purchasers" shall have the
meaning set forth in the preamble.
"Majority Holders" shall mean the Holders of a majority of the
aggregate principal amount of Outstanding (as defined in the Indenture)
Registrable Securities; provided, however, that whenever the consent or
approval of Holders of a specified percentage of Registrable Securities
is required hereunder, Registrable Securities held by the Company and
other obligors on the Securities or any Affiliate (as defined in the
Indenture) of the Company shall be disregarded in determining whether
such consent or approval was given by the Holders of such required
percentage amount.
"Participating Broker-Dealer" shall mean any of Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Bear, Stearns &
Co. Inc., Chase Securities Inc., Lehman Brothers Inc. and Morgan Stanley
& Co. Incorporated and any other broker-dealer which makes a market in
the Securities and exchanges Registrable Securities in the Exchange
Offer for Exchange Securities.
-2-
<PAGE> 4
"Person" shall mean an individual, partnership (general or
limited), corporation, limited liability company, trust or
unincorporated organization, or a government or agency or political
subdivision thereof.
"Prospectus" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus
as amended or supplemented by any prospectus supplement, including any
such prospectus supplement with respect to the terms of the offering of
any portion of the Registrable Securities covered by a Shelf
Registration Statement, and by all other amendments and supplements to a
prospectus, including post-effective amendments, and in each case
including all material incorporated by reference therein.
"Purchase Agreement" shall have the meaning set forth in the
preamble.
"Registrable Securities" shall mean the Securities; provided,
however, that Securities shall cease to be Registrable Securities when
(i) a Registration Statement with respect to such Securities shall have
been declared effective under the 1933 Act and such Securities shall
have been disposed of pursuant to such Registration Statement, (ii) such
Securities have been sold to the public pursuant to Rule 144 (or any
similar provision then in force, but not Rule 144A) under the 1933 Act,
(iii) such Securities shall have ceased to be outstanding or (iv) the
Exchange Offer is consummated (except in the case of Securities
purchased from the Company and continued to be held by the Initial
Purchaser).
"Registration Expenses" shall mean any and all expenses incident
to performance of or compliance by the Company and the Subsidiary
Guarantor with this Agreement, including without limitation: (i) all
SEC, stock exchange or National Association of Securities Dealers, Inc.
(the "NASD") registration and filing fees, including, if applicable, the
fees and expenses of any "qualified independent underwriter" (and its
counsel) that is required to be retained by any holder of Registrable
Securities in accordance with the rules and regulations of the NASD,
(ii) all fees and expenses incurred in connection with compliance with
state securities or blue sky laws and compliance with the rules of the
NASD (including reasonable fees and disbursements of one firm of legal
counsel for any underwriters or Holders in connection with blue sky
qualification of any of the Exchange Securities or Registrable
Securities and any filings with the NASD), (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 relating to the performance of and
compliance with this Agreement, (iv) all fees and expenses incurred in
connection with the listing, if any, of any of the Registrable
Securities or the Exchange Securities, as the case may be, on any
securities exchange or exchanges, (v) all rating agency fees, (vi) the
fees and disbursements of counsel for the Company and the Subsidiary
Guarantor and of the independent public accountants of the Company,
including the expenses of any special audits or "cold comfort" letters
required by or incident to such performance and compliance, (vii) the
fees and expenses of the Trustee, and any escrow agent or custodian,
(viii) the reasonable fees and out-of-pocket expenses of
-3-
<PAGE> 5
the Initial Purchasers in connection with the Exchange Offer, including
the reasonable fees and expenses of counsel to the Initial Purchasers in
connection therewith, (ix) the reasonable fees and disbursements of one
firm of legal counsel selected by the Majority Holders to represent the
Holders of Registrable Securities and (x) any fees and disbursements of
the underwriters customarily required to be paid by issuers or sellers
of securities and the fees and expenses of any special experts retained
by the Company or the Subsidiary Guarantor in connection with any
Registration Statement, but excluding underwriting discounts and
commissions and transfer taxes, if any, relating to the sale or
disposition of Registrable Securities by a Holder.
"Registration Statement" shall mean any registration statement of
the Company which covers any of the Exchange Securities or Registrable
Securities pursuant to the provisions of this Agreement, and all
amendments and supplements to any such Registration Statement, including
post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated or
deemed to be incorporated by reference therein.
"Securities" shall have the meaning set forth in the preamble.
"SEC" shall mean the Securities and Exchange Commission or any
successor agency or government body performing the functions currently
performed by the United States Securities and Exchange Commission.
"Shelf Registration" shall mean a registration effected pursuant
to Section 2.2 hereof.
"Shelf Registration Statement" shall mean a "shelf" registration
statement of the Company and the Subsidiary Guarantor pursuant to the
provisions of Section 2.2 of this Agreement which covers all of the
Registrable Securities on an appropriate form under Rule 415 under the
1933 Act, or any similar rule that may be adopted by the SEC, and all
amendments and supplements to such registration statement, including
post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
"Subsidiary Guarantor" shall have the meaning set forth in the
preamble and also includes and subsidiary of the Company that becomes a
guarantor of the Securities pursuant to the terms and provisions of the
Indenture.
"Trustee" shall mean the trustee with respect to the Securities
under the Indenture.
2. Registration Under the 1933 Act.
2.1 Exchange Offer. The Company and the Subsidiary Guarantor
shall (A) prepare and, as soon as practicable but not later than 60 days
following the Closing Date, file with the SEC
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<PAGE> 6
an Exchange Offer Registration Statement on an appropriate form under the 1933
Act with respect to a proposed Exchange Offer and the issuance and delivery to
the Holders, in exchange for the Registrable Securities, a like principal
amount of Exchange Securities, (B) use its best efforts to cause the Exchange
Offer Registration Statement to be declared effective under the 1933 Act within
120 days of the Closing Date, (C) use its best efforts to keep the Exchange
Offer Registration Statement effective until the closing of the Exchange Offer
and (D) use its best efforts to cause the Exchange Offer to be consummated not
later than 180 days following the Closing Date. The Exchange Securities will
be issued under the Indenture. Upon the effectiveness of the Exchange Offer
Registration Statement, the Company and the Subsidiary Guarantor shall promptly
commence the Exchange Offer, it being the objective of such Exchange Offer to
enable each Holder eligible and electing to exchange Registrable Securities for
Exchange Securities (assuming that such Holder (a) is not an affiliate of the
Company or the Subsidiary Guarantor within the meaning of Rule 405 under the
1933 Act, (b) is not a broker-dealer tendering Registrable Securities acquired
directly from the Company for its own account, (c) acquired the Exchange
Securities in the ordinary course of such Holder's business and (d) has no
arrangements or understandings with any person to participate in the Exchange
Offer for the purpose of distributing the Exchange Securities) to transfer such
Exchange Securities from and after their receipt without any limitations or
restrictions under the registration requirements of the 1933 Act and without
material restrictions under the securities laws of a substantial proportion of
the several states of the United States.
In connection with the 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 Exchange Offer open for acceptance for a period
of not less than 30 calendar days after the date notice thereof is
mailed to the Holders (or longer if required by applicable law) (such
period referred to herein as the "Exchange Period");
(c) utilize the services of the Depositary for the Exchange
Offer;
(d) permit Holders to withdraw tendered Registrable Securities
at any time prior to 5:00 p.m. (Eastern Standard Time), on the last
business day of the Exchange Period, by sending to the institution
specified in the notice, a telegram, telex, facsimile transmission or
letter setting forth the name of such Holder, the principal amount of
Registrable Securities delivered for exchange, and a statement that such
Holder is withdrawing his election to have such Securities exchanged;
(e) notify each Holder that any Registrable Security not
tendered will remain outstanding and continue to accrue interest, but
will not retain any rights under this Agreement (except in the case of
certain rights retained by the Initial Purchasers and Participating
Broker-Dealers as provided herein); and
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<PAGE> 7
(f) otherwise comply in all material respects with all
applicable laws relating to the Exchange Offer.
As soon as practicable after the close of the Exchange Offer, the
Company and the Subsidiary Guarantor shall:
(i) accept for exchange all Registrable Securities duly
tendered and not validly withdrawn pursuant to the Exchange Offer in
accordance with the terms of the Exchange Offer Registration Statement
and the letter of transmittal which shall be an exhibit thereto;
(ii) deliver or cause to be delivered all Registrable
Securities so accepted for exchange to the Trustee for cancellation; and
(iii) cause the Trustee promptly to authenticate and deliver
Exchange Securities to each Holder of Registrable Securities so accepted
for exchange in a principal amount equal to the principal amount of the
Registrable Securities of such Holder so accepted for exchange.
Interest on each Exchange Security will accrue from the last date
on which interest was paid on the Registrable Securities surrendered in
exchange therefor or, if no interest has been paid on the Registrable
Securities, from the date of original issuance. The Exchange Offer shall not
be subject to any conditions, other than (i) that the Exchange Offer, or the
making of any exchange by a Holder, does not violate applicable law or any
applicable interpretation of the staff of the SEC, (ii) the due tendering of
Registrable Securities in accordance with the Exchange Offer, (iii) that each
Holder of Registrable Securities exchanged in the Exchange Offer shall have
represented that all Exchange Securities to be received by it shall be acquired
in the ordinary course of its business and that at the time of the consummation
of the Exchange Offer it shall have no arrangement or understanding with any
person to participate in the distribution (within the meaning of the 1933 Act)
of the Exchange Securities and shall have made such other representations as
may be reasonably necessary under applicable SEC rules, regulations or
interpretations to render the use of Form S-4 or other appropriate form under
the 1933 Act available, (iv) that no action or proceeding shall have been
instituted or threatened in any court or by or before any governmental agency
with respect to the Exchange Offer and (v) that there shall not have been
adopted or enacted any law, statute, rule or regulation, (vi) that there shall
not have been declared by United States federal or New York state authorities a
banking moratorium, (vii) that trading on the New York Stock Exchange or
generally in the United States over-the-counter market shall not have been
suspended by order of the SEC or any other governmental authority and (viii)
such other conditions as may be reasonably acceptable to Merrill Lynch, in each
of clauses (iv) through (viii), which, in the Company's judgment, would
reasonably be expected to impair the ability of the Company to proceed with the
Exchange Offer. The Company shall inform the Initial Purchasers of the names
and addresses of the Holders to whom the Exchange Offer is made, and the
Initial Purchasers shall have the right to contact such Holders and otherwise
facilitate the tender of Registrable Securities in the Exchange Offer.
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<PAGE> 8
2.2 Shelf Registration. (i) If, because of any changes in
law, SEC rules or regulations or applicable interpretations thereof by the
staff of the SEC, the Company is not permitted to effect the Exchange Offer as
contemplated by Section 2.1 hereof, (ii) if for any other reason the Exchange
Offer Registration Statement is not declared effective within 120 days
following the Closing Date or the Exchange Offer is not consummated within 180
days after the Closing Date, (iii) upon the request of Merrill Lynch (but only
with respect to any Registrable Securities which the Initial Purchasers
acquired directly from the Company) or (iv) if a Holder advised by counsel that
it is not permitted by Federal securities laws or SEC policy to participate in
the Exchange Offer or does not receive fully tradable Exchange Securities
pursuant to the Exchange Offer, then in case of each of clauses (i) through
(iv) the Company and the Subsidiary Guarantor shall, at their cost:
(a) As promptly as practicable, file with the SEC, and
thereafter shall use its best efforts to cause to be declared effective
as promptly as practicable but no later than 180 days after the Closing
Date, a Shelf Registration Statement relating to the offer and sale of
the Registrable Securities by the Holders from time to time in
accordance with the methods of distribution elected by the Majority
Holders participating in the Shelf Registration and set forth in such
Shelf Registration Statement.
(b) Use their best efforts to keep the Shelf Registration
Statement continuously effective in order to permit the Prospectus
forming part thereof to be usable by Holders for a period of two years
from the date the Shelf Registration Statement is declared effective by
the SEC, or for such shorter period that will terminate when all
Registrable Securities covered by the Shelf Registration Statement (i)
have been sold pursuant thereto, or (ii) are distributed to the public
pursuant to Rule 144 of the Securities Act or are saleable pursuant to
Rule 144(k) under the Securities Act and can be sold pursuant to Rule
144 without any limitations under clauses (c), (e), (f) and (h) of Rule
144 (or any successor rule thereof); provided, however, that the Company
shall not be obligated to keep the Shelf Registration Statement
effective if (A) the Company determines, in its reasonable judgment,
upon advice of counsel, as authorized by a resolution of its Board of
Directors, that the continued effectiveness and usability of the Shelf
Registration Statement would (x) require the disclosure of material
information, which the Company has a bona fide business reason for
preserving as confidential, or (y) interfere with any financing,
acquisition, corporate reorganization or other material transaction
involving the Company or any of its subsidiaries, and provided further,
that the failure to keep the Shelf Registration Statement effective and
usable for offers and sales of Registrable Securities for such reasons
shall last no longer than 45 days in any 12-month period (whereafter a
Registration Default, as hereinafter defined), and (B) the Company
promptly thereafter complies with the requirements of Section 3(k)
hereof, if applicable. Any such period during which the Company is
excused from keeping the Shelf Registration Statement effective and
usable for offers and sales of Registrable Securities is referred to
herein as a "Suspension Period"; a Suspension Period shall commence on
and include the date that the Company gives notice to the Holders that
the Shelf Registration Statement is no longer effective or the
prospectus included therein is no longer usable for offers and sales of
Registrable Securities as a result of the application of the proviso of
the
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<PAGE> 9
foregoing sentence and shall end on the earlier to occur of (1) the date
on which each seller of Registrable Securities covered by the Shelf
Registration Statement either receives the copies of the supplemented or
amended prospectus contemplated by Section 3(k) hereof or is advised in
writing by the Company that use of the prospectus may be resumed and (2)
the expiration of 45 days in any 12-month period during which one or
more Suspension Periods has been in effect.
(c) Notwithstanding any other provisions hereof, use their
best efforts to ensure that (i) any Shelf Registration Statement and any
amendment thereto and any Prospectus forming part thereof and any
supplement thereto complies in all material respects with the 1933 Act
and the rules and regulations thereunder, (ii) any Shelf Registration
Statement and any amendment thereto does not, when it becomes effective,
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading and (iii) any Prospectus forming part
of any Shelf Registration Statement, and any supplement to such
Prospectus (as amended or supplemented from time to time), does not
include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements, in light of the
circumstances under which they were made, not misleading.
The Company and the Subsidiary Guarantor further agree, if
necessary, to supplement or amend the Shelf Registration Statement, as required
by Section 3(b) below, and to furnish to the Holders of Registrable Securities
copies of any such supplement or amendment promptly after its being used or
filed with the SEC.
2.3 Expenses. The Company and the Subsidiary Guarantor shall
pay all Registration Expenses in connection with the registration pursuant to
Section 2.1 or 2.2. Each Holder shall pay all underwriting discounts and
commissions and transfer taxes, if any, relating to the sale or disposition of
such Holder's Registrable Securities pursuant to the Shelf Registration
Statement.
2.4 Effectiveness. (a) The Company and the Subsidiary
Guarantor will be deemed not have used their best efforts to cause the Exchange
Offer Registration Statement or the Shelf Registration Statement, as the case
may be, to become, or to remain, effective during the requisite period if the
Company and the Subsidiary Guarantor voluntarily take any action that would, or
omits to take any action which omission would, result in any such Registration
Statement not being declared effective or in the holders of Registrable
Securities covered thereby not being able to exchange or offer and sell such
Registrable Securities during that period as and to the extent contemplated
hereby, unless such action is required by applicable law.
(b) An Exchange Offer Registration Statement pursuant to
Section 2.1 hereof or a Shelf Registration Statement pursuant to Section 2.2
hereof will not be deemed to have become effective unless it has been declared
effective by the SEC; provided, however, that if, after it has been declared
effective, the offering of Registrable Securities pursuant to a Shelf
Registration Statement
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<PAGE> 10
is interfered with by any stop order, injunction or other order or requirement
of the SEC or any other governmental agency or court, such Registration
Statement will be deemed not to have become effective during the period of such
interference, until the offering of Registrable Securities pursuant to such
Registration Statement may legally resume.
2.5 Interest. The Indenture executed in connection with the
Securities will provide that in the event that either (a) the Exchange Offer
Registration Statement is not filed with the Commission on or prior to the 60th
calendar day following the Closing Date of the Securities, (b) the Exchange
Offer Registration Statement has not been declared effective on or prior to the
120th calendar day following the Closing Date of the Securities or (c) the
Exchange Offer is not consummated or a required Shelf Registration Statement is
not declared effective, in either case, on or prior to the 180th calendar day
following the date of original issue of the Securities (each such event
referred to in clauses (a) through (c) above, a "Registration Default"), the
interest rate borne by the Securities shall be increased by one-half of one
percent per annum upon the occurrence of each Registration Default, with an
aggregate maximum increase in the interest rate equal to one-half percent
(0.50%) per annum; provided, however, that if the Exchange Offer Registration
Statement is not declared effective on or prior to the 120th calendar day
following the Closing Date and the Company and the Subsidiary Guarantor shall
request holders of Securities to provide information for inclusion in the Shelf
Registration Statement, then Securities owned by Holders who do not deliver
such information to the Company and the Subsidiary Guarantor or who do not
provide comments on the Shelf Registration Statement when requested by the
Company and the Subsidiary Guarantor will not be entitled to any such increase
in the interest rate for any day after the 180th day following the Closing
Date. Following the cure of all Registration Defaults, the accrual of
additional interest will cease and the interest rate will revert to the
original rate.
2.6 Specific Enforcement. Without limiting the remedies
available to the Initial Purchasers and the Holders, the Company and the
Subsidiary Guarantor acknowledge that any failure by the Company and the
Subsidiary Guarantor to comply with their obligations under Section 2.1 and
Section 2.2 hereof may result in material irreparable injury to the Initial
Purchasers or the Holders for which there is no adequate remedy at law, that it
will not be possible to measure damages for such injuries precisely and that,
in the event of any such failure, the Initial Purchasers or any Holder may, to
the extent permitted by law, obtain such relief as may be required to
specifically enforce the Company's and the Subsidiary Guarantor's obligations
under Section 2.1 and Section 2.2 hereof.
3. Registration Procedures.
In connection with the obligations of the Company and the
Subsidiary Guarantor with respect to Registration Statements pursuant to
Sections 2.1 and 2.2 hereof, the Company and the Subsidiary Guarantor shall:
(a) prepare and file with the SEC a Registration Statement,
within the relevant time period specified in Section 2, on the
appropriate form under the 1933 Act, which form (i) shall be selected by
the Company, (ii) shall, in the case of a Shelf Registration, be
available
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<PAGE> 11
for the sale of the Registrable Securities by the selling Holders
thereof, (iii) shall comply as to form in all material respects with the
requirements of the applicable form and include or incorporate by
reference all financial statements required by the SEC to be filed
therewith or incorporated by reference therein, and (iv) shall comply in
all respects with the requirements of Regulation S-T under the
Securities Act, and use their best efforts to cause such Registration
Statement to become effective and remain effective in accordance with
Section 2 hereof;
(b) prepare and file with the SEC such amendments and post-
effective amendments to each Registration Statement as may be necessary
under applicable law to keep such Registration Statement effective for
the applicable period; and cause each Prospectus to be supplemented by
any required prospectus supplement, and as so supplemented to be filed
pursuant to Rule 424 under the 1933 Act and comply with the provisions
of the 1933 Act applicable to them with respect to the disposition of
all securities covered by each Registration Statement during the
applicable period in accordance to the extent allowed by law and
reasonably practicable to the Company with the intended method or
methods of distribution by the selling Holders thereof;
(c) in the case of a Shelf Registration, (i) notify each
Holder of Registrable Securities, at least five business days prior to
filing, that a Shelf Registration Statement with respect to the
Registrable Securities is being filed and advising such Holders that the
distribution of Registrable Securities will be made in accordance with
the method selected by the Majority Holders participating in the Shelf
Registration; (ii) furnish to each Holder of Registrable Securities and
to each underwriter of an underwritten offering of Registrable
Securities, if any, without charge, as many copies of each Prospectus,
including each preliminary Prospectus, and any amendment or supplement
thereto and such other documents as such Holder or underwriter may
reasonably request, including financial statements and schedules and, if
the Holder so requests, all exhibits in order to facilitate the public
sale or other disposition of the Registrable Securities; and (iii)
hereby consent to the use of the Prospectus or any amendment or
supplement thereto by each of the selling Holders of Registrable
Securities in connection with the offering and sale of the Registrable
Securities covered by the Prospectus or any amendment or supplement
thereto;
(d) use its best efforts to register or qualify the
Registrable Securities under all applicable state securities or "blue
sky" laws of such jurisdictions as any Holder of Registrable Securities
covered by a Registration Statement and the managing underwriter of an
underwritten offering of Registrable Securities shall reasonably request
by the time the applicable Registration Statement is declared effective
by the SEC, and do any and all other acts and things which may be
reasonably necessary or advisable to enable each such Holder and
underwriter to consummate the disposition in each such jurisdiction of
such Registrable Securities owned by such Holder, provided, however,
that the Company and the Subsidiary Guarantor shall not be required to
(i) qualify as a foreign corporation or as a dealer in securities in any
jurisdiction where it would not otherwise be required to qualify but for
this
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<PAGE> 12
Section 3(d), or (ii) take any action which would subject it to general
service of process or taxation in any such jurisdiction where it is not
then so subject;
(e) notify promptly each Holder of Registrable Securities
under a Shelf Registration or any Participating Broker-Dealer who has
notified the Company that it is utilizing the Exchange Offer
Registration Statement as provided in paragraph (f) below and, if
requested by such Holder or Participating Broker-Dealer, confirm such
advice in writing promptly (i) when a Registration Statement has become
effective and when any post-effective amendments and supplements thereto
become effective, (ii) of any request by the SEC or any state securities
authority for post-effective amendments and supplements to a
Registration Statement and Prospectus or for additional information
after the Registration Statement has become effective, (iii) of the
issuance by the SEC or any state securities authority of any stop order
suspending the effectiveness of a Registration Statement or the
initiation of any proceedings for that purpose, (iv) in the case of a
Shelf Registration, if, between the effective date of a Registration
Statement and the closing of any sale of Registrable Securities covered
thereby, the representations and warranties of the Company contained in
any underwriting agreement, securities sales agreement or other similar
agreement, if any, relating to such sale cease to be true and correct in
all material respects, (v) of the happening of any event or the
discovery of any facts during the period a Shelf Registration Statement
is effective which makes any statement made in such Registration
Statement or the related Prospectus untrue in any material respect or
which requires the making of any changes in such Registration Statement
or Prospectus in order to make the statements therein not misleading and
(vi) of the receipt by the Company of any notification with respect to
the suspension of the qualification of the Registrable Securities or the
Exchange Securities, as the case may be, for sale in any jurisdiction or
the initiation or threatening of any proceeding for such purpose;
(f) (A) in the case of the Exchange Offer Registration
Statement (i) include in the Exchange Offer Registration Statement a
section entitled "Plan of Distribution" which section shall be
reasonably acceptable to the Initial Purchasers, and which shall contain
a summary statement of the positions taken or policies made by the staff
of the SEC with respect to the potential "underwriter" status of any
broker-dealer that holds Registrable Securities acquired for its own
account as a result of market-making activities or other trading
activities and that will be the beneficial owner (as defined in Rule
13d-3 under the Exchange Act) of Exchange Securities to be received by
such broker-dealer in the Exchange Offer, whether such positions or
policies have been publicly disseminated by the staff of the SEC or such
positions or policies, in the reasonable judgment of the Initial
Purchasers and its counsel, represent the prevailing views of the staff
of the SEC, including a statement that any such broker-dealer who
receives Exchange Securities for Registrable Securities pursuant to the
Exchange Offer may be deemed a statutory underwriter and must deliver a
prospectus meeting the requirements of the 1933 Act in connection with
any resale of such Exchange Securities, (ii) furnish to each
Participating Broker-Dealer who has delivered to the Company the notice
referred to in Section 3(e), without charge, as many copies of each
Prospectus included in the Exchange Offer Registration Statement,
including any preliminary prospectus,
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<PAGE> 13
and any amendment or supplement thereto, as such Participating Broker-
Dealer may reasonably request, (iii) hereby consent to the use of the
Prospectus forming part of the Exchange Offer Registration Statement or
any amendment or supplement thereto, by any person subject to the
prospectus delivery requirements of the SEC, including all Participating
Broker-Dealers, in connection with the sale or transfer of the Exchange
Securities covered by the prospectus or any amendment or supplement
thereto, and (iv) include in the transmittal letter or similar
documentation to be executed by an exchange offeree in order to
participate in the Exchange Offer (x) the following provision:
"If the exchange offeree is a broker-dealer holding Registrable
Securities acquired for its own account as a result of market-
making activities or other trading activities, it will deliver a
prospectus meeting the requirements of the 1933 Act in connection
with any resale of Exchange Securities received in respect of
such Registrable Securities pursuant to the Exchange Offer;" and
(y) a statement to the effect that by a broker-dealer making the
acknowledgment described in clause (x) and by delivering a Prospectus in
connection with the exchange of Registrable Securities, the broker-
dealer will not be deemed to admit that it is an underwriter within the
meaning of the 1933 Act; and
(B) to the extent any Participating Broker-Dealer
participates in the Exchange Offer, the Company and the Subsidiary
Guarantor shall use their best efforts to cause to be delivered at the
request of an entity representing the Participating Broker-Dealers
(which entity shall be Merrill Lynch or another Initial Purchaser) (A) a
"cold comfort" letter addressed to the Participating Broker-Dealers from
the Company's and the Subsidiary Guarantor's independent certified
public accountants with respect to the Prospectus in the Exchange Offer
Registration Statement in the form existing on the last date for which
exchanges are accepted pursuant to the Exchange Offer and (B) an opinion
of counsel to the Company and the Subsidiary Guarantor addressed to the
Participating Broker-Dealers in substantially the form attached hereto
as Exhibit A relating to the Exchange Securities; and
(g) (i) in the case of an Exchange Offer, furnish to one firm
of legal counsel for the Initial Purchasers and (ii) in the case of a
Shelf Registration, furnish to one firm of legal counsel for the Holders
of Registrable Securities copies of any comment letters received from
the SEC or any other request by the SEC or any state securities
authority for amendments or supplements to a Registration Statement and
Prospectus or for additional information;
(h) make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of a Registration Statement as
soon as practicable and provide prompt notice to one firm of legal
counsel for the Holders of the withdrawal of any such order;
(i) in the case of a Shelf Registration, furnish to each
Holder of Registrable Securities, and each underwriter, if any, without
charge, at least one conformed copy of each
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<PAGE> 14
Registration Statement and any post-effective amendment thereto,
including financial statements and schedules (without documents
incorporated therein by reference or any exhibits thereto, unless
requested);
(j) in the case of a Shelf Registration, cooperate with the
selling Holders of Registrable Securities to facilitate the timely
preparation and delivery of certificates representing Registrable
Securities to be sold and not bearing any restrictive legends; and
enable such Registrable Securities to be in such denominations
(consistent with the provisions of the Indenture) and registered in such
names as the selling Holders or the underwriters, if any, may reasonably
request at least three business days prior to the closing of any sale of
Registrable Securities;
(k) in the case of a Shelf Registration, upon the Company or
any Subsidiary Guarantor becoming aware of the occurrence of any event
or the discovery of any facts, each as contemplated by Section 3(e)(v)
hereof, use their best efforts to prepare a supplement or post-effective
amendment to the Registration Statement or the related Prospectus or any
document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of the
Registrable Securities or Participating Broker-Dealers, such Prospectus
will not contain at the time of such delivery any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading;
(l) obtain a CUSIP number for all Exchange Securities or
Registrable Securities, as the case may be, not later than the effective
date of a Registration Statement, and provide the Trustee with a printed
certificate or certificates for the Exchange Securities or the
Registrable Securities, as the case may be, in a form eligible for
deposit with the Depositary and consistent with the procedures to be
used by the Depositary;
(m) unless the Indenture, as it relates to the Exchange
Securities or the Registrable Securities, as the case may be, has
already been so qualified, use its best efforts to (i) cause the
Indenture to be qualified under the Trust Indenture Act of 1939 (the
"TIA") in connection with the registration of the Exchange Securities or
Registrable Securities, as the case may be, (ii) cooperate with the
Trustee and the Holders to effect such changes to the Indenture as may
be required for the Indenture to be so qualified in accordance with the
terms of the TIA and (iii) execute, and use its best efforts to cause
the Trustee to execute, all documents as may be required to effect such
changes, and all other forms and documents required to be filed with the
SEC to enable the Indenture to be so qualified in a timely manner;
(n) in the case of a Shelf Registration, take all customary
and appropriate actions reasonably required (including those reasonably
requested by the Majority Holders) in order to expedite or facilitate
the disposition of the Registrable Securities registered thereby. If
requested as set forth below, the Company and the Subsidiary Guarantor
agree that they will in good faith negotiate the terms of an
underwriting agreement, which shall be in form and
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<PAGE> 15
scope as is customary for similar offerings of debt securities with
similar credit ratings (including, without limitation, representations
and warranties to the underwriters) and shall otherwise be reasonably
satisfactory to the Company and the managing underwriters; and:
(i) if requested by the managing underwriters, obtain
opinions of counsel to the Company and the Subsidiary Guarantor
(which counsel shall be reasonably satisfactory to the managing
underwriters) addressed to such underwriters, covering the
matters customarily covered in opinions requested in underwritten
sales of securities in substantially the forms specified in the
underwriting agreement;
(ii) if requested by the managing underwriters, obtain a
"cold comfort" letter and an update thereto not later than two
weeks after the date of the original letter (or if not available
under applicable accounting pronouncements or standards, a single
"procedures" letter and a single update thereto) from the
Company's independent certified public accountants addressed to
the underwriters named in the underwriting agreement and use its
best efforts to have such letter addressed to the selling Holders
of Registrable Securities (provided, however, that such letter
need not be addressed to any Holders to whom, in the reasonable
opinion of the Company's independent certified public
accountants, addressing such letter is not permissible under
applicable accounting standards), such letters to be in customary
form and covering matters of the type customarily covered in
"cold comfort" (or "procedures") letters to underwriters in
connection with similar underwritten offerings; and
(iii) deliver such documents and certificates as may be
reasonably requested and as are customarily delivered in similar
underwritten offerings.
Notwithstanding anything herein to the contrary, the Company
shall have no obligation to enter into any underwriting agreement or
permit an underwritten offering of Registrable Securities unless a
request therefor shall have been received from the Holders of at least
20% of the Registrable Securities then outstanding within ten business
days of the date of the notice from the Company as required by Section
3(c). In the case of such a request for an underwritten offering, the
Company shall provide reasonable advance written notice to the Holders
of all Registrable Securities of such proposed underwritten offering.
Such notice shall (A) offer each such Holder the right to participate in
such underwritten offering (but may indicate that whether or not all
Registrable Securities are included will be at the discretion of the
underwriters), (B) specify a date, which shall be no earlier than ten
business days following the date of such notice, by which such Holder
must inform the Company of its intent to participate in such
underwritten offering and (C) include the instructions such Holder must
follow in order to participate in such underwritten offering;
(o) in the case of a Shelf Registration, and to the extent
customary in connection with a "due diligence" investigation for an
offering of debt securities with a similar credit rating to that of the
Registrable Securities, make available for inspection by representatives
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<PAGE> 16
appointed by the Majority Holders and any underwriters participating in
any disposition pursuant to a Shelf Registration Statement and one firm
of legal counsel retained for all Holders participating in such Shelf
Registration, and one firm of legal counsel to the underwriters, if any,
all financial and other records, pertinent corporate documents and
properties of the company reasonably requested by any such persons, and
cause the respective officers, directors, employees, and any other
agents of the company to supply all information reasonably requested by
any such representative, underwriter or counsel in connection with a
Registration Statement, and make such representatives of the company
available for discussion of such documents as shall be reasonably
requested by the Initial Purchasers provided, however, that, if any such
records, documents or other information relates to pending or proposed
acquisitions or dispositions, or otherwise relates to matters reasonably
considered by the Company and the Subsidiary Guarantor to constitute
sensitive or proprietary information, the Company and the Subsidiary
Guarantor need not provide such records, documents or information unless
the foregoing parties enter into a confidentiality agreement in
customary form and reasonably acceptable to such parties and the
Company;
(p) (i) in the case of an Exchange Offer Registration
Statement, a reasonable time prior to the filing of any Exchange Offer
Registration Statement, any Prospectus forming a part thereof, any
amendment to an Exchange Offer Registration Statement or amendment or
supplement to such Prospectus, provide copies of such document to
Merrill Lynch and make such changes in any such document prior to the
filing thereof as Merrill Lynch may reasonably request and, except as
otherwise required by applicable law, not file any such document in a
form to which Merrill Lynch on behalf of the Holders of Registrable
Securities shall reasonably object, and make the representatives of the
Company and the Subsidiary Guarantor available for discussion of such
documents as shall be reasonably requested by Merrill Lynch; and
(ii) in the case of a Shelf Registration, a reasonable
time prior to filing any Shelf Registration Statement, any Prospectus
forming a part thereof, any amendment to such Shelf Registration
Statement or amendment or supplement to such Prospectus, provide copies
of such document to Merrill Lynch, one firm of legal counsel appointed
by the Majority Holders to represent the Holders participating in such
Shelf Registration, the managing underwriters of an underwritten
offering of Registrable Securities, if any, and make such changes in any
such document prior to the filing thereof as Merrill Lynch, such one
firm of legal counsel for the Holders, such managing underwriters or
their counsel may reasonably request and not file any such document in a
form to which Merrill Lynch, such one firm of legal counsel for the
Holders, such managing underwriters or their counsel may reasonably
object and make the representatives of the Company and the Subsidiary
Guarantor available for discussion of such document as shall be
reasonably requested by Merrill Lynch, such one firm of legal counsel
for the Holders, such managing underwriters or their counsel.
(q) in the case of a Shelf Registration, use its best efforts
to cause the Registrable Securities to be rated by the appropriate
rating agencies, if so requested by the Majority
-15-
<PAGE> 17
Holders, or if requested by the managing underwriters of an underwritten
offering of Registrable Securities, if any, unless the Exchange
Securities or the Registrable Securities, as the case may be, are
already so rated or unless the Company has obtained such ratings for its
long-term debt securities generally;
(r) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC and make available to its
security holders, as soon as reasonably practicable, an earnings
statement covering at least 12 months which shall satisfy the provisions
of Section 11(a) of the 1933 Act and Rule 158 thereunder;
(s) cooperate and assist in any filings required to be made
with the NASD and, in the case of a Shelf Registration, in the
performance of any due diligence investigation by any managing
underwriter and its counsel (including any "qualified independent
underwriter" that is required to be retained in accordance with the
rules and regulations of the NASD); and
(t) upon consummation of an Exchange Offer, obtain a customary
opinion of counsel to the Company and the Subsidiary Guarantor addressed
to the Trustee for the benefit of all Holders of Registrable Securities
participating in the Exchange Offer, and which includes an opinion that
(i) the Company has duly authorized, executed and delivered the Exchange
Securities and the related indenture, and (ii) each of the Exchange
Securities and related indenture constitute a legal, valid and binding
obligation of the Company, enforceable against the Company and the
Subsidiary Guarantor in accordance with its respective terms (with
customary exceptions).
In the case of a Shelf Registration Statement, the Company and
the Subsidiary Guarantor may (as a condition to such Holder's participation in
the Shelf Registration) require each Holder of Registrable Securities to
furnish to the Company and the Subsidiary Guarantor such information regarding
the Holder and the proposed distribution by such Holder of such Registrable
Securities as the Company and the Subsidiary Guarantor may from time to time
reasonably request in writing.
In the case of a Shelf Registration Statement, each Holder agrees
and in the case of the Exchange Offer Registration Statement, each
Participating Broker-Dealer agrees that, upon receipt of any notice from the
Company and the Subsidiary Guarantor of the happening of any event or the
discovery of any facts, each of the kind described in Section 3(e)(v) hereof,
such Holder or Participating Broker-Dealer, as the case may be, will forthwith
discontinue disposition of Registrable Securities pursuant to such Registration
Statement until the receipt by such Holder or Participating Broker-Dealer, as
the case may be, of the copies of the supplemented or amended Prospectus
contemplated by Section 3(k) hereof, and, if so directed by the Company and the
Subsidiary Guarantor, such Holder will deliver to the Company (at its expense)
all copies in its possession of the Prospectus covering such Registrable
Securities current at the time of receipt of such notice. If the Company and
the Subsidiary Guarantor shall give any such notice to suspend the disposition
of Registrable Securities pursuant to a Registration Statement as a result of
the happening of any event
-16-
<PAGE> 18
or the discovery of any facts, each of the kind described in Section 3(e)(v)
hereof, the Company and the Subsidiary Guarantor shall be deemed to have used
its best efforts to keep such Registration Statement effective during such
period of suspension provided that the Company and the Subsidiary Guarantor
shall use its best efforts to file and have declared effective (if an
amendment) as soon as practicable an amendment or supplement to such
Registration Statement and shall extend the period during which such
Registration Statement shall be maintained effective pursuant to this Agreement
by the number of days during the period from and including the date of the
giving of such notice to and including the date when the Holders shall have
received copies of the supplemented or amended Prospectus necessary to resume
such dispositions.
If any of the Registrable Securities covered by any Shelf
Registration Statement are to be sold in an underwritten offering, the
underwriter or underwriters and manager or managers that will manage such
offering will be selected by the Company and the Subsidiary Guarantor and shall
be acceptable to the Majority Holders. No Holder of Registrable Securities may
participate in any underwritten offering hereunder unless such Holder (a)
agrees to sell such Holder's Registrable Securities on the basis provided in
any underwriting arrangements approved by the persons entitled hereunder to
approve such arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements.
4. Indemnification; Contribution.
(a) The Company and the Subsidiary Guarantor shall jointly and
severally indemnify and hold harmless the Initial Purchasers, each Holder, each
Participating Broker-Dealer, each Person who participates as an underwriter
(any such Person being an "Underwriter") and each Person, if any, who controls
any Holder or Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, arising out of any untrue statement
or alleged untrue statement of a material fact contained in any
Registration Statement (or any amendment or supplement thereto) pursuant
to which Exchange Securities or Registrable Securities were registered
under the 1933 Act, including all documents incorporated therein by
reference, or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements
therein not misleading, or arising out of any untrue statement or
alleged untrue statement of a material fact contained in any Prospectus
(or any amendment or supplement thereto) or the omission or alleged
omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading;
(ii) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, to the extent of the aggregate
amount paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body,
-17-
<PAGE> 19
commenced or threatened, or of any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or
omission; provided that (subject to Section 4(d) below) any such
settlement is effected with the written consent of the Company; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch, or in the event that Merrill Lynch is not an indemnified party,
by a majority of the indemnified parties), reasonably incurred in
investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under
subparagraph (i) or (ii) above; provided, however, that this indemnity
agreement shall not apply to any loss, liability, claim, damage or
expense to the extent arising out of any untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in
conformity with written information furnished to the Company by the
Initial Purchasers, such Holder or Underwriter expressly for use in a
Registration Statement (or any amendment thereto) or any Prospectus (or
any amendment or supplement thereto).
(b) Each Holder severally, but not jointly, agrees to
indemnify and hold harmless the Company, the Subsidiary Guarantor, the Initial
Purchasers, each Underwriter and the other selling Holders, and each of their
respective directors and officers, and each Person, if any, who controls the
Company, the Subsidiary Guarantor, the Initial Purchasers, any Underwriter or
any other selling Holder within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act, against any and all loss, liability, claim, damage
and expense described in the indemnity contained in Section 4(a) hereof, as
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Shelf Registration Statement (or
any amendment thereto) or any Prospectus included therein (or any amendment or
supplement thereto) in reliance upon and in conformity with written information
furnished to the Company expressly for use in the Shelf Registration Statement
(or any amendment thereto) or such Prospectus (or any amendment or supplement
thereto); provided, however, that no such Holder shall be liable for any claims
hereunder in excess of the amount of net proceeds received by such Holder from
the sale of Registrable Securities pursuant to such Shelf Registration
Statement.
(c) Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any action or proceeding
commenced against it in respect of which indemnity may be sought hereunder, but
failure so to notify an indemnifying party shall not relieve such indemnifying
party from any liability hereunder to the extent it is not materially
prejudiced as a result thereof and in any event shall not relieve it from any
liability which it may have otherwise than on account of this indemnity
agreement. An indemnifying party may participate at its own expense in the
defense of such action; provided, however, that counsel to the indemnifying
party shall not (except with the consent of the indemnified party) also be
counsel to the indemnified party. In no event shall the indemnifying party or
parties be liable for the fees and expenses of more than one
-18-
<PAGE> 20
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances. No indemnifying party shall, without the
prior written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever in respect of which indemnification or
contribution could be sought under this Section 4 (whether or not the
indemnified parties are actual or potential parties thereto), unless such
settlement, compromise or consent (i) includes an unconditional release of each
indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of
any indemnified party.
(d) If at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 4(a)(ii) effected without its
written consent if (i) such settlement is entered into more than 45 days after
receipt by such indemnifying party of the aforesaid request, (ii) such
indemnifying party shall have received notice of the terms of such settlement
at least 30 days prior to such settlement being entered into and (iii) such
indemnifying party shall not have reimbursed such indemnified party in
accordance with such request prior to the date of such settlement.
(e) If the indemnification provided for in this Section 4 is
for any reason unavailable to or insufficient to hold harmless an indemnified
party in respect of any losses, liabilities, claims, damages or expenses
referred to therein, then each indemnifying party shall contribute to the
aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Subsidiary Guarantor on the one hand, the Holders on another hand, and the
Initial Purchasers on another hand, from the offering of the Securities, the
Exchange Securities and the Registrable Securities (taken together) included in
such offering or (ii) if the allocation provided by clause (i) is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault
of the Company and the Subsidiary Guarantor on the one hand, the Holders on
another hand and the Initial Purchasers on another hand with respect to the
statements or omissions which resulted in such losses, liabilities, claims,
damages or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company and the Subsidiary
Guarantor from the offering of the Securities, the Exchange Securities and the
Registrable Securities (taken together) included in such offering shall in each
case be deemed to include the proceeds received by the Company and the
Subsidiary Guarantor in connection with the offering of the Securities pursuant
to the Purchase Agreement. The parties hereto agree that any underwriting
discount or commission or reimbursement of fees paid to the Initial Purchasers
pursuant to the Purchase Agreement shall not be deemed to be
-19-
<PAGE> 21
a benefit received by the Initial Purchasers in connection with the offering of
the Exchange Securities or Registrable Securities included in such offering.
The relative fault of the Company and the Subsidiary Guarantor on the
one hand, the Holders on another hand, and the Initial Purchasers on another
hand shall be determined by reference to, among other things, whether any such
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by the
Company, the Subsidiary Guarantor, the Holders or the Initial Purchasers and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
The Company, the Subsidiary Guarantor, the Holders and the Initial
Purchasers agree that it would not be just and equitable if contribution
pursuant to this Section 4 were determined by pro rata allocation (even if the
Initial Purchasers were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable
considerations referred to above in this Section 4. The aggregate amount of
losses, liabilities, claims, damages and expenses incurred by an indemnified
party and referred to above in this Section 4 shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged
untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 4, no Initial Purchaser
shall be required to contribute any amount in excess of the amount by which the
total price at which the Securities sold by it were offered exceeds the amount
of any damages which such Initial Purchaser has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 4, each person, if any, who controls an
Initial Purchaser or Holder within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as such
Initial Purchaser or Holder, and each director of the Company, and each person,
if any, who controls the Company or the Subsidiary Guarantor within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same
rights to contribution as the Company. The Initial Purchasers' respective
obligations to contribute pursuant to this Section 7 are several in proportion
to the principal amount of Securities set forth opposite their respective names
in Schedule A to the Purchase Agreement and not joint.
-20-
<PAGE> 22
5. Miscellaneous.
5.1 Rule 144 and Rule 144A. For so long as the Company or the
Subsidiary Guarantor is subject to the reporting requirements of Section 13 or
15 of the 1934 Act, the Company and the Subsidiary Guarantor covenant that they
will file the reports required to be filed by them under the 1933 Act and
Section 13(a) or 15(d) of the 1934 Act and the rules and regulations adopted by
the SEC thereunder. If the Company or the Subsidiary Guarantor ceases to be so
required to file such reports, the Company and the Subsidiary Guarantor
covenant that they will upon the request of any Holder of Registrable
Securities (a) make publicly available such information as is necessary to
permit sales pursuant to Rule 144 under the 1933 Act, (b) deliver such
information to a prospective purchaser as is necessary to permit sales pursuant
to Rule 144A under the 1933 Act and it will take such further action as any
Holder of Registrable Securities may reasonably request, and (c) take such
further action that is reasonable in the circumstances, in each case, to the
extent required from time to time to enable such Holder to sell its Registrable
Securities without registration under the 1933 Act within the limitation of the
exemptions provided by (i) Rule 144 under the 1933 Act, as such Rule may be
amended from time to time, (ii) Rule 144A under the 1933 Act, as such Rule may
be amended from time to time, or (iii) any similar rules or regulations
hereafter adopted by the SEC. Upon the request of any Holder of Registrable
Securities, the Company and the Subsidiary Guarantor will deliver to such
Holder a written statement as to whether they have complied with such
requirements.
5.2 No Inconsistent Agreements. Neither the Company nor the
Subsidiary Guarantor has entered into and neither the Company nor the
Subsidiary Guarantor will after the date of this Agreement enter into any
agreement which is inconsistent with the rights granted to the Holders of
Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof. The rights granted to the Holders hereunder do not in any
way conflict with the rights granted to the holders of the Company's nor the
Subsidiary Guarantor's other issued and outstanding securities under any such
agreements.
5.3 Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company and the Subsidiary Guarantor have obtained
the written consent of Holders of at least a majority in aggregate principal
amount of the outstanding Registrable Securities affected by such amendment,
modification, supplement, waiver or departure. Notwithstanding anything in
this Agreement to the contrary, this Agreement may be amended, modified or
supplemented, and waivers and consents to departures from the provisions hereof
may be given, by written agreement signed by the Company and Merrill Lynch to
the extent that any such amendment, modification, supplement, waiver or consent
is, in their reasonable judgment, necessary or appropriate to comply with
applicable law (including any interpretation of the staff of the SEC) or any
change therein.
5.4 Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery (a) if to a Holder, at the most current address given by such Holder
to the Company or the Subsidiary Guarantor by means of a notice given in
accordance with the provisions of this Section 5.4, which address initially is
the address set forth in the Purchase
-21-
<PAGE> 23
Agreement with respect to the Initial Purchasers; and (b) if to the Company or
the Subsidiary Guarantor, initially at the Company's address set forth in the
Purchase Agreement, and thereafter at such other address of which notice is
given in accordance with the provisions of this Section 5.4.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; four business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt is acknowledged, if telecopied; and on
the next business day if timely delivered to an air courier guaranteeing
overnight delivery.
Copies of all such notices, demands, or other communications shall be
concurrently delivered by the person giving the same to the Trustee under the
Indenture, at the address specified in such Indenture.
5.5 Successor and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders; provided that nothing herein shall be deemed to
permit any assignment, transfer or other disposition of Registrable Securities
in violation of the terms of the Purchase Agreement and provided, further, that
Holders of Registrable Securities may not assign their rights under this
Agreement except in connection with the permitted transfer of Registrable
Securities and then only insofar as relates to such Registrable Securities. If
any transferee of any Holder shall acquire Registrable Securities, in any
manner, whether by operation of law or otherwise, such Registrable Securities
shall be held subject to all of the terms of this Agreement, and by taking and
holding such Registrable Securities such person shall be conclusively deemed to
have agreed to be bound by and to perform all of the terms and provisions of
this Agreement, including the restrictions on resale set forth in this
Agreement and, if applicable, the Purchase Agreement, and such person shall be
entitled to receive the benefits hereof.
5.6 Third Party Beneficiaries. The Initial Purchasers (even if the
Initial Purchasers are not Holders of Registrable Securities) shall be third
party beneficiaries to the agreements made hereunder between the Company and
the Subsidiary Guarantor, on the one hand, and the Holders, on the other hand,
and shall have the right to enforce such agreements directly to the extent they
deem such enforcement necessary or advisable to protect their rights or the
rights of Holders hereunder. Each Holder of Registrable Securities shall be a
third party beneficiary to the agreements made hereunder between the Company
and the Subsidiary Guarantor, on the one hand, and the Initial Purchasers, on
the other hand, and shall have the right to enforce such agreements directly to
the extent it deems such enforcement necessary or advisable to protect its
rights hereunder.
5.7 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 be deemed to be an original and a of which taken
together shall constitute one and the same agreement.
5.8 Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
-22-
<PAGE> 24
5.9 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICT OF LAWS THEREOF.
5.10 Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances,
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.
-23-
<PAGE> 25
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first written above.
OCEAN ENERGY, INC.
By:
-------------------------
Name:
Title:
OCEAN ENERGY, INC. (Louisiana)
By:
-------------------------
Name:
Title:
Confirmed and accepted as
of the date first above
written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
BEAR, STEARNS & CO, INC.
CHASE SECURITIES INC.
LEHMAN BROTHERS INC.
MORGAN STANLEY & CO. INC.
BY: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
-----------------------
Name:
Title
-24-
<PAGE> 1
EXHIBIT 5.1
[Andrews & Kurth L.L.P. Letterhead]
July 31, 1997
Board of Directors
Ocean Energy, Inc.
8440 Jefferson Highway, Suite 420
Baton Rouge, Louisiana 70809
Gentlemen:
We have acted as counsel to Ocean Energy, Inc., a Delaware corporation
(the "Company") in connection with the Company's Registration Statement on Form
S-4 (the "Registration Statement") relating to the registration under the
Securities Act of 1933, as amended (the "Securities Act"), of the offer by the
Company to exchange up to $200,000,000 aggregate principal amount of its 8 7/8%
Senior Subordinated Notes Due 2007, Series B (the "Exchange Notes") for its
existing 8 7/8% Senior Subordinated Notes Due 2007, Series A (the "Existing
Notes"). The Exchange Notes are proposed to be issued in accordance with the
provisions of the indenture, dated as of July 2, 1997, between the Company and
State Street Bank and Trust Company, as Trustee (the "Indenture").
In arriving at the opinions expressed below, we have examined the
Registration Statement, the Prospectus contained therein, the Indenture, which
is filed as an exhibit to the Registration Statement, and the originals or
copies certified or otherwise identified to our satisfaction of such other
instruments and other certificates of public officials and officers and
representatives of the Company. In such examination, we have assumed and have
not verified (i) that the signatures on all documents that we have examined are
genuine, (ii) the authenticity of all documents submitted to us as originals,
(iii) the conformity with the authentic originals of all documents submitted to
us as certified, photostatic or faxed copies, and (iv) that all documents in
respect of which forms were filed with the Securities and Exchange Commission
as exhibits to the Registration Statement will conform in all material respects
to the forms thereof that we have examined. In addition, as the basis for the
opinion hereinafter expressed, we have examined such statutes, regulations,
corporate records and documents, certificates of corporate and public officials
and other instruments as we have deemed necessary or advisable for the purposes
of this opinion.
Based upon the foregoing and having due regard for such legal
considerations as we deem relevant, we are of the opinion that the Exchange
Notes, (a) when exchanged in the manner described
<PAGE> 2
Ocean Energy, Inc.
July 31, 1997
Page 2
in the Registration Statement, (b) when duly executed, authenticated, issued
and delivered in accordance with the terms of the Indenture, (c) when the
Indenture has been duly qualified under the Trust Indenture Act of 1939, as
amended, and (d) when applicable provisions of "blue sky" laws have been
complied with, will be legally issued and constitute binding obligations of the
Company, enforceable against the Company in accordance with the terms of the
Indenture and the Exchange Notes.
The opinion expressed above with respect to the Exchange Notes may be
limited by applicable bankruptcy, insolvency (including, without limitation,
all laws relating to fraudulent transfer), reorganization, moratorium and other
similar laws affecting creditors' rights generally and by general principles of
equity (regardless of whether enforcement is sought in a proceeding in equity
or at law), including reasonableness, materiality, good faith and fair dealing.
Such opinion is also subject to the qualification that the remedy of specific
performance and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which proceedings may be
brought.
This opinion is limited in all respects to the Delaware General
Corporation Law, the laws of the State of New York, and the laws of the United
States of America insofar as such laws are applicable. We hereby consent to
the use of this opinion as an exhibit to the Registration Statement and to the
use of the firm name under the heading "Legal Matters" in the Registration
Statement.
Very truly yours,
/s/ Andrews & Kurth L.L.P.
1210/1249/2698
<PAGE> 1
EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------- ---------------------
1992 1993 1994 1995 1996 1996 1997
---------- --------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income before taxes 2,584 2,227 (22,179) 5,210 32,988 3,120 15,890
Add:
Interest 241 1,055 4,507 17,620 17,954 4,512 6,460
Interest portion of rentals 14 55 127 176 230 49 68
--------- --------- --------- --------- --------- --------- ---------
Earnings 2,839 3,337 (17,545) 23,006 51,172 7,681 22,418
Fixed Charges:
Interest 241 1,055 4,507 17,620 17,954 4,512 6,460
Interest portion of rentals 14 55 238 176 230 49 68
--------- --------- --------- --------- --------- --------- ---------
Fixed Charges 255 1,110 4,745 17,796 18,184 4,561 6,528
Ratio of Earnings to Fixed
Charges 11.1x 3.0x N.M.(1) 1.3x 2.8x 1.7x 3.4x
</TABLE>
- ------------------------
(1) The ratio is not meaningful because earnings were inadequate to cover
fixed charges by $22.3 million for the year ended December 31, 1994.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated February 24, 1997 with respect to the consolidated financial statements
of Ocean Energy, Inc. included in or made part of this Registration Statement
on Form S-4.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
July 30, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS
We hereby consent to the reference to our firm and to our reports
effective December 31, 1994; December 31, 1995; and December 31, 1996, in the
Prospectus constituting part of the Registration Statement on Form S-4 of Ocean
Energy, Inc. to be filed with the Securities and Exchange Commission on or
about July 30, 1997.
NETHERLAND, SEWELL & ASSOCIATES, INC.
By: /s/ FREDERIC SEWELL
------------------------------------
Frederic D. Sewell
President
Dallas, Texas
July 29, 1997
<PAGE> 1
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
---------------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2) __
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
John R. Towers, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617)654-3253
(Name, address and telephone number of agent for service)
---------------
OCEAN ENERGY, INC.
OCEAN ENERGY, INC.
(Exact name of obligor as specified in its charter)
DELAWARE 72-1277752
LOUISIANA 72-1210660
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8440 JEFFERSON HIGHWAY, SUITE 420
BATON ROUGE, LOUISIANA 70809
(Address of principal executive offices) (Zip Code)
8-7/8% SENIOR SUBORDINATED NOTES DUE 2007
(Title of indenture securities)
<PAGE> 2
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO
WHICH IT IS SUBJECT.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington, D.C.,
Federal Deposit Insurance Corporation, Washington, D.C.
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee or of its
parent, State Street Corporation.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF
ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN
EFFECT.
A copy of the Articles of Association of the trustee, as now
in effect, is on file with the Securities and Exchange
Commission as Exhibit 1 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form T-1) filed with
the Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the trustee
to commence business was necessary or issued is on file with
the Securities and Exchange Commission as Exhibit 2 to
Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No. 22-17940)
and is incorporated herein by reference thereto.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE
TRUST POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS
SPECIFIED IN PARAGRAPH (1) OR (2), ABOVE.
A copy of the authorization of the trustee to exercise
corporate trust powers is on file with the Securities and
Exchange Commission as Exhibit 3 to Amendment No. 1 to the
Statement of Eligibility and Qualification of Trustee (Form
T-1) filed with the Registration Statement of Morse Shoe, Inc.
(File No. 22-17940) and is incorporated herein by reference
thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in effect, is on
file with the Securities and Exchange Commission as Exhibit 4
to the Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with the Registration Statement of Eastern
Edison Company (File No. 33-37823) and is incorporated herein
by reference thereto.
1
<PAGE> 3
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS
IN DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
SECTION 321(B) OF THE ACT.
The consent of the trustee required by Section 321(b) of the
Act is annexed hereto as Exhibit 6 and made a part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING
AUTHORITY.
A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority is annexed hereto as Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates
to matters peculiarly within the knowledge of the obligor or any underwriter
for the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Hartford and the
State of Connecticut, on the 28th day of July, 1997.
STATE STREET BANK AND TRUST COMPANY
By: /s/ BETTY HAMMER
-----------------------------------
NAME: ELIZABETH C. HAMMER
TITLE: VICE PRESIDENT
2
<PAGE> 4
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issuance by OCEAN
ENERGY, INC.. of its 8-7/8% SENIOR SUBORDINATED NOTES DUE 2007, we hereby
consent that reports of examination by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ BETTY HAMMER
----------------------------------
NAME: ELIZABETH C. HAMMER
TITLE: VICE PRESIDENT
DATED: 7/28/97
3
<PAGE> 5
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking
institution organized and operating under the banking laws of this commonwealth
and a member of the Federal Reserve System, at the close of business March 31,
1997, published in accordance with a call made by the Federal Reserve Bank of
this District pursuant to the provisions of the Federal Reserve Act and in
accordance with a call made by the Commissioner of Banks under General Laws,
Chapter 172, Section 22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin . . . . . . . . . . . . . . . . . . . . . . . . . 1,665,142
Interest-bearing balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,193,292
Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,238,113
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,853,144
Loans and lease financing receivables:
Loans and leases, net of unearned income . . . . . . . . . . . 4,936,454
Allowance for loan and lease losses . . . . . . . . . . . . . 70,307
Allocated transfer risk reserve . . . . . . . . . . . . . . . 0
Loans and leases, net of unearned income and allowances . . . . . . . . . . . . . . . . . . . . . . 4,866,147
Assets held in trading accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 957,478
Premises and fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 380,117
Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 884
Investments in unconsolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,835
Customers' liability to this bank on acceptances outstanding . . . . . . . . . . . . . . . . . . . . . . . . 45,548
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158,080
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,066,957
-----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,450,737
===========
LIABILITIES
Deposits:
In domestic offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,270,845
Noninterest-bearing . . . . . . . . . . . . . . . . 6,318,360
Interest-bearing . . . . . . . . . . . . . . . . . . . 1,952,485
In foreign offices and Edge subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,760,086
Noninterest-bearing . . . . . . . . . . . . . . . . . 53,052
Interest-bearing . . . . . . . . . . . . . . . . . . . 12,707,034
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,216,641
Demand notes issued to the U.S. Treasury and Trading Liabilities . . . . . . . . . . . . . . . . . . . . . . 926,821
Other borrowed money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 671,164
Subordinated notes and debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0
Bank's liability on acceptances executed and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . 46,137
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 745,529
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,637,223
-----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,931
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360,717
Undivided profits and capital reserves/Net unrealized holding gains (losses) . . . . . . . . . . . . . . . . 1,426,881
Cumulative foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,015)
Total equity capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,813,514
-----------
Total liabilities and equity capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,450,737
===========
</TABLE>
4
<PAGE> 6
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Charles F. Kaye
5
<PAGE> 1
EXHIBIT 99.1
OCEAN ENERGY, INC.
FORM OF LETTER OF TRANSMITTAL
FOR TENDER OF ALL OUTSTANDING
8 7/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES A
IN EXCHANGE FOR
8 7/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
PURSUANT TO THE PROSPECTUS DATED AUGUST , 1997
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1997, UNLESS
THE EXCHANGE OFFER IS EXTENDED.
TO: STATE STREET BANK AND TRUST COMPANY (THE "EXCHANGE AGENT")
By Mail or Hand Delivery: By Facsimile Transmission:
State Street Bank and Trust Company (for Eligible Institutions only)
777 Main Street, MSN 238 State Street Bank and Trust Company
Hartford, Connecticut 06115 (860) 986-7920
Attention: Elizabeth Hammer Attention: Elizabeth Hammer
For Information or Confirmation by Telephone:
(860) 986-2064
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OR TRANSMISSION TO A
FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID
DELIVERY. THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING CERTIFICATES, IS
AT THE RISK OF THE HOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN
RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. THE INSTRUCTIONS
ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
The undersigned acknowledges that he or she has received the
Prospectus, dated July , 1997 (the "Prospectus") of Ocean Energy, Inc., a
Delaware Corporation (the "Company") and this Letter of Transmittal and the
instructions hereto (the "Letter of Transmittal"), which together constitute
the Company's offer (the "Exchange Offer") to exchange $1,000 principal amount
of its 8 7/8% Senior Subordinated Notes due 2007, Series B (the "Exchange
Notes") that have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), pursuant to a Registration Statement of which the
Prospectus is a part, for each $1,000 principal amount of its outstanding 8 7/8%
Senior Subordinated Notes due 2007, Series A (the "Old Notes"), of which
$200,000,000 aggregate principal amount is outstanding, upon the terms and
subject to the conditions set forth in the Prospectus. The term "Expiration
Date" shall mean 5:00 p.m., New York City time, on ,
1997, unless the Company, in its sole discretion, extends the Exchange Offer,
in which case the term shall mean the latest date and time to which the
Exchange Offer is extended by the Company. Capitalized terms used but not
defined herein have the meaning given to them in the Prospectus.
<PAGE> 2
This Letter of Transmittal is to be used either if (i) certificates
representing Old Notes are to be physically delivered to the Exchange Agent
herewith by Holders, (ii) tender of Old Notes is to be made by book-entry
transfer to an account maintained by the Exchange Agent at The Depository Trust
Company ("DTC"), pursuant to the procedures set forth in "The Exchange
Offer--Procedures for Tendering" in the Prospectus by any financial institution
that is a participant in DTC and whose name appears on a security position
listing as the owner of Old Notes or (iii) tender of Old Notes is to be made
according to the guaranteed delivery procedures set forth in the Prospectus
under "The Exchange Offer--Guaranteed Delivery Procedures." Delivery of this
Letter of Transmittal and any other required documents must be made to the
Exchange Agent. DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO
THE EXCHANGE AGENT.
The term "Holder" as used herein means any person in whose name Old
Notes are registered on the books of the Company or any other person who has
obtained a properly completed bond power from the registered holder.
All Holders of Old Notes who wish to tender their Old Notes must,
prior to the Expiration Date: (1) complete, sign, and deliver this Letter of
Transmittal, or a facsimile thereof, to the Exchange Agent, in person or to the
address set forth above; and (2) tender (and not withdraw) his or her Old Notes
or, if a tender of Old Notes is to be made by book-entry transfer to the
account maintained by the Exchange Agent at DTC, confirm such book-entry
transfer (a "Book- Entry Confirmation"), in each case in accordance with the
procedures for tendering described in the Instructions to this Letter of
Transmittal. Holders of Old Notes whose certificates are not immediately
available, or who are unable to deliver their certificates or Book-Entry
Confirmation and all other documents required by this Letter of Transmittal to
be delivered to the Exchange Agent on or prior to the Expiration Date, must
tender their Old Notes according to the guaranteed delivery procedures set
forth under the caption "The Exchange Offer -- Guaranteed Delivery Procedures"
in the Prospectus. (See Instruction 2.)
Upon the terms and subject to the conditions of the Exchange Offer,
the acceptance for exchange of the Old Notes validly tendered and not withdrawn
and the issuance of the Exchange Notes will be made promptly following the
Expiration Date. For the purposes of the Exchange Offer, the Company shall be
deemed to have accepted for exchange validly tendered Old Notes when, as and if
the Company has given written notice thereof to the Exchange Agent.
The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Old Notes must
complete this Letter of Transmittal in its entirety.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS
CAREFULLY BEFORE CHECKING ANY BOX BELOW. THE INSTRUCTIONS INCLUDED IN THIS
LETTER OF TRANSMITTAL MUST BE FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE
OR FOR ADDITIONAL COPIES OF THE PROSPECTUS, THIS LETTER OF TRANSMITTAL AND THE
NOTICE OF GUARANTEED DELIVERY MAY BE DIRECTED TO THE EXCHANGE AGENT. SEE
INSTRUCTION 12 HEREIN.
HOLDERS WHO WISH TO ACCEPT THE EXCHANGE OFFER AND TENDER THEIR OLD
NOTES MUST COMPLETE THIS LETTER OF TRANSMITTAL IN ITS ENTIRETY AND COMPLY WITH
ALL OF ITS TERMS.
-2-
<PAGE> 3
List below the Old Notes to which this Letter of Transmittal relates.
If the space provided below is inadequate, the Certificate Numbers and
Principal Amounts should be listed on a separate signed schedule, attached
hereto. The minimum permitted tender is $1,000 in principal amount of 8 7/8%
Senior Subordinated Notes due 2007, Series A. All other tenders must be in
integral multiples of $1,000.
DESCRIPTION OF 8 7/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES A
BOX I
<TABLE>
<CAPTION>
==============================================================================================================
Name(s) and Address(es) of Registered Holder(s) *
(Please fill in, if blank)
<S> <C> <C>
(A) (B)
Aggregate Principal
Amount Tendered
Certificate Number(s)* (if less than all)**
------------------------------------------------
------------------------------------------------
------------------------------------------------
------------------------------------------------
------------------------------------------------
Total Principal
Amount of Old Notes
Tendered
==============================================================================================================
</TABLE>
- -----------------------------------
* Need not be completed by book-entry holders.
** Need not be completed by Holders who wish to tender with respect to all
Old Notes listed.
-3-
<PAGE> 4
PLEASE READ CAREFULLY THE ACCOMPANYING INSTRUCTIONS
BOX II
SPECIAL REGISTRATION INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5 AND 6)
To be completed ONLY if certificates for Old Notes in a principal amount
not tendered, or Exchange Notes issued in exchange for Old Notes accepted for
exchange, are to be issued in the name of someone other than the undersigned.
Issue certificate(s) to:
Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(PLEASE PRINT)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(PLEASE PRINT)
Address . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(INCLUDING ZIP CODE)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)
BOX III
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5 AND 6)
To be completed ONLY if certificates for Old Notes in a principal amount
not tendered, or Exchange Notes issued in exchange for Old Notes accepted for
exchange, are to be delivered to someone other than the undersigned.
Deliver certificate(s) to:
Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(PLEASE PRINT)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(PLEASE PRINT)
Address. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(INCLUDING ZIP CODE)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE HEREOF (TOGETHER
WITH THE CERTIFICATE(S) FOR OLD NOTES OR A CONFIRMATION OF BOOK-ENTRY TRANSFER
OF SUCH OLD NOTES AND ALL OTHER REQUIRED DOCUMENTS) OR, IF GUARANTEED DELIVERY
PROCEDURES ARE TO BE COMPLIED WITH, A NOTICE OF GUARANTEED DELIVERY, MUST BE
RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
[ ] CHECK HERE IF OLD NOTES ARE BEING DELIVERED BY DTC TO AN ACCOUNT
MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
----------------------------------------
[ ] The Depository Trust Company
Account Number
--------------------------------------------------------
Transaction Code Number
-----------------------------------------------
Holders whose Old Notes are not immediately available or who cannot
deliver their Old Notes and all other documents required hereby to the Exchange
Agent on or prior to the Expiration Date may tender their Old Notes according
to the guaranteed delivery procedures set forth in the Prospectus under the
caption "The Exchange Offer--Guaranteed Delivery Procedures." (See Instruction
2.)
-4-
<PAGE> 5
[ ] CHECK HERE IF OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name(s) of tendering Holder(s)
-----------------------------------------
Date of Execution of Notice of Guaranteed Delivery
---------------------
Name of Institution which Guaranteed Delivery
--------------------------
Transaction Code Number
------------------------------------------------
[ ] 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 undesigned is a broker-dealer that will receive
Exchange Notes for its own account in exchange for Old Notes that were acquired
as a result of market-making activities or other trading activities, it
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.
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the
undersigned hereby tenders to Ocean Energy, Inc. (the "Company") the principal
amount of Old Notes indicated above.
Subject to and effective upon the acceptance for exchange of the
principal amount of Old Notes tendered hereby in accordance with this Letter of
Transmittal, the undersigned sells, assigns and transfers to, or upon the order
of, the Company all right, title and interest in and to the Old Notes tendered
hereby. The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent as its agent and attorney-in-fact (with full knowledge that the
Exchange Agent also acts as the agent of the Company and as Trustee and
Registrar under the Indenture for the Old Notes and the Exchange Notes) with
respect to the tendered Old Notes with full power of substitution (such power
of attorney being deemed an irrevocable power coupled with an interest),
subject only to the right of withdrawal described in the Prospectus, to (i)
deliver certificates for such Old Notes to the Company or transfer ownership of
such Old Notes on the account books maintained by DTC, together, in either such
case, with all accompanying evidences of transfer and authenticity to, or upon
the order of, the Company and (ii) present such Old Notes for transfer on the
books of the Company and receive all benefits and otherwise exercise all rights
of beneficial ownership of such Old Notes, all in accordance with the terms of
the Exchange Offer.
-5-
<PAGE> 6
The undersigned acknowledges that the Exchange Offer is being made in
reliance upon interpretative advice given by the staff of the Securities and
Exchange Commission to third parties in connection with transactions similar to
the Exchange Offer, so that the Exchange Notes issued pursuant to the Exchange
Offer in exchange for the Old Notes may be offered for resale, resold and
otherwise transferred by holders thereof (other than a broker-dealer who
purchased such Old Notes directly from the Company for resale pursuant to Rule
144A or any other available exemption under the Securities Act or a person that
is an "affiliate" of the Company or any Guarantor within the meaning of Rule
405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holders' business
and such holders have no arrangement with any person to participate in the
distribution of such Exchange Notes.
The undersigned agrees that acceptance of any tendered Old Notes by
the Company and the issuance of Exchange Notes in exchange therefor shall
constitute performance in full by the Company of its obligations under the
Registration Rights Agreement, (as defined in the Prospectus) and that, upon
the issuance of the Exchange Notes, the Company will have no further
obligations or liabilities thereunder (except in certain limited
circumstances).
The undersigned represents and warrants that (i) the Exchange Notes
acquired pursuant to the Exchange Offer are being acquired in the ordinary
course of business of the person receiving Exchange Notes (which shall be the
undersigned unless otherwise indicated in the box entitled "Special Delivery
Instructions" above) (the "Recipient"), (ii) neither the undersigned nor the
Recipient (if different) is engaged in, intends to engage in or has any
arrangement or understanding with any person to participate in the distribution
of such Exchange Notes, and (iii) neither the undersigned nor the Recipient (if
different) is an "affiliate" of the Company or any Guarantor as defined in Rule
405 under the Securities Act. If the undersigned is not a broker-dealer, the
undersigned further represents that it is not engaged in, and does not intend
to engage in, a distribution of the Exchange Notes. If the undersigned is a
broker- dealer, the undersigned further (x) represents that it acquired Old
Notes for the undersigned's own account as a result of market-making activities
or other trading activities, (y) represents that it has not entered into any
arrangement or understanding with the Company or any "affiliate" of the Company
(within the meaning of Rule 405 under the Securities Act) to distribute the
Exchange Notes to be received in the Exchange Offer and (z) acknowledges that
it will deliver a prospectus meeting the requirements of the Securities Act
(for which purposes delivery of the Prospectus, as the same may be hereafter
supplemented or amended, shall be sufficient) in connection with any resale of
Exchange Notes received in the Exchange Offer. Such a broker-dealer will not
be deemed, solely by reason of such acknowledgment and prospectus delivery, to
admit that it is an "underwriter" within the meaning of the Securities Act.
The undersigned understands and agrees that the Company reserves the
right not to accept tendered Old Notes from any tendering holder if the Company
determines, in its sole and absolute discretion, that such acceptance could
result in a violation of applicable securities laws.
The undersigned hereby represents and warrants that the undersigned
has full power and authority to tender, exchange, assign and transfer the Old
Notes tendered hereby and to acquire Exchange Notes issuable upon the exchange
of such tendered Old Notes, and that, when the same are accepted for exchange,
the Company will acquire good and unencumbered title thereto, free and clear of
all liens, restrictions, charges and encumbrances and not subject to any
adverse claim. The undersigned also warrants that it will, upon request,
execute and deliver any additional documents deemed to be necessary or
desirable by the Exchange Agent or the Company in order to complete the
exchange, assignment and transfer of tendered Old Notes or transfer of
ownership of such Old Notes on the account books maintained by a book- entry
transfer facility.
The undersigned understands and acknowledges that the Company reserves
the right in its sole discretion to purchase or make offers for any Old Notes
that remain outstanding subsequent to the Expiration Date or, as set forth in
the Prospectus under the caption "The Exchange Offer--Procedures for
Tendering," to terminate the Exchange Offer
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<PAGE> 7
and, to the extent permitted by applicable law, purchase Old Notes in the open
market, in privately negotiated transactions or otherwise. The terms of any
such purchases or offers could differ from the terms of the Exchange Offer.
The undersigned understands that the Company may accept the
undersigned's tender by delivering written notice of acceptance to the Exchange
Agent, at which time the undersigned's right to withdraw such tender will
terminate. For purposes of the Exchange Offer, the Company shall be deemed to
have accepted validly tendered Old Notes when, as and if the Company has given
oral (which shall be confirmed in writing) or written notice thereof to the
Exchange Agent.
The undersigned understands that the first interest payment following
the Expiration Date will include unpaid interest on the Old Notes accrued
through the date of issuance of the Exchange Notes.
The undersigned understands that tenders of Old Notes pursuant to the
procedures described under the caption "The Exchange Offer--Procedures for
Tendering" in the Prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and the Company upon the terms and
subject to the conditions of the Exchange Offer.
The undersigned acknowledges that the Exchange Offer is subject to the
more detailed terms set forth in the Prospectus and, in case of any conflict
between the terms of the Prospectus and this Letter of Transmittal, the
Prospectus shall prevail.
If any tendered Old Notes are not accepted for exchange pursuant to
the Exchange Offer for any reason, certificates for any such unaccepted Old
Notes will be returned (except as noted below with respect to tenders through
DTC), at the Company's cost and expense, to the undersigned at the address
shown below or at a different address as may be indicated herein under "Special
Delivery Instructions" as promptly as practicable after the Expiration Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns. This tender may be withdrawn only in
accordance with the procedures set forth in this Letter of Transmittal.
By acceptance of the Exchange Offer, each broker-dealer that receives
Exchange Notes pursuant to the Exchange Offer hereby acknowledges and agrees
that upon the receipt of notice by the Company of the happening of any event
which makes any statement in the Prospectus untrue in any material respect or
which requires the making of any changes in the Prospectus in order to make the
statements therein not misleading (which notice the Company agrees to deliver
promptly to such broker-dealer), such broker-dealer will suspend use of the
Prospectus until the Company has amended or supplemented the Prospectus to
correct such misstatement or omission and has furnished copies of the amended
or supplemented prospectus to such broker-dealer.
Unless otherwise indicated under "Special Registration Instructions,"
please issue the certificates representing the Exchange Notes issued in
exchange for the Old Notes accepted for exchange and return any certificates
for Old Notes not tendered or not exchanged, in the name(s) of the undersigned
(or, in either such event in the case of Old Notes tendered by DTC, by credit
to the account at DTC). Similarly, unless otherwise indicated under "Special
Delivery Instructions," please send the certificates representing the Exchange
Notes issued in exchange for the Old Notes accepted for exchange and any
certificates for Old Notes not tendered or not exchanged (and accompanying
documents, as appropriate) to the undersigned at the address shown below the
undersigned's signature(s), unless, in either event, tender is being made
through DTC. In the event that both "Special Registration Instructions" and
"Special Delivery Instructions" are completed, please issue the certificates
representing the Exchange Notes issued in exchange for the Old Notes accepted
for exchange in the name(s) of, and return any certificates for Old Notes not
tendered or not
-7-
<PAGE> 8
exchanged to, the person(s) so indicated. The undersigned understands that the
Company has no obligations pursuant to the "Special Registration Instructions"
or "Special Delivery Instructions" to transfer any Old Notes from the name of
the registered Holder(s) thereof if the Company does not accept for exchange
any of the Old Notes so tendered.
Holders who wish to tender the Old Notes and (i) whose Old Notes are
not immediately available or (ii) who cannot deliver their Old Notes, this
Letter of Transmittal or any other documents required hereby to the Exchange
Agent prior to the Expiration Date, may tender their Old Notes according to the
guaranteed delivery procedures set forth in the Prospectus under the caption
"The Exchange Offer--Guaranteed Delivery Procedures." See Instruction 1
regarding the completion of the Letter of Transmittal.
PLEASE SIGN HERE WHETHER OR NOT
OLD NOTES ARE BEING PHYSICALLY TENDERED HEREBY
AND WHETHER OR NOT TENDER IS TO BE MADE
PURSUANT TO THE GUARANTEED DELIVERY PROCEDURES
This Letter of Transmittal must be signed by the registered holder(s)
as their name(s) appear on the Old Notes or, if tendered by a participant in
DTC, exactly as such participant's name appears on a security listing as the
owner of Old Notes, or by person(s) authorized to become registered holder(s)
by a properly completed bond power from the registered holder(s), a copy of
which must be transmitted with this Letter of Transmittal. If Old Notes to
which this Letter of Transmittal relate are held of record by two or more joint
holders, then all such holders must sign this Letter of Transmittal. If
signature is by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or
representative capacity, then such person must (i) set forth his or her full
title below and (ii) unless waived by the Company, submit evidence satisfactory
to the Company of such person's authority so to act. (See Instruction 4.)
<TABLE>
<CAPTION>
<S> <C>
X
------------------------------------------------------------------- ----------------------------------
Date
X
------------------------------------------------------------------- ----------------------------------
Date
Signature(s) of Holder(s) or
Authorized Signatory
Name(s): Address:
------------------------------------------ ------------------------------------------
------------------------------------------ -------------------------------------------
(Please Print) (including Zip Code)
Capacity: Area Code and Telephone Number:
--------------------------------- ----------
Social Security No.:
----------------------
</TABLE>
PLEASE COMPLETE SUBSTITUTE FORM W-9 HEREIN
-8-
<PAGE> 9
BOX IV
- --------------------------------------------------------------------------------
SIGNATURE GUARANTEE (SEE INSTRUCTION 1)
CERTAIN SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION
- --------------------------------------------------------------------------------
(Name of Eligible Institution Guaranteeing Signatures)
- --------------------------------------------------------------------------------
(Address (including zip code) and Telephone Number (including area code)
of Firm)
- --------------------------------------------------------------------------------
(Authorized Signature)
- --------------------------------------------------------------------------------
(Printed Name)
- --------------------------------------------------------------------------------
(Title)
Date:
-----------------
- --------------------------------------------------------------------------------
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Guarantee of Signatures. Signatures on this Letter of
Transmittal need not be guaranteed if (a) this Letter of Transmittal is signed
by the registered holder(s) of the Old Notes tendered herewith and such
holder(s) have not completed the box set forth herein entitled "Special
Registration Instructions" or the box entitled "Special Delivery Instructions"
or (b) such Old Notes are tendered for the account of an Eligible Institution.
(See Instruction 6.) Otherwise, all signatures on this Letter of Transmittal
or a notice of withdrawal, as the case may be, must be guaranteed by a member
firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc. or a commercial bank or trust company
having an office or correspondent in the United States (an "Eligible
Institution"). All signatures on bond powers and endorsements on certificates
must also be guaranteed by an Eligible Institution.
2. Delivery of this Letter of Transmittal and Old Notes.
Certificates for all physically delivered Old Notes or confirmation of any
book-entry transfer to the Exchange Agent at DTC of Old Notes tendered by
book-entry transfer, as well as, in each case (including cases where tender is
affected by book-entry transfer), a properly completed and duly executed copy
of this Letter of Transmittal or facsimile hereof and any other documents
required by this Letter of Transmittal must be received by the Exchange Agent
at its address set forth herein prior to 5:00 p.m., New York City time, on the
Expiration Date.
The method of delivery of the tendered Old Notes, this Letter of
Transmittal and all other required documents to the Exchange Agent is at the
election and risk of the Holder and the delivery will be deemed made only when
actually received by the Exchange Agent. If Old Notes are sent by mail,
registered mail with return receipt requested, properly insured, is
recommended. In all cases, sufficient time should be allowed to ensure timely
delivery. No Letter of Transmittal or Old Notes should be sent to the Company.
-9-
<PAGE> 10
The Exchange Agent will make a request to establish an account with
respect to the Old Notes at the Depositary for purposes of the Exchange Offer
within two business days after receipt of this Prospectus, and any financial
institution that is a participant in the Depositary may make book-entry
delivery of Old Notes by causing the Depositary to transfer such Old Notes into
the Exchange Agent's account at the Depositary in accordance with the
Depositary's procedures for transfer. However, although delivery of Old Notes
may be effected through book-entry transfer at the Depositary, the Letter of
Transmittal, with any required signature guarantees or an Agent's Message (as
defined below) in connection with a book-entry transfer and any other required
documents, must, in any case, be transmitted to and received by the Exchange
Agent at the address specified on the cover page of the Letter of Transmittal
on or prior to the Expiration Date or the guaranteed delivery procedures
described below must be complied with.
A Holder may tender Old Notes that are held through the Depositary by
transmitting its acceptance through the Depositary's Automatic Tender Offer
Program, for which the transaction will be eligible, and the Depositary will
then edit and verify the acceptance and send an Agent's Message to the Exchange
Agent for its acceptance. The term "Agent's Message" means a message
transmitted by the Depositary to, and received by, the Exchange Agent and
forming part of the Book-Entry Confirmation, which states that the Depositary
has received an express acknowledgment from each participant in the Depositary
tendering the Old Notes and that such participant has received the Letter of
Transmittal and agrees to be bound by the terms of the Letter of Transmittal
and the Company may enforce such agreement against such participant.
Holders who wish to tender their Old Notes and (i) whose Old Notes are
not immediately available, or (ii) who cannot deliver their Old Notes, this
Letter of Transmittal or any other documents required hereby to the Exchange
Agent prior to the Expiration Date or comply with book-entry transfer
procedures on a timely basis must tender their Old Notes according to the
guaranteed delivery procedures set forth in the Prospectus. See "Exchange
Offer--Guaranteed Delivery Procedures." Pursuant to such procedure: (i) such
tender must be made by or through an Eligible Institution; (ii) prior to the
Expiration Date, the Exchange Agent must have received from the Eligible
Institution a properly completed and duly executed Notice of Guaranteed
Delivery (by facsimile transmission, overnight courier, mail or hand delivery)
setting forth the name and address of the Holder of the Old Notes, the
certificate number or numbers of such Old Notes and the principal amount of Old
Notes tendered, stating that the tender is being made thereby and guaranteeing
that, within three New York Stock Exchange trading days after the Expiration
Date, this Letter of Transmittal (or facsimile hereof) together with the
certificate(s) representing the Old Notes and any other required documents will
be deposited by the Eligible Institution with the Exchange Agent; and (iii)
such properly completed and executed Letter of Transmittal (or facsimile
hereof), as well as all other documents required by this Letter of Transmittal
and the certificate(s) representing all tendered Old Notes in proper form for
transfer (or a confirmation of book-entry transfer of such Old Notes into the
Exchange Agent's account at DTC), must be received by the Exchange Agent within
three New York Stock Exchange trading days after the Expiration Date, all in
the manner provided in the Prospectus under the caption "The Exchange
Offer--Guaranteed Delivery Procedures." Any Holder who wishes to tender his
Old Notes pursuant to the guaranteed delivery procedures described above must
ensure that the Exchange Agent receives the Notice of Guaranteed Delivery prior
to 5:00 p.m., New York City time, on the Expiration Date. Upon request to the
Exchange Agent, a Notice of Guaranteed Delivery will be sent to Holders who
wish to tender their Old Notes according to the guaranteed delivery procedures
set forth above.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes, and withdrawal of tendered Old
Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. All tendering holders, by execution
of this Letter of Transmittal (or facsimile thereof), shall waive any right to
receive notice of the acceptance of the Old Notes for exchange. The Company
reserves the absolute right to reject any and all Old Notes not properly
tendered or any Old Notes the Company's acceptance of which would, in the
opinion of counsel for the Company, be unlawful. The Company also reserves the
right to waive any irregularities or conditions of tender as to particular Old
Notes. The Company's interpretation of the terms and conditions of the
Exchange Offer (including the instructions in this Letter of Transmittal) shall
be final and binding on all parties. Unless waived, any
-10-
<PAGE> 11
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Company shall determine. Neither the Company, the
Exchange Agent nor any other person shall be under any duty to give
notification of defects or irregularities with respect to tenders of Old Notes,
nor shall any of them incur any liability for failure to give such
notification. Tenders of Old Notes will not be deemed to have been made until
such defects or irregularities have been cured to the Company's satisfaction or
waived. Any Old Notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering Holders pursuant
to the Company's determination, unless otherwise provided in this Letter of
Transmittal as soon as practicable following the Expiration Date. The Exchange
Agent has no fiduciary duties to the Holders with respect to the Exchange Offer
and is acting solely on the basis of directions of the Company.
3. Inadequate Space. If the space provided is inadequate, the
certificate numbers and/or the number of Old Notes should be listed on a
separate signed schedule attached hereto.
4. Tender by Holder. Only a Holder of Old Notes may tender such
Old Notes in the Exchange Offer. Any beneficial owner of Old Notes who is not
the registered Holder and who wishes to tender should arrange with such
registered holder to execute and deliver this Letter of Transmittal on such
beneficial owner's behalf or must, prior to completing and executing this
Letter of Transmittal and delivering his Old Notes, either make appropriate
arrangements to register ownership of the Old Notes in such beneficial owner's
name or obtain a properly completed bond power from the registered holder or
properly endorsed certificates representing such Old Notes.
5. Partial Tenders; Withdrawals. Tenders of Old Notes will be
accepted only in integral multiples of $1,000. If less than the entire
principal amount of any Old Notes is tendered, the tendering Holder should fill
in the principal amount tendered in the third column of the box entitled
"Description of 8 7/8% Senior Subordinated Notes due 2007, Series A" above.
The entire principal amount of any Old Notes delivered to the Exchange Agent
will be deemed to have been tendered unless otherwise indicated. If the entire
principal amount of all Old Notes is not tendered, then Old Notes for the
principal amount of Old Notes not tendered and a certificate or certificates
representing Exchange Notes issued in exchange for any Old Notes accepted will
be sent to the Holder at his or her registered address, unless a different
address is provided in the "Special Delivery Instructions" box above on this
Letter of Transmittal or unless tender is made through DTC, promptly after the
Old Notes are accepted for exchange.
Except as otherwise provided herein, tenders of Old Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date. To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time,
on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Old Notes to be withdrawn (the
"Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number or numbers and principal amount of such Old Notes, or, in
the case of Old Notes transferred by book-entry transfer the name and number of
the account at DTC to be credited), (iii) be signed by the Depositor in the
same manner as the original signature on the Letter of Transmittal by which
such Old Notes were tendered (including any required signature guarantees) or
be accompanied by documents of transfer sufficient to have the Registrar with
respect to the Old Notes register the transfer of such Old Notes into the name
of the person withdrawing the tender and (iv) specify the name in which any
such Old Notes are to be registered, if different from that of the Depositor.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by the Company, whose determination
shall be final and binding on all parties. Any Old Notes so withdrawn will be
deemed not to have been validly tendered for purposes of the Exchange Offer and
no Exchange Notes will be issued with respect thereto unless the Old Notes so
withdrawn are validly retendered. Any Old Notes which have been tendered but
which are not accepted for exchange by the Company will be returned to the
Holder thereof without cost to such Holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described in the Prospectus under "The Exchange Offer--Procedures for
Tendering" at any time prior to the Expiration Date.
-11-
<PAGE> 12
6. Signatures on the Letter of Transmittal; Bond Powers and
Endorsements. If this Letter of Transmittal (or facsimile hereof) is signed by
the registered holder(s) of the Old Notes tendered hereby, the signature must
correspond with the name(s) as written on the face of the Old Note without
alteration, enlargement or any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.
If a number of Old Notes registered in different names are tendered,
it will be necessary to complete, sign and submit as many copies of this Letter
of Transmittal as there are different registrations of Old Notes.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered Holder or Holders (which term, for the Purposes described herein,
shall include a book-entry transfer facility whose name appears on a security
listing as the owner of the Old Notes) of Old Notes tendered and the
certificate or certificates for Exchange Notes issued in exchange therefor is
to be issued (or any untendered principal amount of Old Notes to be reissued)
to the registered Holder, then such Holder need not and should not endorse any
tendered Old Notes, nor provide a separate bond power. In any other case, such
Holder must either properly endorse the Old Notes tendered or transmit a
properly completed separate bond power with this Letter of Transmittal with the
signatures on the endorsement or bond power guaranteed by an Eligible
Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a
person other than the registered Holder or Holders of any Old Notes listed,
such Old Notes must be endorsed or accompanied by appropriate bond powers in
each case signed as the name of the registered Holder or Holders appears on the
Old Notes.
If this Letter of Transmittal (or facsimile hereof) or any Old Notes
or bond powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, or officers of corporations or others acting in a fiduciary
or representative capacity, such persons should so indicate when signing, and
unless waived by the Company, evidence satisfactory to the Company of their
authority so to act must be submitted with this Letter of Transmittal.
Endorsements on Old Notes or signatures on bond powers required by
this Instruction 6 must be guaranteed by an Eligible Institution.
7. Special Registration and Delivery Instructions. Tendering
Holders should indicate, in the applicable box or boxes, the name and address
to which Exchange Notes or substitute Old Notes for principal amounts not
tendered or not accepted for exchange are to be issued or sent, if different
from the name and address of the person signing this Letter of Transmittal. In
the case of issuance in a different name, the taxpayer identification or social
security number of the person named must also be indicated.
8. Backup Federal Income Tax Withholding and Substitute Form W-9.
Under the federal income tax laws, payments that may be made by the Company on
account of Exchange Notes issued pursuant to the Exchange Offer may be subject
to backup withholding at the rate of 31%. In order to avoid such backup
withholding, each tendering holder should complete and sign the Substitute Form
W-9 included in this Letter of Transmittal and either (a) provide the correct
taxpayer identification number ("TIN") and certify, under penalties of perjury,
that the TIN provided is correct and that (i) the holder has not been notified
by the Internal Revenue Service (the "IRS") that the holder is subject to
backup withholding as a result of failure to report all interest or dividends
or (ii) the IRS has notified the holder that the holder is no longer subject to
backup withholding; or (b) provide an adequate basis for exemption. If the
tendering holder has not been issued a TIN and has applied for one, or intends
to apply for one in the near future, such holder should write "Applied For" in
the space provided for the TIN in Part I of the Substitute Form W-9, sign and
date the Substitute Form W-9 and sign the Certificate of Payee Awaiting
Taxpayer Identification Number. If "Applied For" is written in Part I, the
Company (or the Paying Agent under the Indenture governing the Exchange Notes)
shall retain 31% of
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<PAGE> 13
payments made to the tendering holder during the sixty-day period following the
date of the Substitute Form W-9. If the Holder furnishes the Exchange Agent or
the Company with its TIN within sixty days after the date of the Substitute
Form W-9, the Company (or the Paying Agent) shall remit such amounts retained
during the sixty-day period to the Holder and no further amounts shall be
retained or withheld from payments made to the Holder thereafter. If, however,
the Holder has not provided the Exchange Agent or the Company with its TIN
within such sixty-day period, the Company (or the Paying Agent) shall remit
such previously retained amounts to the IRS as backup withholding. In general,
if a Holder is an individual, the TIN is the Social Security number of such
individual. If the Exchange Agent or the Company are not provided with the
correct TIN, the Holder may be subject to a $50 penalty imposed by the Internal
Revenue Service. Certain Holders (including, among others, all corporations
and certain foreign individuals) are not subject to these backup withholding
and reporting requirements. In order for a foreign individual to qualify as an
exempt recipient, such Holder must submit a statement (generally, IRS Form
W-8), signed under penalties of perjury, attesting to that individual's exempt
status. Such statements can be obtained from the Exchange Agent. For further
information concerning backup withholding and instructions for completing the
Substitute Form W-9 (including how to obtain a taxpayer identification number
if you do not have one and how to complete the Substitute Form W-9 if Old Notes
are registered in more than one name), consult the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9.
Failure to complete the Substitute Form W-9 will not, by itself, cause
Old Notes to be deemed invalidly tendered, but may require the Company (or the
Paying Agent) to withhold 31% of the amount of any payments made on account of
the Exchange Notes. Backup withholding is not an additional federal income
tax. Rather, the federal income tax liability of a person subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained from the IRS.
9. Transfer Taxes. The Company will pay all transfer taxes, if
any, applicable to the exchange of Old Notes pursuant to the Exchange Offer.
If, however, certificates representing Exchange Notes or Old Notes for
principal amounts not tendered or accepted for exchange are to be delivered to,
or are to be registered in the name of, any person other than the registered
holder of the Old Notes tendered hereby, or if tendered Old Notes are
registered in the name of a person other than the person signing this Letter of
Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of Old Notes pursuant to the Exchange Offer, then the amount of any
such transfer taxes (whether imposed on the registered holder or on any other
persons) will be payable by the tendering Holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with this Letter
of Transmittal, the amount of such transfer taxes will be billed directly to
such tendering Holder. See the Prospectus under "The Exchange
Offer--Solicitation of Tenders; Fees and Expenses."
Except as provided in this Instruction 9, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
10. Waiver of Conditions. The Company reserves the right, in
their sole discretion, to amend, waive or modify specified conditions in the
Exchange Offer in the case of any Old Notes tendered.
11. Mutilated, Lost, Stolen or Destroyed Old Notes. Any tendering
Holder whose Old Notes have been mutilated, lost, stolen or destroyed should
contact the Exchange Agent at the address indicated herein for further
instructions.
12. Requests for Assistance or Additional Copies. Requests for
assistance and requests for additional copies of the Prospectus or this Letter
of Transmittal may be directed to the Exchange Agent at the address specified
in the Prospectus. Holder may also contact their broker, dealer, commercial
bank, trust company or other nominee for assistance concerning the Exchange
Offer.
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<PAGE> 14
(DO NOT WRITE IN SPACE BELOW)
<TABLE>
<CAPTION>
CERTIFICATE SURRENDERED OLD NOTES TENDERED OLD NOTES ACCEPTED
<S> <C> <C>
------------------------- ------------------------- -------------------------
------------------------- ------------------------- -------------------------
Date Received Accepted by Checked by
-------------------- ------------- --------------
Delivery Prepared by Checked by Date
------------- -------------- --------------------
</TABLE>
IMPORTANT TAX INFORMATION
Under federal income tax laws, a Holder whose tendered Old Notes are
accepted for payment is required to provide the Exchange Agent (as payer) with
such Holder's correct TIN on Substitute Form W-9 below or otherwise establish a
basis for exemption from backup withholding. If such Holder is an individual,
the TIN is his social security number. If the Exchange Agent is not provided
with the correct TIN, a $50 penalty may be imposed by the Internal Revenue
Service, and payments made pursuant to the Exchange Offer may be subject to
backup withholding.
Certain Holders (including, among others, all corporations and certain
foreign persons) are not subject to these backup withholding and reporting
requirements. Exempt Holders should indicate their exempt status on Substitute
Form W-9. A foreign person may qualify as an exempt recipient by submitting to
the Exchange Agent a properly completed Internal Revenue Service Form W-8,
signed under penalties of perjury, attesting to that Holder's exempt status. A
Form W-8 can be obtained from the Exchange Agent. See the enclosed "Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional instructions.
If backup withholding applies, the Exchange Agent is required to
withhold 20% of any payments made to the Holder or other payee. Backup
withholding is not an additional federal income tax. Rather, the federal
income tax liability of persons subject to backup withholding will be reduced
by the amount of tax withheld. If withholding results in an overpayment of
taxes, a refund may be obtained from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments made with respect to the
Exchange Offer, the Holder is required to provide the Exchange Agent with
either: (i) the Holder's correct TIN by completing the form below, certifying
that the TIN provided on Substitute Form W-9 is correct (or that such Holder is
awaiting a TIN) and that (A) the Holder has been notified by the Internal
Revenue Service that the Holder is subject to backup withholding as a result of
failure to report all interest or dividends or (B) the Internal Revenue Service
has notified the Holder that the Holder is no longer subject to backup
withholding or (ii) an adequate basis for exemption.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
The Holder is required to give the Exchange Agent the TIN (e.g.,
social security number or employer identification number) of the registered
Holder of the Old Notes. If the Old Notes are held in more than one name or
are held not in the name of the actual owner, consult the enclosed "Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional guidance on which number to report.
-14-
<PAGE> 15
- --------------------------------------------------------------------------------
CERTIFICATION OF PAYEE AWAITING TAXPAYER INDEMNIFICATION NUMBER
I certify, under penalties of perjury, that a Taxpayer Identification
Number has not been issued to me, and that I mailed or delivered an application
to receive a Taxpayer Identification Number to the appropriate Internal Revenue
Service Center or Social Security Administration Office (or I intend to mail or
deliver an application in the near future). I understand that if I do not
provide a Taxpayer Identification Number to the payer, 31% of all payments made
to me on account of the Exchange Notes shall be retained until I provide a
Taxpayer Identification Number to the payer and that, if I do not provide my
Taxpayer Identification Number within sixty days, such retained amounts shall
be remitted to the Internal Revenue Service as backup withholding and 31% of
all reportable payments made to me thereafter will be withheld and remitted to
the Internal Revenue Service until I provide a Taxpayer Identification Number.
SIGNATURE DATE
---------------------------------------- ------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31 % OF ANY PAYMENTS MADE TO YOU ON ACCOUNT OF THE
EXCHANGE NOTES. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
FOR ADDITIONAL DETAILS.
- --------------------------------------------------------------------------------
-15-
<PAGE> 16
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYER'S NAME: OCEAN ENERGY, INC.
<TABLE>
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUBSTITUTE PART 1 - TAXPAYER IDENTIFICATION NUMBER SOCIAL SECURITY NUMBER
(TIN)
FORM W-9
----------------------------------
ENTER YOUR TIN IN THE APPROPRIATE BOX. OR
DEPARTMENT OF THE FOR INDIVIDUALS, THIS IS YOUR SOCIAL
TREASURY INTERNAL REVENUE SECURITY NUMBER (SSN). FOR SOLE EMPLOYEE IDENTIFICATION NUMBER
SERVICE PROPRIETORS, SEE THE INSTRUCTIONS IN THE
ENCLOSED GUIDELINES. FOR OTHER ENTITIES,
IT IS YOUR EMPLOYER IDENTIFICATION NUMBER ----------------------------------
REQUEST FOR TAXPAYER (EIN). IF YOU DO NOT HAVE A NUMBER, SEE
IDENTIFICATION NUMBER HOW TO GET A TIN IN THE ENCLOSED
AND CERTIFICATION GUIDELINES.
NOTE: IF THE ACCOUNT IS IN MORE THAN ONE
NAME, SEE THE CHART ON PAGE 2 OF THE
ENCLOSED GUIDELINES ON WHOSE NUMBER TO
ENTER.
-------------------------------------------------------------------------------
PART II - FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING
(See Part II instructions in the enclosed Guidelines.)
- -------------------------------------------------------------------------------------------------------------
PART III - CERTIFICATION - UNDER PENALTIES OF PERJURY, I CERTIFY THAT:
(1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting
for a number to be issued to me), and
(2) I am not subject to backup withholding because: (a) I am exempt from backup withholding, or
(b) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup
withholding as a result of a failure to report all interest or dividends, or (c) the IRS has
notified me that I am no longer subject to backup withholding.
Signature Date , 1997
------------------------------------------- -----------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
CERTIFICATION INSTRUCTIONS.-You must cross out item 2 above if you have
been notified by the IRS that you are currently subject to backup withholding
because of underreporting interest or dividends on your tax return. For real
estate transactions, item 2 does not apply. For mortgage interest paid, the
acquisition or abandonment of secured property, cancellation of debt,
contributions to an individual retirement arrangement (IRA), and generally
payments other than interest and dividends, you are not required to sign the
Certification, but you must provide your correct TIN.
-16-
<PAGE> 1
EXHIBIT 99.2
FORM OF NOTICE OF GUARANTEED DELIVERY
FOR 8 7/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES A
OF OCEAN ENERGY, INC.
As set forth in the Prospectus dated August , 1997 (the
"Prospectus") of Ocean Energy, Inc. (the "Company") and in the Letter of
Transmittal (the "Letter of Transmittal"), this form or a form substantially
equivalent to this form must be used to accept the Exchange Offer (as defined
below) if the certificates for the outstanding 8 7/8% Senior Subordinated Notes
due 2007, Series A (the "Old Notes") of the Company and all other documents
required by the Letter of Transmittal cannot be delivered to the Exchange Agent
by the expiration of the Exchange Offer or compliance with book-entry transfer
procedures cannot be effected on a timely basis. Such form may be delivered by
hand or transmitted by facsimile transmission, telex or mail to the Exchange
Agent no later than the Expiration Date, and must include a signature guarantee
by an Eligible Institution as set forth below. Capitalized terms used herein
but not defined herein have the meanings ascribed thereto in the Prospectus.
TO:
State Street Bank and Trust Company (the "Exchange Agent")
By Mail or Hand Delivery: By Facsimile Transmission:
State Street Bank and Trust Company (for Eligible Institutions only)
777 Main Street, MSN 238 State Street Bank and Trust Company
Hartford, Connecticut 06115 (860) 986-7920
Attention: Elizabeth Hammer Attention: Elizabeth Hammer
For Information or Confirmation by Telephone:
(860) 986-2064
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. THE METHOD OF DELIVERY OF ALL
DOCUMENTS, INCLUDING CERTIFICATES, IS AT THE RISK OF THE HOLDER. IF DELIVERY
IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. THE INSTRUCTIONS ACCOMPANYING THE LETTER OF TRANSMITTAL SHOULD BE
READ CAREFULLY BEFORE THIS NOTICE OF GUARANTEED DELIVERY IS COMPLETED.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an Eligible Institution under the instruction thereto, such
signatures must appear in the applicable space provided on the Letter of
Transmittal for Guarantee of Signature(s).
<PAGE> 2
Ladies and Gentlemen:
The undersigned acknowledges receipt of the Prospectus and the related
Letter of Transmittal which describes the Company's offer (the "Exchange
Offer") to exchange $1,000 in principal amount of a new series of 8 7/8% Senior
Subordinated Notes due 2007, Series B (the "Exchange Notes") for each $1,000 in
principal amount of the Old Notes.
The undersigned hereby tenders to the Company the aggregate principal
amount of Old Notes set forth below on the terms and conditions set forth in
the Prospectus and the related Letter of Transmittal pursuant to the guaranteed
delivery procedure set forth in the "The Exchange Offer--Guaranteed Delivery
Procedures" section in the Prospectus and the accompanying Letter of
Transmittal.
The undersigned understands that no withdrawal of a tender of Old
Notes may be made on or after the Expiration Date. The undersigned understands
that for a withdrawal of a tender of Old Notes to be effective, a written
notice of withdrawal that complies with the requirements of the Exchange Offer
must be timely received by the Exchange Agent at one of its addresses specified
on the cover of this Notice of Guaranteed Delivery prior to the Expiration
Date.
The undersigned understands that the exchange of Old Notes for
Exchange Notes pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of (i) such Old Notes (or Book-Entry Confirmation
of the transfer of such Old Notes into the Exchange Agent's account at The
Depository Trust Company (the "Depositary" or "DTC")) and (ii) a Letter of
Transmittal (or facsimile thereof) with respect to such Old Notes, properly
completed and duly executed, with any required signature guarantees, this
Notice of Guaranteed Delivery and any other documents required by the Letter of
Transmittal or a properly transmitted Agent's Message. The term "Agent's
Message" means a message transmitted by the Depositary to, and received by, the
Exchange Agent and forming part of the confirmation of a book-entry transfer,
which states that the Depositary has received an express acknowledgment from
each participant in the Depositary tendering the Old Notes and that such
participant has received the Letter of Transmittal and agrees to be bound by
the terms of the Letter of Transmittal and the Company may enforce such
agreement against such participant.
All authority conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall not be affected by, and shall survive, the death or
incapacity of the undersigned, and every obligation of the undersigned under
this Notice of Guaranteed Delivery shall be binding upon the heirs, executors,
administrators, trustees in bankruptcy, personal and legal representatives,
successors and assigns of the undersigned.
-2-
<PAGE> 3
PLEASE SIGN AND COMPLETE
<TABLE>
<S> <C>
Signature(s) of Registered Owner(s) or Authorized Name(s) of Registered Holder(s)
Signatory:
--------------------------------------- ---------------------------------------------------
- --------------------------------------------------- ---------------------------------------------------
- --------------------------------------------------- ---------------------------------------------------
Principal Amount of Old Notes Tendered: Address:
-----------------------------------------
- --------------------------------------------------- ---------------------------------------------------
Certificate No(s) of Old Notes (if available): Area Code and Telephone No.:
---------------------
If Old Notes will be delivered by book-entry
- ---------------------------------------------------
transfer at The Depository Trust Company,
- ---------------------------------------------------
insert
- ---------------------------------------------------
Date:
--------------------------------------------
Depository Account No.:
--------------------------
</TABLE>
This Notice of Guaranteed Delivery must be signed by the registered Holder(s)
of Old Notes exactly as its (their) name(s) appear on certificates for Old
Notes or on a security position listing as the owner of Old Notes, or by
person(s) authorized to become registered Holder(s) by endorsements and
documents transmitted with this Notice of Guaranteed Delivery. If signature is
by a trustee, executor, administrator, guardian, attorney-in-fact, officer or
other person acting in a fiduciary or representative capacity, such person must
provide the following information.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s):
-----------------------------------------------------------------
-----------------------------------------------------------------
Capacity:
-----------------------------------------------------------------
Address(es):
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
DO NOT SEND OLD NOTES WITH THIS FORM. OLD NOTES SHOULD BE SENT TO THE EXCHANGE
AGENT TOGETHER WITH A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF
TRANSMITTAL.
-3-
<PAGE> 4
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or a correspondent in the
United States, or otherwise an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended,
hereby (a) represents that each holder of Old Notes on whose behalf this tender
is being made "own(s)" the Old Notes covered hereby within the meaning of Rule
13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), (b) represents that such tender of Old Notes complies with Rule 14e-4 of
the Exchange Act and (c) guarantees that, within three New York Stock Exchange
trading days from the expiration date of the Exchange Offer, a properly
completed and duly executed Letter of Transmittal (or a facsimile thereof),
together with certificates representing the Old Notes covered hereby in proper
form for transfer (or confirmation of the book-entry transfer of such Old Notes
into the Exchange Agent's account at The Depository Trust Company, pursuant to
the procedure for book-entry transfer set forth in the Prospectus) and required
documents will be deposited by the undersigned with the Exchange Agent.
The undersigned acknowledges that it must deliver the Letter of
Transmittal and Old Notes tendered hereby to the Exchange Agent within the time
period set forth above and that failure to do so could result in financial loss
to the undersigned.
Name of Firm:
--------------------------- ------------------------------
Authorized Signature
Address: Name:
-------------------------------- ------------------------------
Title:
-------------------------------- -----------------------------
Area Code and Telephone No.: Date:
---------- ------------------------------
-4-
