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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 18, 1997
REGISTRATION NO. 333-24927
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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FORCENERGY INC
(Exact name of Registrant as specified in its charter)
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DELAWARE 1311 65-0429338
(State of other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
2730 SW 3RD AVENUE, SUITE 800 E. JOSEPH GRADY
MIAMI, FLORIDA 33129-2237 VICE PRESIDENT -- TREASURER
(305) 856-8500 AND CHIEF FINANCIAL OFFICER
(Address, including zip code, and telephone number, 2730 SW 3RD AVENUE, SUITE 800
including area code, of registrant's principal MIAMI, FLORIDA 33129-2237
executive offices) (305) 856-8500
(Name, Address, including zip code, and telephone
number, including area code, of agent for service)
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Copy to:
T. MARK KELLY
VINSON & ELKINS L.L.P.
2300 FIRST CITY TOWER
HOUSTON, TEXAS 77002-6760
(713) 758-4592
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable following the effectiveness of this
Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Title of each class of Amount to be maximum offering maximum aggregate Amount of
securities to be registered registered price per share (1) offering price (1) registration fee
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8 1/2% Senior Subordinated
Notes due 2007 . . . . . $200,000,000 100% $200,000,000 $60,607(2)
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(1) Estimated solely for the purpose of calculating the registration fee.
(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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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PROSPECTUS
FORCENERGY INC
OFFER TO EXCHANGE
8 1/2% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B
FOR ALL OUTSTANDING 8 1/2% SENIOR SUBORDINATED NOTES DUE 2007, SERIES A
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME,
ON MAY 23, 1997, UNLESS EXTENDED
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Forcenergy Inc, a Delaware corporation (the "Company"), hereby offers, upon
the terms and subject to the conditions set forth in this Prospectus and the
accompanying letter of transmittal (the "Letter of Transmittal," and together
with this Prospectus, the "Exchange Offer"), to exchange $1,000 principal
amount of its 8 1/2% Senior Subordinated Notes due 2007, Series B (the
"Exchange Notes"), which have been registered under the Securities Act of 1933,
as amended (the "Securities Act"), pursuant to a Registration Statement (as
defined herein) of which this Prospectus constitutes a part, for each $1,000
principal amount of its outstanding 8 1/2% Senior Subordinated Notes due 2007,
Series A (the "Old Notes"), of which $200,000,000 principal amount is
outstanding. The form and terms of the Exchange Notes are identical in all
material respects to the form and terms of the Old Notes except for certain
transfer restrictions and registration rights relating to the Old Notes. The
Exchange Notes will evidence the same debt as the Old Notes and will be issued
under and be entitled to the benefits of the Indenture (as defined herein).
The Exchange Notes and the Old Notes are collectively referred to herein as the
"Notes."
The Notes are general unsecured obligations of the Company and are
subordinated in right of payment to Senior Debt. Under certain circumstances,
any future significant subsidiaries 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 to Senior Debt.
The Company will accept for exchange any and all Old Notes that are validly
tendered on or prior to 5:00 p.m., New York City time, on the date the Exchange
Offer expires, which will be May 23, 1997, unless the Exchange Offer is
extended. See "The Exchange Offer -- Expiration Date; Extensions; Amendment."
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York
City time, on the business day prior to the Expiration Date (as defined herein),
unless previously accepted for exchange. The Exchange Offer is not conditioned
upon any minimum principal amount of Old Notes being tendered for exchange.
However, the Exchange Offer is subject to certain conditions which may be waived
by the Company and to the terms and provisions of the Registration Rights
Agreement (as defined herein). Old Notes may be tendered only in denominations
of $1,000 principal amount and integral multiples thereof. The Company has
agreed to pay the expenses of the Exchange Offer. See "The Exchange Offer."
(Cover continued on next page)
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See "Risk Factors" beginning on Page 13 of this Prospectus for a discussion
of certain factors that should be considered in evaluating 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.
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The date of this Prospectus is April 18, 1997
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The Exchange Notes will bear interest at the rate of 8 1/2% per annum,
payable semi-annually on February 15 and August 15 of each year, commencing
August 15, 1997. Holders of Exchange Notes of record on August 1, 1997 will
receive interest on August 15, 1997 from the date of issuance of the Exchange
Notes, plus an amount equal to the accrued interest on the Old Notes from the
date of issuance of the Old Notes, February 14, 1997, to the date of exchange
thereof. Interest on the Old Notes accepted for exchange will cease to accrue
upon issuance of the Exchange Notes.
The Old Notes were sold by the Company on February 14, 1997 to the Initial
Purchasers (as defined herein) in a transaction not registered under the
Securities Act in reliance upon Section 4(2) of the Securities Act. The Old
Notes were thereupon offered and sold by the Initial Purchasers only to
"qualified institutional buyers" (as defined in Rule 144A under the Securities
Act) and to a limited number of institutional "accredited investors" (as
defined in Rule 501(a)(1),(2),(3) or (7) under the Securities Act), each of
whom agreed to comply with certain transfer restrictions and other conditions.
Accordingly, the Old Notes may not be offered, resold or otherwise transferred
unless registered under the Securities Act or unless an applicable exemption
from the registration requirements of the Securities Act is available. The
Exchange Notes are being offered hereunder in order to satisfy the obligations
of the Company under the Registration Rights Agreement entered into with the
Initial Purchasers in connection with the offering of the Old Notes. See "The
Exchange Offer" and "Description of Notes -- Registration Rights; Liquidated
Damages."
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission" or "SEC") to third parties, including
Exxon Capital Holdings Corporation, SEC No-Action Letter (available April 13,
1989), Morgan Stanley & Co. Inc., SEC No-Action Letter (available June 5,
1991) (the "Morgan Stanley Letter") and Mary Kay Cosmetics, Inc., SEC No-Action
Letter (available June 5, 1991), the Company believes that the Exchange Notes
issued pursuant to the Exchange Offer may be offered for resale, resold and
otherwise transferred by the respective holders thereof (other than a
"Restricted Holder," being (i) a broker-dealer who purchased Old Notes
exchanged for such Exchange Notes directly from the Company to resell pursuant
to Rule 144A or any other available exemption under the Securities Act or (ii)
a person that is an affiliate of the Company within the meaning of Rule 405
under the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business
and such holder is not participating in, and has no arrangement with any person
to participate in, the distribution (within the meaning of the Securities Act)
of such Exchange Notes. Eligible holders wishing to accept the Exchange Offer
must represent to the Company that such conditions have been met. Holders who
tender Old Notes in the Exchange Offer with the intention to participate in a
distribution of the Exchange Notes may not rely upon the Morgan Stanley Letter
or similar no-action letters. See "The Exchange Offer -- General." Each
broker-dealer that receives Exchange Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. A broker-dealer that delivers such a
prospectus to purchasers in connection with such resales will be subject to
certain of the civil liability provisions under the Securities Act and will be
bound by the provisions of the Registration Rights Agreement (including certain
indemnification rights and obligations). This Prospectus, as it may be amended
or supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Old Notes where such
Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that it will
make this Prospectus and any amendment or supplement to this Prospectus
available to any broker-dealer for use in connection with any such resale for a
period of up to 180 days after consummation of the Exchange Offer. See "Plan
of Distribution."
The Company will not receive any proceeds from the Exchange Offer.
The Exchange Notes will constitute a new issue of securities with no
established trading market, and there can be no assurance as to the liquidity
of any markets that may develop for the Exchange Notes or as to the ability of
or price at which the holders of Exchange Notes would be able to sell their
Exchange Notes. Future trading prices of the Exchange Notes will depend on
many factors, including, among others, prevailing interest rates, the Company's
operating results and the market for similar securities. The Company does not
intend to apply for listing of the Exchange Notes on any securities exchange.
Salomon Brothers Inc, Donaldson, Lufkin & Jenrette Securities Corporation,
Goldman, Sachs & Co., Lehman Brothers and ING Baring (U.S.) Securities, Inc.
(together, the "Initial Purchasers") have informed the Company that they
currently intend to make a market for the Exchange Notes. However, they are
not so obligated, and any such market making may be discontinued at any time
without notice. Accordingly, no assurance can be given that an active public
or other market will develop for the Exchange Notes or as to the liquidity of
or the trading market for the Exchange Notes.
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THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH
THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
TABLE OF CONTENTS
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Page No.
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Available Information . . . . . . . . . . . . . . . . . . . . . . 3
Disclosure Regarding Forward Looking Statements . . . . . . . . . 4
Incorporation of Certain Documents by Reference . . . . . . . . . 4
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . 6
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . 13
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Private Placement . . . . . . . . . . . . . . . . . . . . . . . . 18
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . 18
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . 19
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . 19
Summary of Oil and Gas Reserve Data . . . . . . . . . . . . . . . 21
Summary Operating Data . . . . . . . . . . . . . . . . . . . . . 21
Pro Forma Financial Information . . . . . . . . . . . . . . . . . 22
The Exchange Offer . . . . . . . . . . . . . . . . . . . . . . . 23
Description of Existing Securities and Senior Credit Facility . . 28
Description of Notes . . . . . . . . . . . . . . . . . . . . . . 30
Exchange Offer; Registration Rights . . . . . . . . . . . . . . . 55
Certain Federal Income Tax Consequences . . . . . . . . . . . . . 57
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . 60
Transfer Restrictions on Old Notes . . . . . . . . . . . . . . . 61
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Glossary of Oil and Gas Terms . . . . . . . . . . . . . . . . . . 65
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy and information statements and other
information with the Commission. Such reports, proxy and information
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following regional offices of
the Commission: Seven World Trade Center, Suite 1300, New York, New York 10048
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. 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, the Commission
maintains a site on the World Wide Web that contains reports, proxy and
information statements and other information filed electronically by the
Company with the Commission which can be accessed over the Internet at
http://www.sec.gov. While any Old Notes remain outstanding, the Company will
make available, upon request, to any holder and any prospective purchaser of
Old Notes, the information required pursuant to Rule 144A(d)(4) under the
Securities Act during any period in which the Company is not subject to Section
13 or 15(d) of the Exchange Act. Any such request should be directed to the
Secretary of the Company, 2730 SW 3rd Avenue, Suite 800, Miami, Florida
33129-2237.
This Prospectus constitutes part of a registration statement on Form S-4
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the Commission under the
Securities Act. This Prospectus omits certain of the information set forth in
the Registration Statement. Reference is hereby made to the Registration
Statement and to the exhibits relating thereto for further information with
respect to the Company and the securities offered hereby. Statements contained
herein concerning the provisions of contracts or other documents are not
necessarily complete, and each such statement is qualified in its entirety by
reference to the copy of the applicable
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contract or other document filed with the Commission. Copies of the
Registration Statement and the exhibits thereto are on file at the offices of
the Commission and may be obtained upon payment of the fee prescribed by the
Commission, or may be examined without charge at the public reference
facilities of the Commission described above.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes (or incorporates by reference) "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 Exchange Act. All
statements other than statements of historical facts included (or incorporated
by reference) in this Prospectus, including without limitation, statements
under "Summary" and "Risk Factors" herein and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained int he
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996 incorporated by reference herein regarding the planned capital
expenditures, increases in oil and gas production, the number of anticipated
wells to be drilled in 1997 and thereafter, the Company's financial position,
business strategy and other plans and objectives for future operations, are
forward-looking statements. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
There are numerous uncertainties inherent in estimating quantities of proved
oil and natural gas reserves and in projecting future rates of production and
timing of 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 (or
incorporated by reference) 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.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by the Company with the Commission
pursuant to the Exchange Act (File No. 0- 26444) and are incorporated herein by
reference:
(1) the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (the "1996 10-K"); and
(2) the Company's Current Reports on Form 8-K filed on:
-- January 14, 1997 and as amended on March 17, 1997;
-- February 21, 1997;
-- July 15, 1996 and as amended on July 23, 1996 and September 12,
1996; and
the financial statements of Ashlawn Energy, Inc. as of December 31,
1994 and the two years in the period then ended and for the period
January 8, 1992 (period of inception) to December 31, 1992 (including
the independent auditor's opinion thereon) and the seven month period
ended July 31, 1995 included on pages 7 - 22 in the Current Report on
form 8-K filed on October 4, 1996.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering made by this Prospectus shall be deemed to
be incorporated by reference herein and to be a part hereof from the date of
filing thereof. Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein, or in any other subsequently filed
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document that also is or is deemed to be incorporated by reference herein,
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus has been
delivered, upon the written or oral request of such person, a copy of any or
all of the information that has been incorporated by reference in this
Prospectus (not including exhibits to the information that is incorporated by
reference herein unless such exhibits are specifically incorporated by
reference in such information). Requests for such copies should be directed to
the Secretary of the Company at 2730 SW 3rd Avenue, Suite 800, Miami, Florida,
33129-2237. In order to ensure timely delivery of such documents prior to the
Expiration Date, any request should be made by May 12, 1997.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS AND THE ACCOMPANYING LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE EXCHANGE AGENT. NEITHER THE DELIVERY OF THIS
PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH TOGETHER, NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH
TOGETHER, CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
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SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with the more detailed information and financial statements,
including the notes thereto, incorporated by reference into this Prospectus.
As used herein, unless the context otherwise requires, the term the "Company"
refers to Forcenergy Inc and its consolidated subsidiaries. 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. The Company has experienced significant
growth in the last six years, primarily through the exploitation, enhancement
and development of acquired working interests in producing properties in the
Gulf of Mexico and the acquisition of producing properties in the Cook Inlet,
Alaska area. See "-- Recent Developments -- Acquisitions." At December 31,
1996, the Company had net proved reserves of 585 Bcfe, 58% of which were
located in the Gulf of Mexico and 27% of which were located in Alaska.
Approximately 56% of the Company's net proved reserves on such date were oil
and approximately 78% of proved reserves were classified as proved developed.
The Company currently operates approximately 75% of its Gulf of Mexico
production. The Company's primary focus is its Gulf of Mexico and Alaska
activities, the Company has also acquired interests in certain high- potential
undeveloped international leasehold acreage, primarily in Guben, Africa and
Australia.
STRATEGY
Gulf of Mexico. The Company's business strategy is to increase reserves and
cash flows primarily through the exploration, exploitation and development of
its producing properties while also acquiring additional properties in the Gulf
of Mexico. Management believes it has assembled a three to five year inventory
of development, exploitation and exploratory drilling opportunities in the Gulf
of Mexico on acreage currently held by production. Most of the prospects
comprising this inventory are located in fields which have prolific production
histories and which the Company believes will yield significant additional
reserves through the application of modern exploration and development
technologies. 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 capital costs associated with new production facilities and
minimizes timing delays in commencing production. 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.
The Company prefers to operate its Gulf of Mexico properties because
functioning in that capacity positions it to more effectively manage production
performance and operating expenses and allows it to control the timing and
amount of capital expenditures. Forcenergy operates 91 structures and 177
wells in the Gulf of Mexico, and believes that the operating expertise and
experience of its personnel have been instrumental in its ability to
significantly enhance and improve production rates and cash flows. Of
particular importance, 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.
Cook Inlet, Alaska. The Company's business strategy in the Cook Inlet area
is to increase production and cash flow through exploitation of existing
producing properties as well as conducting selective exploration activities.
The Company believes that it has assembled a high quality producing asset base
with exploitation potential as well as exploratory lease positions that will
give the Company an opportunity to add significant new reserves through
exploratory drilling. Since its discovery, oil and gas activities in the Cook
Inlet area have been dominated by major oil companies. The Company believes
that it will be able to economically exploit opportunities previously not
pursued by the resident major oil companies by
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utilizing proprietary 3-D seismic data, small, automated offshore production
facilities and other methods that have proven successful in the Company's
operations in the Gulf of Mexico.
RECENT DEVELOPMENTS
From January 1996 to February 1997, the Company has spent an aggregate of
approximately $212.4 million on several acquisitions including, (1) Marathon
Oil Company's interest in certain producing crude oil properties in the Cook
Inlet area and Prudhoe Bay Unit, Alaska, (the "Marathon Acquisition") and a 30%
interest in the Cook Inlet Pipeline Company, (2) Great Western Resources, Inc.
, an independent oil and gas company ("Great Western Acquisition"), and (3)
various working interests in other oil and gas properties in the Gulf of Mexico
and the Permian Basin.
The Marathon Acquisition. On December 30, 1996, Forcenergy acquired the
48% average working interest of Marathon Oil Company ("Marathon") in the
McArthur River Field (Trading Bay Unit) and Marathon's 50% interest in the
Trading Bay Field, both in the Cook Inlet, and Marathon's 0.05% working
interest in the Prudhoe Bay Unit for $107.8 million. In January 1997, the
Company acquired Marathon's interest in the Cook Inlet Pipeline Company for
$7.4 million in cash and the guarantee of $6.7 million in Cook Inlet Pipeline
Company debt. Net production from the interests acquired is currently
approximately 7,000 Bbls of oil per day ("BOPD"). Net proved reserves
associated with the Trading Bay Unit, Trading Bay Field and Prudhoe Bay Unit
totaled approximately 25.9 MMbbls of oil as of December 31, 1996.
The UNOCAL Alliance. On December 17, 1996, the Company entered into an
alliance with Union Oil Company of California ("UNOCAL "), operator of the
Company's properties in the Cook Inlet Basin, to jointly pursue lease sale
activities and to further develop Unocal's existing Cook Inlet Basin properties
in Alaska. The agreement requires Forcenergy to expend up to $30 million
within the next five years on lease acquisition and development and exploratory
drilling on prospects generated as a result of this alliance. It also provides
Forcenergy access to Unocal's geologic and geophysical data base in the Cook
Inlet Basin, including approximately 37,000 linear miles of 2-D seismic data
and 6,000 square miles of 3-D seismic data. The agreement also provides that
Forcenergy and Unocal shall each contribute technical staff to the alliance in
a joint effort to identify development prospects in and around Unocal's
existing Cook Inlet properties as well as exploratory opportunities in the
area. The Company has identified a number of prospects that will be further
evaluated for drilling potential. During 1997, the Company plans to spend
$15.0 million on several development and exploitation wells and to undertake a
3-D seismic survey over a Cook Inlet prospect.
As part of its alliance with Unocal, on December 18, 1996, Forcenergy
acquired a 50% interest in 17 State of Alaska lease tracts. The Company's net
expenditure in the lease sale was approximately $1.7 million.
Great Western Acquisition. In January 1997, Forcenergy acquired all of the
outstanding stock of Great Western Resources, Inc. ("Great Western") for
approximately $48.3 million. Great Western had oil and gas operations located
primarily in the onshore Gulf Coast regions of Louisiana and Texas and offshore
Gulf of Mexico. Great Western's highest value asset was South Marsh Island 18,
which is strategically located adjacent to the Company's recent SMI 11 #54
discovery. Great Western also had a 20% interest in an exploration concession
in Peru. As of September 30, 1996, Great Western had total proved reserves of
approximately 33.2 Bcfe of natural gas. Great Western's current net daily
production is approximately 1,000 Bbls of oil and 14,000 Mcf of natural gas.
Other Working Interest Acquisitions. 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 this field to 100%. In December 1996,
the Company acquired interests in eight fields in the Gulf of Mexico in three
separate transactions for an aggregate purchase price of $23.5 million. The
first transaction involved the acquisition of a 33% working interest position
in Mustang Island Block 746, bringing Forcenergy's ownership in the block to
100%. In the second transaction Forcenergy acquired a 33% working interest
position in the South Marsh Island Block 136/137 field, also bringing
Forcenergy's ownership in the field to 100%. In the third transaction,
Forcenergy acquired an average 20% working interest in seven fields in the Gulf
of Mexico. Estimated net proven reserves associated with these acquisitions
include approximately 862 Mbbls of oil and 21.7 Bcfe of natural gas. The
interests acquired currently are producing approximately 500 Bbls of oil per
day and 12,000 Mcf of natural gas per day ("MCFPD"), net to Forcenergy's
interest. In February 1997, the Company acquired an average 75% non-operated
working interest in producing fields in the Permian Basin for an aggregate
purchase price of $14.5 million.
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<PAGE> 9
Estimated proven reserves associated with the properties totaled approximately
3.4 MMbbls of oil and 7.2 Bcf of natural gas as of the acquisition date.
Current average net daily production from the properties is approximately 380
Bbls of oil and 1,000 Mcf of natural gas.
During 1996, the Company also acquired interests in certain undeveloped
leasehold acreage or concessions in international areas primarily offshore
Australia and Gabon, Africa. Exploratory activities in these areas are
expected to begin in 1997.
THE PRIVATE PLACEMENT AND USE OF PROCEEDS
The Old Notes were sold by the Company on February 14, 1997 to the Initial
Purchasers and were thereupon offered and sold by the Initial Purchasers only
to certain qualified buyers. The $193.2 million net proceeds received by the
Company in connection with the sale of the Old Notes were used to repay
indebtedness outstanding under the Senior Credit Facility. See "Private
Placement" and "Capitalization."
THE EXCHANGE OFFER
The Exchange Offer relates to the exchange of up to $200,000,000 principal
amount of Exchange Notes for up to $200,000,000 principal amount of Old Notes.
The form and terms of the Exchange Notes are identical in all material respects
to the form and terms of the Old Notes except that the Exchange Notes have been
registered under the Securities Act and will not contain certain transfer
restrictions and hence are not entitled to the benefits of the Registration
Rights Agreement relating to the contingent increases in the interest rate
provided for pursuant thereto. The Exchange Notes will evidence the same debt
as the Old Notes and will be issued under and be entitled to the benefits of
the Indenture governing the Old Notes. See "Description of the Notes."
The Exchange Offer . . . . . . . . . Each $1,000 principal amount of
Exchange Notes will be issued in
exchange for each $1,000
principal amount of outstanding
Old Notes. As of the date
hereof, $200,000,000 principal
amount of Old Notes are issued
and outstanding. The Company
will issue the Exchange Notes to
tendering holders of Old Notes
on or promptly after the
Expiration Date.
Resale . . . . . . . . . . . . . . . The Company believes that the
Exchange Notes issued pursuant
to the Exchange Offer generally
will be freely transferable by
the holders thereof without
registration or any prospectus
delivery requirement under the
Securities Act, except for
certain Restricted Holders who
may be required to deliver
copies of this Prospectus in
connection with any resale of
the Exchange Notes issued in
exchange for such Old Notes.
See "The Exchange Offer --
General" and "Plan of
Distribution."
Expiration Date . . . . . . . . . . . 5:00 p.m., New York City time,
on May 23, 1997, unless the
Exchange Offer is extended, in
which case the term "Expiration
Date" means the latest date to
which the Exchange Offer is
extended. See "The Exchange
Offer -- Expiration Date;
Extensions; Amendments."
Interest on the Notes . . . . . . . . The Exchange Notes will bear
interest payable semi-annually
on February 15 and August 15 of
each year, commencing August 15,
1997. Holders of Exchange Notes
of record on August 1, 1997 will
receive interest on August 15,
1997 from the date of issuance
of the Exchange Notes, plus an
amount equal to the accrued
interest on the Old Notes from
the date of issuance of the Old
Notes, February 14, 1997, to the
date of exchange thereof.
Consequently, assuming the
Exchange Offer is consummated
prior to the record date in
respect of the August 15, 1997
interest payment for the Old
Notes, holders who exchange
their Old Notes for Exchange
Notes will receive the same
interest payment on August 15,
1997 that they would have
received had they not
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<PAGE> 10
accepted the Exchange Offer.
Interest on the Old Notes
accepted for exchange will cease
to accrue upon issuance of the
Exchange Notes. See "The
Exchange Offer -- Interest
on the Exchange Notes."
Procedures for Tendering Old Notes . Each holder of Old Notes wishing
to accept the Exchange Offer
must complete, sign and date the
Letter of Transmittal, or a
facsimile thereof, in accordance
with the instructions contained
herein and therein, and mail or
otherwise deliver such Letter of
Transmittal, or such facsimile,
or an Agent's Message (as
defined herein) together with
the Old Notes to be exchanged
and any other required
documentation to the Exchange
Agent at the address set forth
herein and therein or
effect a tender of Old Notes
pursuant to the procedures for
book-entry transfer as provided
for herein. See "The Exchange
Offer -- Procedures for
Tendering."
Special Procedures for Beneficial
Holders . . . . . . . . . . . . . . . Any beneficial holder whose Old
Notes are registered in the name
of a broker, dealer, commercial
bank, trust company or other
nominee and who wishes to tender
in the Exchange Offer should
contact such registered holder
promptly and instruct such
registered holder to tender on
the beneficial holder's behalf.
If such beneficial holder wishes
to tender directly, such
beneficial holder must, prior to
completing and executing the
Letter of Transmittal and
delivering the Old Notes, either
make appropriate arrangements to
register ownership of the Old
Notes in such holder's name or
obtain a properly completed bond
power from the registered
holder. The transfer of record
ownership may take considerable
time. See "The Exchange Offer
-- Procedures for Tendering."
Guaranteed Delivery Procedures . . . Holders of Old Notes who wish to
tender their Old Notes and whose
Old Notes are not immediately
available or who cannot deliver
their Old Notes and a properly
completed Letter of Transmittal
or any other documents required
by the Letter of Transmittal to
the Exchange Agent prior to the
Expiration Date, or who cannot
complete the procedure for
book-entry transfer on a timely
basis and deliver an Agent's
Message, may tender their Old
Notes according to the
guaranteed delivery procedures
set forth in "The Exchange Offer
-- Guaranteed Delivery
Procedures."
Withdrawal Rights . . . . . . . . . . Tenders of Old Notes may be
withdrawn at any time prior to
5:00 p.m., New York City time,
on the business day prior to the
Expiration Date, unless
previously accepted for
exchange. See "The Exchange
Offer -- Withdrawal of Tenders."
Termination of the Exchange Offer . . The Company may terminate the
Exchange Offer if it determines
that the Exchange Offer violates
any applicable law or
interpretation of the staff of
the SEC. Holders of Old Notes
will have certain rights against
the Company under the
Registration Rights Agreement
should the Company fail to
consummate the Exchange Offer.
See "The Exchange Offer --
Termination" and "Description of
the Notes -- Registration
Rights; Liquidated Damages."
Acceptance of Old Notes and
Delivery of Exchange Notes . . . . . Subject to certain conditions
(as summarized above in
"Termination of the Exchange
Offer" and described more fully
in "The Exchange Offer --
Termination"), the Company will
accept for exchange any and all
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<PAGE> 11
Old Notes which are properly
tendered in the Exchange Offer
prior to 5:00 p.m., New York
City time, on the Expiration
Date. The Exchange Notes issued
pursuant to the Exchange Offer
will be delivered promptly
following the Expiration Date.
See "The Exchange Offer --
General."
Exchange Agent . . . . . . . . . . . Bankers Trust Company is serving
as exchange agent (the "Exchange
Agent") in connection with the
Exchange Offer. The mailing
address of the Exchange Agent
is: BT Services Tennessee, Inc.,
Reorganization Unit, P.O. Box
292737, Nashville, TN
37229-2737. Hand deliveries and
deliveries by overnight courier
should be addressed to Bankers
Trust Company, Corporate Trust
and Agency Group, Receipt &
Delivery Window, 123 Washington
St., 1st Floor, New York, NY
10006. For information with
respect to the Exchange Offer,
the telephone number for the
Exchange Agent is (800) 735-
7777 and the facsimile number
for the Exchange Agent is (615)
835-3701. See "The Exchange
Offer -- Exchange Agent."
Use of Proceeds . . . . . . . . . . . There will be no cash proceeds
payable to the Company from the
issuance of the Exchange Notes
pursuant to the Exchange Offer.
See "Use of Proceeds." For a
discussion of the use of the net
proceeds received by the Company
from the sale of the Old Notes,
see "Private Placement."
TERMS OF THE NOTES
Notes Outstanding . . . . . . . . . . $200 million principal amount of
8 1/2% Senior Subordinated Notes
due 2007.
Maturity Date . . . . . . . . . . . . February 15, 2007.
Interest Payment Dates . . . . . . . February 15 and August 15 of
each year, commencing August 15,
1997.
Optional Redemption . . . . . . . . . The Notes are redeemable at the
option of the Company, in whole
or in part, at any time on or
after February 15, 2002 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
February 15, 2002 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 February 15, 1997,
up to $70.0 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
108.500% 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 $130.0 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 purchase their Notes, in
whole or in part, at a price in
cash equal to 101% of the
aggregate principal amount
thereof,
10
<PAGE> 12
plus accrued and unpaid interest
to the date of purchase. The
Indenture requires that, prior to
such a purchase 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
purchase. 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 are general, unsecured
obligations of the Company,
which will be subordinated in
right of payment to all Senior
Debt of the Company, pari passu
in right of payment with all
existing and future senior
subordinated indebtedness of the
Company (including the 9 1/2%
Notes) and senior in right of
payment to all future
subordinated indebtedness of the
Company. See "Description of
Notes -- Subordination."
Certain Covenants . . . . . . . . . . The Old Notes have been and the
New 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 of Old Notes . . . . The net proceeds of the Old
Notes offered hereby
(approximately $193.2 million)
were used to repay indebtedness
outstanding under the Senior
Credit Facility. See
"Capitalization."
Transfer Restrictions . . . . . . . . The Old Notes were not
registered under the Securities
Act and unless so registered may
not be offered or sold except
pursuant to an exemption from,
or in a transaction not subject
to, the registration
requirements of the Securities
Act. See "Transfer Restrictions
on Old Notes".
Exchange Offer . . . . . . . . . . . Pursuant to a registration
rights agreement (the
"Registration Rights Agreement")
by and among the Company and the
Initial Purchasers, the Company
agreed to (i) file a
registration statement with the
Commission (the "Exchange Offer
Registration Statement") with
11
<PAGE> 13
respect to an offer to exchange
the Old Notes (the "Exchange
Offer") for senior subordinated
debt securities of the Company
with terms substantially
identical to the Notes (the "New
Notes") (except that the New
Notes generally will not contain
terms with respect to transfer
restrictions) within 60 days
after the date of original
issuance of the Old Notes,
February 14, 1997, and (ii) use
its best efforts to cause such
registration statement to become
effective under the Securities
Act within 120 days after such
issue date. The Registration
Statement of which this
Prospectus is a part constitutes
such Exchange Offer Registration
Statement. In the event that
applicable law or interpretations
of the staff of the Commission do
not permit the Company to effect
the Exchange Offer, or if certain
holders of the Notes notify the
Company that they are not
permitted to participate in, or
would not receive freely
tradeable Notes pursuant to, the
Exchange Offer, the Company will
use its best efforts to cause to
become effective a registration
statement (the "Shelf
Registration Statement") with
respect to the resale of the Old
Notes and to keep the Shelf
Registration Statement effective
until three years after the date
of original issuance of the Old
Notes. The interest rate on the
Old Notes is subject to increase
under certain circumstances if
the Company is not in compliance
with its obligations under the
Registration Rights Agreement.
See "Description of Notes --
Registration Rights; Liquidated
Damages."
RISK FACTORS
The Exchange Notes involve certain risks that a potential investor should
carefully evaluate prior to making an investment. See "Risk Factors."
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<PAGE> 14
RISK FACTORS
The following risk factors, as well as the other information set forth in
this Prospectus, should be carefully evaluated prior to making an investment in
the Exchange Notes.
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.
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 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 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 Memorandum 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
13
<PAGE> 15
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.
The present values of estimated future net cash flows referred to in this
Memorandum 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")
previously provided for a commitment of $195 million and a borrowing base of
$195 million. Effective March 31, 1997, the Senior Credit Facility was amended
to extend the maturity date and to reduce the interest rates. As amended, the
total loan amount remains at $195 million. At the Company's direction the
borrowing base was reduced to $50 million in order to lower the commitment fees
on the unused commitment. The Company had availability of approximately $49
million under the Senior Credit Facility at March 31, 1997. On November 6, 1996,
the Company issued $175 million aggregate principal amount of 9 1/2% Notes, and
it issued Old Notes in the aggregate principal amount of $200 million on
February 14, 1997. All of the 9 1/2% Notes and the Old Notes remain
outstanding.
The Company's level of indebtedness has several important effects on its
operations, including (i) the covenants contained in the Senior Credit
Facility, the 9 1/2% Notes indenture 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, 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. 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.
SUBORDINATION OF THE NOTES
The Notes are 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 March 31, 1997, the Company had $100,000 aggregate
principal amount of Senior Debt outstanding and up to $49 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."
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<PAGE> 16
In addition to being subordinated to all existing and future Senior Debt of
the Company, the Notes are not 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 purchase 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 purchase. The Indenture requires that prior
to such a purchase, the Company must either repay all outstanding Senior Debt
or obtain any required consents to such purchase. 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
(including the 9 1/2% Notes) 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 has been incurred for proper purposes and
in good faith, and that, based on forecasts, asset valuations and other
financial information available to the Company at the time of the offering of
the Old Notes, the Company was then solvent, and it had sufficient capital for
carrying on its business and was 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 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.
LACK OF PUBLIC MARKET
The Company does not intend to apply for a listing or quotation of the
Exchange Notes on any securities exchange or stock market. The Initial
Purchasers have informed the Company that they currently intend to make a
market in the Exchange Notes. However, the Initial Purchasers are not
obligated to do so, and any such market making may be discontinued at any time
without notice. No assurance can be given as to the liquidity of the trading
market for the Exchange Notes. Accordingly, there can be no assurance as to
the development or liquidity of any market for the Exchange Notes.
The liquidity of, and trading market for, the Exchange Notes also may be
adversely affected by general declines in the market for similar securities.
Such a decline may adversely affect such liquidity and trading markets
independent of the financial performance of, and prospects for, the Company.
CONTROL BY PRINCIPAL SECURITYHOLDERS
The Company's principal stockholder, Forcenergy AB ("FAB"), as of November
1996, owned approximately 39% of the outstanding shares of common stock of the
Company. FAB is a publicly traded Swedish company with two classes of stock, A
shares and B shares. As of September 1996, there were 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.
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<PAGE> 17
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, private placements
and public offerings of debt and equity securities and cash generated by
operations. The Company made capital expenditures (including expenditures for
acquisitions) of $144.7 million during 1995 and $284.0 million during 1996.
The Company plans to make capital expenditures, not including expenditures for
acquisitions, of approximately $195 million in 1997. Management believes that
the Company will have sufficient cash provided by operating activities,
borrowings under the Senior Credit Facility and proceeds from the Offering to
fund planned capital expenditures in 1997. If revenues decrease as a result of
lower oil and gas prices or operating difficulties, or the Company does not
complete the Offering, 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.
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 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,
16
<PAGE> 18
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.
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> 19
THE COMPANY
GENERAL
Forcenergy is an independent oil and gas company engaged in the
exploration, acquisition, development, exploitation and production of oil and
natural gas.
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. As of
November 1996 FAB owned approximately 39% of the outstanding shares of common
stock of the Company. FAB is a publicly traded Swedish company with two
classes of stock, A shares and B shares. Each of the 1,000,000 A shares
outstanding as of September 1996 was entitled to one vote per share, and each
of the 13,392,000 then 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.
PRIVATE PLACEMENT
On February 14, 1997, the Company completed the private sale to the Initial
Purchasers of $200,000,000 principal amount of the Old Notes at a price of
96.838% of the principal amount thereof in a transaction not registered under
the Securities Act in reliance upon Section 4(2) of the Securities Act. The
Initial Purchasers thereupon offered and resold the Old Notes only to qualified
institutional buyers and a limited number of institutional accredited investors
at an initial price to such purchasers of 99.338% of the principal amount
thereof. The $193.2 million net proceeds received by the Company in connection
with the sale of the Old Notes were used to repay amounts outstanding under the
Senior Credit Facility.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
as contemplated in this Prospectus, the Company will receive in exchange a like
principal amount of Old Notes, the terms of which are identical in all material
respects to the Exchange Notes. The Old Notes surrendered in exchange for the
Exchange Notes will be retired and canceled and cannot be reissued.
Accordingly, issuance of the Exchange Notes will not result in any change in
capitalization of the Company.
18
<PAGE> 20
CAPITALIZATION
The following table sets forth the capitalization of the Company at
December 31, 1996, and as adjusted to give effect to the sale of the Old Notes
and the application of the net proceeds therefrom assuming such transactions
occurred on December 31, 1996. This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations"contained in the 1996 10-K incorporated by reference in this
Prospectus and the Financial Statements of the Company and the related Notes
thereto incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
At December 31, 1996
---------------------
As
Actual Adjusted
--------- ---------
(in millions)
<S> <C> <C>
Senior Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 97.9 $ --
9 1/2% Senior Subordinated Notes due 2006 . . . . . . . . . . . . . . . . . . . . 175.0 175.0
8 1/2% Senior Subordinated Notes due 2007 . . . . . . . . . . . . . . . . . . . -- 200.0
--------- ---------
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272.9 375.0
Stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248.9 248.9
--------- ---------
Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 521.8 $ 623.9
========= =========
</TABLE>
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 three 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
years ended December 31, 1995 and 1996 are derived from the financial
statements of the Company audited by Coopers & Lybrand L.L.P., independent
accountants.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1992 1993 1994 1995 1996
---------- ----------- ---------- ----------- ------------
(in thousands, except per share amounts)
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C>
Revenues:
Oil and gas sales . . . . . . . . . $ 24,937 $ 49,652(1) $ 58,354(1) $ 72,147 $ 138,698
Other . . . . . . . . . . . . . . . 475 441(1) 388(1) 494 683
---------- ----------- ---------- ----------- ------------
25,412 50,093 58,742 72,641 139,381
---------- ----------- ---------- ----------- ------------
Expenses:
Lease operating . . . . . . . . . . 7,769 16,632 23,744 24,507 38,786
Depreciation, depletion and 8,014 19,889 24,572 31,295 58,464
amortization . . . . . . . . . . . . . . . .
Production taxes . . . . . . . . . . 606 1,560 1,701 1,868 3,454
General and administrative, net . . 2,523 3,166 6,463 5,670 7,971
---------- ----------- ---------- ----------- ------------
Total operating expenses . . . . . . 18,912 41,247 56,480 63,340 108,675
---------- ----------- ---------- ----------- ------------
Income from operations . . . . . . . . . 6,500 8,846 2,262 9,301 30,706
Interest and other income (loss) . . . . 197 545 789 (561) 650
Interest expense, net of amounts (2,303) (6,192) (9,529) (11,668) (13,367)
---------- ----------- ---------- ----------- ------------
capitalized . . . . . . . . . . . . . . . . .
Income (loss) before income taxes . . . 4,394 3,199 (6,478) (2,928) 17,989
Income tax provision (benefit) (2) . . . -- 2,337 (2,403) (1,075) 6,711
Minority interest . . . . . . . . . . . 132 107 -- -- --
---------- ----------- ---------- ----------- ------------
Net income (loss) (2) . . . . . . . . . $ 4,262 $ 755 $ (4,075) $ (1,853)$ 11,278
========== =========== ========== =========== ============
Net income (loss) per common and common
equivalent share (2) . . . . . . . . . $ (.50) $ (.14)$ .57
========== =========== ============
UNAUDITED PRO FORMA DATA(2): . . . . . . . .
Income before income taxes, including $ 4,262 $ 3,092
minority interest . . . . . . . . . . .
Income tax provision . . . . . . . . . . 1,639 1,207
---------- -----------
Net Income . . . . . . . . . . . . . . . 2,623 1,885
========== ===========
Net income per share . . . . . . . . . . $ .41 $ .29
========== ===========
Weighted average common and common
equivalent
shares . . . . . . . . . . . . . . . 6,451 6,520 8,188 12,910 19,726
</TABLE>
19
<PAGE> 21
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1992 1993 1994 1995 1996
---------- ----------- ---------- ----------- ------------
(in thousands, except per share amounts)
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT END OF PERIOD):
Property, plant and equipment, net . . . $ 112,441 $ 152,659 $ 186,241 $ 298,832 $ 523,711
Total assets . . . . . . . . . . . . . . 127,685 187,786 220,287 335,090 585,925
Total long-term debt . . . . . . . . . . 75,758 127,234 131,646 130,729 272,932
Stockholders' equity . . . . . . . . . . 45,252 43,336 71,061 154,961 248,936
OTHER FINANCIAL DATA:
Capital Expenditures (3) . . . . . . . . $ 67,660 $ 53,371 58,169 $ 144,689 $ 283,977
EBITDA (4) . . . . . . . . . . . . . . . 14,711 29,280 27,623 40,035 89,820
Ratio of Earnings to Fixed Charges (5) . 2.9x 1.4x N/M N/M 2.0x
EBITDA Interest Coverage (6) . . . . . . 6.4x 4.5x 2.5x 2.8x 5.8x
</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 and 1996 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 1992 and 1993 is described as
unaudited pro forma because of the Company's former partnership status.
(3) Capital expenditures include acquisitions of oil and gas properties
including a non-cash item relating to the 1995 Acquisitions, amounting to
$46.4 million.
(4) EBITDA is defined as earnings (including interest and other income) 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.
(5) 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 by $5.5 million and $8.0 million, respectively.
(6) Represents multiple by which EBITDA exceeds interest expense.
20
<PAGE> 22
SUMMARY OF 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 and 1996 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 and 1996 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, 1994 were prepared by Collarini Engineering Inc., independent
petroleum engineering consultants and Joe C. Neal & Associates, independent
petroleum engineers. 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" 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 in this Registration
Statement.
<TABLE>
<CAPTION>
As of December 31,
-----------------------------------
1994 1995 1996
---------- --------- -----------
<S> <C> <C> <C>
Proved Reserves:
Oil (Mbbls) . . . . . . . . . . . . . . . . . . . . . . . . . . 11,310 24,458 54,659
Natural gas (Mmcf) . . . . . . . . . . . . . . . . . . . . . . . 172,122 218,052 256,913
Total (Mmcfe) . . . . . . . . . . . . . . . . . . . . . . . . . 239,982 364,800 584,867
Present value of future net revenues before income
taxes (000s) (1) . . . . . . . . . . . . . . . . . . . . . . $ 171,391 $ 540,901 $ 1,055,911
Standardized measure of discounted future net cash
flows (000s) (2) . . . . . . . . . . . . . . . . . . . . . . $ 152,627 $ 406,956 $ 802,145
</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>
Year Ended December 31,
------------------------------ ------------
1994 1995 1996
----------- ------------- ------------
<S> <C> <C> <C>
Production:
Liquids (Mbbls) (1) . . . . . . . . . . . . . . . . . . . . . . 1,753(2) 2,343 4,006
Natural gas (Mmcf) . . . . . . . . . . . . . . . . . . . . . . . 17,121 21,112 32,738
Total (Mmcfe) . . . . . . . . . . . . . . . . . . . . . . . . . 27,639 35,170 56,774
Average sales prices:
Liquids (per Bbl) . . . . . . . . . . . . . . . . . . . . . . . $ 15.04 $ 16.46 $ 16.93
Natural gas (per Mcf) . . . . . . . . . . . . . . . . . . . . . 1.87 1.59 2.16
Expenses (per Mcfe):
Lease operating . . . . . . . . . . . . . . . . . . . . . . . . $ .86 $ .70 $ .68
Production taxes . . . . . . . . . . . . . . . . . . . . . . . . .06 .05 .06
Depreciation, depletion and amortization . . . . . . . . . . . . .88 .88 1.03
General and administrative, net . . . . . . . . . . . . . . . . .23 .16 .14
</TABLE>
(1) Includes crude oil, condensate and natural gas liquids.
(2) Includes certain natural gas liquid volumes reclassified to conform with
1995 and 1996 classifications.
21
<PAGE> 23
PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma statement of operations for the year ended December
31, 1996 gives effect to the Marathon Acquisition, the Amerada Hess Acquisition
(the "1996 Acquisitions"), the conversion during 1996 of the 7% Exchangeable
Subordinated Notes (the "Exchangeable Notes") into 2,343,048 shares of Common
Stock, the 1996 exercise of 214,866 options to purchase Common Stock by certain
holders of the Exchangeable Notes, the sale of 1,635,408 shares of Common Stock
in 1996 (the "Common Stock Offering"), the 1996 issuance of $175,000,000 of
9-1/2% Senior Subordinated Notes (the "Notes Offering") (collectively, the
"1996 Transactions"),and the 1997 issuance of the Old Notes as if they had
occurred on January 1, 1996. Such unaudited pro forma financial information
includes only revenues and direct operating expenses of the acquisitions and is
not a complete statement of operations. The 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 results
of operations which would actually have been obtained if the 1996 Acquisitions,
1996 Transactions and the 1997 issuance of the Old Notes had occurred on
January 1, 1996 or the results which may be obtained in the future. Future
results may vary significantly from the results reflected in such statements
due to price changes, production declines, supply and demand, acquisitions and
other factors.
FORCENERGY INC
PRO FORMA STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Forcenergy Amerada Hess Marathon
Historical Acquisition Acquisition Pro forma
(a) (b) (c) Adjustments Pro Forma
---------- ----------- ----------- ----------- -----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues
Oil & gas sales . . . . . . . . . . . . . $ 138,698 $ 9,263 $ 49,619 -- $ 197,580
Other . . . . . . . . . . . . . . . . . . 683 -- -- -- 683
---------- ----------- ----------- ----------- -----------
Total revenues . . . . . . . . . . . . 139,381 9,263 49,619 -- 198,263
---------- ----------- ----------- ----------- -----------
Operating expenses
Lease operating . . . . . . . . . . . . . 38,786 2,317 19,338 -- 60,441
Depletion, depreciation and amortization 58,464 -- -- 15,503 (d) 73,967
Production taxes . . . . . . . . . . . . . 3,454 -- 297 -- 3,751
General & administrative, net . . . . . . . 7,971 -- -- -- 7,971
---------- ------------ ------------ ----------- -----------
Total operating expenses . . . . . . . 108,675 2,317 19,635 15,503 146,130
---------- ----------- ----------- ---------- -----------
Income from operations . . . . . . . . . . 30,706 6,946 29,984 (15,503) 52,133
Interest and other income . . . . . . . . . 650 -- -- -- 650
Interest expense, net . . . . . . . . . . . (13,367) -- -- (7,683) (e) (21,050)
Income before income taxes . . . . . . . . 17,989 6,946 29,984 (23,186) 31,733
Income tax provision . . . . . . . . . . . 6,711 -- -- 5,126 (f) 11,837
---------- ------------ ------------ ---------- -----------
Net income . . . . . . . . . . . . . . . . $ 11,278 $ 6,946 $ 29,984 $ (28,312) $ 19,896
========== =========== =========== ========== ===========
Net income per share . . . . . . . . . . . $ .57 $ .83
========== ===========
Weighted average common and common
equivalent
shares . . . . . . . . . . . . . . . . 19,726 23,919
</TABLE>
- --------------------
(a) Forcenergy Historical Results include the historical oil and gas revenues
and direct operating expenses for the Amerada Hess Acquisition from closing
date June 28, 1996 to December 31, 1996 and Marathon Acquisition from
December 30, 1996 to December 31, 1996.
(b) This column includes the historical oil revenues and direct operating
expenses for the Amerada Hess Acquisition from January 1, 1996 to June 27,
1996.
(c) This column indicates the historical oil revenues and direct operating
expenses for the Marathon Acquisition from January 1, 1996 to December 29,
1996.
(d) Adjustment to reflect the depletion, depreciation and amortization of oil
and gas properties giving consideration to the 1996 Acquisitions.
(e) Net increase in interest expense assuming the following transactions
occurred on January 1, 1996: (i) conversion of the Exchangeable Notes;
(ii) the Common Stock Offering; (iii) the Notes Offering; and (iv) the
issuance of the Old Notes; and assuming a weighted average interest rate of
8.97% and average actual debt outstanding for the period (excluding the
Exchangeable Notes) adjusted for 1996 Acquisitions costs, debt issuance
cost and capitalized interest.
(f) Adjustment to income tax expense reflecting the results of the transactions
reflected herein using the combined federal and state statutory rate of
37.3%.
22
<PAGE> 24
THE EXCHANGE OFFER
GENERAL
In connection with the sale of the Old Notes, the purchasers thereof became
entitled to the benefits of certain registration rights under the Registration
Rights Agreement. The Exchange Notes are being offered hereunder in order to
satisfy the obligations of the Company under the Registration Rights Agreement.
See "Description of Notes -- Registration Rights; Liquidated Damages."
For each $1,000 principal amount of Old Notes surrendered to the Company
pursuant to the Exchange Offer, the holder of such Old Notes will receive
$1,000 principal amount of Exchange Notes. Upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal, the Company will accept all Old Notes properly tendered prior to
5:00 p.m., New York City time, on the Expiration Date. Holders may tender some
or all of their Old Notes pursuant to the Exchange Offer in integral multiples
of $1,000 principal amount.
Under existing interpretations of the staff of the SEC, including Exxon
Capital Holdings Corporation, SEC No-Action Letter (available April 13, 1989),
the Morgan Stanley Letter and Mary Kay Cosmetics, Inc., SEC No-Action Letter
(available June 5, 1991), the Company believes that the Exchange Notes would in
general be freely transferable after the Exchange Offer without further
registration under the Securities Act by the respective holders thereof (other
than a "Restricted Holder," being (i) a broker-dealer who purchased Old Notes
exchanged for such Exchange Notes directly from the Company to resell pursuant
to Rule 144A or any other available exemption under the Securities Act or (ii)
a person that is an affiliate of the Company within the meaning of Rule 405
under the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business
and such holder is not participating in, and has no arrangement with any person
to participate in, the distribution (within the meaning of the Securities Act)
of such Exchange Notes. Eligible holders wishing to accept the Exchange Offer
must represent to the Company that such conditions have been met. Any holder
of Old Notes who tenders in the Exchange Offer for the purpose of participating
in a distribution of the Exchange Notes could not rely on the interpretation by
the staff of the SEC enunciated in the Morgan Stanley Letter and similar
no-action letters, and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction.
Each holder of Old Notes who wishes to exchange Old Notes for Exchange
Notes in the Exchange Offer will be required to make certain representations,
including that (i) it is neither an affiliate of the Company nor a
broker-dealer tendering Old Notes acquired directly from the Company for its
own account, (ii) any Exchange Notes to be received by it are being acquired in
the ordinary course of its business and (iii) it is not participating in, and
it has no arrangement with any person to participate in, the distribution
(within the meaning of the Securities Act) of the Exchange Notes. In addition,
in connection with any resales of Exchange Notes, any broker-dealer (a
"Participating Broker-Dealer") who acquired Old Notes for its own account as a
result of market-making activities or other trading activities must acknowledge
that it will deliver a prospectus meeting the requirements of the Securities
Act in connection with any resale of such Exchange Notes. The staff of the SEC
has taken the position in no-action letters issued to third parties including
Shearman & Sterling, SEC No-Action Letter (available July 2, 1993), that
Participating Broker-Dealers may fulfill their prospectus delivery requirements
with respect to the Exchange Notes (other than a resale of an unsold allotment
from the original sale of Old Notes) with this Prospectus, as it may be amended
or supplemented from time to time. Under the Registration Rights Agreement,
the Company is required to allow Participating Broker-Dealers to use this
Prospectus, as it may be amended or supplemented from time to time, in
connection with the resale of such Exchange Notes. See "Plan of Distribution."
The Exchange Offer shall be deemed to have been consummated upon the
earlier to occur of (i) the Company having exchanged Exchange Notes for all
outstanding Old Notes (other than Old Notes held by a Restricted Holder)
pursuant to the Exchange Offer and (ii) the Company having exchanged, pursuant
to the Exchange Offer, Exchange Notes for all Old Notes that have been tendered
and not withdrawn on the date that is 30 days following the commencement of the
Exchange Offer. In such event, holders of Old Notes seeking liquidity in their
investment would have to rely on exemptions to registration requirements under
the securities laws, including the Securities Act.
As of the date of this Prospectus, $200,000,000 aggregate principal amount
of Old Notes are issued and outstanding. In connection with the issuance of
the Old Notes, the Company arranged for the Old Notes to be eligible for
trading in the Private Offering, Resale and Trading through Automated Linkages
(PORTAL) Market, the National Association of Securities Dealers' screen based,
automated market trading of securities eligible for resale under Rule 144A.
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<PAGE> 25
The Company shall be deemed to have accepted for exchange validly tendered
Old Notes when, as and if the Company has given oral or written notice thereof
to the Exchange Agent. See "-- Exchange Agent." The Exchange Agent will act as
agent for the tendering holders of Old Notes for the purpose of receiving
Exchange Notes from the Company and delivering Exchange Notes to such holders.
If any tendered Old Notes are not accepted for exchange because of an invalid
tender or the occurrence of certain other events set forth herein, certificates
for any such unaccepted Old Notes will be returned, without expense, to the
tendering holder thereof as promptly as practicable after the Expiration Date.
Holders of Old Notes who tender in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"-- Fees and Expenses."
This Prospectus, together with the accompanying Letter of Transmittal, is
being sent to all registered holders as of the date of this Prospectus.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean May 23, 1997 unless the Company,
in its sole discretion, extends the Exchange Offer, in which case the term
"Expiration Date" shall mean the latest date to which the Exchange Offer is
extended. In order to extend the Expiration Date, the Company will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
record holders of Old Notes an announcement thereof, each prior to 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date. Such announcement may state that the Company is extending the
Exchange Offer for a specified period of time. The Company reserves the right
(i) to delay acceptance of any Old Notes, to extend the Exchange Offer or to
terminate the Exchange Offer and to refuse to accept Old Notes not previously
accepted, if any of the conditions set forth herein under "-- Termination"
shall have occurred and shall not have been waived by the Company (if permitted
to be waived by the Company), by giving oral or written notice of such delay,
extension or termination to the Exchange Agent, and (ii) to amend the terms of
the Exchange Offer in any manner deemed by it to be advantageous to the holders
of the Old Notes. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written notice
thereof. If the Exchange Offer is amended in a manner determined by the Company
to constitute a material change, the Company will promptly disclose such
amendment in a manner reasonably calculated to inform the holders of the Old
Notes of such amendment. Without limiting the manner in which the Company may
choose to make public announcements of any delay in acceptance, extension,
termination or amendment of the Exchange Offer, the Company shall have no
obligation to publish, advertise, or otherwise communicate any such public
announcement, other than by making a timely release to the Dow Jones News
Service.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest payable semi-annually on February 15
and August 15 of each year, commencing August 15, 1997. Holders of Exchange
Notes of record on August 1, 1997 will receive interest on August 15, 1997 from
the date of issuance of the Exchange Notes, plus an amount equal to the accrued
interest on the Old Notes from the date of issuance of the Old Notes, February
14, 1997, to the date of exchange thereof. Consequently, assuming the Exchange
Offer is consummated prior to the record date in respect of the August 15, 1997
interest payment for the Old Notes, holders who exchange their Old Notes for
Exchange Notes will receive the same interest payment on August 15, 1997 that
they would have received had they not accepted the Exchange Offer. Interest on
the Old Notes accepted for exchange will cease to accrue upon issuance of the
Exchange Notes.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, or an Agent's Message
together with the Old Notes and any other required documents, to the Exchange
Agent prior to 5:00 p.m., New York City time, on the Expiration Date. In
addition, either (i) the certificates for such Old Notes must be received by the
Exchange Agent along with the Letter of Transmittal or (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old
Notes, if such procedure is available, into the Exchange Agent's account at The
Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the
procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date or (iii) the Holder must comply with
the guaranteed delivery procedures described below. The tender by a holder of
Old Notes will constitute an agreement between such holder and the Company in
accordance with the terms and subject to the conditions set forth herein and in
the Letter of Transmittal. Delivery of all documents must be made to the
Exchange Agent at its address set forth herein. Holders may also request that
their respective brokers, dealers, commercial banks, trust companies or nominees
effect such tender for such holders.
The term "Agent's Message" means a message, transmitted by the Book-Entry
Transfer Facility to, and received by, the Exchange Agent and forming a part of
a Book-Entry Confirmation, which states that such Book-Entry Transfer Facility
has received an express acknowledgment from the participant in such Book-Entry
Transfer Facility tendering Old Notes which are the subject of such Book-Entry
Confirmation that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal, and that the Company may enforce such
agreement against such participant.
The method of delivery of Old Notes and the Letter of Transmittal and all
other required documents to the Exchange Agent is at the election and risk of
the holders. Instead of delivery by mail, it is recommended that holders use
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<PAGE> 26
an overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery. No Letter of Transmittal or Old Notes should
be sent to the Company. Only a holder of Old Notes may tender such Old Notes
in the Exchange Offer. The term "holder" with respect to the Exchange Offer
means any person in whose name Old Notes are registered on the books of the
Company or any other person who has obtained a properly completed stock power
from the registered holder.
Any beneficial holder whose Old Notes are registered in the name of such
holder's broker, dealer, commercial bank, trust company or other nominee and
who wishes to tender should contact such registered holder promptly and
instruct such registered holder to tender on behalf of the registered holder.
If such beneficial holder wishes to tender directly, such beneficial holder
must, prior to completing and executing the Letter of Transmittal and
delivering his Old Notes, either make appropriate arrangements to register
ownership of the Old Notes in such holder's name or obtain a properly completed
bond power from the registered holder. The transfer of record ownership may
take considerable time. If the Letter of Transmittal is signed by the record
holder(s) of the Old Notes tendered thereby, the signature must correspond with
the name(s) written on the face of the Old Notes without alteration,
enlargement or any change whatsoever. If the Letter of Transmittal is signed
by a participant in Depositary Trust Company ("DTC"), the signature must
correspond with the name as it appears on the security position listing as the
holder of the Old Notes. Signatures on a Letter of Transmittal or a notice of
withdrawal, as the case may be, must be guaranteed by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office
or correspondent in the United States or an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible
Institution") unless the Old Notes tendered pursuant thereto are tendered (i)
by a registered holder (or by a participant in DTC whose name appears on a
security position listing as the owner) who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions" on the
Letter of Transmittal and the Exchange Notes are being issued directly to such
registered holder (or deposited into the participant's account at DTC) or (ii)
for the account of an Eligible Institution. If the Letter of Transmittal is
signed by a person other than the registered holder of any Old Notes listed
therein, such Old Notes must be endorsed or accompanied by appropriate bond
powers which authorize such person to tender the Old Notes on behalf of the
registered holder, in either case signed as the name of the registered holder
or holders appears on the Old Notes. If the Letter of Transmittal or any Old
Notes or bond powers are signed by trustees, executors, administrators,
guardians, attorneys- in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so indicate when
signing, and unless waived by the Company, evidence satisfactory to the Company
of their authority to so act must be submitted with the Letter of Transmittal.
A tender will be deemed to have been received as of the date when the
tendering holder's duly signed Letter of Transmittal accompanied by Old Notes
(or a timely confirmation received of a book-entry transfer of Old Notes into
the Exchange Agent's account at DTC with an Agent's Message) or a Notice of
Guaranteed Delivery from an Eligible Institution is received by the Exchange
Agent. Issuances of Exchange Notes in exchange for Old Notes tendered pursuant
to a Notice of Guaranteed Delivery by an Eligible Institution will be made only
against delivery of the Letter of Transmittal (and any other required documents)
and the tendered Old Notes (or a timely confirmation received of a book-entry
transfer of Old Notes into the Exchange Agent's account at DTC) with the
Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Old Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and
all Old Notes not properly tendered or any Old Notes the Company's acceptance
of which would, in the opinion of the Company or its counsel, be unlawful. The
Company also reserves the absolute right to waive any conditions of the
Exchange Offer or defects or irregularities in tender as to particular Old
Notes. The Company's interpretation of the terms and conditions of the
Exchange Offer (including the instructions in the Letter of Transmittal) shall
be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes must be cured within
such time as the Company shall determine. Neither the Company, the Exchange
Agent nor any other person shall be under any duty to give notification of
defects or irregularities with respect to tenders of Old Notes nor shall any of
them incur any liability for failure to give such notification. Tenders of Old
Notes will not be deemed to have been made until such irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned without cost by the Exchange Agent to the
tendering holder of such Old Notes unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date. In
addition, the Company reserves the right in its sole discretion to (i) purchase
or make offers for any Old Notes that remain outstanding subsequent to the
Expiration Date, or, as set forth under "-- Termination," to terminate the
Exchange Offer and (ii) to the extent permitted by applicable law, purchase Old
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<PAGE> 27
Notes in the open market, in privately negotiated transactions or otherwise.
The terms of any such purchases or offers may differ from the terms of the
Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will establish an account with respect to the Old Notes
at DTC within two business days after the date of this Prospectus, and any
financial institution which is a participant in DTC may make book-entry delivery
of the Old Notes by causing DTC to transfer such Old Notes into the Exchange
Agent's account in accordance with DTC's procedure for such transfer. Although
delivery of Old Notes may be effected through book-entry transfer into the
Exchange Agent's account at DTC, an Agent's Message must be transmitted to and
received by the Exchange Agent on or prior to the Expiration Date at one of its
addresses set forth below under "-- Exchange Agent", or the guaranteed delivery
procedure described below must be complied with. DELIVERY OF DOCUMENTS TO DTC
DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. All references in this
Prospectus to deposit or delivery of Old Notes shall be deemed to include DTC's
book-entry delivery method.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and whose Old Notes are not
immediately available or who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, or who cannot complete the procedure for book-entry transfer on
a timely basis and deliver an Agent's Message, may effect a tender if: (i) the
tender is made by or through an Eligible Institution; (ii) prior to the
Expiration Date, the Exchange Agent receives from such Eligible Institution a
properly completed and duly executed Notice of Guaranteed Delivery (by facsimile
transmission, mail or hand delivery) setting forth the name and address of the
holder of the Old Notes, the registration number or numbers of such Old Notes
(if applicable), and the total principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within five
business days after the Expiration Date, the Letter of Transmittal, together
with the Old Notes in proper form for transfer (or a confirmation of a
book-entry transfer into the Exchange Agent's account at DTC) and any other
documents required by the Letter of Transmittal, will be deposited by the
Eligible Institution with the Exchange Agent; and (iii) such properly completed
and executed Letter of Transmittal, together with the certificate(s)
representing all tendered Old Notes in proper form for transfer (or a
confirmation of such a book-entry transfer) and all other documents required by
the Letter of Transmittal are received by the Exchange Agent within five
business days after the Expiration Date.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, certain terms and
conditions which are summarized below and are part of the Exchange Offer.
Each holder who participates in the Exchange Offer will be required to
represent that any Exchange Notes received by it will be acquired in the
ordinary course of its business, that such holder is not participating in, and
has no arrangement with any person to participate in, the distribution (within
the meaning of the Securities Act) of the Exchange Notes, and that such holder
is not a Restricted Holder.
Old Notes tendered in exchange for Exchange Notes (or a timely confirmation
of a book-entry transfer of such Old Notes into the Exchange Agent's account at
DTC) must be received by the Exchange Agent, with the Letter of Transmittal or
an Agent's Message and any other required documents, by the Expiration Date or
within the time periods set forth above pursuant to a Notice of Guaranteed
Delivery from an Eligible Institution. Each holder tendering the Old Notes for
exchange sells, assigns and transfers the Old Notes to the Exchange Agent, as
agent of the Company, and irrevocably constitutes and appoints the Exchange
Agent as the holder's agent and attorney-in-fact to cause the Old Notes to be
transferred and exchanged. The holder warrants that it has full power and
authority to tender, exchange, sell, assign and transfer the Old Notes and to
acquire the Exchange Notes issuable upon the exchange of such tendered Old
Notes, that the Exchange Agent, as agent of the Company, will acquire good and
unencumbered title to the tendered Old Notes, free and clear of all liens,
restrictions, charges and encumbrances, and that the Old Notes tendered for
exchange are not subject to any adverse claims when accepted by the Exchange
Agent, as agent of the Company. The holder also warrants and agrees that it
will, upon request, execute and deliver any additional documents deemed by the
Company or the Exchange Agent to be necessary or desirable to complete the
exchange, sale, assignment and transfer of the Old Notes. All authority
conferred or agreed to be conferred
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<PAGE> 28
in the Letter of Transmittal by the holder will survive the death, incapacity
or dissolution of the holder and any obligation of the holder shall be binding
upon the heirs, personal representatives, successors and assigns of such
holder.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the business day prior
to the Expiration Date, unless previously accepted for exchange. To withdraw a
tender of Old Notes in the Exchange Offer, a written or facsimile transmission
notice of withdrawal must be received by the Exchange Agent at its address set
forth herein prior to 5:00 p.m., New York City time, on the business day prior
to the Expiration Date and prior to acceptance for exchange thereof by the
Company. Any such notice of withdrawal must (i) specify the name of the person
having deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify
the Old Notes to be withdrawn (including, if applicable, the registration
number or numbers and total principal amount of such Old Notes), (iii) be
signed by the Depositor in the same manner as the original signature on the
Letter of Transmittal by which such Old Notes were tendered (including any
required signature guarantees) or be accompanied by documents of transfer
sufficient to permit the Trustee with respect to the Old Notes to register the
transfer of such Old Notes into the name of the Depositor withdrawing the
tender, (iv) specify the name in which any such Old Notes are to be registered,
if different from that of the Depositor and (v) if applicable because the Old
Notes have been tendered pursuant to the book-entry procedures, specify the
name and number of the participant's account at DTC to be credited, if
different than that of the Depositor. All questions as to the validity, form
and eligibility (including time of receipt) of such withdrawal notices will be
determined by the Company, whose determination shall be final and binding on
all parties. Any Old Notes so withdrawn will be deemed not to have been
validly tendered for purposes of the Exchange Offer and no Exchange Notes will
be issued with respect thereto unless the Old Notes so withdrawn are validly
retendered. Any Old Notes which have been tendered but which are not accepted
for exchange will be returned to the holder thereof without cost to such holder
as soon as practicable after withdrawal, rejection of tender or termination of
the Exchange Offer. Properly withdrawn Old Notes may be retendered by following
one of the procedures described above under "-- Procedures for Tendering" at
any time prior to the Expiration Date.
TERMINATION
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange any Old Notes not theretofore accepted for
exchange, and may terminate the Exchange Offer if it determines that the
Exchange Offer violates any applicable law or interpretation of the staff of
the SEC.
If the Company determines that it may terminate the Exchange Offer, as set
forth above, the Company may (i) refuse to accept any Old Notes and return any
Old Notes that have been tendered to the holders thereof, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the Expiration of the
Exchange Offer, subject to the rights of such holders of tendered Old Notes to
withdraw their tendered Old Notes or (iii) waive such termination event with
respect to the Exchange Offer and accept all properly tendered Old Notes that
have not been withdrawn. If such waiver constitutes a material change in the
Exchange Offer, the Company will disclose such change by means of a supplement
to this Prospectus that will be distributed to each registered holder of Old
Notes, and the Company will extend the Exchange Offer for a period of five to
ten business days, depending upon the significance of the waiver and the manner
of disclosure to the registered holders of the Old Notes, if the Exchange Offer
would otherwise expire during such period. Holders of Old Notes will have
certain rights against the Company under the Registration Rights Agreement
should the Company fail to consummate the Exchange Offer.
EXCHANGE AGENT
Bankers Trust Company, the trustee under the Indenture, has been appointed
as Exchange Agent for the Exchange Offer. Questions and requests for
assistance and requests for additional copies of this Prospectus or of the
Letter of Transmittal should be directed to the Exchange Agent addressed as
follows:
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By Mail: By Hand or Overnight Courier:
BT Services Tennessee, Inc. Bankers Trust Company
Reorganization Unit Corporate Trust and Agency Group
P.O. Box 292737 Receipt & Delivery Window
Nashville, TN 37229-2737 123 Washington St., 1st Floor
New York, NY 10006.
Facsimile Transmission: (615) 835-3701
Confirm by Telephone: (615) 835-3572
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail. Additional solicitations may be made by
officers and regular employees of the Company and its affiliates in person, by
telegraph or telephone. The Company will not make any payments to brokers,
dealers or other persons soliciting acceptances of the Exchange Offer. The
Company, however, will pay the Exchange Agent reasonable and customary fees for
its services and will reimburse the Exchange Agent for its reasonable
out-of-pocket expenses in connection therewith. The Company may also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this
Prospectus, Letters of Transmittal and related documents to the beneficial
owners of the Old Notes and in handling or forwarding tenders for exchange.
The other expenses incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee and accounting
and legal fees, will be paid by the Company. The Company will pay all transfer
taxes, if any, applicable to the exchange of Old Notes pursuant to the Exchange
Offer. If, however, Exchange Notes or Old Notes not tendered or accepted for
exchange are to be delivered to, or are to be registered or issued in the name
of, any person other than the registered holder of the Old Notes tendered, or
if tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes
will be billed directly to such tendering holder.
ACCOUNTING TREATMENT
No gain or loss for accounting purposes will be recognized by the Company
upon the consummation of the Exchange Offer. The expenses of the Exchange
Offer will be amortized by the Company over the term of the Exchange Notes
under generally accepted accounting principles.
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. 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.
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<PAGE> 30
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 a previous offering of debt securities, Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ") 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. DLJ exercised 49,168 warrants on April
1, 1997.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
SENIOR CREDIT FACILITY
The Senior Credit Facility previously provided for a maximum loan amount of
$195 million and a borrowing base of $195 million. Effective March 31, 1997,
the Senior Credit Facility was amended to extend the maturity date and to reduce
the interest rates. As amended, the total loan amount remains at $195 million.
At the Company's direction the borrowing base was reduced to $50 million in
order to lower the commitment fees on the unused commitment. The borrowing base
is subject to redetermination semi-annually based on revised reserve estimates.
At March 31, 1997, the Company had approximately $49 million available under the
Senior Credit Facility. The facility is collateralized by substantially all of
the Company's oil and gas properties. The Senior Credit Facility provides for
borrowings on a revolving basis through December 31, 1998, at which time the
amounts outstanding convert to a term loan with quarterly principal payments
through June 30, 2002. 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 1999, 30% in 2000, 23% in 2001, and 11% in 2002. The term loan
matures on June 30, 2002. Advances under the facility, at the Company's option,
bear interest at either the prime rate or LIBOR plus 1%. 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
annual rates varying between 1/8 of 1% and 1/2 of 1%.
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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9 1/2% NOTES
On November 6, 1996, the Company sold $175 million of 9 1/2% Senior
Subordinated Notes due 2006. The following description of the 9 1/2% Notes is
qualified in its entirety by reference to the indenture for the 9 1/2% Notes
(the "Existing Indenture"), a form of which has been filed by the Company with
the Commission. See "Available Information". Capitalized terms have the
meanings assigned to them in the Existing Indenture.
The 9 1/2% Notes will mature on November 1, 2006. Interest on the 9 1/2%
Notes is payable in cash in arrears semiannually on May 1 and November 1 of
each year, commencing May 1, 1997.
The 9 1/2% Notes are redeemable in whole or in part at the option of the
Company, at any time on or after November 1, 2001, at the redemption prices set
forth in the Existing Indenture, together with accrued and unpaid interest, if
any, to the date of redemption. Notwithstanding the foregoing, prior to
November 1, 2001 the Company may redeem the 9 1/2% Notes, in whole or in part,
at the Make-Whole Price plus accrued and unpaid interest, if any, to the
redemption date. In addition, prior to November 1, 1999, the Company may, on
any one or more occasions, redeem up to $61.25 million in aggregate principal
amount of 9 1/2% Notes at a redemption price of 109.5% 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 9 1/2% 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, each holder of 9 1/2% Notes may require the
Company to purchase all or a portion of such holder's 9 1/2% Notes at a
purchase 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 9 1/2% 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.
The 9 1/2% Notes are general, unsecured obligations of the Company, are
subordinated to all Senior Debt of the Company and are senior in right of
payment to, or pari passu with, all existing and future subordinated
indebtedness of the Company. The Notes will rank pari passu with the 9 1/2%
Notes.
The Existing Indenture requires the Company to comply with various
covenants. Such covenants are substantially the same as the covenants to be
contained in the Indenture. See "Description of Notes -- Certain Covenants".
DESCRIPTION OF NOTES
The Exchange Notes will be issued, and the Old Notes were issued, under an
Indenture (the "Indenture") between the Company and Bankers Trust Company, as
trustee (the "Trustee"), dated as of February 14, 1997. 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 forms of
Indenture and Registration Rights Agreement are filed as exhibits to the
Registration Statement of which this Prospectus is a part. The definitions of
certain capitalized terms used in the following summary are set forth below
under "-- Certain Definitions."
GENERAL
The Notes are general unsecured senior subordinated obligations of the
Company limited to $200,000,000 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 is payable, and the Notes are transferable, at the office or agency
of the Company in the City of New York maintained for such purposes, which
initially is 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, with respect to Notes not 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.
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The Notes are general unsecured obligations of the Company and are
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." If appropriate, all references in this Memorandum to
interest include Special Interest.
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.
Any Old Notes that remain outstanding after the completion of the Exchange
Offer, together with the Exchange Notes issued in connection with the Exchange
Offer, will be treated as a single class of securities under the Indenture.
MATURITY AND INTEREST
The Notes will mature on February 15, 2007. Interest on the Notes accrue
at the rate of 8 1/2% per annum and is payable semi-annually in arrears on
February 15 and August 15, commencing on August 15, 1997, to Holders of record
on the February 1 and August 1 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, February 14, 1997. Interest will be computed on the basis
of a 360-day year comprised of twelve 30-day months. The Company will be
obligated to pay Special Interest (as defined) on the Notes if it fails to
satisfy certain provisions of the Registration Rights Agreement. See "Exchange
Offer; Registration Rights."
REDEMPTION
Optional Redemption. At any time on or after February 15, 2002, the Notes
are 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 February 15 of
the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2002 . . . . . . . . . . . . . . . 104.250%
2003 . . . . . . . . . . . . . . . 102.833%
2004 . . . . . . . . . . . . . . . 101.417%
2005 and thereafter . . . . . . . . 100.000%
</TABLE>
Notwithstanding the foregoing, the Company may at any time prior to
February 15, 2002, 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 Memorandum, the
Company may, on any one or more occasions, redeem up to $70.0 million in
aggregate principal amount of Notes at a redemption price of 108.500% 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 $130.0 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
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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 purchase 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."
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) is 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 rank pari passu with the 9 1/2%
Notes. 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,
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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."
The Indenture further requires 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.
The Indenture limits, 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 provides 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 provides 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 does contain any requirement that any current
Subsidiary execute and deliver a Subsidiary Guarantee, the Indenture requires 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 has
guaranteed any Indebtedness of the Company will be required to execute a
Subsidiary Guarantee in accordance with the terms of the Indenture.
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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 does 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 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 provides 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
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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) to repurchase any Notes or Pari Passu Indebtedness on a
pro rata basis. 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 accredit 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.
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.
BOOK-ENTRY, DELIVERY AND FORM
Except as described in the following paragraph, the Notes will initially be
issued in the form of one or more Global Securities (as defined in the
Indenture) held in book-entry form. The Notes will be deposited with the
Trustee as custodian for the Depository, and the Depository or its nominee will
initially be the sole registered holder of the Notes for all purposes under the
Indenture. Except as set forth below, a Global Security 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.
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The Old Notes that were (i) originally issued to institutional "accredited
investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities
Act) who are not QIBs or (ii) issued as described below under "-- Certificated
Notes" will be issued in definitive form. Upon the transfer of a Note in
definitive form, such Note will, unless the Global Security has previously been
exchanged for Notes in definitive form, be exchanged for an interest in the
Global Security representing the principal amount of the Notes being
transferred.
Upon the issuance of a Global Security, the Depository or its nominee will
credit, on its internal system, the accounts of persons holding through it with
the respective principal amounts of the individual beneficial interests
represented by such Global Security purchased by such persons in this
Offering. Such accounts shall initially be designated by the Initial Purchasers
with respect to Notes placed by the Initial Purchasers for the Company.
Ownership of beneficial interests in a Global Security will be limited to
persons that have accounts with the Depository ("participants") or persons that
may hold interests through participants. Ownership of beneficial interests by
participants in a Global Security will be shown on, and the transfer of that
ownership interest will be effected only through, records maintained by the
Depository or its nominee for such Global Security. Ownership of beneficial
interests in such Global Security by persons that hold through participants
will be shown on, and the transfer of that ownership interest within such
participant will be effected only through, records maintained by such
participant. The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to transfer beneficial interests in
a Global Security.
Payment of principal of, premium, if any, on and interest on Notes
represented by any such Global Security will be made to the Depository or its
nominee, as the case may be, as the sole registered owner and the sole Holder
of the Notes represented thereby for all purposes under the Indenture. None of
the Company, the Trustee, any agent of the Company or the Initial Purchasers
will have any responsibility or liability for any aspect of the Depository's
reports relating to or payments made on account of beneficial ownership
interests in a Global Security representing any Notes or for maintaining,
supervising or reviewing any of the Depository's records relating to such
beneficial ownership interests.
The Company has been advised by the Depository that upon receipt of any
payment of principal of, premium, if any, on or interest on, any Global
Security, the Depository will immediately credit, on its book-entry
registration and transfer system, the accounts of participants with payments in
amounts proportionate to their respective beneficial interests in the principal
or face amount of such Global Security, as shown on the records of the
Depository. The Company expects that payments by participants to owners of
beneficial interests in a Global Security held through such participants will
be governed by standing instructions and customary practices as is now the case
with securities held for customer accounts registered in "street name" and will
be the sole responsibility of such participants.
So long as the Depository or its nominee, is the registered owner or holder
of such Global Security, the Depository or such nominee, as the case may be,
will be considered the sole owner or holder of the Notes represented by such
Global Security for the purposes of receiving payment on the Notes, receiving
notices and for all other purposes under the Indenture and the Notes.
Beneficial interests in Notes will be evidenced only by, and transfers thereof
will be effected only through, records maintained by the Depository and its
participants. Except as provided above, owners of beneficial interests in a
Global Security will not be entitled to and will not be considered the holders
of such Global Security for any purposes under the Indenture. Accordingly,
each person owning a beneficial interest in a Global Security must rely on the
procedures of the Depository and, if such person is not a participant, on the
procedures of the participant through which such person owns its interest, to
exercise any rights of a holder under the Indenture. The Company understands
that under existing industry practices, in the event that the Company requests
any action of holders or that an owner of a beneficial interest in a Global
Security desires to give or take any action that a Holder is entitled to give
or take under the Indenture, the Depository would authorize the participants
holding the relevant beneficial interest to give or take such action, and such
participants would authorize beneficial owners owning through such participants
to give or take such action or would otherwise act upon the instructions of
beneficial owners owning through them.
The Depository has advised the Company that it will take any action
permitted to be taken by a Holder of Notes (including the presentation of Notes
for exchange as described below) only at the direction of one or more
participants to whose account with the Depository interests in the Global
Security are credited and only in respect of such portion of the aggregate
principal amount of the Notes as to which such participant or participants has
or have given such direction.
The Depository has advised the Company that the Depository is a
limited-purpose trust company organized under the Banking Law of the State of
New York, a "banking organization" within the meaning of New York Banking Law,
a member
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of the Federal Reserve System, a "clearing corporation" within the meaning of
the New York Uniform Commercial Code and a "clearing agency" registered under
the Exchange Act. The Depository was created to hold the securities of its
participants and to facilitate the clearance and settlement of securities
transactions among its participants in such securities through electronic
book-entry changes in accounts of the participants, thereby eliminating the
need for physical movement of securities certificates. The Depository's
participants include securities brokers and dealers (including the Initial
Purchasers), banks, trust companies, clearing corporations and certain other
organizations some of whom (and/or their representatives) own the Depository.
Access to the Depository'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.
CERTIFICATED NOTES
The Notes represented by a Global Security are exchangeable for
certificated Notes only if (i) the Depository notifies the Company that it is
unwilling or unable to continue as a depository for such Global Security or if
at any time the Depository ceases to be a clearing agency registered under the
Exchange Act, and a successor depository is not appointed by the Company within
90 days, (ii) the Company executes and delivers to the Trustee a notice that
such Global Security shall be so exchangeable or (iii) there shall have
occurred and be continuing a Default or an Event of Default. Any Global
Security that is exchangeable for certificated Notes pursuant to the preceding
sentence will be transferred to, and registered and exchanged for, certificated
Notes in authorized denominations and registered in such names as the
Depository or its nominee holding such Global Security may direct. Subject to
the foregoing, a Global Security is not exchangeable, except for a Global
Security of like denomination to be registered in the name of the Depository or
its nominee. In the event that a Global Security becomes exchangeable for
certificated Notes, (i) certificated Notes will be issued only in fully
registered form in denominations of $1,000 or integral multiples thereof, (ii)
payment of principal, any repurchase price, and interest on the certificated
Notes will be payable, and the transfer of the certificated Notes will be
registrable, at the office or agency of the Company maintained for such
purposes and (iii) no service charge will be made for any issuance of the
certificated Notes, although the Company may require payment of a sum
sufficient to cover any tax or governmental charge imposed in connection
therewith. In addition, such certificates representing Old Notes will bear the
legend referred to under "Transfer Restrictions on Old Notes" (unless the
Company determines otherwise in accordance with applicable law) subject, with
respect to such Notes, to the provisions of such legend. Holders of
certificated Old Notes may only transfer their Old Notes (i) to the Company or
(ii) to a QIB; provided, however, that the agreement of such Holder is subject
to any requirement of law that the disposition of such Holder's property shall
at all times be and remain within its control.
CERTAIN COVENANTS
In addition to the covenants concerning a Change of Control and Asset Sales
described immediately above, the Indenture contains, among others, the
covenants described below:
Limitation on Restricted Payments. The Indenture provides 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
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(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
(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) 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 for the 9 1/2% Notes 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 for the 9 1/2% Notes 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 $3 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 provides 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 does 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 (together with all
Indebtedness incurred pursuant to clause (e) of this paragraph in respect of
Indebtedness previously incurred pursuant to this clause (b)) from time to time
outstanding 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 or the guarantee by any
Guarantor of the 9 1/2% Notes in compliance with the provisions of the Existing
Indenture as in effect on the date of the Indenture; (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 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 issuance of preferred stock or
the incurrence of Non-Recourse Debt by the Company's Unrestricted Subsidiaries;
(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
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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 provides 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 provides 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, or
any interests therein or any income or profits therefrom, 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 provides 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 provides 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 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, (h) the Existing Indenture and the 9
1/2% Notes, both as in effect on the date of the Indenture, or (i) 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.
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Merger, Consolidation, or Sale of Assets. The Indenture provides 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."
Transactions with Affiliates. The Indenture provides 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
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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 provides 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 "-- 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.
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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 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.
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.
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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 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--% 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--% 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.
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CONCERNING THE TRUSTEE
Bankers Trust Company is Trustee under both the Indenture and the Existing
Indenture. The Company may transact other business with Bankers Trust Company
from time to time in the ordinary course of business.
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
are governed by the laws of the State of New York.
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 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
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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 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 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) 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
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(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 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 one
year 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" or "SEC" 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
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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 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 divided 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 designed to
protect against or manage such Person's or any of its Subsidiaries' exposure to
fluctuations in foreign currency exchange rates.
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"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 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
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 Exchangeable 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
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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 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.
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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
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 February
15, 2002, 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 February 15, 2002; 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 February 15, 2002.
"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 February 15, 2002, determined
pursuant to the Indenture (104.250% 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 revenues from proved oil and gas
reserves of the Company and its Restricted Subsidiaries, calculated in
accordance with clause (a)(i) of the definition of Adjusted Consolidated Net
Tangible Assets; provided, however, that the following will be excluded from
the calculation of Material Change: (i) any acquisitions during the 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 February 15, 2007.
"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).
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"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.
"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 (including, without
limitation, the 9 1/2% Notes) 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
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 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 or other securities received in settlement of debts
owed to the Company or any of its Restricted Subsidiaries as a result of
foreclosure, perfection or enforcement of any Lien or indebtedness or in
connection with any good faith settlement of a bankruptcy proceeding; (g) other
advances and loans to officers and employees of the Company or any Subsidiary,
so long as the aggregate principal amount of such advances and loans does not
exceed $3.0 million at any one time outstanding; and (h) entry into operating
agreements, joint ventures, partnership agreements, working
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interests, royalty interests, mineral leases, processing agreements, farm-in
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 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-in agreements, 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; (xvii) Liens to secure any
permitted extension, renewal, refinancing, refunding or exchange (or successive
extensions, renewals, refinancings, refundings or exchanges), in whole or in
part, of or for any Indebtedness secured by Liens referred to in clauses (iv),
(vi) and (xiv) of this paragraph; provided, however, that (i) such new Lien
shall be limited to all or part of the same property that secured the original
Lien, plus improvements on such property and (ii) the Indebtedness secured by
such Lien at such time is not increased to any amount greater than the sum of
(A) the outstanding principal amount or, if greater, the committed amount of
the Indebtedness secured by Liens described under clauses (iv), (vi) and (xiv)
of this paragraph at the time the original Lien became a Lien permitted in
accordance with the Indenture and (B) an amount necessary to pay any fees and
expenses, including premiums, related to such refinancing, refunding,
extension, renewal or exchange; and (xviii) Liens not otherwise permitted by
clauses (i) through (xvii) 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 (xviii) 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 (a) 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, or (b)
Production Payments other than those described in clause (a) of this sentence
to the extent (x) the Company could incur the Indebtedness associated with such
Production Payments pursuant to the terms of the Indenture and (y) the proceeds
of such Production Payments will be applied as if such Production Payments
constituted Asset Sales made pursuant to and in compliance with the provisions
of the Indenture described above under the caption "-- Asset Sales."
"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 of the Company or any of its Restricted Subsidiaries
provided that: (i) the principal amount (or accreted value,
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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.
"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 Facilities, (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 and (iii) any amounts due to the Trustee under
the Indenture as fees or indemnities. 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 of
the Indenture.
"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, 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
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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.
EXCHANGE OFFER; REGISTRATION RIGHTS
The Company has agreed pursuant to a registration agreement (the
"Registration Rights Agreement") with Salomon Brothers Inc, for the benefit of
the Initial Purchasers and the Holders, that the Company will, at its cost, (i)
not later than April 15, 1997, file a registration statement (the "Exchange
Offer Registration Statement") with the Commission with respect to a registered
offer (the "Exchange Offer") to exchange the Notes for new notes of the Company
(the "Exchange Notes") having terms identical in all material respects to the
Notes (except that the Exchange Notes will not contain terms with respect to
transfer restrictions and the Special Interest provisions will be eliminated)
and (ii) use its best efforts to cause the Exchange Offer Registration
Statement to be declared effective under the Securities Act not later than June
14, 1997. Upon the effectiveness of the Exchange Offer Registration Statement,
the Company will offer the Exchange Notes in exchange for surrender of the
Notes. The Company will keep the Exchange Offer open for not less than 30 days
(or longer if required by applicable law) after the date notice of the Exchange
Offer is mailed to the Holders. For each Note surrendered to the Company
pursuant to the Exchange Offer, the Holder of such Note will receive an
Exchange Note having a principal amount equal to that of the surrendered Note.
Interest on each Exchange Note will accrue from the last interest payment date
on which interest was paid on the Note surrendered in exchange thereof or, if
no interest has been paid on such Note, from the date of its original issue.
Under existing Commission interpretations, the Exchange Notes would be freely
transferable by
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Holders (other than affiliates of the Company) after the Exchange Offer without
further registration under the Securities Act, if the Holder of the Exchange
Notes represents that it is acquiring the Exchange Notes in the ordinary course
of its business, that it has no arrangement or understanding with any person to
participate in the distribution of the Exchange Notes and that it is not an
affiliate of the Company, as such terms are interpreted by the Commission;
provided, however, that broker-dealers ("Participating Broker-Dealers")
receiving Exchange Notes in the Exchange Offer will have a prospectus delivery
requirement with respect to resales of such Exchange Notes. The Commission has
taken the position that Participating Broker-Dealers may fulfill their
prospectus delivery requirements with respect to Exchange Notes (other than a
resale of an unsold allotment from the original sale of the Notes) with the
prospectus contained in the Exchange Offer Registration Statement. Under the
Registration Agreement, the Company is required to allow Participating
Broker-Dealers and other persons, if any, with similar prospectus delivery
requirements to use the prospectus contained in the Exchange Offer Registration
Statement in connection with the resale of such Exchange Notes.
A Holder of Old Notes (other than certain specified holders) who wishes to
exchange such Old Notes for Exchange Notes in the Exchange Offer will be
required to make certain representations, including representations (i) that
any Exchange Notes to be received by it will be acquired in the ordinary course
of its business, (ii) that at the time of the commencement of the Exchange
Offer it has no arrangement or understanding with any person to participate in
the distribution (within the meaning of the Securities Act) of the Exchange
Notes and (iii) that it is not an "affiliate" of the Company, as defined in
Rule 405 of the Securities Act, or if it is an affiliate, that it will comply
with the registration and prospectus delivery requirements of the Securities
Act to the extent applicable. If the holder is not a broker-dealer, it will be
required to represent that it is not engaged in, and does not intend to engage
in, the distribution of the Exchange Notes. If the holder is a broker-dealer
that will receive Exchange Notes for its own account in exchange for Old Notes
that were acquired as a result of market-making activities or other trading
activities, it will be required to acknowledge that it will deliver a
prospectus in connection with any resales of such Exchange Notes.
In the event that changes in law or applicable interpretations of the staff
of the Commission do not permit the Company to effect such a Exchange Offer, or
if for any other reason the Exchange Offer is not consummated by July 14, 1997,
or if the Initial Purchasers so request with respect to Old Notes not eligible
to be exchanged for Exchange Notes in the Exchange Offer, or if any Holder of
Old Notes is not eligible to participate in the Exchange Offer or does not
receive freely tradeable Exchange Notes in the Exchange Offer, the Company
will, at its cost, (i) as promptly as practicable, file a resale shelf
registration statement (the "Shelf Registration Statement") covering resales of
the Old Notes or the Exchange Notes, as the case may be, (ii) use its best
efforts to cause the Shelf Registration Statement to be declared effective
under the Securities Act and (iii) keep the Shelf Registration Statement
effective until three years after its effective date or such shorter period
ending when all resales of Old Notes covered by such Shelf Registration
Statement have been made. The Company will, in the event a Shelf Registration
Statement is filed, among other things, provide to each Holder for whom such
Shelf Registration Statement was filed copies of the prospectus that is a part
of the Shelf Registration Statement, notify each such Holder when the Shelf
Registration Statement has become effective and take certain other actions as
are required to permit unrestricted resales of the Old Notes or the Exchange
Notes, as the case may be. A person who sells such Old Notes or Exchange Notes
pursuant to the Shelf Registration Statement generally will be required to be
named as a selling security holder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Agreement which are applicable to
such person (including certain indemnification obligations).
If (i) by April 15, 1997, neither the Exchange Offer Registration Statement
nor the Shelf Registration Statement has been filed with the Commission, (ii)
by June 14, 1997, the Exchange Offer Registration Statement has not been
declared effective, (iii) by July 14, 1997, neither the Exchange Offer has been
consummated nor the Shelf Registration Statement has been declared effective or
(iv) after either the Exchange Offer Registration Statement or the Shelf
Registration Statement has been declared effective, such Registration Statement
thereafter ceases to be effective or usable (subject to certain exceptions) in
connection with resales of Old Notes or Exchange Notes in accordance with and
during the periods specified in the Registration Agreement (each such event
referred to in clauses (i) through (iv), a "Registration Default"), interest
("Special Interest") will accrue on the Old Notes and the Exchange Notes (in
addition to the stated interest on the Old Notes and the Exchange Notes) from
and including the date on which any such Registration Default shall occur to
but excluding the date on which all Registration Defaults have been cured.
Special Interest will accrue at a rate of 0.5% per annum during the 90-day
period immediately following the occurrence of any Registration Default and
shall increase by 0.25% per annum at the end of each subsequent 90-day period,
but in no event shall such rate exceed 1.50% per annum. The Exchange Offer
Registration Statement was filed with the Commission on April 10, 1997, and it
was declared effective on April 18, 1997.
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All accrued Special Interest shall be paid to Holders in the same manner in
which payments of other interest are made pursuant to the Indenture. See
"Description of Notes -- Maturity and Interest."
The summary herein of certain provisions of the Registration Agreement does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all the provisions of the Registration Agreement, a copy of
which is available upon request to the Company.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the material United Stated Federal income tax
consequences of the Exchange Offer is for general information only. It is
based on the Internal Revenue Code of 1986, as amended to the date hereof (the
"Code"), existing and proposed Treasury regulations, and judicial and
administrative determinations, all of which are subject to change at any time,
possibly on a retroactive basis. The following relates only to the Old Notes,
and the Exchange Notes received therefor, that are held as "capital assets"
within the meaning of Section 1221 of the Code. It does not discuss state,
local or foreign tax consequences, nor, except as otherwise noted, does it
discuss tax consequences to categories of holders that are subject to special
rules, such as foreign persons, tax-exempt organizations, insurance companies,
banks and dealers in stocks and securities. Tax consequences may vary
depending on the particular status of an investor. No rulings will be sought
from the Internal Revenue Service ("IRS") with respect to the Federal income
tax consequences of the Exchange Offer.
THIS SECTION DOES NOT PURPORT TO DEAL WITH ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO AN INVESTOR'S DECISION TO PURCHASE THE NOTES.
EACH INVESTOR SHOULD CONSULT WITH ITS OWN TAX ADVISOR CONCERNING THE
APPLICATION OF THE FEDERAL INCOME TAX LAWS AND OTHER TAX LAWS TO ITS PARTICULAR
SITUATION BEFORE DETERMINING WHETHER TO PURCHASE THE NOTES.
PAYMENTS OF INTEREST AND SPECIAL INTEREST
In general, interest on a Note will be taxable to a beneficial owner who or
which is (i) a citizen or resident of the United States, (ii) a corporation
created or organized under the laws of the United States or any State thereof
(including the District of Columbia), (iii) a person otherwise subject to
United States Federal income taxation on its worldwide income (a "U.S. Holder")
as ordinary income at the time it is received or accrued, depending on the U.S.
Holder's method of accounting for tax purposes.
The Company is obligated to pay Special Interest to the U.S. Holders of Old
Notes under certain circumstances described under "Exchange Offer; Registration
Rights." It is believed that any such payments should be taxable to U.S.
Holders at the time it is received or accrued, depending on the U.S. Holder's
method of accounting for tax purposes.
OPTIONAL REDEMPTION OR REPURCHASE
The Notes are subject to redemption at the option of the Company, on or
after February 15, 2002, at the applicable redemption price plus any accrued
and unpaid interest, and to purchase at the option of each holder thereof upon
a Change of Control for 101% of the principal amount plus any accrued and
unpaid interest. Furthermore, under certain circumstances, the Company may
become obligated to purchase all or a portion of the Notes at 101% of the
principal amount plus any accrued and unpaid interest, with the proceeds of
certain Asset Sales. See "Description of Notes." Upon the optional redemption
or purchase of a Note, it is expected that the difference between the amount
received by such holder and the holder's adjusted tax basis in the Note will be
taxable as capital gain or loss, if the Note is held as a capital asset
(subject to the market discount rules discussed below).
ORIGINAL ISSUE DISCOUNT
If the Old Notes are not issued at a discount or are deemed to be issued
with no discount because such discount is de minimis , a U.S. Holder will
include in income as ordinary interest income the gross amount of interest and
Special Interest paid or payable in respect of the Old Notes as provided above
in "-- Payments of Interest and Special Interest." A discount on original issue
will be considered de minimis and, thus, will be treated as zero discount if
the original issue discount is
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less than one-fourth (1/4) of one percent of the stated redemption price at
maturity, multiplied by the number of complete years to maturity. The Company
expects that the Old Notes will not have original issue discount.
Pursuant to Treasury regulations, if the Old Notes are issued with original
issue discount, a U.S. Holder will generally be required to include the amount
of such discount in income over the life of the Old Notes (and any Exchange
Notes issued in exchange therefor) on a yield to maturity basis. If the
Company determines that the Old Notes have original issue discount, the Company
will provide certain information to the IRS and/or Holders that is relevant to
determining the amount of original issue discount that is required to be
included in income in each accrual period. A U.S. Holder's adjusted tax basis
in a Note will be increased by the amount of any original issue discount
included in its gross income (taking into account any Acquisition Premium (as
defined) which reduces the amount of original issue discount includible in a
U.S. Holder's gross income, as described more fully below).
PAYMENTS OF PRINCIPAL; DISPOSITIONS
Subject to the discussion of the Exchange Offer below, upon the sale,
exchange, redemption, retirement at maturity or other disposition of a Note, a
U.S. Holder will generally recognize taxable gain or loss equal to the
difference between the sum of cash plus the fair market value of all other
property received on such disposition (except to the extent such cash or
property is attributable to accrued but unpaid interest or market discount,
which will be taxable as ordinary income) and such U.S. Holder's adjusted tax
basis in the Note. A U.S. Holder's adjusted tax basis in a Note generally will
equal the cost of the Note to such U.S. Holder (increased for accrued original
issue discount, if any), less any principal payment received by such U.S.
Holder. Gain or loss realized by a U.S. Holder on the sale, redemption or
other disposition of a Note or an Exchange Note generally will be long-term
capital gain or loss if, at the time of the disposition, the Note has been
held for more than one year.
AMORTIZABLE BOND PREMIUM
If a U.S. Holder pays an amount (exclusive of accrued and unpaid interest
through the acquisition date) in excess of the Note's 's stated redemption
price at maturity at the time of its acquisition ("Bond Premium"), the U.S.
Holder will not be required to include original issue discount, if any, in his
income and may elect to amortize Bond Premium. If Bond Premium is amortized,
the amount of interest that must be included in the U.S. Holder's income from
each period ending on an interest payment date or stated maturity, as the case
may be, will be reduced by the portion of the Bond Premium allocable to such
period based on the Note's 's yield to maturity and the U.S. Holder's adjusted
basis in the Notes s will be reduced accordingly. This election applies to all
Notes acquired by the U.S. Holder during the year of election and thereafter.
ACQUISITION PREMIUM
If a U.S. Holder pays an amount (exclusive of accrued and unpaid interest
through the acquisition date) in excess of the Note's 's adjusted issue price
at the time of its acquisition ("Acquisition Premium"), but less than its
stated redemption price at maturity, the U.S. Holder may be entitled to a
reduction, in the daily portion of any original issue discount includable in
such U.S. Holder's income, for such Acquisition Premium. The reduction will be
an amount equal to the daily portion of original issue discount for that day
multiplied by a fraction, the numerator of which is equal to the Acquisition
Premium, and the denominator of which is the excess of the stated redemption
price at maturity over the adjusted issue price of the Note on the date of
purchase.
MARKET DISCOUNT
A U.S. Holder, other than an initial Holder, will be treated as holding a
Note or an Exchange Note at a market discount (a "Market Discount Note") if the
amount for which such U.S. Holder purchased the Note is less than the Note's
stated redemption price at maturity, or, in the case of a Note issued with
original issue discount, the "revised issue price," as defined in Section 1278
of the Code, subject to a de minimis rule.
In general, any partial payment of principal on, or gain recognized on the
maturity, optional redemption or repurchase, or disposition of, a Market
Discount Note will be treated as ordinary interest income to the extent that
such gain does not exceed the accrued market discount on such Note.
Alternatively, a U.S. Holder of a Market Discount Note may elect to include
market discount in income currently over the life of the Market Discount Note.
Such an election applies to all debt
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instruments with market discount acquired by the electing U.S. Holder on or
after the first day of the first taxable year to which the election applies and
may not be revoked without the consent of the IRS.
Market discount accrues on a straight-line basis, unless the U.S. Holder
elects to accrue such discount on a constant yield to maturity basis. Such an
election is applicable only to the Note with respect to which it is made and is
irrevocable. A U.S. Holder of a Market Discount Note that does not elect to
include market discount in income currently generally will be required to defer
deductions for interest on borrowings allocable to such Note, in an amount not
exceeding the accrued market discount on such Note, until the maturity or
disposition of such Note. If such Note is disposed of in a non-taxable
transaction (other than a nonrecognition transaction described in Section
1276(c) of the Code) accrued market discount will be includable as ordinary
income to the U.S. Holder as if such U.S. Holder had sold the Note at its then
fair market value.
THE EXCHANGE OFFER
Pursuant to recently-issued Treasury regulations, the exchange of Old Notes
for Exchange Notes pursuant to the Exchange Offer should not constitute a
significant modification of the terms of the Old Notes and, accordingly, such
exchange should be treated as a "non-event" for Federal income tax purposes.
Therefore, such exchange should have no Federal income tax consequences to
Holders of Old Notes, and each Holder of Old Notes would continue to be
required to include interest on the Old Notes in its gross income in accordance
with its method of accounting for Federal income tax purposes.
NON-U.S. HOLDERS
A non-U.S. Holder will not be subject to withholding of United States
Federal income taxes on payments of principal, premium (if any) or interest
(including original issue discount, if any) on a Note, provided in the case of
interest that (i) the beneficial owner does not actually or constructively own
10% or more of the total combined voting power of all classes of stock of the
Company entitled to vote, (ii) the beneficial owner is not a controlled foreign
corporation that is related to the Company through stock ownership, (iii) the
beneficial owner is not a bank which receives interest on an extension of
credit made pursuant to a loan agreement entered into in the ordinary course of
its trade or business, (iv) the beneficial owner provides the ownership
statement described below, and (v) such interest is not contingent interest
under Section 871(h)(4)(A) of the Code and the regulations thereunder. To
qualify for the exemption from taxation, the last United States payor in the
chain of payment prior to payment to a non-U.S. Holder (the "Withholding
Agent") must have received in the year in which a payment of interest or
principal occurs, or in either of the two preceding calendar years, a statement
that (i) is signed by the beneficial owner of the Note under penalties of
perjury, (ii) certifies that such owner is not a U.S. Holder and (iii) provides
the name and address of the beneficial owner. The statement may be made on an
IRS Form W-8 or a substantially similar form, and the beneficial owner must
inform the Withholding Agent of any change in the information on the statement
within 30-days of such change. If a Note is held through a securities clearing
organization or certain other financial institutions, the organization or
institution may provide a signed statement under penalties of perjury to the
Withholding Agent. In such case, however, the signed statement must be
accompanied by a copy of the IRS Form W-8 or the substitute form provided by
the beneficial owner to the organization or institution. The Treasury
Department is considering implementation of further certification requirements
aimed at determining whether the issuer of a debt obligation is related to
holders thereof.
A non-U.S. Holder will not be subject to withholding of United States
Federal income taxes on any amount which constitutes capital gain upon
retirement or disposition of a Note.
If a non-U.S. Holder cannot satisfy the requirements of the "portfolio
interest" exception described above, payments of premium and interest
(including original issue discount) made to such non-U.S. Holder will be
subject to a 30% withholding tax unless the beneficial owner of the Note
provides the Company or its paying agent, as the case may be, with a properly
executed (1) IRS Form 1001 (or successor form) claiming an exemption from
withholding under the benefit of a tax treaty or (2) IRS Form 4224 (or
successor form) stating that interest paid on the Note is not subject to
withholding tax because it is effectively connected with the beneficial owner's
conduct of a trade or business in the United States.
If a non-U.S. Holder is engaged in a trade or business in the United States
and interest (including original issue discount) on the Note is effectively
connected with the conduct of such trade or business, the non-U.S. Holder,
although exempt from the withholding tax discussed above, will be subject to
United States federal income tax on such interest and original issue discount
on a net income basis in the same manner as if it were a U.S. Holder. In
addition, if such non-U.S. Holder is a
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foreign corporation, it may be subject to a branch profits tax equal to 30% (or
lower treaty rate) of its effectively connected earnings and profits for the
taxable year, including such premium, if any, and interest (including original
issue discount) on a note or Exchange Note.
Any gain realized upon the sale, exchange, retirement or other disposition
of a Note generally will not be subject to United States federal income tax
unless (i) such gain is effectively connected with a trade or business in the
United States of the non-U.S. Holder, or (ii) in the case of a non-U.S. Holder
who is an individual, such individual is present in the United States for 183
days or more in the taxable year of such sale, exchange, retirement or other
disposition, and certain other conditions are met.
The Notes will not be includible in the estate of a non-U.S. Holder
provided that such individual does not actually or constructively own 10% or
more of the total combined voting power of all classes of stock of the company
entitled to vote and provided that at the time of such individual's death,
payments in respect of the Notes would not have been effectively connected with
the conduct of such individual of a trade or business in the United States.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Backup withholding of United States Federal income tax at a rate of 31% may
apply to payments of principal, interest, original issue discount or premium
made in respect of the Notes to registered owners who are not "exempt
recipients" and who fail to provide certain identifying information (such as
the registered owner's taxpayer identification number) in the required manner.
Generally, individuals are not exempt recipients, whereas corporations and
certain other entities generally are exempt recipients. Payments made in
respect of the Notes to a U.S. Holder must be reported to the IRS, unless the
U.S. Holder is an exempt recipient or establishes and exemption. Compliance
with the identification procedures described in the preceding section would
establish an exemption from backup withholding and information reporting for
those non-U.S. Holders who are not exempt recipients and the payor does not
have actual knowledge that the beneficial owner is a United States person.
In addition, backup withholding and information reporting will not apply if
payments of the principal, interest, original issue discount or premium on a
Note are paid or collected by a foreign office of a custodian, nominee or other
foreign agent on behalf of the beneficial owner of such Note, or if a foreign
office of a broker pays the proceeds of the sale of a Note to the owner
thereof. If, however, such nominee, custodian, agent or broker is a United
States person, a controlled foreign corporation or a foreign person that
derives 50% or more of its gross income from the conduct of a trade or business
in the United States, such payments will not be subject to backup withholding
but will be subject to information reporting, unless (1) such custodian,
nominee, agent or broker has documentary evidence in its records that the
beneficial owner is not a United States person and certain other conditions are
met or (2) the beneficial owner establishes an exemption. Temporary Treasury
regulations provide that the Treasury is considering whether backup withholding
will apply with respect to such payments of principal, interest or the proceeds
of a sale that are not subject to backup withholding under the current
regulations.
Payments of principal, interest, original issue discount and premium on a
Note paid to the beneficial owner of a Note by a United States office of a
custodian, nominee or agent, or the payment by the United States office of a
broker of the proceeds of sale of a Note will be subject to both backup
withholding and information reporting unless the beneficial owner provides the
statement referred to above and the payer does not have actual knowledge that
the beneficial owner is a United States person, or the beneficial owner
otherwise establishes as exemption.
Any amounts withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States Federal income tax provided the required
information is furnished to the IRS.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that it will make this Prospectus, as amended or supplemented, available to any
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broker-dealer for use in connection with any such resale for a period of 180
days after consummation of the Exchange Offer, or such shorter period as will
terminate when all Old Notes acquired by broker-dealers for their own accounts
as a result of market-making activities or other trading activities have been
exchanged for Exchange Notes and resold by such broker-dealers. A
broker-dealer that delivers such a prospectus to purchasers in connection with
such resales will be subject to certain of the civil liability provisions under
the Securities Act and will be bound by the provisions of the Registration
Rights Agreement (including certain indemnification rights and obligations).
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. For a period of 180 days after consummation of the Exchange
Offer, or such shorter period as will terminate when all Old Notes acquired by
broker-dealers for their own accounts as a result of market-making activities
or other trading activities have been exchanged for Exchange Notes and resold
by such broker-dealers, the Company will promptly send additional copies of
this Prospectus and any amendment or supplement to this Prospectus to any
broker-dealer that requests such documents in the Letter of Transmittal. The
Company has agreed in the Registration Rights Agreement to indemnify such
broker-dealers against certain liabilities, including liabilities under the
Securities Act.
TRANSFER RESTRICTIONS ON OLD NOTES
OFFERS AND SALES BY THE INITIAL PURCHASERS
The Old Notes were not registered under the Securities Act and may not be
offered or sold in the United States or to, or for the account or benefit of,
U.S. persons except in accordance with an applicable exemption from the
registration requirements thereof. Accordingly, the Old Notes were offered and
sold only (i) in the United States to QIBs under Rule 144A under the Securities
Act and other Institutional Accredited Investors who, prior to their purchase
of Old Notes, delivered to the Initial Purchasers a letter containing certain
representations and agreements, in a private sale exempt from the registration
requirements of the Securities Act, and (ii) outside the United States to non-
U.S. persons ("foreign purchasers") in reliance upon Regulation S under the
Securities Act.
INVESTOR REPRESENTATIONS AND RESTRICTIONS ON RESALE
Each purchaser of the Old Notes was deemed to have represented and agreed
as follows:
(1) it is acquiring the Old Notes for its own account or for an account
with respect to which it exercises sole investment discretion, and that it or
such account is a QIB, an Institutional Accredited Investor acquiring the Old
Notes for investment purposes and not for distribution or a foreign purchaser
outside the United States;
(2) it acknowledges that the Old Notes have not been registered under the
Securities Act and may not be sold except as permitted below;
(3) it understands and agrees (x) that such Old Notes are being offered
only in a transaction not involving any public offering within the meaning of
the Securities Act, and (y) that (A) if within three years after the date of
original issuance of the Old Notes or if within three months after it ceases to
be an affiliate (within the meaning of Rule 144 under the Securities Act) of
the Company, it decides to resell, pledge or otherwise transfer such Old Notes
on which the legend set forth below appears, such Old Notes may be resold,
pledged or transferred only (i) to the Company, (ii) so long as such security
is eligible for resale pursuant to Rule 144A, to a person whom the seller
reasonably believes is a QIB that purchases for its own account or for the
account of a QIB to whom notice is given that the resale, pledge or transfer is
being made in reliance on Rule 144A (as indicated by the box
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<PAGE> 63
checked by the transferor on the Certificate of Transfer on the reverse of the
Note if such Note is not in book-entry form), (iii) in an offshore transaction
in accordance with Regulation S (as indicated by the box checked by the
transferor on the Certificate of Transfer on the reverse of the Note), but, if
such transfer is being effected by an Initial Foreign Purchaser or any foreign
purchaser who has purchased Old Notes from an Initial Foreign Purchaser or from
any person other than a QIB or an Institutional Accredited Investor pursuant to
this clause (iii) prior to the expiration of the "40-day restricted period"
(within the meaning of Rule 903(c)(3) of Regulation S under the Securities
Act), the transferee shall have certified to the Company and the Trustee for
the Old Notes that such transferee is a non-U.S. person (within the meaning of
Regulation S) and that such transferee is acquiring the Old Notes in an
offshore transaction, (iv) to an Institutional Accredited Investor (as
indicated by the box checked by the transferor on the Certificate of Transfer
on the reverse of the Note if such Note is not in book-entry form) who has
certified to the Company and the Trustee for the Old Notes that such transferee
is an Institutional Accredited Investor and is acquiring the Old Notes for
investment purposes and not for distribution (provided that no Initial Foreign
Purchaser or any foreign purchaser who has purchased Old Notes from an Initial
Foreign Purchaser or from any person other than a QIB or an Institutional
Accredited Investor pursuant to clause (iii) shall be permitted to transfer any
Old Notes so purchased by it to an Institutional Accredited Investor pursuant
to this clause (iv) prior to the expiration of the "40-day restricted period"
(within the meaning of Rule 903(c)(3) of Regulation S under the Securities
Act)), (v) pursuant to an exemption from the registration requirements of the
Securities Act provided by Rule 144 (if applicable) under the Securities Act or
(vi) pursuant to an effective registration statement under the Securities Act,
in each case in accordance with any applicable securities laws of any state of
the United States, (B) the purchaser will, and each subsequent holder is
required to, notify any purchaser of Old Notes from it of the resale
restrictions referred to in (A) above, if then applicable, and (C) with respect
to any transfer of Old Notes by an Institutional Accredited Investor, such
holder will deliver to the Company and the Trustee such certificates and other
information as they may reasonably require to confirm that the transfer by it
complies with the foregoing restrictions including, without limitation, a
certificate in the form of Exhibit A hereto;
(4) it understands that the notification requirement referred to in (3)
above will be satisfied, in the case only of transfers by physical delivery of
Certificated Notes other than a Global Certificate, by virtue of the fact that
the following legend will be placed on the Old Notes unless otherwise agreed by
the Company:
"THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS NOTE,
AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS NOTE MAY NOT BE RESOLD, PLEDGED
OR OTHERWISE TRANSFERRED (X) PRIOR TO THE THIRD ANNIVERSARY OF THE ISSUANCE
HEREOF (OR A PREDECESSOR NOTE HERETO) OR (Y) BY ANY HOLDER THAT WAS AN
AFFILIATE OF THE COMPANY AT ANY TIME DURING THE THREE MONTHS PRECEDING THE DATE
OF SUCH TRANSFER, IN EITHER CASE OTHER THAN (1) TO THE COMPANY, (2) SO LONG AS
THIS NOTE IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT
("RULE 144A") TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A PURCHASING FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS
GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE
OF TRANSFER ON THE REVERSE OF THIS NOTE), (3) IN AN OFFSHORE TRANSACTION IN
ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX
CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS
NOTE), AND, IF SUCH TRANSFER IS BEING EFFECTED BY CERTAIN TRANSFERORS SPECIFIED
IN THE INDENTURE (AS DEFINED BELOW) PRIOR TO THE EXPIRATION OF THE "40-DAY
RESTRICTED PERIOD" (WITHIN THE MEANING OF RULE 903(c)(3) OF REGULATION S UNDER
THE SECURITIES ACT), A CERTIFICATE WHICH MAY BE OBTAINED FROM THE COMPANY OR
THE TRUSTEE IS DELIVERED BY THE TRANSFEREE TO THE COMPANY AND THE TRUSTEE, (4)
TO AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX
CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS
NOTE) THAT IS ACQUIRING THIS NOTE FOR INVESTMENT PURPOSES AND NOT FOR
DISTRIBUTION, AND A CERTIFICATE IN THE FORM ATTACHED TO THIS NOTE IS DELIVERED
BY THE TRANSFEREE TO THE COMPANY AND THE TRUSTEE (PROVIDED THAT CERTAIN HOLDERS
SPECIFIED IN THE INDENTURE MAY NOT TRANSFER THIS NOTE PURSUANT TO THIS CLAUSE
(4) PRIOR TO THE EXPIRATION OF THE "40-DAY RESTRICTED PERIOD" (WITHIN THE
MEANING OF RULE 903(c)(3) OF REGULATION S UNDER THE SECURITIES ACT)), (5)
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY
RULE 144 (IF APPLICABLE) UNDER THE SECURITIES ACT, OR (6) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN
ACCORDANCE WITH ANY APPLICABLE
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SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. AN INSTITUTIONAL ACCREDITED
INVESTOR HOLDING THIS NOTE AGREES IT WILL FURNISH TO THE COMPANY AND THE
TRUSTEE SUCH CERTIFICATES AND OTHER INFORMATION AS THEY MAY REASONABLY REQUIRE
TO CONFIRM THAT ANY TRANSFER BY IT OF THIS NOTE COMPLIES WITH THE FOREGOING
RESTRICTIONS. THE HOLDER HEREOF, BY PURCHASING THIS NOTE, REPRESENTS AND
AGREES FOR THE BENEFIT OF THE COMPANY THAT IT IS (1) A QUALIFIED INSTITUTIONAL
BUYER WITHIN THE MEANING OF RULE 144A OR (2) AN INSTITUTION THAT IS AN
"ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE
SECURITIES ACT AND THAT IT IS HOLDING THIS NOTE FOR INVESTMENT PURPOSES AND NOT
FOR DISTRIBUTION OR (3) A NON-U.S. PERSON OUTSIDE THE UNITED STATES WITHIN THE
MEANING OF (OR AN ACCOUNT SATISFYING THE REQUIREMENTS OF PARAGRAPH (o)(2) OF
RULE 902 UNDER) REGULATION S UNDER THE SECURITIES ACT."
(5) it (i) is able to fend for itself in the transactions contemplated by
this Memorandum; (ii) has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of its
prospective investment in the Old Notes; and (iii) has the ability to bear the
economic risks of its prospective investment and can afford the complete loss
of such investment;
(6) it has received a copy of the Offering Memorandum relating to the
offering of Old Notes and acknowledges that it has had access to such financial
and other information, and has been afforded the opportunity to ask questions
of the Company and receive answers thereto, as it deemed necessary in
connection with its decision to purchase the Old Notes; and
(7) it understands that the Company, the Initial Purchasers and others
will rely upon the truth and accuracy of the foregoing acknowledgments,
representations and agreements and agrees that if any of the acknowledgments,
representations and warranties deemed to have been made by it by its purchase
of the Old Notes are no longer accurate, it shall promptly notify the Company
and the Initial Purchasers. If it is acquiring the Old Notes as a fiduciary or
agent for one or more investor accounts, it represents that it has sole
investment discretion with respect to each such account and it has full power
to make the foregoing acknowledgments, representations and agreements on behalf
of such account.
LEGAL MATTERS
The validity of the issuance of the Exchange Notes offered hereby is being
passed upon for the Company by Vinson & Elkins L.L.P., Houston, Texas.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1996 and 1995, and for the years then ended, incorporated in this Prospectus by
reference to the Annual Report on Form 10-K of the Company for the year ended
December 31, 1996, 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 historical statements of revenues and direct operating expenses of the
properties acquired by the Company from Marathon Oil Company for the years
ended December 31, 1996 and 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 for the year 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, 1996, have been so
incorporated in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
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The financial statements of Ashlawn Energy, Inc. as of December 31, 1993
and December 31, 1994, 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 and 1997 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.
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<PAGE> 66
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.
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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.
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.
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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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PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. 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.
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
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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.
ITEM 21. EXHIBITS AND FINANCIAL SCHEDULES
The following instruments and documents are included as Exhibits to
this Registration Statement. Exhibits incorporated by reference are so
indicated by parenthetical information.
<TABLE>
<CAPTION>
Exhibit No. Exhibit
----------- -------
<S> <C> <C>
4.1 -- Amended and Restated Certificate of Incorporation of the Company dated
July 25, 1995 (filed as Exhibit 3.1 to the Quarterly Form on 10-Q filed on
November 14, 1995 for the nine month period ending September 30, 1995 and
is included herein by reference (File No. 0-26444)) and Amendment No. 1
thereto (filed with Amendment No. 2 to the Registration Statement on Form
S-1 filed on June 6, 1996 and is included herein by reference (File No.
333-4600))
4.2 -- By-Laws of the Company (filed as Exhibit 3.2 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))
4.3 -- Indenture dated as of February 14, 1997 among the Company, as issuer, and
Bankers Trust, as trustee (filed as Exhibit 4.4 to the Annual Report on
Form 10-K for the fiscal year ended December 31, 1996 and is included
herein by reference (File No. 000-26444)))
4.4* -- Registration Rights Agreement dated February 11, 1997 by and among the
Company and Salomon Brothers Inc, Donaldson, Lufkin & Jenrette Securities
Corporation, Lehman Brothers and ING Baring (U.S.) Securities, Inc.
5.1* -- Opinion of Vinson & Elkins L.L.P.
10.1** -- Fourth Restatement of Credit Agreement by and among
Forcenergy Inc and ING (U.S.) Capital Corporation
and certain financial institutions named therein as Lenders.
</TABLE>
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<TABLE>
<S> <C> <C>
21.1* -- Subsidiaries of the Company
23.1** -- Consent of Coopers & Lybrand L.L.P.
23.2** -- Consent of Price Waterhouse LLP
23.3** -- Consent of LaPorte, Sehrt, Romig & Hand, APAC
23.4** -- Consent of Netherland, Sewell & Associates, Inc.
23.5** -- Consent of Collarini Engineering, Inc.
23.6** -- Consent of Joe C. Neal & Associates
23.7* -- Consent of Vinson & Elkins L.L.P. (included in Exhibit 5.1)
24.1* -- Power of Attorney (included on the signature pages of this Registration
Statement)
25.1* -- Statement of Eligibility of Bankers Trust Company
99.1* -- Form of Letter of Transmittal
</TABLE>
* Previous filed
** Filed herewith
ITEM 22. UNDERTAKINGS
The Company hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Company's annual report
pursuant to section 13(a) or section 15(d) of the Exchange Act (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
section 15(d) of the Exchange Act) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the provisions described under Item 15 above, or
otherwise, the Company has been advised that, in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the Company 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 Company 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 to respond to requests
for information that is incorporated by reference into the Prospectus pursuant
to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through
the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Miami, the State of Florida on April 17, 1997.
FORCENERGY INC
By: /s/ E. JOSEPH GRADY
-----------------------------------------
E. Joseph Grady
Vice President - Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ *STIG WENNERSTROM President and Chief Executive Officer April 17, 1997
- -------------------------------------- (Principal Executive Officer)
Stig Wennerstrom
/s/ E. JOSEPH GRADY Vice President - Chief Financial Officer April 17, 1997
- -------------------------------------- (Principal Financial and Accounting
E. Joseph Grady Officer)
/s/ *BRUCE L. BURNHAM
- -------------------------------------- April 17, 1997
Bruce L. Burnham Director
/s/ *ARNOLD L. CHAVKIN
- -------------------------------------- April 17, 1997
Arnold L. Chavkin Director
/s/ *ERIC FORSS
- -------------------------------------- April 17, 1997
Eric Forss Director
/s/ *ROBERT ISSAL
- -------------------------------------- April 17, 1997
Robert Issal Chairman of the Board of Directors
/s/ *KEVIN S. PENN
- -------------------------------------- April 17, 1997
Kevin S. Penn Director
/s/ *WILLIAM F. WALLACE
- -------------------------------------- April 17, 1997
William F. Wallace Director
/s/ *JEFFREY A. WEBER
- -------------------------------------- April 17, 1997
Jeffrey A. Weber Director
*By: /s/ E. JOSEPH GRADY
---------------------------------
E. Joseph Grady, Attorney-in-Fact
</TABLE>
II-4
<PAGE> 73
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Exhibit
----------- -------
<S> <C> <C>
4.1 -- Amended and Restated Certificate of Incorporation of the Company dated
July 25, 1995 (filed as Exhibit 3.1 to the Quarterly Form on 10-Q filed on
November 14, 1995 for the nine month period ending September 30, 1995 and
is included herein by reference (File No. 0-26444)) and Amendment No. 1
thereto (filed with Amendment No. 2 to the Registration Statement on Form
S-1 filed on June 6, 1996 and is included herein by reference (File No.
333-4600))
4.2 -- By-Laws of the Company (filed as Exhibit 3.2 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))
4.3 -- Indenture dated as of February 14, 1997 among the Company, as issuer, and
Bankers Trust, as trustee (filed as Exhibit 4.4 to the Annual Report on
Form 10-K for the fiscal year ended December 31, 1996 and is included
herein by reference (File No. 000-26444)))
4.4* -- Registration Rights Agreement dated February 11, 1997 by and among the
Company and Salomon Brothers Inc, Donaldson, Lufkin & Jenrette Securities
Corporation, Lehman Brothers and ING Baring (U.S.) Securities, Inc.
5.1* -- Opinion of Vinson & Elkins L.L.P.
10.1** -- Fourth Restatement of Credit Agreement by and among Forcenergy Inc and
ING (U.S.) Capital Corporation and certain financial institutions
named therein as Lenders.
21.1* -- Subsidiaries of the Company
23.1** -- Consent of Coopers & Lybrand L.L.P.
23.2** -- Consent of Price Waterhouse LLP
23.3** -- Consent of LaPorte, Sehrt, Romig & Hand, APAC
23.4** -- Consent of Netherland, Sewell & Associates, Inc.
23.5** -- Consent of Collarini Engineering, Inc.
23.6** -- Consent of Joe C. Neal & Associates
23.7* -- Consent of Vinson & Elkins L.L.P. (included in Exhibit 5.1)
24.1* -- Power of Attorney (included on the signature pages of this Registration
Statement)
25.1* -- Statement of Eligibility of Bankers Trust Company
99.1* -- Form of Letter of Transmittal
</TABLE>
* Previously filed
** Filed herewith
<PAGE> 1
EXHIBIT 10.1
- -------------------------------------------------------------------------------
FOURTH RESTATEMENT OF CREDIT AGREEMENT
--------------------------------------
FORCENERGY INC
AND
ING (U.S.) CAPITAL CORPORATION
AS AGENT
AND
CERTAIN FINANCIAL INSTITUTIONS
AS LENDERS
--------------------------------------
$200,000,000
MARCH 31, 1997
- -------------------------------------------------------------------------------
<PAGE> 2
<TABLE>
<S> <C>
ARTICLE I - Definitions and References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2. Exhibits and Schedules; Additional Definitions . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 1.3. Amendment of Defined Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 1.4. References and Titles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 1.5. Calculations and Determinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE II - The Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2.1. Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2.2. Requests for Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.3. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.4. Rate Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.5. Commitment & Facility Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.6. Agent's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.7. Regular Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.8. Optional Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.9. Mandatory Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.10. Payments to Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.11. Initial Borrowing Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.12. Subsequent Determinations of Borrowing Base . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.13. Capital Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2.14. Increased Cost of Fixed Rate Portions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.15. Transfer of Loans and Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.16. Availability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.17. Funding Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.18. Reimbursable Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE 2A. Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2A.1. Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2A.2. Reimbursement of Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2A.3. Transferees of Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 2A.4. Extension of Maturity of Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 2A.5. Restriction on Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 2A.6. No Duty to Inquire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 2A.7. Letter of Credit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 2A.8. Acceleration of LC Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 2A.9. Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 2A.10 Increased Costs for Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE III - Conditions Precedent to Lending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 3.1. Documents to be Delivered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 3.2. Additional Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE IV - Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4.1. Borrower's Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4.2. Representation by Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE V - Covenants of Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 5.1. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 5.2. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
ARTICLE VI - Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 6.1. The Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 6.2. Agreement to Deliver Security Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 6.3. Perfection and Protection of Security Interests and Liens . . . . . . . . . . . . . . . . . . 51
Section 6.4. Bank Accounts; Offset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 6.5. Guaranties of Borrower's Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 6.6. Production Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
ARTICLE VII - Events of Default and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 7.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 7.2. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 7.3. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
ARTICLE VIII - Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 8.1. Appointment and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 8.2. Agent's Reliance, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 8.3. Lenders' Credit Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 8.4. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 8.5. Rights as Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 8.6. Sharing of Set-Offs and Other Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 8.7. Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 8.8. Benefit of Article VIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 8.9. Resignation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
ARTICLE IX - Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 9.1. Waivers and Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 9.2. Governing Law: Submission To Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 9.3. Limitation on Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 9.4. Termination; Limited Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 9.5. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 9.6. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 9.7. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 9.8. Waiver of Jury Trial, Punitive Damages, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . 63
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
Section 9.9. Restatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
</TABLE>
SCHEDULES AND EXHIBITS
SCHEDULE 1 - Disclosure Schedule
SCHEDULE 2 - Required Insurance Coverage
SCHEDULE 3 - Existing Debt
SCHEDULE 4 - Existing Liens
EXHIBIT A - Note
EXHIBIT B - Request for Advance
EXHIBIT C - Rate Election
EXHIBIT D - Form of Opinion of Borrower's Counsel
EXHIBIT E - Application for Letter of Credit
EXHIBIT F - Certificate Accompanying Financial Statements
EXHIBIT G - Environmental Compliance Certificate
-iii-
<PAGE> 5
FOURTH RESTATEMENT OF CREDIT AGREEMENT
THIS FOURTH RESTATEMENT OF CREDIT AGREEMENT is made as of March 31,
1997, by and among Forcenergy Inc, a Delaware corporation (formerly known as
Forcenergy Gas Exploration, Inc. and herein called "Borrower"), ING (U.S.)
Capital Corporation, a Delaware corporation (formerly known as Internationale
Nederlanden (U.S.) Capital Corporation and herein called "ING "), as agent
hereunder (in such capacity being herein called "Agent"), and the Lenders
referred to below.
RECITALS
1. Forcenergy Partners, L.P. (the "Partnership"), Internationale
Nederlanden Bank, N.V., New York Branch ("ING Bank") and certain lenders party
thereto entered into that certain Credit Agreement dated as of July 26, 1991,
as amended by (i) that certain First Amendment to Credit Agreement dated as of
November 15, 1991, (ii) that certain Second Amendment to Credit Agreement dated
as of September 1, 1992, (iii) that certain Third Amendment to Credit Agreement
dated as of December 30, 1992, and (iv) that certain Fourth Amendment to Credit
Agreement dated as of February 17, 1993 (as so amended, the "Original
Agreement").
2. Pursuant to an Agreement and Plan of Merger dated September 14,
1993, the Partnership merged with and into Forcenergy AB Subsidiary, Inc., a
Delaware corporation ("AB Sub"). AB Sub, the surviving entity from such
merger, changed its name to Forcenergy Gas Exploration, Inc. and by operation
of law assumed all of the obligations of the Partnership under the Original
Agreement and the Promissory Notes issued thereunder (the "Original Notes").
3. The Original Agreement was restated in its entirety pursuant to
that certain Fifth Amendment to and Restatement of Credit Agreement dated as of
September 15, 1993 among Borrower, Agent and certain financial institutions
(including certain Lenders), as amended by (i) a First Amendment to Fifth
Amendment to and Restatement of Credit Agreement dated December 21, 1993, (ii)
a Second Amendment to Fifth Amendment to and Restatement of Credit Agreement
dated June 15, 1994, (iii) a Third Amendment to Fifth Amendment to and
Restatement of Credit Agreement dated September 1, 1994, (iv) a Fourth
Amendment to Fifth Amendment to and Restatement of Credit Agreement dated June
21, 1995 and (v) a Fifth Amendment to Fifth Amendment to and Restatement of
Credit Agreement dated September 15, 1995 (as so amended, the "First Restated
Agreement"), pursuant to which Borrower issued Renewal Promissory Notes in
renewal and increase of, and in substitution for, the Original Notes (the
"First Renewal Notes").
4. The First Restated Agreement was restated in its entirety pursuant
to that certain Second Restatement of Credit Agreement dated as of December 1,
1995 among Borrower, Agent and certain financial institutions (including
certain Lenders), as amended by a First Amendment to Second Restatement of
Credit Agreement dated March 8, 1996 (as so amended, the "Second Restated
Agreement"), pursuant to which Borrower issued Renewal Promissory Notes in
renewal and increase of, and in substitution for, the First Renewal Notes (the
"Second Renewal Notes").
<PAGE> 6
4. The Second Restated Agreement was restated in its entirety
pursuant to that certain Third Restatement of Credit Agreement dated as of July
11, 1996 among Borrower, Agent and Lenders, as amended by (i) a First Amendment
to Third Restatement of Credit Agreement dated July 11, 1996, (ii) a Second
Amendment to Third Restatement of Credit Agreement dated November 6, 1996, and
(iii) a Third Amendment to Third Restatement of Credit Agreement dated February
12, 1997 (as so amended, the "Existing Agreement"), pursuant to which Borrower
issued Renewal Promissory Notes in renewal and increase of, and in substitution
for, the Second Renewal Notes (the "Existing Notes").
5. Borrower desires to amend and restate the Existing Agreement in
its entirety and to renew and increase the indebtedness evidenced by the
Existing Notes by issuing the Notes as provided herein.
In consideration of the mutual covenants and agreements contained
herein, the parties hereto agree to restate the Existing Agreement in its
entirety on the terms and conditions hereinafter provided:
ARTICLE I - Definitions and References
Section 1.1. Defined Terms. As used in this Agreement, each of the
following terms has the meaning given it in this Section 1.1 or in the sections
and subsections referred to below:
"AB Sub" has the meaning given it in the Recitals to this Agreement.
"Advance" has the meaning given it in Section 2.1.
"Affiliate" means, as to any Person, each other Person that directly
or indirectly (through one or more intermediaries or otherwise) controls, is
controlled by, or is under common control with, such Person.
"Agent" means ING (U.S.) Capital Corporation (formerly known as
Internationale Nederlanden (U.S.) Capital Corporation), and its successors in
such capacity.
"Agreement" means this Fourth Restatement of Credit Agreement, as the
same may from time to time be amended, supplemented or otherwise modified.
"Back-to-Back Letter of Credit" means any Letter of Credit issued
hereunder by an Issuing Bank that is backed by a letter of credit issued for
the benefit of the Issuing Bank by a financial institution acceptable to the
Issuing Bank and otherwise issued on terms and conditions acceptable to the
Issuing Bank in its sole discretion; provided that the aggregate amount of
Back-to-Back Letters of Credit outstanding any time shall not exceed
$5,000,000.
-2-
<PAGE> 7
"Back-to-Back LC Obligation" means at the time in question, the sum of
the Matured LC Obligations related to Back-to-Back Letters of Credit plus the
aggregate amounts which Lenders might be called upon to advance under all Back-
to-Back Letters of Credit then outstanding.
"Base Rate" means the rate of interest from time to time established
by Agent at its principal office in New York City as its prime commercial
lending rate; provided, however, that if Agent shall cease to announce a prime
commercial lending rate, then "Base Rate" shall mean the arithmetic average of
the rates of interest publicly announced by The Chase Manhattan Bank, Citibank,
N.A. and Morgan Guaranty Trust Company of New York (or their respective
successors) as their respective prime commercial lending rates (or, as to any
such bank that does not announce such a rate, such bank's 'base' or other rate
determined by Agent to be the equivalent rate announced by such bank), except
that, if any such bank shall, for any period, cease to announce publicly its
prime commercial lending (or equivalent) rate, Agent shall, during such period,
determine the "Base Rate" based upon the prime commercial lending (or
equivalent) rates announced publicly by the other such banks. The Base Rate
shall in no event, however, exceed the Highest Lawful Rate.
"Base Rate Portion" means that portion of the unpaid principal balance
of a Loan which is not made up of Fixed Rate Portions.
"Borrower" means Forcenergy Inc (formerly known as Forcenergy Gas
Exploration, Inc.), a Delaware corporation.
"Borrowing Base" means, at the particular time in question, either the
amount provided for in Section 2.11 or the amount determined by Agent in
accordance with the provisions of Section 2.12; provided, however, that in no
event shall the Borrowing Base ever exceed the Maximum Loan Amount and provided
further that in no event shall (i) more than $195,000,000 of the Borrowing Base
be composed of Advances and LC Obligations and (ii) more than $5,000,000 of the
Borrowing Base be composed of Back-to-Back LC Obligations.
"Business Day" means a day, other than a Saturday or Sunday, on which
commercial banks are open for business with the public in New York, New York.
Any Business Day in any way relating to Fixed Rate Portions (such as the day on
which an Interest Period begins or ends) must also be a day on which, in the
judgment of Agent, significant transactions in dollars are carried out in the
interbank eurocurrency market.
"Change of Control" means the occurrence of any of the following
events at any time after the execution and delivery of this Agreement, except
to the extent any of the following events occurs with the prior written consent
of Majority Lenders: (i) any Person or two or more Persons acting as a group
shall acquire beneficial ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange 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
of Borrower, (ii) there is a sale of all or substantially all of the assets of
Borrower or a distribution of assets of Borrower upon any dissolution, winding
up, liquidation or
-3-
<PAGE> 8
reorganization of Borrower or (iii) there is a Change of Control as defined in
the Subordinated Debt Documents.
"Collateral" means all property of any kind which is subject to a Lien
in favor of Lenders (or in favor of Agent for the benefit of Lenders) or which,
under the terms of any Security Document, is purported to be subject to such a
Lien.
"Commitment Period" means the period from and including the date
hereof until and including the Termination Date (or, if earlier, the day on
which the Notes first become due and payable in full).
"Consolidated" refers to the consolidation of any Person, in
accordance with GAAP, with its properly consolidated subsidiaries. References
herein to a Person's Consolidated financial statements, financial position,
financial condition, liabilities, etc. refer to the consolidated financial
statements, financial position, financial condition, liabilities, etc. of such
Person and its properly consolidated subsidiaries.
"Debt" means, as to any Person, all indebtedness, liabilities and
obligations of such Person, whether matured or unmatured, liquidated or
unliquidated, primary or secondary, direct or indirect, absolute, fixed or
contingent, and whether or not required to be considered pursuant to GAAP.
"Default" means any Event of Default and any default, event or
condition which would, with the giving of any requisite notices and the passage
of any requisite periods of time, constitute an Event of Default.
"Determination Date" has the meaning given it in Section 2.12.
"Disclosure Schedule" means (a) Schedule 1 hereto and (b) any
documents listed on such schedule and expressly incorporated therein by
reference, so long as Borrower has heretofore delivered true and correct copies
of such documents to Agent and each Lender. Insofar as any representations and
warranties made herein are incorporated by reference or otherwise remade in
Loan Documents delivered as of a date after the date hereof, the term
"Disclosure Schedule" shall in such representations and warranties be deemed to
refer as well to all other documents which Borrower has at the time in question
delivered to Agent and each Lender.
"Engineering Report" means the Initial Engineering Report and each
engineering report delivered pursuant to Section 5.1(b)(iv).
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
other governmental restrictions relating to the environment or to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes into the
environment including ambient air, surface water, ground
-4-
<PAGE> 9
water, or land, or otherwise relating to the manufacture, processing,
distribution use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, together with all rules and regulations promulgated
with respect thereto.
"ERISA Plan" means any pension benefit plan subject to Title IV of
ERISA maintained by any Related Person or any Affiliate thereof with respect to
which any Related Person has a fixed or contingent liability.
"Eurodollar Rate" means, with respect to each particular Fixed Rate
Portion within a Tranche and with respect to the related Interest Period, a
rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%)
quoted by Agent at approximately 11:00 a.m. London time (or as soon thereafter
as practicable) on the date two Business Days prior to the first day of such
Interest Period for the offering by Agent to leading banks in the London
interbank market of dollar deposits having a term comparable to such Interest
Period and in an amount comparable to the principal amount of Agent's Fixed
Rate Portion within such Tranche; provided, however, that if Agent shall cease
to make such offers "Eurodollar Rate" shall mean, with respect to such Fixed
Rate Portion, the rate per annum (rounded upwards, if necessary, to the nearest
1/16 of 1%) reported, on the date two Business Days prior to the first day of
such Interest Period, on Telerate Access Service Page 3750 (British Bankers
Association Settlement Rate) as the London Interbank Offered Rate for dollar
deposits having a term comparable to such Interest Period and in an amount of
$1,000,000 or more (or, if such Page shall cease to be publicly available or if
the information contained on such Page, in Agent's sole judgment, shall cease
to accurately reflect such London Interbank Offered Rate, as reported by any
publicly available source of similar market data selected by Agent that, in
Agent's sole judgment, accurately reflects such London Interbank Offered Rate).
"Event of Default" has the meaning given it in Section 7.1, provided
that any requirement for the giving of notice, the lapse of time, or both, has
been satisfied.
"Existing Agreement" has the meaning given it in the Recitals to this
Agreement.
"Existing Notes" has the meaning given it in the Recitals to this
Agreement.
"First Renewal Notes" has the meaning given it in the Recitals to this
Agreement.
"First Restated Agreement" has the meaning given it in the Recitals to
this Agreement.
"Fiscal Quarter" means a three-month period ending on March 31, June
30, September 30 or December 31 of any year.
"Fiscal Year" means a twelve-month period ending on December 31 of any
year.
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<PAGE> 10
"Fixed Rate" means, with respect to each particular Fixed Rate Portion
and the associated Eurodollar Rate and Reserve Percentage, the rate per annum
calculated by Agent (rounded upwards, if necessary, to the next higher 0.01%)
determined on a daily basis pursuant to the following formula:
Fixed Rate =
Eurodollar Rate + A
-----------------------------
100.0% - Reserve Percentage
where A means one percent (1.0%). If the Reserve Percentage changes during the
Interest Period for a Fixed Rate Portion, Agent may, at its option, either
change the Fixed Rate for such Fixed Rate Portion or leave it unchanged for the
duration of such Interest Period. The Fixed Rate shall in no event, however,
exceed the Highest Lawful Rate.
"Fixed Rate Portion" means any portion of the unpaid principal balance
of a Loan which Borrower designates as such in a Rate Election.
"GAAP" means those generally accepted accounting principles and
practices which are recognized as such by the Financial Accounting Standards
Board (or any generally recognized successor) and which, in the case of
Borrower and its Consolidated subsidiaries, are applied for all periods after
the date hereof in a manner consistent with the manner in which such principles
and practices were applied to the audited Initial Financial Statements. If any
change in any accounting principle or practice is required by the Financial
Accounting Standards Board (or any such successor) in order for such principle
or practice to continue as a generally accepted accounting principle or
practice, all reports and financial statements required hereunder with respect
to Borrower or with respect to Borrower and its Consolidated subsidiaries may
be prepared in accordance with such change, but all calculations and
determinations to be made hereunder which are materially affected by such
change may be made in accordance with such change only after prior notice of
such change is given to each Lender.
"Grace Period" has the meaning given it in Section 7.1.
"Guarantor" means any Subsidiary of Borrower now in existence or
hereafter created which now or hereafter executes and delivers a guaranty to
Agent pursuant to Section 6.5.
"Hazardous Materials" means any substances regulated under any
Environmental Law, whether as pollutants, contaminants, or chemicals, or as
industrial, toxic or hazardous substances or wastes, or otherwise.
"Highest Lawful Rate" means, with respect to each Lender, the maximum
nonusurious rate of interest that such Lender is permitted under applicable law
to contract for, take, charge, or receive with respect to its Loan. All
determinations herein of the Highest Lawful Rate, or of any interest rate
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<PAGE> 11
determined by reference to the Highest Lawful Rate, shall be made separately
for each Lender as appropriate to assure that the Loan Documents are not
construed to obligate any Person to pay interest to any Lender at a rate in
excess of the Highest Lawful Rate applicable to such Lender.
"ING" means ING (U.S.) Capital Corporation (formerly known as
Internationale Nederlanden (U.S.) Capital Corporation), a Delaware corporation.
"ING Bank" has the meaning given it in the Recitals to this Agreement.
"Initial Engineering Report" means[, COLLECTIVELY,] the engineering
report concerning oil and gas properties of Borrower dated
____________________________, 1997 prepared by Netherland, Sewell & Associates,
Inc. as of January 1, 1997 [AND THE ENGINEERING REPORT CONCERNING OIL AND GAS
PROPERTIES OF BORROWER DATED ____________________________________________ ,
1997 PREPARED BY COLLARINI & ASSOCIATES AS OF JANUARY 1, 1997].
"Initial Financial Statements" means the audited annual Consolidated
financial statements of Borrower dated as of December 31, 1996.
"Interest Period" means, with respect to each particular Fixed Rate
Portion of a Loan, a period of 1, 2, 3 or 6 months, as specified in the Rate
Election applicable thereto, beginning on and including the date specified in
such Rate Election (which must be a Business Day), and ending on but not
including the same day of the month as the day on which it began (e.g., a
period beginning on the third day of one month shall end on but not include the
third day of another month), provided that each Interest Period which would
otherwise end on a day which is not a Business Day shall end on the next
succeeding Business Day (unless such next succeeding Business Day is in the
next following calendar month, in which case such Interest Period shall end on
the immediately preceding Business Day) and provided that each Interest Period
which begins on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar month at the
end of such Interest Period) shall end on the last Business Day of the calendar
month in which it would have ended if there were a numerically corresponding
day in such calendar month. No Interest Period may be elected which would
extend past the date on which the associated Note is due and payable in full.
"Issuing Bank" means any of the Lenders acting in its capacity as an
issuer of Letters of Credit hereunder.
"Late Payment Rate" means, at the time in question, two percent (2.0%)
per annum plus the Base Rate then in effect; provided that, with respect to any
Fixed Rate Portion with an Interest Period extending beyond the date such Fixed
Rate Portion becomes due and payable, "Late Payment Rate" shall mean two
percent (2.0%) per annum plus the related Fixed Rate. The Late Payment Rate
shall in no event, however, exceed the Highest Lawful Rate.
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<PAGE> 12
"LC Application" means any application or agreement for a standby
Letter of Credit executed by Borrower pursuant to Section 2A.1.
"LC Obligation" means at the time in question, the sum of the Matured
LC Obligations of Borrower plus the aggregate amounts which Lenders might be
called upon to advance under all Letters of Credit then outstanding; provided
that LC Obligations shall not include Back-to-Back LC Obligations.
"Lenders" means each signatory hereto other than Borrower, including
ING, in its capacity as a lender hereunder rather than as Agent, and the
successors of each as holder of a Note.
"Letter of Credit" has the meaning given it in Section 2A.1.
"Lien" means, with respect to any property or assets, any right or
interest therein of a creditor to secure Debt owed to him or any other
arrangement with such creditor which provides for the payment of such Debt out
of such property or assets or which allows him to have such Debt satisfied out
of such property or assets prior to the general creditors of any owner thereof,
including any lien, mortgage, security interest, pledge, deposit, production
payment, rights of a vendor under any title retention or conditional sale
agreement or lease substantially equivalent thereto, tax lien, mechanic's or
materialman's lien, or any other charge or encumbrance for security purposes,
whether arising by law or agreement or otherwise, but excluding any right of
offset which arises without agreement in the ordinary course of business.
"Lien" also means any filed financing statement (other than protective filings
for operating leases), any registration of a pledge (such as with an issuer of
unregistered securities), or any other arrangement or action which would serve
to perfect a Lien described in the preceding sentence, regardless of whether
such financing statement is filed, such registration is made, or such
arrangement or action is undertaken before or after such Lien exists.
"Loan" has the meaning given it in Section 2.1. "Loans" means
collectively each Lender's Loan.
"Loan Documents" means this Agreement, the Notes, the Security
Documents, any guaranty given in accordance with Section 6.5, the Letters of
Credit, the LC Applications, and all other agreements, certificates, documents,
instruments and writings at any time delivered in connection herewith or
therewith (exclusive of term sheets, commitment letters, correspondence and
similar documents used in the negotiation hereof).
"Majority Lenders" means at any time Lenders the Percentage Shares of
which aggregate at least 75%.
"Matured LC Obligations" has the meaning given it in Section 2A.2(a).
"Maximum Loan Amount" means the amount of $200,000,000.
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<PAGE> 13
"1997 Indenture" means that certain Indenture entered into on February
14, 1997 between Borrower and Bankers Trust Company, as trustee, pursuant to
which the 2007 Senior Subordinated Notes were issued, as such instrument was in
effect on the date of execution.
"1996 Indenture" means that certain Indenture entered into on or about
November 6, 1996 between Borrower and Bankers Trust Company, as trustee,
pursuant to which the 2006 Senior Subordinated Notes were issued, as such
instrument was in effect on the date of execution.
"Note" has the meaning given it in Section 2.1. "Notes" means
collectively each Lender's Note.
"Obligations" means all Debt from time to time owing by any of the
Related Persons to Agent or any Lender under or pursuant to any of the Loan
Documents. "Obligation" means any part of the Obligations.
"Partnership" has the meaning given it in the Recitals to this
Agreement.
"Percentage Share" means, with respect to any Lender (a) when used in
Sections 2.1, 2.5 or 2.A.2(b), in any Request for Advance or when no Loans are
outstanding hereunder, the percentage set forth opposite such Lender's name on
the signature pages of this Agreement, and (b) when used otherwise, the
percentage equal to the unpaid principal balance of such Lender's Loan at the
time in question divided by the aggregate unpaid principal balance of all Loans
at such time.
"Permitted Investments" means:
(a) investments in open market commercial paper, maturing
within 270 days after acquisition thereof, which has the highest or
second highest credit rating given by either Standard & Poor's
Corporation or Moody's Investors Service, Inc.
(b) investments in marketable obligations, maturing
within 12 months after acquisition thereof, issued or unconditionally
guaranteed by the United States of America or an instrumentality or
agency thereof and entitled to the full faith and credit of the United
States of America.
(c) investments in demand deposits, and time deposits
(including certificates of deposit) maturing within 12 months from the
date of deposit thereof, with any office of any Lender or with a
domestic office of any national or state bank or trust company which
is organized under the laws of the United States of America or any
state therein, which has capital, surplus and undivided profits of at
least $500,000,000, and whose certificates of deposit have at least
the third highest credit rating given by either Standard & Poor's
Corporation or Moody's Investors Service, Inc.
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<PAGE> 14
(d) investments in money market or other mutual funds
substantially all of whose assets comprise securities of the types
described in paragraphs (a) through (c) above.
(e) contracts entered into with the purpose and effect of
fixing prices on oil and/or gas expected to be produced by the Related
Persons, provided that at all times: (1) no such contract fixes a
price for a term of more than twenty-four (24) months without the
prior written consent of Majority Lenders; (2) the aggregate monthly
production covered by all such contracts (determined, in the case of
contracts that are not settled on a monthly basis, by a monthly
proration acceptable to Agent) for any single month does not in the
aggregate exceed seventy-five percent (75%) of the Related Persons'
aggregate Projected Oil and Gas Production anticipated to be sold in
the ordinary course of the Related Persons' businesses for such month,
(3) no such contract requires any Related Person to put up money,
assets, letters of credit or other security against the event of its
nonperformance prior to actual default by such Related Person in
performing its obligations thereunder other than deposits made by
Borrower to satisfy minimum margin requirements in an aggregate amount
not to exceed $5,000,000 outstanding at any time, (4) each such
contract shall be with Agent, any Lender or a counterparty or have a
guarantor of the obligation of the counterparty who, at the time the
contract is made, has long-term obligations rated AA or Aa2 or better,
respectively, by Standard & Poor's Corporation or Moody's Investors
Services, Inc. (or a successor credit rating agency) and (5) promptly
after entering into such contract if requested by Agent but in any
event on a monthly basis, Borrower gives written notice of such fact
to Agent and all Lenders. As used herein, the term "Projected Oil and
Gas Production" means the projected production of oil and/or gas
(measured by volume unit or BTU equivalent, not sales price) for the
term of the contracts or a particular month, as applicable, from
properties and interests owned by any Related Person which are located
in or offshore of the United States and which have attributable to
them proved oil or gas reserves and, with respect to Borrower, as
reflected in the most recent report delivered pursuant to Section
5.1(b)(iv), after deducting projected production from any properties
or interests sold or under contract for sale that had been included in
such report and after adding projected production from any properties
or interests owned by Borrower that had not been reflected in such
report but that are reflected in a separate or supplemental reports
meeting the requirements of such Section 5.1(b)(iv) and otherwise
satisfactory to Agent. Notwithstanding the foregoing, in the event
that the aggregate monthly production covered by all contracts entered
into with the purpose and effect of fixing prices on oil and/or gas
expected to be produced by the Related Persons (determined, in the
case of contracts that are not settled on a monthly basis, by a
monthly proration acceptable to Agent) for a period of six consecutive
months equals, in the aggregate for such six month period,
seventy-five percent (75%) of the Related Persons' aggregate Projected
Oil and Gas Production anticipated to be sold in the ordinary course
of the Related Persons' businesses during such six month period,
Borrower will notify Agent and each Lender in writing of such fact at
least fifteen (15) days prior to the beginning of such six month
period; and
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<PAGE> 15
(f) upon prior written notice to Agent and all Lenders,
contracts entered into with the purpose and effect of fixing interest
rates on a principal amount of indebtedness of Borrower that is
accruing interest at a variable rate, provided that (1) the aggregate
notional amount of such contracts never exceeds seventy-five percent
(75%) of the anticipated outstanding principal balance of the
indebtedness of Borrower to be hedged by such contracts or an average
of such principal balances calculated using a generally accepted
method of matching interest swap contracts to declining principal
balances, (2) the floating rate index of each such contract generally
matches the index used to determine the floating rates of interest on
the corresponding indebtedness of Borrower to be hedged by such
contract and (3) each such contract shall be with Agent, any Lender or
a counterparty or have a guarantor of the obligation of the
counterparty who, at the time the contract is made, has long-term
obligations rated AA or Aa2 or better, respectively, by Standard &
Poor's Corporation or Moody's Investors Services, Inc. (or a successor
credit rating agency).
"Person" means an individual, corporation, partnership, association,
joint stock company, trust or trustee thereof, estate or executor thereof,
unincorporated organization or joint venture, court or governmental unit or any
agency or subdivision thereof, or any other legally recognizable entity.
"Prohibited Lien" means any Lien not expressly allowed under Section
5.2(b).
"Qualified Properties" means at the particular time in question those
oil and gas properties and interests (a) which are owned by Borrower (b) which
are located in or offshore the United States, (c) which have attributable to
them proved oil or gas reserves, and (d) to the extent requested by Agent (i)
which are subject to Security Documents securing the Obligations that
constitute and create legal, valid and duly perfected first deed of trust or
mortgage liens in such properties and interests and first priority assignments
of and security interests in the oil and gas attributable to such properties
and interests and the proceeds thereof, free and clear of all Prohibited Liens,
and (ii) for which Agent has received favorable title opinions from legal
counsel acceptable to it with respect to each of such properties and interests,
based upon abstract or record examinations to dates acceptable to Agent and (A)
stating that Borrower has good and defensible title to such properties and
interests, (B) confirming the requirements provided for in subsection (d)(i) of
this definition, and (C) covering such other matters as Agent may request.
"Rate Election" has the meaning given it in Section 2.4.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as from time to time in effect.
"Related Person" means any of Borrower, each Subsidiary of Borrower
and each Guarantor.
"Request for Advance" means a written or telephonic request, or a
written confirmation, made by Borrower which meets the requirements of Section
2.2.
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<PAGE> 16
"Required Lenders" means at any time Lenders the Percentage Shares of
which aggregate at least 85%.
"Reserve Percentage" means, on any day with respect to each particular
Fixed Rate Portion in a Tranche, the maximum reserve requirement, as determined
by Agent (including without limitation any basic, supplemental, marginal,
emergency or similar reserves), expressed as a percentage and rounded to the
next higher 0.01%, which would then apply to Agent under Regulation D with
respect to "Eurocurrency liabilities" (as such term is defined in Regulation D)
equal in amount to Agent's Fixed Rate Portion in such Tranche, were Agent to
have any such "Eurocurrency liabilities". If such reserve requirement shall
change after the date hereof, Borrower shall be promptly notified thereof and
the Reserve Percentage shall be automatically increased or decreased, as the
case may be, from time to time as of the effective time of each such change in
such reserve requirement.
"Second Renewal Notes" has the meaning given it in the Recitals to
this Agreement.
'Second Restated Agreement" has the meaning given it in the Recitals
to this Agreement.
"Security Documents" means all security agreements, deeds of trust,
mortgages, chattel mortgages, pledges, guaranties, financing statements,
continuation statements, extension agreements and other agreements or
instruments now, heretofore, or hereafter delivered by any Related Person to
Agent in connection with this Agreement or any transaction contemplated hereby
to secure or guarantee the payment of any part of the Obligations or the
performance of any Related Person's other duties and obligations under the Loan
Documents.
"Senior Subordinated Notes" means collectively the 2006 Senior
Subordinated Notes and the 2007 Senior Subordinated Notes.
"Subordinated Debt" means collectively the Debt evidenced by the 2006
Senior Subordinated Notes and the 2007 Senior Subordinated Notes.
"Subordinated Debt Documents" means collectively the 1996 Indenture
and the 1997 Indenture, and the Senior Subordinated Notes issued thereunder.
"Subsidiary" means, with respect to any Person, any corporation,
association, partnership, joint venture, or other business or corporate entity,
enterprise or organization which is directly or indirectly (through one or more
intermediaries) controlled by or owned fifty percent or more by such Person.
"Termination Date" means January 1, 1999.
"Termination Event" means (a) the occurrence with respect to any ERISA
Plan of (i) a reportable event described in Sections 4043(b)(5) or (6) of ERISA
or (ii) any other reportable event
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<PAGE> 17
described in Section 4043(b) of ERISA other than a reportable event not subject
to the provision for 30-day notice to the Pension Benefit Guaranty Corporation
pursuant to a waiver by such corporation under Section 4043(a) of ERISA, or (b)
the withdrawal of any Related Person or of any Affiliate of any Related Person
from an ERISA Plan during a plan year in which it was a "substantial employer"
as defined in Section 4001(a)(2) of ERISA, or (c) the filing of a notice of
intent to terminate any ERISA Plan or the treatment of any ERISA Plan amendment
as a termination under Section 4041 of ERISA, or (d) the institution of
proceedings to terminate any ERISA Plan by the Pension Benefit Guaranty
Corporation under Section 4042 of ERISA, or (e) any other event or condition
which might constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any ERISA Plan.
"Tranche" has the meaning given it in Section 2.4.
"2007 Senior Subordinated Notes" means the 8.5% Senior Subordinated
Notes due 2007 in an original principal amount not to exceed $200,000,000
issued by Borrower pursuant to the 1997 Indenture.
"2006 Senior Subordinated Notes" means the 9.5% Senior Subordinated
Notes due 2006 in an original principal amount not to exceed $175,000,000
issued by Borrower pursuant to the 1996 Indenture.
Section 1.2. Exhibits and Schedules; Additional Definitions. All
Exhibits and Schedules attached to this Agreement are a part hereof for all
purposes.
Section 1.3. Amendment of Defined Instruments. Unless the context
otherwise requires or unless otherwise provided herein the terms defined in
this Agreement which refer to a particular agreement, instrument or document
also refer to and include all renewals, extensions, modifications, amendments
and restatements of such agreement, instrument or document, provided that
nothing contained in this section shall be construed to authorize any such
renewal, extension, modification, amendment or restatement.
Section 1.4. References and Titles. All references in this Agreement
to Exhibits, Schedules, articles, sections, subsections and other subdivisions
refer to the Exhibits, Schedules, articles, sections, subsections and other
subdivisions of this Agreement unless expressly provided otherwise. Titles
appearing at the beginning of any subdivisions are for convenience only and do
not constitute any part of such subdivisions and shall be disregarded in
construing the language contained in such subdivisions. The words "this
Agreement", "this instrument", "herein", "hereof", "hereby", "hereunder" and
words of similar import refer to this Agreement as a whole and not to any
particular subdivision unless expressly so limited. The phrases "this section"
and "this subsection" and similar phrases refer only to the sections or
subsections hereof in which such phrases occur. The word "or" is not
exclusive, and the word "including" (in its various forms) means "including
without
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<PAGE> 18
limitation". Pronouns in masculine, feminine and neuter genders shall be
construed to include any other gender, and words in the singular form shall be
construed to include the plural and vice versa, unless the context otherwise
requires.
Section 1.5. Calculations and Determinations. All calculations under
the Loan Documents of fees and of interest shall be made on the basis of actual
days elapsed (including the first day but excluding the last) and a year of 360
days. Each determination by Agent or a Lender of amounts to be paid under
Sections 2.13 through 2.18 or any other matters which are to be determined
hereunder by Agent or a Lender (such as any Eurodollar Rate, Fixed Rate,
Business Day, Interest Period, or Reserve Percentage) shall, in the absence of
manifest error, be conclusive and binding. Unless otherwise expressly provided
herein or unless Required Lenders otherwise consent all financial statements
and reports furnished to Agent or any Lender hereunder shall be prepared and
all financial computations and determinations pursuant hereto shall be made in
accordance with GAAP.
ARTICLE II - The Loans
Section 2.1. Advances. Each Lender hereby agrees to renew the
principal indebtedness evidenced by the Existing Notes held by it on the terms
and conditions provided herein and in the other Loan Documents (such
outstanding indebtedness, if any, being herein called the "Initial Advance")
and subject to the terms and conditions hereof, each Lender agrees to make
advances to Borrower (herein, together with the Initial Advance, collectively
called such Lender's "Advances") upon request from time to time during the
Commitment Period so long as (a) each Advance by such Lender does not exceed
such Lender's Percentage Share of the aggregate amount of Advances then
requested from all Lenders, and (b) the aggregate amount of such Lender's
Advances made, plus such Lender's Percentage Share of all outstanding LC
Obligations, does not exceed such Lender's Percentage Share of the Borrowing
Base in effect as of the date on which the requested Advance is to be made.
Each Advance hereunder shall be made by Lenders on a pro-rata basis in
accordance with their respective Percentage Shares. The aggregate amount of
all Advances requested of all Lenders in any Request for Advance must be
greater than or equal to $100,000 or must equal the unadvanced portions of the
Borrowing Base or the Maximum Loan Amount, as applicable. The obligation of
Borrower to repay to each Lender the aggregate amount of all Advances made by
such Lender (herein called such Lender's "Loan"), together with interest
accruing in connection therewith, shall be evidenced by a single renewal
promissory note (herein called such Lender's "Note") made by Borrower payable
to the order of such Lender in the form of Exhibit A with appropriate
insertions. Any reference herein to "the making of the Loan" or words of
similar import shall be deemed to be a reference to the renewal of the Existing
Notes by Lenders and the making of subsequent Advances by Lenders as described
above. The amount of principal owing on any Lender's Note at any given time
shall be the aggregate amount of all Advances theretofore made by such Lender
minus all payments of principal theretofore received by such Lender on such
Note. Interest on each Note shall accrue and be due and payable as provided
herein and therein. During the Commitment Period, Borrower may, at its option,
from time to time, request Advances, prepay
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<PAGE> 19
Loans in whole or in part, and reborrow amounts so paid up to the lesser of the
Borrowing Base or the Maximum Loan Amount in effect at the time of reborrowing,
all in accordance with the terms and conditions hereof.
Section 2.2. Requests for Advances. Borrower must give to Agent at
least three Business Days' prior written notice, or telephonic notice promptly
confirmed in writing, of any requested Advances, after which Agent shall give
each Lender notice thereof within twenty-four hours of Agent's receipt of such
requested Advances. Each such written request or confirmation must be made in
the form and substance of the "Request for Advance" attached hereto as Exhibit
B, duly completed. Each such telephonic request shall be deemed a
representation, warranty, acknowledgment and agreement by Borrower as to the
matters which are required to be set out in such written confirmation. If all
conditions precedent to such Advances have been met, each Lender will on the
date requested promptly remit to Agent at Agent's office in New York, New York
the amount of such Lender's Advance in immediately available funds, and upon
receipt of such funds, unless to its actual knowledge any conditions precedent
to such Advances have been neither met nor waived as provided herein, Agent
shall promptly make the Advances available to Borrower. Each Request for
Advance shall be irrevocable and binding on Borrower. Unless Agent shall have
received prompt notice from a Lender that such Lender will not make available
to Agent such Lender's Advance, Agent may in its discretion assume that such
Lender has made such Advance available to Agent in accordance with this section
and Agent may if it chooses, in reliance upon such assumption, make such
Advance available to Borrower. If and to the extent such Lender shall not so
make its Advance available to Agent, such Lender and Borrower severally agree
to pay or repay to Agent within three days after demand the amount of such
Advance together with interest thereon, for each day from the date such amount
is made available to Borrower until the date such amount is paid or repaid to
Agent, in an amount equal to the Agent's actual cost of such funds; provided
that Agent shall first notify such Lender and if Agent does not receive such
Lender's Advance immediately upon receipt of such notice, then Borrower shall
pay such amount within three (3) days after demand therefor is made upon
Borrower. The failure of any Lender to make any Advance to be made by it
hereunder shall not relieve any other Lender of its obligation hereunder, if
any, to make its Advance, but no Lender shall be responsible for the failure of
any other Lender to make any Advance to be made by such other Lender.
Section 2.3. Use of Proceeds. Borrower shall use all funds from
Advances made after the date hereof for the exploration, acquisition and
development of oil and gas reserves and to provide working capital for other
general business purposes related to the nature of the business currently being
conducted by Borrower. Borrower shall at all times use its reasonable best
efforts to maintain the financial flexibility of Borrower so as to allow it to
continue the development of its proved reserve base. In no event shall the
funds from any Advance be used directly or indirectly by any Person for
personal, family, household or agricultural purposes or for the purpose,
whether immediate, incidental or ultimate, of purchasing, acquiring or carrying
any "margin stock" or any "margin securities" (as such terms are defined
respectively in Regulation U and Regulation G promulgated by the Board of
Governors of the Federal Reserve System) or to extend credit to others directly
or indirectly for the purpose of purchasing or carrying any such margin stock
or margin
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<PAGE> 20
securities. Borrower represents and warrants to Lender that Borrower is not
engaged principally, or as one of Borrower's important activities, in the
business of extending credit to others for the purpose of purchasing or
carrying such margin stock or margin securities.
Section 2.4. Rate Elections. Borrower may from time to time
designate all or any portions of the Loans (including any yet to be made
Advances which are to be made prior to or at the beginning of the designated
Interest Period but excluding any portions of the Loans which are required to
be repaid prior to the end of the designated Interest Period) as a "Tranche",
which term refers to a set of Fixed Rate Portions with identical Interest
Periods and with each Lender participating in such Tranche in accordance with
its Percentage Share. Without the consent of Majority Lenders, Borrower may
make no such election during the continuance of a Default, and Borrower may
make such an election with respect to already existing Fixed Rate Portions only
if such election will take effect at or after the termination of the Interest
Period applicable thereto. Each election by Borrower of a Tranche shall:
(a) Be made in writing in the form and substance of the "Rate
Election" attached hereto as Exhibit C, duly completed;
(b) Specify the aggregate amount of the Loans which Borrower
desires to designate as such Tranche, the first day of the Interest
Period which is to apply thereto, and the length of such Interest
Period; and
(c) Be received by Agent not later than 10:00 a.m., New York,
New York time, on the third Business Day preceding the first day of
the specified Interest Period.
Within twenty-four hours of its receipt of any such election (herein called a
"Rate Election") which meets the requirements of this section, Agent shall
notify each Lender thereof. Each Rate Election shall be irrevocable. Borrower
may make no Rate Election which does not specify an Interest Period complying
with the definition of "Interest Period" in Section 1.1, and the aggregate
amount of the Tranche elected in any Rate Election must be $1,000,000 or a
higher integral multiple of $1,000,000. Upon the termination of each Interest
Period the portion of each Loan within the related Tranche shall, unless the
subject of a new Rate Election then taking effect, automatically become a part
of the Base Rate Portion of such Loan and become subject to all provisions of
the Loan Documents governing such Base Rate Portion. Borrower shall have no
more than five (5) Tranches in effect at any time.
Section 2.5. Commitment and Facility Fees. In consideration of each
Lender's commitment to make Advances up to the amount of the Borrowing Base in
effect from time to time, Borrower will pay to Agent for the account of each
Lender a commitment fee determined on a daily basis by applying a rate of
three-eighths of one percent (0.375%) per annum to such Lender's Percentage
Share of the unused portion of the Borrowing Base on each day during the
Commitment Period, determined for each such day by deducting from the Borrowing
Base the aggregate unpaid principal balance of the Loans and outstanding LC
Obligations at the end of such day. In consideration of
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each Lender's agreement to increase the Maximum Loan Amount provided in the
Existing Agreement, Borrower will pay to Agent for the account of each Lender a
facility fee determined on a daily basis by applying a rate of one-eighth of
one percent (0.125%) per annum to such Lender's Percentage Share of the excess,
if any, of the Maximum Loan Amount over the Borrowing Base on each day during
the Commitment Period, determined for each such day by deducting from the
Maximum Loan Amount the Borrowing Base in effect at the end of such day. The
commitment fee and the facility fee payable hereunder shall be due and payable
in arrears on the last day of each Fiscal Quarter and at the end of the
Commitment Period.
Section 2.6. Agent's Fees. In addition to all other amounts due to
Agent under the Loan Documents, Borrower will pay the fees separately agreed to
between Borrower and Agent in that certain fee letter dated of even date
herewith between Borrower and Agent.
Section 2.7. Regular Prepayments. Borrower hereby promises to pay
after the Termination Date to Agent for the account of each and all of the
Lenders in accordance with their respective Percentage Shares quarterly
installments of principal owing on their respective Notes on the dates
described below and in an amount equal to the product of (i) the outstanding
principal balance of such Lender's Loan at the Termination Date times (ii) the
percentage set forth below with respect to the payment date in question:
<TABLE>
<CAPTION>
Payment Due Date Percentage of Principal Balance
---------------- --------------------------------
at Termination Date
-------------------
<S> <C>
3/31/99 9.00%
6/30/99 9.00%
9/30/99 9.00%
12/31/99 9.00%
3/31/00 7.50%
6/30/00 7.50%
9/30/00 7.50%
12/31/00 7.50%
3/31/01 5.75%
6/30/01 5.75%
9/30/01 5.75%
12/31/01 5.75%
3/31/02 5.50%
</TABLE>
One final installment of the unpaid principal balance of the Loans
together with all accrued interest thereon shall be due and payable in
full on June 30, 2002. Interest on the Loans shall be due and payable
as provided in the Notes.
Section 2.8. Optional Prepayments. Borrower may, upon three Business
Days' notice to Agent, at any time and from time to time and without premium or
penalty prepay the Notes, in whole
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or in part, so long as the aggregate amount of all partial prepayments of
principal concurrently paid on the Notes equals $100,000 or any higher integral
multiple of $100,000, and so long as Borrower does not prepay any Fixed Rate
Portion. Each partial prepayment of principal made after the end of the
Commitment Period shall be applied to the regular installments of principal due
under the Notes in the direct order of their maturities. Each prepayment of
principal under this section shall be accompanied by all interest then accrued
and unpaid on the principal amount so prepaid. Any principal or interest
prepaid pursuant to this section shall be in addition to, and not in lieu of,
all payments otherwise required to be paid under the Loan Documents at the time
of such prepayment.
Section 2.9. Mandatory Prepayments. If (a) the aggregate unpaid
principal balance of the Loans, together with all outstanding LC Obligations,
ever exceed that portion of the Borrowing Base available for such Obligations,
or (b) the aggregate unpaid principal balance of the Loans, together with all
outstanding LC Obligations and Back-to-Back LC Obligations, ever exceed the
aggregate amount of the Borrowing Base, Borrower shall, within forty-five (45)
days after Agent gives notice of such fact to Borrower, either (i) prepay the
principal of the Loans in an amount at least equal to such excess or (ii) grant
a first priority Lien in favor of Agent on its additional oil and gas
properties or other assets acceptable to Majority Lenders with a collateral
value satisfactory to Majority Lenders in their sole discretion. Each
prepayment of principal under this section shall be accompanied by all interest
then accrued and unpaid on the principal amount so prepaid and each prepayment
of principal under this section after the Termination Date shall
proportionately reduce each remaining regular installment of principal due
under the Notes so that such reduced payment shall be equal to the product
obtained by multiplying each such payment by a fraction (i) the numerator of
which shall equal the amount of the outstanding Loans on the date of such
prepayment after giving effect to such prepayment and (ii) the denominator of
which shall equal the amount of the outstanding Loans on the date of such
prepayment before giving effect to such prepayment. Any principal or interest
prepaid pursuant to this section shall be in addition to, and not in lieu of,
all payments otherwise required to be paid under the Loan Documents at the time
of such prepayment. In the event Borrower fails to make such prepayment or
provide additional Collateral acceptable to Majority Lenders within the time
period set forth above, such failure shall constitute an Event of Default
hereunder without any further notice to Borrower or the availability of any
additional Grace Period.
Section 2.10. Payments to Lenders. Borrower will make each payment
which it owes under the Loan Documents to Agent for the account of the Lender
to whom such payment is owed. Each such payment must be received by Agent not
later than 12:00 p.m., Noon, New York, New York time, on the date such payment
becomes due and payable, in lawful money of the United States of America and in
immediately available funds. Any payment received by Agent after such time
will be deemed to have been made on the next following Business Day. Should
any such payment become due and payable on a day other than a Business Day, the
due date of such payment shall be extended to the next succeeding Business Day,
and, in the case of a payment of principal or past due interest, interest shall
accrue and be payable thereon for the period of such extension as provided in
the Loan Document under which such payment is due. Each payment under a Loan
Document shall be due and payable at the place provided therein and, if no
specific place of payment is provided,
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<PAGE> 23
shall be due and payable at the place of payment of Agent's Note. When Agent
collects or receives money on account of the Obligations, Agent shall promptly
distribute all money so collected or received, and Lenders shall apply all such
money they receive from Agent, as follows:
(a) first, for the payment of all Obligations which are then
due (and if such money is insufficient to pay all such Obligations,
first to any reimbursements due Agent under Section 5.1(i) or (j) and
then to the partial payment of all other Obligations then due in
proportion to the amounts thereof, or as Lenders shall otherwise
agree);
(b) then for the prepayment of amounts owing under the Loan
Documents (other than principal on the Notes) but only if so
specifically requested by Borrower;
(c) then for the prepayment of principal on the Notes,
together with accrued and unpaid interest on the principal so prepaid;
and
(d) last, after full repayment of the Notes, for the payment
or prepayment of any other Obligations.
All payments applied to principal or interest on any Note shall be applied
first to any interest then due and payable, then to principal then due and
payable, and last to any prepayment of principal and interest in compliance
with Section 2.8. All distributions of amounts described in any of subsections
(a) (unless for reimbursements due Agent under Section 5.1(i) or (j)), (b), (c)
or (d) above shall be made by Agent pro rata to Agent and each Lender then owed
Obligations described in such subsection in proportion to all amounts owed to
Agent and all Lenders which are described in such subsection.
Section 2.11. Initial Borrowing Base. During the period from the
date hereof to the first Determination Date the Borrowing Base shall be
$50,000,000.
Section 2.12. Subsequent Determinations of Borrowing Base. By April
1 and October 1 of each year, on each date on which Borrower requests that the
Borrowing Base be redetermined (which request shall not be made more than two
times during any Fiscal Year) and within fifteen (15) days of each date on
which Agent, on behalf of Majority Lenders, requests that the Borrowing Base be
redetermined, Borrower shall furnish to each Lender all information, reports
and data which Agent has then requested concerning the Qualified Properties and
the reserves and production relating thereto, together with the Engineering
Report described in Section 5.1(b)(iv). Within thirty (30) days after
receiving such information, reports and data, or as promptly thereafter as
practicable, Majority Lenders shall agree upon an amount for the Borrowing Base
and Agent shall by notice to Borrower designate such amount as the new
Borrowing Base available to Borrower hereunder during the period beginning on
and including the date such notice is sent (herein called a "Determination
Date") and continuing until but not including the next date as of which the
Borrowing Base is redetermined. A Determination Date may (but need not) occur
during the period beginning on the date on which a Request for Advance is
submitted and ending on the date on which such Advances
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<PAGE> 24
are to be made. If Borrower does not furnish all such information, reports and
data by the date specified in the first sentence of this section, Agent may
nonetheless designate the Borrowing Base at any amount which Majority Lenders
determine and may redesignate the Borrowing Base from time to time thereafter
until each Lender receives all such information, reports and data, whereupon
Majority Lenders shall designate a new Borrowing Base as described above. Each
determination of the Borrowing Base shall be made by Majority Lenders in the
exercise of their sole discretion in accordance with the then current standards
and practices of Lenders for similar oil and gas loans taking into account such
factors as Lenders may deem appropriate, including, without limitation, (i) the
nature and extent of the oil and gas reserves attributable to the oil and gas
properties of Borrower and the anticipated timing and extent of net operating
income therefrom, (ii) any litigation or other proceedings or facts, including,
without limitation, defects in or uncertainties as to Borrower's title to such
oil and gas properties or encumbrances on the title to such oil and gas
properties or encumbrances on the Qualified Properties, that may affect the
value of any of such oil and gas properties and (iii) the amount of Debt or
other obligations, if any, of Borrower and its Subsidiaries. Each such
determination shall be binding on and non-reviewable by Borrower and no Lender
shall be required to disclose to Borrower its standards and practices for oil
and gas loans. It is expressly understood that Lenders and Agent have no
obligation to agree upon or designate the Borrowing Base at any particular
amount, whether in relation to the Maximum Loan Amount or otherwise, and that
Lenders' commitments to advance funds hereunder are determined by reference to
the Borrowing Base from time to time in effect, which Borrowing Base shall be
used to the extent permitted by law and regulatory authorities for the purposes
of Section 2.13. If Borrower requests Majority Lenders to redetermine the
Borrowing Base at any date in addition to the redetermination dates provided
above, upon the consent of Majority Lenders to such redetermination, Borrower
shall within five (5) days after receipt of such consent pay each Lender a
redetermination fee in the amount of $5,000 for each such redetermination.
Section 2.13. Capital Reimbursement. If either (a) the introduction
or implementation of or the compliance with any change in or in the
interpretation of any law, rule or regulation, or (b) the introduction or
implementation of or the compliance with any request, directive or guideline
from any central bank or other governmental authority (whether or not having
the force of law) affects or would affect the amount of capital required or
expected to be maintained by any Lender or any corporation controlling any
Lender so that the same is increased from that currently required in an amount
a Lender deems material in its sole discretion, then, such Lender shall
promptly notify Borrower and Lender in writing of the happening of such event
and thereafter, upon demand by such Lender, Borrower will pay to Agent for the
benefit of such Lender, from time to time as specified by such Lender, such
additional amount or amounts which such Lender shall determine to be
appropriate to compensate such Lender or any corporation controlling such
Lender in light of such circumstances, to the extent that such Lender
reasonably determines that the amount of any such capital would be increased or
the rate of return on any such capital would be reduced by or in whole or in
part based on the existence of the face amount of such Lender's Loan or
commitments under this Agreement.
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<PAGE> 25
Section 2.14. Increased Cost of Fixed Rate Portions. If any
applicable domestic or foreign law, treaty, rule or regulation (whether now in
effect or hereinafter enacted or promulgated, including Regulation D) or any
interpretation or administration thereof by any governmental authority charged
with the interpretation or administration thereof (whether or not having the
force of law):
(a) shall change the basis of taxation of payments to any
Lender of any principal, interest, or other amounts attributable to
any Fixed Rate Portion or otherwise due under this Agreement in
respect of any Fixed Rate Portion (other than franchise taxes or taxes
imposed on the overall net income of such Lender or any lending office
of such Lender by any jurisdiction in which such Lender or any such
lending office is located); or
(b) shall change, impose, modify, apply or deem applicable
any reserve, special deposit or similar requirements in respect of any
Fixed Rate Portion of any Lender (excluding those for which such
Lender is fully compensated pursuant to adjustments made in the
definition of Fixed Rate) or against assets of, deposits with or for
the account of, or credit extended by, such Lender; or
(c) shall impose on any Lender or the interbank eurocurrency
deposit market any other condition affecting any Fixed Rate Portion,
the result of which is to increase the cost to any Lender of funding
or maintaining any Fixed Rate Portion or to reduce the amount of any
sum receivable by any Lender in respect of any Fixed Rate Portion by
an amount deemed by such Lender to be material, so that any of the
foregoing is increased from that currently required in an amount a
Lender deems material in its sole discretion, then such Lender shall
promptly notify Agent and Borrower in writing of the happening of such
event and (i) Borrower shall upon demand pay to Agent for the account
of such Lender such additional amount or amounts as will compensate
such Lender for such event (on an after-tax basis) and (ii) Borrower
may elect, by giving to Agent and such Lender not less than three
Business Days' notice, to convert all (but not less than all) of any
such Fixed Rate Portion into a part of the Base Rate Portion.
Section 2.15. Transfer of Loans and Participations. Each Lender will
(and will cause its participants to), if an event occurs that makes Section
2.13 or 2.14 applicable, upon the written request of Borrower, use reasonable
efforts to transfer the affected Loan or Loans or participations therein to an
Affiliate of such Lender, provided that such transfer would not, in the sole
discretion of such Lender, be disadvantageous to such Lender in any manner
(except for the disadvantage of not being a Lender). A Lender may from time to
time transfer any Loan to any Affiliate of such Lender and shall give notice to
Borrower and Agent of such transfer provided that no such transfer will be made
if it would render applicable the provisions of Section 2.13 or 2.14.
Section 2.16. Availability. If (a) any change in applicable laws,
treaties, rules or regulations or in the interpretation or administration
thereof of or in any jurisdiction whatsoever, domestic or
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<PAGE> 26
foreign, shall make it unlawful or impracticable for any Lender to fund or
maintain Fixed Rate Portions, or shall materially restrict the authority of any
Lender to purchase or take offshore deposits of dollars (i.e., "eurodollars"),
or (b) any Lender determines that matching deposits appropriate to fund or
maintain any Fixed Rate Portion are not available to it, or (c) any Lender
determines that the formula for calculating the Fixed Rate does not fairly
reflect the cost to such Lender of making or maintaining loans based on such
rate, then, such Lender shall promptly notify Borrower and Agent in writing of
the happening of such event , and upon notice by such Lender to Borrower and
Agent, Borrower's right to elect Fixed Rate Portions of such Lender's Loan
shall be suspended to the extent and for the duration of such illegality,
impracticability or restriction and all Fixed Rate Portions of such Lender's
Loan (or portions thereof) which are then outstanding or are then the subject
of any Rate Election and which cannot lawfully or practicably be maintained or
funded shall immediately become or remain part of the Base Rate Portion of such
Lender's Loan. Borrower agrees to indemnify Agent and each Lender and hold it
harmless against all costs, expenses, claims, penalties, liabilities and
damages applicable to the Loans which may result from any such change in law,
treaty, rule, regulation, interpretation or administration.
Section 2.17. Funding Losses. In addition to its other obligations
hereunder, Borrower will indemnify Agent and each Lender against, and reimburse
Agent and each Lender on demand for, any loss or expense incurred or sustained
by Agent or such Lender (including without limitation any loss or expense
incurred by reason of the liquidation or reemployment of deposits or other
funds acquired by a Lender to fund or maintain Fixed Rate Portions or
Advances), as a result of (a) any payment or prepayment (whether authorized or
required hereunder or otherwise) of all or a portion of a Fixed Rate Portion on
a day other than the day on which the applicable Interest Period ends, (b) any
payment or prepayment, whether required hereunder or otherwise, of a Loan made
after the delivery, but before the effective date, of a Rate Election, if such
payment or prepayment prevents such Rate Election from becoming fully
effective, (c) the failure of any Advance to be made or of any Rate Election to
become effective due to any condition precedent not being satisfied or due to
any other action or inaction of any Related Person, or (d) any conversion
(whether authorized or required hereunder or otherwise) of all or any portion
of any Fixed Rate Portion into a Base Rate Portion or into a different Fixed
Rate Portion on a day other than the day on which the applicable Interest
Period ends.
Section 2.18. Reimbursable Taxes. Borrower covenants and agrees
that:
(a) Borrower will indemnify Agent and each Lender against and
reimburse Agent and each Lender for all present and future income,
stamp and other taxes, levies, costs and charges whatsoever imposed,
assessed, levied or collected on or in respect of this Agreement or
any Fixed Rate Portions (whether or not legally or correctly imposed,
assessed, levied or collected), excluding, however, any taxes imposed
on or measured by the overall net income of Agent or such Lender or
any lending office of Agent or such Lender by any jurisdiction in
which Agent or such Lender or any such lending office is located (all
such non-excluded taxes, levies, costs and charges being collectively
called "Reimbursable Taxes" in this section). Such indemnification
shall be on an after-tax basis, taking into account any income
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<PAGE> 27
taxes imposed on the amounts paid as indemnity. Such Lender shall
promptly notify Borrower and Agent in writing of the happening of such
event giving rise to a claim for Reimbursable Taxes.
(b) All payments on account of the principal of, and interest
on, each Lender's Loan and each Lender's Note, and all other amounts
payable by Borrower to Agent and each Lender hereunder, shall be made
in full without set-off or counterclaim and shall be made free and
clear of and without deductions or withholdings of any nature by
reason of any Reimbursable Taxes, all of which will be for the account
of Borrower. In the event of Borrower being compelled by law or other
regulations to make any such deduction or withholding from any payment
to Agent or any Lender, Borrower shall pay on the due date of such
payment, by way of additional interest, such additional amounts as are
needed to cause the amount receivable by Agent or such Lender after
such deduction or withholding to equal the amount which would have
been receivable in the absence of such deduction or withholding. If
Borrower should make any deduction or withholding as aforesaid,
Borrower shall within 60 days thereafter forward to Agent or such
Lender, if reasonably available, an official receipt or other official
document evidencing payment of such deduction or withholding.
(c) If Borrower is ever required to pay or notified of the
possible liability for any Reimbursable Tax with respect to any Fixed
Rate Portion, Borrower may elect, by giving to Agent and each Lender
not less than three Business Days' notice, to convert all (but not
less than all) of any such Fixed Rate Portion into a part of the Base
Rate Portion, but such election shall not diminish Borrower's
obligation to pay all accrued Reimbursable Taxes.
(d) Agent or any Lender shall, at Borrower's expense, take
such action as Borrower may reasonably request in writing with respect
to such asserted liability, and if requested by Borrower and upon the
prior payment to Agent or any Lender by Borrower of an amount equal to
such Reimbursable Tax, shall make payment of such Reimbursable Tax
under protest, if payment under protest is necessary in order to
contest the claim for Reimbursable Taxes. If contest is made, Agent
or any Lender shall, at Borrower's expense, take such action as
Borrower may reasonably request to contest the claim for Reimbursable
Taxes and shall, if requested, permit Borrower to file a claim or
prosecute an action to contest the claim for Reimbursable Taxes and to
recover any payment made under protest. Such Lender shall remit to
Borrower the full amount of all taxes paid by Borrower and refunded to
Lender by any applicable authority.
Notwithstanding the above or any conflicting or inconsistent
provisions in the Loan Documents, no Related Person shall pay or
indemnify Agent or any Lender for:
(i) Reimbursable Taxes incurred for a failure by
Agent or any Lender to comply with any information (including
certificates, reports, and documents) or
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<PAGE> 28
filing requirement which is required by law as a precondition
to exemption or other relief from such tax; or
(ii) Reimbursable Taxes imposed upon the transfer by
Agent or any Lender of all or any part of its right, title or
interest in any Note or Loan Document, including but not
limited to participations.
ARTICLE 2A. Letters of Credit
Section 2A.1. Letters of Credit. From time to time during the
Commitment Period, Borrower may request through Agent an Issuing Bank to issue,
in reliance on the agreements of Lenders set forth in Section 2A.2(b), letters
of credit (each herein called a "Letter of Credit") by means of an application
in the form of Exhibit E, appropriately completed and with a proposed form of
Letter of Credit attached. No Issuing Bank shall have any obligation
whatsoever to issue any such requested Letter of Credit, but any terms and
provisions hereof relating to Letters of Credit, shall be subject to the
following restrictions: (a) no Letter of Credit issued hereunder shall have an
expiration date later than the earlier of one year after the date of issuance
thereof or the end of the Commitment Period; (b) no Letter of Credit issued
hereunder shall be issued in an amount greater than $5,000,000 without the
prior written consent of Majority Lenders; (c) the LC Obligations shall never
exceed $20,000,000 in the aggregate outstanding at any one time; (d)
Back-to-Back LC Obligations shall never exceed $5,000,000 in the aggregate
outstanding at any one time, (e) the sum of (i) the LC Obligations after giving
effect to any request for the issuance of any Letter of Credit plus (ii) the
aggregate amount of the Loans then outstanding shall not exceed that portion of
the Borrowing Base available for such Obligations, and (f) the sum of (x) the
LC Obligations and Back-to-Back LC Obligations after giving effect to any
request for the issuance of any Letter of Credit plus (y) the aggregate amount
of the Loans then outstanding shall not exceed the aggregate amount of the
Borrowing Base. Neither Agent, Issuing Banks, Lenders nor Borrower presently
expect Letters of Credit to be applied for or issued hereunder on a regular
basis, and this section is included in this Agreement solely to facilitate the
application and issuance of any letter of credit which Borrower hereafter, in
its sole and absolute discretion, chooses to request and which each Issuing
Bank hereafter, in its sole and absolute discretion, chooses to issue. Each
Issuing Bank shall promptly notify Agent and each Lender of any request by
Borrower for the issuance of a Letter of Credit.
Section 2A.2. Reimbursement of Letters of Credit.
(a) Reimbursement by Borrower. Each payment by any Issuing Bank
pursuant to any Letter of Credit (whether in response to a draft, a demand for
payment, or otherwise), shall constitute a loan to and an obligation of
Borrower. Borrower hereby promises to pay to such Issuing Bank, or to such
Issuing Bank's order, at Issuing Bank's office at the address set forth for
such Issuing Bank on the signature pages hereto, on demand, any and all amounts
paid by such Issuing Bank pursuant to any and all Letters of Credit (such
amount being herein called the "Matured LC Obligations"). Borrower hereby
promises to pay to each Issuing Bank, or to each Issuing Bank's order, at the
address set forth for such Issuing Bank on the signature pages hereto, on
demand, interest at the Late
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<PAGE> 29
Payment Rate on (a) any outstanding Matured LC Obligations and (b) any fees or
other amounts due with respect to Letters of Credit (to the extent the same can
legally bear interest). Borrower hereby promises to pay, when due, all present
and future taxes, levies, costs and charges whatsoever imposed, assessed,
levied or collected on, under or in respect of this Agreement or any Letter of
Credit and any payments of principal, interest or other amounts made on or in
respect of any thereof (excluding, however, franchise taxes and any such taxes,
levies, costs and charges imposed on or measured by the overall net income of
Issuing Bank). Borrower promises to indemnify each Issuing Bank against, and
to reimburse each Issuing Bank on demand for, any of the foregoing taxes,
levies, costs or charges paid by an Issuing Bank and any loss, liability, claim
or expense, including interest, penalties and legal fees, that an Issuing Bank
may incur because of or in connection with the failure of Borrower to make any
such payment of taxes, levies, costs or charges when due or any payment of
Matured LC Obligations when due. Borrower hereby acknowledges that each and
every LC Obligation shall constitute Obligations secured by and subject to the
terms of the Security Documents.
(b) Reimbursement by Lenders. Each Issuing Bank irrevocably
agrees to grant and hereby grants to each Lender, and, to induce each Issuing
Bank to issue Letters of Credit hereunder, each Lender irrevocably agrees to
accept and purchase from any Issuing Bank, on the terms and conditions
hereinafter stated, for such Lender's own account and risk an undivided
interest equal to such Lender's Percentage Share of any Issuing Bank's
obligations and rights under each Letter of Credit issued hereunder and the
amount of each draft paid by any Issuing Bank thereunder. In the event that
Borrower should fail to pay any Issuing Bank on demand the amount of any draft
or other request for payment drawn under or purporting to be drawn under a
Letter of Credit as provided in subsection (a) above and actually disbursed by
Issuing Bank under a Letter of Credit, each Lender shall, before 2:00 p.m. (New
York City time) on the Business Day any Issuing Bank shall have given notice to
Lenders of Borrower's failure to so pay such Issuing Bank, if such notice is
given by 10:00 a.m., New York City time (or on the Business Day immediately
succeeding the day such notice is given after 10:00 a.m., New York City time),
pay to such Issuing Bank at such Issuing Bank's offices at the address set
forth for such Issuing Bank on the signature pages hereto, in legal tender of
the United States of America, in same day funds, such Lender's Percentage Share
of the amount of such draft or other request for payment from Borrower plus
interest on such amount from the date such Issuing Bank shall have paid such
draft or request for payment to the date of such payment by such Lender at the
Late Payment Rate. Each Lender's obligation to reimburse each Issuing Bank
pursuant to the terms of this Section 2A.2(b) is irrevocable and unconditional.
If any such amount required to be paid by any Lender pursuant to this Section
2A.2(b) is not in fact made available by such Lender to an Issuing Bank within
three Business Days after the date such payment is due, such Issuing Bank shall
be entitled to recover from such Lender, on demand, such amount with interest
thereon calculated from such due date at the Late Payment Rate. A written
advice(s) setting forth in reasonable detail the amounts owing under this
Section 2A.2, submitted by an Issuing Bank to Borrower from time to time, shall
be conclusive, absent manifest error, as to the amounts thereof. Whenever, at
any time after an Issuing Bank has made payment under any Letter of Credit, and
has received from any Lender its Percentage Share of such payment in accordance
with this Section 2A.2(b), such Issuing Bank receives any payment related to
such Letter of Credit (whether directly from Borrower or otherwise, including
proceeds of collateral applied thereto by Issuing
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Bank), or any payment of interest on account thereof, such Issuing Bank will
distribute to such Lender its Percentage Share thereof; provided, however, that
in the event that any such payment received by such Issuing Bank shall be
required to be returned by Issuing Bank, such Lender shall return to such
Issuing Bank the portion thereof previously distributed by such Issuing Bank to
it.
Section 2A.3. Transferees of Letters of Credit. Borrower agrees
that if any Letter of Credit provides that it is transferable, no Issuing Bank
is under any duty to determine the proper identity of anyone appearing as
transferee of such Letter of Credit, nor shall any Issuing Bank be charged with
responsibility of any nature or character for the validity or correctness of
any transfer or successive transfers. Subject to the provisions of Section
2A.5. payment by an Issuing Bank to any purported transferee or transferees as
determined by an Issuing Bank is hereby authorized and approved, and Borrower
further agrees to hold each Issuing Bank and each Lender harmless and
indemnified against any liability or claim in connection with or arising out of
the foregoing except in the case of such Lender's gross negligence or willful
misconduct..
Section 2A.4. Extension of Maturity of Letters of Credit. Borrower
agrees that in the event of any extension of the maturity or time for
presentation of drafts or demands for payment or any other modification of the
terms of any Letter of Credit at the request of Borrower or by order of any
court or tribunal, with or without notification to others, or in the event of
any increase in the amount of any Letter of Credit at the request of Borrower
or by order of any court or tribunal, this Agreement shall be binding upon
Borrower with respect to the Letter of Credit so increased or otherwise
modified, with respect to drafts and demands for payment thereunder, and with
respect to any action taken in accordance with such extension, increase or
other modification by any Issuing Bank or by any bank which is a confirming
bank or an advising bank with respect to any Letter of Credit.
Section 2A.5. Restriction on Liability. No Issuing Bank nor any
bank which is a confirming bank or an advising bank with respect to any Letter
of Credit (in this section called a "correspondent") shall be responsible for
(a) the use which may be made of any Letter of Credit or for any acts or
omissions of the users of any Letter of Credit; (b) the existence or
nonexistence of a default under any instrument secured or supported by any
Letter of Credit or any other event which gives rise to a right to call upon
any Letter of Credit; (c) the validity, sufficiency or genuineness of any
document delivered in connection with any Letter of Credit, even if such
documents should in fact prove to be in any or all respects invalid, fraudulent
or forged; (d) except as specifically required by any Letter of Credit, failure
of any instrument to bear any reference or adequate reference to any Letter of
Credit, or failure of documents to accompany any draft at negotiation or
failure of any person to note the amount of any draft on the reverse of any
Letter of Credit or surrender or takeup any Letter of Credit; or (e) errors,
omissions, interruptions or delays in transmission or delivery of any messages
by mail, cable, telegraph, wireless or otherwise. No Issuing Bank shall be
responsible for any act, error, neglect or default, omission, insolvency or
failure in the business of any of the correspondents or any refusal by an
Issuing Bank or any of the correspondents to pay or honor drafts drawn under
any Letter of Credit because of any applicable law, decree or edict, legal or
illegal, of any governmental agency now or hereafter enforced or for any matter
beyond the control of an Issuing Bank. The happening of any one or more of the
contingencies referred to in the preceding clauses of this paragraph shall not
affect, impair or prevent the vesting of any of the rights or powers
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of Issuing Banks and Lenders under this Agreement, or the obligation of
Borrower to make reimbursement. In furtherance and extension and not in
limitation of the specific provisions hereinabove set forth Borrower agrees
that any action, not contrary to the terms of any Letter of Credit issued on
its behalf, which is taken or omitted to be taken by any Issuing Bank or any
Lender or by any correspondent under or in connection with any Letter of Credit
shall be binding on Borrower and shall not put any Issuing Bank or any Lender
or any correspondent under any resulting liability to Borrower unless grossly
negligent or in breach of good faith.
Section 2A.6. No Duty to Inquire. Borrower agrees that each
Issuing Bank is authorized and instructed to accept and pay drafts and demands
for payment under the Letters of Credit without requiring, and without
responsibility for, either at the time of acceptance or payment or thereafter,
the determination as to the existence of any event giving rise thereto or the
proper identity or authority of anyone appearing on behalf of the beneficiary
of any Letter of Credit. Borrower further agrees to hold each Issuing Bank and
each Lender harmless and indemnified against any liability or claim in
connection with or arising out of the foregoing except in the case of such
Lender's gross negligence or willful misconduct.
Section 2A.7. Letter of Credit Fees. In consideration of any
issuance by any Issuing Bank of Letters of Credit hereunder and of each
Lender's incurrence of a reimbursement obligation with respect to such Letters
of Credit, Borrower agrees to pay to Agent a Letter of Credit fee, for pro rata
distribution to each Lender in accordance with its Percentage Share, promptly
upon the issuance of each Letter of Credit in an amount equal to the greater
of (i) $500 or (ii) one percent(1.0%) per annum of the face amount of such
Letter of Credit. Borrower shall also pay to Agent for distribution to the
Lender issuing any Letter of Credit a fee of $250 immediately upon any drawing
under such Letter of Credit.
Section 2A.8. Acceleration of LC Obligations. If the Loans, or any
part thereof, become immediately due and payable pursuant to Section 7.1 of
this Agreement, then all LC Obligations shall become immediately due and
payable without regard for actual drawings or payments on the Letters of Credit
and Borrower shall be obligated to pay Agent immediately an amount equal to the
LC Obligations. All amounts made due and payable by Borrower under this
Section 2A.8 may be applied as Agent elects to any of the various LC
Obligations then due and payable; provided, however, that all such amounts
applied by the Agent to the LC Obligations shall be (a) first applied to the
Matured LC Obligations, and (b) second held by Agent as security for the
remaining LC Obligations (in this section all such amounts held as security for
LC Obligations of Borrower are collectively called "LC Collateral") until such
LC Obligations have either (a) become Matured LC Obligations at which time the
LC Collateral paid to Agent shall be applied to such Matured LC Obligations, or
(b) have expired undrawn at which time an amount of the LC Collateral equal to
such expired and undrawn LC Obligation shall be promptly returned to Borrower.
This Section 2A.8 shall not limit or impair any rights which Agent or Lenders
may have under any other document or agreement relating to any Letter of Credit
or LC Obligation, including without limitation, any LC Application.
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Section 2A.9. Purposes. Borrower shall request Letters of Credit
for the purpose of securing bonding obligations and plugging and abandonment
liabilities and for other general business purposes. In no event shall funds
advanced under any Letter of Credit be used directly or indirectly by any
Person for personal, family, household or agricultural purposes or for the
purpose, whether immediate, incidental or ultimate, of purchasing, acquiring or
carrying "margin stock" or any "margin securities" (as such terms are defined
respectively in Regulation U and Regulation G promulgated by the Board of
Governors of the Federal Reserve System) or to extend credit to others directly
or indirectly for the purpose of purchasing or carrying any such margin stock
or margin securities.
Section 2A.10. Increased Costs for Letters of Credit. If any change
in any applicable law or regulation or in the interpretation thereof by any
court or governmental authority charged with the administration thereof shall
either (a) impose, modify or apply any reserve, special deposit or similar
requirement against Letters of Credit issued by Issuing Bank or (b) impose on
Agent, any Lender or Issuing Bank any other condition regarding this Agreement
or any Letter of Credit, and the result of any event referred to in clause (a)
or (b) above shall be to increase the cost to Issuing Bank of issuing or
maintaining a Letter of Credit or materially affect the profitability to
Issuing Bank of any or all Letter of Credit transactions contemplated by this
Agreement, then, within two Business Days after demand by Issuing Bank,
Borrower shall immediately pay to Issuing Bank such additional amount or
amounts as shall be sufficient to compensate Issuing Bank for such increased
cost. Issuing Bank will promptly notify Borrower of any event of which Issuing
Bank has knowledge occurring after the date hereof which will entitle Issuing
Bank to compensation pursuant to this Section 2A.10; provided that failure by
Issuing Bank to give such notice shall not adversely affect the right of
Issuing Bank to such compensation pursuant to this Section 2A.10.
ARTICLE III - Conditions Precedent to Lending
Section 3.1. Documents to be Delivered. No Lender has any obligation
to renew and restate its loan under the Existing Agreement or make any Advance
hereunder unless Agent shall have received all of the following, at Agent's
office in New York, New York, duly executed and delivered and in form,
substance and date satisfactory to Agent:
(a) This Agreement and any other documents that Lenders
are to execute in connection herewith.
(b) Each Note.
(c) Certain certificates of Borrower including:
(i) An "Omnibus Certificate" of the Secretary and of
the Chairman of the Board or President of Borrower and each
Guarantor, which shall contain the names and signatures of the
officers of such Person authorized to execute Loan Documents
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on behalf of such Person and which shall certify to the truth,
correctness and completeness of the following exhibits
attached thereto: (1) a copy of resolutions duly adopted by
the Board of Directors of such Person and in full force and
effect at the time this Agreement is entered into, authorizing
the execution of the Loan Documents delivered or to be
delivered in connection herewith and the consummation of the
transactions contemplated therein, (2) a copy of the charter
documents of such Person and all amendments thereto,
certified by the appropriate official of such Person's state
of incorporation, and (3) a copy of any bylaws of such Person.
(ii) A "Compliance Certificate" of the Chairman of
the Board or President and of the chief financial officer of
Borrower, of even date herewith, in which such officers
certify to the satisfaction of the conditions set out in
subsections (a), (b), (c) and (d) of Section 3.2.
(d) A certificate (or certificates) of the due formation,
valid existence and good standing of each of Borrower and each
Subsidiary of Borrower in its respective state of organization, issued
by the appropriate authorities of such jurisdiction.
(e) A favorable opinion of Thomas F. Getten, General Counsel
for Borrower, substantially in the form set forth in Exhibit E.
(f) Certificates of Borrower's good standing and due
qualification to do business, issued by appropriate officials in any
states in which Borrower owns property subject to Security Documents.
Section 3.2. Additional Conditions Precedent. No Lender has any
obligation to renew its Loan under the Existing Agreement or make any Advance
(including its first) unless the following conditions precedent have been
satisfied:
(a) All representations and warranties made by any Related
Person in any Loan Document shall be true on and as of the date of
such renewal or Advance (except to the extent that the facts upon
which such representations are based have been changed by the
extension of credit hereunder) as if such representations and
warranties had been made as of the date of such renewal or Advance.
(b) No Default shall have occurred and be continuing at the
date of such renewal or Advance.
(c) No material adverse change shall have occurred to
Borrower's Consolidated financial condition or businesses, or to the
aggregate value of the Collateral, since the date of this Agreement.
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(d) Each Related Person shall have performed and complied
with all agreements and conditions required in the Loan Documents to
be performed or complied with by it on or prior to the date of such
renewal or Advance.
(e) Neither the renewal of the Loans under the Existing
Agreement nor the making of such Advance shall be prohibited by any
law or any regulation or order of any court or governmental agency or
authority and shall not subject any Lender to any penalty or other
onerous condition under or pursuant to any such law, regulation or
order.
(f) Agent shall have received all documents and instruments
which Agent has then requested, in addition to those described in
Section 3.1 (including opinions of legal counsel for the Related
Persons and Agent; corporate documents and records; documents
evidencing governmental authorizations, consents, approvals, licenses
and exemptions; and certificates of public officials and of officers
and representatives of Borrower and other Persons), as to (i) the
accuracy and validity of or compliance with all representations,
warranties and covenants made by any of the Related Persons in this
Agreement and the other Loan Documents, (ii) the satisfaction of all
conditions contained herein or therein, and (iii) all other matters
pertaining hereto and thereto. All such additional documents and
instruments shall be satisfactory to Agent in form, substance and
date.
(g) Borrower shall have paid the fees provided for in the
letter agreement of even date herewith between Agent and Borrower.
ARTICLE IV - Representations and Warranties
Section 4.1. Borrower's Representations and Warranties. To confirm
each Lender's understanding concerning Borrower and Borrower's business,
properties and obligations and to induce Agent and each Lender to enter into
this Agreement and to make the Loans, Borrower represents and warrants to Agent
and each Lender that:
(a) No Default. Borrower is not in default in the
performance of any of the covenants and agreements contained herein.
No event has occurred and is continuing which constitutes a Default.
(b) Organization and Good Standing. Each Related Person
which is a corporation or partnership is duly organized, validly
existing and in good standing under the laws of its state of
organization, having all corporate or partnership powers required to
carry on its business and enter into and carry out the transactions
contemplated hereby. Each such Related Person is duly qualified, in
good standing, and authorized to do business in all other
jurisdictions within the United States wherein the character of the
properties owned or held by it or the nature of the business
transacted by it makes such qualification necessary except where the
failure to so qualify would not have any material adverse effect on
Borrower or its financial condition or businesses. Each such Related
Person has taken all actions and
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procedures customarily taken in order to enter, for the purpose of
conducting business or owning property, each jurisdiction outside the
United States wherein the character of the properties owned or held by
it or the nature of the business transacted by it makes such actions
and procedures desirable.
(c) Authorization. Each Related Person which is a
corporation or partnership has duly taken all corporate or partnership
action necessary to authorize the execution and delivery by it of the
Loan Documents to which it is a party and to authorize the
consummation of the transactions contemplated thereby and the
performance of its obligations thereunder. Borrower is duly
authorized to borrow funds hereunder.
(d) No Conflicts or Consents. The execution and delivery by
the various Related Persons of the Loan Documents to which each is a
party, the performance by each of its obligations under such Loan
Documents, and the consummation of the transactions contemplated by
the various Loan Documents, do not and will not (i) conflict with any
provision of (1) any domestic or applicable foreign law, statute, rule
or regulation, (2) the articles or certificate of incorporation,
bylaws, charter, or partnership agreement or certificate of any
Related Person, or (3) any material agreement, judgment, license,
order or permit applicable to or binding upon any Related Person, (ii)
result in the acceleration of any Debt owed by any Related Person, or
(iii) result in or require the creation of any Lien upon any assets or
properties of any Related Person except as expressly contemplated in
the Loan Documents. Except as expressly contemplated in the Loan
Documents no consent, approval, authorization or order of, and no
notice to or filing with, any court or governmental authority or third
party is required in connection with the execution, delivery or
performance by any Related Person of any Loan Document or to
consummate any transactions contemplated by the Loan Documents.
(e) Enforceable Obligations. This Agreement is, and the
other Loan Documents when duly executed and delivered will be, legal,
valid and binding obligations of each Related Person which is a party
hereto or thereto, enforceable in accordance with their terms except
as such enforcement may be limited by bankruptcy, insolvency or
similar laws of general application relating to the enforcement of
creditors' rights and by equitable principles.
(f) Initial Financial Statements. The Initial Financial
Statements fairly present Borrower's Consolidated financial position
at the date thereof and the Consolidated results of Borrower's
operations and Borrower's Consolidated cash flows for the period
thereof. Since the date of the Initial Financial Statements no
material adverse change has occurred in Borrower's financial condition
or businesses or in Borrower's Consolidated financial condition or
businesses, except as reflected in the Disclosure Schedule. All
Initial Financial Statements were prepared in accordance with GAAP.
(g) Other Obligations and Restrictions. No Related Person
has any outstanding Debt of any kind (including contingent
obligations, tax assessments, and unusual forward or
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long-term commitments) which is, in the aggregate, material to
Borrower or material with respect to Borrower's Consolidated financial
condition and not shown in the Initial Financial Statements or
disclosed in the Disclosure Schedule. Except as shown in the Initial
Financial Statements or disclosed in the Disclosure Schedule, no
Related Person is subject to or restricted by any franchise, contract,
deed, charter restriction, or other instrument or restriction which is
reasonably likely in the foreseeable future to materially and
adversely affect the businesses, properties, prospects, operations, or
financial condition of such Related Person or of Borrower on a
Consolidated basis.
(h) Full Disclosure. No certificate, statement or other
information delivered herewith or heretofore by any Related Person to
Agent or any Lender in connection with the negotiation of this
Agreement or in connection with any transaction contemplated hereby
contains any untrue statement of a material fact or, when all such
information is taken as a whole, omits to state any material fact
known to any Related Person (other than industry-wide risks normally
associated with the types of businesses conducted by the Related
Persons) necessary to make the statements contained herein or therein
not misleading as of the date made or deemed made. There is no fact
known to any Related Person (other than industry-wide risks normally
associated with the types of businesses conducted by the Related
Persons) that has not been disclosed to Agent and each Lender in
writing which could materially and adversely affect Borrower's
Consolidated properties, businesses, prospects or condition (financial
or otherwise). There are no statements or conclusions in any
Engineering Report which are based upon or include misleading
information or fail to take into account material information
regarding the matters reported therein, it being understood that each
Engineering Report is necessarily based upon professional opinions,
estimates and projections and that Borrower does not warrant that such
opinions, estimates and projections will ultimately prove to have been
accurate. Borrower has heretofore delivered to Agent and each Lender
true, correct and complete copies of the Initial Financial Statements
and the Initial Engineering Report.
(i) Litigation. Except as disclosed in the Initial Financial
Statements or in the Disclosure Schedule: (i) there are no actions,
suits or legal, equitable, arbitrative or administrative proceedings
pending, or to the knowledge of any Related Person threatened, against
any Related Person before any federal, state, municipal or other
court, department, commission, body, board, bureau, agency, or
instrumentality, domestic or foreign, which do or may reasonably be
expected to materially and adversely affect Borrower or, on a
Consolidated basis, Borrower and its properly Consolidated
subsidiaries, their ownership or use of any material part of their
assets or properties, their businesses or financial condition or
prospects, or the right or ability of any Related Person to enter into
the Loan Documents to which it is a party or to consummate the
transactions contemplated thereby or to perform its obligations
thereunder and (ii) there are no outstanding judgments, injunctions,
writs, rulings or orders by any such governmental entity against any
Related Person or any Related Person's stockholders, partners,
directors or officers which have or may have any such effect.
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(j) ERISA Liabilities. All currently existing ERISA Plans
are listed in the Disclosure Materials. Except as disclosed in the
Initial Financial Statements or in the Disclosure Schedule, no
Termination Event has occurred with respect to any ERISA Plan and the
Related Persons are in compliance with ERISA in all material respects.
No Related Person is required to contribute to, or has any other
absolute or contingent liability in respect of, any "multiemployer
plan" as defined in Section 4001 of ERISA. Except as set forth in the
Disclosure Materials: (i) no "accumulated funding deficiency" (as
defined in Section 412(a) of the Internal Revenue Code of 1986, as
amended) exists with respect to any ERISA Plan, whether or not waived
by the Secretary of the Treasury or his delegate, and (ii) the current
value of each ERISA Plan's benefits does not exceed the current value
of such ERISA Plan's assets available for the payment of such benefits
by more than $500,000.
(k) Environmental and Other Laws. As used in this
subsection: "CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, "CERCLIS" means
the Comprehensive Environmental Response, Compensation and Liability
Information System List of the Environmental Protection Agency, and
"Release" has the meaning given such term in 42 U.S.C. Section
9601(22). Except as set forth in the Disclosure Schedule:
(i) the Related Persons are conducting their
businesses in material compliance with all applicable federal,
state and local laws, including Environmental Laws.
(ii) to the best of the knowledge of the executive
officers of the Related Persons after due inquiry, none of the
operations of any Related Person is the subject of federal,
state or local investigation evaluating whether any material
remedial action is needed to respond to a release of any
Hazardous Materials into the environment.
(iii) no Related Person (and to the best knowledge
of the executive officers of Borrower, no other Person) has
filed any notice under any federal, state or local law
indicating that any Related Person is responsible for a
Release, or the improper storage, of any material amount of
Hazardous Materials or any Hazardous Materials have been
released, or are improperly stored, upon any property of any
Related Person.
(iv) no Related Person otherwise has any known
material contingent liability in connection with a Release, or
the improper storage, of any Hazardous Materials.
(v) each Related Person has obtained
authorizations or has caused third party operators to
represent that such operators have obtained authorizations
which are required under all Environmental Laws, except to the
extent failure to have any such permit, license or
authorization would not have a material adverse effect on the
financial condition, operations, business or prospects of any
Related Person.
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(vi) each Related Person is in material compliance
with the terms and conditions of all permits, licenses and
authorizations described in clause (v) above, and is also in
material compliance with all other limitations, restrictions,
conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in any
applicable Environmental Law or in any notice or demand letter
issued, entered, promulgated or approved thereunder, except to
the extent failure to comply would not have a material adverse
effect on the financial condition, operations, business or
prospect of any Related Person.
(vii) no Related Person has handled any Hazardous
Materials on any properties now or previously owned or leased
by any Related Person to an extent that such handling has, or
may reasonably be expected to have, a material adverse effect
on the financial condition, operations, business or prospects
of any Related Person; and to the best of the Related Person's
knowledge after reasonably prudent inquiry
(1) no PCBs are present at any properties now or
previously owned or leased by any Related
Person;
(2) no asbestos is present at any properties now
or previously owned or leased by any Related
Person;
(3) except for production, storage and shipment
of oil and gas production in the ordinary
course of Borrower's business, there are no
underground or above-ground storage tanks,
vessels, landfills, pits or lagoons for
Hazardous Materials, active or abandoned, at
any properties now or previously owned or
leased by any Related Person;
(4) no Hazardous Materials have been Released, in
a reportable quantity, where such a quantity
has been established by statute, ordinance,
rule, regulation or order, at, on or under
any properties now or previously owned or
leased by any Related Person;
(5) no Hazardous Materials have been otherwise
Released at, on or under any properties now
or previously owned or leased by any Related
Person to an extent that such release has, or
may reasonably be expected to have, a
material adverse effect on the financial
condition, operations, business or prospects
of any Related Person;
(6) there has been no material release of or
contamination by any material or substance
contained or stored in any salt water
disposal pit, vessel, pond or lagoon, any mud
pit, or any other pit, pond, vessel or lagoon
used as a part of drilling or well operations
by any Related Person or for which any
Related Person may be responsible;
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(7) no Related Person is responsible for the
release, clean up or remediation of any
naturally occurring radioactive material;
(8) no Related Person is the subject of or
responsible for any material pending or
threatened claims, suits, demands or
proceedings for personal injury, property
damage, Natural Resources Damages as used in
"CERCLA", remediation costs, environmental
restoration or remediation or any other form
of legal or equitable relief whatsoever
arising from or in any way connected with the
actual or alleged release or discharge of or
exposure to any substance or material alleged
to be toxic or hazardous.
(viii) no Related Person has transported or arranged
for the transportation of any Hazardous Material to any
location which is listed on the National Priorities List under
CERCLA, listed for possible inclusion on the National
Priorities List by the Environmental Protection Agency in
CERCLIS, or listed on any similar state list or which is the
subject of federal, state or local enforcement actions or
other investigations which may lead to claims against any
Related Person for clean-up costs, remedial work, damages to
natural resources or for personal injury claims, including,
but not limited to, claims under CERCLA.
(ix) No Hazardous Material generated by any
Related Person has been recycled, treated, stored, disposed of
or released by any Related Person at any location other than
those listed in Disclosure Schedule.
(x) No oral or written notification of a Release
of a Hazardous Material has been filed by or, to the best of
the Related Persons' knowledge, on behalf of any Related
Person, and no property now or previously owned or leased by
any Related Person is listed, to the best of the Related
Persons' knowledge, or proposed for listing on the National
Priority list promulgated pursuant to CERCLA, in CERCLIS, or
on any similar state list of sites requiring investigation or
clean-up.
(xi) There are no Liens arising under or pursuant
to any Environmental Laws on any of the real properties or
properties owned or leased by any Related Person, and no
government actions have been taken or, to the best of the
Related Persons' knowledge after due inquiry, are in process
which could subject any of such properties to such Liens; nor
would any Related Person be required to place any notice or
restriction relating to the presence of Hazardous Materials at
any properties owned by it in any deed to such properties.
(xii) There have been no environmental
investigations, studies, audits, tests, reviews or other
analyses conducted by or which are in the possession of any
Related Person in relation to any properties or facility now
or previously owned or leased by any Related Person which have
not been made available to Agent.
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(l) Names and Places of Business. Borrower has not been
known by, or used any other corporate, partnership, trade, or
fictitious name, except as disclosed in the Disclosure Schedule.
Except as otherwise indicated in the Disclosure Schedule, the chief
executive office and principal place of business of Borrower are (and
for the preceding five years have been) located at the address of
Borrower set out in the signature pages hereto. Except as indicated
in the Disclosure Schedule, Borrower has no other office or place of
business.
(m) Borrower's Subsidiaries. Borrower does not presently
have any Subsidiary or own any stock in any other corporation or
association except those listed in the Disclosure Schedule. Borrower
is not a member of any general or limited partnership, joint venture
or association of any type whatsoever except those listed in the
Disclosure Schedule. As of the date hereof Borrower owns, directly or
indirectly, the equity interest in each of its Subsidiaries which is
indicated in the Disclosure Schedule.
(n) Title to Properties. Each Related Person has good record
and marketable title in fee simple to, or a valid leasehold interest
in (i) all of its drill sites and all of its properties where proven
reserves exist, and (ii) all of its real property (other than any real
property in which any Related Person has not, in accordance with
customary practice in oil and gas business, verified the marketability
and status of title or the validity of such leasehold interest), and
such good title to all its other property, and none of such property
is subject to any Lien except as expressly permitted by subsection
5.2(b).
Section 4.2. Representation by Lenders. Each Lender hereby
represents that it will acquire its Note for its own account in the ordinary
course of its commercial lending business; however, the disposition of such
Lender's Note shall at all times be and remain within its control and, in
particular and without limitation, such Lender may sell or otherwise transfer
its Note, any participation interest or other interest in its Note, or any of
its other rights and obligations under the Loan Documents.
ARTICLE V - Covenants of Borrower
Section 5.1. Affirmative Covenants. To conform with the terms and
conditions under which each Lender is willing to have credit outstanding to
Borrower, and to induce Agent and each Lender to enter into this Agreement and
make the Loans, Borrower warrants, covenants and agrees that until the full and
final payment of the Obligations and the termination of this Agreement, unless
Majority Lenders have previously agreed otherwise:
(a) Payment and Performance. Borrower will pay all amounts
due under the Loan Documents in accordance with the terms thereof and
will observe, perform and comply with every covenant, term and
condition set forth in the Loan Documents. Borrower will cause the
other Related Persons to observe, perform and comply with every such
term, covenant and condition.
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(b) Books, Financial Statements and Reports. Each Related
Person will at all times maintain full and accurate books of account
and records. Borrower will maintain and will cause its Subsidiaries
to maintain a standard system of accounting and will furnish the
following statements and reports to Agent and each Lender at
Borrower's expense:
(i) As soon as available, and in any event within
ninety (90) days after the end of each Fiscal Year, complete
Consolidated financial statements of Borrower together with
all notes thereto and the consolidating financial statements
prepared in connection with the preparation of such
Consolidated financial statements, all prepared in reasonable
detail in accordance with GAAP, together with an opinion,
based on an audit using generally accepted auditing standards,
by Price Waterhouse, or other independent certified public
accountants selected by Borrower and reasonably acceptable to
Majority Lenders, stating that such Consolidated financial
statements have been so prepared. These financial statements
shall contain a Consolidated and consolidating balance sheet
as of the end of such Fiscal Year and Consolidated and
consolidating statements of earnings, of cash flows, and of
changes in owners' equity for such Fiscal Year, each setting
forth in comparative form the corresponding figures for the
preceding Fiscal Year. In addition, within ninety (90) days
after the end of each Fiscal Year Borrower will furnish a
report signed by such accountants stating that they have read
this Agreement, containing calculations showing compliance (or
non-compliance) at the end of such Fiscal Year with the
requirements of Sections 5.2(k), 5.2(l), 5.2(m) and 5.2(n),
and further stating that in making the examination and
reporting on the Consolidated financial statements described
above no knowledge was obtained that any Default existed at
the end of such Fiscal Year or at the time of their report,
or, if they did obtain knowledge that a Default existed,
specifying its nature and period of existence.
(ii) As soon as available, and in any event within
forty-five (45) days after the end of the first three Fiscal
Quarters in each Fiscal Year, Borrower's unaudited
Consolidated and consolidating balance sheet as of the end of
such Fiscal Quarter and Consolidated and consolidating
statements of Borrower's earnings and cash flows for the
period from the beginning of the then current Fiscal Year to
the end of such Fiscal Quarter, all in reasonable detail and
prepared in accordance with GAAP, subject to changes resulting
from normal year-end and audit adjustments. In addition
Borrower will, together with each such set of financial
statements and each set of financial statements furnished
under subsection (i) of this section, furnish a certificate in
the form of Exhibit F signed by the chief financial officer of
Borrower stating that such financial statements are accurate
and complete in all material respects, stating that he has
reviewed the Loan Documents, containing calculations showing
compliance (or non-compliance) at the end of such Fiscal
Quarter with the requirements of Sections 5.2(k), 5.2(l),
5.2(m) and 5.2(n), and stating that no Default exists at the
end of such Fiscal Quarter or at the time of such certificate
or specifying the nature and period of existence of any such
Default.
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(iii) Promptly upon their becoming available, copies
of all financial statements, reports, notices and proxy
statements sent by any Related Person to its stockholders and
all registration statements, periodic reports and other
statements and schedules filed by any Related Person with any
securities exchange, the Securities and Exchange Commission or
any similar governmental authority.
(iv) By April 1 of each year, an engineering report
prepared by independent petroleum engineers chosen by Borrower
and reasonably acceptable to Majority Lenders, concerning all
oil and gas properties and interests relating to proven oil or
gas reserves owned by Borrower. In addition to the annual
report required pursuant to the preceding sentence, Borrower
will by October 1 of each year, unless previously waived in
writing by Majority Lenders, furnish to Agent and each Lender,
at Borrower's expense, an additional engineering report
prepared by Borrower, concerning all oil and gas properties
and interests relating to proven oil or gas reserves owned by
Borrower; provided that Borrower shall have no obligation to
furnish more than one such additional report in any Fiscal
Year. Each report shall be satisfactory to Agent and shall
contain information and analysis comparable in scope to that
contained in the Initial Engineering Report. Each report
shall distinguish (or shall be delivered together with a
certificate from an appropriate officer of Borrower which
distinguishes) those properties treated in the report which
are Collateral from those properties treated in the report
which are not Collateral.
(v) As soon as available, and in any event within
forty-five (45) days after the end of each month, Borrower's
internal financial summaries for such month, subject to
adjustments resulting from the final closing of such month's
books, together with all other financial information requested
by Agent.
(vi) As soon as available, and in any event within
thirty (30) days after the end of each Fiscal Year, Borrower
shall deliver to Agent an environmental compliance certificate
signed by the president or chief executive officer of Borrower
in the form attached hereto as Exhibit G. Further, if
requested by Agent, Borrower shall permit and cooperate with
an environmental and safety review made in connection with the
operations of Borrower's oil and gas properties one time
during each Fiscal Year beginning with the Fiscal Year 1996,
by Pilko & Associates or other consultants jointly selected by
Agent and Borrower which review shall, if requested by Agent,
be arranged and supervised by environmental legal counsel for
Agent, all at Borrower's cost and expense. The consultant
shall render a verbal or written report to both Agent and
Borrower, as specified by Agent, based upon such review at
Borrower's cost and expense.
(vii) Concurrently with the annual renewal of
Borrower's insurance policies, Borrower shall, if requested by
Agent in writing, cause a certificate or report to be issued
by Russell G. Jones, CPCU, ARM or other insurance consultants
satisfactory to Agent certifying that Borrower's insurance for
the next succeeding year after such
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renewal (or for such longer period for which such insurance is
in effect) complies with the provisions of this Agreement and
the Security Documents.
(viii) If, at the time of any redetermination of the
Borrowing Base or at any time during a Fiscal Quarter, the
aggregate value of gas attributable to "over-produced" status
under gas balancing arrangements exceeds $10,000,000 (without
giving effect to any offsetting of "under-produced" gas), then
(a) concurrently with the information furnished to Lenders in
connection with each such redetermination of the Borrowing
Base pursuant to the provisions of Section 2.12 and (b) as
soon as available, and in any event within forty-five (45)
days after the end of such Fiscal Quarter, an internally
prepared report concerning all gas properties and interests of
Borrower which are "over- produced" under gas balancing
arrangements. This report shall be satisfactory to Agent and
shall distinguish (or shall be delivered together with a
certificate from an appropriate officer of Borrower which
distinguishes) those properties treated in the report which
are Collateral from those properties treated in the report
which are not Collateral.
(c) Other Information and Inspections. Each Related Person
will furnish to Agent and each Lender any information which Agent may
from time to time reasonably request in writing concerning any
covenant, provision or condition of the Loan Documents or any matter
in connection with the Related Persons' businesses and operations.
Each Related Person will permit representatives appointed by Agent
(including independent accountants, agents, attorneys, appraisers and
any other Persons) to visit and inspect any of such Related Person's
property, including its books of account, other books and records, and
any facilities or other business assets, and to make extra copies
therefrom and photocopies and photographs thereof, and to write down
and record any information such representatives obtain, and each
Related Person shall permit Agent or its representatives to
investigate and verify the accuracy of the information furnished to
Agent or any Lender in connection with the Loan Documents and to
discuss all such matters with its officers, employees and
representatives. Each of Agent and Lenders, and their respective
successors and assigns, agrees that, except upon the occurrence and
during the continuance of a Default, it will take all reasonable steps
to keep confidential any confidential or proprietary information given
to it by any Related Person, provided, however, that this restriction
shall not apply to information which (i) has at the time in question
entered the public domain, or (ii) is required to be disclosed by law
or by any order, rule or regulation (whether valid or invalid) of any
court or governmental agency or authority, and provided further that
Agent and each Lender may disclose proprietary or confidential
information (a) to Agent's or any Lender's Affiliates, auditors,
attorneys, or agents or (b) to any other Lender or to any purchaser or
prospective purchaser of participations or other interests in any Loan
or Note, provided that Agent or such Lender, as the case may be, shall
request such other Lender, purchaser or prospective purchaser to agree
to be bound by the confidentiality provisions contained in this
Section 5.1(c).
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(d) Notice of Material Events and Change of Address.
Borrower will promptly notify Agent and each Lender:
(i) of any material adverse change in Borrower's
financial condition or Borrower's Consolidated financial
condition or in the aggregate value of the Collateral,
(ii) of the occurrence of any Default of which
Borrower has knowledge,
(iii) of the acceleration of the maturity of any
Debt owed by any Related Person or of any default by any
Related Person under any indenture, mortgage, agreement,
contract or other instrument to which any of them is a party
or by which any of them or any of their properties is bound,
if such acceleration or default might have a material adverse
effect upon Borrower's Consolidated financial condition or on
the value of any material part of the Collateral,
(iv) of the occurrence of any Termination Event,
(v) of any claim of $1,000,000 or more, any
notice of potential liability under any Environmental Laws
which could reasonably be expected to exceed such amount, any
claim, suit, demand or proceeding for personal injury,
property damage, Natural Resources Damages as used in
"CERCLA", remediation costs, environmental restoration or
remediation or any other form of legal or equitable relief
whatsoever arising from or in any way connected with the
actual or alleged release or discharge of or exposure to any
substance or material alleged to be toxic or hazardous which
could reasonably be expected to exceed such amount, or any
other material adverse claim asserted against any Related
Person or with respect to any Related Person's properties, and
(vi) of the filing of any suit or proceeding
against any Related Person in which an adverse decision could
have a material adverse effect upon any Related Person's
financial condition, business or operations or on the value of
any Collateral.
Upon the occurrence of any of the foregoing the Related Persons will
take all necessary or appropriate steps to remedy promptly any such
material adverse change, Default, acceleration, default or Termination
Event, to protect against any such adverse claim, to defend any such
suit or proceeding, and to resolve all controversies on account of any
of the foregoing. Borrower will also notify Agent and Agent's counsel
in writing at least twenty Business Days prior to the date that any
Related Person changes its name or the location of its chief executive
office or principal place of business or the place where it keeps its
books and records concerning the Collateral, furnishing with such
notice any necessary financing statement amendments or requesting
Agent and its counsel to prepare the same.
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(e) Maintenance of Properties. Each Related Person will
maintain, preserve, protect, and keep all Collateral and all other
material assets used or useful in the conduct of its business in good
condition (subject to the repair and/or replacement in the ordinary
course of business and events of casualty and force majeure) and in
material compliance with all applicable laws, rules and regulations,
and will from time to time make all repairs, renewals and replacements
needed to enable the business and operations carried on in connection
therewith to be promptly and advantageously conducted at all times.
(f) Maintenance of Existence and Qualifications. Each
Related Person which is a corporation or partnership will maintain and
preserve its corporate or partnership existence and its rights and
franchises in full force and effect and will qualify to do business as
a foreign corporation or partnership in all states or jurisdictions
where required by applicable law, except where the failure so to
qualify will not have any material adverse effect on Borrower.
(g) Payment of Trade Debt, Taxes, etc. Each Related Person
will (i) timely (giving effect to any proper extensions) file all
required tax returns; (ii) timely pay all taxes, assessments, and
other governmental charges or levies imposed upon it or upon its
income, profits or property; (iii) within sixty (60) days after the
same becomes due pay all Debt owed by it on ordinary trade terms to
vendors, suppliers and other Persons providing goods and services used
by it in the ordinary course of its business; (iv) pay and discharge
when due all other Debt now or hereafter owed by it; and (v) maintain
appropriate accruals and reserves for all of the foregoing Debt in
accordance with GAAP. Each Related Person may, however, delay paying
or discharging any such taxes, assessments, charges, levies and/or
Debt so long as it is in good faith contesting the validity or amount
thereof by appropriate proceedings and has set aside on its books
adequate reserves therefor to the extent required by GAAP.
(h) Insurance. Each Related Person will keep or cause to be
kept insured by financially sound and reputable insurers its property
in accordance with Schedule 2. Borrower will maintain the additional
insurance coverage as described in the respective Security Documents.
Upon demand by Agent any insurance policies covering Collateral shall
be endorsed (i) to provide for payment of property losses to Agent as
its interests may appear, (ii) to provide that such policies may not
be cancelled or reduced or affected in any material manner for any
reason without thirty days' prior notice to Agent, (iii) to provide
for any other matters specified in any applicable Security Document or
which Agent may reasonably require; and (iv) to provide for insurance
against fire, casualty and any other hazards normally insured against,
in the amount of the full value (less a reasonable deductible not to
exceed amounts customary in the industry for similarly situated
businesses and properties) of the property insured. Each Related
Person shall at all times maintain insurance against its liability for
injury to persons or property in accordance with Schedule 2, which
insurance shall be by financially sound and reputable insurers.
Without limiting the foregoing, each Related Person shall at all time
maintain liability insurance in the amounts set out on Schedule 2.
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(i) Payment of Expenses. Borrower will, subject to the terms
of the fee letter agreement of even date herewith between Borrower and
Agent, promptly (and in any event, within 30 days after any invoice
or other statement or notice) pay (a) all reasonable attorneys' fees
and other legal expenses incurred by or on behalf of Agent in
connection with (i) the negotiation, preparation, execution and
delivery of the Loan Documents, and any and all consents, waivers or
other documents or instruments relating thereto, (ii) the filing,
recording, refiling and re-recording of any Loan Documents and any
other documents or instruments or further assurances required to be
filed or recorded or refiled or re-recorded by the terms of any Loan
Document, (iii) the borrowings hereunder and other action reasonably
required in the course of administration hereof, (iv) the defense or
enforcement of the Loan Documents or the defense of Agent's or any
Lender's exercise of their rights thereunder, (v) monitoring or
confirming (or preparation or negotiation of any document related to)
Borrower's compliance with any covenants or conditions contained in
this Agreement or in any Loan Document, and (vi) the enforcement of
this Section 5.1(i); and (b) except as otherwise provided in Section
5.1(g) above, all transfer, stamp, mortgage, documentary or other
similar taxes, assessments or charges levied by any governmental or
revenue authority in respect of this Agreement or any of the other
Loan Documents or any other document referred to herein or therein.
In addition to the foregoing, upon the occurrence and continuance of
an Event of Default and until all of the Obligations have been paid in
full, Borrower will also pay or reimburse Agent for all reasonable
fees and expenses of Agent's (1) outside counsel, (2) reserve
engineers and (3) consultants engaged in connection with the Loan
Documents.
(j) Performance on Borrower's Behalf. If any Related Person
fails to pay any taxes, expenses, attorneys' fees or other amounts it
is required to pay under any Loan Document, Agent may, upon five (5)
days prior written notice to Borrower, pay the same; provided,
however, that if Borrower is contesting any such amount in accordance
with the terms of the Loan Documents and gives Agent written notice
thereof at least one (1) day prior to the date contained in Agent's
notice to Borrower on which Agent intends to pay such amount, Agent
will refrain from making such payment for so long as Borrower is
contesting such amount in accordance with the terms of the Loan
Documents. If any Related Person fails to pay any insurance premiums
it is required to pay under any Loan Document, Agent may pay the same.
Notwithstanding the foregoing, Agent may pay any taxes, expenses,
attorneys' fees, premiums or other amounts required to be paid by any
Related Person under any Loan Document to prevent the attachment of
any lien on any of such Related Person's assets. Borrower shall
immediately reimburse Agent for any payment made hereunder and each
amount paid by Agent shall constitute an Obligation owed hereunder
which is due and payable on the date such amount is paid by Agent.
(k) Interest. Borrower hereby promises to Agent and Lenders
to pay interest at the Late Payment Rate on all Obligations which
Borrower has in this Agreement promised to pay (including Obligations
to pay fees or to reimburse or indemnify Agent or any Lender) and
which are not paid when due or within any applicable grace period.
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(l) Compliance with Agreements and Law. Each Related Person
will perform all material obligations it is required to perform under
the terms of each indenture, mortgage, deed of trust, security
agreement, lease, franchise, agreement, contract or other instrument
or obligation to which it is a party or by which it or any of its
properties is bound. Each Related Person will conduct its business
and affairs in material compliance with all laws, regulations, and
order applicable thereto.
(m) Environmental Matters; Environmental Reviews.
(i) Each Related Person will comply with all
Environmental Laws now or hereafter applicable to such Related
Person and shall obtain or cause third-party operators to
represent that they have obtained, at or prior to the time
required by applicable Environmental Laws, all environmental,
health and safety permits, licenses and other authorizations
necessary for its operations and will maintain such
authorizations in full force and effect. Without limiting the
foregoing, Borrower will, as recommended by Pilko and
Associates, Inc. or such other environmental consultant
jointly selected by Agent and Borrower, promptly develop and
carry out a plan of action to plug abandoned wells, as
discovered, as required to be plugged under applicable
governmental requirements, that are not expected to be
returned to service.
(ii) Borrower will promptly furnish to Agent all
written notices of violation, orders, claims, demands,
notices, citations, complaints, penalty assessments, suits or
other proceedings received by Borrower or of which it has
notice, which involve or could reasonably be expected to
involve asserted damages in excess of $100,000, pending or
threatened against any Related Person, by any person, firm, or
public or governmental authority with respect to any alleged
violation of or non- compliance with any Environmental Laws,
any alleged personal injury, property damages, Natural
Resources Damages as used in "CERCLA", remediation costs,
environmental restoration or remediation or any other form of
legal or equitable relief whatsoever arising from or in any
way connected with the actual or alleged release or discharge
of or exposure to any substance or material alleged to be
toxic or hazardous or any permits, licenses or authorizations
in connection with its ownership or use of its properties or
the operation of its business, regardless of where conducted.
(iii) Borrower will promptly furnish to Agent all
requests for information, notices of claim, demand letters,
and other notifications, received by Borrower in connection
with its ownership or use of its properties or the conduct of
its business, relating to potential responsibility with
respect to any investigation or clean-up of Hazardous Material
at any location, or with respect to any alleged personal
injury, property damages, Natural Resources Damages as used in
"CERCLA", remediation costs, environmental restoration or
remediation or any other form of legal or equitable relief
whatsoever arising from or in any way connected with the
actual or
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alleged release or discharge of or exposure to any substance
or material alleged to be toxic or hazardous.
(n) Evidence of Compliance. Each Related Person will furnish
to each Lender at such Related Person's or Borrower's expense all
evidence which Agent from time to time reasonably requests in writing
as to the accuracy and validity of or compliance with all
representations, warranties and covenants made by any Related Person in
the Loan Documents, the satisfaction of all conditions contained
therein, and all other matters pertaining thereto.
Section 5.2. Negative Covenants. To conform with the terms and
conditions under which each Lender is willing to have credit outstanding to
Borrower, and to induce Agent and each Lender to enter into this Agreement and
make the Loans, Borrower warrants, covenants and agrees that until the full and
final payment of the Obligations and the termination of this Agreement, unless
Majority Lenders have previously agreed otherwise:
(a) Restricted Debt. No Related Person shall create, incur,
assume or suffer to exist (i) any Debt for borrowed money or for the
deferred purchase price of property or services (other than current
trade liabilities which is 60 days or less past due and which is
incurred in the ordinary course of business and payable in accordance
with customary practices) or which is evidenced by a note, bond,
debenture or similar instrument, (ii) any obligations of such Related
Person under any leases of property, real or personal, with respect to
which the obligations of the lessee are required in accordance with
GAAP to be capitalized on a balance sheet of the lessee (other than
leases of equipment which are made in the ordinary course of
business), (iii) any obligations of such Related Person in respect of
letters of credit and acceptances issued or created for the account of
such Related Person, (iv) any liabilities secured by any Lien on any
property owned by such Related Person even though such Related Person
has not assumed or otherwise become liable for the payment thereof,
(v) any obligations arising under futures contracts, swap contracts,
or similar speculative agreements (other than option contracts giving
such Related Person the right - and not the duty - to buy or sell
goods expected to be bought or sold by such Related Person in the
ordinary course of its business, so long as such Related Person has no
obligation other than the initial payment in full of the purchase
price for the option), (vi) any obligations arising under conditional
sales or other title retention agreements, (vii) any obligations owing
under direct or indirect guaranties of Debt of any other Person or
constituting obligations to purchase or acquire or to otherwise
protect or insure a creditor against loss in respect of Debt of any
other Person (such as obligations under working capital maintenance
agreements, agreements to keep-well, or agreements to purchase Debt,
assets, goods, securities or services), but excluding endorsements in
the ordinary course of business of negotiable instruments in the
course of collection, (viii) any obligations with respect to payments
received in consideration of oil, gas, or other minerals yet to be
acquired or produced at the time of payment (including obligations
under "take-or-pay" contracts to deliver gas in return for payments
already received and the undischarged balance of any production
payment created by such Related Person or for the creation of which
such Related Person directly or indirectly received
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payment), or (ix) any obligations to deliver goods or services in
consideration of advance payments therefor, except:
(1) Debt in respect of the Loans, the Notes, and
other Obligations of Borrower under this Agreement;
(2) Debt on account of trade credit or other
accounts payable incurred in the ordinary course of business;
(3) Debt outstanding on the date of this
Agreement and listed on Schedule 3 hereto, provided that the
amount of any such Debt may not be increased;
(4) Debt of Borrower owing to any Guarantor and
Debt of any Guarantor owing to Borrower;
(5) Debt arising under contracts entered into in
accordance with subsections (e) and (f) of the definition of
Permitted Investments;
(6) the Subordinated Debt, provided that the
amount of such Subordinated Debt may not be increased, prepaid
in cash prior to its stated maturity date or refinanced prior
to its stated maturity date (except on terms and conditions
acceptable to Required Lenders);
(7) guaranties by any Related Person of Debt of
any other Related Person, which Debt is expressly permitted
pursuant to the provisions of this Section 5.2(a);
(8) Debt evidenced by the 2006 Senior
Subordinated Notes; provided that (i) the 2006 Senior
Subordinated Notes shall not be repurchased or redeemed in
whole or in part prior to their stated maturity date, whether
at the option of Borrower or pursuant to a mandatory
redemption requirement under the 1996 Indenture; (ii) the
principal amount of such Debt shall not be increased,
refinanced, or refunded prior to its stated maturity date;
(iii) the interest rate thereon shall not be increased above
its stated rate; (iv) any prepayment charges, fees, expenses
or other amounts payable with respect to such Debt shall not
be increased; and (v) such Debt shall not be defeased in whole
or in part by Borrower pursuant to an election under Article 8
of the 1996 Indenture or otherwise; and
(9) Debt evidenced by the 2007 Senior
Subordinated Notes; provided that (i) the 2007 Senior
Subordinated Notes shall not be repurchased or redeemed in
whole or in part prior to their stated maturity date, whether
at the option of Borrower or pursuant to a mandatory
redemption requirement under the 1997 Indenture; (ii) the
principal amount of such Debt shall not be increased,
refinanced, or refunded prior to its stated maturity date;
(iii) the interest rate thereon shall not be increased above
its stated rate; (iv) any prepayment charges, fees, expenses
or other amounts payable
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with respect to such Debt shall not be increased; and (v) such
Debt shall not be defeased in whole or in part by Borrower
pursuant to an election under Article 8 of the 1997 Indenture
or otherwise.
(b) Limitation on Liens. No Related Person shall create,
incur, assume or suffer to exist any Lien upon any of their respective
properties, assets or revenues, whether now owned or hereafter
acquired, except for:
(i) Liens for taxes not yet due or which are being
contested in good faith by appropriate proceedings, provided
that adequate reserves with respect thereto are maintained on
the books of such Related Person in conformity with GAAP;
(ii) carriers', warehousemen's, lessors', mechanics',
materialmen's, repairmen's or other like Liens arising in the
ordinary course of business which are not overdue for a period
of more than 60 days or which are being contested in good
faith by appropriate proceedings; provided that adequate
reserves with respect thereto are maintained on the books of
such Related Person in conformity with GAAP;
(iii) pledges or deposits in connection with workers'
compensation, unemployment insurance and other social security
legislation and deposits securing liability to insurance
carriers under insurance or self-insurance arrangements;
(iv) deposits to secure the performance of bids,
trade contracts (other than for borrowed money), leases,
statutory obligations, surety and appeal bonds, performance
bonds, and other obligations of a like nature incurred in the
ordinary course of business;
(v) easements, rights-of-way, restrictions and other
similar encumbrances incurred in the ordinary course of
business which, in the aggregate, are not substantial in
amount and which do not in any case materially detract from
the value of the property subject thereto or materially
interfere with the ordinary conduct of the business of the
relevant Related Person;
(vi) Liens in existence on the date of this Agreement
listed on Schedule 4, securing Debt permitted by subsection
5.2(a)(3), provided that no such Lien is spread to cover any
additional property after the date of this Agreement and that
the amount of Debt secured thereby is not increased;
(vii) Liens which arise pursuant to the specific
terms of any license, joint operating agreement, unitization
agreement or other similar agreement evidencing the interest
of the relevant Person in any oil and gas producing property,
provided
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that such Lien is not securing any Debt other than Debt
incurred in connection with the specific terms of any such
license, joint operating agreement, unitization agreement or
other similar agreement;
(viii)Liens which arise pursuant to leases of
equipment entered into in the ordinary course of business,
provided that such Lien is not securing any Debt other than
Debt incurred in connection with the specific terms of such
equipment lease; and
(ix) Liens created pursuant to the Security Documents
or otherwise contemplated by this Agreement or the other Loan
Documents.
(c) Limitation on Mergers. No Related Person will merge
or consolidate with or into any other business entity. Any Subsidiary
of Borrower may, however, be merged into or consolidated with (i)
another Subsidiary of Borrower, so long as a Guarantor is the
surviving business entity, or (ii) Borrower, so long as Borrower is
the surviving business entity.
(d) Limitation on Sales of Property. No Related Person will
sell, transfer, lease, exchange, alienate or dispose of any of its
material assets or properties or any material interest therein except,
to the extent not otherwise forbidden under the Security Documents:
(i) equipment or other assets which are worthless
or obsolete or which are replaced by equipment or similar
assets of equal suitability and value.
(ii) inventory (including oil and gas sold as
produced and seismic data) which is sold in the ordinary
course of business on ordinary trade terms.
(iii) oil and gas properties which are sold for
fair consideration not to exceed $15,000,000 in the aggregate
in any calendar year during the term of this Agreement;
provided, however, that Borrower may sell for fair
consideration oil and gas properties in excess of $15,000,000
in the aggregate during any calendar year so long as within
five (5) days of consummation of any such sale all such sale
proceeds (net of reasonable costs incurred in connection with
such sale) shall be prepaid to Agent as a mandatory
prepayment, which proceeds shall (a) prior to the Termination
Date cause the Borrowing Base to be reduced by an amount
determined by Majority Lenders in their sole discretion to be
attributable to the oil and gas properties sold and (b) after
the Termination Date proportionately reduce each remaining
regular installment of principal due under the Notes so that
such reduced payment shall be equal to the product obtained by
multiplying each such payment by a fraction (1) the numerator
of which shall equal the amount of the outstanding Loans on
the date of prepayment of such sale proceeds to Agent after
giving effect to such prepayment
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and (2) the denominator of which shall equal the amount of the
outstanding Loans on the date of prepayment of such sale
proceeds to Agent before giving effect to such prepayment.
Neither Borrower nor any of Borrower's Subsidiaries will sell,
transfer or otherwise dispose of capital stock of any of Borrower's
Subsidiaries except that any Subsidiary of Borrower may sell or issue
its own capital stock to the extent not otherwise prohibited
hereunder. No Related Person will discount, sell, pledge or assign
any notes payable to it, accounts receivable or future income except
to the extent expressly permitted under the Loan Documents.
(e) Limitation on Dividends and Redemptions. No Related
Person will declare or pay any dividends on, or make any other
distribution in respect of, any class of its capital stock or any
partnership or other interest in it, nor will any Related Person
directly or indirectly make any capital contribution to or purchase,
redeem, acquire or retire any shares of the capital stock of or
partnership interests in any Related Person (whether such interests
are now or hereafter issued, outstanding or created), or cause or
permit any reduction or retirement of the capital stock of any Related
Person, except:
(i) such dividends, distributions, contributions,
purchases, redemptions, acquisitions, retirements or
reductions may be made by any Related Person without
limitation to Borrower and to Guarantors which are
Subsidiaries of Borrower, and
(ii) Borrower may make distributions to its
shareholders in any Fiscal Year which, in the aggregate
together with all other dividends and distributions made by
Borrower during such Fiscal Year and all Consolidated income
taxes of Borrower incurred by Borrower during the immediately
preceding Fiscal Year and actually paid by Borrower, do not
exceed sixty percent (60%) of the Consolidated net income of
Borrower calculated in accordance with GAAP before income
taxes and non-cash extraordinary items for the immediately
preceding Fiscal Year; provided that (a) at the time of each
such distribution, the Borrowing Base exceeds the aggregate
unpaid principal balance of the Loans, (b) no amounts are due
and owing under the Loan Documents at such time and (c) no
Default or Event of Default has occurred and is continuing at
the time of such distribution or would arise as a result of
the making of such distribution.
(f) Limitation on Investments and New Businesses. No Related
Person will (i) make any expenditure or commitment or incur any
obligation or enter into or engage in any transaction except in the
ordinary course of business, (ii) engage directly or indirectly in any
business or conduct any operations except in connection with or
incidental to its present businesses and operations, (iii) make any
acquisitions of or capital contributions to or other investments in
any Person, or be a party to or in any manner be liable on any
forward, future,
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swap or hedging contract, other than Permitted Investments, or (iv)
make any significant acquisitions or investments in any properties
other than oil and gas properties which are expressly permitted
hereunder.
(g) Limitation on Credit Extensions. Except for Permitted
Investments, no Related Person will extend credit, make advances or
make loans other than normal and prudent extensions of credit to
customers buying goods and services in the ordinary course of
business, which extensions shall not be for longer periods than those
extended by similar businesses operated in a normal and prudent
manner.
(h) Transactions with Affiliates. Neither Borrower nor any
of its Subsidiaries will engage in any material transaction with any
of its Affiliates on terms which are less favorable to it than those
which would have been obtainable at the time in arm's-length dealing
with Persons other than such Affiliates, provided that such
restriction shall not apply to transactions among Borrower and its
Subsidiaries.
(i) Certain Contracts; Amendments; Multiemployer ERISA Plans.
Except as expressly provided for in the Loan Documents, no Related
Person will, directly or indirectly, enter into, create, or otherwise
allow to exist any contract or other consensual restriction on the
ability of any Subsidiary of Borrower to: (i) pay dividends or make
other distributions to Borrower, (ii) to redeem equity interests held
in it by Borrower, (iii) to repay loans and other indebtedness owing
by it to Borrower, or (iv) to transfer any of its assets to Borrower.
No Related Person will enter into any "take-or-pay" contract or other
contract or arrangement for the purchase of goods or services which
obligates it to pay for such goods or service regardless of whether
they are delivered or furnished to it. No Related Person will amend
or permit any amendment to any contract or lease which releases,
qualifies, limits, makes contingent or otherwise detrimentally affects
the rights and benefits of Agent or any Lender under or acquired
pursuant to any Security Documents. No Related Person will incur any
obligation to contribute to any "multiemployer plan" as defined in
Section 4001 of ERISA. No Related Person will amend or modify or
permit any amendment or modification to any contract or instrument
governing the Debt evidenced by the 2006 Senior Subordinated Notes or
the 2007 Senior Subordinated Notes the effect of which would be to
change any of the material terms of such contract or instrument,
including without limitation, any amendment or modification that (i)
would increase the amount of, or shorten the maturity of, any payment
of any principal amount of the 2006 Senior Subordinated Notes or the
2007 Senior Subordinated Notes; (ii) would change the terms of
subordination of such Debt to the Obligations; or (iii) would be, in
the opinion of Majority Lenders, materially more burdensome to
Borrower than the obligations and requirements imposed by the 2006
Senior Subordinated Notes and the 1996 Indenture or the 2007 Senior
Subordinated Notes and the 1997 Indenture, as the case may be
(j) Fiscal Year. No Related Person will change its fiscal
year.
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(k) Current Ratio. The ratio of Borrower's Consolidated
current assets to Borrower's Consolidated current liabilities will
never be less than 1.0 to 1.0. For purposes of this subsection,
Borrower's Consolidated current liabilities will be calculated without
including any payments of principal on the Note which are required to
be repaid within one year from the time of calculation. For purposes
of this subsection, until the date which is one year and one day
before the due date of the first installment of principal on the Notes
Borrower's Consolidated current assets shall be increased by an amount
equal to the lesser of (i) the amount of available credit under the
Borrowing Base at the time of such calculation or (ii) $25,000,000.
(l) Fixed Charge Coverage. The ratio of Borrower's
Consolidated Cash Flow for any Fiscal Quarter to Borrower's
Consolidated Fixed Charges for such Fiscal Quarter will never be less
than 1.5 to 1.0. As used in this Section 5.2 (l), "Borrower's
Consolidated Cash Flow" means for any Fiscal Quarter, the sum of
Consolidated net income of Borrower plus depreciation, depletion,
amortization and interest expense deducted in determining such net
income. "Borrower's Consolidated Fixed Charges" means for any Fiscal
Quarter the sum of (i) the aggregate principal amount of all Debt of
Borrower and its Subsidiaries paid (other than voluntary prepayments)
or due and payable during such Fiscal Quarter plus (ii) all interest
paid or accrued by Borrower and its Subsidiaries, including all
interest paid (but excluding any accrued interest) with respect to the
Subordinated Debt during such Fiscal Quarter; provided, however, that
any principal amount of Debt and any interest payable in one Fiscal
Quarter and paid in another shall not be twice included in
Consolidated Fixed Charges.
(m) Interest Coverage. The ratio of Borrower's Consolidated
Cash Flow for any Fiscal Quarter to Borrower's Interest Expense for
such Fiscal Quarter will never be less than 2.5 to 1.0. As used in
this subsection, "Borrower's Interest Expense" means for any Fiscal
Quarter the sum of (i) interest payable on the Obligations for such
Fiscal Quarter plus (ii) interest payable (excluding any accrued but
unpaid interest) on the Subordinated Debt.
(n) Tangible Net Worth. Borrower's Consolidated Tangible Net
Worth will never be less than $120,000,000. As used in this
subsection the term "Borrower's Consolidated Debt" means all
Consolidated liabilities and similar balance sheet items of Borrower,
together with all other Debt of any Related Person. As used in this
subsection the term "Borrower's Consolidated Tangible Net Worth" means
the remainder of (I) all Consolidated assets of Borrower, other than
intangible assets (including without limitation as intangible assets
such assets as patents, copyrights, licenses, franchises, goodwill,
trade names, trade secrets and leases other than oil, gas or mineral
leases or leases required to be capitalized under GAAP), minus (II)
Borrower's Consolidated Debt (other than the Subordinated Debt).
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ARTICLE VI - Security
Section 6.1. The Security. The Obligations will be secured by the
Security Documents heretofore or hereafter delivered by any Related Person and
accepted by Agent.
Section 6.2. Agreement to Deliver Security Documents. Borrower
agrees to deliver and to cause its Subsidiaries to deliver, to further secure
the Obligations whenever requested by Agent in its sole and absolute
discretion, deeds of trust, mortgages, chattel mortgages, security agreements,
financing statements and other Security Documents in form and substance
satisfactory to Agent for the purpose of granting, confirming, and perfecting
first and prior liens or security interests in any real or personal property
now owned or hereafter acquired by Borrower or any Guarantor.
Section 6.3. Perfection and Protection of Security Interests and
Liens. Borrower will from time to time deliver to Agent any financing
statements, continuation statements, extension agreements and other documents,
properly completed and executed (and acknowledged when required) by the Related
Persons in form and substance satisfactory to Agent, which Agent requests for
the purpose of perfecting, confirming, or protecting any Liens or other rights
in Collateral securing any Obligations.
Section 6.4. Bank Accounts; Offset. To secure the repayment of the
Obligations Borrower hereby grants to Agent and each Lender a security
interest, a lien, and a right of offset, each of which shall be in addition to
all other interests, liens, and rights of Agent or any Lender at common law,
under the Loan Documents, or otherwise, and each of which shall be upon and
against (a) any and all moneys, securities or other property (and the proceeds
therefrom) of Borrower now or hereafter held or received by or in transit to
Agent or any Lender from or for the account of Borrower, whether for
safekeeping, custody, pledge, transmission, collection or otherwise, (b) any
and all deposits (general or special, time or demand, provisional or final) of
Borrower with Agent or any Lender, and (c) any other credits and claims of
Borrower at any time existing against Agent or any Lender, including claims
under certificates of deposit. At any time and from time to time after the
occurrence of any Default, each of Agent and Lenders is hereby authorized to
foreclose upon, or to offset against the Obligations then due and payable (in
either case without notice to Borrower), any and all items hereinabove referred
to. The remedies of foreclosure and offset are separate and cumulative, and
either may be exercised independently of the other without regard to procedures
or restrictions applicable to the other.
Section 6.5. Guaranties of Borrower's Subsidiaries. Each Subsidiary
of Borrower now existing or created, acquired or coming into existence after
the date hereof shall, promptly upon request by Agent, execute and deliver to
Agent an absolute and unconditional guaranty of the timely repayment of the
Obligations and the due and punctual performance of the obligations of Borrower
hereunder, which guaranty shall be satisfactory to Agent in form and substance.
Borrower will cause each of its Subsidiaries to deliver to Agent,
simultaneously with its delivery of such a guaranty,
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written evidence satisfactory to Agent and its counsel that such Subsidiary has
taken all corporate or partnership action necessary to duly approve and
authorize its execution, delivery and performance of such guaranty and any
other documents which it is required to execute.
Section 6.6. Production Proceeds. Notwithstanding that, by the terms
of certain of the Security Documents, Borrower and certain of the Related
Persons are and will be assigning to Agent and Lenders all of the proceeds of
production from the oil and gas properties constituting Collateral (the
"Production Proceeds"), so long as no Event of Default has occurred Borrower
and such Related Persons may continue to receive from the purchasers of
production all such Production Proceeds, subject, however, to the Liens created
under the Security Documents, which Liens are hereby affirmed and ratified.
Upon the occurrence of a Default, Agent and the Lenders shall have the right to
obtain possession of all Production Proceeds then held by Borrower or such
Related Persons and to receive directly from the purchasers of production all
other Production Proceeds. Upon the occurrence of an Event of Default, Agent
and Lenders may exercise all other rights and remedies granted under the
Security Documents. In no case shall any failure, whether purposed or
inadvertent, by Agent or Lenders to collect directly any such Production
Proceeds constitute in any way a waiver, remission or release of any of their
rights under the Security Documents, nor shall any release of any Production
Proceeds by Agent or Lenders to Borrower or such Related Persons constitute a
waiver, remission, or release of any other Production Proceeds or of any rights
of Agent or Lenders to collect other Production Proceeds thereafter.
ARTICLE VII - Events of Default and Remedies
Section 7.1. Events of Default. Each of the following events
constitutes an Event of Default under this Agreement:
(a) Any Related Person fails to pay any Obligation when due
and payable, whether at a date for the payment of a fixed installment
or as a contingent or other payment becomes due and payable or as a
result of acceleration or otherwise; provided that with respect to any
failure to pay interest on any of the Obligations when due and
payable, such failure shall not constitute an Event of Default
hereunder if remedied within three (3) days after such interest first
becomes due and payable;
(b) Any "default" or "event of default" occurs under any Loan
Document which defines either such term, and the same is not remedied
within the applicable period of grace (if any) provided in such Loan
Document;
(c) Any Related Person fails (other than as referred to in
subsections (a) and (b) above) to duly observe, perform or comply with
any covenant, agreement, condition or provision of any Loan Document,
and such failure is not remedied within the applicable Grace Period;
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(d) Any representation or warranty previously, presently or
hereafter made in writing by or on behalf of any Related Person in any
Loan Document shall prove to have been false or incorrect in any
material respect on any date on or as of which made, or any Loan
Document at any time ceases to be valid, binding and enforceable as
warranted in Section 4.1(e) for any reason other than its release or
subordination by Agent;
(e) Any Related Person fails to duly observe, perform or
comply with any agreement with any Person or any term or condition of
any instrument (including the Subordinated Debt Documents), if such
agreement or instrument is materially significant to Borrower or to
Borrower and its subsidiaries on a Consolidated basis or materially
significant to Guarantor, and such failure is not remedied within the
applicable period of grace (if any) provided in such agreement or
instrument;
(f) Any Related Person (i) fails to pay any portion, when
such portion is due, of the Subordinated Debt, (ii) fails to pay any
portion, when such portion is due, of any of its other Debt in excess
of $500,000, or (iii) breaches or defaults in the performance of any
of the Subordinated Debt Documents or any other agreement or
instrument by which the Subordinated Debt or any such other Debt is
issued, evidenced, governed, or secured, and any such failure, breach
or default is not waived and continues beyond any applicable period of
grace provided therefor;
(g) Any of the principal indebtedness evidenced by the
Subordinated Debt Documents becomes due prior to its stated maturity
date (by acceleration or otherwise) or Borrower or any holder of the
Subordinated Debt exercises any right of repurchase or redemption with
respect thereto;
(h) Either (i) any "accumulated funding deficiency" (as
defined in Section 412(a) of the Internal Revenue Code of 1986, as
amended) in excess of $100,000 exists with respect to any ERISA Plan,
whether or not waived by the Secretary of the Treasury or his
delegate, or (ii) any Termination Event occurs with respect to any
ERISA Plan and the then current value of such ERISA Plan's benefit
liabilities exceeds the then current value of such ERISA Plan's assets
available for the payment of such benefit liabilities by more than
$100,000 (or in the case of a Termination Event involving the
withdrawal of a substantial employer, the withdrawing employer's
proportionate share of such excess exceeds such amount);
(i) Any Related Person:
(A) suffers the entry against it of a judgment,
decree or order for relief by a court of competent
jurisdiction in an involuntary proceeding commenced under any
applicable bankruptcy, insolvency or other similar law of any
jurisdiction now or hereafter in effect, including the federal
Bankruptcy Code, as from time to time amended, or has any such
proceeding commenced against it which remains undismissed for
a period of sixty days; or
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(B) commences a voluntary case under any applicable
bankruptcy, insolvency or similar law now or hereafter in
effect, including the federal Bankruptcy Code, as from time to
time amended; or applies for or consents to the entry of an
order for relief in an involuntary case under any such law; or
makes a general assignment for the benefit of creditors; or
fails generally to pay (or admits in writing its inability to
pay) its debts as such debts become due; or takes corporate or
other action to authorize any of the foregoing; or
(C) suffers the appointment of or taking possession
by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of all or a substantial part
of its assets or of any part of the Collateral in a proceeding
brought against or initiated by it, and such appointment or
taking possession is neither made ineffective nor discharged
within sixty days after the making thereof, or such
appointment or taking possession is at any time consented to,
requested by, or acquiesced to by it; or
(D) suffers the entry against it of a final judgment
for the payment of money in excess of $1,000,000, unless the
same is discharged within thirty days after the date of entry
thereof or an appeal or appropriate proceeding for review
thereof is taken within such period and a stay of execution
pending such appeal is obtained; or
(E) suffers a writ or warrant of attachment or any
similar process to be issued by any court against all or any
substantial part of its assets or any part of the Collateral,
and such writ or warrant of attachment or any similar process
is not stayed or released within sixty days after the entry or
levy thereof or after any stay is vacated or set aside;
(j) For any reason a Change of Control shall occur; and
(k) Any material adverse change occurs in Borrower's
individual or Consolidated financial condition or businesses or
operations.
Upon the occurrence of an Event of Default described in subsection (i)(A),
(i)(B) or (i)(C) of this section with respect to Borrower, all of the
Obligations shall thereupon be immediately due and payable, without demand,
presentment, notice of demand or of dishonor and nonpayment, protest, notice of
protest, notice of intention to accelerate, declaration or notice of
acceleration, or any other notice or declaration of any kind, all of which are
hereby expressly waived by Borrower and each Related Person who at any time
ratifies or approves this Agreement. During the continuance of any other Event
of Default, Agent at any time and from time to time may (and upon written
instructions from Majority Lenders, Agent shall), without notice to Borrower or
any other Related Person, declare any or all of the Obligations immediately due
and payable, and all such Obligations shall thereupon be immediately due and
payable, without demand, presentment, notice of demand or of dishonor and
nonpayment, protest, notice of protest, notice of intention to accelerate,
declaration or notice of acceleration, or any other notice or declaration of
any kind, all of which are hereby
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expressly waived by Borrower and each Related Person who at any time ratifies
or approves this Agreement. After any such acceleration (whether automatic or
due to any declaration by Agent), any obligation of any Lender to make any
further Advances shall be permanently terminated. The term "Grace Period", as
used herein with respect to a Default or an Event of Default for which a Grace
Period is expressly provided, means the period beginning on the date of the
related Default and ending thirty days after written notice of such Default is
given by Agent to Borrower, provided that (i) no Grace Period shall ever apply
to any Default under Sections 5.1(d)(ii) or 5.2 and (ii) no Grace Period shall
apply to any other Default if Borrower has not given notice of such Default to
Agent as required in Section 5.1(d)(ii) prior to Agent's giving notice thereof
to Borrower or Agent's exercising any of its rights or remedies in connection
therewith.
Section 7.2. Remedies. If any Default shall occur and be continuing,
each Lender may protect and enforce its rights under the Loan Documents by any
appropriate proceedings, including proceedings for specific performance of any
covenant or agreement contained in any Loan Document, and each Lender may
enforce the payment of any Obligations due it or enforce any other legal or
equitable right which it may have; provided, however, that without the prior
written consent of Required Lenders, no Lender shall have the right to enforce
any of its rights or remedies under the Security Documents or otherwise with
respect to any of the Collateral and, in the event any Lender obtains such
prior written consent, such Lender shall notify Agent and Agent shall, on
behalf of such Lender, seek to enforce such Lender's rights and remedies under
the Security Documents. All rights, remedies and powers conferred upon Agent
and Lenders under the Loan Documents shall be deemed cumulative and not
exclusive of any other rights, remedies or powers available under the Loan
Documents or at law or in equity.
SECTION 7.3. INDEMNITY. EACH RELATED PERSON AGREES TO INDEMNIFY
AGENT AND EACH LENDER, UPON DEMAND, FROM AND AGAINST ANY AND ALL LIABILITIES,
OBLIGATIONS, CLAIMS, LOSSES, DAMAGES, PENALTIES, FINES, ACTIONS, JUDGMENTS,
SUITS, SETTLEMENTS, COSTS, EXPENSES OR DISBURSEMENTS (INCLUDING REASONABLE FEES
OF ATTORNEYS, ACCOUNTANTS, EXPERTS AND ADVISORS) OF ANY KIND OR NATURE
WHATSOEVER (IN THIS SECTION COLLECTIVELY CALLED "LIABILITIES AND COSTS") WHICH
TO ANY EXTENT (IN WHOLE OR IN PART) MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED
AGAINST AGENT OR SUCH LENDER GROWING OUT OF, RESULTING FROM OR IN ANY OTHER WAY
ASSOCIATED WITH ANY OF THE COLLATERAL, THE LOAN DOCUMENTS AND THE TRANSACTIONS
AND EVENTS (INCLUDING THE ENFORCEMENT OR DEFENSE THEREOF) AT ANY TIME
ASSOCIATED THEREWITH OR CONTEMPLATED THEREIN (INCLUDING ANY VIOLATION OR
NONCOMPLIANCE WITH ANY ENVIRONMENTAL LAWS BY ANY RELATED PERSON OR ANY ALLEGED
PERSONAL INJURY, PROPERTY DAMAGES, NATURAL RESOURCES DAMAGES AS USED IN
"CERCLA", REMEDIATION COSTS, ENVIRONMENTAL RESTORATION OR REMEDIATION OR ANY
OTHER FORM OF LEGAL OR EQUITABLE RELIEF WHATSOEVER SOUGHT AGAINST ANY RELATED
PERSON, AGENT OR ANY LENDER ARISING FROM OR IN ANY WAY CONNECTED WITH THE
ACTUAL OR ALLEGED RELEASE OR DISCHARGE OF OR EXPOSURE TO
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ANY SUBSTANCE OR MATERIAL ALLEGED TO BE TOXIC OR HAZARDOUS OR ANY OTHER
LIABILITIES OR DUTIES OF ANY RELATED PERSON, AGENT OR ANY LENDER WITH RESPECT
TO HAZARDOUS MATERIALS FOUND IN OR RELEASED INTO THE ENVIRONMENT). THE
FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND COSTS
ARE IN ANY WAY OR TO ANY EXTENT CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT
ACT OR OMISSION OF ANY KIND BY AGENT OR ANY LENDER, PROVIDED ONLY THAT NEITHER
AGENT NOR ANY LENDER SHALL BE ENTITLED UNDER THIS SECTION TO RECEIVE
INDEMNIFICATION FOR THAT PORTION, IF ANY, OF ANY LIABILITIES AND COSTS WHICH IS
PROXIMATELY CAUSED BY ITS OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, AS
DETERMINED IN A FINAL JUDGMENT. IF ANY PERSON (INCLUDING ANY RELATED PERSON OR
ANY OF THEIR AFFILIATES) EVER ALLEGES SUCH GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT BY AGENT OR ANY LENDER, THE INDEMNIFICATION PROVIDED FOR IN THIS
SECTION SHALL NONETHELESS BE PAID UPON DEMAND, SUBJECT TO LATER ADJUSTMENT OR
REIMBURSEMENT, UNTIL SUCH TIME AS A COURT OF COMPETENT JURISDICTION ENTERS A
FINAL JUDGMENT AS TO THE EXTENT AND EFFECT OF THE ALLEGED GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT. AS USED IN THIS SECTION THE TERMS "AGENT" AND "LENDER"
SHALL REFER NOT ONLY TO THE PERSONS DESIGNATED AS SUCH IN SECTION 1.1 BUT ALSO
TO EACH DIRECTOR, OFFICER, AGENT, ATTORNEY, EMPLOYEE, REPRESENTATIVE AND
AFFILIATE OF SUCH PERSON.
ARTICLE VIII - Agent
Section 8.1. Appointment and Authority. Each Lender hereby
irrevocably authorizes Agent, and Agent hereby undertakes, to receive on behalf
of the Lenders payments of principal, interest and other amounts due hereunder
as specified herein and to take all other actions and to exercise on behalf of
the Lenders such powers under the Loan Documents as are specifically delegated
to Agent by the terms hereof or thereof, together with all other powers
reasonably incidental thereto. The relationship of Agent to Lenders is only
that of one commercial bank acting as administrative agent for others, and
nothing in the Loan Documents shall be construed to constitute Agent a trustee
or other fiduciary for any holder of any of the Notes or of any participation
therein nor to impose on Agent duties and obligations other than those
expressly provided for in the Loan Documents. With respect to any matters not
expressly provided for in the Loan Documents and any matters which the Loan
Documents place within the discretion of Agent, Agent shall not be required to
exercise any discretion or take any action, and it may request instructions
from Lenders with respect to any such matter, in which case it shall be
required to act or to refrain from acting (and shall be fully protected and
free from liability to all Lenders in so acting or refraining from acting) upon
the instructions of Majority Lenders (including itself), provided, however,
that Agent shall not be required to take any action which exposes it to a risk
of personal liability that it considers unreasonable or which is
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contrary to the Loan Documents or to applicable law. Upon receipt by Agent
from Borrower of any communication calling for action on the part of Lenders or
upon notice from any Lender to Agent of any Default or Event of Default, Agent
shall promptly notify each Lender thereof.
Section 8.2. Agent's Reliance, Etc. Neither Agent nor any of its
directors, officers, agents, attorneys, or employees shall be liable for any
action taken or omitted to be taken by any of them under or in connection with
the Loan Documents, including their negligence of any kind, except that each
shall be liable for its own gross negligence or willful misconduct. Without
limiting the generality of the foregoing, Agent (a) may treat the payee of any
Note as the holder thereof until Agent receives written notice of the
assignment or transfer thereof in accordance with this Agreement, signed by
such payee and in form satisfactory to Agent; (b) may consult with legal
counsel (including counsel for Borrower), independent public accountants and
other experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts; (c) makes no warranty or representation to any
Lender and shall not be responsible to any Lender for any statements,
warranties or representations made in or in connection with the Loan Documents;
(d) shall not have any duty to ascertain or to inquire as to the performance or
observance of any of the terms, covenants or conditions of the Loan Documents
on the part of any Related Person or to inspect the property (including the
books and records) of any Related Person; (e) shall not be responsible to any
Lender for the due execution, legality, validity, enforceability, genuineness,
sufficiency or value of any Loan Document or any instrument or document
furnished in connection therewith; (f) may rely upon the representations and
warranties of the Related Persons and the Lenders in exercising its powers
hereunder; and (g) shall incur no liability under or in respect of the Loan
Documents by acting upon any notice, consent, certificate or other instrument
or writing (including any telecopy, telegram, cable or telex) believed by it to
be genuine and signed or sent by the proper Person or Persons.
Section 8.3. Lenders' Credit Decisions. Each Lender acknowledges
that it has, independently and without reliance upon Agent or any other Lender,
made its own analysis of Borrower and the transactions contemplated hereby and
its own independent decision to enter into this Agreement and the other Loan
Documents. Each Lender also acknowledges that it will, independently and
without reliance upon Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Loan Documents.
SECTION 8.4. INDEMNIFICATION. EACH LENDER AGREES TO INDEMNIFY AGENT
(TO THE EXTENT NOT REIMBURSED BY BORROWER WITHIN TEN (10) DAYS AFTER DEMAND)
FROM AND AGAINST SUCH LENDER'S PERCENTAGE SHARE OF ANY AND ALL LIABILITIES,
OBLIGATIONS, CLAIMS, LOSSES, DAMAGES, PENALTIES, FINES, ACTIONS, JUDGMENTS,
SUITS, SETTLEMENTS, COSTS, EXPENSES OR DISBURSEMENTS (INCLUDING REASONABLE FEES
OF ATTORNEYS, ACCOUNTANTS, EXPERTS AND ADVISORS) OF ANY KIND OR NATURE
WHATSOEVER (IN THIS SECTION COLLECTIVELY CALLED "LIABILITIES AND COSTS") WHICH
TO ANY EXTENT (IN WHOLE OR IN PART) MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED
AGAINST AGENT GROWING
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OUT OF, RESULTING FROM OR IN ANY OTHER WAY ASSOCIATED WITH ANY OF THE
COLLATERAL, THE LOAN DOCUMENTS AND THE TRANSACTIONS AND EVENTS (INCLUDING THE
ENFORCEMENT THEREOF) AT ANY TIME ASSOCIATED THEREWITH OR CONTEMPLATED THEREIN
(INCLUDING ANY VIOLATION OR NONCOMPLIANCE WITH ANY ENVIRONMENTAL LAWS BY ANY
PERSON OR ANY ALLEGED PERSONAL INJURY, PROPERTY DAMAGES, NATURAL RESOURCES
DAMAGES AS USED IN "CERCLA", REMEDIATION COSTS, ENVIRONMENTAL RESTORATION OR
REMEDIATION OR ANY OTHER FORM OF LEGAL OR EQUITABLE RELIEF WHATSOEVER SOUGHT
AGAINST ANY PERSON ARISING FROM OR IN ANY WAY CONNECTED WITH THE ACTUAL OR
ALLEGED RELEASE OR DISCHARGE OF OR EXPOSURE TO ANY SUBSTANCE OR MATERIAL
ALLEGED TO BE TOXIC OR HAZARDOUS OR ANY OTHER LIABILITIES OR DUTIES OF ANY
PERSON WITH RESPECT TO HAZARDOUS MATERIALS FOUND IN OR RELEASED INTO THE
ENVIRONMENT). THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH
LIABILITIES AND COSTS ARE IN ANY WAY OR TO ANY EXTENT CAUSED, IN WHOLE OR IN
PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY AGENT, PROVIDED ONLY THAT
NO LENDER SHALL BE OBLIGATED UNDER THIS SECTION TO INDEMNIFY AGENT FOR THAT
PORTION, IF ANY, OF ANY LIABILITIES AND COSTS WHICH IS PROXIMATELY CAUSED BY
AGENT'S OWN INDIVIDUAL GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, AS DETERMINED IN
A FINAL JUDGMENT. CUMULATIVE OF THE FOREGOING, EACH LENDER AGREES TO REIMBURSE
AGENT PROMPTLY UPON DEMAND FOR SUCH LENDER'S PERCENTAGE SHARE OF ANY COSTS AND
EXPENSES TO BE PAID TO AGENT BY BORROWER UNDER SECTION 5.1(I) TO THE EXTENT
THAT AGENT IS NOT TIMELY REIMBURSED FOR SUCH EXPENSES BY BORROWER AS PROVIDED
IN SUCH SECTION. AS USED IN THIS SECTION THE TERM "AGENT" SHALL REFER NOT ONLY
TO THE PERSON DESIGNATED AS SUCH IN SECTION 1.1 BUT ALSO TO EACH DIRECTOR,
OFFICER, AGENT, ATTORNEY, EMPLOYEE, REPRESENTATIVE AND AFFILIATE OF SUCH
PERSON.
Section 8.5. Rights as Lender. In its capacity as a Lender, Agent
shall have the same rights and obligations as any Lender and may exercise such
rights as though it were not Agent. Agent may accept deposits from, lend money
to, act as Trustee under indentures of, and generally engage in any kind of
business with any of the Related Persons or their Affiliates, all as if it were
not Agent hereunder and without any duty to account therefor to any other
Lender.
Section 8.6. Sharing of Set-Offs and Other Payments. Each of Agent
and Lender agrees that if it shall, whether through the exercise of rights
under Security Documents or rights of banker's lien, set off, or counterclaim
against Borrower or otherwise, obtain payment of a portion of the aggregate
Obligations owed to it which, taking into account all distributions made by
Agent under Section 2.10, causes Agent or such Lender to have received more
than it would have received had such payment been received by Agent and
distributed pursuant to Section 2.10, then (a) it shall be deemed to have
simultaneously purchased and shall be obligated to purchase interests in the
Obligations as necessary to cause Agent and all Lenders to share all payments
as provided for in Section 2.10, and
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(b) such other adjustments shall be made from time to time as shall be
equitable to ensure that Agent and all Lenders share all payments of
Obligations as provided in Section 2.10; provided, however, that nothing herein
contained shall in any way affect the right of Agent or any Lender to obtain
payment (whether by exercise of rights of banker's lien, set-off or
counterclaim or otherwise) of indebtedness other than the Obligations.
Borrower expressly consents to the foregoing arrangements and agrees that any
holder of any such interest or other participation in the Obligations, whether
or not acquired pursuant to the foregoing arrangements, may to the fullest
extent permitted by law exercise any and all rights of banker's lien, set-off,
or counterclaim as fully as if such holder were a holder of the Obligations in
the amount of such interest or other participation. If all or any part of any
funds transferred pursuant to this section is thereafter recovered from the
seller under this section which received the same, the purchase provided for in
this section shall be deemed to have been rescinded to the extent of such
recovery, together with interest, if any, if interest is required pursuant to
court order to be paid on account of the possession of such funds prior to such
recovery.
Section 8.7. Investments. Whenever Agent in good faith determines
that it is uncertain about how to distribute to Lenders any funds which it has
received, or whenever Agent in good faith determines that there is any dispute
among Lenders about how such funds should be distributed, Agent may choose to
defer distribution of the funds which are the subject of such uncertainty or
dispute. If Agent in good faith believes that the uncertainty or dispute will
not be promptly resolved, or if Agent is otherwise required to invest funds
pending distribution to Lenders, Agent shall invest such funds pending
distribution; all interest on any such investment shall be distributed upon the
distribution of such investment and in the same proportion and to the same
Persons as such investment. All moneys received by Agent for distribution to
Lenders (other than to the Person who is Agent in its separate capacity as a
Lender) shall be held by Agent pending such distribution solely as Agent for
such Lenders, and Agent shall have no equitable title to any portion thereof.
Section 8.8. Benefit of Article VIII. The provisions of this Article
(other than the following Section 8.9) are intended solely for the benefit of
Agent and Lenders, and no Related Person shall be entitled to rely on any such
provision or assert any such provision in a claim or defense against Agent or
any Lender. Agent and Lenders may waive or amend such provisions as they
desire without any prior notice to or consent of Borrower or any Related
Person.
Section 8.9. Resignation. Agent may resign at any time by giving ten
(10) days' prior written notice thereof to Lenders and Borrower. Each such
notice shall set forth the date of such resignation. Upon any such resignation
Required Lenders shall have the right to appoint a successor Agent. Except as
provided in the following sentence, a successor must be appointed for any
retiring Agent, and such Agent's resignation shall only become effective when
such successor accepts such appointment. If, within thirty days after the date
of the retiring Agent's resignation, no successor Agent has been appointed and
has accepted such appointment, then the retiring Agent may appoint a successor
Agent, which shall be a domestic or foreign commercial bank organized or
licensed to conduct a banking or trust business under the laws of the United
States of America or of any state thereof. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, the retiring Agent shall
be discharged from its duties and obligations under this Agreement and the
other Loan Documents. After any retiring Agent's resignation hereunder the
provisions of this Article VIII
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<PAGE> 64
shall continue to inure to its benefit as to any actions taken or omitted to be
taken by it while it was Agent under the Loan Documents.
ARTICLE IX - Miscellaneous
Section 9.1. Waivers and Amendments. No failure or delay (whether by
course of conduct or otherwise) by Agent or any Lender in exercising any right,
power or remedy which Agent or such Lender may have under any of the Loan
Documents shall operate as a waiver thereof or of any other right, power or
remedy, nor shall any single or partial exercise by Agent or such Lender of any
such right, power or remedy preclude any other or further exercise thereof or
of any other right, power or remedy. No waiver of any provision of any Loan
Document and no consent to any departure therefrom shall ever be effective
unless it is in writing and signed as provided below in this section, and then
such waiver or consent shall be effective only in the specific instances and
for the purposes for which given and to the extent specified in such writing.
No notice to or demand on any Related Person shall in any case of itself
entitle any Related Person to any other or further notice or demand in similar
or other circumstances. This Agreement and the other Loan Documents set forth
the entire understanding between the parties hereto with respect to the
transactions contemplated herein and therein and supersede all prior
discussions and understandings with respect to the subject matter hereof and
thereof, and no waiver, consent, release, modification or amendment of or
supplement to this Agreement or the other Loan Documents shall be valid or
effective against any party hereto unless the same is in writing and signed by
(i) if such party is Borrower, by Borrower, (ii) if such party is Agent, by
Agent and (iii) if such party is a Lender, by such Lender, or if all Lenders,
by Agent on behalf of Lenders with the written consent of Majority Lenders.
Notwithstanding the foregoing or anything to the contrary herein, Agent shall
not, without the prior consent of each individual Lender, release, subordinate
or impair any Collateral or any Lien securing the Obligations or execute and
deliver on behalf of such Lender any waiver or amendment which would: (1)
waive any of the conditions specified in Article III (provided that Agent may
in its discretion withdraw any request it has made under Section 3.2(f)), (2)
increase the Percentage Share of such Lender or subject such Lender to any
additional obligations, (3) reduce any fees hereunder, or the principal of, or
interest on, such Lender's Note, (4) postpone any date fixed for any payment of
any fees hereunder, or principal of, or interest on, such Lender's Note, (5)
amend the definition herein of "Majority Lenders" or "Required Lenders" or
otherwise change the aggregate amount of Percentage Shares which is required
for Agent, Lenders or any of them to take any particular action under the Loan
Documents, or (6) release Borrower from its obligation to pay such Lender's
Note or Guarantor from its guaranty of such payment.
SECTION 9.2. GOVERNING LAW; SUBMISSION TO PROCESS. EXCEPT TO THE
EXTENT THAT THE LAW OF ANOTHER JURISDICTION IS EXPRESSLY ELECTED IN A LOAN
DOCUMENT, THE LOAN DOCUMENTS SHALL BE DEEMED CONTRACTS AND INSTRUMENTS MADE
UNDER THE LAWS OF THE STATE OF NEW YORK AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK AND THE LAWS
OF THE UNITED STATES OF AMERICA, WITHOUT REGARD TO PRINCIPLES OF
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<PAGE> 65
CONFLICTS OF LAW. BORROWER HEREBY AGREES THAT ANY LEGAL ACTION OR PROCEEDING
AGAINST BORROWER WITH RESPECT TO THIS AGREEMENT, THE NOTE OR ANY OF THE LOAN
DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE
UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK AS AGENT AND
LENDERS MAY ELECT, AND, BY EXECUTION AND DELIVERY HEREOF, BORROWER ACCEPTS AND
CONSENTS FOR ITSELF AND IN RESPECT TO ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS AND AGREES THAT SUCH
JURISDICTION SHALL BE EXCLUSIVE, UNLESS WAIVED BY AGENT AND LENDERS IN WRITING,
WITH RESPECT TO ANY ACTION OR PROCEEDING BROUGHT BY IT AGAINST AGENT AND
LENDERS AND ANY QUESTIONS RELATING TO USURY. BORROWER AGREES THAT SECTIONS
5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK SHALL
APPLY TO THE LOAN DOCUMENTS AND WAIVES ANY RIGHT TO STAY OR TO DISMISS ANY
ACTION OR PROCEEDING BROUGHT BEFORE SAID COURTS ON THE BASIS OF FORUM NON
CONVENIENS. IN FURTHERANCE OF THE FOREGOING, BORROWER HEREBY IRREVOCABLY
DESIGNATES AND APPOINTS CT CORPORATION SYSTEM, 1633 BROADWAY, NEW YORK, NEW
YORK, AS AGENT OF BORROWER TO RECEIVE SERVICE OF ALL PROCESS BROUGHT AGAINST
BORROWER WITH RESPECT TO ANY SUCH PROCEEDING IN ANY SUCH COURT IN NEW YORK,
SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY BORROWER TO BE EFFECTIVE AND BINDING
SERVICE IN EVERY RESPECT. COPIES OF ANY SUCH PROCESS SO SERVED SHALL ALSO, IF
PERMITTED BY LAW, BE SENT BY REGISTERED MAIL TO BORROWER AT ITS ADDRESS SET
FORTH BELOW, BUT THE FAILURE OF BORROWER TO RECEIVE SUCH COPIES SHALL NOT
AFFECT IN ANY WAY THE SERVICE OF SUCH PROCESS AS AFORESAID. BORROWER SHALL
FURNISH TO AGENT AND LENDERS A CONSENT OF CT CORPORATION SYSTEM AGREEING TO ACT
HEREUNDER PRIOR TO THE DATE OF THIS AGREEMENT. NOTHING HEREIN SHALL AFFECT THE
RIGHT OF AGENT AND LENDERS TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW OR SHALL LIMIT THE RIGHT OF AGENT AND LENDERS TO BRING PROCEEDINGS AGAINST
BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. IF FOR ANY REASON CT
CORPORATION SYSTEM SHALL RESIGN OR OTHERWISE CEASE TO ACT AS AGENT, BORROWER
HEREBY IRREVOCABLY AGREES TO (A) IMMEDIATELY DESIGNATE AND APPOINT A NEW AGENT
ACCEPTABLE TO AGENT AND LENDERS TO SERVE IN SUCH CAPACITY AND, IN SUCH EVENT,
SUCH NEW AGENT SHALL BE DEEMED TO BE SUBSTITUTED FOR CT CORPORATION SYSTEM FOR
ALL PURPOSES HEREOF AND (B) PROMPTLY DELIVER TO AGENT AND LENDERS THE WRITTEN
CONSENT (IN FORM AND SUBSTANCE SATISFACTORY TO AGENT AND LENDERS) OF SUCH NEW
AGENT AGREEING TO SERVE IN SUCH CAPACITY.
Section 9.3. Limitation on Interest. Agent, Lenders, the Related
Persons and the other parties to the Loan Documents intend to contract in
strict compliance with applicable usury law from
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time to time in effect. In furtherance thereof such persons stipulate and
agree that none of the terms and provisions contained in the Loan Documents
shall ever be construed to provide for interest in excess of the maximum amount
of interest permitted to be charged by applicable law from time to time in
effect. Neither any Related Person nor any present or future guarantors,
endorsers, or other Persons hereafter becoming liable for payment of any
Obligation shall ever be liable for unearned interest thereon or shall ever be
required to pay interest thereon in excess of the maximum amount that may be
lawfully charged under applicable law from time to time in effect, and the
provisions of this section shall control over all other provisions of the Loan
Documents which may be in conflict or apparent conflict herewith. Agent and
Lenders expressly disavow any intention to charge or collect excessive unearned
interest or finance charges in the event the maturity of any Obligation is
accelerated. If (a) the maturity of any Obligation is accelerated for any
reason, (b) any Obligation is prepaid and as a result any amounts held to
constitute interest are determined to be in excess of the legal maximum, or (c)
Agent or any Lender or any other holder of any or all of the Obligations shall
otherwise collect moneys which are determined to constitute interest which
would otherwise increase the interest on any or all of the Obligations to an
amount in excess of that permitted to be charged by applicable law then in
effect, then all such sums determined to constitute interest in excess of such
legal limit shall, without penalty, be promptly applied to reduce the then
outstanding principal of the related Obligations or, at Agent's or such
Lender's or holder's option, promptly returned to Borrower or the other payor
thereof upon such determination. In determining whether or not the interest
paid or payable, under any specific circumstance, exceeds the maximum amount
permitted under applicable law, Agent, Lenders and the Related Persons (and any
other payors thereof) shall to the greatest extent permitted under applicable
law, (i) characterize any non-principal payment as an expense, fee or premium
rather than as interest, (ii) exclude voluntary prepayments and the effects
thereof, and (iii) amortize, prorate, allocate, and spread the total amount of
interest throughout the entire contemplated term of the instruments evidencing
the Obligations in accordance with the amounts outstanding from time to time
thereunder and the maximum legal rate of interest from time to time in effect
under applicable law in order to lawfully charge the maximum amount of interest
permitted under applicable law. As used in this section the term "applicable
law" means the laws of the State of New York or the laws of the United States
of America, whichever laws allow the greater interest, as such laws now exist
or may be changed or amended or come into effect in the future.
Section 9.4. Termination; Limited Survival. In its sole and absolute
discretion Borrower may at any time that no Obligations are owing elect in a
written notice delivered to Agent to terminate this Agreement. Upon receipt by
Agent of such a notice, if no Obligations are then owing this Agreement and all
other Loan Documents shall thereupon be terminated and the parties thereto
released from all prospective obligations thereunder. Notwithstanding the
foregoing or anything herein to the contrary, any waivers or admissions made by
any Related Person in any Loan Document, any Obligations under Sections 2.14
through 2.18, and any obligations which any Person may have to indemnify or pay
accrued compensation to Agent or any Lender shall survive any termination of
this Agreement or any other Loan Document. At the request and expense of
Borrower, Agent shall prepare and execute all necessary instruments to reflect
and effect such termination of the Loan Documents. Agent is hereby authorized
to execute all such instruments on behalf of all Lenders, without the joinder
of or further action by any Lender.
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<PAGE> 67
Section 9.5. Notices. All notices, requests, consents, demands and
other communications required or permitted under any Loan Document shall be in
writing, unless otherwise specifically provided in such Loan Document (provided
that Agent may give telephonic notices to Lenders), and shall be deemed
sufficiently given or furnished if delivered by personal delivery, by telecopy
or telex, by delivery service with proof of delivery, or by registered or
certified United States mail, postage prepaid, to Borrower and the Related
Persons at the address of Borrower specified on the signature pages hereto, and
to Agent and the other Lenders at their addresses specified on the signature
pages hereto (unless changed by similar notice in writing given by the
particular Person whose address is to be changed). Any such notice or
communication shall be deemed to have been given (a) in the case of personal
delivery or delivery service, as of the date of first attempted delivery at the
address provided herein, (b) in the case of telecopy or telex, upon receipt, or
(c) in the case of registered or certified United States mail, three days after
deposit in the mail; provided, however, that no Request for Advance or Rate
Election shall become effective until actually received by Agent.
Section 9.6. Severability. If any term or provision of any Loan
Document shall be determined to be illegal or unenforceable all other terms and
provisions of the Loan Documents shall nevertheless remain effective and shall
be enforced to the fullest extent permitted by applicable law.
Section 9.7. Counterparts. This Agreement may be separately executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to constitute one
and the same Agreement.
SECTION 9.8. WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC. TO THE
EXTENT PERMITTED BY LAW, AGENT, LENDERS AND BORROWER HEREBY KNOWINGLY,
VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR DIRECTLY OR INDIRECTLY
ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF SUCH PERSONS OR BORROWER. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR AGENT'S AND LENDERS' ENTERING INTO THIS AGREEMENT AND
THE OTHER LOAN DOCUMENTS. EACH OF BORROWER, AGENT AND LENDERS HEREBY FURTHER
(A) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL
FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT
SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVERS, AND (B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS
AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY
AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS
CONTAINED IN THIS SECTION.
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<PAGE> 68
Section 9.9. Restatement. This Agreement restates and amends the
Existing Agreement in its entirety, effective as of the date hereof, and all of
the terms and provisions hereof shall supersede the terms and provisions
thereof. It is the intention of the parties hereto that the Debt evidenced by
the Existing Agreement and the Existing Notes, together with all liens and
security interests granted by Borrower in favor of the Existing Lenders in
connection therewith, is to be carried forward pursuant to the terms contained
herein and in the other Loan Documents. The Notes are being executed and given
in partial renewal and restatement of (but not in extinguishment or novation
of) the Existing Notes.
IN WITNESS WHEREOF, this Agreement is executed as of the date first written
above.
[INTENTIONALLY LEFT BLANK]
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<PAGE> 69
Borrower
FORCENERGY INC (FORMERLY KNOWN AS FORCENERGY
GAS EXPLORATION, INC.)
By:
-------------------------------------------
Name:
Title:
Address:
2730 S.W. 3rd Avenue, Suite 800
Miami, Florida 33129-2237
Attention: Stig Wennerstrom
Telephone: (305) 856-8500
Telecopy: (305) 856-4300
[INTENTIONALLY LEFT BLANK]
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<PAGE> 70
ING (U.S.) CAPITAL CORPORATION (FORMERLY KNOWN
AS INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL
CORPORATION), AGENT AND LENDER
<TABLE>
<CAPTION>
Share of
Percentage Maximum
Share Loan Amount
- ----------- -----------
<S> <C> <C>
By:
---------------------------------------------------------------------------
22.500% $45,000,000 Name:
Title:
Address:
135 East 57th Street
New York, New York 10022-2101
Attention: W. King Grant
Telephone: (212) 409-1730
Telecopy: (212) 823-3616
Telex: TRT 177792
</TABLE>
[INTENTIONALLY LEFT BLANK]
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<PAGE> 71
MEESPIERSON N.V., LENDER
<TABLE>
<CAPTION>
Share of
Percentage Maximum
Share Loan Amount
- ----------- -----------
<S> <C> <C>
By:
---------------------------------------------------------------------------
15.000% $30,000,000 Karel Louman, Vice President
For funding or operational instructions:
Address:
Coolsingel 93
P.O. Box 749
3000 AS Rotterdam
The Netherlands
Attention: Pim de Heer
Telephone: 31-10-401-6304
Telecopy: 31-10-401-6118
Telex: 21231
with a copy of:
MeesPierson N.V.
300 Crescent Court, Suite 1660
Dallas, Texas 75201
Attention: Yolanda Dittmar
Telephone: (214) 871-6874
Telecopy: (214) 841-6870
For notices and other communications:
Address:
Coolsingel 93
P.O. Box 749
3000 AS Rotterdam
The Netherlands
Attention: Donald van der Klaauw
Telephone: 31-10-401-6120
Telecopy: 31-10-401-6343
With a copy to:
Karlo Louman
MeesPierson N.V.
300 Crescent Court, Suite 1660
Telephone: (214) 871-6868
Telecopy: (214) 841-6870
Dallas, Texas 75201
</TABLE>
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<PAGE> 72
BANK OF SCOTLAND, LENDER
<TABLE>
<CAPTION>
Share of
Percentage Maximum
Share Loan Amount
- ----------- -----------
<S> <C> <C>
By:
---------------------------------------------------------------------------
15.000% $30,000,000 Name:
Title:
Address:
565 Fifth Avenue
New York, New York 10017
Attention: Catherine M. Oniffrey
Telephone: (212) 450-0870
Telecopy: (212) 557-9460
Telex: 6801012 ubiforn
</TABLE>
[INTENTIONALLY LEFT BLANK]
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<PAGE> 73
DEN NORSKE BANK ASA, LENDER
<TABLE>
<CAPTION>
Share of
Percentage Maximum
Share Loan Amount
- ----------- -----------
<S> <C> <C>
By:
---------------------------------------------------------------------------
17.500% $35,000,000 Name:
Title:
By:
---------------------------------------------------------------------------
Name:
Title:
Address:
200 Park Avenue
31st Floor
New York, New York 10166-0396
Attention: Customer Service Dept.
Telephone: (212) 681-3844
Telecopy: (212) 681-4123
Telex: WU426357
with a copy to:
Byron L. Cooley
Den Norske Bank AS
Representative Office
Three Allen Center
333 Clay Street, Suite 4890
Houston, Texas 77002
Telephone: (713) 844-9258
Telecopy: (713) 757-1167
</TABLE>
[INTENTIONALLY LEFT BLANK]
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<PAGE> 74
CREDIT LYONNAIS NEW YORK BRANCH,
Lender
<TABLE>
<CAPTION>
Share of
Percentage Maximum
Share Loan Amount
- ----------- -----------
<S> <C> <C>
By:
-------------------------------
17.500% $35,000,000 Name:
Title:
Address for Notices:
c/o Credit Lyonnais Representative
Office
1000 Louisiana, Suite 5360
Houston, Texas 77002
Attention: Mr. John Falbo
Telephone: (713) 751-0500
Telecopy: (713) 751-0307
</TABLE>
[INTENTIONALLY LEFT BLANK]
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<PAGE> 75
CAISSE NATIONALE DE CREDIT
AGRICOLE, Lender
<TABLE>
<CAPTION>
Share of
Percentage Maximum
Share Loan Amount
- ----------- -----------
<S> <C> <C>
By:
-------------------------------------------------------------------
12.500% $25,000,000 Name:
Title:
Address: 55 E. Monroe Street
Chicago, Illinois 60603
Telephone: (312) 372-9200
Telecopy: (312) 372-3724
with a copy to:
Kevin Costello
Caisse Nationale de Credit Agricole
600 Travis, Suite 2340
Houston, Texas 77002
Telephone: (713) 223-7000
Telecopy: (713) 223-7029
</TABLE>
[INTENTIONALLY LEFT BLANK]
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<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement on
Form S-4 (Registration No. 24927) of our report dated February 17, 1997, on our
audits of the consolidated financial statements of Forcenergy Inc as of December
31, 1996 and 1995 and for the years then ended, 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-4
(Registration No. 24927) 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 consent to the incorporation by reference in this registration
statement on Form S-4 (Registration No. 24927) of our report dated March 13,
1997, on our audits of the historical statements of revenues and direct
operating expenses of the properties acquired by Forcenergy Inc from Marathon
Oil company for the years ended December 31, 1996 and 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."
COOPERS & LYBRAND L.L.P.
Miami, Florida
April 17, 1997
<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-4 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,
1996 relating to the financial statements of Forcenergy Inc (formerly
Forcenergy Gas Exploration, Inc.). 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."
PRICE WATERHOUSE LLP
Houston, Texas
April 16, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this registration statement on Form S-4 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 8, 1992) to December 31, 1992.
We also consent to the reference to us under the headings "Experts" in such
Prospectus.
LaPorte, Sehrt, Romig and Hand
A Professional Accounting Corporation
Metairie, Louisiana
April 17, 1997
<PAGE> 1
EXHIBIT 23.4
CONSENT OF NETHERLAND, SEWELL & ASSOCIATES,
To the Board of Directors of Forcenergy, Inc:
We hereby consent to the use of our reports dated March 3, 1997 and of the
estimates of net proved oil and natural gas reserves of Forcenergy Inc, and
their present values, as of January 1, 1997 and 1996, respectively, 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-4 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
April 17, 1997
<PAGE> 1
EXHIBIT 23.5
April 17, 1997
To the Board of Directors of Forcenergy Inc
We hereby consent to the use of our reports dated February 7, 1997 and
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, 1997,
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
----------------------------
Dennis Jordan, P. E.
Senior Vice President
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
As independent petroleum engineers, we hereby consent to the use of our
reports dated 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.
Joe C. Neal & Associates
Midland, Texas
April 17, 1997
