<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 30, 1996
Registration No. 333-13657
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
---------------------
AMENDMENT No. 2
To
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
FORCENERGY INC
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 65-0429338
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
STIG WENNERSTROM
FORCENERGY INC
2730 SW 3RD AVENUE, SUITE 800 2730 SW 3RD AVENUE, SUITE 800
MIAMI, FLORIDA 33129-2237 MIAMI, FLORIDA 33129-2237
(305) 856-8500 (305) 856-8500
(Address, including zip code, and telephone (Name, address, including zip code,
number, including area code, of and telephone number, including area code,
Registrant's principal executive offices) of agent for service)
Copies to:
T. MARK KELLY JOHN F. WOMBWELL
VINSON & ELKINS L.L.P. ANDREWS & KURTH L.L.P.
1001 FANNIN, SUITE 2300 4200 TEXAS COMMERCE TOWER
HOUSTON, TEXAS 77002-6760 HOUSTON, TEXAS 77002
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===============================================================================================
TITLE OF EACH PROPOSED MAXIMUM AMOUNT OF
CLASS OF SECURITIES AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED PRICE FEE
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
Common Stock, par value $.01 per share............... $97,354,687(1) $29,502(2)
- -----------------------------------------------------------------------------------------------
% Senior Subordinated Notes due 2006............... $175,000,000 $53,031(2)
===============================================================================================
</TABLE>
(1) Estimated pursuant to Rule 457 solely for the purpose of calculating the
amount of the registration fee based upon the average of the high and low
sales prices of the Common Stock as reported on the NASDAQ National Market
on October 2, 1996. Includes 525,000 shares of Common Stock subject to the
Underwriter's over-allotment option.
(2) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
EXPLANATORY NOTE
This Registration Statement contains two forms of Prospectus, one to be
used in connection with the offering of % Senior Subordinated Notes due 2006
(the "Notes Prospectus") and the other to be used in a concurrent offering of
Common Stock ("Common Stock Prospectus"). The Common Stock Prospectus is
followed by the Notes Prospectus. The closing of the offering being made
pursuant to the Notes Prospectus (the "Notes Offering") and the closing of the
offering being made pursuant to the Common Stock Prospectus ("Common Stock
Offering") are not contingent upon each other.
<PAGE> 3
***************************************************************************
* *
* 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 OCTOBER 30, 1996
3,500,000 SHARES
[FORCENERGY LOGO]
FORCENERGY INC
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
---------------------
Of the 3,500,000 shares of Common Stock offered hereby, 1,537,958 shares
are being sold by the Company and 1,962,042 shares are being sold by the Selling
Stockholders. The Company will not receive any of the proceeds from the sale of
the shares being sold by the Selling Stockholders. Concurrently with the Common
Stock Offering, the Company is offering $175 million of % Senior
Subordinated Notes due 2006 for sale to the public in a separate Notes Offering.
Consummation of the Common Stock Offering and the Notes Offering are not
contingent upon each other. There can be no assurance that the Notes Offering
will be consummated, and if so, on what terms.
The last reported sale price of the Common Stock, which is quoted under the
symbol "FGAS," on the Nasdaq National Market on October 28, 1996, was $28 1/8
per share. See "Market for and Recent Prices of Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
<TABLE>
<CAPTION>
PROCEEDS TO
INITIAL PUBLIC UNDERWRITING PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT(1) COMPANY(2) STOCKHOLDERS
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................... $ $ $ $
Total(3).................... $ $ $ $
</TABLE>
- ---------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted to the Underwriters an option for 30 days to
purchase up to an additional 525,000 shares of Common Stock at the initial
public offering price, less the underwriting discount, solely to cover
over-allotments. If such option is exercised in full, the total initial
public offering price, underwriting discount and proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
---------------------
The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that certificates
for the shares will be ready for delivery in New York, New York on or about
, 1996, against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
HOWARD, WEIL, LABOUISSE, FRIEDRICHS
INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
---------------------
The date of this Prospectus is .
<PAGE> 4
FORCENERGY INC
GULF OF MEXICO PROPERTIES
Description of Pictures--Map--Coast of Texas, Louisiana, Mississippi and
part of Alabama. Shows in green land and cities of Houston, Texas and Lafayette
and New Orleans, Louisiana. Shows in light blue the Shelf area offshore, in
medium blue the Flextrend area offshore and in darker blue the Deepwater area
offshore. Traces the boundaries of and states the names of offshore areas,
including: Galveston Island Area, High Island Area, West Addition, East Cameron
Area, Vermilion Area, South Marsh Island Area, Eugene Island Area, Ship Shoal
Area, South Timbalier, Ewing Bank Area, South Palto, Grand Isle, West Delta
Area, South Pass Area, Main Pass Area, Chandeleur Area, East Addition, Viosca
Knoll and Mississippi Canyon. Lease blocks in which the Company has interests
are marked with triangles and footnoted as such. Operated and non-operated lease
blocks are differentiated by the color of the triangles.
IN CONNECTION WITH THE COMMON STOCK OFFERING, CERTAIN UNDERWRITERS AND
SELLING GROUP MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS
IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A
UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY OR THE NOTES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED AT THE NASDAQ NATIONAL
MARKET, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZATION, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, included
elsewhere in this Prospectus. Unless otherwise indicated, the information in
this Prospectus assumes that the Underwriters' over-allotment option will not be
exercised. Investors should carefully consider the information set forth under
"Risk Factors." Certain oil and gas industry terms used in this Prospectus are
defined in "Glossary of Oil and Gas Terms."
THE COMPANY
Forcenergy Inc ("Forcenergy" or the "Company") is an independent oil and
gas company engaged in the exploration, acquisition, development, exploitation
and production of oil and natural gas properties. The Company has experienced
significant growth in the last five years, primarily through the exploitation,
enhancement and development of acquired working interests in producing
properties in the Gulf of Mexico. At December 31, 1995, the Company had net
proved reserves of 365 Bcfe, 71% of which were located in the Gulf of Mexico.
Approximately 60% of the Company's net proved reserves on such date were natural
gas and approximately 69% of proved reserves were classified as proved
developed. The Company currently operates approximately 77% of its Gulf of
Mexico production.
Strategy. The Company's business strategy is to increase reserves and cash
flow through the development, exploration, acquisition and exploitation of its
producing properties in the shallow waters (less than 350 feet) of the Gulf of
Mexico. Management believes that the Company's high quality asset base positions
it for future growth through a continuing program of further development through
selective exploitation and exploratory drilling and through the enhancement of
production through workovers and recompletions. The Company emphasizes the use
of 3-D seismic and computer-aided exploration technology together with geologic
and engineering studies of its properties to evaluate and prioritize drilling
prospects. Focusing drilling activities on producing properties in a relatively
concentrated area in the Gulf of Mexico permits the Company to utilize its base
of geological, engineering and production experience in the region to maximize
its drilling success and to minimize finding and development costs. Furthermore,
the Company's concentration of drilling activities on its producing properties
allows the utilization of existing infrastructure which greatly reduces
incremental lease operating expenses and costs associated with new production
facilities. The Company plans to continue to pursue acquisitions of working
interests in producing properties that offer further development potential and
provide operating synergies with existing properties. As a complement to its
acquisition strategy, the Company also participates in exploration activities
both onshore and in the Gulf of Mexico.
Quality of Asset Base; Drilling Prospects. The Company holds interests in
or rights to 81 lease blocks in federal and state waters in the Gulf of Mexico,
including a 100% working interest in 32 lease blocks and a 50% or greater
working interest in 18 other lease blocks. The Company believes it has assembled
at least a three to five year inventory of development, exploitation and
exploratory drilling opportunities in the Gulf of Mexico on acreage held by
production. Most of the properties comprising this inventory are located in
fields which have prolific production histories and which the Company believes
may yield significant additional reserves through the application of modern
exploration and development technologies. The Company is pursuing the
development of these offshore properties through a combination of development
drilling, recompletions and workovers and exploratory drilling. During 1995, the
Company successfully drilled seven of nine exploratory wells and ten of ten
development wells in the Gulf of Mexico and undertook eight recompletions and 24
workover projects, resulting in initial net production increases of 4,392 Bbls/d
of oil and 27,496 Mcf/d of natural gas. The Company plans to drill 20
development wells in 1996, 14 of which were successfully completed in the first
eight months of 1996, and the Company also has budgeted to drill 20
recompletions and 21 workover projects on its properties in the Gulf of
3
<PAGE> 6
Mexico during 1996, of which 27 have been completed to date. In addition, eight
exploratory wells have been scheduled during 1996 to provide the Company with
exposure to higher risk, higher potential prospects. Of the eight planned
exploratory wells, four have been drilled and successfully completed, and four
remain to be drilled. The Company anticipates that approximately $98.6 million
of its $110 million capital expenditure budget for 1996 (not including
acquisition expenditures) will be spent on these projects.
Control of Operations and Costs. The Company prefers to operate its
offshore properties to more effectively manage production performance while
controlling operating expenses and the timing and amount of capital
expenditures. Forcenergy operates 90 structures and 242 wells in the Gulf of
Mexico. Management believes that the operating expertise and experience of its
personnel in the Gulf of Mexico have been instrumental in its ability to
significantly enhance and improve production rates and cash flow with minor
incremental costs. A significant portion of the drilling prospects the Company
expects to pursue during the next three to five years are accessible from
existing production facilities operated by the Company. This base of operations
will enable the Company to reduce its per unit operating costs if higher
production volumes are realized. As a result of these factors, the Company
improved its lease operating expense from $.86 per Mcfe of production in 1994,
$.70 per Mcfe of production in 1995 and $.69 per Mcfe of production through
August 31, 1996.
Technology. The Company uses advanced technology in its exploration and
development activities to reduce drilling risks and finding costs and to more
effectively prioritize drilling prospects based on return potential. The Company
has acquired 3-D seismic surveys on 102 offshore lease blocks and currently has
825 square miles of 3-D seismic data and 53,000 linear miles of 2-D seismic data
on its offshore properties. The Company has nine geologists/geophysicists with
average industry experience of 18 years and has invested in seven Landmark
geophysical stations for use in interpreting 3-D seismic data. The ability to
obtain 3-D seismic data for offshore properties at reasonable costs has enabled
the Company to identify multiple development and exploratory prospects in mature
producing fields which were not identified through earlier technologies.
Recent Acquisitions. During 1995, the Company spent an aggregate of
approximately $92.1 million for working interests in 15 different fields that
added 121.9 Bcfe of net proved reserves to its reserve base at an average cost
of $.76 per Mcfe. Approximately $81.6 million of such expenditures were for
interests in ten properties located in the Gulf of Mexico. In the first eight
months of 1996, the Company spent approximately $17.0 million for working
interests in 12 different fields that added 28.3 Bcfe of net proved reserves to
its reserve base at an average cost of $.60 per Mcfe. Major acquisitions during
1995 and 1996 were as follows:
In March 1995, the Company acquired working interests in the South Marsh
Island 136/137 Field and the northern half of South Marsh Island 106 from
Conoco, Inc. (the "Conoco Acquisition") for consideration of $24.5 million. In
April 1995, the Company acquired all the remaining working interests in the
northern half of South Marsh Island 106. The foregoing acquisitions were
particularly attractive because both fields are adjacent to fields in which the
Company holds 100% working interests. The Company had an active drilling program
in Block 106 in 1995 and will have at least one rig in the block for all of
1996. See "Business -- 1995 and 1996 Offshore and Gulf Coast Drilling Activity."
In August 1995, in conjunction with the Company's initial public offering,
the Company acquired all of the outstanding capital stock of Ashlawn Energy,
Inc. ("Ashlawn"), a privately held company with substantial working interests in
the South Pass 24 Field, Vermilion 28 Field and Ship Shoal 26 Field (the
"Ashlawn Acquisition"). The purchase price for the Ashlawn Acquisition consisted
of 3,000,000 shares of Common Stock, $3.3 million in cash and the assumption of
$5.7 million in debt. All of the assumed debt was repaid with the proceeds of
the public offering. The Company conducted an active drilling program on these
properties in 1995 and has continued to pursue additional development projects
on the properties in 1996. See "Business -- 1995 and 1996 Offshore and Gulf
Coast Drilling Activity."
4
<PAGE> 7
In November 1995, the Company acquired an approximate 50% working interest
in certain leases in the Howard Glasscock/Snyder fields in Howard County, Texas
from Saga Petroleum, Inc. for approximately $3.9 million. The Company's 1996
capital budget includes $1.9 million for its pro rata share of drilling
injection wells to initiate a waterflood project in the field. In May 1996, the
Company acquired an additional 25% interest in these leases and surrounding
acreage for $4.0 million. At August 31, 1996, twenty injection wells had been
drilled, five of which had been completed. Additionally, water injection had
commenced on the five completed wells. Initial response to the water flood, if
any, should occur in 1997.
In late 1995, the Company acquired a 100% working interest in the Vermilion
Block 380 Field, located offshore Louisiana, from Texaco Exploration and
Production, Inc. for approximately $650,000. Effective December 1995, the
Company also acquired a 100% working interest in the West Cameron 630 Field,
located offshore Louisiana and an approximate 51.7% working interest in the
Comite Field in East Baton Rouge Parish, Louisiana from Exxon Corporation for
approximately $3.9 million. The Company currently plans to drill an exploratory
well in the West Cameron 630 field in early 1997.
In June 1996, the Company acquired working interests in eleven Gulf of
Mexico producing fields from Amerada Hess Corporation (the "Amerada Hess
Acquisition") for a cash consideration of $6.9 million. In August 1996, the
Company acquired an additional working interest in one of these fields, Mustang
Island 742/754, for approximately $4.0 million, increasing its total working
interest in the field to 100%.
As is customary in the oil and gas industry, the Company from time to time
submits bids to acquire oil and gas properties that are subject to acceptance by
the sellers. Upon acceptance of a bid by the seller, the finalization of such
agreements is contingent on the completion of satisfactory due diligence by the
Company, including title and environmental review. There is no assurance that
sellers will accept any of the bids submitted by the Company or that any such
transactions will be consummated.
Onshore Properties. The Company also owns working and royalty interests in
approximately 1,600 producing oil and gas wells in over 147 fields in the Rocky
Mountain, Gulf Coast, Southwest and Appalachian regions of the United States.
Management believes that the Company's stable reserve base of long-lived,
primarily non-operated, onshore properties complements the Company's Gulf of
Mexico operations by providing an additional source of cash flow that requires
limited management involvement. The Company's onshore properties accounted for
approximately 29% of net proved reserves at December 31, 1995. During 1995, the
Company expended approximately $4.0 million in capital on its onshore
properties, including $3.7 million for drilling and recompletion activities.
Approximately $2.4 million in capital has been spent on the onshore properties
in 1996, the majority of which was focused on the Howard Glasscock/Snyder
fields.
Principal Securityholders. Approximately 49.1% of the Company's Common
Stock is held by Forcenergy AB ("FAB"), the B shares of which are listed on the
Stockholm (Sweden) Stock Exchange. The Forss family beneficially owns a 49.9%
voting interest in FAB. Pursuant to an agreement (the "Voting Agreement") among
FAB, the Company and the holders of the Company's 7% Exchangeable Subordinated
Notes (the "Subordinated Notes"), the size of the Company's Board of Directors
is fixed at no more than eight persons to consist of (i) two designees of FAB,
(ii) three designees of the holders of the Subordinated Notes (the "Note
Holders"), (iii) the Company's Chief Executive Officer and (iv) two independent
directors nominated by FAB and acceptable to the Note Holders. It is anticipated
that following the Common Stock Offering (as defined below), including the sale
by FAB of 300,000 shares in that Offering, that FAB's ownership percentage in
the Company will decrease to approximately 39%. Upon completion of the Common
Stock Offering, the number of shares held by the Note Holders will be reduced to
below 5% of the outstanding shares of Common Stock and the Voting Agreement
among FAB, the Company and the Note Holders will terminate pursuant to its
terms. See "Description of Existing Securities and Senior Credit
Facility -- Voting and Holdback Agreement."
5
<PAGE> 8
RECENT DEVELOPMENTS
Net income for the third quarter ended September 30, 1996 was $2.5 million,
or $.13 per common and common equivalent share as compared to a loss of
$(282,000) or $(.02) per common and common equivalent share for the same period
of last year. Net income for the nine months ended September 30, 1996 was $6.2
million or $.34 per common and common equivalent share compared with a loss of
$(2.0) million or $(.18) per common and common equivalent share for the same
period last year. Revenues for the 1996 third quarter were $37.0 million, a 106%
increase over the $18.0 million reported for the comparable period last year.
Revenues for the nine months ended September 30, 1996 were $94.8 million, 81%
higher than the $52.4 million reported for the nine month period ended September
30, 1995. Cash flow from operating activities, exclusive of the effects of
changes in working capital, was $20.9 million and $52.7 million for the quarter
and nine month period ended September 30, 1996, respectively, compared to $8.2
million and $22.5 million for the comparable periods in 1995, increases of 155%
and 134% for the respective periods.
Liquids, natural gas and total liquids and natural gas production was 1,061
Mbbls and 9,511 MMcf and 15,877 MMcfe, respectively, for the three months ended
September 30, 1996, as compared to 625 Mbbls, 4,922 MMcf and 8,672 MMcfe for the
three months ended September 30, 1995. For the nine months ended September 30,
1996, liquids, natural gas and total liquids and natural gas production was
2,839 Mbbls, 22,283 MMcf and 39,317 MMcfe, respectively, as compared to 1,684
Mbbls, 16,094 MMcf and 26,198 MMcfe for the comparable period of 1995. Average
realized sales prices for liquids and natural gas for the three and nine months
period ended September 30, 1996 was $16.49, $2.04, $16.65 and $2.11,
respectively, as compared to $16.23, $1.57, $16.03 and $1.55, respectively, for
the similar periods of 1995.
6
<PAGE> 9
THE COMMON STOCK OFFERING
<TABLE>
<S> <C>
Common Stock offered by the
Company.......................... 1,537,958 shares
Common Stock offered by the Selling
Stockholders..................... 1,962,042 shares
Common Stock to be outstanding
after the Common Stock
Offering......................... 22,373,656 shares (1)
NASDAQ National Market symbol...... "FGAS"
Use of Proceeds.................... To repay a portion of indebtedness under the Company's
Senior Credit Facility. The Company may reborrow amounts
under the Senior Credit Facility to fund the Company's
on-going capital expenditure program and for other
general corporate purposes.
Notes Offering..................... Concurrently with the offering of Common Stock (the
"Common Stock Offering"), the Company is offering $175
million of % Senior Subordinated Notes due 2006 for
sale to the public (the "Notes Offering" and, together
with the Common Stock Offering, the "Offerings"). The
Common Stock Offering is not contingent upon
consummation of the Notes Offering, nor is the Notes
Offering contingent upon consummation of the Common
Stock Offering. There can be no assurance that the Notes
Offering will be consummated and, if so, on what terms.
See "Notes Offering."
</TABLE>
- ---------------
(1) Assumes the exchange of all of the outstanding Subordinated Notes for
2,343,047 shares of Common Stock and exercise of certain options held by
holders of the Subordinated Notes to purchase 214,866 shares of Common
Stock. Does not include 2,365,558 shares of Common Stock issuable pursuant
to outstanding options and warrants held by management and others.
RISK FACTORS
Prior to making an investment decision, prospective purchasers of Common
Stock should consider all of the information set forth in this Prospectus and
should evaluate the considerations set forth in "Risk Factors."
7
<PAGE> 10
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table presents certain historical and pro forma financial
data as of and for each of the periods indicated. The historical financial data
for the five years ended December 31, 1995 have been derived from the audited
financial statements of the Company. The financial data for the six months ended
June 30, 1995 and 1996 are derived from the Company's unaudited financial
statements which, in the opinion of management, include all adjustments (which
consist only of normal recurring accruals) necessary for a fair presentation of
the financial position and results of operations of the Company for such interim
periods. The following information should be read together with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Pro Forma Financial Information" included in this Prospectus and the Financial
Statements of the Company and incorporated by reference elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------------------------- -------------------------------
PRO FORMA PRO FORMA
1991 1992 1993 1994 1995 1995(1)(11) 1995 1996 1996(2)(11)
------- ------- ------- ------- -------- --------- ------- ------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Oil and gas
sales............ $12,680 $24,937 $49,652(3) $58,354(3) $ 72,147 $93,795 $34,140 $57,477 $66,740
Other.............. 337 475 441(3) 388(3) 494 521 235 276 276
------- ------- ------- ------- ------- ------- ------- ------- -------
13,017 25,412 50,093 58,742 72,641 94,316 34,375 57,753 67,016
------- ------- ------- ------- ------- ------- ------- ------- -------
Expenses:
Lease operating.... 4,091 7,769 16,632 23,744 24,507 32,742 11,602 16,819 19,136
Depreciation,
depletion and
amortization..... 4,216 8,014 19,889 24,572 31,295 41,451 15,560 24,162 28,120
Production taxes... 280 606 1,560 1,701 1,868 2,420 923 1,653 1,653
General and
administrative,
net.............. 1,947 2,523 3,166 6,463 5,670 5,670 2,821 3,575 3,575
------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses......... 10,534 18,912 41,247 56,480 63,340 82,283 30,906 46,209 52,484
------- ------- ------- ------- ------- ------- ------- ------- -------
Income from
operations......... 2,483 6,500 8,846 2,262 9,301 12,033 3,469 11,544 14,532
Interest and other
income (loss)...... 525 197 545 789 (561) 4,121 290 237 1,904
Interest expense, net
of amounts
capitalized........ (233) (2,303) (6,192) (9,529) (11,668) (14,245) (6,519) (5,913) (7,271)
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes....... 2,775 4,394 3,199 (6,478) (2,928) 1,909 (2,760) 5,868 9,165
Income tax provision
(benefit)(4)....... -- -- 2,337 (2,403) (1,075) 713 (1,029) 2,188 3,418
Minority interest.... 83 132 107 -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income
(loss)(4).......... $ 2,692 $ 4,262 $ 755 $(4,075) $ (1,853) 1,196 $(1,731) $ 3,680 $ 5,747
======= ======= ======= ======= ======= ======= ======= ======= =======
Net income (loss) per
share(4)........... $ (.50) $ (.14) $ 0.05 $ (.19) $ .20 $ 0.26
======= ======= ======= ======= ======= =======
UNAUDITED PRO FORMA
DATA(3):
Income before income
taxes, including
minority
interest........... $ 2,692 $ 4,262 $ 3,092
Income tax
provision.......... $ 1,027 $ 1,639 $ 1,207
Net income........... $ 1,665 $ 2,623 $ 1,885
======= ======= =======
Net income per
share.............. $ .26 $ .41 $ .29
======= ======= =======
Weighted average
number of shares
outstanding........ 6,451 6,451 6,520 8,188 12,910 22,346 9,040 18,261 22,356
OTHER FINANCIAL DATA:
Capital
Expenditures(5).... $13,751 $67,660 $53,371 $58,169 $144,689 -- $48,770 $81,168 --
EBITDA(6)............ 7,224 14,711 29,280 27,623 40,035 57,605 19,319 35,943 44,556
Ratio of Earnings to
Fixed
Charges(7)......... 12.9x 2.9x 1.4x N/M N/M N/M N/M 1.7x 1.9x
EBITDA Interest
Coverage(8)........ 31.0x 6.4x 4.5x 2.5x 2.8x 3.2x 2.5x 5.2x 5.1x
Debt/EBITDA(9)....... 1.1x 5.1x 4.3x 4.8x 3.3x 3.0x 8.0x 4.9x 3.9x
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
PRO FORMA
AT DECEMBER 31, AT JUNE 30, AT
------------------------------------------------------- -------------------- JUNE 30,
1991 1992 1993 1994 1995 1995 1996 1996(10)
------- -------- -------- -------- -------- -------- -------- ---------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Property, plant and equipment,
net............................ $59,691 $112,441 $152,659 $186,241 $298,832 $219,451 $356,030 $356,030
Total assets..................... 71,154 127,685 187,786 220,287 335,090 258,306 391,674 469,416
Total long-term debt............. 7,922 75,758 127,234 131,646 130,729 155,270 175,135 175,000
Stockholders' equity............. 48,612 45,252 43,336 71,061 154,961 69,330 158,710 234,343
</TABLE>
- ---------------
(1) Gives effect to (i) the Conoco Acquisition, the Ashlawn Acquisition and
other lesser 1995 acquisitions by the Company prior to the Company's
initial public offering in August 1995, and the Amerada Hess Acquisition in
June 1996, (ii) the application of the net proceeds of the August 1995
initial public offering, (iii) the Common Stock and Notes Offerings, (iv)
the conversion of the Subordinated Notes into, 2,343,047 shares of Common
Stock and, (v) the exercise of options to purchase 214,866 shares of Common
Stock by certain holders of the Subordinated Notes, as if such transactions
had been consummated on January 1, 1995.
(2) Gives effect to the Amerada Hess Acquisition and the application of the net
proceeds of the Offerings as if such transactions had taken place on
January 1, 1995 including the conversion of the Subordinated Notes into
2,343,047 shares of Common Stock and the exercise of options to purchase
214,866 shares of Common Stock by certain holders of the Subordinated
Notes. The increase of $.10 per share (associated with the Amerada Hess
Acquisition) to the historical results for the six month period ended June
30, 1996 may not be representative of future operations as the reserves
associated with the acquired properties have a high decline rate.
(3) Natural gas liquid revenues for 1993 and 1994 have been reclassified from
plant processing and other revenues to oil and gas sales for consistent
presentation with 1995 revenues.
(4) Prior to September 14, 1993, the Company was exempt from United States
federal and certain state income taxes as a result of its partnership
status. The unaudited pro forma data reflects the income tax expense that
would have been recorded had the Company not been exempt from paying such
income taxes. Net income per share data is described as unaudited pro forma
because of the Company's former partnership status.
(5) Capital expenditures include acquisitions of oil and gas properties
including a non-cash item relating to the 1995 Ashlawn Acquisition,
amounting to $46.4 million.
(6) EBITDA is defined as earnings before interest expense, taxes, depletion,
depreciation and amortization and is presented because it is a widely
accepted financial indication of a Company's ability to service and incur
debt. EBITDA should not be considered as an alternative to earnings (loss)
as an indicator of the Company's operating performance or to cash flows as
a measure of liquidity.
(7) For purposes of determining the ratio of earnings to fixed charges,
earnings are computed as net income (loss) before income taxes, plus fixed
charges. Fixed charges consist of interest expense, whether expensed or
capitalized, on all indebtedness plus amortization of debt issuance costs.
Earnings did not cover fixed charges in the years ended December 31, 1995
and 1994 and for the six months ended June 30, 1995 by $5.5 million, $8.0
million and $3.9 million, respectively.
(8) Represents multiple by which EBITDA exceeds interest expense paid.
(9) Represents multiple by which total long-term debt exceeds EBITDA.
(10) Assumes conversion of the Subordinated Notes into 2,343,047 shares of
Common Stock, the exercise of options by certain holders of the
Subordinated Notes to purchase 214,866 shares of Common Stock and the sale
of 1,537,958 shares of Common Stock at 24.75 per share by the Company. Also
assumes the issuance of $175 million of Senior Subordinated Notes and the
application of the net proceeds therefrom to repay the outstanding balance
of the Senior Credit Facility. All transactions are assumed to be
consummated on June 30 1996.
(11) If the Company assumed no interest income on the excess proceeds from these
transactions and if interest expense were based only on average borrowings
outstanding for the applicable periods, the proforma amount of net income
and net income per share would be $3.1 million and $.15, respectively, for
the year ended December 31, 1995 and $5.9 million and $.28, respectively,
for the six months ended June 30, 1996.
10
<PAGE> 12
SUMMARY OIL AND GAS RESERVE DATA
The following table summarizes the estimates of the Company's net proved
oil and gas reserves as of the dates indicated and the present value
attributable to these reserves at such dates. The reserve and present value data
as of December 31, 1995 for the onshore properties have been estimated by
Netherland, Sewell & Associates, Inc., independent petroleum engineering
consultants. The reserve and present value data as of December 31, 1995 for the
offshore properties have been estimated by Collarini Engineering Inc.,
independent petroleum engineering consultants. The reserve estimates and present
value data as of December 31, 1994 have been audited by Netherland, Sewell &
Associates, Inc. and such data and estimates as of December 31, 1993 and 1994
were prepared by Collarini Engineering Inc. and Joe C. Neal & Associates,
independent petroleum engineering consultants. For additional information
relating to the Company's oil and natural gas reserves, see "Risk
Factors -- Uncertainty of Reserve Information and Future Net Revenue Estimates,"
"Business -- Oil and Gas Reserves" and the Supplemental Information on Oil and
Gas Producing Activities in Note 16 of the Notes to the Financial Statements of
the Company incorporated by reference elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Proved Reserves:
Oil (Mbbls)............................................ 10,776 11,310 24,458
Natural gas (Mmcf)..................................... 138,862 172,122 218,052
Total (Mmcfe).......................................... 203,518 239,982 364,800
Present value of future net revenues before income
taxes (000s)(1)..................................... $197,965 $171,391 $540,901
Standardized measure of discounted future net cash
flows (000s)(2)..................................... $159,173 $152,627 $406,956
</TABLE>
- ---------------
(1) The present value of future net revenues attributable to the Company's
reserves was prepared using constant prices as of the calculation date,
discounted at 10% per annum on a pre-tax basis.
(2) The standardized measure of discounted future net cash flows represents the
present value of future net revenues after income tax discounted at 10%.
SUMMARY OPERATING DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------- --------------------
PRO FORMA PRO FORMA
1993 1994 1995 1995(1) 1996 1996(2)
------- ------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Production:
Liquids (Mbbls)(3)......... 1,425(4) 1,753(4) 2,343 2,818 1,778 1,844
Natural gas (Mmcf)......... 12,025 17,121 21,112 29,766 12,772 16,218
Total (Mmcfe).............. 20,575 27,639 35,170 46,674 23,440 27,282
Average sales prices:
Liquids (per Bbl).......... $ 16.65 $ 15.04 $ 16.46 $ 16.44 $ 16.75 $ 16.75
Natural gas (per Mcf)...... 2.16 1.87 1.59 1.59 2.17 2.21
Expenses (per Mcfe):
Lease operating............ $ .81 $ .86 $ .70 $ .70 $ .72 $ .70
Production taxes........... .08 .06 .05 .05 .07 .06
Depreciation, depletion and
amortization............ .96 .88 .88 .89 1.03 1.03
General and administrative,
net..................... .15 .23 .16 .12 .15 .13
</TABLE>
- ---------------
(1) Gives effect to the Ashlawn Acquisition, Conoco Acquisition, Amerada Hess
Acquisition and other acquisitions as if such transactions had been
consummated on January 1, 1995.
(2) Gives effect to the Amerada Hess Acquisition as if it had been consummated
on January 1, 1995.
(3) Includes crude oil, condensate and natural gas liquids.
(4) Includes certain natural gas liquid volumes reclassified to conform with
1995 classifications.
10
<PAGE> 13
RISK FACTORS
The following factors should be considered carefully, together with the
other information contained in this Prospectus before purchasing the securities
offered hereby.
VOLATILITY OF NATURAL GAS AND OIL PRICES
Revenues generated from the Company's operations are highly dependent upon
the price of, and demand for, oil and natural gas. Historically, the markets for
oil and natural gas have been volatile and are likely to continue to be volatile
in the future. Prices for oil and natural gas are subject to wide fluctuations
in response to relatively minor changes in the supply of and demand for oil and
natural gas, market uncertainty and a variety of additional factors that are
beyond the control of the Company. These factors include the level of consumer
product demand, weather conditions, domestic and foreign governmental
regulations, the price and availability of alternative fuels, political
conditions in the Middle East, the foreign supply of oil and natural gas, the
price of foreign imports and overall economic conditions. It is impossible to
predict future oil and natural gas price movements with any certainty. Declines
in oil and natural gas prices may materially adversely affect the Company's
financial condition, liquidity and results of operations. Lower oil and natural
gas prices also may reduce the amount of the Company's oil and natural gas that
can be produced economically. In order to reduce its exposure to price risks in
the sale of its oil and natural gas, the Company enters into hedging
arrangements from time to time. The Company's hedging arrangements apply to only
a portion of its production and provide only limited price protection against
fluctuations in the oil and natural gas markets. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- General" and
"Business -- Marketing and Customers."
The Company uses the full cost method of accounting for its investment in
oil and natural gas properties. Under the full cost method of accounting, all
costs of acquisition, exploration and development of oil and natural gas
reserves are capitalized into a "full cost pool" as incurred, and properties in
the pool are depleted and charged to operations using the unit-of-production
method based on the ratio of current production to total proved oil and natural
gas reserves. To the extent that such capitalized costs (net of accumulated
depreciation, depletion and amortization) less deferred taxes exceed the present
value (using a 10% discount rate) of estimated future net cash flow from proved
oil and natural gas reserves, and the lower of cost or fair value of unproved
properties after income tax effects, such excess costs are charged to
operations. Once incurred, a write-down of oil and natural gas properties is not
reversible at a later date even if oil or natural gas prices increase. While the
Company has never been required to write-down its asset base, significant
downward revisions of quantity estimates or declines in oil and gas prices from
those in effect on December 31, 1995 which are not offset by other factors could
result in a write-down for impairment of oil and gas properties.
REPLACEMENT OF RESERVES
In general, the volume of production from oil and gas properties declines
as reserves are depleted. The rate of decline depends on reservoir
characteristics, and varies from the steep decline rate characteristic of Gulf
of Mexico reservoirs, where the Company has a significant portion of its
production, to the relatively slow decline rate characteristic of the long-lived
fields in the Rocky Mountain, Gulf Coast, Southwest and Appalachian regions.
Except to the extent the Company acquires properties containing proved reserves
or conducts successful development and exploration activities, or both, the
proved reserves of the Company will decline as reserves are produced. The
Company's future oil and natural gas production is, therefore, highly dependent
upon its level of success in finding or acquiring additional reserves. The
business of exploring for, developing or acquiring reserves is capital
intensive. To the extent cash flow from operations is reduced and external
sources of capital become limited or unavailable, the Company's ability to make
the necessary capital investment to maintain or expand its asset base of oil and
natural gas reserves
11
<PAGE> 14
would be impaired. In addition, there can be no assurance that the Company's
future development, acquisition and exploration activities will result in
additional proved reserves or that the Company will be able to drill productive
wells at acceptable costs.
UNCERTAINTY OF RESERVE INFORMATION AND FUTURE NET REVENUE ESTIMATES
There are numerous uncertainties inherent in estimating oil and natural gas
reserves and their estimated values, including many factors beyond the control
of the producer. The reserve data set forth in this Prospectus represents only
estimates. Reservoir engineering is a subjective process of estimating
underground accumulations of oil and natural 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 of oil and natural 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 and
such reserve estimates may be subject to downward or upward adjustment based
upon such factors. Actual production, revenues and expenditures with respect to
the Company's reserves will likely vary from estimates, and such variances may
be material. See "Business -- Oil and Gas Reserves."
The present values of estimated future net cash flows referred to in this
Prospectus should not be construed as the current market value of the estimated
oil and natural 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 natural 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
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 calculation of the
present value of the future net revenues using a 10% discount as required by the
Commission, is not necessarily the most appropriate discount factor based on
interest rates in effect from time to time and risks associated with the
Company's reserves or the oil and gas industry in general.
EFFECTS OF LEVERAGE
The Company's senior secured credit facility (the "Senior Credit Facility")
provides for a commitment of $195 million. At September 30, 1996 the Company had
availability of approximately $29.9 million under the Senior Credit Facility.
Subsequent to the closing of the Offerings and, at the direction of the Company,
the borrowing base under the Senior Credit Facility will be reduced to $50
million from the current borrowing base of $195 million. The maximum commitment
of $195 million will remain in effect. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
The Company's level of indebtedness has several important effects on its
operations, including (i) the covenants contained in the Senior Credit Facility
and the Subordinated Note agreements and the indenture for the Notes (the
"Indenture") require the Company to meet certain financial tests, and other
restrictions limit its ability to borrow additional funds or to dispose of
assets and may affect the Company's flexibility in planning for, and reacting
to, changes in business conditions and (ii) the Company's ability to obtain
additional financing in the future for working capital, capital
12
<PAGE> 15
expenditures, acquisitions, general corporate or other purposes may be impaired.
Moreover, future acquisition or development activities may require the Company
to alter its capitalization significantly. These changes in capitalization may
significantly alter the leverage of the Company or, in the case of the issuance
of additional equity securities, may be dilutive to holders of Common Stock. 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 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 "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
CONTROL BY PRINCIPAL SECURITYHOLDERS
The Company's principal stockholder, FAB, currently owns approximately
49.1% of the outstanding shares of Common Stock. Following the Common Stock
Offering and the sale of a portion of the shares held by FAB in the Common Stock
Offering, FAB ownership in the Company will be reduced to approximately 39% of
the outstanding shares of Common Stock. See "Selling Stockholders." FAB is a
publicly traded Swedish company with two classes of stock, A shares and B
shares. There are 1,000,000 outstanding A shares, each of which is entitled to
one vote per share, and 13,392,000 outstanding B shares, each of which is
entitled to 1/10th of a vote per share. The B shares of FAB are listed on the
Stockholm Stock Exchange. The Forss family and its affiliates owned all
1,000,000 A shares and 1,665,333 B shares of FAB as of September 17, 1996.
Accordingly, the Forss family had a 49.9% voting interest and a 18.5% economic
interest in FAB. Under Swedish law, new issues of FAB securities are subject to
preferential rights of existing stockholders which gives the Forss family the
ability to maintain voting control over FAB in the event of future stock
issuances.
SUBSTANTIAL CAPITAL REQUIREMENTS
The Company makes, and will continue to make, substantial capital
expenditures for the development, exploration, acquisition and production of oil
and natural gas reserves. Historically, the Company has financed these
expenditures primarily with proceeds from bank borrowings, the sale of the
Subordinated Notes, sales of Common Stock and cash generated by operations. The
Company made capital expenditures (including expenditures for acquisitions) of
$144.7 million during 1995 and plans to make capital expenditures, not including
expenditures for acquisitions, of approximately $110 million in 1996. Management
believes that the Company will have sufficient cash provided by operating
activities, borrowings under the Senior Credit Facility and proceeds from the
Offerings to fund planned capital expenditures in 1996. If revenues decrease as
a result of lower oil and gas prices or operating difficulties, or the Company
does not complete each of the Offerings, the Company may be limited in its
ability to expend the capital necessary to undertake or complete its drilling
program in future years. There can be no assurance that additional debt or
equity financing or cash generated by operations will be available to meet these
requirements. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
DRILLING RISKS
Drilling involves numerous risks, including the risk that no commercially
productive natural gas or oil reservoirs will be encountered. The cost of
drilling, completing and operating wells is often uncertain, and drilling
operations may be curtailed, delayed or canceled as a result of a variety of
factors, including unexpected drilling conditions, pressure or irregularities in
formations, equipment failures or accidents, adverse weather conditions and
shortages or delays in the delivery of equipment. The Company's future drilling
activities may not be successful and, if unsuccessful, such failure will have an
adverse effect on the Company's future results of operations and financial
condition.
13
<PAGE> 16
ACQUISITION RISKS
The Company's rapid growth in recent years has been largely the result of
acquisitions of producing properties. The Company expects to continue to
evaluate and pursue acquisition opportunities which are available on terms
management considers favorable to the Company. The successful acquisition of
producing properties requires an assessment of recoverable reserves, future oil
and gas prices, operating costs, potential environmental and other liabilities
and other factors beyond the Company's control. Such assessments are necessarily
inexact and their accuracy inherently uncertain. In connection with such an
assessment, the Company performs a review of the subject properties that it
believes to be generally consistent with industry practices. Such a review,
however, will not reveal all existing or potential problems nor will it permit a
buyer to become sufficiently familiar with the properties to fully assess their
deficiencies and capabilities. Inspections may not always be performed on every
platform or well, and structural and environmental problems are not necessarily
observable even when an inspection is undertaken. The Company is generally not
entitled to contractual indemnification for pre-closing liabilities, including
environmental liabilities, and generally acquires interests in the properties on
an "as is" basis.
DEPENDENCE ON KEY PERSONNEL
The Company depends to a large extent on the services of its founder, Stig
Wennerstrom, and certain other senior management personnel. The loss of the
services of Mr. Wennerstrom and other senior management personnel could have a
material adverse effect on the Company's operations. The Company has entered
into employment agreements with Stig Wennerstrom, J. Russell Porter and E.
Joseph Grady. The Company believes that its success is also dependent upon its
ability to continue to employ and retain skilled technical personnel.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
The Company's business is regulated by certain local, state and federal
laws and regulations relating to the exploration for, and the development,
production, marketing, pricing, transportation and storage of, oil and natural
gas. The Company's business is also subject to extensive and changing
environmental and safety laws and regulations governing plugging and
abandonment, the discharge of materials into the environment or otherwise
relating to environmental protection. As with any owner of property, the Company
is also subject to cleanup costs and liability for hazardous materials, asbestos
or any other toxic or hazardous substance that may exist on or under any of its
properties. In addition, the Company is subject to changing and extensive tax
laws, and the effect of newly enacted tax laws cannot be predicted. The
implementation of new, or the modification of existing, laws or regulations,
including amendments to the Oil Pollution Act of 1990 or regulations which may
be promulgated thereunder, could have a material adverse effect on the Company.
See "Business -- Abandonment Costs," "-- Government Regulation" and
"-- Environmental Matters."
ABSENCE OF DIVIDENDS ON COMMON STOCK
The Company currently intends to retain its cash for the operation and
expansion of its business, including development, exploration and acquisition
activities. The terms of the Senior Credit Facility and the Indenture contain
restrictions on the payment of dividends to holders of Common Stock.
Accordingly, the Company's ability to pay dividends will depend upon such
restrictions and the Company's results of operations, financial condition,
capital requirements and other factors deemed relevant by the Board of
Directors. See "Dividend Policy" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
14
<PAGE> 17
COMPETITION
The oil and gas industry is highly competitive. 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.
OPERATING RISKS OF OIL AND GAS OPERATIONS
The oil and gas business involves certain operating hazards such as well
blowouts, cratering, explosions, uncontrollable flows of oil, natural gas or
well fluids, fires, formations with abnormal pressures, pollution, releases of
toxic gas and other environmental hazards and risks, any of which could result
in substantial losses to the Company. The Company's offshore operations also are
subject to the additional hazards of marine operations, such as severe weather,
capsizing and collision. The availability of a ready market for the Company's
oil and natural gas production also depends on the proximity of reserves to, and
the capacity of, oil and gas gathering systems, pipelines and trucking or
terminal facilities. In addition, the Company may be liable for environmental
damages caused by previous owners of property purchased and leased by the
Company. 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 development, acquisitions or exploration, or result in the
loss of the Company's properties. In accordance with customary industry
practices, the Company maintains insurance against some, but not all, of such
risks and losses. The Company does not carry business interruption insurance.
The occurrence of such an event not fully covered by insurance could have a
material adverse effect on the financial condition and results of operations of
the Company.
CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation, as amended, and Bylaws and the
Delaware General Corporation Law contain provisions that may have the effect of
discouraging unsolicited takeover proposals for the Company. These provisions,
among other things, restrict the ability of stockholders to take action by
written consent, require the approval of the holders of 75% of the Common Stock
to approve certain business combinations with "interested stockholders"
(excluding shares owned by the interested stockholder), authorize the Board of
Directors to designate the terms of and issue new series of preferred stock,
limit the personal liability of directors and impose additional restrictions on
business combinations with certain interested parties.
SHARES ELIGIBLE FOR FUTURE SALE
After giving effect to the Common Stock Offering, including the conversion
of the Subordinated Notes into Common Stock and the exercise of options held by
the noteholders, a total of 22,373,656 shares of Common Stock will be
outstanding, of which 8,740,486 will be held by FAB. The officers, directors,
stockholders selling shares in the Common Stock Offering (the "Selling
Stockholders") and certain other stockholders have agreed not to dispose of any
additional shares of Common Stock, other than up to 225,000 shares previously
purchased by Stig Wennerstrom on the open market, for a period of 90 days from
the date of this Prospectus without the consent of the representatives of the
Underwriters. See "Underwriting." Subject to certain contractual restrictions
15
<PAGE> 18
described under "Description of Existing Securities and Senior Credit
Facility -- Voting and Holdback Agreement," the outstanding shares of Common
Stock held by FAB are eligible for resale, subject to the volume and other
limitations of Rule 144 under the Securities Act, or pursuant to the exercise of
demand registration rights. FAB's registration rights, for shares not included
in the Common Stock Offering, will survive the Common Stock Offering.
Approximately 895,871 shares of Common Stock issued upon conversion of the
Subordinated Notes concurrently with the Common Stock Offering but not sold in
the Common Stock Offering also will be eligible for sale under Rule 144. In
addition, there are 2,365,558 shares of Common Stock issuable pursuant to
outstanding options and warrants held by the Note Holders, management and
others, all of which are covered by demand or piggyback registration rights or
will be issued pursuant to a registration statement on Form S-8.
No prediction can be made as to the effect, if any, that future sales of
shares or the availability of shares for sale will have on the market price for
Common Stock prevailing from time to time. Sales of substantial amounts of
Common Stock in the public market, or the perception of the availability of
shares for sale, could adversely affect the prevailing market price of the
Common Stock and could impair the Company's ability to raise capital through the
sale of its equity securities.
16
<PAGE> 19
THE COMPANY
GENERAL
Forcenergy is an independent oil and gas company engaged in the
development, exploration, acquisition and production of domestic oil and natural
gas properties. The Company has experienced significant growth in the last five
years, primarily through the acquisition of producing properties in the Gulf of
Mexico. At December 31, 1995 the Company had net proved reserves of 365 Bcfe,
71% of which were located in the Gulf of Mexico. Approximately 60% of the
Company's net proved reserves on such date were natural gas and approximately
69% were classified as proved developed. The Company currently operates
approximately 77% of its Gulf of Mexico production.
The Company's principal executive offices are located at 2730 SW 3rd
Avenue, Suite 800, Miami, Florida 33129-2237 and its telephone number is (305)
856-8500. Unless the context otherwise requires, the terms "Company" or
"Forcenergy" as used in this Prospectus mean Forcenergy Inc and its predecessor
entities.
RELATIONSHIP WITH FORCENERGY AB
The Company was incorporated in Delaware in August 1993 under the name
Forcenergy Gas Exploration, Inc. to succeed by merger in September 1993 to the
ownership of the oil and gas properties of its predecessor, Forcenergy Partners,
L.P. ("Forcenergy Partners"). Forcenergy Partners was a limited partnership in
which FAB was a 97% limited partner and a corporation wholly owned by Stig
Wennerstrom, the Company's President and Chief Executive Officer, was the 3%
general partner. In connection with the foregoing merger, Mr. Wennerstrom
received shares in FAB and cash. Forcenergy Partners and its predecessors had
been engaged in the domestic oil and gas business since 1982. At the 1996 Annual
Meeting of Stockholders held on May 23, 1996, the Stockholders of the Company
approved a proposal to amend the Company's Amended and Restated Certificate of
Incorporation to effect a change in the name of the Company to "Forcenergy Inc".
Prior to the Company's initial public offering in August 1995, all of the
outstanding shares of Common Stock of the Company were owned by FAB. FAB
currently owns approximately 49.1% of the outstanding shares of Common Stock.
Following the Common Stock Offering, the ownership of Common Stock by FAB will
decrease to approximately 39%. FAB is a publicly traded Swedish company with two
classes of stock, A shares and B shares. Each of the 1,000,000 outstanding A
shares is entitled to one vote per share, and each of the 13,392,000 outstanding
B shares is entitled to 1/10th of a vote per share. The B shares of FAB are
listed on the Stockholm Stock Exchange. The Forss family and its affiliates
owned all 1,000,000 A shares and 1,665,333 B shares as of September 17, 1996.
Accordingly, the Forss family had a 49.9% voting interest and a 18.5% economic
interest in FAB.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). All statements other than statements of historical facts included in this
Prospectus, including without limitation, statements under "Prospectus Summary,"
"Risk Factors" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" regarding the planned capital expenditures, increases
in oil and gas production, the number of anticipated wells to be drilled in 1996
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
17
<PAGE> 20
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 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 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 included in this Prospectus. All
subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by such factors.
NOTES OFFERING
Concurrently with the Common Stock Offering, the Company is offering $175
million of % Senior Subordinated Notes due 2006 (the "Notes") for sale to
the public. The consummation of the Common Stock Offering and the Notes Offering
are not contingent on each other and there can be no assurance that the Notes
Offering will be completed. The Indenture for the Notes will contain certain
covenants, including, but not limited to, covenants with respect to the
following matters: (i) limitations on disposition of proceeds of asset sales;
(ii) limitations on restricted payments including payment of dividends, making
of distributions or certain investments; (iii) limitations on the incurrence of
indebtedness; (iv) limitations on liens securing pari passu or subordinated
indebtedness; (v) limitations on sale and leaseback transactions; (vi)
limitations on dividends and other payment restrictions affecting restricted
subsidiaries; (vii) restrictions on mergers, consolidations and transfers of
substantially all of the Company's assets; and (viii) limitations on transaction
with affiliates.
USE OF PROCEEDS
The net proceeds to the Company from the Common Stock Offering are
estimated to be approximately $36.0 million (assuming an initial public offering
price of $24.75 per share and that the underwriters' over-allotment option is
not exercised). The net proceeds of the Notes Offering are estimated to be
approximately $169.6 million. The consummation of the Common Stock Offering and
the Notes Offering are not contingent on each other. The Company intends to
apply the net proceeds of the Offerings to repay outstanding indebtedness under
the Senior Credit Facility, which had an outstanding balance of $158.0 million
at September 30, 1996. The Senior Credit Facility had a weighted average
interest rate at September 30, 1996, of approximately 6.9% and matures on
December 31, 1997, at which time the amounts outstanding convert to a term loan
with quarterly principal payments due through June 30, 2001. Amounts under the
Senior Credit Facility have been used to fund the Company's capital expenditure
program for acquisitions of oil and gas properties and for general working
capital purposes. The balance of the net proceeds from the Offerings, if any,
will be used for general corporate purposes. The Company may reborrow amounts
available under the Senior Credit Facility to fund the Company's on-going
capital expenditure program and for other general corporate purposes. The
Company will not receive any of the proceeds from the sale of Common Stock by
the Selling Stockholders in the Common Stock Offering.
18
<PAGE> 21
MARKET FOR AND RECENT PRICES OF COMMON STOCK
Forcenergy's Common Stock is traded on the Nasdaq National Market under the
symbol "FGAS." The following table sets forth, for the periods indicated, the
range of closing high and low sale prices of the Common Stock as reported by the
Nasdaq National Market. The Company commenced trading on the Nasdaq National
Market on July 28, 1995; therefore no public market existed for the Common Stock
prior to that date.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1995
Third Quarter (commencing July 28, 1995)............................... $11.38 $10.00
Fourth Quarter......................................................... $11.50 $ 9.25
1996
First Quarter.......................................................... $11.69 $10.50
Second Quarter......................................................... $19.25 $11.63
Third Quarter.......................................................... $24.88 $17.75
Fourth Quarter (through October 28, 1996).............................. $29.25 $22.88
</TABLE>
On October 28, 1996, the last reported sale price of the Common Stock on
the Nasdaq National Market was $28.13 per share. At September 30, 1996, the
Company had 22 shareholders of record of its Common Stock. The Company estimates
that there are approximately 1,600 beneficial owners of Common Stock.
DIVIDEND POLICY
The Company currently intends to retain its cash for the operation and
expansion of its business, including development, exploration and acquisition
activities. The terms of both the Senior Credit Facility and the Indenture
contain restrictions on the payment of dividends to holders of Common Stock.
Accordingly, the Company's ability to pay dividends will depend upon such
restrictions and the Company's results of operations, financial condition,
capital requirements and other factors deemed relevant by the Board of
Directors.
19
<PAGE> 22
CAPITALIZATION
The following table sets forth the capitalization of the Company at June
30, 1996, and as adjusted to give effect to (i) the conversion of the
Subordinated Notes into 2,343,047 shares of Common Stock, (ii) the exercise of
options to purchase 214,866 shares of Common Stock by certain holders of the
Subordinated Notes, (iii) the issuance and sale of 1,537,958 shares of Common
Stock by the Company pursuant to the Common Stock Offering (assuming an initial
public offering price of $24.75 per share in the Common Stock Offering and that
the Underwriters' over-allotment option is not exercised), (iv) the issuance of
$175 million of aggregate principal amount of Notes pursuant to the Notes
Offering and (v) the application of the net proceeds from the Offerings as
described in "Use of Proceeds" assuming such transactions occurred on June 30,
1996. This table 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 Financial Statements of the Company and the related
Notes thereto incorporated by reference elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT JUNE 30, 1996
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Senior Credit Facility............................................... $135,118 $ --
7% Exchangeable Subordinated Notes(1)................................ 40,017 --
% Senior Subordinated Notes due 2006............................... -- 175,000
-------- --------
Total long-term debt....................................... 175,135 175,000
Stockholders' equity:
Preferred Stock, $.01 par value, 5,000,000 shares authorized; no
shares issued and outstanding................................... -- --
Common Stock, $.01 par value, 50,000,000 shares authorized;
18,267,785 issued and outstanding; 22,363,656 shares as
adjusted(2)..................................................... 183 223
Capital in excess of par value..................................... 163,447 239,040
Accumulated deficit................................................ (4,920) (4,920)
-------- --------
Total stockholders' equity................................. 158,710 234,343
-------- --------
Total capitalization....................................... $333,845 $ 409,343
======== ========
</TABLE>
- ---------------
(1) Includes $34 million in aggregate principal amount payable upon maturity and
approximately $6.0 million in deferred interest.
(2) Does not include 2,385,424 shares of Common Stock issuable pursuant to
outstanding options and warrants to purchase Common Stock held by management
and others. As adjusted at June 30, 1996, does not include 2,365,558 shares
of Common Stock underlying options and warrants to purchase Common Stock
held by management and others.
20
<PAGE> 23
SELECTED FINANCIAL DATA
The following table sets forth selected historical financial data for the
Company as of and for each of the periods indicated. The financial data as of
and for each of the four years in the period ended December 31, 1994 are derived
from the financial statements of the Company audited by Price Waterhouse LLP,
independent accountants. The financial data as of and for the year ended
December 31, 1995 is derived from the financial statements of the Company
audited by Coopers & Lybrand L.L.P., independent accountants. The financial data
for the six months ended June 30, 1995 and 1996 are derived from the Company's
unaudited financial statements which, in the opinion of management, include all
adjustments (which consist only of normal recurring adjustments) necessary for a
fair presentation of the financial position and results of operations of the
Company for such interim periods. 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 Company's historical
statements and related notes incorporated herein by reference.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Oil and gas sales.......................... $12,680 $24,937 $49,652(1) $58,354(1) $72,147 $34,140 $57,477
Other...................................... 337 475 441(1) 388(1) 494 235 276
------- ------- ------- ------- ------- ------- -------
13,017 25,412 50,093 58,742 72,641 34,375 57,753
------- ------- ------- ------- ------- ------- -------
Expenses:
Lease operating............................ 4,091 7,769 16,632 23,744 24,507 11,602 16,819
Depreciation, depletion and amortization... 4,216 8,014 19,889 24,572 31,295 15,560 24,162
Production taxes........................... 280 606 1,560 1,701 1,868 923 1,653
General and administrative, net............ 1,947 2,523 3,166 6,463 5,670 2,821 3,575
------- ------- ------- ------- ------- ------- -------
Total operating expenses............... 10,534 18,912 41,247 56,480 63,340 30,906 46,209
------- ------- ------- ------- ------- ------- -------
Income from operations....................... 2,483 6,500 8,846 2,262 9,301 3,469 11,544
Interest and other income (loss)............. 525 197 545 789 (561) 290 237
Interest expense, net of amounts
capitalized................................ (233) (2,303) (6,192) (9,529) (11,668) (6,519) (5,913)
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes............ 2,775 4,394 3,199 (6,478) (2,928) (2,760) 5,868
Income tax provision (benefit)(2)............ -- -- 2,337 (2,403) (1,075) (1,029) 2,188
Minority interest............................ 83 132 107 -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss)(2)......................... $ 2,692 $ 4,262 $ 755 $(4,075) $(1,853) $(1,731) $ 3,680
======= ======= ======= ======= ======= ======= =======
Net income (loss) per share(2)............... $ (.50) $ (.14) $ (.19) $ .20
======= ======= ======= =======
UNAUDITED PRO FORMA DATA(2):
Income before income taxes, including
minority interest.......................... $ 2,692 $ 4,262 $ 3,092
Income tax provision......................... $ 1,027 $ 1,639 $ 1,207
------- ------- -------
Net income................................... $ 1,665 $ 2,623 $ 1,885
======= ======= =======
Net income per share......................... $ .26 $ .41 $ .29
======= ======= =======
Weighted average number of shares
outstanding................................ 6,451 6,451 6,520 8,188 12,910 9,040 18,261
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------- JUNE 30,
1991 1992 1993 1994 1995 1996
------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Property, plant and equipment, net.................... $59,691 $112,441 $152,659 $186,241 $298,832 $356,030
Total assets.......................................... 71,154 127,685 187,786 220,287 335,090 391,674
Total long-term debt.................................. 7,922 75,758 127,234 131,646 130,729 175,135
Stockholders' equity.................................. 48,612 45,252 43,336 71,061 154,961 158,710
OTHER FINANCIAL DATA:
Ratio of Earnings to Fixed Charges(3)................. 12.9x 2.9x 1.4x 0.3x 0.6x 1.7x
Capital Expenditures(4)............................... 13,751 67,660 53,371 58,169 144,689 81,168
EBITDA(5)............................................. 7,224 14,711 29,280 27,623 40,035 35,943
EBITDA Interest Coverage(6)........................... 31.0x 6.4x 4.5x 2.5x 2.8x 5.2x
Debt/EBITDA(7)........................................ 1.1x 5.1x 4.3x 4.8x 3.3x 4.9x
</TABLE>
- ---------------
(1) Natural gas liquid revenues for 1993 and 1994 have been reclassified from
plant processing and other revenues to oil and gas sales for consistent
presentation with 1995 revenues.
(2) Prior to September 14, 1993, the Company was exempt from United States
federal and certain state income taxes as a result of its partnership
status. The unaudited pro forma data reflects the income tax expense that
would have been recorded had the Company not been exempt from paying such
income taxes. Net income per share data for 1991, 1992 and 1993 is described
as unaudited pro forma because of the Company's former partnership status.
(3) For purposes of determining the ratio of earnings to fixed charges, earnings
are computed as net income (loss) before income taxes, plus fixed charges.
Fixed charges consist of interest expense, whether expensed or capitalized,
on all indebtedness plus amortization of debt issuance costs. Earnings did
not cover fixed charges in the years ended December 31, 1995 and 1994 and
for the six months ended June 30, 1995 by $5.5 million, $8.0 million and
$3.9 million, respectively.
(4) Capital expenditures include acquisitions of oil and gas properties
including non-cash items, relating to the 1995 Ashlawn Acquisition amounting
to $46.4 million.
(5) EBITDA is defined as earnings before interest, taxes, depletion,
depreciation and amortization and is presented because it is a widely
accepted financial indication of a Company's ability to service and incur
debt. EBITDA should not be considered as an alternative to earnings (loss)
as an indicator of the Company's operating performance or to cash flows as a
measure of liquidity.
(6) Represents multiple by which EBITDA exceeds interest expense paid.
(7) Represents multiple by which total long-term debt exceeds EBITDA.
21
<PAGE> 24
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma statement of operations for the six months ended
June 30, 1996 gives effect to the Amerada Hess Acquisition, the conversion of
the Subordinated Notes into 2,343,047 shares of Common Stock and the exercise of
options to purchase 214,866 shares of Common Stock by certain holders of the
Subordinated Notes and Common Stock Offerings as if they had been consummated on
January 1, 1995. The unaudited pro forma statement of operations for the year
ended December 31, 1995 gives effect to the Conoco Acquisition, the Ashlawn
Acquisition and certain other smaller acquisitions consummated prior to the 1995
Initial Public Offering ("the 1995 Acquisitions"), the 1995 Initial Public
Offering, and the Amerada Hess Acquisition, the Notes and Common Stock
Offerings, the conversion of the Subordinated Notes into 2,343,047 shares of
Common Stock and the exercise of options to purchase 214,866 shares of Common
Stock by certain holders of the Subordinated Notes as if they had occurred on
January 1, 1995. The unaudited pro forma balance sheet as of June 30, 1996 gives
effect to the Notes and Common Stock Offerings and includes the assumed
conversion of the Subordinated Notes to Common Stock of the Company pursuant to
the provisions of the Note Exchange and Registration Rights Agreement, as
amended ("ESN Conversion") and the exercise of 214,866 options to purchase
Common Stock by certain holders of the Subordinated Notes, as if they had
occurred on June 30, 1996. The 1995 Acquisitions and the Amerada Hess
Acquisition have been accounted for using the purchase method of accounting.
Such unaudited pro forma financial information has been prepared based on
estimates and assumptions deemed by the Company to be appropriate and does not
purport to be indicative of the financial position or results of operations
which would actually have been obtained if the 1995 Acquisitions, the Amerada
Hess Acquisition, the 1995 Initial Public Offering, the Notes and Common Stock
Offerings and the ESN conversion had occurred as presented in such statements or
which may be obtained in the future. In addition, future results may vary
significantly from the results reflected in such statements due to oil and gas
production declines, price changes, future supply and demand, financial
instrument agreements, future acquisitions and other factors. See "Management's
Discussion and Analysis of Financial Condition and Result of Operations."
The pro forma financial information should be read in conjunction with the
historical financial statements of the Company and the audited financial
information on the Conoco and Ashlawn Acquisitions and the Amerada Hess
Acquisition which are incorporated herein by reference.
22
<PAGE> 25
FORCENERGY INC
PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
PROFORMA ADJUSTMENTS
---------------------------
FORCENERGY AMERADA HESS AMERADA HESS
HISTORICAL ACQUISITION(a) ACQUISITION OFFERINGS PRO FORMA
---------- ------------ ------------ --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues:
Oil and gas sales................ $ 57,477 $9,263 $ -- $ -- $66,740
Other............................ 276 0 -- -- 276
------- ------ ------- ------- -------
Total revenues........... 57,753 9,263 -- -- 67,016
Operating Expenses:
Lease operating.................. 16,819 2,317 -- 19,136
Depletion, depreciation and
amortization.................. 24,162 -- 3,958(b) -- 28,120
Production taxes................. 1,653 -- -- -- 1,653
General and administrative,
net........................... 3,575 -- -- -- 3,575
------- ------ ------- ------- -------
Total operating
expenses............... 46,209 2,317 3,958 0 52,484
------- ------ ------- ------- -------
Income (loss) from operations...... 11,544 6,946 (3,958) 0 14,532
Interest and other
income........................... 237 -- -- 1,667(c) 1,904
Interest expense, net.............. (5,913) -- 0 (1,358)(d) (7,271)
------- ------ ------- ------- -------
Income (loss) before income taxes.. 5,868 6,946 (3,958) 309 9,165
Income tax provision (benefit)..... 2,188 -- 1,115(e) 115(e) 3,418
------- ------ ------- ------- -------
Net income (loss).................. $ 3,680 $6,946 $ (5,073) $ 194 $ 5,747
======= ====== ======= ======= =======
Net income (loss) per share........ $ 0.20 $ 0.26
======= =======
Weighted average shares
outstanding...................... 18,261 22,356
</TABLE>
23
<PAGE> 26
FORCENERGY INC
PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
FORCENERGY 1995 AMERADA HESS --------------------------
HISTORICAL(f) ACQUISITIONS(f) ACQUISITION(g) ACQUISITIONS OFFERINGS PRO FORMA
------------- --------------- --------------- ------------ --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Oil and gas Sales........ $ 72,147 $ 8,009 $13,639 $ -- $ -- $ 93,795
Other.................... 494 27 -- -- -- 521
-------- ------ ------- ------- ------- --------
Total revenues... 72,641 8,036 13,639 -- -- 94,316
Operating Expenses:
Lease operating.......... 24,507 2,596 5,639 -- -- 32,742
Depletion, depreciation
and amortization...... 31,295 699 -- 9,457(b) -- 41,451
Production taxes......... 1,868 552 -- -- -- 2,420
General and
administrative, net... 5,670 621 -- (621)(h) -- 5,670
-------- ------ ------- ------- ------- --------
Total operating
expenses....... 63,340 4,468 5,639 8,836 -- 82,283
-------- ------ ------- ------- ------- --------
Income (loss) from
operations............... 9,301 3,568 8,000 (8,836) -- 12,033
Interest and other income
(loss)................... (561) -- -- -- 4,682(c) 4,121
Interest expense, net...... (11,668) (183) -- -- (2,394)(d) (14,245)
-------- ------ ------- ------- ------- --------
Income (loss) before income
taxes.................... (2,928) 3,385 8,000 (8,836) 2,288 1,909
Income tax provision
(benefit)................ (1,075) -- -- 935(e) 853(e) 713
-------- ------ ------- ------- ------- --------
Net income (loss).......... (1,853) 3,385 8,000 (9,771) 1,435 1,196
======== ====== ======= ======= ======= ========
Net income (loss) per
share.................... (0.14) 0.05
Weighted average shares
outstanding.............. 12,910 22,346
</TABLE>
24
<PAGE> 27
FORCENERGY INC
PRO FORMA BALANCE SHEET
AS OF JUNE 30, 1996
ASSETS:
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Current Assets:
Cash............................................. $ 173 $ 3,386(i) $ 74,052
36,011(j)
169,600(k)
(135,118)(l)
Accounts receivable, net......................... 18,312 -- 18,312
Other current assets............................. 8,829 -- 8,829
-------- --------- --------
Total current assets..................... 27,314 73,879 101,193
-------- --------- --------
Investment in surety bonds, at cost.............. 3,813 -- 3,813
-------- --------- --------
Property, plant and equipment, at cost (full cost
method) net of accumulated depletion,
depreciation and amortization................. 356,030 -- 356,030
-------- --------- --------
Other assets..................................... 4,517 (1,537)(m) 8,380
5,400(k)
-------- --------- --------
$ 391,674 $ 77,742 $ 469,416
======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable................................. $ 13,271 $ -- $ 13,271
Other accrued liabilities........................ 29,140 -- 29,140
-------- --------- --------
Total current liabilities................ 42,411 -- 42,411
-------- --------- --------
Long-term debt..................................... 175,135 (34,000)(m) 175,000
(6,017)(m)
175,000(k)
(135,118)(l)
-------- --------- --------
Deferred income taxes.............................. 15,418 2,244(m) 17,662
-------- --------- --------
Stockholders' Equity
Preferred stock, $.01 par value, 5,000,000 shares
authorized; none issued or outstanding........ -- -- --
Common stock, $.01 par value, 50,000,000 shares
authorized; 18,267,785 and 22,363,656 issued
and outstanding at historical June 30, 1996
and proforma June 30, 1996, respectively...... 183 23(m) 223
2(i)
15(j)
Capital in excess of par value................... 163,447 36,213(m) 239,040
3,384(i)
35,996(j)
Accumulated deficit.............................. (4,920) -- (4,920)
-------- --------- --------
Total stockholders' equity............... 158,710 75,633 234,343
-------- --------- --------
Total Liabilities and Stockholders' Equity......... $ 391,674 $ 77,742 $ 469,416
======== ========= ========
</TABLE>
25
<PAGE> 28
FORCENERGY INC
NOTES TO PRO FORMA FINANCIAL STATEMENTS
1. BASIS FOR PRESENTATION OF PRO FORMA FINANCIAL STATEMENTS
The pro forma financial information should be read in conjunction with the
historical financial statements of the Company and the audited financial
information on the Conoco and Ashlawn Acquisitions and the Amerada Hess
Acquisition which are included herein by reference.
The unaudited pro forma statement of operations for the six months ended
June 30, 1996 gives effect to the Amerada Hess Acquisition, the Notes and Common
Stock Offerings, the conversion of the Subordinated Notes into 2,343,047 shares
of Common Stock and the exercise of options to purchase 214,866 shares of Common
Stock by certain holders of the Subordinated Notes as if they had been
consummated on January 1, 1995. The unaudited pro forma statement of operations
for the year ended December 31, 1995 gives effect to the Conoco Acquisition, the
Ashlawn Acquisition and certain other smaller acquisitions consummated prior to
the 1995 Initial Public Offering ("the 1995 Acquisitions"), the 1995 Initial
Public Offering, the Amerada Hess Acquisition, the Notes and Common Stock
Offerings, the conversion of the Subordinated Notes into 2,343,047 shares of
Common Stock and the exercise of options to purchase 214,866 shares of Common
Stock by certain holders of the Subordinated Notes as if they had occurred on
January 1, 1995. The unaudited pro forma balance sheet as of June 30, 1996 gives
effect to the Notes and Common Stock Offerings and includes the assumed
conversion of the 7% Exchangeable Subordinated Notes to Common Stock of the
Company pursuant to the provisions of the Note Exchange and Registration Rights
Agreement, as amended ("ESN Conversion") and the exercise of 214,866 options to
purchase Common Stock by certain holders of the Subordinated Notes, as if they
had occurred on June 30, 1996. The 1995 Acquisitions and the Amerada Hess
Acquisition have been accounted for using the purchase method of accounting.
Such unaudited pro forma financial information has been prepared based on
estimates and assumptions deemed by the Company to be appropriate and does not
purport to be indicative of the financial position or results of operations
which would actually have been obtained if the 1995 Acquisitions, the Amerada
Hess Acquisition, the 1995 Initial Public Offering, the Notes and Common Stock
Offerings had occurred as presented in such statements or which may be obtained
in the future. In addition, future results may vary significantly from the
results reflected in such statements due to oil and gas production declines,
price changes, future supply and demand, financial instrument agreements, future
acquisitions and other factors. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
2. ADJUSTMENTS
(a) This column reflects the historical oil and gas revenues and direct
operating expenses of the properties acquired pursuant to the Amerada Hess
Acquisition for the six-month period ended June 30, 1996.
(b) Adjustment to reflect the depletion, depreciation and amortization of
oil and gas properties giving consideration to applicable acquisitions.
(c) Adjustment to reflect interest income assumed at 4.5% earned on
invested cash assuming the following transactions occurred on January 1, 1995:
receipt of $55.7 million in net proceeds from the 1995 Initial Public Offering,
$169.6 million in net proceeds from the Notes Offering, $34.9 million in net
proceeds from Common Stock Offering (1,537,958 shares at an assumed offering
price of $24.75 per share) and repayment of outstanding borrowings under the
Senior Credit Facility of $95.0 million, payment for the 1995 Acquisitions and
Amerada Hess Acquisition of $51.3 million and $6.9 million, respectively, and
also taking into consideration other cash in-flows and out-flows during the
respective periods. If the Company assumed no interest income on the excess
proceeds from these transactions and if interest expense were based only on
average borrowings outstanding for the applicable periods, the proforma amount
of net income and net income per share would be
26
<PAGE> 29
FORCENERGY INC
NOTES TO PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
$3.1 million and $.15, respectively, for the year ended December 31, 1995 and
$5.9 million and $.28, respectively, for the six months ended June 30, 1996.
(d) Increase in interest expense assuming the $175 million Notes Offering
closed on January 1, 1995 at an assumed interest rate of 9.25%, including
adjustments for debt issuance cost and capitalized interest.
(e) Adjustment to income tax expense reflecting the results of the
transactions contemplated herein.
(f) Forcenergy Historical results of operations include the historical
results of operations of oil and gas revenues and direct operating expenses, as
applicable, for the 1995 Acquisitions from the respective closing dates to
December 31, 1995, and the 1995 Acquisitions column includes the 1995
Acquisitions results from January 1, 1995 to closing dates.
(g) This column indicates the historical oil and gas revenues and direct
operating expenses of the Amerada Hess Acquisition for the year ended December
31, 1995.
(h) Additional general and administrative expense was not incurred as a
result of the 1995 Acquisitions.
(i) Adjustment to reflect the exercise of options to purchase 214,866
shares of Common Stock at an exercise price of $15.76 per share by certain
holders of the Subordinated Notes.
(j) Adjustment reflecting the net proceeds from the sale of 1,537,958
shares of Common Stock at an assumed price of $24.75 per share.
(k) Adjustment reflecting the issuance of $175,000,000 in Notes with an
assumed interest rate of 9.25%.
(l) Adjustment for repayment of outstanding borrowings under the Senior
Credit Facility.
(m) Adjustment to reflect conversion of $34.0 million in Subordinated Notes
at $14.51 per share into 2,343,047 shares of Common Stock which includes
reversal of debt issuance cost and deferred interest (and related deferred taxes
thereon).
27
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is intended to assist in an understanding of the
Company's historical financial position and results of operations for each year
of the three-year period ended December 31, 1995 and the unaudited six-month
periods ended June 30, 1995 and 1996. The Company's historical financial
statements and notes thereto included elsewhere in this Prospectus contain
detailed information that should be referred to in conjunction with the
following discussion.
GENERAL
Forcenergy was organized in September 1993 to succeed by merger to the
ownership of oil and gas properties held by Forcenergy Partners. Forcenergy
Partners and its predecessors commenced oil and gas operations in 1982 and
focused primarily on non-operated working interests in onshore properties. Since
1990, the Company has primarily focused its activities on acquiring Gulf of
Mexico offshore properties and has completed 22 acquisitions of offshore or Gulf
Coast properties at a total cost of $197.7 million. At December 31, 1995, the
Company had net proved reserves of 365 Bcfe, 71% of which were offshore and 69%
of which were classified as proved developed.
The Company's revenue, profitability and future rate of growth are
substantially dependent upon prevailing prices for natural gas, oil and
condensate, which are dependent upon numerous factors beyond the Company's
control, such as economic, political and regulatory developments and competition
from other sources of energy. The energy markets have historically been very
volatile, and future decreases in oil and gas prices could have a material
adverse effect on the Company's financial position, results of operations,
quantities of oil and gas reserves that may be economically produced and access
to capital.
The Company uses the full cost method of accounting for its investment in
oil and natural gas properties. Under the full cost method of accounting, all
costs of acquisition, exploration and development of oil and natural gas
reserves are capitalized into a "full cost pool" as incurred, and properties in
the pool are depleted and charged to operations using the unit-of-production
method based on the ratio of current production to total proved oil and natural
gas reserves. To the extent that such capitalized costs (net of accumulated
depreciation, depletion and amortization) less deferred taxes exceed the present
value (using a 10% discount rate) of estimated future net cash flow from proved
oil and natural gas reserves, and the lower of cost or fair value of unproved
properties, such excess costs are charged to operations. Once incurred, a
write-down of oil and natural gas properties is not reversible at a later date
even if oil or natural gas prices increase. While the Company has never been
required to write-down its asset base, significant downward revisions of
quantity estimates or declines in oil and gas prices from those in effect on
December 31, 1995 which are not offset by other factors could result in a
writedown for impairment of oil and gas properties.
For accounting purposes, the Company accrues interest on the Subordinated
Notes at 13% per annum; however the current cash interest expense of such
Subordinated Notes is 7%. The difference is reflected in the Company's cash flow
statement as deferred interest. The deferred interest totaling $6.4 million at
August 31, 1996 will be reflected as an increase to stockholders' equity (net of
related deferred income taxes) upon conversion of the Subordinated Notes into
Common Stock concurrently with the Common Stock Offering. See "-- Liquidity and
Capital Resources."
Revenues from natural gas production are recorded using the sales method,
net of royalties and net profits interests. When sales volumes exceed the
Company's entitled share, an over-produced imbalance occurs. To the extent the
over-produced imbalance exceeds the Company's share of the remaining estimated
proved natural gas reserves for a given property, the Company records a
liability. Management does not believe that the Company has any material
overproduced gas imbalances.
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<PAGE> 31
At September 30, 1996, the Company had an aggregate of $11.3 million in net
operating loss carry forwards for federal income tax purposes which are subject
to annual limitations on utilization. Future income tax liabilities and the
impact of the alternative minimum tax will vary depending upon the number of
wells drilled, intangible drilling costs incurred and other investments in oil
and gas properties by the Company.
RESULTS OF OPERATIONS
PRODUCTION DATA
The following table sets forth the Company's historical oil and natural gas
production data during the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- -----------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Production:
Liquids (Mbbls)(1).......................... 1,425 1,753 2,343 1,059 1,778
Natural gas (Mmcf).......................... 12,025 17,121 21,112 11,172 12,772
Total (Mmcfe)............................... 20,575 27,639 35,170 17,526 23,440
Average sales prices:
Liquids (per Bbl)........................... $ 16.65 $ 15.04 $ 16.46 $ 15.91 $ 16.75
Natural gas (per Mcf)....................... 2.16 1.87 1.59 1.55 2.17
Expenses (per Mcfe):
Lease operating............................. $ .81 $ .86 $ .70 $ .66 $ .72
Production taxes............................ .08 .06 .05 .05 .07
Depreciation, depletion and amortization.... .96 .88 .88 .89 1.03
General and administrative.................. .15 .23 .16 .16 .15
</TABLE>
- ---------------
(1) Includes crude oil, condensate and natural gas liquids.
COMPARISON OF THE SIX MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
Operating and Net Income. Operating income increased from $3.5 million for
the six month period ended June 30, 1995 to $11.5 million for the six month
period ended June 30, 1996, a 229% increase. The Company reported a net loss of
$1.7 million for the six months ended June 30, 1995 compared to net income of
$3.7 million for the same period of 1996. The improvement in both operating
income and net income for the first six months of 1996 was attributable
primarily to higher production volumes, without a commensurate increase in lease
operating expenses and higher net realized oil and gas prices.
Production. Net liquids production increased from 1,059 Mbbls in the six
month period ended June 30, 1995 to 1,778 Mbbls for the six month period in
1996, a 68% improvement. Net gas production increased 14%, from 11,172 Mmcf
reported for the six month period ended June 30, 1995 to 12,772 Mmcf reported
for the same period of 1996. On an equivalent unit basis, oil and gas production
was 17,526 Mmcfe for the six month period ended June 30, 1995 compared to 23,440
Mmcfe produced in the same six month period of 1996, an improvement of 34%. The
increase in both oil and gas production was attributable to new production from
oil and gas properties acquired in 1995 and from successful development and
exploratory drilling and workover programs begun in late 1995 and continuing
through 1996.
Revenues. Revenues increased 68% from $34.4 million reported for the 1995
six month period to $57.8 million for the same period in 1996, primarily due to
higher production volumes and higher net realized oil and gas prices. Average
net realized liquids prices increased from $15.91 per barrel for the six month
period ended June 30, 1995 to $16.75 per barrel received in the comparable 1996
period, an increase of 5%. Average net realized gas prices rose 40% from $1.55
per Mcf reported in the first six months of 1995 to $2.17 per Mcf reported for
the same period of 1996.
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<PAGE> 32
Average net realized oil prices (excluding natural gas liquids) for the
1996 six month period were $17.01 per barrel compared to an average of $19.03
per barrel that would have been received before the effects of hedging,
resulting in a hedging related $3.4 million reduction in oil revenues for the
period. Average net realized gas prices for the six months were $2.17 per Mcf
compared to an average of $2.31 per Mcf, that would have been received before
the effects of hedging, resulting in a hedging related $1.8 million reduction in
gas revenues for the six month period ended June 30, 1996. Effects of hedging
activities were not significant in the six months ended June 30, 1995.
Lease Operating Expenses. Lease operating expenses for the first six months
of 1995 were $11.6 million compared to the $16.8 million reported for the same
period of 1996, an increase primarily due to new fields acquired during 1995 and
to non-recurring workover repair and maintenance activities in 1996. On an
equivalent unit of production basis, expenses increased from $.66 per Mcfe in
the 1995 six month period to $.72 in the comparable 1996 period, an increase
attributable primarily to non-recurring repair and maintenance expenditures and
the addition of new Gulf of Mexico properties.
Depletion, Depreciation and Amortization ("DD&A"). DD&A increased from
$15.6 million for the 1995 six month period to $24.2 million reported for the
comparable 1996 period. The increase was attributable to higher production
levels, and to an increase in the DD&A rate per unit of production to $1.03 per
Mcfe in the first six months of 1996 from $.89 in the same period last year.
General and Administrative Expenses. General and administrative expenses
increased from $2.8 million for the first six months of 1995 to $3.6 million for
the comparable 1996 period, primarily due to the overall growth of the Company
during the latter half of 1995 and the first six months of 1996. However, on an
equivalent Mcfe produced basis, general and administrative expenses have
remained relatively constant, $.16 per Mcfe for the first six months of 1995
compared to $.15 per Mcfe in the 1996 period.
Interest Expense. Interest expense, net of amounts capitalized, declined 9%
from $6.5 million in the first six months of 1995 to $5.9 million for the same
period this year. The decrease in interest expense resulted primarily from lower
interest rates on the Company's Senior Credit Facility in 1996, which was
partially offset by higher 1996 debt levels.
Income Tax Provision (Benefit). Income tax expense increased to $2.2
million from a benefit of $1.0 million in the first six months of 1995 due to
the improvement in results of operations compared to the same period last year.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1994 AND DECEMBER 31, 1995
Operating and Net Income. Operating income increased 304%, from $2.3
million in 1994 to $9.3 million in 1995. The Company's net loss for 1994 was
$4.1 million compared with a net loss for 1995 of $1.9 million. These
improvements were attributable to higher oil and gas production and lower per
unit lease operating costs.
Production. Forcenergy's total net equivalent production increased to 35.2
Bcfe in 1995, 28% more than the 27.6 Bcfe produced in 1994, due primarily to the
acquisition of additional offshore properties in late 1994 and in early 1995 and
the addition of new production attained from the successful 1995 drilling
program. See "Business -- 1995 and 1996 Offshore and Gulf Coast Drilling
Activity." Net oil production increased by 34%, from 1,753 Mbbls in 1994 to
2,343 Mbbls in 1995 and net gas production increased by 23% from 17.1 Bcf in
1994 to 21.1 Bcf in 1995.
Revenues. Total revenues increased 24% from $58.7 million in 1994 to $72.6
million in 1995, primarily because of the higher volume of oil and gas produced,
which in turn resulted from acquisitions closed during 1995 and from the
Company's successful drilling program. Oil revenues for the year increased by
46% from $26.3 million in 1994 to $38.4 million in 1995. Average net realized
oil prices of $16.46 per barrel in 1995 were 9% higher than the $15.04 per
barrel received in 1994. Gas revenues rose from $31.9 million in 1994 to $33.6
million in 1995 or 5%; however, average
30
<PAGE> 33
net realized gas prices declined to $1.59 per Mcf in 1995, 15% below the $1.87
average received in 1994.
Lease Operating Expenses. Lease operating expenses increased by $763,000,
or 3%, from 1994 to 1995 due to the addition of new properties; however, on a
per Mcfe produced basis, costs declined 19% from $.86 per Mcfe in 1994 to $.70
per Mcfe in 1995. This decline in the per unit cost was attributable to the
Company's success in adding new production through development of new reserves
from existing properties and facilities and through acquiring new properties
that provide operating synergies with existing properties.
Depletion, Depreciation and Amortization ("DD&A"). Total DD&A increased 27%
from $24.6 million during 1994 to $31.3 million during 1995, primarily as a
result of higher production volumes in 1995 as the DD&A rate was substantially
the same for both years.
General and Administrative. General and administrative expenses declined
12% from $6.5 million incurred in 1994 to $5.7 million in 1995. The costs for
1994 reflected higher third-party engineering and consulting fees associated
with several acquisition possibilities that never occurred. Additionally, the
Company billed more general and administrative expenses, as provided for in
joint operating agreements, to joint interest owners in 1995 due to the
increased drilling activity.
Interest Expense. Interest expense, net of amounts capitalized, increased
23% from $9.5 million in 1994 to $11.7 million in 1995. This increase was
primarily attributable to the acquisition related increases in the Company's
debt levels prior to the repayment of a portion of that debt with proceeds from
the Company's initial public offering and amortization of debt issuance costs
associated with the Company's $8.0 million bridge loan that was repaid in 1995.
Interest and Other Income. Interest and other income (loss) reflected a net
charge of $561,000 in 1995 compared with income of $789,000 in 1994. The 1995
charge included a non-cash adjustment to certain balance sheet items associated
with activities in previous years. Interest income was $454,000 in 1994 compared
to $474,000 in 1995.
Income Tax Provision (Benefit). The income tax benefit decreased from $2.4
million in 1994 to $1.1 million in 1995, due to the improvement in the results
of operations.
COMPARISON OF YEARS ENDED DECEMBER 31, 1993 AND DECEMBER 31, 1994
Operating and Net Income. Income from operations decreased by 74% from $8.8
million in 1993 to $2.3 million in 1994. The decline in income from operations
was primarily the result of a decline in the average realized prices for oil and
gas sales and the incurrence of additional operating and administrative costs as
the Company undertook full operations of additional Gulf of Mexico properties.
Net income was $0.8 million in 1993 as compared to a net loss of $4.1 million in
1994.
Production. The Company's production increased 34% from 20.6 Bcfe in 1993
to 27.6 Bcfe in 1994, primarily as a result of the acquisitions of properties
and higher volumes in the second half of 1994 due to the Company's 1994
development program. Oil production volume of 1,753 Mbbls in 1994 increased by
23% as compared to 1993 production volume of 1,425 Mbbls. Gas production of 17.1
Bcf in 1994 increased by 42% as compared to 1993 production of 12.0 Bcf.
Revenues. Total revenues increased 17% from $50.1 million in 1993 to $58.7
million in 1994. Oil sales increased by 11% from $23.8 million in 1993 to $26.3
million in 1994. Average net realized oil prices of $16.65 in 1993 decreased by
9% to $15.04 in 1994. Gas sales increased by 23% from $25.9 million in 1993 to
$31.9 million in 1994. Average net realized gas prices declined 13% from $2.16
in 1993 to $1.87 in 1994. The increase in volumes primarily reflects the
acquisition of offshore properties and increases in production during the second
half of 1994 as a result of the Company's development program.
Lease Operating Expenses. Lease operating expenses increased by $7.1
million or 43% in 1994 as compared to 1993 due to the addition of new offshore
fields acquired in late 1993 and 1994. On
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<PAGE> 34
an Mcfe basis, lease operating costs increased by 6% from $.81 in 1993 to $.86
in 1994. This per unit operating cost increase was primarily the result of
increased offshore facility maintenance on properties acquired during 1994 and
increased costs associated with supplemental bonding requirements for offshore
properties, which costs were incurred prior to the benefit of any development
activities on such properties.
Depletion, Depreciation and Amortization. Total DD&A increased by $4.7
million or 24% from $19.9 million in 1993 to $24.6 million in 1994. The increase
in total DD&A in 1994 was primarily attributable to increased production added
by acquisitions. DD&A per Mcfe declined 8% from $.96 in 1993 to $.88 in 1994 due
to the acquisition of additional proved reserves at a lower cost per Mcfe.
General and Administrative. General and administrative expenses increased
from $3.2 million in 1993 to $6.5 million in 1994. This increase was primarily
the result of increased engineering and support staff for the New Orleans office
which was opened in March 1993 and increased legal and consulting costs incurred
to evaluate potential offshore property acquisitions.
Interest Expense. Interest expense, net of amounts capitalized, increased
by 53% from $6.2 million in 1993 to $9.5 million in 1994. This increase was
attributable to additional borrowings for acquisition financing combined with an
increase in market interest rates in 1994 under the Senior Credit Facility,
inclusion of a full year's interest expense for the Subordinated Notes and a
full year's amortization of debt issuance costs associated with the Senior
Credit Facility and the Subordinated Notes in 1994.
Income Tax Provision (Benefit). The provision for income taxes decreased by
$4.7 million from a provision of $2.3 million in 1993 to a benefit of $2.4
million in 1994 due to a pre-tax loss of $6.5 million in 1994 and the FASB 109,
"Accounting for Income Taxes" deferred tax adjustment of $2.4 million recorded
in 1993. This one time adjustment was made to reflect the book and tax timing
differences for assets and liabilities existing on September 14, 1993 as a
result of merger transactions which converted Forcenergy Partners, the Company's
predecessor, into a taxable U.S. corporation.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded its operations, acquisitions, capital
expenditures and working capital requirements from cash flow from operations,
bank borrowings and private and public placements of debt and equity securities.
The Company's primary sources of funds for each of the past three years and the
six months ended June 30, 1995 and 1996 are reflected in the following table (in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net cash provided by
operating activities....... $19,473 $22,433 $28,574 $17,641 $26,815
Net borrowings under the
Senior Credit Facility..... 28,881 6,872 (2,957) 22,604 43,063
Proceeds from issuance of
Subordinated Notes......... 34,000 -- -- -- --
Proceeds from issuance of
Common Stock............... 2,200 31,800 55,753 -- --
Proceeds from Bridge Loan.... -- -- 8,000 8,000 --
</TABLE>
In the first six months of 1996, the Company generated approximately $26.8
million in cash from operations and borrowed, net of repayments, approximately
$43.1 million under its Senior Credit Facility. The Company's cash flow from
operations has increased significantly during 1996 because of the additional
production from acquired properties and new production derived from development
32
<PAGE> 35
drilling and workovers. The Company had negative working capital of $11.8
million at December 31, 1995 and $15.1 million at June 30, 1996. Both the
negative working capital and increase in borrowings under the Senior Credit
Facility are primarily attributable to an increase in drilling expenditures
under the Company's active 1996 drilling program and to acquisitions of oil and
gas properties.
Capital expenditures including accruals were $58.2 million and $144.7
million during 1994 and 1995, respectively. Cash capital expenditures were $59.2
million during the first six months of 1996, which includes $15.6 million in
cash payments on capital costs accrued at December 31, 1995. In addition, the
Company had capital expenditures accrued at June 30, 1996 equaling $25.2
million. The Company's capital expenditure budget for 1996 is approximately $110
million. The Company intends to continue its exploration and development
programs during 1996 and expects that those expenditures will be funded by cash
flow from operations and periodic borrowings under its Senior Credit Facility.
Cash expenditures for acquisitions totaled $16.8 million for the six months
ended June 30, 1996, $4.3 million of which was for amounts accrued at December
31,1995. The Company will continue to pursue property acquisitions of various
sizes, funding for which is expected to be provided by cash flow from
operations, the proceeds of the Offerings, funds available through the Company's
Senior Credit Facility or other financing sources to be negotiated, as needed.
In December 1995, the Company amended its Senior Credit Facility to extend
its maturity date and to lower borrowing rates on amounts advanced under the
facility. The termination date on the revolving credit loan was extended to
December 31, 1997, at which time the outstanding amount becomes a term loan with
future annual principal payments, as a percentage of the principal balance
outstanding at the time of conversion to the term loan, of 36% in 1998, 30% in
1999, 23% in 2000 and 11% in 2001. The term loan matures on June 30, 2001.
Effective April 26, 1996, the Company renegotiated the Senior Credit Facility to
provide for a commitment of $195 million with a current borrowing base of $175
million. On September 30, 1996, the borrowing base was increased to $195
million. At September 30, 1996, the Company had $29.9 million available under
the Senior Credit Facility. Subsequent to the closing of the Offerings and, at
the direction of the Company, the borrowing base under the Senior Credit
Facility will be reduced to $50 million from the current borrowing base of $195
million. The maximum commitment of $195 million will remain in effect.
Borrowings under the Senior Credit Facility bear interest, at the Company's
option, at either the prime rate or LIBOR plus 1.375%. Interest on the prime
loans are due quarterly and interest on the LIBOR loans are due at the end of
the designated interest period. The Senior Credit Facility is secured by
substantially all of the Company's oil and gas properties. The Senior Credit
Facility contains certain covenants of the Company, including maintenance of
minimum tangible net worth, certain financial ratios and certain restrictions on
liens.
Revenues generated from operations are highly dependent upon the price of,
and demand for, oil and natural gas. Historically, the markets for oil and
natural gas have been volatile and are likely to continue to be volatile in the
future as prices are subject to wide fluctuations in response to relatively
minor changes in the supply of and demand for oil and natural gas, market
uncertainty and a variety of additional factors that are beyond the control of
the Company. These uncontrollable factors include, but are not limited to, the
level of consumer product demand, weather conditions, domestic and foreign
governmental regulations, the price and availability of alternative fuels and
political and economic conditions in the Middle East and Canada that can affect
the supply and price of foreign oil and natural gas. It is impossible to predict
future oil and natural gas price movements with any certainty. Declines in oil
and natural gas prices may materially adversely affect the Company's financial
condition, liquidity and results of operations. Lower prices also may reduce the
amount of reserves that can be produced economically as well as limit the
Company's ability to continue to exploit and develop the existing reserve base.
The Company utilizes forward sales contracts and commodity swaps for
portions of its current net oil and gas production to achieve more predictable
cash flows and to reduce its exposure to
33
<PAGE> 36
fluctuations in oil and gas prices. The remaining portion of current net
production has not been hedged so as to provide the Company the opportunity to
benefit from increases in prices on that portion of the production, should price
increases materialize. As of October 1,1996, the Company had entered in to
future sales and swap contracts as a hedge against possible price declines that
effectively fixed sales prices on approximately 76% of the Company's estimated
net oil production for the remainder of the year and for approximately 60% of
the Company's estimated net gas production for the remainder of 1996, based on
current production levels, at $18.05 per barrel and $2.03 per Mcf, respectively.
On March 1, 1995, the Company entered into an $8 million bridge loan.
Borrowings under the bridge loan were used to repay $4.9 million of indebtedness
under the Senior Credit Facility and to pay $3.1 million in connection with the
acquisition of producing properties in April 1995. Amounts outstanding under the
bridge loan were repaid with a portion of the proceeds of the initial public
offering.
In August 1995, the Company completed its initial public offering and
received net proceeds of $55.7 million. In addition to repaying borrowings under
the bridge loan, the Company used the proceeds from the offering to complete the
acquisition of Ashlawn and to repay a portion of the Senior Credit Facility.
Management believes that cash flow from operations, available borrowings
under the Senior Credit Facility and the net proceeds of the Offerings will be
adequate to meet future liquidity needs, including satisfying the Company's
financial obligations and funding its capital program. If revenues decrease as a
result of lower oil or gas prices or operating difficulties or if the Notes
Offering is not consummated, the Company may be required to re-evaluate its
future capital expenditures.
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<PAGE> 37
BUSINESS
OVERVIEW
Forcenergy Inc ("Forcenergy" or the "Company") is an independent oil and
gas company engaged in the exploration, acquisition, development, exploitation
and production of domestic oil and natural gas properties. The Company has
experienced significant growth in the last five years, primarily through the
exploration, enhancement and development of acquired working interests in
producing properties in the Gulf of Mexico. At December 31, 1995, the Company
had net proved reserves of 365 Bcfe, 71% of which were located in the Gulf of
Mexico. Approximately 60% of the Company's net proved reserves on such date were
natural gas and approximately 69% of proved reserves were classified as proved
developed. The Company currently operates approximately 77% of its Gulf of
Mexico production.
STRATEGY
The Company's business strategy is to increase its reserves and cash flow
through the development, exploration, acquisition and exploitation of producing
properties in the shallow waters (less than 350 feet) of the Gulf of Mexico.
Management believes that the Company's high quality asset base positions it for
growth through a program of further development through selective exploitation
and exploratory drilling and through the enhancement of production performance
through workovers and recompletions. The Company emphasizes the use of 3-D
seismic and computer-aided exploration technology together with geologic and
engineering studies of its properties to evaluate and prioritize drilling
prospects. Focusing drilling activities on producing properties in a relatively
concentrated area in the Gulf of Mexico permits the Company to utilize its base
of geological, engineering and production experience in the region to maximize
drilling success and to minimize finding and development costs. Furthermore, the
Company's concentration of drilling activities on its producing properties
allows the utilization of existing infrastructure which greatly reduces
incremental lease operating expenses and costs associated with new production
facilities. The Company plans to continue to pursue acquisitions of working
interests in producing properties that offer further development potential as
well as providing operating synergies with existing properties. As a complement
to its acquisition strategy, the Company also participates in exploration plays
both onshore and in the Gulf of Mexico.
OPERATIONS
Quality of Asset Base; Drilling Prospects. The Company holds interests in
or rights to 81 lease blocks in federal and state waters in the Gulf of Mexico,
including a 100% working interest in 32 lease blocks and a 50% or greater
working interest in 18 other lease blocks. The Company believes it has assembled
at least a three to five year inventory of development, exploitation and
exploratory drilling opportunities in the Gulf of Mexico on acreage held by
production. Most of the properties comprising this inventory are located in
fields which have prolific production histories and which the Company believes
may yield significant additional reserves through the application of modern
exploration and development technologies. The Company is pursuing the
development of these offshore properties through a combination of development
drilling, recompletions and workovers and exploratory drilling. During 1995, the
Company successfully drilled seven of nine exploratory wells and ten of ten
development wells in the Gulf of Mexico and undertook eight recompletions and 24
workover projects, resulting in initial net production increases of 4,392 Bbls/d
of oil and 27,496 Mcf/d of gas. The Company plans to drill 20 development wells
in 1996, 14 of which were successfully completed in the first eight months of
1996, and the Company also has budgeted to drill 20 recompletions and 21
workover projects on its properties in the Gulf of Mexico during 1996, of which
27 have been completed to date. In addition, eight exploratory wells have been
scheduled during the year to provide the Company with exposure to higher risk,
higher potential prospects. Of the eight planned exploratory wells, four have
been drilled and successfully completed, and four
35
<PAGE> 38
remain to be drilled. The Company anticipates that approximately $98.6 million
of its $110 million capital expenditure budget for 1996, not including
acquisition expenditures, will be spent on these projects.
Control of Operations and Costs. The Company prefers to operate its
offshore properties in order to more effectively manage production performance
while controlling operating expenses and the timing and amount of capital
expenditures. Forcenergy operates 90 structures and 242 wells in the Gulf of
Mexico. Management believes that the operating expertise and experience of its
personnel in the Gulf of Mexico have been instrumental in its ability to
significantly enhance and improve production rates and cash flow with minor
incremental costs. A significant portion of the drilling prospects the Company
expects to pursue during the next three to five years are accessible from
existing production facilities operated by the Company. This base of operations
will enable the Company to reduce its per unit operating costs if higher
production volumes are realized. As a result of these factors, the Company
improved its lease operating expense from $.86 per Mcfe of production in 1994 to
$.70 per Mcfe in 1995 to $.69 per Mcfe for the eight months ending August 31,
1996.
Technology. The Company uses advanced technology in its exploration and
development activities to reduce drilling risks and finding costs and to more
effectively prioritize drilling prospects based on return potential. The Company
has acquired 3-D seismic surveys on 102 offshore lease blocks and currently has
825 square miles of 3-D seismic data and 53,000 linear miles of 2-D seismic data
on its offshore properties. The Company has nine geologists/geophysicists with
average industry experience of 18 years and has invested in seven Landmark
geophysical stations for use in interpreting 3-D seismic data. The ability to
obtain 3-D seismic data for offshore properties at reasonable costs has enabled
the Company to identify multiple development and exploratory prospects in mature
producing fields which were not identified through earlier technologies.
Recent Acquisitions. During 1995, the Company spent an aggregate of
approximately $92.1 million for working interests in 15 different fields that
added 121.9 Bcfe of net proved reserves to its reserve base at an average cost
of $.76 per Mcfe. Approximately $81.6 million of such expenditures were for
interests in 10 properties located in the Gulf of Mexico. In the first eight
months of 1996, the Company spent approximately $17.0 million for working
interests in 12 different fields that added 28.3 Bcfe of net proved reserves to
its reserve base at an average cost of $.60 per Mcfe. Major acquisitions in 1995
and 1996 were as follows:
In March 1995, the Company acquired working interests in the South Marsh
Island 136/137 Field and the northern half of South Marsh Island 106 from
Conoco, Inc. for consideration of $24.5 million. In April 1995, the Company
acquired all the remaining working interests in the northern half of South Marsh
Island 106. The foregoing acquisitions were particularly attractive because both
fields are adjacent to fields in which the Company holds 100% working interests.
The Company had an active drilling program in Block 106 in 1995 and will have at
least one rig in the block for all of 1996. See "-- 1995 and 1966 Offshore and
Gulf Coast Drilling Activity."
In August 1995 in conjunction with the Company's initial public offering,
the Company acquired all of the outstanding capital stock of Ashlawn, a
privately held Company with substantial working interests in the South Pass 24
Field, Vermilion 28 Field and Ship Shoal 26 Field. The purchase price for the
Ashlawn Acquisition consisted of 3,000,000 shares of Common Stock, $3.3 million
in cash and the assumption of $5.7 million in debt. All of the assumed debt was
repaid with the proceeds of the Initial Public Offering. The Company conducted
an active drilling program on these properties in 1995 and has continued to
pursue additional development projects on the properties in 1996. See "-- 1996
Offshore and Gulf Coast Drilling Activity."
In November 1995, the Company acquired an approximate 50% working interest
in certain leases in the Howard Glasscock/Snyder fields in Howard County, Texas
from Saga Petroleum, Inc. for approximately $3.9 million. The Company's 1996
capital budget includes $1.9 million for its pro rata share of drilling
injection wells to initiate a waterflood project in the field. In May 1996, the
Company acquired an additional 25% interest in these leases and surrounding
acreage for
36
<PAGE> 39
$4.0 million. At August 31, 1996, twenty injection wells had been drilled, five
of which had been completed. Additionally, water injection had commenced on the
five completed wells. Initial response to the water flood, if any, should occur
in 1997.
In late 1995, the Company acquired a 100% working interest in the Vermilion
Block 380 Field, located offshore Louisiana, from Texaco Exploration and
Production, Inc. for approximately $650,000. Effective December 1995, the
Company also acquired a 100% working interest in the West Cameron 630 Field,
located offshore Louisiana and an approximate 51.7% working interest in the
Comite Field in East Baton Rouge Parish, Louisiana from Exxon Corporation for
approximately $3.9 million. An exploratory well is planned for the West Cameron
630 field in early 1997.
In June 1996, the Company acquired working interests in eleven Gulf of
Mexico producing fields from Amerada Hess Corporation for a cash consideration
of $6.9 million. In August 1996, the Company acquired an additional working
interest in one of these fields, Mustang Island 742/754, for approximately $4.0
million, increasing its total working interest in the field to 100%.
As is customary in the oil and gas industry, the Company from time to time
submits bids to acquire oil and gas properties that are subject to acceptance by
the sellers. Upon acceptance of a bid by the seller, the finalization of such
agreements is contingent on the completion of satisfactory due diligence by the
Company, including title and environmental review. There is no assurance that
sellers will accept any of the bids submitted by the Company or that any such
transactions will be consummated.
GULF OF MEXICO PROPERTIES
Since January 1, 1990, the Company has acquired working interests in 81
Gulf of Mexico and Gulf Coast lease blocks. The Company owns a 100% working
interest in 32 of these blocks and operates 47 of the producing properties. The
following table lists the working interest, net proved reserves and the operator
for the Company's 14 largest offshore properties, comprising approximately 67%
of the Company's total net proved reserves, as of December 31, 1995:
<TABLE>
<CAPTION>
NET PROVED RESERVES AT
DECEMBER 31, 1995
-----------------------------
AVERAGE NATURAL
WORKING OIL GAS TOTAL
FIELD INTEREST (MBBLS) (MMCF) (MMCFE) OPERATOR
------------------------------ ------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C>
South Marsh Island Block
106/115..................... 100% 4,326 12,659 38,615 Company
South Marsh Island 6 Field
Complex..................... 100% 1,423 18,504 27,042 Company
Ship Shoal 230 Field,
Block 219................... 100% 973 10,615 16,453 Company
West Cameron 205 Field........ 100% 96 11,564 12,140 Company
Ship Shoal 26 Field........... 100% 299 8,872 10,666 Company
Chandeleur 25 Field........... 100% -- 9,819 9,819 Company
High Island A-467 Field....... 100% 51 7,867 8,173 Company
High Island A-280 Field....... 100% 22 5,319 5,451 Company
South Timbalier 72 Field...... 100% 626 1,561 5,317 Company
Grand Isle 76 Field........... 96% 139 8,133 8,967 Company
Vermilion 262 Field, Block 261
and 262..................... 77% 903 6,076 11,494 Company
South Pass 24 Field........... 67% 7,254 10,817 54,341 Third Party
South Marsh Island 137 Field,
Blocks 136/137.............. 67% 708 16,451 20,699 Company
East Cameron 14 Field......... 50% 374 12,692 14,936 Company
</TABLE>
37
<PAGE> 40
1995 AND 1996 OFFSHORE AND GULF COAST DRILLING ACTIVITY
During 1995 and 1996 the Company continued to focus on increasing reserves
and cash flow by targeting development exploitation and exploration prospects on
recently acquired properties, developed in most cases through the use of 3-D
seismic data. Total capital spent in the 1995 drilling program was approximately
$51.8 million, including capitalized internal costs of $3.7 million with 57.5
Bcfe of proved reserves added at an average cost of $.90 per Mcfe. For the year,
the Company successfully drilled seven of nine exploratory wells and ten of ten
development wells in its offshore drilling program. Capital spending in 1995 for
offshore projects was approximately $45.7 million, including $1.5 million for
the acquisition of additional 3-D seismic data on offshore lease blocks. The
Company has incurred $91.9 million in capital drilling expenditures as of August
31, 1996 including $2.8 million in capitalized internal costs. In addition, the
Company has spent $2.1 million on geological and geophysical costs, including
3-D seismic data. The current budget for 1996 is estimated at $110 million of
which $98.6 million is targeted for the Gulf of Mexico. The following is a brief
description of properties where significant activity has occurred during 1995
and 1996, all of which were operated by the Company. The working interest
ownership of the Company is noted in parenthesis.
South Marsh Island Block 106 North (SMI 106 N/2) and Block 106 South (SMI
106 S/2) (100% working interest). The Company acquired its working interests in
these fields (accounted for as separate fields) in a series of acquisitions from
1993 to 1995. An aggressive drilling program was initiated on these fields in
1995 as two development wells and four exploratory wells were successfully
completed in SMI 106 S/2 and two exploratory wells were successfully completed
in SMI 106 N/2. During the first six months of 1996 one development well and one
exploratory well were drilled and successfully completed on SMI 106 S/2. Initial
production tests from these two wells totaled 931 BOPD (Bbls of oil per day) and
2,049 (MCFPD) (Mcf of gas per day), net to the Company. During the six month
period ended June 30, 1996, the Company completed two development wells on SMI
106 N/2 which began producing at net initial rates of 1,003 BOPD and 2,222
MCFPD. Total production net to the Company in the SMI Block was 2,638 BOPD and
7,888 MCFPD at the end of July compared with average net rates of 475 BOPD and
1,600 MCFPD at the beginning of 1995. Three additional wells, two development
and one exploratory, were also completed in the third quarter of 1996 on SMI
106N/2. These wells began to produce at initial rates of 865 BOPD and 2,877
MCFD. The Company currently plans to drill and complete at least two more
development wells and one exploratory well in the SMI 106 N/2 area.
East Cameron 14 Field (50% average working interest). A development well
was completed in the first quarter of 1996 with production beginning in May at
an initial rate of 3,090 MCFPD, net to the Company, increasing total net
production in this field to 125 BOPD and 4,160 MCFPD. The well encountered
reserves in seven other zones. The Company is currently evaluating plans for
additional drilling in the field.
South Pass 24 Field (approximate 71% average working interest). Subsequent
to the Ashlawn merger, and during 1995, the Company drilled four development
wells and undertook two workovers and recompletions in its effort to exploit the
anticipated potential of this field. During the first six months of 1996, five
development wells were drilled, all of which have been completed. Initial
production tests from the five completed wells totaled 330 BOPD and 240 MCFPD,
net to the Company. These 1995 and 1996 activities increased total net
production in this field to 2,623 BOPD and 3,368 MCFPD by the end of July 1996
compared with net production of 891 BOPD and 501 MCFPD at the time of
acquisition of the properties. Under Louisiana law, new wells permitted prior to
June 30, 1998, or wells which have been shut in for more than two years and
which are permitted prior to that date, qualify for a five year exemption from
the state severance tax of 12.5% on the value of oil production sold and $.07
per Mcf on the volume of gas products sold during the five years following June
30, 1996.
38
<PAGE> 41
West Cameron 205 Field (100% working interest). The Company acquired its
working interest in West Cameron Blocks 205, 206 and 212 in a series of
acquisitions during 1990 through 1992. During 1995 the Company drilled a dry
exploratory test well in this field. Future drilling in this field is currently
being evaluated.
Ship Shoal 230 Field, Block 219 (100% working interest). One dually
completed well has been drilled to date. Completion operations were finalized in
April 1996 and production from this well began in May at initial rates of 346
BOPD and 2,100 MCFPD net to the Company. This increased total net production in
this field to 1,200 BOPD and 7,800 MCFPD. The Company expects to begin a
multi-well development and exploitation program in this field during 1997.
High Island 467 Field (100% working interest). The Company began drilling
operations in this field in the first quarter of 1996 and has completed two of a
three-well drilling project. One development and one exploratory well have been
drilled and have begun producing at initial production rates of 85 BOPD and
8,214 MCFD, net to Forcenergy. This brings total current net field production to
102 BOPD and 12,874 MCFD. The Company plans to drill one more development well
and at least one more exploratory well and undertake one major workover in the
field during the remainder of 1996.
South Marsh Island 6/10/11 Complex (100% working interest). The Company
plans to drill two exploratory wells and two development wells in the South
Marsh Island 6 Field Complex. In September 1996, the Company completed drilling
operations on an exploratory well which has encountered approximately 140 feet
of TVD (true vertical depth) pay in four sands and is expected to add
approximately 18 to 20 BCFE in net reserves. This well began producing at
initial production rates of 884 BOPD and 4,592 McFPD.
ONSHORE PROPERTIES
Forcenergy owns working and royalty interests in approximately 1,600
producing oil and gas wells in 147 fields in the Rocky Mountain, Gulf Coast,
Southwest and Appalachian regions of the United States. Management believes that
the Company's stable reserve base of long-lived, primarily non-operated, onshore
properties complements the Gulf of Mexico operations by providing an additional
source of cash flow that requires limited management involvement. The Company's
onshore properties accounted for approximately 29% of net proved reserves at
December 31, 1995. During 1995, the Company expended approximately $4.0 million
in capital on its onshore properties, including $3.7 million for drilling and
recompletion activities. Approximately $2.4 million in capital has been spent on
onshore properties in the first half of 1996, the majority of which was on the
Howard Glasscock/Snyder field. The following is a summary of the Company's most
significant onshore properties:
Altamont/Bluebell Field. The Altamont/Bluebell Field is located in Duchesne
and Uintah Counties, Utah. The Company owns working interests ranging from less
than 1% to 27.9% (average approximately 7%) in approximately 250 active wells
and has overriding royalty interests in another 190 wells. The Company also owns
an 8.125% working interest in the Altamont natural gas processing plant. As of
January 1, 1996, Forcenergy's net production, including gas plant liquids, was
approximately 530 Bbls/d and 1,410 Mcf/d. Estimated net proved reserves as of
December 31, 1995, were 1,139 Mbbls and 3,136 MMcf. In 1995 the Company
participated in its share of a field development and workover program, of which
Forcenergy's net share was $270,000. As of September 1, 1996, the Company has
agreed to participate in planned well workover and recompletion projects of
which Forcenergy's share is $278,000. The current pace of work activity is
similar to that in 1995 and is expected to continue for the remainder of the
year.
Whitney Canyon Field. Forcenergy owns working interests ranging from 14.1%
to 18.9% in three wells in this Uintah County, Wyoming field and a 3.02% working
interest in the Whitney Canyon Gas Processing Plant. The Company's share of
total sales from processed gas and condensate and plant liquids currently
averages 140 Bbls/d and 1,750 Mcf/d. Net proved reserves as of Decem-
39
<PAGE> 42
ber 31, 1995 for the Company's Whitney Canyon wells and share of the processing
plant are estimated at 283 Mbbls and 13,106 MMcf. Additional wells are expected
to be connected in 1996 to Whitney Canyon along a recently installed extension
of the gathering system which currently processes gas from the Yellow Creek
field located approximately 35 miles south of the plant.
Mercy Field. The Company owns a non-operated 28.3% working interest in one
well and a 40% non-operated working interest in nine remaining wells in this San
Jacinto County, Texas gas field. As of July 1, 1996, the Company's net
production averaged 2,060 Mcf/d and 110 Bbls/d. The Company and its partners
began drilling an 11,800 foot Wilcox development well during the first week of
September 1996 and thereafter conducted deepening operations in an inactive,
shallow well to the main field gas pays. The operator has set production casing
on both wells. Drilling is planned for a second development well during 1997.
Net proved reserves as of December 31, 1995 were 278 Mbbls and 4,470 MMcf.
Howard Glasscock/Snyder Field. During 1995 the Company acquired an
approximate 50% non-operated working interest position in the Howard
Glasscock/Snyder Field located in Howard County, Texas. The field will be
further developed through water flood operations. As of December 31, 1995, the
Company's net proved reserves were estimated at 1,784 Mbbls. During May 1996 the
Company increased its recently acquired 50% nonoperated interest position in the
Howard Glasscock/Snyder Field, Howard County, Texas, to 75%. Forcenergy and its
partners initiated a planned secondary waterflood project in February 1996. One
shut in well has been reactivated for water injection and twenty new water
injection wells have been drilled. Partial water injection began during August
1996 and is expected to reach full capacity by year end, after the injection
wells are completed. Early in 1996, a second phase of the waterflood project was
identified in the southern field area. This project is expected to add 643 Mbbls
of proved reserves to the existing December 31, 1995 net reserves of 1,764
Mbbls. Current daily production from primary recovery methods is 370 BOPD, or
210 BOPD net to the Company.
ADDITIONAL FUTURE PROJECTS
In addition to the activity described above, the Company has identified a
substantial inventory of additional development, exploratory, workover and
recompletion projects on its existing offshore properties which it may undertake
over the next three to five years. Many of these projects are currently being
reviewed by the Company's geologists and geophysicists utilizing 3-D seismic
data acquired in 1994, 1995, and 1996.
40
<PAGE> 43
OIL AND GAS RESERVES
The following table summarizes the estimates of the Company's historical
net proved reserves as of December 31, 1995 and the present values attributable
to those reserves on such date using constant prices and operating costs as of
the valuation date, discounted at a rate of 10% per annum, in accordance with
Securities and Exchange Commission ("Commission") guidelines. The reserve data
and present values as of December 31, 1995 for the onshore properties have been
estimated by Netherland, Sewell & Associates, Inc., independent petroleum
engineering consultants. The reserve data and present values as of December 31,
1995 for the offshore properties have been estimated by Collarini Engineering
Inc., independent petroleum engineering consultants.
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1995
------------
<S> <C>
NET PROVED RESERVES:
Oil (Mbbls)............................................................. 24,458
Natural gas (MMcf)...................................................... 218,052
Total (MMcfe)................................................. 364,800
Present value of future net revenues before income taxes (thousands).... $540,901
Standardized measure of discounted future net cash
flows (thousands)(1).................................................. $406,956
</TABLE>
- ---------------
(1) The standardized measure of discounted future net cash flows
represents the present value of future net revenues after income
taxes discounted at 10%.
In accordance with applicable requirements of the Commission, estimates of
the Company's proved reserves and future net revenues are made using sales
prices estimated to be in effect as of the date of such reserve estimates and
are held constant throughout the life of the properties (except to the extent a
contract specifically provides for escalation). Estimated quantities of proved
reserves and future net revenues therefrom are affected by oil and gas prices,
which have fluctuated widely in recent years. There are numerous uncertainties
inherent in estimating oil and natural gas reserves and their estimated values,
including many factors beyond the control of the producer. The reserve data set
forth in this Prospectus represents only estimates. Reservoir engineering is a
subjective process of estimating underground accumulations of oil and natural
gas that cannot be measured in an exact manner. 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 of different
engineers, including those used by the Company, may vary. In addition, estimates
of reserves are subject to revision based upon actual production, results of
future development and exploration activities, prevailing oil and gas prices,
operating costs and other factors, which revisions may be material. Accordingly,
reserve estimates are often different from the quantities of oil and natural gas
that are ultimately recovered and are highly dependent upon the accuracy of the
assumptions upon which they are based. The Company's estimated proved reserves
have not been filed with or included in reports to any federal agency.
41
<PAGE> 44
DRILLING ACTIVITY
The following table sets forth the drilling activity of the Company on its
properties for the twelve month periods ended December 31, 1993, 1994, 1995 and
the six-month period ended June 30, 1996:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
-------------------------------------------- ------------
1993 1994 1995 1996
------------ ------------ ------------ ------------
GROSS NET GROSS NET GROSS NET GROSS NET
----- --- ----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OFFSHORE DRILLING ACTIVITY:
Development:
Oil............................. 2 0.6 1 1.0 8 5.9 7.0 5.8
Gas............................. 2 --(1) 5 3.7 2 1.7 4.0 3.5
Non-productive.................. -- -- 1 1.0 -- -- -- --
-- -- --
--- --- --- ---- ---
Total................... 4 0.6 7 5.7 10 7.6 11.0 9.3
== === == === == === ==== ===
Exploratory:
Oil............................. -- -- -- -- 5 5.0 2.0 2.0
Gas............................. -- -- 1 0.3 2 1.5 1.0 1.0
Non-productive.................. 2 0.7 -- -- 2 2.0 -- --
-- -- --
--- --- --- ---- ---
Total................... 2 0.7 1 0.3 9 8.5 3.0 3.0
== === == === == === ==== ===
ONSHORE DRILLING ACTIVITY:
Development:
Oil............................. 25 2.0 9 0.5 2 0.1 1.0 --(1)
Gas............................. 6 2.4 4 1.7 -- -- -- --
Non-productive.................. -- -- -- -- -- -- 1.0 0.2
-- -- --
--- --- --- ---- ---
Total................... 31 4.4 13 2.2 2 0.1 2.0 0.2
== === == === == === ==== ===
Exploratory:
Oil............................. -- -- -- -- -- -- -- --
Gas............................. 3 0.9 4 0.2 1 0.5 -- --
Non-productive.................. 3 0.9 4 2.8 3 2.0 -- --
-- -- --
--- --- --- ---- ---
Total................... 6 1.8 8 3.0 4 2.5 -- --
== === == === == === ==== ===
</TABLE>
- ---------------
(1) The Company has less than a 1% working interest in each of these wells.
PRODUCTIVE WELLS
The following table sets forth the number of productive oil and gas wells
in which the Company owned a working interest at June 30, 1996:
<TABLE>
<CAPTION>
TOTAL PRODUCTIVE
WELLS
----------------
GROSS NET
----- ------
<S> <C> <C>
Oil................................................................ 838 417.4
Gas................................................................ 1,000 428.3
----- -----
Total.................................................... 1,838 845.7
===== =====
</TABLE>
Productive wells consist of producing wells and wells capable of
production, including gas wells awaiting pipeline connections. The Company has
15 wells that are completed in more than one producing horizon; those wells have
been counted as single wells.
42
<PAGE> 45
ACREAGE DATA
The following table sets forth the approximate developed and undeveloped
acreage in which the Company held a leasehold, mineral or other interest at June
30, 1996. 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.
<TABLE>
<CAPTION>
DEVELOPED ACRES UNDEVELOPED ACRES
------------------- ------------------
GROSS NET GROSS NET
------- ------- ------- ------
<S> <C> <C> <C> <C>
Offshore(1).............................. 296,955 180,254 20,127 8,205
Onshore.................................. 608,699 55,521 135,605 38,522
------- ------- ------- ------
Total.......................... 905,654 235,775 155,732 46,727
======= ======= ======= ======
</TABLE>
- ---------------
(1) Offshore includes acreage in federal waters and the state waters of
coastal South Louisiana.
MARKETING AND CUSTOMERS
The Company sells substantially all of its natural gas to unaffiliated
entities under short-term contracts (maximum of one year in duration) at pricing
based on current spot market indexes. A minor portion of the Company's gas
production is committed to be processed through gas plants. Crude oil and
condensate is typically sold at the wellhead on month-to-month contracts at
posted field prices, plus a slight premium, in the area where production occurs.
Approximately 8% of the Company's daily oil production is subject to agreements
with the Company's predecessors in the properties whereby these predecessors
have the right to purchase that production at prices that could be less than
might otherwise be obtained.
Most of the Company's production is transported through gas gathering
systems and oil and gas pipelines which are not owned by the Company.
Transportation space on such gathering systems and pipelines is occasionally
limited and at times unavailable due to repairs or improvements being made to
such facilities or due to such space being utilized by other gas with priority
transportation agreements. Forcenergy's access to transportation options can
also be affected by regulation of intrastate and interstate gas transportation.
In an attempt to promote competition, the Federal Energy Regulatory Commission
("FERC") has issued a series of orders which have altered significantly the
marketing and transportation of natural gas (See "Government Regulation"). The
effect of these orders to date has been to enable producers such as the Company
to market their natural gas production to purchasers other than the interstate
pipelines located in the vicinity of their producing properties. While the
Company has not experienced any inability to market its production, if
transportation space is restricted or is unavailable, the Company's cash flow
could be adversely affected.
During 1994, 1995 and for the six months ended June 30, 1996, certain
purchasers of the Company's production purchased in excess of 10% of the value
of the Company's oil and gas sold by the Company; however, based on the current
demand for oil and natural gas, the Company does not believe the loss of any of
these purchasers would have a material adverse effect on the Company.
The Company utilizes forward sales contracts and commodity swaps for
portions of its current oil and gas production to achieve more predictable cash
flows and to reduce its exposure to fluctuations in oil and gas prices. The
remaining portion of current production has not been hedged so as to provide the
Company the opportunity to benefit from increases in prices on that portion of
the production, should price increases materialize. As of October 1, 1996, the
Company had entered into future sales and swap contracts as a hedge against
possible price declines that effectively fixed sales prices on approximately 76%
of the Company's estimated net oil production for the remainder
43
<PAGE> 46
of the year and for approximately 60% of the Company's estimated net natural gas
production for the remainder of 1996, at $18.05 per barrel and $2.03 per Mcf,
respectively. For this purpose, this estimated net production for the remainder
of the year assumes that current production rates will continue for the rest of
the year; however, in reality, the Company anticipates that production will be
added through its capital program. All of these arrangements are settled on a
monthly basis. The Company accounts for its commodity swaps as hedging
activities and, accordingly, gains or losses are included in oil and gas
revenues for the period the production was hedged.
ABANDONMENT COSTS
The Company is responsible for the costs associated with the plugging of
wells, the removal of facilities and equipment and site restoration on its oil
and gas properties, pro rata to its working interest. The Company provides for
expected future abandonment liabilities by accruing for such costs as a
component of depletion, depreciation and amortization as the properties are
produced. As of December 31, 1995, total undiscounted abandonment costs
estimated to be incurred through the year 2006 were approximately $48 million
for properties in federal and state waters. For onshore properties, salvage
values received for equipment are usually sufficient to offset the abandonment
costs. Estimates of abandonment costs and their timing may change due to many
factors including actual drilling and production results, inflation rates, and
changes in environmental laws and regulations. No significant abandonment costs
are anticipated to be incurred in 1996.
The Minerals Management Service ("MMS") requires lessees of Outer
Continental Shelf ("OCS") properties to post performance bonds in connection
with the plugging and abandonment of wells located offshore and the removal of
all production facilities. Operators in the OCS waters of the Gulf of Mexico are
also currently required to post an area wide bond of the lesser of $3 million,
or $500,000 per producing lease. The Company currently has obtained additional
supplemental bonding on its offshore leases as required by the MMS. Under
certain circumstances, the MMS has the authority to suspend or terminate
operations on federal leases for failure to comply with applicable bonding
requirements or other regulations applicable to plugging and abandonment. Any
such suspensions or terminations of the Company's operations could have a
material adverse effect on the Company's financial condition and results of
operations.
TITLE TO PROPERTIES
As is customary in the oil and natural gas industry, the Company makes only
a cursory review of title to farmout acreage and to onshore undeveloped oil and
natural gas leases upon execution of the contracts. Prior to the commencement of
drilling operations, a thorough title examination is conducted and curative work
is performed with respect to significant defects. The Company performs complete
reviews of title to federal and state offshore lease blocks prior to
acquisition. To the extent title opinions or other investigations reflect
material title defects, the seller of the property, rather than the Company, is
typically responsible for curing any such title defects at its expense. If the
Company were unable to remedy or cure any title defect of a nature such that it
would not be prudent to commence drilling operations on undeveloped properties,
the Company could suffer a loss of its entire investment in the property. The
Company has obtained title opinions on substantially all of its producing
properties and believes that it has satisfactory title to such properties in
accordance with standards generally accepted in the oil and gas industry.
Substantially all of the Company's oil and natural gas properties are and will
continue to be mortgaged to secure borrowings under the Senior Credit Facility.
COMPETITION
Forcenergy encounters competition from other oil and gas companies in all
phases of its operations, including the acquisition of producing properties.
Competitors include major integrated oil and natural gas companies, numerous
independent oil and natural gas companies, individuals and drilling and income
programs. Many competitors are large, well-established companies with
44
<PAGE> 47
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. 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. Forcenergy'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.
OPERATING RISKS OF OIL AND GAS OPERATIONS
The oil and gas business involves certain operating hazards such as well
blowouts, cratering, explosions, uncontrollable flows of oil, natural gas or
well fluids, fires, formations with abnormal pressures, pollution, releases of
toxic gas and other environmental hazards and risks, any of which could result
in substantial losses to the Company through the loss of hydrocarbons, pollution
claims, personal injury suits and damage to properties of the Company and
others. The Company's offshore operations also are subject to the additional
hazards of marine operations, such as severe weather, capsizing and collision
that can cause substantial damage to facilities, and possible business
interruption. The availability of a ready market for the Company's oil and
natural gas production also depends on the proximity of reserves to, and the
capacity of, oil and gas gathering systems, pipelines and trucking or terminal
facilities. Additionally, the Company may be liable for environmental damages
caused by previous owners of property purchased or leased by the Company. 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
development, acquisitions or exploration, or result in the loss of the Company's
properties. In accordance with customary industry practices, Forcenergy
maintains insurance against some, but not all, of such risks and losses. The
Company does not carry business interruption insurance. The occurrence of an
event not fully covered by insurance could have a material adverse effect on the
financial condition, results of operations and cash flow of the Company.
GOVERNMENT REGULATION
The Company's drilling, production and marketing operations are subject to
various types of regulation at the federal, state and local levels. Such
regulation includes requiring permits for the drilling of wells, maintaining
bonding requirements in order to drill or operate wells, and regulating the
location of wells, the surface use and restoration of properties upon which
wells are drilled and the plugging and abandonment of wells. Regulations also
can limit production rates, require capital for environmental compliance and
affect the transportation and marketing of hydrocarbons.
Certain operations the Company conducts are on federal oil and gas leases,
which the MMS administers. The MMS issues such leases through competitive
bidding. These leases contain relatively standardized terms and require
compliance with detailed MMS regulations and orders pursuant to the Outer
Continental Shelf Lands Act ("OCSLA") (which are subject to change by the MMS).
For offshore operations, lessees must obtain MMS approval for exploration plans
and development and production plans prior to the commencement of such
operations. In addition to permits required from other agencies (such as the
Coast Guard, the Army Corps of Engineers and the Environmental Protection
Agency), lessees must obtain a permit from the MMS prior to the commencement of
drilling. The MMS has promulgated regulations requiring offshore production
facilities located on the OCS to meet stringent engineering and construction
specifications. The MMS proposed additional safety-related regulations
concerning the design and operating procedures for OCS production platforms and
pipelines. These proposed regulations were withdrawn pending further discussions
among interested federal agencies. The MMS also has issued regulations
restricting the flaring or venting of natural gas, and has recently proposed to
amend such regulations to prohibit the flaring of liquid hydrocarbons and oil
without prior authorization. Similarly,
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<PAGE> 48
the MMS has promulgated regulations governing the plugging and abandonment of
wells located offshore and the removal of all production facilities. To cover
the various obligations of lessees on the OCS, the MMS generally requires that
lessees post substantial bonds or other acceptable assurances that such
obligations will be met. The cost of such bonds or other surety can be
substantial and there is no assurance that bonds or other surety can be obtained
in all cases. Under certain circumstances, the MMS may require any Company
operations on federal leases to be suspended or terminated. Any such suspension
or termination could materially and adversely affect the Company's financial
condition and operations.
In November 1995, the MMS issued a notice of proposed rulemaking in which
it proposed to amend its regulations governing the calculation of royalties and
the valuation of natural gas produced from federal leases. The principle feature
in the amendments, as proposed, would establish an alternative market-index
based method to calculate royalties on certain natural gas production sold to
affiliates or pursuant to non-arm's-length sales contracts. The MMS proposed
this rulemaking to facilitate royalty valuation in light of changes in the gas
marketing environment. The MMS has recently announced its intention to
reconsider the proposal and reopen the comment period. The MMS has also recently
proposed a rule describing the types of transportation components that are
deductible for calculating and reporting royalties, as well as various cost
components associated with marketing functions that are not deductible. The
Company cannot predict what action the MMS will take on these matters, nor can
it predict at this stage of the rulemaking proceeding how the Company might be
affected if amendments to the regulations are adopted.
In addition, the MMS is conducting an inquiry into certain contract
agreements from which producers on MMS leases have received settlement proceeds
that are royalty bearing and the extent to which producers have paid the
appropriate royalties on those proceeds. The Company believes that this inquiry
will not have a material impact on its financial condition, liquidity or results
of operations.
The FERC regulates interstate natural gas transportation rates and service
conditions, which affect the marketing of natural gas produced by the Company,
as well as the revenues received by the Company for sales of such production.
Since the mid-1980s, the FERC has issued a series of orders, culminating in
Order Nos. 636, 636-A and 636-B ("Order 636"), that have significantly altered
the marketing and transportation of natural gas. Order 636 mandates a
fundamental restructuring of interstate pipeline sales and transportation
service, including the unbundling by interstate pipelines of the sales,
transportation, storage and other components of the city-gate sales services
such pipelines previously performed. One of FERC's purposes in issuing the
orders is to increase competition within all phases of the natural gas industry.
Generally, Order 636 has eliminated or substantially reduced the interstate
pipelines' traditional role as wholesalers of natural gas, and has substantially
increased competition and volatility in natural gas markets. While significant
regulatory uncertainty remains, Order 636 may ultimately enhance the Company's
ability to market and transport its natural gas, although it may also subject
the Company to greater competition and more restrictive pipeline imbalance
tolerances and greater associated penalties for violation of such tolerances.
Numerous parties have filed petitions for review of Order 636, as well as orders
in individual pipeline restructuring proceedings. In July 1996, Order 636 was
generally upheld on appeal. The portions remanded for further action do not
appear to materially affect the Company. It is difficult to predict when all
appeals of Order 636 will be completed or their impact on the Company.
The FERC has recently announced several important transportation-related
policy statements and proposed rule changes. In 1995, the FERC issued a policy
statement on how interstate natural gas pipelines can recover the costs of new
pipeline facilities. In January 1996, the FERC issued a policy statement and a
request for comments concerning alternatives to its traditional cost-of-service
ratemaking methodology, including criteria to be used in evaluating proposals to
charge market-based rates for the transportation of natural gas. In addition,
the FERC recently issued a
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<PAGE> 49
notice of proposed rulemaking pursuant to which it proposes to substantially
revise its regulations regarding releases of firm interstate natural gas
pipeline capacity. While any resulting FERC action regarding these matters would
affect the Company only indirectly, the FERC's current rules and policy
statements may have the effect of enhancing competition in natural gas markets
by, among other things, encouraging non-producer natural gas marketers to engage
in certain purchase and sale transactions. The Company cannot predict what
action the FERC will take on these matters, nor can it accurately predict
whether the FERC's actions will achieve the goal of increasing competition in
markets in which the Company's natural gas is sold. However, the Company does
not believe that it will be treated materially differently than other natural
gas producers and marketers with which it competes.
The FERC also regulates rates and service conditions for interstate
transportation of crude oil, liquids and condensate, which can affect the
revenues the Company receives from the sale of these products. Effective January
1, 1995, the FERC adopted regulations establishing an indexing system for
transportation rates for oil pipelines, which generally indexes such rates to
inflation. These regulations could increase the cost of transporting crude oil,
liquids and condensate by pipeline.
Legislation affecting the oil and gas industry is under constant review for
amendment or expansion by Congress, the FERC, state regulatory bodies and the
courts. The Company cannot predict when or if any such proposals might become
effective, or their effect, if any, on the Company's operations. The natural gas
industry historically has been very heavily regulated; therefore, there is no
assurance that the less stringent regulatory approach recently pursued by the
FERC and Congress will continue indefinitely into the future. The regulatory
burden on the oil and natural gas industry increases the Company's cost of doing
business and, consequently, affects its profitability and cash flow. In as much
as such laws and regulations are frequently expanded, amended or reinterpreted,
the Company is unable to predict the future cost or impact of complying with
such regulations.
ENVIRONMENTAL MATTERS
The Company, as an owner or lessee and operator of oil and gas properties,
is subject to federal, state and local laws and regulations governing the
discharge of materials into, and the protection of, the environment. These laws
and regulations may require the acquisition of a permit before drilling
commences, restrict the types, quantities and concentration of various
substances that can be released into the environment in connection with drilling
and production activities, limit or prohibit drilling activities on certain
lands lying within wilderness, wetlands and other protected areas, and impose
substantial liabilities for pollution resulting from the Company's operations.
Stricter standards in environmental legislation may be imposed in the oil and
gas industry in the future, such as proposals made in Congress and at the state
level from time to time that would reclassify certain oil and natural gas
exploration and production wastes as "hazardous wastes" and make the
reclassified wastes subject to more stringent and costly handling, disposal and
clean-up requirements. The impact of any such changes, however, would not likely
be any more burdensome to the Company than to any other similarly situated
company involved in oil and gas exploration and production.
The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), also known as the "Superfund" law, imposes liability, without regard
to fault or the legality of the original conduct, on certain classes of persons
who are considered to be responsible for the release of a "hazardous substance"
into the environment. These persons include the owner or operator of the
disposal site or sites where the release occurred and companies that disposed or
arranged for disposal of the hazardous substances. Under CERCLA, such persons
may be subject to joint and several liability for the costs of cleaning up the
hazardous substances, for damages to natural resources, and for the costs of
certain health studies. Furthermore, it is not uncommon for neighboring
landowners and other third parties to file claims for personal injury and
property
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damage allegedly caused by hazardous substances or other pollutants released
into the environment.
In addition, the U.S. Oil Pollution Act establishes strict liability for
owners of offshore facilities that are the site of a release of oil into "waters
of the United States" (a term that includes the Gulf of Mexico) and the Act
presently requires owners of offshore facilities to demonstrate that they have
$150 million in insurance coverage or other sources of funds available to cover
costs that might be incurred by governmental authorities in responding to an oil
spill. Congress recently amended the Oil Pollution Act to reduce the level of
"financial responsibility" required by the Act to $35 million, subject to later
increase to as much as $150 million if a formal risk assessment indicates that
the increase is warranted. The amendment is subject to Presidential approval.
The Company maintains insurance coverages which it believes are customary
in the industry although it is not fully insured against many environmental
risks. Although the Company has not experienced any material adverse effect from
compliance with environmental requirements, nor is it aware of any environmental
claims existing at September 30, 1996, there is no assurance that this will
continue in the future.
EMPLOYEES
As of September 30, 1996, the Company had 155 full time employees, 29 of
whom are located at the Company's headquarters in Miami, Florida and 126 of whom
are located at the Company's regional offices in New Orleans, Lafayette and
Intracoastal City, Louisiana and Denver, Colorado. Most of such regional
employees work offshore in the Gulf of Mexico. None of Forcenergy's employees
are represented by a labor union.
OFFICES
The Company currently leases approximately 12,600 square feet of office
space in Miami, Florida, where its principal offices are located, approximately
900 square feet in Denver, Colorado, approximately 17,900 square feet in New
Orleans, Louisiana and approximately 666 square feet in Lafayette, Louisiana.
LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings, other
than ordinary routine litigation incidental to its business, that management
believes would not have a material adverse effect on its financial condition or
results of operations.
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<PAGE> 51
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
executive officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- -------------------------------------------
<S> <C> <C>
Robert Issal....................... 50 Chairman of the Board
Stig Wennerstrom................... 53 President, Chief Executive Officer and
Director
J. Russell Porter.................. 34 Vice President -- Corporate Development
John A. Brush...................... 42 Vice President -- Land and Marketing,
General Counsel, Secretary
Percy A. Payne..................... 55 Vice President -- Exploration and
Production
E. Joseph Grady.................... 43 Vice President, Treasurer and Chief
Financial Officer
Eric Forss......................... 30 Director
Arnold L. Chavkin.................. 44 Director
Kevin S. Penn...................... 35 Director
Bruce L. Burnham................... 62 Director
William F. Wallace................. 57 Director
Jeffrey A. Weber................... 31 Director
</TABLE>
Robert Issal has been Chairman of the Board of Directors of the Company
since May 1994 and has been a director since the Company's inception in
September 1993. Mr. Issal has been Chairman of FAB since May 1994 and served as
Vice Chairman of FAB from April 1992 to April 1994. From 1988 through 1991, Mr.
Issal was President and Chief Executive Officer of Forsheda AB, a Swedish public
company, and from 1991 through 1994 served as President of Abstracta AB. Since
1994, Mr. Issal has served as Chairman and President of Rejmyre Belysning AB
Sweden, a Swedish lighting manufacturer.
Stig Wennerstrom has been President and Chief Executive Officer of the
Company since its inception in September 1993. Prior to the formation of the
Company, Mr. Wennerstrom was the President and Chief Executive Officer of
Forcenergy Gas Exploration Inc ("FGE"), the general partner of Forcenergy
Partners. FGE managed Forcenergy Partners as its general partner (FAB was the
sole limited partner of Forcenergy Partners) from its inception in 1989 until
FGE and Forcenergy Partners were merged into the Company in September 1993.
J. Russell Porter is Vice President -- Corporate Development of the
Company. Mr. Porter joined the Company as Vice President -- Financial Planning &
Analysis in April 1994 and served in that capacity functioning as Chief
Financial Officer until being promoted to his current position in October 1995.
From January 1992 until joining the Company, Mr. Porter held the position of
Vice President in the Natural Resources Group of Internationale Nederlanden
(U.S.) Capital Corporation in New York. From July 1990 to December 1991, Mr.
Porter was an Associate in the Energy Group at Manufacturers Hanover and
Chemical Bank.
John A. Brush is Vice President -- Land and Marketing, General Counsel,
Secretary of the Company. Mr. Brush joined the Company as Vice President -- Land
and General Counsel in November 1993 and served in that capacity until being
appointed to his current position in November 1995. Prior to joining the
Company, Mr. Brush was Manager of Contract Administration with Apache
Corporation from April 1992 to June 1993 and was employed by Hamilton Brothers
Oil Company from July 1985 to January 1992 in various positions.
Percy Payne is Vice President -- Exploration and Production of the Company
and has responsibilities for all Gulf of Mexico and Gulf Coast operations. Prior
to joining the Company in August 1996, Mr. Payne served as President of Payne
Energy Associates, Inc., a privately held consulting group
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<PAGE> 52
formed by Mr. Payne, serving the international oil industry. Prior to
establishing a consulting business in September 1994, Mr. Payne held various
positions during a tenure of 27 years within Shell Oil Company USA among other
positions, most recently serving as Vice President of Pecten International,
Shell Oil Company, USA's international subsidiary. Mr. Payne also served as
General Manager of Operations for the lower 48 states (less California) and
Alaska for Shell Western E&P from April 1986 to September 1991.
E. Joseph Grady is Vice President, Treasurer and Chief Financial Officer of
the Company. Prior to joining the Company in October 1995, Mr. Grady held
various financial management positions within Southdown, Inc. and its
subsidiaries since 1980. Most recently Mr. Grady was Director of Finance for
Southdown Environmental Systems, Inc. from January 1991 until he joined the
Company, and prior to that was with Pelto Oil Company for approximately ten
years, finally serving as Vice President -- Finance.
Eric Forss has been a director of the Company since June 1994. Mr. Forss
has been President of FAB since May 1991. Prior to serving as President, Mr.
Forss had been Vice President of FAB from May 1990 through April 1991. Mr. Forss
has served as a director on the Board of FAB since May 1994.
Arnold L. Chavkin has been a director of the Company since its inception in
1993. Mr. Chavkin has been a General Partner of Chase Capital Partners (formerly
Chemical Venture Partners) since January 1992 and has served as the president of
Chemical Investments, Inc. since March 1991. Prior to March 1991, Mr. Chavkin
was a member of Chase Manhattan (formerly Chemical) Bank's merchant banking
group and a member of its corporate finance group since 1986. Mr. Chavkin serves
as a director on the boards of Reading & Bates Corporation, American Radio
Systems, Inc., Bell Sports Corporation and Wireless One, Inc.
Kevin S. Penn has been a director of the Company since its inception in
1993. Since October 1995, Mr. Penn has served as Managing Director of A.C.
Israel Capital Co., Inc. Mr. Penn was Executive Vice President of First Spring
Corporation from September 1991 to October 1995. From April 1991 to September
1991, Mr. Penn was Director, Financial Planning and Analysis for Primerica
Corporation. From 1987 to 1990, Mr. Penn was a principal with the leveraged
buyout firm of Adler & Shaykin. Mr. Penn serves as a director on the Boards of
T-Chem Products, Inc. and HVE Holdings, Inc.
Bruce L. Burnham has served as President of The Burnham Group, a privately
held consulting and marketing firm formed by Mr. Burnham shortly after retiring
from Dayton's Department Stores in 1984. From 1981 to 1984, Mr. Burnham served
as Chairman and Chief Executive Officer of Dayton's Department Stores in
Minneapolis, Minnesota. From 1979 to 1980, Mr. Burnham was President and Chief
Executive Officer of Bonwit Teller in New York City. From 1978 to 1979, Mr.
Burnham was President and Chief Operating Officer of Jordan Marsh. He serves on
the boards of Paxson Communications Corporation, Financial Benefit Group, Inc.
and J.B. Rudolph, Inc.
William F. Wallace currently is an advisory member of the Beacon Alliance
of the Beacon Group, a private investment and advisory partnership. Prior to
joining the Beacon Alliance in early 1996, Mr. Wallace was Vice Chairman of
Barrett Resources/Plains Petroleum Company and President and Chief Operating
Officer of Plains Petroleum Company. Prior to joining Plains Petroleum Company
in 1994, Mr. Wallace spent a combined total of 23 years with Texaco, Inc., the
last seven of which he served as Regional Vice President.
Jeffrey A. Weber was elected as a Director of the Company on August
29,1996. Mr. Weber currently is President and Chief Executive Officer of Burden
Brothers, Inc., the General Partner of William A.M. Burden & Co., L.P., a
private investment partnership. Prior to joining William A.M. Burden & Co., L.P.
in April 1992, Mr. Weber was an associate with Chemical Venture Partners. Mr.
Weber is also the Investment Advisor to the Florence V. Burden Foundation and
serves as a director of SemiTest, Inc., Datamax International Corporation and
Digital Telmedia, Inc. Mr. Weber
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also serves as an Advisory Board Member and Special Limited Partner of Exeter
Venture Lenders, L.P. and Exeter Equity Partners, L.P., two private investment
partnerships, and as a member of the Advisory Committee of Starwood Capital
Group, L.P., a real estate investment firm.
Members of the Board of Directors are elected each year at the Company's
annual meeting and serve until their successors are duly elected and qualified
or their earlier resignation or removal. Officers serve at the discretion of the
Board of Directors.
SELLING STOCKHOLDERS
The table below sets forth the following information with respect to each
Selling Stockholder in connection with the Common Stock Offering: (1) the number
of shares of Common Stock owned of record immediately prior to the Common Stock
Offering; (2) the number of shares of Common Stock being offered hereby; and (3)
the number of shares of Common Stock and, if one percent or more, the percentage
of the outstanding shares of Common Stock to be owned of record upon the
completion of the Common Stock Offering.
<TABLE>
<CAPTION>
OWNERSHIP BEFORE OWNERSHIP AFTER
OFFERING OFFERING
---------------------- SHARES TO ----------------------
NAME SHARES PERCENT(1) BE SOLD SHARES PERCENT(2)
- -------------------------------------- --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Forcenergy AB......................... 9,040,486 43.4 300,000 8,740,486 39.1
FS Energy Associates, L.P............. 626,041(3) 3.0 626,041 -- --
Brinson Partners, L.P.(4)............. 547,786(5) 2.6 547,786 -- --
Conseco Capital Corporation(4)........ 273,893(6) 1.3 273,893 -- --
Invesco Fund Corp..................... 156,510(7) * 18,684(4) 137,825 *
Clark Partners I...................... 117,383(8) * 117,383 -- --
Burden Investment Fund I, L.P......... 78,255(9) * 78,255 -- --
</TABLE>
- ---------------
* Less than 1%.
(1) Calculated based on 20,835,698 shares outstanding assuming conversion of the
Subordinated Notes and exercise of options held by certain holders of the
Subordinated Notes.
(2) Calculated based on 22,373,656 shares to be outstanding after the Common
Stock Offering.
(3) Gives effect to the conversion of $8.0 million in Subordinated Notes into
551,305 shares of Common Stock and the exercise of options respecting 74,736
shares of Common Stock. Mr. Kevin S. Penn, a director of the Company, served
as an investment advisor to FS Energy Associates, LP.
(4) A manager or general partner of various investment funds invested in the
Subordinated Notes.
(5) Gives effect to the conversion of $7.0 million in Subordinated Notes into
482,392 shares of Common Stock and the exercise of options respecting 65,394
shares of Common Stock.
(6) Gives effect to the conversion of $3.5 million in Subordinated Notes into
241,196 shares of Common Stock and the exercise of options respecting 32,697
shares of Common Stock.
(7) Gives effect to the exercise of options respecting 18,684 shares of Common
Stock.
(8) Gives effect to the conversion of $1.5 million in Subordinated Notes into
103,370 shares of Common Stock and the exercise of options respecting 14,013
shares of Common Stock.
(9) Gives effect to the conversion of $1.0 million in Subordinated Notes into
68,913 shares of Common Stock and the exercise of options respecting 9,342
shares of Common Stock. Mr. Jeffrey Weber, a director of the Company, is
President of Burden Brothers, Inc., the general partner of William A.M.
Burden & Co., L.P., the General Partner of this Fund.
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<PAGE> 54
Each of the Selling Stockholders is party to a voting agreement (the
"Voting Agreement") pursuant to which, among other rights, FAB has the right to
designate two nominees and holders of the Subordinated Notes have the right to
designate three nominees to the Board of Directors. Messrs. Forss and Issal were
designated by FAB and Messrs. Chavkin, Penn and Weber were designated by the
Note Holders pursuant to this Voting Agreement. Upon completion of the Common
Stock Offering, the Voting Agreement will terminate pursuant to its terms. See
"Management" and "Description of Existing Securities and Senior Credit
Facility -- Voting and Holdback Agreement."
The Company leases its principal offices in Miami, Florida from an
affiliate of the Forss family, who collectively own 49.9% of the voting interest
in FAB. The terms of the lease include current monthly payments of $23,612,
subject to a yearly escalation not to exceed 6.75%, and a term of five years,
expiring in November 1998. The Company made payments under such lease of
$175,000, $246,000 and $272,000 in 1993, 1994, and 1995. Annual increases in
lease payments primarily are attributable to the Company's increase in the
amount of leased space. The Company believes that the lease terms are comparable
to those terms which could be obtained from an unaffiliated third party.
In May 1994, the Company issued 2,355,892 shares of Common Stock to FAB in
a private placement resulting in net proceeds of $31.8 million to the Company.
On May 12, 1994, in connection with the Company's sale of Common Stock to
FAB, the Company granted options to the holders of the Subordinated Notes pro
rata in proportion to their holdings of Subordinated Notes to purchase 317,629
shares of Common Stock at an exercise price of $18.18 per share. In connection
with its initial public offering in August 1995, the Company reduced the
exercise price for such options to $15.76 per share and extended the term of the
options to September 15, 2000.
The Company has a consulting arrangement with Wictor Forss, the former
Chairman of the Board of the Company and FAB, whereby Mr. Forss currently
receives $10,000 per month in exchange for consulting services. The arrangement
may be terminated by either party upon 60 days' notice. The Company believes
that Mr. Forss' prior years of service to the Company as a board member enable
him to provide business and financial advice to the Company at a reasonable
cost. The Company does not believe that it could obtain such services from an
unaffiliated third party.
DESCRIPTION OF EXISTING SECURITIES AND SENIOR CREDIT FACILITY
The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock, par value $0.01 per share.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share in the election
of directors and on all other matters submitted to a vote of common stockholders
and do not have cumulative voting rights. Holders of Common Stock are entitled
to receive ratably such dividends, if any, as may be declared by the Board of
Directors out of funds legally available therefore, subject to any preferential
dividend rights of holders of outstanding Preferred Stock. See "Dividend
Policy." Upon the liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to receive ratably the net assets of the
Company available after payment of all debts and other liabilities, subject to
the prior rights of any outstanding shares of Preferred Stock. Holders of Common
Stock have no preemptive, subscription, redemption or conversion rights.
PREFERRED STOCK
The Board of Directors of the Company is empowered, without approval of the
stockholders, to cause shares of Preferred Stock to be issued in one or more
series, with the numbers of shares of
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<PAGE> 55
each series to be determined by it. The Board of Directors is authorized to fix
and determine variations in the designations, preferences, and relative,
participating, optional or other special rights (including, without limitation,
special voting rights to receive dividends or assets upon liquidation, rights of
conversion into Common Stock or other securities, redemption provisions and
sinking fund provisions) between series and between the Preferred Stock or any
series thereof and the Common Stock, and the qualifications, limitations or
restrictions of such rights; and the shares of Preferred Stock or any series
thereof may have full or limited voting powers, or be without voting powers.
Although the Company has no present intention to issue shares of Preferred
Stock, the issuance of shares of Preferred Stock, or the issuance of rights to
purchase such shares, could be used to discourage an unsolicited acquisition
proposal. For instance, the issuance of a series of Preferred Stock might impede
a business combination by including class voting rights that would enable the
holders to block such a transaction; or such issuance might facilitate a
business combination by including voting rights that would provide a required
percentage vote of the stockholders. In addition, under certain circumstances,
the issuance of Preferred Stock could adversely affect the voting power of the
holders of the Common Stock. Although the Board of Directors is required to make
any determination to issue such stock based on its judgment as to the best
interests of the stockholders of the Company, the Board of Directors could act
in a manner that would discourage an acquisition attempt or other transaction in
that some or a majority of the stockholders might believe to be in their best
interest or in which stockholders might receive a premium for their stock over
the then market price for such stock. The Board of Directors does not at present
intend to seek stockholder approval prior to any issuance of currently
authorized stock, unless otherwise required by law or the regulations of the
exchange on which its Common Stock is listed.
WARRANTS
In connection with the offering of the Subordinated Notes, Donaldson,
Lufkin & Jenrette Securities Corporation was granted warrants to purchase 98,337
shares of the Company's Common Stock at an exercise price of $14.51 per share.
The warrants are currently exercisable and have an expiration date of September
14, 1998. To date, none of these warrants have been exercised.
EXCHANGEABLE SUBORDINATED NOTES
The Company has issued an aggregate principal amount of $34 million in
Subordinated Notes which mature on September 15, 2000, pursuant to the Note
Purchase Agreement among the Company and the Note Holders. Interest accrues on
the Subordinated Notes at a rate of 7% per annum, payable semi-annually in
arrears. Principal of the Subordinated Notes is payable upon maturity. If the
Company has not consummated a Qualified Public Offering (as defined below) prior
to September 15, 1998, two years before the maturity date of the Subordinated
Notes, and the Subordinated Notes are not otherwise exchanged into Common Stock,
the holders of the Subordinated Notes will be entitled to an additional payment
on the maturity date of an amount sufficient to provide the Note Holders with a
compounded annual rate of return of 13% from the issuance date of the
Subordinated Notes. The Company is currently accruing interest on the
Subordinated Notes at 13%.
The Subordinated Notes are subordinate to the Senior Credit Facility. The
Company is subject to various covenants pursuant to the Note Purchase Agreement,
including restrictions on other debt, liens, issuance of preferred stock, and
the sale of certain assets, maintenance of certain minimum working capital,
tangible net worth and fixed charge coverage ratios, restrictions on affiliated
transactions, compensation and limitations on the amount of dividends paid. The
Company may pay the principal amount plus accrued interest on the Subordinated
Notes at maturity in shares of Common Stock, subject to a cash make-whole
provision equal to the difference between the cash
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<PAGE> 56
proceeds of the sale of such stock (if sold within 30 days after the stock is
issued) and the amount of principal and interest due.
Each of the holders of the Subordinated Notes may elect at any time to
exchange all or a portion of its Subordinated Notes into such number of shares
of the Company's Common Stock determined by dividing the amount of outstanding
principal of the Subordinated Notes to be exchanged by the exchange price of
$14.51, subject to certain adjustments; provided that no such amount to be
exchanged may be less than the lower of (i) $5 million and (ii) all of such Note
Holder's remaining Subordinated Notes. The number of shares of Common Stock
issuable upon exchange of the Subordinated Notes is subject to adjustment for
various dilutive events, including certain stock issuances. As of the date of
this Prospectus, the Subordinated Notes were exchangeable for approximately
2,343,047 shares of the Company's Common Stock.
Under certain circumstances, the Company may require the Note Holders to
exchange all (but not less than all) of the then outstanding Subordinated Notes
into such number of freely tradeable shares of the Company's Common Stock
determined by dividing the amount of total outstanding principal of the
Subordinated Notes by the exchange price of $14.51, subject to certain
adjustments (the "Call Option"). The Company may only elect to exercise the Call
Option upon the consummation of a "Qualified Public Offering" of Common Stock. A
"Qualified Public Offering" is defined as an offering of not less than 2% of the
Company's outstanding shares at a price of not less than $21.76 per share,
unless the Company elects (as it has in the case of the Common Stock Offering)
to pay the Note Holders selling shares in the offering an amount per share equal
to the difference, if any, between $21.76 and the public offering price (the
"Spread") and to pay such Note Holders that sell shares in any other
arm's-length sale prior to September 15, 2000, an amount per share equal to the
lesser of (i) the Spread and (ii) the difference, if any, between $21.76 and the
sale price in such arm's-length sale. The Company may also be required to pay a
portion of the brokerage commissions of the Note Holders so as to assure that
the Note Holders receive the net sale proceeds of at least $21.16 per share. The
Common Stock Offering will constitute a Qualified Public Offering, and the
Company will exercise the Call Option concurrently with the consummation of the
Common Stock Offering. The Note Holders constituting 75% of the aggregate
principal amount outstanding of the Subordinated Notes may elect to require that
the Company exercise the Call Option at any time prior to maturity regardless of
whether a Qualified Public Offering has been consummated.
The Note Holders may at their election require that the Company prepay the
Subordinated Notes upon the occurrence of a "change of control." A "change of
control" under the Note Purchase Agreement occurs if: (i) any person other than
FAB or two or more persons acting as a group acquire beneficial ownership
(within the meaning of Rule 13d-3 of the Commission under the Securities
Exchange Act of 1934, as amended, and including holding proxies to vote for the
election of directors) of 33 1/3% or more of the outstanding shares of voting
Common Stock without the consent of the Note Holders holding more than 75% of
the principal amount of the outstanding Subordinated Notes and except pursuant
to an exchange of the Subordinated Notes or in connection with a public offering
of securities registered pursuant to the Securities Act; or (ii) there is a sale
of all or substantially all of the assets of the Company or a distribution of
assets of the Company upon a dissolution, winding up, liquidation or
reorganization of the Company.
Upon the occurrence of a "change of control," the Note Holders may elect to
require the Company to redeem the Subordinated Notes at the greater of (i)
149.65% of their outstanding principal amount plus accrued interest and (ii) an
amount sufficient to provide the holders with a compounded annual rate of return
of 15% on the outstanding principal amount of the Subordinated Notes.
The Note Holders are entitled, under certain circumstances, to certain
demand and piggyback registration rights with respect to the Common Stock into
which their Subordinated Notes have been exchanged pursuant to the Note Exchange
Agreement. The holders of no less than 25% of the outstanding principal amount
of the Subordinated Notes may require the Company to effect two
54
<PAGE> 57
registrations of the shares of Common Stock issuable upon the exchange of the
Subordinated Notes. The Note Holders that are not Selling Stockholders under
this offering have waived such registration rights in connection with the
Offering.
Pursuant to the Subordinated Notes, so long as no event of default is in
existence after giving effect to such dividends, the Company may declare and pay
dividends to its stockholders during any fiscal year in an aggregate amount that
may not exceed the lesser of (i) the excess of (a) 60% of the Company's net
income before income taxes and non-cash extraordinary items for the immediately
preceding fiscal year over (b) all income taxes incurred by the Company during
the immediately preceding fiscal year and actually paid, and (ii) a permitted
dividend ceiling which equals $6.7 million in 1996 and increases by 10% each
year; provided that after giving effect to the dividend, the ratio of future net
revenues to total debt on the date of such distribution is greater that 2 to 1.
On May 12, 1994, in connection with the Company's sale of Common Stock to
FAB, the Company granted options to the holders of the Subordinated Notes pro
rata in proportion to their holdings of Subordinated Notes to purchase 317,629
shares of Common Stock at an exercise price of $18.18 per share. In connection
with its initial public offering, the Company reduced the exercise price for
such options to $15.76 per share and extended the term of the options to
September 15, 2000.
VOTING AND HOLDBACK AGREEMENT
The Company, FAB, Wictor Forss and the Note Holders are parties to the
Voting Agreement pursuant to which such persons agree to maintain the size of
the Board of Directors at no more than eight members, designate all eight
nominees to the Board and vote their shares of Common Stock for such nominees.
The Voting Agreement provides that (i) FAB has the right to designate two
nominees, (ii) the Note Holders have the right to designate three nominees,
(iii) the Chief Executive Officer of the Company must be nominated to serve as a
director and shall be Stig Wennerstrom or another person acceptable to the Note
Holders and (iv) two independent directors be nominated by FAB subject to the
approval of the Note Holders. The Voting Agreement provides that as long as each
of FS Energy Associates, L.P. and the Brinson Group holds at least 50% of the
Subordinated Notes (or shares of Common Stock issued in exchange therefor)
originally purchased by such holder, each such holder shall be entitled to
designate one of the three Note Holder nominees to the Board of Directors. The
Voting Agreement, as amended, provides that the independent director nominees
for the Company's 1996 annual meeting have no previous affiliation with FAB. In
connection with the 1996 annual meeting, FAB nominated Bruce L. Burnham and
William F. Wallace. The Note Holders may not vote any securities of the Company
that they own to remove any director nominated by FAB without the prior consent
of FAB. FAB has granted an irrevocable proxy to the Note Holders to vote its
shares of Common Stock solely in connection with the election of directors
pursuant to the provisions, and for the term, of the Voting Agreement. Pursuant
to his Employment Agreement, Stig Wennerstrom cannot be removed as the Company's
President and Chief Executive Officer without the consent of five of the
Company's eight directors.
Without the prior written consent of the holders of a majority of the
shares of Common Stock issuable upon the exchange of the Subordinated Notes, FAB
and Wictor Forss are not permitted to sell any equity securities of the Company
to non-affiliates during (i) the period beginning from the date a registration
statement is filed in connection with a registration of the Company of its
securities pursuant to registration rights being exercised under the Note
Exchange and Registration Rights Agreement and ending 300 days after the closing
date of each underwritten offering made pursuant to such registration statement
and (ii) the period beginning on the date the Company provides written notice to
the Note Holders of its exercise of the Call Option through and ending on the
date on which the closing of the exchange under the Call Option occurs.
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<PAGE> 58
The Voting Agreement terminates on the earliest to occur of: (i) September
15, 2003, (ii) the date on which FAB and its affiliates beneficially own less
than 10% of the then outstanding voting Common Stock and (iii) the date on which
less than $5 million aggregate principal amount of the Subordinated Notes is
outstanding and the Note Holders own less than 5% of the then outstanding shares
of voting Common Stock of the Company. Upon completion of the Common Stock
Offering, the number of shares held by the Note Holders will be reduced to below
5% of the outstanding shares of Common Stock and the Voting Agreement will
terminate pursuant to its terms.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
SENIOR CREDIT FACILITY
The Company has entered into a senior credit facility (the "Senior Credit
Facility") with a maximum loan amount of $120 million and a borrowing base of
$120 million at December 31, 1995, subject to certain financial and operational
criteria. The borrowing base is subject to redetermination semi-annually based
on revised reserve estimates. The loan is collateralized by substantially all of
the Company's oil and gas properties. Effective December 1, 1995, the Senior
Credit Facility was amended to extend the maturities of related borrowings on a
revolving basis through December 31, 1997 and to reduce borrowing rates under
the facility. Future annual principal payments, as a percentage of the principal
balance outstanding at the time of conversion to the term loan, will be 36% in
1998, 30% in 1999, 23% in 2000, and 11% in 2001. The term loan matures on June
30, 2001. During 1995, advances, at the Company's option, bore interest at
either the prime rate plus a variable percentage ranging from .25% to .75% or
LIBOR plus a variable percentage ranging from 2% to 2.5%, based on the Company's
leverage ratio. Effective December 1, 1995, under the amended facility,
advances, at the Company's option, bear interest at either the prime rate or
LIBOR plus 1.375%. Interest on prime loans is due quarterly, while interest on
LIBOR loans is due the earlier of quarterly, or the end of each designated
interest period. Commitment fees on the unused portion of the facility are due
quarterly at an annual rate of 0.5%.
Effective April 26, 1996, the Company renegotiated its Senior Credit
Facility to provide for a total commitment of $195 million, with a current
borrowing base of $175 million. At September 30, 1996, the borrowing base was
increased to $195 million. At September 30, 1996, the Company had approximately
$29.9 million available under the Senior Credit Facility. Subsequent to the
closing of the Offerings and, at the direction of the Company, the borrowing
base under the Senior Credit Facility will be reduced to $50 million from the
current borrowing base of $195 million.
The maximum commitment of $195 million will remain in effect. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The Senior Credit Facility requires the Company to comply with various
customary covenants including, but not limited to, the maintenance of various
financial ratios, and limits the Company's ability to pay dividends on its
Common Stock.
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<PAGE> 59
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement"), the Company and the Selling Stockholders have
agreed to sell to each of the underwriters named below (the "Underwriters"), and
each of the Underwriters, for whom Goldman, Sachs & Co., Donaldson, Lufkin &
Jenrette Securities Corporation, Howard, Weil, Labouisse, Friedrichs
Incorporated and Prudential Securities Incorporated are acting as
representatives (the "Representatives"), has severally agreed to purchase from
the Company and the Selling Stockholders, the respective number of shares of
Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON
UNDERWRITERS STOCK
------------------------------------------------------------------------ ---------
<S> <C>
Goldman, Sachs & Co. ...................................................
Donaldson, Lufkin & Jenrette Securities Corporation.....................
Howard, Weil, Labouisse, Friedrichs Incorporated........................
Prudential Securities Incorporated......................................
---------
Total......................................................... 3,500,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at such
price less a concession of $. per share. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $. per share to certain
brokers and dealers. After the shares of Common Stock are released for sale to
the public, the offering price and other selling terms may from time to time be
varied by the Representatives.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of 525,000
additional shares of Common Stock to cover over-allotments, if any. If the
Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the 3,500,000 shares of Common
Stock offered.
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act.
Certain of the Underwriters are also acting as underwriters in the
Company's concurrent Notes Offering for which they will receive customary
underwriting discounts and commissions.
In connection with the Common Stock Offering, the Company's directors and
officers, the Selling Stockholders and certain of the Company's other
stockholders have agreed that for a period of 90 days from the date of this
Prospectus, such holders will not, without the prior written consent of Goldman,
Sachs & Co., offer, sell, contract to sell, sell any option or contract to
purchase any option or contract to sell, grant any option, right or warrant for
the sale of, pledge, or otherwise dispose of or transfer any shares of Common
Stock other than up to 225,000 shares previously purchased by Stig Wennerstrom
on the open market. In addition, the Company will not, for a period of 90 days
from the date of this Prospectus, without the prior written consent of Goldman,
Sachs & Co., directly or indirectly, offer, contract to sell, sell, grant any
option with respect to, pledge, hypothecate or otherwise dispose of any shares
of Common Stock except for (i) sales of the shares of Common Stock offered
hereby, (ii) issuances pursuant to the exercise of outstanding warrants, stock
options and convertible securities, (iii) grants of options or shares of Common
Stock pursuant to existing employee stock option plans, and (iv) issuances of
Common Stock in
57
<PAGE> 60
connection with bona fide acquisitions wherein the holders have agreed to be
bound by a similar agreement.
In connection with the Common Stock Offering, certain Underwriters and
selling group members (if any) or their respective affiliates who are qualified
market makers on the Nasdaq National Market may engage in passive market making
transactions in the Common Stock on the Nasdaq National Market in accordance
with Rule 10b-6A under the Exchange Act during the two business day period
before commencement of offers or sales of the Common Stock. Passive market
making transactions must comply with applicable volume and price limits and be
identified as such. In general, a passive market maker may display its bid at a
price not in excess of the highest independent bid for such security; if all
independent bids are lowered below the passive market maker's bid, however, such
bid must then be lowered when certain purchase limits are exceeded.
LEGAL MATTERS
Certain legal matters in connection with the securities being offered
hereby are being passed upon for the Company by Vinson & Elkins L.L.P., Houston,
Texas, and for the Underwriters by Andrews & Kurth L.L.P., Houston, Texas.
EXPERTS
The financial statements of the Company as of December 31, 1995 and for the
year ended December 31, 1995, incorporated in this Prospectus by reference to
the Annual Report on Form 10-K of the Company for the year ended December 31,
1995, have been so incorporated in reliance on the report of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of that firm as experts
in accounting and auditing.
The historical statement of revenues and direct operating expenses of the
properties acquired by the Company from Amerada Hess Corporation for the year
ended December 31, 1995, incorporated in this Prospectus by reference to the
current report on Form 8-K/A of the Company, have been so incorporated in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
The financial statements of the Company as of December 31, 1994 and for
each two years in the period ended December 31, 1994, incorporated in this
Prospectus by reference to the Annual Report on Form 10-K of the Company for the
year ended December 31, 1995 and the historical statement of revenues and direct
operating expenses of the Conoco properties for each of the two years in the
period ended December 31, 1994 incorporated in this Prospectus by reference to
the Company's report on Form 8-K dated October 4, 1996, have been so
incorporated in reliance on the reports of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements of Ashlawn Energy, Inc. as of December 31, 1994
and December 31, 1993, and for each two years in the period ended December 31,
1994 and for the period from inception (January 8, 1992) to December 31, 1992
incorporated in this Prospectus by reference to the Current Report on Form 8-K
dated October 4, 1996 have been so incorporated in reliance on the reports of
LaPorte, Sehrt, Romig and Hand APAC, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The estimates of the Company's net proved oil and natural gas reserves
included herein as of January 1, 1996 have been prepared by Collarini
Engineering, Inc. and Netherland, Sewell & Associates, Inc. and by Collarini
Engineering, Inc. and Joe C. Neal & Associates as of January 1, 1995 and 1994.
The reserve estimates prepared by such firms as of January 1, 1995 have also
been audited by Netherland, Sewell & Associates, Inc.
58
<PAGE> 61
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and, in accordance therewith, files reports, proxy and information
statements and other information with the Securities and Exchange Commission
(the "Commission"). Copies of such materials can be obtained by mail from the
Public Reference Section of the Commission, at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, such
reports, proxy and information statements and other information can be inspected
and copied at the public reference facility referenced above and at the
Commission's regional offices at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, Suite 1300, New
York, New York 10048. The Commission maintains a web site (http:\\www.sec.gov)
that contains reports, proxy and information statements and other information
regarding registrants, such as the Company, that file electronically with the
Commission.
The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the securities offered
hereby, reference is hereby made to the Registration Statement, which may be
inspected at the Commission's offices without charge, or copies of which may be
obtained from the Commission upon payment of prescribed fees. Each statement
made in this Prospectus as to the contents of any contract or other document is
not necessarily complete and is qualified in its entirety by reference to the
copy of such contract or other document filed as an exhibit to the Registration
Statement.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission pursuant to the Exchange
Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995;
2. The Company's Quarterly Report on Form 10-Q, including Amendment
No. 1 thereto, for the quarter ended March 31, 1996;
3. The Company's Quarterly Report on Form 10-Q, including Amendment
No. 1 thereto, for the quarter ended June 30, 1996;
4. The Company's Current Report on Form 8-K, including Amendments No.
1 and 2 thereto, filed with the Commission on July 15, July 24 and
September 12, 1996, respectively;
5. The Company's Current Report on Form 8-K filed with the Commission
on October 7, 1996; and
6. The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A, filed with the Commission on
July 14, 1995.
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 Offerings shall be deemed to be incorporated by reference
in this Prospectus and shall be deemed a part hereof from the date of filing of
such documents.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for all purposes to the extent that
a statement contained in the Registration Statement and this Prospectus, or in
any other subsequently filed document which is also, or is deemed to be,
incorporated by reference, modifies or replaces such statement. Any such
statement
59
<PAGE> 62
so modified or superseded shall not be deemed to constitute a part of this
Prospectus, except as so modified or superseded.
The Company will provide without charge to each person to whom this
Prospectus has been delivered, on written or oral request of such person, a copy
(without exhibits, unless such exhibits are specifically incorporated by
reference into such documents) of any or all documents incorporated by reference
in this Prospectus. Requests for such copies should be addressed to --
Attention: Secretary, Forcenergy Inc, 2730 S.W. 3rd Avenue, Suite 800, Miami,
Florida 33129-2237, telephone number (305) 856-8500.
60
<PAGE> 63
GLOSSARY OF OIL AND GAS TERMS
The definitions set forth below shall apply to the indicated terms as used
in this Prospectus. All volumes of natural gas referred to herein are stated at
the legal pressure base of the state or area where the reserves exist and at 60
degrees Fahrenheit and in most instances are rounded to the nearest major
multiple.
Bcf. Billion cubic feet.
Bcfe. Billion cubic feet equivalent, determined using the ratio of six Mcf
of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used herein
in reference to crude oil or other liquid hydrocarbons.
Bbl/d. One Bbl per day.
Btu. British thermal unit, which is the heat required to raise the
temperature of a one-pound mass of water from 58.5 to 59.5 degrees Fahrenheit.
Completion. The installation of permanent equipment for the production of
oil or gas, or in the case of a dry hole, the reporting of abandonment to the
appropriate agency.
Developed acreage. The number of acres which are allocated or assignable to
producing wells or wells capable of production.
Development well. A well drilled within the proved area of an oil or gas
reservoir to the depth of a stratigraphic horizon known to be productive.
Dry hole or well. A well found to be incapable of producing hydrocarbons in
sufficient quantities such that proceeds from the sale of such production exceed
production expenses and taxes.
Exploratory well. A well drilled to find and produce oil or gas reserves
not classified as proved, to find a new reservoir in a field previously found to
be productive of oil or gas in another reservoir or to extend a known reservoir.
Farm-in or farm-out. An agreement whereunder the owner of a working
interest in an oil and gas lease assigns the working interest or a portion
thereof to another party who desires to drill on the leased acreage. Generally,
the assignee is required to drill one or more wells in order to earn its
interest in the acreage. The assignor usually retains a royalty or reversionary
interest in the lease. The interest received by an assignee is a "farm-in" while
the interest transferred by the assignor is a "farm-out."
Field. An area consisting of a single reservoir or multiple reservoirs all
grouped on or related to the same individual geological structural feature
and/or stratigraphic condition.
Gross acres or gross wells. The total acres or wells, as the case may be,
in which a working interest is owned.
Horizontal drilling. A drilling technique that permits the operator to
contact and intersect a larger portion of the producing horizon than
conventional vertical drilling techniques and can result in both increased
production rates and greater ultimate recoveries of hydrocarbons.
Liquids. Crude oil, condensate and natural gas liquids.
Mbbls. One thousand barrels of crude oil or other liquid hydrocarbons.
Mbbls/d. One thousand barrels of crude oil or other liquid hydrocarbons per
day.
Mcf. One thousand cubic feet.
Mcf/d. One thousand cubic feet per day.
Mcfe. One thousand cubic feet equivalent, determined using the ratio of six
Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
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<PAGE> 64
MMbbls. One million barrels of crude oil or other liquid hydrocarbons.
MMBtu. One million Btus.
MMcf. One million cubic feet.
MMcf/d. One million cubic feet per day.
MMcfe. One million cubic feet equivalent, determined using the ratio of six
Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
Net acres or net wells. The sum of the fractional working interests owned
in gross acres or gross wells.
Oil. Crude oil and condensate.
Present value. When used with respect to oil and gas reserves, the
estimated future gross revenue to be generated from the production of proved
reserves, net of estimated production and future development costs, using prices
and costs in effect as of the date indicated, without giving effect to
non-property related expenses such as general and administrative expenses, debt
service and future income tax expenses or to depreciation, depletion and
amortization, discounted using an annual discount rate of 10%.
Productive well. A well that is found to be capable of producing
hydrocarbons in sufficient quantities such that proceeds from the sale of such
production exceed production expenses and taxes.
Proved developed producing reserves. Proved developed reserves that are
expected to be recovered from completion intervals currently open in existing
wells and able to produce to market.
Proved developed nonproducing reserves. Proved developed reserves expected
to be recovered from zones behind casing in existing wells.
Proved reserves. The estimated quantities of crude oil, natural gas and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions.
Proved undeveloped location. A site on which a development well can be
drilled consistent with spacing rules for purposes of recovering proved
undeveloped reserves.
Proved undeveloped reserves. Proved reserves that are expected to be
recovered from new wells on undrilled acreage or from existing wells where a
relatively major expenditure is required from recompletion.
Recompletion. The completion for production of an existing well bore in
another formation from that in which the well has been previously completed.
Reservoir. A porous and permeable underground formation containing a
natural accumulation of producible oil and/or gas that is confined by
impermeable rock or water barriers and is individual and separate from other
reservoirs.
Royalty interest. An interest in an oil and gas property entitling the
owner to a share of oil or gas production free of costs of production.
Undeveloped acreage. Lease acreage on which wells have not been drilled or
completed to a point that would permit the production of commercial quantities
of oil and gas regardless of whether such acreage contains proved reserves.
Updip. A higher point in the reservoir.
Working interest. The operating interest which gives the owner the right to
drill, produce and conduct operating activities on the property and a share of
production.
Workover. Operations on a producing well to restore or increase production.
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----------------------------------------------------------
----------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................ 3
Risk Factors.............................. 10
The Company............................... 16
Disclosure Regarding Forward-Looking
Statements.............................. 16
Notes Offering............................ 17
Use of Proceeds........................... 17
Market for and Recent Prices of Common
Stock................................... 18
Dividend Policy........................... 18
Capitalization............................ 19
Selected Financial Data................... 20
Unaudited Pro Forma Financial
Information............................. 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 27
Business.................................. 34
Management................................ 48
Selling Stockholders...................... 50
Description of Existing Securities and
Senior Credit Facility.................. 51
Underwriting.............................. 56
Legal Matters............................. 57
Experts................................... 57
Available Information..................... 58
Incorporation of Certain Information by
Reference............................... 58
Glossary of Oil and Gas Terms............. 60
</TABLE>
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
3,500,000 SHARES
FORCENERGY INC
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------
PROSPECTUS
------------------
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
HOWARD, WEIL, LABOUISSE, FRIEDRICHS
INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
REPRESENTATIVES OF THE UNDERWRITERS
----------------------------------------------------------
----------------------------------------------------------
<PAGE> 66
***************************************************************************
* *
* 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 OCTOBER 30, 1996
$175,000,000
[FORCENERGY LOGO]
FORCENERGY INC
% SENIOR SUBORDINATED NOTES DUE 2006
---------------------
The Notes to be issued by the Company are offered by the Company and may be
guaranteed on a senior subordinated basis by certain of the Company's future
Restricted Subsidiaries.
Interest on the Notes will be payable in cash in arrears semiannually
on and of each year, commencing , 1997. The Notes are
redeemable in whole or in part at the option of the Company, at any time on or
after , 2001, at the redemption prices set forth herein, together with
accrued and unpaid interest, if any, to the date of redemption. Notwithstanding
the foregoing, prior to , 2001 the Company may redeem the Notes, in
whole or in part, at the Make-Whole Price (as defined) plus accrued and unpaid
interest, if any, to the redemption date. In addition, during the first 36
months after the date of this Prospectus, the Company may, on any one or more
occasions, redeem up to $61.25 million in aggregate principal amount of Notes at
a redemption price of % of the principal amount thereof plus accrued and
unpaid interest, if any, to the redemption date, with the net proceeds of an
offering of common equity of the Company; provided that at least $113.75 million
in aggregate principal amount of Notes must remain outstanding immediately after
the occurrence of such redemption; and provided, further, that any such
redemption shall occur within 60 days of the date of the closing of such
offering of common equity of the Company. Upon the occurrence of a Change of
Control (as defined), each holder of Notes may require the Company to repurchase
all or a portion of such holders' Notes at a repurchase price equal to 101% of
the aggregate principal amount thereof plus accrued and unpaid interest, if any,
to the date of purchase. Furthermore, under certain circumstances, the Company
may become obligated to offer to purchase all or a portion of the Notes at 100%
of the principal amount thereof, together with accrued and unpaid interest, if
any, to the date of purchase with the net proceeds of certain Asset Sales (as
defined herein). See "Description of Notes."
The net proceeds of the Notes Offering will be used to repay bank debt and
for other general corporate purposes. See "Use of Proceeds." The Notes will be
general, unsecured obligations of the Company, will be subordinated to all
Senior Debt of the Company, and will be senior in right of payment to, or pari
passu with, all existing and future subordinated indebtedness of the Company.
Concurrently with the Notes Offering, certain selling stockholders and the
Company are offering 3,500,000 shares (4,025,000 shares if the Underwriters'
over-allotment option is exercised in full) of Common Stock of the Company for
sale to the public in a Common Stock Offering. Consummation of the Notes
Offering and the Common Stock Offering are not contingent upon each other. There
can be no assurance that the Common Stock Offering will be consummated and, if
so, on what terms. As of September 30, 1996, giving pro forma effect to the
proceeds of both of the Offerings, no Senior Debt of the Company would have been
outstanding. See "Use of Proceeds" and "Capitalization."
The Notes will be evidenced by a Global Certificate, in fully registered
form without coupons, deposited with a custodian for and registered in the name
of a nominee of The Depository Trust Company. Except as described herein,
beneficial interests in the Global Certificate will be shown on, and transfers
thereof will be effected only through, records maintained by DTC and its direct
and indirect participants. See "Description of Notes." The Company does not
intend to apply for listing of the Notes on any securities exchange or for
inclusion of the Notes in any automated quotation system. See "Risk Factors --
Absence of a Public Market for the Notes."
SEE "RISK FACTORS" COMMENCING ON PAGE 12, FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS IN CONNECTION WITH AN INVESTMENT IN THE
NOTES.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC
OFFERING UNDERWRITING PROCEEDS TO
PRICE(1) DISCOUNT(2) COMPANY(1)(3)
---------------------------------------------------
<S> <C> <C> <C>
Per Note..................................... % % %
Total........................................ $ $ $
</TABLE>
- ---------------
(1) Plus accrued interest, if any, from , 1996.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(3) Before deducting expenses payable by the Company estimated at $ .
---------------------
The Notes offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that the Notes
will be ready for delivery in book-entry form only through the facilities of DTC
in New York, New York, on or about , 1996, against payment therefor in
immediately available funds.
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LEHMAN BROTHERS
SALOMON BROTHERS INC
---------------------
The date of this Prospectus is , 1996.
<PAGE> 67
FORCENERGY INC
GULF OF MEXICO PROPERTIES
Description of Pictures--Map--Coast of Texas, Louisiana, Mississippi and
part of Alabama. Shows in green land and cities of Houston, Texas and Lafayette
and New Orleans, Louisiana. Shows in light blue the Shelf area offshore, in
medium blue the Flextrend area offshore and in darker blue the Deepwater area
offshore. Traces the boundaries of and states the names for offshore areas,
including: Galveston Island Area, High Island Area, West Addition, East Cameron
Area, Vermilion Area, South Marsh Island Area, Eugene Island Area, Ship Shoal
Area, South Timbalier, Ewing Bank Area, South Palto, Grand Isle, West Delta
Area, South Pass Area, Main Pass Area, Chandeleur Area, East Addition, Viosca
Knoll and Mississippi Canyon. Lease blocks in which the Company has interests
are marked with triangles and footnoted as such. Operated and non-operated
lease blocks are differentiated by the color of the triangles.
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY OR THE NOTES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED AT THE NASDAQ NATIONAL
MARKET, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZATION, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 68
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, included
elsewhere in this Prospectus. Unless otherwise indicated, the information in
this Prospectus assumes that the Underwriters' over-allotment option relating to
the Common Stock Offering will not be exercised. Investors should carefully
consider the information set forth under "Risk Factors." Certain oil and gas
industry terms used in this Prospectus are defined in "Glossary of Oil and Gas
Terms."
THE COMPANY
Forcenergy Inc ("Forcenergy" or the "Company") is an independent oil and
gas company engaged in the exploration, acquisition, development, exploitation
and production of oil and natural gas properties. The Company has experienced
significant growth in the last five years, primarily through the exploitation,
enhancement and development of acquired working interests in producing
properties in the Gulf of Mexico. At December 31, 1995, the Company had net
proved reserves of 365 Bcfe, 71% of which were located in the Gulf of Mexico.
Approximately 60% of the Company's net proved reserves on such date were natural
gas and approximately 69% of proved reserves were classified as proved
developed. The Company currently operates approximately 77% of its Gulf of
Mexico production.
Strategy. The Company's business strategy is to increase reserves and cash
flow through the development, exploration, acquisition and exploitation of its
producing properties in the shallow waters (less than 350 feet) of the Gulf of
Mexico. Management believes that the Company's high quality asset base positions
it for future growth through a continuing program of further development through
selective exploitation and exploratory drilling and through the enhancement of
production through workovers and recompletions. The Company emphasizes the use
of 3-D seismic and computer-aided exploration technology together with geologic
and engineering studies of its properties to evaluate and prioritize drilling
prospects. Focusing drilling activities on producing properties in a relatively
concentrated area in the Gulf of Mexico permits the Company to utilize its base
of geological, engineering and production experience in the region to maximize
its drilling success and to minimize finding and development costs. Furthermore,
the Company's concentration of drilling activities on its producing properties
allows the utilization of existing infrastructure which greatly reduces
incremental lease operating expenses and costs associated with new production
facilities. The Company plans to continue to pursue acquisitions of working
interests in producing properties that offer further development potential and
provide operating synergies with existing properties. As a complement to its
acquisition strategy, the Company also participates in exploration activities
both onshore and in the Gulf of Mexico.
Quality of Asset Base; Drilling Prospects. The Company holds interests in
or rights to 81 lease blocks in federal and state waters in the Gulf of Mexico,
including a 100% working interest in 32 lease blocks and a 50% or greater
working interest in 18 other lease blocks. The Company believes it has assembled
at least a three to five year inventory of development, exploitation and
exploratory drilling opportunities in the Gulf of Mexico on acreage held by
production. Most of the properties comprising this inventory are located in
fields which have prolific production histories and which the Company believes
may yield significant additional reserves through the application of modern
exploration and development technologies. The Company is pursuing the
development of these offshore properties through a combination of development
drilling, recompletions and workovers and exploratory drilling. During 1995, the
Company successfully drilled seven of nine exploratory wells and ten of ten
development wells in the Gulf of Mexico and undertook eight recompletions and 24
workover projects, resulting in initial net production increases of 4,392 Bbls/d
of oil and 27,496 Mcf/d of natural gas. The Company plans to drill 20
development wells in 1996, 14 of which were successfully completed in the first
eight months of 1996, and the Company also has budgeted to drill 20
recompletions and 21 workover projects on its properties in the Gulf of Mexico
during 1996, of which 27 have been completed to date. In addition, eight
exploratory wells have been scheduled during 1996 to provide the Company with
exposure to higher risk, higher
3
<PAGE> 69
potential prospects. Of the eight planned exploratory wells, four have been
drilled and successfully completed, and four remain to be drilled. The Company
anticipates that approximately $98.6 million of its $110 million capital
expenditure budget for 1996 (not including acquisition expenditures) will be
spent on these projects.
Control of Operations and Costs. The Company prefers to operate its
offshore properties to more effectively manage production performance while
controlling operating expenses and the timing and amount of capital
expenditures. Forcenergy operates 90 structures and 242 wells in the Gulf of
Mexico. Management believes that the operating expertise and experience of its
personnel in the Gulf of Mexico have been instrumental in its ability to
significantly enhance and improve production rates and cash flow with minor
incremental costs. A significant portion of the drilling prospects the Company
expects to pursue during the next three to five years are accessible from
existing production facilities operated by the Company. This base of operations
will enable the Company to reduce its per unit operating costs if higher
production volumes are realized. As a result of these factors, the Company
improved its lease operating expense from $.86 per Mcfe of production in 1994,
$.70 per Mcfe of production in 1995 and $.69 per Mcfe of production through
August 31, 1996.
Technology. The Company uses advanced technology in its exploration and
development activities to reduce drilling risks and finding costs and to more
effectively prioritize drilling prospects based on return potential. The Company
has acquired 3-D seismic surveys on 102 offshore lease blocks and currently has
825 square miles of 3-D seismic data and 53,000 linear miles of 2-D seismic data
on its offshore properties. The Company has nine geologists/geophysicists with
average industry experience of 18 years and has invested in seven Landmark
geophysical stations for use in interpreting 3-D seismic data. The ability to
obtain 3-D seismic data for offshore properties at reasonable costs has enabled
the Company to identify multiple development and exploratory prospects in mature
producing fields which were not identified through earlier technologies.
Recent Acquisitions. During 1995, the Company spent an aggregate of
approximately $92.1 million for working interests in 15 different fields that
added 121.9 Bcfe of net proved reserves to its reserve base at an average cost
of $.76 per Mcfe. Approximately $81.6 million of such expenditures were for
interests in ten properties located in the Gulf of Mexico. In the first eight
months of 1996, the Company spent approximately $17.0 million for working
interests in 12 different fields that added 28.3 Bcfe of net proved reserves to
its reserve base at an average cost of $.60 per Mcfe. Major acquisitions during
1995 and 1996 were as follows:
In March 1995, the Company acquired working interests in the South Marsh
Island 136/137 Field and the northern half of South Marsh Island 106 from
Conoco, Inc. (the "Conoco Acquisition") for consideration of $24.5 million. In
April 1995, the Company acquired all the remaining working interests in the
northern half of South Marsh Island 106. The foregoing acquisitions were
particularly attractive because both fields are adjacent to fields in which the
Company holds 100% working interests. The Company had an active drilling program
in Block 106 in 1995 and will have at least one rig in the block for all of
1996. See "Business -- 1995 and 1996 Offshore and Gulf Coast Drilling Activity."
In August 1995, in conjunction with the Company's initial public offering,
the Company acquired all of the outstanding capital stock of Ashlawn Energy,
Inc. ("Ashlawn"), a privately held company with substantial working interests in
the South Pass 24 Field, Vermilion 28 Field and Ship Shoal 26 Field (the
"Ashlawn Acquisition"). The purchase price for the Ashlawn Acquisition consisted
of 3,000,000 shares of Common Stock, $3.3 million in cash and the assumption of
$5.7 million in debt. All of the assumed debt was repaid with the proceeds of
the public offering. The Company conducted an active drilling program on these
properties in 1995 and has continued to pursue additional development projects
on the properties in 1996. See "Business -- 1995 and 1996 Offshore and Gulf
Coast Drilling Activity."
4
<PAGE> 70
In November 1995, the Company acquired an approximate 50% working interest
in certain leases in the Howard Glasscock/Snyder fields in Howard County, Texas
from Saga Petroleum, Inc. for approximately $3.9 million. The Company's 1996
capital budget includes $1.9 million for its pro rata share of drilling
injection wells to initiate a waterflood project in the field. In May 1996, the
Company acquired an additional 25% interest in these leases and surrounding
acreage for $4.0 million. At August 31, 1996, twenty injection wells had been
drilled, five of which had been completed. Additionally, water injection had
commenced on the five completed wells. Initial response to the water flood, if
any, should occur in 1997.
In late 1995, the Company acquired a 100% working interest in the Vermilion
Block 380 Field, located offshore Louisiana, from Texaco Exploration and
Production, Inc. for approximately $650,000. Effective December 1995, the
Company also acquired a 100% working interest in the West Cameron 630 Field,
located offshore Louisiana and an approximate 51.7% working interest in the
Comite Field in East Baton Rouge Parish, Louisiana from Exxon Corporation for
approximately $3.9 million. The Company currently plans to drill an exploratory
well in the West Cameron 630 field in early 1997.
In June 1996, the Company acquired working interests in eleven Gulf of
Mexico producing fields from Amerada Hess Corporation (the "Amerada Hess
Acquisition") for a cash consideration of $6.9 million. In August 1996, the
Company acquired an additional working interest in one of these fields, Mustang
Island 742/754, for approximately $4.0 million, increasing its total working
interest in the field to 100%.
As is customary in the oil and gas industry, the Company from time to time
submits bids to acquire oil and gas properties that are subject to acceptance by
the sellers. Upon acceptance of a bid by the seller, the finalization of such
agreements is contingent on the completion of satisfactory due diligence by the
Company, including title and environmental review. There is no assurance that
sellers will accept any of the bids submitted by the Company or that any such
transactions will be consummated.
Onshore Properties. The Company also owns working and royalty interests in
approximately 1,600 producing oil and gas wells in over 147 fields in the Rocky
Mountain, Gulf Coast, Southwest and Appalachian regions of the United States.
Management believes that the Company's stable reserve base of long-lived,
primarily non-operated, onshore properties complements the Company's Gulf of
Mexico operations by providing an additional source of cash flow that requires
limited management involvement. The Company's onshore properties accounted for
approximately 29% of net proved reserves at December 31, 1995. During 1995, the
Company expended approximately $4.0 million in capital on its onshore
properties, including $3.7 million for drilling and recompletion activities.
Approximately $2.4 million in capital has been spent on the onshore properties
in 1996, the majority of which was focused on the Howard Glasscock/Snyder
fields.
Principal Securityholders. Approximately 49.1% of the Company's Common
Stock is held by Forcenergy AB ("FAB"), the B shares of which are listed on the
Stockholm (Sweden) Stock Exchange. The Forss family beneficially owns a 49.9%
voting interest in FAB. Pursuant to an agreement (the "Voting Agreement") among
FAB, the Company and the holders of the Company's 7% Exchangeable Subordinated
Notes (the "Subordinated Notes"), the size of the Company's Board of Directors
is fixed at no more than eight persons to consist of (i) two designees of FAB,
(ii) three designees of the holders of the Subordinated Notes (the "Note
Holders"), (iii) the Company's Chief Executive Officer and (iv) two independent
directors nominated by FAB and acceptable to the Note Holders. It is anticipated
that following the Common Stock Offering (as defined below), including the sale
by FAB of 300,000 shares in that Offering, that FAB's ownership percentage in
the Company will decrease to approximately 39%. Upon completion of the Common
Stock Offering, the number of shares held by the Note Holders will be reduced to
below 5% of the outstanding shares of Common Stock and the Voting Agreement will
terminate pursuant to its terms. See "Description of Existing Securities and
Senior Credit Facility -- Voting and Holdback Agreement."
5
<PAGE> 71
Recent Developments. Net income for the third quarter ended September 30,
1996 was $2.3 million, or $.13 per common and common equivalent share as
compared to a loss of $(282.000) or $(.02) per share for the same period of last
year. Net income for the nine months ended September 30, 1996 was $6.2 million
or $.34 per common and common equivalent share compared with a loss of $(2.0)
million or $(.18) per share for the same period last year. Revenues for the 1996
third quarter were $37.0 million, a 106% increase over the $18.0 million
reported for the comparable period last year. Revenues for the nine months ended
September 30, 1996 were $94.8 million, 81% higher than the $52.4 million
reported for the nine month period ended September 30, 1995. Cash flow from
operating activities, exclusive of the effects of changes in working capital,
was $20.9 million and $52.7 million for the quarter and nine month periods ended
September 30, 1996, respectively, compared to $8.2 million and $22.5 million for
the comparable periods in 1995, increases of 155% and 134% for the respective
periods.
Liquids, natural gas and total liquids and natural gas production was 1,061
Mbbls and 9,511 MMcf, and 15,877 MMcfe, respectively, for the three months ended
September 30, 1996 as compared to 625 Mbbls, 4,922 MMcf and 8,672 MMcfe for the
three months ended September 30, 1995. For the nine months ended September 30,
1996, liquids, natural gas and total liquids and natural gas production was
2,839 Mbbls, 22,283 MMcf and 39,317 MMcfe, respectively, as compared to 1,684
Mbbls, 16,094 MMcf and 26,198 MMcfe for the comparable period of 1995. Average
realized sales price for liquids and natural gas for the three and nine months
period ended September 30, 1996 was $16.49, $2.04, $16.65 and $2.11,
respectively as compared to $16.23, $1.57, $16.03 and $1.55, respectively, for
the similar periods of 1995.
6
<PAGE> 72
THE NOTES OFFERING
Securities Offered......... $175,000,000 principal amount of % Senior
Subordinated Notes due 2006.
Maturity Date.............. , 2006
Interest Payment Dates..... and of each year, commencing
, 1997.
Optional Redemption........ The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or
after , 2001 at the redemption prices
set forth herein, plus accrued and unpaid interest
to the applicable redemption date. Notwithstanding
the foregoing, the Company at any time prior to
, 2001 may redeem the Notes, in whole
or in part, at the Make-Whole Price plus accrued
and unpaid interest to the date of redemption. In
addition, during the first 36 months after the date
of this Prospectus, up to $61.25 million in
aggregate principal amount of Notes will be
redeemable at the option of the Company on any one
or more occasions from the net proceeds of an
offering of common equity of the Company, at a
price of % of the aggregate principal amount
of the Notes, together with accrued and unpaid
interest to the date of the redemption; provided,
however, that at least $113.75 million in aggregate
principal amount of Notes must remain outstanding
immediately after the occurrence of such
redemption; and provided, further, that any such
redemption shall occur within 60 days of the date
of the closing of such offering of common equity.
See "Description of Notes -- Redemption -- Optional
Redemption."
Mandatory Redemption....... None, except as set forth below under "Offers to
Purchase."
Offers to Purchase......... Upon a Change of Control, holders of the Notes will
have the right to require the Company to repurchase
their Notes, in whole or in part, at a price in
cash equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest to
the date of repurchase. The Indenture will require
that, prior to such a repurchase but in any event
within 90 days of such Change of Control, the
Company must either repay all Senior Debt or obtain
any required consent to such repurchase. See
"Description of Notes--Repurchase at the Option of
Holders -- Change of Control."
In the event of certain asset dispositions, the
Company will be required, under certain
circumstances, to use the Excess Proceeds to offer
to purchase the Notes at 100% of the principal
amount thereof, plus accrued and unpaid interest to
the date of purchase. See "Description of
Notes -- Repurchase at the Option Holders -- Asset
Sales."
Ranking.................... The Notes will be general unsecured obligations of
the Company, which will be subordinated in right of
payment to all Senior Debt of the Company, or pari
passu in right of payment with all existing and
future senior subordinated indebtedness of the
Company and senior in right of payment to all
future subordinated indebtedness of the Company.
The claims of the holders of the Notes will be
subordinated to Senior Debt, none of which, as of
September 30,
7
<PAGE> 73
1996, on a pro forma basis, after giving effect to
the sale of the Notes and the application of the
net proceeds therefrom as described under "Use of
Proceeds," was outstanding. See "Capitalization"
and "Description of Notes -- Subordination."
Certain Covenants.......... The Notes will be issued pursuant to an indenture
(the "Indenture") containing certain covenants,
including, without limitation, covenants with
respect to the following matters: (i) limitation on
disposition of proceeds from asset sales; (ii)
limitation on Restricted Payments, including
payment of dividends, making of distributions or
certain investments; (iii) limitation on additional
indebtedness; (iv) limitation on liens securing
pari passu or subordinated indebtedness of the
Company; (v) limitation on sale and leaseback
transactions; (vi) limitation on dividends and
other payment restrictions affecting Restricted
Subsidiaries; (vii) limitation on mergers,
consolidations and transfers of substantially all
of the Company's assets; and (viii) limitation on
certain transactions with affiliates. See
"Description of Notes -- Repurchase at the Option
of Holders" and "-- Certain Covenants."
Guarantees................. Under certain circumstances, the Company's payment
obligations under the Notes will be jointly and
severally guaranteed on a senior subordinated basis
(the "Subsidiary Guarantees") by certain of the
Company's future Restricted Subsidiaries (the
"Guarantors"). See "Description of
Notes -- Subsidiary Guarantees."
Use of Proceeds............ The net proceeds of the Notes offered hereby
(estimated to be approximately $169.6 million) will
be used to repay all indebtedness outstanding under
the Senior Credit Facility, and the balance will be
used for general corporate purposes. See "Use of
Proceeds."
Common Stock Offering...... Concurrently with the offering of the Notes (the
"Notes Offering"), the Company and certain selling
stockholders (the "Selling Stockholders") are
offering 3,500,000 shares (4,025,000 shares if the
Underwriters' overallotment option is exercised in
full) of Common Stock for sale to the public (the
"Common Stock Offering" and, together with the
Notes Offering, the "Offerings"). The Company will
sell 1,537,958 shares of Common Stock in the Common
Stock Offering (2,062,958 shares if the
over-allotment option is exercised in full). The
holders of the Subordinated Notes and Forcenergy AB
will sell 1,662,042 and 300,000 shares,
respectively. The Company will not receive any
proceeds from the sale of Common Stock by the
Selling Stockholders in the Common Stock Offering.
The consummation of the Notes Offering and the
Common Stock Offering are not contingent upon each
other. See "Common Stock Offering."
RISK FACTORS
Prior to making an investment decision, prospective purchasers of the Notes
should consider all of the information set forth in this Prospectus and should
evaluate the considerations set forth in "Risk Factors."
8
<PAGE> 74
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table presents certain historical and pro forma financial
data as of and for each of the periods indicated. The historical financial data
for the five years ended December 31, 1995 have been derived from the audited
financial statements of the Company. The financial data for the six months ended
June 30, 1995 and 1996 are derived from the Company's unaudited financial
statements which, in the opinion of management, include all adjustments (which
consist only of normal recurring accruals) necessary for a fair presentation of
the financial position and results of operations of the Company for such interim
periods. The following information should be read together with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Pro Forma Financial Information" included in this Prospectus and the Financial
Statements of the Company and incorporated by reference elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------------------------- -------------------------------
PRO FORMA PRO FORMA
1991 1992 1993 1994 1995 1995(1)(11) 1995 1996 1996(2)(11)
------- ------- ------- ------- -------- --------- ------- ------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Oil and gas
sales............ $12,680 $24,937 $49,652(3) $58,354(3) $ 72,147 $93,795 $34,140 $57,477 $66,740
Other.............. 337 475 441(3) 388(3) 494 521 235 276 276
------- ------- ------- ------- ------- ------- ------- ------- -------
13,017 25,412 50,093 58,742 72,641 94,316 34,375 57,753 67,016
------- ------- ------- ------- ------- ------- ------- ------- -------
Expenses:
Lease operating.... 4,091 7,769 16,632 23,744 24,507 32,742 11,602 16,819 19,136
Depreciation,
depletion and
amortization..... 4,216 8,014 19,889 24,572 31,295 41,451 15,560 24,162 28,120
Production taxes... 280 606 1,560 1,701 1,868 2,420 923 1,653 1,653
General and
administrative,
net.............. 1,947 2,523 3,166 6,463 5,670 5,670 2,821 3,575 3,575
------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses......... 10,534 18,912 41,247 56,480 63,340 82,283 30,906 46,209 52,484
------- ------- ------- ------- ------- ------- ------- ------- -------
Income from
operations......... 2,483 6,500 8,846 2,262 9,301 12,033 3,469 11,544 14,532
Interest and other
income (loss)...... 525 197 545 789 (561) 4,121 290 237 1,904
Interest expense, net
of amounts
capitalized........ (233) (2,303) (6,192) (9,529) (11,668) (14,245) (6,519) (5,913) (7,271)
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes....... 2,775 4,394 3,199 (6,478) (2,928) 1,909 (2,760) 5,868 9,165
Income tax provision
(benefit)(4)....... -- -- 2,337 (2,403) (1,075) 713 (1,029) 2,188 3,418
Minority interest.... 83 132 107 -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income
(loss)(4).......... $ 2,692 $ 4,262 $ 755 $(4,075) $ (1,853) 1,196 $(1,731) $ 3,680 $ 5,747
======= ======= ======= ======= ======= ======= ======= ======= =======
Net income (loss) per
share(4)........... $ (.50) $ (.14) $ 0.05 $ (.19) $ .20 $ 0.26
======= ======= ======= ======= ======= =======
UNAUDITED PRO FORMA
DATA(3):
Income before income
taxes, including
minority
interest........... $ 2,692 $ 4,262 $ 3,092
Income tax
provision.......... $ 1,027 $ 1,639 $ 1,207
Net income........... $ 1,665 $ 2,623 $ 1,885
======= ======= =======
Net income per
share.............. $ .26 $ .41 $ .29
======= ======= =======
Weighted average
number of shares
outstanding........ 6,451 6,451 6,520 8,188 12,910 22,346 9,040 18,261 22,356
OTHER FINANCIAL DATA:
Capital
Expenditures(5).... $13,751 $67,660 $53,371 $58,169 $144,689 -- $48,770 $81,168 --
EBITDA(6)............ 7,224 14,711 29,280 27,623 40,035 57,605 19,319 35,943 44,556
Ratio of Earnings to
Fixed
Charges(7)......... 12.9x 2.9x 1.4x N/M N/M N/M N/M 1.7x 1.9x
EBITDA Interest
Coverage(8)........ 31.0x 6.4x 4.5x 2.5x 2.8x 3.2x 2.5x 5.2x 5.1x
Debt/EBITDA(9)....... 1.1x 5.1x 4.3x 4.8x 3.3x 3.0x 8.0x 4.9x 3.9x
</TABLE>
9
<PAGE> 75
<TABLE>
<CAPTION>
PRO FORMA
AT DECEMBER 31, AT JUNE 30, AT
------------------------------------------------------- -------------------- JUNE 30,
1991 1992 1993 1994 1995 1995 1996 1996(10)
------- -------- -------- -------- -------- -------- -------- ---------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Property, plant and equipment,
net............................ $59,691 $112,441 $152,659 $186,241 $298,832 $219,451 $356,030 $356,030
Total assets..................... 71,154 127,685 187,786 220,287 335,090 258,306 391,674 469,416
Total long-term debt............. 7,922 75,758 127,234 131,646 130,729 155,270 175,135 175,000
Stockholders' equity............. 48,612 45,252 43,336 71,061 154,961 69,330 158,710 234,343
</TABLE>
- ---------------
(1) Gives effect to (i) the Conoco Acquisition, the Ashlawn Acquisition and
other lesser 1995 acquisitions by the Company prior to the Company's
initial public offering in August 1995, and the Amerada Hess Acquisition in
June 1996, (ii) the application of the net proceeds of the August 1995
initial public offering, (iii) the Common Stock and Notes Offerings, (iv)
the conversion of the Subordinated Notes into 2,343,047 shares of Common
Stock and (v) the exercise of options to purchase 214,866 shares of Common
Stock by certain holders of the Subordinated Notes as if such transactions
had been consummated on January 1, 1995.
(2) Gives effect to (i) the Amerada Hess Acquisition, (ii) the application of
the net proceeds of the Offerings, (iii) the conversion of the Subordinated
Notes into 2,343,047 shares of Common Stock and (iv) the exercise of
options to purchase 214,866 shares of Common Stock by certain holders of
the Subordinated Notes as if such transactions had taken place on January
1, 1995. The increase of $.10 per share (associated with the Amerada Hess
Acquisition) to the historical results for the six month period ended June
30, 1996 may not be representative of future operations as the reserves
associated with the acquired properties have a high decline rate.
(3) Natural gas liquid revenues for 1993 and 1994 have been reclassified from
plant processing and other revenues to oil and gas sales for consistent
presentation with 1995 revenues.
(4) Prior to September 14, 1993, the Company was exempt from United States
federal and certain state income taxes as a result of its partnership
status. The unaudited pro forma data reflects the income tax expense that
would have been recorded had the Company not been exempt from paying such
income taxes. Net income per share data is described as unaudited pro forma
because of the Company's former partnership status.
(5) Capital expenditures include acquisitions of oil and gas properties
including a non-cash item relating to the 1995 Ashlawn Acquisition,
amounting to $46.4 million.
(6) EBITDA is defined as earnings before interest expense, taxes, depletion,
depreciation and amortization and is presented because it is a widely
accepted financial indication of a Company's ability to service and incur
debt. EBITDA should not be considered as an alternative to earnings (loss)
as an indicator of the Company's operating performance or to cash flows as
a measure of liquidity.
(7) For purposes of determining the ratio of earnings to fixed charges,
earnings are computed as net income (loss) before income taxes, plus fixed
charges. Fixed charges consist of interest expense, whether expensed or
capitalized, on all indebtedness plus amortization of debt issuance costs.
Earnings did not cover fixed charges in the years ended December 31, 1995
and 1994 and for the six months ended June 30, 1995 by $5.5 million, $8.0
million and $3.9 million, respectively.
(8) Represents multiple by which EBITDA exceeds interest expense paid.
(9) Represents multiple by which total long-term debt exceeds EBITDA.
(10) Assumes conversion of the Subordinated Notes into 2,343,047 shares of
Common Stock, the exercise of options by certain holders of the
Subordinated Notes to purchase 214,866 shares of Common Stock and the sale
of 1,537,958 shares of Common Stock at $24.75 per share by the Company.
Also assumes the issuance of $175 million of Senior Subordinated Notes and
the application of the net proceeds therefrom to repay the outstanding
balance of the Senior Credit Facility. All transactions are assumed to be
consummated on June 30, 1996.
(11) If the Company assumed no interest income on the excess proceeds from these
transactions and if interest expense were based only on average borrowings
outstanding for the applicable periods, the proforma amount of net income
and net income per share would be $3.1 million and $.15, respectively, for
the year ended December 31, 1995 and $5.9 million and $.28, respectively,
for the six months ended June 30, 1996.
10
<PAGE> 76
SUMMARY OIL AND GAS RESERVE DATA
The following table summarizes the estimates of the Company's net proved
oil and gas reserves as of the dates indicated and the present value
attributable to these reserves at such dates. The reserve and present value data
as of December 31, 1995 for the onshore properties have been estimated by
Netherland, Sewell & Associates, Inc., independent petroleum engineering
consultants. The reserve and present value data as of December 31, 1995 for the
offshore properties have been estimated by Collarini Engineering Inc.,
independent petroleum engineering consultants. The reserve estimates and present
value data as of December 31, 1994 have been audited by Netherland, Sewell &
Associates, Inc. and such data and estimates as of December 31, 1993 and 1994
were prepared by Collarini Engineering Inc. and Joe C. Neal & Associates,
independent petroleum engineering consultants. For additional information
relating to the Company's oil and natural gas reserves, see "Risk
Factors -- Uncertainty of Reserve Information and Future Net Revenue Estimates,"
"Business -- Oil and Gas Reserves" and the Supplemental Information on Oil and
Gas Producing Activities in Note 16 of the Notes to the Financial Statements of
the Company incorporated by reference elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Proved Reserves:
Oil (Mbbls)............................................ 10,776 11,310 24,458
Natural gas (Mmcf)..................................... 138,862 172,122 218,052
Total (Mmcfe).......................................... 203,518 239,982 364,800
Present value of future net revenues before income
taxes (000s)(1)..................................... $197,965 $171,391 $540,901
Standardized measure of discounted future net cash
flows (000s)(2)..................................... $159,173 $152,627 $406,956
</TABLE>
- ---------------
(1) The present value of future net revenues attributable to the Company's
reserves was prepared using constant prices as of the calculation date,
discounted at 10% per annum on a pre-tax basis.
(2) The standardized measure of discounted future net cash flows represents the
present value of future net revenues after income tax discounted at 10%.
SUMMARY OPERATING DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------- --------------------
PRO FORMA PRO FORMA
1993 1994 1995 1995(1) 1996 1996(2)
------- ------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Production:
Liquids (Mbbls)(3)......... 1,425(4) 1,753(4) 2,343 2,818 1,778 1,844
Natural gas (Mmcf)......... 12,025 17,121 21,112 29,766 12,772 16,218
Total (Mmcfe).............. 20,575 27,639 35,170 46,674 23,440 27,282
Average sales prices:
Liquids (per Bbl).......... $ 16.65 $ 15.04 $ 16.46 $ 16.44 $ 16.75 $ 16.75
Natural gas (per Mcf)...... 2.16 1.87 1.59 1.59 2.17 2.21
Expenses (per Mcfe):
Lease operating............ $ .81 $ .86 $ .70 $ .70 $ .72 $ .70
Production taxes........... .08 .06 .05 .05 .07 .06
Depreciation, depletion and
amortization............ .96 .88 .88 .89 1.03 1.03
General and administrative,
net..................... .15 .23 .16 .12 .15 .13
</TABLE>
- ---------------
(1) Gives effect to the Ashlawn Acquisition, Conoco Acquisition, Amerada Hess
and other acquisitions as if such transactions had been consummated on
January 1, 1995.
(2) Gives effect to the Amerada Hess Acquisition as if it had been consummated
on January 1, 1995.
(3) Includes crude oil, condensate and natural gas liquids.
(4) Includes certain natural gas liquid volumes reclassified to conform with
1995 classifications.
11
<PAGE> 77
RISK FACTORS
The following factors should be considered carefully, together with the
other information contained in this Prospectus before purchasing the securities
offered hereby.
VOLATILITY OF NATURAL GAS AND OIL PRICES
Revenues generated from the Company's operations are highly dependent upon
the price of, and demand for, oil and natural gas. Historically, the markets for
oil and natural gas have been volatile and are likely to continue to be volatile
in the future. Prices for oil and natural gas are subject to wide fluctuations
in response to relatively minor changes in the supply of and demand for oil and
natural gas, market uncertainty and a variety of additional factors that are
beyond the control of the Company. These factors include the level of consumer
product demand, weather conditions, domestic and foreign governmental
regulations, the price and availability of alternative fuels, political
conditions in the Middle East, the foreign supply of oil and natural gas, the
price of foreign imports and overall economic conditions. It is impossible to
predict future oil and natural gas price movements with any certainty. Declines
in oil and natural gas prices may materially adversely affect the Company's
financial condition, liquidity and results of operations. Lower oil and natural
gas prices also may reduce the amount of the Company's oil and natural gas that
can be produced economically. In order to reduce its exposure to price risks in
the sale of its oil and natural gas, the Company enters into hedging
arrangements from time to time. The Company's hedging arrangements apply to only
a portion of its production and provide only limited price protection against
fluctuations in the oil and natural gas markets. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- General" and
"Business -- Marketing and Customers."
The Company uses the full cost method of accounting for its investment in
oil and natural gas properties. Under the full cost method of accounting, all
costs of acquisition, exploration and development of oil and natural gas
reserves are capitalized into a "full cost pool" as incurred, and properties in
the pool are depleted and charged to operations using the unit-of-production
method based on the ratio of current production to total proved oil and natural
gas reserves. To the extent that such capitalized costs (net of accumulated
depreciation, depletion and amortization) less deferred taxes exceed the present
value (using a 10% discount rate) of estimated future net cash flow from proved
oil and natural gas reserves, and the lower of cost or fair value of unproved
properties after income tax effects, such excess costs are charged to
operations. Once incurred, a write-down of oil and natural gas properties is not
reversible at a later date even if oil or natural gas prices increase. While the
Company has never been required to write-down its asset base, significant
downward revisions of quantity estimates or declines in oil and gas prices from
those in effect on December 31, 1995 which are not offset by other factors could
result in a write-down for impairment of oil and gas properties.
REPLACEMENT OF RESERVES
In general, the volume of production from oil and gas properties declines
as reserves are depleted. The rate of decline depends on reservoir
characteristics, and varies from the steep decline rate characteristic of Gulf
of Mexico reservoirs, where the Company has a significant portion of its
production, to the relatively slow decline rate characteristic of the long-lived
fields in the Rocky Mountain, Gulf Coast, Southwest and Appalachian regions.
Except to the extent the Company acquires properties containing proved reserves
or conducts successful development and exploration activities, or both, the
proved reserves of the Company will decline as reserves are produced. The
Company's future oil and natural gas production is, therefore, highly dependent
upon its level of success in finding or acquiring additional reserves. The
business of exploring for, developing or acquiring reserves is capital
intensive. To the extent cash flow from operations is reduced and external
sources of capital become limited or unavailable, the Company's ability to make
the necessary capital investment to maintain or expand its asset base of oil and
natural gas reserves
12
<PAGE> 78
would be impaired. In addition, there can be no assurance that the Company's
future development, acquisition and exploration activities will result in
additional proved reserves or that the Company will be able to drill productive
wells at acceptable costs.
UNCERTAINTY OF RESERVE INFORMATION AND FUTURE NET REVENUE ESTIMATES
There are numerous uncertainties inherent in estimating oil and natural gas
reserves and their estimated values, including many factors beyond the control
of the producer. The reserve data set forth in this Prospectus represents only
estimates. Reservoir engineering is a subjective process of estimating
underground accumulations of oil and natural 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 of oil and natural 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 and
such reserve estimates may be subject to downward or upward adjustment based
upon such factors. Actual production, revenues and expenditures with respect to
the Company's reserves will likely vary from estimates, and such variances may
be material. See "Business -- Oil and Gas Reserves."
The present values of estimated future net cash flows referred to in this
Prospectus should not be construed as the current market value of the estimated
oil and natural 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 natural 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
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 calculation of the
present value of the future net revenues using a 10% discount as required by the
Commission, is not necessarily the most appropriate discount factor based on
interest rates in effect from time to time and risks associated with the
Company's reserves or the oil and gas industry in general.
EFFECTS OF LEVERAGE
The Company's senior secured credit facility (the "Senior Credit Facility")
provides for a commitment of $195 million. At September 30, 1996 the Company had
availability of approximately $29.9 million under the Senior Credit Facility.
Subsequent to the closing of the Offerings and, at the direction of the Company,
the borrowing base under the Senior Credit Facility will be reduced to $50
million from the current borrowing base of $195 million. The maximum commitment
of $195 million will remain in effect. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
The Company's level of indebtedness has several important effects on its
operations, including (i) the covenants contained in the Senior Credit Facility
and the Subordinated Note agreements and the Indenture require the Company to
meet certain financial tests, and other restrictions limit its ability to borrow
additional funds or to dispose of assets and may affect the Company's
flexibility in planning for, and reacting to, changes in business conditions and
(ii) the Company's ability to obtain additional financing in the future for
working capital, capital expenditures, acquisitions,
13
<PAGE> 79
general corporate purposes or other purposes may be impaired. Moreover, future
acquisition or development activities may require the Company to alter its
capitalization significantly. These changes in capitalization may significantly
alter the leverage of the Company or, in the case of the issuance of additional
equity securities, may be dilutive to holders of Common Stock. 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 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 "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
SUBORDINATION OF THE NOTES
The Notes will be subordinated in right of payment to all existing and
future Senior Debt of the Company, which includes all indebtedness under the
Senior Credit Facility. As of September 30, 1996, after giving pro forma effect
of the Offerings and the application of the net proceeds therefrom, the Company
would have no Senior Debt outstanding but would have up to $195 million
available under the Senior Credit Facility which, if borrowed, would be included
as Senior Debt. In the event of a liquidation, dissolution, reorganization,
bankruptcy or any similar proceeding regarding the Company, the assets of the
Company will be available to pay obligations on the Notes only after Senior Debt
of the Company has been paid in full. Accordingly, there may not be sufficient
funds remaining to pay amounts due on all or any of the Notes. See "Description
of Notes -- Subordination."
In addition to being subordinated to all existing and future Senior Debt of
the Company, the Notes will not be secured by any of the Company's assets. The
Company has provided the lenders under the Senior Credit Facility with first
lien deeds of trust on substantially all of the Company's oil and natural gas
properties.
PAYMENT UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of the Notes may
require the Company to repurchase all or a portion of such holder's Notes at
101% of the principal amount of the Notes, together with accrued and unpaid
interest, if any, to the date of repurchase. The Indenture will require that
prior to such a repurchase, the Company must either repay all outstanding Senior
Debt or obtain any required consents to such repurchase. The occurrence of a
Change of Control may result in a default under the Senior Credit Facility. If a
Change of Control were to occur, the Company may not have the financial
resources to repay all of the Senior Debt, the Notes and the other indebtedness
that would become payable upon the occurrence of such Change of Control. See
"Description of Notes -- Repurchase at the Option of Holders -- Change of
Control."
FRAUDULENT CONVEYANCE
Management of the Company believes that the indebtedness represented by the
Notes and the Subsidiary Guarantees is being incurred for proper purposes and in
good faith, and that, based on present forecasts, asset valuations and other
financial information, after the consummation of the Notes Offering, the Company
will be solvent, will have sufficient capital for carrying on its business and
will be able to pay its debts as they mature. See, however, "-- Effects of
Leverage." Notwithstanding management's belief, however, if a court of competent
jurisdiction in a suit by an unpaid creditor or a representative of creditors
(such as a trustee in bankruptcy or a debtor-in-possession) were to find that,
at the time of the incurrence of such indebtedness, the Company or any of the
Guarantors were insolvent, were rendered insolvent by reason of such incurrence,
were engaged in a business or transaction for which its remaining assets
constituted unreasonably small capital, intended to incur, or believed that it
would incur, debts beyond its ability to pay such debts as
14
<PAGE> 80
they matured, or intended to hinder, delay or defraud its creditors, and that
the indebtedness was incurred for less than reasonably equivalent value, then
such court could, among other things, (i) void all or a portion of the Company's
or the Guarantors' obligations to the holders of the Notes, the effect of which
would be that the holders of the Notes may not be repaid in full and/or (ii)
subordinate the Company's or the Guarantors' obligations to the holders of the
Notes to other existing and future indebtedness of the Company to a greater
extent than would otherwise be the case, the effect of which would be to entitle
such other creditors to be paid in full before any payment could be made on the
Notes or the Guarantees.
ABSENCE OF A PUBLIC MARKET FOR NOTES
There is no existing market for the Notes and there can be no assurance as
to the liquidity of any markets that may develop for the Notes, the ability of
holders of the Notes to sell their Notes or the price at which holders would be
able to sell their Notes. Future trading prices of the Notes will depend on many
factors, including, among other things, prevailing interest rates, the Company's
operating results and the market for similar securities. The Company has been
advised by the Underwriters that, subject to applicable laws and regulations,
such firms currently intend to make a market in the Notes after the consummation
of the Notes Offering, although they are not obligated to do so and may
discontinue any market-making activities with respect to the Notes at any time
without notice. The Company does not intend to apply for listing of the Notes on
any securities exchange. See "Underwriting."
CONTROL BY PRINCIPAL SECURITYHOLDERS
The Company's principal stockholder, FAB, currently owns approximately
49.1% of the outstanding shares of Common Stock. Following the Common Stock
Offering and the sale of 300,000 shares held by FAB in the Common Stock
Offering, FAB ownership in the Company will be reduced to approximately 39% of
the outstanding shares of Common Stock. FAB is a publicly traded Swedish company
with two classes of stock, A shares and B shares. There are 1,000,000
outstanding A shares, each of which is entitled to one vote per share, and
13,392,000 outstanding B shares, each of which is entitled to 1/10th of a vote
per share. The B shares of FAB are listed on the Stockholm Stock Exchange. The
Forss family and its affiliates owned all 1,000,000 A shares and 1,665,333 B
shares of FAB as of September 17, 1996. Accordingly, the Forss family had a
49.9% voting interest and a 18.5% economic interest in FAB. Under Swedish law,
new issues of FAB securities are subject to preferential rights of existing
stockholders which gives the Forss family the ability to maintain voting control
over FAB in the event of future stock issuances.
SUBSTANTIAL CAPITAL REQUIREMENTS
The Company makes, and will continue to make, substantial capital
expenditures for the development, exploration, acquisition and production of oil
and natural gas reserves. Historically, the Company has financed these
expenditures primarily with proceeds from bank borrowings, the sale of the
Subordinated Notes, sales of Common Stock and cash generated by operations. The
Company made capital expenditures (including expenditures for acquisitions) of
$144.7 million during 1995 and plans to make capital expenditures, not including
expenditures for acquisitions, of approximately $110 million in 1996. Management
believes that the Company will have sufficient cash provided by operating
activities, borrowings under the Senior Credit Facility and proceeds from the
Offerings to fund planned capital expenditures in 1996. If revenues decrease as
a result of lower oil and gas prices or operating difficulties, or the Company
does not complete each of the Offerings, the Company may be limited in its
ability to expend the capital necessary to undertake or complete its drilling
program in future years. There can be no assurance that additional debt or
equity financing or cash generated by operations will be available to meet these
requirements. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
15
<PAGE> 81
CERTAIN PROVISIONS OF THE SUBORDINATED NOTES
It is currently anticipated that in connection with the Common Stock
Offering, all of the outstanding Subordinated Notes will be exchanged for
2,343,047 shares of Common Stock, equal to approximately 13% of the outstanding
shares of Common Stock, concurrently with the Common Stock Offering. In the
event the Common Stock Offering does not occur, the Subordinated Notes may
remain outstanding and will rank pari passu with the Notes. In addition, if the
Common Stock Offering does not occur, the Subordinated Notes will be redeemable
at a substantial premium in the event of a change of control. See "Description
of Existing Securities and Senior Credit Facility -- Exchangeable Subordinated
Notes."
DRILLING RISKS
Drilling involves numerous risks, including the risk that no commercially
productive natural gas or oil reservoirs will be encountered. The cost of
drilling, completing and operating wells is often uncertain, and drilling
operations may be curtailed, delayed or canceled as a result of a variety of
factors, including unexpected drilling conditions, pressure or irregularities in
formations, equipment failures or accidents, adverse weather conditions and
shortages or delays in the delivery of equipment. The Company's future drilling
activities may not be successful and, if unsuccessful, such failure will have an
adverse effect on the Company's future results of operations and financial
condition.
ACQUISITION RISKS
The Company's rapid growth in recent years has been largely the result of
acquisitions of producing properties. The Company expects to continue to
evaluate and pursue acquisition opportunities which are available on terms
management considers favorable to the Company. The successful acquisition of
producing properties requires an assessment of recoverable reserves, future oil
and gas prices, operating costs, potential environmental and other liabilities
and other factors beyond the Company's control. Such assessments are necessarily
inexact and their accuracy inherently uncertain. In connection with such an
assessment, the Company performs a review of the subject properties that it
believes to be generally consistent with industry practices. Such a review,
however, will not reveal all existing or potential problems nor will it permit a
buyer to become sufficiently familiar with the properties to fully assess their
deficiencies and capabilities. Inspections may not always be performed on every
platform or well, and structural and environmental problems are not necessarily
observable even when an inspection is undertaken. The Company is generally not
entitled to contractual indemnification for pre-closing liabilities, including
environmental liabilities, and generally acquires interests in the properties on
an "as is" basis.
DEPENDENCE ON KEY PERSONNEL
The Company depends to a large extent on the services of its founder, Stig
Wennerstrom, and certain other senior management personnel. The loss of the
services of Mr. Wennerstrom and other senior management personnel could have a
material adverse effect on the Company's operations. The Company has entered
into employment agreements with Messrs. Wennerstrom, J. Russell Porter and E.
Joseph Grady. The Company believes that its success is also dependent upon its
ability to continue to employ and retain skilled technical personnel.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
The Company's business is regulated by certain local, state and federal
laws and regulations relating to the exploration for, and the development,
production, marketing, pricing, transportation and storage of, oil and natural
gas. The Company's business is also subject to extensive and changing
environmental and safety laws and regulations governing plugging and
abandonment, the discharge of materials into the environment or otherwise
relating to environmental protection. As
16
<PAGE> 82
with any owner of property, the Company is also subject to cleanup costs and
liability for hazardous materials, asbestos or any other toxic or hazardous
substance that may exist on or under any of its properties. In addition, the
Company is subject to changing and extensive tax laws, and the effect of newly
enacted tax laws cannot be predicted. The implementation of new, or the
modification of existing, laws or regulations, including amendments to the Oil
Pollution Act of 1990 or regulations which may be promulgated thereunder, could
have a material adverse effect on the Company. See "Business -- Abandonment
Costs," "-- Regulation" and "-- Environmental Matters."
COMPETITION
The oil and gas industry is highly competitive. 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.
OPERATING RISKS OF OIL AND GAS OPERATIONS
The oil and gas business involves certain operating hazards such as well
blowouts, cratering, explosions, uncontrollable flows of oil, natural gas or
well fluids, fires, formations with abnormal pressures, pollution, releases of
toxic gas and other environmental hazards and risks, any of which could result
in substantial losses to the Company. The Company's offshore operations also are
subject to the additional hazards of marine operations, such as severe weather,
capsizing and collision. The availability of a ready market for the Company's
oil and natural gas production also depends on the proximity of reserves to, and
the capacity of, oil and gas gathering systems, pipelines and trucking or
terminal facilities. In addition, the Company may be liable for environmental
damages caused by previous owners of property purchased and leased by the
Company. 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 development, acquisitions or exploration, or result in the
loss of the Company's properties. In accordance with customary industry
practices, the Company maintains insurance against some, but not all, of such
risks and losses. The Company does not carry business interruption insurance.
The occurrence of such an event not fully covered by insurance could have a
material adverse effect on the financial condition and results of operations of
the Company.
17
<PAGE> 83
THE COMPANY
GENERAL
Forcenergy is an independent oil and gas company engaged in the
development, exploration, acquisition and production of domestic oil and natural
gas properties. The Company has experienced significant growth in the last five
years, primarily through the acquisition of producing properties in the Gulf of
Mexico. At December 31, 1995 the Company had net proved reserves of 365 Bcfe,
71% of which were located in the Gulf of Mexico. Approximately 60% of the
Company's net proved reserves on such date were natural gas and approximately
69% were classified as proved developed. The Company currently operates
approximately 77% of its Gulf of Mexico production.
The Company's principal executive offices are located at 2730 SW 3rd
Avenue, Suite 800, Miami, Florida 33129-2237 and its telephone number is (305)
856-8500. Unless the context otherwise requires, the terms "Company" or
"Forcenergy" as used in this Prospectus mean Forcenergy Inc and its predecessor
entities.
RELATIONSHIP WITH FORCENERGY AB
The Company was incorporated in Delaware in August 1993 under the name
Forcenergy Gas Exploration, Inc. to succeed by merger in September 1993 to the
ownership of the oil and gas properties of its predecessor, Forcenergy Partners,
L.P. ("Forcenergy Partners"). Forcenergy Partners was a limited partnership in
which FAB was a 97% limited partner and a corporation wholly owned by Stig
Wennerstrom, the Company's President and Chief Executive Officer, was the 3%
general partner. In connection with the foregoing merger, Mr. Wennerstrom
received shares in FAB and cash. Forcenergy Partners and its predecessors had
been engaged in the domestic oil and gas business since 1982. At the 1996 Annual
Meeting of Stockholders held on May 23, 1996, the Stockholders of the Company
approved a proposal to amend the Company's Amended and Restated Certificate of
Incorporation to effect a change in the name of the Company to "Forcenergy Inc."
Prior to the Company's initial public offering in August 1995, all of the
outstanding shares of Common Stock of the Company were owned by FAB. FAB
currently owns approximately 49.1% of the outstanding shares of Common Stock.
Following the Common Stock Offering, the ownership of Common Stock by FAB will
decrease to approximately 39%. FAB is a publicly traded Swedish company with two
classes of stock, A shares and B shares. Each of the 1,000,000 outstanding A
shares is entitled to one vote per share, and each of the 13,392,000 outstanding
B shares is entitled to 1/10th of a vote per share. The B shares of FAB are
listed on the Stockholm Stock Exchange. The Forss family and its affiliates
owned all 1,000,000 A shares and 1,665,333 B shares as of September 17, 1996.
Accordingly, the Forss family had a 49.9% voting interest and a 18.5% economic
interest in FAB.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). All statements other than statements of historical facts included in this
Prospectus, including without limitation, statements under "Prospectus Summary,"
"Risk Factors" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" regarding the planned capital expenditures, increases
in oil and gas production, the number of anticipated wells to be drilled in 1996
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
18
<PAGE> 84
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 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 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 included in this Prospectus. All
subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by such factors.
COMMON STOCK OFFERING
Concurrently with the Notes Offering, the Company and the Selling
Stockholders are offering 1,537,958 shares and 1,962,042 shares, respectively,
to the public. In addition, in the Common Stock Offering the Company has granted
the Underwriters an option to purchase up to 525,000 additional shares of Common
Stock to cover over allotments. The consummation of the Notes Offering and the
Common Stock Offering are not contingent upon each other and there can be no
assurance that the Common Stock Offering will be consummated, and if so, on what
terms.
USE OF PROCEEDS
The net proceeds of the Notes Offering are estimated to be approximately
$169.6 million. The net proceeds to the Company from the Common Stock Offering
are estimated to be approximately $36.0 million (assuming an initial public
offering price of $24.75 per share and that the underwriters' over-allotment
option is not exercised). The consummation of the Common Stock Offering and the
Notes Offering are not contingent on each other. The Company intends to apply
the net proceeds of the Offerings to repay outstanding indebtedness under the
Senior Credit Facility, which had an outstanding balance of $158.0 million at
September 30, 1996. The Senior Credit Facility had a weighted average interest
rate at September 30, 1996, of approximately 6.9% and matures on December 31,
1997, at which time the amounts outstanding convert to a term loan with
quarterly principal payments due through June 30, 2001. Amounts under the Senior
Credit Facility have been used to fund the Company's capital expenditure program
for acquisitions of oil and gas properties and for general working capital
purposes. The balance of the net proceeds from the Offerings, if any, will be
used for general corporate purposes. The Company may reborrow amounts available
under the Senior Credit Facility to fund the Company's on-going capital
expenditure program and for general working capital purposes. Commitment fees on
the unused portion of the facility are due quarterly at an annual rate of 0.5%.
The Company will not receive any of the proceeds from the sale of Common Stock
by the Selling Stockholders in the Common Stock Offering.
19
<PAGE> 85
CAPITALIZATION
The following table sets forth the capitalization of the Company at June
30, 1996, and as adjusted to give effect to (i) the conversion of the
Subordinated Notes into 2,343,047 shares of Common Stock, (ii) the exercise of
options to purchase 214,866 shares of Common Stock by certain holders of the
Subordinated Notes, (iii) the issuance and sale of 1,537,958 shares of Common
Stock by the Company pursuant to the Common Stock Offering (assuming an offering
price of $24.75 per share in the Common Stock Offering and that the
underwriters' over-allotment option is not exercised), (iv) the issuance of $175
million of aggregate principal amount of Notes pursuant to the Notes Offering
and (v) the application of the net proceeds from the Offerings as described in
"Use of Proceeds" assuming such transactions occurred on June 30, 1996. This
table 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 Financial Statements of the Company and the related Notes
thereto incorporated by reference elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT JUNE 30, 1996
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Senior Credit Facility............................................... $135,118 $ --
7% Exchangeable Subordinated Notes(1)................................ 40,017 --
% Senior Subordinated Notes due 2006............................... -- 175,000
-------- --------
Total long-term debt....................................... 175,135 175,000
Stockholders' equity:
Preferred Stock, $.01 par value, 5,000,000 shares authorized; no
shares issued and outstanding................................... -- --
Common Stock, $.01 par value, 50,000,000 shares authorized;
18,267,785 issued and outstanding; 22,363,656 shares as
adjusted(2)..................................................... 183 223
Capital in excess of par value..................................... 163,447 239,040
Accumulated deficit................................................ (4,920) (4,920)
-------- --------
Total stockholders' equity................................. 158,710 234,343
-------- --------
Total capitalization....................................... $333,845 $ 409,343
======== ========
</TABLE>
- ---------------
(1) Includes $34 million in aggregate principal amount payable upon maturity and
approximately $6.0 million in deferred interest.
(2) Does not include 2,385,424 shares of Common Stock issuable pursuant to
outstanding options and warrants to purchase Common Stock held by management
and others. As adjusted at June 30, 1996, does not include 2,365,558 shares
of Common Stock underlying options and warrants to purchase Common Stock
held by management and others.
20
<PAGE> 86
SELECTED FINANCIAL DATA
The following table sets forth selected historical financial data for the
Company as of and for each of the periods indicated. The financial data as of
and for each of the four years in the period ended December 31, 1994 are derived
from the financial statements of the Company audited by Price Waterhouse LLP,
independent accountants. The financial data as of and for the year ended
December 31, 1995 is derived from the financial statements of the Company
audited by Coopers & Lybrand L.L.P., independent accountants. The financial data
for the six months ended June 30, 1995 and 1996 are derived from the Company's
unaudited financial statements which, in the opinion of management, include all
adjustments (which consist only of normal recurring adjustments) necessary for a
fair presentation of the financial position and results of operations of the
Company for such interim periods.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Oil and gas sales.......................... $12,680 $24,937 $49,652(1) $58,354(1) $72,147 $34,140 $57,477
Other...................................... 337 475 441(1) 388(1) 494 235 276
------- ------- ------- ------- ------- ------- -------
13,017 25,412 50,093 58,742 72,641 34,375 57,753
------- ------- ------- ------- ------- ------- -------
Expenses:
Lease operating............................ 4,091 7,769 16,632 23,744 24,507 11,602 16,819
Depreciation, depletion and amortization... 4,216 8,014 19,889 24,572 31,295 15,560 24,162
Production taxes........................... 280 606 1,560 1,701 1,868 923 1,653
General and administrative, net............ 1,947 2,523 3,166 6,463 5,670 2,821 3,575
------- ------- ------- ------- ------- ------- -------
Total operating expenses............... 10,534 18,912 41,247 56,480 63,340 30,906 46,209
------- ------- ------- ------- ------- ------- -------
Income from operations....................... 2,483 6,500 8,846 2,262 9,301 3,469 11,544
Interest and other income (loss)............. 525 197 545 789 (561) 290 237
Interest expense, net of amounts
capitalized................................ (233) (2,303) (6,192) (9,529) (11,668) (6,519) (5,913)
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes............ 2,775 4,394 3,199 (6,478) (2,928) (2,760) 5,868
Income tax provision (benefit)(2)............ -- -- 2,337 (2,403) (1,075) (1,029) 2,188
Minority interest............................ 83 132 107 -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss)(2)......................... $ 2,692 $ 4,262 $ 755 $(4,075) $(1,853) $(1,731) $ 3,680
======= ======= ======= ======= ======= ======= =======
Net income (loss) per share(2)............... $ (.50) $ (.14) $ (.19) $ .20
======= ======= ======= =======
UNAUDITED PRO FORMA DATA(2):
Income before income taxes, including
minority interest.......................... $ 2,692 $ 4,262 $ 3,092
Income tax provision......................... $ 1,027 $ 1,639 $ 1,207
------- ------- -------
Net income................................... $ 1,665 $ 2,623 $ 1,885
======= ======= =======
Net income per share......................... $ .26 $ .41 $ .29
======= ======= =======
Weighted average number of shares
outstanding................................ 6,451 6,451 6,520 8,188 12,910 9,040 18,261
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------- JUNE 30,
1991 1992 1993 1994 1995 1996
------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Property, plant and equipment, net.................... $59,691 $112,441 $152,659 $186,241 $298,832 $356,030
Total assets.......................................... 71,154 127,685 187,786 220,287 335,090 391,674
Total long-term debt.................................. 7,922 75,758 127,234 131,646 130,729 175,135
Stockholders' equity.................................. 48,612 45,252 43,336 71,061 154,961 158,710
OTHER FINANCIAL DATA:
Ratio of Earnings to Fixed Charges(3)................. 12.9x 2.9x 1.4x 0.3x 0.6x 1.7x
Capital Expenditures(4)............................... 13,751 67,660 53,371 58,169 144,689 81,168
EBITDA(5)............................................. 7,224 14,711 29,280 27,623 40,035 35,943
EBITDA Interest Coverage(6)........................... 31.0x 6.4x 4.5x 2.5x 2.8x 5.2x
Debt/EBITDA(7)........................................ 1.1x 5.1x 4.3x 4.8x 3.3x 4.9x
</TABLE>
- ---------------
(1) Natural gas liquid revenues for 1993 and 1994 have been reclassified from
plant processing and other revenues to oil and gas sales for consistent
presentation with 1995 revenues.
(2) Prior to September 14, 1993, the Company was exempt from United States
federal and certain state income taxes as a result of its partnership
status. The unaudited pro forma data reflects the income tax expense that
would have been recorded had the Company not been exempt from paying such
income taxes. Net income per share data for 1991, 1992 and 1993 is described
as unaudited pro forma because of the Company's former partnership status.
(3) For purposes of determining the ratio of earnings to fixed charges, earnings
are computed as net income (loss) before income taxes, plus fixed charges.
Fixed charges consist of interest expense, whether expensed or capitalized,
on all indebtedness plus amortization of debt issuance costs. Earnings did
not cover fixed charges in the years ended December 31, 1995 and 1994 and
for the six months ended June 30, 1995 by $5.5 million, $8.0 million and
$3.9 million, respectively.
(4) Capital expenditures include acquisitions of oil and gas properties
including non-cash items relating to the 1995 Ashlawn Acquisition amounting
to $46.4 million.
(5) EBITDA is defined as earnings before interest, taxes, depletion,
depreciation and amortization and is presented because it is a widely
accepted financial indication of a Company's ability to service and incur
debt. EBITDA should not be considered as an alternative to earnings (loss)
as an indicator of the Company's operating performance or to cash flows as a
measure of liquidity.
(6) Represents multiple by which EBITDA exceeds interest expense paid for period
presented.
(7) Represents multiple by which total long-term debt exceeds EBITDA.
21
<PAGE> 87
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma statement of operations for the six months ended
June 30, 1996 gives effect to the Amerada Hess Acquisition, the Notes and Common
Stock Offerings, the conversion of the Subordinated Notes into 2,343,047 shares
of Common Stock and the exercise of options to purchase 214,866 shares of Common
Stock by certain holders of the Subordinated Notes as if they had been
consummated on January 1, 1995. The unaudited pro forma statement of operations
for the year ended December 31, 1995 gives effect to the Conoco Acquisition, the
Ashlawn Acquisition and certain other smaller acquisitions consummated prior to
the 1995 Initial Public Offering ("the 1995 Acquisitions"), the 1995 Initial
Public Offering, the Amerada Hess Acquisition, the Notes and Common Stock
Offerings, the conversion of the Subordinated Notes into 2,343,047 shares of
Common Stock and the exercise of options to purchase 214,866 shares of Common
Stock by certain holders of the Subordinated Notes as if they had occurred on
January 1, 1995. The unaudited pro forma balance sheet as of June 30, 1996 gives
effect to the Notes and Common Stock Offerings and includes the assumed
conversion of the 7% Exchangeable Subordinated Notes to Common Stock of the
Company pursuant to the provisions of the Note Exchange and Registration Rights
Agreement, as amended ("ESN Conversion") and the exercise of 214,866 options to
purchase Common Stock by certain holders of the Subordinated Notes, as if they
had occurred on June 30, 1996. The 1995 Acquisitions and the Amerada Hess
Acquisition have been accounted for using the purchase method of accounting.
Such unaudited pro forma financial information has been prepared based on
estimates and assumptions deemed by the Company to be appropriate and does not
purport to be indicative of the financial position or results of operations
which would actually have been obtained if the 1995 Acquisitions, the Amerada
Hess Acquisition, the 1995 Initial Public Offering, the Notes and Common Stock
Offerings and the ESN Conversion had occurred as presented in such statements or
which may be obtained in the future. In addition, future results may vary
significantly from the results reflected in such statements due to oil and gas
production declines, price changes, future supply and demand, financial
instrument agreements, future acquisitions and other factors. See "Management's
Discussion and Analysis of Financial Condition and Result of Operations."
The pro forma financial information should be read in conjunction with the
historical financial statements of the Company and the audited financial
information on the Conoco and Ashlawn Acquisitions and the Amerada Hess
Acquisition which are incorporated herein by reference.
22
<PAGE> 88
FORCENERGY INC
PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
PROFORMA ADJUSTMENTS
---------------------------
FORCENERGY AMERADA HESS AMERADA HESS
HISTORICAL ACQUISITION(A) ACQUISITION OFFERINGS PRO FORMA
---------- ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues:
Oil and gas sales................ $57,477 $9,263 $ -- $ -- $66,740
Other............................ 276 0 -- -- 276
------- ------ ------- ------- -------
Total revenues........... 57,753 9,263 -- -- 67,016
Operating Expenses:
Lease operating.................. 16,819 2,317 -- 19,136
Depletion, depreciation and
amortization.................. 24,162 -- 3,958(b) -- 28,120
Production taxes................. 1,653 -- -- -- 1,653
General and administrative,
net........................... 3,575 -- -- -- 3,575
------- ------ ------- ------- -------
Total operating
expenses............... 46,209 2,317 3,958 0 52,484
------- ------ ------- ------- -------
Income (loss) from operations...... 11,544 6,946 (3,958) 0 14,532
Interest and other
income........................... 237 -- -- 1,667(c) 1,904
Interest expense, net.............. (5,913) -- 0 (1,358)(d) (7,271)
------- ------ ------- ------- -------
Income (loss) before income taxes.. 5,868 6,946 (3,958) 309 9,165
Income tax provision............... 2,188 -- 1,115(e) 115(e) 3,418
------- ------ ------- ------- -------
Net income (loss).................. $ 3,680 $6,946 $(5,073) $ 194 $ 5,747
======= ====== ======= ======= =======
Net income (loss) per share........ $ 0.20 $ 0.26
======= =======
Weighted average shares
outstanding...................... 18,261 22,356
</TABLE>
23
<PAGE> 89
FORCENERGY INC
PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
FORCENERGY 1995 AMERADA HESS --------------------------
HISTORICAL(F) ACQUISITIONS(F) ACQUISITION(G) ACQUISITIONS OFFERINGS PRO FORMA
------------- --------------- --------------- ------------ --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Oil and gas Sales........ $ 72,147 $8,009 $13,639 $ -- $ -- $ 93,795
Other.................... 494 27 -- -- -- 521
-------- ------ ------- ------- ------- --------
Total revenues... 72,641 8,036 13,639 -- -- 94,316
Operating Expenses:
Lease operating.......... 24,507 2,596 5,639 -- -- 32,742
Depletion, depreciation
and amortization...... 31,295 699 -- 9,457(b) -- 41,451
Production taxes......... 1,868 552 -- -- -- 2,420
General and
administrative, net... 5,670 621 -- (621)(h) -- 5,670
-------- ------ ------- ------- ------- --------
Total operating
expenses....... 63,340 4,468 5,639 8,836 -- 82,283
-------- ------ ------- ------- ------- --------
Income (loss) from
operations............... 9,301 3,568 8,000 (8,836) -- 12,033
Interest and other income
(loss)................... (561) -- -- -- 4,682(c) 4,121
Interest expense, net...... (11,668) (183) -- -- (2,394)(d) (14,245)
-------- ------ ------- ------- ------- --------
Income (loss) before income
taxes.................... (2,928) 3,385 8,000 (8,836) 2,288 1,909
Income tax provision
(benefit)................ (1,075) -- -- 935(e) 853(e) 713
-------- ------ ------- ------- ------- --------
Net income (loss).......... (1,853) 3,385 8,000 (9,771) 1,435 1,196
======== ====== ======= ======= ======= ========
Net income (loss) per
share.................... (0.14) 0.05
Weighted average shares
outstanding.............. 12,910 22,346
</TABLE>
24
<PAGE> 90
FORCENERGY INC
PRO FORMA BALANCE SHEET
AS OF JUNE 30, 1996
ASSETS:
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Current Assets:
Cash............................................. $ 173 $ 3,386(i) $ 74,052
36,011(j)
169,600(k)
(135,118)(l)
Accounts receivable, net......................... 18,312 -- 18,312
Other current assets............................. 8,829 -- 8,829
-------- --------- --------
Total current assets..................... 27,314 73,879 101,193
-------- --------- --------
Investment in surety bonds, at cost.............. 3,813 -- 3,813
-------- --------- --------
Property, plant and equipment, at cost (full cost
method) net of accumulated depletion,
depreciation and amortization................. 356,030 -- 356,030
-------- --------- --------
Other assets..................................... 4,517 (1,537)(m) 8,380
5,400(k)
-------- --------- --------
$391,674 $ 77,742 $469,416
======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable................................. $ 13,271 $ -- $ 13,271
Other accrued liabilities........................ 29,140 -- 29,140
-------- --------- --------
Total current liabilities................ 42,411 -- 42,411
-------- --------- --------
Long-term debt..................................... 175,135 (34,000)(m) 175,000
(6,017)(m)
175,000(k)
(135,118)(l)
-------- --------- --------
Deferred income taxes.............................. 15,418 2,244(m) 17,662
-------- --------- --------
Stockholders' Equity
Preferred stock, $.01 par value, 5,000,000 shares
authorized; none issued or outstanding........ -- -- --
Common stock, $.01 par value, 50,000,000 shares
authorized; 18,267,785 and 22,363,656 issued
and outstanding at historical June 30, 1996
and proforma June 30, 1996, respectively...... 183 23(m) 223
2(i)
15(j)
Capital in excess of par value................... 163,447 36,213(m) 239,040
3,384(i)
35,996(j)
Accumulated deficit.............................. (4,920) -- (4,920)
-------- --------- --------
Total stockholders' equity............... 158,710 75,633 234,343
-------- --------- --------
Total Liabilities and Stockholders' Equity......... $391,674 $ 77,742 $469,416
======== ========= ========
</TABLE>
25
<PAGE> 91
FORCENERGY INC
NOTES TO PRO FORMA FINANCIAL STATEMENTS
1. BASIS FOR PRESENTATION OF PRO FORMA FINANCIAL STATEMENTS
The pro forma financial information should be read in conjunction with the
historical financial statements of the Company and the audited financial
information on the Conoco and Ashlawn Acquisitions and the Amerada Hess
Acquisition which are included herein by reference.
The unaudited pro forma statement of operations for the six months ended
June 30, 1996 gives effect to the Amerada Hess Acquisition and the Notes and
Common Stock Offerings, the conversion of the Subordinated Notes into 2,343,047
shares of Common Stock and the exercise of options to produce 214,866 of Common
Stock by certain holders of the Subordinated Notes as if they had been
consummated on January 1, 1995. The unaudited pro forma statement of operations
for the year ended December 31, 1995 gives effect to the Conoco Acquisition, the
Ashlawn Acquisition and certain other smaller acquisitions consummated prior to
the 1995 Initial Public Offering ("the 1995 Acquisitions"), the 1995 Initial
Public Offering, the Amerada Hess Acquisition, the Notes and Common Stock
Offerings, the conversion of the subordinated Notes into 2,343,047 shares of
Common Stock and the exercise of options to produce 214,866 of Common Stock by
certain holders of the Subordinated Notes as if they had occurred on January 1,
1995. The unaudited pro forma balance sheet as of June 30, 1996 gives effect to
the Notes and Common Stock Offerings and includes the assumed conversion of the
Subordinated Notes to Common Stock of the Company pursuant to the provisions of
the Note Exchange and Registration Rights Agreement, as amended ("ESN
Conversion") and the exercise of 214,866 options to purchase Common Stock by
certain holders of the Subordinated Notes, as if they had occurred on June 30,
1996. The 1995 Acquisitions and the Amerada Hess Acquisition have been accounted
for using the purchase method of accounting. Such unaudited pro forma financial
information has been prepared based on estimates and assumptions deemed by the
Company to be appropriate and does not purport to be indicative of the financial
position or results of operations which would actually have been obtained if the
1995 Acquisitions, the Amerada Hess Acquisition, the 1995 Initial Public
Offering, the Notes and Common Stock Offerings had occurred as presented in such
statements or which may be obtained in the future. In addition, future results
may vary significantly from the results reflected in such statements due to oil
and gas production declines, price changes, future supply and demand, financial
instrument agreements, future acquisitions and other factors. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
2. ADJUSTMENTS
(a) This column reflects the historical oil and gas revenues and direct
operating expenses of the properties acquired pursuant to the Amerada Hess
Acquisition for the six-month period ended June 30, 1996.
(b) Adjustment to reflect the depletion, depreciation and amortization of
oil and gas properties giving consideration to applicable acquisitions.
(c) Adjustment to reflect interest income assumed at 4.5% earned on
invested cash assuming the following transactions occurred on January 1, 1995:
receipt of $55.7 million in net proceeds from the 1995 Initial Public Offering,
$169.6 million in net proceeds from the Notes Offering, $34.9 million in net
proceeds from Common Stock Offering (1,537,958 shares at an assumed offering
price of $24.75 per share) and repayment of outstanding borrowings under the
Senior Credit Facility of $95.0 million, payment for the 1995 Acquisitions and
Amerada Hess Acquisition of $51.3 million and $6.9 million, respectively, and
also taking into consideration other cash in-flows and out-flows during the
respective periods. If the Company assumed no interest income on the excess
proceeds from these transactions and if interest expense were based only on
average borrowings outstanding for the applicable periods, the proforma amount
of net income and net income per share would be
26
<PAGE> 92
FORCENERGY INC
NOTES TO PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
$3.1 million and $.15, respectively, for the year ended December 31, 1995 and
$5.9 million and $.28, respectively, for the six months ended June 30, 1996.
(d) Increase in interest expense assuming the $175 million Notes Offering
closed on January 1, 1995 at an assumed interest rate of 9.25%, including
adjustments for debt issuance cost and capitalized interest.
(e) Adjustment to income tax expense reflecting the results of the
transactions contemplated herein.
(f) Forcenergy Historical results of operations include the historical
results of operations of oil and gas revenues and direct operating expenses, as
applicable, for the 1995 Acquisitions from the respective closing dates to
December 31, 1995 and the 1995 Acquisitions column include the 1995 Acquisitions
results from January 1, 1995 to closing dates.
(g) This column indicates the historical oil and gas revenues and direct
operating expenses of the Amerada Hess Acquisition for the year ended December
31, 1995.
(h) Additional general and administrative expense was not incurred as a
result of the 1995 Acquisitions.
(i) Adjustment to reflect the exercise of options to purchase 214,866
shares of Common Stock at an exercise price of $15.76 per share by certain
holders of the Subordinated Notes.
(j) Adjustment reflecting the net proceeds from the sale of 1,537,958
shares of Common Stock at an assumed price of $24.75 per share.
(k) Adjustment reflecting the issuance of $175,000,000 in Notes with an
assumed interest rate of 9.25%.
(l) Adjustment for repayment of outstanding borrowings under the Senior
Credit Facility.
(m) Adjustment to reflect conversion of $34.0 million in Subordinated Notes
at $14.51 per share into 2,343,047 shares of Common Stock, which includes
reversal of debt issuance cost and deferred interest (and related deferred taxes
thereon).
27
<PAGE> 93
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is intended to assist in an understanding of the
Company's historical financial position and results of operations for each year
of the three-year period ended December 31, 1995 and the unaudited six-month
periods ended June 30, 1995 and 1996. The Company's historical financial
statements and notes thereto included elsewhere in this Prospectus contain
detailed information that should be referred to in conjunction with the
following discussion.
GENERAL
Forcenergy was organized in September 1993 to succeed by merger to the
ownership of oil and gas properties held by Forcenergy Partners. Forcenergy
Partners and its predecessors commenced oil and gas operations in 1982 and
focused primarily on non-operated working interests in onshore properties. Since
1990, the Company has primarily focused its activities on acquiring Gulf of
Mexico offshore properties and has completed 22 acquisitions of offshore or Gulf
Coast properties at a total cost of $197.7 million. At December 31, 1995, the
Company had net proved reserves of 365 Bcfe, 71% of which were offshore and 69%
of which were classified as proved developed.
The Company's revenue, profitability and future rate of growth are
substantially dependent upon prevailing prices for natural gas, oil and
condensate, which are dependent upon numerous factors beyond the Company's
control, such as economic, political and regulatory developments and competition
from other sources of energy. The energy markets have historically been very
volatile, and future decreases in oil and gas prices could have a material
adverse effect on the Company's financial position, results of operations,
quantities of oil and gas reserves that may be economically produced and access
to capital.
The Company uses the full cost method of accounting for its investment in
oil and natural gas properties. Under the full cost method of accounting, all
costs of acquisition, exploration and development of oil and natural gas
reserves are capitalized into a "full cost pool" as incurred, and properties in
the pool are depleted and charged to operations using the unit-of-production
method based on the ratio of current production to total proved oil and natural
gas reserves. To the extent that such capitalized costs (net of accumulated
depreciation, depletion and amortization) less deferred taxes exceed the present
value (using a 10% discount rate) of estimated future net cash flow from proved
oil and natural gas reserves, and the lower of cost or fair value of unproved
properties, such excess costs are charged to operations. Once incurred, a
write-down of oil and natural gas properties is not reversible at a later date
even if oil or natural gas prices increase. While the Company has never been
required to write-down its asset base, significant downward revisions of
quantity estimates or declines in oil and gas prices from those in effect on
December 31, 1995 which are not offset by other factors could result in a
writedown for impairment of oil and gas properties.
For accounting purposes, the Company accrues interest on the Subordinated
Notes at 13% per annum; however, the current cash interest expense of such
Subordinated Notes is 7%. The difference is reflected in the Company's cash flow
statement as deferred interest. The deferred interest totaling $6.4 million at
August 31, 1996 will be reflected as an increase to stockholders' equity (net of
applicable deferred taxes) upon conversion of the Subordinated Notes into Common
Stock concurrently with the Common Stock Offering. See "-- Liquidity and Capital
Resources."
Revenues from natural gas production are recorded using the sales method,
net of royalties and net profits interests. When sales volumes exceed the
Company's entitled share, an over-produced imbalance occurs. To the extent the
over-produced imbalance exceeds the Company's share of the remaining estimated
proved natural gas reserves for a given property, the Company records a
liability. Management does not believe that the Company has any material
overproduced gas imbalances.
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<PAGE> 94
At September 30, 1996, the Company had an aggregate of $11.3 million in net
operating loss carry forwards for federal income tax purposes which are subject
to annual limitations on utilization. Future income tax liabilities and the
impact of the alternative minimum tax will vary depending upon the number of
wells drilled, intangible drilling costs incurred and other investments in oil
and gas properties by the Company.
RESULTS OF OPERATIONS
PRODUCTION DATA
The following table sets forth the Company's historical oil and natural gas
production data during the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Production:
Liquids (Mbbls)(1)..................... 1,425 1,753 2,343 1,059 1,778
Natural gas (Mmcf)..................... 12,025 17,121 21,112 11,172 12,772
Total (Mmcfe).......................... 20,575 27,639 35,170 17,526 23,440
Average sales prices:
Liquids (per Bbl)...................... $ 16.65 $ 15.04 $ 16.46 $ 15.91 $ 16.75
Natural gas (per Mcf).................. 2.16 1.87 1.59 1.55 2.17
Expenses (per Mcfe):
Lease operating........................ $ .81 $ .86 $ .70 $ .66 $ .72
Production taxes....................... .08 .06 .05 .05 .07
Depreciation, depletion and
amortization........................ .96 .88 .88 .89 1.03
General and administrative............. .15 .23 .16 .16 .15
</TABLE>
- ---------------
(1) Includes crude oil, condensate and natural gas liquids.
COMPARISON OF THE SIX MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
Operating and Net Income. Operating income increased from $3.5 million for
the six month period ended June 30, 1995 to $11.5 million for the six month
period ended June 30, 1996, a 229% increase. The Company reported a net loss of
$1.7 million for the six months ended June 30, 1995 compared to net income of
$3.7 million for the same period of 1996. The improvement in both operating
income and net income for the first six months of 1996 was attributable
primarily to higher production volumes, without a commensurate increase in lease
operating expenses and higher net realized oil and gas prices.
Production. Net liquids production increased from 1,059 Mbbls in the six
month period ended June 30, 1995 to 1,778 Mbbls for the six month period in
1996, a 68% improvement. Net gas production increased 14%, from 11,172 Mmcf
reported for the six month period ended June 30, 1995 to 12,772 Mmcf reported
for the same period of 1996. On an equivalent unit basis, oil and gas production
was 17,526 Mmcfe for the six month period ended June 30, 1995 compared to 23,440
Mmcfe produced in the same six month period of 1996, an improvement of 34%. The
increase in both oil and gas production was attributable to new production from
oil and gas properties acquired in 1995 and from successful development and
exploratory drilling and workover programs begun in late 1995 and continuing
through 1996.
Revenues. Revenues increased 68% from $34.4 million reported for the 1995
six month period to $57.8 million for the same period in 1996, primarily due to
higher production volumes and higher net realized oil and gas prices. Average
net realized liquids prices increased from $15.91 per barrel for the six month
period ended June 30, 1995 to $16.75 per barrel received in the comparable 1996
29
<PAGE> 95
period, an increase of 5%. Average net realized gas prices rose 40% from $1.55
per Mcf reported in the first six months of 1995 to $2.17 per Mcf reported for
the same period of 1996.
Average net realized oil prices (excluding natural gas liquids) for the
1996 six month period were $17.01 per barrel compared to an average of $19.03
per barrel that would have been received before the effects of hedging,
resulting in a hedging related $3.4 million reduction in oil revenues for the
period. Average net realized gas prices for the six months were $2.17 per Mcf
compared to an average of $2.31 per Mcf, that would have been received before
the effects of hedging, resulting in a hedging related $1.8 million reduction in
gas revenues for the six month period ended June 30, 1996. Effects of hedging
activities were not significant in the six months ended June 30, 1995.
Lease Operating Expenses. Lease operating expenses for the first six months
of 1995 were $11.6 million compared to the $16.8 million reported for the same
period of 1996, an increase primarily due to new fields acquired during 1995 and
to non-recurring workover repair and maintenance activities in 1996. On an
equivalent unit of production basis, expenses increased from $.66 per Mcfe in
the 1995 six month period to $.72 in the comparable 1996 period, an increase
attributable primarily to non-recurring repair and maintenance expenditures and
the addition of new Gulf of Mexico properties.
Depletion, Depreciation and Amortization ("DD&A"). DD&A increased from
$15.6 million for the 1995 six month period to $24.2 million reported for the
comparable 1996 period. The increase was attributable to higher production
levels, and to an increase in the DD&A rate per unit of production to $1.03 per
Mcfe in the first six months of 1996 from $.89 in the same period last year.
General and Administrative Expenses. General and administrative expenses
increased from $2.8 million for the first six months of 1995 to $3.6 million for
the comparable 1996 period, primarily due to the overall growth of the Company
during the latter half of 1995 and the first six months of 1996. However, on an
equivalent Mcfe produced basis, general and administrative expenses have
remained relatively constant, $.16 per Mcfe for the first six months of 1995
compared to $.15 per Mcfe in the 1996 period.
Interest Expense. Interest expense, net of amounts capitalized, declined 9%
from $6.5 million in the first six months of 1995 to $5.9 million for the same
period this year. The decrease in interest expense resulted primarily from lower
interest rates on the Company's Senior Credit Facility in 1996, which was
partially offset by higher 1996 debt levels.
Income Tax Provision (Benefit). Income tax expense increased to $2.2
million from a benefit of $1.0 million in the first six months of 1995 due to
the improvement in results of operations compared to the same period last year.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1994 AND DECEMBER 31, 1995
Operating and Net Income. Operating income increased 304%, from $2.3
million in 1994 to $9.3 million in 1995. The Company's net loss for 1994 was
$4.1 million compared with a net loss for 1995 of $1.9 million. These
improvements were attributable to higher oil and gas production and lower per
unit lease operating costs.
Production. Forcenergy's total net equivalent production increased to 35.2
Bcfe in 1995, 28% more than the 27.6 Bcfe produced in 1994, due primarily to the
acquisition of additional offshore properties in late 1994 and in early 1995 and
the addition of new production attained from the successful 1995 drilling
program. See "Business -- 1995 and 1996 Offshore and Gulf Coast Drilling
Activity." Net oil production increased by 34%, from 1,753 Mbbls in 1994 to
2,343 Mbbls in 1995 and net gas production increased by 23% from 17.1 Bcf in
1994 to 21.1 Bcf in 1995.
Revenues. Total revenues increased 24% from $58.7 million in 1994 to $72.6
million in 1995, primarily because of the higher volume of oil and gas produced,
which in turn resulted from acquisitions closed during 1995 and from the
Company's successful drilling program. Oil revenues
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<PAGE> 96
for the year increased by 46% from $26.3 million in 1994 to $38.4 million in
1995. Average net realized oil prices of $16.46 per barrel in 1995 were 9%
higher than the $15.04 per barrel received in 1994. Gas revenues rose from $31.9
million in 1994 to $33.6 million in 1995 or 5%; however, average net realized
gas prices declined to $1.59 per Mcf in 1995, 15% below the $1.87 average
received in 1994.
Lease Operating Expenses. Lease operating expenses increased by $763,000,
or 3%, from 1994 to 1995 due to the addition of new properties; however, on a
per Mcfe produced basis, costs declined 19% from $.86 per Mcfe in 1994 to $.70
per Mcfe in 1995. This decline in the per unit cost was attributable to the
Company's success in adding new production through development of new reserves
from existing properties and facilities and through acquiring new properties
that provide operating synergies with existing properties.
Depletion, Depreciation and Amortization ("DD&A"). Total DD&A increased 27%
from $24.6 million during 1994 to $31.3 million during 1995, primarily as a
result of higher production volumes in 1995 as the DD&A rate was substantially
the same for both years.
General and Administrative. General and administrative expenses declined
12% from $6.5 million incurred in 1994 to $5.7 million in 1995. The costs for
1994 reflected higher third-party engineering and consulting fees associated
with several acquisition possibilities that never occurred. Additionally, the
Company billed more general and administrative expenses, as provided for in
joint operating agreements, to joint interest owners in 1995 due to the
increased drilling activity.
Interest Expense. Interest expense, net of amounts capitalized, increased
23% from $9.5 million in 1994 to $11.7 million in 1995. This increase was
primarily attributable to the acquisition related increases in the Company's
debt levels prior to the repayment of a portion of that debt with proceeds from
the Company's initial public offering and amortization of debt issuance costs
associated with the Company's $8.0 million bridge loan that was repaid in 1995.
Interest and Other Income. Interest and other income (loss) reflected a net
charge of $561,000 in 1995 compared with income of $789,000 in 1994. The 1995
charge included a non-cash adjustment to certain balance sheet items associated
with activities in previous years. Interest income was $454,000 in 1994 compared
to $474,000 in 1995.
Income Tax Provision (Benefit). The income tax benefit decreased from $2.4
million in 1994 to $1.1 million in 1995, due to the improvement in the results
of operations.
COMPARISON OF YEARS ENDED DECEMBER 31, 1993 AND DECEMBER 31, 1994
Operating and Net Income. Income from operations decreased by 74% from $8.8
million in 1993 to $2.3 million in 1994. The decline in income from operations
was primarily the result of a decline in the average realized prices for oil and
gas sales and the incurrence of additional operating and administrative costs as
the Company undertook full operations of additional Gulf of Mexico properties.
Net income was $0.8 million in 1993 as compared to a net loss of $4.1 million in
1994.
Production. The Company's production increased 34% from 20.6 Bcfe in 1993
to 27.6 Bcfe in 1994, primarily as a result of the acquisitions of properties
and higher volumes in the second half of 1994 due to the Company's 1994
development program. Oil production volume of 1,753 Mbbls in 1994 increased by
23% as compared to 1993 production volume of 1,425 Mbbls. Gas production of 17.1
Bcf in 1994 increased by 42% as compared to 1993 production of 12.0 Bcf.
Revenues. Total revenues increased 17% from $50.1 million in 1993 to $58.7
million in 1994. Oil sales increased by 11% from $23.8 million in 1993 to $26.3
million in 1994. Average net realized oil prices of $16.65 in 1993 decreased by
9% to $15.04 in 1994. Gas sales increased by 23% from $25.9 million in 1993 to
$31.9 million in 1994. Average net realized gas prices declined 13% from $2.16
in 1993 to $1.87 in 1994. The increase in volumes primarily reflects the
acquisition of offshore
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<PAGE> 97
properties and increases in production during the second half of 1994 as a
result of the Company's development program.
Lease Operating Expenses. Lease operating expenses increased by $7.1
million or 43% in 1994 as compared to 1993 due to the addition of new offshore
fields acquired in late 1993 and 1994. On an Mcfe basis, lease operating costs
increased by 6% from $.81 in 1993 to $.86 in 1994. This per unit operating cost
increase was primarily the result of increased offshore facility maintenance on
properties acquired during 1994 and increased costs associated with supplemental
bonding requirements for offshore properties, which costs were incurred prior to
the benefit of any development activities on such properties.
Depletion, Depreciation and Amortization. Total DD&A increased by $4.7
million or 24% from $19.9 million in 1993 to $24.6 million in 1994. The increase
in total DD&A in 1994 was primarily attributable to increased production added
by acquisitions. DD&A per Mcfe declined 8% from $.96 in 1993 to $.88 in 1994 due
to the acquisition of additional proved reserves at a lower cost per Mcfe.
General and Administrative. General and administrative expenses increased
from $3.2 million in 1993 to $6.5 million in 1994. This increase was primarily
the result of increased engineering and support staff for the New Orleans office
which was opened in March 1993 and increased legal and consulting costs incurred
to evaluate potential offshore property acquisitions.
Interest Expense. Interest expense, net of amounts capitalized, increased
by 53% from $6.2 million in 1993 to $9.5 million in 1994. This increase was
attributable to additional borrowings for acquisition financing combined with an
increase in market interest rates in 1994 under the Senior Credit Facility,
inclusion of a full year's interest expense for the Subordinated Notes and a
full year's amortization of debt issuance costs associated with the Senior
Credit Facility and the Subordinated Notes in 1994.
Income Tax Provision (Benefit). The provision for income taxes decreased by
$4.7 million from a provision of $2.3 million in 1993 to a benefit of $2.4
million in 1994 due to a pre-tax loss of $6.5 million in 1994 and the FASB 109,
"Accounting for Income Taxes" deferred tax adjustment of $2.4 million recorded
in 1993. This one time adjustment was made to reflect the book and tax timing
differences for assets and liabilities existing on September 14, 1993 as a
result of merger transactions which converted Forcenergy Partners, the Company's
predecessor, into a taxable U.S. corporation.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded its operations, acquisitions, capital
expenditures and working capital requirements from cash flow from operations,
bank borrowings and private and public placements of debt and equity securities.
The Company's primary sources of funds for each of the past three years and the
six months ended June 30, 1995 and 1996 are reflected in the following table (in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net cash provided by
operating activities....... $19,473 $22,433 $28,574 $17,641 $26,815
Net borrowings under the
Senior Credit Facility..... 28,881 6,872 (2,957) 22,604 43,063
Proceeds from issuance of
Subordinated Notes......... 34,000 -- -- -- --
Proceeds from issuance of
Common Stock............... 2,200 31,800 55,753 -- --
Proceeds from Bridge Loan.... -- -- 8,000 8,000 --
</TABLE>
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<PAGE> 98
In the first six months of 1996, the Company generated approximately $26.8
million in cash from operations and borrowed, net of repayments, approximately
$43.1 million under its Senior Credit Facility. The Company's cash flow from
operations has increased significantly during 1996 because of the additional
production from acquired properties and new production derived from development
drilling and workovers. The Company had negative working capital of $11.8
million at December 31, 1995 and $15.1 million at June 30, 1996. Both the
negative working capital and increase in borrowings under the Senior Credit
Facility are primarily attributable to an increase in drilling expenditures
under the Company's active 1996 drilling program and to acquisitions of oil and
gas properties.
Capital expenditures including accruals were $58.2 million and $144.7
million during 1994 and 1995, respectively. Cash capital expenditures were $59.2
million during the first six months of 1996, which includes $15.6 million in
cash payments on capital costs accrued at December 31, 1995. In addition, the
Company had capital expenditures accrued at June 30, 1996 equaling $25.2
million. The Company's capital expenditure budget for 1996 is approximately $110
million. The Company intends to continue its exploration and development
programs during 1996 and expects that those expenditures will be funded by cash
flow from operations and periodic borrowings under its Senior Credit Facility.
Cash expenditures for acquisitions totaled $16.8 million for the six months
ended June 30, 1996, $4.3 million of which was for amounts accrued at December
31,1995. The Company will continue to pursue property acquisitions of various
sizes, funding for which is expected to be provided by cash flow from
operations, the proceeds of the Offerings, funds available through the Company's
Senior Credit Facility or other financing sources to be negotiated, as needed.
In December 1995, the Company amended its Senior Credit Facility to extend
its maturity date and to lower borrowing rates on amounts advanced under the
facility. The termination date on the revolving credit loan was extended to
December 31, 1997, at which time the outstanding amount becomes a term loan with
future annual principal payments, as a percentage of the principal balance
outstanding at the time of conversion to the term loan, of 36% in 1998, 30% in
1999, 23% in 2000 and 11% in 2001. The term loan matures on June 30, 2001.
Effective April 26, 1996, the Company renegotiated the Senior Credit Facility to
provide for a commitment of $195 million with a current borrowing base of $175
million. On September 30, 1996, the borrowing base was increased to $195
million. At September 30, 1996, the Company had $29.9 million available under
the Senior Credit Facility. Subsequent to the closing of the Offerings and, at
the direction of the Company, the borrowing base under the Senior Credit
Facility will be reduced to $50 million from the current borrowing base of $195
million. The maximum commitment of $195 million will remain in effect.
Borrowings under the Senior Credit Facility bear interest, at the Company's
option, at either the prime rate or LIBOR plus 1.375%. Interest on the prime
loans are due quarterly and interest on the LIBOR loans are due at the end of
the designated interest period. The Senior Credit Facility is secured by
substantially all of the Company's oil and gas properties. The Senior Credit
Facility contains certain covenants of the Company, including maintenance of
minimum tangible net worth, certain financial ratios and certain restrictions on
liens.
Revenues generated from operations are highly dependent upon the price of,
and demand for, oil and natural gas. Historically, the markets for oil and
natural gas have been volatile and are likely to continue to be volatile in the
future as prices are subject to wide fluctuations in response to relatively
minor changes in the supply of and demand for oil and natural gas, market
uncertainty and a variety of additional factors that are beyond the control of
the Company. These uncontrollable factors include, but are not limited to, the
level of consumer product demand, weather conditions, domestic and foreign
governmental regulations, the price and availability of alternative fuels and
political and economic conditions in the Middle East and Canada that can affect
the supply and price of foreign oil and natural gas. It is impossible to predict
future oil and natural gas price movements with any certainty. Declines in oil
and natural gas prices may materially adversely affect the Company's financial
condition, liquidity and results of operations. Lower prices also may reduce the
33
<PAGE> 99
amount of reserves that can be produced economically as well as limit the
Company's ability to continue to exploit and develop the existing reserve base.
The Company utilizes forward sales contracts and commodity swaps for
portions of its current net oil and gas production to achieve more predictable
cash flows and to reduce its exposure to fluctuations in oil and gas prices. The
remaining portion of current net production has not been hedged so as to provide
the Company the opportunity to benefit from increases in prices on that portion
of the production, should price increases materialize. As of October 1,1996, the
Company had entered in to future sales and swap contracts as a hedge against
possible price declines that effectively fixed sales prices on approximately 76%
of the Company's estimated net oil production for the remainder of the year and
for approximately 60% of the Company's estimated net gas production for the
remainder of 1996, based on current production levels, at $18.05 per barrel and
$2.03 per Mcf, respectively.
On March 1, 1995, the Company entered into an $8 million bridge loan.
Borrowings under the bridge loan were used to repay $4.9 million of indebtedness
under the Senior Credit Facility and to pay $3.1 million in connection with the
acquisition of producing properties in April 1995. Amounts outstanding under the
bridge loan were repaid with a portion of the proceeds of the initial public
offering.
In August 1995, the Company completed its initial public offering and
received net proceeds of $55.7 million. In addition to repaying borrowings under
the bridge loan, the Company used the proceeds from the offering to complete the
acquisition of Ashlawn and to repay a portion of the Senior Credit Facility.
Management believes that cash flow from operations, available borrowings
under the Senior Credit Facility and the net proceeds of the Offerings will be
adequate to meet future liquidity needs, including satisfying the Company's
financial obligations and funding its capital program. If revenues decrease as a
result of lower oil or gas prices or operating difficulties or if the Notes
Offering is not consummated, the Company may be required to re-evaluate its
future capital expenditures.
34
<PAGE> 100
BUSINESS
OVERVIEW
Forcenergy Inc ("Forcenergy" or the "Company") is an independent oil and
gas company engaged in the exploration, acquisition, development, exploitation
and production of domestic oil and natural gas properties. The Company has
experienced significant growth in the last five years, primarily through the
exploration, enhancement and development of acquired working interests in
producing properties in the Gulf of Mexico. At December 31, 1995, the Company
had net proved reserves of 365 Bcfe, 71% of which were located in the Gulf of
Mexico. Approximately 60% of the Company's net proved reserves on such date were
natural gas and approximately 69% of proved reserves were classified as proved
developed. The Company currently operates approximately 77% of its Gulf of
Mexico production.
STRATEGY
The Company's business strategy is to increase its reserves and cash flow
through the development, exploration, acquisition and exploitation of producing
properties in the shallow waters (less than 350 feet) of the Gulf of Mexico.
Management believes that the Company's high quality asset base positions it for
growth through a program of further development through selective exploitation
and exploratory drilling and through the enhancement of production performance
through workovers and recompletions. The Company emphasizes the use of 3-D
seismic and computer-aided exploration technology together with geologic and
engineering studies of its properties to evaluate and prioritize drilling
prospects. Focusing drilling activities on producing properties in a relatively
concentrated area in the Gulf of Mexico permits the Company to utilize its base
of geological, engineering and production experience in the region to maximize
drilling success and to minimize finding and development costs. Furthermore, the
Company's concentration of drilling activities on its producing properties
allows the utilization of existing infrastructure which greatly reduces
incremental lease operating expenses and costs associated with new production
facilities. The Company plans to continue to pursue acquisitions of working
interests in producing properties that offer further development potential as
well as providing operating synergies with existing properties. As a complement
to its acquisition strategy, the Company also participates in exploration plays
both onshore and in the Gulf of Mexico.
OPERATIONS
Quality of Asset Base; Drilling Prospects. The Company holds interests in
or rights to 81 lease blocks in federal and state waters in the Gulf of Mexico,
including a 100% working interest in 32 lease blocks and a 50% or greater
working interest in 18 other lease blocks. The Company believes it has assembled
at least a three to five year inventory of development, exploitation and
exploratory drilling opportunities in the Gulf of Mexico on acreage held by
production. Most of the properties comprising this inventory are located in
fields which have prolific production histories and which the Company believes
may yield significant additional reserves through the application of modern
exploration and development technologies. The Company is pursuing the
development of these offshore properties through a combination of development
drilling, recompletions and workovers and exploratory drilling. During 1995, the
Company successfully drilled seven of nine exploratory wells and ten of ten
development wells in the Gulf of Mexico and undertook eight recompletions and 24
workover projects, resulting in initial net production increases of 4,392 Bbls/d
of oil and 27,496 Mcf/d of gas. The Company plans to drill 20 development wells
in 1996, 14 of which were successfully completed in the first eight months of
1996, and the Company also has budgeted to drill 20 recompletions and 21
workover projects on its properties in the Gulf of Mexico during 1996, of which
27 have been completed to date. In addition, eight exploratory wells have been
scheduled during the year to provide the Company with exposure to higher risk,
higher potential prospects. Of the eight planned exploratory wells, four have
been drilled and successfully completed, and four remain to be drilled. The
Company anticipates that approximately $98.6 million of its $110 million
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<PAGE> 101
capital expenditure budget for 1996 not including acquisition expenditures, will
be spent on these projects.
Control of Operations and Costs. The Company prefers to operate its
offshore properties in order to more effectively manage production performance
while controlling operating expenses and the timing and amount of capital
expenditures. Forcenergy operates 90 structures and 242 wells in the Gulf of
Mexico. Management believes that the operating expertise and experience of its
personnel in the Gulf of Mexico have been instrumental in its ability to
significantly enhance and improve production rates and cash flow with minor
incremental costs. A significant portion of the drilling prospects the Company
expects to pursue during the next three to five years are accessible from
existing production facilities operated by the Company. This base of operations
will enable the Company to reduce its per unit operating costs if higher
production volumes are realized. As a result of these factors, the Company
improved its lease operating expense from $.86 per Mcfe of production in 1994 to
$.70 per Mcfe in 1995 to $.69 per Mcfe for the eight months ending August 31,
1996.
Technology. The Company uses advanced technology in its exploration and
development activities to reduce drilling risks and finding costs and to more
effectively prioritize drilling prospects based on return potential. The Company
has acquired 3-D seismic surveys on 102 offshore lease blocks and currently has
825 square miles of 3-D seismic data and 53,000 linear miles of 2-D seismic data
on its offshore properties. The Company has nine geologists/geophysicists with
average industry experience of 18 years and has invested in seven Landmark
geophysical stations for use in interpreting 3-D seismic data. The ability to
obtain 3-D seismic data for offshore properties at reasonable costs has enabled
the Company to identify multiple development and exploratory prospects in mature
producing fields which were not identified through earlier technologies.
Recent Acquisitions. During 1995, the Company spent an aggregate of
approximately $92.1 million for working interests in 15 different fields that
added 121.9 Bcfe of net proved reserves to its reserve base at an average cost
of $.76 per Mcfe. Approximately $81.6 million of such expenditures were for
interests in 10 properties located in the Gulf of Mexico. In the first eight
months of 1996, the Company spent approximately $17.0 million for working
interests in 12 different fields that added 28.3 Bcfe of net proved reserves to
its reserve base at an average cost of $.60 per Mcfe. Major acquisitions in 1995
and 1996 were as follows:
In March 1995, the Company acquired working interests in the South Marsh
Island 136/137 Field and the northern half of South Marsh Island 106 from
Conoco, Inc. for consideration of $24.5 million. In April 1995, the Company
acquired all the remaining working interests in the northern half of South Marsh
Island 106. The foregoing acquisitions were particularly attractive because both
fields are adjacent to fields in which the Company holds 100% working interests.
The Company had an active drilling program in Block 106 in 1995 and will have at
least one rig in the block for all of 1996. See "-- 1995 and 1966 Offshore and
Gulf Coast Drilling Activity."
In August 1995 in conjunction with the Company's initial public offering,
the Company acquired all of the outstanding capital stock of Ashlawn, a
privately held Company with substantial working interests in the South Pass 24
Field, Vermilion 28 Field and Ship Shoal 26 Field. The purchase price for the
Ashlawn Acquisition consisted of 3,000,000 shares of Common Stock, $3.3 million
in cash and the assumption of $5.7 million in debt. All of the assumed debt was
repaid with the proceeds of the Initial Public Offering. The Company conducted
an active drilling program on these properties in 1995 and has continued to
pursue additional development projects on the properties in 1996. See "-- 1996
Offshore and Gulf Coast Drilling Activity."
In November 1995, the Company acquired an approximate 50% working interest
in certain leases in the Howard Glasscock/Snyder fields in Howard County, Texas
from Saga Petroleum, Inc. for approximately $3.9 million. The Company's 1996
capital budget includes $1.9 million for its pro rata share of drilling
injection wells to initiate a waterflood project in the field. In May 1996, the
Company acquired an additional 25% interest in these leases and surrounding
acreage for
36
<PAGE> 102
$4.0 million. At August 31, 1996, twenty injection wells had been drilled, five
of which had been completed. Additionally, water injection had commenced on the
five completed wells. Initial response to the water flood, if any, should occur
in 1997.
In late 1995, the Company acquired a 100% working interest in the Vermilion
Block 380 Field, located offshore Louisiana, from Texaco Exploration and
Production, Inc. for approximately $650,000. Effective December 1995, the
Company also acquired a 100% working interest in the West Cameron 630 Field,
located offshore Louisiana and an approximate 51.7% working interest in the
Comite Field in East Baton Rouge Parish, Louisiana from Exxon Corporation for
approximately $3.9 million. An exploratory well is planned for the West Cameron
630 field in early 1997.
In June 1996, the Company acquired working interests in eleven Gulf of
Mexico producing fields from Amerada Hess Corporation for a cash consideration
of $6.9 million. In August 1996, the Company acquired an additional working
interest in one of these fields, Mustang Island 742/754, for approximately $4.0
million, increasing its total working interest in the field to 100%.
As is customary in the oil and gas industry, the Company from time to time
submits bids to acquire oil and gas properties that are subject to acceptance by
the sellers. Upon acceptance of a bid by the seller, the finalization of such
agreements is contingent on the completion of satisfactory due diligence by the
Company, including title and environmental review. There is no assurance that
sellers will accept any of the bids submitted by the Company or that any such
transactions will be consummated.
GULF OF MEXICO PROPERTIES
Since January 1, 1990, the Company has acquired working interests in 81
Gulf of Mexico and Gulf Coast lease blocks. The Company owns a 100% working
interest in 32 of these blocks and operates 47 of the producing properties. The
following table lists the working interest, net proved reserves and the operator
for the Company's 14 largest offshore properties, comprising approximately 67%
of the Company's total net proved reserves, as of December 31, 1995:
<TABLE>
<CAPTION>
NET PROVED RESERVES AT
DECEMBER 31, 1995
-----------------------------
AVERAGE NATURAL
WORKING OIL GAS TOTAL
FIELD INTEREST (MBBLS) (MMCF) (MMCFE) OPERATOR
---------------------------------- ------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C>
South Marsh Island Block
106/115......................... 100% 4,326 12,659 38,615 Company
South Marsh Island 6 Field
Complex......................... 100% 1,423 18,504 27,042 Company
Ship Shoal 230 Field,
Block 219....................... 100% 973 10,615 16,453 Company
West Cameron 205 Field............ 100% 96 11,564 12,140 Company
Ship Shoal 26 Field............... 100% 299 8,872 10,666 Company
Chandeleur 25 Field............... 100% -- 9,819 9,819 Company
High Island A-467 Field........... 100% 51 7,867 8,173 Company
High Island A-280 Field........... 100% 22 5,319 5,451 Company
South Timbalier 72 Field.......... 100% 626 1,561 5,317 Company
Grand Isle 76 Field............... 96% 139 8,133 8,967 Company
Vermilion 262 Field, Block 261 and
262............................. 77% 903 6,076 11,494 Company
South Pass 24 Field............... 67% 7,254 10,817 54,341 Third Party
South Marsh Island 137 Field,
Blocks 136/137.................. 67% 708 16,451 20,699 Company
East Cameron 14 Field............. 50% 374 12,692 14,936 Company
</TABLE>
37
<PAGE> 103
1995 AND 1996 OFFSHORE AND GULF COAST DRILLING ACTIVITY
During 1995 and 1996 the Company continued to focus on increasing reserves
and cash flow by targeting development exploitation and exploration prospects on
recently acquired properties, developed in most cases through the use of 3-D
seismic data. Total capital spent in the 1995 drilling program was approximately
$51.8 million, including capitalized internal costs of $3.7 million with 57.5
Bcfe of proved reserves added at an average cost of $.90 per Mcfe. For the year,
the Company successfully drilled seven of nine exploratory wells and ten of ten
development wells in its offshore drilling program. Capital spending in 1995 for
offshore projects was approximately $45.7 million, including $1.5 million for
the acquisition of additional 3-D seismic data on offshore lease blocks. The
Company has incurred $91.9 million in capital drilling expenditures as of August
31, 1996 including $2.8 million in capitalized internal costs. In addition, the
Company has spent $2.1 million on geological and geophysical costs, including
3-D seismic data. The current budget for 1996 is estimated at $110 million of
which $98.6 million is targeted for the Gulf of Mexico. The following is a brief
description of properties where significant activity has occurred during 1995
and 1996, all of which were operated by the Company. The working interest
ownership of the Company is noted in parenthesis.
South Marsh Island Block 106 North (SMI 106 N/2) and Block 106 South (SMI
106 S/2) (100% working interest). The Company acquired its working interests in
these fields (accounted for as separate fields) in a series of acquisitions from
1993 to 1995. An aggressive drilling program was initiated on these fields in
1995 as two development wells and four exploratory wells were successfully
completed in SMI 106 S/2 and two exploratory wells were successfully completed
in SMI 106 N/2. During the first six months of 1996 one development well and one
exploratory well were drilled and successfully completed on SMI 106 S/2. Initial
production tests from these two wells totaled 931 BOPD (Bbls of oil per day) and
2,049 (MCFPD) (Mcf of gas per day), net to the Company. During the six month
period ended June 30, 1996, the Company completed two development wells on SMI
106 N/2 which began producing at net initial rates of 1,003 BOPD and 2,222
MCFPD. Total production net to the Company in the SMI Block was 2,638 BOPD and
7,888 MCFPD at the end of July compared with average net rates of 475 BOPD and
1,600 MCFPD at the beginning of 1995. Three additional wells, two development
and one exploratory, were also completed in the third quarter of 1996 on SMI
106N/2. These wells began to produce at initial rates of 865 BOPD and 2,877
MCFD. The Company currently plans to drill and complete at least two more
development wells and one exploratory well in the SMI 106 N/2 area.
East Cameron 14 Field (50% average working interest). A development well
was completed in the first quarter of 1996 with production beginning in May at
an initial rate of 3,090 MCFPD, net to the Company, increasing total net
production in this field to 125 BOPD and 4,160 MCFPD. The well encountered
reserves in seven other zones. The Company is currently evaluating plans for
additional drilling in the field.
South Pass 24 Field (approximate 71% average working interest). Subsequent
to the Ashlawn merger, and during 1995, the Company drilled four development
wells and undertook two workovers and recompletions in its effort to exploit the
anticipated potential of this field. During the first six months of 1996, five
development wells were drilled, all of which have been completed. Initial
production tests from the five completed wells totaled 330 BOPD and 240 MCFPD,
net to the Company. These 1995 and 1996 activities increased total net
production in this field to 2,623 BOPD and 3,368 MCFPD by the end of July 1996
compared with net production of 891 BOPD and 501 MCFPD at the time of
acquisition of the properties. Under Louisiana law, new wells permitted prior to
June 30, 1998, or wells which have been shut in for more than two years and
which are permitted prior to that date, qualify for a five year exemption from
the state severance tax of 12.5% on the value of oil production sold and $.07
per Mcf on the volume of gas products sold during the five years following June
30, 1996.
38
<PAGE> 104
West Cameron 205 Field (100% working interest). The Company acquired its
working interest in West Cameron Blocks 205, 206 and 212 in a series of
acquisitions during 1990 through 1992. During 1995 the Company drilled a dry
exploratory test well in this field. Future drilling in this field is currently
being evaluated.
Ship Shoal 230 Field, Block 219 (100% working interest). One dually
completed well has been drilled to date. Completion operations were finalized in
April 1996 and production from this well began in May at initial rates of 346
BOPD and 2,100 MCFPD net to the Company. This increased total net production in
this field to 1,200 BOPD and 7,800 MCFPD. The Company expects to begin a
multi-well development and exploitation program in this field during 1997.
High Island 467 Field (100% working interest). The Company began drilling
operations in this field in the first quarter of 1996 and has completed two of a
three-well drilling project. One development and one exploratory well have been
drilled and have begun producing at initial production rates of 85 BOPD and
8,214 MCFD, net to Forcenergy. This brings total current net field production to
102 BOPD and 12,874 MCFD. The Company plans to drill one more development well
and at least one more exploratory well and undertake one major workover in the
field during the remainder of 1996.
South Marsh Island 6/10/11 Complex (100% working interest). The Company
plans to drill two exploratory wells and two development wells in the South
Marsh Island 6 Field Complex. In September 1996, the Company completed drilling
operations on an exploratory well which has encountered approximately 140 feet
of TVD (true vertical depth) pay in four sands and is expected to add
approximately 18 to 20 BCFE in net reserves. This well began producing at
initial production rates of 884 BOPD and 4,592 McFPD.
ONSHORE PROPERTIES
Forcenergy owns working and royalty interests in approximately 1,600
producing oil and gas wells in 147 fields in the Rocky Mountain, Gulf Coast,
Southwest and Appalachian regions of the United States. Management believes that
the Company's stable reserve base of long-lived, primarily non-operated, onshore
properties complements the Gulf of Mexico operations by providing an additional
source of cash flow that requires limited management involvement. The Company's
onshore properties accounted for approximately 29% of net proved reserves at
December 31, 1995. During 1995, the Company expended approximately $4.0 million
in capital on its onshore properties, including $3.7 million for drilling and
recompletion activities. Approximately $2.4 million in capital has been spent on
onshore properties in the first half of 1996, the majority of which was on the
Howard Glasscock/Snyder field. The following is a summary of the Company's most
significant onshore properties:
Altamont/Bluebell Field. The Altamont/Bluebell Field is located in Duchesne
and Uintah Counties, Utah. The Company owns working interests ranging from less
than 1% to 27.9% (average approximately 7%) in approximately 250 active wells
and has overriding royalty interests in another 190 wells. The Company also owns
an 8.125% working interest in the Altamont natural gas processing plant. As of
January 1, 1996, Forcenergy's net production, including gas plant liquids, was
approximately 530 Bbls/d and 1,410 Mcf/d. Estimated net proved reserves as of
December 31, 1995, were 1,139 Mbbls and 3,136 MMcf. In 1995 the Company
participated in its share of a field development and workover program, of which
Forcenergy's net share was $270,000. As of September 1, 1996, the Company has
agreed to participate in planned well workover and recompletion projects of
which Forcenergy's share is $278,000. The current pace of work activity is
similar to that in 1995 and is expected to continue for the remainder of the
year.
Whitney Canyon Field. Forcenergy owns working interests ranging from 14.1%
to 18.9% in three wells in this Uintah County, Wyoming field and a 3.02% working
interest in the Whitney Canyon Gas Processing Plant. The Company's share of
total sales from processed gas and condensate and plant liquids currently
averages 140 Bbls/d and 1,750 Mcf/d. Net proved reserves as of Decem-
39
<PAGE> 105
ber 31, 1995 for the Company's Whitney Canyon wells and share of the processing
plant are estimated at 283 Mbbls and 13,106 MMcf. Additional wells are expected
to be connected in 1996 to Whitney Canyon along a recently installed extension
of the gathering system which currently processes gas from the Yellow Creek
field located approximately 35 miles south of the plant.
Mercy Field. The Company owns a non-operated 28.3% working interest in one
well and a 40% non-operated working interest in nine remaining wells in this San
Jacinto County, Texas gas field. As of July 1, 1996, the Company's net
production averaged 2,060 Mcf/d and 110 Bbls/d. The Company and its partners
began drilling an 11,800 foot Wilcox development well during the first week of
September 1996 and thereafter conducted deepening operations in an inactive,
shallow well to the main field gas pays. The operator has set production casing
on both wells. Drilling is planned for a second development well during 1997.
Net proved reserves as of December 31, 1995 were 278 Mbbls and 4,470 MMcf.
Howard Glasscock/Snyder Field. During 1995 the Company acquired an
approximate 50% non-operated working interest position in the Howard
Glasscock/Snyder Field located in Howard County, Texas. The field will be
further developed through water flood operations. As of December 31, 1995, the
Company's net proved reserves were estimated at 1,784 Mbbls. During May 1996 the
Company increased its recently acquired 50% nonoperated interest position in the
Howard Glasscock/Snyder Field, Howard County, Texas, to 75%. Forcenergy and its
partners initiated a planned secondary waterflood project in February 1996. One
shut in well has been reactivated for water injection and twenty new water
injection wells have been drilled. Partial water injection began during August
1996 and is expected to reach full capacity by year end, after the injection
wells are completed. Early in 1996, a second phase of the waterflood project was
identified in the southern field area. This project is expected to add 643 Mbbls
of proved reserves to the existing December 31, 1995 net reserves of 1,764
Mbbls. Current daily production from primary recovery methods is 370 BOPD, or
210 BOPD net to the Company.
ADDITIONAL FUTURE PROJECTS
In addition to the activity described above, the Company has identified a
substantial inventory of additional development, exploratory, workover and
recompletion projects on its existing offshore properties which it may undertake
over the next three to five years. Many of these projects are currently being
reviewed by the Company's geologists and geophysicists utilizing 3-D seismic
data acquired in 1994, 1995, and 1996.
40
<PAGE> 106
OIL AND GAS RESERVES
The following table summarizes the estimates of the Company's historical
net proved reserves as of December 31, 1995 and the present values attributable
to those reserves on such date using constant prices and operating costs as of
the valuation date, discounted at a rate of 10% per annum, in accordance with
Securities and Exchange Commission ("Commission") guidelines. The reserve data
and present values as of December 31, 1995 for the onshore properties have been
estimated by Netherland, Sewell & Associates, Inc., independent petroleum
engineering consultants. The reserve data and present values as of December 31,
1995 for the offshore properties have been estimated by Collarini Engineering
Inc., independent petroleum engineering consultants.
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1995
------------
<S> <C>
NET PROVED RESERVES:
Oil (Mbbls)............................................................. 24,458
Natural gas (MMcf)...................................................... 218,052
Total (MMcfe)................................................. 364,800
Present value of future net revenues before income taxes (thousands).... $540,901
Standardized measure of discounted future net cash
flows (thousands)(1).................................................. $406,956
</TABLE>
--------------------
(1) The standardized measure of discounted future net cash flows
represents the present value of future net revenues after income
taxes discounted at 10%.
In accordance with applicable requirements of the Commission, estimates of
the Company's proved reserves and future net revenues are made using sales
prices estimated to be in effect as of the date of such reserve estimates and
are held constant throughout the life of the properties (except to the extent a
contract specifically provides for escalation). Estimated quantities of proved
reserves and future net revenues therefrom are affected by oil and gas prices,
which have fluctuated widely in recent years. There are numerous uncertainties
inherent in estimating oil and natural gas reserves and their estimated values,
including many factors beyond the control of the producer. The reserve data set
forth in this Prospectus represents only estimates. Reservoir engineering is a
subjective process of estimating underground accumulations of oil and natural
gas that cannot be measured in an exact manner. 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 of different
engineers, including those used by the Company, may vary. In addition, estimates
of reserves are subject to revision based upon actual production, results of
future development and exploration activities, prevailing oil and gas prices,
operating costs and other factors, which revisions may be material. Accordingly,
reserve estimates are often different from the quantities of oil and natural gas
that are ultimately recovered and are highly dependent upon the accuracy of the
assumptions upon which they are based. The Company's estimated proved reserves
have not been filed with or included in reports to any federal agency.
41
<PAGE> 107
DRILLING ACTIVITY
The following table sets forth the drilling activity of the Company on its
properties for the twelve month periods ended December 31, 1993, 1994, 1995 and
the six-month period ended June 30, 1996:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
-------------------------------------------- ------------
1993 1994 1995 1996
------------ ------------ ------------ ------------
GROSS NET GROSS NET GROSS NET GROSS NET
----- --- ----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OFFSHORE DRILLING ACTIVITY:
Development:
Oil............................. 2 0.6 1 1.0 8 5.9 7.0 5.8
Gas............................. 2 --(1) 5 3.7 2 1.7 4.0 3.5
Non-productive.................. -- -- 1 1.0 -- -- -- --
--- --- --- --- --- --- ---- ---
Total................... 4 0.6 7 5.7 10 7.6 11.0 9.3
=== === === === === === ==== ===
Exploratory:
Oil............................. -- -- -- -- 5 5.0 2.0 2.0
Gas............................. -- -- 1 0.3 2 1.5 1.0 1.0
Non-productive.................. 2 0.7 -- -- 2 2.0 -- --
--- --- --- --- --- --- ---- ---
Total................... 2 0.7 1 0.3 9 8.5 3.0 3.0
=== === === === === === ==== ===
ONSHORE DRILLING ACTIVITY:
Development:
Oil............................. 25 2.0 9 0.5 2 0.1 1.0 --(1)
Gas............................. 6 2.4 4 1.7 -- -- -- --
Non-productive.................. -- -- -- -- -- -- 1.0 0.2
--- --- --- --- --- --- ---- ---
Total................... 31 4.4 13 2.2 2 0.1 2.0 0.2
=== === === === === === ==== ===
Exploratory:
Oil............................. -- -- -- -- -- -- -- --
Gas............................. 3 0.9 4 0.2 1 0.5 -- --
Non-productive.................. 3 0.9 4 2.8 3 2.0 -- --
--- --- --- --- --- --- ---- ---
Total................... 6 1.8 8 3.0 4 2.5 -- --
=== === === === === === ==== ===
</TABLE>
- ---------------
(1) The Company has less than a 1% working interest in each of these wells.
PRODUCTIVE WELLS
The following table sets forth the number of productive oil and gas wells
in which the Company owned a working interest at June 30, 1996:
<TABLE>
<CAPTION>
TOTAL PRODUCTIVE
WELLS
----------------
GROSS NET
----- ------
<S> <C> <C>
Oil................................................................ 838 417.4
Gas................................................................ 1,000 428.3
----- -----
Total.................................................... 1,838 845.7
===== =====
</TABLE>
Productive wells consist of producing wells and wells capable of
production, including gas wells awaiting pipeline connections. The Company has
15 wells that are completed in more than one producing horizon; those wells have
been counted as single wells.
42
<PAGE> 108
ACREAGE DATA
The following table sets forth the approximate developed and undeveloped
acreage in which the Company held a leasehold, mineral or other interest at June
30, 1996. 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.
<TABLE>
<CAPTION>
DEVELOPED ACRES UNDEVELOPED ACRES
------------------- ------------------
GROSS NET GROSS NET
------- ------- ------- ------
<S> <C> <C> <C> <C>
Offshore(1).............................. 296,955 180,254 20,127 8,205
Onshore.................................. 608,699 55,521 135,605 38,522
------- ------- ------- ------
Total.......................... 905,654 235,775 155,732 46,727
======= ======= ======= ======
</TABLE>
- ---------------
(1) Offshore includes acreage in federal waters and the state waters of
coastal South Louisiana.
MARKETING AND CUSTOMERS
The Company sells substantially all of its natural gas to unaffiliated
entities under short-term contracts (maximum of one year in duration) at pricing
based on current spot market indexes. A minor portion of the Company's gas
production is committed to be processed through gas plants. Crude oil and
condensate is typically sold at the wellhead on month-to-month contracts at
posted field prices, plus a slight premium, in the area where production occurs.
Approximately 8% of the Company's daily oil production is subject to agreements
with the Company's predecessors in the properties whereby these predecessors
have the right to purchase that production at prices that could be less than
might otherwise be obtained.
Most of the Company's production is transported through gas gathering
systems and oil and gas pipelines which are not owned by the Company.
Transportation space on such gathering systems and pipelines is occasionally
limited and at times unavailable due to repairs or improvements being made to
such facilities or due to such space being utilized by other gas with priority
transportation agreements. Forcenergy's access to transportation options can
also be affected by regulation of intrastate and interstate gas transportation.
In an attempt to promote competition, the Federal Energy Regulatory Commission
("FERC") has issued a series of orders which have altered significantly the
marketing and transportation of natural gas (See "Government Regulation"). The
effect of these orders to date has been to enable producers such as the Company
to market their natural gas production to purchasers other than the interstate
pipelines located in the vicinity of their producing properties. While the
Company has not experienced any inability to market its production, if
transportation space is restricted or is unavailable, the Company's cash flow
could be adversely affected.
During 1994, 1995 and for the six months ended June 30, 1996, certain
purchasers of the Company's production purchased in excess of 10% of the value
of the Company's oil and gas sold by the Company; however, based on the current
demand for oil and natural gas, the Company does not believe the loss of any of
these purchasers would have a material adverse effect on the Company.
The Company utilizes forward sales contracts and commodity swaps for
portions of its current oil and gas production to achieve more predictable cash
flows and to reduce its exposure to fluctuations in oil and gas prices. The
remaining portion of current production has not been hedged so as to provide the
Company the opportunity to benefit from increases in prices on that portion of
the production, should price increases materialize. As of October 1, 1996, the
Company had entered into future sales and swap contracts as a hedge against
possible price declines that effectively fixed sales prices on approximately 76%
of the Company's estimated net oil production for the remainder
43
<PAGE> 109
of the year and for approximately 60% of the Company's estimated net natural gas
production for the remainder of 1996, at $18.05 per barrel and $2.03 per Mcf,
respectively. For this purpose, this estimated net production for the remainder
of the year assumes that current production rates will continue for the rest of
the year; however, in reality, the Company anticipates that production will be
added through its capital program. All of these arrangements are settled on a
monthly basis. The Company accounts for its commodity swaps as hedging
activities and, accordingly, gains or losses are included in oil and gas
revenues for the period the production was hedged.
ABANDONMENT COSTS
The Company is responsible for the costs associated with the plugging of
wells, the removal of facilities and equipment and site restoration on its oil
and gas properties, pro rata to its working interest. The Company provides for
expected future abandonment liabilities by accruing for such costs as a
component of depletion, depreciation and amortization as the properties are
produced. As of December 31, 1995, total undiscounted abandonment costs
estimated to be incurred through the year 2006 were approximately $48 million
for properties in federal and state waters. For onshore properties, salvage
values received for equipment are usually sufficient to offset the abandonment
costs. Estimates of abandonment costs and their timing may change due to many
factors including actual drilling and production results, inflation rates, and
changes in environmental laws and regulations. No significant abandonment costs
are anticipated to be incurred in 1996.
The Minerals Management Service ("MMS") requires lessees of Outer
Continental Shelf ("OCS") properties to post performance bonds in connection
with the plugging and abandonment of wells located offshore and the removal of
all production facilities. Operators in the OCS waters of the Gulf of Mexico are
also currently required to post an area wide bond of the lesser of $3 million,
or $500,000 per producing lease. The Company currently has obtained additional
supplemental bonding on its offshore leases as required by the MMS. Under
certain circumstances, the MMS has the authority to suspend or terminate
operations on federal leases for failure to comply with applicable bonding
requirements or other regulations applicable to plugging and abandonment. Any
such suspensions or terminations of the Company's operations could have a
material adverse effect on the Company's financial condition and results of
operations.
TITLE TO PROPERTIES
As is customary in the oil and natural gas industry, the Company makes only
a cursory review of title to farmout acreage and to onshore undeveloped oil and
natural gas leases upon execution of the contracts. Prior to the commencement of
drilling operations, a thorough title examination is conducted and curative work
is performed with respect to significant defects. The Company performs complete
reviews of title to federal and state offshore lease blocks prior to
acquisition. To
the extent title opinions or other investigations reflect material title
defects, the seller of the property, rather than the Company, is typically
responsible for curing any such title defects at its expense. If the Company
were unable to remedy or cure any title defect of a nature such that it would
not be prudent to commence drilling operations on undeveloped properties, the
Company could suffer a loss of its entire investment in the property. The
Company has obtained title opinions on substantially all of its producing
properties and believes that it has satisfactory title to such properties in
accordance with standards generally accepted in the oil and gas industry.
Substantially all of the Company's oil and natural gas properties are and will
continue to be mortgaged to secure borrowings under the Senior Credit Facility.
COMPETITION
Forcenergy encounters competition from other oil and gas companies in all
phases of its operations, including the acquisition of producing properties.
Competitors include major integrated oil and natural gas companies, numerous
independent oil and natural gas companies, individuals and drilling and income
programs. Many competitors are large, well-established companies with
44
<PAGE> 110
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. 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. Forcenergy'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.
OPERATING RISKS OF OIL AND GAS OPERATIONS
The oil and gas business involves certain operating hazards such as well
blowouts, cratering, explosions, uncontrollable flows of oil, natural gas or
well fluids, fires, formations with abnormal pressures, pollution, releases of
toxic gas and other environmental hazards and risks, any of which could result
in substantial losses to the Company through the loss of hydrocarbons, pollution
claims, personal injury suits and damage to properties of the Company and
others. The Company's offshore operations also are subject to the additional
hazards of marine operations, such as severe weather, capsizing and collision
that can cause substantial damage to facilities, and possible business
interruption. The availability of a ready market for the Company's oil and
natural gas production also depends on the proximity of reserves to, and the
capacity of, oil and gas gathering systems, pipelines and trucking or terminal
facilities. Additionally, the Company may be liable for environmental damages
caused by previous owners of property purchased or leased by the Company. 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
development, acquisitions or exploration, or result in the loss of the Company's
properties. In accordance with customary industry practices, Forcenergy
maintains insurance against some, but not all, of such risks and losses. The
Company does not carry business interruption insurance. The occurrence of an
event not fully covered by insurance could have a material adverse effect on the
financial condition, results of operations and cash flow of the Company.
GOVERNMENT REGULATION
The Company's drilling, production and marketing operations are subject to
various types of regulation at the federal, state and local levels. Such
regulation includes requiring permits for the drilling of wells, maintaining
bonding requirements in order to drill or operate wells, and regulating the
location of wells, the surface use and restoration of properties upon which
wells are drilled and the plugging and abandonment of wells. Regulations also
can limit production rates, require capital for environmental compliance and
affect the transportation and marketing of hydrocarbons.
Certain operations the Company conducts are on federal oil and gas leases,
which the MMS administers. The MMS issues such leases through competitive
bidding. These leases contain relatively standardized terms and require
compliance with detailed MMS regulations and orders pursuant to the Outer
Continental Shelf Lands Act ("OCSLA") (which are subject to change by the MMS).
For offshore operations, lessees must obtain MMS approval for exploration plans
and development and production plans prior to the commencement of such
operations. In addition to permits required from other agencies (such as the
Coast Guard, the Army Corps of Engineers and the Environmental Protection
Agency), lessees must obtain a permit from the MMS prior to the commencement of
drilling. The MMS has promulgated regulations requiring offshore production
facilities located on the OCS to meet stringent engineering and construction
specifications. The MMS proposed additional safety-related regulations
concerning the design and operating procedures for OCS production platforms and
pipelines. These proposed regulations were withdrawn pending further discussions
among interested federal agencies. The MMS also has issued regulations
restricting the flaring or venting of natural gas, and has recently proposed to
amend such regulations to prohibit the flaring of liquid hydrocarbons and oil
without prior authorization. Similarly,
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the MMS has promulgated regulations governing the plugging and abandonment of
wells located offshore and the removal of all production facilities. To cover
the various obligations of lessees on the OCS, the MMS generally requires that
lessees post substantial bonds or other acceptable assurances that such
obligations will be met. The cost of such bonds or other surety can be
substantial and there is no assurance that bonds or other surety can be obtained
in all cases. Under certain circumstances, the MMS may require any Company
operations on federal leases to be suspended or terminated. Any such suspension
or termination could materially and adversely affect the Company's financial
condition and operations.
In November 1995, the MMS issued a notice of proposed rulemaking in which
it proposed to amend its regulations governing the calculation of royalties and
the valuation of natural gas produced from federal leases. The principle feature
in the amendments, as proposed, would establish an alternative market-index
based method to calculate royalties on certain natural gas production sold to
affiliates or pursuant to non-arm's-length sales contracts. The MMS proposed
this rulemaking to facilitate royalty valuation in light of changes in the gas
marketing environment. The MMS has recently announced its intention to
reconsider the proposal and reopen the comment period. The MMS has also recently
proposed a rule describing the types of transportation components that are
deductible for calculating and reporting royalties, as well as various cost
components associated with marketing functions that are not deductible. The
Company cannot predict what action the MMS will take on these matters, nor can
it predict at this stage of the rulemaking proceeding how the Company might be
affected if amendments to the regulations are adopted.
In addition, the MMS is conducting an inquiry into certain contract
agreements from which producers on MMS leases have received settlement proceeds
that are royalty bearing and the extent to which producers have paid the
appropriate royalties on those proceeds. The Company believes that this inquiry
will not have a material impact on its financial condition, liquidity or results
of operations.
The FERC regulates interstate natural gas transportation rates and service
conditions, which affect the marketing of natural gas produced by the Company,
as well as the revenues received by the Company for sales of such production.
Since the mid-1980s, the FERC has issued a series of orders, culminating in
Order Nos. 636, 636-A and 636-B ("Order 636"), that have significantly altered
the marketing and transportation of natural gas. Order 636 mandates a
fundamental restructuring of interstate pipeline sales and transportation
service, including the unbundling by interstate pipelines of the sales,
transportation, storage and other components of the city-gate sales services
such pipelines previously performed. One of FERC's purposes in issuing the
orders is to increase competition within all phases of the natural gas industry.
Generally, Order 636 has eliminated or substantially reduced the interstate
pipelines' traditional role as wholesalers of natural gas, and has substantially
increased competition and volatility in natural gas markets. While significant
regulatory uncertainty remains, Order 636 may ultimately enhance the Company's
ability to market and transport its natural gas, although it may also subject
the Company to greater competition and more restrictive pipeline imbalance
tolerances and greater associated penalties for violation of such tolerances.
Numerous parties have filed petitions for review of Order 636, as well as orders
in individual pipeline restructuring proceedings. In July 1996, Order 636 was
generally upheld on appeal. The portions remanded for further action do not
appear to materially affect the Company. It is difficult to predict when all
appeals of Order 636 will be completed or their impact on the Company.
The FERC has recently announced several important transportation-related
policy statements and proposed rule changes. In 1995, the FERC issued a policy
statement on how interstate natural gas pipelines can recover the costs of new
pipeline facilities. In January 1996, the FERC issued a policy statement and a
request for comments concerning alternatives to its traditional cost-of-service
ratemaking methodology, including criteria to be used in evaluating proposals to
charge market-based rates for the transportation of natural gas. In addition,
the FERC recently issued a
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notice of proposed rulemaking pursuant to which it proposes to substantially
revise its regulations regarding releases of firm interstate natural gas
pipeline capacity. While any resulting FERC action regarding these matters would
affect the Company only indirectly, the FERC's current rules and policy
statements may have the effect of enhancing competition in natural gas markets
by, among other things, encouraging non-producer natural gas marketers to engage
in certain purchase and sale transactions. The Company cannot predict what
action the FERC will take on these matters, nor can it accurately predict
whether the FERC's actions will achieve the goal of increasing competition in
markets in which the Company's natural gas is sold. However, the Company does
not believe that it will be treated materially differently than other natural
gas producers and marketers with which it competes.
The FERC also regulates rates and service conditions for interstate
transportation of crude oil, liquids and condensate, which can affect the
revenues the Company receives from the sale of these products. Effective January
1, 1995, the FERC adopted regulations establishing an indexing system for
transportation rates for oil pipelines, which generally indexes such rates to
inflation. These regulations could increase the cost of transporting crude oil,
liquids and condensate by pipeline.
Legislation affecting the oil and gas industry is under constant review for
amendment or expansion by Congress, the FERC, state regulatory bodies and the
courts. The Company cannot predict when or if any such proposals might become
effective, or their effect, if any, on the Company's operations. The natural gas
industry historically has been very heavily regulated; therefore, there is no
assurance that the less stringent regulatory approach recently pursued by the
FERC and Congress will continue indefinitely into the future. The regulatory
burden on the oil and natural gas industry increases the Company's cost of doing
business and, consequently, affects its profitability and cash flow. In as much
as such laws and regulations are frequently expanded, amended or reinterpreted,
the Company is unable to predict the future cost or impact of complying with
such regulations.
ENVIRONMENTAL MATTERS
The Company, as an owner or lessee and operator of oil and gas properties,
is subject to federal, state and local laws and regulations governing the
discharge of materials into, and the protection of, the environment. These laws
and regulations may require the acquisition of a permit before drilling
commences, restrict the types, quantities and concentration of various
substances that can be released into the environment in connection with drilling
and production activities, limit or prohibit drilling activities on certain
lands lying within wilderness, wetlands and other protected areas, and impose
substantial liabilities for pollution resulting from the Company's operations.
Stricter standards in environmental legislation may be imposed in the oil and
gas industry in the future, such as proposals made in Congress and at the state
level from time to time that would reclassify certain oil and natural gas
exploration and production wastes as "hazardous wastes" and make the
reclassified wastes subject to more stringent and costly handling, disposal and
clean-up requirements. The impact of any such changes, however, would not likely
be any more burdensome to the Company than to any other similarly situated
company involved in oil and gas exploration and production.
The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), also known as the "Superfund" law, imposes liability, without regard
to fault or the legality of the original conduct, on certain classes of persons
who are considered to be responsible for the release of a "hazardous substance"
into the environment. These persons include the owner or operator of the
disposal site or sites where the release occurred and companies that disposed or
arranged for disposal of the hazardous substances. Under CERCLA, such persons
may be subject to joint and several liability for the costs of cleaning up the
hazardous substances, for damages to natural resources, and for the costs of
certain health studies. Furthermore, it is not uncommon for neighboring
landowners and other third parties to file claims for personal injury and
property
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damage allegedly caused by hazardous substances or other pollutants released
into the environment.
In addition, the U.S. Oil Pollution Act establishes strict liability for
owners of offshore facilities that are the site of a release of oil into "waters
of the United States" (a term that includes the Gulf of Mexico) and the Act
presently requires owners of offshore facilities to demonstrate that they have
$150 million in insurance coverage or other sources of funds available to cover
costs that might be incurred by governmental authorities in responding to an oil
spill. Congress recently amended the Oil Pollution Act to reduce the level of
"financial responsibility" required by the Act to $35 million, subject to later
increase to as much as $150 million if a formal risk assessment indicates that
the increase is warranted. The amendment is subject to Presidential approval.
The Company maintains insurance coverages which it believes are customary
in the industry although it is not fully insured against many environmental
risks. Although the Company has not experienced any material adverse effect from
compliance with environmental requirements, nor is it aware of any environmental
claims existing at September 30, 1996, there is no assurance that this will
continue in the future.
EMPLOYEES
As of September 30, 1996, the Company had 155 full time employees, 29 of
whom are located at the Company's headquarters in Miami, Florida and 126 of whom
are located at the Company's regional offices in New Orleans, Lafayette and
Intracoastal City, Louisiana and Denver, Colorado. Most of such regional
employees work offshore in the Gulf of Mexico. None of Forcenergy's employees
are represented by a labor union.
OFFICES
The Company currently leases approximately 12,600 square feet of office
space in Miami, Florida, where its principal offices are located, approximately
900 square feet in Denver, Colorado, approximately 17,900 square feet in New
Orleans, Louisiana and approximately 666 square feet in Lafayette, Louisiana.
LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings, other
than ordinary routine litigation incidental to its business, that management
believes would not have a material adverse effect on its financial condition or
results of operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
executive officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- -------------------------------------------
<S> <C> <C>
Robert Issal....................... 50 Chairman of the Board
Stig Wennerstrom................... 53 President, Chief Executive Officer and
Director
J. Russell Porter.................. 34 Vice President -- Corporate Development
John A. Brush...................... 42 Vice President -- Land and Marketing,
General Counsel, Secretary
Percy A. Payne..................... 55 Vice President -- Exploration and
Production
E. Joseph Grady.................... 43 Vice President, Treasurer and Chief
Financial Officer
Eric Forss......................... 30 Director
Arnold L. Chavkin.................. 44 Director
Kevin S. Penn...................... 35 Director
Bruce L. Burnham................... 62 Director
William F. Wallace................. 57 Director
Jeffrey A. Weber................... 31 Director
</TABLE>
Robert Issal has been Chairman of the Board of Directors of the Company
since May 1994 and has been a director since the Company's inception in
September 1993. Mr. Issal has been Chairman of FAB since May 1994 and served as
Vice Chairman of FAB from April 1992 to April 1994. From 1988 through 1991, Mr.
Issal was President and Chief Executive Officer of Forsheda AB, a Swedish public
company, and from 1991 through 1994 served as President of Abstracta AB. Since
1994, Mr. Issal has served as Chairman and President of Rejmyre Belysning AB
Sweden, a Swedish lighting manufacturer.
Stig Wennerstrom has been President and Chief Executive Officer of the
Company since its inception in September 1993. Prior to the formation of the
Company, Mr. Wennerstrom was the President and Chief Executive Officer of
Forcenergy Gas Exploration Inc ("FGE"), the general partner of Forcenergy
Partners. FGE managed Forcenergy Partners as its general partner (FAB was the
sole limited partner of Forcenergy Partners) from its inception in 1989 until
FGE and Forcenergy Partners were merged into the Company in September 1993.
J. Russell Porter is Vice President -- Corporate Development of the
Company. Mr. Porter joined the Company as Vice President -- Financial Planning &
Analysis in April 1994 and served in that capacity functioning as Chief
Financial Officer until being promoted to his current position in October 1995.
From January 1992 until joining the Company, Mr. Porter held the position of
Vice President in the Natural Resources Group of Internationale Nederlanden
(U.S.) Capital Corporation in New York. From July 1990 to December 1991, Mr.
Porter was an Associate in the Energy Group at Manufacturers Hanover and
Chemical Bank.
John A. Brush is Vice President -- Land and Marketing, General Counsel,
Secretary of the Company. Mr. Brush joined the Company as Vice President -- Land
and General Counsel in November 1993 and served in that capacity until being
appointed to his current position in November 1995. Prior to joining the
Company, Mr. Brush was Manager of Contract Administration with Apache
Corporation from April 1992 to June 1993 and was employed by Hamilton Brothers
Oil Company from July 1985 to January 1992 in various positions.
Percy Payne is Vice President -- Exploration and Production of the Company
and has responsibilities for all Gulf of Mexico and Gulf Coast operations. Prior
to joining the Company in August 1996,
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Mr. Payne served as President of Payne Energy Associates, Inc., a privately held
consulting group formed by Mr. Payne, serving the international oil industry.
Prior to establishing a consulting business in September 1994, Mr. Payne held
various positions during a tenure of 27 years within Shell Oil Company USA among
other positions, most recently serving as Vice President of Pecten
International, Shell Oil Company, USA's international subsidiary. Mr. Payne also
served as General Manager of Operations for the lower 48 states (less
California) and Alaska for Shell Western E&P from April 1986 to September 1991.
E. Joseph Grady is Vice President, Treasurer and Chief Financial Officer of
the Company. Prior to joining the Company in October 1995, Mr. Grady held
various financial management positions within Southdown, Inc. and its
subsidiaries since 1980. Most recently Mr. Grady was Director of Finance for
Southdown Environmental Systems, Inc. from January 1991 until he joined the
Company, and prior to that was with Pelto Oil Company for approximately ten
years, finally serving as Vice President -- Finance.
Eric Forss has been a director of the Company since June 1994. Mr. Forss
has been President of FAB since May 1991. Prior to serving as President, Mr.
Forss had been Vice President of FAB from May 1990 through April 1991. Mr. Forss
has served as a director on the Board of FAB since May 1994.
Arnold L. Chavkin has been a director of the Company since its inception in
1993. Mr. Chavkin has been a General Partner of Chase Capital Partners (formerly
Chemical Venture Partners) since January 1992 and has served as the president of
Chemical Investments, Inc. since March 1991. Prior to March 1991, Mr. Chavkin
was a member of Chase Manhattan (formerly Chemical) Bank's merchant banking
group and a member of its corporate finance group since 1986. Mr. Chavkin serves
as a director on the boards of Reading & Bates Corporation, American Radio
Systems, Inc., Bell Sports Corporation and Wireless One, Inc.
Kevin S. Penn has been a director of the Company since its inception in
1993. Since October 1995, Mr. Penn has served as Managing Director of A.C.
Israel Capital Co., Inc. Mr. Penn was Executive Vice President of First Spring
Corporation from September 1991 to October 1995. From April 1991 to September
1991, Mr. Penn was Director, Financial Planning and Analysis for Primerica
Corporation. From 1987 to 1990, Mr. Penn was a principal with the leveraged
buyout firm of Adler & Shaykin. Mr. Penn serves as a director on the Boards of
T-Chem Products, Inc. and HVE Holdings, Inc.
Bruce L. Burnham has served as President of The Burnham Group, a privately
held consulting and marketing firm formed by Mr. Burnham shortly after retiring
from Dayton's Department Stores in 1984. From 1981 to 1984, Mr. Burnham served
as Chairman and Chief Executive Officer of Dayton's Department Stores in
Minneapolis, Minnesota. From 1979 to 1980, Mr. Burnham was President and Chief
Executive Officer of Bonwit Teller in New York City. From 1978 to 1979, Mr.
Burnham was President and Chief Operating Officer of Jordan Marsh. He serves on
the boards of Paxson Communications Corporation, Financial Benefit Group, Inc.
and J.B. Rudolph, Inc.
William F. Wallace currently is an advisory member of the Beacon Alliance
of the Beacon Group, a private investment and advisory partnership. Prior to
joining the Beacon Alliance in early 1996, Mr. Wallace was Vice Chairman of
Barrett Resources/Plains Petroleum Company and President and Chief Operating
Officer of Plains Petroleum Company. Prior to joining Plains Petroleum Company
in 1994, Mr. Wallace spent a combined total of 23 years with Texaco, Inc., the
last seven of which he served as Regional Vice President.
Jeffrey A. Weber was elected as a Director of the Company on August
29,1996. Mr. Weber currently is President and Chief Executive Officer of Burden
Brothers, Inc., the General Partner of William A.M. Burden & Co., L.P., a
private investment partnership. Prior to joining William A.M. Burden & Co., L.P.
in April 1992, Mr. Weber was an associate with Chemical Venture Partners. Mr.
Weber is also the Investment Advisor to the Florence V. Burden Foundation and
serves as a
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director of SemiTest, Inc., Datamax International Corporation and Digital
Telmedia, Inc. Mr. Weber also serves as an Advisory Board Member and Special
Limited Partner of Exeter Venture Lenders, L.P. and Exeter Equity Partners,
L.P., two private investment partnerships, and as a member of the Advisory
Committee of Starwood Capital Group, L.P., a real estate investment firm.
Members of the Board of Directors are elected each year at the Company's
annual meeting and serve until their successors are duly elected and qualified
or their earlier resignation or removal. Officers serve at the discretion of the
Board of Directors.
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DESCRIPTION OF EXISTING SECURITIES AND SENIOR CREDIT FACILITY
The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock, par value $0.01 per share.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share in the election
of directors and on all other matters submitted to a vote of common stockholders
and do not have cumulative voting rights. Holders of Common Stock are entitled
to receive ratably such dividends, if any, as may be declared by the Board of
Directors out of funds legally available therefore, subject to any preferential
dividend rights of holders of outstanding Preferred Stock. See "Dividend
Policy." Upon the liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to receive ratably the net assets of the
Company available after payment of all debts and other liabilities, subject to
the prior rights of any outstanding shares of Preferred Stock. Holders of Common
Stock have no preemptive, subscription, redemption or conversion rights.
PREFERRED STOCK
The Board of Directors of the Company is empowered, without approval of the
stockholders, to cause shares of Preferred Stock to be issued in one or more
series, with the numbers of shares of each series to be determined by it. The
Board of Directors is authorized to fix and determine variations in the
designations, preferences, and relative, participating, optional or other
special rights (including, without limitation, special voting rights to receive
dividends or assets upon liquidation, rights of conversion into Common Stock or
other securities, redemption provisions and sinking fund provisions) between
series and between the Preferred Stock or any series thereof and the Common
Stock, and the qualifications, limitations or restrictions of such rights; and
the shares of Preferred Stock or any series thereof may have full or limited
voting powers, or be without voting powers.
Although the Company has no present intention to issue shares of Preferred
Stock, the issuance of shares of Preferred Stock, or the issuance of rights to
purchase such shares, could be used to discourage an unsolicited acquisition
proposal. For instance, the issuance of a series of Preferred Stock might impede
a business combination by including class voting rights that would enable the
holders to block such a transaction; or such issuance might facilitate a
business combination by including voting rights that would provide a required
percentage vote of the stockholders. In addition, under certain circumstances,
the issuance of Preferred Stock could adversely affect the voting power of the
holders of the Common Stock. Although the Board of Directors is required to make
any determination to issue such stock based on its judgment as to the best
interests of the stockholders of the Company, the Board of Directors could act
in a manner that would discourage an acquisition attempt or other transaction in
that some or a majority of the stockholders might believe to be in their best
interest or in which stockholders might receive a premium for their stock over
the then market price for such stock. The Board of Directors does not at present
intend to seek stockholder approval prior to any issuance of currently
authorized stock, unless otherwise required by law or the regulations of the
exchange on which its Common Stock is listed.
WARRANTS
In connection with the offering of the Subordinated Notes, Donaldson,
Lufkin & Jenrette Securities Corporation was granted warrants to purchase 98,337
shares of the Company's Common Stock at an exercise price of $14.51 per share.
The warrants are currently exercisable and have an expiration date of September
14, 1998. To date, none of these warrants have been exercised.
EXCHANGEABLE SUBORDINATED NOTES
The Company has issued an aggregate principal amount of $34 million in
Subordinated Notes which mature on September 15, 2000, pursuant to the Note
Purchase Agreement among the
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<PAGE> 118
Company and the Note Holders. Interest accrues on the Subordinated Notes at a
rate of 7% per annum, payable semi-annually in arrears. Principal of the
Subordinated Notes is payable upon maturity. If the Company has not consummated
a Qualified Public Offering (as defined below) prior to September 15, 1998, two
years before the maturity date of the Subordinated Notes, and the Subordinated
Notes are not otherwise exchanged into Common Stock, the holders of the
Subordinated Notes will be entitled to an additional payment on the maturity
date of an amount sufficient to provide the Note Holders with a compounded
annual rate of return of 13% from the issuance date of the Subordinated Notes.
The Company is currently accruing interest on the Subordinated Notes at 13%.
The Subordinated Notes are subordinate to the Senior Credit Facility. The
Company is subject to various covenants pursuant to the Note Purchase Agreement,
including restrictions on other debt, liens, issuance of preferred stock, and
the sale of certain assets, maintenance of certain minimum working capital,
tangible net worth and fixed charge coverage ratios, restrictions on affiliated
transactions, compensation and limitations on the amount of dividends paid. The
Company may pay the principal amount plus accrued interest on the Subordinated
Notes at maturity in shares of Common Stock, subject to a cash make-whole
provision equal to the difference between the cash proceeds of the sale of such
stock (if sold within 30 days after the stock is issued) and the amount of
principal and interest due.
Each of the holders of the Subordinated Notes may elect at any time to
exchange all or a portion of its Subordinated Notes into such number of shares
of the Company's Common Stock determined by dividing the amount of outstanding
principal of the Subordinated Notes to be exchanged by the exchange price of
$14.51, subject to certain adjustments; provided that no such amount to be
exchanged may be less than the lower of (i) $5 million and (ii) all of such Note
Holder's remaining Subordinated Notes. The number of shares of Common Stock
issuable upon exchange of the Subordinated Notes is subject to adjustment for
various dilutive events, including certain stock issuances. As of the date of
this Prospectus, the Subordinated Notes were exchangeable for approximately
2,343,047 shares of the Company's Common Stock.
Under certain circumstances, the Company may require the Note Holders to
exchange all (but not less than all) of the then outstanding Subordinated Notes
into such number of freely tradeable shares of the Company's Common Stock
determined by dividing the amount of total outstanding principal of the
Subordinated Notes by the exchange price of $14.51, subject to certain
adjustments (the "Call Option"). The Company may only elect to exercise the Call
Option upon the consummation of a "Qualified Public Offering" of Common Stock. A
"Qualified Public Offering" is defined as an offering of not less than 2% of the
Company's outstanding shares at a price of not less than $21.76 per share,
unless the Company elects (as it has in the case of the Common Stock Offering)
to pay the Note Holders selling shares in the offering an amount per share equal
to the difference, if any, between $21.76 and the public offering price (the
"Spread") and to pay such Note Holders that sell shares in any other
arm's-length sale prior to September 15, 2000, an amount per share equal to the
lesser of (i) the Spread and (ii) the difference, if any, between $21.76 and the
sale price in such arms length sale. The Company may also be required to pay a
portion of the brokerage commissions of the Note Holders so as to assure that
the net sale proceeds are at least $21.16 per share. The Common Stock Offering
will constitute a Qualified Public Offering, and the Company will exercise the
Call Option concurrently with the consummation of the Common Stock Offering. The
Note Holders constituting 75% of the aggregate principal amount outstanding of
the Subordinated Notes may elect to require that the Company exercise the Call
Option at any time prior to maturity regardless of whether a Qualified Public
Offering has been consummated.
The Note Holders may at their election require that the Company prepay the
Subordinated Notes upon the occurrence of a "change of control." A "change of
control" under the Note Purchase Agreement occurs if: (i) any person other than
FAB or two or more persons acting as a group acquire beneficial ownership
(within the meaning of Rule 13d-3 of the Commission under the Securities
Exchange Act of 1934, as amended, and including holding proxies to vote for the
election
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of directors) of 33 1/3% or more of the outstanding shares of voting Common
Stock without the consent of the Note Holders holding more than 75% of the
principal amount of the outstanding Subordinated Notes and except pursuant to an
exchange of the Subordinated Notes or in connection with a public offering of
securities registered pursuant to the Securities Act; or (ii) there is a sale of
all or substantially all of the assets of the Company or a distribution of
assets of the Company upon a dissolution, winding up, liquidation or
reorganization of the Company.
Upon the occurrence of a "change of control," the Note Holders may elect to
require the Company to redeem the Subordinated Notes at the greater of (i)
149.65% of their outstanding principal amount plus accrued interest and (ii) an
amount sufficient to provide the holders with a compounded annual rate of return
of 15% on the outstanding principal amount of the Subordinated Notes.
The Note Holders are entitled, under certain circumstances, to certain
demand and piggyback registration rights with respect to the Common Stock into
which their Subordinated Notes have been exchanged pursuant to the Note Exchange
Agreement. The holders of no less than 25% of the outstanding principal amount
of the Subordinated Notes may require the Company to effect two registrations of
the shares of Common Stock issuable upon the exchange of the Subordinated Notes.
The Note Holders that are not Selling Stockholders under the Common Stock
Offering have waived such registration rights in connection with the Offerings.
Pursuant to the Subordinated Notes, so long as no event of default is in
existence after giving effect to such dividends, the Company may declare and pay
dividends to its stockholders during any fiscal year in an aggregate amount that
may not exceed the lesser of (i) the excess of (a) 60% of the Company's net
income before income taxes and non-cash extraordinary items for the immediately
preceding fiscal year over (b) all income taxes incurred by the Company during
the immediately preceding fiscal year and actually paid, and (ii) a permitted
dividend ceiling which equals $6.7 million in 1996 and increases by 10% each
year; provided that after giving effect to the dividend, the ratio of future net
revenues to total debt on the date of such distribution is greater that 2 to 1.
On May 12, 1994, in connection with the Company's sale of Common Stock to
FAB, the Company granted options to the holders of the Subordinated Notes pro
rata in proportion to their holdings of Subordinated Notes to purchase 317,629
shares of Common Stock at an exercise price of $18.18 per share. In connection
with its initial public offering, the Company reduced the exercise price for
such options to $15.76 per share and extended the term of the options to
September 15, 2000.
VOTING AND HOLDBACK AGREEMENT
The Company, FAB, Wictor Forss and the Note Holders are parties to the
Voting Agreement pursuant to which such persons agree to maintain the size of
the Board of Directors at no more than eight members, designate all eight
nominees to the Board and vote their shares of Common Stock for such nominees.
The Voting Agreement provides that (i) FAB has the right to designate two
nominees, (ii) the Note Holders have the right to designate three nominees,
(iii) the Chief Executive Officer of the Company must be nominated to serve as a
director and shall be Stig Wennerstrom or another person acceptable to the Note
Holders and (iv) two independent directors be nominated by FAB subject to the
approval of the Note Holders. The Voting Agreement provides that as long as each
of FS Energy Associates, L.P. and the Brinson Group holds at least 50% of the
Subordinated Notes (or shares of Common Stock issued in exchange therefor)
originally purchased by such holder, each such holder shall be entitled to
designate one of the three Note Holder nominees to the Board of Directors. The
Voting Agreement, as amended, provides that the independent director nominees
for the Company's 1996 annual meeting have no previous affiliation with FAB. In
connection with the 1996 annual meeting, FAB nominated Bruce L. Burnham and
William F. Wallace. The Note Holders may not vote any securities of the Company
that they own to remove any director
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nominated by FAB without the prior consent of FAB. FAB has granted an
irrevocable proxy to the Note Holders to vote its shares of Common Stock solely
in connection with the election of directors pursuant to the provisions, and for
the term, of the Voting Agreement. Pursuant to his Employment Agreement, Stig
Wennerstrom cannot be removed as the Company's President and Chief Executive
Officer without the consent of five of the Company's eight directors.
Without the prior written consent of the holders of a majority of the
shares of Common Stock issuable upon the exchange of the Subordinated Notes, FAB
and Wictor Forss are not permitted to sell any equity securities of the Company
to non-affiliates during (i) the period beginning from the date a registration
statement is filed in connection with a registration of the Company of its
securities pursuant to registration rights being exercised under the Note
Exchange and Registration Rights Agreement and ending 300 days after the closing
date of each underwritten offering made pursuant to such registration statement
and (ii) the period beginning on the date the Company provides written notice to
the Note Holders of its exercise of the Call Option through and ending on the
date on which the closing of the exchange under the Call Option occurs.
The Voting Agreement terminates on the earliest to occur of: (i) September
15, 2003, (ii) the date on which FAB and its affiliates beneficially own less
than 10% of the then outstanding voting Common Stock and (iii) the date on which
less than $5 million aggregate principal amount of the Subordinated Notes is
outstanding and the Note Holders own less than 5% of the then outstanding shares
of voting Common Stock of the Company. Upon completion of the Common Stock
Offering, the number of shares held by the Note Holders will be reduced to below
5% of the outstanding shares of Common Stock and the Voting Agreement will
terminate pursuant to its terms.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
SENIOR CREDIT FACILITY
The Company has entered into a senior credit facility (the "Senior Credit
Facility") with a maximum loan amount of $120 million and a borrowing base of
$120 million at December 31, 1995, subject to certain financial and operational
criteria. The borrowing base is subject to redetermination semi-annually based
on revised reserve estimates. The loan is collateralized by substantially all of
the Company's oil and gas properties. Effective December 1, 1995, the Senior
Credit Facility was amended to extend the maturities of related borrowings on a
revolving basis through December 31, 1997 and to reduce borrowing rates under
the facility. Future annual principal payments, as a percentage of the principal
balance outstanding at the time of conversion to the term loan, will be 36% in
1998, 30% in 1999, 23% in 2000, and 11% in 2001. The term loan matures on June
30, 2001. During 1995, advances, at the Company's option, bore interest at
either the prime rate plus a variable percentage ranging from .25% to .75% or
LIBOR plus a variable percentage ranging from 2% to 2.5%, based on the Company's
leverage ratio. Effective December 1, 1995, under the amended facility,
advances, at the Company's option, bear interest at either the prime rate or
LIBOR plus 1.375%. Interest on prime loans is due quarterly, while interest on
LIBOR loans is due the earlier of quarterly, or the end of each designated
interest period. Commitment fees on the unused portion of the facility are due
quarterly at an annual rate of 0.5%.
Effective April 26, 1996, the Company renegotiated its Senior Credit
Facility to provide for a total commitment of $195 million, with a current
borrowing base of $175 million. At September 30, 1996, the borrowing base was
increased to $195 million. At September 30, 1996, the Company had approximately
$29.9 million available under the Senior Credit Facility. Subsequent to the
closing of the Offerings and, at the direction of the Company, the borrowing
base under the Senior Credit Facility will be reduced to $50 million from the
current borrowing base of $195 million.
The maximum commitment of $195 million will remain in effect. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
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The Senior Credit Facility requires the Company to comply with various
customary covenants including, but not limited to, the maintenance of various
financial ratios, and limits the Company's ability to pay dividends on its
Common Stock.
DESCRIPTION OF NOTES
The Notes will be issued under an Indenture (the "Indenture") between the
Company and Bankers Trust Company, as trustee (the "Trustee"). A copy of the
Indenture in substantially the same form in which it is to be executed has been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part. The terms of the Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939 (the
"Trust Indenture Act"). The Notes are subject to all such terms, and Holders of
Notes are referred to the Indenture and the Trust Indenture Act for a statement
thereof. The following summary of certain provisions of the Indenture does not
purport to be complete and is qualified in its entirety by reference to the
Indenture, including the definitions therein of certain terms used below. Copies
of the proposed form of Indenture are available as set forth under
"-- Additional Information." The definitions of certain capitalized terms used
in the following summary are set forth below under "-- Certain Definitions."
GENERAL
The Notes will be general unsecured senior subordinated obligations of the
Company limited to $175,000,000 aggregate principal amount. The Notes will be
issued only in registered form, without coupons, in denominations of $1,000 and
integral multiples thereof. Principal of, premium, if any, on and interest on
the Notes will be payable, and the Notes will be transferable, at the office or
agency of the Company in the City of New York maintained for such purposes,
which initially will be the corporate trust office or agency of the Trustee
maintained at Four Albany Street -- 4th Floor, Mail Stop 5041, New York, NY
10006. In addition, in the event the Notes do not remain in book-entry form,
interest may be paid, at the option of the Company, by check mailed to the
registered holders of the Notes at their respective addresses as shown on the
Note Register. No service charge will be made for any transfer, exchange or
redemption of the Notes, but the Company or the Trustee may require payment of a
sum sufficient to cover any tax or other governmental charge that may be payable
in connection therewith.
The Notes will be general unsecured obligations of the Company and will be
subordinated in right of payment to Senior Debt. See "-- Subordination" and
"Risk Factors -- Subordination of Notes." The Company currently has no
Significant Subsidiaries. Under certain circumstances, any future Significant
Subsidiaries that are also Restricted Subsidiaries ("Guarantors") will be
obligated to guarantee the Notes on a senior subordinated basis. The obligation
of the Restricted Subsidiaries under such guarantees will be general unsecured
obligations of such Restricted Subsidiaries and will be subordinated in right of
payment to all obligations of such Restricted Subsidiaries in respect of Senior
Debt. See "-- Subsidiary Guarantees" and "Risk Factors -- Subordination of
Notes."
Under certain circumstances, the Company will be able to designate
Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be
subject to many of the restrictive covenants set forth in the Indenture.
MATURITY AND INTEREST
The Notes will mature on , 2006. Interest on the Notes will
accrue at the rate of % per annum and will be payable semi-annually in
arrears on and , commencing on , 1997, to
Holders of record on the and immediately preceding such
interest payment date. Interest on the Notes will accrue from the most recent
date on which interest has been paid or, if no interest has been paid, from the
date of original issuance. Interest will be computed on the basis of a 360-day
year comprised of twelve 30-day months.
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<PAGE> 122
REDEMPTION
Optional Redemption. At any time on or after , 2001, the Notes
will be subject to redemption at the option of the Company, in whole or in part,
upon not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below plus, in each
case, accrued and unpaid interest, if any, thereon to the applicable redemption
date, if redeemed during the twelve-month period beginning on of the
years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
------------------------------------------------------------------------- ----------
<S> <C>
2001..................................................................... %
2002..................................................................... %
2003..................................................................... %
2004 and thereafter...................................................... 100%
</TABLE>
Notwithstanding the foregoing, the Company may at any time prior to
, 2001, at its option, redeem all or any portion of the Notes at the
Make-Whole Price plus accrued and unpaid interest to the date of redemption. In
addition, during the first 36 months after the date of this Prospectus, the
Company may, on any one or more occasions, redeem up to $61.25 million in
aggregate principal amount of Notes at a redemption price of % of the
principal amount thereof plus accrued and unpaid interest, if any, thereon to
the redemption date, with the net proceeds of an offering of common equity of
the Company; provided, that at least $113.75 million in aggregate principal
amount of Notes must remain outstanding immediately after the occurrence of such
redemption; and provided further, that any such redemption shall occur within 60
days of the date of the closing of such offering of common equity of the
Company.
Selection and Notice. If less than all of the Notes are to be redeemed at
any time, selection of Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Notes are listed, or, if the Notes are not so listed, on a
pro rata basis, by lot or by such method as the Trustee shall deem fair and
appropriate; provided that no Notes of $1,000 or less shall be redeemed in part.
Notices 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 Notes to be
redeemed at its registered address. If any Note is to be redeemed in part only,
the notice of redemption that relates to such Note shall state the portion of
the principal amount thereof to be redeemed. A new Note in principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Note. On and after the redemption
date, interest will cease to accrue on Notes or portions of them called for
redemption.
Mandatory Redemption. Except as set forth below under "-- Repurchase at the
Option of Holders," the Company is not required to make mandatory redemption or
sinking fund payments with respect to the Notes.
Offers to Purchase. As described below under "-- Repurchase at the Option
of Holders," (a) upon a Change of Control, each Holder of Notes will have the
right to require the Company to repurchase all or any part (equal to $1,000 or
an integral multiple thereof) of such Holder's Notes at an offer price in cash
equal to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest, if any, thereon to the date of purchase and (b) when the aggregate
amount of Excess Proceeds of certain sales or other dispositions of assets
exceeds $10.0 million, the Company will be required to make an offer to all
Holders of Notes and, to the extent required by the terms thereof, to all
holders or lenders of Pari Passu Indebtedness to purchase the maximum principal
amount of Notes and any such Pari Passu Indebtedness that may be purchased out
of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of
the principal amount thereof plus accrued and unpaid interest, if any, thereon.
See "-- Repurchase at the Option of Holders -- Change of Control" and
"-- Repurchase at the Option of Holders -- Asset Sales."
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SUBORDINATION
The payment of principal of, premium, if any, and interest, on the Notes
and any other payment obligations of the Company in respect of the Notes
(including any obligation to repurchase the Notes) will be subordinated in
certain circumstances in right of payment, as set forth in the Indenture, to the
prior payment in full of all Senior Debt, whether outstanding on the date of the
Indenture or thereafter incurred. The Notes will rank prior in right of payment
only to other indebtedness of the Company which is, by its terms, expressly
subordinated in right of payment to the Notes. There is currently no
indebtedness of the Company which would constitute such subordinated
indebtedness.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshaling of the Company's
assets and liabilities, the holders of Senior Debt will be entitled to receive
payment in full of all amounts due in respect of such Senior Debt (including
interest after the commencement of any such proceeding at the rate specified in
the applicable Senior Debt) before the Holders of Notes will be entitled to
receive any payment with respect to the Notes, and until all amounts due with
respect to Senior Debt are paid in full, any distribution to which the Holders
of Notes would be entitled shall be made to the holders of Senior Debt (except
that Holders of Notes may receive securities that are subordinated at least to
the same extent as the Notes to Senior Debt and any securities issued in
exchange for Senior Debt and payments made from the trust described under
"-- Legal Defeasance and Covenant Defeasance").
The Company also may not make any payment upon or in respect of the Notes
(except in such subordinated securities or from the trust described under
"-- Legal Defeasance and Covenant Defeasance") if (i) a default in the payment
of the principal of, premium, if any, or interest on Designated Senior Debt
occurs and is continuing beyond any applicable period of grace or (ii) any other
default occurs and is continuing with respect to Designated Senior Debt that
permits, or with the giving of notice or passage of time or both (unless cured
or waived) will permit, holders of the Designated Senior Debt as to which such
default relates to accelerate its maturity and the Trustee receives a notice of
such default (a "Payment Blockage Notice") from the Company or the holders of
any Designated Senior Debt. Payments on the Notes shall be resumed (a) in the
case of a payment default, upon the date on which such default is cured or
waived and (b) in case of a nonpayment default, the earlier of the date on which
such nonpayment default is cured or waived or 179 days after the date on which
the applicable Payment Blockage Notice is received, unless the maturity of any
Designated Senior Debt has been accelerated. No new period of payment blockage
may be commenced unless and until (i) 360 days have elapsed since the date of
commencement of the immediately prior Payment Blockage Notice and (ii) all
scheduled payments of principal, premium, if any, and interest on the Notes that
have come due have been paid in full in cash. No nonpayment default that existed
or was continuing on the date of delivery of any Payment Blockage Notice to the
Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice, unless such default has been cured or waived for a period of not less
than 90 consecutive days commencing after the date of delivery of such Payment
Blockage Notice. In no event will a payment blockage period extend beyond 179
days from the date of the receipt by the Trustee of the notice and there must be
a 181 consecutive day period in any 360-day period during which no payment
blockage period is in effect. In the event that, notwithstanding the foregoing,
the Company makes any payment or distribution to the Trustee or the Holder of
any Note prohibited by the subordination provisions of the Indenture, then such
payment or distribution will be required to be paid over and delivered forthwith
to the holders (or their representative) of Designated Senior Debt.
If the Company fails to make any payment on the Notes when due or within
any applicable grace period, whether or not on account of the payment blockage
provisions described above, such failure would constitute an Event of Default
under the Indenture and would enable the Holders of the Notes to accelerate the
maturity thereof. See "-- Events of Default and Remedies."
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<PAGE> 124
The Indenture will further require that the Company promptly notify holders
of Senior Debt if payment of the Notes is accelerated because of an Event of
Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency of the Company, Holders of Notes may recover less
ratably than creditors of the Company who are Holders of Senior Debt, and funds
which would be otherwise payable to the Holders of the Notes will be paid to the
holders of the Senior Debt to the extent necessary to pay the Senior Debt in
full, and the Company may be unable to meet its obligations in full with respect
to the Notes.
As of September 30, 1996, on a pro forma basis, after giving effect to the
Offerings and the application of the proceeds therefrom, no Senior Debt would
have been outstanding. See "Use of Proceeds," "Capitalization" and "Description
of Existing Securities and Senior Credit Facility -- Senior Credit Facility."
The Indenture will limit, subject to certain financial tests, the amount of
additional Indebtedness, including Senior Debt, that the Company and any
Restricted Subsidiaries can incur. See "-- Certain Covenants -- Limitations on
Incurrence of Indebtedness and Issuance of Preferred Stock."
SUBSIDIARY GUARANTEES
Under the circumstances described below, the Company's payment obligations
under the Notes will be jointly and severally guaranteed (the "Subsidiary
Guarantees") by Guarantors. The Subsidiary Guarantee of each Guarantor will be
subordinated (to the same extent and in the same manner as the Notes are
subordinated to the Senior Debt) to the prior payment in full of all Senior Debt
of such Guarantor. The obligations of each Guarantor under its Subsidiary
Guarantee will be limited so as not to constitute a fraudulent conveyance under
applicable law. See "Risk Factors -- Fraudulent Conveyances."
The Indenture will provide that no Guarantor may consolidate with or merge
with or into (whether or not such Guarantor is the surviving Person), another
Person, whether or not affiliated with such Guarantor, unless (i) subject to the
provisions of the following paragraph, the Person formed by or surviving any
such consolidation or merger (if other than such Guarantor) assumes all the
obligations of such Guarantor, pursuant to a supplemental indenture in form and
substance reasonably satisfactory to the Trustee in respect of the Notes, the
Indenture and such Guarantor's Subsidiary Guarantee; (ii) immediately after
giving effect to such transaction, no Default or Event of Default exists; and
(iii) such transaction does not violate any of the covenants described under the
heading "-- Certain Covenants."
The Indenture will provide that in the event of a sale or other disposition
of all or substantially all of the assets of any Guarantor to a third party or
an Unrestricted Subsidiary in a transaction that does not violate any of the
covenants in the Indenture, by way of merger, consolidation or otherwise, or a
sale or other disposition of all of the capital stock of any Guarantor, then
such Guarantor (in the event of a sale or other disposition, by way of such a
merger, consolidation or otherwise, of all of the capital stock of such
Guarantor) or the Person acquiring the property (in the event of a sale or other
disposition of all or substantially all of the assets of such Guarantor) will be
released from and relieved of any obligations under its Subsidiary Guarantee;
provided that the Net Proceeds of such sale or other disposition are applied in
accordance with the covenant described under the caption "-- Repurchase at the
Option of Holders -- Asset Sales."
Although the Indenture will not contain any requirement that any current
Subsidiary execute and deliver a Subsidiary Guarantee, the Indenture will
require a future Restricted Subsidiary that is also a Significant Subsidiary to
execute and deliver a Subsidiary Guarantee prior to the guarantee of other
Indebtedness of the Company or a Restricted Subsidiary. In addition, any
Guarantor that is designated an Unrestricted Subsidiary in accordance with the
terms of the Indenture shall be released from and relieved of its obligations
under its Subsidiary Guarantee and any Unrestricted Subsidiary that ceases to be
an Unrestricted Subsidiary if it is then also a Significant Subsidiary that
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has guaranteed any Indebtedness of the Company will be required to execute a
Subsidiary Guarantee in accordance with the terms of the Indenture.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control. Upon the occurrence of a Change of Control, each Holder
of Notes will have the right to require the Company to repurchase all or any
part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price (the "Change of Control Payment") in cash equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest, if any,
thereon to the date of purchase, which shall be a business day not more than 70
nor less than 30 days following the Change of Control (the "Change of Control
Payment Date"). Within 30 days following any Change of Control, the Company will
mail a notice to the Trustee and each Holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Notes pursuant to the procedures required by the Indenture and described in such
notice. The Change of Control Offer is required to remain open for at least 20
Business Days and until the close of business on the fifth business day prior to
the Change of Control Payment Date.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (iii) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each Holder of Notes so tendered
the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof. The Indenture will provide
that, prior to complying with the provisions of this covenant, but in any event
within 70 days following a Change of Control, the Company will either repay all
outstanding Senior Debt or obtain the requisite consents, if any, under all
agreements governing outstanding Senior Debt to permit the repurchase of Notes
required by this covenant. The Company will publicly announce the results of the
Change of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture will not contain
provisions that permit the Holders of the Notes to require that the Company
repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar transaction.
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 in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
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
Payment for all of the Notes that might be delivered by Holders seeking to
accept the Change of Control Offer. If on a Change of Control Payment Date the
Company does not have available funds sufficient to pay the Change of Control
Payment or is prohibited from purchasing the Notes, an Event of Default would
occur under the Indenture. The definition of Change of Control includes a phrase
relating to the sale, lease, transfer, conveyance or other disposition of "all
or substantially all" of the assets of the Company. Although there is a
developing body of case law interpreting the phrase "substantially all," there
is no precise
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established definition of the phrase under applicable law. Accordingly, the
ability of a Holder of Notes to require the Company to repurchase such Notes as
a result of a sale, lease, transfer, conveyance or other disposition of less
than all of the assets of the Company to another Person or group may be
uncertain.
The Company intends to comply with Rule 14e-1 under the Exchange Act and
any other securities laws and regulations thereunder, if applicable, in the
event that a Change of Control occurs and the Company is required to purchase
Notes as described above. The existence of a Holder's right to require, subject
to certain conditions, the Company to repurchase its Notes upon a Change of
Control may deter a third party from acquiring the Company in a transaction that
constitutes, or results in, a Change of Control.
Asset Sales. The Indenture will provide that the Company will not, and will
not permit any Restricted Subsidiaries to, engage in an 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 (as determined by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee, which determination shall be
conclusive evidence of compliance with this provision) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 85% of the
consideration therefor received by the Company or such Restricted Subsidiary in
such Asset Sale, plus all other Asset Sales since the date of the Indenture, on
a cumulative basis, is in the form of cash or Cash Equivalents; provided that
the amount of (x) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet), of the Company or any Restricted
Subsidiary (other than contingent liabilities and liabilities that are by their
terms subordinated to the Notes or any guarantee thereof) that are assumed by
the transferee of any such assets pursuant to a customary novation agreement
that releases the Company or such Restricted Subsidiary from further liability
and (y) any Liquid Securities received by the Company or any such Restricted
Subsidiary from such transferee that are converted by the Company or such
Restricted Subsidiary into cash within 180 days of closing such Asset Sale,
shall be deemed to be cash for purposes of this provision (to the extent of the
cash received).
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (a) to reduce
indebtedness under the Senior Credit Facility or to the permanent reduction of
other Senior Debt, (b) to acquire a controlling interest in another Oil and Gas
Business, to make capital expenditures in respect of the Company's or any
Restricted Subsidiary's Oil and Gas Business, or to purchase long-term assets
that are used or useful in the Company's or any Restricted Subsidiary's Oil and
Gas Business, or (c) repurchase any Notes. Any Net Proceeds from Asset Sales
that are not applied or invested as provided in the first sentence of this
paragraph will (after the expiration of the periods specified in this paragraph)
be deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $10.0 million, the
Company will be required to make an offer to all Holders of Notes and, to the
extent required by the terms thereof, to all holders or lenders of Pari Passu
Indebtedness (an "Asset Sale Offer") to purchase the maximum principal amount of
Notes and any such Pari Passu Indebtedness that may be purchased out of the
Excess Proceeds, at an offer price in cash in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest, if any, thereon to
the date of purchase, in accordance with the procedures set forth in the
Indenture or the agreements governing the Pari Passu Indebtedness, as
applicable. To the extent that the aggregate amount of Notes tendered or Pari
Passu Indebtedness tendered pursuant to an Asset Sale Offer is less than the
Excess Proceeds, the Company may use any remaining Excess Proceeds for general
corporate purposes. If the aggregate principal amount of Notes surrendered by
Holders thereof and Pari Passu Indebtedness surrendered by holders or lenders
thereof, collectively, exceeds the amount of Excess Proceeds, the Trustee shall
select the Notes and Pari Passu Indebtedness to be purchased on a pro rata
basis, based on the aggregate principal amount (or accreted value, as
applicable) thereof
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surrendered in such Asset Sale Offer. Upon completion of such Asset Sale Offer,
the amount of Excess Proceeds shall be reset at zero.
The Senior Credit Facility may prohibit the Company from purchasing any
Notes and also provides that certain change of control events with respect to
the Company would constitute a default thereunder. Any future credit agreements
or other agreements relating to Senior Debt to which the Company becomes a party
may contain similar restrictions and provisions. In the event a Change of
Control or Asset Sale Offer occurs at a time when the Company is prohibited from
purchasing Notes, the Company could seek the consent of its lenders to the
purchase of or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company may remain prohibited from purchasing Notes. In such
case, the Company's failure to purchase tendered Notes would constitute an Event
of Default under the Indenture which would, in turn, constitute a default under
the Senior Credit Facility. In such circumstances, the subordination provisions
in the Indenture would likely restrict payments to the Holders of Notes.
The Company intends to comply with Rule 14e-1 under the Exchange Act and
any other securities laws and regulations thereunder, if applicable, in the
event that an Asset Sale occurs and the Company is required to purchase Notes as
described above.
CERTAIN COVENANTS
In addition to the covenants concerning a Change of Control and Asset Sales
described immediately above, the Indenture will contain, among others, the
covenants described below:
Limitation on Restricted Payments. The Indenture will provide that the
Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly:
(i) declare or pay any dividend or make any other payment or
distribution on account of the Company's Equity Interests (including,
without limitation, any payment in connection with any merger or
consolidation involving the Company) or to the direct or indirect holders
of the Company's Equity Interests in their capacity as such (other than
dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company or any direct or indirect parent or other
Affiliate of the Company that is not a Subsidiary of the Company;
(iii) make any principal payment on, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is pari passu
with or subordinated to the Notes (other than the Notes), except at final
maturity or in accordance with the mandatory redemption or repayment
provisions set forth in the original documentation governing such
Indebtedness; or
(iv) make any Restricted Investment
(all such payments and other actions set forth in clauses (i) through (iv) above
being collectively referred to as "Restricted Payments"), unless, at the time of
and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under the caption "-- Limitations on
Incurrence of Indebtedness and Issuance of Preferred Stock"; and
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(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Subsidiaries after the date
of the Indenture (including Restricted Payments permitted by clauses (1),
(2) and (4) of the next succeeding paragraph), is less than the sum of (i)
50% of the Consolidated Net Income of the Company for the period (taken as
one accounting period) from the beginning of the first fiscal quarter
commencing after the date of the Indenture to the end of the Company's most
recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such Consolidated
Net Income for such period is a deficit, less 100% of such deficit), plus
(ii) 100% of the aggregate net cash proceeds received by the Company from
the issue or sale since the date of the Indenture of Equity Interests of
the Company or of debt securities of the Company that have been converted
into or exchanged for such Equity Interests (other than Equity Interests
(or convertible debt securities) sold to a Subsidiary of the Company and
other than Disqualified Stock or debt securities that have been converted
into Disqualified Stock), plus (iii) to the extent not otherwise included
in Consolidated Net Income, the net reduction in Investments in
Unrestricted Subsidiaries resulting from dividends, repayments of loans or
advances, or other transfers of assets (with such assets being valued at
the lesser of their fair market value and the Unrestricted Subsidiary's net
book value thereof), in each case to the Company or a Restricted Subsidiary
after the date of the Indenture from any Unrestricted Subsidiary or from
the redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary,
plus (iv) $10 million.
The foregoing provisions will not prohibit: (1) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (2) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company in exchange for, or out of the proceeds of,
the substantially concurrent sale (other than to a Subsidiary of the Company) of
other Equity Interests of the Company (other than any Disqualified Stock);
provided that the amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement or other acquisition shall be excluded
from clause (c)(ii) of the preceding paragraph; (3) the defeasance, redemption
or repurchase of subordinated Indebtedness with the net cash proceeds from an
incurrence of Permitted Refinancing Debt or the substantially concurrent sale
(other than to a Subsidiary of the Company) of Equity Interests of the Company
(other than Disqualified Stock); provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase, retirement or
other acquisition shall be excluded from clause (c)(ii) of the preceding
paragraph; (4) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of the Company or any Subsidiary of the Company
held by any of the Company's (or any of its Subsidiaries') management pursuant
to any stock option agreement in effect as of the date of the Indenture;
provided, that the aggregate price paid to all Persons, other than Stig
Wennerstrom under his employment agreement as in effect on the date of the
Indenture, for all such repurchased, redeemed, acquired or retired Equity
Interests shall not exceed $2 million in any twelve-month period (plus the
aggregate cash proceeds received by the Company during such twelve-month period
from any issuance of Equity Interests by the Company to members of management of
the Company and its Subsidiaries); and provided further, that no Default or
Event of Default shall have occurred and be continuing immediately after such
transaction.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (as determined by a resolution of the Board of Directors set forth
in an Officers' Certificate delivered to the Trustee, which determination shall
be conclusive evidence of compliance with this provision) on the date of the
Restricted Payment of the asset(s) proposed to be transferred by the Company or
the applicable Restricted Subsidiary, as the case may be, pursuant to the
Restricted Payment. Not later than five days after the date of making any
Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by the covenant "Restricted
Payments" were computed.
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The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash) in
the Subsidiary so designated will be deemed to be Restricted Payments at the
time of such designation and will reduce the amount available for Restricted
Payments under clause (c) of the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the greatest of (x) the net book value of such Investments at the time
of such designation, (y) the fair market value of such Investments at the time
of such designation and (z) the original fair market value of such Investments
at the time they were made. Such designation will only be permitted if such
Restricted Payment would be permitted at such time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
Limitations on Incurrence of Indebtedness and Issuance of Preferred Stock.
The Indenture will provide that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt) and that the Company will not issue any Disqualified Stock and
will not permit any of its Subsidiaries to issue any shares of preferred stock;
provided, however, that the Company and any of its Restricted Subsidiaries that
are Guarantors may incur Indebtedness (including Acquired Debt) or issue shares
of Disqualified Stock if:
(i) the Fixed Charge Coverage Ratio for the Company's most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have
been at least 2.5 to 1, determined on a pro forma basis(including a pro
forma application of the net proceeds therefrom) as set forth in the
definition of Fixed Charge Coverage Ratio; and
(ii) no Default or Event of Default shall have occurred and be
continuing at the time such additional Indebtedness is incurred or such
Disqualified Stock is issued or would occur as a consequence of the
incurrence of the additional Indebtedness or the issuance of the
Disqualified Stock.
Notwithstanding the foregoing, the Indenture will not prohibit any of the
following (collectively, "Permitted Indebtedness"): (a) the Indebtedness
evidenced by the Notes and any Guarantees; (b) the incurrence by the Company or
any of its Restricted Subsidiaries of Indebtedness and letters of credit
pursuant to the Senior Credit Facility (with letters of credit being deemed to
have a principal amount equal to the maximum potential liability of the Company
and its Subsidiaries thereunder) in an aggregate amount not to exceed the
greater of (i) $195 million, and (ii) an amount equal to the sum of (A) $100
million and (B) 20% of Adjusted Consolidated Net Tangible Assets determined as
of the incurrence of such Indebtedness; (c) the incurrence by the Company of the
Existing Indebtedness; (d) the incurrence by the Company or any of its
Restricted Subsidiaries of indebtedness obligations in respect of Currency Hedge
Obligations, and obligations in respect of Interest Rate Protection Obligations,
but only to the extent that the stated aggregate notional amounts of such
obligations do not exceed 105% of the aggregate principal amount of the
Indebtedness covered by such Interest Rate Protection Obligations; (e) the
incurrence by the Company or any of its Restricted Subsidiaries of Permitted
Refinancing Indebtedness; (f) the incurrence by the Company or any of its
Restricted Subsidiaries of intercompany Indebtedness between or among the
Company and any of its Wholly Owned Restricted Subsidiaries; (g) Indebtedness
under Oil and Gas Hedging Contracts, provided that such contracts were entered
into in the ordinary course of business for the purpose of limiting risks that
arise in the ordinary course of business of the Company and its Restricted
Subsidiaries; (h) the incurrence by the Company of Indebtedness not otherwise
permitted to be incurred pursuant to this paragraph, provided that the aggregate
principal amount (or accreted value, as applicable) of all Indebtedness incurred
pursuant to this clause (h), together with all Permitted Refinancing Debt
incurred pursuant
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to clause (e) of this paragraph in respect of Indebtedness previously incurred
pursuant to this clause (h), does not exceed $25 million at any one time
outstanding; (i) accounts payable or other obligations of the Company or any
Restricted Subsidiary to trade creditors created or assumed by the Company or
such Subsidiary in the ordinary course of business in connection with the
obtaining of goods or services; (j) Indebtedness consisting of obligations in
respect of purchase price adjustments, guarantees or indemnities in connection
with the acquisition or disposition of assets; (k) the incurrence by the
Company's Unrestricted Subsidiaries of Non-Recourse Debt; (l) 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 guaranties and letters of credit supporting such bid, performance or
surety obligations (in each case other than for an obligation for money
borrowed); and (m) production imbalances of the Company or any of its Restricted
Subsidiaries arising in the ordinary course of business.
Limitation on Other Senior Subordinated Debt. The Indenture will provide
that (i) the Company will not incur, create, issue, assume, guarantee or
otherwise become liable for any Indebtedness that is subordinate or junior in
right of payment to any Senior Debt and senior in any respect in right of
payment to the Notes and (ii) no Guarantor will directly or indirectly incur,
create, issue, assume, guarantee or otherwise become liable for any Indebtedness
that is subordinate or junior in right of payment to any Subsidiary Guarantees
issued in respect of Senior Debt and senior in any respect in right of payment
to the Subsidiary Guarantees, provided, however, that the foregoing limitations
will not apply to distinctions between categories of Indebtedness that exist by
reason of any Liens arising or created in respect of some but not all such
Indebtedness.
Limitation on Liens. The Indenture will provide that the Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume or otherwise cause or suffer to exist or
become effective any Lien securing Indebtedness of any kind (other than
Permitted Liens) upon any of its property or assets, now owned or hereafter
acquired, unless all payments under the Notes are secured on an equal and
ratable basis with the obligations so secured until such time as such
obligations are no longer secured by a Lien.
Sale and Leaseback Transactions. The Indenture will provide that the
Company will not, and will not permit any of its Restricted Subsidiaries to,
enter into any sale and leaseback transaction; provided that the Company may
enter into a sale and leaseback transaction if (i) the Company could have (a)
incurred Indebtedness in an amount equal to the Attributable Debt relating to
such sale and leaseback transaction pursuant to the test set forth in the first
paragraph of the covenant described above under the caption "-- Incurrence of
Additional Indebtedness and Issuance of Preferred Stock" and (b) incurred a Lien
to secure such Indebtedness pursuant to the covenant described above under the
caption "-- Liens," (ii) the gross cash proceeds of such sale and leaseback
transaction are at least equal to the fair market value (as determined in good
faith by a resolution the Board of Directors set forth in an Officers'
Certificate delivered to the Trustee, which determination shall be conclusive
evidence of compliance with this provision) of the property that is the subject
of such sale and leaseback transaction and (iii) the transfer of assets in such
sale and leaseback transaction is permitted by, and the Company applies the net
proceeds of such transaction in compliance with, the covenant described above
under the caption "-- Repurchase at the Option of Holders -- Asset Sales."
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries.
The Indenture will provide that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(x) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1) on
its Capital Stock or (2) with respect to any other interest or participation in,
or measured by, its profits, or (y) pay any indebtedness owed to the Company or
any of its Restricted Subsidiaries, (ii) make loans or advances to the Company
or any of its Restricted Subsidiaries or (iii) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or
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restrictions existing under or by reason of (a) the Senior Credit Facility as in
effect as of the date of the Indenture, and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings thereof or any other Credit Facility, provided that such
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements, refinancings or other Credit Facilities are no more
restrictive with respect to such dividend and other payment restrictions than
those contained in the Senior Credit Facility as in effect on the date of the
Indenture, (b) the Indenture and the Notes, (c) applicable law, (d) any
instrument governing Indebtedness or Capital Stock of a Person acquired by the
Company or any of its Restricted Subsidiaries as in effect at the time of such
acquisition (except, in the case of Indebtedness, to the extent such
Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person and its
Subsidiaries, or the property or assets of the Person and its Subsidiaries, so
acquired, provided that, in the case of Indebtedness, such Indebtedness was
permitted by the terms of the Indenture to be incurred, (e) by reason of
customary non-assignment provisions in leases, and customary provisions in other
agreements that restrict assignment of such agreements or rights thereunder, (f)
customary restrictions contained in asset sale agreements limiting the transfer
of such assets pending the closing of such sale, (g) purchase money obligations
for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (iii) above on the property so
acquired, or (h) Permitted Refinancing Debt, provided that the restrictions
contained in the agreements governing such Permitted Refinancing Debt are no
more restrictive than those contained in the agreements governing the
Indebtedness being refinanced.
Merger, Consolidation, or Sale of Assets. The Indenture will provide that
the Company may not consolidate or merge with or into (whether or not the
Company is the surviving corporation), or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its properties or assets, in
one or more related transactions, to another Person, and the Company may not
permit any of its Restricted Subsidiaries to enter into any such transaction or
series of transactions if such transaction or series of transactions would, in
the aggregate, result in a sale, assignment, transfer, lease, conveyance, or
other disposition of all or substantially all of the properties or assets of the
Company and its Restricted Subsidiaries, taken as a whole, to another Person, in
either case unless: (i) the Company is the surviving corporation or the Person
formed by or surviving any such consolidation or merger (if other than the
Company) or to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made is a corporation organized or existing under
the laws of the United States, any state thereof or the District of Columbia;
(ii) the Person formed by or surviving any such consolidation or merger (if
other than the Company) or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made assumes all the obligations
of the Company under the Notes and the Indenture pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee; (iii) immediately
before and 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 in connection with or as a
result of such transaction as having been incurred at the time of such
transaction), no Default or Event of Default shall have occurred and be
continuing; and (iv) except in the case of a consolidation or merger of the
Company with or into a Wholly Owned Subsidiary of the Company, the Company or
the Person formed by or surviving any such consolidation or merger (if other
than the Company), or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made (A) will have Total Assets
immediately after the transaction equal to or greater than the Total Assets of
the Company immediately preceding the transaction and (B) will, at the time of
such transaction and after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable four-quarter period,
be permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Coverage Ratio Test set forth in the first paragraph of the covenant
described above under the caption "-- Limitations on Incurrence of Indebtedness
and Issuance of Preferred Stock."
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Transactions with Affiliates. The Indenture will provide that the Company
will not, and will not permit any of its Subsidiaries to, make any payment to,
or sell, lease, transfer or otherwise dispose of any of its properties or assets
to, or purchase any property or assets from, or enter into or make or amend any
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any of its Affiliates (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Subsidiary than those that would
have been obtained in a comparable transaction by the Company or such Subsidiary
with an unrelated Person, (ii) the Company delivers to the Trustee with respect
to any Affiliate Transaction or series of related Affiliated Transactions
involving aggregate consideration in excess of $1 million an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (i)
above and (iii) the Company delivers to the Trustee with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $5 million, a resolution of the Board of
Directors set forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (i) above and that such Affiliate Transaction
has been approved by a majority of the members of the Board of Directors who are
disinterested with respect to such Affiliate Transaction, which resolution shall
be conclusive evidence of compliance with this provision, provided, that the
following shall not be deemed Affiliate Transactions: (1) transactions
contemplated by any employment agreement or other employee or director stock
option or other compensation plan or arrangement entered into by the Company or
any of its Subsidiaries in the ordinary course of business and consistent with
the past practice of the Company or such Subsidiary, including those described
in this Prospectus under the caption "Risk Factors -- Dependence on Key
Personnel," (2) transactions between the Company and/or its Subsidiaries, (3)
the payment of reasonable and customary regular fees to directors of the Company
who are not employees of the Company or any of its Subsidiaries, (4) indemnities
of officers, directors and employees of the Company or any Subsidiary pursuant
to bylaw or statutory provisions, and (5) Restricted Payments and Permitted
Investments that are permitted by the provisions of the Indenture described
above under the caption "-- Restricted Payments."
Business Activities. The Company will not, and will not permit any
Restricted Subsidiary to, engage in any business other than the Oil and Gas
Business.
Reports. The Company and any Guarantors will file 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 and the
Guarantors would be required to file if the Company were subject to Section 13
or 15 of the Exchange Act, in each case on or before the dates on which such
reports and other documents would have been required to have been filed with the
Commission if the Company had been subject to Section 13 or 15 of the Exchange
Act. The Company will also be required (a) to file with the Trustee (with
exhibits), and provide to each Holder of Notes (without exhibits), 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 would be required to file such reports and
documents if the Company were so required and (b) if filing such reports and
documents with the Commission is not accepted by the Commission or is prohibited
under the Exchange Act, to supply at the Company's cost copies of such reports
and documents (including any exhibits thereto) to any Holder of Notes promptly
upon written request.
EVENTS OF DEFAULT AND REMEDIES
The Indenture will provide that each of the following constitutes an Event
of Default: (i) default for 30 days in the payment when due of interest on the
Notes, whether or not prohibited by the subordination provisions of the
Indenture; (ii) default in payment when due of the principal of or premium, if
any, on the Notes, whether or not prohibited by the subordination provisions of
the Indenture; (iii) failure by the Company to comply with the provisions
described under the captions
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"-- Repurchase at the Option of Holders -- Change of Control," "-- Repurchase at
the Option of Holders -- Asset Sales," or "-- Certain Covenants -- Merger,
Consolidation, or Sale of Assets"; (iv) failure by the Company for 60 days after
notice from the Trustee or the Holders of at least 25% in aggregate principal
amount of the Notes then outstanding to comply with any of its other agreements
in the Indenture or the Notes; (v) except as permitted by the Indenture, any
Subsidiary Guarantee shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full force and
effect or any Guarantor, or any Person acting on behalf of any such Guarantor,
shall deny or disaffirm its obligations under its Subsidiary Guarantee; (vi)
default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for money
borrowed by the Company or any of its Restricted Subsidiaries (or the payment of
which is guaranteed by the Company or any of its Restricted Subsidiaries)
whether such Indebtedness now exists, or is created after the date of the
Indenture, which default (a) is caused by a failure to pay principal of or
premium, if any, or interest on such Indebtedness prior to the expiration of the
grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (b) results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there is then existing a Payment Default or the maturity of which
has been so accelerated, aggregates in excess of $5 million, provided that if
any such default is cured or waived or any such acceleration rescinded, or such
Indebtedness is repaid, within a period of 10 days from the continuation of such
default beyond the applicable grace period or the occurrence of such
acceleration, as the case may be, such Event of Default under the Indenture and
any consequential acceleration of the Notes shall be automatically rescinded, so
long as such rescission does not conflict with any judgment or decree; (vii)
failure by the Company or any of its Restricted Subsidiaries to pay final, non-
appealable judgments aggregating in excess of $5 million, which judgments are
not paid, discharged or stayed for a period of 60 days; and (viii) certain
events of bankruptcy or insolvency with respect to the Company or any of its
Restricted Subsidiaries that constitute a Significant Subsidiary or any group of
Subsidiaries that, taken together, would constitute a Significant Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of the then outstanding
Notes may declare all the Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, with respect to the Company, any
Restricted Subsidiary that constitutes a Significant Subsidiary or any group of
Restricted Subsidiaries that, taken together, would constitute a Significant
Subsidiary, all outstanding Notes will become due and payable without further
action or notice. Holders of the Notes may not enforce the Indenture or the
Notes except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required, upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of
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outstanding Notes to receive payments in respect of the principal of, premium,
if any, and interest on such Notes when such payments are due from the trust
referred to below, (ii) the Company's obligations with respect to the Notes
concerning issuing temporary Notes, registration of Notes, mutilated, destroyed,
lost or stolen Notes and the maintenance of an office or agency for payment and
money for security payments held in trust, (iii) the rights, powers, trusts,
duties and immunities of the Trustee, and the Company's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have
the obligations of the Company released with respect to certain covenants that
are described in the Indenture ("Covenant Defeasance") and thereafter any
omission to comply with such obligations shall not constitute a Default or Event
of Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default and
Remedies" will no longer constitute an Event of Default with respect to the
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, 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, and interest on the outstanding Notes
on the stated maturity or on the applicable redemption date, as the case may be,
and the Company must specify whether the Notes are being defeased to maturity or
to a particular redemption date; (ii) in the case of Legal Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred; (iii) in the
case of Covenant Defeasance, the Company shall have delivered to the Trustee and
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day after the date
of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in
a breach or violation of, or constitute a default under any material agreement
or instrument (other than the Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company must have delivered to the Trustee an opinion of counsel
to the effect that after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; (vii) the
Company must deliver to the Trustee an Officers' Certificate stating that the
deposit was not made by the Company with the intent of preferring the Holders of
Notes over the other creditors of the Company with the intent of defeating,
hindering, delaying or defrauding creditors of the Company or others; and (viii)
the Company must deliver to the Trustee an Officers' Certificate and an opinion
of counsel, which, taken together, state that all conditions precedent provided
for relating to the Legal Defeasance or the Covenant Defeasance have been
complied with.
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TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable or will become due and payable at their
Stated Maturity within one year, or are to be called for redemption within one
year under arrangements satisfactory to the Trustee for the serving of notice of
redemption by the Trustee in the name, and at the expense, of the Company, and
the Company has irrevocably deposited or caused to be deposited with the Trustee
funds in an amount sufficient to pay and discharge the entire indebtedness on
the Notes not theretofore delivered to the Trustee for cancellation, for
principal of (and premium, if any, on) and interest on the Notes to the date of
deposit (in the case of Notes which have become due and payable) or to the
Stated Maturity or redemption date, as the case may be, together with
instructions from the Company irrevocably directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be, (ii)
the Company has paid all other sums payable under the Indenture by the Company;
and (iii) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel satisfactory to the Trustee, which, taken together, state
that all conditions precedent under the Indenture relating to the satisfaction
and discharge of the Indenture have been complied with.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in aggregate principal amount of the Notes then outstanding
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including consents obtained in connection with a purchase of,
or tender offer or exchange offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of the Notes (other than
provisions relating to the covenants described above under the caption
"-- Repurchase at the Option of Holders"), (iii) reduce the rate of or change
the time for payment of interest on any Note, (iv) waive a Default or Event of
Default in the payment of principal of or premium, if any, or interest on the
Notes (except a rescission of acceleration of the Notes by the Holders of at
least a majority in aggregate principal amount of the Notes and a waiver of the
payment default that resulted from such acceleration), (v) make any Note payable
in money other
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than that stated in the Notes, (vi) make any change in the provisions of the
Indenture relating to waivers of past Defaults or the rights of Holders of Notes
to receive payments of principal of or premium, if any, or interest on the
Notes, (vii) waive a redemption payment with respect to any Note (other than a
payment required by one of the covenants described above under the caption
"-- Repurchase at the Option of Holders") or (viii) make any change in the
foregoing amendment and waiver provisions. Without the consent of at least
66 2/3% in aggregate principal amount of the Notes then outstanding (including
consents obtained in connection with a purchase of, or tender offer or exchange
offer for, Notes), no waiver or amendment to the Indenture may make any change
in the provisions described above under the captions "-- Repurchase at the
Option of Holders -- Change of Control" and "-- Repurchase at the Option of
Holders -- Assets Sales" that adversely affects the rights of any Holder of
Notes. In addition, any amendment to the provisions of Article 10 of the
Indenture (which relate to subordination) will require the consent of the
Holders of at least 66 2/3% in aggregate principal amount of the Notes then
outstanding if such amendment would adversely affect the rights of Holders of
Notes.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes,
among other things, to cure any ambiguity, defect or inconsistency, to provide
for uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to Holders of Notes in
the case of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the Holders of Notes or that does not adversely
affect the legal rights under the Indenture of any such Holder, or to comply
with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
GOVERNING LAW
The Indenture, the Notes and the Subsidiary Guarantees provide that they
will be governed by the laws of the State of New York.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to Forcenergy Inc, 2730 SW 3rd Avenue, Suite 800,
Miami, Florida 33129-2237, Attention: Corporate Secretary.
BOOK-ENTRY, DELIVERY AND FORM
The Notes to be sold as set forth herein will be issued in the form of a
fully registered Global Certificate (the "Global Certificate"). The Global
Certificate will be deposited on the date of the
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closing of the sale of the Notes offered hereby (the "Closing Date") with, or on
behalf of, The Depository Trust Company, New York, New York (the "Depositary")
and registered in the name of Cede & Co., as nominee of the Depositary (such
nominee being referred to herein as the "Global Certificate Holder").
Except as set forth below, the Global Certificate may be transferred, in
whole and not in part, only to another nominee of the Depositary or to a
successor of the Depositary or its nominee.
The Depositary has advised the Company and the Underwriters as follows: It
is a limited-purpose trust company which was created to hold securities for its
participating organizations (the "Participants") and to facilitate the clearance
and settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. Participants
include securities brokers and dealers (including the Underwriters), banks,
trust companies, clearing corporations and certain other organizations. Access
to the Depositary's book-entry system is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
("indirect participants"). Persons who are not Participants may beneficially own
securities held by the Depositary only through Participants or indirect
participants.
The Depositary has also advised that pursuant to procedures established by
it (i) upon the issuance by the Company of the Notes, the Depositary will credit
the accounts of Participants designated by the Underwriters with the principal
amount of the Notes purchased by the Underwriters, and (ii) ownership of
beneficial interests in the Global Certificate will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
the Depositary (with respect to Participants' interests), the Participants and
the indirect participants. The laws of some states require that certain persons
take physical delivery in definitive form of securities which they own.
Consequently, the ability to transfer beneficial interests in the Global
Certificate is limited to such extent.
All payments on the Global Certificate registered in the name of the
Depositary's nominee will be made by the Company through the Paying Agent to the
Depositary's nominee as the registered owner of the Global Certificate. Under
the terms of the Indenture, the Company and the Trustee will treat the persons
in whose names the Notes are registered as the owners of such Notes for the
purpose of receiving payments of principal and interest on such Notes and for
all other purposes whatsoever. Therefore, neither the Company, the Trustee nor
the Paying Agent has any direct responsibility or liability for the payment of
principal or interest on the Notes to owners of beneficial interests in the
Global Certificate. The Depositary has advised the Company and the Trustee that
its present practice is, upon receipt of any payment of principal or interest,
to credit immediately the accounts of the Participants with payment in amounts
proportionate to their respective holdings in principal amount of beneficial
interests in the Global Certificate as shown on the records of the Depositary.
Payments by Participants and indirect participants to owners of beneficial
interests in the Global Certificate will be governed by standing instructions
and customary practices, as is now the case with securities held for the
accounts of customers in bearer form or registered in "street name" and will be
the responsibility of such Participants or indirect participants.
As long as the Notes are represented by a Global Certificate, the
Depositary's nominee will be the holder of the Notes and therefore will be the
only entity that can exercise a right to repurchase the Notes. See "Certain
Covenants -- Repurchase at the Option of Holders." Notice by Participants or
indirect participants or by owners of beneficial interests in a Global
Certificate held through such Participants or indirect participants of the
exercise of the option to elect repurchase of beneficial interests in Notes
represented by a Global Certificate must be transmitted to the Depositary in
accordance with its procedures on a form required by the Depositary and provided
to Participants. In order to ensure that the Depositary's nominee will timely
exercise a right to repurchase with respect to a particular Note, the beneficial
owner of such Note must instruct the broker or other Participant or indirect
participant through which it holds an interest in such Note to notify the
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Depositary of its desire to exercise a right to repurchase. Different firms have
different cut-off times for accepting instructions from their customers and,
accordingly, each beneficial owner should consult the broker or other
Participant or indirect participant through which it holds an interest in a Note
in order to ascertain the cut-off time by which such an instruction must be
given in order for timely notice to be delivered to the Depositary. The Company
will not be liable for any delay in delivery to the Paying Agent of notices of
the exercise of any option to elect repurchase.
The Company will issue Notes in definitive form in exchange for the Global
Certificate if, and only if, either (1) the Depositary is at any time unwilling
or unable to continue as depositary and a successor depositary is not appointed
by the Company within 90 days, (2) an Event of Default has occurred and is
continuing and the Notes registrar has received a request from the Depositary to
issue Notes in definitive form in lieu of all or a portion of the Global
Certificate (in which case the Company shall deliver Notes in definitive form
within 30 days of such request), or (3) the Company determines not to have the
Notes represented by a Global Certificate. In any instance, an owner of a
beneficial interest in the Global Certificate will be entitled to have Notes
equal in principal amount to such beneficial interest registered in its name and
will be entitled to physical delivery of such Notes in definitive form. Notes so
issued in definitive form will be issued in denominations of $1,000 and integral
multiples thereof and will be issued in registered form only, without coupons.
So long as the Global Certificate Holder is the registered owner of the
Global Certificate, the Global Certificate Holder will be considered the sole
Holder under the Indenture of any Notes evidenced by the Global Certificate.
Beneficial owners of Notes evidenced by the Global Certificate will not be
considered the owners or Holders thereof under the Indenture for any purpose,
including with respect to the giving of any directions, instructions or
approvals to the Trustee thereunder. Neither the Company nor the Trustee will
have any responsibility or liability for any aspect of the records of the
Depositary or for maintaining, supervising or reviewing any records of the
Depositary relating to the Notes.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"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, as estimated by a nationally recognized firm of independent petroleum
engineers in a reserve report prepared as of the end of the Company's most
recently completed fiscal year, 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
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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 clause (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 a nationally recognized firm of
independent petroleum engineers, (ii) the capitalized costs that are
attributable to oil and gas properties of the Company and its Restricted
Subsidiaries to which no proved oil and gas reserves are attributable, based on
the Company's books and records as of a date no earlier than the date of the
Company's latest annual or quarterly financial statements, (iii) the Net Working
Capital on a date no earlier than the date of the Company's latest annual or
quarterly financial statements and (iv) the greater of (i) the net book value on
a date no earlier than the date of the Company's latest annual or quarterly
financial statements or (ii) the appraised value, as estimated by independent
appraisers, of other tangible assets (including, without duplication,
Investments in unconsolidated Restricted Subsidiaries) of the Company and its
Restricted Subsidiaries, as of the date no earlier than the date of the
Company's latest audited financial statements, minus (b) the sum of (i) minority
interests, (ii) any gas balancing liabilities of the Company and its Restricted
Subsidiaries reflected in the Company's latest audited financial statements,
(iii) to the extent included in (a)(i) above, the discounted future net
revenues, calculated in accordance with SEC guidelines (utilizing the prices
utilized in the Company's year-end reserve report), attributable to reserves
which are required to be delivered to third parties to fully satisfy the
obligations of the Company and its Restricted Subsidiaries with respect to
Volumetric Production Payments on the schedules specified with respect thereto
and (iv) the discounted future net revenues, calculated in accordance with SEC
guidelines, attributable to reserves subject to Dollar-Denominated Production
Payments which, based on the estimates of production and price assumptions
included in determining the discounted future net revenues specified in (a)(i)
above, would be necessary to fully satisfy the payment obligations of the
Company and its Restricted Subsidiaries with respect to Dollar-Denominated
Production Payments on the schedules specified with respect thereto. If the
Company changes its method of accounting from the full cost method to the
successful efforts method or a similar method of accounting, "Adjusted
Consolidated Net Tangible Assets" will continue to be calculated as if the
Company was still using the full cost method of accounting.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition
(but excluding the creation of a Lien, pledge or security interest) of any
assets including, without limitation, by way of merger or consolidation or a
sale and leaseback transaction (provided that the sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company and
its Restricted Subsidiaries taken as a whole will be governed by the provisions
of the Indenture that are described above under the caption "-- Repurchase at
the Option of Holders -- Change of Control" and/or the provisions described
above under the caption "-- Certain Covenants -- Merger, Consolidation, or Sale
of Assets" and not by the provisions described above under "-- Repurchase at the
Option of Holders -- Asset Sales"), and (ii) the issue or sale by the Company or
any of its Restricted Subsidiaries of Equity Interests of any of the Company's
Subsidiaries (including the sale by a Restricted Subsidiary of Equity Interests
in an Unrestricted Subsidiary), in the case of either
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clause (i) or (ii), whether in a single transaction or a series of related
transactions (a) that have a fair market value in excess of $5 million or (b)
for net proceeds in excess of $5 million. Notwithstanding the foregoing, the
following shall not be deemed to be Asset Sales: (i) a transfer of assets by the
Company to a Wholly Owned Subsidiary of the Company or by a Wholly Owned
Subsidiary of the Company to the Company or to another Wholly Owned Subsidiary
of the Company, (ii) an issuance of Equity Interests by a Wholly Owned
Subsidiary of the Company to the Company or to another Wholly Owned Subsidiary
of the Company, (iii) a Restricted Payment or Permitted Investment that is
permitted by the covenant described above under the caption "-- Certain
Covenants -- Restricted Payments," (iv) the sale or transfer (whether or not in
the ordinary course of business) of oil and gas properties or direct or indirect
interests in real property, provided that at the time of such sale or transfer
such properties do not have associated with them any proved reserves, (v) the
abandonment, farm-out, lease or sublease of developed or undeveloped oil and gas
properties in the ordinary course of business, (vi) the trade or exchange by the
Company or any Restricted Subsidiary of the Company of any oil and gas property
owned or held by the Company or such Subsidiary for any oil and gas property
owned or held by another Person provided that (x) the fair market value of the
properties traded or exchanged by the Company or such Subsidiary (including any
cash or Cash Equivalents, not to exceed 15% of such fair market value, to be
delivered by the Company or such Subsidiary) is reasonably equivalent to the
fair market value of the properties (together with any cash or Cash Equivalents,
not to exceed 15% of such fair market value) to be received by the Company or
such Subsidiary as determined in good faith by (i) any officer of the Company if
such fair market value is less than $5 million and (ii) the Board of Directors
of the Company as certified by a certified resolution delivered to the Trustee
if such fair market value is equal to or in excess of $5 million; and (y) such
exchange is approved by a majority of the Disinterested Directors of the
Company; or (vii) the sale or transfer of hydrocarbons or other mineral products
or surplus or obsolete equipment in the ordinary course of business.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended). As used in the preceding sentence, the "net rental
payment" 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 rental payment 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.
"Borrowing Base" means, as of any date, the aggregate amount of borrowing
availability as of such date under the Senior Credit Facility that determines
availability on the basis of a borrowing base or other asset-based calculation.
"Capital Lease Obligation" means any obligation to pay rent or other
amounts under a lease of (or other agreement conveying the right to use) any
property (whether real, personal or mixed) that is required to be classified and
accounted for as a capital lease obligation under GAAP, and, for the purpose of
the Indenture, the amount of such obligation at any date shall be the
capitalized amount thereof at such date, determined in accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited), (iv) in the case of a limited liability
corporation or similar entity, any membership or other similar interests therein
and (v) any other interest or participation
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that confers on a Person the right to receive a share of the profits and losses
of, or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
Eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any lender party to the Senior Credit
Facility or with any domestic commercial bank having capital and surplus in
excess of $500 million and a Thompson Bank Watch Rating of "B" or better, (iv)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (ii) and (iii) above entered into
with any financial institution meeting the qualifications specified in clause
(iii) above, (v) commercial paper having a rating of at least P-1 from Moody's
Investors Service, Inc. (or its successors) and a rating of at least A-1 from
Standard & Poor's Ratings Group (or its successors), (vi) deposits available for
withdrawal on demand with any commercial bank not meeting the qualifications
specified in clause (iii) above, provided all such deposits do not exceed $5
million in the aggregate at any one time and (vii) investments in money market
or other mutual funds substantially all of whose assets comprise securities of
the types described in clauses (ii) through (v) above.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole to any "person" (as such term is used in Section 13(d)(3) of
the Exchange Act), (ii) the adoption of a plan relating to the liquidation or
dissolution of the Company, (iii) the consummation of any transaction
(including, without limitation, any purchase, sale, acquisition, disposition,
merger or consolidation) the result of which is that any "person" (as defined
above) becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and
Rule 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of
the aggregate voting power of all classes of Capital Stock of the Company having
the right to elect directors under ordinary circumstances, provided that the
sale of Equity Interests in the Company to a Person or Persons acting as
underwriter(s) in connection with a firm commitment underwriting shall not
constitute a Change of Control or (iv) the first day on which a majority of the
members of the Board of Directors of the Company are not Continuing Directors.
"Commission" means the Securities and Exchange Commission.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale (together with any related provision for taxes), to the extent such
losses were deducted in computing such Consolidated Net Income, plus (ii)
provision for taxes based on income or profits of such Person and its Restricted
Subsidiaries for such period, to the extent that such provision for taxes was
included in computing such Consolidated Net Income, plus (iii) consolidated
interest expense of such Person and its Restricted Subsidiaries for such period,
whether paid or accrued (including, without limitation, amortization of original
issue discount, non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all payments associated
with Capital Lease Obligations, imputed interest with respect to Attributable
Debt, commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net payments (if any)
pursuant to Interest Rate Hedging Agreements), to the extent that any such
expense was deducted in computing such Consolidated Net Income, plus (iv)
depreciation, depletion and amortization expenses (including amortization of
goodwill and other intangibles but excluding amortization of prepaid cash
expenses that were paid in a prior period) for such Person and its Restricted
Subsidiaries for such period to the extent that such depreciation, depletion and
amortization expenses were deducted in computing such Consolidated Net Income,
plus (v) other
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non-cash charges (excluding any such non-cash charge to the extent that it
represents an accrual of or reserve for cash charges in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of such
Person and its Restricted Subsidiaries for such period to the extent that such
other non-cash charges were deducted in computing such Consolidated Net Income,
in each case, on a consolidated basis and 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.
Notwithstanding the foregoing, the provision for taxes on the income or profits
of, and the depreciation, depletion and amortization and other non-cash charges
and expenses of, a Restricted Subsidiary of the referent Person shall be added
to Consolidated Net Income to compute Consolidated Cash Flow only to the extent
(and in same proportion) that the Net Income of such Restricted Subsidiary was
included in calculating the Consolidated Net Income of such Person and only if a
corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Restricted Subsidiary without prior
governmental approval (that has not been obtained), and without direct or
indirect restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Restricted Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Restricted Subsidiary
thereof, (ii) the Net Income of any Restricted Subsidiary shall be excluded to
the extent that the declaration or payment of dividends or similar distributions
by that Restricted Subsidiary of that Net Income is not at the date of
determination permitted without any prior governmental approval (that has not
been obtained) or, 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, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded, (iv) the cumulative effect of a change in accounting principles
shall be excluded and (v) the Net Income of any Unrestricted Subsidiary shall be
excluded, whether or not distributed to the Company or one of its Subsidiaries.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Credit Facilities" means, with respect to the Company, one or more debt
facilities (including, without limitation, the Senior Credit Facility) or
commercial paper facilities with banks or other institutional lenders providing
for revolving credit loans, term loans, production payments, receivables
financing (including through the sale of receivables to such lenders or to
special purpose entities formed to borrow from such lenders against such
receivables) or letters of credit, in each case, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to time.
Indebtedness under Credit Facilities outstanding on the date on which Notes are
first issued and authenticated under the Indenture shall be deemed to have been
incurred on such date in reliance on the exception provided by clause (b) of the
definition of Permitted Indebtedness.
"Currency Hedge Obligations" means, at any time as to any Person, the
obligations of such Person at such time that were incurred in the ordinary
course of business pursuant to any foreign currency exchange agreement, option
or futures contract or other similar agreement or arrangement
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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 that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Debt" means (i) the Senior Credit Facility and (ii) any
other Senior Debt permitted under the Indenture the principal amount of which is
$5 million or more and that has been designated by the Company as "Designated
Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Notes mature or which is
exchangeable or convertible into debt securities of the Company or any
Restricted Subsidiary, except to the extent that such exchange or conversion
rights cannot be exercised prior to the Maturity Date.
"Dollar-Denominated Production Payments" means production payment
obligations recorded as liabilities in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries in existence on the date of the Indenture, until such Indebtedness
is repaid.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the Company or
any of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the calculation of the
Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed
Charge Coverage Ratio shall be calculated giving pro forma effect to such
incurrence, assumption, Guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that have
been made by the referent Person or any of its Restricted Subsidiaries,
including through mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date (including, without
limitation, any acquisition to occur on the Calculation Date) shall be deemed to
have occurred on the first day of the four-quarter reference period and
Consolidated Cash Flow for such reference period shall be calculated without
giving effect to clause (iii) of the proviso set forth in the definition of
Consolidated Net Income, (ii) the net proceeds of Indebtedness incurred or
Disqualified Stock issued by the referent Person pursuant to the first paragraph
of the covenant described under the caption " -- Certain Covenants -- Incurrence
of Indebtedness and Issuance of Preferred Stock" during the four-quarter
reference period or subsequent to such reference period and on or prior to the
Calculation Date shall be deemed to have been received by the Company on the
first day of the four-quarter reference period and applied to its intended use
on such date, (iii) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded, and (iv) the Fixed
Charges attributable to discontinued operations, as determined in accordance
with GAAP, and operations or businesses
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disposed of prior to the Calculation Date, shall be excluded, but only to the
extent that the obligations giving rise to such Fixed Charges will not be
obligations of the referent Person or any of its Restricted Subsidiaries
following the Calculation Date.
"Fixed Charges" means, with respect to any Person for any period, the sum
of (i) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of original issue discount, non-cash interest payments,
the interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations, imputed
interest with respect to Attributable Debt, commissions, discounts and other
fees and charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Interest Rate Hedging
Agreements but excluding any interest accrued but not paid on any of the
Company's 7% Exchangeable Subordinated Notes that have been exchanged for the
Company's common stock), (ii) the consolidated interest expense of such Person
and its Restricted Subsidiaries that was capitalized during such period, (iii)
any interest expense on Indebtedness of another Person that is Guaranteed by
such Person or any of its Restricted Subsidiaries or secured by a Lien on assets
of such Person or any of its Restricted Subsidiaries (whether or not such
Guarantee or Lien is called upon) and (iv) the product of (a) all cash dividend
payments (and non-cash dividend payments in the case of a Person that is a
Restricted Subsidiary) on any series of preferred stock of such Person or any of
its Restricted Subsidiaries, to the extent such preferred stock is owned by
Persons other than such Person or its Restricted Subsidiaries, times (b) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory tax rate of
such Person, expressed as a decimal, in each case, on a consolidated basis and
in accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantors" means any Subsidiary of the Company that executes a Subsidiary
Guarantee in accordance with the provisions of the Indenture, and, in each case,
their respective successors and assigns.
"Indebtedness" means, with respect to any Person, without duplication, (a)
any indebtedness of such Person, whether or not contingent, (i) in respect of
borrowed money, (ii) evidenced by bonds, notes, debentures or similar
instruments, (iii) evidenced by letters of credit (or reimbursement agreements
in respect thereof) or banker's acceptances, (iv) representing Capital Lease
Obligations, (v) representing the balance deferred and unpaid of the purchase
price of any property, except any such balance that constitutes an accrued
expense or trade payable, (vi) representing any obligations in respect of
Currency Hedge Obligations, Interest Rate Hedging Agreements or Oil and Gas
Hedging Contracts, (vii) in respect of obligations to pay rent or other amounts
with respect to a sale and leaseback transaction to which such Person is a
party, and (viii) in respect of any Production Payment, (b) all indebtedness of
others secured by a Lien on any asset of such Person (whether or not such
indebtedness is assumed by such Person), (c) obligations of such Person in
respect of production imbalances and (d) to the extent not otherwise included in
the foregoing, the Guarantee by such Person of any Indebtedness of any other
Person, provided that the indebtedness described in clauses (a)(i), (ii), (iv)
and (v) shall be included in this definition of Indebtedness only if, and to the
extent that, the indebtedness described
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in such clauses would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP.
"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.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP;
provided that the following shall not constitute Investments: (i) an acquisition
of assets, Equity Interests or other securities by the Company for consideration
consisting of common equity securities of the Company, (ii) Interest Rate
Hedging Agreements entered into in accordance with the limitations set forth in
clause (d) of the second paragraph of the covenant described under the caption
"-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred
Stock", (iii) Oil and Gas Hedging Agreements entered into in accordance with the
limitations set forth in clause (h) of the second paragraph of the covenant
described under the caption "-- Certain Covenants -- Incurrence of Indebtedness
and Issuance of Preferred Stock," (iv) Currency Hedge Obligations, (v)
extensions of trade credit or other advances to customers on commercially
reasonable terms in accordance with normal trade practices or otherwise in the
ordinary course of business and (vi) endorsements of negotiable instruments and
documents in the ordinary course of business. If the Company or any Subsidiary
of the Company sells or otherwise disposes of any Equity Interests of any direct
or indirect Restricted Subsidiary of the Company such that, after giving effect
to any such sale or disposition, such Person is no longer a Subsidiary of the
Company, the Company shall be deemed to have made an Investment on the date of
any such sale or disposition equal to the fair market value of the Equity
Interests of such Subsidiary not sold or disposed of.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction other
than a precautionary financing statement respecting a lease not intended as a
security agreement).
"Liquid Securities" means securities (i) of an issuer that is not an
Affiliate of the Company and (ii) that are publicly traded on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market; provided,
that securities meeting the requirements of clauses (i) and (ii) above shall be
treated as Liquid Securities from the date of receipt thereof until and only
until the earlier of (x) the date on which such securities are sold or exchanged
for cash or Cash Equivalents and (y) 180 days following the date of the closing
of the Asset Sale in connection with which such Liquid Securities were received.
In the event such securities are not sold or exchanged for cash or Cash
Equivalents within such 180-day period, for purposes of determining whether the
transaction pursuant to which the Company or a Restricted Subsidiary received
the securities was in compliance with the covenant described under the caption
"-- Repurchase at the Option of Holders -- Asset Sales," such securities shall
be deemed not to have been Liquid Securities at any time.
"Make-Whole Amount" with respect to a Note means an amount equal to the
excess, if any, of (i) the present value of the remaining interest premium and
principal payments due on such Note as if such Note were redeemed on
, 2001, computed using a discount rate equal to the
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Treasury Rate plus 50 basis points, over (ii) the outstanding principal amount
of such Note. "Treasury Rate" is defined as the yield to maturity at the time of
the 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), which has become publicly available at least two business
days prior to the date of the redemption notice or, if such Statistical Release
is no longer published, any publicly available source of similar market date)
most nearly equal to the then remaining maturity of the Notes assuming
redemption of the Notes on , 2001; provided, however, that if the
Make-Whole Average Life of such Note is not equal to the constant maturity of
the United States Treasury security for which a weekly average yield is given,
the Treasury Rate shall be obtained by linear interpolation (calculated to the
nearest one-twelfth of a year) from the weekly average yields of United States
Treasury securities for which such yields are given, except that if the
Make-Whole Average Life of such Notes 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. "Make-Whole Average Life" means the
number of years (calculated to the nearest one-twelfth) between the date of
redemption and , 2001.
"Make-Whole Price" with respect to a Note means the greater of (i) the sum
of the outstanding principal amount and Make-Whole Amount of such Note, and (ii)
the redemption price of such Note on , 2001, determined pursuant to
the Indenture ( % of the principal amount).
"Material Change" means an increase or decrease (excluding changes that
result solely from changes in prices) of more than 20% 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 "Asset Sales" covenant.
"Maturity Date" means , 2006.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of
Liquid Securities or any other any non-cash consideration received in any Asset
Sale, but excluding cash amounts placed in escrow, until such amounts are
released to the Company), net of the direct costs relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees,
and sales commissions) and any relocation expenses incurred as a result thereof,
taxes paid or payable as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing arrangements), amounts
required to be applied to the repayment of Indebtedness (other than Indebtedness
under any Credit Facility) secured by a Lien on the asset or assets that were
the subject of such Asset Sale, amounts required to be paid to any Person (other
than the Company or any Restricted Subsidiary) owning a beneficial interest in
the asset or assets that were the subject of such Asset
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Sale, and any reserve for adjustment in respect of the sale price of such asset
or assets established in accordance with GAAP and any reserve established for
future liabilities.
"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 Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (iii) as to which the lenders have been notified in
writing that they will not have any recourse to the stock or assets of the
Company or any of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Oil and Gas Business" means any business relating to (i) the acquisition,
exploration, development, operation and disposition of interests in oil, gas and
other hydrocarbon properties and other minerals and products produced in
association therewith, (ii) the gathering, marketing, treating, processing,
storage, selling and transporting of any production from such interests or
properties and minerals and products produced in association therewith, or (iii)
any activity that is ancillary to or necessary or appropriate for the activities
described in clauses (i) and (ii) of this definition.
"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 Indebtedness that ranks pari passu in right
of payment to the Notes.
"Permitted Indebtedness" has the meaning given in the covenant described
under the caption "-- Certain Covenants -- Incurrence of Indebtedness and
Issuance of Preferred Stock."
"Permitted Investments" means (a) any Investment in the Company or in a
Wholly Owned Restricted Subsidiary of the Company; (b) Investments by the
Company or any of its Restricted Subsidiaries in another Person, if as a result
of such Investment, such Person (i) becomes a Wholly Owned Restricted Subsidiary
of the Company or (ii) 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; (c) Investments in the form of securities received
from Asset Sales, provided that such Asset Sales are made in compliance with the
"Asset Sales" covenant; (d) any Investment in Cash Equivalents; (e) other
Investments in any Person having an aggregate fair market value (measured on the
date each such Investment was made and without giving effect to subsequent
changes in value), when taken together with all other Investments made pursuant
to this clause (e) that are at the time outstanding, not to exceed $10 million;
(f) shares of Capital Stock received in connection with any good faith
settlement of a bankruptcy proceeding involving a trade creditor; and (g) entry
into operating agreements, joint ventures, partnership agreements, working
interests, royalty interests, mineral leases, processing agreements, farm-out
agreements, contracts for the sale, transportation or exchange of oil and
natural gas, unitization agreements, pooling arrangements, area of mutual
interest agreements, production sharing agreements or other similar or customary
agreements, transactions, properties, interests or arrangements, and Investments
and
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expenditures in connection therewith or pursuant thereto, in each case made or
entered into in the ordinary course of the Oil and Gas Business, excluding,
however, Investments in corporations other than any Investment received pursuant
to the Asset Sale provision.
"Permitted Liens" means (i) any Liens securing Indebtedness of a Subsidiary
or Senior Debt that is outstanding on the date of issuance of the Notes or that
is permitted by the terms of the Indenture to be incurred; (ii) Liens securing
Attributable Debt with respect to sale and leaseback transactions permitted by
the terms of the Indenture; (iii) Liens in favor of the Company; (iv) Liens on
property existing at the time of acquisition thereof by the Company or any
Subsidiary of the Company and Liens on property or assets of a Subsidiary
existing at the time it became a Subsidiary, provided that such Liens were in
existence prior to the contemplation of the acquisition and do not extend to any
assets other than the acquired property; (v) Liens incurred or deposits made in
the ordinary course of business in connection with workers' compensation,
unemployment insurance or other kinds of social security, or to secure the
payment or performance of tenders, statutory or regulatory obligations, surety
or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business (including lessee or operator
obligations under statutes, governmental regulations or instruments related to
the ownership, exploration and production of oil, gas and minerals on state or
federal lands or waters); (vi) Liens existing on the date of the Indenture;
(vii) Liens for taxes, assessments or governmental charges or claims that are
not yet delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded, provided that any
reserve or other appropriate provision as shall be required in conformity with
GAAP shall have been made therefor; (viii) statutory liens of landlords,
mechanics, suppliers, vendors, warehousemen, carriers or other like Liens
arising in the ordinary course of business; (ix) judgment Liens not giving rise
to an Event of Default so long as any appropriate legal proceeding that 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; (x) Liens on, or related to, properties or assets to secure all or
part or the costs incurred in the ordinary course of the Oil and Gas Business
for the acquisition, exploration, drilling, development, or operation thereof;
(xi) Liens on pipeline or pipeline facilities that arise under operation of law;
(xii) 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 or natural
gas, unitization and pooling declarations and agreements, area of mutual
interest agreements and other agreements that are customary in the Oil and Gas
Business; (xiii) Liens reserved in oil and gas mineral leases for bonus or
rental payments and for compliance with the terms of such leases; (xiv) Liens
securing the Notes; (xv) Liens securing obligations in respect of Currency Hedge
Obligations, Interest Rate Protection Obligations and Oil and Gas Hedging
Contracts, but only to the extent that the same constitute Permitted
Indebtedness; (xvi) Liens on the Capital Stock of Unrestricted Subsidiaries; and
(xvii) Liens not otherwise permitted by clauses (i) through (xvi) and that are
incurred in the ordinary course of business of the Company or any Subsidiary of
the Company with respect to obligations that do not exceed $5 million at any one
time outstanding. Notwithstanding anything in clauses (i) through (xvii) 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 Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness (other than Indebtedness incurred under the Senior
Credit Facility) of the Company or any of its Restricted Subsidiaries provided
that: (i) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable) of the Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded (plus the amount of reasonable
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expenses incurred in connection therewith); (ii) such Permitted Refinancing
Indebtedness has a final maturity date on or later than the final maturity date
of, and has a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Notes, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the Notes on terms at least as
favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iv) such Indebtedness is incurred either by the
Company or by the Restricted Subsidiary who is the obligor on the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded.
"Production Payments" means Dollar-Denominated Production Payments and
Volumetric Production Payments, collectively.
"Restricted Investment" means any Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Senior Credit Facility" means that certain Third Restatement of Credit
Agreement, dated as of April 26, 1996, by and among the Company and
Internationale Nederlanden (U.S.) Capital Corporation, as agent and as a lender,
and certain other financial institutions, as lenders, including any related
notes, guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, restated, modified, renewed,
refunded, replaced or refinanced, in whole or in part, from time to time.
"Senior Debt" means (i) Indebtedness of the Company or any Subsidiary of
the Company under or in respect of any Credit Facility and (ii) any other
Indebtedness permitted to be incurred by the Company or any Subsidiary under the
terms of the Indenture, unless the instrument under which such Indebtedness is
incurred expressly provides that it is on a parity with or subordinated in right
of payment to the Notes. Notwithstanding anything to the contrary in the
foregoing sentence, Senior Debt will not include (w) any liability for federal,
state, local or other taxes owed or owing by the Company, (x) any Indebtedness
of the Company to any of its Subsidiaries or other Affiliates, (y) any trade
payables or (z) any Indebtedness that is incurred in violation of the Indenture.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Total Assets" means, with respect to any Person, the total consolidated
assets of such Person and its Restricted Subsidiaries, as shown on the most
recent balance sheet of such Person.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution,
and any Subsidiary of an Unrestricted Subsidiary; but only to the extent that
such Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt; (b) is
not party to any agreement, contract, arrangement or understanding with the
Company or any Restricted Subsidiary of the Company unless the terms of any such
agreement,
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contract, arrangement or understanding are no less favorable to the Company or
such Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company; (c) is a Person with respect to
which neither the Company nor any of its Restricted Subsidiaries has any direct
or indirect obligation (x) to subscribe for additional Equity Interests or (y)
to maintain or preserve such Person's financial condition or to cause such
Person to achieve any specified levels of operating results; (d) has not
guaranteed or otherwise directly or indirectly provided credit support for any
Indebtedness of the Company or any of its Restricted Subsidiaries; and (e) has
at least one director on its board of directors that is not a director or
executive officer of the Company or any of its Restricted Subsidiaries and has
at least one executive officer that is not a director or executive officer of
the Company or any of its Restricted Subsidiaries, provided, however, that the
death or resignation of any such director or executive officer shall not cause a
Subsidiary that would otherwise be an Unrestricted Subsidiary to be deemed to be
a Restricted Subsidiary unless ten days have elapsed in which the Company has
failed to appoint or elect a successor to replace such director or executive
officer who satisfies the criteria set forth in this clause (e). Any such
designation by the Board of Directors shall be evidenced to the Trustee by
filing with the Trustee a certified copy of the Board Resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was permitted by the
covenant described above under the caption "-- Certain Covenants -- Restricted
Payments." If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of the Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of the Company as of such date (and, if such Indebtedness is not
permitted to be incurred as of such date under the covenant described under the
caption "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock," the Company shall be in default of such covenant). The Board
of Directors of the Company may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that such designation shall
be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the
Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall only be permitted if (i) such Indebtedness is permitted under
the covenant described under the caption "-- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock," and (ii) no Default or Event of
Default would be in existence following such designation.
"Volumetric Production Payments" means production payment obligations
recorded as deferred revenue in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person to the extent (i) all of the outstanding Capital Stock
or other ownership interests of which (other than directors' qualifying shares)
shall at the time be owned, directly or indirectly, by such Person 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 interests
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.
85
<PAGE> 151
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement"), the Company has agreed to sell to each of the
underwriters named below (the "Underwriters"), and each of the Underwriters has
severally agreed to purchase, the principal amount of Notes set forth below
opposite its name:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
UNDERWRITER OF NOTES
- ----------------------------------------------------------------------------- ------------
<S> <C>
Goldman, Sachs & Co. ........................................................ $
Donaldson, Lufkin & Jenrette Securities Corporation..........................
Lehman Brothers Inc. ........................................................
Salomon Brothers Inc.........................................................
------------
Total.............................................................. $175,000,000
============
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the Notes, if any are
taken.
The Underwriters propose to offer the Notes in part directly to the public
at the initial public offering price set forth on the cover page of this
Prospectus and in part to certain securities dealers at such price less a
concession of % of the principal amount of the Notes. The Underwriters may
allow, and such dealers may reallow, a concession not to exceed % of the
principal amount of the Notes to certain brokers and dealers. After the Notes
are released for sale to the public, the offering price and other selling terms
may from time to time be varied by the Underwriters.
The Notes are a new issue of securities with no established trading market.
The Company has been advised by the Underwriters that the Underwriters intend to
make a market in the Notes but are not obligated to do so and may discontinue
market making at any time without notice. No assurance can be given as to the
liquidity of the trading market for the Notes.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act.
Certain of the Underwriters are also acting as underwriters in the
Company's concurrent Common Stock Offering for which they will receive customary
underwriting discounts and commissions.
LEGAL MATTERS
Certain legal matters in connection with the securities being offered
hereby are being passed upon for the Company by Vinson & Elkins L.L.P., Houston,
Texas, and for the Underwriters by Andrews & Kurth L.L.P., Houston, Texas.
EXPERTS
The financial statements of the Company as of December 31, 1995 and for the
year ended December 31, 1995, incorporated in this Prospectus by reference to
the Annual Report on Form 10-K of the Company for the year ended December 31,
1995, have been so incorporated in reliance on the report of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of that firm as experts
in accounting and auditing.
The historical statement of revenues and direct operating expenses of the
properties acquired by the Company from Amerada Hess Corporation for the year
ended December 31, 1995, incorporated in this Prospectus by reference to the
current report on Form 8-K/A of the Company,
86
<PAGE> 152
have been so incorporated in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
The financial statements of the Company as of December 31, 1994 and for
each two years in the period ended December 31, 1994, incorporated in this
Prospectus by reference to the Annual Report on Form 10-K of the Company for the
year ended December 31, 1995 and the historical statement of revenues and direct
operating expenses of the Conoco properties for each of the two years in the
period ended December 31, 1994 incorporated in this Prospectus by reference to
the Company's report on Form 8-K dated October 4, 1996, have been so
incorporated in reliance on the reports of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements of Ashlawn Energy, Inc. as of December 31, 1994
and December 31, 1993, and for each two years in the period ended December 31,
1994 and for the period from inception (January 8, 1992) to December 31, 1992
incorporated in this Prospectus by reference to the Current Report on Form 8-K
dated October 4, 1996 have been so incorporated in reliance on the reports of
LaPorte, Sehrt, Romig and Hand APAC, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The estimates of the Company's net proved oil and natural gas reserves
included herein as of January 1, 1996 have been prepared by Collarini
Engineering, Inc. and Netherland, Sewell & Associates, Inc. and by Collarini
Engineering, Inc. and Joe C. Neal & Associates as of January 1, 1995 and 1994.
The reserve estimates prepared by such firms as of January 1, 1995 have also
been audited by Netherland, Sewell & Associates, Inc.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files reports, proxy and information
statements and other information with the Securities and Exchange Commission
(the "Commission"). Copies of such materials can be obtained by mail from the
Public Reference Section of the Commission, at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, such
reports, proxy and information statements and other information can be inspected
and copied at the public reference facility referenced above and at the
Commission's regional offices at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, Suite 1300, New
York, New York 10048. The Commission maintains a web site (http:\\www.sec.gov)
that contains reports, proxy and information statements and other information
regarding registrants, such as the Company, that file electronically with the
Commission.
The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the securities offered
hereby, reference is hereby made to the Registration Statement, which may be
inspected at the Commission's offices without charge, or copies of which may be
obtained from the Commission upon payment of prescribed fees. Each statement
made in this Prospectus as to the contents of any contract or other document is
not necessarily complete and is qualified in its entirety by reference to the
copy of such contract or other document filed as an exhibit to the Registration
Statement.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission pursuant to the Exchange
Act are incorporated herein by reference:
87
<PAGE> 153
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995;
2. The Company's Quarterly Report on Form 10-Q, including Amendment
No. 1 thereto, for the quarter ended March 31, 1996;
3. The Company's Quarterly Report on Form 10-Q, including Amendment
No. 1 thereto, for the quarter ended June 30, 1996;
4. The Company's Current Report on Form 8-K, including Amendments No.
1 and 2 thereto, filed with the Commission on July 15, July 24 and
September 12, 1996, respectively;
5. The Company's Current Report on Form 8-K filed with the Commission
on October 7, 1996; and
6. The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A, filed with the Commission on
July 14, 1995.
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 Offerings shall be deemed to be incorporated by reference
in this Prospectus and shall be deemed a part hereof from the date of filing of
such documents.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for all purposes to the extent that
a statement contained in the Registration Statement and this Prospectus, or in
any other subsequently filed document which is also, or is deemed to be,
incorporated by reference, modifies or replaces such statement. Any such
statement so modified or superseded shall not be deemed to constitute a part of
this Prospectus, except as so modified or superseded.
The Company will provide without charge to each person to whom this
Prospectus has been delivered, on written or oral request of such person, a copy
(without exhibits, unless such exhibits are specifically incorporated by
reference into such documents) of any or all documents incorporated by reference
in this Prospectus. Requests for such copies should be addressed to --
Attention: Secretary, Forcenergy Inc, 2730 S.W. 3rd Avenue, Suite 800, Miami,
Florida 33129-2237, telephone number (305) 856-8500.
88
<PAGE> 154
GLOSSARY OF OIL AND GAS TERMS
The definitions set forth below shall apply to the indicated terms as used
in this Prospectus. All volumes of natural gas referred to herein are stated at
the legal pressure base of the state or area where the reserves exist and at 60
degrees Fahrenheit and in most instances are rounded to the nearest major
multiple.
Bcf. Billion cubic feet.
Bcfe. Billion cubic feet equivalent, determined using the ratio of six Mcf
of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used herein
in reference to crude oil or other liquid hydrocarbons.
Bbl/d. One Bbl per day.
Btu. British thermal unit, which is the heat required to raise the
temperature of a one-pound mass of water from 58.5 to 59.5 degrees Fahrenheit.
Completion. The installation of permanent equipment for the production of
oil or gas, or in the case of a dry hole, the reporting of abandonment to the
appropriate agency.
Developed acreage. The number of acres which are allocated or assignable to
producing wells or wells capable of production.
Development well. A well drilled within the proved area of an oil or gas
reservoir to the depth of a stratigraphic horizon known to be productive.
Dry hole or well. A well found to be incapable of producing hydrocarbons in
sufficient quantities such that proceeds from the sale of such production exceed
production expenses and taxes.
Exploratory well. A well drilled to find and produce oil or gas reserves
not classified as proved, to find a new reservoir in a field previously found to
be productive of oil or gas in another reservoir or to extend a known reservoir.
Farm-in or farm-out. An agreement whereunder the owner of a working
interest in an oil and gas lease assigns the working interest or a portion
thereof to another party who desires to drill on the leased acreage. Generally,
the assignee is required to drill one or more wells in order to earn its
interest in the acreage. The assignor usually retains a royalty or reversionary
interest in the lease. The interest received by an assignee is a "farm-in" while
the interest transferred by the assignor is a "farm-out."
Field. An area consisting of a single reservoir or multiple reservoirs all
grouped on or related to the same individual geological structural feature
and/or stratigraphic condition.
Gross acres or gross wells. The total acres or wells, as the case may be,
in which a working interest is owned.
Horizontal drilling. A drilling technique that permits the operator to
contact and intersect a larger portion of the producing horizon than
conventional vertical drilling techniques and can result in both increased
production rates and greater ultimate recoveries of hydrocarbons.
Liquids. Crude oil, condensate and natural gas liquids.
Mbbls. One thousand barrels of crude oil or other liquid hydrocarbons.
Mbbls/d. One thousand barrels of crude oil or other liquid hydrocarbons per
day.
Mcf. One thousand cubic feet.
Mcf/d. One thousand cubic feet per day.
Mcfe. One thousand cubic feet equivalent, determined using the ratio of six
Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
89
<PAGE> 155
MMbbls. One million barrels of crude oil or other liquid hydrocarbons.
MMBtu. One million Btus.
MMcf. One million cubic feet.
MMcf/d. One million cubic feet per day.
MMcfe. One million cubic feet equivalent, determined using the ratio of six
Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
Net acres or net wells. The sum of the fractional working interests owned
in gross acres or gross wells.
Oil. Crude oil and condensate.
Present value. When used with respect to oil and gas reserves, the
estimated future gross revenue to be generated from the production of proved
reserves, net of estimated production and future development costs, using prices
and costs in effect as of the date indicated, without giving effect to
non-property related expenses such as general and administrative expenses, debt
service and future income tax expenses or to depreciation, depletion and
amortization, discounted using an annual discount rate of 10%.
Productive well. A well that is found to be capable of producing
hydrocarbons in sufficient quantities such that proceeds from the sale of such
production exceed production expenses and taxes.
Proved developed producing reserves. Proved developed reserves that are
expected to be recovered from completion intervals currently open in existing
wells and able to produce to market.
Proved developed nonproducing reserves. Proved developed reserves expected
to be recovered from zones behind casing in existing wells.
Proved reserves. The estimated quantities of crude oil, natural gas and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions.
Proved undeveloped location. A site on which a development well can be
drilled consistent with spacing rules for purposes of recovering proved
undeveloped reserves.
Proved undeveloped reserves. Proved reserves that are expected to be
recovered from new wells on undrilled acreage or from existing wells where a
relatively major expenditure is required from recompletion.
Recompletion. The completion for production of an existing well bore in
another formation from that in which the well has been previously completed.
Reservoir. A porous and permeable underground formation containing a
natural accumulation of producible oil and/or gas that is confined by
impermeable rock or water barriers and is individual and separate from other
reservoirs.
Royalty interest. An interest in an oil and gas property entitling the
owner to a share of oil or gas production free of costs of production.
Undeveloped acreage. Lease acreage on which wells have not been drilled or
completed to a point that would permit the production of commercial quantities
of oil and gas regardless of whether such acreage contains proved reserves.
Updip. A higher point in the reservoir.
Working interest. The operating interest which gives the owner the right to
drill, produce and conduct operating activities on the property and a share of
production.
Workover. Operations on a producing well to restore or increase production.
90
<PAGE> 156
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................ 3
Risk Factors.............................. 12
The Company............................... 18
Disclosure Regarding Forward-Looking
Statements.............................. 18
Common Stock Offering..................... 19
Use of Proceeds........................... 19
Capitalization............................ 20
Selected Financial Data................... 21
Unaudited Pro Forma Financial
Information............................. 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 28
Business.................................. 35
Legal Proceedings......................... 48
Management................................ 49
Description of Existing Securities and
Senior Credit Facility.................. 52
Description of Notes...................... 56
Underwriting.............................. 86
Legal Matters............................. 86
Experts................................... 86
Available Information..................... 87
Incorporation of Certain Information by
Reference............................... 87
Glossary of Oil and Gas Terms............. 89
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$175,000,000
FORCENERGY INC
% SENIOR SUBORDINATED
NOTES DUE 2006
------------------
PROSPECTUS
------------------
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LEHMAN BROTHERS
SALOMON BROTHERS INC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 157
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses of the Offerings are estimated to be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee.............................. $ 82,533
NASD Filing Fee.................................................................. 27,736
Legal Fees and Expenses.......................................................... 150,000
Accounting Fees and Expenses..................................................... 75,000
Blue Sky Fees and Expenses (including legal fees)................................ 20,000
Printing Expenses................................................................ 125,000
Rating Agency Fees............................................................... 140,000
Miscellaneous.................................................................... 75,000
-------
TOTAL............................................................................ $695,269
=======
</TABLE>
- ---------------
* To be completed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate") provides that a director of the Company will not be personally
liable to the Company 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 Company 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 Law, which concerns
unlawful payments of dividends, stock purchases or redemptions, or (iv) for any
transaction from which the director derived an improper personal benefit. If the
Delaware Law is amended after the approval by the stockholders of the
Certificate to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the Company
shall be eliminated or limited to the fullest extent permitted by the Delaware
Law, as so amended from time to time.
The Certificate and Bylaws provide that each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit,
or proceeding whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of the fact that he or she or a person of whom he or
she is the legal representative is or was a director, officer or employee of the
Company or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans maintained or sponsored by the Company, whether the basis of such
Proceeding is alleged action in an official capacity as a director, officer,
employee or agent or in any other capacity while serving as a director, officer,
employee or agent, will, in the case of directors and officers and may in the
case of employees and agents, be indemnified and held harmless by the Company to
the fullest extent authorized by Delaware law as the same exists or may in the
future be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Company to provide broader indemnification
rights than said law permitted the Company to provide prior to such amendment),
against all expense, liability and loss (including attorneys' fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification will continue as to a person who has ceased to be a director,
officer, employee or agent and will inure to the benefit of his or her heirs,
executors and administrators; however, except as described in the following
paragraph with respect to Proceedings to enforce rights to indemnification, the
Company will indemnify any such person seeking indemnification in connection
with Proceeding (or part thereof) initiated by such person only if such
Proceeding (or part thereof) was authorized by the Board.
II-1
<PAGE> 158
Pursuant to the Certificate and Bylaws, if a claim described in the
preceding paragraph is not paid in full by the Company within thirty days after
a written claim has been received by the Company, the claimant may at any time
thereafter bring suit against the Company to recover the unpaid amount of the
claim and, if successful in whole or in part, the claimant will be entitled to
be paid also the expense of prosecuting such claim. The Certificate and Bylaws
provide that it will be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in defending any Proceeding in
advance of its final disposition where the required undertaking, if any is
required, has been rendered to the Company) that the claimant has not met the
standards of conduct which make it permissible under the Delaware Law for the
Company to indemnify the claimant for the amount claimed, but the burden of
proving such defense will be on the Company. Neither the failure of the Company
(including the Board, independent legal counsel or stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware Law, nor an actual
determination by the Company (including the Board, independent legal counsel or
stockholders) that the claimant has not met such applicable standard of conduct,
will be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
The Certificate and Bylaws provide that the right to indemnification and
the payment of expenses incurred in defending a Proceeding in advance of its
final disposition conferred in the Certificate and Bylaws will not be exclusive
of any other right which any person may have or may in the future acquire under
any statute, provision of the Certificate, the Bylaws, Indemnification
Agreement, vote of stockholders or disinterested directors or otherwise. The
Certificate permits the Company to maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Company or
any person serving as the request of the Company as a director, officer,
employee or agent of another corporation, or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans maintained or sponsored by the Company, against any such expense,
liability or loss, whether or not the Company would have the power to indemnify
such person against such expense, liability or loss under the Delaware Law. The
Company intends to obtain directors and officers liability insurance providing
coverage to its directors and officers.
The Bylaws provide that the right to indemnification conferred therein is a
contract right and includes the right to be paid by the Company the expenses
incurred in defending any such Proceeding in advance of its final disposition,
except that if Delaware law requires the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer (and not in
any other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a Proceeding will be made
only upon delivery to the Company of an undertaking by or on behalf of such
director or officer, to repay all amounts so advanced if it is ultimately
determined that such director or officer is not entitled to be indemnified under
the Certificate or otherwise.
The Company has also entered into an indemnification agreement with certain
of its directors and certain of its officers indemnifying such persons
substantially to the extent set forth above in the Certificate and Bylaws except
with respect to advance expenses.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers or
persons controlling the registrant pursuant to the foregoing provisions, the
Registrant has been informed 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.
II-2
<PAGE> 159
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER INDEX TO EXHIBITS
- -------------------- ------------------------------------------------------------------------
<C> <S>
1.1 -- Form of Common Stock Underwriting Agreement
1.2 -- Form of Notes Underwriting Agreement
2.1 -- Agreement and Plan of Merger, dated as of September 14, 1993, among
Forcenergy Partners, L.P., Forcenergy Gas Exploration, Inc., and the
Company. (Filed as Exhibit 4.2 to the Registration Statement on Form
S-1 filed on June 2, 1995, as amended on July 6, 1995 and July 25,
1995 and is included herein by reference (File No. 33-93020))
2.2 -- Supplemental Agreement and Plan of Merger, dated as of September 14,
1993, among Forcenergy Partners, L.P., Forcenergy Gas Exploration,
Inc., and the Company, Stig Wennerstrom, and Forcenergy AB. (Filed as
Exhibit 4.3 to the Registration Statement on Form S-1 filed on June
2, 1995, as amended on July 6, 1995 and July 25, 1995 and is included
herein by reference (File No. 33-93020))
2.3 -- Registration Rights Agreement dated as of October 10, 1995 by and
between Forcenergy Inc and Forcenergy AB (filed as Exhibit 4.3 with
the Annual Report on Form 10-K for the fiscal year ended December 31,
1995 and is included herein by reference).
2.4 -- Agreement for Purchase and Sale dated April 19, 1996 by and between
Amerada Hess Corporation as seller and Forcenergy Inc as Buyer (Filed
as Exhibit 2 to Form 8-K filed on July 15, 1996 as amended on July 24
and September 12, 1996 and incorporated herein by reference.)
2.5 -- Form of Second Amendment to Note Exchange and Registration Rights
Agreement
4.1 -- Specimen Common Stock certificate. (Filed as Exhibit 4.1 to the
Registration Statement on Form S-1 on June 2, 1995, as amended on
July 6, 1995 and July 25, 1995 and is included herein by reference
(File No. 33-93020))
4.2 -- Form of Indenture
5.1* -- Opinion of Vinson & Elkins L.L.P.
12.1** -- Computation of ratios of earnings to fixed charges
23.1** -- Consent of Coopers & Lybrand L.L.P.
23.2** -- Consent of Price Waterhouse LLP
23.3** -- Consent of Netherland, Sewell & Associates, Inc.
23.4** -- Consent of Collarini Engineering Inc.
23.5** -- Consent of Joe C. Neal & Associates.
23.6 -- Consent of Vinson & Elkins L.L.P. (to be included in Exhibit 5.1
hereto).
23.7** -- Consent of LaPorte, Sehrt, Romig and Hand APAC
24.1 -- Powers of Attorney of the Company's Directors (included on the
original signature page of this Registration Statement)
25.1 -- Statement of Eligibility and Qualification under the Trust Indenture
Act of 1939 on Form T-1 of Bankers Trust Company.
</TABLE>
- ---------------
* To be filed by amendment.
** Filed with this amendment.
II-3
<PAGE> 160
(b) Financial Statement Schedules, Years ended December 31, 1992, 1993, and
1994:
Not Applicable.
ITEM 17. UNDERTAKINGS
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 this
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, 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
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 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:
(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 purposes 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 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 provide to the Underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
II-4
<PAGE> 161
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe it meets all of the
requirements for filing on Form S-3 and has duly caused this amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Miami, Florida, on October 30, 1996.
FORCENERGY INC
By /s/ STIG WENNERSTROM
------------------------------------
Stig Wennerstrom
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement on Form S-3 has been signed by the following
persons in the capacities indicated and on October 30, 1996.
<TABLE>
<CAPTION>
NAME TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
/s/ STIG WENNERSTROM President and Chief Executive Officer
- --------------------------------------------- (Principal Executive Officer)
Stig Wennerstrom
* E. JOSEPH GRADY Vice President -- Chief Financial Officer
- --------------------------------------------- (Principal Financial and Accounting Officer)
E. Joseph Grady
* ROBERT ISSAL Director and Chairman of the Board of
- --------------------------------------------- Directors
Robert Issal
* KEVIN S. PENN Director
- ---------------------------------------------
Kevin S. Penn
* ARNOLD L. CHAVKIN Director
- ---------------------------------------------
Arnold L. Chavkin
* JEFFREY A. WEBER Director
- ---------------------------------------------
Jeffrey A. Weber
* ERIC FORSS Director
- ---------------------------------------------
Eric Forss
Director
- ---------------------------------------------
Bruce L. Burnham
* WILLIAM F. WALLACE Director
- ---------------------------------------------
William F. Wallace
*By: /s/ STIG WENNERSTROM
- ---------------------------------------------
Stig Wennerstrom, Attorney-in-Fact
</TABLE>
II-5
<PAGE> 162
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Index to Exhibits
----------- -----------------
<S> <C> <C>
1.1* -- Form of Common Stock Underwriting Agreement
1.2* -- Form of Notes Underwriting Agreement
2.1* -- Agreement and Plan of Merger, dated as of September 14, 1993, among Forcenergy
Partners, L.P., Forcenergy Gas Exploration, Inc., and the Company. (Filed as
Exhibit 4.2 to the Registration Statement on Form S-1 filed on June 2, 1995, as
amended on July 6, 1995 and July 25, 1995 and is included herein by reference
(File No. 33-93020))
2.2* -- Supplemental Agreement and Plan of Merger, dated as of September 14, 1993, among
Forcenergy Partners, L.P., Forcenergy Gas Exploration, Inc., and the Company,
Stig Wennerstrom, and Forcenergy AB. (Filed as Exhibit 4.3 to the Registration
Statement on Form S-1 filed on June 2, 1995, as amended on July 6, 1995 and July
25, 1995 and is included herein by reference (File No. 33-93020))
2.3* -- Registration Rights Agreement dated as of October 10, 1995 by and between
Forcenergy Inc and Forcenergy AB (filed as Exhibit 4.3 with the Annual Report on
Form 10-K for the fiscal year ended December 31, 1995 and is included herein by
reference).
2.4* -- Agreement for Purchase and Sale dated April 19, 1996 by and between Amerada Hess
Corporation as seller and Forcenergy Inc as Buyer (Filed as Exhibit 2 to Form 8-K
filed on July 15, 1996 as amended on July 24 and September 12, 1996 and
incorporated herein by reference.)
2.5* -- Form of Second Amendment to Note Exchange and Registration Rights Agreement
4.1* -- Specimen Common Stock certificate. (Filed as Exhibit 4.1 to the Registration
Statement on Form S-1 on June 2, 1995, as amended on July 6, 1995 and July 25,
1995 and is included herein by reference (File No. 33-93020))
4.2** -- Form of Indenture
5.1** -- Opinion of Vinson & Elkins L.L.P.
12.1* -- Computation of ratios of earnings to fixed charges
23.1** -- Consent of Coopers & Lybrand L.L.P.
23.2** -- Consent of Price Waterhouse LLP
23.3** -- Consent of Netherland, Sewell & Associates, Inc.
23.4** -- Consent of Collarini Engineering Inc.
23.5** -- Consent of Joe C. Neal & Associates.
23.6** -- Consent of Vinson & Elkins L.L.P. (to be included in Exhibit 5.1 hereto).
23.7** -- Consent of LaPorte, Sehrt, Romig and Hand APAC
24.1* -- Powers of Attorney of the Company's Directors (included on the original
signature page of this Registration Statement)
25.1* -- Statement of Eligibility and Qualification under the Trust Indenture Act of 1939
on Form T-1 of Bankers Trust Company.
</TABLE>
- --------------
* Previously filed.
** Filed with this amendment.
(b) Financial Statement Schedules, Years ended December 31, 1992,
1993, and 1994:
Not Applicable.
<PAGE> 1
EXHIBIT 4.2
================================================================================
FORCENERGY INC
As Issuer
% SENIOR SUBORDINATED NOTES DUE 2006
-----
-----------------
INDENTURE
Dated as of , 1996
----------
-----------------
-----------------
Bankers Trust Company,
As Trustee
================================================================================
<PAGE> 2
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
<S> <C> <C>
310 (a)(1). . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3). . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4). . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(5). . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.13
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 12.03
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 12.03
313 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . 7.07
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06; 12.02
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
314 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . 4.03; 12.02
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c)(1). . . . . . . . . . . . . . . . . . . . . . . . . 12.04
(c)(2). . . . . . . . . . . . . . . . . . . . . . . . . 12.04
(c)(3). . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . 10.03-10.05
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . 12.05
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
315 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.05; 12.02
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
316 (a)(last sentence) . . . . . . . . . . . . . . . . . .
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . 6.05
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . 6.04
(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 6.07
(c) . . . . . . . . . . . . . . . . . . . . . . . . . .
317 (a)(1). . . . . . . . . . . . . . . . . . . . . . . . . 6.08
(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . 6.09
(b) . . . . . . . . . . . . . . . . . . . . . . . . . .
318 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . 12.01
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 12.01
</TABLE>
- --------------------------
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
<PAGE> 3
ARTICLE 1
DEFINITIONS AND INCORPORATIONBY REFERENCE
<TABLE>
<S> <C> <C>
Section 1.01. Definitions . . . . . . . . . . . . . . . . . . 1
Section 1.02. Other Definitions . . . . . . . . . . . . . . . 15
Section 1.03. Incorporation by Reference of Trust
Indenture Act. . . . . . . . . . . . . . . . . . 16
Section 1.04. Rules of Construction . . . . . . . . . . . . . 16
ARTICLE 2
THE NOTES
Section 2.01. Forms of Notes Generally . . . . . . . . . . . . 17
Section 2.02. Title and Terms . . . . . . . . . . . . . . . . . 18
Section 2.03. Denominations . . . . . . . . . . . . . . . . . . 18
Section 2.04. Execution, Authentication, Delivery and Dating . 18
Section 2.05. Temporary Notes . . . . . . . . . . . . . . . . . 19
Section 2.06. Registration, Registration of Transfer
and Exchange. . . . . . . . . . . . . . . . . . . 19
Section 2.07. Book-Entry Provisions for Global Certificates . . 20
Section 2.08. Mutilated, Destroyed, Lost and Stolen Notes . . . 21
Section 2.09. Payment of Interest; Interest Rights Preserved . 22
Section 2.10. Paying Agent . . . . . . . . . . . . . . . . . . 23
Section 2.11. Paying Agent to Hold Money in Trust . . . . . . . 23
Section 2.12. Persons Deemed Owners . . . . . . . . . . . . . . 23
Section 2.13. Holder Lists . . . . . . . . . . . . . . . . . . 23
Section 2.14. Outstanding Notes . . . . . . . . . . . . . . . . 23
Section 2.15. Treasury Notes . . . . . . . . . . . . . . . . . 24
Section 2.16. Cancellation . . . . . . . . . . . . . . . . . . 24
Section 2.17. Computation of Interest . . . . . . . . . . . . . 24
ARTICLE 3
REDEMPTION AND REPURCHASE
Section 3.01. Notices to Trustee . . . . . . . . . . . . . . . 24
Section 3.02. Selection of Notes to Be Redeemed . . . . . . . . 24
Section 3.03. Notice of Redemption . . . . . . . . . . . . . . 25
Section 3.04. Effect of Notice of Redemption . . . . . . . . . 26
Section 3.05. Deposit of Redemption Price . . . . . . . . . . . 26
Section 3.06. Notes Redeemed in Part . . . . . . . . . . . . . 26
Section 3.07. Optional Redemption . . . . . . . . . . . . . . . 26
Section 3.08. Mandatory Redemption . . . . . . . . . . . . . . 27
Section 3.09. Offer to Purchase by Application of
Excess Proceeds . . . . . . . . . . . . . . . . . 27
</TABLE>
-3-
<PAGE> 4
ARTICLE 4
COVENANTS
<TABLE>
<S> <C> <C>
Section 4.01. Payment of Notes . . . . . . . . . . . . . . . . . 29
Section 4.02. Maintenance of Office or Agency . . . . . . . . . . 29
Section 4.03. Reports . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.04. Compliance Certificate . . . . . . . . . . . . . . 29
Section 4.05. Taxes . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4.06. Stay, Extension and Usury Laws . . . . . . . . . . 30
Section 4.07. Restricted Payments . . . . . . . . . . . . . . . . 30
Section 4.08. Dividend and Other Payment Restrictions Affecting
Subsidiaries . . . . . . . . . . . . . . . . . . 32
Section 4.09. Incurrence of Indebtedness and Issuance of
Disqualified Stock. . . . . . . . . . . . . . . . . 32
Section 4.10. Asset Sales . . . . . . . . . . . . . . . . . . . . 34
Section 4.11. Transactions with Affiliates . . . . . . . . . . . 34
Section 4.12. Liens . . . . . . . . . . . . . . . . . . . . . . . 35
Section 4.13. Offer to Repurchase Upon Change of Control . . . . 35
Section 4.14. Subsidiary Guarantees . . . . . . . . . . . . . . . 36
Section 4.15. Corporate Existence . . . . . . . . . . . . . . . . 36
Section 4.16. No Senior Subordinated Debt . . . . . . . . . . . . 37
Section 4.17. Sale and Leaseback Transactions . . . . . . . . . . 37
Section 4.18. Business Activities . . . . . . . . . . . . . . . . 37
ARTICLE 5
SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of All or
Substantially All Assets. . . . . . . . . . . . . . 37
Section 5.02. Successor Corporation Substituted . . . . . . . . . 38
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default . . . . . . . . . . . . . . . . . 38
Acceleration of Maturity; Rescission. . . . . . . . 40
Section 6.03. Other Remedies . . . . . . . . . . . . . . . . . . 41
Section 6.04. Waiver of Past Defaults . . . . . . . . . . . . . . 41
Section 6.05. Control by Majority . . . . . . . . . . . . . . . . 41
Section 6.06. Limitation on Suits . . . . . . . . . . . . . . . . 41
Section 6.07. Rights of Holders of Notes to Receive Payment . . . 41
Section 6.08. Collection Suit by Trustee . . . . . . . . . . . . 42
Section 6.09. Trustee May File Proofs of Claim . . . . . . . . . 42
Section 6.10. Priorities . . . . . . . . . . . . . . . . . . . . 42
Section 6.11. Undertaking for Costs . . . . . . . . . . . . . . . 43
</TABLE>
-4-
<PAGE> 5
ARTICLE 7
TRUSTEE
<TABLE>
<S> <C> <C>
Section 7.01. Duties of Trustee . . . . . . . . . . . . . . . . 43
Section 7.02. Rights of Trustee . . . . . . . . . . . . . . . . 44
Section 7.03. Individual Rights of Trustee . . . . . . . . . . 44
Section 7.04. Trustee's Disclaimer . . . . . . . . . . . . . . 44
Section 7.05. Notice of Defaults . . . . . . . . . . . . . . . 45
Section 7.06. Reports by Trustee to Holders of the Notes . . . 45
Section 7.07. Compensation and Indemnity . . . . . . . . . . . 45
Section 7.08. Replacement of Trustee . . . . . . . . . . . . . 46
Section 7.09. Successor Trustee by Merger, etc. . . . . . . . 47
Section 7.10. Eligibility; Disqualification . . . . . . . . . 47
Section 7.11. Preferential Collection of Claims
Against Company . . . . . . . . . . . . . . . . . 47
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant
Defeasance . . . . . . . . . . . . . . . . . . . . 47
Section 8.02. Legal Defeasance and Discharge . . . . . . . . . . 47
Section 8.03. Covenant Defeasance . . . . . . . . . . . . . . . 47
Section 8.04. Conditions to Legal or Covenant Defeasance . . . . 48
Section 8.05. Deposited Money and Government Securities to
be Held in Trust; Other
Miscellaneous Provisions . . . . . . . . . . . . 49
Section 8.06. Repayment to Company . . . . . . . . . . . . . . . 49
Section 8.07. Reinstatement . . . . . . . . . . . . . . . . . . 50
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Notes . . . . . . . 50
Section 9.02. With Consent of Holders of Notes . . . . . . . . . 51
Section 9.03. Compliance with Trust Indenture Act . . . . . . . 52
Section 9.04. Revocation and Effect of Consents . . . . . . . . 52
Section 9.05. Notation on or Exchange of Notes . . . . . . . . . 52
Section 9.06. Trustee to Sign Amendments, etc. . . . . . . . . . 53
ARTICLE 10
SUBORDINATION
Section 10.01. Agreement to Subordinate . . . . . . . . . . . . 53
Section 10.02. Certain Definitions . . . . . . . . . . . . . . . 53
</TABLE>
-5-
<PAGE> 6
<TABLE>
<S> <C> <C>
Section 10.03. Liquidation; Dissolution; Bankruptcy . . . . . . 54
Section 10.04. Default on Designated Senior Debt . . . . . . . . 55
Section 10.05. Acceleration of Notes . . . . . . . . . . . . . . 55
Section 10.06. When Distribution Must Be Paid Over . . . . . . . 56
Section 10.07. Notice by Company . . . . . . . . . . . . . . . . 56
Section 10.08. Subrogation . . . . . . . . . . . . . . . . . . . 56
Section 10.09. Relative Rights . . . . . . . . . . . . . . . . . 56
Section 10.10. Subordination May Not Be Impaired by Company . . 56
Section 10.11. Distribution or Notice to Representative . . . . 57
Section 10.12. Rights of Trustee and Paying Agent . . . . . . . 57
Section 10.13. Authorization to Effect Subordination . . . . . . 57
Section 10.14. Amendments . . . . . . . . . . . . . . . . . . . 57
Section 10.15. No Waiver of Subordination Provisions . . . . . . 57
ARTICLE 11
SUBSIDIARY GUARANTEES
Section 11.01. Subsidiary Guarantees . . . . . . . . . . . . . . 58
Section 11.02. Execution and Delivery of Subsidiary
Guarantees. . . . . . . . . . . . . . . . . . . . 58
Section 11.03. Guarantors May Consolidate, etc., on
Certain Terms . . . . . . . . . . . . . . . . . . 59
Section 11.04. Releases of Subsidiary Guarantees . . . . . . . . 60
Section 11.05. Limitation on Guarantor Liability . . . . . . . . 60
Section 11.06. "Trustee" to Include Paying Agent . . . . . . . . 60
Section 11.07. Subordination of Subsidiary Guarantee . . . . . . 61
ARTICLE 12
MISCELLANEOUS
Section 12.01. Trust Indenture Act Controls . . . . . . . . . . 61
Section 12.02. Notices . . . . . . . . . . . . . . . . . . . . . 61
Section 12.03. Communication by Holders of Notes with Other
Holders of Notes . . . . . . . . . . . . . . . . 62
Section 12.04. Certificate and Opinion as to Conditions
Precedent . . . . . . . . . . . . . . . . . . . 62
Section 12.05. Statements Required in Certificate or Opinion . . 62
Section 12.06. Rules by Trustee and Agents . . . . . . . . . . . 63
Section 12.07. No Personal Liability of Directors, Officers,
Employees and Stockholders . . . . . . . . . . . 63
Section 12.08. Governing Law . . . . . . . . . . . . . . . . . . 63
Section 12.09. No Adverse Interpretation of Other Agreements . . 63
Section 12.10. Successors . . . . . . . . . . . . . . . . . . . 63
Section 12.11. Severability . . . . . . . . . . . . . . . . . . 63
Section 12.12. Counterpart Originals . . . . . . . . . . . . . . 63
Section 12.13. Table of Contents, Headings, etc. . . . . . . . . 63
</TABLE>
-6-
<PAGE> 7
EXHIBIT A FORM OF NOTE
EXHIBIT B GUARANTORS
EXHIBIT C SUBSIDIARY GUARANTEE
EXHIBIT D FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION
-7-
<PAGE> 8
INDENTURE dated as of _________, 1996 between Forcenergy Inc, a
Delaware corporation (the "Company") and Bankers Trust Company, a New York
banking corporation, as trustee (the "Trustee").
The Company, the Guarantors (as hereinafter defined) and the Trustee
agree as follows for the benefit of each other and for the equal and ratable
benefit of the Holders of the ____% Senior Subordinated Notes due 2006 of the
Company (the "Notes"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"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, as estimated by a nationally recognized firm of
independent petroleum engineers in a reserve report prepared as of the end of
the Company's most recently completed fiscal year, 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 a nationally recognized firm of
independent petroleum
<PAGE> 9
engineers, (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.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Asset Sale" means (i) the sale, lease, conveyance or other
disposition (but excluding the creation of a Lien) of any assets including,
without limitation, by way of a sale and leaseback (provided that the sale,
lease, conveyance or other disposition of all or substantially all of the
assets of the Company and its Restricted Subsidiaries taken as a whole shall be
governed by Sections 4.13 and/or 5.01 hereof and not by Section 4.10 hereof),
and (ii) the issue or sale by the Company or any of its Restricted Subsidiaries
of Equity Interests of any of the Company's Subsidiaries (including
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<PAGE> 10
the sale by a Restricted Subsidiary of Equity Interests in an Unrestricted
Subsidiary), in the case of either clause (i) or (ii), whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess of $5.0 million or (b) for net proceeds in excess of $5.0
million. Notwithstanding the foregoing, the following shall not be deemed to
be Asset Sales: (i) a transfer of assets by the Company to a Wholly Owned
Subsidiary of the Company or by a Wholly Owned Subsidiary of the Company to the
Company or to another Wholly Owned Subsidiary of the Company, (ii) an issuance
of Equity Interests by a Wholly Owned Subsidiary of the Company to the Company
or to another Wholly Owned Subsidiary of the Company, (iii) a Restricted
Payment or Permitted Investment that is permitted by Section 4.07, (iv) the
sale or transfer (whether or not in the ordinary course of business) of oil and
gas properties or direct or indirect interests in real property, provided that
at the time of such sale or transfer such properties do not have associated
with them any proved reserves, (v) the abandonment, farm-out, lease or sublease
of developed or undeveloped oil and gas properties in the ordinary course of
business, (vi) the trade or exchange by the Company or any Restricted
Subsidiary of the Company of any oil and gas property owned or held by the
Company or such Subsidiary for any oil and gas property owned or held by
another Person, provided that (x) the fair market value of the properties
traded or exchanged by the Company or such Subsidiary (including any cash or
Cash Equivalents, not to exceed 15% of such fair market value, to be delivered
by the Company or such Subsidiary) is reasonably equivalent to the fair market
value of the properties (together with any cash or Cash Equivalents, not to
exceed 15% of such fair market value) to be received by the Company or such
Subsidiary as determined in good faith by (i) any officer of the Company if
such fair market value is less than $5 million and (ii) the Board of Directors
of the Company as certified by a certified resolution delivered to the Trustee
if such fair market value is equal to or in excess of $5 million; or (vii) the
sale or transfer of hydrocarbons or other mineral products or surplus or
obsolete equipment in the ordinary course of business.
"Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP)
of the obligation of the lessee for net rental payments during the remaining
term of the lease included in such sale and leaseback transaction (including
any period for which such lease has been extended or may, at the option of the
lessor, be extended). As used in the preceding sentence, the "net rental
payment" 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 rental payment 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.
"Board of Directors" means, with respect to the Company, either the
board of directors of the Company or any duly authorized committee of such
board of directors, and, with respect to any Subsidiary, either the board of
directors of such Subsidiary or any duly authorized committee of that board.
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"Borrowing Base" means, as of any date, the aggregate amount of
borrowing availability as of such date under the Senior Credit Facility that
determines availability on the basis of a borrowing base or other asset-based
calculation.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means any obligation to pay rent or other
amounts under a lease of (or other agreement conveying the right to use) any
property (whether real, personal or mixed) that is required to be classified
and accounted for as a capital lease obligation under GAAP, and, for the
purpose of the Indenture, the amount of such obligation at any date shall be
the capitalized amount thereof at such date, determined in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership, partnership
interests (whether general or limited), (iv) in the case of a limited liability
corporation or similar entity, any membership or other similar interests
therein, and (v) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof having maturities of not
more than six months from the date of acquisition, (iii) certificates of
deposit and Eurodollar time deposits with maturities of six months or less from
the date of acquisition, bankers' acceptances with maturities not exceeding six
months and overnight bank deposits, in each case with any lender party to the
Credit Agreement or with any domestic commercial bank having capital and
surplus in excess of $500 million and a Thompson Bank Watch Rating of "B" or
better, (iv) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (ii) and (iii) above
entered into with any financial institution meeting the qualifications
specified in clause (iii) above, (v) commercial paper having a rating of at
least P-1 from Moody's Investors Service, Inc. (or its successors) and a rating
of at least A-1 from Standard & Poor's Ratings Group (or its successors), (vi)
deposits available for withdrawal on demand with any commercial bank not
meeting the qualifications specified in clause (iii) above, provided all such
deposits do not exceed $5 million in the aggregate at any one time and (vii)
investments in money market or other mutual funds substantially all of whose
assets comprise securities of the types described in clauses (ii) through (v)
above.
"Change of Control" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition (other than by way
of merger or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of the Company and its Restricted
Subsidiaries taken as a whole to any "person" (as such term is used in Section
13(d)(3) of the Exchange Act), (ii) the adoption of a plan relating to the
liquidation or dissolution of the Company, (iii) the consummation of any
transaction (including, without limitation, any purchase,
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<PAGE> 12
sale, acquisition, disposition, merger or consolidation) the result of which is
that any "person" (as defined above) becomes the "beneficial owner" (as such
term is described in Rule 13d-3 and Rule 13d-5 under the Exchange Act),
directly or indirectly, of more than 50% of the aggregate voting power of all
classes of Capital Stock of the Company having the right to elect directors
under ordinary circumstances, provided that the sale of Equity Interests in the
Company to a Person or Persons acting as underwriter(s) in connection with a
firm commitment underwriting shall not constitute a Change of Control or (iv)
the first day on which a majority of the members of the Board of Directors of
the Company are not Continuing Directors.
"Commission"or "SEC" means the Securities and Exchange Commission.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman, its President, any Vice
President, its Treasurer or an Assistant Treasurer, and delivered to the
Trustee.
"Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus (i) an
amount equal to any extraordinary loss plus any net loss realized in connection
with an Asset Sale (together with any related provision for taxes), to the
extent such losses were deducted in computing such Consolidated Net Income,
plus (ii) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent that such provision for
taxes was included in computing such Consolidated Net Income, plus (iii)
consolidated interest expense of such Person and its Restricted Subsidiaries
for such period, whether paid or accrued (including, without limitation,
amortization of original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, imputed interest
with respect to Attributable Debt, commissions, discounts and other fees and
charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Interest Rate Hedging
Agreements), to the extent that any such expense was deducted in computing such
Consolidated Net Income, plus (iv) depreciation, depletion and amortization
expenses (including amortization of goodwill and other intangibles but
excluding amortization of prepaid cash expenses that were paid in a prior
period) for such Person and its Restricted Subsidiaries for such period to the
extent that such depreciation, depletion and amortization expenses were
deducted in computing such Consolidated Net Income, plus (v) other non-cash
charges (excluding any such non-cash charge to the extent that it represents an
accrual of or reserve for cash charges in any future period or amortization of
a prepaid cash expense that was paid in a prior period) of such Person and its
Restricted Subsidiaries for such period to the extent that such other non-cash
charges were deducted in computing such Consolidated Net Income, in each case,
on a consolidated basis and 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. Notwithstanding
the foregoing, the provision for taxes on the income or profits of, and the
depreciation, depletion and
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<PAGE> 13
amortization and other non-cash charges and expenses of, a Restricted
Subsidiary of the referent Person shall be added to Consolidated Net Income to
compute Consolidated Cash Flow only to the extent (and in same proportion) that
the Net Income of such Restricted Subsidiary was included in calculating the
Consolidated Net Income of such Person and only if a corresponding amount would
be permitted at the date of determination to be dividended to the Company by
such Restricted Subsidiary without prior governmental approval (that has not
been obtained), and without direct or indirect restriction pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to that
Restricted Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that (i) the Net Income (but not loss) of any Person that
is not a Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Restricted Subsidiary
thereof, (ii) the Net Income of any Restricted Subsidiary shall be excluded to
the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, 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, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition
shall be excluded, (iv) the cumulative effect of a change in accounting
principles shall be excluded and (v) the Net Income of any Unrestricted
Subsidiary shall be excluded, whether or not distributed to the Company or one
of its Subsidiaries.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the date of this Indenture or (ii) was nominated for
election or elected to such Board of Directors with the approval of a majority
of the Continuing Directors who were members of such Board at the time of such
nomination or election.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 12.02 hereof or such other address as to which the
Trustee may give notice to the Company.
"Credit Facilities" means, with respect to the Company, one or more
debt facilities (including, without limitation, the Senior Credit Facility) or
commercial paper facilities with banks or other institutional lenders providing
for revolving credit loans, term loans, production payments, receivables
financing (including through the sale of receivables to such lenders or to
special purpose entities formed to borrow from such lenders against such
receivables) or letters of credit, in each case, as amended, restated,
modified, renewed, refunded, replaced or refinanced in whole or in part from
time to time. Indebtedness under Credit Facilities outstanding on the date on
which Notes are
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<PAGE> 14
first issued and authenticated under the Indenture shall be deemed to have been
incurred on such date in reliance on the exception provided by clause (b) of
the definition of Permitted Indebtedness.
"Currency Hedge Obligations" means, at any time as to any Person, the
obligations of such Person at such time that were incurred in the ordinary
course of business 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 that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Depository" means The Depository Trust Company as the depository with
respect to the Notes, until a successor shall have been appointed and become
such pursuant to the applicable provision of this Indenture, and, thereafter,
"Depository" shall mean or include such successor.
"Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
date that is 91 days after the date on which the Notes mature or which is
exchangeable or convertible into debt securities of the Company or any
Restricted Subsidiary, except to the extent that such exchange or conversion
rights cannot be exercised prior to the Maturity Date.
"Dollar-Denominated Production Payments" means production payment
obligations recorded as liabilities in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries in existence on the date of this Indenture, until such
Indebtedness is repaid.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the Company or
any of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues preferred stock
subsequent to the commencement of the period for which the Fixed Charge
Coverage Ratio is being calculated but
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<PAGE> 15
prior to the date on which the calculation of the Fixed Charge Coverage Ratio
is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be
calculated giving pro forma effect to such incurrence, assumption, Guarantee or
redemption of Indebtedness, or such issuance or redemption of preferred stock,
as if the same had occurred at the beginning of the applicable four-quarter
reference period. In addition, for purposes of making the computation referred
to above, (i) acquisitions that have been made by the Company or any of its
Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter reference
period or subsequent to such reference period and on or prior to the
Calculation Date (including, without limitation, any acquisition to occur on
the Calculation Date) shall be deemed to have occurred on the first day of the
four-quarter reference period and Consolidated Cash Flow for such reference
period shall be calculated without giving effect to clause (iii) of the proviso
set forth in the definition of Consolidated Net Income, (ii) the net proceeds
of Indebtedness incurred or Disqualified Stock issued by the Company pursuant
to the first paragraph of the covenant contained in Section 4.09 during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have been received by the
Company on the first day of the four-quarter reference period and applied to
its intended use on such date, (iii) the Consolidated Cash Flow attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, and
(iv) the Fixed Charges attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the
obligations giving rise to such Fixed Charges will not be obligations of the
referent Person or any of its Restricted Subsidiaries following the Calculation
Date.
"Fixed Charges" means, with respect to any Person for any period, the
sum of (i) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Debt, commissions, discounts and
other fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Interest Rate
Hedging Agreements but excluding any interest accrued but not paid on any of
the Company's 7% Exchangeable Subordinated Notes that have been exchanged for
the Company's common stock) and (ii) the consolidated interest expense of such
Person and its Restricted Subsidiaries that was capitalized during such period,
(iii) any interest expense on Indebtedness of another Person that is Guaranteed
by such Person or any of its Restricted Subsidiaries or secured by a Lien on
assets of such Person or any of its Restricted Subsidiaries (whether or not
such Guarantee or Lien is called upon) and (iv) the product of (a) all cash
dividend payments (and non-cash dividend payments in the case of a Person that
is a Restricted Subsidiary) on any series of preferred stock of such Person or
any of its Restricted Subsidiaries, to the extent such preferred stock is owned
by Persons other than such Person or its Restricted Subsidiaries, times (b) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory
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<PAGE> 16
tax rate of such Person, expressed as a decimal, in each case, on a
consolidated basis and in accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Government Securities" means securities that are (a) direct
obligations of the United States of America for the timely payment of which its
full faith and credit is pledged or (b) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America, which, in either
case, are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act), as custodian with respect to any such
Government Security or a specific payment of principal of or interest on any
such Government Security held by such custodian for the account of the holder
of such depository receipt; provided, that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to
the holder of such depository receipt from any amount received by the custodian
in respect of the Government Security or the specific payment of principal of
or interest on the Government Security evidenced by such depository receipt.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantors" means any Subsidiary of the Company that executes a
Subsidiary Guarantee in accordance with the provisions of this Indenture, and,
in each case, their respective successors and assigns.
"Holder" means a Person in whose name a Note is registered on the
Registrar's books.
"Indebtedness" means, with respect to any Person, without duplication,
(a) any indebtedness of such Person, whether or not contingent, (i) in respect
of borrowed money, (ii) evidenced by bonds, notes, debentures or similar
instruments, (iii) evidenced by letters of credit (or reimbursement agreements
in respect thereof) or banker's acceptances, (iv) representing Capital Lease
Obligations, (v) representing the balance deferred and unpaid of the purchase
price of any property, except any such balance that constitutes an accrued
expense or trade payable, (vi) representing any obligations in respect of
Currency Hedge Obligations, Interest Rate Hedging Agreements or Oil and Gas
Hedging Contracts, (vii) in respect of obligations to pay rent or other amounts
with respect to a sale and leaseback transaction to which such Person is a
party, and (viii) in respect of any Production
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<PAGE> 17
Payment, (b) all indebtedness of others secured by a Lien on any asset of such
Person (whether or not such indebtedness is assumed by such Person), (c)
obligations of such Person in respect of production imbalances and (d) to the
extent not otherwise included in the foregoing, the Guarantee by such Person of
any Indebtedness of any other Person, provided that the indebtedness described
in clauses (a)(i), (ii), (iv) and (v) shall be included in this definition of
Indebtedness only if, and to the extent that, the indebtedness described in
such clauses would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP.
"Indenture" means this Indenture, as amended or supplemented from time
to time.
"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.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations, but
excluding trade credit and other ordinary course advances customarily made in
the oil and gas industry), advances or capital contributions (excluding
commission, travel and similar advances to officers and employees made in the
ordinary course of business), purchases or other acquisitions for consideration
of Indebtedness, Equity Interests or other securities, together with all items
that are or would be classified as investments on a balance sheet prepared in
accordance with GAAP; provided that the following shall not constitute
Investments: (i) an acquisition of assets, Equity Interests or other securities
by the Company for consideration consisting of common equity securities of the
Company, (ii) Interest Rate Hedging Agreements entered into in accordance with
the limitations set forth in clause (d) of the definition of "Permitted
Indebtedness" set forth in Section 4.09 hereof and (iii) Oil and Gas Hedging
Agreements entered into in accordance with the limitations set forth in clause
(g) of the definition of "Permitted Indebtedness," (iv) Currency Hedge
Obligations, (v) extensions of trade credit or other advances to customers on
commercially reasonable terms in accordance with normal trade practices or
otherwise in the ordinary course of business and (vi) endorsements of
negotiable instruments and documents in the ordinary course of business. If
the Company or any Subsidiary of the Company sells or otherwise disposes of any
Equity Interests of any direct or indirect Restricted Subsidiary of the Company
such that, after giving effect to any such sale or disposition, such Person is
no longer a Subsidiary of the Company, the Company shall be deemed to have made
an Investment on the date of any such sale or disposition equal to the fair
market value of the Equity Interests of such Subsidiary not sold or disposed
of.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in The City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
for the intervening period.
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"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease
in the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction
other than a precautionary financing statement respecting a lease not intended
as a security agreement).
"Liquid Securities" means securities (i) of an issuer that is not an
Affiliate of the Company and (ii) that are publicly traded on the New York
Stock Exchange, the American Stock Exchange or the Nasdaq National Market;
provided, that securities meeting the requirements of clauses (i) and (ii)
above shall be treated as Liquid Securities from the date of receipt thereof
until and only until the earlier of (x) the date on which such securities are
sold or exchanged for cash or Cash Equivalents and (y) 180 days following the
date of the closing of the Asset Sale in connection with which such Liquid
Securities were received. In the event such securities are not sold or
exchanged for cash or Cash Equivalents within such 180-day period, for purposes
of determining whether the transaction pursuant to which the Company or a
Restricted Subsidiary received the securities was in compliance with the
provisions of the first paragraph of Section 4.10 hereof, such securities shall
be deemed not to have been Liquid Securities at any time.
"Make-Whole Amount" with respect to a Note means an amount equal to
the excess, if any, of (i) the present value of the remaining interest premium
and principal payments due on such Note as if such Note were redeemed on
_________, 2001, computed using a discount rate equal to the Treasury Rate plus
50 basis points, over (ii) the outstanding principal amount of such Note.
"Treasury Rate" is defined as the yield to maturity at the time of the
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), which has become publicly available at least two business
days prior to the date of the redemption notice or, if such Statistical Release
is no longer published, any publicly available source of similar market date)
most nearly equal to the then remaining maturity of the Notes assuming
redemption of the Notes on ________, 2001; provided, however, that if the
Make-Whole Average Life of such Note is not equal to the constant maturity of
the United States Treasury security for which a weekly average yield is given,
the Treasury Rate shall be obtained by linear interpolation (calculated to the
nearest one-twelfth of a year) from the weekly average yields of United States
Treasury securities for which such yields are given, except that if the Make-
Whole Average Life of such Notes 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. "Make-Whole Average Life" means
the number of years (calculated to the nearest one-twelfth) between the date
of redemption and _________, 2001.
"Make-Whole Price" with respect to a Note means the greater of (i) the
sum of the outstanding principal amount and Make-Whole Amount of such Note, and
(ii) the redemption price of such Note on __________, 2001, determined pursuant
to the Indenture (______% of the principal amount).
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<PAGE> 19
"Material Change" means an increase or decrease (excluding changes
that result solely from changes in prices) of more than 20% 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 Section 4.10.
"Maturity Date" means ________, 2006.
"Net Income" means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b)
the disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain
(but not loss), together with any related provision for taxes on such
extraordinary or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of Liquid Securities or any other any non-cash consideration
received in any Asset Sale, but excluding cash amounts placed in escrow, until
such amounts are released to the Company), net of the direct costs relating to
such Asset Sale (including, without limitation, legal, accounting and
investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
(other than Indebtedness under any Credit Facility) secured by a Lien on the
asset or assets that were the subject of such Asset Sale , amounts required to
be paid to any Person (other than the Company or any Restricted Subsidiary)
owning a beneficial interest in the asset or assets that were the subject of
such Asset Sale, and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP and any reserve
established for future liabilities.
"Net Working Capital" means (i) all current assets of the Company and
its Restricted Subsidiaries, minus (ii) all current liabilities of the Company
and its Restricted Subsidiaries, except current liabilities included in
Indebtedness, in each case as set forth in financial statements of the Company
prepared in accordance with GAAP.
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<PAGE> 20
"Non-Recourse Debt" means Indebtedness (i) as to which neither the
Company nor any of its Restricted Subsidiaries (a) provides credit support of
any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor
or otherwise), or (c) constitutes the lender; and (ii) no default with respect
to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such
other Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity; and (iii) as to which the lenders have been
notified in writing that they will not have any recourse to the stock or assets
of the Company or any of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the
Controller, the Secretary, the Assistant Secretary or any Vice-President of
such Person.
"Officers' Certificate" means a certificate signed on behalf of the
Company, by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer or the principal accounting
officer of the Company, that meets the requirements of Section 12.05 hereof.
"Oil and Gas Business" means any business relating to (i) the
acquisition, exploration, development, operation and disposition of interests
in oil, gas and other hydrocarbon properties and other minerals and products
produced in association therewith, (ii) the gathering, marketing, treating,
processing, storage, selling and transporting of any production from such
interests or properties and minerals and products produced in association
therewith, or (iii) any activity that is ancillary to or necessary or
appropriate for the activities described in clauses (i) and (ii) of this
definition.
"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.
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
12.05 hereof. The counsel may be an employee of or counsel to the Company, any
Guarantor or the Trustee.
"Pari Passu Indebtedness" means indebtedness which ranks pari passu in
right of payment to the Notes.
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<PAGE> 21
"Permitted Investments" means (a) any Investment in the Company or in
a Wholly Owned Restricted Subsidiary of the Company; (b) Investments by the
Company or any of its Restricted Subsidiaries in another Person, if as a result
of such Investment, such Person (i) becomes a Wholly Owned Restricted
Subsidiary of the Company or (ii) 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; (c) Investments in the form of
securities received from Asset Sales, provided that such Asset Sales are made
in compliance with Section 4.10 hereof; (d) any Investment in Cash
Equivalents; (e) other Investments in any Person having an aggregate fair
market value (measured on the date each such Investment was made and without
giving effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (e) that are at the time
outstanding, not to exceed $10 million; and (f) shares of Capital Stock
received in connection with any good faith settlement of a bankruptcy
proceeding involving a trade creditor and (g) entry into operating agreements,
joint venturers, partnership agreements, working interests, royalty interests,
mineral leases, processing agreements, farm-out agreements, contract for the
sale, transportation or exchange of oil and natural gas, unitization
agreements, pooling arrangements, area of mutual interest agreements,
production sharing agreements or other similar or customary agreements,
transactions, properties, interests or arrangements, and Investments and
expenditures in connection therewith or pursuant thereto, in each case made or
entered in to in the ordinary course of the Oil and Gas Business, excluding,
however, Investments in corporations, other than any Investment received
pursuant to Section 4.10.
"Permitted Liens" means (i) any Liens securing Indebtedness of a
Subsidiary or Senior Debt that is outstanding on the date of issuance of the
Notes or that is permitted by the terms of this Indenture to be incurred; (ii)
Liens securing Attributable Debt with respect to sale and leaseback
transactions permitted by the terms of the Indenture; (iii) Liens in favor of
the Company; (iv) Liens on property existing at the time of acquisition thereof
by the Company or any Subsidiary of the Company and Liens on property or assets
of a Subsidiary existing at the time it became a Subsidiary, provided that such
Liens were in existence prior to the contemplation of the acquisition and do
not extend to any assets other than the acquired property; (v) Liens incurred
or deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance or other kinds of social security, or to
secure the payment or performance of tenders, statutory or regulatory
obligations, surety or appeal bonds, performance bonds or other obligations of
a like nature incurred in the ordinary course of business (including lessee or
operator obligations under statutes, governmental regulations or instruments
related to the ownership, exploration and production of oil, gas and minerals
on state or federal lands or waters); (vi) Liens existing on the date of the
Indenture; (vii) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded, provided
that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor; (viii) statutory liens of
landlords, mechanics, suppliers, vendors, warehousemen, carriers or other like
Liens arising in the ordinary course of business; (ix) judgment Liens not
giving rise to an Event of Default so long as any appropriate legal proceeding
that 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
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<PAGE> 22
shall not have expired; (x) Liens on, or related to, properties or assets to
secure all or part or the costs incurred in the ordinary course of the Oil and
Gas Business for the exploration, drilling, development, or operation thereof;
(xi) Liens on pipeline or pipeline facilities that arise under operation of
law; (xii) 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 or natural
gas, unitization and pooling declarations and agreements, area of mutual
interest agreements and other agreements that are customary in the Oil and Gas
Business; (xiii) Liens reserved in oil and gas mineral leases for bonus or
rental payments and for compliance with the terms of such leases; (xiv) Liens
securing the Notes; (xv) Liens securing obligations in respect of Currency
Hedge Obligations, Interest Rate Protection Obligations and Oil and Gas Hedging
Contract, but only to the extent that the same constitute Permitted
Indebtedness; (xvi) Liens on the Capital Stock of Unrestricted Subsidiaries;
and (xvii) Liens not otherwise permitted by clauses (i) through (xvi) and that
are incurred in the ordinary course of business of the Company or any
Subsidiary of the Company with respect to obligations that do not exceed $5
million at any one time outstanding. Notwithstanding anything in clauses (i)
through (xvii) 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 Refinancing Indebtedness" means any Indebtedness of the
Company or any of its Restricted Subsidiaries issued in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness (other than Indebtedness incurred under the Senior
Credit Facility) of the Company or any of its Restricted Subsidiaries; provided
that: (i) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable) of the Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded (plus the amount of reasonable expenses
incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness
has a final maturity date on or later than the final maturity date of, and has
a Weighted Average Life to Maturity equal to or greater than the Weighted
Average Life to Maturity of, the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; (iii) if the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded is subordinated
in right of payment to the Notes, such Permitted Refinancing Indebtedness has a
final maturity date later than the final maturity date of, and is subordinated
in right of payment to, the Notes on terms at least as favorable to the Holders
of Notes as those contained in the documentation governing the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded; and (iv)
such Indebtedness is incurred either by the Company or by the Restricted
Subsidiary who is the obligor on the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
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<PAGE> 23
"Predecessor Note" of any particular Note means every previous Note
evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 2.08 hereof in exchange for a
mutilated Note or in lieu of a lost, destroyed or stolen Note shall be deemed
to evidence the same debt as the mutilated, lost, destroyed or stolen Note.
"Production Payments" means Dollar-Denominated Production Payments and
Volumetric Production Payments, collectively.
"Prospectus" means the final prospectus relating to the Notes included
as part of registration statement No. 333- .
"Responsible Officer," when used with respect to the Trustee, means
any officer within the Corporate Trust Department of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Credit Facility" means that certain Third Restatement of
Credit Agreement, dated as of April 26, 1996, by and among the Company and
Internationale Nederlanden (U.S.) Capital Corporation, as agent and as a
lender, and certain other financial institutions, as lenders, including any
related notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith, and in each case as amended, restated,
modified, renewed, refunded, replaced or refinanced, in whole or in part, from
time to time.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act of 1933, as amended, as such
Regulation is in effect on the date hereof.
"Special Record Date" for the payment of Defaulted Interest means a
date fixed by the Trustee pursuant to Section 2.09 hereof.
"Stated Maturity" means, when used with respect to any Indebtedness or
any installment of interest thereon, means the date specified in the instrument
evidencing or governing such
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<PAGE> 24
Indebtedness as the fixed date on which the principal of such Indebtedness or
such installment of interest is due and payable.
"Subordinated Indebtedness" means any Indebtedness of the Company or
any of its Restricted Subsidiaries which is expressly by its terms subordinated
in right of payment to any other Indebtedness.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a
combination thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (b) the only general partners of which are such Person or of one or
more Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantees" means the Guarantees by the Guarantors of the
Obligations under this Indenture and the Notes.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S)
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA, except as provided in Section 9.03 hereof.
"Total Assets" means, with respect to any Person, the total
consolidated assets of such Person and its Restricted Subsidiaries, as shown on
the most recent balance sheet of such Person.
"Trustee" means the party named as such in the preamble to this
Indenture until a successor replaces it in accordance with the applicable
provisions of this Indenture and thereafter means the successor serving
hereunder.
"Unrestricted Subsidiary" means any Subsidiary that is designated by
the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution, and any Subsidiary of an Unrestricted Subsidiary; but only to the
extent that such Subsidiary: (a) has no Indebtedness other than Non-Recourse
Debt; (b) is not party to any agreement, contract, arrangement or understanding
with the Company or any Restricted Subsidiary of the Company unless the terms
of any such agreement, contract, arrangement or understanding are no less
favorable to the Company or such Restricted Subsidiary than those that might be
obtained at the time from Persons who are not Affiliates of the Company; (c) is
a Person with respect to which neither the Company nor any of its Restricted
Subsidiaries has any direct or indirect obligation (x) to subscribe for
additional Equity Interests or (y) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified levels of
operating results; (d) has not guaranteed or otherwise directly or indirectly
provided credit support for any Indebtedness of the Company or any of its
Restricted Subsidiaries; and (e) has at least one director on its board of
directors that is not a director or executive officer of
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<PAGE> 25
the Company or any of its Restricted Subsidiaries and has at least one
executive officer that is not a director or executive officer of the Company or
any of its Restricted Subsidiaries, provided, however, that the death or
resignation of any such director or executive officer shall not cause a
Subsidiary that would otherwise be an Unrestricted Subsidiary to be deemed to
be a Restricted Subsidiary unless ten days has elapsed in which the Company has
failed to appoint or elect a successor to replace such director or executive
officer who satisfies the criteria set forth in this clause (e). Any such
designation by the Board of Directors shall be evidenced to the Trustee by
filing with the Trustee a certified copy of the Board Resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was permitted by Section
4.07 hereof. If, at any time, any Unrestricted Subsidiary would fail to meet
the foregoing requirements as an Unrestricted Subsidiary, it shall thereafter
cease to be an Unrestricted Subsidiary for purposes of this Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of the Company as of such date (and, if such Indebtedness is not
permitted to be incurred as of such date under Section 4.09 hereof, the Company
shall be in default of such provision). The Board of Directors of the Company
may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under Section 4.09 hereof and
(ii) no Default or Event of Default would be in existence following such
designation.
"Volumetric Production Payments" means production payment obligations
recorded as deferred revenue in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person to the extent (i) all of the outstanding Capital
Stock or other ownership interests of which (other than directors' qualifying
shares) shall at the time be owned, directly or indirectly, by such Person,
(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
interests 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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<PAGE> 26
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such
Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person or by
such Person and one or more Wholly Owned Subsidiaries of such Person.
Section 1.02. Other Definitions.
<TABLE>
<CAPTION>
Defined in
Term Section
----- ----------
<S> <C>
"Affiliate Transaction" . . . . . . . . . . . . . . . . . . . . 4.11
"Asset Sale Offer" . . . . . . . . . . . . . . . . . . . . . . . 3.09
"Bankruptcy Law" . . . . . . . . . . . . . . . . . . . . . . . 10.02
"Change of Control Offer" . . . . . . . . . . . . . . . . . . . 4.13
"Change of Control Payment" . . . . . . . . . . . . . . . . . . 4.13
"Change of Control Payment Date" . . . . . . . . . . . . . . . . 4.13
"Covenant Defeasance" . . . . . . . . . . . . . . . . . . . . . 8.03
"Custodian" . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01
"Defaulted Interest" . . . . . . . . . . . . . . . . . . . . . . 2.09
"Designated Senior Debt" . . . . . . . . . . . . . . . . . . . 10.02
"Event of Default" . . . . . . . . . . . . . . . . . . . . . . . 6.01
"Excess Proceeds" . . . . . . . . . . . . . . . . . . . . . . . 4.10
"Global Certificate" . . . . . . . . . . . . . . . . . . . . . . 2.01
"incur" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.09
"Legal Defeasance" . . . . . . . . . . . . . . . . . . . . . . . 8.02
"Note Register" . . . . . . . . . . . . . . . . . . . . . . . . 2.06
"Note Registrar" . . . . . . . . . . . . . . . . . . . . . . . . 2.06
"Notice of Default" . . . . . . . . . . . . . . . . . . . . . . 6.01
"Offer Amount" . . . . . . . . . . . . . . . . . . . . . . . . . 3.09
"Offer Period" . . . . . . . . . . . . . . . . . . . . . . . . . 3.09
"Paying Agent" . . . . . . . . . . . . . . . . . . . . . . . . . 2.10
"Payment Blockage Notice" . . . . . . . . . . . . . . . . . . 10.04
"Payment Default" . . . . . . . . . . . . . . . . . . . . . . . 6.01
"Permitted Indebtedness" . . . . . . . . . . . . . . . . . . . . 4.09
"Physical Certificates" . . . . . . . . . . . . . . . . . . . . 2.01
"Purchase Date" . . . . . . . . . . . . . . . . . . . . . . . . 3.09
"Registrar" . . . . . . . . . . . . . . . . . . . . . . . . . . 2.06
"Representative" . . . . . . . . . . . . . . . . . . . . . . . 10.02
"Restricted Payments" . . . . . . . . . . . . . . . . . . . . . 4.07
"Senior Debt" . . . . . . . . . . . . . . . . . . . . . . . . 10.02
</TABLE>
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<PAGE> 27
Section 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Notes;
"indenture security holder" means a Holder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Trustee; and
"obligor" on the Notes and the Subsidiary Guarantees means the
Company and the Guarantors, respectively, and any successor obligor
upon the Notes and the Subsidiary Guarantees, respectively.
All other terms used in this Indenture that are defined by the TIA, defined by
TIA reference to another statute or defined by rule enacted by the Commission
under the TIA have the meanings so assigned to them.
Section 1.04. Rules of Construction. For all purposes of this
Indenture, except as otherwise expressly provided or unless the context
otherwise requires:
(1) The terms defined in this Article have the meanings
assigned to them;
(2) all accounting terms not otherwise defined have the
meaning assigned to them in accordance with GAAP;
(3) the term "merger" includes a statutory share
exchange, and the term "merged" has a correlative meaning;
(4) words in the singular include the plural, and in the
plural include the singular;
(5) provisions apply to successive events and
transactions;
(6) the masculine gender includes the feminine and the
neuter;
(7) references to sections of or rules under the
Securities Act shall be deemed to include substitute, replacement of
successor sections or rules adopted by the Commission from time to
time;
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<PAGE> 28
(8) the words "herein", "hereof" and "hereunder" and
other words of similar import refer to this Indenture as a whole and
not to any particular Article, Section or other subdivision; and
(9) references to agreements and other instruments
include subsequent amendments and waivers but only to the extent not
prohibited by this Indenture.
ARTICLE 2
THE NOTES
Section 2.01. Forms of Notes Generally. The definitive Notes shall
be printed, lithographed or engraved on steel-engraved borders or may be
produced in any other manner, all as determined by the officers executing such
Notes or notations of Subsidiary Guarantees, as the case may be, as evidenced
by their execution of such Notes or notations of Subsidiary Guarantees, as the
case may be.
Notes (including the Trustee's certificate of authentication) shall be
issued initially in the form of one or more permanent global Notes
substantially in the form set forth on Exhibit A hereof (each being called a
"Global Certificate") deposited with the Trustee, as custodian for the
Depository, duly executed by the Company and authenticated by the Trustee as
hereinafter provided. Subject to the limitation set forth in Section 2.02, the
principal amount of the Global Certificates may be increased or decreased from
time to time by adjustments made on the records of the Trustee as custodian for
the Depository, as hereinafter provided.
Notes (including the notations thereon relating to the Subsidiary
Guarantees, if there is then any Guarantor, and the Trustee's certificate of
authentication) exchanged for beneficial interests in a Global Certificate as
described in Section 2.07 shall be issued in the form of permanent certificated
Notes in registered form in substantially the form set forth in Exhibit A
hereto ("Physical Certificates").
The Notes, the notations thereon relating to the Subsidiary Guarantees
and the Trustee's certificate of authentication shall be in substantially the
form set forth in Exhibit A hereto, with such appropriate insertions,
omissions, substitutions and other variations as are required or permitted by
this Indenture, and may have such letters, CUSIP or other numbers or other
marks of identification and such legends or endorsements placed thereon as may
be required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such Notes or
notations of Subsidiary Guarantees, as the case may be, as evidenced by their
execution of the Notes or notations of Subsidiary Guarantees, as the case may
be. Any portion of the text of any Note may be set forth on the reverse
thereof, with an appropriate reference thereto on the face of the Note. In
addition to the requirements of Exhibit A, the Notes may also have set forth on
the reverse side thereof a form of assignment and forms to elect purchase by
the Company pursuant to Sections 3.09, 4.10 and 4.13 hereof.
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Section 2.02. Title and Terms. The aggregate principal amount of
Notes which may be authenticated and delivered under this Indenture for
original issue is limited to $175,000,000, and the amount of Notes outstanding
at any one time may not exceed $175,000,000 except as provided in Section 2.08
hereof.
[OUR PROPOSED CHANGES TO THE FIRST PARAGRAPH OF SECTION 2.02 ARE JUST
SUGGESTIONS. ULTIMATELY, THE RESULTS OF BOTH APPROACHES ARE THE SAME, BUT OUR
SUGGESTION AVOIDS THE LITANY OF EXCEPTED SECTIONS AND THE POSSIBILITY OF
OVERLOOKING SUCH A SECTION.]
The Notes shall be known and designated as the "__% Senior
Subordinated Notes due 2006" of the Company. Their Stated Maturity shall be
___________, 2006, and they shall bear interest at the rate of ______% per
annum from _______, 1996, or from the most recent Interest Payment Date to
which interest has been paid or duly provided for, payable semiannually on
_______ and ________ in each year, commencing _______, 1997, and at said Stated
Maturity, until the principal thereof is paid or duly provided for.
The principal of (and premium, if any, on) and interest on the Notes
shall be payable at the office or agency of the Company maintained for such
purpose in The City of New York, or at such other office or agency of the
Company as may be maintained for such purpose; provided, however, that, at the
option of the Company, interest will be paid on Physical Securities by check
mailed to addresses of the Persons entitled thereto as such addresses shall
appear on the Note Register.
The Notes shall be redeemable as provided in Article 3 hereof.
The Notes shall be subject to defeasance at the option of the Company
as provided in Article 8 hereof.
The Notes shall be subordinated in right of payment to Senior
Indebtedness as provided in Article 10 hereof.
The Notes shall be guaranteed by Subsidiary Guarantors as provided in
Article 11 hereof.
Section 2.03. Denominations. The Notes shall be issuable only in
registered form without coupons and only in denominations of $1,000 and any
integral multiple thereof.
Section 2.04. Execution, Authentication, Delivery and Dating. The
Notes shall be executed on behalf of the Company by its Chairman, its President
or a Vice President of the Company, under its corporate seal affixed thereto or
reproduced thereon and attested by its Secretary or an Assistant Secretary of
the Company. The signature of any of these officers on the Notes may be manual
or facsimile signatures of the present or any future such authorized officer
and may be imprinted or otherwise reproduced on the Notes.
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<PAGE> 30
Notes bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Notes executed by the Company (and, if
there is then any Guarantor, having the notation of Subsidiary Guarantees in
substantially the form of Exhibit C hereto executed by each such Guarantor) to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Notes, and the Trustee in accordance with
such Company Order shall authenticate and deliver such Notes (with the notation
of Subsidiary Guarantees thereon, if there is then any Guarantor) as provided
in this Indenture.
Each Note shall be dated the date of its authentication.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for in Exhibit
D hereto, duly executed by the Trustee by manual signature of an authorized
officer, and such certificate upon any Note shall be conclusive evidence, and
the only evidence, that such Note has been duly authenticated and delivered
hereunder and is entitled to the benefits of this Indenture.
In case the Company, pursuant to and in compliance with Section 5.01
hereof, shall be consolidated or merged with or into any other Person or shall
convey, transfer, lease or otherwise dispose of its properties or assets
substantially as an entirety to any Person, and the successor Person resulting
from such consolidation, or surviving such merger, or into which the Company
shall have been merged, or the Person which shall have received a conveyance,
transfer, lease or other disposition as aforesaid, shall have executed an
indenture supplemental hereto with the Trustee pursuant to Section 5.02 hereof,
any of the Notes authenticated or delivered prior to such consolidation,
merger, conveyance, transfer, lease or other disposition may, from time to
time, at the request of the successor Person, be exchanged for other Notes
executed in the name of the successor Person with such changes in phraseology
and form as may be appropriate, but otherwise in substance of like tenor as the
Notes surrendered for such exchange and of like principal amount; and the
Trustee, upon Company Request of the successor Person, shall authenticate and
deliver Notes as specified in such request for the purpose of such exchange.
If Notes shall at any time be authenticated and delivered in any new name of a
successor Person pursuant to this Section in exchange or substitution for or
upon registration of transfer of any Notes, such successor Person, at the
option of the Holders but without expense to them, shall provide for the
exchange of all Notes at the time outstanding for Notes authenticated and
delivered in such new name.
Section 2.05. Temporary Notes. Pending the preparation of
definitive Notes, the Company may execute, and upon Company Order the Trustee
shall authenticate and deliver, temporary Notes which are printed,
lithographed, typewritten, mimeographed or otherwise produced, in any
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<PAGE> 31
authorized denomination, substantially of the tenor of the definitive Notes in
lieu of which they are issued and with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Notes may
determine, as conclusively evidenced by their execution of such Notes.
If temporary Notes are issued, the Company will cause definitive Notes
to be prepared without unreasonable delay. After the preparation of definitive
Notes, the temporary Notes shall be exchangeable for definitive Notes upon
surrender of the temporary Notes at the office or agency of the Company
designated for such purpose pursuant to Section 10.2 hereof, without charge to
the Holder. Upon surrender for cancellation of any one or more temporary
Notes, the Company shall execute and the Trustee shall authenticate and deliver
in exchange therefor a like principal amount of definitive Notes of authorized
denominations and, if there is then any Guarantor, having notations of
Subsidiary Guarantees thereon. Until so exchanged, the temporary Notes shall
in all respects be entitled to the same benefits under this Indenture as
definitive Notes.
Section 2.06. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept a register (the register maintained in such
office and in any other office or agency designated pursuant to Section 4.02
hereof being herein sometimes referred to as the "Note Register") in which,
subject to such reasonable regulations as it may prescribe, the Company shall
provide for the registration of Notes and of transfers of Notes. The Note
Register shall be in written form or any other form capable of being converted
into written form within a reasonable time. At all reasonable times and during
normal business hours, the Note Register shall be open to inspection by the
Trustee. The Trustee is hereby initially appointed as security registrar (the
"Note Registrar" or the "Registrar") for the purpose of registering Notes and
transfers of Notes as herein provided.
Subject to the provisions of this Section and Section 2.07, upon
surrender for registration of transfer of any Note at the office or agency of
the Company designated pursuant to Section 4.02 hereof, the Company shall
execute, and the Trustee shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Notes of any authorized
denomination or denominations of a like aggregate principal amount, and, if
there is then any Guarantor, each such Note having notation of the Subsidiary
Guarantees thereon.
Furthermore, any Holder of the Global Certificate shall, by acceptance
of such Global Certificate, agree that transfers of beneficial interest in such
Global Certificate may be effected only through a book-entry system maintained
by the Holder of such Global Certificate (or its agent), and that ownership of
a beneficial interest in the Note shall be required to be reflected in a book
entry.
At the option of the Holder, Notes may be exchanged for other Notes of
any authorized denomination and of a like aggregate principal amount, upon
surrender of the Notes to be exchanged at such office or agency. Whenever any
Notes are so surrendered for exchange, the Company shall execute, any
Guarantors shall execute notations of Subsidiary Guarantees on, and the Trustee
shall authenticate and deliver, the Notes which the Holder making the exchange
is entitled to receive.
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<PAGE> 32
All Notes and any Subsidiary Guarantees noted thereon issued upon any
registration of transfer or exchange of Notes shall be the valid obligations of
the Company and the respective Guarantors, evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Note Registrar) be
duly endorsed, or be accompanied by a written instrument of transfer, in form
satisfactory to the Company and the Note Registrar, duly executed by the Holder
thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange or redemption of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 2.05, 2.07, 3.06 or 9.05 hereof not involving any
transfer.
Neither the Trustee, the Note Registrar nor the Company shall be
required (i) to issue, register the transfer of or exchange any Note during a
period beginning at the opening of business 15 days before the mailing of a
notice of redemption of Notes selected for redemption under Section 3.02 hereof
and ending at the close of business on the day of such mailing of the relevant
notice of redemption, or (ii) to register the transfer of or exchange any Note
so selected for redemption in whole or in part, except the unredeemed portion
of any Note being redeemed in part.
Section 2.07. Book-Entry Provisions for Global Certificates. Each
Global Certificate shall be registered in the name of the Depository for such
Global Certificate or the nominee of such Depository and be delivered to the
Trustee as custodian for such Depository.
Members of, or participants in, the Depository ("Agent Members") shall
have no rights under this Indenture with respect to any Global Certificate held
on their behalf by the Depository, or the Trustee as its custodian, or under
such Global Certificate, and the Depository may be treated by the Company, the
Trustee and any agent of the Company or the Trustee as the absolute owner of
such Global Certificate for all purposes whatsoever. Notwithstanding the
foregoing, nothing herein shall prevent the Company, the Trustee or any agent
of the Company or the Trustee, from giving effect to any written certification,
proxy or other authorization furnished by the Depository or shall impair, as
between the Depository and its Agent Members, the operation of customary
practices governing the exercise of the rights of a holder of any Note.
Transfers of a Global Certificate shall be limited to transfers of
such Global Certificate in whole, but not in part, to the Depository, its
successors or their respective nominees. Interests of beneficial owners in a
Global Certificate may be transferred in accordance with the rules and
procedures of the Depository. Physical Certificates shall be transferred to
all beneficial owners in exchange for their beneficial interests in a Global
Certificate if, and only if, either (1) the Depository notifies the Company
that it is unwilling or unable to continue as Depository for the Global
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<PAGE> 33
Certificate and a successor Depository is not appointed by the Company within
90 days of such notice, (2) an Event of Default has occurred and is continuing
and the Note Registrar has received a request from the Depository to issue
Physical Certificates in lieu of all or a portion of the Global Certificate (in
which case the Company shall deliver Physical Certificates within 30 days of
such request) or (3) the Company determines not to have the Notes represented
by a Global Certificate.
In connection with any transfer of a portion of the beneficial
interest in a Global Certificate to beneficial owners pursuant to this Section,
the Registrar shall reflect on its books and records the date and a decrease in
the principal amount of the Global Certificate in an amount equal to the
principal amount of the beneficial interest in the Global Certificate to be
transferred, and the Company shall execute, and the Trustee shall authenticate
and deliver, one or more Physical Certificates of like tenor and amount.
In connection with the transfer of an entire Global Certificate to
beneficial owners pursuant to this Section, the Global Certificate shall be
deemed to be surrendered to the Trustee for cancellation, and the Company shall
execute, and the Trustee shall authenticate and deliver, to each beneficial
owner identified by the Depository in exchange for its beneficial interest in
the Global Certificate, an equal aggregate principal amount of Physical
Certificates of authorized denominations.
The registered holder of a Global Certificate may grant proxies and
otherwise authorize any person, including Agent Members and Persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Notes.
Section 2.08. Mutilated, Destroyed, Lost and Stolen Notes. If (i)
any mutilated Note is surrendered to the Trustee or (ii) the Company and the
Trustee receive evidence to their satisfaction of the destruction, loss or
theft of any Note, and there is delivered to the Company and the Trustee such
security or indemnity as may be required by them to save each of them harmless,
then, in the absence of notice to the Company or the Trustee that such Note has
been acquired by a bona fide purchaser, the Company shall execute, any
Guarantors shall execute the notations of Subsidiary Guarantees, and upon
Company Order the Trustee shall authenticate and deliver, in exchange for any
such mutilated Note or in lieu of any such destroyed, lost or stolen Note, a
new Note of like tenor and principal amount, having the notations of Subsidiary
Guarantees thereon bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Note has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Note, pay such Note.
Upon the issuance of any new Note under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses
(including the fees and expenses of the Trustee) connected therewith.
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<PAGE> 34
Every new Note issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Company and the respective Subsidiary
Guarantors, whether or not the mutilated, destroyed, lost or stolen Note shall
be at any time enforceable by anyone, and shall be entitled to all benefits of
this Indenture equally and proportionately with any and all other Notes duly
issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
Section 2.09. Payment of Interest; Interest Rights Preserved.
Interest on any Note which is payable, and is punctually paid or duly provided
for, on any Interest Payment Date shall be paid to the Person in whose name
such Note (or one or more Predecessor Notes) is registered at the close of
business on the Regular Record Date for such interest at the office or agency
of the Company maintained for such purpose pursuant to Section 4.02 hereof.
Any interest on any Note which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date shall forthwith cease to be
payable to the Holder on the Regular Record Date by virtue of having been such
Holder, and such defaulted interest and (to the extent lawful) interest on such
defaulted interest at the rate borne by the Notes (such defaulted interest and
interest thereon herein collectively called "Defaulted Interest") may be paid
by the Company, at its election in each case, as provided in clause (a) or (b)
below:
(a) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Notes (or their respective
Predecessor Notes) are registered at the close of business on a Special Record
Date for the payment of such Defaulted Interest, which shall be fixed in the
following manner. The Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on each Note and the date of
the proposed payment, and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be paid in
respect of such Defaulted Interest or shall make arrangements satisfactory to
the Trustee for such deposit prior to the date of the proposed payment, such
money when deposited shall be held in trust for the benefit of the Persons
entitled to such Defaulted Interest as in this clause provided. Thereupon the
Trustee shall fix a Special Record Date for the payment of such Defaulted
Interest which shall be not more than 15 days and not less than 10 days prior
to the date of the proposed payment and not less than 10 days after the receipt
by the Trustee of the notice of the proposed payment. The Trustee shall
promptly notify the Company of such Special Record Date, and in the name and at
the expense of the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be given in the
manner provided for in Section 12.02 hereof, not less than 10 days prior to
such Special Record Date. Notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor having been so given, such
Defaulted Interest shall be paid to the Persons in whose names the Notes (or
their respective Predecessor Notes) are registered at the close of business on
such Special Record Date and shall no longer be payable pursuant to the
following clause (b).
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<PAGE> 35
(b) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Notes may be listed, and upon such notice as may be
required by such exchange, if, after notice given by the Company to the Trustee
of the proposed payment pursuant to this clause, such manner of payment shall
be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Note shall carry the rights to interest accrued and
unpaid, and to accrue, which were carried by such other Note.
Section 2.10. Paying Agent. The Company shall also maintain an
office or agency where Notes may be presented for payment ("Paying Agent").
The Company may appoint one or more additional paying agents. The term "Paying
Agent" includes any additional paying agent. The Company may change any Paying
Agent without notice to any Holder. The Company shall notify the Trustee in
writing of the name and address of any Agent not a party to this Indenture. If
the Company fails to appoint or maintain another entity as Paying Agent, the
Trustee shall act as such. The Company or any of its Subsidiaries may act as
Paying Agent.
The Company initially appoints itself to act as the Paying Agent with
respect to the Global Certificates.
Section 2.11. Paying Agent to Hold Money in Trust. The Company shall
require each Paying Agent, including itself and the Trustee (who shall be
deemed to have agreed by their execution of this Indenture), to agree in
writing that the Paying Agent shall hold in trust for the benefit of Holders or
the Trustee (unless the Paying Agent is the Trustee, in which case it shall
hold in trust for the Holders) all money held by the Paying Agent for the
payment of principal, premium, if any, or interest, on the Notes, and shall
notify the Trustee of any default by the Company or any Guarantor in making any
such payment. While any such default continues, the Trustee may require a
Paying Agent to pay all money held by it to the Trustee. The Company at any
time may require a Paying Agent to pay all money held by it to the Trustee.
Upon payment over to the Trustee, the Paying Agent (if other than the Company
or a Subsidiary) shall have no further liability for the money. If the Company
or a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate
trust fund for the benefit of the Holders all money held by it as Paying Agent.
Upon any bankruptcy or reorganization proceedings relating to the Company or a
Guarantor, the Trustee shall serve as sole Paying Agent for the Notes.
Section 2.12. Persons Deemed Owners. Prior to the due presentment
of a Note for registration of transfer, the Company, the Guarantors, the Note
Registrar, the Trustee and any agent of the Company, the Guarantors or the
Trustee may treat the Person in whose name such Note is registered as the owner
of such Note for the purpose of receiving payment of principal of (and premium,
if any, on) and (subject to Section 2.09 hereof) interest on such Note and for
all other purposes whatsoever, whether or not such Note be overdue, and none of
the Company, the
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<PAGE> 36
Guarantors, the Note Registrar, the Trustee or any agent of the Company, the
Guarantors or the Trustee shall be affected by notice to the contrary.
Section 2.13. Holder Lists. The Trustee shall preserve in as current
a form as is reasonably practicable the most recent list available to it of the
names and addresses of all Holders and shall otherwise comply with TIA (S)
312(a). If the Trustee is not the Registrar, the Company and/or the Guarantors
shall furnish to the Trustee at least seven Business Days before each interest
payment date and at such other times as the Trustee may request in writing, a
list in such form and as of such date as the Trustee may reasonably require of
the names and addresses of the Holders of Notes and the Company and the
Guarantors shall otherwise comply with TIA (S) 312(a).
Section 2.14. Outstanding Notes. The Notes outstanding at any time
are all the Notes authenticated by the Trustee except for those cancelled by
it, those delivered to it for cancellation, those reductions in the interest in
a Global Certificate effected by the Trustee in accordance with the provisions
hereof, and those described in this Section as not outstanding. Except as set
forth in Section 2.15 hereof, a Note does not cease to be outstanding because
the Company or an Affiliate of the Company holds the Note.
If a Note is replaced pursuant to Section 2.08 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under Section
4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest.
Section 2.15. Treasury Notes. In determining whether the Holders of
the required principal amount of Notes have concurred in any direction, waiver
or consent, Notes owned by the Company, any Guarantor, or by any Affiliate of
the Company or any Guarantor, shall be considered as though not outstanding,
except that for the purposes of determining whether the Trustee shall be
protected in relying on any such direction, waiver or consent, only Notes that
a Trustee actually knows are so owned shall be so disregarded.
Section 2.16. Cancellation. All Notes surrendered for payment,
redemption, registration of transfer or exchange shall, if surrendered to any
Person other than the Trustee, be delivered to the Trustee and shall be
promptly cancelled by it. The Company may at any time deliver to the Trustee
for cancellation any Notes previously authenticated and delivered hereunder
which the Company may have acquired in any manner whatsoever, and all Notes so
delivered shall be promptly cancelled by the Trustee. No Notes shall be
authenticated in lieu of or in exchange for any Notes cancelled as provided in
this Section, except as expressly permitted by this Indenture. All cancelled
Notes held
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<PAGE> 37
by the Trustee shall be destroyed and a certificate of their destruction
delivered to the Company unless by a Company Order the Company shall direct
that cancelled Notes be returned to it.
Section 2.17. Computation of Interest. Interest on the Notes shall
be computed on the basis of a 360-day year comprised of twelve 30-day months.
ARTICLE 3
REDEMPTION AND REPURCHASE
Section 3.01. Notices to Trustee. If the Company elects to redeem
Notes pursuant to the optional redemption provisions of Section 3.07 hereof, it
shall furnish to the Trustee, at least 30 days but not more than 60 days before
a redemption date, an Officers' Certificate setting forth (i) the paragraph of
the Notes and/or Section of this Indenture pursuant to which the redemption
shall occur, (ii) the redemption date, (iii) the principal amount of Notes to
be redeemed and (iv) the redemption price.
Section 3.02. Selection of Notes to Be Redeemed. If less than all of
the Notes are to be redeemed at any time, selection of Notes for redemption
shall be made by the Trustee in compliance with the requirements of the
principal national securities exchange, if any, on which the Notes are listed,
or, if the Notes are not so listed, on a pro rata basis, by lot or by such
other method as the Trustee shall deem fair and appropriate; provided that no
Notes of $1,000 or less shall be redeemed in part. In the event of partial
redemption by lot, the particular Notes to be redeemed shall be selected,
unless otherwise provided herein, not less than 30 nor more than 60 days prior
to the redemption date by the Trustee from the outstanding Notes not previously
called for redemption.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected shall be in amounts of $1,000 or whole multiples of $1,000;
except that if all of the Notes of a Holder are to be redeemed, the entire
outstanding principal amount of Notes held by such Holder, even if not a
multiple of $1,000, shall be redeemed. A new Note in principal amount equal to
the unredeemed portion thereof shall be issued in the name of the Holder
thereof upon cancellation of the original Note.
The provisions of the two preceding paragraphs of this Section 3.02
shall not apply with respect to any redemption affecting only a Global
Certificate, whether such Global Certificate is to be redeemed in whole or in
part. In case of any such redemption in part, the unredeemed portion of the
principal amount of the Global Certificate shall be in an authorized
denomination.
On and after the redemption date, unless the Company defaults in
payment of the redemption price, interest ceases to accrue on Notes or portions
of them called for redemption. Except as provided in this Section 3.02,
provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption.
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<PAGE> 38
Section 3.03. Notice of Redemption. Subject to the provisions of
Section 3.09 hereof, at least 30 days but not more than 60 days before a
redemption date, the Company shall mail or cause to be mailed, by first class
mail, a notice of redemption to each Holder of Notes to be redeemed at such
Holder's registered address.
The notice shall identify the Notes to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of
the principal amount of such Note to be redeemed and that, after the
redemption date upon surrender of such Note, a new Note or Notes in
principal amount equal to the unredeemed portion shall be issued upon
cancellation of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered
to the Paying Agent to collect the redemption price;
(f) that, unless the Company defaults in making such
redemption payment, interest on Notes called for redemption ceases to
accrue on and after the redemption date;
(g) the paragraph of the Notes and/or Section of this
Indenture pursuant to which the Notes called for redemption are being
redeemed; and
(h) that no representation is made as to the correctness
or accuracy of the CUSIP number, if any, listed in such notice or
printed on the Notes.
If any of the Notes to be redeemed is in the form of a Global
Certificate, then such notice shall be modified in form but not substance to
the extent appropriate to accord with the procedures of the Depository
applicable to redemptions.
At the Company's request and expense, the Trustee shall give the
notice of redemption in the Company's name; provided, however, that the Company
shall have delivered to the Trustee, at least 45 days prior to the redemption
date, an Officers' Certificate requesting that the Trustee give such notice and
setting forth the information to be stated in such notice as provided in the
preceding paragraph.
Section 3.04. Effect of Notice of Redemption. Once notice of
redemption is mailed in accordance with Section 3.03 hereof, Notes called for
redemption become irrevocably due and payable on the redemption date at the
redemption price. A notice of redemption may not be
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<PAGE> 39
conditional. Failure to give such notice by mailing to any Holder of Notes or
any defect therein shall not affect the validity of any proceedings for the
redemption of other Notes.
Section 3.05. Deposit of Redemption Price. On or prior to the
redemption date, the Company shall deposit with the Trustee or with the Paying
Agent (or, if the Company is acting as its own Paying Agent, segregate and hold
in trust as provided in Section 2.11 hereof) money sufficient to pay the
redemption price of and accrued interest on all Notes to be redeemed on that
date. The Trustee or the Paying Agent shall promptly return to the Company any
money deposited with the Trustee or the Paying Agent by the Company in excess
of the amounts necessary to pay the redemption price of and accrued interest on
all Notes to be redeemed.
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption. If a Note is
redeemed on or after an interest record date but on or prior to the related
interest payment date, then any accrued and unpaid interest shall be paid to
the Person in whose name such Note was registered at the close of business on
such record date. If any Note called for redemption shall not be so paid upon
surrender for redemption because of the failure of the Company to comply with
the preceding paragraph, interest shall be paid on the unpaid principal, from
the redemption date until such principal is paid, and to the extent lawful on
any interest not paid on such unpaid principal, in each case at the rate
provided in the Notes and in Section 4.01 hereof.
Section 3.06. Notes Redeemed in Part. Upon surrender of a Note that
is redeemed in part (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or such Holder's
attorney duly authorized in writing), the Company shall issue and the Trustee
shall authenticate for the Holder at the expense of the Company a new Note
equal in principal amount to the unredeemed portion of the Note surrendered.
Section 3.07. Optional Redemption. (a) Except as set forth in
clauses (b) and (c) of this Section 3.07, the Company shall not have the option
to redeem the Notes pursuant to this Section 3.07 prior to ________, 2001.
From and after ________, 2001, the Company shall have the option to redeem the
Notes, 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,
thereon to the applicable redemption date, if redeemed during the twelve-month
period beginning on _______ of each of the years indicated below:
<TABLE>
<CAPTION>
Percentage of
Year Principal Amount
---- ----------------
<S> <C>
2001 . . . . . . . . . . . . . . . . . . . . . . . . %
2002 . . . . . . . . . . . . . . . . . . . . . . . . %
2003 . . . . . . . . . . . . . . . . . . . . . . . . %
2004 and thereafter . . . . . . . . . . . . . . . . 100.000%
</TABLE>
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<PAGE> 40
(b) Notwithstanding the provisions of clauses (a) and (c) of this
Section 3.07, at any time prior to ______, 2001, the Company may, at its
option, on one or more occasions, redeem all or any portion of the Notes at the
Make-Whole Price plus accrued and unpaid interest, if any, thereon to the date
of redemption.
(c) Notwithstanding the provisions of clauses (a) and (b) of this
Section 3.07, at any time prior to _____________, 1999, the Company may, at its
option, on any one or more occasions, redeem up to $61.25 million in aggregate
principal amount of Notes at a redemption price of ______% of the principal
amount thereof, plus accrued and unpaid interest, if any, thereon to the
redemption date, with the net proceeds of an offering of common equity of the
Company; provided that at least $113.75 million in aggregate principal amount
of Notes remains outstanding immediately after the occurrence of such
redemption; and provided, further, that such redemption shall occur within 60
days of the date of the closing of such offering of common equity of the
Company.
(d) Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Sections 3.01 through 3.06 hereof.
Section 3.08. Mandatory Redemption. Except as set forth under
Sections 4.10 and 4.13 hereof, the Company shall not be required to make
mandatory redemption or sinking fund payments with respect to the Notes.
Section 3.09. Offer to Purchase by Application of Excess Proceeds.
In the event that, pursuant to Section 4.10 hereof, the Company shall be
required to commence an offer to all Holders of Notes and, to the extent
required by the terms thereof, to all holders or lenders of Pari Passu
Indebtedness, to purchase Notes and any such Pari Passu Indebtedness (an "Asset
Sale Offer"), it shall follow the procedures specified below.
The Asset Sale Offer shall remain open for a period of 20 Business
Days following its commencement and no longer, except to the extent that a
longer period is required by applicable law (the "Offer Period"). No later
than five Business Days after the termination of the Offer Period (the
"Purchase Date"), the Company shall purchase the principal amount of Notes
required to be purchased pursuant to Section 4.10 hereof (the "Offer Amount")
or, if less than the Offer Amount has been tendered, all Notes tendered in
response to the Asset Sale Offer. Payment for any Notes so purchased shall be
made in the same manner as interest payments are made.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest shall
be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest shall be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company shall send,
by first class mail, a notice to the Trustee and each of the Holders, with a
copy to the Trustee. The notice shall contain
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<PAGE> 41
all instructions and materials necessary to enable such Holders to tender Notes
pursuant to the Asset Sale Offer. The Asset Sale Offer shall be made to all
Holders. The notice, which shall govern the terms of the Asset Sale Offer,
shall state:
(a) that the Asset Sale Offer is being made pursuant to
this Section 3.09 and Section 4.10 hereof and the length of time the
Asset Sale Offer shall remain open;
(b) the Offer Amount, the purchase price and the Purchase
Date;
(c) that any Note not tendered or accepted for payment
shall continue to accrue interest;
(d) that, unless the Company defaults in making such
payment, any Note accepted for payment pursuant to the Asset Sale
Offer shall cease to accrue interest after the Purchase Date;
(e) that Holders electing to have a Note purchased
pursuant to an Asset Sale Offer may only elect to have all of such
Note purchased and may not elect to have only a portion of such Note
purchased;
(f) that Holders electing to have a Note purchased
pursuant to any Asset Sale Offer shall be required to surrender the
Note, with the form entitled "Option of Holder to Elect Purchase" on
the reverse of the Note completed to the Company or a Paying Agent at
the address specified in the notice at least three Business Days
before the Purchase Date;
(g) that Holders shall be entitled to withdraw their
election if the Company or the Paying Agent, as the case may be,
receives, not later than the expiration of the Offer Period, a
telegram, telex, facsimile transmission or letter setting forth the
name of the Holder, the principal amount of the Note the Holder
delivered for purchase and a statement that such Holder is
withdrawing his election to have such Note purchased;
(h) that, if the aggregate principal amount of Notes
surrendered by Holders and any Pari Passu Indebtedness surrendered by
holders or lenders thereof, collectively, exceeds the Offer Amount,
the Trustee shall select the Notes and such Pari Passu Indebtedness to
be purchased on a pro rata basis (with such adjustments as may be
deemed appropriate by the Company so that only Notes in denominations
of $1,000, or integral multiples thereof, shall be purchased); and
(i) that Holders whose Notes were purchased only in part
shall be issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered (or transferred by book-entry
transfer).
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<PAGE> 42
If any of the Notes subject to an Asset Sale Offer is in the form of a
Global Certificate, their such notice may be modified in form but not substance
to the extent appropriate to accord with the procedures of the Depository
applicable to repurchases.
On or before the Purchase Date, the Company shall, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale
Offer, or if less than the Offer Amount has been tendered, all Notes tendered,
and shall deliver to the Trustee an Officers' Certificate stating that such
Notes or portions thereof were accepted for payment by the Company in
accordance with the terms of this Section 3.09. The Company or the Paying
Agent, as the case may be, shall promptly (but in any case not later than five
days after the Purchase Date) mail or deliver to each tendering Holder an
amount equal to the purchase price of the Notes tendered by such Holder and
accepted by the Company for purchase, and upon surrender of a Note that is to
be purchased in part (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or such Holder's
attorney duly authorized in writing), the Company shall promptly issue a new
Note, and the Trustee shall authenticate and mail or deliver such new Note to
such Holder, in a principal amount equal to any unpurchased portion of the Note
surrendered. Any Note surrendered but not so accepted shall be promptly mailed
or delivered by the Company to the Holder thereof. The Company shall publicly
announce the results of the Asset Sale Offer on the Purchase Date.
Other than as specifically provided in this Section 3.09, any purchase
pursuant to this Section 3.09 shall be made pursuant to the provisions of
Sections 3.01 through 3.06 hereof.
ARTICLE 4
COVENANTS
Section 4.01. Payment of Notes. The Company shall pay or cause to be
paid the principal of, premium, if any, and interest on the Notes on the dates
and in the manner provided in the Notes. Principal, premium, if any, and
interest shall be considered paid on the date due if the Paying Agent, if other
than the Company or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time
on the due date money deposited by the Company in immediately available funds
and designated for and sufficient to pay all principal, premium, if any, and
interest then due.
The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal at the rate equal
to 1% per annum in excess of the then applicable interest rate on the Notes to
the extent lawful; it shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue installments of interest
(without regard to any applicable grace period) at the same rate to the extent
lawful.
Section 4.02. Maintenance of Office or Agency. The Company shall
maintain in the Borough of Manhattan, the City of New York, an office or agency
(which may be an office of the Trustee or an affiliate of the Trustee,
Registrar or co-registrar) where Notes may be surrendered for
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<PAGE> 43
registration of transfer or for exchange and where notices and demands to or
upon the Company in respect of the Notes and this Indenture may be served. The
Company shall give prompt written notice to the Trustee of the location, and
any change in the location, of such office or agency. If at any time the
Company shall fail to maintain any such required office or agency or shall fail
to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, the City of New York for such purposes. The Company
shall give prompt written notice to the Trustee of any such designation or
rescission and of any change in the location of any such other office or
agency.
Section 4.03. Reports. The Company and any Guarantors shall file
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 and the Guarantors would be required to file if the Company were
subject to Section 13 or 15 of the Exchange Act, in each case on or before the
dates on which such reports and other documents would have been required to
have been filed with the Commission if the Company had been subject to Section
13 or 15 of the Exchange Act, beginning with the Company's fiscal quarter ended
September 30, 1996. The Company shall also (i) file with the Trustee (with
exhibits), and provide to each Holder of Notes (without exhibits), 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 would be required to file such reports and
documents if the Company were so required and (ii) if filing such reports and
documents with the Commission is not accepted by the Commission or is
prohibited under the Exchange Act, supply at the Company's cost copies of such
reports and documents (including any exhibits thereto) to any Holder of Notes
promptly upon written request. The Company shall at all times comply with TIA
(S) 314(a).
Section 4.04. Compliance Certificate. (a) The Company shall deliver
to the Trustee, within 90 days after the end of each fiscal year, an Officers'
Certificate stating that a review of the activities of the Company and its
Subsidiaries during the preceding fiscal year has been made under the
supervision of the signing Officers with a view to determining whether the
Company has kept, observed, performed and fulfilled its obligations under this
Indenture, and further stating, as to each such Officer signing such
certificate, that to the best of his or her knowledge the Company has kept,
observed, performed and fulfilled each and every covenant contained in this
Indenture and is not in default in the performance or observance of any of the
terms, provisions and conditions of this Indenture (or, if a Default or Event
of Default shall have occurred, describing all such Defaults or Events of
Default of which he or she may have knowledge and what action the Company is
taking or proposes to take with respect thereto) and that to the best of his or
her knowledge no event has
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<PAGE> 44
occurred and remains in existence by reason of which payments on account of the
principal of, premium, if any, or interest on the Notes is prohibited or if
such event has occurred, a description of the event and what action the Company
is taking or proposes to take with respect thereto. As of the date hereof, the
Company's fiscal year ends on December 31 of each calendar year. In the event
the Company changes its fiscal year, it shall promptly notify the Trustee of
such change.
(b) The Company shall, so long as any of the Notes are
outstanding, deliver to the Trustee, within five Business Days of any Officer
becoming aware of any Default or Event of Default, an Officers' Certificate
specifying such Default or Event of Default and what action the Company is
taking or proposes to take with respect thereto.
Section 4.05. Taxes. The Company shall pay, and shall cause each of
its Subsidiaries to pay, prior to delinquency, all material taxes, assessments,
and governmental levies except such as are contested in good faith and by
appropriate proceedings or where the failure to effect such payment is not
adverse in any material respect to the Holders of the Notes.
Section 4.06. Stay, Extension and Usury Laws. Each of the Company
and the Guarantors covenants (to the extent that it may lawfully do so) that it
shall not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that may affect the covenants
or the performance of this Indenture; and each of the Company and the
Guarantors (to the extent that it may lawfully do so) hereby expressly waives
all benefit or advantage of any such law, and covenants that it shall not, by
resort to any such law, hinder, delay or impede the execution of any power
herein granted to the Trustee, but shall suffer and permit the execution of
every such power as though no such law has been enacted.
Section 4.07. Restricted Payments. The Company shall not, and shall
not permit any of its Restricted Subsidiaries to, directly or indirectly: (i)
declare or pay any dividend or make any other payment or distribution on
account of the Company's Equity Interests (including, without limitation, any
payment in connection with any merger or consolidation involving the Company)
or to the direct or indirect holders of the Company's Equity Interests in their
capacity as such (other than dividends or distributions payable in Equity
Interests (other than Disqualified Stock) of the Company); (ii) purchase,
redeem or otherwise acquire or retire for value any Equity Interests of the
Company or any direct or indirect parent or other Affiliate of the Company that
is not a Subsidiary of the Company; (iii) make any principal payment on, or
purchase, redeem, defease or otherwise acquire or retire for value any
Indebtedness that is pari passu with or subordinated to the Notes (other than
the Notes), except at final maturity or in accordance with the mandatory,
redemption or repayment provisions set forth in the original documentation
governing such Indebtedness; or (iv) make any Restricted Investment (all such
payments and other actions set forth in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments"), unless, at the time of and
after giving effect to such Restricted Payment:
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<PAGE> 45
(a) no Default or Event of Default shall have occurred
and be continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted
Payment and after giving pro forma effect thereto as if such
Restricted Payment had been made at the beginning of the applicable
four-quarter period, have been permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of Section 4.09 hereof; and
(c) such Restricted Payment, together with the aggregate
of all other Restricted Payments made by the Company and its
Subsidiaries after the date of this Indenture (including Restricted
Payments permitted by clauses (1), (2), and (4) of the next succeeding
paragraph), is less than the sum of (i) 50% of the Consolidated Net
Income of the Company for the period (taken as one accounting period)
from the beginning of the first fiscal quarter commencing after the
date of this Indenture to the end of the Company's most recently ended
fiscal quarter for which internal financial statements are available
at the time of such Restricted Payment (or, if such Consolidated Net
Income for such period is a deficit, less 100% of such deficit), plus
(ii) 100% of the aggregate net cash proceeds received by the Company
from the issue or sale since the date of this Indenture of Equity
Interests of the Company or of debt securities of the Company that
have been converted into or exchanged for such Equity Interests (other
than Equity Interests (or convertible debt securities) sold to a
Subsidiary of the Company and other than Disqualified Stock or debt
securities that have been converted into Disqualified Stock), plus
(iii) to the extent not otherwise included in Consolidated Net Income,
the net reduction in Investments in Unrestricted Subsidiaries
resulting from dividends, repayments of loans or advances, or other
transfers of assets (with such assets being valued at the lesser of
their fair market value (as determined in good faith by a resolution
of the Board of Directors of the Company) and the Unrestricted
Subsidiary's book value), in each case to the Company or a Restricted
Subsidiary after the date of the Indenture from any Unrestricted
Subsidiary or from the redesignation of an Unrestricted Subsidiary as
a Restricted Subsidiary, plus (iv) $10 million.
The foregoing provisions shall not prohibit: (1) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such payment would have complied with the provisions of this
Indenture; (2) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company in exchange for, or out of the proceeds of,
the substantially concurrent sale (other than to a Subsidiary of the Company)
of other Equity Interests of the Company (other than any Disqualified Stock);
provided that the amount of any such net cash proceeds that are utilized for
any such redemption, repurchase, retirement or other acquisition shall be
excluded from clause (c)(ii) of the preceding paragraph; (3) the defeasance,
redemption or repurchase of Subordinated Indebtedness with the net cash
proceeds from an incurrence of Permitted Refinancing Debt or the substantially
concurrent sale (other than to a Subsidiary of the Company) of Equity Interests
of the Company (other than Disqualified Stock); provided that the amount of any
such net cash proceeds that are utilized for any such redemption, repurchase,
retirement or other
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<PAGE> 46
acquisition shall be excluded from clause (c)(ii) of the preceding paragraph;
(4) the repurchase, redemption or other acquisition or retirement for value of
any Equity Interests of the Company or any Subsidiary of the Company held by
any of the Company's (or any of its Subsidiaries') management pursuant to any
stock option agreement in effect as of the date of this Indenture; provided
that the aggregate price paid to all Persons, other than Stig Wennerstrom under
his employment agreement as in effect on the date of this Indenture, for all
such repurchased, redeemed, acquired or retired Equity Interests shall not
exceed $2 million in any twelve-month period (plus the aggregate cash proceeds
received by the Company during such twelve-month period from any issuance of
Equity Interests by the Company to members of management of the Company and its
Subsidiaries); and provided further, that no Default or Event of Default shall
have occurred and be continuing immediately after such transaction.
The amount of all Restricted Payments (other than cash) shall be the
fair market value (as determined by a resolution of the Board of Directors set
forth in an Officers' Certificate delivered to the Trustee, which determination
shall be conclusive evidence of compliance with this provision) on the date of
the Restricted Payment of the asset(s) proposed to be transferred by the
Company or the applicable Restricted Subsidiary, as the case may be, pursuant
to the Restricted Payment. Not later than five days after the date of making
any Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by this Section 4.07 were
computed.
The Board of Directors of the Company may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if such designation would not cause
a Default. For purposes of making such determination, all outstanding
Investments by the Company and its Restricted Subsidiaries (except to the
extent repaid in cash) in the Subsidiary so designated shall be deemed to be
Restricted Payments at the time of such designation and shall reduce the amount
available for Restricted Payments under clause (c) of the first paragraph of
this covenant. All such outstanding Investments shall be deemed to constitute
Investments in an amount equal to the greatest of (x) the net book value of
such Investments at the time of such designation, (y) the fair market value of
such Investments at the time of such designation (as determined in good faith
by resolution of the Board of Directors of the Company) and (z) the original
fair market value of such Investments at the time they were made (as so
determined). Such designation shall only be permitted if such Restricted
Payment would be permitted at such time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
Section 4.08. Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause
or suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to (i)(x) pay dividends or make any other
distributions to the Company or any of its Restricted Subsidiaries (1) on its
Capital Stock or (2) with respect to any other interest or participation in, or
measured by, its profits, or (y) pay any indebtedness owed to the Company or
any of its Restricted Subsidiaries, (ii) make loans or advances to the Company
or any of its Restricted Subsidiaries or (iii) transfer any of its properties
or assets to the Company or any
39
<PAGE> 47
of its Restricted Subsidiaries, except for such encumbrances or restrictions
existing under or by reason of (a) the Senior Credit Facility as in effect as
of the date of this Indenture, and any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings
thereof or any other Credit Facility, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements, refinancings or other Credit Facilities are no more restrictive
with respect to such dividend and other payment restrictions than those
contained in the Senior Credit Facility as in effect on the date of this
Indenture, (b) this Indenture and the Notes, (c) applicable law, (d) any
instrument governing Indebtedness or Capital Stock of a Person acquired by the
Company or any of its Restricted Subsidiaries as in effect at the time of such
acquisition (except, in the case of Indebtedness, to the extent such
Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person and its
Subsidiaries, or the property or assets of the Person and its Subsidiaries, so
acquired, provided that, in the case of Indebtedness, such Indebtedness was
permitted by the terms of this Indenture to be incurred, (e) by reason of
customary non-assignment provisions in leases entered into in the ordinary
course of business and consistent with past practices, (f) customary
restrictions contained in asset sale agreements limiting the transfer of such
assets pending the closing of such sale, (g) purchase money obligations for
property acquired in the ordinary course of business that impose restrictions
of the nature described in clause (iii) above on the property so acquired, or
(h) Permitted Refinancing Debt, provided that the restrictions contained in the
agreements governing such Permitted Refinancing Debt are no more restrictive
than those contained in the agreements governing the Indebtedness being
refinanced.
Section 4.09. Incurrence of Indebtedness and Issuance of Disqualified
Stock. The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect
to (collectively, "incur") any Indebtedness (including Acquired Debt) and the
Company shall not issue any Disqualified Stock and shall not permit any of its
Subsidiaries to issue any shares of preferred stock; provided, however, that
the Company and any of its Restricted Subsidiaries that are Guarantors may
incur Indebtedness (including Acquired Debt) or issue shares of Disqualified
Stock if:
(i) the Fixed Charge Coverage Ratio for the Company's
most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred or such Disqualified
Stock is issued would have been at least 2.5 to 1, determined on a pro
forma basis (including a pro forma application of the net proceeds
therefrom) as set forth in the definition of Fixed Charge Coverage
Ratio; and
(ii) no Default or Event of Default shall have occurred
and be continuing at the time such additional Indebtedness is incurred
or such Disqualified Stock is issued or would occur as a consequence
of the incurrence of the additional Indebtedness or the issuance of
the Disqualified Stock.
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<PAGE> 48
Notwithstanding the foregoing, this Indenture shall not prohibit any
of the following (collectively, "Permitted Indebtedness"): (a) the Indebtedness
evidenced by the Notes and any Guarantees; (b) the incurrence by the Company or
any of its Restricted Subsidiaries of Indebtedness and letters of credit
pursuant to the Senior Credit Facility (with letters of credit being deemed to
have a principal amount equal to the maximum potential liability of the Company
and its Subsidiaries thereunder) in an aggregate amount not to exceed the
greater of (i) $195 million, and (ii) an amount equal to the sum of (A) $100
million and (B) 20% of Adjusted Consolidated Net Tangible Assets determined as
of the date of the incurrence of such Indebtedness; (c) the incurrence by the
Company of the Existing Indebtedness; (d) the incurrence by the Company or any
of its Restricted Subsidiaries of Indebtedness obligations in respect of
Currency Hedge Obligations, and obligations in respect of Interest Rate
Protection Obligations, but only to the extent that the stated aggregate
notional amounts of such obligations do not exceed 105% of the aggregate
principal amount of the Indebtedness covered by such Interest Rate Protection
Obligations; (e) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness; (f) the incurrence by the
Company or any of its Restricted Subsidiaries of intercompany Indebtedness
between or among the Company and any of its Wholly Owned Restricted
Subsidiaries; (g) Indebtedness under Oil and Gas Hedging Contracts, provided
that such contracts were entered into in the ordinary course of business for
the purpose of limiting risks that arise in the ordinary course of business of
the Company and its Restricted Subsidiaries; (h) the incurrence by the Company
of Indebtedness not otherwise permitted to be incurred pursuant to this
paragraph, provided that the aggregate principal amount (or accreted value, as
applicable) of all Indebtedness incurred pursuant to this clause (h), together
with all Permitted Refinancing Debt incurred pursuant to clause (e) of this
paragraph in respect of Indebtedness previously incurred pursuant to this
clause (h), does not exceed $25.0 million at any one time outstanding; (i)
accounts payable or other obligations of the Company or any Restricted
Subsidiary to trade creditors created or assumed by the Company or such
Subsidiary in the ordinary course of business in connection with the obtaining
of goods or services; (j) Indebtedness consisting of obligations in respect of
purchase price adjustments, guarantees or indemnities in connection with the
acquisition or disposition of assets; (k) the incurrence by the Company's
Unrestricted Subsidiaries of Non-Recourse Debt, provided, however, that if any
such Indebtedness ceases to be Non-Recourse Debt of an Unrestricted Subsidiary,
such event shall be deemed to constitute an incurrence of Indebtedness by a
Restricted Subsidiary of the Company; and (l) 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 guaranties
and letters of credit supporting such bid, performance or surety obligations
(in each case other than for an obligation for money borrowed); and (m)
production imbalances of the Company or any of its Restricted Subsidiaries
arising in the ordinary course of business.
Section 4.10. Asset Sales. The Company shall not, and shall not
permit any of its Restricted Subsidiaries to, engage in an Asset Sale unless
(i) the Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (as determined by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee, which determination shall be
conclusive evidence of compliance with this provision) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least
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<PAGE> 49
85% of the consideration therefor received by the Company or such Restricted
Subsidiary in such Asset Sale plus all other Asset Sales, since the date of the
Indenture, on a cumulative basis, is in the form of cash or Cash Equivalents;
provided that the amount of (x) any liabilities (as shown on the Company's or
such Restricted Subsidiary's most recent balance sheet), of the Company or any
Restricted Subsidiary (other than contingent liabilities and liabilities that
are by their terms subordinated to the Notes or any guarantee thereof) that are
assumed by the transferee of any such assets pursuant to a customary novation
agreement that releases the Company or such Restricted Subsidiary from further
liability and (y) any Liquid Securities received by the Company or any such
Restricted Subsidiary from such transferee that are converted by the Company or
such Restricted Subsidiary into cash within 180 days of closing such Asset
Sale, shall be deemed to be cash for purposes of this provision (to the extent
of the cash received).
Within 365 days after the receipt of any Net Proceeds from an Asset
Sale, the Company may apply such Net Proceeds, at its option, (a) to reduce
indebtedness under the Senior Credit Facility or to the permanent reduction of
other Senior Debt, (b) to acquire a controlling interest in another Oil and Gas
Business, to make capital expenditures in respect of the Company's or any
Restricted Subsidiaries' Oil and Gas Business, or to purchase long-term assets
that are used or useful in the Company's or any Restricted Subsidiary's Oil and
Gas Business or (c) repurchase any Notes. Any Net Proceeds from Asset Sales
that are not applied or invested as provided in the first sentence of this
paragraph shall (after the expiration of the periods specified in this
paragraph) be deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $10.0 million,
the Company shall make an Asset Sale Offer to purchase the maximum principal
amount of Notes and any Pari Passu Indebtedness to which the Asset Sale Offer
applies that may be purchased out of the Excess Proceeds, at an offer price in
cash in an amount equal to 100% of the principal amount thereof plus accrued
and unpaid interest, if any, thereon to the date of purchase, in accordance
with the procedures set forth in Section 3.09 hereof or the agreements
governing the Pari Passu Indebtedness, as applicable. To the extent that the
aggregate amount of Notes tendered or Pari Passu Indebtedness tendered pursuant
to an Asset Sale Offer is less than the Excess Proceeds, the Company may use
any remaining Excess Proceeds for general corporate purposes. If the aggregate
principal amount of Notes surrendered by Holders thereof and Pari Passu
Indebtedness surrendered by holders or lenders thereof, collectively, exceeds
the amount of Excess Proceeds, the Trustee shall select the Notes and Pari
Passu Indebtedness to be purchased on a pro rata basis, based on the aggregate
principal amount (or accreted value, as applicable) thereof surrendered in such
Asset Sale Offer. Upon completion of such Asset Sale Offer, the amount of
Excess Proceeds shall be reset at zero.
Section 4.11. Transactions with Affiliates. The Company shall not,
and shall not permit any of its Subsidiaries to, make any payment to, or sell,
lease, transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or amend any
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any of its Affiliates (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Subsidiary than those that
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would have been obtained in a comparable transaction by the Company or such
Subsidiary with an unrelated Person, (ii) the Company delivers to the Trustee
with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $1 million an
Officers' Certificate certifying that such Affiliate Transaction complies with
clause (i) above and (iii) the Company delivers to the Trustee with respect to
any Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $5 million, a resolution of the Board of
Directors set forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (i) above and that such Affiliate Transaction
has been approved by a majority of the members of the Board of Directors who
are disinterested with respect to such Affiliate Transaction, which resolution
shall be conclusive evidence of compliance with this provision; provided that
the following shall not be deemed Affiliate Transactions: (1) transactions
contemplated by any employment agreement or other employee or director stock
option or other compensation plan or arrangement entered into by the Company or
any of its Restricted Subsidiaries in the ordinary course of business and
consistent with the past practice of the Company or such Restricted Subsidiary,
including those described in the Prospectus under the caption "Risk
Factors--Dependence on Key Personnel," (2) transactions between the Company
and/or its Restricted Subsidiaries, (3) the payment of reasonable and customary
regular fees to directors of the Company who are not employees of the Company
or any of its Subsidiaries, (4) indemnities of officers, directors and
employees of the Company or any Subsidiary pursuant to bylaw or statutory
provisions, and (5) Restricted Payments and Permitted Investments that are
permitted by Section 4.07 hereof.
Section 4.12. Liens. The Company shall not, and shall not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or otherwise cause or suffer to exist or become effective any Lien
securing Indebtedness of any kind (other than Permitted Liens) upon any of its
property or assets, now owned or hereafter acquired, unless all payments under
the Notes are secured on an equal and ratable basis with the obligations so
secured until such time as such obligations are no longer secured by a Lien.
Section 4.13. Offer to Repurchase Upon Change of Control. (a) Upon
the occurrence of a Change of Control, each Holder of Notes shall have the
right to require the Company to repurchase all or any part (equal to $1,000 or
an integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest, if any, thereon to the date of purchase (the "Change of Control
Payment"). Within 30 days following any Change of Control, the Company shall
mail a notice to the Trustee and each Holder stating: (1) that the Change of
Control Offer is being made pursuant to this Section 4.13 and that all Notes
tendered shall be accepted for payment; (2) the purchase price and the purchase
date described below (the "Change of Control Payment Date"); (3) that any Note
not tendered shall continue to accrue interest; (4) that, unless the Company
defaults in the payment of the Change of Control Payment, all Notes accepted
for payment pursuant to the Change of Control Offer shall cease to accrue
interest, if any, after the Change of Control Payment Date; (5) that Holders
electing to have any Notes purchased pursuant to a Change of Control Offer
shall be required to surrender the Notes, with the form entitled "Option
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of Holder to Elect Purchase" on the reverse of the Notes completed, to the
Paying Agent at the address specified in the notice prior to the close of
business on the fifth Business Day preceding the Change of Control Payment
Date; (6) that Holders shall be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the second
Business Day preceding the Change of Control Payment Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of Notes delivered for purchase, and a statement that such
Holder is withdrawing his election to have the Notes purchased; and (7) that
Holders whose Notes are being purchased only in part shall be issued new Notes
equal in principal amount to the unpurchased portion of the Notes surrendered,
which unpurchased portion must be equal to $1,000 in principal amount or an
integral multiple thereof. If any of the Notes subject to a Change of Control
Offer is in the form of a Global Certificate, then such notice shall be
modified in form but not substance to the extent appropriate to accord with the
procedures of the Depository applicable to repurchases. The Change of Control
Offer shall remain open for at least 20 Business Days and until the close of
business on the fifth business day prior to the Change of Control Payment Date.
The Company shall comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of the
Notes as a result of a Change of Control.
(b) On a date that is no earlier than 30 days nor later than 70
days from the date that the Company mails or causes to be mailed notice of the
Change of Control to the Holders (the "Change of Control Payment Date"), the
Company shall, to the extent lawful, (i) accept for payment all Notes or
portions thereof properly tendered pursuant to the Change of Control Offer,
(ii) deposit with the Paying Agent an amount equal to the Change of Control
Payment in respect of all Notes or portions thereof so tendered and (iii)
deliver or cause to be delivered to the Trustee the Notes so accepted together
with an Officers' Certificate stating the aggregate principal amount of Notes
or portions thereof being purchased by the Company. The Paying Agent shall
promptly mail or deliver to each Holder of Notes so tendered the Change of
Control Payment for such Notes, and the Trustee shall promptly authenticate and
mail (or cause to be transferred by book entry) to each Holder a new Note equal
in principal amount to any unpurchased portion of the Notes surrendered, if
any; provided that each such new Note shall be in a principal amount of $1,000
or an integral multiple thereof. Prior to complying with the provisions of
this Section 4.13, but in any event within 60 days following a Change of
Control, the Company shall either repay all outstanding Senior Debt or obtain
the requisite consents, if any, under all agreements governing outstanding
Senior Debt to permit the repurchase of Notes required by this Section 4.13.
The Company shall publicly announce the results of the Change of Control Offer
on or as soon as practicable after the Change of Control Payment Date.
The Change of Control provisions described above shall be applicable
whether or not any other provisions of this Indenture are applicable.
The Company shall 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 in
the manner, at the times and otherwise
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in compliance with the requirements set forth in this Section 4.13 and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
Section 4.14. Subsidiary Guarantees. In the event that any
Restricted Subsidiary of the Company that is also a Significant Subsidiary
shall Guarantee any Indebtedness of the Company, such Subsidiary shall be
deemed to make the guarantee set forth in Section 11.01, and the Company shall
cause such Subsidiary to evidence such guarantee in the manner set forth in
Section 11.02 and to execute and deliver a supplemental indenture to this
Indenture agreeing to be bound by its terms applicable to a Guarantor.
Notwithstanding the foregoing, this Section 4.14 shall not apply to any
Subsidiary that has been properly designated as an Unrestricted Subsidiary in
accordance with this Indenture for so long as it continues to constitute an
Unrestricted Subsidiary.
Section 4.15. Corporate Existence. Subject to Article 5 and Section
11.03 hereof, the Company and the Guarantors shall do or cause to be done all
things necessary to preserve and keep in full force and effect (i) its
corporate existence, and the corporate, partnership or other existence of each
of its Restricted Subsidiaries, in accordance with the respective
organizational documents (as the same may be amended from time to time) of the
Company or any such Restricted Subsidiary and (ii) the rights (charter and
statutory), licenses and franchises of the Company, the Guarantors and their
respective Restricted Subsidiaries; provided, however, that the Company and the
Guarantors shall not be required to preserve any such right, license or
franchise, or the corporate, partnership or other existence of any of their
respective Restricted Subsidiaries, if the Board of Directors shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company or such Guarantor, as applicable, and its Restricted
Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any
material respect to the Holders of the Notes.
Section 4.16. No Senior Subordinated Debt. Notwithstanding the
provisions of Section 4.09 hereof, (i) the Company shall not incur, create,
issue, assume, guarantee or otherwise become liable for any Indebtedness that
is subordinate or junior in right of payment to any Senior Debt and senior in
any respect in right of payment to the Notes and (ii) no Guarantor shall
directly or indirectly incur, create, issue, assume, guarantee or otherwise
become liable for any Indebtedness that is subordinate or junior in right of
payment to any Subsidiary Guarantees issued in respect of Senior Debt and
senior in any respect in right of payment to the Subsidiary Guarantees,
provided, however, that the foregoing limitations shall not apply to
distinctions between categories of Indebtedness that exist by reason of any
Liens arising or created in respect of some but not all such Indebtedness.
Section 4.17. Sale and Leaseback Transactions. The Company shall
not, and shall not permit any of its Restricted Subsidiaries to, enter into any
sale and leaseback transaction; provided that the Company may enter into a sale
and leaseback transaction if (i) the Company could have (a) incurred
Indebtedness in an amount equal to the Attributable Debt relating to such sale
and leaseback transaction pursuant to the test set forth in the first paragraph
of Section 4.09 hereof and (b) incurred a Lien to secure such Indebtedness
pursuant to Section 4.12 hereof (ii) the gross cash proceeds of such sale and
leaseback transaction are at least equal to the fair market value (as
determined in good faith by a resolution the Board of Directors set forth in an
Officers' Certificate
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delivered to the Trustee, which determination shall be conclusive evidence of
compliance with this provision) of the property that is the subject of such
sale and leaseback transaction and (iii) the transfer of assets in such sale
and leaseback transaction is permitted by, and the Company applies the net
proceeds of such transaction in compliance with, Section 4.10 hereof.
Section 4.18. Business Activities. The Company and the Guarantors
shall not, and shall not permit any Restricted Subsidiary to, engage in any
material respect in any business other than the Oil and Gas Business.
ARTICLE 5
SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of All or Substantially
All Assets. The Company shall not consolidate or merge with or into (whether
or not the Company is the surviving corporation), or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its
properties or assets, in one or more related transactions, to another Person,
and the Company may not permit any of its Restricted Subsidiaries to enter into
any such transaction or series of transactions if such transaction or series of
transactions would, in the aggregate, result in a sale, assignment, transfer,
lease, conveyance, or other disposition of all or substantially all of the
properties or assets of the Company and its Restricted Subsidiaries, taken as a
whole, to another Person, in either case unless: (i) the Company is the
surviving corporation or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United
States, any state thereof or the District of Columbia; (ii) the Person formed
by or surviving any such consolidation or merger (if other than the Company) or
to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made assumes all the obligations of the Company
under the Notes and this Indenture pursuant to a supplemental indenture in a
form reasonably satisfactory to the Trustee; (iii) immediately before and 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 in connection with or as a result
of such transaction as having been incurred at the time of such transaction),
no Default or Event of Default shall have occurred and be continuing; and (iv)
except in the case of a consolidation or merger of the Company with or into a
Wholly Owned Subsidiary of the Company, the Company or the Person formed by or
surviving any such consolidation or merger (if other than the Company), or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made (A) shall have Total Assets immediately after the
transaction equal to or greater than the Total Assets of the Company
immediately preceding the transaction and (B) will, at the time of such
transaction and after giving pro forma effect thereto as if such transaction
had occurred at the beginning of the applicable four-quarter period, be
permitted to incur at least $1.00 of additional Indebtedness pursuant to the
test set forth in the first paragraph of Section 4.09 hereof. Notwithstanding
the foregoing clauses (iii) and (iv), (a) any Restricted Subsidiary may
consolidate with, merge into or transfer all or part
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of its properties and assets to the Company and (b) the Company may merge with
or into an Affiliate incorporated solely for the purpose of reincorporating in
another jurisdiction.
Section 5.02. Successor Corporation Substituted. Upon any
consolidation or merger, or any sale, assignment, transfer, lease, conveyance
or other disposition of all or substantially all of the properties or assets of
the Company in accordance with Section 5.01 hereof, the successor corporation
formed by such consolidation or into or with which the Company is merged or to
which such sale, assignment, transfer, lease, conveyance or other disposition
is made shall succeed to, and be substituted for (so that from and after the
date of such consolidation, merger, sale, lease, conveyance or other
disposition, the provisions of this Indenture referring to the "Company" shall
refer instead to the successor corporation and not to the Company), and may
exercise every right and power of the Company under this Indenture with the
same effect as if such successor Person had been named as the Company herein;
provided, however, that the predecessor Company shall not be relieved from the
obligation to pay the principal of, premium, if any, and interest on the Notes
except in the case of a sale of all or substantially all of the Company's
properties or assets that meets the requirements of Section 5.01 hereof.
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default. An "Event of Default" occurs if:
(1) the Company defaults in the payment of interest on
the Notes when the same becomes due and payable and the Default
continues for a period of 30 days, whether or not such payment is
prohibited by the provisions of Article 10 hereof;
(2) the Company defaults in the payment of the principal
of or premium, if any, on the Notes when the same becomes due and
payable at maturity, upon redemption or otherwise, whether or not such
payment is prohibited by the provisions of Article 10 hereof;
(3) the Company fails to comply with any covenant or
agreement on the part of the Company to be observed or performed
pursuant to Sections 4.10, 4.13 and 5.01 hereof;
(4) the Company fails to comply with any of its other
agreements or covenants in, or provisions of, the Notes or this
Indenture and the Default continues for the period and after the
notice specified below;
(5) a default occurs under any mortgage, indenture or
instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Restricted Subsidiaries (or the payment of which
is Guaranteed by the Company or any of its Restricted Subsidiaries),
whether such Indebtedness or Guarantee now exists or shall be created
hereafter, which default (a) is caused by a failure to pay principal
of or premium, if any, or interest on such Indebtedness prior to the
expiration of the grace period provided in such Indebtedness on the
date of such default (a "Payment Default") or (b) results in the
acceleration of such Indebtedness
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prior to its express maturity and, in each case, the principal amount
of any such Indebtedness, together with the principal amount of any
other such Indebtedness under which there is then existing a Payment
Default or the maturity of which has been so accelerated, aggregates
in excess of $5 million;
(6) a final, nonappealable judgment or final,
nonappealable judgments for the payment of money are entered by a
court or courts of competent jurisdiction against the Company or any
of its Restricted Subsidiaries and such judgment or judgments remain
unpaid or undischarged for a period (during which execution shall not
be effectively stayed) of 60 days, provided that the aggregate of all
such undischarged judgments exceeds $5 million;
(7) the Company or any of its Restricted Subsidiaries
that constitute a Significant Subsidiary or any group of Restricted
Subsidiaries that, taken together, would constitute a Significant
Subsidiary, pursuant to or within the meaning of any Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief
against it in an involuntary case,
(c) consents to the appointment of a Custodian of
it or for all or substantially all of its property,
(d) makes a general assignment for the benefit of
its creditors, or
(e) generally is not paying its debts as they
become due;
(8) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(a) is for relief against the Company or any of
its Restricted Subsidiaries that constitute a Significant
Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary, in an
involuntary case,
(b) appoints a Custodian of the Company or any of
its Restricted Subsidiaries that constitute a Significant
Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary, or for
all or substantially all of the property of the Company or any
of its Restricted Subsidiaries that constitute a Significant
Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary, or
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(c) orders the liquidation of the Company or any
of its Restricted Subsidiaries that constitute a Significant
Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary,
and the order or decree remains unstayed and in effect for 60
consecutive days; or
(9) except as otherwise permitted under the provisions of
this Indenture, any Subsidiary Guarantee is held in any judicial
proceeding to be unenforceable or invalid or ceases for any reason to
be in full force and effect or any Guarantor, or any Person acting on
behalf of any such Guarantor, denies or disaffirms such Guarantor's
obligations under its Subsidiary Guarantee.
The term "Custodian" means any receiver, trustee, assignee, liquidator
or similar official under any Bankruptcy Law.
An Event of Default shall not be deemed to have occurred under clause
(5) or (6) until the Trustee shall have received written notice from the
Company or any of the Holders or unless a Responsible Officer shall have actual
knowledge of such Event of Default. A Default under clause (4) is not an Event
of Default until the Trustee notifies the Company, or the Holders of at least
25% in aggregate principal amount of the then outstanding Notes notify the
Company and the Trustee, of the Default and the Company does not cure the
Default within 60 days after receipt of the notice. The notice must specify
the Default, demand that it be remedied and state that the notice is a "Notice
of Default."
Acceleration of Maturity; Rescission. If an Event of Default (other
than an Event of Default specified in clauses (7) and (8) of Section 6.01
hereof) occurs and is continuing, the Trustee by notice to the Company, or the
Holders of at least 25% in aggregate principal amount of the then outstanding
Notes by written notice to the Company and the Trustee, may declare the unpaid
principal amount of and any accrued interest on all the Notes to be due and
payable immediately. Upon such declaration the principal and interest shall be
due and payable immediately (together with the premium referred to in Section
6.01 hereof, if applicable). Notwithstanding the foregoing, if an Event of
Default specified in clause (7) or (8) of Section 6.01 hereof relating to the
Company, any Subsidiary that would constitute a Significant Subsidiary or any
group of Subsidiaries that, taken together, would constitute a Significant
Subsidiary occurs, such an amount shall ipso facto become and be immediately
due and payable without any declaration or other act on the part of the Trustee
or any Holder. The Holders of a majority in principal amount of the then
outstanding Notes by written notice to the Trustee may rescind an acceleration
and its consequences if the rescission would not conflict with any judgment or
decree and if all existing Events of Default (except nonpayment of principal or
interest that has become due solely because of the acceleration) have been
cured or waived.
Notwithstanding the foregoing, if an Event of Default specified in
clause (5) of Section 6.01 hereof shall have occurred and be continuing, such
Event of Default and any consequential
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acceleration shall be automatically rescinded if the Indebtedness that is the
subject of such Event of Default has been repaid, or if the default relating to
such Indebtedness is waived or cured and if such Indebtedness has been
accelerated, then the holders thereof have rescinded their declaration of
acceleration in respect of such Indebtedness (provided, in each case, that such
repayment, waiver, cure or rescission is effected within a period of 10 days
from the continuation of such default beyond the applicable grace period or the
occurrence of such acceleration), and written notice of such repayment, or cure
or waiver and rescission, as the case may be, shall have been given to the
Trustee by the Company and countersigned by the holders of such Indebtedness or
a trustee, fiduciary or agent for such holders or other evidence satisfactory
to the Trustee of such events is provided to the Trustee, within 20 days after
any such acceleration in respect of the Notes, and so long as such rescission
of any such acceleration of the Notes does not conflict with any judgment or
decree as certified to the Trustee by the Company.
Section 6.03. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the payment
of principal, premium and interest on the Notes or to enforce the performance
of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All
remedies are cumulative to the extent permitted by law.
Section 6.04. Waiver of Past Defaults. Holders of not less than a
majority in aggregate principal amount of the Notes then outstanding by notice
to the Trustee may on behalf of the Holders of all of the Notes waive an
existing Default or Event of Default and its consequences hereunder, except a
continuing Default or Event of Default in the payment of principal of, premium
or interest on, the Notes (including in connection with an offer to purchase)
(provided, however, that the Holders of a majority in aggregate principal
amount of the then outstanding Notes may rescind an acceleration and its
consequences, including any related payment default that resulted from such
acceleration). Upon any such waiver, such Default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other Default or impair any right consequent thereon.
Section 6.05. Control by Majority. Holders of a majority in
aggregate principal amount of the then outstanding Notes may direct the time,
method and place of conducting any proceeding for exercising any remedy
available to the Trustee or exercising any trust or power conferred on it.
However, the Trustee may refuse to follow any direction that conflicts with law
or this Indenture that the Trustee determines may be unduly prejudicial to the
rights of other Holders of Notes or that may involve the Trustee in personal
liability.
Section 6.06. Limitation on Suits. A Holder of a Note may pursue a
remedy with respect to this Indenture or the Notes only if:
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(a) the Holder of a Note gives to the Trustee written
notice of a continuing Event of Default;
(b) the Holders of at least 25% in aggregate principal
amount of the then outstanding Notes make a written request to the
Trustee to pursue the remedy;
(c) such Holder of a Note or Holders of Notes offer and,
if requested, provide to the Trustee indemnity satisfactory to the
Trustee against any loss, liability or expense;
(d) the Trustee does not comply with the request within
60 days after receipt of the request and the offer and, if requested,
the provision of indemnity; and
(e) during such 60-day period the Holders of a majority
in aggregate principal amount of the then outstanding Notes do not
give the Trustee a direction inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights of
another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.
Section 6.07. Rights of Holders of Notes to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any Holder
of a Note to receive payment of principal, premium and interest on the Note, on
or after the respective due dates expressed in the Note (including in
connection with an offer to purchase), or to bring suit for the enforcement of
any such payment on or after such respective dates, shall not be impaired or
affected without the consent of such Holder.
Section 6.08. Collection Suit by Trustee. If an Event of Default
specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee is
authorized to recover judgment in its own name and as trustee of an express
trust against the Company or any Guarantor for the whole amount of principal
of, premium and interest remaining unpaid on the Notes and interest on overdue
principal and, to the extent lawful, interest and such further amount as shall
be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
Section 6.09. Trustee May File Proofs of Claim. The Trustee is
authorized to file such proofs of claim and other papers or documents as may be
necessary or advisable in order to have the claims of the Trustee (including
any claim for the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel) and the Holders of the Notes allowed in
any judicial proceedings relative to the Company or any of the Guarantors (or
any other obligor upon the Notes), its creditors or its property and shall be
entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any
such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee, and in the event that the Trustee shall consent to the
making of such payments directly to
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the Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07 hereof.
To the extent that the payment of any such compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any
other amounts due the Trustee under Section 7.07 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same shall
be secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other properties that the Holders may be
entitled to receive in such proceeding whether in liquidation or under any plan
of reorganization or arrangement or otherwise. Nothing herein contained shall
be deemed to authorize the Trustee to authorize or consent to or accept or
adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Notes or the rights of any Holder, or
to authorize the Trustee to vote in respect of the claim of any Holder in any
such proceeding.
Section 6.10. Priorities. If the Trustee collects any money pursuant
to this Article, it shall pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts
due under Sections 6.08 and 7.07 hereof, including payment of all
compensation, expense and liabilities incurred, and all advances made,
by the Trustee and the costs and expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the
Notes for principal, premium, if any, and interest, ratably, without
preference or priority of any kind, according to the amounts due and
payable on the Notes for principal, premium, if any, and interest,
respectively; and
Third: to the Company or to such party as a court of
competent jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.
Section 6.11. Undertaking for Costs. In any suit for the enforcement
of any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or omitted by it as a Trustee, a court in its discretion
may require the filing by any party litigant in the suit of an undertaking to
pay the costs of the suit, and the court in its discretion may assess
reasonable costs, including reasonable attorneys' fees, against any party
litigant in the suit, having due regard to the merits and good faith of the
claims or defenses made by the party litigant. This Section does not apply to
a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.07
hereof, or a suit by Holders of more than 10% in aggregate principal amount of
the then outstanding Notes.
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ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee. (a) If an Event of Default has
occurred and is continuing, the Trustee shall exercise such of the rights and
powers vested in it by this Indenture, and use the same degree of care and
skill in its exercise, as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely
by the express provisions of this Indenture and the Trustee need
perform only those duties that are specifically set forth in this
Indenture and no others, and no implied covenants or obligations shall
be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture. However, the Trustee shall examine the
certificates and opinions to determine whether or not they conform to
the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph
(b) of this Section;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it is
proved that the Trustee was negligent in ascertaining the pertinent
facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision
of this Indenture that in any way relates to the Trustee is subject to
paragraphs (a), (b), and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be
under no obligation to exercise any of its rights and powers under this
Indenture at the request of any Holders, unless such Holder shall have
furnished to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
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(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
Section 7.02. Rights of Trustee. (a) The Trustee may conclusively
rely upon any document believed by it to be genuine and to have been signed or
presented by the proper Person. The Trustee need not investigate any fact or
matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel or both. The Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may
consult with counsel and the written advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and protection from liability
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed with
due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes to be authorized or within the
rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company or any Guarantor shall be
sufficient if signed by an Officer of the Company or such Guarantor.
(f) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or direction
of any of the Holders unless such Holders shall have furnished to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.
(g) Except with respect to Sections 4.01 and 4.04 hereof, the
Trustee shall have no duty to inquire as to the performance of the Company's
covenants in Article 4 hereof. In addition, the Trustee shall not be deemed to
have knowledge of any Default or Event of Default except (i) any Event of
Default occurring pursuant to Sections 4.01, 4.04 and 6.01(1) or (2) hereof or
(ii) any Default or Event of Default of which the Trustee shall have received
written notification or obtained actual knowledge.
Section 7.03. Individual Rights of Trustee. The Trustee in its
individual or any other capacity may become the owner or pledgee of Notes and
may otherwise deal with the Company, the Guarantors or any Affiliate of the
Company with the same rights it would have if it were not Trustee. However, in
the event that the Trustee acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to
continue as trustee or resign.
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Any Agent may do the same with like rights and duties. The Trustee is also
subject to Sections 7.10 and 7.11 hereof.
Section 7.04. Trustee's Disclaimer. The Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture, the Notes or the Subsidiary Guarantees, it shall not be
accountable for the Company's use of the proceeds from the Notes or any money
paid to the Company or upon the Company's direction under any provision of this
Indenture, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or in any certificate delivered
pursuant hereto or any statement in the Notes or any other document in
connection with the sale of the Notes or pursuant to this Indenture other than
its certificate of authentication.
Section 7.05. Notice of Defaults. If a Default or Event of Default
occurs and is continuing and if it is actually known to the Trustee, the
Trustee shall mail to Holders of Notes a notice of the Default or Event of
Default within 90 days after it occurs. Except in the case of a Default or
Event of Default in payment of principal of, premium, if any, or interest on,
any Note, the Trustee may withhold the notice if and so long as a committee of
its Responsible Officers in good faith determines that withholding the notice
is in the interests of the Holders of the Notes.
Section 7.06. Reports by Trustee to Holders of the Notes. Within 60
days after each May 15 beginning with the May 15 following the date of this
Indenture, and for so long as Notes remain outstanding, the Trustee shall mail
to the Holders of the Notes a brief report dated as of such reporting date that
complies with TIA (S) 313(a) (but if no event described in TIA (S) 313(a) has
occurred within the twelve months preceding the reporting date, no report need
be transmitted). The Trustee also shall comply with TIA (S) 313(b)(2) and
transmit by mail all reports as required by TIA (S) 313(c).
A copy of each report at the time of its mailing to the Holders of
Notes shall be mailed to the Company and filed with the Commission and each
stock exchange on which the Notes are listed in accordance with TIA (S) 313(d).
The Company shall promptly notify the Trustee when the Notes are listed on any
stock exchange.
Section 7.07. Compensation and Indemnity. The Company and the
Guarantors shall pay to the Trustee from time to time reasonable compensation
for its acceptance of this Indenture and services hereunder, including, without
limitation, extraordinary services such as default administration. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company and the Guarantors shall reimburse
the Trustee promptly upon request for all reasonable disbursements, advances
and expenses incurred or made by it in addition to the compensation for its
services. Such expenses shall include the reasonable compensation,
disbursements and expenses of the Trustee's agents and counsel.
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The Company and the Guarantors shall indemnify the Trustee against any
and all losses, liabilities or expenses incurred by it arising out of or in
connection with the acceptance or administration of its duties under this
Indenture, including the costs and expenses of enforcing this Indenture against
the Company and the Guarantors (including this Section 7.07) and defending
itself against any claim (whether asserted by the Company, the Guarantors or
any Holder or any other person) or liability in connection with the exercise or
performance of any of its powers or duties hereunder, except to the extent any
such loss, liability or expense may be attributable to its negligence or bad
faith. The Trustee shall notify the Company and the Guarantors promptly of any
claim for which it may seek indemnity. Failure by the Trustee to so notify the
Company and the Guarantors shall not relieve the Company and the Guarantors of
their obligations hereunder. The Company and the Guarantors shall defend the
claim and the Trustee shall cooperate in the defense. The Trustee may have
separate counsel and the Company and the Guarantors shall pay the reasonable
fees and expenses of such counsel. The Company and the Guarantors need not pay
for any settlement made without their consent, which consent shall not be
unreasonably withheld.
The obligations of the Company and the Guarantors under this Section
7.07 are joint and several and shall survive the satisfaction and discharge of
this Indenture.
To secure the Company's and the Guarantors' payment obligations in
this Section, the Trustee shall have a Lien prior to the Notes on all money or
property held or collected by the Trustee, except that held in trust to pay
principal, premium, if any, and interest on particular Notes. Such Lien shall
survive the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(7) or (8) hereof occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents
and counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
The Trustee shall comply with the provisions of TIA (S) 313(b)(2) to
the extent applicable.
Section 7.08. Replacement of Trustee. A resignation or removal of
the Trustee and appointment of a successor Trustee shall become effective only
upon the successor Trustee's acceptance of appointment as provided in this
Section.
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Company. The Holders of Notes of
a majority in aggregate principal amount of the then outstanding Notes may
remove the Trustee by so notifying the Trustee and the Company in writing. The
Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or
an order for relief is entered with respect to the Trustee under any
Bankruptcy Law;
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(c) a Custodian or public officer takes charge of the
Trustee or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office,
the Holders of a majority in aggregate principal amount of the then outstanding
Notes may appoint a successor Trustee to replace the successor Trustee
appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of Notes of at least 10% in aggregate principal amount of the then
outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Note who has
been a Holder of a Note for at least six months, fails to comply with Section
7.10, such Holder of a Note may petition any court of competent jurisdiction
for the removal of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly
transfer all property held by it as Trustee to the successor Trustee, provided
all sums owing to the Trustee hereunder have been paid and subject to the Lien
provided for in Section 7.07 hereof. Notwithstanding replacement of the
Trustee pursuant to this Section 7.08, the Company's obligations under Section
7.07 hereof shall continue for the benefit of the retiring Trustee.
Section 7.09. Successor Trustee by Merger, etc. If the Trustee
consolidates, merges or converts into, or transfers all or substantially all of
its corporate trust business to, another corporation, the successor corporation
without any further act shall be the successor Trustee. As soon as
practicable, the successor Trustee shall mail a notice of its succession to the
Company and the Holders of the Notes.
Section 7.10. Eligibility; Disqualification. There shall at all
times be a Trustee hereunder that is a corporation organized and doing business
under the laws of the United States of America or of any state thereof that is
authorized under such laws to exercise corporate trustee power, that is subject
to supervision or examination by federal or state authorities and that has a
combined capital and surplus of at least $50 million as set forth in its most
recent published annual report of condition.
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This Indenture shall always have a Trustee who satisfies the
requirements of TIA (S) 310(a)(1), (2) and (5). The Trustee is subject to TIA
(S) 310(b).
Section 7.11. Preferential Collection of Claims Against Company. The
Trustee is subject to TIA (S) 311(a), excluding any creditor relationship
listed in TIA (S) 311(b). A Trustee who has resigned or been removed shall be
subject to TIA (S) 311(a) to the extent indicated therein.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant
Defeasance. The Company may, at the option of its Board of Directors evidenced
by a resolution set forth in an Officers' Certificate, at any time, elect to
have either Section 8.02 or 8.03 hereof be applied to all outstanding Notes
upon compliance with the conditions set forth below in this Article 8.
Section 8.02. Legal Defeasance and Discharge. Upon the Company's
exercise under Section 8.01 hereof of the option applicable to this Section
8.02, the Company and the Guarantors shall, subject to the satisfaction of the
conditions set forth in Section 8.04 hereof, be deemed to have been discharged
from their obligations with respect to all outstanding Notes on the date the
conditions set forth below are satisfied (hereinafter, "Legal Defeasance").
For this purpose, Legal Defeasance means that the Company shall be deemed to
have paid and discharged the entire Indebtedness represented by the outstanding
Notes, which shall thereafter be deemed to be "outstanding" only for the
purposes of Section 8.05 hereof and the other Sections of this Indenture
referred to in (a) and (b) below, and to have satisfied all its other
obligations under such Notes and this Indenture (and the Trustee, on demand of
and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following provisions which shall
survive until otherwise terminated or discharged hereunder: (a) the rights of
Holders of outstanding Notes to receive payments in respect of the principal
of, premium and interest on such Notes when such payments are due from the
trust fund described in Section 8.04 hereof, and as more fully set forth in
such Section, (b) the Company's obligations with respect to such Notes under
Article 2 and Section 4.02 hereof, (c) the rights, powers, trusts, duties and
immunities of the Trustee hereunder and the Company's obligations in connection
therewith and (d) this Article 8. Subject to compliance with this Article 8,
the Company may exercise its option under this Section 8.02 notwithstanding the
prior exercise of its option under Section 8.03 hereof.
Section 8.03. Covenant Defeasance. Upon the Company's exercise
under Section 8.01 hereof of the option applicable to this Section 8.03, the
Company and the Guarantors shall, subject to the satisfaction of the conditions
set forth in Section 8.04 hereof, be released from their obligations under the
covenants contained in Sections 4.05, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13,
4.14, 4.16, 4.17 and 4.18 hereof and in clause (iv) of Section 5.01 and the
covenants contained in the Subsidiary Guarantees with respect to the
outstanding Notes on and after the date the conditions set forth below are
satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter
be deemed not "outstanding" for the purposes of any compliance certificate,
direction, waiver, consent
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or declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "outstanding"
for all other purposes hereunder (it being understood that such Notes shall not
be deemed outstanding for accounting purposes). For this purpose, Covenant
Defeasance means that, with respect to the outstanding Notes, the Company may
omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such covenant, whether directly or
indirectly, by reason of any reference elsewhere herein to any such covenant or
by reason of any reference in any such covenant to any other provision herein
or in any other document and such omission to comply shall not constitute a
Default or an Event of Default under Section 6.01 hereof, but, except as
specified above, the remainder of this Indenture, such Notes and such
Subsidiary Guarantees shall be unaffected thereby. In addition, upon the
Company's exercise under Section 8.01 hereof of the option applicable to this
Section 8.03 hereof, subject to the satisfaction of the conditions set forth in
Section 8.04 hereof, Sections 6.01(3) through 6.01(4) hereof shall not
constitute Events of Default.
Section 8.04. Conditions to Legal or Covenant Defeasance. The
following shall be the conditions to the application of either Section 8.02 or
8.03 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company or the Guarantors must irrevocably
deposit with the Trustee, in trust, for the benefit of the Holders of
the Notes, cash in United States dollars, non-callable Government
Securities, 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, and interest on the outstanding Notes on the Stated Maturity or
on the applicable redemption date, as the case may be, and the Company
or the Guarantors must specify whether the Notes are being defeased to
maturity or to a particular redemption date;
(b) in the case of an election under Section 8.02 hereof,
the Company or the Guarantors shall have delivered to the Trustee an
Opinion of Counsel in the United States reasonably acceptable to the
Trustee confirming that (A) the Company or the Guarantors have
received from, or there has been published by, the Internal Revenue
Service a ruling or (B) since the date of this Indenture, there has
been a change in the applicable federal income tax law, in either case
to the effect that, and based thereon such Opinion of Counsel shall
confirm that, the Holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of
such Legal Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have
been the case if such Legal Defeasance had not occurred;
(c) in the case of an election under Section 8.03 hereof,
the Company or the Guarantors shall have delivered to the Trustee an
Opinion of Counsel in the United States reasonably acceptable to the
Trustee confirming that the Holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a
result of such
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Covenant Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have
been the case if such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred
and be continuing on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be applied
to such deposit) or insofar as Section 6.01(7) or 6.01(8) hereof is
concerned, at any time in the period ending on the 91st day after the
date of deposit;
(e) 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 (other than this Indenture) to
which the Company or any of its Subsidiaries is a party or by which
the Company or any of its Subsidiaries is bound;
(f) the Company or the Guarantors shall have delivered to
the Trustee an Opinion of Counsel to the effect that after the 91st
day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally;
(g) the Company or the Guarantors shall have delivered to
the Trustee an Officers' Certificate stating that the deposit was not
made by the Company or the Guarantors, as applicable, with the intent
of preferring the Holders of Notes over the other creditors of the
Company or the Guarantors, as applicable, with the intent of
defeating, hindering, delaying or defrauding creditors of the Company
or the Guarantors, as applicable, or others; and
(h) the Company or the Guarantors shall have delivered to
the Trustee an Officers' Certificate and an Opinion of Counsel, which,
taken together, state that all conditions precedent provided for or
relating to the Legal Defeasance or the Covenant Defeasance have been
complied with.
Section 8.05. Deposited Money and Government Securities to be Held
in Trust; Other Miscellaneous Provisions. Subject to Section 8.06 hereof, all
money and non-callable Government Securities (including the proceeds thereof)
deposited with the Trustee (or other qualifying trustee, collectively for
purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 hereof
in respect of the outstanding Notes shall be held in trust and applied by the
Trustee, in accordance with the provisions of such Notes and this Indenture, to
the payment, either directly or through any Paying Agent (including the Company
acting as Paying Agent) as the Trustee may determine, to the Holders of such
Notes of all sums due and to become due thereon in respect of principal,
premium, if any, and interest, but such money need not be segregated from other
funds except to the extent required by law.
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The Company and the Guarantors shall pay and indemnify the Trustee
against any tax, fee or other charge imposed on or assessed against the cash or
non- callable Government Securities deposited pursuant to Section 8.04 hereof
or the principal and interest received in respect thereof other than any such
tax, fee or other charge which by law is for the account of the Holders of the
outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request
of the Company any money or non-callable Government Securities held by it as
provided in Section 8.04 hereof which, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee (which may be the opinion
delivered under Section 8.04(a) hereof), are in excess of the amount thereof
that would then be required to be deposited to effect an equivalent Legal
Defeasance or Covenant Defeasance.
Section 8.06. Repayment to Company. Subject to applicable escheat
and abandoned property laws, any money deposited with the Trustee or any Paying
Agent, or then held by the Company, in trust for the payment of the principal
of, premium or interest on any Note and remaining unclaimed for two years after
such principal, premium or interest has become due and payable shall be paid to
the Company on Company Request or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Note shall thereafter, as a
general creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Company as trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such Paying Agent, before being required
to make any such repayment, may at the expense of the Company cause to be
published once, in the New York Times and The Wall Street Journal (national
edition), notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then remaining
shall be repaid to the Company.
Section 8.07. Reinstatement. If the Trustee or Paying Agent is
unable to apply any United States dollars or non-callable Government Securities
in accordance with Section 8.05 hereof by reason of any order or judgment of
any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, then the obligations of the Company and the
Guarantors under this Indenture, the Notes and the Subsidiary Guarantees shall
be revived and reinstated as though no deposit had occurred pursuant to Section
8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted
to apply all such money in accordance with Section 8.05 hereof, as the case may
be; provided, however, that, if the Company or any Guarantor makes any payment
of principal of, premium or interest on any Note following the reinstatement of
its obligations, the Company or such Guarantor shall be subrogated to the
rights of the Holders of such Notes to receive such payment from the money held
by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
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Section 9.01. Without Consent of Holders of Notes. Notwithstanding
Section 9.02 of this Indenture, the Company, the Guarantors and the Trustee may
amend or supplement this Indenture or the Notes without the consent of any
Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or
in place of certificated Notes;
(c) to provide for the assumption of the Company's
obligations to the Holders of the Notes pursuant to Article 5 hereof;
(d) to make any change that would provide any additional
rights or benefits to the Holders of the Notes or that does not
adversely affect the legal rights hereunder of any Holder of the Note;
(e) to comply with requirements of the Commission in
order to effect or maintain the qualification of this Indenture under
the TIA;
(f) to secure the Notes pursuant to the requirements of
Section 4.12 hereof or otherwise;
(g) to add any Restricted Subsidiary as a Guarantor as
provided in Section 4.14 hereof or to evidence the succession of
another Person to any Guarantor pursuant to Section 11.03 hereof and
the assumption by any such successor of the obligations of such
Guarantor contained herein, in the Notes and in the Subsidiary
Guaranty of such Guarantor; or
(h) to release a Guarantor from its obligations under
this Indenture and its Subsidiary Guaranty pursuant to Section 11.04
hereof.
Upon the request of the Company accompanied by a resolution of the
Board of Directors of the Company and each of the Guarantors, as the case may
be, authorizing the execution of any such amended or supplemental Indenture,
and upon receipt by the Trustee of the documents described in Section 9.06
hereof, the Trustee shall join with the Company and the Guarantors in the
execution of any amended or supplemental Indenture authorized or permitted by
the terms of this Indenture and to make any further appropriate agreements and
stipulations that may be therein contained, but the Trustee shall not be
obligated to enter into such amended or supplemental Indenture that affects its
own rights, duties or immunities under this Indenture or otherwise.
Section 9.02. With Consent of Holders of Notes. Except as provided
below in this Section 9.02, the Company, the Guarantors and the Trustee may
amend or supplement this Indenture and the
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Notes with the consent of the Holders of at least a majority in principal
amount of the Notes then outstanding (including consents obtained in connection
with a purchase of, tender offer or exchange offer for, the Notes), and,
subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of
Default (other than a Default or Event of Default in the payment of the
principal of, premium, if any, or interest on the Notes, except a payment
default resulting from an acceleration that has been rescinded) or compliance
with any provision of this Indenture or the Notes may be waived with the
consent of the Holders of a majority in aggregate principal amount of the then
outstanding Notes (including consents obtained in connection with a purchase
of, tender offer or exchange offer for, the Notes). Notwithstanding the
foregoing, without the consent of at least 66-2/3% in aggregate principal
amount of the Notes then outstanding (including consents obtained in connection
with a purchase of, or tender offer or exchange offer for, Notes), no waiver or
amendment to this Indenture may make any change in the provisions of Sections
3.09, 4.10 and 4.13 hereof that adversely affects the rights of any Holder of
Notes. In addition, any amendment to the provisions of Article 10 of this
Indenture shall require the consent of the Holders of at least 66-2/3% in
aggregate principal amount of the Notes then outstanding if such amendment
would adversely affect the rights of Holders of Notes.
Subject to Sections 6.04 and 6.07 hereof, the Holders of a majority in
aggregate principal amount of the Notes then outstanding may waive compliance
in a particular instance by the Company or any Guarantor with any provision of
this Indenture or the Notes. However, without the consent of each Holder
affected, an amendment or waiver may not (with respect to any Notes held by a
non-consenting Holder):
(a) reduce the principal amount of Notes whose Holders
must consent to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity
of any Note or alter the provisions with respect to the redemption of
the Notes (except as provided above with respect to Sections 3.09,
4.10 and 4.13 hereof);
(c) reduce the rate of or change the time for payment of
interest on any Note;
(d) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on the Notes (except a
rescission of acceleration of the Notes by the Holders of at least a
majority in aggregate principal amount of the Notes and a waiver of
the payment default that resulted from such acceleration);
(e) make any Note payable in money other than that stated
in the Notes;
(f) make any change in the provisions of this Indenture
relating to waivers of past Defaults or the rights of Holders of Notes
to receive payments of principal of, premium, if any, or interest on
the Notes;
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(g) waive a redemption payment with respect to any Note
(except as provided above with respect to Sections 3.09, 4.10 and 4.13
hereof); or
(h) make any change in the foregoing amendment and waiver
provisions.
Upon the request of the Company accompanied by a resolution of the
Board of Directors of the Company and each of the Guarantors, as the case may
be, authorizing the execution of any such amended or supplemental Indenture,
and upon the filing with the Trustee of evidence satisfactory to the Trustee of
the consent of the Holders of Notes as aforesaid, and upon receipt by the
Trustee of the documents described in Section 9.06 hereof, the Trustee shall
join with the Company and the Guarantors in the execution of such amended or
supplemental Indenture unless such amended or supplemental Indenture affects
the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such amended or supplemental Indenture.
It shall not be necessary for the consent of the Holders of Notes
under this Section 9.02 to approve the particular form of any proposed
amendment or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
Indenture or waiver.
Section 9.03. Compliance with Trust Indenture Act. Every amendment
or supplement to this Indenture or the Notes shall be set forth in a amended or
supplemental Indenture that complies with the TIA as then in effect.
Section 9.04. Revocation and Effect of Consents. Until an
amendment, supplement or waiver becomes effective, a consent to it by a Holder
of a Note is a continuing consent by the Holder of a Note and every subsequent
Holder of a Note or portion of a Note that evidences the same debt as the
consenting Holder's Note, even if notation of the consent is not made on any
Note; provided, that no such consent to an amendment, supplement or waiver
shall be deemed effective unless it shall become effective within twelve months
after it is given. However, any such Holder of a Note or subsequent Holder of
a Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment
becomes effective. An amendment, supplement or waiver becomes effective in
accordance with its terms and thereafter binds every Holder.
Section 9.05. Notation on or Exchange of Notes. The Trustee may
place an appropriate notation about an amendment, supplement or waiver on any
Note thereafter authenticated. The
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Company in exchange for all Notes may issue and the Trustee shall authenticate
new Notes that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
Section 9.06. Trustee to Sign Amendments, etc. The Trustee shall
sign any amended or supplemental Indenture authorized pursuant to this Article
9 if the amendment or supplement does not adversely affect the rights, duties,
liabilities or immunities of the Trustee. Neither the Company nor any
Guarantor may sign an amendment or supplemental Indenture until its respective
Board of Directors approves it. In executing any amended or supplemental
Indenture, the Trustee shall be entitled to receive and (subject to Section
7.01) shall be fully protected in relying upon, an Officers' Certificate and an
Opinion of Counsel stating that the execution of such amended or supplemental
indenture is authorized or permitted by this Indenture and that there has been
compliance with all conditions precedent.
ARTICLE 10
SUBORDINATION
Section 10.01. Agreement to Subordinate. The Company agrees, and
each Holder by accepting a Note agrees, that the Indebtedness evidenced by the
Note is subordinated in right of payment, to the extent and in the manner
provided in this Article, to the prior payment in full of all Senior Debt
(whether outstanding on the date hereof or hereafter created, incurred, assumed
or guaranteed), and that the subordination is for the benefit of the holders of
Senior Debt.
Section 10.02. Certain Definitions.
"Bankruptcy Law" means title 11, U.S. Code or any similar Federal or
state law for the relief of debtors.
"Designated Senior Debt" means (i) the Senior Credit Facility and (ii)
any other Senior Debt permitted under this Indenture the principal amount of
which is $5 million or more and that has been designated by the Company as
"Designated Senior Debt."
"Representative" means the indenture trustee or other trustee, agent
or representative for any Senior Debt.
"Senior Debt" means (i) Indebtedness of the Company or any Subsidiary
of the Company under or in respect of any Credit Facility and (ii) any other
Indebtedness permitted to be incurred by the Company or any Subsidiary under
the terms of this Indenture, unless the instrument under which such
Indebtedness is incurred expressly provides that it is on a parity with or
subordinated in right of payment to the Notes. Notwithstanding anything to the
contrary in the foregoing sentence, Senior Debt will not include (w) any
liability for federal, state, local or other taxes owed or owing
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by the Company, (x) any Indebtedness of the Company to any of its Subsidiaries
or other Affiliates, (y) any trade payables or (z) any Indebtedness that is
incurred in violation of this Indenture.
A "distribution" may consist of cash, securities or other property, by
set-off or otherwise.
All Designated Senior Debt now or hereafter existing and all other
Obligations relating thereto shall not be deemed to have been paid in full
unless the holders or owners thereof shall have received payment in full in
cash (or other form of payment consented to by the holders of Designated Senior
Debt) with respect to such Designated Senior Debt and all other Obligations
with respect thereto.
Section 10.03. Liquidation; Dissolution; Bankruptcy. Upon any
distribution to creditors of the Company in a liquidation or dissolution of the
Company or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property, or in an assignment for the
benefit of creditors or any marshaling of the Company's assets and liabilities:
(1) the holders of Senior Debt shall be entitled to
receive payment in full of all Obligations due in respect of such
Senior Debt (including interest after the commencement of any such
proceeding at the rate specified in the applicable Senior Debt) before
the Holders of Notes shall be entitled to receive any payment with
respect to the Notes (except that Holders of Notes may receive (i)
securities that are subordinated to at least the same extent as the
Notes to (a) Senior Debt and (b) any securities issued in exchange for
Senior Debt, provided that the operation of this clause (b) shall not
cause the Notes to be treated in any case or proceeding or similar
event described in this Section 10.03 in the same class of claims as
the Senior Debt or any class of claims pari passu with the Senior Debt
for any payment or distribution and (ii) payments and other
distributions made from any defeasance trust created pursuant to
Section 8.01 hereof); and
(2) until all Obligations with respect to Senior Debt (as
provided in subsection (1) above) are paid in full, any distribution
to which the Holders of Notes would be entitled shall be made to
holders of Senior Debt (except that Holders of Notes may receive (i)
securities that are subordinated at least to the same extent as the
Notes to (a) Senior Debt and (b) any securities issued in exchange for
Senior Debt, provided that the operation of this clause (b) shall not
cause the Notes to be treated in any case or proceeding or similar
event described in this Section 10.03 in the same class of claims as
the Senior Debt or any class of claims pari passu with the Senior Debt
for any payment or distribution and (ii) payments and other
distributions made from any defeasance trust created pursuant to
Section 8.01 hereof).
Under the circumstances described in this Section 10.03, the Company
or any receiver, trustee in bankruptcy, liquidating trustee, agent or other
similar person making any payment or distribution of cash or other property is
authorized or instructed to make any payment or distribution to which the
Holders of the Notes would otherwise be entitled (other than the securities and
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payments made from any defeasance trust referred to in the second parenthetical
clause of each of clauses (1) and (2) above, which shall be delivered or paid
to the Holders of Notes as set forth in such clauses) directly to the holders
of the Senior Debt (pro rata to such holders on the basis of the respective
amounts of Senior Debt held by such holders) or their Representatives, as their
respective interests appear, to the extent necessary to pay all such Senior
Debt in full, in cash or cash equivalents after giving effect to any concurrent
payment, distribution or provision therefor to or for the holders of such
Senior Debt.
To the extent any payment of Senior Debt (whether by or on behalf of
the Company, as proceeds of security or enforcement of any right of setoff or
otherwise) is declared to be fraudulent or preferential, set aside or required
to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent
or other similar Person under any bankruptcy, insolvency, receivership,
fraudulent conveyance or similar law, then if such payment is recovered by, or
paid over to, such receiver, trustee in bankruptcy, liquidating trustee, agent
or other similar Person, the Senior Debt or part thereof originally intended to
be satisfied shall be deemed to be reinstated and outstanding as if such
payment had not occurred. To the extent the obligation to repay any Senior
Debt is declared to be fraudulent, invalid or otherwise set aside under any
bankruptcy, insolvency, receivership, fraudulent conveyance or similar law,
then the obligation so declared fraudulent, invalid or otherwise set aside (and
all other amounts that would come due with respect thereto had such obligation
not been so affected) shall be deemed to be reinstated and outstanding as
Senior Debt for all purposes hereof as if such declaration, invalidity or
setting aside had not occurred.
Section 10.04. Default on Designated Senior Debt. The Company may
not make any payment or distribution to the Trustee or any Holder in respect of
Obligations with respect to the Notes and may not acquire from the Trustee or
any Holder any Notes for cash or property (other than (i) securities that are
subordinated to at least the same extent as the Notes to (a) Senior Debt and
(b) any securities issued in exchange for Senior Debt, provided that the
operation of this clause (b) shall not cause the Notes to be treated in any
case or proceeding or similar event described in Section 10.03 in the same
class of claims as the Senior Debt or any class of claims pari passu with the
Senior Debt for any payment or distribution and (ii) payments and other
distributions made from any defeasance trust created pursuant to Section 8.01
hereof) until all principal and other Obligations with respect to the Senior
Debt have been paid in full if:
(i) a default in the payment of any principal or other
Obligations with respect to Designated Senior Debt occurs and is
continuing beyond any applicable grace period in the agreement,
indenture or other document governing such Designated Senior Debt; or
(ii) a default, other than a payment default, on
Designated Senior Debt occurs and is continuing that then permits, or
with the giving of notice or passage of time or both (unless cured or
waived) would permit, holders of the Designated Senior Debt as to
which such default relates to accelerate its maturity and the Trustee
receives a notice of the default (a "Payment Blockage Notice") from a
Person who may give it pursuant to Section 10.12 hereof. If the
Trustee receives any such Payment Blockage Notice, no subsequent
Payment
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Blockage Notice shall be effective for purposes of this Section unless
and until (i) at least 360 days shall have elapsed since the date of
commencement of the payment blockage period resulting from the
immediately prior Payment Blockage Notice and (ii) all scheduled
payments of principal, premium, if any, and interest on the Notes that
have come due have been paid in full in cash. No nonpayment default
that existed or was continuing on the date of delivery of any Payment
Blockage Notice to the Trustee shall be, or be made, the basis for a
subsequent Payment Blockage Notice, unless such defaults shall have
been cured or waived for at least one full 90 consecutive day period
commencing after the date of delivery of such Payment Blockage Notice.
The Company shall resume payments on and distributions in respect of
the Notes and may acquire them upon the earlier of:
(1) the date upon which the default is cured or waived, or
(2) in the case of a default referred to in Section
10.04(ii) hereof, 179 days past the date on which the Payment Blockage
Notice is received if the maturity of such Designated Senior Debt has
not been accelerated, if this Article otherwise permits the payment,
distribution or acquisition at the time of such payment or
acquisition.
In no event will a payment blockage period extend beyond 179 days from
the date of the receipt by the Trustee of the notice and there must be a 181
consecutive day period in any 360-day period during which no payment blockage
period is in effect. In the event that, notwithstanding the foregoing, the
Company makes any payment or distribution to the Trustee or the Holder of any
Note prohibited by the subordination provisions of this Article, then such
payment or distribution will be required to be paid over and delivered
forthwith to the holders (or their Representative) of Designated Senior Debt.
Section 10.05. Acceleration of Notes. If payment of the Notes is
accelerated because of an Event of Default, the Company shall promptly notify
holders of Senior Debt of the acceleration.
Section 10.06. When Distribution Must Be Paid Over. In the event
that the Trustee or any Holder receives any payment of any Obligations with
respect to the Notes at a time when the Trustee or such Holder, as applicable,
has actual knowledge that such payment is prohibited by Section 10.03 or
Section 10.04 hereof, such payment shall be held by the Trustee or such Holder,
in trust for the benefit of, and shall be paid forthwith over and delivered,
upon written request, to, the holders of Senior Debt or their Representative,
as their respective interests may appear, for application to the payment of all
Obligations with respect to Senior Debt remaining unpaid to the extent
necessary to pay such Obligations in full in accordance with their terms, after
giving effect to any concurrent payment or distribution to or for the holders
of Senior Debt.
With respect to the holders of Senior Debt, the Trustee undertakes to
perform only such obligations on the part of the Trustee as are specifically
set forth in this Article 10, and no implied
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covenants or obligations with respect to the holders of Senior Debt shall be
read into this Indenture against the Trustee. The Trustee shall not be deemed
to owe any fiduciary duty to the holders of Senior Debt, and shall not be
liable to any such holders if the Trustee shall pay over or distribute to or on
behalf of Holders of Notes or the Company or any other Person money or assets
to which any holders of Senior Debt shall be entitled by virtue of this Article
10, except if such payment is made as a result of the willful misconduct or
gross negligence of the Trustee.
Section 10.07. Notice by Company. The Company shall promptly notify
the Trustee and the Paying Agent of any facts known to the Company that would
cause a payment of any Obligations with respect to the Notes to violate this
Article, but failure to give such notice shall not affect the subordination of
the Notes to the Senior Debt as provided in this Article.
Section 10.08. Subrogation. After all Senior Debt is paid in full
and until the Notes are paid in full, Holders of Notes shall be subrogated
(equally and ratably with all other Pari Passu Indebtedness) to the rights of
holders of Senior Debt to receive distributions applicable to Senior Debt to
the extent that distributions otherwise payable to the Holders of Notes have
been applied to the payment of Senior Debt. A distribution made under this
Article to holders of Senior Debt that otherwise would have been made to
Holders of Notes is not, as between the Company and Holders of Notes, a payment
by the Company on the Notes.
Section 10.09. Relative Rights. This Article defines the relative
rights of Holders of Notes and holders of Senior Debt. Nothing in this
Indenture shall:
(1) impair, as between the Company and Holders of Notes,
the obligation of the Company, which is absolute and unconditional, to
pay principal of, premium, if any, and interest on the Notes in
accordance with their terms;
(2) affect the relative rights of Holders of Notes and
creditors of the Company other than their rights in relation to
holders of Senior Debt; or
(3) prevent the Trustee or any Holder from exercising its
available remedies upon a Default or Event of Default, subject to the
rights of holders and owners of Senior Debt to receive distributions
and payments otherwise payable to Holders of Notes.
If the Company fails because of this Article to pay principal of,
premium, if any, or interest on a Note on the due date, the failure is still a
Default or Event of Default.
Section 10.10. Subordination May Not Be Impaired by Company. No
right of any present or future holders of any Senior Debt to enforce
subordination as provided in this Article 10 will at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms of this Indenture, regardless of
any knowledge thereof that any such
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holder of Senior Debt may have or otherwise be charged with. The provisions of
this Article 10 are intended to be for the benefit of, and shall be enforceable
directly by, the holders of Senior Debt.
Section 10.11. Distribution or Notice to Representative. Whenever a
distribution is to be made or a notice given to holders of Senior Debt, the
distribution may be made and the notice given to their Representative.
Upon any payment or distribution of assets of the Company referred to
in this Article 10, the Trustee and the Holders of Notes shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction or
upon any certificate of such Representative or of the liquidating trustee or
agent or other Person making any distribution to the Trustee or to the Holders
of Notes for the purpose of ascertaining the Persons entitled to participate in
such distribution, the holders of the Senior Debt and other Indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article
10.
Section 10.12. Rights of Trustee and Paying Agent. Notwithstanding
the provisions of this Article 10 or any other provision of this Indenture, the
Trustee shall not be charged with knowledge of the existence of any facts that
would prohibit the making of any payment or distribution by the Trustee, and
the Trustee and the Paying Agent may continue to make payments on the Notes,
unless the Trustee shall have received at its Corporate Trust Office at least
two Business Days prior to the date of such payment written notice of facts
that would cause the payment of any Obligations with respect to the Notes to
violate this Article, which notice shall specifically refer to Section 10.04
hereof. Only the Company or a Representative may give the notice. Nothing in
this Article 10 shall impair the claims of, or payments to, the Trustee under
or pursuant to Section 7.07 hereof.
The Trustee in its individual or any other capacity may hold Senior
Debt with the same rights it would have if it were not Trustee. Any Agent may
do the same with like rights.
Section 10.13. Authorization to Effect Subordination. Each Holder
by the Holder's acceptance thereof authorizes and directs the Trustee on the
Holder's behalf to take such action as may be necessary or appropriate to
effectuate the subordination as provided in this Article 10, and appoints the
Trustee to act as the Holder's attorney-in-fact for any and all such purposes.
If the Trustee does not file a proper proof of claim or proof of debt in the
form required in any proceeding referred to in Section 6.09 hereof at least 30
days before the expiration of the time to file such claim, a Representative or
each lender under, or holder of, Senior Debt is hereby authorized to file an
appropriate claim for and on behalf of the Holders of the Notes.
Section 10.14. Amendments. The provisions of this Article 10 shall
not be amended or modified without the written consent of the holders of all
Senior Debt (or their Representative).
Section 10.15. No Waiver of Subordination Provisions. Without in
any way limiting the generality of Section 10.09 of this Indenture, the holders
of Senior Debt may, at any time and from
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time to time, without the consent of or notice to the Trustee or the Holders,
without incurring responsibility to the Holders and without impairing or
releasing the subordination provided in this Article 10 or the obligations
hereunder of the Holders to the holders of Senior Debt, do any one or more of
the following: (a) change the manner, place or terms of payment or extend the
time of payment of, or renew or alter, Senior Debt or any instrument evidencing
the same or any agreement under which Senior Debt is outstanding or secured;
(b) sell, exchange, release or otherwise deal with any property pledged,
mortgaged or otherwise securing Senior Debt; (c) release any Person liable in
any manner for the collection of Senior Debt; and (d) exercise or refrain from
exercising any rights against the Company and any other Person.
ARTICLE 11
SUBSIDIARY GUARANTEES
Section 11.01. Subsidiary Guarantees. Each Guarantor, jointly and
severally, shall unconditionally guarantee to each Holder of a Note
authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, irrespective of the validity and enforceability of this
Indenture, the Notes or the obligations of the Company hereunder or thereunder,
that: (a) the principal of and premium and interest on the Notes shall be
promptly paid in full when due, whether at maturity, by acceleration,
redemption or otherwise, and interest on the overdue principal of and interest
on premium and interest on the Notes, if any, if lawful, and all other
Obligations of the Company to the Holders or the Trustee hereunder or
thereunder shall be promptly paid in full or performed, all in accordance with
the terms hereof and thereof; and (b) in case of any extension of time of
payment or renewal of any Notes or any of such other Obligations, that the same
shall be promptly paid in full when due or performed in accordance with the
terms of the extension or renewal, whether at stated maturity, by acceleration
or otherwise. Failing payment when due of any amount so guaranteed or any
performance so guaranteed for whatever reason, the Guarantors shall be jointly
and severally obligated to pay the same immediately. The Guarantors hereby
agree that their obligations hereunder shall be unconditional, irrespective of
the validity, regularity or enforceability of the Notes or this Indenture, the
absence of any action to enforce the same, any waiver or consent by any Holder
with respect to any provisions hereof or thereof, the recovery of any judgment
against the Company, any action to enforce the same or any other circumstance
which might otherwise constitute a legal or equitable discharge or defense of a
guarantor. Each Guarantor hereby waives diligence, presentment, demand of
payment, filing of claims with a court in the event of insolvency or bankruptcy
of the Company, any right to require a proceeding first against the Company,
protest, notice and all demands whatsoever and covenant that this Subsidiary
Guarantee shall not be discharged except by complete performance of the
obligations contained in the Notes and this Indenture. If any Holder or the
Trustee is required by any court or otherwise to return to the Company or
Guarantors, or any Custodian, Trustee, liquidator or other similar official
acting in relation to either the Company or Guarantors, any amount paid by
either to the Trustee or such Holder, this Subsidiary Guarantee, to the extent
theretofore discharged, shall be reinstated in full force and effect. Each
Guarantor agrees that it shall not be entitled to any right of subrogation in
relation to the Holders of Notes in respect of any obligations guaranteed
hereby until payment in full of all obligations guaranteed hereby. Each
Guarantor further agrees that, as between the Guarantors,
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on the one hand, and the Holders and the Trustee, on the other hand, (x) the
maturity of the obligations guaranteed hereby may be accelerated as provided in
Article 6 for the purposes of this Subsidiary Guarantee, notwithstanding any
stay, injunction or other prohibition preventing such acceleration in respect
of the obligations guaranteed hereby and (y) in the event of any declaration of
acceleration of such obligations as provided in Article 6, such obligations
(whether or not due and payable) shall forthwith become due and payable by the
Guarantors for the purpose of this Subsidiary Guarantee. The Guarantors shall
have the right to seek contribution from any non-paying Guarantor so long as
the exercise of such right does not impair the rights of the Holders under the
Subsidiary Guarantees.
Section 11.02. Execution and Delivery of Subsidiary Guarantees. To
evidence its Subsidiary Guarantee set forth in Section 11.01, each Guarantor
hereby agrees that a notation of such Subsidiary Guarantee substantially in the
form of Exhibit C shall be endorsed by an Officer of such Guarantor on each
Note thereafter authenticated and delivered by the Trustee, that a supplement
to this Indenture shall be executed on behalf of such Guarantor by its
President or one of its Vice Presidents in accordance with Section 4.14 hereof
and that such Guarantor shall deliver to the Trustee an Opinion of Counsel that
the foregoing have been duly authorized, executed and delivered by such
Guarantor and that such Guarantor's Subsidiary Guarantee is a valid and legally
binding obligation of such Guarantor, enforceable against such Guarantor in
accordance with its terms, subject to bankruptcy, insolvency, moratorium,
fraudulent conveyance and other law affecting the rights of creditors
generally.
Each Guarantor hereby agrees that its Subsidiary Guarantee set forth
in Section 11.01 shall remain in full force and effect notwithstanding any
failure to endorse on each Note a notation of such Subsidiary Guarantee.
If an Officer whose signature is on a supplement to this Indenture or
on the notation of Subsidiary Guarantee no longer holds that office at the time
the Trustee authenticates the Note on which a notation of Subsidiary Guarantee
is endorsed, the Subsidiary Guarantee shall be valid nevertheless.
The delivery of any Note by the Trustee, after the authentication
thereof hereunder and whether upon original issue, registration or transfer,
exchange or otherwise, shall constitute due delivery of the Subsidiary
Guarantee set forth in this Indenture on behalf of each Person that is then a
Guarantor.
Section 11.03. Guarantors May Consolidate, etc., on Certain Terms.
No Guarantor may consolidate with or merge with or into (whether or not such
Guarantor is the surviving Person), another Person whether or not affiliated
with such Guarantor unless:
(a) subject to the provisions of Section 11.04 hereof,
the Person formed by or surviving any such consolidation or merger (if
other than such Guarantor) assumes all the obligations of such
Guarantor, pursuant to a supplemental indenture in form and substance
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reasonably satisfactory to the Trustee in respect of the Notes, this
Indenture and such Guarantor's Subsidiary Guarantee;
(b) immediately after giving effect to such transaction,
no Default or Event of Default exists; and
(c) such transaction does not violate any of Sections
4.03, 4.07, 4.08, 4.09, 4.11, 4.12, 4.14, 4.16, 4.17 and 4.18.
Notwithstanding the foregoing, no Guarantor shall be permitted to consolidate
with or merge with or into (whether or not such Guarantor is the surviving
Person), another Person pursuant to the preceding sentence if such
consolidation or merger would not be permitted by Section 5.01 hereof.
In case of any such consolidation or merger and upon the assumption by
the successor Person, by supplemental indenture, executed and delivered to the
Trustee and satisfactory in form to the Trustee, of the obligations of the
Guarantor in respect of the Notes, this Indenture and such Guarantor's
Subsidiary Guarantee, such successor corporation shall succeed to and be
substituted for the Guarantor with the same effect as if it had been named
herein as a Guarantor. Such successor Person thereupon may cause to be signed
any or all of the Subsidiary Guarantees to be endorsed upon all of the Notes
issuable hereunder which theretofore shall not have been signed by the Company
and delivered to the Trustee. All the Subsidiary Guarantees so issued shall in
all respects have the same legal rank and benefit under this Indenture as the
Subsidiary Guarantees theretofore and thereafter issued in accordance with the
terms of this Indenture as though all of such Subsidiary Guarantees had been
issued at the date of the execution hereof.
Except as set forth in Articles 4 and 5 hereof, nothing contained in
this Indenture or in any of the Notes shall prevent any consolidation or merger
of a Guarantor with or into the Company, or shall prevent any sale or
conveyance of the property of a Guarantor as an entirety or substantially as an
entirety to the Company.
Section 11.04. Releases of Subsidiary Guarantees. In the event of a
sale or other disposition of all or substantially all of the assets of any
Guarantor to a third party or an Unrestricted Subsidiary in a transaction that
does not violate any provisions of this Indenture, by way of merger,
consolidation or otherwise, or a sale or other disposition (including, without
limitation, by foreclosure) of all of the capital stock of any Guarantor, then
such Guarantor (in the event of a sale or other disposition (including, without
limitation, by foreclosure), by way of such a merger, consolidation or
otherwise, of all of the capital stock of such Guarantor) or the Person
acquiring the property (in the event of a sale or other disposition of all or
substantially all of the assets of such Guarantor) shall be released and
relieved of any obligations under this Indenture and its Subsidiary Guarantee;
provided that the Net Proceeds of such sale or other disposition are applied in
accordance with Section 4.10 hereof. Upon delivery by the Company to the
Trustee of an Officers' Certificate and an Opinion of Counsel to the effect
that such sale or other disposition was made by the Company in accordance with
the provisions of this Indenture, including without limitation Section 4.10,
the
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Trustee shall execute any documents reasonably required in order to evidence
the release of any Guarantor from its obligations under this Indenture and its
Subsidiary Guarantee.
Any Guarantor not released from its obligations under its Subsidiary
Guarantee shall remain liable for the full amount of principal of and premium
and interest on the Notes and for the other obligations of any Guarantor under
this Indenture.
Any Guarantor that is designated an Unrestricted Subsidiary in
accordance with the terms of this Indenture shall be released from and relieved
of its obligations under this Indenture and its Subsidiary Guarantee. Any
Unrestricted Subsidiary that ceases to be an Unrestricted Subsidiary, if it is
also a Significant Subsidiary that has guaranteed any Indebtedness of the
Company, shall thereupon execute a supplement to this Indenture in accordance
with the terms of this Indenture.
Section 11.05. Limitation on Guarantor Liability. For purposes
hereof, each Guarantor's liability shall be that amount from time to time equal
to the aggregate liability of such Guarantor thereunder, but shall be limited
to the lesser of (i) the aggregate amount of the Obligations of the Company
under the Notes and this Indenture and (ii) the amount, if any, which would not
have (A) rendered such Guarantor "insolvent" (as such term is defined in the
federal Bankruptcy Law and in the Debtor and Creditor Law of the State of New
York) or (B) left it with unreasonably small capital at the time its Subsidiary
Guarantee of the Notes was entered into, after giving effect to the incurrence
of existing Indebtedness immediately prior to such time; provided that, it
shall be a presumption in any lawsuit or other proceeding in which such
Guarantor is a party that the amount guaranteed pursuant to its Subsidiary
Guarantee is the amount set forth in clause (i) above unless any creditor, or
representative of creditors of such Guarantor, or debtor in possession or
trustee in bankruptcy of such Guarantor, otherwise proves in such a lawsuit
that the aggregate liability of such Guarantor is limited to the amount set
forth in clause (ii). In making any determination as to the solvency or
sufficiency of capital of a Guarantor in accordance with the previous sentence,
the right of such Guarantor to contribution from other Guarantors and any other
rights such Guarantor may have, contractual or otherwise, shall be taken into
account.
Section 11.06. "Trustee" to Include Paying Agent. In case at any
time any Paying Agent other than the Trustee shall have been appointed by the
Company and be then acting hereunder, the term "Trustee" as used in this
Article 11 shall in such case (unless the context shall otherwise require) be
construed as extending to and including such Paying Agent within its meaning as
fully and for all intents and purposes as if such Paying Agent were named in
this Article 11 in place of the Trustee.
Section 11.07. Subordination of Subsidiary Guarantee. The
obligations of each Guarantor under its Subsidiary Guarantee pursuant to this
Article 11 shall be junior and subordinated to the Senior Debt of such
Guarantor on the same basis as the Notes are junior and subordinated to Senior
Debt of the Company. For the purposes of the foregoing sentence, the Trustee
and the Holders shall have the right to receive and/or retain payments by any
of the Guarantors only at such times as they
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<PAGE> 82
may receive and/or retain payments in respect of the Notes pursuant to this
Indenture, including Article 10 hereof.
ARTICLE 12
MISCELLANEOUS
Section 12.01. Trust Indenture Act Controls. If any provision of
this Indenture limits, qualifies or conflicts with the duties imposed by TIA
(S)318(c), the imposed duties shall control.
Section 12.02. Notices. Any notice or communication by the Company,
the Guarantors or the Trustee to the others is duly given if in writing and
delivered in Person or mailed by first class mail (registered or certified,
return receipt requested), telecopier or overnight air courier guaranteeing
next day delivery, to the others' address:
If to the Company or any Guarantors:
Forcenergy Inc
Forcenergy Center
2730 SW 3rd Avenue, Suite 800
Miami, FL 33129-2237
Telecopier No.: (305) 856-4300
Attention: Stig Wennerstrom
With a copy to:
Vinson & Elkins L.L.P.
First City Tower, Suite 2300
1001 Fannin
Houston, Texas 77002-6760
Telecopier No.: 713-615-5531
Attention: T. Mark Kelly, Esq.
If to the Trustee:
Bankers Trust Company
Bankers Trust Company
Mail Stop 5041
P. O. Box 318, Church Street Station
New York, New York 10008
Telecopier No.: (212) 250-6657
Attention: Corporate Trust Department
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<PAGE> 83
The Company, any Guarantor or the Trustee, by notice to the others may
designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when receipt acknowledged, if telecopied; and the
next Business Day after timely delivery to the courier, if sent by overnight
air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the Note
Register. Any notice or communication shall also be so mailed to any Person
described in TIA (S) 313(c), to the extent required by the TIA. Failure to
mail a notice or communication to a Holder or any defect in it shall not affect
its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
Section 12.03. Communication by Holders of Notes with Other Holders
of Notes. Holders may communicate pursuant to TIA (S) 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Guarantors, the Trustee, the Registrar and anyone else shall have
the protection of TIA (S) 312(c).
Section 12.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company or any Guarantor to the Trustee
to take any action under this Indenture, the Company or such Guarantor, as the
case may be, shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance
reasonably satisfactory to the Trustee (which shall include the
statements set forth in Section 12.05 hereof) stating that, in the
opinion of the signers, all conditions precedent and covenants, if
any, provided for in this Indenture relating to the proposed action
have been complied with; and
(b) an Opinion of Counsel in form and substance
reasonably satisfactory to the Trustee (which shall include the
statements set forth in Section 12.05 hereof) stating that, in the
opinion of such counsel, all such conditions precedent and covenants
have been complied with.
Section 12.05. Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a condition or covenant
provided for in this Indenture (other than
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<PAGE> 84
a certificate provided pursuant to TIA (S) 314(a)(4)) shall comply with the
provisions of TIA (S) 314(e) and shall include:
(a) a statement that the Person making such certificate
or opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he
or she has made such examination or investigation as is necessary to
enable him or her to express an informed opinion as to whether or not
such covenant or condition has been complied with; and
(d) a statement as to whether or not, in the opinion of
such Person, such condition or covenant has been complied with.
Section 12.06. Rules by Trustee and Agents. The Trustee may make
reasonable rules for action by or at a meeting of Holders. The Registrar or
Paying Agent may make reasonable rules and set reasonable requirements for its
functions.
Section 12.07. No Personal Liability of Directors, Officers,
Employees and Stockholders. No director, officer, employee, incorporator or
stockholder of the Company, as such, shall have any liability for any
obligations of the Company under the Notes or this Indenture or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder of Notes, by accepting a Note, waives and releases all such
liability. The waiver and release are part of the consideration for issuance
of the Notes. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the Commission that such a waiver
is against public policy.
Section 12.08. Governing Law. THE INTERNAL LAW OF THE STATE OF NEW
YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE
SUBSIDIARY GUARANTEES. THE COMPANY AND EACH GUARANTOR IRREVOCABLY SUBMITS TO
THE NON- EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW YORK STATE
COURT SITTING IN THE BOROUGH OF MANHATTAN, THE CITY OF NEW YORK IN ANY ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE, THE SECURITIES OR A
SUBSIDIARY GUARANTEE, AND THE COMPANY AND EACH GUARANTOR IRREVOCABLY AGREE THAT
ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED
BY ANY SUCH COURT.
Section 12.09. No Adverse Interpretation of Other Agreements. This
Indenture may not be used to interpret any other indenture, loan or debt
agreement of the Company or its Subsidiaries or
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<PAGE> 85
of any other Person. Any such indenture, loan or debt agreement may not be
used to interpret this Indenture and the Subsidiary Guarantees.
Section 12.10. Successors. All agreements of the Company and each
Guarantor in this Indenture and the Notes shall bind its respective successors.
All agreements of the Trustee in this Indenture shall bind its successors.
Section 12.11. Severability. In case any provision in this
Indenture or in the Notes shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
Section 12.12. Counterpart Originals. The parties may sign any
number of copies of this Indenture. Each signed copy shall be an original, but
all of them together represent the same agreement.
Section 12.13. Table of Contents, Headings, etc. The Table of
Contents, Cross-Reference Table and headings of the Articles and Sections of
this Indenture have been inserted for convenience of reference only, are not to
be considered a part of this Indenture and shall in no way modify or restrict
any of the terms or provisions hereof.
Section 12.14. Satisfaction and Discharge of Indenture. This
Indenture shall cease to be of further effect (except as to surviving rights of
registration of transfer or exchange of Notes, as expressly provided for in
this Indenture) as to all outstanding Notes, and the Trustee upon Company
Request, at the expense of the Company, shall, upon payment of all amounts due
the Trustee under Section 7.07 hereof, execute proper instruments acknowledging
satisfaction and discharge of this Indenture when
(a) either
(1) all Notes theretofore authenticated and delivered
(other than (i) Notes which have been destroyed, lost or stolen and
which have been replaced or paid as provided in Section 2.08 hereof
and (ii) Notes for whose payment money has theretofore been deposited
in trust with the Trustee or any Paying Agent or segregated and held
in trust by the Company and thereafter repaid to the Company or
discharged from such trust, as provided in Section 8.06 hereof) have
been delivered to the Trustee for cancellation, or
(2) all Notes not theretofore delivered to the Trustee
for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated
Maturity within one year, or
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<PAGE> 86
(iii) are to be called for redemption within one
year under arrangements satisfactory to the
Trustee for the giving of notice by
redemption by the Trustee in the name, and at
the expense, of the Company,
and the Company, in the case of clause (2)(i), (2)(ii) or (2)(iii)
above, has irrevocably deposited or caused to be deposited with the
Trustee funds in an amount sufficient to pay and discharge the entire
indebtedness on such Notes not theretofore delivered to the Trustee
for cancellation, for principal (and premium, if any) and interest to
the date of such deposit (in the case of 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;
(b) the Company has paid or caused to be paid all other
sums then due and payable hereunder by the Company;
(c) 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 herein
relating to the satisfaction and discharge of this Indenture have been
complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 7.07 hereof and, if
money shall have been deposited with the Trustee pursuant to this Section, the
obligations of the Trustee under Section 2.11 hereof and Section 8.06 hereof
shall survive.
[Signatures on following page]
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<PAGE> 87
SIGNATURES
FORCENERGY INC
By:
--------------------------------------
Name: Stig Wennerstrom
Title: President and Chief Executive
Officer
BANKERS TRUST COMPANY
By:
--------------------------------------
Name:
Title:
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<PAGE> 88
EXHIBIT A
(Face of Note)
____% Senior Subordinated Notes due 2006
CUSIP Number
No. -----------
$
-------------------
FORCENERGY INC
promises to pay to
or registered assigns,
the principal sum of
Dollars on , 2006.
---------
Interest Payment Dates: and
----------- ------------
Record Dates: and
----------- ------------
(SEAL)
ATTEST: FORCENERGY INC
By: By:
---------------------------- ----------------------------
Name: Name:
------------------------- -------------------------
Title: Title:
------------------------ ------------------------
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes referred to
in the within-mentioned Indenture:
Bankers Trust company,
as Trustee
By:
---------------------------------------
Authorized Officer
Dated: , 1996
------------------------------
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<PAGE> 89
(Back of Note)
% Senior Subordinated Note due 2006
----
[Unless and until it is exchanged in whole or in part for Notes in
definitive form, this Note may not be transferred except as a whole by the
Depository to a nominee of the Depository or by a nominee of the Depository to
the Depository or another nominee of the Depository or by the Depository or any
such nominee to a successor Depository or a nominee of such successor
Depository. Unless this certificate is presented by an authorized
representative of The Depository Trust Company (55 Water Street, New York, New
York) ("DTC"), to the issuer or its agent for registration of transfer,
exchange or payment, and any certificate issued is registered in the name of
Cede & Co. or such other name as may be requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or such other
entity as may be requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an
interest herein.](1)
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
1. Interest. Forcenergy Inc, a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Note at
the rate of ____% per annum, which interest shall be payable in cash
semi-annually in arrears on ___________ and ___________, or if any such day is
not a Business Day, on the next succeeding Business Day (each an "Interest
Payment Date"); provided that the first Interest Payment Date shall be
____________, 1997. Interest on the Notes will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from the
date of original issuance. Interest will be computed on the basis of a 360-day
year comprised of twelve 30-day months.
2. Method of Payment. On each Interest Payment Date the Company
will pay interest to the Person who is the Holder of record of this Note as of
the close of business on the _________ or ___________ immediately preceding
such Interest Payment Date, even if this Note is canceled after such record
date and on or before such Interest Payment Date, except as provided in Section
2.09 of the Indenture with respect to defaulted interest. Principal, premium,
if any, and interest, if any, on this Note will be payable at the office or
agency of the Company maintained for such purpose within the City and State of
New York [or, at the option of the Company, payment of interest may be made by
check mailed to the Holder of this Note at its address set forth in the
register of Holders of Notes](2). Such payment shall be in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts.
- ---------------------------
(1) This paragraph should be included only if the Note is issued in global
form.
(2) This clause should be excluded if the Note is issues in global form.
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<PAGE> 90
3. Paying Agent and Registrar. Initially, Bankers Trust Company,
the Trustee under the Indenture, will act as Registrar and the Company will act
as its own Paying Agent. The Company may change any Paying Agent or Registrar
without notice to any Holder. The Company, any Guarantor or any other of its
Subsidiaries may act in any such capacity.
4. Indenture. The Company issued the Notes under an Indenture
dated as of ___________, 1996 ("Indenture") between the Company and the
Trustee. The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (15 U.S. Code (S)(S) 77aaa-77bbbb). The Notes are subject to
all such terms, and Holders are referred to the Indenture and such Act for a
statement of such terms. The Notes are general unsecured obligations of the
Company limited in an aggregate principal amount to $175,000,000 and will
mature on ____________, 2006.
5. Optional Redemption. (a) The Notes are not redeemable at the
Company's option prior to ____________, 2001. Thereafter, the Notes will be
subject to redemption at the option of the Company, in whole or in part, upon
not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest thereon to the applicable redemption date, if redeemed during
the twelve-month period beginning on ____________ of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001 . . . . . . . . . . . . . . . . . . . %
2002 . . . . . . . . . . . . . . . . . . . %
2003 . . . . . . . . . . . . . . . . . . . %
2004 and thereafter . . . . . . . . . . . 100.000%
</TABLE>
(b) Notwithstanding clauses (a) and (c) of this Paragraph 5, prior
to ___________, 2001, the Company may, at its option, on one or more occasions
redeem all or any portion of the Notes at the Make-Whole Price plus accrued and
unpaid interest to the date of redemption.
(c) Notwithstanding the provisions of clauses (a) and (b) of this
Paragraph 5, prior to ___________, 1999 the Company may, at its option, on any
one or more occasions, redeem up to $61.25 million in aggregate principal
amount of Notes at a redemption price equal to ______% of the principal amount
thereof, plus accrued and unpaid interest thereon to the redemption date, with
the net proceeds of an offering of common equity of the Company; provided that
at least $113.75 million in aggregate principal amount of Notes must remain
outstanding immediately after the occurrence of such redemption; and provided,
further, that any such redemption shall occur within 60 days of the date of the
closing of such offering of common equity of the Company.
6. Mandatory Redemption. Except as set forth in paragraph 7
below, the Company shall not be required to make mandatory redemption payments
with respect to the Notes.
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<PAGE> 91
7. Repurchase At Option of Holder. (a) Upon the occurrence of a
Change of Control, each Holder of Notes shall have the right to require the
Company to repurchase all or any part (equal to $1,000 or an integral multiple
thereof) of such Holder's Notes pursuant to the offer described below (the
"Change of Control Offer") at an offer price in cash equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest thereon to
the date of purchase (the "Change of Control Payment"). Within 30 days
following any Change of Control, the Company will mail a notice to each Holder
describing the transaction or transactions that constitute the Change of
Control and offering to repurchase Notes pursuant to the procedures required by
the Indenture and described in such notice. The Company will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes as a result of a
Change of Control.
(b) If the Company or a Restricted Subsidiary consummates any
Asset Sales permitted by the Indenture, when the aggregate amount of Excess
Proceeds exceeds $10.0 million, the Company shall make an Asset Sale Offer to
purchase the maximum principal amount of Notes and any Pari Passu Indebtedness
to which the Asset Sale Offer applies that may be purchased out of the Excess
Proceeds, at an offer price in cash in an amount equal to 100% of the principal
amount thereof plus accrued and unpaid interest thereon to the date of
purchase, in accordance with the procedures set forth in Section 3.09 of the
Indenture or the agreements governing the Pari Passu Indebtedness, as
applicable. To the extent that the aggregate amount of Notes tendered or Pari
Passu Indebtedness tendered pursuant to an Asset Sale Offer is less than the
Excess Proceeds, the Company may use any remaining Excess Proceeds for general
corporate purposes. If the aggregate principal amount of Notes surrendered by
Holders thereof and Pari Passu Indebtedness surrendered by holders or lenders
thereof, collectively, exceeds the amount of Excess Proceeds, the Trustee shall
select the Notes and Pari Passu Indebtedness to be purchased on a pro rata
basis, based on the aggregate principal amount (or accreted value, as
applicable) thereof surrendered in such Asset Sale Offer. Upon completion of
such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
8. Notice of Redemption. Notice of redemption will be mailed at
least 30 days but not more than 60 days before the redemption date to each
Holder whose Notes are to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed. On and after the redemption date interest ceases to accrue on Notes
or portions thereof called for redemption.
9. Denominations, Transfer, Exchange. The Notes initially issued
are in the form of any permanent global Note. Under certain circumstances
described in the Indenture, Notes may also be issued in the form of permanent
certificated Notes in registered form without coupons in minimum denominations
of $1,000 and integral multiples of $1,000. The transfer of Notes may be
registered as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes and
fees required by law or permitted by the Indenture. The Company need not
register the transfer of any Note or portion of a Note selected for redemption,
except for the
A-4
<PAGE> 92
unredeemed portion of any Note being redeemed in part. Also, it need not
register the transfer of any Notes for a period of 15 days before a selection
of Notes to be redeemed or during the period between a record date and the
corresponding Interest Payment Date.
10. Persons Deemed Owners. The registered Holder of a Note may be
treated as its owner for all purposes.
11. Amendment, Supplement and Waiver. Subject to certain
exceptions, the Indenture or the Notes may be amended or supplemented with the
consent of the Holders of at least a majority in aggregate principal amount of
the then outstanding Notes, and any existing default or compliance with any
provision of the Indenture or the Notes may be waived with the consent of the
Holders of a majority in aggregate principal amount of the then outstanding
Notes. Without the consent of any Holder of a Note, the Indenture or the Notes
may be amended or supplemented to cure any ambiguity, defect or inconsistency,
to provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of the Company's or any Guarantor's
obligations to Holders of the Notes in case of a merger or consolidation, to
make any change that would provide any additional rights or benefits to the
Holders of the Notes or that does not adversely affect the legal rights under
the Indenture of any such Holder, or to comply with the requirements of the
Commission in order to effect or maintain the qualification of the Indenture
under the Trust Indenture Act, to secure the Notes or to add or release any
Guarantor pursuant to the terms of the Indenture.
12. Defaults and Remedies. Events of Default include: (i)
default for 30 days in the payment when due of interest on the Notes (whether
or not prohibited by the provisions of Article 10 of the Indenture); (ii)
default in payment when due of the principal of or premium, if any, on the
Notes (whether or not prohibited by the provisions of Article 10 of the
Indenture); (iii) failure by the Company to comply with the provisions of
Sections 4.10, 4.13 and 5.01 of the Indenture; (iv) failure by the Company for
60 days after notice from the Trustee or the Holders of at least 25% in
aggregate principal amount of the Notes then outstanding to comply with any of
its other agreements in the Indenture or the Notes; (v) except as permitted by
the Indenture, any Subsidiary Guarantee shall be held in any judicial
proceeding to be unenforceable or invalid or shall cease for any reason to be
in full force and effect or any Guarantor, or any Person acting on behalf of
any such Guarantor, shall deny or disaffirm its obligations under its
Subsidiary Guarantee; (vi) default under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of
its Restricted Subsidiaries) whether such Indebtedness or Guarantee now exists,
or is created after the date of the Indenture, which default (a) is caused by a
failure to pay principal of or premium, if any, or interest on such
Indebtedness prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (a "Payment Default") or (b) results
in the acceleration of such Indebtedness prior to its express maturity and, in
each case, the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there is then
existing a Payment Default or the maturity of which has been so accelerated,
aggregates $5.0 million or
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<PAGE> 93
more; provided that if any such default is cured or waived or any such
acceleration rescinded, or such Indebtedness is repaid, within a period of 10
days from the continuation of such default beyond the applicable grace period
or the occurrence of such acceleration, as the case may be, such Event of
Default under the Indenture and any consequential acceleration of the Notes
shall be automatically rescinded, so long as such rescission does not conflict
with any judgment or decree; (vii) failure by the Company or any of its
Restricted Subsidiaries to pay final, non-appealable judgments aggregating in
excess of $5.0 million, which judgments are not paid, discharged or stayed for
a period of 60 days; and (viii) certain events of bankruptcy or insolvency with
respect to the Company or any of its Restricted Subsidiaries that constitute a
Significant Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary. If any Event of Default
occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the then outstanding Notes may declare all the Notes to be
due and payable immediately. Notwithstanding the foregoing, in the case of an
Event of Default arising from certain events of bankruptcy or insolvency, with
respect to the Company, any Restricted Subsidiary that constitutes a
Significant Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary, all outstanding Notes will
become due and payable without further action or notice. Holders of the Notes
may not enforce the Indenture or the Notes except as provided in the Indenture.
Subject to certain limitations, Holders of a majority in aggregate principal
amount of the then outstanding Notes may direct the Trustee in its exercise of
any trust or power. The Trustee may withhold from Holders of the Notes notice
of any continuing Default or Event of Default (except a Default or Event of
Default relating to the payment of principal or interest) if it determines that
withholding notice is in their interest. The Holders of a majority in
aggregate principal amount of the Notes then outstanding by notice to the
Trustee may on behalf of the Holders of all of the Notes waive any existing
Default or Event of Default and its consequences under the Indenture except a
continuing Default or Event of Default in the payment of interest on, or the
principal of, the Notes. The Company is required to deliver to the Trustee
annually a statement regarding compliance with the Indenture, and the Company
is required, upon becoming aware of any Default or Event of Default, to deliver
to the Trustee a statement specifying such Default or Event of Default.
13. Trustee Dealings with Company. The Indenture contains certain
limitations on the rights of the Trustee, should it become a creditor of the
Company, to obtain payment of claims in certain cases, or to realize on certain
property received in respect of any such claim as security or otherwise. The
Trustee will be permitted to engage in other transactions; however, if it
acquires any conflicting interest it must eliminate such conflict within 90
days, apply to the Commission for permission to continue or resign.
14. No Recourse Against Others. No director, officer, employee,
incorporator or stockholder of the Company, as such, shall have any liability
for any obligations of the Company under the Notes or the Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of Notes, by accepting a Note, waives and releases all
such liability. The waiver and release are part of the consideration for
issuance of the Notes. Such
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<PAGE> 94
waiver may not be effective to waive liabilities under the federal securities
laws and it is the view of the Commission that such a waiver is against public
policy.
15. Authentication. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.
16. Abbreviations. Customary abbreviations may be used in the
name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN
ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
17. CUSIP Numbers. Pursuant to a recommendation promulgated by
the Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP
numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as printed on
the Notes or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to:
Forcenergy Inc
Forcenergy Center
2730 SW 3rd Avenue, Suite 800
Miami, FL 33129-2237
Telecopier No.: (305) 856-4300
Attention: Secretary
[FOOTNOTE 3: THE FORM OF SUBSIDIARY GUARANTEE ATTACHED AS EXHIBIT C TO THE
INDENTURE IS TO BE ATTACHED TO THIS NOTE IF THERE IS ANY GUARANTOR WHEN THIS
NOTE IS AUTHENTICATED]
A-7
<PAGE> 95
Assignment Form
To assign this Note, fill in the form below: (I) or (we) assign and
transfer this Note to
- ------------------------------------------------------------------------------
(Insert assignee's Social Security or tax I.D. No.)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint ______________________________________ agent to transfer
this Note on the books of the Company. The agent may substitute another to
act for him.
Date:
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Your Signature:
--------------------
(Sign exactly as your name appears
on the face of this Note)
Signature
Guarantee: /*/
--------------------------
- --------------------------
/*/ Participant in a recognized Signature Guarantee Medallion Program (or
other signature guarantor acceptable to the Trustee).
A-8
<PAGE> 96
Option of Holder to Elect Purchase
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.10 or 4.13 of the Indenture, check the box below:
[_] Section 4.10 [_] Section 4.13
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.13 of the Indenture, state the
amount you elect to have purchased: $
-----------
Date: Your Signature:
(Sign exactly as your name appears on
the Note)
Tax Identification No.:
---------------
Signature Guarantee: /*/
------------------
- ---------------------
/*/ Participant in a recognized Signature Guarantee Medallion Program (or
other signature guarantor acceptable to the Trustee).
A-9
<PAGE> 97
Exhibit B
GUARANTORS
As of the initial date of this Indenture, there are no Guarantors.
B-1
<PAGE> 98
Exhibit C
Form of Subsidiary Guarantee
Each of the Guarantors hereby, jointly and severally, unconditionally
guarantees to each Holder of a Note authenticated and delivered by the Trustee
and to the Trustee and its successors and assigns, irrespective of the validity
and enforceability of the Indenture, the Notes or the obligations of the
Company thereunder, that: (a) the principal of and premium and interest on the
Notes shall be promptly paid in full when due, whether at maturity, by
acceleration, redemption or otherwise, and interest on the overdue principal of
and interest on premium and interest on the Notes, if any, if lawful, and all
other Obligations of the Company to the Holders or the Trustee thereunder shall
be promptly paid in full or performed, all in accordance with the terms
thereof; and (b) in case of any extension of time of payment or renewal of any
Notes or any of such other Obligations, that same shall be promptly paid in
full when due or performed in accordance with the terms of the extension or
renewal, whether at stated maturity, by acceleration or otherwise. Failing
payment when due of any amount so guaranteed or any performance so guaranteed
for whatever reason, the Guarantors shall be jointly and severally obligated to
pay the same immediately.
The obligations of the Guarantors to the Holders of Notes and to the
Trustee pursuant to this Subsidiary Guarantee are expressly set forth in
Article 11 of the Indenture, and reference is hereby made to such Article for
the precise terms of this Subsidiary Guarantee. The terms of Article 11 of the
Indenture are incorporated herein by reference.
This is a continuing Subsidiary Guarantee and shall remain in full
force and effect and shall be binding upon each Guarantor and its respective
successors and assigns to the extent set forth in the Indenture until full and
final payment of all of the Company's Obligations under the Notes and the
Indenture and shall inure to the benefit of the Trustee and the Holders of
Notes and their successors and assigns and, in the event of any transfer or
assignment of rights by any Holder of Notes or the Trustee, the rights and
privileges herein conferred upon that party shall automatically extend to and
be vested in such transferee or assignee, all subject to the terms and
conditions hereof. Notwithstanding the foregoing, any Guarantor that satisfies
the provisions of Section 11.04 of the Indenture shall be released of its
obligations hereunder. This is a Subsidiary Guarantee of payment and not a
guarantee of collection.
This Subsidiary Guarantee shall not be valid or obligatory for any
purpose until the certificate of authentication on the Note upon which this
Subsidiary Guarantee is noted shall have been executed by the Trustee under the
Indenture by the manual signature of one of its authorized officers.
For purposes hereof, each Guarantor's liability will be that amount
from time to time equal to the aggregate liability of such Guarantor hereunder,
but shall be limited to the lesser of (i) the aggregate amount of the
Obligations of the Company under the Notes and the Indenture and (ii) the
amount, if any, which would not have (A) rendered such Guarantor "insolvent"
(as such term is defined in the federal Bankruptcy Law and in the Debtor and
Creditor Law of the State of New
C-1
<PAGE> 99
York) or (B) left it with unreasonably small capital at the time its Subsidiary
Guarantee of the Notes was entered into, after giving effect to the incurrence
of existing Indebtedness immediately prior to such time; provided that, it
shall be a presumption in any lawsuit or other proceeding in which such
Guarantor is a party that the amount guaranteed pursuant to its Subsidiary
Guarantee is the amount set forth in clause (i) above unless any creditor, or
representative of creditors of such Guarantor, or debtor in possession or
trustee in bankruptcy of such Guarantor, otherwise proves in such a lawsuit
that the aggregate liability of such Guarantor is limited to the amount set
forth in clause (ii). The Indenture provides that, in making any determination
as to the solvency or sufficiency of capital of a Guarantor in accordance with
the previous sentence, the right of such Guarantor to contribution from other
Guarantors and any other rights such Guarantor may have, contractual or
otherwise, shall be taken into account.
Capitalized terms used herein have the same meanings given in the
Indenture unless otherwise indicated.
[Name of Guarantor]
By:
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Name:
-----------------------------
Title:
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C-2
<PAGE> 100
Exhibit D
Form of Trustee's Certificate of Authentication
The Trustee's certificate of authentication shall be in substantially
the following form:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes referred to in the within-mentioned Indenture.
Dated: BANKERS TRUST COMPANY,
--------------------
as Trustee
By:
----------------------------
Authorized Officer
D-1
<PAGE> 1
EXHIBIT 5.1
VINSON & ELKINS L.L.P.
2300 First City Tower
Houston, Texas 77002-6760
October 30, 1996
Forcenergy Inc
2730 SW 3rd Avenue, Suite 800
Miami, Florida 33129-2237
Gentlemen:
We have acted as counsel for Forcenergy Inc, a Delaware corporation
(the "Company"), in connection with filing by the Company with the Securities
and Exchange Commission (the "Commission") of an amendment to the Company's
Registration Statement No. 333-13657 on Form S-3 (the "Registration Statement")
with respect to (i) $175 million principal amount of the Company's Senior
Subordinated Notes due 2006 (the "Debt Securities"), for sale by the Company in
an underwritten public offering under the Securities Act of 1933, as amended
(the "Securities Act"), and (ii) up to a total of 4,025,000 shares of the
Common Stock, par value $.01 per share, of the Company ("Common Stock"), for
sale by the Company and several of its stockholders named in the Registration
Statement (the "Selling Stockholders") in a concurrent underwritten public
offering under the Securities Act. The Debt Securities are issuable pursuant
to an Indenture (herein so called) to be entered into between the Company and
Bankers Trust Company, as trustee (the "Trustee").
Before rendering our opinions hereinafter set forth, we examined such
certificates, instruments and documents, including the form of the Indenture
filed as Exhibit 4.2 to the Registration Statement, and we reviewed such
questions of law, as we considered appropriate.
Based upon the foregoing examination and review, we are of the opinion
that:
(i) When the Indenture has been duly executed and delivered by the
Company and the Trustee and the Registration Statement has
become effective under the Securities Act, and when each
global certificate representing the Debt Securities has been
duly executed and authenticated in accordance with the
Indenture and the Debt Securities have been issued and sold to
the underwriters thereof as contemplated in the Registration
Statement, thereupon the Debt Securities will constitute valid
and legally binding obligations of the Company, subject to
bankruptcy, insolvency (including, without limitation, all
laws relating to fraudulent transfers), reorganization,
moratorium and similar laws relating to or affecting
creditors' rights generally and to general equitable
principles.
<PAGE> 2
(ii) When the Registration Statement has become effective under
the Securities Act and each of the up to 2,062,958 shares of
Common Stock to be issued and sold by the Company pursuant to
the Registration Statement has been issued and sold to the
underwriters thereof as contemplated in the Registration
Statement, thereupon all such shares will be duly authorized,
validly issued, fully paid and nonassessable.
(iii) When the Registration Statement has become effective under the
Securities Act and each of the 1,962,042 shares of Common
Stock to be sold by the Selling Stockholders pursuant to the
Registration Statement has been sold to the underwriters
thereof as contemplated in the Registration Statement,
thereupon all such shares will be duly authorized, validly
issued, fully paid and non-assessable.
The foregoing opinions are limited to the federal laws of the United
States and the General Corporation Law of the State of Delaware.
We hereby consent to the statements made with respect to us under the
caption "Legal Matters" in each prospectus contained in the Registration
Statement and to the filing of this opinion as an exhibit to the Registration
Statement. By giving such consent, we do not admit that we are within the
category of persons whose consent is required under Section 7 of the Securities
Act or the rules and regulations of the Commission issued thereunder.
Very truly yours,
VINSON & ELKINS L.L.P.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration
statement on Form S-3 (Registration No. 333-13657) of our report dated February
27, 1996, on our audit of the financial statements of Forcenergy Inc as of
December 31, 1995 and for the year ended December 31, 1995, which report is
included in the annual report on Form 10-K filed with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934. We
consent to the incorporation by reference in this registration statement on
Form S-3 (Registration No. 333-13657) of our report dated August 30, 1996, on
our audit of the historical statement of revenues and direct operating expenses
of the properties acquired by Forcenergy Inc from Amerada Hess Corporation for
the year ended December 31, 1995, which report is included in the Form 8-K/A
filed with the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934. We also consent to the reference to our firm under the
captions "Experts" and "Selected Financial Data."
/s/ COOPERS & LYBRAND L.L.P.
Miami, Florida
October 30, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report
dated June 1, 1995, except as to the common stock reclassification and
conversion described in Note 1 which is as of July 6, 1995, appearing on page
F-3 of the Company's Annual Report on Form 10-K for the year ended December 31,
1995 relating to the financial statements of Forcenergy Inc. (formerly
Forcenergy Gas Exploration, Inc.) and our report dated May 12, 1995, appearing
on page 2 of the Company's Report on Form 8-K dated October 4, 1996
relating to the Historical Statement of Revenues and Direct Operating Expenses
of South Marsh Island Blocks 106, 136 and 137. We also consent to the
references to us under the headings "Experts" and "Selected Financial Data" in
such Prospectus. However, it should be noted that Price Waterhouse LLP has not
prepared or certified such "Selected Financial Data."
/s/ PRICE WATERHOUSE LLP
Houston, Texas
October 30, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF NETHERLAND, SEWELL & ASSOCIATES, INC.
To the Board of Directors of Forcenergy Gas Exploration, Inc.:
We hereby consent to the use of our report dated March 1, 1996, of the
estimates of net proved oil and natural gas reserves of Forcenergy Inc., and
their present values, as of January 1, 1996, and the inclusion of our audit
report dated May 25, 1995, of the estimates of the net proved oil and natural
gas reserves of Forcenergy Gas Exploration, Inc. and their present values, as
of January 1, 1995, in this Form S-3 Registration Statement and the prospectus
incorporated therein, and all references to our firm therein.
NETHERLAND, SEWELL & ASSOCIATES, INC.
By: /s/ FREDERICK D. SEWELL
------------------------------------
Frederick D. Sewell
President
Dallas, Texas
October 30, 1996
<PAGE> 1
EXHIBIT 23.4
October 30, 1996
To the Board of Directors of Forcenergy Inc
We hereby consent to the use of our reports dated February 9, 1996,
and May 26, 1995, and our estimates of the net proved natural gas and oil
reserves of Forcenergy Inc (the "Company"), as of January 1, 1996 and 1995, and
to all references to our estimates of the net proved natural gas and oil
reserves of the Company as of those dates, and to the reference to our firm
under the heading "Experts" in the prospectus.
COLLARINI ENGINEERING INC.
/s/ DENNIS JORDAN, P.E.
----------------------------
Senior Vice President
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
AS INDEPENDENT PETROLEUM ENGINEERS, WE HEREBY CONSENT TO THE USE OF OUR REPORTS
DATED FEBRUARY 24, 1994 AND MAY 24, 1995 AND OUR ESTIMATES OF NET PROVED OIL
AND NATURAL GAS RESERVES OF FORCENERGY INC AS OF JANUARY 1, 1994 AND 1995 AND
TO ALL REFERENCES TO OUR FIRM INCLUDED IN THIS REGISTRATION STATEMENT.
/s/ JOE C. NEAL & ASSOCIATES
MIDLAND, TEXAS
October 30, 1996
<PAGE> 1
EXHIBIT 23.7
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this registration statement on Form S-3 of our report dated
April 12, 1995 except for Note J for which date is May 25, 1995 included in the
Company's Current Report on Form 8-K dated October 4, 1996 relating to the
financial statements of Ashlawn Energy, Inc. for the years ended December 31,
1994 and 1993 and each of the two years in the period ended December 31, 1994
and for the period from inception (January 2, 1992) to December 31, 1992. We
also consent to the reference to us under the headings "Experts" in such
Prospectus.
/s/ LaPorte, Sehrt, Romig and Hand
A Professional Accounting Corporation
Metairie, Louisiana
October 30, 1996
