<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 4, 1998
REGISTRATION NOS. 333-
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
---------------------
ISSUER OF NOTES REGISTERED HEREBY
OCEAN ENERGY, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 1311 72-127752
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
GUARANTOR OF NOTES REGISTERED HEREBY
OCEAN ENERGY, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
LOUISIANA 1311 72-1210660
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
<TABLE>
<S> <C>
ROBERT K. REEVES
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND
1201 LOUISIANA, SUITE 1400 SECRETARY
HOUSTON, TEXAS 77002 1201 LOUISIANA, SUITE 1400
(713) 420-1000 HOUSTON, TEXAS 77002
(Address, Including Zip Code and Telephone Number, (713) 420-1000
Including (Address, Including Zip Code and Telephone Number,
Area Code, of Registrant's Principal Executive Including
Office) Area Code, of Agent For Service)
</TABLE>
Copy to:
MICHAEL E. DILLARD, P.C.
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
1700 PACIFIC AVENUE, SUITE 4100
DALLAS, TEXAS 75201-4675
(214) 969-2800
---------------------
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. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the
"Securities Act"), check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE PRICE REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
7 5/8% Senior Notes due 2005, Series
B.................................... $125,000,000 100% $125,000,000 $36,875
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8 1/4% Senior Notes due 2018, Series
B.................................... $125,000,000 100% $125,000,000 $36,875
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8 3/8% Senior Subordinated Notes due
2008, Series B....................... $250,000,000 100% $250,000,000 $73,750
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</TABLE>
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, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY 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 SEPTEMBER 4, 1998
PROSPECTUS
OCEAN ENERGY LOGO
OFFER TO EXCHANGE
7 5/8% SENIOR NOTES DUE 2005, SERIES B
FOR ALL OUTSTANDING 7 5/8% SENIOR NOTES DUE 2005, SERIES A
8 1/4% SENIOR NOTES DUE 2018, SERIES B
FOR ALL OUTSTANDING 8 1/4% SENIOR NOTES DUE 2018, SERIES A
8 3/8% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B
FOR ALL OUTSTANDING 8 3/8% SENIOR SUBORDINATED NOTES DUE 2008, SERIES A
PAYMENT FULLY AND UNCONDITIONALLY GUARANTEED ON AN
UNSECURED BASIS BY OCEAN ENERGY, INC.,
A LOUISIANA CORPORATION
---------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., E.D.T., ON , 1998,
UNLESS EXTENDED.
Ocean Energy, Inc., a Delaware corporation (the "Company"), hereby offers,
upon the terms and subject to the conditions set forth in this Prospectus and
the accompanying letters of transmittal (the "Letters of Transmittal" and,
together with this Prospectus, the "Exchange Offer"), to exchange (i) up to an
aggregate principal amount of $125,000,000 of its 7 5/8% Senior Notes due 2005,
Series B (the "2005 Senior Exchange Notes"), for its outstanding 7 5/8% Senior
Notes due 2005, Series A (the "Old 2005 Senior Notes"), (ii) up to an aggregate
principal amount of $125,000,000 of its 8 1/4% Senior Notes due 2018, Series B
(the "2018 Senior Exchange Notes" and, collectively with the 2005 Senior
Exchange Notes, the "Senior Exchange Notes"), for its outstanding 8 1/4% Senior
Notes due 2018, Series A (the "Old 2018 Senior Notes" and, collectively with the
Old 2005 Senior Notes, the "Old Senior Notes"), and (iii) up to an aggregate
principal amount of $250,000,000 of its 8 3/8% Senior Subordinated Notes due
2008, Series B (the "Senior Subordinated Exchange Notes") for its outstanding
8 3/8% Senior Subordinated Notes due 2008, Series A (the "Old Senior
Subordinated Notes"). The 2005 Senior Exchange Notes, 2018 Senior Exchange
Notes, Old 2005 Senior Notes and Old 2018 Senior Notes are sometimes
collectively referred to herein as the "Senior Notes." The Senior Subordinated
Exchange Notes and Old Senior Subordinated Notes are together sometimes referred
to herein as the "Senior Subordinated Notes." The Old Senior Notes and Old
Senior Subordinated Notes are sometimes referred to herein collectively as the
"Old Notes." The Senior Exchange Notes and Senior Subordinated Exchange Notes
are sometimes referred to herein collectively as the "Exchange Notes." The Old
Notes and Exchange Notes are sometimes referred to herein together as the
"Notes."
The Exchange Notes will be obligations of the Company entitled to the
benefits of the indentures relating to the Old Notes. The form and terms of each
of the 2005 Senior Exchange Notes, 2018 Senior Exchange Notes and Senior
Subordinated Exchange Notes are identical in all material respects to the form
and terms of each of the Old 2005 Senior Notes, Old 2018 Senior Notes and Old
Senior Subordinated Notes, respectively, except that (i) the offering of each of
the Exchange Notes has been registered under the Securities Act of 1933, as
amended (the "Securities Act"), (ii) each of 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 -- Consequences of Failure to Exchange."
(Cover text continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 15 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.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
The date of this Prospectus is , 1998.
<PAGE> 3
The Old Senior Notes are, and the Senior Exchange Notes will be, unsecured
senior indebtedness of the Company and will rank pari passu with all other
unsecured unsubordinated indebtedness of the Company. The Old Senior Notes are,
and the Senior Exchange Notes will be upon issue, fully and unconditionally
guaranteed on an unsecured senior basis by Ocean Energy, Inc., a Louisiana
corporation and indirect wholly-owned subsidiary of the Company ("OEI Louisiana"
or the "Initial Subsidiary Guarantor"), and will rank pari passu in right of
payment with all other existing and future senior obligations of the Initial
Subsidiary Guarantor and senior in right of payment to all existing and future
obligations of the Initial Subsidiary Guarantor that are subordinated to such
Senior Guarantee (as defined herein) (including the guarantees of the Senior
Subordinated Notes and the Existing Notes (as defined herein)). In addition, if
any other Restricted Subsidiary (as defined herein) guarantees Indebtedness (as
defined herein) of the Company (including Indebtedness under the New Credit
Facility (as defined herein)), the Company will cause the Senior Notes to be
equally and ratably guaranteed by such Restricted Subsidiary on a pari passu or
senior basis. The Senior Guarantees will be subject to release and discharge as
provided in each of the Senior Indentures (as defined herein). See "Description
of Senior Notes -- Senior Guarantees."
The Old Senior Subordinated Notes are, and the Senior Subordinated Exchange
Notes will be, unsecured senior subordinated indebtedness of the Company ranking
pari passu with all other existing and future senior subordinated indebtedness
of the Company, including, without limitation, the Existing Notes. The payment
of the principal of, premium, if any, and interest on the Senior Subordinated
Notes will be subordinated, as set forth in the Senior Subordinated Indenture
(as defined herein), in right of payment to the prior payment in full of all
Senior Indebtedness, including, without limitation, the Company's obligations
under the New Credit Facility and the Senior Notes. The Old Senior Subordinated
Notes are, and the Senior Subordinated Exchange Notes will be upon issue, fully
and unconditionally guaranteed on an unsecured senior subordinated basis by the
Initial Subsidiary Guarantor and will rank pari passu in right of payment with
all other existing and future senior subordinated obligations of the Initial
Subsidiary Guarantor (including the guarantees of the Existing Notes). The
indebtedness evidenced by the Senior Subordinated Guarantee (as defined herein)
will be subordinated on the same basis to Guarantor Senior Indebtedness (as
defined herein) as the Senior Subordinated Notes are subordinated to Senior
Indebtedness (as defined herein). In addition, if any other Restricted
Subsidiary guarantees Indebtedness of the Company, the Company will cause the
Senior Subordinated Notes to be equally and ratably guaranteed by such
Restricted Subsidiary on a senior subordinated basis. The Senior Subordinated
Guarantees will be subject to release and discharge as provided in the Senior
Subordinated Indenture. See "Description of Senior Subordinated Notes -- Senior
Subordinated Guarantees."
The Old Notes were sold by the Company on July 8, 1998 to Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Chase Securities Inc., J.P. Morgan
Securities Inc., Lehman Brothers, Inc. and Salomon Brothers Inc (collectively,
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 "Initial Offering"). The Initial Purchasers placed the Old Notes with
qualified institutional buyers (as defined in Rule 144A under the Securities Act
("Rule 144A")) ("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 2005 Senior Exchange Notes will bear interest at a rate of 7 5/8% per
annum, the 2018 Senior Exchange Notes will bear interest at a rate of 8 1/4% per
annum and the Senior Subordinated Exchange Notes will bear interest at a rate of
8 3/8% per annum. Interest on each of the Exchange Notes will be payable
semi-annually on January 1 and July 1 of each year, commencing January 1, 1999.
Holders of Exchange Notes of record on January 1, 1999 will receive on January
15, 1999 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, 1999, plus
(y) the accrued interest on the previously held Old Notes from the date of
issuance of such Old Notes (July 8,
i
<PAGE> 4
1998) to the date of exchange thereof. Interest will not be paid on Old Notes
that are accepted for exchange. The 2005 Senior Exchange Notes mature on July 1,
2005, the 2018 Senior Exchange Notes mature on July 1, 2018 and the Senior
Subordinated Exchange Notes mature on July 1, 2008.
The Company will accept for exchange any and all Old Notes that are validly
tendered and not withdrawn prior to 5:00 p.m., E.D.T., on the date the Exchange
Offer expires, which will be , 1998, unless the Exchange Offer is
extended (the latest date and time to which the Exchange Offer is extended, the
"Expiration Date"). Tenders of Old Notes may be withdrawn at any time prior to
5:00 p.m., E.D.T., 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. See "Exchange Offer; Registration Rights." 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.
Each of the Old Notes were initially represented by a single, global Old
Note (the "Global Old Notes") in registered form, registered in the name of Cede
& Co., as nominee for The Depository Trust Company ("DTC" or the "Depositary"),
as depositary. Each of the Exchange Notes exchanged for Old Notes represented by
the Global Old Notes will be initially represented by a single, global Exchange
Note (the "Global Exchange Notes") in registered form, registered in the name of
the Depositary. See "Book Entry; Delivery and Form." References herein to
"Global Notes" shall be references to the Global Old Notes and the Global
Exchange Notes.
Based on an interpretation of the Securities Act by the staff of the
Securities and Exchange Commission (the "Commission"), 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. 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
(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.
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
ii
<PAGE> 5
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.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act 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, increase in oil and gas production,
the number of anticipated wells to be drilled in 1998 and thereafter, the
Company's financial position, 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, and are
expressly qualified in their entirety by such factors.
iii
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information appearing elsewhere in this
Prospectus and the financial statements, including the notes thereto,
incorporated by reference herein. Unless the context otherwise requires, (i)
references to "OEI" mean Ocean Energy, Inc., a Delaware corporation, and all
references to the "Company" mean OEI and its consolidated subsidiaries taken as
a whole, (ii) references to "dollars" and "$" mean United States ("U.S.")
dollars, (iii) references to "pro forma," as of any date or for any period of
presentation, unless otherwise indicated, give effect to this Exchange Offer as
if it had occurred as of any such date or at the beginning of the period
presented, as the case may be, (iv) references to "fiscal," "fiscal year" or
"year end" mean the Company's fiscal year ending on December 31 of each year and
(v) historical financial and operating results include the results of United
Meridian Corporation, a Delaware corporation ("UMC"). Certain terms relating to
the oil and gas business are defined in the "Glossary of Certain Oil and Gas
Terms" section of this Prospectus.
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 one of the largest independent oil and gas exploration and
production companies in the U.S., with a market enterprise value of
approximately $3.0 billion (market value of equity plus debt). The Company was
created in March 1998 by the strategic merger (the "Merger") of OEI and UMC,
which Merger brought together the complementary strengths and opportunities
inherent in each company, while substantially increasing the combined Company's
financial profile. On a combined basis, the Company generated earnings before
interest, taxes, depreciation, depletion and amortization ("EBITDA") of $404.9
million for the twelve months ended June 30, 1998. As of December 31, 1997, the
Company had estimated proved reserves of approximately 137.6 MMBbls of oil (51%
of total proved reserves) and 797.9 Bcf of natural gas (49% of total proved
reserves) for a total of 270.6 MMBOE, with a Present Value of Future Net
Revenues of approximately $1.3 billion and a Standardized Measure of Discounted
Future Net Cash Flows of approximately $1.2 billion. The Company holds a
diversified portfolio of properties with both domestic and international
exposure organized into three primary operating units: (i) the continental shelf
and deepwater areas of the Gulf of Mexico (the "Gulf of Mexico Region"); (ii)
the West African countries of Cote d'Ivoire, Equatorial Guinea and Angola, and
the Asian Basin countries of Pakistan and Bangladesh (the "International
Region"); and (iii) certain onshore areas of North America, including Western
Canada and the Midcontinent and Rocky Mountain regions of the U.S. (the "North
American Onshore Region").
Gulf of Mexico Region. In the Gulf of Mexico Region, the Company held
interests in 0.9 million gross (0.5 million net to the Company) acres as of
December 31, 1997, and currently holds 184 shelf and 45 deepwater blocks. On the
continental shelf, the Company's operations are in three primary areas: (i) the
Mississippi River Delta located in state and federal waters near the mouth of
the Mississippi River (the "Mississippi River Delta"); (ii) the Central Gulf of
Mexico located in the shallow federal waters offshore Louisiana (the "Central
Gulf"); and (iii) the western portion of the Gulf of Mexico (the "Western
Gulf"). In the deepwater Gulf of Mexico, the Company's blocks are located
offshore Louisiana in water depths ranging from 2,500 to 7,500 feet, where the
Company expects to commence drilling operations in 1999. As of December 31,
1997, the Company had approximately 115.6 MMBOE of proved reserves attributable
to the Gulf of Mexico Region (approximately 43% of the Company's total proved
reserves) with average daily production during the first six months of 1998 of
64.4 MBOE per day.
International Region. In the International Region, the Company currently
holds interests in 12 West African blocks (two of which are currently under
production), totaling approximately 6.7 million gross (2.6 million net to the
Company) acres, in Cote d'Ivoire, Equatorial Guinea and Angola. In addition, the
Company has interests in the Asian Basin countries of Pakistan, covering 7.7
million gross (5.8 million net to the Company) acres in five blocks, and
Bangladesh, covering 3.3 million gross (1.3 million net to the Company) acres in
one block, where seismic and geophysical evaluations are ongoing. The Company's
1
<PAGE> 7
acreage in the International Region is generally held pursuant to production
sharing contracts ("PSCs") with host governments. Under the Company's 18 PSCs
(15 of which the Company operates), the Company holds contract interests ranging
from 15% to 100%. As of December 31, 1997, the Company had approximately 68.0
MMBOE of proved reserves attributable to the International Region (approximately
25% of the Company's total proved reserves) with average daily production during
the first six months of 1998 of 21.4 MBOE per day.
North American Onshore Region. At December 31, 1997 in the North American
Onshore Region, the Company had interests in 2.9 million gross (1.0 million net
to the Company) acres in 15 states and Western Canada. Domestically, the Company
conducts activities in two primary areas: (i) certain Midcontinent areas,
including the Anadarko Basin and onshore Texas; and (ii) certain Rocky Mountain
areas, including operations in Montana and Wyoming. The Company's Canadian
assets are located in Western Alberta, Canada. As of December 31, 1997, the
Company had approximately 87.0 MMBOE of proved reserves attributable to the
North American Onshore Region (approximately 32% of the Company's total proved
reserves) with average daily production during the first six months of 1998 of
29.3 MBOE per day.
The Company has a successful record of production growth with an average
annual growth rate in excess of 30% for the three-year period ended December 31,
1997. The Company continued to increase production during the six months ended
June 30, 1998, reporting daily average production exceeding 115 MBOE for such
period compared to 92 MBOE for all of 1997. In 1997, the Company's capital
expenditures (excluding acquisitions) totaled approximately $600 million, $250
million of which was directed to exploration. During 1997, 398 total gross wells
were drilled, of which 86 gross were exploratory wells with a 55% success rate
and 312 were development wells with a 93% success rate. In 1998, the Company has
budgeted approximately $650 million for capital expenditures, of which
approximately 60% will be used for development and approximately 40% will be
directed to exploration drilling, seismic and leasehold acquisitions. Of this
total, approximately $355 million will be spent in the Gulf of Mexico Region,
$217 million will be spent in the International Region and $78 million will be
spent in the North American Onshore Region. Management anticipates that this
budget will permit the Company to drill approximately 420 total wells in 1998,
approximately 100 of which are expected to be exploratory wells and 320 of which
are expected to be development wells.
COMPANY STRENGTHS
Substantial portfolio of exploration opportunities. The Company has a
substantial inventory of exploration projects for the next several years
providing opportunities to significantly increase reserves, production and cash
flow. The Company's domestic exploration inventory includes opportunities which
provide near-term reserve, production and cash flow growth potential. In
addition, the Company has high-impact exploration prospects in the deepwater
areas of the Gulf of Mexico Region and certain West African and Asian Basin
countries in the International Region providing long-term growth potential. As
part of its efforts in each of these regions, the Company has entered into a
number of exploration alliances (some of which it also operates) both
domestically and internationally with several major oil and gas companies and/or
their respective affiliates and subsidiaries, including Shell Oil Company
("Shell"), Mobil Corporation ("Mobil"), Exxon Corporation ("Exxon"), Petrofina
and Conoco, Inc. ("Conoco"). The Company owns a large inventory of 3-D and 2-D
seismic data in and around its core properties and uses state-of-the-art seismic
evaluation technology in its exploration activities in order to reduce risks and
lower costs. Year to date through June 30, 1998, the Company has drilled 37
exploratory wells, approximately 62% of which have been successful. The Company
anticipates drilling approximately 80 additional exploratory wells in 1998.
Extensive inventory of lower-risk development projects. The Company
currently has an extensive inventory of lower-risk development projects, which
should allow the Company to replace a significant percentage of its production
irrespective of exploration success. As a result of the Company's successful
execution of its business plan, production in 1997 averaged approximately 92
MBOE per day compared to approximately 65 MBOE per day in 1996. Year to date
through June 30, 1998, the Company has drilled 62 development wells, 90% of
which have been successful, and anticipates drilling approximately 250
additional development wells in 1998. Management expects the Company to grow
annual production in 1998 by approximately 30%.
2
<PAGE> 8
Balanced composition and geographic diversity of reserves. As of December
31, 1997, the Company's proved reserves were balanced evenly between oil and
gas. Additionally, the Company's reserves are diversified geographically, with
approximately 43% located in the Gulf of Mexico, 25% located in the Rocky
Mountain/ Midcontinent regions, 7% located in Canada, 15% located in Equatorial
Guinea and 10% located in Cote d'Ivoire. Approximately 68% of the Company's
total proved reserves are considered proved developed. Management believes that
the balance provided between the properties located in the Company's operating
regions and between commodities lowers the overall risk profile of production as
well as the risk profile of the exploration and development opportunities of the
Company.
Efficient operator. The Company operates a substantial portion of its
wells, allowing it to control expenses, capital allocation and the timing of
development and exploitation of its operated fields. Since 1993, the Company has
decreased per unit production and operating expenses (excluding ad valorem and
production taxes) by 23% from $3.95 per BOE for the year ended December 31, 1993
to $3.04 per BOE for the six months ended June 30, 1998.
Technical expertise and management depth. The Company believes it has one
of the most technically advanced and successful exploration and development
groups in the industry. Management believes the Company's technical personnel,
including its geoscientists and engineers, have extensive expertise and
experience specific to the regions in which the Company operates and provide the
Company with a distinct competitive advantage. This technical expertise is
further enhanced by a seasoned senior management team with significant
experience both specific to the Company's operations and the oil and gas
industry in general.
BUSINESS STRATEGY
Emphasizing exploration in the Gulf of Mexico and International
Regions. The Company will focus its exploration program on the Gulf of Mexico
and International Regions where it believes the future prospects for reserve
additions and associated long-term production growth are greatest. In
particular, the Company's exploration program is designed to provide exposure to
selected higher risk, higher potential rate of return prospects, including the
deepwater prospects in the Company's inventory. Within these two regions, the
Company has over 18.6 million gross (10.2 million net to the Company) acres. The
Company has a large inventory of 3-D and 2-D seismic data and other geophysical
technology which, along with the application of the Company's technical
expertise in its core areas of operations, will be used to evaluate this
acreage. The Company expects that approximately $283 million will be dedicated
to exploration expenditures, primarily in the Gulf of Mexico and International
Regions in 1998.
Continuing development of existing producing properties. While the Company
currently enjoys substantial production from properties in each of its three
operating regions, it is actively pursuing the further development of these
properties in order to fully exploit its reserves through horizontal and
development drilling, 3-D seismic enhanced exploitation drilling, recompletions
and waterfloods. This development activity will be focused primarily in
Equatorial Guinea, the continental shelf area of the Gulf of Mexico and the
North American Onshore Region and will provide a majority of the near-term
growth in the Company's production. The Company expects that approximately $367
million will be dedicated to development expenditures in 1998.
Pursuing strategic acquisitions and international opportunities. The
Company is continually evaluating opportunities to acquire 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 involving producing
properties with large acreage positions, it evaluates a broad range of potential
transactions. The Company believes that significant opportunities remain in its
core international areas of operations. The Company continuously evaluates
opportunities to acquire additional PSCs in order to enhance the Company's
long-term growth. Company personnel have substantial training, experience and an
in-depth knowledge of the Company's operating regions, as well as established
relationships with a number of major and large independent energy companies
operating in these regions.
The Company is a corporation organized under the laws of the State of
Delaware. The Company's principal executive offices are located at 1201
Louisiana, Suite 1400, Houston, Texas 77002.
3
<PAGE> 9
SUMMARY OF TERMS OF EXCHANGE OFFER
The Exchange Offer relates to the exchange of up to $500,000,000 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 set forth in the Indentures (as defined herein). The form and terms
of the 2005 Senior Exchange Notes, 2018 Senior Exchange Notes and Senior
Subordinated Exchange Notes are identical in all material respects to the form
and terms of the Old 2005 Senior Notes, Old 2018 Senior Notes and Old Senior
Subordinated Notes, respectively, 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.
Registration Rights
Agreement.................. The Old Notes were sold by the Company on July 8,
1998 to the Initial Purchasers pursuant to a
Purchase Agreement, dated July 1, 1998 (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,
$500,000,000 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 form
and terms of the 2005 Senior Exchange Notes, 2018
Senior Exchange Notes and Senior Subordinated
Exchange Notes are identical in all material
respects to the form and terms of the Old 2005
Senior Notes, Old 2018 Senior Notes and Old Senior
Subordinated Notes, respectively, 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 Commission 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
4
<PAGE> 10
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
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 Commission
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. 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. 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 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., E.D.T., on , 1998, unless
the Exchange Offer is extended, in which case the
term "Expiration Date" means the latest date and
time to which the Exchange Offer is extended. See
"The Exchange Offer -- Expiration Date; Extensions;
Amendments."
Accrued Interest on the
Exchange Notes and the
Old Notes................ The 2005 Senior Exchange Notes will bear interest
at a rate of 7 5/8% per annum, the 2018 Senior
Exchange Notes will bear interest at a rate of
8 1/4% per annum and the Senior Subordinated
Exchange Notes will bear interest at a rate of
8 3/8% per annum. Each of the Exchange Notes will
be payable semi-annually on January 1 and July 1 of
each year, commencing January 1, 1999. Holders of
Exchange Notes of record on January 1, 1999 will
receive on January 15, 1999 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, 1999, plus (y) the accrued interest on
the previously held Old Notes from the date of
issuance of such Old Notes (July 8, 1998) to the
date of exchange thereof. Interest will not be paid
on Old Notes that are accepted for exchange. The
2005 Senior Exchange Notes mature on July 1, 2005,
the 2018 Senior Exchange
5
<PAGE> 11
Notes mature on July 1, 2018 and the Senior
Subordinated Exchange Notes mature on July 1, 2008.
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 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
"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 the
Letter of Transmittal, or such facsimile, together
with the Old Notes to be exchanged and any other
required documentation, to the Exchange Agent (as
defined herein), 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 (i) make
appropriate arrangements to register ownership of
the Old Notes in such holder's name or (ii) 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."
6
<PAGE> 12
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
such Letter of Transmittal to the Exchange Agent
prior to the Expiration Date may tender their Old
Notes according to the guaranteed 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, 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." Exchange Notes
issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date.
Exchange Agent............. U.S. Bank Trust National Association.
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
Indentures. 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 Indentures. 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> 13
SUMMARY OF TERMS OF EXCHANGE NOTES
SECURITIES OFFERED
Senior Exchange Notes.... $125,000,000 principal amount of 7 5/8% Senior
Notes due 2005, Series B, and $125,000,000
principal amount of 8 1/4% Senior Notes due 2018,
Series B.
Senior Subordinated
Exchange Notes......... $250,000,000 principal amount of 8 3/8% Senior
Subordinated Notes due 2008, Series B.
SENIOR EXCHANGE NOTES
Maturity Date............ July 1, 2005 (for the 2005 Senior Exchange Notes)
and July 1, 2018 (for the 2018 Senior Exchange
Notes).
Optional Redemption...... The Senior Exchange Notes of each series may be
redeemed, in whole but not in part, at the option
of the Company at any time at a redemption price
equal to the sum of (i) an amount equal to 100% of
the principal amount thereof and (ii) the Senior
Make-Whole Premium (as defined herein), together
with accrued and unpaid interest to the date fixed
for redemption. See "Description of Senior
Notes -- Redemption -- Optional Redemption."
Senior Guarantees........ The Senior Exchange Notes will initially be fully
and unconditionally guaranteed by the Initial
Subsidiary Guarantor. The Senior Guarantee will be
an unsecured senior obligation of the Initial
Subsidiary Guarantor and will rank pari passu in
right of payment with all other existing and future
senior obligations of the Initial Subsidiary
Guarantor and senior in right of payment to all
existing and future obligations of the Initial
Subsidiary Guarantor that are subordinated to such
Senior Guarantee (including the guarantees of the
Senior Subordinated Exchange Notes and the Existing
Notes). In addition, if any other Restricted
Subsidiary guarantees Indebtedness of the Company
(including Indebtedness under the New Credit
Facility), the Company will cause the Senior
Exchange Notes to be equally and ratably guaranteed
by such Restricted Subsidiary on a pari passu or
senior basis. The Senior Guarantees will be subject
to release and discharge as provided in each Senior
Indenture. See "Description of Senior
Notes -- Senior Guarantees."
Ranking.................. The Senior Exchange Notes of each series will be
unsecured senior indebtedness of the Company and
will rank pari passu with all other unsecured
unsubordinated indebtedness of the Company. The
Company is a holding company, conducting
substantially all of its business through
subsidiaries. As of June 30, 1998, as adjusted to
give effect to the Initial Offering, the
application of the net proceeds therefrom and the
establishment of the New Credit Facility, the
Company would have had (i) an aggregate of
approximately $1.0 billion of consolidated
indebtedness (including the Notes), of which
approximately $0.2 million (comprised of the
Existing Senior Notes (as defined herein)) would
have been pari passu with the Senior Exchange
Notes, approximately $759 million (comprised of the
Senior Subordinated Notes and the Existing Notes)
would have been subordinated to the Senior Exchange
Notes and approximately $6 million would have been
secured or owed by subsidiaries of the Company
(other than the Initial Subsidiary Guarantor) and,
8
<PAGE> 14
therefore, effectively senior to the Senior Notes
and (ii) approximately $29.6 million of cash. See
"Description of Senior Notes -- Ranking."
Covenants................ Each Senior Indenture contains certain covenants,
including, without limitation, covenants with
respect to incurrence of liens and sale/leaseback
transactions. See "Description of Senior
Notes -- Certain Covenants."
Mandatory Offer to
Purchase............... Upon a Senior Change of Control (as defined
herein), each holder of any series of the Senior
Exchange Notes may require the Company to purchase
all or a portion of such holder's Senior Exchange
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.
See "Description of Senior Notes -- Certain
Covenants -- Senior Change of Control."
Trustee.................. Norwest Bank Minnesota, National Association.
SENIOR SUBORDINATED EXCHANGE NOTES
Maturity Date............ July 1, 2008.
Optional Redemption...... At any time prior to July 1, 2003, the Senior
Subordinated Exchange Notes may be redeemed, in
whole but not in part, at the option of the Company
at a redemption price equal to the sum of (i) an
amount equal to 100% of the principal amount
thereof and (ii) the Senior Subordinated Make-Whole
Premium (as defined herein), together with accrued
and unpaid interest to the date fixed for
redemption. At any time on or after July 1, 2003,
the Senior Subordinated Exchange Notes will be
redeemable at the option of the Company, in whole
or in part, 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 1,
2001, the Company may, subject to certain
requirements, redeem up to 33 1/3% of the aggregate
principal amount of the Senior Subordinated
Exchange Notes originally issued with the net cash
proceeds of one or more Public Equity Offerings (as
defined herein) by the Company at a redemption
price equal to 108.375% of the principal amount
thereof, together with accrued and unpaid interest,
if any, to the date of redemption, provided that at
least 66 2/3% of the aggregate principal amount of
the Senior Subordinated Exchange Notes remains
outstanding after each such redemption. See
"Description of Senior Subordinated
Notes -- Redemption -- Optional Redemption."
Senior Subordinated
Guarantees............. The Senior Subordinated Exchange Notes will
initially be fully and unconditionally guaranteed
by the Initial Subsidiary Guarantor. The Senior
Subordinated Guarantee will be an unsecured senior
subordinated obligation of the Initial Subsidiary
Guarantor and will rank pari passu in right of
payment with all other existing and future senior
subordinated obligations of the Initial Subsidiary
Guarantor (including the guarantees of the Existing
Notes). The indebtedness evidenced by the Senior
Subordinated Guarantee will be subordinated on the
same basis to Guarantor Senior Indebtedness as the
Senior Subordinated Exchange Notes are subordinated
to Senior Indebtedness. In addition, if any other
Restricted Subsidiary guarantees Indebtedness of
the Company, the Company will cause the Senior
Subordinated Exchange Notes to be equally and
ratably guaranteed by such Restricted Subsidiary on
a senior
9
<PAGE> 15
subordinated basis. The Senior Subordinated
Guarantees will be subject to release and discharge
as provided in the Senior Subordinated Indenture.
See "Description of Senior Subordinated
Notes -- Senior Subordinated Guarantees."
Ranking.................. The Senior Subordinated Exchange Notes will be
unsecured senior subordinated indebtedness of the
Company ranking pari passu with all other existing
and future senior subordinated indebtedness of the
Company, including, without limitation, the
Existing Notes. The payment of the principal of,
premium, if any, and interest on the Senior
Subordinated Exchange Notes will be subordinated,
as set forth in the Senior Subordinated Indenture,
in right of payment to the prior payment in full of
all Senior Indebtedness, including, without
limitation, the Company's obligations under the New
Credit Facility and the Senior Notes. See
"Description of Senior Subordinated
Notes -- Ranking" and "-- Subordination." As of
June 30, 1998, as adjusted to give effect to the
Initial Offering, the application of the net
proceeds therefrom and the establishment of the New
Credit Facility, the Company would have had (i) an
aggregate of approximately $1.0 billion of
consolidated indebtedness (including the Notes), of
which approximately $250.2 million (comprised of
the New Credit Facility, the Senior Notes and the
Existing Senior Notes) would have been senior to
the Senior Subordinated Exchange Notes,
approximately $509 million (comprised of the
Existing Notes and the Old Senior Subordinated
Notes) would have been pari passu with the Senior
Subordinated Exchange Notes, none would have been
subordinated to the Senior Subordinated Exchange
Notes and approximately $6 million would have been
secured or owed by subsidiaries of the Company
(other than the Initial Subsidiary Guarantor) and,
therefore, effectively senior to the Senior
Subordinated Exchange Notes and (ii) approximately
$29.6 million of cash. See "Description of Senior
Subordinated Notes -- Ranking."
Certain Covenants........ The Senior Subordinated 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) limitation on disposition
of proceeds of asset sales; (vii) limitation on
guarantees of indebtedness by subsidiaries; (viii)
limitation on dividend and other payment
restrictions affecting subsidiaries; and (ix)
limitation on mergers, consolidations and transfers
of assets. During any time the ratings assigned to
the Senior Subordinated Notes are no less than
BBB - and Baa3, except subsequent to a Change of
Control, and provided that no Default or Event of
Default (each, as defined herein) has occurred or
is occurring, the covenants described under (i),
(ii), (iii), (iv), (vi) and (viii) above will be
suspended. See "Description of Senior Subordinated
Notes -- Certain Covenants."
Mandatory Offers to
Purchase............... Upon a Change of Control (as defined herein), each
holder of the Senior Subordinated Exchange Notes
may require the Company to purchase all or a
portion of such holder's Senior Subordinated
Exchange Notes at a purchase price equal to 101% of
the principal amount thereof, together with
10
<PAGE> 16
accrued and unpaid interest, if any, to the date of
purchase. See "Description of Senior Subordinated
Notes -- Certain Covenants -- Change of Control."
In the event of certain asset dispositions, the
Company will be required to make an offer to
purchase the Senior Subordinated Exchange Notes at
100% of the principal amount thereof, together with
accrued and unpaid interest, if any, to the date of
purchase. See "Description of Senior Subordinated
Notes -- Certain Covenants -- Limitation on
Disposition of Proceeds of Asset Sales."
Trustee.................. U.S. Bank Trust National Association. Norwest Bank
Minnesota, National Association, and U.S. Bank
Trust National Association are together referred to
as the "Trustees."
TERMS COMMON TO SENIOR EXCHANGE NOTES
AND SENIOR SUBORDINATED EXCHANGE NOTES
Interest Payment Dates... Interest on the Notes is payable semiannually in
arrears on January 1 and July 1 of each year,
commencing January 1, 1999.
Exchange Offer;
Registration
Rights................. Pursuant to the Registration Rights Agreement, the
Company has agreed to use its reasonable best
efforts to (i) cause to become effective within 120
days after the date of original issuance of the
Notes (the "Issue Date") this registration
statement (the "Registration Statement") with
respect to the Exchange Offer and (ii) cause the
Exchange Offer to be consummated within 180 days
after the Issue Date. In the event that (i) any
changes in law or the applicable interpretations of
the staff of the Commission do not permit the
Company to effect the Exchange Offer, (ii) for any
other reason the Registration Statement is not
declared effective within 120 days after the Issue
Date or the Exchange Offer is not consummated
within 180 days after the original issuance of the
Notes, (iii) upon the request of the Initial
Purchasers or (iv) any holder of the Notes is not
permitted to participate in the Exchange Offer or
does not receive fully tradable Exchange Notes
pursuant to the Exchange Offer, the Company will
use its reasonable best efforts to cause a shelf
registration statement with respect to the resale
of the Notes (the "Shelf Registration Statement")
to be declared effective under the Securities Act
by the 180th calendar day after the Issue Date and
to keep the Shelf Registration Statement effective
for up to two years from the date the Shelf
Registration Statement is declared effective by the
Commission.
RISK FACTORS
See "Risk Factors" beginning on page 15 for a discussion of certain factors
that should be considered by prospective investors in evaluating an investment
in the Exchange Notes.
11
<PAGE> 17
SUMMARY HISTORICAL FINANCIAL AND OPERATING DATA
The summary historical financial data set forth below as of and for the
years ended December 31, 1995, 1996 and 1997 are derived from the audited
consolidated financial statements of the Company and notes thereto incorporated
by reference herein giving effect to the Merger under the "pooling of interests"
method of accounting. The summary historical financial data set forth below as
of and for the six months ended June 30, 1997 and 1998 are derived from
unaudited consolidated financial statements of the Company and notes thereto
incorporated by reference herein. 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" included elsewhere in this Prospectus and the consolidated financial
statements of the Company and the notes thereto incorporated by reference
herein. For additional information relating to the Company's operations, see
"Business."
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------- -------------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OPERATING DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS AND OTHER FINANCIAL
DATA:
REVENUE & EXPENSE DATA:
Operating revenues........................... $243,827 $395,834 $552,194 $248,371 $ 275,090
Production costs............................. 82,937 98,396 124,394 58,297 74,230
General & administrative expenses............ 21,070 27,366 30,218 13,553 20,200
Depreciation, depletion & amortization....... 101,116 147,643 248,423 105,810 147,498
Interest expense............................. 35,565 40,765 49,134 22,741 21,941
Merger costs(1).............................. -- -- -- -- 39,000
Income (loss) before income taxes............ 3,816 81,215 103,212 50,082 (246,488)
Income tax provision (benefit)............... (1,736) 26,215 40,992 19,097 (83,509)
Net income (loss)(2)......................... 5,552 55,000 42,919 30,985 (162,979)
OTHER FINANCIAL DATA AND RATIOS:
EBITDA(3).................................... $140,497 $269,623 $400,769 $176,521 $ 180,660
Capital expenditures......................... 236,679 441,709 834,358 386,239 407,387
Ratio of EBITDA to interest expense(4)....... 4.0x 6.6x 8.2x 7.8x 8.2x
Ratio of earnings to fixed charges(5)........ -- 2.4 1.9 2.6 --
Ratio of long-term debt to EBITDA............ 3.0 1.6 1.7 -- --
Ratio of long-term debt to book
capitalization............................. 71% 47% 48% 48% 63%
OPERATING DATA:
Sales volumes:
Oil (MBbls)................................ 8,817 11,543 18,078 7,779 11,134
Gas (MMcf)................................. 56,846 74,165 93,723 42,802 58,230
MBOE....................................... 18,291 23,904 33,699 14,913 20,839
Average prices(6):
Oil (per Bbl).............................. $ 17.06 $ 21.42 $ 18.54 $ 19.43 $ 13.20
Gas (per Mcf).............................. 1.54 2.30 2.30 2.24 1.99
Production and operating costs (per
BOE)(7).................................... 3.55 3.26 3.02 3.20 3.04
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30,
1998
--------------
(DOLLARS IN
THOUSANDS)
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Oil and Gas Assets, Net..................................... $1,474,003
Total Assets................................................ 1,776,130
Long-Term Debt.............................................. 987,277
Stockholders' Equity........................................ 570,372
</TABLE>
12
<PAGE> 18
- ---------------
(1) Nonrecurring merger costs of $39.0 million have been recorded in the first
quarter of 1998. These costs consist primarily of investment banking and
other transaction fees, employee severances and relocation costs as well as
the write-off of deferred financing costs related to the former credit
facilities replaced by the Existing Credit Facility in March 1998. Before
consideration of the $39.0 million of nonrecurring merger costs and the
$218.4 million write-down of oil and gas properties, net income would have
been $5.3 million for the six months ended June 30, 1998.
(2) Net income for the year ended December 31, 1997 includes the effect of an
extraordinary loss, net of income taxes, of $19.3 million resulting from the
purchase of approximately $124.8 million of the Existing Senior Notes.
(3) Earnings before interest, taxes, depreciation, depletion and amortization.
EBITDA has not been reduced for the nonrecurring merger costs incurred in
the quarter ended March 31, 1998, the write-down of oil and gas properties
in the quarter ended June 30, 1998 or the extraordinary loss for the year
ended December 31, 1997. 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 a
generally accepted accounting principle measure, but provides additional
information for evaluating the Company's ability to make payments in respect
of the Notes. EBITDA is not intended as an alternative to earnings from
continuing operations or net income.
(4) For purposes of determining the ratio of EBITDA to interest expense,
interest expense as reported in the Company's Consolidated Statement of
Income has not been adjusted by capitalized interest and non-cash
amortization of deferred financing costs. If interest expense was adjusted
to reflect such amounts, the ratio would have been 3.7x, 6.0x and 6.8x for
the years ended December 31, 1995, 1996 and 1997, respectively, and 6.7x and
5.1x for the six months ended June 30, 1997 and 1998, respectively.
(5) 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, preferred dividend requirements adjusted to a pre-tax basis
and an assumed interest portion of rent expense. Earnings to cover fixed
charges were insufficient by $2,989 and $261,941 for the year ended December
31, 1995 and for the six months ended June 30, 1998, respectively. Before
consideration of the $39.0 million of nonrecurring merger costs and the
$218.4 million write-down of oil and gas properties, the ratio of earnings
to fixed charges for the six months ended June 30, 1998 would have been
0.9x.
(6) Excludes results of hedging activities which increased (decreased) revenue
recognized in the years ended December 31, 1995, 1996 and 1997 by $3.6
million, $(22.6) million and $(1.3) million, respectively, and by $(0.4)
million and $11.1 million in the six months ended June 30, 1997 and 1998,
respectively. Including the effect of hedging activities, the Company's
average oil price per Bbl received was $17.05, $20.24 and $18.54 in the
years ended December 31, 1995, 1996 and 1997, respectively, and the average
gas price per Mcf received was $1.60, $2.18 and $2.28 in the years ended
December 31, 1995, 1996 and 1997, respectively. In the six months ended June
30, 1997 and 1998, the Company's average oil price per Bbl, including
hedging activities, received was $19.38 and $14.19, respectively, and the
average gas price per Mcf, including hedging activities, received was $2.24
and $1.99 in the three months ended June 30, 1997 and 1998. There was no
effect of hedging activities relating to gas during the six months ended
June 30, 1998.
(7) Excludes production and ad valorem taxes.
13
<PAGE> 19
SUMMARY HISTORICAL RESERVE INFORMATION
The following tables set forth information with respect to the Company's
proved reserves as of December 31, 1997, as estimated by Netherland, Sewell, &
Associates, Inc., Ryder Scott Company and McDaniel & Associates Consultants,
Ltd., independent petroleum engineers for the Company. As of December 31, 1997,
the average sales prices used for purposes of estimating the Company's proved
reserves and the future net revenues therefrom were $2.06 per Mcf of gas and
$16.16 per Bbl of oil. For additional information relating to the Company's
reserves, see "Risk Factors -- Reliance on Estimates of Proved Reserves" and
"Business -- Oil and Natural Gas Reserves" included elsewhere in this Prospectus
and Note 17 to the Company's consolidated financial statements incorporated by
reference herein.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
PROVED RESERVES(1)
------------------------------------
DEVELOPED UNDEVELOPED TOTAL
--------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net Proved Reserves:
Oil (MBbls)............................................... 87,358 50,244 137,602
Gas (MMcf)................................................ 584,647 213,288 797,935
MBOE (6 Mcf per Bbl)...................................... 184,799 85,792 270,591
Estimated Future Net Revenues (Before Income Taxes)......... $1,933,000
Present Value of Future Net Revenues (Before Income Taxes;
Discounted at 10%)........................................ 1,343,000
Standardized Measure of Discounted Future Net Cash
Flows(2).................................................. 1,220,000
</TABLE>
- ---------------
(1) In accordance with rules and regulations of the Commission, the pre-tax
Estimated Future Net Revenues and pre-tax Present Value of Future Net
Revenues prepared by the Company have been increased by approximately $6.4
million and $6.1 million, respectively, representing the effect of hedging
transactions entered into as of December 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%.
14
<PAGE> 20
RISK FACTORS
An investment in the Notes 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.
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."
15
<PAGE> 21
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 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."
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.
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
uncontrollable flows of oil, gas or well fluids, fires, natural disasters,
explosions, encountering formations with abnormal pressures, blowouts,
cratering, pipeline ruptures, spills, pollution, releases of toxic gas and other
environmental hazards and risks, any of which can result in loss of
hydrocarbons, environmental pollution, personal injury claims, and other damage
to properties of the Company and others. In addition, the Company may be liable
for environmental damages caused by previous owners of property purchased by the
Company or its predecessors. As a result, substantial liabilities to third
parties or governmental entities may be incurred, the payment of which could
reduce or eliminate the funds available for exploration, development or
acquisitions, or result in loss of the Company's properties. Additionally, many
of the Company's oil and gas operations are located in areas that are 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 and in accordance with customary industry
practices, 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.
EFFECTS OF LEVERAGE
As of June 30, 1998, the Company had long-term indebtedness of
approximately $987.3 million. As of June 30, 1998, as adjusted to give effect to
the Initial Offering, the application of the net proceeds therefrom and the
establishment of the New Credit Facility, the Company would have had (i) an
aggregate of approximately $1.0 billion of consolidated indebtedness (including
the Notes), of which (a) approximately $0.2 million (comprised of the Existing
Senior Notes) would have been pari passu with the Senior Exchange Notes,
approximately $759 million (comprised of the Senior Subordinated Notes and the
Existing Notes) would have been subordinated to the Senior Exchange Notes and
approximately $6 million would have been secured or owed by subsidiaries of the
Company (other than the Initial Subsidiary Guarantor) and, therefore,
16
<PAGE> 22
effectively senior to the Senior Exchange Notes, and (b) approximately $250.2
million (comprised of the New Credit Facility, the Senior Notes and the Existing
Senior Notes) would have been senior to the Senior Subordinated Exchange Notes,
approximately $509 million (comprised of the Existing Notes and the Old Senior
Subordinated Notes) would have been pari passu with the Senior Subordinated
Exchange Notes, none would have been subordinated to the Senior Subordinated
Exchange Notes and approximately $6 million would have been secured or owed by
subsidiaries of the Company (other than the Initial Subsidiary Guarantor) and,
therefore, effectively senior to the Senior Subordinated Exchange Notes, and
(ii) approximately $29.6 million of cash. See "Description of Senior
Notes -- Ranking" and "Description of Senior Subordinated Notes -- Ranking." 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) (a) the indenture (the "10 3/8%
Indenture") related to the Company's 10 3/8% Senior Subordinated Notes due 2005
(the "10 3/8% Notes"), the indenture (the "9 3/4% Indenture") related to the
Company's 9 3/4% Senior Subordinated Notes due 2006 (the "9 3/4% Notes") and the
indenture (the "8 7/8% Indenture" and, collectively with the 10 3/8% Indenture
and the 9 3/4% Indenture, the "Existing Indentures") related to the Company's
8 7/8% Senior Subordinated Notes due 2007 (the "8 7/8% Notes" and, collectively
with the 10 3/8% Notes and the 9 3/4% Notes, the "Existing Notes"), the New
Credit Facility and the Senior Subordinated Indenture contain restrictions that
limit the Company's ability to engage in certain transactions, including
granting liens, borrowing additional funds and disposing of assets, and (b) the
Senior Indentures contain restrictions that limit the Company's ability to grant
liens and engage in sale/leaseback transactions, all of which 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, capital
expenditures, acquisitions, general corporate 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."
SUBORDINATION OF SENIOR SUBORDINATED NOTES; HOLDING COMPANY WITH NO INDEPENDENT
OPERATIONS
The Senior Subordinated Indenture limits, but does not prohibit, the
incurrence by the Company of additional indebtedness that is senior in right of
payment to the Senior Subordinated Exchange Notes (including by reason of
structural subordination of the Senior Subordinated Exchange 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 Senior Subordinated Exchange Notes offered hereby only after all Senior
Indebtedness has been paid in full, and there may not be sufficient assets
remaining to pay amounts due on the Senior Subordinated Exchange Notes. In
addition, under certain circumstances, no payments may be made with respect to
principal of, premium, if any, or interest on the Senior Subordinated Exchange
Notes if a default exists with respect to any Senior Indebtedness. See
"Description of Senior Subordinated Notes -- Subordination."
The Company is a holding company, conducting substantially all of its
business through subsidiaries. As a result, funds necessary to meet the
Company's debt service obligations are provided primarily by dividends,
distributions, and advances or other intercompany transfers from its
subsidiaries. Under certain circumstances, contractual and legal restrictions,
as well as the financial condition and operating requirements of the Company's
subsidiaries, could limit the Company's ability to obtain cash from its
subsidiaries for the purpose of meeting its debt service obligations, including
the payment of principal of and premium, if any, and interest
17
<PAGE> 23
on the Notes. Any right of the Company to participate in any distribution of the
assets of its subsidiaries upon the liquidation, reorganization or insolvency
thereof would be subject to the prior claims of creditors (including trade
creditors) and preferred shareholders (if any) of such subsidiaries, except to
the extent the claims of the Company itself as a creditor or preferred
shareholder of its subsidiaries may be recognized. As a result, the Notes will
generally be structurally subordinated to the obligations, including any
indebtedness, and preferred stock of the Company's subsidiaries other than OEI
Louisiana. The Senior Indentures do not limit or restrict the amount of other
indebtedness that may be incurred by the Company or its subsidiaries. See
"Description of Senior Notes -- Ranking." The Existing Indentures and the Senior
Subordinated Indenture contain limits on the ability of the Company and the
Restricted Subsidiaries to incur additional indebtedness and liens and to enter
into agreements that would restrict the ability of such Restricted Subsidiaries
to make distributions, loans or other payments to the Company. 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 Senior Subordinated Notes -- Ranking" and "-- Certain Covenants."
FRAUDULENT TRANSFER CONSIDERATIONS RELATING TO GUARANTEES
The Company's obligations under the Senior Exchange Notes and the Senior
Subordinated Exchange Notes will initially be guaranteed on an unsecured senior
basis and an unsecured senior subordinated basis, respectively, by the Initial
Subsidiary Guarantor, and may in the future be guaranteed by other Subsidiary
Guarantors in accordance with the provisions of the Indentures. If, under
relevant federal and state fraudulent transfer and conveyance statutes, in a
bankruptcy or reorganization case or a lawsuit filed by or on behalf of unpaid
creditors of a Subsidiary Guarantor, a court were to find that, at the time the
Notes were guaranteed by such Subsidiary Guarantor, such Subsidiary Guarantor
(i) guaranteed the Notes with the intent of hindering, delaying or defrauding
current or future creditors or (ii) (a) received less than reasonably equivalent
value or fair consideration for guaranteeing the Notes, as applicable, and (b)
(1) was insolvent or was rendered insolvent by reason of the issuance of the
Senior Guarantee or the Senior Subordinated Guarantee (together, the "Subsidiary
Guarantees"), (2) was engaged, or about to engage, in a business or transaction
for which its assets constituted unreasonably small capital, (3) intended to
incur, or believed that it would incur, debts beyond its ability to pay as such
debts matured (as all of the foregoing terms are defined in or interpreted under
the relevant fraudulent transfer or conveyance statutes) or (4) was a defendant
in an action for money damages, or had a judgment for money damages docketed
against it (if, in either case, after final judgment the judgment is
unsatisfied), such court could avoid or subordinate such Subsidiary Guarantee to
presently existing or future indebtedness of such Subsidiary Guarantor and take
other action detrimental to the holders of the Notes, including, under certain
circumstances, invalidating the Subsidiary Guarantee. The measure of insolvency
for purposes of the foregoing considerations will vary depending upon the law of
the jurisdiction that is being applied in any such proceeding. There can be no
assurance as to what standards a court would use to determine whether a
Subsidiary Guarantor was solvent at the relevant time, or whether, whatever
standard was used, a Subsidiary Guarantee would not be avoided on another of the
grounds set forth above or on other grounds under applicable state law. The
Subsidiary Guarantees will be subject to release and discharge as provided in
the Indentures.
SUBSTANTIAL CAPITAL REQUIREMENTS
The Company makes and will continue to make substantial capital
expenditures for the acquisition, exploration and development of oil and gas
reserves. Historically, the Company has financed these expenditures primarily
with proceeds from debt and equity financings, cash provided by operating
activities, asset sales and sales of partial interests in foreign concessions.
The Company believes that it will have sufficient cash provided by operating
activities and availability under the New Credit Facility to fund planned
capital expenditures in 1998. 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. Where the Company is
not the majority owner, it may have no control over the timing or amount of
capital expenditures associated with the particular project.
18
<PAGE> 24
Additionally, capital expenditures associated with international projects can be
significantly greater than those typically associated with the Company's
domestic projects. If the Company is not able to fund its capital expenditures,
its interests in some of its properties may be reduced or forfeited. 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 or other sources of capital will be available to meet these
requirements.
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.
There can be no assurance that the Company will be successful in the acquisition
of, or joint ventures related to, any material property interests. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
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."
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, 1997, total
abandonment costs for the Company's properties estimated to be incurred through
2007 were approximately $152.8 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 Gulf of Mexico Region
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 10 to the Company's consolidated
financial statements incorporated by reference herein.
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's historical proved reserve information incorporated by reference in
this Prospectus represents only estimates based on reports prepared by
independent petroleum engineers of the Company and, in part, by internal
engineers, as of December 31, 1997. During 1998, commodity prices have decreased
substantially from the prices upon which the reserve reports as of December 31,
1997 were based.
Petroleum engineering is a subjective process of estimating underground
accumulations of oil and gas that cannot be measured in an exact manner.
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
19
<PAGE> 25
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.
The discounted future net cash flows incorporated by reference 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.
WRITEDOWNS OF CARRYING VALUES
The Company periodically reviews the carrying value of its oil and gas
properties under the full cost accounting rules of the Commission. Under these
rules, capitalized costs of oil and natural gas properties may not exceed the
present value of estimated future net revenues from proved reserves, discounted
at 10%, plus the lower of cost or fair market value of unproved properties.
Application of this "ceiling" test generally requires pricing future revenue at
the unescalated prices in effect as of the end of each fiscal quarter and
requires a writedown for accounting purposes if the ceiling is exceeded, even if
prices declined for only a short period of time. Any such writedowns taken are
not reinstated even if prices increase in subsequent periods. The risk that the
Company will be required to write down the carrying value of its oil and natural
gas properties increases when oil and natural gas prices are depressed or
decline substantially, as has been experienced recently. At June 30, 1998, the
Company recognized a non-cash impairment of oil and gas properties in the amount
of $218.4 million pre-tax ($135.4 million after-tax) pursuant to the ceiling
test required by the full cost method of accounting for oil and gas properties.
The write-down is primarily a result of the precipitous decline in world crude
oil prices experienced during the second quarter of 1998. The need for the
Company to write down the carrying of value of its oil and natural gas
properties in the future is dependent (i) upon commodity prices and the
estimated amount of the Company's proved recoverable reserves prior to the time
the Company releases its financial results for the quarter ended and (ii) on the
carrying value of the Company's oil and natural gas properties and it is not
possible to predict whether any such writedowns will be required in the future
or the extent of any such writedowns.
GOVERNMENT REGULATIONS
The Company is subject to certain foreign, federal, state and local laws
and regulations relating to the exploration for, and the development, production
and transportation of, oil and 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, and will remain, 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, an agency of the U.S. Department of the Interior
(the "MMS"), 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 of the Company,
to date such compliance has not had a material adverse effect on the earnings or
competitive
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<PAGE> 26
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.
FOREIGN OPERATIONS
The Company conducts its international operations in the West African
countries of Cote d'Ivoire, Equatorial Guinea and Angola and the Asian Basin
countries of Pakistan and Bangladesh. Such operations are subject to political,
economic and other uncertainties, including, among others, risk of war,
revolution, border disputes, expropriation, forced renegotiation or modification
of existing contracts, import, export and transportation regulations and
tariffs, taxation policies, including royalty and tax increases and retroactive
tax claims, exchange controls, currency fluctuations and other uncertainties
arising out of foreign government sovereignty over the Company's international
operations. The Company's international operations may also be adversely
affected by laws and policies of the U.S. affecting foreign trade, taxation and
investment. Furthermore, in the event of a dispute arising from international
operations, the Company may be subject to the exclusive jurisdiction of foreign
courts or may not be successful in subjecting foreign persons to the
jurisdiction of courts in the U.S. On occasion, certain African countries,
including Nigeria, have asserted rights to land, including oil and gas
properties, through border disputes. If a country other than the one that
granted the Company a PSC to properties successfully asserted superior rights to
such properties, the Company's interests could be adversely affected. Certain
regions of Africa and other regions of the world have a history of political and
economic instability. Such instability could result in new governments or the
adoption of new policies that might assume a substantially more hostile attitude
toward foreign investment. In an extreme case, such a change could result in
voiding pre-existing contracts and/or expropriation of foreign-owned assets.
There can be no assurance that political, economic and other uncertainties will
not develop in the region or countries in which the Company operates.
INTEGRATION OF OPERATIONS
The continued success of the Company subsequent to the Merger depends on
the ability of management to integrate the two companies that have previously
operated independently. The integration of the operations of OEI and UMC
requires substantial attention of management, and no assurance can be given that
such integration may be accomplished without encountering difficulties or
experiencing the loss of key employees, customers or suppliers, or that the
benefits expected from such integration will be realized. Any inability of
management to integrate the operations of the two companies in a timely and
efficient manner may adversely affect the Company.
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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<PAGE> 27
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by the Company on July 8, 1998 to the Initial
Purchasers pursuant to the Purchase Agreement. The Initial Purchasers
subsequently resold all of the Old Notes to QIBs, 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
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 Commission 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
Commission 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 Commission 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.
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, and the Old Notes will continue to be subject
to certain restrictions on transfer. See "Exchange Offer; Registration Rights."
Accordingly, the liquidity of the market for the Old Notes could be adversely
affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept all Old Notes properly
tendered and not withdrawn prior to 5:00 p.m. E.D.T., on the Expiration Date.
After authentication by the applicable Trustee or an authenticating agent, the
Company will issue and deliver $1,000 principal amount of 2005 Senior Exchange
Notes, 2018 Senior Exchange Notes and Senior Subordinated Exchange Notes in
exchange for each $1,000 principal amount of outstanding Old 2005 Senior Notes,
Old 2018 Senior Notes and Old Senior Subordinated Notes, respectively, accepted
in the
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<PAGE> 28
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 2005 Senior Exchange Notes, 2018 Senior Exchange
Notes and Senior Subordinated Exchange Notes are identical in all material
respects to the form and terms of the Old 2005 Senior Notes, Old 2018 Senior
Notes and Old Senior Subordinated Notes, respectively, 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 respective Indentures.
As of the date of this Prospectus, $500,000,000 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 Letter of Transmittal, is initially
being sent to all registered holders of the Old Notes as of the close of
business on , 1998. The Company intends to conduct the Exchange
Offer in accordance with the applicable requirements of the Exchange Act, and
the rules and regulations of the Commission thereunder, 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 Indentures 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 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 PROSPEC-
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<PAGE> 29
TUS 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., E.D.T., on
, 1998, 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 to 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 2005 Senior Exchange Notes will bear interest at a rate of 7 5/8% per
annum, the 2018 Senior Exchange Notes will bear interest at a rate of 8 1/4% per
annum and the Senior Subordinated Exchange Notes will bear interest at a rate of
8 3/8% per annum. Interest on each of the Exchange Notes will be payable semi-
annually on January 1 and July 1 of each year, commencing January 1, 1999.
Holders of Exchange Notes of record on January 1, 1999 will receive on January
15, 1999 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, 1999, plus
(y) the accrued interest on the previously held Old Notes from the date of
issuance of such Old Notes (July 8, 1998) to the date of exchange thereof.
Interest will not be paid on Old Notes that are accepted for exchange. The 2005
Senior Exchange Notes mature on July 1, 2005, the 2018 Senior Exchange Notes
mature on July 1, 2018 and the Senior Subordinated Exchange Notes mature on July
1, 2008.
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 U.S. Bank
Trust National Association, 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.
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<PAGE> 30
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., E.D.T., 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 such 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.,
E.D.T., 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.
NEITHER THE LETTER OF TRANSMITTAL NOR OLD NOTES SHOULD BE SENT TO THE COMPANY.
HOLDERS MAY ALSO
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<PAGE> 31
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.
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 the 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 such 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 the 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 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 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 (i) to
purchase or make offers for any Old Notes that remain outstanding subsequent to
the Expiration Date, or, as set forth under "-- Conditions to the Exchange
Offer," terminate the Exchange Offer and (ii) 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.
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<PAGE> 32
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 delivery of Old Notes by causing such
Book-Entry Transfer Facility to transfer such Old Notes into the 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, THE 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, WITHIN THE TIME PERIOD PROVIDED UNDER SUCH PROCEDURES. DELIVERY OF
DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO
THE EXCHANGE AGENT.
DTC's Automated Tender Offer Program ("ATOP") is the only method of
processing exchange offers through DTC. To accept the Exchange Offer through
ATOP, participants in DTC must send electronic instructions to DTC through DTC's
communication system in place of sending a signed, hard copy Letter of
Transmittal. DTC is obligated to communicate those electronic instructions to
the Exchange Agent. To tender Old Notes through ATOP, the electronic
instructions sent to DTC and transmitted by DTC to the Exchange Agent must
contain the character by which the participant acknowledges its receipt of and
agrees to be bound by the Letter of Transmittal.
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
such 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.
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<PAGE> 33
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., E.D.T., 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., E.D.T., 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 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 Commission,
(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
Commission 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.
28
<PAGE> 34
EXCHANGE AGENT
U.S. Bank Trust National Association, 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
the Letter of Transmittal should be directed to the Exchange Agent addressed as
follows:
U.S. Bank Trust National Association, Exchange Agent
<TABLE>
<S> <C>
By Hand, Mail or Overnight Delivery: By Facsimile Transmission:
180 East Fifth Street (for Eligible Institutions only):
St. Paul, Minnesota 55101 (612) 244-1537
</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 THE LETTER OF TRANSMITTAL.
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, Letter 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 Trustees 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 accompanying 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.
29
<PAGE> 35
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, the 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
Indentures 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. All
untendered Old Notes will continue to be subject to the restrictions on transfer
set forth in the Indentures. 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 8, 1998 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
QIBs in reliance upon the exemption from the registration requirements of the
Securities Act provided by Rule 144A, (iv) in transactions complying with the
provisions of Regulation S under the Securities Act or (v) 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 Commission 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.
30
<PAGE> 36
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 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 June 30, 1998, and as adjusted to give effect to the Initial
Offering, the application of the net proceeds therefrom and the establishment of
the New Credit Facility. The information presented below should be read in
conjunction with the consolidated financial statements of the Company and notes
thereto incorporated by reference in this Prospectus and "Selected Historical
Financial and Operating Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents................................... $ 14,348 $ 29,577(1)
========== ==========
Current portion of long-term debt........................... $ 951 $ 951
---------- ----------
Long-term debt, net of current portion:
Existing Credit Facility.................................. 472,132 --
New Credit Facility....................................... -- --
7 5/8% Senior Notes due 2005.............................. -- 125,000
8 1/4% Senior Notes due 2018.............................. -- 125,000
8 3/8% Senior Subordinated Notes due 2008................. -- 250,000
8 7/8% Senior Subordinated Notes due 2007................. 199,694 199,694
9 3/4% Senior Subordinated Notes due 2006................. 159,274 159,274
10 3/8% Senior Subordinated Notes due 2005................ 150,000 150,000
Other long-term debt...................................... 6,177 6,177
---------- ----------
Total long-term debt, net of current portion...... 987,277 1,015,145
---------- ----------
Stockholders' Equity:
Preferred Stock, $.01 par value, 8,000,000 shares
authorized, no shares issued and outstanding, actual
and as adjusted........................................ -- --
Junior Preferred Stock, $.01 par value, 2,000,000 shares
authorized, no shares issued and outstanding, actual
and as adjusted........................................ -- --
Common Stock, $.01 par value, 250,000,000 shares
authorized, 100,301,618 shares issued and
outstanding............................................ 1,007 1,007
Additional paid-in capital................................ 832,548 832,548
Accumulated other comprehensive income (loss) -- foreign
currency translation adjustment........................... (7,423) (7,423)
Retained earnings........................................... (255,760) (255,760)
---------- ----------
Total stockholders' equity........................ 570,372 570,372
---------- ----------
Total capitalization.............................. $1,558,600 $1,586,468
========== ==========
</TABLE>
- ---------------
(1) The net proceeds of the Initial Offering were used to reduce amounts
outstanding under the Existing Credit Facility at the closing of the Initial
Offering.
31
<PAGE> 37
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA
The selected historical financial data set forth below as of and for the
years ended December 31, 1993, 1994, 1995, 1996 and 1997 are derived from the
Company's audited consolidated financial statements and notes thereto giving
effect to the Merger under the "pooling of interests" method of accounting. The
selected historical financial data set forth below as of and for the six months
ended June 30, 1997 and 1998 are derived from unaudited consolidated financial
statements of the Company and notes thereto incorporated by reference in this
Prospectus. The selected 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" included
elsewhere in this Prospectus and the consolidated financial statements of the
Company and the notes thereto incorporated by reference herein. For additional
information relating to the Company's operations, see "Business."
<TABLE>
<CAPTION>
FOR THE SIX
YEAR ENDED MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OPERATING DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS AND OTHER
FINANCIAL DATA:
REVENUE & EXPENSE DATA:
Operating revenues....................... $128,730 $172,536 $243,827 $395,834 $552,194 $248,371 $ 275,090
Production costs......................... 49,740 67,262 82,937 98,396 124,394 58,297 74,230
General & administrative expenses........ 11,783 22,469 21,070 27,366 30,218 13,553 20,200
Depreciation, depletion & amortization... 51,184 91,603 101,116 147,643 248,423 105,810 147,498
Interest expense......................... 7,587 13,547 35,565 40,765 49,134 22,741 21,941
Merger costs(1).......................... -- -- -- -- -- -- 39,000
Income (loss) before income taxes........ 10,710 (189,253) 3,816 81,215 103,212 50,082 (246,488)
Income tax provision (benefit)........... (812) (67,076) (1,736) 26,215 40,992 19,097 (83,509)
Net income (loss)(2)..................... 11,522 (122,177) 5,552 55,000 42,919 30,985 (162,979)
Earnings (loss) per common share:
Basic.................................. 0.23 (2.20) 0.06 0.65 0.46 0.34 (1.62)
Diluted................................ 0.22 (2.20) 0.06 0.62 0.44 0.32 (1.62)
OTHER FINANCIAL DATA AND RATIOS:
EBITDA(3)................................ $ 69,481 $ 66,731 $140,497 $269,623 $400,769 $176,521 $ 180,660
Capital expenditures..................... 308,988 385,740 236,679 441,709 834,358 386,239 407,387
Ratio of EBITDA to interest expense(4)... 9.2x 4.9x 4.0x 6.6x 8.2x 7.8x 8.2x
Ratio of earnings to fixed charges(5).... 1.8 -- -- 2.4 1.9 2.6 --
Ratio of long-term debt to EBITDA........ 1.5 5.9 3.0 1.6 1.7 -- --
Ratio of long-term debt to book
capitalization......................... 41% 76% 71% 47% 48% 48% 63%
OPERATING DATA:
Sales volumes:
Oil (MBbls)............................ 4,148 6,064 8,817 11,543 18,078 7,779 11,134
Gas (MMcf)............................. 33,312 46,903 56,846 74,165 93,723 42,802 58,230
MBOE................................... 9,700 13,881 18,291 23,904 33,699 14,913 20,839
Average prices(6):
Oil (per Bbl).......................... $ 14.32 $ 14.44 $ 17.06 $ 21.42 $ 18.54 $ 19.43 $ 13.20
Gas (per Mcf).......................... 2.06 1.72 1.54 2.30 2.30 2.24 1.99
Production and operating costs (per
BOE)(7)................................ 3.95 3.85 3.55 3.26 3.02 3.20 3.04
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
-------------------------------------------------------- JUNE 30,
1993 1994 1995 1996 1997 1998
-------- -------- -------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Oil and Gas Assets, Net........................ $363,219 $509,774 $574,076 $ 831,225 $1,423,837 $1,474,003
Total Assets................................... 441,984 627,692 724,460 1,121,241 1,642,995 1,776,130
Long-Term Debt................................. 105,597 393,673 416,491 440,974 672,298 987,277
Stockholders' Equity........................... 153,343 126,628 171,326 493,072 725,337 570,372
</TABLE>
32
<PAGE> 38
- ---------------
(1) Nonrecurring merger costs of $39.0 million have been recorded in the first
quarter of 1998. These costs consist primarily of investment banking and
other transaction fees, employee severances and relocation costs as well as
the write-off of deferred financing costs related to the former credit
facilities replaced by the Existing Credit Facility in March 1998. Before
consideration of the $39.0 million of nonrecurring merger costs and the
$218.4 million write-down of oil and gas properties, net income would have
been $5.3 million for the six months ended June 30, 1998.
(2) Net income for the year ended December 31, 1997 includes the effect of an
extraordinary loss, net of income taxes, of $19.3 million resulting from the
purchase of approximately $124.8 million of the Existing Senior Notes.
(3) Earnings before interest, taxes, depreciation, depletion and amortization.
EBITDA has not been reduced for the nonrecurring merger costs incurred in
the quarter ended March 31, 1998, the write-down of oil and gas properties
in the quarter ended June 30, 1998 or the extraordinary loss for the year
ended December 31, 1997. 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 a
generally accepted accounting principle measure, but provides additional
information for evaluating the Company's ability to make payments in respect
of the Notes. EBITDA is not intended as an alternative to earnings from
continuing operations or net income.
(4) For purposes of determining the ratio of EBITDA to interest expense,
interest expense as reported in the Company's Consolidated Statement of
Income has not been adjusted by capitalized interest and non-cash
amortization of deferred financing costs. If interest expense was adjusted
to reflect such amounts, the ratio would have been 10.4x, 5.0x, 3.7x, 6.0x
and 6.8x for the years ended December 31, 1993, 1994, 1995, 1996 and 1997,
respectively, and 6.7x and 5.1x for the six months ended June 30, 1997 and
1998, respectively.
(5) 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, preferred dividend requirements adjusted to a pre-tax basis
and an assumed interest portion of rent expense. Earnings to cover fixed
charges were insufficient by $190,123, $2,989 and $261,941 for the years
ended December 31, 1994 and 1995 and for the six months ended June 30, 1998,
respectively. Before consideration of the $39.0 million of nonrecurring
merger costs and the $218.4 million write-down of oil and gas properties,
the ratio of earnings to fixed charges for the six months ended June 30,
1998 would have been 0.9x.
(6) Excludes results of hedging activities which increased (decreased) revenue
recognized in the years ended December 31, 1993, 1994, 1995, 1996 and 1997
by $(0.2 million), $1.4 million, $3.6 million, $(22.6) million and $(1.3)
million, respectively, and by $(0.4) million and $11.1 million in the six
months ended June 30, 1997 and 1998, respectively. Including the effect of
hedging activities, the Company's average oil price per Bbl received was
$14.60, $14.67, $17.05, $20.24 and $18.54 in the years ended December 31,
1993, 1994, 1995, 1996 and 1997, respectively, and the average gas price per
Mcf received was $2.02, $1.72, $1.60, $2.18 and $2.28 in the years ended
December 31, 1993, 1994, 1995, 1996 and 1997, respectively. In the six
months ended June 30, 1997 and 1998, the Company's average oil price per
Bbl, including hedging activities, received was $19.38 and $14.19,
respectively, and the average gas price per Mcf, including hedging
activities, received was $2.24 and $1.99 in the three months ended June 30,
1997 and 1998. There was no effect of hedging activities relating to gas
during the six months ended June 30, 1998.
(7) Excludes production and ad valorem taxes.
33
<PAGE> 39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Effective March 27, 1998, pursuant to that certain Agreement and Plan of
Merger, dated December 22, 1997 (as amended, the "Merger Agreement"), UMC was
merged with and into the Company. As a result of the Merger, the separate
existence of UMC ceased and the Company succeeded to all of the rights and
obligations of UMC. Pursuant to the Merger Agreement, at the effective time of
the Merger, the Company's stockholders received 2.34 shares of the combined
Company's common stock for each share of the Company's common stock then owned,
and UMC stockholders received 1.30 shares of the combined Company's common stock
for each share of UMC stock then owned. The Merger, completed on March 27, 1998,
was treated as a pooling of interests for accounting purposes.
This financial review summarizes the combined financial condition and
results of operations giving retroactive effect to the Merger and should be read
in conjunction with the Company's consolidated financial statements and the
notes thereto incorporated by reference in this Prospectus.
GENERAL
The Company's operating activities are organized into three primary
operating units: (i) the continental shelf and deepwater areas of the Gulf of
Mexico, (ii) the West African countries of Cote d'Ivoire, Equatorial Guinea and
Angola, and the Asian Basin countries of Pakistan and Bangladesh, and (iii)
certain onshore areas of North America, including Western Canada and the
Midcontinent and Rocky Mountain regions of the U.S. As of December 31, 1997, the
Company had estimated proved reserves of approximately 137.6 MMBbls of oil and
797.9 Bcf of natural gas, or an aggregate of approximately 270.6 MMBOE, with a
Present Value of Future Net Revenues before income taxes of approximately $1.3
billion and a Standardized Measure of Discounted Future Net Cash Flows of
approximately $1.2 billion. On a BOE basis, approximately 51% of the Company's
proved reserves at December 31, 1997 were oil.
The following table sets forth information with respect to the Company's
production and average unit prices and costs for the periods indicated:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------- -------------------
1995 1996 1997 1997 1998
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Production:
Oil (MBbls)
United States........................... 7,883 9,171 12,159 5,320 7,635
Canada.................................. 649 511 439 212 218
Cote d'Ivoire........................... 285 894 1,027 568 393
Equatorial Guinea....................... -- 967 4,453 1,679 2,888
------- ------- ------- ------- -------
Total.............................. 8,817 11,543 18,078 7,779 11,134
======= ======= ======= ======= =======
Natural gas (MMcf)
United States........................... 51,271 66,439 81,154 37,172 49,886
Canada.................................. 5,383 5,339 7,630 3,470 4,729
Cote d'Ivoire........................... 192 2,387 4,939 2,160 3,615
------- ------- ------- ------- -------
Total.............................. 56,846 74,165 93,723 42,802 58,230
======= ======= ======= ======= =======
Average net sales price, including hedging:
Oil ($ per Bbl)
United States........................... $ 17.14 $ 20.05 $ 18.87 $ 19.89 $ 14.76
Canada.................................. $ 16.59 $ 19.43 $ 17.97 $ 18.88 $ 12.04
Cote d'Ivoire........................... $ 15.45 $ 20.56 $ 18.35 $ 18.61 $ 14.81
Equatorial Guinea....................... $ -- $ 22.17 $ 17.71 $ 18.10 $ 12.77
Average............................ $ 17.05 $ 20.24 $ 18.54 $ 19.38 $ 14.19
</TABLE>
34
<PAGE> 40
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------- -------------------
1995 1996 1997 1997 1998
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Natural gas ($ per Mcf)
United States........................... $ 1.65 $ 2.25 $ 2.40 $ 2.33 $ 2.08
Canada.................................. $ 1.17 $ 1.44 $ 1.40 $ 1.49 $ 1.30
Cote d'Ivoire........................... $ 1.72 $ 1.80 $ 1.81 $ 1.82 $ 1.68
Average............................ $ 1.60 $ 2.18 $ 2.28 $ 2.24 $ 1.99
Other data ($ per BOE):
Production and operating costs(1).......... $ 3.55 $ 3.26 $ 3.02 $ 3.20 $ 3.04
Ad valorem and production taxes............ $ 0.98 $ 0.86 $ 0.67 $ 0.71 $ 0.52
Oil and natural gas DD&A(2)................ $ 5.43 $ 6.06 $ 7.23 $ 6.97 $ 6.98
</TABLE>
- ---------------
(1) Costs incurred to operate and maintain wells and related equipment,
excluding ad valorem and production taxes.
(2) Does not include depreciation and amortization of corporate assets.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Operating revenues. The Company's total operating revenues increased
approximately $26.7 million, or 11%, to $275.1 million for the six months ended
June 30, 1998, from $248.4 million for the comparable period in 1997. Production
levels for the six months ended June 30, 1998, increased 40% to 20,839 MBOE from
14,913 MBOE for the comparable period in 1997. The increase in oil and gas
revenues is due to increased oil volumes in the Gulf of Mexico and Equatorial
Guinea and overall higher U.S. gas volumes.
Oil revenues increased $7.2 million, or 5%, to $158.0 million for the six
months ended June 30, 1998, from $150.8 million for the six months ended June
30, 1997, the result of significantly increased worldwide production volumes
offset by a decline in the average realized price received. Oil production
increased 43% to 11,134 MBO for the first six months of 1998 as compared to the
same period in 1997 due primarily to increased oil production in the Gulf of
Mexico and Equatorial Guinea. The average sales price before hedging for oil
decreased 32% to $13.20 in the first six months of 1998 compared to $19.43 in
the same period in 1997.
Natural gas revenues increased $20.1 million, or 21%, to $115.9 million for
the six months ended June 30, 1998, from $95.8 million for the six months ended
June 30, 1997, the result of increased worldwide production which more than
offset the decline in prices received for gas. Natural gas production for the
six months of 1998 was 58,230 MMCF, an increase of 36% over 1997 volumes due
primarily to increased production in the Gulf of Mexico, Cote d'Ivoire and
Canada and the impact of acquisitions, offset by property sales and natural
production declines in North America. The average sales price before hedging for
natural gas decreased 11% to $1.99 per MCF in the first six months of 1998 as
compared to $2.24 in the first six months of 1997.
For the six months ended June 30, 1998, the Company's total revenues were
further affected by a $6.3 million increase 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. The
Company's average sales prices including hedging for oil and natural gas for the
six months ended June 30, 1998 were $14.19 per Bbl and $1.99 per Mcf compared to
$19.38 per Bbl and $2.24 per Mcf in the comparable 1997 period.
Production costs. Total production costs increased $15.9 million, or 27%,
to $74.2 million for the six months ended June 30, 1998 from $58.3 million for
the comparable 1997 period. This increase primarily results from fluctuations in
normal operating expenses, including operating expenses associated with
increased production from new facilities. Production and operating costs (costs
incurred to operate and maintain wells and related equipment, excluding ad
valorem and production taxes) decreased $0.16 per BOE, or 5%, to $3.04 per BOE
for the six months ended June 30, 1998, from $3.20 per BOE in the comparable
1997 period. This decrease is primarily the result of increased production in
the Company's offshore Gulf of Mexico and Equatorial Guinea fields and resulting
higher utilization of existing facilities.
35
<PAGE> 41
General and administrative expenses. General and administrative expenses
increased $6.6 million, or 49%, to $20.2 million for the six months ended June
30, 1998 from $13.6 million in the comparable 1997 period. This increase is
primarily due to costs of increased corporate staffing associated with both an
increase in drilling activities and the Company's property acquisitions in 1997.
In addition, costs related to a new systems implementation partially offset 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 accordance with the full cost method of accounting contributed to
the increase. As a result of these factors, general and administrative expenses
per BOE increased slightly by $0.06 per BOE, or 7%, to $0.97 per BOE for the six
months ended June 30, 1998, from $0.91 per BOE for the comparable 1997 period.
Depreciation, depletion and amortization expense. Depreciation, depletion
and amortization ("DD&A") expense increased $41.7 million, or 39%, to $147.5
million for the six months ended June 30, 1998, from $105.8 million for the
comparable 1997 period. This variance is primarily attributable to the Company's
increased production and related current and future capital costs from the 1997
and 1998 Gulf of Mexico and international drilling programs and acquisitions,
partially offset by the effect of an increase in proved reserves resulting from
such programs and acquisitions. Oil and gas DD&A increased $0.01 per BOE, or
less than 1%, to $6.98 per BOE for the six months ended June 30, 1998, from
$6.97 per BOE for the comparable 1997 period. The non-cash write-down of oil and
gas properties recognized in the second quarter of 1998 should lower oil and gas
DD&A per BOE in future periods.
Write-down of oil and gas properties. As required under the full cost
method of accounting, capitalized costs are limited to the sum of the present
value of future net revenues using current unescalated pricing discounted at 10%
related to estimated production of proved reserves and the lower of cost or
estimated fair value of unevaluated properties, all net of expected income tax
effects. At June 30, 1998, the Company recognized a non-cash impairment of oil
and gas properties in the amount of $218.4 million pre-tax ($135.4 million
after-tax) pursuant to this ceiling limitation required by the full cost method
of accounting for oil and gas properties, using certain improvements in pricing
experienced after period end. The write-down is primarily a result of the
precipitous decline in world crude oil prices experienced during the second
quarter of 1998.
Interest and debt expense. Interest and debt expense decreased $0.8
million, or 4%, to $21.9 million for the six months ended June 30, 1998 from
$22.7 million in the comparable 1997 period. This decrease is primarily the
result of an increase in capitalized interest for the period. Average total debt
outstanding for the six months ended June 30, 1998 was $830.7 million as
compared to $478.6 million for the same period in 1997.
Merger Costs. Merger costs of $39.0 million have been recorded in the first
quarter of 1998. These costs consist primarily of investment banking and other
transaction fees, employee severance and relocation costs as well as the
write-off of deferred financing costs related to the former credit facilities
replaced by the OEI Credit Facility in March 1998.
Income tax expense (benefit). An income tax benefit of $83.5 million (of
which $2.6 million is a current provision and $86.1 million is a deferred
benefit) was recognized for 1998, compared to a provision of $19.1 million (of
which $2.7 million was a current provision and $16.4 million was a deferred
provision) for 1997. A significant portion of current taxes is a non-cash
provision representing current taxes incurred in Cote d'Ivoire which, under the
terms of the production sharing contract, will be paid by the Ivorian government
from their production proceeds. The deferred tax benefit for the six months
ended June 30, 1998 is further impacted by the non-cash write-down of oil and
gas properties and the tax treatment of certain Merger costs, a portion of which
is not deductible for tax purposes. Consistent with Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, the deferred
income tax provision or benefit was derived primarily from changes in deferred
income tax assets and liabilities recorded on the balance sheet.
Net Income. Due to the factors described above, the net loss for the six
months ended June 30, 1998, was $(163.0) million, a decrease of $194.0 million
from net income of $31.0 million for the comparable 1997 period.
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<PAGE> 42
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
Operating revenues. The Company's total operating revenues increased
approximately $156.4 million, or 40%, to $552.2 million for the year ended
December 31, 1997, from $395.8 million for the comparable period in 1996.
Production levels for the year ended December 31, 1997, increased 41% to 33,699
MBOE from 23,904 MBOE for the comparable period in 1996. The increase in oil and
gas revenues is due to increased oil volumes in the Gulf of Mexico Region and
Equatorial Guinea, resulting from a full year's production from the Central Gulf
Properties and Block B in Equatorial Guinea ("Block B") and higher U.S. gas
volumes.
Oil revenues increased 43% to $335.1 million, the result of significantly
increased worldwide production volumes offset by a drop in the average realized
price received. Oil production increased 57% to 18,078 MBbls in 1997 due
primarily to increased oil production in the Gulf of Mexico Region and
Equatorial Guinea. The average sales price before hedging for oil decreased 13%
to $18.54 in 1997 compared to 1996.
Natural gas revenues increased 33% to $214.1 million, the result of slight
increases in natural gas prices and the impact of certain hedging activities,
offset by certain property sales. The average sales price before hedging for
natural gas remained constant at $2.30 per Mcf in 1997 and 1996. Natural gas
production for 1997 was 93,723 MMcf, an increase of 26% over 1996 volumes due
primarily to acquisitions and increased production in the Gulf of Mexico Region,
Cote d'Ivoire and Canada, offset by property sales and natural production
declines in North America.
For the year ended December 31, 1997, the Company's total revenues were
further affected by a $1.3 million decrease in hedging revenues. In order to
manage its exposure to price risks in the sale of its oil and natural gas, the
Company from time to time enters into price hedging arrangements. The Company's
average sales prices including hedging for oil and natural gas for the year
ended December 31, 1997 were $18.54 per Bbl and $2.28 per Mcf compared with
$20.24 per Bbl and $2.18 per Mcf in the prior period.
Production costs. For the year ended December 31, 1997, total production
costs were $124.4 million, as compared to $98.4 million in the 1996 period, an
increase of 26%. This increase primarily results from fluctuations in normal
operating expenses, including operating expenses associated with increased
production from new facilities and an increase of approximately $11.8 million
relating to production costs of the Central Gulf Properties acquired in 1996.
Production and operating costs (costs incurred to operate and maintain wells and
related equipment, excluding ad valorem and production taxes) decreased to $3.02
per BOE for the year ended December 31, 1997, from $3.26 per BOE in the
comparable 1996 period. This decrease is primarily the result of increased
production in the Company's offshore Gulf of Mexico Region and Equatorial Guinea
fields, which have substantial fixed operating costs due to the capital
intensive nature of the facilities, further impacted by the under-utilization of
capacity in the Gulf of Mexico Region fields.
General and administrative expenses. For the year ended December 31, 1997,
general and administrative expenses were $30.2 million as compared to $27.4
million in the comparable 1996 period, an increase of 10%. This increase is
primarily due to costs of increased corporate staffing associated with both an
increase in drilling activities and the Company's acquisitions in 1996 and 1997.
In addition, a new systems implementation partially offset by an increase in
1997 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 accordance with the full cost method of accounting contributed to
the increase. General and administrative expenses per BOE decreased to $0.90 per
BOE for the year ended December 31, 1997, from $1.14 per BOE for the comparable
1996 period. This unit decrease is primarily the result of increased production
in the Gulf of Mexico Region and Equatorial Guinea fields.
Depreciation, depletion and amortization expense. For the year ended
December 31, 1997, DD&A expense was $248.4 million as compared to $147.6 million
in the comparable 1996 period, an increase of 68%. This variance can primarily
be attributed to the Company's increased production and related current and
future capital costs from the 1996 and 1997 Gulf of Mexico Region and
international drilling programs and acquisitions, partially offset by the
increase in proved reserves resulting from such programs and acquisitions. On a
BOE basis, oil and gas DD&A for the year ended December 31, 1997, was $7.23 per
BOE as compared
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<PAGE> 43
to $6.06 per BOE for the year ended December 31, 1996. This unit increase is
primarily the result of increased production in the Gulf of Mexico Region and
Equatorial Guinea fields.
Interest and debt expense. For the year ended December 31, 1997, interest
and debt expense increased 20% to $49.1 million, from $40.8 million in the
comparable 1996 period. This increase is primarily the result of an increase of
approximately $11.5 million from the comparable 1996 period relating to the
9 3/4% Notes issued in September 1996 and interest and debt expense of
approximately $8.9 million related to the issuance of $200 million of the 8 7/8%
Notes in July 1997. In addition, interest and debt expense increased in both
periods due to a higher average balance on the Company's bank credit facilities.
The increase was partially offset by a decrease in interest expense of
approximately $7.0 million as a result of the Company's purchase of \$124.8
million of the $125.0 million in original principal amount of the Company's
13 1/2% Senior Notes due 2004 (the "Existing Senior Notes") on July 22, 1997,
and by an increase in the amount of interest capitalized in the 1997 period
resulting from an increase in the Company's unevaluated assets, including
additional acreage and seismic data.
Income tax expense (benefit). An income tax provision of $41.0 million (of
which $6.2 million is a current provision and $34.8 million is a deferred
provision) was recognized for 1997, compared to a provision of $26.2 million (of
which $0.8 million was a current provision and $25.4 million was a deferred
provision) for 1996. A significant portion of current taxes in 1997 is a $4.6
million non-cash provision representing current taxes incurred in Cote d'Ivoire
which, under the terms of the production sharing contract, will be paid by the
Ivorian government from their production proceeds. Consistent with SFAS No. 109,
Accounting for Income Taxes, the deferred income tax provision was derived
primarily from changes in deferred income tax assets and liabilities recorded on
the balance sheet. The 1996 deferred tax provision was affected by the use of
$13.0 million of net operating loss ("NOL") carryforwards to essentially
eliminate 1996 taxable income and the deferred tax effect of exercised stock
options. At December 31, 1997, the Company had $122.7 million of U.S. NOL
carryforwards, $67.0 million of Equatorial Guinea NOL carryforwards and $32.2
million of Canadian federal tax pools. The Company paid cash income taxes in
1997 and 1996 of $1.8 million and $0.4 million, respectively, to several states,
Canada and the U.S.
Extraordinary loss on early extinguishment of debt. On July 22, 1997, the
Company purchased approximately $124.8 million of the $125.0 million original
principal amount of the Existing Senior Notes for approximately $151.5 million.
This repurchase resulted in an after-tax extraordinary charge of $19.3 million,
representing the difference between the purchase price and the net carrying
value of the Existing Senior Notes.
Net income. Due to the factors described above, net income before an
extraordinary charge for the year ended December 31, 1997, increased to $62.2
million, an increase of $7.2 million or 13% from net income of $55.0 million for
the comparable 1996 period. Including the effect of the extraordinary charge,
the Company recorded net income of $42.9 million for the year ended December 31,
1997.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
Operating revenues. The Company's total operating revenues increased
approximately $152.0 million, or 62%, to $395.8 million for the year ended
December 31, 1996, from $243.8 million for the comparable period in 1995.
Production levels for the year ended December 31, 1996, increased 31% to 23,904
MBOE from 18,291 MBOE for the comparable period in 1995 resulting from the Gulf
of Mexico Region activities and a full year of production in Cote d'Ivoire.
Oil revenues increased 55% to $233.6 million, the result of increases in
both production volumes and realized prices received. Oil production increased
31% to 11,543 MBbls in 1996 due to expansion of Gulf of Mexico Region
operations, acquisitions and a full year of production in Cote d'Ivoire. The
average sales price before hedging for oil increased 26% to $21.42 in 1996
compared to 1995.
Natural gas revenues increased 77% to $161.4 million, the result of strong
gas prices and increased production, offset somewhat by the impact of property
sales. The average sales price before hedging for gas was $2.30 per Mcf in 1996
compared with $1.54 per Mcf in the prior period.
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<PAGE> 44
For the year ended December 31, 1996, the Company's total revenues were
further affected by a $22.6 million decrease in hedging revenues. This decrease
was the result of significant increases in product prices in 1996. In order to
manage its exposure to price risk in the sale of its oil and natural gas, the
Company from time to time enters into price hedging arrangements. The Company's
average sales prices including hedging for oil and natural gas for the year
ended December 31, 1996, were $20.24 per Bbl and $2.18 per Mcf compared with
$17.05 per Bbl and $1.60 per Mcf in the prior period.
Production costs. For the year ended December 31, 1996, total production
costs were $98.4 million, as compared to $82.9 million in the 1995 period, an
increase of 19%. This increase primarily resulted from fluctuations in normal
operating expenses, including operating expenses associated with increased
production, commencement of production in Equatorial Guinea and an increase of
approximately $2.8 million relating to production costs of newly acquired
properties in the Central Gulf. Production and operating costs (costs incurred
to operate and maintain wells and related equipment, excluding ad valorem and
production taxes) decreased to $3.26 per BOE for the year ended December 31,
1996, from $3.55 per BOE in the comparable 1995 period. This decrease is
primarily the result of increased production in the Gulf of Mexico Region, which
have substantial fixed operating costs due to the capital intensive nature of
the facilities and the under-utilization of capacity.
General and administrative expenses. For the year ended December 31, 1996,
general and administrative expenses were $27.4 million as compared to $21.1
million in the comparable 1995 period. This increase is primarily due to costs
of increased corporate staffing associated with both an increase in
international drilling activities, the Company's acquisition of certain Central
Gulf properties and miscellaneous non-cash benefits accruals. This was 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. General and administrative expense
per BOE decreased to $1.14 per BOE for the year ended December 31, 1996, from
$1.15 per BOE for the comparable 1995 period.
Depreciation, depletion, and amortization expense. For the year ended
December 31, 1996, DD&A expense was $147.6 million as compared to $101.1 million
in the comparable 1995 period, an increase of 46%. This variance can primarily
be attributed to the Company's increased production and related current and
future capital costs from the 1995 and 1996 worldwide drilling programs and
acquisitions partially offset by the increase to proved reserves resulting from
programs and acquisition. On a BOE basis, DD&A for the year ended December 31,
1996, was $6.06 per BOE as compared to $5.43 per BOE for the year ended December
31, 1995.
Interest and debt expense. For the year ended December 31, 1996, interest
and debt expense increased 15% to $40.8 million, from $35.6 million in the
comparable 1995 period. This increase is primarily a result of generally higher
debt levels partially offset by the repayment of a portion of the Company's debt
with proceeds from the public offerings of common stock in March and November
1996. 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). An income tax provision of $26.2 million was
recognized for 1996, compared to a benefit of $1.7 million for 1995. Consistent
with SFAS No. 109, the deferred income tax provision or benefit was derived
primarily from changes in deferred income tax assets and liabilities recorded on
the balance sheet. The primary items affecting the 1996 deferred tax provision
were the use of $13.0 million of NOL carryforwards to eliminate 1996 taxable
income and the deferred tax effect of exercised stock options. At December 31,
1996, the Company had $127.0 million of U.S. NOL carryforwards, $52.0 million of
Equatorial Guinea NOL carryforwards and $17.6 million of Canadian federal tax
pools. The Company paid cash income taxes in 1996 and 1995 of $0.4 million and
$0.6 million, respectively, to several states, Canada and the U.S. for the
Alternative Minimum Tax.
Net income. Due to the factors described above, net income for the year
ended December 31, 1996, increased to $55.0 million, an increase of $49.4
million or 882% from net income of $5.6 million for the comparable 1995 period.
39
<PAGE> 45
LIQUIDITY AND CAPITAL RESOURCES
The following summary table reflects comparative cash flows for the Company
for the years ended December 31, 1995, 1996 and 1997 and for the six months
ended June 30, 1997 and 1998:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------- ---------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by
operating activities..... $ 105,313 $ 209,313 $ 339,675 $ 188,610 $ 111,815
Net cash used in investing
activities............... (160,224) (428,007) (803,679) (308,274) (427,967)
Net cash provided by
financing activities..... 56,316 265,597 414,992 75,347 318,811
</TABLE>
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, 1995, 1996 and 1997 and for the six
months ended June 30, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------ -------------------
1995 1996 1997 1997 1998
-------- -------- -------------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Property acquisition costs:
Proved....................... $ 25,819 $ 66,105 $130,074 $ 92,980 $ 6,879
Unproved..................... 5,724 75,365 107,817 30,280 16,916
Properties held for resale..... -- (37,200) -- -- --
Exploration costs.............. 48,992 108,430 250,698 99,827 140,914
Development costs.............. 144,534 211,068 317,975 151,562 216,160
Capitalized interest on
unevaluated properties....... 3,882 7,408 12,802 5,001 15,049
Capitalized general and
administrative costs......... 7,728 10,533 14,992 6,589 11,469
-------- -------- -------- -------- --------
Total costs
incurred........... $236,679 $441,709 $834,358 $386,239 $407,387
======== ======== ======== ======== ========
</TABLE>
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 has historically
funded its operations, acquisitions, exploration and development expenditures
from cash flows from operating activities, bank borrowings, sales of equity and
debt securities, sales of non-strategic oil and natural gas properties, sales of
partial interests in exploration concessions and project finance borrowings. The
Company intends to finance remaining 1998 capital expenditures related to this
strategy primarily with funds provided by operations, borrowings or other
capital market activities.
The Company's capital expenditure budget for 1998 is expected to be
approximately $650 million, focused in the Company's three operating regions. In
addition, the Company will evaluate its level of capital spending throughout the
year based upon drilling results, commodity prices, cash flows from operations
and property acquisitions. Actual capital spending may vary from the capital
expenditure budget.
The Company's debt to total capitalization ratio has increased to 63.4% at
June 30, 1998, from 48.1% at December 31, 1997. The Company's interest coverage
ratio (calculated as the ratio of income from operations plus DD&A and
impairment of proved oil and gas properties to reported interest expense plus
capitalized interest less non-cash amortization of debt issue costs) was 5.1 to
1 for the first six months of 1998 compared with 6.7 to 1 for the first six
months of 1997.
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<PAGE> 46
The Company currently has certain agreements in place to reduce interest
rate fluctuation risk on a portion of its debt, resulting in an increase in
interest and debt expense of $0.2 million during the six months ended June 30,
1998.
Concurrent with the closing of the Merger on March 27, 1998, the Company
entered into a $750 million five-year unsecured revolving credit facility (the
"Existing Credit Facility") which combined and replaced the respective credit
facilities of OEI and UMC in existence prior to the Merger. The Existing Credit
Facility, which was with a group of commercial banks, provided for various
borrowing options under either a base rate or Eurodollar margin rates. As of
June 30, 1998, the Existing Credit Facility provided a $600 million initial
borrowing base. These borrowings were repaid in July 1998 with the proceeds from
the Initial Offering.
At the closing of the Initial Offering, the Company entered into a new
credit facility (the "New Credit Facility"), which was an amendment and
restatement of the Existing Credit Facility and substituted OEI for OEI
Louisiana as the borrower thereunder. The maximum amount of borrowings available
under the New Credit Facility is initially $300 million. The loans under the New
Credit Facility will generally bear interest, at the Company's option, either at
(i) a market-based index rate for floating rate loans plus a margin of 0.0%,
(ii) a LIBOR-based index rate for fixed rate loans of a specified period,
generally six months or less, plus a margin of 0.70% to 1.275% or (iii) a rate
determined through a bidding process. In addition, the Company will pay a
quarterly facility fee of 0.20% to 0.375% per annum on the average borrowing
base for such period. The loans under the New Credit Facility will mature on
March 31, 2003. The New Credit Facility is guaranteed by OEI Louisiana. The
other material terms of the New Credit Facility are substantially similar to
those of the Existing Credit Facility. As of August 31, 1998, total borrowings
outstanding against the facility were approximately $136.0 million, leaving
approximately $164.0 million of available credit. See "Description of the New
Credit Facility."
In addition to developing its existing reserves, the Company attempts to
increase its reserve base, production and operating cash flow by engaging in
strategic acquisitions of oil and gas properties. In order to finance other
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, some of which will relate to the
financial condition and performance of the Company, and some of which will be
beyond the Company's control, such 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 Existing Indentures and the
New Credit Facility, while the ability of the Company to grant certain liens
will be subject to the terms of the Indentures.
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 subject to financial and business conditions and other factors, many
of which are beyond its control, supplemented if necessary with existing cash
balances and borrowings under the New Credit Facility. The Company currently
expects that its cash flow from operations and availability under the New Credit
Facility will be adequate to execute its 1998 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 and availability under the New 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.
Effects of Leverage. The Company had outstanding long-term indebtedness of
approximately $987.3 million as of June 30, 1998. 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 (a) the Existing
Indentures, the New Credit Facility and the Senior Subordinated Indenture set
forth certain financial tests, and contain other restrictions which limit the
Company's ability to borrow additional funds or to dispose of assets, and (b)
the Senior Indentures limit the Company's ability to grant certain liens and
engage in sale/leaseback transactions, all of which may affect the Company's
flexibility
41
<PAGE> 47
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. None of the Existing
Indentures place significant restrictions on a wholly-owned subsidiary's ability
to make distributions to the parent company.
The Company believes it is currently in compliance with all covenants
contained in the respective Existing Indentures.
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.
OTHER MATTERS
Energy swap agreements. The Company hedges certain of its production
through master swap agreements ("Swap Agreements") which provide for separate
contracts tied to the NYMEX light sweet oil and natural gas futures contracts.
In addition, the Company has combined contracts which have agreed upon price
floors and ceilings ("Costless Collars"). As of June 30, 1998, the fair market
value of all hedging contracts covered by the Swap Agreements was approximately
$10.1 million.
Oil revenues have been increased by $11.1 million for the six months ended
June 30, 1998 as a result of the hedge contracts in place for such period. As of
June 30, 1998, the Company's open forward position on its outstanding Swap
Agreements was 2,100 MBbls at an average price of $19.87 per Bbl for the year
ended December 31, 1998. The Company currently has no outstanding natural gas
swaps.
It is the Company's current intention to commit no more than 50% of its
production on a BOE basis 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 substantially,
unless the Company enters into additional hedging transactions.
Price fluctuations and volatile nature of markets. 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 on 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.
Any significant decline in prices for oil and gas could have a material adverse
effect on the Company's financial position, results of operations and quantities
of reserves recoverable on an economic basis.
Environmental. 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 MMS 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. The Company has included $10.0 million in its 1998 exploration and
development capital budget to reformat operations for alternative disposal of
water produced from its offshore wells in accordance with an approved zero
discharge
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<PAGE> 48
plan. As recently as August 8, 1998, the Environmental Protection Agency ("EPA")
added four petroleum refining wastes to the list of RCRA hazardous wastes. While
the full impact of this new rule has yet to be determined, the rule may, as of
February 1999, impose increased expenditures and operating expenses on the
Company, which may take on additional obligations relating to the treatment,
storage, disposal, and transportation of certain petroleum refining wastes that
were previously not regulated as hazardous wastes.
The Oil Pollution Act of 1990 ("OPA") 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
$10.0 million depending on gross tonnage. With respect to offshore facilities,
proof of greater levels of financial responsibility may be applicable. This
amount is subject to upward regulatory adjustment up to $150.0 million.
Year 2000 compliance. The Company is currently in the process of evaluating
its information technology infrastructure for the year 2000 ("Year 2000")
compliance. The Company's primary information systems are in the process of
being replaced with fully compliant new systems as part of a regularly scheduled
upgrade to meet the Company's growing capacity and performance requirements.
These replacements are expected to be completed by early 1999.
The Company does not expect that the cost to modify and replace its
information technology infrastructure to be Year 2000 compliant will be material
to its financial condition or results of operations. The Company does not
anticipate any material disruption in its operations as a result of any failure
by the Company to be in compliance. The costs of these projects and the date on
which the Company plans to complete modifications and replacements are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events including the continued availability of certain resources,
third party modification plans and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
materially from those plans.
The Company does not currently have any information concerning the Year
2000 compliance status of its suppliers and customers. In the event that any of
the Company's significant suppliers or customers do not successfully and timely
achieve Year 2000 compliance, the Company's business or operations could be
adversely affected.
The Company has not incurred significant costs related to Year 2000
compliance prior to December 31, 1997, other than internal costs to evaluate the
extent of compliance.
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<PAGE> 49
BUSINESS
GENERAL
The Company is one of the largest independent oil and gas exploration and
production companies in the U.S., with a market enterprise value of
approximately $3.0 billion (market value of equity plus debt). The Company was
created in March 1998 by the strategic merger of OEI and UMC, which Merger
brought together the complementary strengths and opportunities inherent in each
company, while substantially increasing the combined Company's financial
profile. On a combined basis, the Company generated EBITDA of $404.9 million for
the twelve months ended June 30, 1998. As of December 31, 1997, the Company had
estimated proved reserves of approximately 137.6 MMBbls of oil (51% of total
proved reserves) and 797.9 Bcf of natural gas (49% of total proved reserves) for
a total of 270.6 MMBOE, with a Present Value of Future Net Revenues of
approximately $1.3 billion and a Standardized Measure of Discounted Future Net
Cash Flows of approximately $1.2 billion. The Company holds a diversified
portfolio of properties with both domestic and international exposure organized
into three primary operating units: (i) the Gulf of Mexico Region; (ii) the
International Region; and (iii) the North American Onshore Region.
Gulf of Mexico Region. In the Gulf of Mexico Region, the Company held
interests in 0.9 million gross (0.5 million net to the Company) acres as of
December 31, 1997, and currently holds 184 shelf and 45 deepwater blocks. On the
continental shelf, the Company's operations are in three primary areas: (i) the
Mississippi River Delta; (ii) the Central Gulf; and (iii) the Western Gulf. In
the deepwater Gulf of Mexico, the Company's blocks are located offshore
Louisiana in water depths ranging from 2,500 to 7,500 feet, where the Company
expects to commence drilling operations in 1999. As of December 31, 1997, the
Company had approximately 115.6 MMBOE of proved reserves attributable to the
Gulf of Mexico Region (approximately 43% of the Company's total proved reserves)
with average daily production during the first six months of 1998 of 64.4 MBOE
per day.
International Region. In the International Region, the Company currently
holds interests in 12 West African blocks (two of which are currently under
production), totaling approximately 6.7 million gross (2.6 million net to the
Company) acres, in Cote d'Ivoire, Equatorial Guinea and Angola. In addition, the
Company has interests in the Asian Basin countries of Pakistan, covering 7.7
million gross (5.8 million net to the Company) acres in five blocks, and
Bangladesh, covering 3.3 million gross (1.3 million net to the Company) acres in
one block, where seismic and geophysical evaluations are ongoing. The Company's
acreage in the International Region is generally held pursuant to PSCs with host
governments. Under the Company's 18 PSCs (15 of which the Company operates), the
Company holds contract interests ranging from 15% to 100%. As of December 31,
1997, the Company had approximately 68.0 MMBOE of proved reserves attributable
to the International Region (approximately 25% of the Company's total proved
reserves) with average daily production during the first six months of 1998 of
21.4 MBOE per day.
North American Onshore Region. At December 31, 1997 in the North American
Onshore Region, the Company had interests in 2.9 million gross (1.0 million net
to the Company) acres in 15 states and Western Canada. Domestically, the Company
conducts activities in two primary areas: (i) certain Midcontinent areas,
including the Anadarko Basin and onshore Texas; and (ii) certain Rocky Mountain
areas, including operations in Montana and Wyoming. The Company's Canadian
assets are located in Western Alberta, Canada. As of December 31, 1997, the
Company had approximately 87.0 MMBOE of proved reserves attributable to the
North American Onshore Region (approximately 32% of the Company's total proved
reserves) with average daily production during the first six months of 1998 of
29.3 MBOE per day.
The Company has a successful record of production growth with an average
annual growth rate in excess of 30% for the three-year period ended December 31,
1997. The Company continued to increase production during the six months ended
June 30, 1998, reporting daily average production exceeding 115 MBOE for such
period compared to 92 MBOE for all of 1997. In 1997, the Company's capital
expenditures (excluding acquisitions) totaled approximately $600 million, $250
million of which was directed to exploration. During 1997, 398 total gross wells
were drilled, of which 86 gross were exploratory wells with a 55% success rate
and 312 were development wells with a 93% success rate. In 1998, the Company has
budgeted approximately
44
<PAGE> 50
$650 million for capital expenditures, of which approximately 60% will be used
for development and approximately 40% will be directed to exploration drilling,
seismic and leasehold acquisitions. Of this total, approximately $355 million
will be spent in the Gulf of Mexico Region, $217 million will be spent in the
International Region and $78 million will be spent in the North American Onshore
Region. Management anticipates that this budget will permit the Company to drill
approximately 420 total wells in 1998, approximately 100 of which are expected
to be exploratory wells and 320 of which are expected to be development wells.
COMPANY STRENGTHS
Substantial portfolio of exploration opportunities. The Company has a
substantial inventory of exploration projects for the next several years
providing opportunities to significantly increase reserves, production and cash
flow. The Company's domestic exploration inventory includes opportunities which
provide near-term reserve, production and cash flow growth potential. In
addition, the Company has high-impact exploration prospects in the deepwater
areas of the Gulf of Mexico Region and certain West African and Asian Basin
countries in the International Region providing long-term growth potential. As
part of its efforts in each of these regions, the Company has entered into a
number of exploration alliances (some of which it also operates) both
domestically and internationally with several major oil and gas companies and/or
their respective affiliates and subsidiaries, including Shell, Mobil, Exxon,
Petrofina and Conoco. The Company owns a large inventory of 3-D and 2-D seismic
data in and around its core properties and uses state-of-the-art seismic
evaluation technology in its exploration activities in order to reduce risks and
lower costs. Year to date through June 30, 1998, the Company has drilled 37
exploratory wells, approximately 62% of which have been successful. The Company
anticipates drilling approximately 80 additional exploratory wells in 1998.
Extensive inventory of lower-risk development projects. The Company
currently has an extensive inventory of lower-risk development projects, which
should allow the Company to replace a significant percentage of its production
irrespective of exploration success. As a result of the Company's successful
execution of its business plan, production in 1997 averaged approximately 92
MBOE per day compared to approximately 65 MBOE per day in 1996. Year to date
through June 30, 1998, the Company has drilled 62 development wells, 90% of
which have been successful, and anticipates drilling approximately 250
additional development wells in 1998. Management expects the Company to grow
annual production in 1998 by approximately 30%.
Balanced composition and geographic diversity of reserves. As of December
31, 1997, the Company's proved reserves were balanced evenly between oil and
gas. Additionally, the Company's reserves are diversified geographically, with
approximately 43% located in the Gulf of Mexico, 25% located in the Rocky
Mountain/ Midcontinent regions, 7% located in Canada, 15% located in Equatorial
Guinea and 10% located in Cote d'Ivoire. Approximately 68% of the Company's
total proved reserves are considered proved developed. Management believes that
the balance provided between the properties located in the Company's operating
regions and between commodities lowers the overall risk profile of production as
well as the risk profile of the exploration and development opportunities of the
Company.
Efficient operator. The Company operates a substantial portion of its
wells, allowing it to control expenses, capital allocation and the timing of
development and exploitation of its operated fields. Since 1993, the Company has
decreased per unit production and operating expenses (excluding ad valorem and
production taxes) by 23% from $3.95 per BOE for the year ended December 31, 1993
to $3.04 per BOE for the six months ended June 30, 1998.
Technical expertise and management depth. The Company believes it has one
of the most technically advanced and successful exploration and development
groups in the industry. Management believes the Company's technical personnel,
including its geoscientists and engineers, have extensive expertise and
experience specific to the regions in which the Company operates and provide the
Company with a distinct competitive advantage. This technical expertise is
further enhanced by a seasoned senior management team with significant
experience both specific to the Company's operations and the oil and gas
industry in general.
45
<PAGE> 51
BUSINESS STRATEGY
Emphasizing exploration in the Gulf of Mexico and International
Regions. The Company will focus its exploration program on the Gulf of Mexico
and International Regions where it believes the future prospects for reserve
additions and associated long-term production growth are greatest. In
particular, the Company's exploration program is designed to provide exposure to
selected higher risk, higher potential rate of return prospects, including the
deepwater prospects in the Company's inventory. Within these two regions, the
Company has over 18.6 million gross (10.2 million net to the Company) acres. The
Company has a large inventory of 3-D and 2-D seismic data and other geophysical
technology which, along with the application of the Company's technical
expertise in its core areas of operations, will be used to evaluate this
acreage. The Company expects that approximately $283 million will be dedicated
to exploration expenditures, primarily in the Gulf of Mexico and International
Regions in 1998.
Continuing development of existing producing properties. While the Company
currently enjoys substantial production from properties in each of its three
operating regions, it is actively pursuing the further development of these
properties in order to fully exploit its reserves through horizontal and
development drilling, 3-D seismic enhanced exploitation drilling, recompletions
and waterfloods. This development activity will be focused primarily in
Equatorial Guinea, the continental shelf area of the Gulf of Mexico and the
North American Onshore Region and will provide a majority of the near-term
growth in the Company's production. The Company expects that approximately $367
million will be dedicated to development expenditures in 1998.
Pursuing strategic acquisitions and international opportunities. The
Company is continually evaluating opportunities to acquire 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 involving producing
properties with large acreage positions, it evaluates a broad range of potential
transactions. The Company believes that significant opportunities remain in its
core international areas of operations. The Company continuously evaluates
opportunities to acquire additional PSCs in order to enhance the Company's
long-term growth. Company personnel have substantial training, experience and an
in-depth knowledge of the Company's operating regions, as well as established
relationships with a number of major and large independent energy companies
operating in these regions.
OIL AND GAS PROPERTIES
The Company's operating activities are focused primarily in three operating
units: (i) the continental shelf and deepwater areas (water depth of over 1,500
feet) of the Gulf of Mexico ("Deepwater Gulf"), (ii) the West African countries
of Cote d'Ivoire, Equatorial Guinea and Angola, and the Asian Basin countries of
Pakistan and Bangladesh, and (iii) certain onshore areas of North America,
including Western Canada and the Midcontinent and Rocky Mountain regions of the
U.S. The following table summarizes the Company's proved reserves by operational
area:
<TABLE>
<CAPTION>
PROVED RESERVES AT DECEMBER 31, 1997
-------------------------------------------------------
DISCOUNTED
PRESENT % OF
VALUE BEFORE TOTAL
NATURAL INCOME TAX DISCOUNTED
OIL GAS TOTAL (DOLLARS IN PRESENT
REGION (MBBLS) (MMCF) (MBOE) THOUSANDS) VALUE
------ ------- ------- ------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Gulf of Mexico Region.......................... 69,445 277,106 115,629 $ 675,408 50%
International Region........................... 45,271 136,290 67,986 242,955 18%
North American Onshore Region.................. 22,886 384,539 86,976 424,921 32%
------- ------- ------- ---------- ----
Total................................. 137,602 797,935 270,591 $1,343,284 100%
======= ======= ======= ========== ====
</TABLE>
46
<PAGE> 52
GULF OF MEXICO REGION
The following is a description of each of the Company's major operating
areas in the Gulf of Mexico Region:
Continental Shelf. The Company's operations in the continental shelf area
of the Gulf of Mexico are located in three distinct areas: the Mississippi River
Delta, the Central Gulf and the Western Gulf. These areas have extensive
production histories and contain significant reserve and production enhancement
opportunities.
The Company's current production operations in the continental shelf area
are comprised of 26 Company operated fields, as well as 13 non-operated fields.
These production operations encompass approximately 316,000 gross (161,000 net
to the Company) acres, representing approximately 115.6 MMBOE, or 43% of the
Company's total proved reserves. For the six months ended June 30, 1998, the
Company's average daily production was 35.3 MBbls of oil and 174.5 MMcf of gas.
Some of the Company's premier properties in this area include the South Pass 24
field and the South Pass 27 field located in the highly prolific area of the
East Bay Complex. The Company owns an average 99% working interest in these
fields.
On March 3, 1998, the Company announced that it was expanding its
exploration program through an exclusive Gulf of Mexico Exploration Alliance
(the "Alliance") with Shell Offshore, Inc. ("SOI"). Pursuant to the terms of the
Alliance, the Company and SOI will initially drill 25 exploration prospects, all
delineated by 3-D seismic, on over 141,000 gross acres across the continental
shelf in the Gulf of Mexico. Under the Alliance, the Company will participate
for 25% of SOI's working interest in the Alliance's 25 exploration prospects.
Deepwater Gulf. As a result of the Company's increased emphasis on reserve
additions through exploratory drilling, the Company has begun to focus on the
Deepwater Gulf. In March 1997, the Company entered the Deepwater Gulf
exploration venture with Conoco encompassing 155,220 gross (57,658 net to the
Company) acres located off the coast of Louisiana in water depths ranging from
2,500 to 7,500 feet. In addition, at a federal lease sale conducted in August
1997, the Company was awarded six blocks located in Keathley Canyon,
encompassing 34,560 gross and net acres, and in 1998, the Company entered into
two separate joint venture arrangements encompassing 57,600 gross (28,800 net to
the Company) acres in water depths ranging from 7,000 to 9,000 feet. The Company
believes that the Deepwater Gulf provides substantial reserve and production
growth opportunities in the Gulf of Mexico Region.
INTERNATIONAL REGION
The following is a description of each of the Company's major operating
areas in the International Region:
Cote d'Ivoire. In Cote d'Ivoire, the Company has five PSCs through which it
holds contract interests ranging from 25% to 65% in five blocks totaling
approximately 2.2 million gross (0.9 million net to the Company) acres. As of
December 31, 1997, the Company operated all of the five PSCs in Cote d'Ivoire.
As a result of the successful discoveries and subsequent production history, the
Company recognized net proved reserves of 5.3 MMBbls of oil and 136.3 Bcf of
natural gas on the five blocks at December 31, 1997. In addition, the Company's
net production from the blocks totaled 1,027 MBbls and 4,939 MMcf for the year
ended December 31, 1997. Year to date through June 30, 1998 in Cote d'Ivoire,
the Company participated in two exploratory wells, both of which were
successful. The Company anticipates drilling three additional exploratory wells
in 1998. No development wells have been drilled or are planned in 1998.
In 1997, the Company constructed a liquid propane gas ("LPG") plant to
extract liquids (propane, butane and natural gasoline) from the current natural
gas production in the country. The plant is capable of handling 75 to 95 MMcf
per day of natural gas flow producing up to 45,000 metric tons of LPG per year
and commenced operations during the third quarter of 1998. Total costs incurred
on such plant through December 31, 1997 were approximately $17.2 million.
47
<PAGE> 53
Equatorial Guinea. In Equatorial Guinea, the Company has four PSCs through
which the Company holds contract interests ranging from 25% to 100% totaling
approximately 1.8 million gross (1.2 million net to the Company) acres. As of
December 31, 1997, the Company operated three of the four PSCs in Equatorial
Guinea.
At December 31, 1997, the Company recognized net proved reserves of 40.0
MMBbls of oil on one of its Equatorial Guinea blocks. In 1997, the Company
participated in seven exploratory wells, three of which were successful, and
nine development wells, all of which were successful. Year to date in Equatorial
Guinea, the Company participated in one exploratory well and one development
well, each of which was successful. In 1998, the Company anticipates drilling
eight additional exploratory wells in Equatorial Guinea.
Work on a new development project on one of the blocks in Equatorial Guinea
is expected to begin in 1998 to provide additional production capacity to
develop the existing field discoveries in such block. Extensive 3-D seismic
shoots are currently underway to further evaluate opportunities on these blocks.
Angola. In February and May 1998, the government of the Republic of Angola
awarded the Company participations in two exploration blocks with 20% and 15%
contract interests, respectively. In addition, in May 1998, the government of
the Republic of Angola consented to the Company's participation in an additional
exploration block with a 30% interest. In the aggregate, the three blocks cover
2.7 million gross (0.5 million net to the Company) acres, two of which are
located in the high potential deepwater basins offshore Angola where several
major discoveries were announced in 1996 and 1997. The Company will operate one
of the blocks.
Pakistan. During 1996 and 1997, the Company signed five PSCs with the
government of Pakistan, covering 7.7 million gross (5.8 million net to the
Company) acres, with contract interests of 76% each. The Company operates all
five of these PSCs. Geological and geophysical studies have begun and will be
conducted during the next two years of the exploration license on the five
blocks, with possible drilling by the end of 1999.
Bangladesh. In February 1997, the Company signed a PSC covering a block in
the Chittagong Hills Tracts onshore Bangladesh, which PSC the Company currently
operates. The Company has geological and geophysical work currently underway
toward possible drilling in 1998. The block covers 3.3 million gross (1.3
million net to the Company) acres. The Company currently holds a 40% contract
interest in this PSC.
NORTH AMERICAN ONSHORE REGION
On May 23, 1998, the Company announced a corporate restructuring with the
objective of streamlining its organizational structure by transferring certain
assets to a wholly-owned subsidiary of the Company that will hold and operate
the Company's onshore North American assets and operations. The subsidiary will
be headquartered in Denver, Colorado and will hold an acreage position in excess
of 2.9 million gross (1.0 million net to the Company) acres in 15 states and
Western Canada. In addition, the subsidiary will have an interest in
approximately 5,800 gross wells. The effective date for the reorganization was
June 30, 1998.
The following is a description of each of the Company's major producing
areas in the North America Onshore Region:
Midcontinent. The Company's Midcontinent area comprises approximately
189,000 net acres and represents approximately 32.6 MMBOE, or 12% of the
Company's total proved reserves. Projects in this area include continued
low-risk development drilling in the Anadarko Basin and West Texas and several
waterflood oil projects. Some of the Company's most important properties in the
Midcontinent area lie in the Young Mendota Field in Texas, which field is the
Company's largest field in this area, and the Buffalo and Longhorn areas of West
Texas.
Rocky Mountains. The Rocky Mountain area comprises approximately 491,000
net acres and represents approximately 34.7 MMBOE, or almost 13% of the
Company's proved reserves. The Company's largest property in the Rocky Mountain
area is the Bearpaw field in the northcentral portion of Montana where shallow,
low-cost development drilling has made the Company the largest producer of
natural gas in the state.
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<PAGE> 54
The Company holds interests in nearly 500 wells, currently producing in excess
of 55 MMcf of natural gas gross (36 MMcf net to the Company) per day, in the
Bearpaw field. Other properties of importance in the area include projects that
are underway in the Powder River Basin and the East Triangle Field in Wyoming.
Canada. The Western Canada area comprises approximately 276,000 net acres
and represents approximately 19.7 MMBOE, or nearly 7% of the Company's total
proved reserves. One of the most important properties in this region is the
Bindloss area of Alberta, Canada.
OIL AND NATURAL GAS RESERVES
Presented below are the estimated quantities of proved developed and proved
undeveloped reserves of oil and natural gas and the Present Value of Future Net
Revenues (before income taxes) owned by the Company as of December 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. During 1998, commodity prices have decreased substantially from the
prices upon which the reserve reports as of December 31, 1997 were based.
<TABLE>
<CAPTION>
PROVED RESERVES AT DECEMBER 31, 1997(1)
-----------------------------------------
DEVELOPED UNDEVELOPED TOTAL
---------- ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net Proved Reserves:
Oil (MBbls)....................................... 87,358 50,244 137,602
Gas (MMcf)........................................ 584,647 213,288 797,935
MBOE (6 Mcf per Bbl).............................. 184,799 85,792 270,591
Estimated Future Net Revenues (Before Income
Taxes)............................................ $1,933,000
Present Value of Future Net Revenues (Before Income
Taxes; Discounted at 10%)......................... 1,343,000
Standardized Measure of Discounted Future Net Cash
Flows(2).......................................... 1,220,000
</TABLE>
- ---------------
(1) In accordance with such rules and regulations, the pre-tax Estimated Future
Net Revenues and the pre-tax Present Value of Future Net Revenues as
prepared by the Company was increased by approximately $6.4 million and $6.1
million, respectively, representing the effect of hedging transactions
entered into as of December 31, 1997.
(2) 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 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 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
49
<PAGE> 55
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. 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, 1997:
<TABLE>
<CAPTION>
GROSS NET
----- -----
<S> <C> <C>
Oil......................................................... 4,617 1,014
Gas......................................................... 2,052 910
----- -----
Total Productive Wells............................ 6,669 1,924
===== =====
</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, 59 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,
1997.
<TABLE>
<CAPTION>
DEVELOPED
ACRES UNDEVELOPED ACRES
----------- -----------------
REGION GROSS NET GROSS NET
- ------ ----- --- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Gulf of Mexico Region................................. 332 172 581 341
International Region.................................. 49 13 14,932 9,219
North American Onshore Region......................... 1,195 458 1,707 498
----- --- ------ ------
Total....................................... 1,576 643 17,220 10,058
===== === ====== ======
</TABLE>
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. Many of the
Company's prospects are located in deepwater areas, and exploration and
development of these prospects requires use of deepwater drilling rigs.
Availability of such deepwater rigs is currently limited. The Company may, from
time to time, seek to obtain long term commitments for such rigs, which
commitments may have terms for three or more years.
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<PAGE> 56
The following table sets forth the drilling activity of the Company on its
properties for the period ended December 31, 1995, 1996 and 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1995 1996 1997
------------ ------------ -------------
GROSS NET GROSS NET GROSS NET
----- ---- ----- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Exploratory Wells:
Productive........................................ 19 6.2 29 13.3 47 28.7
Nonproductive..................................... 18 5.2 31 13.2 39 20.3
Development Wells:
Productive........................................ 131 36.4 137 50.5 289 102.3
Nonproductive..................................... 22 3.3 10 5.4 23 12.9
--- ---- ----- ---- ----- -----
Total..................................... 190 51.1 207 82.4 398 164.2
=== ==== ===== ==== ===== =====
</TABLE>
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 depends on numerous factors
beyond the Company's control, including seasonality, the condition of the U.S.
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 markets its oil and gas production to numerous purchasers under
a combination of short and long-term contracts. During 1997, Mobil Sales and
Supply Corporation accounted for 15% of the Company's oil and gas revenues as
the purchaser of the Company's production in Equatorial Guinea. In addition,
sales to Shell accounted for 21% of the Company's oil and gas revenues for the
year ended December 31, 1997. The Company had no other purchasers that accounted
for greater than 10% of its oil and gas revenues for the year ended December 31,
1997. See Note 9 to the Company's consolidated financial statements incorporated
by reference herein.
Due to the availability of other markets and pipeline connections, the
Company does not believe that the loss of any single 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.
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<PAGE> 57
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
uncontrollable flows of oil, gas or well fluids, fires, natural disasters,
explosions, encountering formations with abnormal pressures, blowouts,
cratering, pipeline ruptures, spills, pollution, releases of toxic gas and other
environmental hazards and risks, any of which can result in loss of
hydrocarbons, environmental pollution, personal injury claims, and other damage
to properties of the Company and others. In addition, the Company may be liable
for environmental damages caused by previous owners of property purchased by the
Company or its predecessors. As a result, substantial liabilities to third
parties or governmental entities may be incurred, the payment of which could
reduce or eliminate the funds available for exploration, development or
acquisitions, or result in loss of the Company's properties. 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 and in accordance with customary industry
practices, 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.
EMPLOYEES
As of June 1, 1998, the Company had over 800 full-time employees, none of
whom is represented by any labor union. Included in the total were approximately
500 corporate employees located in the Company's Houston, Texas; Baton Rouge,
Louisiana; Lafayette, Louisiana; Denver, Colorado; Calgary, Alberta; Abidjan,
Cote d'Ivoire; and Malabo, Equatorial Guinea offices and in various field
locations whose functions are associated with management, engineering, geology,
geophysics, operations, land, legal, accounting, financial planning and
administration. Of this amount, approximately 300 full-time employees are
responsible for the supervision and operation of its field activities. The
Company considers its relations with its employees to be good.
OTHER FACILITIES
The Company leases its Houston, Texas headquarters under a lease covering
approximately 112,000 square feet, expiring in December 2006. In addition, the
Company leases approximately 33,000 square feet of office space in Denver,
Colorado, approximately 8,600 square feet of office space in Baton Rouge,
Louisiana, approximately 71,000 square feet of office space in Lafayette,
Louisiana and approximately 1,150 square feet of office space in New Orleans,
Louisiana, where some of the Company's technical personnel are collectively
located. The Company also leases additional space in its Calgary, Alberta office
and for its division and field operating offices.
The Company also leases dock and warehouse space in Venice, Louisiana;
Morgan City, Louisiana; and Abidjan, Cote d'Ivoire.
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
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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 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 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, 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 implementing Order No. 636 on every interstate pipeline.
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
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the effects of SFV rate design. On May 12, 1997, the United States Supreme Court
denied certiorari of the D.C. Circuit's decision.
On February 27, 1997, the FERC issued its order on remand (i.e. Order No.
636-C). 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. On May 28, 1998, FERC denied requests for rehearing of Order No. 636-C.
Appeals of individual pipeline restructuring orders are still pending before the
D.C. Circuit.
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.
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 settlements 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
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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 OCSLA, the FERC also regulates certain activities on 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 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 U.S. 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 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 Region. 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.
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U.S. 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.
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. As recently as
August 8, 1998, EPA added four petroleum refining wastes to the list of RCRA
hazardous wastes. While the full impact of this new rule has yet to be
determined, the rule may, as of February 1999, impose increased expenditures and
operating expenses on the Company, which may take on additional obligations
relating to the treatment, storage, disposal, and transportation of certain
petroleum refining wastes that were previously not regulated as hazardous
wastes. The 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 generally excluded from CERCLA's definition of a "hazardous
substance," EPA recently deemed four petroleum refining wastes CERCLA "hazardous
substances." Additionally, 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
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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 July 1, 1999,
and has commenced operations to drill injection wells and install miscellaneous
equipment. The Company is also in the process of reformatting a portion of its
East Bay facilities to 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.
In February 1998, the Tulane Environmental Law Clinic (the "Clinic"),
claiming to represent several southeastern Louisiana environmental groups, gave
notice that it intended to file a Clean Water Act citizens' suit against the
Company after a sixty-day waiting period expired in connection with the
discharge of produced water in East Bay. As of June 1, 1998, this sixty day
waiting period had expired and no such suit had been filed by the Clinic. The
Clinic claimed that the Company was violating the Clean Water Act by discharging
produced water from its East Bay Central Facilities into Southwest Pass, and
stated that it would seek an injunction to require the Company to cease its
discharge of produced water, and would seek civil penalties and attorney's fees.
If the Clinic were to successfully obtain an injunction, certain production
operations at the Company's East Bay Facilities could be interrupted until
favorable resolution of the issue in court or accelerated completion of the
Company's plan to reformat operations to provide for alternative produced water
disposal. The Company believes that its zero discharge compliance plan, which
permits the temporary continued discharge of produced water into Southwest Pass
through July 1, 1999, is completely lawful as authorized by a Compliance Order
issued by the LDEQ, and intends to vigorously defend any such citizens' suit, if
filed. The Clinic has delivered similar notices to other Louisiana coastal
producers.
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
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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.
CANADIAN ENVIRONMENTAL MATTERS
The oil and natural gas industry is subject to environmental regulation
pursuant to local, provincial and federal legislation in Canada. Environmental
legislation provides for restrictions and prohibitions on releases or emissions
of various substances produced in association with certain oil and gas industry
operations. In addition, legislation requires that well and facility sites be
abandoned and reclaimed to the satisfaction of provincial authorities. A breach
of such legislation may result in the imposition of fines and penalties.
Environmental legislation in Alberta was substantially revised in 1993 to update
and consolidate the various acts applicable to environmental protection. The
various acts were consolidated into the Environmental Protection and Enhancement
Act, proclaimed April 22, 1993 and became effective September 1, 1993. Under the
new Act, environmental standards and compliance for releases, clean-up and
reporting are stricter. Also, the range of enforcement actions available and
severity of penalties are significantly increased. The changes had an
incremental but not material effect on the cost of conducting operations in
Alberta. The full extent of the impact will not be known until the Government of
Alberta releases its enforcement policy. Federal environmental regulations are
generally restricted to the use and transport of certain restricted and
prohibited substances and the environmental assessment of projects which require
an approval from a federal authority. The Company anticipates making necessary
expenditures of both a capital and expense nature as a result of the
increasingly stringent laws relating to the protection of the environment. The
Company believes that it is in material compliance with applicable environmental
laws and regulations in Canada.
ABANDONMENT COSTS
The Company is responsible for payment of abandonment costs on the oil and
gas properties it operates. As of December 31, 1997, total abandonment costs on
the Company's oil and gas properties estimated to be incurred through the year
2007 were approximately $152.8 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 Mississippi
River Delta, 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 plugging 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
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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 governmental
agency that the operation was conducted in compliance with applicable laws and
regulations. As of June 30, 1998, the escrow balances totaled $9.6 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
UMC, its directors, and OEI are parties to two lawsuits brought on behalf
of stockholders of UMC. Newman v. Carson, et al. (Civil Action No. 16109-NC) is
pending in the Court of Chancery of the State of Delaware and Ross v. Brock, et
al. (Cause No. 98-00845) is pending in the 164th Judicial District Court of
Harris County, Texas. These lawsuits challenge the Merger Agreement and the
actions taken by the directors of UMC in connection therewith. The lawsuits also
allege that UMC failed to disclose certain material information in its Joint
Proxy Statement/Prospectus dated February 27, 1998. Preliminary settlements have
been reached in each of these complaints, the effects of which are not material
to the Company.
The U.S. Environmental Protection Agency has indicated that the Company may
be potentially responsible for costs and liabilities associated with alleged
releases of hazardous substances at two sites in Louisiana under the
Comprehensive Environmental Response, Compensation and Liability Act. Given the
extremely large number of companies that have been identified as potentially
responsible for releases of hazardous substances at the sites and the small
volume of hazardous substances allegedly disposed of by the companies whose
properties the Company acquired, management believes that the Company's
potential liability arising from these sites, if any, will not have a material
adverse impact on the Company.
In February 1998, the Clinic, claiming to represent several southeastern
Louisiana environmental groups, gave notice that it intended to file a Clean
Water Act citizens' suit against the Company after a sixty-day waiting period
expired in connection with the discharge of produced water in East Bay. As of
June 1, 1998, this sixty-day waiting period has expired and no such suit has
been filed by the Clinic. The Clinic claimed that the Company was violating the
Clean Water Act by discharging produced water from its East Bay Central
Facilities into Southwest Pass, and stated that it would seek an injunction to
require the Company to cease its discharge of produced water, and would seek
civil penalties and attorney's fees. If the Clinic were to successfully obtain
an injunction, certain production operations at the Company's East Bay
Facilities could be interrupted until favorable resolution of the issue in court
or accelerated completion of the Company's plan to reformat operations to
provide for alternative produced water disposal. The Company believes that its
zero discharge compliance plan, which permits the temporary continued discharge
of produced water into Southwest Pass through July 1, 1999, is completely lawful
as authorized by a Compliance Order issued by the LDEQ, and intends to
vigorously defend any such citizens' suit, if filed. The Clinic has delivered
similar notices to other Louisiana coastal producers.
The Company is a named defendant in lawsuits and is a party in governmental
proceedings from time to time arising in the ordinary course of business. While
the outcome of such lawsuits or other proceedings against the Company cannot be
predicted with certainty, management does not expect these matters to have a
material adverse effect on the financial position or results of operations of
the Company.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the directors
and executive officers of the Company as of August 1, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- ---- --------
<S> <C> <C>
John B. Brock............. 66 Chairman of the Board
James C. Flores........... 38 President, Chief Executive Officer and Director
James L. Dunlap........... 61 Vice Chairman and Director
Jonathan M. Clarkson...... 48 Executive Vice President -- Chief Financial Officer
Robert K. Reeves.......... 40 Executive Vice President, General Counsel and Secretary
James E. Smitherman,
III..................... 52 Executive Vice President -- International
Richard G. Zepernick,
Jr...................... 37 Executive Vice President -- North America
Christopher E. Cragg...... 37 Vice President and Controller
Robert L. Belk............ 49 Director
Thomas D. Clark, Jr....... 57 Director
Lodwrick M. Cook.......... 70 Director
Robert L. Howard.......... 62 Director
Elvis L. Mason............ 64 Director
Charles F. Mitchell,
M.D..................... 49 Director
James L. Murdy............ 60 Director
David K. Newbigging....... 64 Director
William W. Rucks, IV...... 41 Director
Matthew R. Simmons........ 55 Director
Milton J. Womack.......... 72 Director
</TABLE>
The following biographies describe the business experience of the directors
and executive officers of the Company.
JOHN B. BROCK has served as Chairman of the Board of the Company since the
Merger on March 27, 1998. Prior to that time he served as the Chairman of the
Board of UMC from May 1995 and a director of UMC from November 1989. Mr. Brock
served as Chief Executive Officer of UMC from May 1995 to March 27, 1998. Mr.
Brock served as the President of UMC from May 1996 to October 1996, served as
the President and Chief Executive Officer of UMC from February 1992 to May 1995
and served as the President and Chief Operating Officer of UMC from November
1989 to February 1992. Prior to assuming his responsibilities with UMC, Mr.
Brock was President and Chief Executive Officer of Ensource Inc. Mr. Brock
served as the Chairman, President and Chief Executive Officer of Brock Energy
Corporation and its predecessor from 1980 until January 1986. From 1959 until
1980, he served in various capacities with Quintana Petroleum Corporation,
including Executive Vice President -- Oil and Gas, and President of a number of
Quintana subsidiaries. Mr. Brock is a Director of Southwest Bank of Texas and a
Director of Southwest Bankcorporation of Texas Inc. and an Advisory Director of
Kanaly Trust Company. He is also a Director and member of the Executive
Committee of the Texas Oil and Gas Association, a Director of the U.S. Oil and
Gas Association, a Director of the American Petroleum Institute, and Vice
Chairman and Director of St. Luke's Episcopal Hospital and St. Luke's Episcopal
Health System.
JAMES C. FLORES has served as President and Chief Executive Officer of the
Company since July 1995. Mr. Flores became President of the Company in 1997.
From the Company's inception in 1992, Mr. Flores has been a Director of the
Company and, prior to March 27, 1998, served as Chairman of the Board. From 1985
to 1992, Mr. Flores served as Vice President of FloRuxco, Inc., an oil and gas
exploration company.
JAMES L. DUNLAP has served as Vice Chairman and Director of the Company
since March 27, 1998. Mr. Dunlap served as UMC's President, Chief Operating
Officer, and Director from October 1996 to
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March 27, 1998. Prior to assuming his current responsibilities with the Company,
Mr. Dunlap spent 33 years with Texaco Inc., most recently as a Senior Vice
President. During his career with Texaco, he served as President of Texaco
U.S.A., President and Chief Executive Officer of Texaco-Canada, Vice Chairman of
Texaco Limited, U.K., and General Manager of Latin America/West Africa. Mr.
Dunlap is a Director of Massachusetts Mutual Life Insurance Company. He is also
a member of the Council of Overseers of the Jones Graduate School of
Administration of Rice University, a trustee of the Culver Educational
Foundation and a member of the Baker Institute Roundtable of Rice University.
JONATHAN M. CLARKSON has served as Executive Vice President -- Chief
Financial Officer of the Company since March 27, 1998. Mr. Clarkson had
previously served as Executive Vice President of UMC from November 1994 until
the Merger on March 27, 1998 and served as the Chief Financial Officer of UMC
since October 1989. Mr. Clarkson served as Senior Vice President of UMC from
October 1989 until November 1994. From May 1987 to September 1989, Mr. Clarkson
served as Vice President and Treasurer of UMC. Prior to joining UMC, Mr.
Clarkson served as Senior Vice President of InterFirst Bank, Dallas, managing
commercial lending functions in the Energy and U.S. Corporate Divisions.
ROBERT K. REEVES presently serves as Executive Vice President, General
Counsel and 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.
JAMES E. SMITHERMAN, III presently serves at Executive Vice
President -- International. Prior to the Merger, Mr. Smitherman had served as
Executive Vice President, Exploration and Production of UMC since October 1989,
with sole responsibility for international operations of UMC since May 1995.
Prior to assuming his responsibilities with UMC, Mr. Smitherman was Senior Vice
President -- Exploration and Production of Ensource Inc. Before joining Ensource
in May 1988, Mr. Smitherman was Vice President of Eastern Region Exploration and
Development at CSX Oil and Gas.
RICHARD G. ZEPERNICK, JR. has been with the Company since its inception,
presently serving as Executive Vice President -- North America. Mr. Zepernick
was a Director of the Company from September 1994 through the Merger. 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.
CHRISTOPHER E. CRAGG has served as Vice President, Controller and Chief
Accounting Officer of the Company since March 27, 1998. Prior to the Merger, Mr.
Cragg served in the same position for UMC since June 1996. Mr. Cragg served as
Assistant Controller of UMC from July 1995 until June 1996, and as Director of
Internal Audit from April 1994 until July 1995. Prior to joining UMC, Mr. Cragg
was with Cooper Industries from April 1993 to April 1994 and Price Waterhouse
from August 1983 to April 1993, where he served in the firm's Worldwide
Petroleum Industry Practice. Mr. Cragg is a Certified Public Accountant in the
State of Texas.
ROBERT L. BELK has served as a Director of the Company since September
1994. From March 27, 1998 until his resignation on June 23, 1998, Mr. Belk
served as Executive Vice President -- Administration of the Company. From June
1997 until March 27, 1998, Mr. Belk served as Executive Vice President, Chief
Financial Officer & Treasurer of the Company. From May 1993 until June 1997, Mr.
Belk served as Senior Vice President, Chief Financial Officer and Treasurer of
the Company. Prior to joining the Company, Mr. Belk accumulated over 12 years of
experience in public accounting working for Ernst & Young LLP from 1981 to 1988
and H.J. Lowe & Company from 1988 to 1993. Mr. Belk is a Certified Public
Accountant and a Certified Financial Planner.
THOMAS D. CLARK, JR. has served as a Director of the Company since 1997.
Mr. Clark is the Ourso Distinguished Professor of Business and 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
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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 Sciences and Director of the Center for Information
Systems Research.
LODWRICK M. COOK has served as a Director of the Company since December
1997. Mr. Cook is Co-Chairman of Global Crossing Ltd. Mr. Cook retired as
Atlantic Richfield Company's ("ARCO") Chief Executive Officer and Chairman of
the Board in 1994 and 1995 respectively. Prior to his retirement, Mr. Cook held
various management and executive positions with ARCO, where he began his career
in 1956.
ROBERT L. HOWARD has served as a Director of the Company since March 27,
1998. Prior to the Merger Mr. Howard had served as a Director of UMC since
September 1996. Mr. Howard retired from Shell in 1995, where he had served in
various capacities since 1959, most recently as Vice President Domestic
Operations, Exploration and Production, a position he assumed in 1992. From 1985
until his retirement in 1995, Mr. Howard also served as President of Shell
Offshore Inc., a subsidiary of Shell with operations in the Gulf of Mexico. Mr.
Howard is also a Director of Camco International, Inc., a Director of
Southwestern Energy Company, a Director of McDermott International Inc. and a
Director of J. Ray McDermott, S.A.
ELVIS L. MASON has served as a Director of the Company since March 27,
1998. Prior to the Merger Mr. Mason had served as a Director of UMC since
November 1988. He has also served as the Managing Partner of Mason Best Company,
L.P., a merchant banking firm, since August 1984. Since December 1991, Mr. Mason
has served as Chairman of the Board of Directors and Chief Executive Officer of
San Jacinto Holdings, Inc. Since February 1992, Mr. Mason has served as Chairman
of the Board of Safeguard Business Systems, Inc., a wholly-owned subsidiary of
San Jacinto Holdings, Inc. Mr. Mason served as Chief Executive Officer of
Safeguard Business Systems Inc. from December 1992 to October 1996 and from
August 1997 through present.
CHARLES F. MITCHELL, M.D. has served as a Director of the Company since
January 1995. Dr. Mitchell is an otolaryngologist and facial 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.
JAMES L. MURDY has served as a Director of the Company since March 27,
1998. Prior to the Merger Mr. Murdy had served as a Director of UMC since May
1987. Since August 1996, Mr. Murdy has served as Executive Vice President of
Finance and Administration and Chief Financial Officer of Allegheny Teledyne
Incorporated, a diversified manufacturing company with a concentration in
specialty metals. From 1988 to 1996, Mr. Murdy served as Senior Vice President
of Finance, Chief Financial Officer and Director of Allegheny Ludlum
Corporation, a specialty metals corporation. From 1985 to 1988, Mr. Murdy served
as Executive Vice President of Finance and Administration for Schneider
Enterprises, Inc. Prior to 1985, Mr. Murdy was Executive Vice President of Gulf
Oil Corporation, Inc.
DAVID K. NEWBIGGING has served as a Director of the Company since March 27,
1998. Prior to the Merger Mr. Newbigging had served as a Director of UMC since
August 1987. Mr. Newbigging presently serves as Chairman of Faupel Trading Group
P.L.C., Equitas Holdings Limited, Equitas Reinsurance Limited, Equitas Limited,
and Friends' Provident Life Office. Mr. Newbigging is Deputy Chairman of
Benchmark Group P.L.C. Mr. Newbigging is also a Director of Merrill Lynch & Co.,
Inc. Mr. Newbigging is a member of the Supervisory Board of DAF Trucks NV of
Eindhoven, The Netherlands, a wholly-owned subsidiary of Paccar Inc. Mr.
Newbigging retired from Jardine Matheson & Co. Limited in 1983 after 30 years
with that company, having served as its Chairman and Chief Executive Officer
since 1975. Subsequent appointments have included Chairman of Rentokil Group
P.L.C. and of Ivory & Sime P.L.C., both based in the United Kingdom.
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.
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MATTHEW R. SIMMONS has served as a Director of the Company since March 27,
1998. Prior to the Merger, Mr. Simmons had served as a Director of UMC since
November 1994. Mr. Simmons is the Chairman and President of Simmons & Company
International, a specialized investment bank that concentrates on providing
corporate finance expertise to companies in the worldwide oil service and
equipment industry and also researches and trades oil service and equipment
securities for institutional investors. Prior to founding Simmons & Company
shortly after the 1973 Oil Embargo, Mr. Simmons had a small consulting/
investment banking firm in Boston which provided advice to a variety of clients.
Previously, he served on the faculty of Harvard Business School as a Research
Associate.
MILTON J. WOMACK has served as a Director of the Company since January
1993. Mr. 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.
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DESCRIPTION OF NEW CREDIT FACILITY
At the closing of the Initial Offering, the Company entered into the New
Credit Facility, which amended and restated the Existing Credit Facility and
substituted OEI for OEI Louisiana as the borrower thereunder.
GENERAL
The New Credit Facility consists of two parts: (i) a credit facility among
OEI, as borrower, OEI Louisiana, as guarantor, and certain U.S. lenders (the
"U.S. Lender Group") pursuant to which the U.S. Lender Group agreed to make
revolving credit loans and bid rate loans (subject to the limitations of the
Borrowing Base (as defined herein)) (the "U.S. Loans") to OEI (the "U.S. Credit
Facility"), and (ii) a credit facility among OEI's Canadian subsidiary, Ocean
Energy Resources Canada, Ltd. ("Ocean Canada") and certain Canadian lenders (the
"Canadian Lender Group") pursuant to which the Canadian Lender Group agreed to
make revolving credit loans (subject to Borrowing Base limitations) (the
"Canadian Loans") to Ocean Canada (the "Canadian Credit Facility"). The
aggregate amount of U.S. Loans and Canadian Loans that may be outstanding under
the New Credit Facility (the "Borrowing Base"), will be determined from time to
time jointly by the U.S. Lender Group and the Canadian Lender Group. OEI may
allocate the Borrowing Base between the U.S. Credit Facility and the Canadian
Credit Facility from time to time, subject to certain specified sub-limits and
further subject to the consent of the U.S. Lender Group or Canadian Lender
Group, as appropriate, whose portions of the available commitments are increased
by such reallocation. The Borrowing Base is initially $300 million.
TERM
Loans under the New Credit Facility will mature on March 31, 2003.
INTEREST RATES
Portions of the loans under both the U.S. Credit Facility and the Canadian
Credit Facility bear interest, at the Company's option, either at (i) a
market-based index rate for floating rate loans (the "Base Rate") plus a margin
of 0.0% or (ii) a LIBOR-based index rate for fixed rate loans of a specified
period, generally six months or less (the "Fixed Rate"), plus a margin of 0.70%
to 1.275% (the "Fixed Rate Applicable Margin"). The Fixed Rate Applicable Margin
varies from time to time depending upon the outstanding balance of the loans and
amount of the Borrowing Base. The U.S. Credit Facility also contains a provision
that allows OEI, at its option, to request that the U.S. Lenders competitively
bid for loans (the "Bid Loan Facility"). U.S. Loans made under the Bid Loan
Facility bear interest at fixed rates agreed upon by OEI and such U.S. Lender
for specified periods, generally six months or less. In addition, the Company
will pay a quarterly facility fee of 0.20% to 0.375% per annum on the average
Borrowing Base for such period.
GUARANTEES
The New Credit Facility is guaranteed by OEI Louisiana. The Canadian Credit
Facility is also guaranteed by OEI and OEI Louisiana. The New Credit Facility is
not secured by mortgages on the Company's oil and gas properties.
OTHER PROVISIONS
The New Credit Facility includes customary covenants and events of default.
The breach of any of such covenants or the occurrence of any of such events of
default could result in acceleration of OEI's obligations under the New Credit
Facility and Events of Default under the Notes, which could have a material
adverse effect on holders of the Notes.
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DESCRIPTION OF SENIOR NOTES
The 2005 Senior Exchange Notes offered hereby will be issued, and the Old
2005 Senior Notes were issued, pursuant to the Indenture dated as of July 8,
1998 (as amended and/or supplemented from time to time, the "2005 Senior
Indenture") among the Company, as issuer, the Subsidiary Guarantors parties
thereto and Norwest Bank Minnesota, National Association, as trustee (for
purposes of this section, the "Trustee"). The 2018 Senior Exchange Notes offered
hereby will be issued, and the Old 2018 Senior Notes were issued, pursuant to
the Indenture dated as of July 8, 1998 (as amended and/or supplemented from time
to time, the "2018 Senior Indenture" and, together with the 2005 Senior
Indenture, the "Senior Indentures") among the Company, as issuer, the Subsidiary
Guarantors parties thereto and the Trustee, as trustee. The following summaries
of certain provisions of the Senior Notes and the Senior Indentures do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, the Senior Notes and the Senior Indentures, including the
definitions of certain terms contained in the Senior Indentures and those terms
that are made a part thereof by reference to the Trust Indenture Act of 1939, as
amended. The definitions of certain capitalized terms used in the following
summary are set forth below under "-- Certain Senior Notes Definitions."
GENERAL
The 2005 Senior Exchange Notes and the 2018 Senior Exchange Notes will be
issued solely in exchange for an equal principal amount of Old 2005 Senior Notes
and Old 2018 Senior Notes, respectively, pursuant to the Exchange Offer. The
form and terms of the 2005 Senior Exchange Notes and 2018 Senior Exchange Notes
will be identical in all material respects to the form and terms of the Old 2005
Senior Notes and Old 2018 Senior Notes, respectively, except that the offering
of the 2005 Senior Exchange Notes and 2018 Senior Exchange Notes has been
registered under the Securities Act, and the 2005 Senior Exchange Notes and 2018
Senior 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 2005 Senior Notes and Old 2018 Senior Notes,
respectively, under certain circumstances. See "Exchange Offer; Registration
Rights."
MATURITY, INTEREST AND PRINCIPAL PAYMENTS
The Senior Notes will be senior unsecured obligations of the Company. The
2005 Senior Exchange Notes will mature on July 1, 2005 and will be limited to
$125,000,000 aggregate principal amount. The 2018 Senior Exchange Notes will
mature on July 1, 2018 and will be limited to $125,000,000 aggregate principal
amount. The 2005 Senior Exchange Notes will bear interest at the rate of 7 5/8%
per annum from the date of issuance of the Old Notes. The 2018 Senior Exchange
Notes will bear interest at the rate of 8 1/4% per annum from the date of
issuance of the Old Notes. The Senior Notes will be payable semiannually on
January 1 and July 1 of each year, commencing January 1, 1999, to the Person in
whose name the Senior Note is registered at the close of business on the
December 15 or June 15 next preceding such interest payment date or, in the case
of interest payable at maturity, to the Person to whom principal is paid.
Interest will be computed on the basis of a 360-day year consisting of twelve
30-day months. Principal of, premium, if any, and interest on the Senior Notes
will be payable at the offices of the Trustee, provided that, at the option of
the Company, payment of principal, premium, if any, and interest will be made by
wire transfer (in the case of Senior Notes held in book-entry form) or check
mailed to the address of the person entitled thereto as it appears in the
register of the Senior Notes (the "Register") maintained by the Registrar. The
Senior Notes will be transferable and exchangeable at the office of the
Registrar and any coregistrar and will be issued in fully registered form,
without coupons, in denominations of $1,000 and any integral multiple thereof.
The Company may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection with certain transfers
and exchanges. The obligations of the Company under the Senior Notes will
initially be guaranteed on an unsecured senior basis by the Initial Subsidiary
Guarantor.
RANKING
The Senior Notes of each series will be unsecured senior obligations of the
Company and will rank pari passu with all other unsecured unsubordinated
indebtedness of the Company.
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The Company is a holding company, conducting substantially all of its
business through subsidiaries. As of June 30, 1998, as adjusted to give effect
to the Initial Offering, the application of the net proceeds therefrom and the
establishment of the New Credit Facility, the Company would have had (i) an
aggregate of approximately $1.0 billion of consolidated indebtedness (including
the Notes), of which approximately $0.2 million would have been pari passu with
the Senior Notes, approximately $759 million (comprised of the Senior
Subordinated Notes and the Existing Notes) would have been subordinated to the
Senior Notes, and approximately $6 million would have been secured or owed by
subsidiaries of the Company (other than the Initial Subsidiary Guarantor) and,
therefore, effectively senior to the Senior Notes, and (ii) approximately $29.6
million of cash. See "Capitalization" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources." The Senior Indentures do not contain any limitations on the amount
of additional Indebtedness that the Company and its Subsidiaries may incur
(including Indebtedness of Subsidiaries that are not Subsidiary Guarantors, to
which the Senior Notes will be structurally subordinated).
REDEMPTION
Optional Redemption. The Senior Notes of each series will be redeemable at
the option of the Company, in whole but not in part, at any time at a redemption
price equal to the sum of (a) an amount equal to 100% of the principal amount
thereof and (b) the Senior Make-Whole Premium, together with accrued and unpaid
interest to the date fixed for redemption. In no event will such redemption
price ever be less than 100% of the principal amount of the Senior Notes being
redeemed plus accrued interest to the date of redemption.
Notice of redemption shall be given by first-class mail, postage prepaid,
mailed not less than 30 nor more than 60 days before the redemption date, to
each holder of Senior Notes to be redeemed, at its address as shown in the
Register. On and after the redemption date, interest will cease to accrue on
Senior Notes of a series called for redemption unless the Company defaults in
the payment of the redemption price.
Offers to Purchase. As described below, upon the occurrence of a Senior
Change of Control, the Company is obligated to make an offer to purchase all
outstanding Senior 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. See "Certain Covenants -- Senior Change of Control."
SENIOR GUARANTEES
The Initial Subsidiary Guarantor has fully and unconditionally guaranteed
the Company's obligations to pay principal of, premium, if any, and interest on
the Senior Notes. The Senior Indentures provide that if any Restricted
Subsidiary guarantees the payment of any Indebtedness of the Company at any date
subsequent to the Issue Date, then the Company will cause the Senior Notes to be
equally and ratably guaranteed by such Restricted Subsidiary on a pari passu or
senior basis. The Senior Guarantees are subject to release in certain
circumstances, as described below.
Each of the Senior Guarantees is a senior obligation of the Subsidiary
Guarantor providing such Guarantee, and ranks pari passu in right of payment
with all existing and future Pari Passu Indebtedness of such Subsidiary
Guarantor, except to the extent of collateral securing such Pari Passu
Indebtedness, and ranks senior to all existing and future Subordinated
Indebtedness of such Subsidiary Guarantor. The Senior Indentures provide that
if, following the Issue Date, any Restricted Subsidiary guarantees Subordinated
Indebtedness of the Company, such guarantee must be expressly subordinated in
right of payment to the Senior Guarantees. The guarantees of the Senior
Subordinated Notes and of the Existing Notes by the Initial Subsidiary Guarantor
are subordinated in right of payment to its Senior Guarantees.
The obligations of each Subsidiary Guarantor are limited to the amount as
will, after giving effect to all other contingent and fixed liabilities 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 Senior Guarantee or
pursuant to its contribution obligations under the Senior Indentures, result in
the obligations of such Subsidiary Guarantor under its Senior Guarantee not
constituting a fraudulent conveyance or fraudulent transfer under federal, state
or foreign law. Each Subsidiary
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Guarantor that makes a payment or distribution under a Senior 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.
Each Senior Indenture provides that, subject to the next succeeding
paragraph, no Subsidiary Guarantor may consolidate or merge with or into
(whether or not such Subsidiary Guarantor is the surviving Person) another
Person unless (i) the Person formed by or surviving any such consolidation or
merger (if other than such Subsidiary Guarantor) assumes all the obligations of
such Subsidiary Guarantor pursuant to a supplemental indenture, in a form
reasonably satisfactory to the Trustee, under the Senior Notes and such Senior
Indenture, and (ii) immediately after such transaction, no Default or Event of
Default exists. The foregoing will not prohibit a merger between Subsidiary
Guarantors or a merger between the Company and a Subsidiary Guarantor.
Each Senior Indenture provides that in the event of a sale or other
disposition of all or substantially all of the assets of any Subsidiary
Guarantor, or a sale or other disposition of all of the Capital Stock or other
ownership interests of any Subsidiary Guarantor, in each case by way of merger,
consolidation or otherwise, then such Subsidiary (in the event of such a sale or
other disposition of all the Capital Stock or other ownership interests of such
Subsidiary) or such Subsidiary and the Person acquiring the property (in the
event of such a sale or other disposition of all or substantially all of the
assets of such Subsidiary) will be released and relieved of any obligations
under its Senior Guarantee. In addition, each Senior Indenture provides that if,
at any time while any of the Senior Notes remain outstanding, none of the
Company's then outstanding Indebtedness (other than Senior Notes) is guaranteed
by a Subsidiary Guarantor, such Subsidiary Guarantor shall be automatically and
unconditionally released, discharged and relieved of any obligations under its
Senior Guarantee (which shall be terminated and cease to have any force and
effect).
CERTAIN COVENANTS
Each Senior Indenture provides that the following restrictive covenants
will be applicable to the Company:
Limitation on Liens. (a) Each Senior Indenture provides that the Company
will not, and will not permit any Restricted Subsidiary of the Company to,
issue, assume or guarantee any Indebtedness for borrowed money secured by any
Lien on any Principal Property now owned or hereafter acquired by the Company or
such Restricted Subsidiary without making effective provision whereby any and
all Senior Notes issued under such Senior Indenture then or thereafter
outstanding will be secured by a Lien equally and ratably with any and all other
obligations thereby secured for so long as any such obligations shall be so
secured. The foregoing restriction will not, however, apply to the Company and
its Restricted Subsidiaries with respect to:
(i) Liens existing on the Issue Date or provided for pursuant to
agreements (and terms thereof) existing on the Issue Date securing
Indebtedness (A) existing on the Issue Date or (B) to be incurred under
agreements existing on the Issue Date;
(ii) Liens on property (and all improvements, additions and accessions
thereto and all proceeds thereof) securing (A) all or any portion of the
cost of exploration, drilling, development, operation or maintenance of
such property or the cost of acquiring, constructing, altering, improving
or repairing such property or improvements used or to be used in connection
with such property (including the cost of financing such actions) or (B)
Indebtedness incurred by the Company or any Restricted Subsidiary to
provide funds for the activities set forth in clause (A) above;
(iii) Liens securing Indebtedness owed by a Restricted Subsidiary to
the Company or to any other Restricted Subsidiary or by the Company to any
Restricted Subsidiary that is a Subsidiary Guarantor;
(iv) Liens on the property of any Person existing at the time such
Person becomes a Restricted Subsidiary and not incurred as a result of (or
in connection with or in anticipation of) such Person becoming a Restricted
Subsidiary, provided that such Liens do not extend to or cover any property
of the Company or any of its Restricted Subsidiaries other than the
property encumbered at the time such
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Person becomes a Restricted Subsidiary, all improvements, additions and
accessions thereto and all proceeds thereof;
(v) Liens affecting property existing at the time it becomes property
of the Company or a Restricted Subsidiary, all improvements, additions and
accessions thereto and all proceeds thereof;
(vi) Liens on any property securing (A) Indebtedness incurred in
connection with the construction, installation or financing of pollution
control or abatement facilities or other forms of industrial revenue bond
financing or (B) Indebtedness issued or guaranteed by the United States or
any State thereof or any department, agency or instrumentality of either;
(vii) any Lien extending, renewing or replacing (or successive
extensions, renewals or replacements of) any Lien of any type permitted
under clauses (i) through (vi) above, provided that such Lien extends to or
covers only the property that is subject to the Lien being extended,
renewed or replaced and that the principal amount of Indebtedness secured
thereby shall not exceed the sum of (A) the principal amount of
Indebtedness so secured at the time of such extension, renewal or
replacement, (B) any additional Indebtedness incurred to pay the cost of
altering, improving or repairing such property and (C) any expenses of the
Company and its Restricted Subsidiaries (including any premium) incurred in
connection with any such extension, renewal or replacement; and
(viii) other Liens (exclusive of any Lien of any type otherwise
permitted under clauses (i) through (vii) above or paragraph (b) below)
securing Indebtedness for borrowed money of the Company or any of its
Restricted Subsidiaries in an aggregate principal amount that, together
with the aggregate amount of Attributable Indebtedness deemed to be
outstanding in respect of all Sale/Leaseback Transactions entered into
pursuant to clause (a) of the covenant described under "Limitation on
Sale/Leaseback Transactions" below (exclusive of any such Sale/Leaseback
Transactions otherwise permitted under clauses (i) through (vii) above or
paragraph (b) below), does not at the time such Indebtedness is incurred
exceed 15% of Consolidated Net Tangible Assets (as shown in the most recent
audited consolidated balance sheet of the Company and its Restricted
Subsidiaries).
(b) The following types of transactions will not be prohibited or otherwise
limited by the foregoing covenant: (i) the sale, granting of Liens with respect
to, or other transfer of, oil, gas or other minerals in place for a period of
time until, or in an amount such that, the transferee will realize therefrom a
specified amount (however determined) of money or of such oil, gas or other
minerals; (ii) the sale or other transfer of any other interest in property of
the character commonly referred to as a production payment, overriding royalty,
forward sale or similar interest; (iii) the entering into of Currency Hedge
Obligations, Interest Rate Hedging Agreements or Oil and Gas Hedging Contracts
(but Liens securing any Indebtedness for borrowed money that is related to any
Interest Rate Hedging Agreement shall not be permitted hereby unless otherwise
permitted under this covenant); and (iv) the granting of Liens in favor of the
United States, any State thereof or any foreign government or any subdivision,
department, agency, organization or instrumentality of any of the foregoing to
secure partial, progress, advance or other payments or other obligations
pursuant to the provisions of any contract or statute, or in favor of any other
Person to secure obligations in connection with any letters of credit, bank
guarantees, bonds or surety obligations required or requested by any such
governmental authority in connection with any contract or statute.
Limitation on Sale/Leaseback Transactions. Each Senior Indenture provides
that the Company will not, and will not permit any Restricted Subsidiary to,
enter into any Sale/Leaseback Transaction with any Person (other than the
Company or a Restricted Subsidiary) unless either:
(a) the Company or such Restricted Subsidiary would be entitled to
incur Indebtedness, in a principal amount equal to the Attributable
Indebtedness with respect to such Sale/Leaseback Transaction, secured by a
Lien on the property subject to such Sale/Leaseback Transaction pursuant to
the covenant described under "Limitation on Liens" above without equally
and ratably securing the Senior Notes issued under such Senior Indenture
pursuant to such covenant; or
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(b) such Sale/Leaseback Transaction occurs within 180 days from the
date of acquisition of such Principal Property or the date of the
completion of construction or commencement of full operations of such
Principal Property, whichever is later; or
(c) after the Issue Date and within a period commencing six months
prior to the consummation of such Sale/Leaseback Transaction and ending six
months after the consummation thereof, the Company or a Restricted
Subsidiary shall have expended for property used or to be used in the
business of the Company and its Restricted Subsidiaries an amount equal to
all or a portion of the net proceeds from such Sale/Leaseback Transaction
and the Company shall have elected to designate such amount as a credit
against such Sale/Leaseback Transaction (with any such amount not being so
expended and so designated to be applied as set forth in clause (d) below);
or
(d) the Company or a Restricted Subsidiary, during the 12-month period
after the effective date of such Sale/Leaseback Transaction, shall have
applied to the voluntary repayment, repurchase, redemption, defeasance or
other acquisition or retirement ("retirement") of Senior Notes of any
series, any Pari Passu Indebtedness, any Pari Passu Indebtedness of a
Subsidiary Guarantor or any Indebtedness of a Restricted Subsidiary that is
not a Subsidiary Guarantor ("Retired Indebtedness") an amount equal to the
greater of (i) the net proceeds of the sale or transfer of the property
leased in such Sale/Leaseback Transaction and (ii) the fair value, as
determined by the Board of Directors of the Company, of such property at
the time of entering into such Sale/Leaseback Transaction (in either case
reduced to reflect the remaining term of the lease and any amount expended
by the Company or a Restricted Subsidiary as set forth in clause (c)
above), less an amount equal to the principal amount of such Retired
Indebtedness voluntarily retired within such 12-month period and not
designated as a credit against any other Sale/ Leaseback Transaction
entered into by the Company or any Restricted Subsidiary during such
period.
Senior Change Of Control. Each Senior Indenture provides that upon the
occurrence of a Senior Change of Control, the Company shall be obligated to make
an offer to purchase all of the then outstanding Senior Notes issued under such
Senior Indenture (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 Senior Change of Control, all of the then outstanding
Senior Notes issued under such Senior Indenture validly tendered pursuant to
such Change of 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 Senior Change of Control, mail to each holder
of such Senior Notes 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 such holders 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 Senior Notes that might be delivered by holders of
Senior Notes seeking to accept the Change of Control Offer. The indentures
governing the Existing Senior Notes, the Existing Notes and the Senior
Subordinated Notes all obligate the Company to make offers to purchase such
Indebtedness upon a Senior Change of Control. In addition, the New Credit
Facility prohibits the purchase of the Senior Notes by the Company prior to
payment in full of the Indebtedness under the New Credit Facility, and a Senior
Change of Control is an event of default under the New Credit Facility. There
can be no assurance that in the event of a Senior Change of Control the Company
will be able to obtain the necessary consents from the lenders under the New
Credit Facility in order to consummate a 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
Senior Notes of a series, an Event of Default would occur under the Senior
Indenture governing such series of Senior Notes.
The Company will not be required to make a Change of Control Offer under a
Senior Indenture upon a Senior Change of Control if a third party makes the
Change of Control Offer at the same purchase price, at
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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
Senior Notes issued under such Senior Indenture 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 Senior Change of Control occurs and the Company is required to
purchase Senior Notes as described above. The existence of a holder's right to
require, subject to certain conditions, the Company to repurchase its Senior
Notes upon a Senior Change of Control may deter a third party from acquiring the
Company in a transaction that constitutes, or results in, a Senior Change of
Control.
CONSOLIDATION, MERGER AND SALE OF ASSETS
Each Senior Indenture provides that the Company will not (A) consolidate
with or merge with any Person, or (B) sell, lease, convey, transfer or otherwise
dispose of all or substantially all of its assets (each an "asset disposition")
to any Person, unless: (i) either (a) in the case of any such consolidation or
merger, the Company is the continuing Person or (b) the Person formed by or
surviving such consolidation or merger (if other than the Company), or to which
such asset disposition shall be made (collectively, the "Successor"), is
organized and existing under the laws of the United States, any political
subdivision thereof or any State thereof or the District of Columbia, and
assumes by supplemental indenture all the obligations of the Company under such
Senior Indenture and the Senior Notes issued thereunder; and (ii) immediately
after giving effect to such transaction, no Default or Event of Default has
occurred and is continuing. Upon any such consolidation, merger or asset
disposition, the Successor will be substituted for the Company and, in the case
of an asset disposition, the Company will thereafter be relieved of all
obligations and covenants under such Senior Indenture and the Senior Notes
issued thereunder.
EVENTS OF DEFAULT
The following are "Events of Default" under each Senior Indenture:
(a) default in the payment of the principal of or premium, if any, on
any of the Senior Notes of such series, whether such payment is due at
maturity, upon redemption, upon repurchase pursuant to a Change of Control
Offer, upon acceleration or otherwise; or
(b) default in the payment of any installment of interest on any of
the Senior Notes of such series, when it becomes due and payable, and the
continuance of such default for a period of 30 days; or
(c) the failure to make or consummate a Change of Control Offer with
respect to such series of Senior Notes in accordance with the provisions of
the "Change of Control" covenant; or
(d) the Company or any Subsidiary Guarantor shall fail to perform or
observe any other term, covenant or agreement contained in the Senior Notes
of such series, any applicable Senior Guarantee or the respective Senior
Indenture (other than a default specified in (a), (b) or (c) above) for a
period of 60 days after written notice of such failure requiring the
Company to remedy the same shall have been given (i) to the Company by the
Trustee or (ii) to the Company and the Trustee by the holders of at least
25% in aggregate principal amount of the Senior Notes of such series 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 or any Restricted Subsidiary
for money borrowed (other than the Senior Notes of such series and the
Senior Guarantees related thereto) when due, or any other default causing
acceleration of any Indebtedness of the Company or any Restricted
Subsidiary for money borrowed, provided that the aggregate principal amount
of such Indebtedness shall exceed the greater of (i) $20 million and (ii)
5% of Consolidated Net Tangible Assets (as shown in the most recent audited
balance sheet of the Company and its Subsidiaries); provided further that
any such default is not cured or waived or any such acceleration is not
rescinded, or such debt is not repaid, within a period of 20 days after a
written notice thereof as provided in the applicable Senior Indenture; or
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(f) any Senior Guarantee related to such series of Senior Notes 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
Senior Guarantee in accordance with the applicable Senior Indenture); or
(g) final judgments or orders rendered against the Company or any
Restricted Subsidiary that are unsatisfied and that require the payment in
money, either individually or in an aggregate amount, that exceed the
coverage under applicable insurance policies by the greater of (i) $20
million and (ii) 5% of Consolidated Net Tangible Assets (as shown in the
most recent audited balance sheet of the Company and its Subsidiaries), and
either (x) 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 (y) 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
(h) the entry of a decree or order by a court having jurisdiction in
the premises (i) for relief in respect of the Company, any Subsidiary
Guarantor or any Significant Subsidiary in an involuntary case or
proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or (ii) adjudging the Company, any
Subsidiary Guarantor or any Significant Subsidiary bankrupt or insolvent,
or approving a petition seeking reorganization, arrangement, adjustment or
composition of the Company, any Subsidiary Guarantor or any Significant
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, any Subsidiary
Guarantor or any Significant 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
(i) the commencement by the Company, any Subsidiary Guarantor or any
Significant 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, any Subsidiary Guarantor or
any Significant 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, any Subsidiary
Guarantor or any Significant 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, any Subsidiary Guarantor or any Significant
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,
any Subsidiary Guarantor or any Significant Subsidiary in furtherance of
any such action.
If an Event of Default (other than as specified in clause (h) or (i) above)
with respect to any outstanding series of Senior Notes 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 Senior Notes of such series then
outstanding, by notice to the Trustee and the Company, may declare the principal
of, premium, if any, and accrued interest on all of such series of Senior Notes
then outstanding due and payable immediately, upon which declaration all amounts
payable in respect of such series of Senior Notes shall be immediately due and
payable. If an Event of Default specified in clause (h) or (i) above, with
respect to any outstanding series of Senior Notes, occurs and is continuing,
then the principal of, premium, if any, and accrued interest on all of the
outstanding Senior Notes of such series 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 such Senior Notes.
After a declaration of acceleration under a Senior 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
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amount of the outstanding Senior Notes of such series, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if (a) the Company or any Restricted Subsidiary has paid or
deposited with the Trustee a sum sufficient to pay (i) all sums paid or advanced
by the Trustee under such Senior Indenture and the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel,
(ii) all overdue interest on all Senior Notes of such series, (iii) the
principal of and premium, if any, on any Senior Notes of such series which have
become due otherwise than by such declaration of acceleration and interest
thereon at the rate borne by such series of Senior 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 Senior Notes of such series 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 with respect to such
series, other than the nonpayment of principal of, premium, if any, and interest
on the Senior Notes of such series 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 Senior Notes of any series may on behalf of the holders of all
the Senior Notes of such series waive any past defaults under the applicable
Senior Indenture, except a default in the payment of the principal of, premium,
if any, or interest on any Senior Note of such series, or in respect of a
covenant or provision which under such Senior Indenture cannot be modified or
amended without the consent of the holder of each outstanding Senior Note of
such series.
No holder of any series of the Senior Notes has any right to institute any
proceeding with respect to the Senior Indentures or any remedy thereunder,
unless the holders of at least 25% in aggregate principal amount of the
outstanding Senior Notes of such series have made written request, and offered
reasonable indemnity, to the Trustee to institute such proceeding as Trustee
under such series of Senior Notes and the applicable Senior 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 Senior Notes of such series. Such
limitations do not apply, however, to a suit instituted by a holder of a Senior
Note for the enforcement of the payment of the principal of, premium, if any, or
interest on such Senior Note on or after the respective due dates expressed in
such Senior Note.
During the existence of an Event of Default with respect to any outstanding
series of Senior Notes, the Trustee is required to exercise such rights and
powers vested in it under the applicable Senior 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 Senior Indentures relating to the duties of the
Trustee, in case an Event of Default with respect to any outstanding series of
Senior Notes shall occur and be continuing, the Trustee under the Senior
Indenture related to such series of Senior Notes is not under any obligation to
exercise any of its rights or powers under such Senior Indenture at the request
or direction of any of the holders of the Senior Notes of such series 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 Senior Notes of
any series 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 Senior Indenture related to such series
of Senior Notes.
If a Default or an Event of Default with respect to the 2005 Senior Notes
or the 2018 Senior Notes, as the case may be, occurs and is continuing and is
known to the Trustee, the Trustee shall mail to each holder of the Senior Notes
of such series 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 the Senior Notes of
any series, the Trustee may withhold the notice to the holders of such series of
Senior Notes if a committee of its trust officers in good faith determines that
withholding the notice is in the best interests of the holders of such series of
Senior Notes.
The Company is required to furnish to the Trustee annual and quarterly
statements as to the performance by the Company and the Restricted Subsidiaries
of their respective obligations under the Senior Indentures
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and as to any default in such performance. The Company is also required to
notify the Trustee within ten days of any Default with respect to any
outstanding series of Senior Notes.
MODIFICATION AND WAIVER
The Company, the Subsidiary Guarantors and the Trustee may amend or
supplement either Senior Indenture with the consent of the holders of a majority
in principal amount of the outstanding Senior Notes affected thereby; provided,
however, that no such amendment or supplement may, without the consent of the
holder of each outstanding Senior Note affected thereby, (i) reduce the amount
of Senior Notes whose holders must consent to an amendment, supplement or
waiver; (ii) reduce the rate of or change the time for payment of interest,
including default interest, on any Senior Note; (iii) reduce the principal of or
premium on or change the stated maturity of, any Senior Note; (iv) reduce the
premium, if any, payable upon redemption of any Senior Note; (v) change the
currency or currency unit of payment of principal of, premium (if any) or any
interest on any Senior Note; (vi) impair the right to institute suit for the
enforcement of any payment of principal of, premium (if any) or any interest on,
any Senior Note; (vii) waive a continuing Default or Event of Default in payment
of principal of, premium (if any) or any interest on, any Senior Note; or (viii)
amend, change or modify the obligation of the Company to make and consummate a
Change of Control Offer in the event of a Senior Change of Control or modify any
provisions or definitions with respect thereto.
Each Senior Indenture provides that the Company, the Subsidiary Guarantors
and the Trustee may amend or supplement such Senior Indenture or the applicable
Senior Notes without the consent of any holders of such Senior Notes in certain
circumstances, including (a) to cure any ambiguity, omission, defect or
inconsistency, (b) to provide for the assumption of the obligations of the
Company or any Subsidiary Guarantor under such Senior Indenture by a Successor
upon the merger, consolidation or sale or other disposition of all or
substantially all of the assets of the Company or such Subsidiary Guarantor, (c)
to provide for uncertificated Senior Notes in addition to or in place of
certificated Senior Notes, (d) to provide any security for such Senior Notes,
(e) to reflect the release of any Subsidiary Guarantor from its Senior
Guarantee, or the addition of any Subsidiary of the Company as a Subsidiary
Guarantor, in the manner provided in such Senior Indenture, (f) to comply with
any requirement to effect or maintain the qualification of such Senior Indenture
under the Trust Indenture Act, (g) to add covenants or Events of Default with
respect to such Senior Notes, (h) to establish the form or terms of such Senior
Notes or (i) to make any change that does not adversely affect the interests of
any holder of such Senior Notes in any material respect.
Each Senior Indenture provides that the holders of a majority in principal
amount of the outstanding Senior Notes of such series may waive compliance by
the Company with any provision of the applicable Senior Indenture, except a
continuing Default or Event of Default in the payment of the principal of,
premium (if any) or interest on, any Senior Note of such series or in respect of
a provision that under such Senior Indenture cannot be modified or amended
without the consent of the holder of each outstanding Senior Note of such
series. The holders of a majority in principal amount of the outstanding Senior
Notes of any series may also waive compliance by the Company with certain
restrictive provisions of the applicable Senior Indenture.
DEFEASANCE AND DISCHARGE
Each Senior Indenture provides that, unless otherwise specified, the
Company and the Subsidiary Guarantors (a) will be discharged from any and all of
their respective obligations with respect to the Senior Notes of such series
(except for certain obligations of the Company to register the transfer or
exchange of Senior Notes of such series, replace stolen, lost or mutilated
Senior Notes of such series or maintain paying agencies and hold moneys for
payment in trust) ("legal defeasance") or (b) will have certain of their
obligations (including the Senior Guarantees) terminated under the applicable
Senior Indenture ("covenant defeasance") with respect to Senior Notes of such
series, upon the deposit with the Trustee, in trust, of cash or U.S. Government
Obligations (as defined in such Senior Indenture), maturing as to principal and
interest at such times and in such amounts (without consideration of the
reinvestment of any such amounts) as will ensure the availability of cash, or a
combination thereof sufficient to pay the principal of, premium (if any) and any
interest on all Senior Notes of such series on the dates such payments are due
and payable in accordance with the terms of the Senior Notes of such series on
their Stated Maturity or any Redemption Date. The Company is required to deliver
to the Trustee an opinion of counsel to the effect that the deposit
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and related defeasance would not cause the holders of the Senior Notes of such
series to recognize income, gain or loss for federal income tax purposes.
Each Senior Indenture also provides that, unless otherwise specified, the
applicable Senior Indenture will cease to be of further effect with respect to
the Senior Notes of such series (subject to certain exceptions relating to
compensation and indemnity of the Trustee and repayment to the Company of excess
money or securities) when (i) either (A) all outstanding Senior Notes of such
series theretofore authenticated and issued (other than destroyed, lost or
stolen Senior Notes that have been replaced or paid) have been delivered to the
Trustee for cancellation; or (B) all outstanding Senior Notes of such series not
theretofore delivered to the Trustee for cancellation (x) have become due and
payable, (y) will become due and payable at their Stated Maturity within one
year or (z) are to be called for redemption within one year, and the Company has
irrevocably deposited or caused to be deposited with the Trustee as funds
(immediately available to the holders in the case of clause (x)) in trust for
such purpose cash or U.S. Government Obligations, maturing as to principal and
interest at such times and in such amounts as will ensure the availability of
cash, or a combination thereof that will be sufficient to pay and discharge the
entire indebtedness on the Senior Notes of such series for principal and any
interest to the date of such deposit (in the case of Senior Notes which have
become due and payable), or for principal, premium, if any, and interest to the
Stated Maturity or the Redemption Date, as the case may be; or (C) the Company
has fulfilled such other means of discharge applicable to Senior Notes of such
series; (ii) the Company has paid all other sums payable by it with respect to
Senior Notes of such series; and (iii) the Company has delivered to the Trustee
certain other documents required by the applicable Senior Indenture, including
an officers' certificate and an opinion of counsel.
TRANSFER AND EXCHANGE
A holder may transfer or exchange the Senior Notes of any series in
accordance with the procedures set forth in the applicable Senior Indenture. The
Registrar may require a holder, among other things, to furnish appropriate
endorsements and transfer documents, and to pay any taxes and fees required by
law or permitted by the Senior Indentures. No service charge will be made,
however, for any registration of transfer or exchange of the Senior Notes. The
Registrar is not required to transfer or exchange (i) any Senior Note selected
for redemption or (ii) any Senior Note during the period beginning 15 business
days before the mailing of notice of any offer to repurchase such Senior Note or
of redemption of such Senior Note and ending at the close of business on the
date of mailing. The Company will initially appoint the Trustee as Registrar of
the Senior Notes.
PAYMENT AND PAYING AGENTS
Payment of principal of and any premium and interest on the Senior Notes
will be made in U.S. dollars at the office of such Paying Agent or Paying Agents
as the Company may designate from time to time, except that, at the option of
the Company, payment of such amounts may be made (a) by wire transfer with
respect to Senior Notes issued in global form or (b) by check mailed to the
registered address of the Person entitled thereto. Payment of any installment of
interest on the Senior Notes will be made to the Person in whose name such
Senior Note is registered at the close of business on the record date for such
interest.
The Corporate Trust Office of the Trustee in New York, New York will
initially be designated as a Paying Agent for the Company for payments with
respect to Senior Notes. The Company may at any time designate additional Paying
Agents or rescind the designation of any Paying Agent or approve a change in the
office through which any Paying Agent acts, except that the Company will be
required to maintain a Paying Agent in each place of payment for the Senior
Notes.
All moneys paid by the Company to the Trustee or a Paying Agent for the
payment of principal of and any premium or interest on, any Senior Note that
remain unclaimed for two years after the date on which such payment becomes due
will (subject to applicable abandoned property laws) be repaid to the Company
and the holder of such Senior Note or any coupon will thereafter look only to
the Company for payment thereof.
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GOVERNING LAW
The Senior Indentures and the Senior Notes are governed by and construed in
accordance with the laws of the State of New York, without regard to principles
of conflicts of law.
THE TRUSTEE
Norwest Bank Minnesota, National Association, is the Trustee under each
Senior Indenture. The Company has initially appointed the Trustee as the
Registrar and Paying Agent under each Senior Indenture.
The Senior Indentures contain certain limitations on the right of the
Trustee, in the event that it becomes a creditor of the Company, to obtain
payment of claims in certain cases and to realize on certain property received
with respect to any such claims, as security or otherwise. The Trustee will be
permitted to engage in other transactions; if it acquires any conflicting
interest (as defined in the Trust Indenture Act), however, it must eliminate
such conflict or resign.
The Senior Indentures provide that in case an Event of Default shall occur
(and be continuing), the Trustee will be required to use the degree of care and
skill of a prudent person in the conduct of his own affairs. The Trustee is
under no obligation to exercise any of its powers under the Senior Indentures at
the request of any of the holders of the Senior Notes, unless such holders have
offered the Trustee indemnity reasonably satisfactory to it.
CERTAIN SENIOR NOTES DEFINITIONS
The following is a summary of certain defined terms to be used in the
Senior Indentures. Reference is made to the Senior Indentures for the full
definition of all such terms and for the definitions of other capitalized terms
used herein but not defined below.
"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 Senior Guarantee, of such Subsidiary Guarantor at such
date.
"Attributable Indebtedness," when used with respect to any Sale/Leaseback
Transaction, means, as at the time of determination, the present value
(discounted at a rate equivalent to the Company's current weighted average cost
of funds for borrowed money as at the time of determination, compounded on a
semi-annual basis) of the total obligations of the lessee for rental payments
during the remaining term of the lease included in such Sale/Leaseback
Transaction (including any period for which such lease has been extended).
"Capital Stock" of any Person means and includes any and all shares,
interests, rights to purchase, warrants or options (whether or not currently
exercisable), participations or other equivalents of or interests (however
designated) in the equity (which includes, but is not limited to, common stock,
preferred stock and partnership and joint venture interests) of such Person
(excluding any debt securities that are convertible into, or exchangeable for
such equity).
"Capitalized Lease Obligation" of any Person means any obligation of such
Person to pay rent or other amounts under a lease of property, real or personal,
that is required to be capitalized for financial reporting purposes in
accordance with GAAP; and the amount of such obligation shall be the capitalized
amount thereof determined in accordance with GAAP.
"Common Equity" of any Person means and includes all Capital Stock of such
Person that is generally entitled to (i) if such Person is a corporation, vote
in the election of directors of such Person or (ii) if such Person is not a
corporation, vote or otherwise participate in the selection of the governing
body, partners, managers or others that will control the management and policies
of such Person.
"Consolidated Net Tangible Assets" means, as of the date of determination,
Consolidated Total Assets after deducting therefrom, to the extent included
therein (with respect to clauses (i) and (ii), in each case
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determined on a consolidated basis in accordance with GAAP (without
duplication)): (i) unamortized debt discount and expenses; and (ii) goodwill,
patents, trademarks, service marks, trade names, copyrights and other items
properly classified as intangible assets in accordance with GAAP; and (iii) all
liabilities properly classified as current liabilities in accordance with GAAP
(except liabilities that, by their terms, are extendible or renewable at the
option of the obligor to a date that is 12 months or more after the date on
which such current liabilities are determined).
"Consolidated Total Assets" means, as of any date, the total assets of the
Company and its Restricted Subsidiaries that would be shown as assets on a
consolidated balance sheet of the Company and its Restricted Subsidiaries as of
such date prepared in accordance with GAAP (without giving effect to any ceiling
limitation writedowns after the Issue Date).
"Currency Hedge Obligations" means, at any time as to any Person, the
obligations of such Person at such time that were incurred pursuant to any
foreign currency exchange agreement, option or futures contract or other similar
agreement or arrangement designed to protect against or manage such Person's or
any of its Subsidiaries' exposure to fluctuations in foreign currency exchange
rates.
"Default" means any event, act or condition that is, or after notice or
passage of time or both would be, an Event of Default.
"GAAP" means generally accepted accounting principles in the United States
as in effect on the Issue Date.
"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.
"Indebtedness" of any Person at any date means, without duplication (a) all
indebtedness or obligations of such Person for borrowed money (whether or not
the recourse of the lender is to the whole of the assets of such Person or only
to a portion thereof), (b) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (c) all obligations of such
Person in respect of letters of credit or other similar instruments (or
reimbursement obligations with respect thereto), other than standby letters of
credit and bid or performance bonds issued by such Person in the ordinary course
of business, to the extent not drawn or, to the extent drawn, if such drawing is
reimbursed not later than thirty business days following demand for
reimbursement, (d) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services, except trade payables and accrued
expenses incurred in the ordinary course of business, (e) all Capitalized Lease
Obligations of such Person, (f) all Indebtedness of others secured by a Lien on
any asset of such Person, whether or not such Indebtedness is assumed by such
Person, (g) all Indebtedness of others guaranteed by such Person to the extent
of such guarantee and (h) all obligations of such Person in respect of Currency
Hedge Obligations, Interest Rate Hedging Agreements and Oil and Gas Hedging
Contracts. Notwithstanding anything in this definition to the contrary,
production payment liabilities (whether recorded as liabilities or as deferred
revenue) shall not constitute Indebtedness.
"Interest Rate Hedging Agreements" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person or any of its
Subsidiaries against fluctuations in interest rates.
"Issue Date" means the date on which Senior Notes are first issued under
the applicable Senior Indenture.
"Lien" means, with respect to any property or asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
property or asset, whether or not filed, recorded or otherwise perfected under
applicable law, but excluding agreements to refrain from granting Liens. For the
purposes of the Senior Indentures, a Person shall be deemed to own subject to a
Lien any property or asset that it has
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acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, Capitalized Lease Obligation or other title
retention agreement relating to such asset; provided, however, that "Lien" shall
not include a trust or similar arrangement established for the purpose of
defeasing any Indebtedness pursuant to the terms of the instrument evidencing or
providing for the issuance of such Indebtedness.
"Oil and Gas Hedging Contracts" means any oil and gas purchase or hedging
agreement, and other agreement or arrangement, in each case, that is designed to
provide protection against oil and gas price fluctuations.
"Pari Passu Indebtedness" means any Indebtedness of the Company, whether
outstanding on the Issue Date 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 be subordinated in right of payment to the
Senior Notes.
"Pari Passu Indebtedness of a Subsidiary Guarantor" means any Indebtedness
of such Subsidiary Guarantor, whether outstanding on the Issue Date 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 be
subordinated in right of payment to the Senior Guarantees.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, incorporated or unincorporated association, joint stock
company, trust, unincorporated organization or government or other agency or
political subdivision thereof or other entity of any kind.
"Principal Property" means (i) any property owned or leased by the Company
or any Restricted Subsidiary and located within the United States of America,
any State thereof (including property located off the coast of the United States
of America held pursuant to lease from any United States Federal, State or other
governmental body) or Canada that is considered by the Company to be capable of
producing oil, gas or other minerals in commercial quantities, (ii) any
refinery, smelter or processing or manufacturing plant owned or leased by the
Company or any Restricted Subsidiary and located within the United States of
America, any State thereof, or Canada, except (A) facilities related thereto
employed in transportation, distribution or marketing, and (B) any refinery,
smelter or processing or manufacturing plant, or portion thereof, that the Board
of Directors determines is not material to the business of the Company and its
Restricted Subsidiaries taken as a whole, and (iii) any Capital Stock or
Indebtedness issued by a Restricted Subsidiary that owns or leases property of
the types described in clauses (i) and (ii) of this definition.
"Project Finance Debt" means Indebtedness of an Unrestricted Subsidiary (i)
as to which neither the Company nor any Restricted Subsidiary of the Company is
directly or indirectly liable (by virtue of the Company's or such Restricted
Subsidiary's being the primary obligor, or guarantor of (by way of guarantee,
statute, common law or otherwise), or otherwise contractually liable in any
respect on, such Indebtedness) and (ii) that is not secured by any assets of the
Company or of any of its Restricted Subsidiaries.
"Restricted Subsidiary" means any Subsidiary of the Company, whether
existing on or after the Issue Date, other than an Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means any arrangement with any Person
providing for the leasing by the Company or any of its Restricted Subsidiaries
for a period of more than three years of any Principal Property, which property
has been or is to be sold or transferred by the Company or such Restricted
Subsidiary to such Person in contemplation of such leasing.
"Senior 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) 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
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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 defined in
Section 13(d)(3) or 14(d)(2) of the Exchange Act, 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) 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 (d) the
liquidation or dissolution of the Company.
"Senior Guarantee" means any Guarantee of the Senior Notes by any
Subsidiary Guarantor in accordance with the provisions set forth in "-- Senior
Guarantees."
"Senior Make-Whole Premium" means, in connection with any optional
redemption of any Senior Note, the excess, if any, of (i) the aggregate present
value as of the date of such redemption of each dollar of principal of such
Senior Note being redeemed and the amount of interest (exclusive of interest
accrued to the date of redemption) that would have been payable in respect of
such dollar if such redemption had not been made, determined by discounting, on
a semiannual basis, such principal and interest at a rate equal to the sum of
the Treasury Yield (determined on the business day immediately preceding the
date of such redemption) plus 0.20% per annum, from the respective dates on
which such principal and interest would have been payable if such redemption had
not been made, over (ii) the aggregate principal amount of such Senior Note
being redeemed.
"Significant Subsidiary" means any Restricted Subsidiary the consolidated
assets of which comprise in excess of 5% of Consolidated Net Tangible Assets (as
shown in the most recent audited consolidated balance sheet of the Company and
its Subsidiaries).
"Subordinated Indebtedness of a Subsidiary Guarantor" means any
Indebtedness of such Subsidiary Guarantor, whether outstanding on the Issue Date
or thereafter created, incurred, or assumed, if the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall be subordinated in right of payment to the
Senior Guarantees.
"Subsidiary" means, as to any Person, any corporation, association or other
business entity in which such Person or one or more of its Subsidiaries or such
Person and one or more of its Subsidiaries own more than 50% of the total
combined voting power of all Common Equity, and any partnership or joint venture
if more than a 50% interest in the profits or capital thereof is owned by such
Person or one or more of its Subsidiaries or such Person and one or more of its
Subsidiaries (unless such partnership can and does ordinarily take major
business actions without the prior approval of such Person or one or more of its
Restricted Subsidiaries).
"Subsidiary Guarantor" means (i) Ocean Energy, Inc., a Louisiana
corporation, and (ii) each of the Company's Restricted Subsidiaries that becomes
a guarantor of any series of the Senior Notes in compliance with the provisions
described under "-- Senior Guarantees," in each case until such time as the
Senior Guarantee of such Person is released in accordance with the provisions
described under "-- Senior Guarantees."
"Treasury Yield" means, in connection with the calculation of any Senior
Make-Whole Premium on any Senior Note, the yield to maturity at the time of
computation of United States Treasury securities with a constant maturity (as
compiled by and published in the most recent Federal Reserve Statistical Release
H.15 (519) that has become publicly available at least two business days prior
to the date fixed for redemption (or, if such Statistical Release is no longer
published, any publicly available source of similar data)) equal to the then
remaining maturity of such Senior Note; provided that if no United States
Treasury security is available with such a constant maturity and for which a
closing yield is given, the Treasury Yield shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the closing
yields of United States
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Treasury securities for which such yields are given, except that if the
remaining maturity of such Senior Note is less than one year, the weekly average
yield on actually traded United States Treasury securities adjusted to a
constant maturity of one year shall be used.
"Unrestricted Subsidiary" means (i) Havre Pipeline Company, LLC and Lion
GPL, S.A., (ii) any Subsidiary acquired or organized after the Issue Date that
is designated as an Unrestricted Subsidiary for purposes of the applicable
Senior Indenture by a resolution of the Board of Directors of the Company in
accordance with the requirements of this paragraph, and (iii) any Subsidiary of
an Unrestricted Subsidiary, in each case until such time as such Subsidiary is
designated as a Restricted Subsidiary for purposes of such Senior Indenture by a
resolution of the Board of Directors of the Company in accordance with the
requirements of this paragraph. The Company may designate any Subsidiary that
satisfies the requirements of this paragraph to be an Unrestricted Subsidiary by
a resolution of the Board of Directors of the Company if after giving effect to
such designation (a) such Subsidiary does not own or hold any Capital Stock of,
or any Lien on any property of, the Company or any Restricted Subsidiary and (b)
such Subsidiary is not liable, directly or indirectly, with respect to any
Indebtedness other than Project Finance Debt. The Company may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary by a resolution of the
Board of Directors of the Company if immediately after giving effect to such
designation, no Default or Event of Default has occurred and is continuing.
"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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DESCRIPTION OF SENIOR SUBORDINATED NOTES
The Senior Subordinated Exchange Notes offered hereby will be issued, and
the Old Senior Subordinated Notes were issued, pursuant to the Indenture dated
as of July 8, 1998 (as amended and/or supplemented from time to time, the
"Senior Subordinated Indenture" and, collectively with the Senior Indentures,
the "Indentures") among the Company, as issuer, the Subsidiary Guarantors
parties thereto and U.S. Bank Trust National Association, as trustee (for
purposes of this section, the "Trustee"). The following summaries of certain
provisions of the Senior Subordinated Notes and the Senior Subordinated
Indenture do not purport to be complete and are subject to, and are qualified in
their entirety by reference to, the Senior Subordinated Notes and the Senior
Subordinated Indenture, including the definitions of certain terms contained in
the Senior Subordinated Indenture and those terms that are made a part thereof
by reference to the Trust Indenture Act. The definitions of certain capitalized
terms used in the following summary are set forth below under "-- Certain Senior
Subordinated Notes Definitions."
GENERAL
The Senior Subordinated Exchange Notes will be issued solely in exchange
for an equal principal amount of Old Senior Subordinated Notes pursuant to the
Exchange Offer. The form and terms of the Senior Subordinated Exchange Notes
will be identical in all material respects to the form and terms of the Old
Senior Subordinated Notes, except that the offering of the Senior Subordinated
Exchange Notes has been registered under the Securities Act, and the Senior
Subordinated 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 Senior Subordinated Notes, under certain
circumstances. See "Exchange Offer; Registration Rights."
MATURITY, INTEREST AND PRINCIPAL PAYMENTS
The Senior Subordinated Notes will be unsecured senior subordinated
obligations of the Company, will mature on July 1, 2008 and will be limited to
$250,000,000 aggregate principal amount. The Senior Subordinated Notes will bear
interest at 8 3/8% per annum from the date of issuance of the Old Notes, payable
semiannually on January 1 and July 1 of each year, commencing January 1, 1999,
to the Person in whose name the Senior Subordinated Note is registered at the
close of business on the December 15 or June 15 next preceding such interest
payment date or, in the case of interest payable at maturity, to the Person to
whom principal is paid. Interest will be computed on the basis of a 360-day year
consisting of twelve 30-day months. Principal of, premium, if any, and interest
on the Senior Subordinated Notes will be payable at the offices of the Trustee,
provided that, at the option of the Company, payment of principal, premium, if
any, and interest will be made by wire transfer (in the case of Senior
Subordinated Notes held in book-entry form) or check mailed to the address of
the person entitled thereto as it appears in the register of the Senior
Subordinated Notes (the "Register") maintained by the Registrar. The Senior
Subordinated Notes will be transferable and exchangeable at the office of the
Registrar and any coregistrar and will be issued in fully registered form,
without coupons, in denominations of $1,000 and any integral multiple thereof.
The Company may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection with certain transfers
and exchanges. The Company's obligations under the Senior Subordinated Notes
will be initially guaranteed on an unsecured subordinated basis by the Initial
Subsidiary Guarantor.
RANKING
The Senior Subordinated Notes will be unsecured senior subordinated
obligations of the Company and will rank pari passu with all other unsecured
senior subordinated indebtedness of the Company.
The Company is a holding company, conducting substantially all of its
business through subsidiaries. As of June 30, 1998, as adjusted to give effect
to the Initial Offering, the application of the net proceeds therefrom and the
establishment of the New Credit Facility, the Company would have had (i) an
aggregate of approximately $1.0 billion of consolidated indebtedness (including
the Notes), of which approximately $250.2 million (comprised of the New Credit
Facility, the Senior Notes and the Existing Senior Notes) would
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have been senior to the Senior Subordinated Notes, approximately $509 million
(comprised of the Existing Notes) would have been pari passu with the Senior
Subordinated Notes, none would have been subordinated to the Senior Subordinated
Notes and approximately $6 million would have been secured or owed by
subsidiaries of the Company (other than the Initial Subsidiary Guarantor) and,
therefore, effectively senior to the Senior Subordinated Notes and (ii)
approximately $29.6 million of cash. See "Capitalization" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." Although the Senior Subordinated
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 Senior
Subordinated Notes will be structurally subordinated except for Indebtedness of
a Subsidiary Guarantor). The Senior Subordinated 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 Senior Subordinated Notes.
REDEMPTION
Optional Redemption. Prior to July 1, 2003 (the "Five-Year Date"), the
Senior Subordinated Notes will be redeemable, in whole but not in part, at a
redemption price equal to the sum of (a) an amount equal to 100% of the
principal amount thereof and (b) the Senior Subordinated Make-Whole Premium,
together with accrued and unpaid interest to the date fixed for redemption. In
no event will such redemption price ever be less than 100% of the principal
amount of the Senior Subordinated Notes plus accrued interest to the date of
redemption. On or after July 1, 2003, the Senior Subordinated Notes will be
redeemable, in whole or in part, 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 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PRICE
- ---- --------
<S> <C>
2003........................................................ 104.188%
2004........................................................ 102.792%
2005........................................................ 101.396%
2006 and thereafter......................................... 100.000%
</TABLE>
In addition, at any time and from time to time prior to July 1, 2001, the
Company may, at its option, redeem in the aggregate up to 33 1/3% of the
aggregate principal amount of the Senior Subordinated Notes originally issued
under the Senior Subordinated 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 108.375%, plus accrued and unpaid interest, if any, to
the date of redemption (subject to the right of Holders on the relevant record
date to receive interest due on the relevant interest payment date); provided,
however, that at least 66 2/3% aggregate principal amount of the Senior
Subordinated 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 Senior
Subordinated Notes are to be redeemed at any time, selection of such Senior
Subordinated Notes (or any portion thereof that is an integral multiple of
$1,000) for redemption will be made by the Trustee from the outstanding Senior
Subordinated 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 Senior Subordinated
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 holder of Senior Subordinated Notes
to be redeemed at its registered address. If any Senior Subordinated Note is to
be redeemed in part only, the notice of redemption that relates to such Senior
Subordinated Note shall state the portion of the principal amount thereof to be
redeemed. A new Senior Subordinated Note in a
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principal amount equal to the unredeemed portion thereof will be issued in the
name of the holder thereof upon cancellation of the original Senior Subordinated
Note. On and after the redemption date, interest will cease to accrue on Senior
Subordinated 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 Senior Subordinated 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 certain sales or other dispositions of assets,
the Company may be obligated to make offers to purchase Senior Subordinated
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."
SUBORDINATION
Payments of and distributions on or with respect to the Senior Subordinated
Note Obligations will be subordinated, to the extent set forth in the Senior
Subordinated 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 Senior Subordinated 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 Senior Subordinated
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 Senior
Subordinated Guarantee to the extent such Subsidiary is a Subsidiary Guarantor.
See "Risk Factors -- Subordination of Senior Subordinated Notes; Holding Company
with No Independent Operations."
The Senior Subordinated 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 Senior Subordinated 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 Senior
Subordinated 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 Senior Subordinated Notes receiving any such
payment or distribution (other than a payment or distribution in the form of
Permitted Junior Securities) will 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 Senior Subordinated 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.
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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 "Non-payment 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 Senior Subordinated 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 Senior Subordinated Notes, including any
missed payments. Only one Payment Blockage Period with respect to the Senior
Subordinated 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 Senior Subordinated Note
prohibited by the subordination provision of the Senior Subordinated 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.
If the Company fails to make any payment on the Senior Subordinated 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 Senior Subordinated Indenture and would enable the
holders of the Senior Subordinated 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 Senior
Subordinated Notes, and funds which would be otherwise payable to the holders of
the Senior Subordinated 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
Senior Subordinated Notes.
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SENIOR SUBORDINATED GUARANTEES
The Initial Subsidiary Guarantor has fully and unconditionally guaranteed
the Company's obligations to pay principal of, premium, if any, and interest on
the Senior Subordinated Notes. The Senior Subordinated Guarantees are
subordinated to Guarantor Senior Indebtedness of a Subsidiary Guarantor to the
same extent and in the same manner as the Senior Subordinated Notes are
subordinated to Senior Indebtedness. Each of the Senior Subordinated Guarantees
is an unsecured senior subordinated obligation of the Subsidiary Guarantor
providing such Guarantee, and ranks pari passu in right of payment with all
existing and future senior subordinated obligations of such Subsidiary Guarantor
(including the guarantees of the Existing Notes). The Senior Subordinated
Indenture provides that if any Restricted Subsidiary guarantees the payment of
any Indebtedness of the Company at any date subsequent to the Issue Date, then
the Company will cause the Senior Subordinated Notes to be equally and ratably
guaranteed by such Restricted Subsidiary on a senior subordinated basis. In
addition, the Senior Subordinated Indenture requires certain Restricted
Subsidiaries to execute and deliver a Senior Subordinated Guarantee prior to the
incurrence of certain indebtedness. See "-- Certain Covenants--Limitation on
Indebtedness" and " -- Limitation on Guarantees of Indebtedness by Restricted
Subsidiaries." The Subsidiary Guarantees are subject to release in certain
circumstances, as described below.
The obligations of each Subsidiary Guarantor are limited to the 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 Senior Subordinated
Guarantee or pursuant to its contribution obligations under the Senior
Subordinated Indenture, result in the obligations of such Subsidiary Guarantor
under its Senior Subordinated Guarantee not constituting a fraudulent conveyance
or fraudulent transfer under federal, state or foreign law. Each Subsidiary
Guarantor that makes a payment or distribution under a Senior Subordinated
Guarantee shall be entitled to a contribution from each other Senior
Subordinated Guarantor 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 Senior Subordinated Indenture. Each Subsidiary Guarantor may
consolidate with or merge into or sell all or substantially all of its assets to
a Person other than the Company or another Subsidiary Guarantor (whether or not
affiliated with the Subsidiary Guarantor), provided that (a) if the surviving
Person is not the Subsidiary Guarantor, the surviving Person agrees to assume
such Subsidiary Guarantor's Senior Subordinated Guarantee and all its
obligations pursuant to the Senior Subordinated Indenture (except to the extent
the following paragraph would result in the release of such Senior Subordinated
Guarantee) and (b) such transaction does not (i) violate any of the covenants
described below under "-- Certain Covenants" or in the Senior Subordinated
Indenture or (ii) result in a Default or Event of Default immediately thereafter
that is continuing.
Any Senior Subordinated Guarantee incurred by a Restricted Subsidiary may,
at the election of the Company, 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 Senior Subordinated Indenture), (ii) the merger of such
Restricted Subsidiary into the Company or any other Restricted Subsidiary
(provided the surviving Restricted Subsidiary assumes the Senior Subordinated
Guarantee) or the liquidation and dissolution of such Restricted Subsidiary (in
each case to the extent not prohibited by the Senior Subordinated Indenture), or
(iii) if applicable, the release or discharge of the guarantee which resulted in
the creation of such Senior Subordinated Guarantee, except a discharge or
release by or as a result of payment under such guarantee. Each Subsidiary
Guarantor that is designated as an Unrestricted Subsidiary in accordance with
the Senior Subordinated Indenture shall be released from its Senior Subordinated
Guarantee and related obligations set forth in the Senior Subordinated Indenture
for so long as it remains an Unrestricted Subsidiary.
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In addition, the Senior Subordinated Indenture provides that if, at any
time while any of the Senior Subordinated Notes remain outstanding, none of the
Company's then outstanding Indebtedness (other than the Senior Subordinated
Notes) is guaranteed by a Subsidiary Guarantor, such Subsidiary Guarantor shall
be automatically and unconditionally released, discharged and relieved of any
obligations under its Senior Subordinated Guarantee (which shall be terminated
and cease to have any force and effect).
CERTAIN COVENANTS
The Senior Subordinated 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 Senior Subordinated 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 Senior
Subordinated Indenture described under "-- Limitation on Indebtedness,"
"-- Limitation on Restricted Payments," "-- Limitation on Issuances and Sales of
Restricted Subsidiary Stock," "-- Limitation on Transactions with Affiliates,"
"-- Limitation on Disposition of Proceeds of Asset Sales," "-- Limitation on
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries,"
"-- Limitation on Other Senior Subordinated Indebtedness" and clauses (iii) and
(iv) of the first paragraph of the covenant entitled "Merger, Consolidation and
Sale of Assets" (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 (a "Suspension Period") and, subsequently, one
or both Rating Agencies withdraws its ratings or downgrades the ratings assigned
to the Senior Subordinated Notes below the required Investment Grade Ratings,
then, from and after the date of such withdrawal or downgrade, 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 Issue Date.
Notwithstanding any other provision of the Senior Subordinated Indenture, the
continued existence, after the date of such withdrawal or downgrade, of facts
and circumstances that were incurred or otherwise came into being during a
Suspension Period shall not constitute a breach of any covenant set forth in the
Senior Subordinated Indenture or a Default or Event of Default thereunder.
The Senior Subordinated Indenture contains, among others, the covenants
described below.
Limitation on Indebtedness. The Senior Subordinated 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 either Subsidiary Guarantors or Foreign
Subsidiaries may incur Indebtedness (and Restricted Subsidiaries that are not
Subsidiary Guarantors or Foreign Subsidiaries may incur Acquired 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 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 (or any properties outside of the ordinary course of business)
acquired or disposed of by the Company or its Restricted
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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 Senior Subordinated 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 (other than with respect to
any such Capital Stock or other interests held by the Company or any Wholly
Owned Restricted Subsidiary of the Company);
(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, except in any case out of a Net Proceeds Deficiency pursuant
to the terms of the Senior Subordinated Indenture and except upon the
occurrence of a Change of Control to the extent (and only to the extent)
required by the indenture or other agreement or instrument pursuant to
which such Subordinated Indebtedness was issued, provided that the Company
is then in compliance with its obligations under "-- Change of Control";
(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 or other interests held by the Company or any Wholly
Owned Restricted Subsidiary of the Company); or
(v) make any Investment (other than any Permitted Investment);
(such payments or other actions described in (but not excluded from) clauses (i)
through (v) 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
the "Limitation on Indebtedness" covenant, and (C) the aggregate amount of all
Restricted Payments declared or made after the Issue Date shall not exceed the
sum (without duplication) of the following:
(1) 50% of the aggregate cumulative Consolidated Net Income of the
Company (including, without limitation, notwithstanding clause (d) of the
definition of "Consolidated Net Income," the Consolidated Net Income of
each of Ocean Energy, Inc. and United Meridian Corporation prior to their
merger) accrued on a cumulative basis during the period beginning June 1,
1997 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 June 1, 1997 by the
Company as capital contributions to the Company (other than from any
Restricted Subsidiary), plus
(3) the aggregate net cash proceeds received after June 1, 1997, 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
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(4) the aggregate net cash proceeds received after June 1, 1997 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
(5) the aggregate net cash proceeds received after June 1, 1997 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) the aggregate net cash proceeds received after June 1, 1997 by the
Company or its Restricted Subsidiaries, computed on a consolidated basis,
constituting a return of capital on an Investment (other than a Permitted
Investment) made by the Company or any Restricted Subsidiary after June 1,
1997, including, without limitation, 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 June
1, 1997, plus
(7) $50,000,000.
(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 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 Senior Subordinated Notes at least to the same
extent as such Subordinated Indebtedness so purchased, redeemed, repaid,
defeased, acquired or retired, and (C) such new Subordinated
Indebtedness has an Average Life to Stated Maturity that is longer than
the Average Life to Stated Maturity of the Senior Subordinated Notes and
such new Subordinated Indebtedness has a Stated Maturity for its final
scheduled principal payment that is at
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least 91 days later than the Stated Maturity for the final scheduled
principal payment of the Senior Subordinated 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 (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 the Senior Subordinated Indenture, such
Restricted Payment shall be deemed to have been made in compliance with the
Senior Subordinated 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
Senior Subordinated Indenture provides that the Company (a) will not permit any
Restricted Subsidiary to issue any Capital Stock (other than to the Company or a
Wholly Owned Restricted Subsidiary) and (b) will not permit any Person (other
than the Company or a Wholly Owned Restricted Subsidiary) to own any Capital
Stock of any Restricted Subsidiary, except, in each case, for (i) directors'
qualifying shares, (ii) Capital Stock of a Restricted Subsidiary organized in a
foreign jurisdiction required to be issued to, or owned by, the government of
such foreign jurisdiction or individual or corporate citizens of such foreign
jurisdiction in order for such Restricted Subsidiary to transact business in
such foreign jurisdiction, (iii) a sale of all or substantially all the Capital
Stock of a Restricted Subsidiary effected in accordance with the "Limitation on
Disposition of Proceeds of Asset Sales" covenant, (iv) the Capital Stock of a
Restricted Subsidiary owned by a Person at the time such Restricted Subsidiary
became a Restricted Subsidiary or acquired by such Person in connection with the
formation of the Restricted Subsidiary and (v) Capital Stock of Havre Pipeline
Company, LLC and Capital Stock of Big Sky Gas Marketing L.L.C.; provided,
however, that any Capital Stock retained by the Company or a Restricted
Subsidiary shall be treated as an Investment for purposes of the covenant
entitled "Limitation on Restricted Payments" described above, if the amount of
such Capital Stock represents less than a majority of the Voting Stock of such
Restricted Subsidiary.
Limitation on Transactions with Affiliates. The Senior Subordinated
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, 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 Affiliates, (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
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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 point of view to the Company or such Restricted
Subsidiary); provided, however, that this covenant shall not apply to (1) the
payment of reasonable and customary regular compensation and fees to directors
of the Company who are not employees of the Company or any Restricted
Subsidiary, (2) the payment of 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, (4) Restricted Payments permitted by the provisions of
the Senior Subordinated Indenture described above under the covenant entitled
"Limitation on Restricted Payments," (5) loans or advances to officers,
directors and employees of the Company or any Restricted Subsidiary made in the
ordinary course of business and consistent with past practices of the Company
and its Restricted Subsidiaries in an aggregate amount not to exceed $1,000,000
outstanding at any one time, (6) any transaction or series of related
transactions entered into prior to the Issue Date or (7) the Company's employee
compensation and other benefit arrangements.
Limitation on Liens. The Senior Subordinated 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
Issue Date 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 Senior Subordinated
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 Senior
Subordinated 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 the covenant
entitled "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
Senior Subordinated 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 Senior
Subordinated 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 Holder 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 Senior Subordinated Notes that might be delivered
by Holders seeking to accept the Change of Control Offer. The indentures
governing the Existing Senior Notes, the Existing Notes and the Senior Notes all
obligate the Company to make offers to purchase such Indebtedness upon the
occurrence of certain events that constitute a Change of Control. In addition,
the New Credit Facility prohibits the purchase of the Senior Subordinated Notes
by the Company prior to payment in full of the indebtedness under the New Credit
Facility, and a Change of Control is an event of default under the New Credit
Facility. There can be no assurance that in the event of a Change of Control the
Company will be able to obtain the necessary consents from the lenders under the
New Credit
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Facility in order to consummate a 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
Senior Subordinated Notes, an Event of Default would occur under the Senior
Subordinated 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.
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 Senior Subordinated 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
Senior Subordinated Notes as described above. The existence of a Holder's right
to require, subject to certain conditions, the Company to repurchase its Senior
Subordinated 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 Senior
Subordinated 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 70% 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 Senior
Subordinated 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 Senior Subordinated 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 Senior Subordinated Notes and any
such 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 Senior Subordinated Notes in accordance
with the procedures set forth in the Senior Subordinated Indenture the
maximum principal amount (expressed as a multiple of $1,000) of Senior
Subordinated 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
Senior Subordinated Notes and the denominator of which is the sum of the
outstanding principal amount of the Senior Subordinated 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 Senior
Subordinated 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
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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 Senior Subordinated Notes shall be
payable in cash in an amount equal to 100% of the principal amount of the
Senior Subordinated 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 Senior Subordinated Indenture. To the extent that the
aggregate Offered Price of the Senior Subordinated 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 general corporate purposes, subject to the limitations
of the "Limitation on Restricted Payments" covenant.
(iii) If the aggregate Offered Price of Senior Subordinated Notes
validly tendered and not withdrawn by Holders thereof exceeds the Payment
Amount, Senior Subordinated 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 (except a Foreign 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 Senior Subordinated
Notes as described above.
Limitation on Guarantees of Indebtedness by Restricted Subsidiaries. (a)
The Senior Subordinated 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
Senior Subordinated Indenture providing for a Senior Subordinated Guarantee of
the Senior Subordinated Notes by such Restricted Subsidiary which Senior
Subordinated Guarantee will be subordinated to Guarantor Senior Indebtedness
(but no other Indebtedness) to the same extent that the Senior Subordinated
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 Senior
Subordinated Guarantee at least to the same extent as such Subordinated
Indebtedness is subordinated to the Senior Subordinated 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
Senior Subordinated 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 Senior Subordinated
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) The Company may from time to time, at its option, nominate any
Restricted Subsidiary as an additional Subsidiary Guarantor. Any such Restricted
Subsidiary shall execute and deliver a supplemental indenture to the Senior
Subordinated Indenture agreeing to guarantee the Senior Subordinated Notes. At
the election of the Company, such Senior Subordinated Guarantee may contain such
release provisions as the
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Company may deem appropriate (including, without limitation, release provisions
of the type in paragraph (c) below).
(c) Notwithstanding the foregoing paragraph (a) and the other provisions of
the Senior Subordinated Indenture, any Senior Subordinated Guarantee incurred by
a Restricted Subsidiary pursuant to this covenant may, at the election of the
Company, 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 Senior Subordinated
Indenture), (ii) the merger of such Restricted Subsidiary into the Company or
any other Restricted Subsidiary (provided the surviving Restricted Subsidiary
assumes the Senior Subordinated Guarantee) or the liquidation and dissolution of
such Restricted Subsidiary (in each case to the extent not prohibited by the
Senior Subordinated Indenture), or (iii) the release or discharge of the
guarantee which resulted in the creation of such Senior Subordinated Guarantee,
except a discharge or release by or as a result of payment under such guarantee.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Senior Subordinated 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 (except a Foreign 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 the Senior Subordinated Indenture,
the Existing Indentures, the Credit Agreement or any agreement in effect or
entered into on the Issue Date, (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, (iii) that constitute customary
restrictions in leases and licenses relating to the Property covered thereby and
entered into in the ordinary course of business, (iv) contained in agreements
governing Indebtedness permitted to be incurred in accordance with the Senior
Subordinated Indenture provided that the restrictions are not materially more
restrictive in the aggregate than the restrictions contained in the Senior
Subordinated Indenture, or (v) existing under any agreement that extends,
renews, refinances or replaces (in whole or in part, and whether or not such
prior agreements remain outstanding) the agreements containing the restrictions
in the foregoing clauses (i), (ii), (iii) and (iv) provided that the terms and
conditions of any such restrictions are not materially less favorable to the
Holders of the Senior Subordinated 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 Senior
Subordinated 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 (i)
ranks pari passu in right of payment with the Senior Subordinated Notes pursuant
to subordination provisions substantially similar to those contained in the
Senior Subordinated Indenture, or (ii) is expressly subordinated in right of
payment to the Senior Subordinated Notes.
Reports. The Senior Subordinated 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 (without exhibits) to
each holder of Senior Subordinated 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
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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 Senior Subordinated 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 Senior Subordinated Indenture, unless the Subsidiary of the
Company is designated as an Unrestricted Subsidiary pursuant to the terms of the
Senior Subordinated Indenture. The definition of "Unrestricted Subsidiary" set
forth under the caption "-- Certain Senior Subordinated Notes Definitions" lists
existing Unrestricted Subsidiaries and describes the circumstances under which
other Subsidiaries of the Company may be designated as Unrestricted Subsidiaries
by the Board of Directors of the Company.
Limitation on Restrictive Covenants. The Senior Subordinated Indenture
provides that, notwithstanding any other provision of the Senior Subordinated
Indenture, the restrictive covenants set forth in the Senior Subordinated
Indenture, including, without limitation, those described under "-- Limitation
on Restricted Payments," "-- Limitation on Transactions with Affiliates" and
"-- Merger, Consolidation and Sale of Assets," shall be and shall be deemed
limited to the extent necessary so that the creation, existence and
effectiveness of such restrictive covenants shall not result in a breach of the
covenant of any of the Existing Indentures entitled "Limitation on Dividends and
Other Payment Restrictions Affecting Restricted Subsidiaries."
MERGER, CONSOLIDATION AND SALE OF ASSETS
The Company (A) 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
(B) 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 by Restricted Subsidiaries, 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 or a
Restricted Subsidiary, as the case may be, shall be the surviving Person of such
merger or consolidation, or (b) the Person (if other than the Company or a
Restricted Subsidiary, as the case may be) 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 Senior
Subordinated Indenture executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Company under the Senior
Subordinated Notes and the Senior Subordinated Indenture, and, in each case, the
Senior Subordinated 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 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; (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 Senior Subordinated 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
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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 the Senior Subordinated Indenture) could incur $1.00 of
additional Indebtedness (excluding Permitted Indebtedness) pursuant to the
"Limitation on Indebtedness" covenant; (v) if the Company is not the Surviving
Entity, each Subsidiary Guarantor, unless it is the other party to the
transactions described above, shall have by supplemental indenture to the Senior
Subordinated Indenture confirmed that its Senior Subordinated Guarantee shall
apply to such Person's obligations under the Senior Subordinated Indenture and
the Senior Subordinated 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, sale, assignment, conveyance,
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, sale, assignment, conveyance, transfer, lease or
other disposition and the supplemental indenture in respect thereto comply with
the requirements under the Senior Subordinated 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, conveyance,
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
Surviving Entity, the Surviving Entity shall succeed to, and be substituted for,
and may exercise every right and power of, the Company under the Senior
Subordinated Indenture with the same effect as if such Surviving Entity 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 Senior
Subordinated Indenture and the Senior Subordinated Notes.
EVENTS OF DEFAULT
The following are "Events of Default" under the Senior Subordinated
Indenture:
(a) default in the payment of the principal of or premium, if any, on
any of the Senior Subordinated 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
(b) default in the payment of any installment of interest on any of
the Senior Subordinated Notes, 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 the
"Merger, Consolidation and Sale of Assets" section of the Senior
Subordinated Indenture, the failure to make or consummate a Change of
Control Offer in accordance with the provisions of the "Change of 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
(d) the Company or any Subsidiary Guarantor shall fail to perform or
observe any other term, covenant or agreement contained in the Senior
Subordinated Notes, any Senior Subordinated Guarantee or the Senior
Subordinated 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 (i) to the
Company by the Trustee or (ii) to the Company and the Trustee by the
holders of at least 25% in aggregate principal amount of the Senior
Subordinated Notes 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 Senior
Subordinated 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,
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provided that the aggregate principal amount of such Indebtedness shall
exceed the greater of (i) $20 million and (ii) 5% of Adjusted Consolidated
Net Tangible Assets; 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 Senior Subordinated Indenture and
any consequential acceleration of the Senior Subordinated Notes shall be
automatically rescinded, so long as such rescission does not conflict with
any judgment or decree; or
(f) the commencement of proceedings, or the taking of any enforcement
action (including by way of set-off), by any holder of at least the greater
of (i) $20 million and (ii) 5% of Adjusted Consolidated Net Tangible Assets
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 the greater of (i) $20 million and (ii) 5%
of Adjusted Consolidated Net Tangible Assets 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 Senior Subordinated Indenture and any consequential acceleration of the
Senior Subordinated Notes shall be automatically rescinded, so long as (x)
such rescission does not conflict with any judgment or decree and (y) the
holder of such Indebtedness shall not have applied any such property or
assets in satisfaction of such Indebtedness; or
(g) any Senior Subordinated 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 Senior
Subordinated Guarantee in accordance with the Senior Subordinated
Indenture); or
(h) 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 the greater of (i) $20 million
and (ii) 5% of Adjusted Consolidated Net Tangible Assets over the coverage
under applicable insurance policies and either (x) 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 (y)
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
(i) the entry of a decree or order by a court having jurisdiction in
the premises (i) for relief in respect of the Company, any Subsidiary
Guarantor or any Significant Subsidiary in an involuntary case or
proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or (ii) adjudging the Company, any
Subsidiary Guarantor or any Significant Subsidiary bankrupt or insolvent,
or approving a petition seeking reorganization, arrangement, adjustment or
composition of the Company, any Subsidiary Guarantor or any Significant
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, any Subsidiary
Guarantor or any Significant 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
(j) the commencement by the Company, any Subsidiary Guarantor or any
Significant 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, any Subsidiary Guarantor or
any Significant 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
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any bankruptcy or insolvency case or proceeding against it, or the filing
by the Company, any Subsidiary Guarantor or any Significant 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, any Subsidiary Guarantor or
any Significant 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, any Subsidiary Guarantor or any Significant Subsidiary in
furtherance of any such action.
If an Event of Default (other than as specified in clause (i) or (j) 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 Senior
Subordinated 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 Senior Subordinated Notes due and payable immediately, upon
which declaration all amounts payable in respect of the Senior Subordinated
Notes shall be immediately due and payable. If an Event of Default specified in
clause (i) or (j) above occurs and is continuing. then the principal of,
premium, if any, and accrued interest on all of the outstanding Senior
Subordinated 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 Senior Subordinated Notes.
After a declaration of acceleration under the Senior Subordinated
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 Senior Subordinated Notes, by written notice to the Company
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 (i) all sums paid or advanced by the Trustee
under the Senior Subordinated Indenture and the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel,
(ii) all overdue interest on all Senior Subordinated Notes, (iii) the principal
of and premium. if any, on any Senior Subordinated Notes which have become due
otherwise than by such declaration of acceleration and interest thereon at the
rate home by the Senior Subordinated 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 Senior Subordinated 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 Senior Subordinated 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 Senior Subordinated Notes may on behalf of the holders of all
the Senior Subordinated Notes waive any past defaults under the Senior
Subordinated Indenture, except a default in the payment of the principal of,
premium, if any, or interest on any Senior Subordinated Note, or in respect of a
covenant or provision which under the Senior Subordinated Indenture cannot be
modified or amended without the consent of the holder of each Senior
Subordinated Note outstanding.
No holder of any of the Senior Subordinated Notes has any right to
institute any proceeding with respect to the Senior Subordinated Indenture or
any remedy thereunder, unless the holders of at least 25% in aggregate principal
amount of the outstanding Senior Subordinated Notes have made written request,
and offered reasonable indemnity, to the Trustee to institute such proceeding as
Trustee under the Senior Subordinated Notes and the Senior Subordinated
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 Senior Subordinated
Notes. Such limitations do not apply, however, to a suit instituted by a holder
of a Senior Subordinated Note for the enforcement of the payment of the
principal of, premium, if any, or interest on such Senior Subordinated Note on
or after the respective due dates expressed in such Senior Subordinated Note.
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During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under the Senior Subordinated
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 Senior Subordinated
Indenture relating to the duties of the Trustee, in case an Event of Default
shall occur and be continuing, the Trustee under the Senior Subordinated
Indenture is not under any obligation to exercise any of its rights or powers
under the Senior Subordinated Indenture at the request or direction of any of
the holders of Senior Subordinated Notes 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 Senior Subordinated 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 Senior Subordinated 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 Senior Subordinated
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 Senior Subordinated
Notes, the Trustee may withhold the notice to the Holders of such Senior
Subordinated Notes if a committee of its trust officers in good faith determines
that withholding the notice is in the interest of the Holders.
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 Senior Subordinated 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 SENIOR SUBORDINATED 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
Senior Subordinated 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 Senior
Subordinated Notes, except for (i) the rights of holders of outstanding Senior
Subordinated Notes to receive payment in respect of the principal of, premium,
if any, on and interest on such Senior Subordinated Notes when such payments are
due, (ii) the Company's obligations to issue temporary Senior Subordinated
Notes, register the transfer or exchange of any Senior Subordinated Notes,
replace mutilated, destroyed, lost or stolen Senior Subordinated Notes and
maintain an office or agency for payments in respect of the Senior Subordinated
Notes, (iii) the rights, powers, trusts, duties and immunities of the Trustee,
and (iv) the defeasance provisions of the Senior Subordinated 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 (including, without limitation, the Senior Subordinated Guarantees)
that are set forth in the Senior Subordinated 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 Senior Subordinated 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 Senior Subordinated
Notes, cash in United States dollars, U.S. Government Obligations (as defined in
the Senior Subordinated 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 Senior Subordinated 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 Senior Subordinated 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
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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 Senior Subordinated Indenture or the Trust
Indenture Act with respect to any securities of the 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 Senior
Subordinated 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 Senior Subordinated Indenture will be discharged and will cease to be
of further effect (except as to surviving rights of registration of transfer or
exchange of the Senior Subordinated Notes, as expressly provided for in the
Senior Subordinated Indenture) as to all outstanding Senior Subordinated Notes
when (i) either (a) all the Senior Subordinated Notes theretofore authenticated
and delivered (except lost, stolen or destroyed Senior Subordinated Notes which
have been replaced or paid and Senior Subordinated 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 Senior Subordinated
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 giving 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
amount sufficient to pay and discharge the entire indebtedness on the Senior
Subordinated Notes not theretofore delivered to the Trustee for cancellation,
for principal of (and premium, if any, on) and interest on the Senior
Subordinated Notes to the date of deposit (in the case of Senior Subordinated
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 Senior Subordinated 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 Senior Subordinated Indenture relating to the
satisfaction and discharge of the Senior Subordinated Indenture have been
complied with.
AMENDMENTS AND WAIVERS
From time to time, the Company and the Trustee may, without the consent of
the Holders, amend, waive or supplement the Senior Subordinated Indenture or the
Senior Subordinated Notes for certain specified purposes, including, among other
things, curing ambiguities, defects or inconsistencies, qualifying, or
maintaining the qualification of, the Senior Subordinated Indenture under the
Trust Indenture Act, or making any change that does not adversely affect the
rights of any Holder in any material respect. Other amendments and modifications
of the Senior Subordinated Indenture or the Senior Subordinated 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 Senior Subordinated Notes; provided, however, that no such
modification or amendment may, without the consent of the holder of each
outstanding Senior Subordinated Note affected thereby, (a) change the Stated
Maturity of the principal of, or any installment of interest on any Senior
Subordinated Note, (b) reduce the principal amount of (or the premium, if any,
on) or interest on any Senior Subordinated Note, (c) change the place, coin or
currency of payment of principal of (or the premium, if any, on) or interest on,
any Senior Subordinated Note, (d) impair the right to institute suit for the
enforcement of any payment on or with respect to any Senior Subordinated Note,
(e) reduce the above stated percentage of aggregate principal amount of
outstanding Senior Subordinated Notes necessary to
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modify or amend the Senior Subordinated Indenture, (f) reduce the percentage of
aggregate principal amount of outstanding Senior Subordinated Notes necessary
for waiver of compliance with certain provisions of the Senior Subordinated
Indenture or for waiver of certain defaults, (g) modify any provisions of the
Senior Subordinated Indenture relating to the modification and amendment of the
Senior Subordinated 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.
The holders of a majority in aggregate principal amount of the outstanding
Senior Subordinated Notes may waive compliance by the Company with certain
restrictive provisions of the Senior Subordinated Indenture. The holders of a
majority in aggregate principal amount of the outstanding Senior Subordinated
Notes may waive any past default under the Senior Subordinated Indenture, except
a default in the payment of principal (or premium, if any, on) or interest on
the Senior Subordinated Notes.
THE TRUSTEE
The Senior Subordinated 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 Senior Subordinated Indenture.
If an Event of Default has occurred and is continuing, the Trustee will exercise
such rights and powers vested in it under the Senior Subordinated 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 Senior Subordinated Indenture and provisions of the Trust Indenture Act
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 in the Trust Indenture Act) it
must eliminate such conflict or resign.
GOVERNING LAW
The Senior Subordinated Indenture and the Senior Subordinated Notes are
governed by and construed in accordance with the laws of the State of New York,
without regard to principles of conflicts of law.
CERTAIN SENIOR SUBORDINATED NOTES 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 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 Senior Subordinated Notes 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 Senior Subordinated Notes and a final
Stated Maturity later than the final Stated Maturity of the Senior Subordinated
Notes.
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"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 on a date no earlier than
the date of the Company's latest annual or quarterly financial statements and
(iv) the greater of (A) the net book value on a date no earlier than the date of
the Company's latest annual or quarterly financial statements or (B) 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 Senior Subordinated 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
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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 (or
North American Unrestricted Subsidiary) held by the Company or any Restricted
Subsidiary (or North American Unrestricted 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 North American Unrestricted
Subsidiaries); or (c) any other properties or assets of the Company or any of
its Restricted Subsidiaries (or North American Unrestricted Subsidiaries) other
than (A) a transfer of hydrocarbons or other mineral products, cash or Cash
Equivalents in the ordinary course of business or (B) any lease, abandonment,
disposition, relinquishment or farm-out of any oil and gas property 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 (or North American Unrestricted 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; (iv) any transfer of Properties having a fair
market value of less than $5,000,000; or (v) any transfer that is a Permitted
Investment, a Restricted Payment not prohibited by the "Limitation on Restricted
Payments" covenant or an investment specifically excluded from the definition of
the term "Investment."
"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
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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 Senior Subordinated 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
organized in the United States that is a member of the Federal Reserve System
having combined capital and surplus and undivided profits of not less than
$500,000,000 or any commercial bank organized under the laws of any other
country that is a member of the Organization for Economic Cooperation and
Development ("OECD") and has total assets in excess of $500,000,000; (iii)
direct obligations issued by any state of the United States of America or Canada
or any political subdivision of any such state or Canada or any public
instrumentality of any such state or Canada maturing within 90 days after the
date of acquisition thereof and, at the time of acquisition, having one of the
two highest ratings obtainable from either S&P or Moody's (or, if at any time
neither S&P nor Moody's shall be rating such obligations, then from such other
rating service as may be acceptable to the Trustee); (iv) commercial paper
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; (v) 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; (vi) overnight bank deposits
and bankers' acceptances at any commercial bank meeting the qualifications
specified in clause (ii) above; (vii) deposits available for withdrawal on
demand with any commercial bank not meeting the qualifications specified in
clause (ii) above but which is organized under the laws of (a) any country that
is a member of the OECD and has total assets in excess of $50,000,000 or (b) any
other country in which the Company or any Restricted Subsidiary maintains an
office or is engaged in the Oil and Gas Business, provided that, in either case
(A) all such deposits are required to be made in such accounts in the ordinary
course of business, (B) such deposits do not at any one time exceed $5,000,000
in the aggregate and (C) no funds so deposited remain on deposit in such bank
for more than 30 days; (viii) deposits available for withdrawal on demand with
any commercial bank not meeting the qualifications specified in clause (ii)
above but which is a lending bank under any of the Company's or any Restricted
Subsidiary's credit facilities, provided all such deposits do not exceed
$5,000,000 in the aggregate at any one time; (ix) deposits at any one time not
in excess of $200,000 in the aggregate, available for withdrawal on demand, with
any commercial bank organized in the United States, and not meeting the
qualifications specified in clause (ii) above; and (x) investments in money
market funds substantially all of whose assets comprise securities of the types
described in clauses (i) through (vi).
"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) 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 defined in Section 13(d)(3) or 14(d)(2) of the
Exchange Act, 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
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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 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) (but in
no event shall the sale, conveyance, transfer or lease of the assets of, or the
Capital Stock of, a North American Restricted Subsidiary, in the absence of
other factors, result in a Change of Control); (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 Exploration Expenses" means, for any period, exploration
expenses of the Company and its Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, for any period, the ratio
of (a) the sum of Consolidated Net Income, Consolidated Interest Expense,
Consolidated Exploration Expenses, 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
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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, less (v) to the extent
included in clauses (i), (ii) or (iii), writeoff of capitalized debt issuance
costs of the Company and its Restricted Subsidiaries during such period.
"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 or interest on
indebtedness 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, provided, however, that the net income of a
Foreign Subsidiary subject to restrictions on the payment of dividends or
similar distributions related to project financing Indebtedness incurred in
compliance with the covenant entitled "Limitation on Indebtedness" shall not be
excluded to the extent of the sum of, without duplication, (i) the aggregate
amount of all principal and interest on such project financing Indebtedness,
plus (ii) capital expenditures; provided further, however, that the net income
of a Foreign Subsidiary subject to restrictions on the payment of dividends or
similar distributions shall not be excluded to the extent that such restrictions
relate to completion of the project being financed by such project financing
Indebtedness and such restriction is in effect for a period of no more than 18
months from the time of incurrence of such project financing Indebtedness, (f)
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, and (g) any expenses associated
with the merger between the Company and United Meridian Corporation occurring
prior to December 31, 1998 and not in excess of $40 million in the aggregate.
"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 July 8, 1998 among the Company, as borrower, OEI Louisiana, as guarantor, and
Chase Bank of Texas, N.A., as agent, the other agents parties thereto, and the
lenders parties thereto, as such agreement may be amended, modified,
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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, with the same or different agents or lenders, 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 Senior Subordinated 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.
"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 purposes of the
Senior Subordinated 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 Senior
Subordinated 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."
"Existing Notes" means (i) the 10 3/8% Senior Subordinated Notes due 2005
of the Company issued pursuant to the Indenture, dated as of October 30, 1995,
between the Company, as successor by merger to United Meridian Corporation, as
issuer, OEI Louisiana, as successor by merger to UMC Petroleum Corporation, as
subsidiary guarantor, and U.S. Bank Trust National Association, as trustee, as
amended and supplemented by the First and Second Supplemental Indentures
thereto, (ii) the 9 3/4% Senior Subordinated Notes due 2006 of the Company
issued pursuant to the Indenture, dated as of September 26, 1996, between the
Company, as issuer, OEI Louisiana, as subsidiary guarantor, and State Street
Bank and Trust Company, as trustee, as amended and supplemented by the First
Supplemental Indenture thereto, and (iii) the 8 7/8% Senior Subordinated Notes
due 2007 of the Company issued pursuant to the Indenture, dated as of July 2,
1997, between the Company, as issuer, OEI Louisiana, as subsidiary guarantor,
and State Street Bank and Trust Company, as trustee, as amended and supplemented
by the First Supplemental Indenture thereto, in each case as such notes and
indentures may be further amended and supplemented from time to time.
"Existing 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, OEI Louisiana, as subsidiary guarantor, and State Street
Bank and Trust Company, as trustee, as amended and supplemented by the First,
Second and Third Supplemental Indentures thereto, and as further amended and
supplemented from time to time.
"Foreign Subsidiary" means (i) any Restricted Subsidiary engaged in the Oil
and Gas Business exclusively outside the United States of America, irrespective
of its jurisdiction of incorporation, and (ii) any other Restricted Subsidiary
whose assets (excluding any cash and Cash Equivalents) consist exclusively of
Capital Stock or Indebtedness of one or more Restricted Subsidiaries described
in clause (i) of this definition.
"GAAP" means generally accepted accounting principles in the United States
as in effect on the Issue Date.
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"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 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 and
the Existing 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 Senior Subordinated Guarantee.
Notwithstanding the foregoing, Guarantor Senior Indebtedness of a Subsidiary
Guarantor will not include (i) Indebtedness of such Subsidiary Guarantor
evidenced by its Senior Subordinated 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 Senior
Subordinated 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 Senior Subordinated 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
Senior Subordinated 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 Senior Subordinated Note is
registered in the 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
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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 Senior Subordinated
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.
"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)
Capital Stock, bonds, notes, debentures or other securities received in
compliance with the "Limitation on Disposition of Proceeds of Asset Sales"
covenant.
"Issue Date" means the closing date for the sale and original issuance of
the Senior Subordinated Notes to the Initial Purchasers.
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"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 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.
"North American Restricted Subsidiary" means any Restricted Subsidiary at
least 90% of the Adjusted Consolidated Net Tangible Assets of which are located
onshore (or in water not deeper than 15 feet) in the United States or Canada (as
evaluated immediately prior to the designation of such Subsidiary to be an
Unrestricted Subsidiary); and "North American Unrestricted Subsidiary" means
such Subsidiary after such designation.
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"OEI Louisiana" means Ocean Energy, Inc., a Louisiana corporation and
wholly-owned subsidiary of the Company.
"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, (iv) any power generation and electrical transmission
business in a jurisdiction outside of North America where fuel required by such
business is supplied, directly or indirectly, from production reserves
substantially from blocks in which the Company or its Restricted Subsidiaries
participate and (v) any activity necessary, appropriate or incidental to the
activities described in the foregoing clauses (i) through (iv) 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) $500 million and (B) an
amount equal to the sum of (x) $350 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 Senior Notes and the Senior
Subordinated Notes;
(iii) Indebtedness of the Company outstanding on the Issue Date;
(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 the production of the Company and its Restricted
Subsidiaries 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 obligations of the type described in
clause (g) of the definition of the term "Permitted Liens"), including
guarantees and letters of credit supporting such bid, performance, surety
or other obligations (in each case other than for an obligation for money
borrowed);
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(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), (v), (vi) and (vii) 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 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;
(xi) Indebtedness of the Company to an Unrestricted Subsidiary for
money borrowed, provided that such Indebtedness is subordinated in right of
payment to the Senior Subordinated Notes and the Stated Maturity of such
Indebtedness is later than the final Stated Maturity of the Senior
Subordinated Notes;
(xii) any guarantee of Guarantor Senior Indebtedness or Indebtedness
of a Foreign Subsidiary incurred in compliance with the covenant entitled
"Limitation on Indebtedness"; and
(xiii) other Indebtedness of the Company and the Restricted
Subsidiaries that are Subsidiary Guarantors in an aggregate principal
amount not in excess of $50,000,000 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 (whether general or limited), limited liability company
agreements, subscription agreements, stock purchase agreements, stockholder
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, production sharing agreements and 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; (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 or 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;
(viii) entry into any currency exchange contract in the ordinary course of
business; (ix) Investments in any Person engaged in the power generation and
electrical transmission business where fuel required by such business is
supplied, directly or indirectly, from production reserves substantially from
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blocks in which the Company or its Restricted Subsidiaries participate, provided
that the aggregate amount of Investments outstanding at any one time in such
Person shall be no more than $15,000,000; (x) Investments in any Person that is
the purchaser of a portion of the interests of a Foreign Subsidiary, provided
that such Investments are in the nature of a note or other deferred payment
obligation to the Company or such Foreign Subsidiary and are in an amount of no
more than $35,000,000 at any one time outstanding; (xi) workers' compensation,
utility, lease and similar deposits and prepaid expenses in the ordinary course
of business; (xii) endorsements of negotiable instruments and documents in the
ordinary course of business; or (xiii) designation of a North American
Restricted Subsidiary to be an Unrestricted Subsidiary if the credit ratings
assigned to the Senior Subordinated Notes by each of S&P and Moody's,
respectively, immediately after giving effect to such designation (the
"post-designation credit ratings") are or will be greater than or equal to the
greater of (A) the credit rating assigned to the Senior Subordinated Notes by
such Rating Agency immediately prior to giving effect to such designation and
(B) such credit rating as of the Issue Date. For purposes of determining
compliance with clause (xiii) of the preceding sentence, (1) subsequent changes
in such credit rating unrelated to such designation shall not cause such
designation to fail to constitute a "Permitted Investment," and (2) without
limitation of other forms of proof of the post-designation credit rating
assigned to the Senior Subordinated Notes, any press release issued by such
Rating Agency or any written notification from such Rating Agency to the Company
addressing the impact of such designation on the credit rating assigned to the
Senior Subordinated Notes (whether such press release or written notification is
issued before, contemporaneously with or after such designation) shall
constitute conclusive evidence of the post-designation credit rating.
"Permitted Liens" means the following types of Liens:
(a) Liens existing as of the Issue Date;
(b) Liens securing the Senior Subordinated Notes;
(c) Liens in favor of the Company or a Restricted Subsidiary that is a
Subsidiary Guarantor;
(d) Liens securing Senior Indebtedness, Guarantor Senior Indebtedness
or Indebtedness of a Restricted Subsidiary incurred in compliance with the
covenant entitled "Limitation on 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, including letters of credit and
bank guarantees required or requested by the United States, any State
thereof or any foreign government or any subdivision, department, agency,
organization or instrumentality of any of the foregoing in connection with
any contract or statute (exclusive of obligations for the payment of
borrowed money but including lessee or operator obligations under statutes,
governmental regulations, contracts 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 their production against
fluctuations in oil or natural gas prices, and Liens securing obligations
under any foreign currency exchange agreement, option or futures contract
or other similar agreement or arrangement entered into in the ordinary
course of business and designed to protect against or manage the Company's
or any of its Restricted Subsidiaries' exposure to fluctuation in foreign
currency rates;
(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;
(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 Senior Subordinated 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, 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 for which such Properties are held by the
Company or any Restricted Subsidiaries;
(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, all improvements, additions and accessions
thereto and all proceeds thereof;
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(x) purchase money Liens; provided, however, that (i) the related
purchase money Indebtedness shall not be secured by any Property of the
Company or any Restricted Subsidiary other than the Property so acquired,
all improvements, additions and accessions thereto and all proceeds thereof
and (ii) the Lien securing such Indebtedness shall be created within 90
days of such acquisition; and
(y) Liens securing Acquired Indebtedness, provided that any such Lien
extends only to the Properties that were subject to such Lien prior to the
related acquisition by the Company or such Restricted Subsidiary, all
improvements, additions and accessions thereto and all proceeds thereof,
and was not created, incurred or assumed in contemplation of such
transaction;
Notwithstanding anything in clauses (a) through (y) 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
Issue Date;
(iii) obligations of any Restricted Subsidiary 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 any Restricted Subsidiary enters into in the
ordinary course of business for the purpose of protecting the production of
the Company and its Restricted Subsidiaries against fluctuations in oil or
natural gas prices;
(iv) the Senior Subordinated Guarantees, the Senior Guarantees and the
Guarantees of the Existing Senior Notes and the Existing 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";
(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 obligations of the type described in clause (g) of
the definition of the term "Permitted Liens"), including guarantees and
letters of credit supporting such bid, performance, surety or other
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;
(x) any guarantee of Guarantor Senior Indebtedness or Indebtedness of
a Foreign Subsidiary incurred in compliance with the "Limitation on
Indebtedness" covenant;
(xi) Indebtedness of any Restricted Subsidiary permitted under clauses
(vi), (vii), (x) or (xiii) of the definition of "Permitted Indebtedness";
and
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(xii) 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 outstanding on or issued after
the Issue Date, 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 Issue Date, unless such Subsidiary of the Company is an
Unrestricted Subsidiary or is designated as an Unrestricted Subsidiary pursuant
to the terms of the Senior Subordinated Indenture.
"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 Guarantees" means any guarantee of the Senior Notes by any
Restricted Subsidiary.
"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, the Senior Notes and the Existing 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 Issue Date or thereafter created, incurred or
assumed, unless, in
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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 Senior
Subordinated 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 Senior Subordinated 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 the Senior Subordinated
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 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
and the Existing Senior Notes.
"Senior Notes" means (i) the 7 5/8% Senior Notes due 2005 of the Company
issued pursuant to the Indenture, dated as of July 8, 1998, between the Company,
as issuer, OEI Louisiana, as subsidiary guarantor, and Norwest Bank Minnesota,
National Association, as trustee, as amended and supplemented from time to time,
and (ii) the 8 1/4% Senior Notes due 2018 of the Company issued pursuant to the
Indenture, dated as of July 8, 1998, between the Company, as issuer, OEI
Louisiana, as subsidiary guarantor, and Norwest Bank Minnesota, National
Association, as trustee, as amended and supplemented from time to time.
"Senior Subordinated Guarantee" means any guarantee of the Senior
Subordinated Notes by (i) any Subsidiary Guarantor in accordance with the
provisions set forth in "-- Senior Subordinated Guarantees" and (ii) any
Restricted Subsidiary in accordance with the provisions set forth in the
"Limitation on Guarantees of Indebtedness by Restricted Subsidiaries" covenant.
"Senior Subordinated Make-Whole Premium" means, in connection with any
optional redemption of any Senior Subordinated Note prior to the Five-Year Date,
the excess, if any, of (i) the aggregate present value as of the date of such
redemption of each dollar of principal of such Senior Subordinated Note being
redeemed and the amount of interest (exclusive of interest accrued to the date
of redemption) and premium that would have been payable in respect of such
dollar if such redemption had been made on the Five-Year Date, determined by
discounting, on a semiannual basis, such principal, interest and premium at a
rate equal to the sum of the Treasury Yield (determined on the business day
immediately preceding the date of such redemption) plus 0.45% per annum, from
the respective dates on which such principal, interest and premium would have
been payable if such redemption had been made on the Five-Year Date, over (ii)
the aggregate principal amount of such Senior Subordinated Notes being redeemed.
"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 Senior Subordinated Notes as a result of
any Asset Sale, Change of Control or redemption) owing in respect of, the Senior
Subordinated Notes payable pursuant to the terms of the Senior Subordinated
Notes or the Senior Subordinated Indenture or upon acceleration of the Senior
Subordinated Notes.
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"Significant Subsidiary" means any Restricted Subsidiary the consolidated
assets of which comprise in excess of 5% of Adjusted Consolidated Net Tangible
Assets (as shown in the most recent audited consolidated balance sheet of the
Company and its Subsidiaries).
"Stated Maturity" means, when used with respect to any Senior Subordinated
Note or any installment of interest thereon, the date specified in such Senior
Subordinated Note as the fixed date on which the principal of such Senior
Subordinated 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 Senior Subordinated 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 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 Persons performing
similar functions).
"Subsidiary Guarantor" means (i) OEI Louisiana, (ii) each of the Company's
Restricted Subsidiaries that becomes a guarantor of the Senior Subordinated
Notes in compliance with the provisions described under "-- Senior Subordinated
Guarantees" 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 Senior Subordinated Indenture and to guarantee
on an unsubordinated basis the payment of the Senior Subordinated Notes pursuant
to the provisions described under "-- Senior Subordinated Guarantees."
"Treasury Yield" means, in connection with the calculation of any Senior
Subordinated Make-Whole Premium on any Senior Subordinated Note, the yield to
maturity at the time of computation of United States Treasury securities with a
constant maturity (as compiled by and published in the most recent Federal
Reserve Statistical Release H.15 (519) that has become publicly available at
least two business days prior to the date fixed for redemption (or, if such
Statistical Release is no longer published, any publicly available source of
similar data)) equal to the then remaining period of time until the Five-Year
Date; provided that if no United States Treasury security is available with such
a constant maturity and for which a closing yield is given, the Treasury Yield
shall be obtained by linear interpolation (calculated to the nearest one-twelfth
of a year) from the closing yields of United States Treasury securities for
which such yields are given, except that if the remaining period of time until
the Five-Year Date is less than one year, the weekly average yield on actually
traded United States Treasury securities adjusted to a constant maturity of one
year shall be used.
"Unrestricted Subsidiary" means (i) Havre Pipeline Company, LLC and Lion
GPL, S.A., (ii) 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 (iii) any Subsidiary of an Unrestricted
Subsidiary, in each case until such time as such Subsidiary is designated as a
Restricted Subsidiary for purposes of the Senior Subordinated Indenture. 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 (including as a Permitted Investment thereunder);
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
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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. Any such designation shall be deemed
to be an Investment, as more particularly described in the definition of such
term, above. 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).
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary to the
extent (i) 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 or (ii) such
Restricted Subsidiary is organized in a foreign jurisdiction and is required by
the applicable laws and regulations of such foreign jurisdiction to be partially
owned by the government of such foreign jurisdiction or individual or corporate
citizens of such foreign jurisdiction in order for such Restricted Subsidiary to
transact business in such foreign jurisdiction, provided that the Company,
directly or indirectly, owns the remaining Capital Stock or ownership interest
in such Restricted Subsidiary and, by contract or otherwise, controls the
management and business of such Restricted Subsidiary and derives the economic
benefits of ownership of such Restricted Subsidiary to substantially the same
extent as if such Restricted Subsidiary were a wholly owned Subsidiary.
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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 cause the Registration Statement to be declared
effective under the Securities Act within 120 days of the Issue Date, (ii) to
keep the Registration Statement effective until the closing of the Exchange
Offer and (iii) to cause the Exchange Offer to be consummated within 180 days of
the Issue Date. Promptly after the Registration Statement has been declared
effective, the Company will offer the Exchange Notes in exchange for the
surrender of the Old 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
Old Notes. For each Old Note validly tendered to the Company pursuant to the
Exchange Offer and not withdrawn by the holder thereof, the holder of such Old
Note will receive an Exchange Note having a principal amount equal to the
principal amount of such surrendered Old Note. Interest on each Exchange Note
will accrue from the last date on which interest was paid on the Old Note
surrendered in exchange therefor or, if no interest has been paid on such Old
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 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 Commission 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.
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 Old Notes (other than certain specified holders) 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 or a broker-dealer
tendering Old 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 Registration Statement. Under the Registration
Rights Agreement, the Company will be required to allow Participating
Broker-Dealers to use the prospectus contained in the Registration Statement,
for up to 180 days following the Exchange Offer, in connection with the resale
of Exchange Notes received in exchange for Old Notes acquired by such
Participating Broker-Dealers for their own account as a result of market-making
or other trading activities.
In the event that (i) any changes in law or the applicable interpretations
of the staff of the Commission do not permit the Company to effect the Exchange
Offer, (ii) if for any reason the Registration Statement is not declared
effective within 120 days following the Issue Date or the Exchange Offer is not
consummated within 180 days after the Issue Date, (iii) upon the request of the
Initial Purchasers in certain circumstances or (iv) if a holder of Old Notes is
advised by counsel that it is not permitted by federal securities laws or
Commission policy to participate in the Exchange Offer or does not receive fully
tradeable Exchange Notes pursuant to the Exchange Offer, the Company will, in
lieu of effecting (or, in the case of such a request by the
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Initial Purchasers, in addition to effecting) the registration of the Exchange
Notes pursuant to the Registration Statement, (i) as promptly as practicable,
file with the Commission the Shelf Registration Statement covering resales of
the Old Notes, (ii) use its reasonable best efforts to cause the Shelf
Registration Statement to be declared effective under the Securities Act no
later than 180 days after the Issue Date and (iii) use its reasonable best
efforts to keep effective the Shelf Registration Statement until two years after
its effective date or until all of the Old 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 Old 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 Old Notes that sells such Old 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 Old 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 Old Notes included in the Shelf
Registration Statement and to benefit from the provisions regarding the increase
in the interest rate borne by the Old Notes described in the second succeeding
paragraph.
The Company may require, as a condition to including the Old 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 Old Notes registered under the Shelf Registration
Statement (and each Participating Broker-Dealer, in the case of the Registration
Statement) will be deemed to have agreed that, upon receipt of notice from the
Company of (i) the occurrence of any event or the discovery of any fact 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 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 (ii) the Company's determination, in its
reasonable judgment, upon advice of counsel, as authorized by its Board of
Directors, that the continued effectiveness and useability of the Shelf
Registration Statement (or the Registration Statement, as the case may be) 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, such holder (or Participating
Broker-Dealers, as the case may be) will suspend the disposition of Old Notes
pursuant to such prospectus until (A) the Company has amended or supplemented
such prospectus to correct such misstatement or omission and has furnished
copies of the amended or supplemented prospectus to such holder (or
Participating Broker-Dealer, as the case may be) or (B) the Company has given
notice in writing to such holder (or Participating Broker-Dealer, as the case
may be) that the use of such prospectus may be resumed. The Company 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
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
dispositions of the Notes or the date on which the Company has given notice that
the use of such prospectus may be resumed, as the case may be.
In the event that (i) the Registration Statement is not declared effective
on or prior to the 120(th) day following the Issue Date, (ii) the Exchange Offer
is not consummated or a Shelf Registration Statement with respect to the Old
Notes is not declared effective on or prior to the 180(th) day following the
Issue Date or (iii) any required 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
specifically permitted in the Registration Rights Agreement) without being
succeeded immediately by an additional registration statement filed and declared
effective (each such event referred to in clauses (i) through (iii) above, a
"Registration Default"), the
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interest rate borne by the Old Notes shall be increased by .25% per annum upon
the occurrence of each Registration Default, which rate will increase by an
additional .25% per annum if such Registration Default has not been cured within
90 days after the occurrence thereof and continuing until all Registration
Defaults have been cured, provided that the aggregate amount of any such
increase in the interest rate on the Old Notes shall in no event exceed .50% per
annum; and provided, further, that if the Registration Statement is not declared
effective on or prior to the 120(th) day following the Issue Date and the
Company shall request holders of Old Notes to provide the information called for
by the Registration Rights Agreement for inclusion in the Shelf Registration
Statement, then Old Notes owned by holders who do not deliver such information
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 180(th) day
following the Issue 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.
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.
BOOK ENTRY; DELIVERY AND FORM
Each of the Old Notes were initially represented in the form of a single
Global Old Note. The Global Old Notes were deposited with, or on behalf of, DTC
and registered in the name of Cede & Co., as nominee of DTC, or will remain in
the custody of the Trustees pursuant to the FAST Balance Certificate Agreement
between DTC and the Trustees. Each of the Exchange Notes will be issued in the
form of a single Global Exchange Note. 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 interest of the Participants),
the Participants and the Indirect Participants.
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
Indentures 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
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owners or holders thereof under the Indentures for any purpose, including with
respect to giving of any directions, instruction or approval to the applicable
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
Indentures 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 Trustees 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 Trustees 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 applicable Indenture. Under
the terms of the Indentures, the Company and the Trustees 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 Trustees
have 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 applicable Trustee, exchange
such beneficial interest for Notes in the form of certificated securities. Upon
any such issuance, the applicable 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). If (i) DTC notifies the Company in writing that it
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 (ii) the Company, at its option,
notifies the Trustees in writing that it elects to cause the issuance of Notes
in the form of certificated securities under the respective Indentures, then,
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 Trustees 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).
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Akin, Gump, Strauss, Hauer & Feld, L.L.P., counsel to the Company, has
opined that the following discussion summarizes certain material United States
federal income tax considerations generally applicable to purchasers of the
Notes. The federal income tax considerations set forth below are based upon
currently existing provisions of the Code (the "Code"), applicable final,
temporary and proposed Treasury Regulations ("Treasury Regulations"), judicial
authority, and current administrative rulings and pronouncements of the Internal
Revenue Service (the "Service" or the "IRS"). There can be no assurance that the
Service will not take a contrary view, and no ruling from the Service has been,
or will be, sought on the issues discussed herein. Legislative, judicial, or
administrative changes or interpretations may be forthcoming that could alter or
modify the statements and conclusions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences discussed below. This discussion applies only to a person who is
(i) a citizen or resident of the United States for U.S. federal income tax
purposes, (ii) a corporation, partnership or other entity created or organized
under the laws of the United States or any political subdivision thereof, (iii)
an estate the income of which is subject to U.S. federal income taxation
regardless of its source or (iv) a trust (x) the administration over which a
U.S. court can exercise primary supervision and (y) all of the substantial
decisions of which one or more U.S. persons have the authority to control (a
"U.S. Holder").
The summary is not a complete analysis or description of all potential
federal tax considerations that may be relevant to, or of the actual tax effect
that any of the matters described herein will have on, particular U.S. Holders,
and does not address foreign, state, local or other tax consequences. This
summary does not purport to address special classes of taxpayers (such as S
corporations, mutual funds, insurance companies, financial institutions, small
business investment companies, foreign companies, nonresident alien individuals,
regulated investment companies, broker-dealers and tax-exempt organizations) who
are subject to special treatment under the federal income tax laws, or persons
that hold Old Notes or Exchange Notes that are a hedge against, or that are
hedged against, currency risk or that are part of a straddle or conversion
transaction, or persons whose functional currency is not the U.S. dollar.
Furthermore, estate and gift tax consequences are not discussed herein.
The discussion assumes that the Old Notes and Exchange Notes will be held
as capital assets within the meaning of section 1221 of the Code.
PERSONS CONSIDERING THE ACQUIRING, HOLDING, AND DISPOSING OF NOTES SHOULD
CONSULT THEIR OWN TAX ADVISORS CONCERNING THE APPLICATION OF U.S. FEDERAL INCOME
TAX LAWS, AS WELL AS THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING
JURISDICTION, TO THEIR PARTICULAR SITUATIONS.
THE REGISTERED EXCHANGE OFFER
Pursuant to the Treasury Regulations, the exchange of Old Notes for
Exchange Notes pursuant to the Exchange Offer will not constitute a significant
modification of the terms of the Old Notes and, accordingly, such exchange will
be treated as a "non-event" for federal income tax purposes. Therefore, such
exchange will have no federal income tax consequences to U.S. Holders of Old
Notes. The holding period of an Exchange Note will include the holding period of
the Old Note for which it was exchanged; the basis of an Exchange Note will be
the same as the basis of the Old Note for which it was exchanged; and each U.S.
Holder of Notes will continue to be required to include interest on the Notes in
its gross income in accordance with the rules described below or its method of
accounting for federal income tax purposes, whichever is applicable.
PAYMENT OF INTEREST
Interest on an Old Note or an Exchange Note generally will be includable in
the income of a U.S. Holder as ordinary income at the time such interest is
received or accrued, in accordance with such U.S. Holder's method of accounting
for United States federal income tax purposes.
With respect to the Old Notes, the Company is obligated under the
Indentures to pay additional interest amounts upon the occurrence of a
Registration Default ("Additional Interest"). Under the Treasury
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Regulations, certain contingent payments on debt instruments (like the
Additional Interest amounts payable upon the occurrence of a Registration
Default) must be accrued into gross income by a holder (regardless of such
holder's method of accounting). However, any payment subject to a remote or
incidental contingency (i.e., there is a remote likelihood that the contingency
will occur or the potential amount of the contingent payment is insignificant
relative to the total expected amount of remaining payments) is not treated as a
contingent payment and is ignored until payment, if any, is actually made. The
determination of whether a contingency is remote or incidental is made as of the
issue date. The Company intends to take the position that the Additional
Interest payments resulting from a Registration Default are subject to a remote
or incidental contingency. Accordingly, any Additional Interest payments
resulting from a Registration Default should be includable in the income of a
U.S. Holder in accordance with such holder's method of accounting for United
States federal income tax purposes.
EFFECT OF CHANGE OF CONTROL OR OPTIONAL REDEMPTION
Upon a Change of Control, the Company is required to offer to redeem all
outstanding Notes for a price equal to 101% of the principal amount thereof plus
accrued and unpaid interest. Under the Treasury Regulations, such change of
control redemption requirements will not affect the yield or maturity date of
the Notes unless, based on all the facts and circumstances of the Issue Date, it
was more likely than not that such a change of control giving rise to the
redemption would occur. The Company will not treat the respective change of
control redemption provisions of the Notes as affecting the calculation of the
yield to maturity of any Note.
The Company, at its option, may redeem part or all of the Notes at the
times and for the amounts described in "Description of Senior
Notes -- Redemption -- Optional Redemption" and "Description of Senior
Subordinated Notes -- Redemption -- Optional Redemption," respectively. The
Treasury Regulations provide that for purposes of calculating the yield to
maturity of a debt instrument, an issuer will be treated as exercising any
option if its exercise would lower the yield of the debt instrument. However,
any redemption of the Notes at the optional redemption prices would increase the
effective yield of such Notes as calculated from the date of issuance. The
Company does not currently intend to exercise such redemption option on any of
the Notes and in accordance with the Treasury Regulations, as of the date of
issuance of the Notes, the optional redemption provisions will not be taken into
account in calculating the yield to maturity of the Notes.
MARKET DISCOUNT
If a U.S. Holder purchases a Note for less than the stated redemption price
at maturity (the sum of all payments on the Note other than qualified stated
interest), the difference is considered "market discount," unless such
difference is de minimis. Qualified stated interest is defined in the Treasury
Regulations generally as stated interest that is unconditionally payable in cash
or in property at least annually at a single fixed rate. A discount will be
considered de minimis if it is less than one-fourth ( 1/4) of one percent of the
issue price of the debt instrument multiplied by the number of complete years to
maturity. Under the market discount rules, any gain realized by the U.S. Holder
on the sale, exchange, retirement or other disposition of a Note having "market
discount," as well as on any partial principal payment made with respect to such
Note, will be treated as ordinary income to the extent of the market discount
which has not previously been included in income and is treated as having
accrued on such Note on or prior to the time of such payment or disposition. An
overview of the rules concerning the calculation of "accrued market discount" is
set forth in the paragraph immediately below. In addition, a U.S. Holder of such
Note may be required to defer the deduction of all or a portion of the interest
expense on any indebtedness incurred or continued to purchase or carry a Note.
Any market discount will accrue ratably from the date of acquisition to the
maturity date of the Note, unless the U.S. Holder elects, irrevocably, to accrue
market discount on a constant interest rate method. The constant interest rate
method generally accrues interest at times and in amounts equivalent to the
result which would have occurred had the market discount been original issue
discount computed from the U.S. Holder's acquisition of the Note through the
maturity date. The election to accrue market discount on a constant interest
rate method may be made separately as to each Note held by the U.S. Holder.
Accrual of market discount will not cause the accrued amounts to be included
currently in a U.S. Holder's taxable income, in the
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absence of a disposition of, or principal payment on, the Note. However, a U.S.
Holder of a Note may elect to include market discount in income currently as it
accrues on either a ratable or constant interest rate method. In such event,
interest expense relating to the acquisition of a Note which would otherwise be
deferred would be currently deductible to the extent otherwise permitted by the
Code. The election to include market discount in income currently, once made,
applies to all market discount obligations acquired by such holder on or after
the first day of the first taxable year to which the election applies, and may
not be revoked without the consent of the Service. Accrued market discount which
is included in a U.S. Holder's gross income will increase the adjusted tax basis
of the Note in the hands of the U.S. Holder.
AMORTIZABLE BOND PREMIUM
If a U.S. Holder acquires a Note for an amount which is greater than the
sum of all amounts payable at maturity (other than payments of qualified stated
interest), such holder will be considered to have purchased such Note with
"amortizable bond premium" equal to the amount of such excess. The U.S. Holder
may elect to amortize the premium, using a constant yield method (employing
six-month compounding), over the period from the acquisition date to the
maturity date of the Note. The "amount payable at maturity" will be determined
as of an earlier call date, using the call price payable on such earlier date,
if the combination of such earlier date and call price will produce a smaller
amortizable bond premium than would result from using the scheduled maturity
date and its amount payable. If an earlier call date is used and the Note is not
called, the Note will be treated as having matured on such earlier call date and
then as having been reissued on such date for the amount so payable. Amortized
amounts may be offset only against interest payments due under the Notes and
will reduce the U.S. Holder's adjusted tax basis in the Notes to the extent so
used.
Once made, an election to amortize and offset interest on bonds, such as
the Notes, will apply to all bonds in respect of which the election was made
that were owned by the taxpayer on the first day of the taxable year to which
the election relates and to all bonds of such class or classes subsequently
acquired by such taxpayer. Such election may only be revoked with the consent of
the Service. If a U.S. Holder of a Note does not elect to amortize the premium,
the premium will decrease the gain or increase the loss which would otherwise be
recognized upon disposition of the Note. Holders of Notes with amortizable bond
premium should consult their tax advisors regarding recently finalized Treasury
Regulations promulgated under Code Section 171 in connection with amortizable
bond premium.
SALE, EXCHANGE OR RETIREMENT OF NOTES
Upon the sale, exchange or retirement (including redemption) of a Note,
other than the exchange of an Old Note for an Exchange Note, a U.S. Holder of a
Note generally will recognize gain or loss in an amount equal to the difference
between the amount of cash and the fair market value of any property received on
the sale, exchange or retirement of the Note (other than in respect of accrued
and unpaid interest on the Note, which such amounts are treated as ordinary
interest income) and such U.S. Holder's adjusted tax basis in the Note. A U.S.
Holder's adjusted tax basis in a Note generally will equal the amount paid for
such Note, increased by the amount of original issue discount, if any, on the
Note previously included in such Holder's income, and reduced by any payments
(other than payments of qualified stated interest) previously made on such Note.
Such gain or loss generally will be capital gain or loss, except to the extent
of any accrued market discount (see "-- Market Discount" above), and will
generally be long-term capital gain taxable at a rate of 20% if the Note is held
for more than 12 months, and short-term capital gain taxable at ordinary income
tax rates if the Note is held for 12 months or less. Subsequent to December 31,
2000, subject to certain limitations, the capital gain rate would be reduced to
18% if a Note has been held for more than five years. The deductibility of
capital losses is subject to limitations.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, information reporting requirements will apply to interest
payments on the Notes made to U.S. Holders other than certain exempt recipients
(such as corporations) and to proceeds realized by such U.S. Holders on
dispositions of Notes. A 31% backup withholding tax will apply to such amounts
only if the U.S. Holder: (i) fails to furnish its social security or other
taxpayer identification number ("TIN") within a
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reasonable time after request therefor, (ii) furnishes an incorrect TIN, (iii)
fails to report properly interest or dividend income, or (iv) fails, under
certain circumstances, to provide a certified statement, signed under penalty of
perjury, that the TIN provided is its correct number and that it is not subject
to backup withholding. Any amount withheld from a payment to a U.S. Holder under
the backup withholding rules is allowable as a refund or as a credit against
such U.S. Holder's federal income tax liability, provided that the required
information is furnished to the Service. U.S. Holders of Notes should consult
their tax advisors as to their qualification for exemption from backup
withholding and the procedure for obtaining such an exemption.
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 , 1998, all
dealers effecting transactions in the Exchange Notes may be required to deliver
a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or 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 Letters of Transmittal state 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 a 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 Notes offered hereby will be
passed upon for the Company by Akin, Gump, Strauss, Hauer & Feld, L.L.P.
INDEPENDENT PUBLIC ACCOUNTANTS
The financial statements as of December 31, 1996 and 1997 and each of the
three years in the period ended December 31, 1997, incorporated by reference in
this Prospectus, have been audited by Arthur Andersen LLP, independent public
accountants, as stated in their report.
125
<PAGE> 131
INDEPENDENT PETROLEUM ENGINEERS
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, 1997 included or incorporated herein and in the
notes to the financial statements of the Company have been prepared by
Netherland, Sewell & Associates, Inc., Ryder Scott Company and McDaniel &
Associates, Inc., independent petroleum engineers.
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 for the year ended December
31, 1997;
b. The Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998;
c. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998;
d. The Company's Joint Proxy Statement/Prospectus for February 27, 1998;
e. The Company's Supplement to the Joint Proxy Statement/Prospectus,
dated March 13, 1998;
f. The Company's Current Report on Form 8-K, filed February 19, 1998;
g. The Company's Current Report on Form 8-K, filed March 3, 1998;
h. The Company's Current Report on Form 8-K, filed March 31, 1998;
i. The Company's Current Report on Form 8-K, filed May 6, 1998; and
j. The Company's Current Report on Form 8-K, filed May 29, 1998.
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 Exchange Offer 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.
126
<PAGE> 132
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., 1201
LOUISIANA, SUITE 1400, HOUSTON, TEXAS 77002, (713) 420-1000.
127
<PAGE> 133
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 oil.
"Development 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" is undertaken 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.
"Exploration well" means a well drilled to find commercially productive
hydrocarbons in an unproved area or to extend significantly a known oil or
natural gas 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.
"MBOE" means a thousand barrels of oil equivalent.
"Mcf" means thousand cubic feet of natural gas.
"Mcfe" means a thousand cubic feet equivalent, which is determined using
the ratio of one barrel of oil, condensate or natural gas liquids to six Mcf of
natural gas so that 1/6 of a barrel of oil, condensate or natural gas liquids is
referred to as one thousand cubic feet of natural gas equivalent or one Mcfe.
"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.
"NYMEX" means New York Mercantile Exchange.
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"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 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 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) 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) oil, natural gas, and natural gas liquids that may
occur in undrilled prospects; and (D) 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.
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"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 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 (or restart) drilling a new well.
"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.
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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.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Disclosure Regarding Forward-Looking
Statements.......................... iii
Prospectus Summary.................... 1
Risk Factors.......................... 15
The Exchange Offer.................... 22
Use of Proceeds....................... 31
Capitalization........................ 31
Selected Historical Financial and
Operating Data...................... 32
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 34
Business.............................. 44
Management............................ 60
Description of New Credit Facility.... 64
Description of Senior Notes........... 65
Description of Senior Subordinated
Notes............................... 80
Exchange Offer; Registration Rights... 118
Book Entry; Delivery and Form......... 120
Certain Federal Income Tax
Considerations...................... 122
Plan of Distribution.................. 125
Legal Matters......................... 125
Independent Public Accountants........ 125
Independent Petroleum Engineers....... 126
Available Information................. 126
Incorporation of Certain Documents By
Reference........................... 126
Glossary of Certain Oil and Gas
Terms............................... G-1
</TABLE>
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$500,000,000
OFFER TO EXCHANGE
OCEAN ENERGY LOGO
7 5/8% SENIOR NOTES
DUE 2005, SERIES B
FOR ALL OUTSTANDING 7 5/8% SENIOR
NOTES DUE 2005, SERIES A
8 1/4% SENIOR NOTES
DUE 2018, SERIES B
FOR ALL OUTSTANDING 8 1/4% SENIOR
NOTES DUE 2018, SERIES A
8 3/8% SENIOR SUBORDINATED NOTES
DUE 2008, SERIES B
FOR ALL OUTSTANDING 8 3/8% SENIOR
SUBORDINATED NOTES DUE 2008, SERIES A
----------------
PROSPECTUS
----------------
, 1998
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<PAGE> 137
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
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or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the 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 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
EXHIBITS
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
------- -----------
<C> <S>
2.1 -- Agreement and Plan of Merger, dated as of December 22,
1997, by and among the Company, United Meridian
Corporation, a Delaware corporation, and OEI Holding
Corporation, a Delaware corporation, incorporated by
reference to Exhibit 2.1 to United Meridian Corporation's
Current Report on Form 8-K filed on December 23, 1997.
2.2 -- Amendment No. 1 to Agreement and Plan of Merger, dated as
of January 7, 1997, among the Company, OEI Holding
Corporation, a Delaware corporation, and United Meridian
Corporation, a Delaware corporation, incorporated by
reference to Exhibit 2.2 to the Company's Registration
Statement on Form S-4 (Registration No. 333-43933).
2.3 -- Amendment No. 2 to Agreement and Plan of Merger, dated as
of February 20, 1998, among the Company, OEI Holding
Corporation, a Delaware corporation, and United Meridian
Corporation, a Delaware corporation, incorporated by
reference to Exhibit 2.3 to the Company's Registration
Statement on Form S-4 (Registration No. 333-43933).
4.1 -- Indenture, dated as of July 8, 1998 between Ocean Energy,
Inc. and Norwest Bank Minnesota, National Association, as
Trustee, with respect to the 7 5/8% Senior Notes Due
2005, incorporated by reference to Exhibit 10.23 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998.
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER OF EXHIBIT
------- -----------
<C> <S>
4.2 -- Indenture, dated as of July 8, 1998 between Ocean Energy,
Inc. and Norwest Bank Minnesota, National Association, as
Trustee, with respect to the 8 1/4% Senior Notes Due
2018, incorporated by reference to Exhibit 10.24 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998.
4.3 -- Indenture, dated as of July 8, 1998 between Ocean Energy,
Inc. and U.S. Bank Trust National Association, as
Trustee, with respect to the 8 3/8% Senior Subordinated
Notes Due 2008, incorporated by reference to Exhibit
10.22 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998.
4.4 -- Registration Rights Agreement, dated as of July 8, 1998,
among Ocean Energy, Inc., as issuer, and Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Chase Securities
Inc., J.P. Morgan Securities Inc., Lehman Brothers, Inc.
and Salomon Brothers Inc, incorporated by reference to
Exhibit 10.25 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1998.
*5.1 -- Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P. as
to the legality of the securities being registered.
8.1 -- Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
regarding tax matters (included in Exhibit 5.1).
*12.1 -- Computation of ratio of earnings to fixed charges.
*23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
(included in Exhibit 5.1).
*23.3 -- Consent of Netherland, Sewell & Associates, Inc.
*23.4 -- Consent of McDaniel & Associates Consultants, Ltd.
*23.5 -- Consent of Ryder Scott Company.
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 on Form T-1 of
U.S. Bank Trust National Association.
25.2 -- Statement of Eligibility and Qualification on Form T-1 of
Norwest Bank Minnesota, National Association ("Norwest"),
incorporated by reference to Norwest's Form T-1 filed on
September 2, 1998 (Registration No. 22-28036).
*99.1 -- Form of Letter of Transmittal and related documents.
</TABLE>
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* Filed herewith
FINANCIAL STATEMENT SCHEDULES
None.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement
II-3
<PAGE> 140
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.
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 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> 141
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 Houston,
Texas, on the 4th day of September, 1998.
OCEAN ENERGY, INC., a Delaware
corporation
By: /s/ JAMES C. FLORES
----------------------------------
James C. Flores
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, Jonathan M. Clarkson
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/ JOHN B. BROCK Chairman of the Board September 4, 1998
- ----------------------------------------------------- -----------------
John B. Brock
/s/ JAMES C. FLORES President, Chief Executive Officer September 4, 1998
- ----------------------------------------------------- and Director (Principal Executive -----------------
James C. Flores Officer)
/s/ JONATHAN M. CLARKSON Executive Vice President -- Chief September 4, 1998
- ----------------------------------------------------- Financial Officer (Principal -----------------
Jonathan M. Clarkson Financial Officer)
/s/ CHRISTOPHER E. CRAGG Vice President and Controller September 4, 1998
- ----------------------------------------------------- (Principal Accounting Officer) -----------------
Christopher E. Cragg
/s/ JAMES L. DUNLAP Vice Chairman and Director September 4, 1998
- ----------------------------------------------------- -----------------
James L. Dunlap
/s/ THOMAS D. CLARK, JR. Director September 4, 1998
- ----------------------------------------------------- -----------------
Thomas D. Clark, Jr.
/s/ LODWRICK M. COOK Director September 4, 1998
- ----------------------------------------------------- -----------------
Lodwrick M. Cook
</TABLE>
II-5
<PAGE> 142
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ROBERT L. HOWARD Director September 4, 1998
- ----------------------------------------------------- -----------------
Robert L. Howard
/s/ ELVIS L. MASON Director September 4, 1998
- ----------------------------------------------------- -----------------
Elvis L. Mason
/s/ CHARLES F. MITCHELL, M.D. Director September 4, 1998
- ----------------------------------------------------- -----------------
Charles F. Mitchell, M.D.
/s/ JAMES L. MURDY Director September 4, 1998
- ----------------------------------------------------- -----------------
James L. Murdy
/s/ DAVID K. NEWBIGGING Director September 4, 1998
- ----------------------------------------------------- -----------------
David K. Newbigging
/s/ WILLIAM W. RUCKS, IV Director September 4, 1998
- ----------------------------------------------------- -----------------
William W. Rucks, IV
Director -----------------
- -----------------------------------------------------
Matthew R. Simmons
/s/ MILTON J. WOMACK Director September 4, 1998
- ----------------------------------------------------- -----------------
Milton J. Womack
</TABLE>
II-6
<PAGE> 143
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 Houston, Texas, on the day of
1998.
OCEAN ENERGY, INC., a Louisiana
corporation
By: /s/ JAMES C. FLORES
----------------------------------
James C. Flores
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/ JOHN B. BROCK Chairman of the Board September 4, 1998
- -----------------------------------------------------
John B. Brock
/s/ JAMES C. FLORES President, Chief Executive September 4, 1998
- ----------------------------------------------------- Officer and Director
James C. Flores (Principal Executive
Officer)
/s/ JONATHAN M. CLARKSON Executive Vice President -- September 4, 1998
- ----------------------------------------------------- Chief Financial Officer
Jonathan M. Clarkson (Principal Financial
Officer)
/s/ CHRISTOPHER E. CRAGG Vice President and September 4, 1998
- ----------------------------------------------------- Controller (Principal
Christopher E. Cragg Accounting Officer)
/s/ RICHARD G. ZEPERNICK, JR. Director September 4, 1998
- -----------------------------------------------------
Richard G. Zepernick, Jr.
</TABLE>
II-7
<PAGE> 144
INDEX TO EXHIBITS
EXHIBITS
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
------- -----------
<C> <S>
2.1 -- Agreement and Plan of Merger, dated as of December 22,
1997, by and among the Company, United Meridian
Corporation, a Delaware corporation, and OEI Holding
Corporation, a Delaware corporation, incorporated by
reference to Exhibit 2.1 to United Meridian Corporation's
Current Report on Form 8-K filed on December 23, 1997.
2.2 -- Amendment No. 1 to Agreement and Plan of Merger, dated as
of January 7, 1997, among the Company, OEI Holding
Corporation, a Delaware corporation, and United Meridian
Corporation, a Delaware corporation, incorporated by
reference to Exhibit 2.2 to the Company's Registration
Statement on Form S-4 (Registration No. 333-43933).
2.3 -- Amendment No. 2 to Agreement and Plan of Merger, dated as
of February 20, 1998, among the Company, OEI Holding
Corporation, a Delaware corporation, and United Meridian
Corporation, a Delaware corporation, incorporated by
reference to Exhibit 2.3 to the Company's Registration
Statement on Form S-4 (Registration No. 333-43933).
4.1 -- Indenture, dated as of July 8, 1998 between Ocean Energy,
Inc. and Norwest Bank Minnesota, National Association, as
Trustee, with respect to the 7 5/8% Senior Notes Due
2005, incorporated by reference to Exhibit 10.23 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998.
4.2 -- Indenture, dated as of July 8, 1998 between Ocean Energy,
Inc. and Norwest Bank Minnesota, National Association, as
Trustee, with respect to the 8 1/4% Senior Notes Due
2018, incorporated by reference to Exhibit 10.24 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998.
4.3 -- Indenture, dated as of July 8, 1998 between Ocean Energy,
Inc. and U.S. Bank Trust National Association, as
Trustee, with respect to the 8 3/8% Senior Subordinated
Notes Due 2008, incorporated by reference to Exhibit
10.22 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998.
4.4 -- Registration Rights Agreement, dated as of July 8, 1998,
among Ocean Energy, Inc., as issuer, and Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Chase Securities
Inc., J.P. Morgan Securities Inc., Lehman Brothers, Inc.
and Salomon Brothers Inc, incorporated by reference to
Exhibit 10.25 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1998.
*5.1 -- Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P. as
to the legality of the securities being registered.
8.1 -- Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
regarding tax matters (included in Exhibit 5.1).
*12.1 -- Computation of ratio of earnings to fixed charges.
*23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
(included in Exhibit 5.1).
*23.3 -- Consent of Netherland, Sewell & Associates, Inc.
*23.4 -- Consent of McDaniel & Associates Consultants, Ltd.
</TABLE>
<PAGE> 145
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER OF EXHIBIT
------- -----------
<C> <S>
*23.5 -- Consent of Ryder Scott Company.
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 on Form T-1 of
U.S. Bank Trust National Association.
25.2 -- Statement of Eligibility and Qualification on Form T-1 of
Norwest Bank Minnesota, National Association ("Norwest"),
incorporated by reference to Norwest's Form T-1 filed on
September 2, 1998 (Registration No. 22-28036).
*99.1 -- Form of Letter of Transmittal and related documents.
</TABLE>
- ---------------
* Filed herewith
<PAGE> 1
EXHIBIT 5.1
[AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P. LETTERHEAD]
September 4, 1998
Ocean Energy, Inc.
1201 Louisiana, Suite 1400
Houston, Texas 77002
Ladies and Gentlemen:
We have acted as counsel for Ocean Energy, Inc., a Delaware corporation
(the "COMPANY"), in connection with the proposed offer by the Company to
exchange (the "EXCHANGE OFFER") (i) its outstanding 7 5/8% Senior Notes due
2005 (the "OLD 2005 SENIOR NOTES"), of which an aggregate of $125,000,000 in
principal amount is outstanding, for an equal principal amount of newly issued
7 5/8% Senior Notes due 2005 (the "2005 SENIOR EXCHANGE NOTES"), (ii) its
outstanding 8 1/4% Senior Notes due 2018 (the "OLD 2018 SENIOR NOTES" and,
together with the Old 2005 Senior Notes, the "OLD SENIOR NOTES"), of which an
aggregate of $125,000,000 in principal amount is outstanding, for an equal
principal amount of newly issued 8 1/4% Senior Notes due 2018 (the "2018 SENIOR
EXCHANGE NOTES" and, together with the 2005 Senior Exchange Notes, the "SENIOR
EXCHANGE NOTES"), and (iii) its outstanding 8 3/8% Senior Subordinated Notes
due 2008 (the "OLD SENIOR SUBORDINATED NOTES" and, collectively with the Old
Senior Notes, the "OLD NOTES"), of which an aggregate of $250,000,000 in
principal amount is outstanding, for an equal principal amount of newly issued
8 3/8% Senior Subordinated Notes due 2008 (the "SENIOR SUBORDINATED EXCHANGE
NOTES" and, together with the Senior Exchange Notes, the "EXCHANGE NOTES"),
which Exchange Notes have been registered under the Securities Act of 1933, as
amended. The Old Senior Notes have been, and the Senior Exchange Notes will be,
issued pursuant to indentures, dated as of July 8, 1998 (the "SENIOR
INDENTURES"), among the Company, Ocean Energy, Inc., a Louisiana corporation
("OEI-LOUISIANA"), and Norwest Bank Minnesota, National Association, as trustee
(the "SENIOR TRUSTEE"). The Old Senior Subordinated Notes have been, and the
Senior Subordinated Exchange Notes will be, issued pursuant to an indenture,
dated as of July 8, 1998 (the "SENIOR SUBORDINATED INDENTURE" and, together with
the Senior Indentures, the "INDENTURES"), among the Company, OEI-Louisiana and
U.S. Bank Trust National Association, as trustee (the "SENIOR SUBORDINATED
TRUSTEE" and,
<PAGE> 2
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
Ocean Energy, Inc.
September 4, 1998
Page 2
together with the Senior Trustee, the "TRUSTEES"). Unless otherwise defined
herein, capitalized terms used in this opinion shall have the meanings set
forth in the Indentures.
The law covered by the opinions expressed herein is limited to the Federal
laws of the United States, the laws of the State of New York and the General
Corporation Law of the State of Delaware. This firm is a registered limited
liability partnership organized under the laws of the State of Texas.
We have examined (i) the Indentures, (ii) the form of Exchange Notes,
(iii) the Registration Statement on Form S-4, filed by the Company with the
Securities and Exchange Commission, for the registration of the Exchange Notes
under the Securities Act of 1933, as amended (the Registration Statement, as
amended at the time it becomes effective, being referred to as the
"REGISTRATION STATEMENT"), and (iv) such corporate records of the Company,
certificates of public officials and such other documents as we have deemed
necessary or appropriate for the purpose of this opinion.
For purposes of this opinion, we have assumed (i) the due authorization,
execution and delivery of each Indenture by the respective Trustee, (ii) that
each Trustee has the requisite power and authority to enter into the respective
Indenture and to act as trustee thereunder (and each is eligible and duly
qualified to act in such capacity), and (iii) that each Indenture constitutes
the legal, valid and binding obligation of the Trustee, enforceable against
such Trustee in accordance with their respective terms.
Based upon such examination, review and assumptions, we are of the
opinion that:
A. The Exchange Notes proposed to be issued by the Company pursuant to
the Exchange Offer have been duly authorized for issuance and,
subject to the Registration Statement becoming effective under the
Securities Act of 1933, as amended, and to compliance with any
applicable state securities laws, the Exchange Notes, when executed
by the Company, authenticated by the respective Trustees and
delivered and exchanged for Old Notes in accordance with the
Indentures and the Registration Rights Agreement, will be valid and
binding obligations of the Company.
B. The statements in the prospectus forming a part of the Registration
Statement under the heading "Certain Federal Income Tax
Considerations," in so far as they describe provisions of United
States federal income tax law, are accurate in all material respects.
The opinion expressed herein as to the valid, binding and enforceable
nature of the Exchange Notes is subject to the exceptions that enforcement may
be limited by and subject to (i) bankruptcy, insolvency (including without
limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or similar laws affecting enforcement of creditors' rights generally,
(ii) general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law), (iii) the power of the courts
to award damages in lieu of equitable remedies
<PAGE> 3
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
Ocean Energy, Inc.
September 4, 1998
Page 3
and (iv) the limitations imposed by United States federal or state laws or the
policies underlying such laws on any right to indemnification or contribution
contained in such documents. In addition, the foregoing opinion is subject to
the qualifications that certain remedial, waiver and other similar provisions
of the Indentures may not be enforceable in whole or in part under the laws of
the State of New York, the State of Delaware or the United States, but such
provisions do not void the Indentures or frustrate the basic purpose thereof,
and, subject to the other qualifications set forth in this opinion, the
Indentures contain adequate provisions for the praenforceability of any
provisions contained in the Indentures purporting to (i) waive the benefits of
any stay, extension or usury law or waive any rights under any applicable
statutes or rules thereafter enacted or promulgated or (ii) provide for
separability of unenforceable provisions.
The opinion expressed herein as to certain tax matters is based on various
statutory provisions of the Internal Revenue Code of 1986, regulations
promulgated thereunder and interpretations thereof by the Internal Revenue
Service and courts having jurisdiction over such matters, all of which are
subject to change either prospectively or retroactively. Any variation or
difference in the facts as incorporated herein might affect the conclusions
stated herein.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the Reference to the firm under "Legal Matters"
and "Certain Federal Income Tax Considerations" in the prospectus forming a
part of the Registration Statement.
Sincerely,
/s/ AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
<PAGE> 1
EXHIBIT 12.1
OCEAN ENERGY, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(dollar amounts in thousands)
<TABLE>
<CAPTION>
FOR THE SIX
YEAR ENDED MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------------------------------------------------- ---------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes,
including extraordinary item $ 10,710 $(189,253) $ 3,816 $ 81,215 $ 72,312 $ 50,082 $(246,488)
--------- --------- --------- --------- --------- --------- ---------
Interest and debt expense 7,587 13,547 35,565 40,765 49,134 22,741 21,941
Capitalized interest -- 446 3,882 7,408 12,802 5,001 15,049
Assumed interest portion of rent expense 301 424 519 466 785 434 404
Preferred stock dividends 2,427 -- 2,404 2,480 -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total fixed charges $ 10,315 $ 14,417 $ 42,370 $ 51,119 $ 62,721 $ 28,176 $ 37,394
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes
and interest and debt expense $ 18,297 $(175,706) $ 39,381 $ 121,980 $ 121,446 $ 72,823 $(224,547)
--------- --------- --------- --------- --------- --------- ---------
Ratio of earnings to fixed charges 1.8 (1) (1) 2.4 1.9 2.6 (1)
</TABLE>
(1) Earnings were not sufficient to cover fixed charges for the indicated
periods.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this registration statement of our report dated
April 6, 1998 included in the Ocean Energy, Inc. Form 8-K dated May 6, 1998 and
to all references to our Firm included in this registration statement.
/s/ ARTHUR ANDERSEN LLP
-------------------------
ARTHUR ANDERSEN LLP
Houston, Texas
September 4, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF NETHERLAND, SEWELL & ASSOCIATES, INC.
We hereby consent to the incorporation by reference in this
Registration Statement on Form S-4 of our reports dated February 10, 1998,
February 18, 1998, and February 19, 1998, that were utilized in aggregate as a
basis for Ocean Energy, Inc.'s Form 10-K/A and for United Meridian Corporation's
Form 10-K/A for the year ended December 31, 1997, and to all references to our
Firm included in this Registration Statement.
NETHERLAND, SEWELL & ASSOCIATES, INC.
By: /s/ DANNY D. SIMMONS
----------------------------------
Danny D. Simmons
Senior Vice President
Houston, Texas
September 1, 1998
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT PETROLEUM RESERVE ENGINEERS
Dear Sirs:
We consent to the incorporation by reference in this Registration Statement on
Form S-4 of portions of our reports entitled "UMC Petroleum Corporation,
Evaluation of Certain Interests in the State of Montana, SEC Parameters, as of
January 1, 1998", dated February 3, 1998; and "UMC Resources Canada Ltd.,
Evaluation of Oil & Gas Reserves, SEC Parameters, as of January 1, 1998", dated
January 27, 1998, (the "Reports") and to our having evaluated the Corporations'
interest in oil and gas reserves. We also consent to the reference of our firm
under the caption "Experts."
Sincerely,
MCDANIEL & ASSOCIATES CONSULTANTS LTD.
/s/ P. A. WELCH
- -------------------------------
P. A. Welch, P. Eng.
Vice President
Calgary, Alberta
Dated: September 1, 1998
<PAGE> 1
EXHIBIT 23.5
CONSENT OF RYDER SCOTT COMPANY
We consent to the incorporation by reference in the Registration
Statement on Form S-4 of our reserve report and all schedules, exhibits and
attachments thereto and to any reference made to us on Form S-4 as a result of
such incorporation.
Very truly yours,
/s/ RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
Denver, Colorado
September 1, 1998
<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
---------------------------------
U.S. BANK TRUST NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
NOT APPLICABLE 41-0417860
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. National Bank) Identification No.)
180 EAST FIFTH STREET
ST. PAUL, MINNESOTA 55101
(Address of principal executive offices) (Zip code)
---------------------------------
OCEAN ENERGY, INC.
(Exact name of obligor as specified in its charter)
DELAWARE 72-127752
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1201 LOUISIANA, SUITE 1400
HOUSTON,TEXAS 77002-5603
(Address of principal executive offices) (Zip code)
----------------------------------
8 3/8%SENIOR SUBORDINATED NOTES DUE 2008, SERIES B
<PAGE> 2
1. GENERAL INFORMATION Furnish the following information as to
the Trustee.
(a) Name and address of each examining or supervising
authority to which it is subject.
Comptroller of the Currency
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust
powers.
Yes
2. AFFILIATIONS WITH THE OBLIGOR If the obligor is an affiliate
of the Trustee, describe each such affiliation.
None
Items 3-15 are not applicable because to the best of the
Trustee's knowledge the obligor is not in default under any
Indenture for which the Trustee acts as Trustee.
16. LIST OF EXHIBITS List below all exhibits filed as a part of
this statement of eligibility.
Each of the exhibits listed below, other than Exhibit 6, is
incorporated herein by reference from registration numbers
referenced after each exhibit below.
1. Copy of Articles of Association. REGISTRATION
#22-27000
2. Copy of Certificate of Authority to Commence
Business. REGISTRATION #22- 27000
3. Authorization of the Trustee to exercise corporate
trust powers (included in Exhibits 1 and 2; no
separate instrument). REGISTRATION #22-27000
4. Copy of existing By-Laws. REGISTRATION #22-27000
5. Copy of each Indenture referred to in Item 4. N/A.
6. The consents of the Trustee required by Section 321
(b) of the Act.
7. Copy of the latest report of condition of the Trustee
published pursuant to law or the requirements of its
supervising or examining authority. REGISTRATION
#333-53211
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, U.S. Bank Trust National Association, an Association organized and
existing under the laws of the United States, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, and its seal to be hereunto affixed and attested on the 27th day of
Aug., 1998.
U.S. BANK TRUST NATIONAL ASSOCIATION
[SEAL] /s/ PATRICIA M. PETERS
-------------------------------------
Patricia M. Peters
Assistant Vice President
/s/ COLLEEN A. CARWIN
- -------------------------------
Colleen A. Carwin
Assistant Secretary
<PAGE> 4
NOTE
The answers to this statement insofar as such answers relate to what
persons have been underwriters for any securities of the obligor within three
years prior to the date of filing this statement, or what persons are owners of
10% or more of the voting securities of the obligor, or affiliates, are based
upon information furnished to the Trustee by the obligor. While the Trustee has
no reason to doubt the accuracy of any such information, it cannot accept any
responsibility therefor.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, U.S. Bank Trust National Association, an Association organized and
existing under the laws of the United States, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, and its seal to be hereunto affixed and attested, on the ____ day of
___________, 1998.
U.S. BANK TRUST NATIONAL ASSOCIATION
[SEAL]
/s/ PATRICIA M. PETERS
----------------------
Patricia M. Peters
Assistant Vice President
/s/ COLLEEN A. CARWIN
- ---------------------
Colleen A. Carwin
Assistant Secretary
<PAGE> 5
EXHIBIT 6
CONSENT
In accordance with Section 321(b) of the Trust Indenture Act of 1939,
the undersigned, U.S. BANK TRUST NATIONAL ASSOCIATION hereby consents that
reports of examination of the undersigned by Federal, State, Territorial or
District authorities may be furnished by such authorities to the Securities and
Exchange Commission upon its request therefor.
Dated: Aug. 27, 1998
U.S. BANK TRUST NATIONAL ASSOCIATION
/s/ PATRICIA M. PETERS
-------------------------------------
Patricia M. Peters
Assistant Vice President
<PAGE> 6
EXHIBIT 6
CONSENT
In accordance with Section 321(b) of the Trust Indenture Act of 1939,
the undersigned, U.S. BANK TRUST NATIONAL ASSOCIATION hereby consents that
reports of examination of the undersigned by Federal, State, Territorial or
District authorities may be furnished by such authorities to the Securities and
Exchange Commission upon its request therefor.
Dated: __________ ____, 1998
U.S. BANK TRUST NATIONAL ASSOCIATION
/s/ Patricia M. Peters
----------------------
Patricia M. Peters
Assistant Vice President
<PAGE> 1
EXHIBIT 99.1
OCEAN ENERGY, INC.
LETTER OF TRANSMITTAL
OFFER TO EXCHANGE
7 5/8% SENIOR NOTES DUE 2005, SERIES A
FOR ALL OUTSTANDING 7 5/8% SENIOR NOTES DUE 2005, SERIES B
AND
8 1/4% SENIOR NOTES DUE 2018, SERIES A
FOR ALL OUTSTANDING 8 1/4% SENIOR NOTES DUE 2018, SERIES B
AND
8 3/8% SENIOR SUBORDINATED NOTES DUE 2008, SERIES A
FOR ALL OUTSTANDING 8 3/8% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B
PURSUANT TO THE PROSPECTUS DATED _______, 1998
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT
5:00 P.M., E.D.T., ON _____________, 1998, UNLESS THE
EXCHANGE OFFER IS EXTENDED.
Deliver To:
U.S. Bank Trust National Association (the "Exchange Agent")
<TABLE>
<S> <C>
BY HAND, MAIL or OVERNIGHT DELIVERY: BY FACSIMILE TRANSMISSION
U.S. Bank Trust National Association (FOR ELIGIBLE INSTITUTIONS ONLY):
180 East Fifth Street (612) 244-1537
St. Paul, Minnesota 55101
Attn: Specialized Finance Department
</TABLE>
FOR INFORMATION OR CONFIRM BY TELEPHONE:
(612) 244-4512
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 _______, 1998 (the "Prospectus"), of Ocean Energy, Inc., a Delaware
corporation (the "Company"), and this Letter of Transmittal and the instructions
hereto (this "Letter of Transmittal"), which together constitute the Company's
offer (the "Exchange Offer") to exchange: (i) $1,000 principal amount of its 7
5/8% Senior Notes due 2005, Series B (the "2005 Senior 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 (the "Registration Statement") for each $1,000 principal amount of its
outstanding 7 5/8% Senior Notes due 2005, Series A (the "Old 2005 Senior
Notes"); (ii) $1,000 principal amount of its 8 1/4% Senior Notes due 2018,
Series B (the "2018 Senior Exchange Notes") that have been registered under the
Securities Act pursuant to the Registration Statement for each $1,000 principal
amount of its outstanding 8 1/4% Senior Notes due 2018, Series A (the "Old 2018
Senior Notes"); and (iii) $1,000 principal amount of its 8 3/8% Senior
Subordinated Notes due 2008, Series B (the "Senior Subordinated Exchange Notes")
that have been registered under the Securities Act pursuant to the Registration
Statement for each $1,000 principal amount of its outstanding 8 3/8% Senior
Subordinated Notes due 2008, Series A (the "Old Senior Subordinated Notes"), of
which $500,000,000 aggregate principal amount is outstanding, upon the terms and
subject to the conditions set forth in the Prospectus. The 2005 Senior Exchange
Notes, 2018 Senior Exchange Notes and Senior Subordinated Exchange Notes are
sometimes referred to herein collectively as the "Exchange Notes." The Old 2005
Senior Notes, Old 2018 Senior Notes and Old Senior Subordinated Notes are
sometimes referred to herein collectively as the "Old Notes." The term
"Expiration Date" shall mean 5:00 p.m., E.D.T., on __________, 1998, unless the
Company, in its sole discretion, extends the Exchange Offer, in
<PAGE> 2
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.
This Letter of Transmittal is to be used if either (i) certificates
representing Old Notes are to be physically delivered to the Exchange Agent
herewith by Holders (as defined herein), (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" or the "Depositary") pursuant to the procedures
set forth under the caption "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: (i) 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 (ii) 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 oral (which shall be confirmed in writing) or 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 with respect to any of
the Old Notes tendered for exchange hereby. All other tenders must be in
integral multiples of $1,000.
BOX I-A
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF 7 5/8% SENIOR NOTES DUE 2005, SERIES A
- --------------------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S)* AGGREGATE PRINCIPAL AMOUNT
(PLEASE FILL IN, IF BLANK) CERTIFICATE NUMBER(S)* TENDERED (IF LESS THAN ALL)**
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL PRINCIPAL AMOUNT OF OLD
2005 SENIOR NOTES TENDERED
- --------------------------------------------------------------------------------------------------------------------------------
* NEED NOT BE COMPLETED BY HOLDERS TENDERING BY BOOK-ENTRY TRANSFER.
** NEED NOT BE COMPLETED BY HOLDERS WHO WISH TO TENDER WITH RESPECT TO ALL OLD 2005 SENIOR NOTES LISTED.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
BOX I-B
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF 8 1/4% SENIOR NOTES DUE 2018, SERIES A
- --------------------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S)* AGGREGATE PRINCIPAL AMOUNT
(PLEASE FILL IN, IF BLANK) CERTIFICATE NUMBER(S)* TENDERED (IF LESS THAN ALL)**
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL PRINCIPAL AMOUNT OF OLD
2018 SENIOR NOTES TENDERED
- --------------------------------------------------------------------------------------------------------------------------------
* NEED NOT BE COMPLETED BY HOLDERS TENDERING BY BOOK-ENTRY TRANSFER.
** NEED NOT BE COMPLETED BY HOLDERS WHO WISH TO TENDER WITH RESPECT TO ALL OLD 2018 SENIOR NOTES LISTED.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
BOX I-C
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF 8 3/8% SENIOR SUBORDINATED NOTES DUE 2008, SERIES A
- --------------------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S)* AGGREGATE PRINCIPAL AMOUNT
(PLEASE FILL IN, IF BLANK) CERTIFICATE NUMBER(S)* TENDERED (IF LESS THAN ALL)**
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL PRINCIPAL AMOUNT OF OLD
SENIOR SUBORDINATED NOTES
TENDERED
- --------------------------------------------------------------------------------------------------------------------------------
* NEED NOT BE COMPLETED BY HOLDERS TENDERING BY BOOK-ENTRY TRANSFER.
** NEED NOT BE COMPLETED BY HOLDERS WHO WISH TO TENDER WITH RESPECT TO ALL OLD SENIOR SUBORDINATED NOTES LISTED.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 4
PLEASE READ CAREFULLY THE ACCOMPANYING INSTRUCTIONS
<TABLE>
<CAPTION>
<S> <C>
BOX II BOX III
- -------------------------------------------- ---------------------------------------------------
SPECIAL REGISTRATION INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 4, 5, and 6) (See Instructions 4, 5, and 6)
To be completed ONLY if certificates for To be completed ONLY if certificates for Old
Old Notes in a principal amount not Notes in a principal amount not tendered, or
tendered, or Exchange Notes issued in Exchange Notes issued in exchange for Old Notes
exchange for Old Notes accepted for accepted for exchange, are to be issued in the
exchange, are to be issued in the name of name of someone other than the undersigned.
someone other than the undersigned.
Issue certificate(s) to: Deliver certificate(s) to:
Name: Name:
------------------------------------ ------------------------------------
(PLEASE PRINT) (PLEASE PRINT)
- ----------------------------------------- -------------------------------------------
(PLEASE PRINT) (PLEASE PRINT)
Address Address
---------------------------------- -----------------------------------
- ----------------------------------------- -------------------------------------------
(INCLUDING ZIP CODE) (INCLUDING ZIP CODE)
- ----------------------------------------- -------------------------------------------
TAX IDENTIFICATION OR SOCIAL SECURITY TAX IDENTIFICATION OR SOCIAL SECURITY
NUMBER NUMBER
- -------------------------------------------- ---------------------------------------------------
</TABLE>
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:
<TABLE>
<S> <C>
Name of Tendering Institution [ ] The Depository Trust Company
------------------------------------
Account Number
---------------------------------------------------------------------------------------
Transaction Code Number
------------------------------------------------------------------------------
</TABLE>
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 undersigned 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 the Company the principal amount of Old Notes indicated in Box
I-A, I-B and/or I-C 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 Senior Subordinated Indenture for the Old Senior Subordinated Notes and the
Senior Subordinated 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.
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 and
5
<PAGE> 6
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 Subsidiary 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 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.
6
<PAGE> 7
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
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 this Letter of Transmittal.
7
<PAGE> 8
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)
X
---------------------------------- -----------------------------
Date
X
---------------------------------- -----------------------------
Signature(s) of Holder(s) or Date
Authorized Signatory
Name(s): Address:
-------------------------------- ---------------------
-------------------------------- ------------------------------
(Please print) (including Zip Code)
Capacity: Area Code/Tel. No.:
------------------------------- -----------
Social Security No.:
------------------------------------------------------------
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 (i) 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 (ii) 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., E.D.T., 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.
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, this 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 this 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
9
<PAGE> 10
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 this Letter of Transmittal and agrees to be bound by
the terms of this 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 "The 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., E.D.T., 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 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 Box I-A, I-B and/or I-C above. The entire
principal amount of Old Notes delivered to the Exchange Agent will be deemed to
have
10
<PAGE> 11
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., E.D.T., 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., E.D.T., 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 this 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 caption "The Exchange Offer -- Procedures
for Tendering" at any time prior to the Expiration Date.
6. Signatures on this 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 such 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
11
<PAGE> 12
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 (the "Substitute Form W-9") and either (i) provide
the correct taxpayer identification number ("TIN") and certify, under penalties
of perjury, that the TIN provided is correct and that (a) 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 (b) the IRS has notified the Holder that the Holder is no longer
subject to backup withholding; or (ii) 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 of the
Substitute Form W-9, the Company (or the applicable Paying Agent under the
respective Indentures governing such Exchange Notes) shall retain 31% of
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 60 days after the date of the Substitute Form
W-9, the Company (or the applicable Paying Agent) shall remit such amounts
retained during the 60-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 60-day period, the Company (or the applicable 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 IRS.
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 TIN 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
applicable 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 information under the caption "The Exchange Offer --
Solicitation of Tenders; Fees and Expenses" in the Prospectus.
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
<PAGE> 13
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. Holders may also contact their broker, dealer, commercial bank,
trust company or other nominee for assistance concerning the Exchange Offer.
13
<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 the 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 IRS, 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 the
Substitute Form W-9. A foreign person may qualify as an exempt recipient by
submitting to the Exchange Agent a properly completed IRS Form W-8, signed under
penalties of perjury, attesting to that Holder's exempt status. An IRS 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
31% 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 IRS.
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 the Substitute Form W-9 is correct (or that such Holder is awaiting
a TIN) and that (a) the Holder has been notified by the IRS that the Holder is
subject to backup withholding as a result of failure to report all interest or
dividends or (b) the IRS 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 I - TAXPAYER IDENTIFICATION NUMBER (TIN) SOCIAL SECURITY NUMBER
FORM W-9 ------------------------------
ENTER YOUR TIN IN THE APPROPRIATE BOX. FOR OR
DEPARTMENT OF THE INDIVIDUALS, THIS IS YOUR SOCIAL SECURITY
TREASURY INTERNAL REVENUE NUMBER (SSN). FOR SOLE PROPRIETORS, SEE THE
SERVICE INSTRUCTIONS IN THE ENCLOSED GUIDELINES. FOR EMPLOYEE IDENTIFICATION NUMBER
OTHER ENTITIES, IT IS YOUR EMPLOYER
REQUEST FOR TAXPAYER IDENTIFICATION NUMBER (EIN). IF YOU DO NOT ------------------------------
IDENTIFICATION NUMBER AND HAVE A NUMBER, SEE HOW TO GET A TIN IN THE
CERTIFICATION ENCLOSED 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: , 1998
--------------------------------------------------- ---------------------
------------------------------------------------------------------------------------------------------------------
</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> 17
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.
Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
- -------------------------------------- ----------------------- ------------------------------------- -------------------------
FOR THIS TYPE OF ACCOUNT: GIVE THE FOR THIS TYPE OF ACCOUNT: GIVE THE EMPLOYER
SOCIAL SECURITY IDENTIFICATION NUMBER OF -
NUMBER OF -
- -------------------------------------- ----------------------- ------------------------------------- -------------------------
<S> <C> <C> <C>
1. An individual's account. The individual 9. A valid trust, estate, or The legal entity (Do
pension trust not furnish the
identifying number of
the personal representative
or trustee unless the
legal entity itself is
not designated in the
account title.)(5)
2. Two or more individuals (joint The actual owner of 10. Corporate account The corporation
account) the account or, if
combined funds, any
one of the
individuals(1)
3. Husband and wife (joint The actual owner of 11. Religious, charitable, or The organization
account) the account or, if educational organization account
joint funds, either
person(1)
4. Custodian account of a minor The minor (2) 12. Partnership account held in The partnership
(Uniform Gift to Minors Act) the name of the business
5. Adult and minor (joint account) The adult or, if the 13. Association, club, or other The organization
minor is the only tax-exempt organization
contributor, the
minor(1)
6. Account in the name of The ward, minor, or 14. A broker or registered nominee The broker or nominee
guardian or committee for a incompetent person(3)
designated ward, minor, or
incompetent person
7. a The usual revocable savings The grantor-trustee(1) 15. Account with the Department The public entity
trust account (grantor is also of Agriculture in the name
of trustee) a public entity (such as a State
b So-called trust account that The actual owner(1) or local government, school,
is not a legal or valid trust district, or prison) that
under State law receives agricultural program
payments
8. Sole proprietorship account The owner (4)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circled the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
17
<PAGE> 18
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER OF SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
o A corporation.
o A financial institution.
o An organization exempt from tax under section 501(a), or an individual
retirement plan, or a custodial account under section 403(6)(7).
o The United States or any agency or instrumentality thereof.
o A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
o A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
o An international organization or any agency, or instrumentality thereof.
o A registered dealer in securities or commodities registered in the U.S. or
a possession of the U.S.
o A real estate investment trust.
o A common trust fund operated by a bank under section 584(a)
o An exempt charitable remainder trust under section 664, or a non-exempt
trust described in section 4947.
o An entity registered at all times under the Investment Company Act of 1940.
o A foreign central bank of issue.
o A future commission merchant registered with the Commodity Futures Trading
Commission.
o A middleman known in the investment community as a nominee or listed in
the most recent publication of the American Society of Corporate
Secretaries, Inc. Nominee List.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
o Payments to nonresident aliens subject to withholding under section 1441.
o Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
o Payments of patronage dividends where the amount received is not paid in
money.
o Payments made by certain foreign organizations.
Payments of interest not generally subject to backup withholding include the
following:
o Payments of interest on obligations issued by individuals.
Note: You may be subject to backup withholding if this interest is $600 or
more and is paid in the course of the payer's trade or business and you
have not provided your correct taxpayer identification number to the
payer.
o Payments of tax-exempt interest (including exempt-in-interest dividends
under section 852).
o Payments described in section 6049(b)(5) to non-resident aliens.
o Payments on tax-free covenant bonds under section 1451.
o Payments made by certain foreign organizations.
o Mortgage interest paid to the payer.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO
SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details see section 6041, 6041A(a), 6042, 6044, 6045, 6049,
6050A, and 6050N and their regulations. PRIVACY ACT NOTICE. -- Section 6109
requires most recipients of dividend, interest, or other payments to give
taxpayer identification numbers to payers who must report the payments to IRS.
IRS uses the numbers for identification purposes and to help verify the accuracy
of your return. Payers must be given the numbers whether or not recipients are
required to file tax returns. Payers must generally withhold 31% of taxable
interest, dividend, and certain other payments to a payee who does not furnish a
taxpayer identification number to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you
fail to furnish your taxpayer identification number to a payer, you are subject
to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. --Falsifying certifications
or affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL
REVENUE SERVICE
18
<PAGE> 19
OFFER TO EXCHANGE
7 5/8% SENIOR NOTES DUE 2005, SERIES B
FOR ALL OUTSTANDING 7 5/8% SENIOR NOTES DUE 2005, SERIES A
AND
8 1/4% SENIOR NOTES DUE 2018, SERIES B
FOR ALL OUTSTANDING 8 1/4% SENIOR NOTES DUE 2018, SERIES A
AND
8 3/8% SENIOR SUBORDINATED NOTES DUE 2008,
SERIES B FOR ALL OUTSTANDING 8 3/8% SENIOR
SUBORDINATED NOTES DUE 2008, SERIES A
OF
OCEAN ENERGY, INC.
To Securities Dealers, Commercial Banks,
Trust Companies and other Nominees:
We are enclosing herewith the materials listed below relating to the
offer (the "EXCHANGE OFFER") by Ocean Energy, Inc. (the "COMPANY") to exchange
(i) its outstanding 7 5/8% Senior Notes due 2005 (the "OLD 2005 SENIOR NOTES"),
of which an aggregate of $125,000,000 in principal amount is outstanding, for an
equal principal amount of newly issued 7 5/8% Senior Notes due 2005 (the "2005
SENIOR EXCHANGE NOTES"), (ii) its outstanding 8 1/4% Senior Notes due 2018 (the
"OLD 2018 SENIOR NOTES" and, together with the Old 2005 Senior Notes, the "OLD
SENIOR NOTES"), of which an aggregate of $125,000,000 in principal amount is
outstanding, for an equal principal amount of newly issued 8 1/4% Senior Notes
due 2018 (the "2018 SENIOR EXCHANGE NOTES" and, together with the 2005 Senior
Exchange Notes, the "SENIOR EXCHANGE NOTES"), and (iii) its outstanding 8 3/8%
Senior Subordinated Notes due 2008 (the "OLD SENIOR SUBORDINATED NOTES" and,
collectively with the Old Senior NoteS, the "OLD NOTES"), of which an aggregate
of $250,000,000 in principal amount is outstanding, for an equal principal
amount of newly issued 8 3/8 % Senior Subordinated Notes due 2008 (the "SENIOR
SUBORDINATED EXCHANGE NOTES" and, together with the Senior Exchange Notes, the
"EXCHANGE NOTES"), which Exchange Notes have been registered under the
Securities Act of 1933, as amended, upon the terms and subject to the conditions
set forth in the Prospectus, dated _______, 1998 (the "PROSPECTUS"), and the
related Letter of Transmittal (the "LETTER OF TRANSMITTAL"). Capitalized terms
used but not defined herein have the meanings ascribed to them in the
Prospectus.
Enclosed herewith are copies of the following documents:
1. The Prospectus;
2. Letter of Transmittal;
3. Notice of Guaranteed Delivery;
4. Letter which may be sent to your clients for whose account you hold Old
Notes registered in your name or in the name of your nominee, with space
provided for obtaining such client's instruction with regard to the
Exchange Offer; and
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
WE URGE YOU TO CONTACT YOUR CLIENTS PROMPTLY. PLEASE NOTE THAT THE
EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., E.D.T., ON _______________, 1998,
UNLESS EXTENDED.
To tender Old Notes, certificates for Old Notes or a Book-Entry
Confirmation, a duly executed and properly completed Letter of Transmittal or a
facsimile thereof and any other required documents must be received by the
Exchange Agent as provided in the Prospectus and the Letter of Transmittal.
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<PAGE> 20
The Company will not pay any fee or commission to any broker or dealer
or to any other persons (other than the Exchange Agent) in connection with the
solicitation of tenders of Old Notes pursuant to the Exchange Offer. The Company
will pay or cause to be paid any transfer taxes payable on the transfer of Old
Notes to it, except as otherwise provided in Instruction 9 of the enclosed
Letter of Transmittal.
Additional copies of the enclosed material may be obtained from U.S.
Bank Trust National Association, 180 East Fifth Street, St. Paul, Minnesota
55101; Tel. No. (612) 244-4512.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE
YOU AS THE AGENT OF THE COMPANY OR THE EXCHANGE AGENT OR AUTHORIZE YOU TO USE
ANY DOCUMENT OR MAKE ANY STATEMENT ON THEIR BEHALF IN CONNECTION WITH THE
EXCHANGE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS
CONTAINED THEREIN.
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<PAGE> 21
OCEAN ENERGY, INC.
NOTICE OF GUARANTEED DELIVERY
OF
7 5/8% SENIOR NOTES DUE 2005, SERIES A;
8 1/4% SENIOR NOTES DUE 2018, SERIES A;
AND
8 3/8% SENIOR SUBORDINATED NOTES DUE 2008, SERIES A
As set forth in the Prospectus dated __________, 1998 (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
any of the outstanding 7 5/8% Senior Notes due 2005, Series A; 8 1/4% Senior
Notes due 2018, Series A; or 8 3/8% Senior Subordinated Notes due 2008, Series A
(collectively, 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.
Deliver To:
U.S. Bank Trust National Association (the "Exchange Agent")
BY HAND, MAIL or OVERNIGHT DELIVERY: BY FACSIMILE TRANSMISSION
U.S. Bank Trust National Association (FOR ELIGIBLE INSTITUTIONS ONLY):
180 East Fifth Street (612) 244-1537
St. Paul, Minnesota 55101
Attn: Specialized Finance Department
FOR INFORMATION OR CONFIRM BY TELEPHONE:
(612) 244-4512
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 instructions thereto, such signatures must appear
in the applicable space provided on the Letter of Transmittal for Guarantee of
Signature(s).
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 7 5/8% Senior Notes due 2005, Series B;
$1,000 in principal amount of a new series of 8 1/4 % Senior Notes due 2018,
Series B; and $1,000 in principal amount of a new series of 8 3/8% Senior
Subordinated Notes due 2008, Series B (collectively, the "Exchange Notes") for
each $1,000 in principal amount of the respective 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
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<PAGE> 22
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 after 5:00 p.m., E.D.T., on 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.
PLEASE SIGN AND COMPLETE
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Principal Amount of Old 2005 Senior Notes Tendered:* Certificate No(s) of Old 2005 Senior Notes (if available):
- ------------------------------------------------------ ---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
Principal Amount of Old 2018 Senior Notes Tendered:* Certificate No(s) of Old 2018 Senior Notes (if available)
- ------------------------------------------------------ ---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
Principal Amount of Old Senior Subordinated Notes Certificate No(s) of Old Senior Subordinated Notes (if available):
Tendered:*
- ------------------------------------------------------ ---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
Name(s) of Registered Holder(s): Signature(s) of Registered Owner(s) or
Authorized Signatory:
- ------------------------------------------------------ ---------------------------------------------------------------
- ------------------------------------------------------ ---------------------------------------------------------------
Address: Date:
-------------------------------------------- ----------------------------------------------------------
Area Code and Telephone No.: If Old Notes will be delivered by book-entry transfer at
-------------------------- The Depository Trust Company, insert Depository
*Must be in denominations of principal amount of $1,000 Account No.:
and any integral multiple thereof. --------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 23
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.
- --------------------------------------------------------------------------------
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 (the "Exchange Act"),
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 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:
------------------------
------------------------------------- Date:
-------------------------
- --------------------------------------------------------------------------------
3
<PAGE> 24
OFFER TO EXCHANGE
7 5/8% SENIOR NOTES DUE 2005, SERIES B
FOR ALL OUTSTANDING 7 5/8% SENIOR NOTES DUE 2005, SERIES A
AND
8 1/4% SENIOR NOTES DUE 2018, SERIES B
FOR ALL OUTSTANDING 8 1/4% SENIOR NOTES DUE 2018, SERIES A
AND
8 3/8% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B
FOR ALL OUTSTANDING 8 3/8% SENIOR
SUBORDINATED NOTES DUE 2008, SERIES A
OF
OCEAN ENERGY, INC.
To Our Clients:
We are enclosing herewith a Prospectus dated ______, 1998 (the
"PROSPECTUS") and a related Letter of Transmittal (the "LETTER OF TRANSMITTAL")
relating to the offer (the "EXCHANGE OFFER") by Ocean Energy, Inc. (the
"COMPANY") to exchange (i) its outstanding 7 5/8% Senior Notes due 2005 (the
"OLD 2005 SENIOR NOTES"), of which an aggregate of $125,000,000 in principal
amount is outstanding, for an equal principal amount of newly issued 7 5/8%
Senior Notes due 2005 (the "2005 SENIOR EXCHANGE NOTES"), (ii) its outstanding
8 1/4% Senior Notes due 2018 (the "OLD 2018 SENIOR NOTES" and, together with the
Old 2005 Senior Notes, the "OLD SENIOR NOTES"), of which an aggregate of
$125,000,000 in principal amount is outstanding, for an equal principal amount
of newly issued 8 1/4% Senior Notes due 2018 (the "2018 SENIOR EXCHANGE NOTES"
and, together with the 2005 Senior Exchange Notes, the "SENIOR EXCHANGE NOTES"),
and (iii) its outstanding 8 3/8% Senior Subordinated Notes due 2008 (the "OLD
SENIOR SUBORDINATED NOTES" and, collectively with the Old Senior Notes, the "OLD
NOTES"), of which an aggregate of $250,000,000 in principal amount is
outstanding, for an equal principal amount of newly issued 8 3/8% Senior
Subordinated Notes due 2008 (the "SENIOR SUBORDINATED EXCHANGE NOTES" and,
together with the Senior Exchange Notes, the "EXCHANGE NOTES"), which Exchange
Notes have been registered under the Securities Act of 1933, as amended, upon
the terms and subject to the conditions set forth in the Prospectus and the
Letter of Transmittal. Capitalized terms used but not defined herein have the
meanings ascribed to them in the Prospectus.
These materials are being forwarded to you as the beneficial owner of
Old Notes carried by us for your account or benefit but not registered in your
name. A tender of any Old Notes may be made only by us as the registered holder
and pursuant to your instructions. Therefore, the Company urges beneficial
owners of Old Notes registered in the name of a broker, dealer, commercial bank,
trust company or other nominee to contact such registered holder promptly if
they wish to tender Old Notes in the Exchange Offer.
Accordingly, we request instructions as to whether you wish us to
tender any or all Old Notes pursuant to the terms and conditions set forth in
the Prospectus and Letter of Transmittal. We urge you to read carefully the
Prospectus and Letter of Transmittal before instructing us to tender your Old
Notes.
YOUR INSTRUCTIONS TO US SHOULD BE FORWARDED AS PROMPTLY AS POSSIBLE IN
ORDER TO PERMIT US TO TENDER OLD NOTES ON YOUR BEHALF IN ACCORDANCE WITH THE
PROVISIONS OF THE EXCHANGE OFFER. THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
E.D.T., ON ____________, 1998, UNLESS EXTENDED.
If you wish to have us tender any or all of your Old Notes held by us
for your account or benefit, please so instruct us by completing, executing and
returning to us the instruction form that appears below. The accompanying Letter
of Transmittal is furnished to you for informational purposes only and may not
be used by you to tender Old Notes held by us and registered in our name for
your account or benefit.
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<PAGE> 25
INSTRUCTIONS
The undersigned hereby acknowledges receipt of your letter and enclosed
materials referred to therein relating to the Exchange Offer of Ocean Energy,
Inc.
THIS WILL INSTRUCT YOU TO TENDER THE PRINCIPAL AMOUNT OF OLD NOTES
INDICATED BELOW HELD BY YOU FOR THE ACCOUNT OR BENEFIT OF THE UNDERSIGNED,
PURSUANT TO THE TERMS OF AND CONDITIONS SET FORTH IN THE PROSPECTUS AND THE
LETTER OF TRANSMITTAL.
[ ] Please TENDER my Old Notes held by you for the account or
benefit of the undersigned. I have identified on a signed
schedule attached hereto the principal amount of Old Notes to
be tendered if I wish to tender less than all of my Old Notes.
[ ] Please DO NOT TENDER my Old Notes held by you for the account
of the undersigned.
Date:
-----------------------------------------------------------
Signature(s)
-----------------------------------------------------------
-----------------------------------------------------------
Name(s) (please print)
UNLESS A SPECIFIC CONTRARY INSTRUCTION IS GIVEN IN A SIGNED SCHEDULE
ATTACHED HERETO, YOUR SIGNATURE(S) HEREON SHALL CONSTITUTE AN INSTRUCTION TO US
TO TENDER ALL OF YOUR OLD NOTES.
2
