The information in this prospectus supplement is not complete and may be
changed. This prospectus supplement and the accompanying prospectus are not an
offer to sell these notes and are not soliciting an offer to buy these notes in
any state where the offer or sale is not permitted.
FILED PURSUANT TO RULE 424(b)(3)
REGISTRATION NO. 333-71348
SUBJECT TO COMPLETION, DATED AUGUST 2, 2002
PROSPECTUS SUPPLEMENT
(To the Prospectus dated December 13, 2001)
--------------------------------------------------------------------------------
$225,000,000
[NEWFIELD LOGO]
NEWFIELD EXPLORATION COMPANY
% Senior Subordinated Notes due 2012
--------------------------------------------------------------------------------
COMPANY
+ We are an independent oil and gas company engaged in the exploration,
development and acquisition of crude oil and natural gas properties.
+ Our areas of operation include the Gulf of Mexico, the U.S. onshore Gulf
Coast, the Anadarko and Permian Basins, offshore northwest Australia and the
Bohai Bay, offshore China.
+ We recently agreed to acquire EEX Corporation.
NOTES
+ We are offering $225,000,000 aggregate principal amount of our % senior
subordinated notes due August , 2012.
+ We will pay interest on the notes semi-annually in arrears on February and
August of each year, beginning February , 2003.
+ We may redeem some or all of the notes at any time on or after August ,
2007 at the redemption prices set forth in this prospectus supplement, plus
accrued and unpaid interest. Prior to that time, we may redeem all of the
notes at a make-whole redemption price. In addition, we may redeem up to 35%
of the notes prior to August , 2005 with the net cash proceeds from certain
equity offerings.
+ The notes will be subject to special mandatory redemption if we do not
acquire EEX.
+ The notes will be unsecured and subordinated to our senior and secured
obligations and senior to any subordinated indebtedness.
+ We do not plan to list the notes on any securities exchange.
BEFORE BUYING ANY NOTES, YOU SHOULD READ THE DISCUSSION OF MATERIAL RISKS OF
INVESTING IN OUR NOTES BEGINNING ON PAGE S-13 OF THIS PROSPECTUS SUPPLEMENT AND
PAGE 3 OF THE ACCOMPANYING PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS ARE TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PER NOTE TOTAL
----------------------------------------------------------------------------------------------
Price to public % $
----------------------------------------------------------------------------------------------
Underwriting discount % $
----------------------------------------------------------------------------------------------
Proceeds to Newfield (before expenses) % $
----------------------------------------------------------------------------------------------
The notes will be ready for delivery in book-entry form only through The
Depository Trust Company on or about August , 2002.
Joint Book-Running Managers
UBS Warburg JPMorgan
---------------------
Wachovia Securities
BNY Capital Markets, Inc.
Credit Lyonnais Securities
Fleet Securities, Inc.
The date of this prospectus supplement is August , 2002.
TABLE OF CONTENTS
--------------------------------------------------------------------------------
PAGE
----
PROSPECTUS SUPPLEMENT
Oil and gas terms used in this prospectus
supplement.................................... S-2
Prospectus supplement summary................... S-3
Risk factors.................................... S-13
Use of proceeds................................. S-16
Ratios of earnings to fixed charges............. S-16
Capitalization of Newfield...................... S-17
Newfield selected financial and other data...... S-18
EEX selected financial data..................... S-22
Unaudited pro forma combined condensed financial
information................................... S-25
Difference in estimates of EEX proved
reserves...................................... S-34
Description of existing indebtedness............ S-35
Description of the notes........................ S-38
Underwriting.................................... S-84
Legal matters................................... S-86
Experts......................................... S-86
PAGE
-----
PROSPECTUS
About This Prospectus........................... 1
Where You Can Find More Information............. 1
Forward-Looking Statements...................... 2
About Our Company............................... 3
Risk Factors.................................... 3
Use of Proceeds................................. 9
Ratios of Earnings to Fixed Charges............. 9
Description of Debt Securities.................. 9
Description of Common Stock and Preferred
Stock......................................... 23
Description of Depositary Shares................ 28
Description of Securities Warrants.............. 30
Description of Stock Purchase Contracts and
Stock Purchase Units.......................... 32
Plan of Distribution............................ 32
Legal Matters................................... 33
Experts......................................... 33
--------------------------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR PROVIDED IN
THIS PROSPECTUS SUPPLEMENT OR IN THE ACCOMPANYING PROSPECTUS. WE HAVE NOT, AND
THE UNDERWRITERS HAVE NOT, AUTHORIZED ANYONE ELSE TO PROVIDE YOU WITH DIFFERENT
INFORMATION. IF ANYONE PROVIDES YOU WITH DIFFERENT OR INCONSISTENT INFORMATION,
YOU SHOULD NOT RELY ON IT. WE ARE NOT, AND THE UNDERWRITERS ARE NOT, MAKING AN
OFFER TO SELL THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER IS NOT
PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION INCORPORATED BY REFERENCE
OR PROVIDED IN THIS PROSPECTUS SUPPLEMENT OR IN THE ACCOMPANYING PROSPECTUS IS
ACCURATE AS OF ANY DATE OTHER THAN THE DATE OF THOSE DOCUMENTS. OUR BUSINESS,
FINANCIAL CONDITION, RESULTS OF OPERATIONS AND PROSPECTS MAY HAVE CHANGED SINCE
THAT DATE.
--------------------------------------------------------------------------------
Oil and gas terms used in this prospectus supplement:
when describing natural gas: Mcf = thousand cubic feet
MMcf = million cubic feet
Bcf = billion cubic feet
when describing oil: Bbl = barrel
MBbls = thousand barrels
MMBbls = million barrels
when describing natural gas and oil together: 1 barrel of oil = 6 Mcf of gas equivalent
Mcfe = thousand cubic feet equivalent
MMcfe = million cubic feet equivalent
MMcfe/d = million cubic feet equivalent per day
Bcfe = billion cubic feet equivalent
present value = The estimated value of future gross revenues (estimated in
accordance with the requirements of the SEC) 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, discounted using an
annual discount rate of 10%.
proved developed reserves = Proved reserves that can be expected to be recovered
from existing wells with existing equipment and operating methods.
proved reserves = The estimated quantities of oil and gas that geological and
engineering data demonstrate with reasonable certainty to be recoverable from
known reservoirs under existing economic and operating conditions.
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.
--------------------------------------------------------------------------------
S- 2
Prospectus supplement summary
This document is in two parts. The first part is the prospectus supplement which
describes our business and the specific terms of this offering. The second part
is the prospectus which gives more general information, some of which may not
apply to this offering. If information varies between this prospectus supplement
and the accompanying prospectus, you should rely on the information in this
prospectus supplement. You should carefully read the entire prospectus
supplement, the accompanying prospectus and the other documents incorporated by
reference to understand fully the terms of the notes, as well as the other
considerations that are important to you in making your investment decision. You
should pay special attention to "Risk factors" beginning on page S-13 of this
prospectus supplement and to "Risk factors" beginning on page 3 of the
accompanying prospectus to determine whether an investment in the notes is
appropriate for you. For purposes of this prospectus supplement and the
accompanying prospectus, unless the context otherwise indicates, references to
"us," "we," "our" or "Newfield" are to Newfield Exploration Company and its
subsidiaries. Unless otherwise noted, capitalized terms used in this prospectus
supplement have the same meanings as used in the accompanying prospectus.
ABOUT NEWFIELD
We are an independent oil and gas company engaged in the exploration,
development and acquisition of crude oil and natural gas properties. Our company
was founded in 1989 and we acquired our first property in 1990. Our initial
focus area was the Gulf of Mexico. In the mid-1990s, we began to expand our
operations to other select areas. Our areas of operation now also include the
U.S. onshore Gulf Coast, the Anadarko and Permian Basins, offshore northwest
Australia and the Bohai Bay, offshore China.
At year-end 2001, we had proved reserves of 936.4 Bcfe. Of those reserves,
+ 77% were natural gas;
+ 93% were proved developed;
+ 58% were located in the Gulf of Mexico;
+ 39% were located onshore in the U.S.; and
+ 3% were located offshore Australia.
Our strategy is based on the following elements:
+ growing reserves through the drilling of a balanced portfolio;
+ balancing exploration with the acquisition and exploitation of proved
properties;
+ focusing on select geographic areas;
+ controlling operations and costs;
+ using 3-D seismic data and other advanced technologies; and
+ attracting and retaining a high quality work-force through equity ownership
and other performance-based incentives.
S- 3
ACQUISITION OF EEX
On May 29, 2002, we announced our agreement to acquire EEX Corporation, an oil
and gas exploration and production company with activities focused in Texas,
Louisiana and the Gulf of Mexico. The transaction is valued at approximately
$650 million, including the assumption of approximately $400 million of debt. We
will issue approximately 7.1 million shares of our common stock in the
transaction, or approximately 12.4% of our outstanding common stock on a fully
diluted basis following the closing of the transaction.
The assets and operations of EEX are complementary to ours. EEX's onshore
properties are located in our core South Texas focus area, and the acquisition
will make us one of the largest independent producers in this area. The
acquisition will also provide us with an increased balance between our onshore
and offshore assets. In addition, EEX's acreage position and interests in
undeveloped discoveries in the Gulf of Mexico will further our efforts to
establish operations in the deepwater. We expect to reduce EEX's current general
and administrative expense by as much as 50%.
On a pro forma basis giving effect to the acquisition of EEX and this offering:
+ our revenues would have been approximately $906.9 million and $188.6 million
for the year ended December 31, 2001 and the three months ended March 31,
2002, respectively;
+ our EBITDA would have been approximately $705.7 million and $131.9 million
for the year ended December 31, 2001 and the three months ended March 31,
2002, respectively;
+ our Adjusted EBITDA would have been approximately $683.6 million and $138.1
million for the year ended December 31, 2001 and the three months ended March
31, 2002, respectively (we define Adjusted EBITDA as EBITDA plus non cash
general and administrative expense and commodity derivative income (expense)
associated with SFAS 133);
+ our ratio of Adjusted EBITDA to total interest expense would have been
approximately 10.1x and 8.4x for the year ended December 31, 2001 and the
three months ended March 31, 2002, respectively; and
+ our debt, exclusive of $143.8 million of convertible trust preferred
securities, as a percentage of book capitalization would have been
approximately 42% as of March 31, 2002.
We will finance the repayment of EEX debt that will become due at the time of
the acquisition, other EEX obligations and transaction costs with the net
proceeds from this offering and borrowings under our existing revolving credit
facility. Immediately following the completion of the acquisition, we expect to
have approximately $100 million of remaining borrowing capacity under our credit
facility and money market lines of credit. A description of our credit facility
is included under "Description of existing indebtedness -- Revolving Credit
Facility and Money Market Lines." At the time we agreed to acquire EEX, we
obtained a commitment for a $325 million senior secured bridge facility. Upon
completion of this offering, we will terminate this commitment.
The merger is subject to the approval of EEX's common shareholders and other
conditions. All of EEX's preferred shareholders have signed an irrevocable proxy
to vote their shares in favor of the merger. We expect the transaction to close
in late September 2002.
S- 4
The following table details the complementary nature of the assets and the
significance of this acquisition to us.
NEWFIELD AS OF EEX AS OF
DECEMBER 31, 2001 DECEMBER 31, 2001 COMBINED
-------------------------------------------------------------------------------------------------
Proved reserves (Bcfe):.................... 936 320(1) 1,256
% Natural gas............................ 77% 96% 82%
% Proved developed....................... 93% 85% 91%
Net production (MMcfe/d):
Gulf of Mexico........................... 327 -- 327
Onshore U.S. ............................ 147 127 274
International............................ 24 -- 24
----------------- ----------------- -------
Total net production............. 498 127 625
% Production natural gas......... 78% 95% 82%
Gross acreage position:
Gulf of Mexico
Developed............................. 601,611 17,280 618,891
Undeveloped........................... 148,712 364,007 512,719
Shelf lease blocks.................... 190 36 226
Deepwater lease blocks................ -- 68 68
U.S. Gulf Coast
Developed............................. 57,229 114,748 171,977
Undeveloped........................... 39,023 245,354 284,377
Fee minerals.......................... -- 63,487 63,487
Mid-Continent
Developed............................. 145,141 12,123 157,264
Undeveloped........................... 294,731 8,800 303,531
Fee minerals.......................... 69,970 -- 69,970
------------
(1) Represents our estimate of EEX proved reserves as of December 31, 2001. Our
estimate reflects the disposition of EEX's international operations in the
second quarter of 2002. Our estimate differs significantly from that of EEX
as set forth in "EEX selected financial data" in this prospectus
supplement. EEX disagrees with our estimates of EEX's proved reserves and
believes that no adjustment is required with respect to its reported
estimates of such reserves at December 31, 2001. See "Difference in
estimates of EEX proved reserves."
RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2002
On July 22, 2002, we announced our results for the second quarter of 2002.
Revenues were $161.6 million, compared to revenues of $200.7 million for the
second quarter of 2001. Total production for the second quarter of 2002
increased 4% to 47.8 Bcfe from 45.8 Bcfe for the second quarter of 2001. Net
income for the second quarter of 2002 was $20.1 million, or $16.3 million after
the effect of a non-cash charge. In the second quarter of 2001, net income was
$53.0 million, or $56.7 million after the effect of a non-cash gain. EBITDA and
Adjusted EBITDA for the second quarter of 2002 were $110.6 million and $117.3
million, respectively, compared to $165.3 million and $160.3 million,
respectively, for the second quarter of 2001.
S- 5
OUR EXECUTIVE OFFICES
Our company was incorporated in Delaware in 1988. The address of our principal
executive offices is 363 N. Sam Houston Parkway E., Suite 2020, Houston, Texas
77060, and our telephone number is (281) 847-6000. We maintain a web site on the
Internet at http://www.newfld.com. Information contained on our website is not a
part of this prospectus supplement or the accompanying prospectus.
S- 6
The Offering
Issuer.............................. Newfield Exploration Company.
Securities offered.................. $225,000,000 principal amount of %
Senior Subordinated Notes due 2012.
Maturity Date....................... August , 2012.
Interest Payment Dates.............. February and August of each year,
beginning on February , 2003.
Ranking............................. The notes will be unsecured senior
subordinated debt. The notes will rank
junior in right of payment to all of
our present and future Senior
Indebtedness (as defined in this
prospectus supplement) and will rank
senior to all of our future
indebtedness that is expressly
subordinated to the notes. The notes
will effectively rank junior to the
obligations of our subsidiaries.
As of March 31, 2002, after giving
effect to the adjustments described
under "Capitalization of Newfield,"
including this offering and the
application of the net proceeds of this
offering, we would have had
approximately $576.5 million of Senior
Indebtedness outstanding and our
subsidiaries would have had
approximately $226.0 million of
liabilities (excluding intercompany
liabilities and deferred revenue).
Subsidiary Guarantees............... The notes initially will not be
guaranteed by any of our subsidiaries.
However, the indenture governing the
notes provides that if any of our
subsidiaries guarantees any of our
indebtedness at any time in the future,
then we will cause the notes to be
guaranteed by such subsidiary on a
senior subordinated basis.
Optional Redemption................. The notes may be redeemed at any time
on or after August , 2007, at our
option, in whole or in part, at the
prices listed under "Description of the
notes--Optional Redemption." Prior to
that date, the notes may be redeemed at
our option, in whole but not in part,
at a make-whole price described under
"Description of the notes--Optional
Redemption." Before August , 2005, we
may redeem up to 35% of the original
principal amount of the notes with the
net cash proceeds of certain sales of
our common stock at % of the
principal amount, plus accrued and
unpaid interest to the date of
redemption.
Special Mandatory Redemption........ Pending their use to finance the
acquisition of EEX, the net proceeds of
the notes (before expenses) will be
placed in a restricted proceeds account
to fund
S- 7
the special redemption described below.
If the acquisition of EEX is not closed
on or prior to December 31, 2002 or the
merger agreement relating to the
acquisition of EEX is terminated or
abandoned earlier, the funds in the
restricted proceeds account, together
with additional funds we will provide,
will be used to redeem all of the notes
at a redemption price equal to 101% of
their principal amount, plus accrued
and unpaid interest to the date of
redemption. Pursuant to the restricted
proceeds agreement between us and
Wachovia Bank, National Association, as
escrow agent, the funds in the
restricted proceeds account will be
released to us to repay outstanding
indebtedness of EEX upon receipt by the
escrow agent of an officers'
certificate that states that all
necessary conditions to the closing of
the acquisition of EEX have been
satisfied or waived. See "Description
of the notes--Escrow of Proceeds;
Special Mandatory Redemption."
Change of Control................... If a change of control occurs prior to
maturity, you may require us to
purchase all or part of your notes at a
purchase price equal to 101% of their
principal amount, plus accrued and
unpaid interest to the date of
redemption.
Certain Covenants................... The indenture governing the notes will
limit our ability and the ability of
our restricted subsidiaries to, among
other things:
+ incur additional debt;
+ make restricted payments;
+ pay dividends on or redeem our
capital stock;
+ make certain investments;
+ create liens;
+ make certain dispositions of assets;
+ engage in transactions with
affiliates; and
+ engage in mergers, consolidations
and certain sales of assets.
As to our restricted subsidiaries, the
indenture governing the notes also will
limit their ability to enter into or
become subject to arrangements that
would restrict or limit their ability
to:
+ pay dividends or make other
distributions to us or other
restricted subsidiaries;
+ make loans or advances to us; and
+ transfer any assets to us.
S- 8
These covenants are subject to
important exceptions and
qualifications, as described under
"Description of the notes--Certain
Covenants."
If the notes are assigned an investment
grade rating from Moody's and Standard
& Poor's, many of these covenants will
be suspended.
Use of Proceeds..................... The net proceeds from this offering of
approximately $219.5 million will be
used to repay outstanding indebtedness
assumed in connection with the EEX
acquisition. See "Use of proceeds."
Governing law....................... New York.
Global notes........................ The notes will be represented by one or
more global notes registered in the
name of the nominee of The Depository
Trust Company, or DTC. Beneficial
interests in the global notes
representing the notes will be shown
on, and transfers thereof will be
effected only through, records
maintained by DTC and its direct and
indirect participants. Except as
described in the accompanying
prospectus, notes in definitive form
will not be issued.
Risk factors........................ See the discussion under the heading
"Risk factors" in this prospectus
supplement and the accompanying
prospectus for a description of factors
you should carefully consider before
deciding to invest in the notes.
S- 9
Summary unaudited pro forma combined condensed financial and reserve information
The following summary unaudited pro forma combined condensed financial
information combines the historical consolidated balance sheets and income
statements of Newfield and EEX and gives effect to the issuance of the notes and
the acquisition of EEX using the purchase method of accounting.
The summary unaudited pro forma combined condensed financial information is
based on the following assumptions and adjustments:
+ EEX's income statement for the year ended December 31, 2001 has been adjusted
to reflect the disposition and discontinuance of its international
operations, as if these transactions had occurred on January 1, 2001;
+ the income statement data assume that the issuance of the notes and the
acquisition were effective on January 1, 2001;
+ the balance sheet data assume that the issuance of the notes and the
acquisition were effective on March 31, 2002;
+ the balance sheet and income statement data reflect our use of the net
proceeds from the issuance of the notes to repay a portion of the EEX debt
that will become due at the closing of the acquisition; and
+ the historical financial statements of EEX have been adjusted to conform to
our accounting policies.
The historical income statement information for the year ended December 31, 2001
is derived from the audited financial statements of Newfield and EEX. The
historical income statement information for the three-month period ended March
31, 2002 and the historical balance sheet information as of March 31, 2002 are
derived from the unaudited financial statements of Newfield and EEX. We have
provided all the historical information set forth herein regarding us and our
subsidiaries and the assumptions and adjustments for the pro forma information,
and EEX has provided all the historical information set forth herein regarding
EEX and its subsidiaries.
The summary unaudited pro forma combined condensed financial information is
presented for illustrative purposes only. The financial results may have been
different if the companies had always been combined or if the other transactions
had occurred as of the dates indicated above, nor do they purport to indicate
the future results that we will experience. Further, the summary unaudited pro
forma combined condensed financial information does not reflect the effect of
restructuring charges that will be incurred to fully integrate and operate the
combined organization more efficiently or anticipated synergies resulting from
the acquisition. The restructuring activities to integrate the companies may
result in head count reduction, asset rationalization and other activities.
Because the plans for these activities have not yet been finalized, we are
unable to reasonably quantify the cost for such activities.
S- 10
The following information should be read together with "Unaudited pro forma
combined condensed financial information" and the historical financial
statements and related notes of Newfield and EEX incorporated by reference into
this prospectus supplement and the accompanying prospectus.
THREE
YEAR MONTHS
ENDED ENDED
DECEMBER 31, MARCH 31,
INCOME STATEMENT DATA: 2001 2002
----------------------------------------------------------------------------------------
(in thousands)
Revenues.................................................... $906,929 $188,550
Operating expenses:
Operating................................................. 136,548 31,423
Production and other taxes................................ 32,254 5,267
Depreciation, depletion and amortization.................. 361,655 90,473
Ceiling test write-down................................... 106,011 --
Impairment of long-lived assets........................... 82,286 --
General and administrative................................ 62,467 16,728
Other income (expenses):
Interest and other income (expense)....................... 30,046 (3,272)
Gross interest expense.................................... (67,676) (16,343)
Capitalized interest...................................... 14,863 3,603
------------ --------
Net interest expense................................. (52,813) (12,740)
Dividends on preferred securities of Newfield Financial
Trust I................................................ (9,344) (2,336)
------------ --------
Income before income taxes, discontinued operations,
extraordinary items and cumulative effect of change in
accounting principles..................................... 93,597 26,311
------------ --------
Income tax provision........................................ 33,395 9,430
------------ --------
Income before discontinued operations, extraordinary items,
cumulative effect of change in accounting principles and
preferred stock dividends................................. $60,202 $16,881
============ ========
YEAR QUARTER
ENDED ENDED
DECEMBER 31, MARCH 31,
OTHER DATA: 2001 2002
--------------------------------------------------------------------------------------------
(in thousands, except ratios)
EBITDA(1)................................................... $705,706 $131,860
Adjusted EBITDA(1).......................................... $683,636 $138,083
Ratio of Adjusted EBITDA to total interest expense.......... 10.1x 8.4x
AS OF MARCH 31,
BALANCE SHEET DATA: 2002
-----------------------------------------------------------------------------
(in thousands)
Oil and gas properties, net................................. $1,976,856
Total assets................................................ 2,252,771
Long-term debt.............................................. 786,834
Stockholders' equity........................................ 946,347
---------------
(1) EBITDA represents net income plus income taxes, interest expense (including
dividends on preferred securities), depreciation, depletion and amortization
expense (including ceiling test writedown and asset impairment). Adjusted
EBITDA represents EBITDA plus non cash general and administrative expense
and commodity derivative income (expense) associated with SFAS 133. EBITDA
and Adjusted EBITDA are not presented as indicators of our operating
performance, as indicators of cash available for discretionary spending or
as measures of liquidity. EBITDA and Adjusted EBITDA may not be comparable
to other similarly titled measures of other companies. We follow the full
cost method of accounting.
S- 11
The following table sets forth pro forma summary information with respect to
Newfield's and EEX's combined proved oil and gas reserves as of December 31,
2001. The following information reflects our estimates of EEX proved reserves as
of December 31, 2001. Our estimates also reflect the disposition of EEX's
international operations in the second quarter of 2002. Our estimates differ
significantly from those of EEX as set forth in "EEX selected financial data" in
this prospectus supplement. EEX disagrees with our estimates of EEX's proved
reserves and believes that no adjustment is required with respect to its
reported estimates of such reserves at December 31, 2001. See "Difference in
estimates of EEX proved reserves."
AS OF
DECEMBER 31,
RESERVE DATA: 2001
--------------------------------------------------------------------------
Proved:
Oil and condensate (MBbls)................................ 38,371
Gas (MMcf)................................................ 1,026,153
Total (MMcfe)............................................. 1,256,379
Proved developed:
Oil and condensate (MBbls)................................ 36,405
Gas (MMcf)................................................ 922,869
Total (MMcfe)............................................. 1,141,299
S- 12
--------------------------------------------------------------------------------
Risk factors
You should consider carefully the risk factors discussed below and in "Risk
factors" beginning on page 3 of the accompanying prospectus, as well as all
other information in this prospectus supplement and the accompanying prospectus
before you decide to purchase the notes. Investing in the notes is speculative
and involves significant risk. Any of the risks described in this prospectus
supplement or the accompanying prospectus could impair our business, financial
condition and operating results, could cause the trading price of the notes to
decline or could result in a partial or total loss of your investment.
RISKS ASSOCIATED WITH THE NOTES
Set forth below, and under the caption "Risk Factors--Risks Associated With Our
Debt Securities" in the accompanying prospectus, are discussions of the material
risks associated with an investment in the notes.
YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES IS JUNIOR TO OUR EXISTING SENIOR
INDEBTEDNESS AND IS EFFECTIVELY JUNIOR TO THE OBLIGATIONS OF OUR SUBSIDIARIES.
The indebtedness evidenced by the notes will be senior subordinated obligations
of Newfield. The payment of the principal of, premium, if any, on and interest
on the notes is subordinate in right of payment to the prior payment in full of
all senior indebtedness of Newfield, including borrowings under our bank credit
facility.
All of our international and U.S. mid-continent properties are owned and
operated by our subsidiaries, and EEX will become our subsidiary upon the
consummation of the EEX acquisition. Distributions or advances from our
subsidiaries are a source of funds to meet our debt service obligations.
Contractual provisions or laws, as well as our subsidiaries' financial condition
and operating requirements, may limit our ability to obtain cash from our
subsidiaries that we require to pay our debt service obligations, including
payments on the notes. You will have a junior position to the claims of
creditors, including trade creditors and tort claimants, of our subsidiaries
that do not guarantee the notes and to all secured or senior creditors of our
subsidiaries, whether or not they guarantee the notes, with respect to the
assets securing the claims of those secured creditors and generally with respect
to senior creditors. Initially, none of our subsidiaries will guarantee the
notes.
On a pro forma basis at March 31, 2002 after giving effect to the EEX
acquisition, this offering and the amendment to our credit facility discussed in
"Description of existing indebtedness," we had approximately $576.5 million in
senior indebtedness outstanding and (assuming that our lenders agree that our
borrowing base will be reduced by 30% of the aggregate principal amount of the
notes issued in this offering) approximately $100 million available under our
credit facility and money market lines of credit. A description of our credit
facility is included under "Description of existing indebtedness -- Revolving
Credit Facility and Money Market Lines." Any future borrowings under our bank
credit facility will also constitute senior indebtedness. In addition, on a pro
forma basis at March 31, 2002 after giving effect to the EEX acquisition, this
offering and the amendment to our credit facility, our subsidiaries had
approximately $226.0 million of indebtedness and other obligations, excluding
intercompany liabilities and deferred revenues.
IF WE EXPERIENCE A CHANGE OF CONTROL, WE MAY BE UNABLE TO REPURCHASE THE NOTES
AS REQUIRED UNDER THE INDENTURE.
In the event of a change of control, you will have the right to require us,
subject to various conditions, to repurchase the notes. We may not have
sufficient financial resources to pay the repurchase price for
--------------------------------------------------------------------------------
S- 13
RISK FACTORS
--------------------------------------------------------------------------------
the notes, or we may be prohibited from doing so under our credit facility or
other debt agreements. In addition, before we can purchase any notes, we may be
required to:
+ repay our bank debt or other debt that ranks senior to the notes; or
+ obtain a consent from lenders of senior debt to repurchase the notes.
If a change of control occurs and we are prohibited from repurchasing the notes,
our failure to do so would cause us to default under the indenture, which in
turn is likely to be a default under our credit facility, our outstanding senior
notes due 2007 and 2011 and any future debt. Any other default under our credit
facility or other debt would also likely prohibit us from repurchasing the
notes.
FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
SUBSIDIARY GUARANTEES.
The indenture governing the notes does not require any subsidiary to guarantee
the notes unless that subsidiary guarantees other indebtedness of ours as
described under "Description of the notes." Initially, there will be no
subsidiary guarantors. Various fraudulent conveyance laws have been enacted for
the protection of creditors, and a court may use these laws to subordinate or
avoid any subsidiary guarantee that may be delivered in the future. A court
could avoid or subordinate a subsidiary guarantee in favor of that subsidiary
guarantor's other creditors if the court found that either:
+ the guarantee was incurred with the intent to hinder, delay or defraud any
present or future creditor or the subsidiary guarantor contemplated
insolvency with a design to favor one or more creditors to the exclusion in
whole or in part of others; or
+ the subsidiary guarantor did not receive fair consideration or reasonably
equivalent value for issuing its subsidiary guarantee;
and, in either case, the subsidiary guarantor, at the time it issued the
subsidiary guarantee:
+ was insolvent or rendered insolvent by reason of the issuance of the
subsidiary guarantee;
+ was engaged or about to engage in a business or transaction for which its
remaining assets constituted unreasonably small capital; or
+ intended to incur, or believed that it would incur, debts beyond its ability
to pay such debts as they matured.
Among other things, a legal challenge of the subsidiary guarantee on fraudulent
conveyance grounds may focus on the benefits, if any, realized by the subsidiary
guarantor as a result of our issuance of the notes or the delivery of the
subsidiary guarantee. To the extent the subsidiary guarantee was avoided as a
fraudulent conveyance or held unenforceable for any other reason, you would
cease to have any claim against that subsidiary guarantor and would be solely a
creditor of us and of any subsidiary guarantors whose subsidiary guarantees were
not avoided or held unenforceable. In that event, your claims against the issuer
of an invalid subsidiary guarantee would be subject to the prior payment of all
liabilities of that subsidiary guarantor.
RISKS ASSOCIATED WITH OUR OPERATIONS
Set forth below, and under the caption "Risk Factors--Risks Associated with our
Operations" in the accompanying prospectus are discussions of the material risks
associated with our business.
--------------------------------------------------------------------------------
S- 14
RISK FACTORS
--------------------------------------------------------------------------------
EXPLORATION IN DEEPWATER INVOLVES GREATER OPERATING AND FINANCIAL RISKS THAN
EXPLORATION OF SHALLOWER DEPTHS. THESE RISKS COULD RESULT IN SUBSTANTIAL LOSSES.
In 2001, we developed a strategy to expand our operations to the deepwater of
the Gulf of Mexico. In addition, through our acquisition of EEX we will acquire
oil and gas properties located in the deepwater of the Gulf of Mexico. Deepwater
drilling and operations require the application of recently developed
technologies and involve a higher risk of mechanical failure. We will likely
experience significantly higher drilling costs for any deepwater wells we may
drill. In addition, much of the deepwater play lacks the physical and oilfield
service infrastructure present in shallower waters. As a result, development of
a deepwater discovery may be a lengthy process and require substantial capital
investment, resulting in significant financial and operating risks.
In addition, as we carry out our drilling program in deepwater, it is likely
that we will not initially serve as operator of the wells. As a result, we may
have limited ability to exercise influence over operations for these properties
or their associated costs. Our dependence on the operator and other working
interest owners for these deepwater projects and our limited ability to
influence operations and associated costs could prevent the realization of our
targeted returns on capital in drilling or acquisition activities in the
deepwater of the Gulf of Mexico. The success and timing of drilling and
exploitation activities on properties operated by others therefore depend upon a
number of factors that will be largely outside of our control, including:
+ the timing and amount of capital expenditures;
+ the availability of suitable offshore drilling rigs, drilling equipment,
support vessels, production and transportation infrastructure and qualified
operating personnel;
+ the operator's expertise and financial resources;
+ approval of other participants in drilling wells; and
+ selection of technology.
RISKS ASSOCIATED WITH THE ACQUISITION OF EEX
WE MAY FACE DIFFICULTIES IN INTEGRATING EEX'S BUSINESS INTO OUR BUSINESS.
In integrating EEX's business into ours, we may encounter difficulties that
could adversely affect our financial position, such as difficulties in combining
operations, retention and integration of key management personnel and other
important employees of EEX, the potential disruption of operations and the
incurrence of substantial transaction costs and other expenses to accomplish the
merger. We cannot assure you that the integration of EEX's business will be
accomplished in an efficient and effective manner, if at all.
WE WILL INCUR SIGNIFICANT EXPENSES IN CONNECTION WITH THE ACQUISITION.
We expect to incur approximately $25 million of expenses related to the
acquisition. These expenses will include severance and related payments to be
made to certain executive officers of EEX upon completion of the acquisition,
investment banking expenses, legal and accounting fees, printing expenses, third
party engineering expenses, transition and integration costs and other related
charges. We may also incur additional unanticipated expenses in connection with
the acquisition.
--------------------------------------------------------------------------------
S- 15
--------------------------------------------------------------------------------
Use of proceeds
The net proceeds from the offering, after deducting underwriting discounts and
estimated offering expenses, will be approximately $219.5 million. Following the
consummation of the acquisition of EEX, we intend to use the net proceeds from
the sale of the notes to repay outstanding indebtedness of EEX, which bears
interest at a weighted average annual rate of 5.9% as of August 2, 2002 and
matures on March 31, 2003.
Pending this use, the net proceeds (before expenses) will be placed in a
restricted proceeds account to fund, if necessary, the special mandatory
redemption of the notes and will be invested in cash or cash equivalents. For
more information about the restricted proceeds account, please read "Description
of the notes--Escrow of Proceeds; Special Mandatory Redemption" in this
prospectus supplement.
Ratios of earnings to fixed charges
We have calculated our ratios of earnings to fixed charges as follows:
PRO FORMA FOR THIS OFFERING
AND THE EEX ACQUISITION
THREE MONTHS THREE MONTHS
ENDED YEAR ENDED ENDED
YEAR ENDED DECEMBER 31, MARCH 31, DECEMBER 31, MARCH 31,
1997 1998 1999 2000 2001 2002 2001 2002
-----------------------------------------------------------------------------
9.5x (1) 3.7x 8.9x 5.7x 3.4x 2.0x 2.2x
------------
(1) We had a loss for the year ended December 31, 1998 for purposes of
computing these ratios. Earnings for such year were insufficient to cover
fixed charges by approximately $88.4 million.
For purposes of computing the consolidated ratios of earnings to fixed charges,
earnings consist of income before income taxes plus fixed charges (excluding
capitalized interest), and fixed charges consist of interest expense, dividends
on our convertible trust preferred securities and the estimated interest
component of rent expense.
--------------------------------------------------------------------------------
S- 16
--------------------------------------------------------------------------------
Capitalization of Newfield
The following table shows our unaudited capitalization at March 31, 2002:
+ on a historical basis; and
+ on a pro forma basis to reflect the issuance of the notes, the acquisition of
EEX and our application of the net proceeds from the sale of the notes.
You should read the table together with our financial statements and other
information included in the documents incorporated by reference in this
prospectus supplement and the accompanying prospectus.
AS OF MARCH 31, 2002
PRO FORMA FOR THIS
OFFERING AND THE
HISTORICAL EEX ACQUISITION
---------------------------------------------------------------------------------------------
(in thousands)
Debt(1):
Credit facility and money market lines.................... $111,000 $176,100
7.45% Senior Notes due 2007............................... 124,754 124,754
7 5/8% Senior Notes due 2011.............................. 174,888 174,888
% Senior Subordinated Notes due 2012.................... -- 225,000
EEX secured notes due 2009................................ -- 100,764
---------- ------------------
Total debt............................................. 410,642 801,506
Company-obligated mandatorily redeemable convertible
preferred securities of Newfield Financial Trust I........ 143,750 143,750
Stockholders' equity:
Preferred stock ($0.01 par value; 5,000,000 shares
authorized; no shares issued).......................... -- --
Common stock ($0.01 par value; 100,000,000 shares
authorized; 45,215,537 issued and outstanding at March
31, 2002).............................................. 451 522
Additional paid-in capital................................ 370,544 628,544
Treasury stock (at cost 867,936 shares)................... (26,012) (26,012)
Unearned compensation..................................... (8,176) (8,176)
Retained earnings......................................... 378,742 378,742
---------- ------------------
Total stockholders' equity............................. 715,549 973,620
---------- ------------------
Total capitalization................................... $1,269,941 $1,918,876
========== ==================
------------
(1) Please read "Description of existing indebtedness" in this prospectus
supplement for additional information regarding our existing indebtedness.
--------------------------------------------------------------------------------
S- 17
--------------------------------------------------------------------------------
Newfield selected financial and other data
The following selected historical financial data as of and for the five years
ended December 31, 2001 have been derived from our audited consolidated
financial statements. The summary historical financial data as of March 31, 2002
and for the three months ended March 31, 2002 and 2001 are derived from our
unaudited consolidated financial statements. The unaudited consolidated
financial statements include all adjustments which we consider necessary for a
fair presentation of the financial position and results of operations for those
periods. You should not expect the results for any prior or interim periods to
be indicative of the results that may be achieved in any future periods. You
should read the following information together with our historical financial
statements and related notes and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in our Annual Report on
Form 10-K for the year ended December 31, 2001 and in our Quarterly Report on
Form 10-Q for the three months ended March 31, 2002, which are incorporated by
reference into this prospectus supplement and the accompanying prospectus.
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
1997 1998 1999 2000 2001 2001 2002
---------------------------------------------------------------------------------------------------
(in thousands, except ratios)
INCOME STATEMENT DATA:
Oil and gas revenues... $201,755 $199,474 $287,889 $526,642 $749,405 $209,326 $148,039
-------- -------- -------- -------- -------- -------- --------
Operating expenses:
Lease operating...... 24,308 35,345 45,561 65,372 102,922 20,824 23,053
Production and other
taxes.............. -- -- 2,215 10,288 17,523 7,118 3,410
Transportation....... 2,356 3,789 5,922 5,984 5,569 1,262 1,331
Depreciation,
depletion and
amortization....... 94,000 123,147 152,644 191,182 282,567 61,146 71,207
Ceiling test
writedown.......... 4,254 104,955 -- 503 106,011 -- --
General and
administrative(1)... 12,270 12,070 16,404 32,084 43,955 11,285 12,345
-------- -------- -------- -------- -------- -------- --------
Total operating
expenses............. 137,188 279,306 222,746 305,413 558,547 101,635 111,346
-------- -------- -------- -------- -------- -------- --------
Income (loss) from
operations........... 64,567 (79,832) 65,143 221,229 190,858 107,691 36,693
Other expense, net..... (2,146) (8,544) (9,572) (7,196) (14,975) (5,039) (3,255)
Dividends on preferred
securities of
Newfield Financial
Trust I.............. -- -- (3,556) (9,344) (9,344) (2,336) (2,336)
Unrealized commodity
derivative income
(expense)............ -- -- -- -- 24,821 (1,558) (5,645)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes......... 62,421 (88,376) 52,015 204,689 191,360 98,758 25,457
Income tax provision
(benefit)............ 21,818 (30,677) 18,811 69,980 67,612 35,613 9,131
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
cumulative effect of
change in accounting
principle............ $40,603 $(57,699) $33,204 $134,709 $123,748 $63,145 $16,326
Cumulative effect of
change in accounting
principle(2)(3)...... -- -- -- (2,360) (4,794) (4,794) --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)...... $40,603 $(57,699) $33,204 $132,349 $118,954 $58,351 $16,326
======== ======== ======== ======== ======== ======== ========
--------------------------------------------------------------------------------
S- 18
NEWFIELD SELECTED FINANCIAL AND OTHER DATA
--------------------------------------------------------------------------------
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
1997 1998 1999 2000 2001 2001 2002
---------------------------------------------------------------------------------------------------
(in thousands, except ratios)
OTHER DATA:
Capital expenditures... $253,159 $310,772 $209,799 $379,166 $855,395 $432,691 $80,576
Net cash provided by
operating activities
before changes in
operating assets and
liabilities.......... 161,852 141,948 205,553 383,524 526,761 140,968 96,660
Net cash provided by
operating
activities........... 160,338 146,575 184,903 316,444 502,372 201,531 98,649
Net cash used in
investing
activities........... (242,962) (318,991) (210,817) (355,547) (765,822) (373,047) (85,315)
Net cash provided by
(used in) financing
activities........... 77,551 164,291 67,758 15,933 273,127 215,834 (14,822)
EBITDA(4).............. 163,943 149,234 219,403 415,038 608,250 167,892 104,071
Adjusted EBITDA(4)..... 165,120 151,456 221,402 418,085 586,180 170,045 110,294
Ratio of earnings to
fixed charges(5)..... 9.5x -- 3.7x 8.9x 5.7x 11.1x 3.4x
Ratio of Adjusted
EBITDA to interest
expense.............. 24.5x 10.9x 16.3x 28.5x 21.0x 24.4x 15.3x
Ratio of total debt to
Adjusted EBITDA...... 0.8x 1.4x 0.6x 0.3x 0.7x N/A N/A
AS OF
AS OF DECEMBER 31, MARCH 31,
1997 1998 1999 2000 2001 2002
-----------------------------------------------------------------------------------------------------
(in thousands)
BALANCE SHEET DATA:
Working capital surplus
(deficit)..................... $372 $(8,806) $35,202 $38,497 $65,573 $22,176
Oil and gas properties, net..... 483,823 578,002 644,434 832,907 1,408,579 1,417,755
Total assets.................... 553,621 629,311 781,561 1,023,250 1,663,371 1,608,022
Long-term debt.................. 129,623 208,650 124,679 133,711 428,631 410,642
Convertible preferred
securities.................... -- -- 143,750 143,750 143,750 143,750
Stockholders' equity............ 292,048 323,948 375,018 519,455 709,978 688,276
------------
(1) General and administrative expense includes non-cash stock compensation
charges of $1.2 million, $2.2 million, $2.0 million, $3.0 million and $2.8
million for 1997, 1998, 1999, 2000 and 2001, respectively, and $0.6 million
for each of the three month periods ended March 31, 2001 and 2002.
(2) We adopted SEC Staff Accounting Bulletin (SAB) No. 101, "Revenue
Recognition in Financial Statements," effective January 1, 2000. The
adoption of SAB No. 101 requires us to report crude oil inventory
associated with our Australian offshore operations at the lower of cost or
market, which was a change from our historical policy of recording such
inventory at market value on the balance sheet date, net of estimated costs
to sell. The cumulative effect of the change from the acquisition date of
our Australian operations in July 1999 through December 31, 1999 is a
reduction in net income of $2.36 million, or $0.05 per diluted share, and
is shown as the cumulative effect of change in accounting principle on the
consolidated statement of income for the year ended December 31, 2000. The
pro forma effect had SAB No. 101 been applied retroactively to 1999 would
have reduced net income by $2.36 million, or $0.06 per diluted share. SAB
No. 101 would not have effected periods prior to the acquisition of our
Australian operations in July 1999.
(3) We adopted Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities" on January
1, 2001. SFAS No. 133 requires us to record all derivative instruments as
either assets or liabilities on the balance sheet and measure those
instruments at fair value. For all periods prior to January 1, 2001, we
accounted for commodity price hedging instruments in accordance with SFAS
No. 80, "Accounting for Futures Contracts." The cumulative effect of the
adoption is a reduction in net income of $4.8 million, or $0.10 per diluted
share, and is shown
--------------------------------------------------------------------------------
S- 19
NEWFIELD SELECTED FINANCIAL AND OTHER DATA
--------------------------------------------------------------------------------
as the cumulative effect of a change in accounting principle on the
consolidated statement of income for the year ended December 31, 2001 and
the three months ended March 31, 2001.
(4) EBITDA represents net income plus income taxes, interest expense (including
dividends on preferred securities), depreciation, depletion and
amortization expense (including ceiling test writedown and asset
impairment). Adjusted EBITDA represents EBITDA plus non cash general and
administrative expense and commodity derivative income (expense) associated
with SFAS 133. EBITDA and Adjusted EBITDA are not presented as indicators
of our operating performance, as indicators of cash available for
discretionary spending or as measures of liquidity. EBITDA and Adjusted
EBITDA may not be comparable to other similarly titled measures of other
companies. We follow the full cost method of accounting.
(5) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as income before income taxes plus fixed charges
excluding capitalized interest. Fixed charges consist of interest expense,
dividends on our convertible trust preferred securities and the estimated
interest component of rent expense. We had a loss for the year ended
December 31, 1998 for purposes of computing these ratios. Earnings for such
year were insufficient to cover fixed charges by approximately $88.4
million.
The following table presents information about our oil and gas operations.
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
1997 1998 1999 2000 2001 2001 2002
-------------------------------------------------------------------------------------------------------
PRODUCTION:(1)
Oil and condensate
(MBbls)............. 3,424.0 3,643.4 4,353.6 5,763.7 6,998.1 1,480.6 1,647.3
Gas (Bcf)............. 53.5 66.6 87.4 105.4 133.2 30.8 33.9
Total production
(Bcfe).............. 74.0 88.5 113.5 140.0 175.2 39.6 43.8
AVERAGE REALIZED
PRICES:(2)
Oil and condensate
(per Bbl)........... $19.08 $12.75 $18.15 $25.29 $24.00 $24.95 $22.03
Gas (per Mcf)......... $2.51 $2.25 $2.32 $3.56 $4.32 $5.56 $3.26
AVERAGE COSTS (PER
MCFE):
Lease operating....... $0.33 $0.40 $0.40 $0.47 $0.59 $0.53 $0.53
Depreciation,
depletion and
amortization........ $1.27 $1.39 $1.35 $1.37 $1.61 $1.54 $1.63
General and
administrative,
net................. $0.15 $0.11 $0.13 $0.21 $0.24 $0.27 $0.27
------------
(1) Excludes Australian volumes produced but not sold.
(2) For purposes of this table, average realized prices for natural gas and oil
and condensate are presented net of all applicable transportation expenses,
which reduced the realized price of natural gas by $0.03, $0.04, $0.05,
$0.04 and $0.03 for the years ended 1997, 1998, 1999, 2000 and 2001,
respectively, and by $0.03 for each of the three month periods ended March
31, 2001 and 2002. The realized price of oil and condensate is reduced by
$0.27, $0.34, $0.32, $0.27 and $0.24 for the years ended 1997, 1998, 1999,
2000 and 2001, respectively, and by $0.24 and $0.23 for the three months
ended March 31, 2001 and 2002, respectively. Average realized prices
include the effect of hedges.
--------------------------------------------------------------------------------
S- 20
NEWFIELD SELECTED FINANCIAL AND OTHER DATA
--------------------------------------------------------------------------------
The following table presents information regarding our estimated proved oil and
gas reserves and the present value of those reserves. All information in this
prospectus supplement relating to oil and gas reserves and the present value of
those reserves is based upon estimates prepared by us and is net to our
interest.
AS OF DECEMBER 31,
1997 1998 1999 2000 2001
--------------------------------------------------------------------------------------------
Proved reserves:
Oil and condensate (MMBbls)............... 16.3 15.2 25.8 27.9 36.3
Gas (Bcf)................................. 337.5 422.3 440.2 519.7 718.3
Total (Bcfe).............................. 435.3 513.3 594.8 687.3 936.4
Standardized measure of estimated future
after-tax net cash flows before 10% annual
discount (in millions).................... $629.9 $559.3 $913.3 $3,494.3 $1,324.4
Present value of future after-tax net cash
flows (in millions)....................... $502.9 $451.2 $732.5 $2,670.3 $971.5
--------------------------------------------------------------------------------
S- 21
--------------------------------------------------------------------------------
EEX selected financial data
The following selected historical financial and reserve data as of and for the
five years ended December 31, 2001 has been derived from EEX's audited
consolidated financial statements giving effect to the adoption of SFAS No. 144
("Accounting for the Impairment or Disposal of Long-Lived Assets") as of January
1, 2002, resulting in the reclassification for the disposal of EEX's Indonesian
operations during 2002. The selected historical financial data as of March 31,
2002 and for the three months ended March 31, 2001 and 2002 are derived from
EEX's unaudited consolidated financial statements. The unaudited consolidated
financial statements include all adjustments which EEX considers necessary for a
fair presentation of the financial position and results of operations for those
periods. You should not expect the results for any prior or interim periods to
be indicative of the results that may be achieved in any future periods. You
should read the following information together with EEX's historical financial
statements as of December 31, 1999, 2000 and 2001 and for the each of the three
years then ended and related notes thereto and as of March 31, 2002 and for the
three month periods ended March 31, 2001 and 2002 and related notes thereto,
which are incorporated by reference into this prospectus supplement and the
accompanying prospectus.
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
1997 1998 1999 2000 2001 2001 2002
------------------------------------------------------------------------------------------------------
(in thousands)
INCOME STATEMENT DATA:
Revenues.............. $314,213 $189,782 $122,773 $208,454 $157,524 $45,600 $40,511
--------- -------- -------- -------- --------- --------- ---------
Costs and expenses:
Production and
operating......... 59,341 46,566 31,284 32,517 28,057 6,817 7,039
Exploration......... 70,021 38,854 82,579 32,126 48,116 19,711 5,724
Taxes, other than
income............ 17,356 11,017 4,744 10,906 14,731 5,545 1,857
Depreciation,
depletion and
amortization...... 144,485 92,630 58,830 66,661 49,294 11,440 12,130
Impairment of long-
lived assets...... 260,112 10,439 26,424 200 111,030 -- --
General,
administrative and
other............. 55,604 24,057 28,354 19,528 18,738 3,313 4,383
(Gain) loss on sales
of property, plant
and equipment..... (52,917) (9,085) (15,483) 7,230 (12,263) 302 (17)
--------- -------- -------- -------- --------- --------- ---------
Total costs
and
expenses... 554,002 214,478 216,732 169,168 257,703 47,128 31,116
--------- -------- -------- -------- --------- --------- ---------
Operating income
(loss) from
continuing
operations.......... (239,789) (24,696) (93,959) 39,286 (100,179) (1,528) 9,395
--------- -------- -------- -------- --------- --------- ---------
Other expense, net.... (29,793) (18,544) (11,538) (32,304) (28,504) (7,414) (5,605)
--------- -------- -------- -------- --------- --------- ---------
Income (loss) from
continuing
operations before
income taxes........ (269,582) (43,240) (105,497) 6,982 (128,683) (8,942) 3,790
Income taxes
(benefit)........... (58,945) (4,997) 6,891 1,586 20,118 -- --
--------- -------- -------- -------- --------- --------- ---------
--------------------------------------------------------------------------------
S- 22
EEX SELECTED FINANCIAL DATA
--------------------------------------------------------------------------------
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
1997 1998 1999 2000 2001 2001 2002
------------------------------------------------------------------------------------------------------
(in thousands)
Income (loss) from
continuing
operations.......... (210,637) (38,243) (112,388) 5,396 (148,801) (8,942) 3,790
Minority interest
third party......... 4,925 6,532 50 1,950 -- -- --
Income (loss) from
discontinued
operations, net of
income taxes........ (541) 3,849 24,641 (500) (773) 4,693 2,701
Extraordinary
item--debt
extinguishments
gain, net of tax.... -- -- -- -- (3,593) -- --
--------- -------- -------- -------- --------- --------- ---------
Net income (loss)..... (216,103) (40,926) (87,797) 2,946 (145,981) (4,249) 6,491
Preferred stock
dividends........... -- -- 12,117 13,364 14,465 3,510 3,799
--------- -------- -------- -------- --------- --------- ---------
Net income (loss)
applicable to common
shareholders........ $(216,103) $(40,926) $(99,914) $(10,418) $(160,446) $(7,759) $2,692
========= ======== ======== ======== ========= ========= =========
CASH FLOW DATA:
Net cash provided by
(used in) operating
activities before
changes in operating
assets and
liabilities......... $137,676 $69,503 $27,925 $77,600 $38,509 $(5,561) $16,360
Net cash provided by
operating
activities.......... 186,779 25,573 54,475 58,251 28,178 2,929 6,490
Net cash provided by
(used in) investing
activities.......... (44,816) 173,427 (329,666) (100,744) (88,131) (44,805) (12,353)
Net cash provided by
(used in) financing
activities.......... (130,377) (138,417) 247,176 34,895 148,234 35,072 (21,053)
--------------------------------------------------------------------------------
S- 23
EEX SELECTED FINANCIAL DATA
--------------------------------------------------------------------------------
AS OF DECEMBER 31, AS OF MARCH 31,
1997 1998 1999 2000 2001 2002
--------------------------------------------------------------------------------------------------------
(in thousands)
BALANCE SHEET DATA:
Working capital surplus
(deficit).................. $(58,805) $10,766 $(30,870) $3,465 $(189,755) $(231,294)
Oil and gas properties and
other, net(1).............. 690,837 395,611 630,085 604,060 519,548 522,560
Total assets................. 807,789 565,070 780,784 764,068 750,118 686,992
CAPITAL STRUCTURE:
Short-term borrowings........ $5,000 $-- $-- $-- $-- $--
Capital lease obligations.... 241,735 233,318 222,444 205,634 -- --
Secured notes payable........ -- -- -- -- 114,343 100,764
Bank revolving credit
agreement.................. 25,000 -- -- 75,000 325,000(2) 325,000(2)
Gas sales obligation......... -- -- 105,000 83,490 59,937 52,463
Minority interest in
preferred securities of
subsidiary................. 100,000 -- -- -- -- --
Minority interest third
party...................... -- -- 3,050 5,000 5,000 5,000
Shareholders' equity......... 274,663 234,300 294,863 289,601 180,788 155,332
--------- -------- -------- --------- --------- ---------
Total................ $646,398 $467,618 $625,357 $658,725 $685,068 $638,559
========= ======== ======== ========= ========= =========
PROVED RESERVE DATA:(3)
Natural gas (Bcf)............ 460.2 203.6 362.8 382.6 395.0 N/A
Oil, condensate and natural
gas liquids (MMBbls)....... 23.8 26.2 17.5 25.1 14.6 N/A
Total (Bcfe)......... 603.2 360.5 468.1 533.3 482.3 N/A
Standardized measure of
discounted future net cash
flows (in millions)........ $619.1 $275.9 $436.3 $1,283.3 $389.2 N/A
------------
(1) Oil and gas properties and other, net are shown net of assets held for
sale.
(2) Represents borrowings under EEX's old credit facility which would have
matured in June 2002. EEX entered into a new credit facility on May 29,
2002.
(3) Newfield's estimates of EEX's proved reserves at December 31, 2001 are set
forth in "Unaudited Pro Forma Combined Supplementary Oil and Gas
Disclosures" in this prospectus supplement. Newfield's estimates differ
significantly from those of EEX as set forth above. Such pro forma
disclosures also reflect the disposition of EEX's international operations
in the second quarter of 2002. EEX disagrees with Newfield's estimates of
EEX's proved reserves and believes that no adjustment is required with
respect to its reported estimates of such reserves at December 31, 2001.
See "Difference in estimates of EEX proved reserves."
--------------------------------------------------------------------------------
S- 24
--------------------------------------------------------------------------------
Unaudited pro forma combined condensed financial information
The following unaudited pro forma combined condensed financial information
combines the historical consolidated balance sheets and income statements of
Newfield and EEX and gives effect to the issuance of the notes and the
acquisition of EEX using the purchase method of accounting.
The unaudited pro forma combined condensed financial information is based on the
following assumptions and adjustments:
+ EEX's income statement for the year ended December 31, 2001 has been adjusted
to reflect the disposition and discontinuance of its international
operations, as if these transactions had occurred on January 1, 2001;
+ the income statement data assume that the issuance of the notes and the
acquisition were effective on January 1, 2001;
+ the balance sheet data assume that the issuance of the notes and the
acquisition were effective on March 31, 2002;
+ the balance sheet and income statement data reflect our use of the net
proceeds from the issuance of the notes to repay a portion of the EEX debt
that will become due at the closing of the acquisition; and
+ the historical financial statements of EEX have been adjusted to conform to
our accounting policies.
The historical income statement information for the year ended December 31, 2001
is derived from the audited financial statements of EEX and Newfield. The
historical income statement information for the three-month period ended March
31, 2002 and the historical balance sheet information as of March 31, 2002 are
derived from the unaudited financial statements of EEX and Newfield. We have
provided all the historical information set forth herein regarding us and our
subsidiaries and the assumptions and adjustments for the pro forma information,
and EEX has provided all the historical information set forth herein regarding
EEX and its subsidiaries.
The unaudited pro forma combined condensed financial information is presented
for illustrative purposes only. The financial results may have been different if
the companies had always been combined or if the other transactions had occurred
as of the dates indicated above, nor do they purport to indicate the future
results that we will experience. Further, the unaudited pro forma combined
condensed financial information does not reflect the effect of restructuring
charges that will be incurred to fully integrate and operate the combined
organization more efficiently or anticipated synergies resulting from the
acquisition. The restructuring activities to integrate the companies may result
in head count reduction, asset rationalization and other activities. Because the
plans for these activities have not yet been finalized, we are unable to
reasonably quantify the cost for such activities.
The following information should be read together with the historical financial
statements and related notes of EEX and Newfield incorporated by reference into
this prospectus supplement and the accompanying prospectus.
--------------------------------------------------------------------------------
S- 25
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
--------------------------------------------------------------------------------
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
THREE MONTHS ENDED MARCH 31, 2002
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
NEWFIELD EEX ADJUSTMENTS COMBINED
-----------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
REVENUES........................................... $148,039 $40,511 $188,550
-------- ------- ---------
OPERATING EXPENSES:
Operating........................................ 24,384 7,039 31,423
Exploration...................................... -- 5,724 (5,724)(A) --
Production and other taxes....................... 3,410 1,857 5,267
Depreciation, depletion and amortization......... 71,207 12,130 (12,130)(B) 90,473
19,266(C)
General and administrative....................... 12,345 4,383 16,728
Gain on sales of property, plant and equipment... -- (17) 17(E) --
-------- ------- ----------- ---------
Total operating expenses.................. 111,346 31,116 1,429 143,891
-------- ------- ----------- ---------
Income (loss) from operations...................... 36,693 9,395 (1,429) 44,659
-------- ------- ----------- ---------
Other income (expenses):
Interest and other income (expense)................ (3,829) 557 (3,272)
Interest expense................................... (5,071) (6,162) 139(F) (12,740)
1,473(G)
1,731(H)
(4,850)(H)
Dividends on preferred securities of Newfield
Financial Trust I................................ (2,336) -- (2,336)
-------- ------- ----------- ---------
Total other income (expenses)............. (11,236) (5,605) (1,507) (18,348)
-------- ------- ----------- ---------
Income before income taxes, discontinued
operations, extraordinary items and cumulative
effect of change in accounting principles........ 25,457 3,790 (2,936) 26,311
-------- ------- ----------- ---------
Income tax provision............................... 9,131 -- 299(I) 9,430
-------- ------- ----------- ---------
Income (loss) before discontinued operations,
extraordinary items, cumulative effect of change
in accounting principles and preferred stock
dividends........................................ $16,326 $3,790 $(3,235) $16,881
======== ======= =========== =========
Per share data:
Basic earnings per share......................... $0.37 $0.09 $0.33
======== ======= =========
Diluted earnings per share....................... $0.37 $0.09 $0.33
======== ======= =========
Weighted average number of shares outstanding for
basic earnings per share....................... 44,212 41,860 (41,860)(J) 51,312
======== ======= =========
7,100(J)
Weighted average number of shares outstanding for
diluted earnings per share..................... 48,745 41,860 (41,860)(J) 55,845
======== ======= =========
7,100(J)
--------------------------------------------------------------------------------
S- 26
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
--------------------------------------------------------------------------------
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
YEAR ENDED DECEMBER 31, 2001
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
NEWFIELD EEX ADJUSTMENTS COMBINED
------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
REVENUES............................................... $749,405 $157,524 $906,929
-------- --------- --------
OPERATING EXPENSES:
Operating............................................ 108,491 28,057 136,548
Exploration.......................................... -- 48,116 (48,116)(A) --
Production and other taxes........................... 17,523 14,731 32,254
Depreciation, depletion and amortization............. 282,567 49,294 (49,294)(B) 361,655
79,088(C)
Ceiling test write-down.............................. 106,011 106,011
Impairment of long-lived assets...................... -- 111,030 (28,744)(D) 82,286
General and administrative........................... 43,955 18,738 (226)(Z) 62,467
Gain on sales of property, plant and equipment....... -- (12,263) 12,263(E) --
-------- --------- ----------- --------
Total operating expenses...................... 558,547 257,703 (35,029) 781,221
-------- --------- ----------- --------
Income (loss) from operations.......................... 190,858 (100,179) 35,029 125,708
-------- --------- ----------- --------
OTHER INCOME (EXPENSES):
Interest and other income (expense).................... 28,814 1,232 30,046
Interest expense....................................... (18,968) (29,736) 627(F) (52,813)
5,972(G)
8,692(H)
(19,400)(H)
Dividends on preferred securities of Newfield Financial
Trust I.............................................. (9,344) -- (9,344)
-------- --------- ----------- --------
Total other income (expenses)................. 502 (28,504) (4,109) (32,111)
-------- --------- ----------- --------
Income (loss) before income taxes, discontinued
operations, extraordinary items and cumulative effect
of change in accounting principles................... 191,360 (128,683) 30,920 93,597
-------- --------- ----------- --------
Income tax provision................................... 67,612 20,118 (54,335)(I) 33,395
-------- --------- ----------- --------
Income (loss) before discontinued operations,
extraordinary items, cumulative effect of change in
accounting principles and preferred stock
dividends............................................ $123,748 $(148,801) $85,255 $60,202
======== ========= =========== ========
Per share data:
Basic earnings (loss) per share...................... $2.80 $(3.58) $1.17
======== ========= ========
Diluted earnings (loss) per share.................... $2.66 $(3.58) $1.16
======== ========= ========
Weighted average number of shares outstanding for
basic earnings (loss) per share.................... 44,258 41,724 (41,724)(J) 51,358
======== ========= ========
7,100(J)
Weighted average number of shares outstanding for
diluted earnings (loss) per share.................. 48,894 41,724 (41,724)(J) 52,071
======== ========= ========
7,100(J)
(3,923)(K)
--------------------------------------------------------------------------------
S- 27
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
--------------------------------------------------------------------------------
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF MARCH 31, 2002
EEX DISPOSITIONS NOTES OFFERING EEX ACQUISITION
HISTORICAL HISTORICAL PRO FORMA PRO FORMA PRO FORMA PRO FORMA
NEWFIELD EEX ADJUSTMENTS(L) ADJUSTMENTS ADJUSTMENTS COMBINED
------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
ASSETS
Current assets........... $171,903 $145,022 $(15,683) $(86,611)(N) $214,631
Oil and gas properties... 2,524,191 890,302 (890,302)(O) 3,083,292
559,101(P)
Other.................... -- 8,664 (8,664)(Q) --
Less--accumulated
depreciation, depletion
and amortization....... (1,106,436) (376,406) 370,331(O) (1,106,436)
6,075(Q)
----------- -------- ---------------- --------- --------- -----------
1,417,755 522,560 36,541 1,976,856
----------- -------- ---------------- --------- --------- -----------
Property, plant and
equipment held for
sale................... -- 16,342 (16,342) 35,000(P) 35,000
Other assets............. 18,364 3,068 $5,500(M) 2,589(Q) 26,284
(3,237)(R)
----------- -------- ---------------- --------- --------- -----------
Total assets............. $1,608,022 $686,992 $(32,025) $5,500 $(15,718) $2,252,771
=========== ======== ================ ========= ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities...... $149,727 $376,316 $(3,500) $(219,500)(M) $25,000(S) $228,472
(105,500)(T)
5,929(U)
Other liabilities........ 8,278 11,759 3,896(V) 23,933
Long-term debt........... 410,642 138,585 225,000(M) 12,607(T) 786,834
Deferred taxes........... 207,349 -- (84,064)(W) 123,285
----------- -------- ---------------- --------- --------- -----------
Total long-term
liabilities... 626,269 150,344 225,000 (67,561) 934,052
----------- -------- ---------------- --------- --------- -----------
Minority interest third
party.................. -- 5,000 (4,850)(X) 150
Company-obligated,
mandatorily redeemable,
convertible preferred
securities of Newfield
Financial Trust I...... 143,750 -- 143,750
Stockholders' equity..... 688,276 155,332 102,739(Y) 946,347
----------- -------- ---------------- --------- --------- -----------
Total
liabilities
and
stockholders'
equity........ $1,608,022 $686,992 $(3,500) $5,500 $(44,243) $2,252,771
=========== ======== ================ ========= ========= ===========
--------------------------------------------------------------------------------
S- 28
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
--------------------------------------------------------------------------------
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(A) To record the reversal of historical EEX exploration expense in accordance
with the full cost method of accounting for oil and gas activities.
(B) To record the reversal of historical EEX depreciation, depletion and
amortization expense recorded in accordance with the successful efforts
method of accounting for oil and gas activities.
(C) To record pro forma depreciation, depletion and amortization expense in
accordance with the full cost method of accounting for oil and gas
activities based on the preliminary purchase price allocation to
depreciable and depletable assets.
(D) To record the reversal of historical EEX impairment related to oil and gas
properties recorded in accordance with Statement of Financial Accounting
Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of." The remaining $82 million
impairment represents the historical EEX impairment charge for non oil and
gas assets. Full cost ceiling tests were performed on a pro forma combined
basis resulting in no incremental impairment of oil and gas properties for
the period presented.
(E) To record the reversal of the historical EEX gain on the sales of oil and
gas properties recorded in accordance with the successful efforts method of
accounting for oil and gas activities.
(F) To adjust EEX historical interest expense to reflect the reversal of
amortization of historical debt issuance costs.
(G) To record the capitalization of interest based on the preliminary
allocation of the purchase price to unproved oil and gas properties.
(H) To eliminate the historical interest expense of approximately $1.7 million
and $8.7 million for the three months ended March 31, 2002 and the year
ended December 31, 2001, respectively, related to EEX's credit facility and
to reflect the interest expense which results from the issuance of $225
million of senior subordinated note obligations with an assumed stated
interest rate of 8 3/8%. Interest expense also includes amortization of
debt issuance costs which are being amortized on a straight line basis over
the ten year term of the notes.
YEAR THREE
ENDED MONTHS ENDED
DECEMBER 31, MARCH 31,
2001 2002
-------------------------------------------------------------------------------------
(in thousands)
Interest expense -- $225 million senior subordinated
note obligations...................................... $18,844 $4,711
Amortization of debt issuance costs -- senior
subordinated note obligations......................... 556 139
------- ------
$19,400 $4,850
======= ======
A 1/8% increase or decrease in interest rates would have the effect of
increasing or decreasing total pro forma interest expense by approximately
$0.3 million.
(I) To record income tax expense on the pro forma adjustments based on the
applicable statutory tax rate of 35%.
(J) To reverse historical EEX common stock and reflect the issuance of 7.1
million shares of Newfield common stock.
--------------------------------------------------------------------------------
S- 29
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
--------------------------------------------------------------------------------
(K) To adjust the weighted average number of shares outstanding for the
calculation of diluted earnings per share to exclude the dilutive effect of
the shares underlying the 6 1/2% quarterly income convertible trust
preferred securities because to include such shares would have been
antidilutive.
(L) To adjust the EEX historical balance sheet for the disposition and
discontinuance of its international operations.
(M) To reflect the issuance of $225 million of senior subordinated note
obligations and the application of the net proceeds therefrom for the
repayment of EEX's credit facility and the adjustment associated with debt
issuance costs related to the senior subordinated note obligations.
(N) To reduce historical EEX current assets by $91 million for working capital
activity subsequent to the balance sheet date and to increase historical
EEX current commodity derivative assets by $4 million to estimated current
fair market value.
(O) To reverse historical EEX oil and gas property balances and the related
accumulated depreciation, depletion and amortization recorded in accordance
with the successful efforts method of accounting for oil and gas
activities.
(P) To record the preliminary pro forma allocation of the purchase price of the
acquisition of EEX including estimated acquisition costs to oil and gas
properties using the purchase method of accounting. The following is a
calculation and allocation of purchase price to the acquired assets and
liabilities based on their relative fair values:
CALCULATION OF PURCHASE PRICE (IN THOUSANDS EXCEPT PER
SHARE):
Shares of common stock to be issued......................... 7,100
Newfield stock price...................................... $36.348
--------
Fair value of stock issued................................ $258,071
Add: Estimated acquisition costs (See note (S))........... 25,000
Plus fair market value of liabilities assumed
Other liabilities......................................... 54,908
Debt...................................................... 385,334
--------
Total purchase price for assets acquired.......... $723,313
========
ALLOCATION OF PURCHASE PRICE (IN THOUSANDS):
Oil and Gas properties.................................... $559,101
Property, plant and equipment held for sale............... 35,000
Deferred Tax Asset........................................ 84,064
Other Assets.............................................. 45,148
--------
Total............................................. $723,313
========
The Newfield stock price included in the table above is calculated based on
the average of the closing prices of Newfield common stock for the five day
trading period around the execution of the EEX merger agreement. The
purchase price allocation is subject to change based on:
+ the fair value of EEX's working capital and other liabilities on the
effective date;
+ the actual acquisition costs incurred; and
+ an additional review of available oil and gas reserve data to determine
the fair value of the acquired reserves on the effective date.
--------------------------------------------------------------------------------
S- 30
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
--------------------------------------------------------------------------------
These items will not be known until the effective date of the acquisition.
(Q) To reclassify EEX historical furniture, fixtures and equipment and
associated accumulated depreciation, depletion and amortization balances to
conform to our presentation.
(R) To record the reversal of the capitalized debt issuance costs related to
EEX's historical long-term debt.
(S) To accrue for estimated acquisition costs, consisting primarily of bankers'
and other professional fees and executive severance costs. Executive
severance costs are based on the change in control provisions in employment
contracts and employee plans. No adjustments have been made to the pro
forma income statement for such costs.
(T) To adjust historical EEX debt for cash payments of $104 million made
subsequent to the balance sheet date, reflect the reclassification of the
remaining $1.5 million of historical EEX credit facility obligation from
current to long-term and to record an increase in the estimated fair market
value of the gas sales obligation of $11.1 million. Current maturities of
long term debt included in pro forma combined current liabilities are $14.6
million.
(U) To adjust historical EEX current commodity derivative liabilities to
estimated current fair market value.
(V) To accrue for pension and postretirement benefits for the difference
between projected benefit obligations and plan assets of $6.3 million and
to reduce historical EEX non current commodity derivative liabilities by
$2.4 million to estimated current fair market value.
(W) To record the pro forma deferred income tax effects of the acquisition
using the purchase method of accounting.
(X) To adjust the historical EEX minority interest third party balance to fair
market value to reflect the unwind of the gas sales obligation in
accordance with the covenants of the merger agreement.
(Y) To record the pro forma adjustments to stockholder's equity using the
purchase method of accounting. The adjustment amount is calculated as
follows (in thousands):
Fair value of stock issued, as calculated in Note (P)
above..................................................... $258,071
Less: EEX historical shareholders' equity................. 155,332
--------
Adjustment to stockholders' equity.......................... $102,739
========
(Z) To adjust EEX historical results of operations for the disposition and
discontinuance of its international operations, as if the transactions had
occurred on January 1, 2001.
--------------------------------------------------------------------------------
S- 31
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
--------------------------------------------------------------------------------
UNAUDITED PRO FORMA COMBINED SUPPLEMENTARY OIL AND GAS DISCLOSURES
The following pro forma estimated reserve quantities show the effect of the
acquisition of EEX as of December 31, 2001:
AS OF DECEMBER 31, 2001
HISTORICAL HISTORICAL PRO FORMA EEX PRO FORMA PRO FORMA
NEWFIELD EEX DISPOSITIONS(A) ADJUSTMENTS(B) COMBINED
--------------------------------------------------------------------------------------------------------
PROVED:
Oil and condensate (MBbls).... 36,342 14,560 (10,856) (1,675) 38,371
Gas (MMcf).................... 718,312 394,987 -- (87,146) 1,026,153
Total (MMcfe)......... 936,364 482,347 (65,136) (97,196) 1,256,379
PROVED DEVELOPED:
Oil and condensate (MBbls).... 34,534 9,724 (6,644) (1,209) 36,405
Gas (MMcf).................... 662,879 310,884 -- (50,894) 922,869
Total (MMcfe)......... 870,083 369,228 (39,864) (58,148) 1,141,299
------------
(A) To adjust EEX historical reserves for the disposition of its international
operations as if the disposition had occurred on January 1, 2001.
(B) Represents adjustments to EEX's reserves based on Newfield's estimates of
EEX's reserves as of December 31, 2001. Newfield's estimates vary
significantly from those of EEX as set forth in "EEX selected financial
data" in this prospectus supplement. Please read "Difference in estimates
of EEX proved reserves" in this prospectus supplement.
--------------------------------------------------------------------------------
S- 32
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
--------------------------------------------------------------------------------
UNAUDITED PRO FORMA COMBINED SUPPLEMENTARY OIL AND GAS DISCLOSURES
The following pro forma estimated standardized measure of discounted future net
cash flows shows the effect of the acquisition of EEX as of December 31, 2001:
YEAR ENDED DECEMBER 31, 2001
HISTORICAL HISTORICAL PRO FORMA EEX PRO FORMA PRO FORMA
NEWFIELD EEX DISPOSITIONS(A) ADJUSTMENTS(B) COMBINED
--------------------------------------------------------------------------------------------------
(in thousands)
Future cash
inflows........... $2,552,744 $1,227,200 $(194,400) $(220,367) $3,365,177
Less related
future:
Production
costs........ (686,995) (553,000)(C) 162,600(C) 153,863 (923,532)
Development and
abandonment
costs........ (258,885) -- -- (63,253) (322,138)
---------- ---------- --------------- -------------- ----------
Future net cash flows
before income
taxes................ 1,606,864 674,200 (31,800) (129,757) 2,119,507
Future income tax
expense.............. (282,460) (4,300) 4,300 (76,974) (359,434)
---------- ---------- --------------- -------------- ----------
Future net cash flows
before discount...... 1,324,404 669,900 (27,500) (206,731) 1,760,073
10% annual discount for
estimating timing of
cash flows........... (352,886) (280,700) 5,500 115,904 (512,182)
---------- ---------- --------------- -------------- ----------
Standardized measure of
discounted future net
cash flows........... $971,518 $389,200 $(22,000) $(90,827) $1,247,891
========== ========== =============== ============== ==========
------------
(A) To adjust EEX historical reserves for the disposition of its international
operations as if the disposition had occurred on January 1, 2001.
(B) Represents adjustments attributable to EEX's reserves based on Newfield's
estimates of EEX's reserves as of December 31, 2001. Newfield's estimates
vary significantly from those of EEX as set forth in "EEX selected
financial data" in this prospectus supplement. Please read "Difference in
estimates of EEX proved reserves" in this prospectus supplement.
(C) Includes related future development costs.
--------------------------------------------------------------------------------
S- 33
--------------------------------------------------------------------------------
Difference in estimates of EEX proved reserves
Our estimate of EEX's proved oil and gas reserves at December 31, 2001 is
approximately 23% lower than EEX's estimate. EEX disagrees with our estimate and
believes that no adjustment is required with respect to its reported estimate of
proved reserves at December 31, 2001.
In general, an estimate of proved reserves depends on the availability,
completeness and accuracy of data needed to develop the estimate and on the
experience and judgment of the reservoir engineer making the estimate.
Estimating accumulations of oil and gas is complex and is not exact because of
the numerous uncertainties inherent in the process. Estimates prepared by
different persons may vary significantly because of the judgments required when
interpreting the data. See "Risk Factors--Risks Associated with Our
Operations--Reserve estimates are inherently uncertain and depend on many
assumptions that may turn out to be inaccurate" in the accompanying prospectus.
In fact, it is common for the proved reserve estimates of the buyer and seller
of oil and gas properties to vary significantly.
After our initial filing of the registration statement on Form S-4 in connection
with our acquisition of EEX, representatives of EEX again met with us to assist
us in categorizing, on a field-by-field basis, the differences in estimates of
proved reserves. We placed substantially all of the differences into one of four
categories:
+ the performance history of the reservoir (46% of the difference);
+ the map or drainage area or the volumetrics associated with the area (30% of
the difference);
+ new well or discovery (14% of the difference); and
+ the availability of data (11% of the difference).
The predominant method of determining proved reserves associated with producing
wells is to study the performance history and draw conclusions from that
history. The performance history of a well, which includes production and
pressure data, can be used to project what the well will produce in the future.
Utilizing trends, the engineer can predict how much the well will ultimately
recover, and thereby predict the remaining proved reserves. The most common
techniques are graphing the well's production versus time or the well's pressure
versus production, and extrapolating a trend line. Because data generally does
not fit a perfectly straight line, the best fit of the data is interpretive. The
engineer must decide whether external conditions have influenced some of the
data points more than others, what conditions may change a trend in the future
and whether there are reasons some of the historical data should be relied upon
to a greater or lesser degree than other historical data. Additionally, the
accuracy of data measurement in the field can influence how trends in the data
are interpreted. Frequently, an engineer also will use analogies drawn from
similar fields and wells that produce from similar sands in the same geologic
region.
For a reservoir that does not have an established production history, the
primary method of estimating proved reserves is the volumetric method. This
method involves the calculation of the volume of oil and gas within the
hydrocarbon reservoir by geologic interpretation and analysis. The configuration
and size of the hydrocarbon reservoir are determined by using well logs and
seismic data. Well logs also are used to determine the physical parameters of
the reservoir, such as the porosity of the rocks in which the reservoir resides,
the relative volumes of oil, gas and water and the portion of the reservoir that
has adequate fluid flow properties so that it may be produced. Interpretive
differences in these parameters based upon the experience and judgment of the
geologist or engineer can result in different volumes being mapped or included
in the drainage area. A seemingly small difference in just one component of the
parameters used to determine volumes of proved reserves can have a significant
--------------------------------------------------------------------------------
S- 34
DIFFERENCE IN ESTIMATES OF EEX PROVED RESERVES
--------------------------------------------------------------------------------
effect on the outcome. Also included in this category of differences are
estimates of the areas that can be produced by one or more wells and the
recovery efficiency of a well. Generally, the drainage area is determined based
upon technical data obtained from producing the wells or by analogy to another
similar reservoir.
Differences in reserve determinations relating to recently drilled wells or new
discoveries often arise because of the limited amount of data available to
support either volumetric or performance history reserve determinations. The
determination of proved reserves is subject to even greater variation between
interpreters when the newly discovered producing zone is not a recognized or
significant producing zone in a geologic trend and there are few, if any,
analogies for producing characteristics or experience with hydrocarbon
recoveries on a per well or per completion basis.
In the course of determining proved reserves, data from both the wells being
analyzed and from other wells in a geologic trend, together with two-dimensional
and three-dimensional seismic data, can be used by geologists and engineers in
their evaluation. Data that one party has that are not specific to the well
being analyzed but are relevant to the analysis may be different from the data
being used by the other party. One party may have performance history data from
other wells in which it owns an interest that are relevant to the analysis but
are not available to the other party. Additionally, new data are constantly
becoming available, but parties may receive it at different times or give it
different weight in a particular application. If different data are used in the
analysis, it is likely to result in a different determination of proved
reserves.
Description of existing indebtedness
REVOLVING CREDIT FACILITY AND MONEY MARKET LINES
We have a $425 million reserve-based revolving credit facility that matures on
January 23, 2004. The amount available under our credit facility is subject to a
calculated borrowing base determined by banks holding 75% of the aggregate
commitments. The borrowing base is reduced by the aggregate outstanding
principal amount of our senior notes ($300 million). As of August 1, 2002, the
borrowing base was $525 million. The borrowing base is redetermined at least
semi-annually. We cannot assure you that the banks will not elect to redetermine
the borrowing base in the future.
Borrowings under our credit facility accrue interest at a rate equal to (a) for
base rate loans, the higher of (i) the federal funds rate plus 0.5% or (ii) the
lead bank's publicly announced prime rate, plus, in either case, an applicable
margin, based on our funded debt to EBITDA ratio and our credit ratings, ranging
from 0.0% to 0.5%, or (b) for Eurodollar loans, the published Eurodollar rate
plus an applicable margin, based on our funded debt to EBITDA ratio and our
credit ratings, ranging from 1.125% to 1.75%.
The terms of our credit facility include, among other restrictions, requirements
as to the maintenance of a minimum net worth and certain minimum financial
ratios, including maintaining working capital and funded debt to EBITDA ratios.
In addition, our credit facility contains customary covenants that limit our
ability to, among other things:
+ incur debt;
+ repurchase capital stock;
+ enter into merger or consolidation transactions;
+ dispose of properties; and
+ enter into certain contracts and leases.
--------------------------------------------------------------------------------
S- 35
DESCRIPTION OF EXISTING INDEBTEDNESS
--------------------------------------------------------------------------------
At March 31, 2002 we had $113 million available under our credit facility and
had outstanding borrowings of $97 million.
We also have money market lines of credit with various banks in an amount
limited by the credit facility to $40 million. As of March 31, 2002, there were
$14 million of borrowings outstanding under these lines of credit.
The lenders under our credit facility have agreed that our borrowing base will
increase to $735 million upon consummation of the EEX acquisition. In addition
to the reduction for our outstanding senior notes, the borrowing base would be
reduced by an amount equal to the aggregate principal amount of the outstanding
EEX Secured Notes ($100.8 million as of March 31, 2002) plus a to-be-agreed
percentage of the aggregate principal amount of the notes issued in this
offering. JPMorgan Chase, the agent bank under our credit facility, has informed
us that it will recommend to our other lenders that they agree that such
percentage will be 30%.
On a pro forma basis after giving effect to the acquisition of EEX, this
offering and the amendment of our credit facility (assuming that our lenders
agree that the borrowing base will be reduced by 30% of the aggregate principal
amount of the notes issued in this offering), as of March 31, 2002, we had
approximately $100 million available under our credit facility and money market
lines of credit and had outstanding borrowings of approximately $176 million.
SENIOR NOTES DUE 2007 AND 2011
On October 9, 1997, we sold $125 million aggregate principal amount of 7.45%
Senior Notes due 2007. On February 22, 2001, we sold $175 million aggregate
principal amount of 7 5/8% Senior Notes due 2011.
We may redeem some or all of the Senior Notes due 2007 and the Senior Notes due
2011 at any time before their maturity at a redemption price based on a
make-whole amount plus accrued and unpaid interest to the date of redemption.
Neither the Senior Notes due 2007 nor the Senior Notes due 2011 are entitled to
the benefit of any sinking fund. The indentures governing the Senior Notes due
2007 and the Senior Notes due 2011 contain covenants that limit our ability to,
among other things:
+ incur debt secured by certain liens;
+ enter into sale/leaseback transactions; and
+ enter into merger or consolidation transactions.
The indentures governing the Senior Notes due 2007 and the Senior Notes due 2011
also provide that if any of our subsidiaries guarantees any of our indebtedness
at any time in the future, then we will cause the Senior Notes due 2007 and the
Senior Notes due 2011 to be equally and ratably guaranteed by such subsidiary.
The Senior Notes due 2007 and the Senior Notes due 2011 are our unsecured and
unsubordinated obligations and rank equally with all of our other existing and
future unsecured and unsubordinated obligations.
EEX SECURED NOTES
In the second quarter of 2001, EEX assumed the obligations under certain secured
notes due 2009 in connection with the termination of two leveraged leasing
arrangements (the "EEX Secured Notes"). The EEX Secured Notes accrue interest at
a rate of 7.54% per year and are secured by EEX's interest in certain pipelines
and a combination deepwater drilling rig and processing facility located in the
Gulf of Mexico. EEX may redeem all of the EEX Secured Notes at any time at a
redemption price equal to 100% of the unpaid principal amount of the EEX Secured
Notes plus any required make-whole amounts and accrued and unpaid interest to
the date of redemption. Following our acquisition of EEX,
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DESCRIPTION OF EXISTING INDEBTEDNESS
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EEX will be our wholly owned subsidiary, and the EEX Secured Notes will remain
outstanding. As of March 31, 2002, the outstanding principal amount of the EEX
Secured Notes was $100.8 million. Provisions of the EEX Secured Notes provide
for the amortization of principal over their term.
SUBORDINATION
Payments of principal, interest and premium, if any, on the notes will be
subordinated to payments on our existing and future senior debt, including
amounts outstanding under our credit facility, our Senior Notes due 2007 and our
Senior Notes due 2011. As of March 31, 2002, on a pro forma basis giving effect
to this offering and our acquisition of EEX, our senior debt was approximately
$576.5 million, which is comprised of borrowings under our credit facility, our
Senior Notes due 2007, our Senior Notes due 2011 and the EEX Secured Notes.
In addition, payments of principal, interest and premium, if any, on the notes
will be effectively subordinated to the payment of all debts and liabilities of
our subsidiaries. As of March 31, 2002, on a pro forma basis giving effect to
this offering and our acquisition of EEX, our subsidiaries had approximately
$226.0 million of liabilities (excluding intercompany liabilities and deferred
revenue).
Please read "Description of the notes--Ranking" in this prospectus supplement
for more information about the subordination of the notes.
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Description of the notes
Newfield Exploration Company will issue the Notes under a Subordinated Indenture
dated as of December 10, 2001, between itself and Wachovia Bank, National
Association (formerly First Union National Bank), as Trustee, as supplemented by
an indenture supplement creating the Notes (the "Indenture"). 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.
Certain terms used in this description are defined under the subheading
"--Certain Definitions." In this description, the words "Company," "we," "us"
and "our" refer only to Newfield Exploration Company and not to any of its
subsidiaries.
The following description and the description in the accompanying prospectus are
summaries of the material provisions of the Notes and the Indenture. These
descriptions do not restate the Indenture in its entirety. We urge you to read
the Indenture because it, and not this description, defines your rights as
holders of the Notes. We have filed a copy of the Indenture as an exhibit to the
registration statement that includes the accompanying prospectus.
The description of the Notes in this prospectus supplement replaces the
description of the general provisions of the Notes and the Indenture in the
accompanying prospectus to the extent that it is inconsistent with the
accompanying prospectus. The Notes are an issue of "subordinated debt
securities" as that term is used in the accompanying prospectus.
GENERAL
These Notes:
+ are unsecured senior subordinated obligations of the Company;
+ are subordinated in right of payment to all existing and future Senior
Indebtedness of the Company; and
+ are senior in right of payment to any future Subordinated Obligations of the
Company.
PRINCIPAL, MATURITY AND INTEREST
The Company will issue the Notes initially with a maximum aggregate principal
amount of $225 million. The Company will issue the Notes in denominations of
$1,000 and any integral multiple of $1,000. The Notes will mature on August ,
2012. Subject to our compliance with the covenant described under the subheading
"--Certain Covenants--Limitation on Indebtedness," we are entitled to, without
the consent of the holders, issue more Notes under the Indenture on the same
terms and conditions and with the same CUSIP number as the Notes being offered
hereby in an unlimited principal amount (the "Additional Notes"). The Notes and
the Additional Notes, if any, will be treated as a single class for all purposes
of the Indenture, including waivers, amendments, redemptions and offers to
purchase. Unless the context otherwise requires, for all purposes of the
Indenture and this "Description of the notes," references to the Notes include
any Additional Notes actually issued.
Interest on these Notes will accrue at the rate of % per annum and will be
payable semiannually in arrears on February and August , commencing on
February , 2003. We will make each interest payment to the holders of record
of these Notes on the immediately preceding and . We will
pay interest on overdue principal at 1% per annum in excess of the above rate
and will pay interest on overdue installments of interest at such higher rate to
the extent lawful.
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DESCRIPTION OF THE NOTES
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Interest on these Notes will accrue from the date of original issuance. Interest
will be computed on the basis of a 360-day year comprised of twelve 30-day
months.
OPTIONAL REDEMPTION
On and after August , 2007, we will be entitled at our option to redeem all or
a portion of the Notes upon not less than 30 nor more than 60 days' notice, at
the redemption prices (expressed in percentages of principal amount on the
redemption date), plus accrued interest to the redemption date (subject to the
right of Holders of record on the relevant record date to receive interest due
on the relevant interest payment date), if redeemed during the 12-month period
commencing on August of the years set forth below:
REDEMPTION
PERIOD PRICE
------------------------------------------------------------------------
2007........................................................ %
2008........................................................ %
2009........................................................ %
2010 and thereafter......................................... 100.00%
Prior to August , 2005, we may at our option on one or more occasions redeem
Notes (which includes Additional Notes, if any) in an aggregate principal amount
not to exceed 35% of the aggregate principal amount of the Notes (which includes
Additional Notes, if any) issued prior to the redemption date at a redemption
price (expressed as a percentage of principal amount) of %, plus accrued and
unpaid interest to the redemption date, with the net cash proceeds from one or
more Public Equity Offerings; provided that
(1) at least 65% of such aggregate principal amount of Notes (which
includes Additional Notes, if any) remains outstanding immediately after
the occurrence of each such redemption (other than Notes held, directly or
indirectly, by the Company or its Affiliates); and
(2) each such redemption occurs within 90 days after the date of the
related Public Equity Offering.
We will be entitled, at our option, at any time as a whole prior to August ,
2007, to redeem the Notes (which includes the Additional Notes, if any) at a
redemption price equal to the sum of:
(1) the principal amount thereof, plus
(2) accrued and unpaid interest, if any, to the redemption date, plus
(3) the Applicable Premium at the redemption date (which is computed with
reference to the applicable Treasury Rate).
ESCROW OF PROCEEDS; SPECIAL MANDATORY REDEMPTION
At the closing of this offering, the Company will escrow the net proceeds of the
offering (before expenses) with Wachovia Bank, National Association, pursuant to
a Pledge and Escrow Agreement between the two parties (the "Pledge and Escrow
Agreement").
Upon the occurrence of the earliest of the following three events (the "Special
Mandatory Redemption Trigger"), the Company will redeem all the Notes (the
"Special Mandatory Redemption") at a
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DESCRIPTION OF THE NOTES
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redemption price in cash equal to 101% of the aggregate principal amount thereof
plus accrued and unpaid interest thereon to the mandatory redemption date:
+ December 31, 2002 if the EEX acquisition has not been consummated by such
date;
+ the abandonment of the EEX acquisition; or
+ the termination of the EEX merger agreement.
Within ten days of the occurrence of the Special Mandatory Redemption Trigger,
we will cause notice of the Special Mandatory Redemption to be mailed by
first-class mail to each holder of Notes at its registered address and to the
Escrow Agent, stating, among other matters prescribed in the Indenture, that a
Special Mandatory Redemption Trigger has occurred and that all of the Notes will
be redeemed on the redemption date set forth in such notice (which shall be no
earlier than 15 days and no later than 30 days from the date such notice is
mailed).
If the Escrow Agent receives notice from the Company that the closing of the EEX
acquisition will occur on or prior to December 31, 2002, the Escrow Agent will
release all escrowed funds to the Company upon presentation of an Officers'
Certificate certifying that (1) the Company simultaneously with such release
will fully complete the EEX acquisition in conformity in all material respects
with the terms and with satisfaction of all material conditions of the EEX
merger agreement (after giving effect to any amendment, waiver or modification
to any term or condition, which amendment, waiver or modification does not have
a material adverse effect on the Holders) and (2) the terms of the transactions
entered into and the operations and assets and liabilities acquired and assumed
in the EEX acquisition conform in all material respects to the descriptions
thereof contained in this prospectus supplement, subject only to any changes
provided for, discussed or contemplated in this prospectus supplement.
During the period from the date of original issuance through, but not including,
the date that the EEX acquisition is consummated, the Company's obligation to
effect the Special Mandatory Redemption will be secured by the pledge of the net
proceeds of this offering (before expenses). The escrowed funds will be held by
Wachovia Bank, National Association, as Escrow Agent, pursuant to the Pledge and
Escrow Agreement. While in escrow, the escrowed funds may be invested in
Temporary Cash Investments. A copy of the Pledge and Escrow Agreement is
available upon request to the Company. The Escrow Agent is also the Trustee
under the Indenture for the Notes.
If the Escrow Agent receives a notice of mandatory redemption, the Escrow Agent
will liquidate the escrowed funds then held by it sufficiently prior to the
mandatory redemption date to permit it to release to the Paying Agent for the
Notes all the escrowed funds. Concurrently with such release to the Paying
Agent, the Company will deliver to the Paying Agent any additional funds needed
to complete the Special Mandatory Redemption.
Certain provisions relating to the Company's obligation to redeem Notes in a
Special Mandatory Redemption may not be waived or modified without the written
consent of the Holders of all the Notes.
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DESCRIPTION OF THE NOTES
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SELECTION AND NOTICE OF REDEMPTION
If we are redeeming less than all the Notes at any time, the Trustee will select
Notes on a pro rata basis, by lot or by such other method as the Trustee in its
sole discretion shall deem to be fair and appropriate.
We will redeem Notes of $1,000 or less in whole and not in part. We will cause
notices of redemption to 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, except that the notice of Special Mandatory
Redemption shall be as described above.
If any Note is to be redeemed in part only, the notice of redemption that
relates to that Note will state the portion of the principal amount thereof to
be redeemed. We will issue a new Note in a principal amount equal to the
unredeemed portion of the original Note in the name of the holder upon
cancellation of the original Note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on Notes or portions of them called for redemption.
NO OTHER MANDATORY REDEMPTION; OFFERS TO PURCHASE; OPEN MARKET PURCHASES
We are not required to make any mandatory redemption or sinking fund payments
with respect to the Notes except as described in "--Escrow of Proceeds--Special
Mandatory Redemption" above. However, under certain circumstances, we may be
required to offer to purchase Notes as described under the captions "--Change of
Control" and "--Certain Covenants--Limitation on Sales of Assets and Subsidiary
Stock." We may at any time and from time to time purchase Notes in the open
market or otherwise.
GUARANTIES
Under the circumstances described below, our obligations under the Notes may in
the future be jointly and severally guaranteed by our existing or future
Subsidiaries as Subsidiary Guarantors. Initially, we expect that there will be
no Subsidiary Guarantors. Although the Indenture does not contain any
requirement that any Subsidiary initially execute and deliver a Guaranty
Agreement providing for a Subsidiary Guarantee, the covenant described below
under "--Certain Covenants--Future Guarantors" may require a Subsidiary in the
future to execute and deliver a Guaranty Agreement.
Under its Subsidiary Guarantee, each Subsidiary Guarantor will guarantee,
jointly and severally, on a senior subordinated basis to each Holder and the
Trustee, the full and prompt performance of our obligations under the Indenture
and the Notes, including the payment of principal of (or premium, if any, on)
and interest on the Notes.
The obligations of each Subsidiary Guarantor under its Subsidiary Guaranty will
be limited as necessary to prevent that Subsidiary Guaranty from constituting a
fraudulent conveyance under applicable law. See "Risk Factors--Risks Associated
with the Notes--Federal and state statutes allow courts, under specific
circumstances, to void subsidiary guarantees."
Each Subsidiary Guarantor that makes a payment under its Subsidiary Guaranty
will be entitled upon payment in full of all guarantied obligations under the
Indenture to a contribution from each other Subsidiary Guarantor in an amount
equal to such other Subsidiary Guarantor's pro rata portion of such payment
based on the respective net assets of all the Subsidiary Guarantors at the time
of such payment determined in accordance with GAAP.
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S- 41
DESCRIPTION OF THE NOTES
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If a Subsidiary Guaranty were rendered voidable, it could be subordinated by a
court to all other indebtedness (including guarantees and other contingent
liabilities) of the applicable Subsidiary Guarantor, and, depending on the
amount of such indebtedness, a Subsidiary Guarantor's liability on its
Subsidiary Guaranty could be reduced to zero. See "Risk factors--Risks
Associated with the Notes--Federal and state statutes allow courts, under
specific circumstances, to void subsidiary guarantees."
The Subsidiary Guaranty of a Subsidiary Guarantor will be released:
(1) upon the sale or other disposition (including by way of consolidation
or merger) of all of the Capital Stock of that Subsidiary Guarantor, in
each case other than to the Company or an Affiliate of the Company and as
permitted by the Indenture;
(2) upon the liquidation and dissolution of such Subsidiary Guarantor;
(3) upon our exercise of our legal defeasance or covenant defeasance option
as described under "--Defeasance;" or
(4) upon the designation of such Subsidiary Guarantor as an Unrestricted
Subsidiary.
RANKING
SENIOR INDEBTEDNESS VERSUS NOTES
The payment of the principal of, premium, if any, and interest on the Notes and
the payment of any Subsidiary Guaranty will be subordinate in right of payment
to the prior payment in full of all Senior Indebtedness of the Company or the
relevant Subsidiary Guarantor, as the case may be, including the obligations of
the Company and such Subsidiary Guarantor under the Revolving Credit Facility.
As of March 31, 2002, after giving pro forma effect to this offering, the EEX
acquisition and the application of the estimated net proceeds from this
offering:
(1) the Company's Senior Indebtedness would have been approximately $576.5
million, $276.9 million of which would have been Secured Indebtedness; and
(2) the Indebtedness of the Company's Subsidiaries (excluding intercompany
Indebtedness) would have been approximately $226.0 million.
Although the Indenture contains limitations on the amount of additional
Indebtedness that the Company and the Restricted Subsidiaries may incur, under
certain circumstances the amount of such Indebtedness could be substantial and,
in any case, such Indebtedness may be Senior Indebtedness. See "--Certain
Covenants--Limitation on Indebtedness."
LIABILITIES OF SUBSIDIARIES VERSUS NOTES
All of our international and U.S. mid-continent properties are owned and
operated by our subsidiaries, and EEX will become a subsidiary as part of the
EEX acquisition. Distributions or advances from our subsidiaries are a source of
funds to meet our debt service obligations. Contractual provisions or laws, as
well as our subsidiaries' financial condition and operating requirements, may
limit our ability to obtain cash from our subsidiaries that we require to pay
our debt service obligations, including payments on the Notes. Holders of the
Notes will have a junior position to the claims of creditors, including trade
creditors and tort claimants, of our subsidiaries that do not guarantee the
Notes and to all secured or senior creditors of our subsidiaries, whether or not
they guarantee the Notes, with respect to the assets securing the claims of
those secured creditors and generally with respect to senior creditors.
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DESCRIPTION OF THE NOTES
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Although the Indenture limits the incurrence of Indebtedness and the issuance of
preferred stock of certain of our subsidiaries, such limitation is subject to a
number of significant qualifications. Moreover, the Indenture does not impose
any limitation on the incurrence by such subsidiaries of liabilities that are
not considered Indebtedness under the Indenture. See "--Certain Covenants--
Limitation on Indebtedness."
OTHER SENIOR SUBORDINATED INDEBTEDNESS VERSUS NOTES
Only Indebtedness of the Company or any Subsidiary Guarantor that is Senior
Indebtedness will rank senior to the Notes and the relevant Subsidiary Guaranty
in accordance with the provisions of the Indenture. The Notes and each
Subsidiary Guaranty will in all respects rank pari passu with all other Senior
Subordinated Indebtedness of the Company and the relevant Subsidiary Guarantor,
respectively.
We have agreed in the Indenture that we and any Subsidiary Guarantor will not
Incur, directly or indirectly, any Indebtedness that is contractually
subordinate or junior in right of payment to our Senior Indebtedness or the
Senior Indebtedness of such Subsidiary Guarantor, unless such Indebtedness is
Senior Subordinated Indebtedness of the Company or the Subsidiary Guarantor, as
applicable, or is expressly subordinated in right of payment to Senior
Subordinated Indebtedness of the Company or the Subsidiary Guarantor, as
applicable. The Indenture does not treat unsecured Indebtedness as subordinated
or junior to Secured Indebtedness merely because it is unsecured.
PAYMENT OF NOTES
We are not permitted to pay principal of, premium, if any, or interest on the
Notes or make any deposit pursuant to the provisions described under
"--Defeasance" below and may not purchase, redeem or otherwise retire any Notes
(collectively, "pay the Notes") if either of the following occurs (a "Payment
Default"):
(1) any Obligation on any Designated Senior Indebtedness of the Company is
not paid in full when due; or
(2) any other default on Designated Senior Indebtedness of the Company
occurs and the maturity of such Designated Senior Indebtedness is
accelerated in accordance with its terms;
unless, in either case, the Payment Default has been cured or waived and any
such acceleration has been rescinded or such Designated Senior Indebtedness has
been paid in full in cash or cash equivalents. Regardless of the foregoing, we
are permitted to pay the Notes if we and the Trustee receive written notice
approving such payment from the Representatives of all Designated Senior
Indebtedness with respect to which the Payment Default has occurred and is
continuing.
During the continuance of any default (other than a Payment Default) with
respect to any Designated Senior Indebtedness of the Company pursuant to which
the maturity thereof may be accelerated without further notice (except such
notice as may be required to effect such acceleration) or the expiration of any
applicable grace periods, we are not permitted to pay the Notes for a period (a
"Payment Blockage Period") commencing upon the receipt by the Trustee and by us
of written notice (a "Payment Blockage Notice") of such default from the
Representative of such Designated Senior Indebtedness specifying an election to
effect a Payment Blockage Period and ending 179 days thereafter. The Payment
Blockage Period will end earlier if such Payment Blockage Period is terminated:
(1) by written notice to the Trustee and us from the Person or Persons who
gave such Payment Blockage Notice;
(2) because the default giving rise to such Payment Blockage Notice is
cured, waived or otherwise no longer continuing; or
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DESCRIPTION OF THE NOTES
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(3) because such Designated Senior Indebtedness has been discharged or
repaid in full.
Notwithstanding the provisions described above, unless the holders of such
Designated Senior Indebtedness or the Representative of such Designated Senior
Indebtedness have accelerated the maturity of such Designated Senior
Indebtedness, we are permitted to resume paying the Notes after the end of such
Payment Blockage Period. The Notes shall not be subject to more than one Payment
Blockage Period in any consecutive 360-day period irrespective of the number of
defaults with respect to Designated Senior Indebtedness of the Company during
such period. However, in no event may the total number of days during which any
Payment Blockage Period or Periods is in effect exceed 179 days in the aggregate
during any consecutive 360-day period, and there must be 181 days during any
consecutive 360-day period during which no Payment Blockage Period is in effect.
Upon any payment or distribution of the assets of the Company upon a
liquidation, dissolution or reorganization of or similar proceeding relating to
the Company or its property:
(1) the holders of Senior Indebtedness of the Company will be entitled to
receive payment in full in cash or cash equivalents of such Senior
Indebtedness before the Holders of the Notes are entitled to receive any
payment;
(2) until the Senior Indebtedness of the Company is paid in full in cash or
cash equivalents, any payment or distribution to which Holders of the Notes
would be entitled but for the subordination provisions of the Indenture
will be made to holders of such Senior Indebtedness as their interests may
appear, except that Holders of Notes may receive certain Capital Stock and
subordinated debt obligations; and
(3) if a distribution is made to Holders of the Notes that, due to the
subordination provisions, should not have been made to them, such Holders
of the Notes are required to hold it in trust for the holders of Senior
Indebtedness of the Company and pay it over to them as their interests may
appear.
If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee must promptly notify the holders of Designated Senior
Indebtedness of the Company or the Representative of such Designated Senior
Indebtedness of the acceleration.
A Subsidiary Guarantor's obligations under its Subsidiary Guaranty will be
senior subordinated obligations. As such, the rights of Noteholders to receive
payment by a Subsidiary Guarantor pursuant to its Subsidiary Guaranty will be
subordinated in right of payment to the rights of holders of Senior Indebtedness
of such Subsidiary Guarantor. The terms of the subordination provisions
described above with respect to the Company's obligations under the Notes apply
equally to a Subsidiary Guarantor and the obligations of such Subsidiary
Guarantor under its Subsidiary Guaranty.
By reason of the subordination provisions contained in the Indenture, in the
event of a liquidation or insolvency proceeding, creditors of the Company or a
Subsidiary Guarantor who are holders of Senior Indebtedness of the Company or a
Subsidiary Guarantor, as the case may be, may recover more, ratably, than the
Holders of the Notes, and creditors of ours who are not holders of Senior
Indebtedness may recover less, ratably, than holders of our Senior Indebtedness
and may recover more, ratably, than the Holders of the Notes.
The terms of the subordination provisions described above will not apply to
payments from money or the proceeds of U.S. Government Obligations held in trust
by the Trustee for the payment of principal of and interest on the Notes
pursuant to the provisions described under "--Defeasance."
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DESCRIPTION OF THE NOTES
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BOOK-ENTRY, DELIVERY AND FORM; PAYMENT
We will initially issue the Notes in the form of one or more global notes. See
"Description of Debt Securities--Payment and Transfer" and "--Book-Entry System"
in the accompanying prospectus.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of Control"),
then unless the Company shall have exercised its right to redeem all the Notes
each Holder shall have the right to require that the Company repurchase such
Holder's Notes at a purchase price in cash equal to 101% of the principal amount
thereof on the date of purchase plus accrued and unpaid interest, if any, to the
date of purchase (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date):
(1) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rules
l3d-3 and l3d-5 under the Exchange Act), except that for purposes of this
clause (1) such person shall be deemed to have "beneficial ownership" of
all shares that any such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 50% of the total voting power of the
Voting Stock of the Company;
(2) during any period of two consecutive years, individuals who, at the
beginning of such period, constituted the Board of Directors (together with
any new directors whose election by such Board of Directors or whose
nomination for election by the shareholders of the Company was approved by
a vote of the majority of the directors of the Company then still in office
who were either directors at the beginning of such period or whose election
or nomination for election was previously so approved) cease for any reason
to constitute a majority of the Board of Directors then in office;
(3) the adoption of a plan relating to the liquidation or dissolution of
the Company; or
(4) the merger or consolidation of the Company with or into another Person
or the merger of another Person with or into the Company, or the sale of
all or substantially all the assets of the Company (determined on a
consolidated basis) to another Person, other than a transaction following
which (A) in the case of a merger or consolidation transaction, holders of
securities that represented 100% of the Voting Stock of the Company
immediately prior to such transaction (or other securities into which such
securities are converted as part of such merger or consolidation
transaction) own directly or indirectly at least a majority of the voting
power of the Voting Stock of the surviving Person in such merger or
consolidation transaction immediately after such transaction and (B) in the
case of a sale of assets transaction, each transferee becomes an obligor in
respect of the Notes and a Subsidiary of the transferor of such assets.
Unless we have exercised our right to redeem all the Notes and have delivered an
irrevocable notice of redemption to the Trustee, within 30 days following any
Change of Control, we will mail a notice to each Holder with a copy to the
Trustee (the "Change of Control Offer") stating:
(1) that a Change of Control has occurred and that such Holder has the
right to require us to purchase such Holder's Notes at a purchase price in
cash equal to 101% of the principal amount thereof on the date of purchase,
plus accrued and unpaid interest, if any, to the date of purchase (subject
to the right of Holders of record on the relevant record date to receive
interest on the relevant interest payment date);
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S- 45
DESCRIPTION OF THE NOTES
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(2) the circumstances and relevant facts regarding such Change of Control
(including information with respect to pro forma historical income, cash
flow and capitalization, in each case after giving effect to such Change of
Control);
(3) the purchase date (which shall be no earlier than 30 days nor later
than 60 days from the date such notice is mailed); and
(4) the instructions, as determined by us, consistent with the covenant
described hereunder, that a Holder must follow in order to have its Notes
purchased.
We will not be required to make a Change of Control Offer following 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 us and purchases all
Notes validly tendered and not withdrawn under such Change of Control Offer.
We will comply, to the extent applicable, with the requirements of Section 14(e)
of the Exchange Act and any other securities laws or regulations in connection
with the repurchase of Notes as a result of a Change of Control. To the extent
that the provisions of any securities laws or regulations conflict with the
provisions of the covenant described hereunder, we will comply with the
applicable securities laws and regulations and shall not be deemed to have
breached our obligations under the covenant described hereunder by virtue of our
compliance with such securities laws or regulations.
The Change of Control purchase feature of the Notes may in certain circumstances
make more difficult or discourage a sale or takeover of the Company and, thus,
the removal of incumbent management. The Change of Control purchase feature is a
result of negotiations between the Company and the underwriters. We have no
present intention to engage in a transaction involving a Change of Control,
although it is possible that we could decide to do so in the future. Subject to
the limitations discussed below, we could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Indenture, but that
could increase the amount of indebtedness outstanding at such time or otherwise
affect our capital structure or credit ratings. Restrictions on our ability to
Incur additional Indebtedness are contained in the covenants described under
"--Certain Covenants--Limitation on Indebtedness." Such restrictions can only be
waived with the consent of the holders of a majority in principal amount of the
Notes then outstanding. Except for the limitations contained in such covenants,
however, the Indenture will not contain any covenants or provisions that may
afford holders of the Notes protection in the event of a highly leveraged
transaction.
The Revolving Credit Facility provides that the occurrence of certain change of
control events with respect to the Company will constitute a default thereunder.
In the event that at the time of a Change of Control the terms of any Senior
Indebtedness of the Company (including the Revolving Credit Facility) restrict
or prohibit the purchase of Notes following such Change of Control, then prior
to the mailing of the notice to Holders but in any event within 30 days
following any Change of Control, we undertake to (1) repay in full all such
Senior Indebtedness or (2) obtain the requisite consents under the agreements
governing such Senior Indebtedness to permit the repurchase of the Notes. If we
do not repay such Senior Indebtedness or obtain such consents, we will remain
prohibited from purchasing Notes. In such case, our failure to comply with the
foregoing undertaking, after appropriate notice and lapse of time would result
in an Event of Default with respect to the Notes, which would, in turn,
constitute a default under the Revolving Credit Facility. In such circumstances,
the subordination provisions in the Indenture would likely restrict payment to
the Holders of Notes.
Future indebtedness that we may incur may contain prohibitions on the occurrence
of certain events that would constitute a Change of Control or require the
repurchase of such indebtedness upon a Change of Control. Moreover, the exercise
by the Holders of their right to require us to repurchase
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the Notes could cause a default under such indebtedness, even if the Change of
Control itself does not, due to the financial effect of such repurchase on us.
Finally, our ability to pay cash to the Holders of Notes following the
occurrence of a Change of Control may be limited by our then existing financial
resources. There can be no assurance that sufficient funds will be available
when necessary to make any required repurchases.
The definition of "Change of Control" includes a disposition of all or
substantially all of the assets of the Company (determined on a consolidated
basis) to any Person. Although there is a limited body of case law interpreting
the phrase "substantially all," there is no precise established definition of
the phrase under applicable law. Accordingly, in certain circumstances there may
be a degree of uncertainty as to whether a particular transaction would involve
a disposition of "all or substantially all" of the assets of the Company. As a
result, it may be unclear as to whether a Change of Control has occurred and
whether a Holder of Notes may require the Company to make an offer to repurchase
the Notes as described above.
The provisions under the Indenture relative to our obligation to make an offer
to repurchase the Notes as a result of a Change of Control may be waived or
modified with the written consent of the Holders of a majority in principal
amount of the Notes.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
COVENANT SUSPENSION
During any period that the Notes have a rating equal to or higher than BBB- by
S&P and Baa3 by Moody's ("Investment Grade Ratings") and no Default has occurred
and is continuing, the Company and the Restricted Subsidiaries will not be
subject to the following covenants:
(a) paragraphs (a) through (d) of the covenant described under
"--Limitation on Indebtedness;"
(b) "--Limitation on Restricted Payments;"
(c) "Limitation on Restrictions on Distributions from Restricted
Subsidiaries;"
(d) "Limitation on Sales of Assets and Subsidiary Stock;"
(e) "Limitation on Affiliate Transactions;"
(f) clause (3) of the covenant described under "--Merger and
Consolidation;" and
(g) "--Future Guarantors,"
(collectively, the "Suspended Covenants"). In the event that the Company and the
Restricted Subsidiaries are not subject to the Suspended Covenants for any
period of time as a result of the preceding sentence, and subsequently one or
both of S&P and Moody's downgrades the rating assigned to the Notes below BBB-,
in the case of S&P, and below Baa3, in the case of Moody's, then the Company and
the Restricted Subsidiaries will thereafter again be subject to the Suspended
Covenants (subject to subsequent suspension if the Notes again receive
Investment Grade Ratings), and, with respect to Restricted Payments proposed to
be made after the time of such downgrade, the permissibility of such proposed
Restricted Payments will be calculated in accordance with the terms of the
covenant described below under "--Limitation on Restricted Payments" as though
such covenant had been in effect since the Issue Date, it being understood,
however, that no actions taken by the Company or any Restricted Subsidiary
during the suspension period shall constitute a Default or an Event of Default
under the Suspended Covenants.
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LIMITATION ON INDEBTEDNESS
(a) The Company will not, and will not permit any Restricted Subsidiary to,
Incur, directly or indirectly, any Indebtedness; provided, however, that the
Company and the Subsidiary Guarantors will be entitled to Incur Indebtedness if,
on the date of such Incurrence and after giving effect thereto on a pro forma
basis, no Default has occurred and is continuing and the Consolidated Coverage
Ratio exceeds 2.5 to 1.
(b) Notwithstanding the foregoing paragraph (a), the Company and the Restricted
Subsidiaries will be entitled to Incur any or all of the following Indebtedness
("Permitted Indebtedness"):
(1) Indebtedness Incurred by the Company and its Restricted Subsidiaries
pursuant to Credit Facilities; provided, however, that, immediately after
giving effect to any such Incurrence, the aggregate principal amount of all
Indebtedness Incurred under this clause (1) and then outstanding does not
exceed the greater of (A) $425 million less the sum of all principal
payments with respect to such Indebtedness pursuant to paragraph (a)(3) (A)
of the covenant described under "--Limitation on Sales of Assets and
Subsidiary Stock" and (B) $200 million plus 20% of ACNTA as of the date of
such Incurrence;
(2) Indebtedness owed to and held by the Company or a Wholly Owned
Subsidiary; provided, however, that (A) any subsequent issuance or transfer
of any Capital Stock which results in any such Wholly Owned Subsidiary
ceasing to be a Wholly Owned Subsidiary or any subsequent transfer of such
Indebtedness (other than to the Company or a Wholly Owned Subsidiary) shall
be deemed, in each case, to constitute the Incurrence of such Indebtedness
by the obligor thereon and (B) if the Company is the obligor on such
Indebtedness, unless such Indebtedness is owing to a Subsidiary Guarantor,
such Indebtedness is expressly subordinated to the prior payment in full in
cash of all obligations with respect to the Notes;
(3) the Notes (but excluding any Additional Notes) and all Subsidiary
Guaranties;
(4) Indebtedness outstanding on the Issue Date (other than Indebtedness
described in clause (1), (2) or (3) of this covenant);
(5) Indebtedness of a Restricted Subsidiary Incurred and outstanding on or
prior to the date on which such Subsidiary became a Restricted Subsidiary
or was acquired by the Company (other than Indebtedness Incurred in
connection with, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Subsidiary became a Restricted
Subsidiary or was acquired by the Company); provided, however, that on the
date such Subsidiary became a Restricted Subsidiary or was acquired by the
Company and after giving pro forma effect thereto, the Company would have
been able to Incur at least $1.00 of additional Indebtedness pursuant to
paragraph (a) of this covenant;
(6) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant
to paragraph (a) or pursuant to clause (3), (4), or (5) or this clause (6);
provided, however, that to the extent such Refinancing Indebtedness
directly or indirectly Refinances Indebtedness of a Restricted Subsidiary
Incurred pursuant to clause (5), such Refinancing Indebtedness shall be
Incurred only by such Restricted Subsidiary or the Company;
(7) Hedging Obligations consisting of Interest Rate Agreements directly
related to Indebtedness outstanding on the Issue Date or permitted to be
Incurred by the Company and its Restricted Subsidiaries pursuant to the
Indenture;
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(8) Hedging Obligations consisting of Oil and Natural Gas Hedging Contracts
and Currency Agreements entered into in the ordinary course of business for
the purpose of limiting risks that arise in the ordinary course of business
of the Company and its Subsidiaries;
(9) obligations in respect of performance, bid and surety bonds, including
Guarantees and letters of credit functioning as or supporting such
performance, bid and surety bonds, completion guarantees and other
reimbursement obligations provided by the Company or any Restricted
Subsidiary in the ordinary course of business (in each case other than for
an obligation for money borrowed);
(10) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument drawn against
insufficient funds in the ordinary course of business; provided, however,
that such Indebtedness is extinguished within two Business Days of its
Incurrence;
(11) Indebtedness consisting of any Guarantee by the Company or a
Subsidiary Guarantor of Indebtedness of the Company or a Subsidiary
Guarantor outstanding on the Issue Date or permitted by the Indenture to be
Incurred by the Company or a Subsidiary Guarantor;
(12) Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case, Incurred for the
purpose of financing all or any part of the purchase price, cost of
construction or improvement or carrying cost of assets used in the business
of the Company and its Restricted Subsidiaries and related financing costs,
and Refinancing Indebtedness Incurred to Refinance any Indebtedness
Incurred pursuant to this clause, in an aggregate principal amount at any
one time outstanding not to exceed $25 million;
(13) Indebtedness arising from any agreement providing for indemnities,
Guarantees, purchase price adjustments, holdbacks, contingency payment
obligations based on the performance of the acquired or disposed assets or
similar obligations (other than Guarantees of Indebtedness) Incurred by any
Person in connection with the acquisition or disposition of assets;
(14) in-kind obligations relating to net oil or natural gas balancing
positions arising in the ordinary course of business;
(15) Non-Recourse Purchase Money Indebtedness; and
(16) Indebtedness of the Company or of any of its Restricted Subsidiaries
in an aggregate principal amount which, when taken together with all other
Indebtedness of the Company and its Restricted Subsidiaries outstanding on
the date of such Incurrence (other than Indebtedness permitted by clauses
(1) through (15) above or paragraph (a)) does not exceed $50 million.
For purposes of determining compliance with this covenant, in the event that an
item of Indebtedness meets the criteria of more than one of the categories of
Permitted Indebtedness, or is entitled to be incurred in compliance with the
Consolidated Coverage Ratio in the preceding paragraph (a), the Company may, in
its sole discretion, classify (or later reclassify) in whole or in part such
item of Indebtedness in any manner that complies with this covenant as of the
date of Incurrence of such item of Indebtedness, and such item of Indebtedness
or a portion thereof may be classified (or later reclassified) in whole or in
part as having been Incurred under more than one of the applicable clauses of
Permitted Indebtedness or in compliance with the Consolidated Coverage Ratio in
the preceding paragraph (a) as of the date of Incurrence of such item of
Indebtedness.
(c) Notwithstanding the foregoing, neither the Company nor any Subsidiary
Guarantor will Incur any Indebtedness pursuant to the foregoing paragraph (b) if
the proceeds thereof are used, directly or indirectly, to Refinance any
Subordinated Obligations of the Company or any Subsidiary Guarantor
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unless such Indebtedness shall be subordinated to the Notes or the applicable
Subsidiary Guaranty to at least the same extent as such Subordinated
Obligations.
(d) For purposes of determining compliance with this covenant:
(1) any Indebtedness remaining outstanding under the Revolving Credit
Facility after the application of the net proceeds from the sale of the
Notes will be treated as Incurred on the Issue Date under clause (1) of
paragraph (b) above;
(2) in the event that an item of Indebtedness (or any portion thereof)
meets the criteria of more than one of the types of Indebtedness described
above, or is entitled to be incurred in compliance with the Consolidated
Coverage Ratio in clause (a) of this covenant, the Company, in its sole
discretion, may classify such item of Indebtedness (or any portion thereof)
in any manner that complies with this covenant and will only be required to
include the amount and type of such Indebtedness in one of the above
clauses; and
(3) the Company will be entitled to divide and classify an item of
Indebtedness in more than one of the types of Indebtedness described above
or as having been incurred in compliance with the Consolidated Coverage
Ratio in clause (a) of this covenant.
(e) Notwithstanding paragraphs (a) and (b) above, neither the Company nor any
Subsidiary Guarantor will Incur any Indebtedness if such Indebtedness is
subordinate or junior in ranking in right of payment to any Senior Indebtedness
of such Person, as applicable, unless such Indebtedness is Senior Subordinated
Indebtedness or is expressly subordinated in right of payment to Senior
Subordinated Indebtedness of such Person.
LIMITATION ON RESTRICTED PAYMENTS
(a) The Company will not, and will not permit any Restricted Subsidiary,
directly or indirectly, to make a Restricted Payment if at the time the Company
or such Restricted Subsidiary makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or would result
therefrom);
(2) the Company is not entitled to Incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) of the covenant described under
"--Limitation on Indebtedness;" or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments since the Issue Date would exceed the sum of (without
duplication):
(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the fiscal
quarter in which the Issue Date occurs to the end of the most recent
fiscal quarter for which financial statements of the Company are
publicly available prior to the date of such Restricted Payment (or, in
case such Consolidated Net Income shall be a deficit, minus 100% of such
deficit); plus
(B) 100% of the aggregate Net Cash Proceeds or the fair market value of
property other than cash (including Capital Stock of Persons engaged in
the Oil and Gas Business or assets used in the Oil and Gas Business)
received by the Company from the issuance or sale of its Capital Stock
(other than Disqualified Stock) subsequent to the Issue Date (other than
an issuance or sale (x) in connection with the acquisition of EEX
Corporation by merger, (y) to a Subsidiary of the Company and (z) to an
employee stock ownership plan or to a trust established by the Company
or any of its Subsidiaries for the benefit of their employees) and 100%
of any cash capital contribution received by the Company from its
shareholders subsequent to the Issue Date; plus
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(C) the aggregate Net Cash Proceeds received by the Company subsequent
to the Issue Date from the issuance or sale of its Capital Stock (other
than Disqualified Stock) to an employee stock ownership plan or to a
trust established by the Company or any of its Subsidiaries for the
benefit of their employees; provided, however, that if such employee
stock ownership plan or trust Incurs any Indebtedness to finance the
purchase of such Capital Stock, such aggregate amount shall be limited
to the excess of such Net Cash Proceeds over the amount of such
Indebtedness plus an amount equal to any increase in the Consolidated
Net Worth of the Company resulting from principal repayments made from
time to time by such employee stock ownership plan or trust with respect
to such Indebtedness; plus
(D) the amount by which Indebtedness of the Company is reduced on the
Company's balance sheet upon the conversion or exchange (other than by a
Subsidiary of the Company) subsequent to the Issue Date of any
Indebtedness of the Company convertible or exchangeable for Capital
Stock (other than Disqualified Stock) of the Company (less the amount of
any cash, or the fair value of any other property, distributed by the
Company upon such conversion or exchange); provided, however, that the
foregoing amount shall not exceed the Net Cash Proceeds received by the
Company or any Restricted Subsidiary from the sale of such Indebtedness
(excluding Net Cash Proceeds from sales to a Subsidiary of the Company
or to an employee stock ownership plan or to a trust established by the
Company or any of its Subsidiaries for the benefit of their employees);
plus
(E) an amount equal to the sum of (x) the net reduction in the
Investments (other than Permitted Investments) made by the Company or
any Restricted Subsidiary in any Person resulting from repurchases,
repayments or redemptions of such Investments by such Person, proceeds
realized on the sale of such Investment and proceeds representing the
return of capital (excluding dividends and distributions), in each case
received by the Company or any Restricted Subsidiary, and (y) to the
extent such Person is an Unrestricted Subsidiary, the portion
(proportionate to the Company's equity interest in such Subsidiary) of
the fair market value of the net assets of such Unrestricted Subsidiary
at the time such Unrestricted Subsidiary is designated a Restricted
Subsidiary; provided, however, that to the extent the foregoing sum
exceeds, in the case of any such Person or Unrestricted Subsidiary, the
amount of Investments (excluding Permitted Investments) previously made
(and treated as a Restricted Payment) by the Company or any Restricted
Subsidiary in such Person or Unrestricted Subsidiary, such excess shall
not be included in this clause (E) unless the amount represented by such
excess has not been and will not be taken into account in one of the
foregoing clauses (A)-(D); plus
(F) $15.0 million.
(b) The preceding provisions will not prohibit:
(1) any Restricted Payment made out of the Net Cash Proceeds of the
substantially concurrent issuance or sale of, or made by conversion into or
exchange for, Capital Stock of the Company (other than Disqualified Stock
and other than Capital Stock issued or sold to a Subsidiary of the Company
or an employee stock ownership plan or to a trust established by the
Company or any of its Subsidiaries for the benefit of their employees) or a
substantially concurrent cash capital contribution received by the Company
from one or more of its shareholders; provided, however, that (A) such
Restricted Payment shall be excluded in the calculation of the amount of
Restricted Payments and (B) the Net Cash Proceeds from such sale or such
cash capital contribution (to the extent so used for such Restricted
Payment) shall be excluded from the calculation of amounts under clause
(3)(B) of paragraph (a) above;
(2) any purchase, repurchase, redemption, defeasance or other acquisition
or retirement for value of Subordinated Obligations of the Company or any
Subsidiary Guarantor made by exchange for,
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or out of the proceeds of the substantially concurrent sale of,
Indebtedness which is permitted to be Incurred pursuant to the covenant
described under "--Limitation on Indebtedness;" provided, however, that
such purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value shall be excluded in the calculation of the amount of
Restricted Payments;
(3) any purchase, repurchase, redemption, defeasance or other acquisition
or retirement for value of Disqualified Stock of the Company or a
Subsidiary Guarantor made by conversion into or exchange for, or out of the
proceeds of the substantially concurrent issuance or sale (other than to a
Subsidiary of the Company or an employee stock ownership plan or to a trust
established by the Company or any of its Subsidiaries for the benefit of
their employees) of, Disqualified Stock of the Company which is permitted
to be issued pursuant to the covenant described under "--Limitation on
Indebtedness;" provided, however, that such purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value shall
be excluded in the calculation of the amount of Restricted Payments;
(4) (A) distributions on the Existing Trust Preferred Securities at a rate
per annum not to exceed 6 1/2% of the $50 liquidation preference per
Existing Trust Preferred Security and (B) other dividends paid within 60
days after the date of declaration thereof if at such date of declaration
such dividend would have complied with this covenant; provided, however,
that at the time of payment of such distribution or dividend, no other
Default shall have occurred and be continuing (or result therefrom);
provided further, however, that such distribution or dividend shall be
included in the calculation of the amount of Restricted Payments at the
time of payment;
(5) so long as no Default has occurred and is continuing, the purchase,
redemption or other acquisition or retirement for value of shares of
Capital Stock of the Company or any of its Subsidiaries from employees,
former employees, directors or former directors of the Company or any of
its Subsidiaries (or permitted transferees of such employees, former
employees, directors or former directors), pursuant to the terms of the
agreements (including employment agreements) or plans (or amendments
thereto) approved by the Board of Directors under which such individuals
purchase or sell or are granted the option to purchase or sell, shares of
such Capital Stock; provided, however, that the aggregate amount of such
purchases, redemptions and other acquisitions and retirements (excluding
amounts representing cancellation of Indebtedness) shall not exceed $2.0
million in any calendar year; provided further, however, that such
purchases, redemptions and other acquisitions and retirements shall be
excluded in the calculation of the amount of Restricted Payments;
(6) repurchases, acquisitions or retirements of shares of Company common
stock deemed to occur upon the exercise of stock options or similar rights
issued under employee benefit plans when shares are surrendered to pay all
or a portion of the exercise price or to satisfy any federal income tax
obligations; provided, however, that such repurchases, acquisitions or
retirements shall be excluded in the calculation of the amount of
Restricted Payments;
(7) the payment of cash in lieu of fractional shares of Capital Stock in
connection with any transaction otherwise permitted under this covenant;
provided, however, that such payment will be excluded in the calculation of
the amount of Restricted Payments;
(8) upon the occurrence of a Change of Control or an Asset Disposition and
within 60 days after the completion of the offer to repurchase the Notes
pursuant to the covenants described under "--Change of Control" above or
"--Limitation on Sales of Assets and Subsidiary Stock" below (including the
purchase of all Notes tendered), any purchase, repurchase, redemption,
defeasance, acquisition or other retirement for value of Subordinated
Obligations required pursuant to the terms thereof as a result of such
Change of Control or Asset Disposition at a purchase or redemption price
not to exceed 101% of the outstanding principal amount thereof, plus
accrued
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and unpaid interest thereon, if any; provided, however, that (A) at the
time of such purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value, no Default shall have occurred and be
continuing (or would result therefrom), and (B) such purchase, repurchase,
redemption, defeasance or other acquisition and retirement for value will
be excluded in the calculation of the amount of Restricted Payments; or
(9) any redemption pursuant to a Qualified Redemption Transaction;
provided, however, that such redemption shall be included in the
calculation of the amount of Restricted Payments at the time of the
redemption.
The amount of all Restricted Payments (other than cash) shall be the fair market
value on the date of the Restricted Payment of the assets proposed to be
transferred by the Company or such Restricted Subsidiary, as the case may be, in
accordance with the Restricted Payment.
For purposes of determining compliance with this covenant, in the event that a
Restricted Payment meets the criteria of more than one of the types of
Restricted Payments described above, the Company, in its sole discretion, may
order and classify such Restricted Payment in any manner in compliance with this
covenant.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED SUBSIDIARIES
The Company will not, and will not permit any Restricted Subsidiary to, create
or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to (a)
pay dividends or make any other distributions on its Capital Stock to the
Company or a Restricted Subsidiary or pay any Indebtedness owed to the Company,
(b) make any loans or advances to the Company or (c) transfer any of its
property or assets to the Company, except:
(1) with respect to clauses (a), (b) and (c),
(i) any encumbrance or restriction pursuant to an agreement governing
Indebtedness or Capital Stock and other agreements or instruments in
effect at or entered into on the Issue Date;
(ii) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness
Incurred by such Restricted Subsidiary or Capital Stock or other
agreement or instrument of such Restricted Subsidiary in existence on or
prior to the date on which such Restricted Subsidiary was acquired by
the Company or otherwise became a Restricted Subsidiary (other than
Indebtedness Incurred, Capital Stock issued or agreements or instruments
entered into as consideration in, or to provide all or any portion of
the funds or credit support utilized to consummate, the transaction or
series of related transactions pursuant to which such Restricted
Subsidiary became a Restricted Subsidiary or was acquired by the
Company) and outstanding on such date;
(iii) any encumbrance or restriction pursuant to an agreement effecting
a Refinancing in whole or in part of Indebtedness Incurred pursuant to
an agreement referred to in clause (i) or (ii) of clause (1) of this
covenant or this clause (iii) or clause (B) of clause (2) of this
covenant or contained in any amendment to, or modification, restatement,
renewal, increase, supplement, replacement or extension of an agreement
referred to in clause (i) or (ii) of clause (1) of this covenant or this
clause (iii) or clause (B) of clause (2) of this covenant; provided,
however, that the encumbrances and restrictions with respect to such
Restricted Subsidiary contained in any such refinancing agreement or
amendment, modification, restatement, renewal, increase, supplement,
replacement or extension agreement are not materially more restrictive,
taken as a whole, than encumbrances and restrictions with respect to
such Restricted Subsidiary contained in such predecessor agreements;
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(iv) any customary encumbrance or restriction with respect to a
Restricted Subsidiary imposed pursuant to a merger agreement or an
agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted
Subsidiary pending the closing of such sale or disposition;
(v) customary encumbrances and restrictions contained in agreements of
the types described in the definition of the term "Permitted Business
Investments;" and
(vi) customary supermajority voting provisions and other customary
provisions with respect to the disposition or distribution of assets,
each contained in corporate charters, bylaws, stockholders' agreements,
limited liability company agreements, partnership agreements, joint
venture agreements and other similar agreements entered into in the
ordinary course of business of the Company and its Restricted
Subsidiaries; and
(2) with respect to clause (c) only,
(A) any such encumbrance or restriction consisting of customary
nonassignment provisions (including provisions forbidding subletting or
sublicensing) in leases governing leasehold interests and licenses to
the extent such provisions restrict the transfer of the lease or license
or the property leased, or licensed thereunder;
(B) any encumbrance or restriction contained in credit agreements,
security agreements or mortgages securing Indebtedness of the Company or
a Restricted Subsidiary to the extent such encumbrance or restriction
restricts the transfer of the property subject to such credit
agreements, security agreements or mortgages;
(C) encumbrances and restrictions contained in any agreement, instrument
or Capital Stock assumed by the Company or any of its Restricted
Subsidiaries or for which any of them becomes liable as in effect at the
time of such transaction (except to the extent such agreement,
instrument or Capital Stock was entered into in connection with or in
contemplation of such transaction), which encumbrances and restrictions
are not applicable to, any assets other than assets acquired in
connection with such transaction and all improvements, additions and
accessions thereto and products and proceeds thereof;
(D) restrictions on cash or other deposits imposed by customers under
contracts entered into in the ordinary course of business;
(E) encumbrances and restrictions contained in contracts entered into in
the ordinary course of business, not relating to any Indebtedness, and
that do not, individually or in the aggregate, detract from the value
of, or from the ability of the Company and the Restricted Subsidiaries
to realize the value of, property or assets of the Company or any
Restricted Subsidiary in any manner material to the Company or any
Restricted Subsidiary; and
(F) restrictions on the transfer of property or assets required by any
regulatory authority having jurisdiction over the Company or such
Restricted Subsidiary.
LIMITATION ON LIENS
The Company will not, and will not permit any Subsidiary Guarantor to, directly
or indirectly, create, incur, assume or suffer to exist or become effective any
Lien securing Indebtedness of any kind except for Permitted Liens, on or with
respect to any of its assets, whether owned at the Issue Date or thereafter
acquired, unless (A) in the case of any Lien securing Subordinated Obligations,
the Notes are secured by a Lien on such assets that is senior in priority to
such Lien and (B) in the case of any other Lien, the Notes are either secured
equally and ratably with such Indebtedness or are secured by a Lien on such
assets that is senior in priority to such Lien.
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LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK
(a) The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, consummate any Asset Disposition unless:
(1) the Company or such Restricted Subsidiary receives consideration at the
time of such Asset Disposition at least equal to the fair market value
(including as to the value of all non-cash consideration) (as determined in
good faith by the Board of Directors, an Officer or an officer of such
Restricted Subsidiary with responsibility for such transaction, which
determination shall be conclusive evidence of compliance with this
provision), of the shares and assets subject to such Asset Disposition;
(2) at least 75% of the consideration thereof received by the Company or
such Restricted Subsidiary is in the form of cash or cash equivalents, oil
and natural gas properties or capital assets to be used by the Company or
any Restricted Subsidiary in the Oil and Gas Business; and
(3) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or such Restricted Subsidiary, as
the case may be)
(A) first, to the extent the Company elects (or is required by the terms
of any Indebtedness), to prepay, repay, redeem or purchase Senior
Indebtedness of the Company or any Subsidiary Guarantor or Indebtedness
(other than any Disqualified Stock) of a Wholly Owned Subsidiary that is
not a Subsidiary Guarantor (in each case other than Indebtedness owed to
the Company or an Affiliate of the Company) within one year from the
later of the date of such Asset Disposition or the receipt of such Net
Available Cash;
(B) second, to the extent of the balance of such Net Available Cash
after application in accordance with clause (A), to the extent the
Company elects, to acquire Additional Assets or to make capital
expenditures in the Oil and Gas Business within one year from the later
of the date of such Asset Disposition or the receipt of such Net
Available Cash; and
(C) third, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A) and (B), to make an offer to
the Holders of the Notes (and to holders of other Senior Subordinated
Indebtedness of the Company designated by the Company) to purchase Notes
(and such other Senior Subordinated Indebtedness of the Company)
pursuant to and subject to the conditions contained in the Indenture;
provided, however, that in connection with any prepayment, repayment, purchase,
repurchase, redemption, defeasance or other acquisition or retirement for value
of Indebtedness pursuant to clause (A) or (C) above, the Company or such
Restricted Subsidiary shall permanently retire such Indebtedness and shall cause
the related loan commitment (if any) to be permanently reduced in an amount
equal to the principal amount so prepaid, repaid or purchased.
Notwithstanding the foregoing provisions of this covenant, the Company and the
Restricted Subsidiaries will not be required to apply any Net Available Cash in
accordance with this covenant except to the extent that the aggregate Net
Available Cash from all Asset Dispositions which is not applied in accordance
with this covenant exceeds $20 million. Pending application of Net Available
Cash pursuant to this covenant, such Net Available Cash shall be invested in
Temporary Cash Investments or applied to temporarily reduce revolving credit
indebtedness.
For the purposes of this covenant, the following are deemed to be cash or cash
equivalents:
(1) the assumption of Indebtedness of the Company or any Restricted
Subsidiary and the release of the Company or such Restricted Subsidiary
from all liability on such Indebtedness in connection with such Asset
Disposition; and
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(2) securities received by the Company or any Restricted Subsidiary from
the transferee that are converted by the Company or such Restricted
Subsidiary into cash within 120 days of their receipt.
Notwithstanding the foregoing, the 75% limitation referred to in paragraph
(a)(2) above shall be deemed satisfied with respect to any Asset Disposition in
which the cash or cash equivalents portion of the consideration received
therefrom, determined in accordance with the foregoing provision on an after-tax
basis, is equal to or greater than what the after-tax proceeds would have been
had such Asset Disposition complied with the aforementioned 75% limitation.
The requirement of clause (a)(3)(B) above shall be deemed to be satisfied if an
agreement (including a lease, whether a capital lease or an operating lease)
committing to make the acquisitions or expenditures referred to therein is
entered into by the Company or its Restricted Subsidiary within the time period
specified in such clause and such Net Available Cash is subsequently applied in
accordance with such agreement within six months following such agreement.
(b) In the event of an Asset Disposition that requires the purchase of Notes
(and other Senior Subordinated Indebtedness of the Company) pursuant to clause
(a)(3)(C) above, the Company will make such offer to purchase Notes on or before
the 366th day after the date of such Asset Disposition or the receipt of such
Net Available Cash, and will purchase Notes tendered pursuant to an offer by the
Company for the Notes (and such other Senior Subordinated Indebtedness of the
Company) at a purchase price of 100% of their principal amount (or, in the event
such other Senior Subordinated Indebtedness of the Company was issued with
significant original issue discount, 100% of the accreted value thereof) without
premium, plus accrued but unpaid interest (or, in respect of such other Senior
Subordinated Indebtedness of the Company, such lesser price, if any, as may be
provided for by the terms of such Senior Subordinated Indebtedness of the
Company) in accordance with the procedures (including prorating in the event of
oversubscription) set forth in the Indenture. If the aggregate purchase price of
the securities tendered exceeds the Net Available Cash allotted to their
purchase, the Company will select the securities to be purchased on a pro rata
basis but in round denominations, which in the case of the Notes will be
denominations of $1,000 principal amount or multiples thereof. The Company shall
not be required to make such an offer to purchase Notes (and other Senior
Subordinated Indebtedness of the Company) pursuant to this covenant if the Net
Available Cash available therefor is less than $20 million (which lesser amount
shall be carried forward for purposes of determining whether such an offer is
required with respect to the Net Available Cash from any subsequent Asset
Disposition). Upon completion of such an offer to purchase, Net Available Cash
will be deemed to be reduced by the aggregate amount of such offer.
(c) The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of this covenant, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under this covenant by virtue of its compliance with such securities
laws or regulations.
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LIMITATION ON AFFILIATE TRANSACTIONS
(a) The Company will not, and will not permit any Restricted Subsidiary to,
enter into any transaction (including the purchase, sale, lease or exchange of
any property, employee compensation arrangements or the rendering of any
service) with, or for the benefit of, any Affiliate of the Company (an
"Affiliate Transaction") unless:
(1) the terms of the Affiliate Transaction are no less favorable to the
Company or such Restricted Subsidiary than those that could reasonably be
expected to be obtained at the time of the Affiliate Transaction in
arm's-length dealings with a Person who is not an Affiliate;
(2) if such Affiliate Transaction involves an amount in excess of $15
million, the terms of the Affiliate Transaction are set forth in writing
and a majority of the non-employee directors of the Company disinterested
with respect to such Affiliate Transaction have determined in good faith
that the criteria set forth in clause (1) are satisfied and have approved
the relevant Affiliate Transaction as evidenced by a resolution of the
Board of Directors; and
(3) if such Affiliate Transaction involves an amount in excess of $30
million, the Board of Directors shall also have received a written opinion
from an Independent Qualified Party to the effect that such Affiliate
Transaction is fair, from a financial standpoint, to the Company and its
Restricted Subsidiaries or is not less favorable to the Company and its
Restricted Subsidiaries than could reasonably be expected to be obtained at
the time in an arm's-length transaction with a Person who was not an
Affiliate.
(b) The provisions of the preceding paragraph (a) will not prohibit:
(1) any Investment or other Restricted Payment, in each case not prohibited
to be made pursuant to the covenant described under "--Limitation on
Restricted Payments;"
(2) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans and other benefit
plans approved by the Board of Directors;
(3) loans or advances to officers, directors and employees who are
Affiliates in the ordinary course of business of the Company or its
Restricted Subsidiaries, but in any event not to exceed $3.0 million in the
aggregate outstanding at any one time;
(4) any transaction with a Restricted Subsidiary or joint venture or
similar entity which would constitute an Affiliate Transaction solely
because the Company or a Restricted Subsidiary owns an equity interest in
or otherwise controls such Restricted Subsidiary, joint venture or similar
entity;
(5) the issuance or sale of any Capital Stock (other than Disqualified
Stock) of the Company;
(6) reasonable fees and reasonable compensation paid to, and indemnity and
similar arrangements provided on behalf of, officers, directors and
employees of the Company or any Restricted Subsidiary as determined in good
faith by the Board of Directors or the Company's senior management; and
(7) any agreement as in effect on the Issue Date and described in this
prospectus supplement or the accompanying prospectus or any renewals or
extensions of any such agreement (so long as such renewals or extensions
are not less favorable to the Company or the Restricted Subsidiaries) and
the transactions evidenced thereby.
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MERGER AND CONSOLIDATION
The Company will not consolidate with or merge with or into, or convey,
transfer, lease or otherwise dispose of, in one transaction or a series of
related transactions, directly or indirectly, all or substantially all the
assets of the Company and its Restricted Subsidiaries, taken as a whole, to, any
Person, unless:
(1) the resulting, surviving or transferee Person (the "Successor Company")
shall be a Person organized and existing under the laws of the United
States of America, any State thereof or the District of Columbia and the
Successor Company (if not the Company) shall expressly assume, by an
indenture supplemental thereto, executed and delivered to the Trustee, in
form satisfactory to the Trustee, all the obligations of the Company under
the Notes and the Indenture;
(2) immediately after giving pro forma effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Successor
Company or any Subsidiary as a result of such transaction as having been
Incurred by such Successor Company or such Subsidiary at the time of such
transaction), no Default shall have occurred and be continuing;
(3) immediately after giving pro forma effect to such transaction, the
Successor Company would be able to Incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) of the covenant described under
"--Limitation on Indebtedness;"
(4) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer or lease and such supplemental
indenture (if any) comply with the Indenture; and
(5) the Company shall have delivered to the Trustee an Opinion of Counsel
to the effect that the Holders will not recognize income, gain or loss for
Federal income tax purposes as a result of such transaction 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 transaction bad not
occurred.
provided, however, that clause (3) will not be applicable to (A) the Company or
a Restricted Subsidiary consolidating with, merging into, conveying,
transferring or leasing all or part of its properties and assets to the Company
or a Subsidiary Guarantor or (B) the Company merging with an Affiliate of the
Company solely for the purpose and with the sole effect of reincorporating the
Company in another jurisdiction within the United States of America or (C) at a
time when the Company and its Restricted Subsidiaries are not subject to the
Suspended Covenants.
For purposes of this covenant, the conveyance, transfer, lease or other
disposition of all or substantially all of the assets of one or more
Subsidiaries of the Company, which assets, if held by the Company instead of
such Subsidiaries, would constitute all or substantially all of the assets of
the Company on a consolidated basis, shall be deemed to be the disposition of
all or substantially all of the assets of the Company.
The Successor Company (if not the Company) will be the successor to the Company
and shall succeed to, and be substituted for, and may exercise every right and
power of, the Company under the Indenture, and the predecessor Company, except
in the case of a lease, shall be released from the obligation to pay the
principal of and interest on the Notes.
The Company will not permit any Subsidiary Guarantor to consolidate with or
merge with or into any Person, except another Subsidiary Guarantor or the
Company, unless:
(1) except in the case of a Subsidiary Guarantor whose Capital Stock has
been disposed of in its entirety to another Person (other than to the
Company or an Affiliate of the Company), including through a merger or
consolidation, if in connection therewith the Company complies with its
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obligations under the covenant described under "--Limitation on Sales of
Assets and Subsidiary Stock" in respect of such disposition, the resulting
or surviving Person (if not such Subsidiary Guarantor) shall be a Person
organized and existing under the laws of the jurisdiction under which such
Subsidiary Guarantor was organized or under the laws of the United States
of America, or any State thereof or the District of Columbia, and such
Person shall expressly assume, by a Guaranty Agreement, in a form
satisfactory to the Trustee, all the obligations of such Subsidiary, if
any, under its Subsidiary Guaranty;
(2) immediately after giving effect to such transaction or transactions on
a pro forma basis (and treating any Indebtedness which becomes an
obligation of the resulting or surviving Person as a result of such
transaction as having been issued by such Person at the time of such
transaction), no Default shall have occurred and be continuing; and
(3) the Company delivers to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that such consolidation or merger, and
such Guaranty Agreement comply with the Indenture.
FUTURE GUARANTORS
The Company will cause each Restricted Subsidiary that Guarantees or secures any
other Indebtedness of the Company to, at the same time, execute and deliver to
the Trustee a Guaranty Agreement pursuant to which such Restricted Subsidiary
will Guarantee payment of the Notes on the same terms and conditions as those
set forth in the Indenture.
SEC REPORTS
Notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company will file
with the SEC (to the extent the SEC will accept such filings) and provide the
Trustee and Noteholders with such annual reports and such information, documents
and other reports as are specified in Sections 13 and 15(d) of the Exchange Act
and applicable to a U.S. corporation subject to such Sections (but, without
exhibits in the case of Noteholders), such information, documents and other
reports to be so filed and provided at the times specified for the filings of
such information, documents and reports under such Sections.
DEFAULTS
In lieu of the Events of Default described in the accompanying prospectus under
the caption "Description of Debt Securities--Events of Default," each of the
following will be an Event of Default with respect to the Notes:
(1) a default in the payment of interest on the Notes when due, continued
for 30 days;
(2) a default in the payment of principal of any Note when due at its
Stated Maturity, upon optional redemption, upon required purchase, upon
declaration of acceleration or otherwise;
(3) the failure by the Company to comply with its obligations under
"--Certain Covenants--Merger and Consolidation" above;
(4) the failure by the Company or any Subsidiary Guarantor to comply with
its other agreements contained in the Indenture;
(5) principal of or interest on any Indebtedness of the Company, any
Subsidiary Guarantor or any Significant Subsidiary is not paid within any
applicable grace period after payment is due, or the principal thereof is
accelerated by the holders thereof because of a default and the total
principal amount of such Indebtedness exceeds $10 million (the "cross
acceleration provision"), provided,
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however, that if any such Indebtedness is repaid or any such acceleration
rescinded, within a period of 10 days beyond the applicable grace period or
the occurrence of such acceleration, as the case may be, such Event of
Default and any consequential acceleration of the Notes shall be
automatically rescinded, so long as such rescission does not conflict with
any judgment or decree;
(6) certain events of bankruptcy, insolvency or reorganization of the
Company, a Subsidiary Guarantor or any Significant Subsidiary (the
"bankruptcy provisions");
(7) any judgment or decree for the payment of money in excess of $10
million above the coverage under applicable insurance policies and
indemnities as to which the relevant insurer or indemniter has not
disclaimed responsibility is entered against the Company, a Subsidiary
Guarantor or any Significant Subsidiary, remains outstanding for a period
of 60 consecutive days following such judgment and is not discharged,
waived or stayed (the "judgment default provision"); or
(8) a Subsidiary Guaranty ceases to be in full force and effect (other than
in accordance with the terms of such Subsidiary Guaranty) for five days
after notice or a Subsidiary Guarantor denies or disaffirms its obligations
under its Subsidiary Guaranty (the "Guaranty Failure Provision").
However, a default under clauses (4) and (8) will not constitute an Event of
Default until the Trustee or the holders of at least 25% in principal amount of
the outstanding Notes notify the Company of the default and the Company does not
cure such default within 90 days after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the holders of
at least 25% in principal amount of the outstanding Notes may declare the
principal of and accrued but unpaid interest on all the Notes to be due and
payable. Upon such a declaration, such principal and interest shall be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company occurs and is
continuing, the principal of and interest on all the Notes will ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any holders of the Notes. Under certain
circumstances, the holders of a majority in principal amount of the outstanding
Notes may rescind any such acceleration with respect to the Notes and its
consequences.
The accompanying prospectus describes under the caption "Description of Debt
Securities--Events of Default" the remedies of Noteholders for Events of
Default.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the consent of
the Holders of a majority in principal amount of the Notes then outstanding
(including consents obtained in connection with a tender offer or exchange for
the Notes) and any past default or compliance with any provisions may also be
waived with the consent of the Holders of a majority in principal amount of the
Notes then outstanding. However, without the consent of each Holder of an
outstanding Note affected thereby, an amendment or waiver may not, among other
things:
(1) reduce the amount of Notes whose Holders must consent to an amendment;
(2) reduce the rate of or extend the time for payment of interest on any
Note;
(3) reduce the principal of or extend the Stated Maturity of any Note;
(4) reduce the amount payable upon the redemption of any Note or change the
time at which any Note may be redeemed as described under "--Optional
Redemption" or "--Escrow of Proceeds; Special Mandatory Redemption" above;
(5) make any Note payable in money other than that stated in the Note;
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(6) impair the right of any Holder of the Notes to receive payment of
principal of and interest on such Holder's Notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to such Holder's Notes;
(7) make any change in the amendment provisions which require each Holder's
consent or in the waiver provisions;
(8) make any change in the ranking or priority of any Note that would
adversely affect the Noteholders in any material respect; or
(9) make any change in any Subsidiary Guaranty that would adversely affect
the Noteholders in any material respect.
Notwithstanding the preceding, the covenant described under the caption
"--Change of Control" may be waived or amended as described in the last
paragraph of the description.
Notwithstanding the preceding, without the consent of any Holder of the Notes,
the Company, the Subsidiary Guarantors and Trustee may amend the Indenture:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to provide for the assumption by a successor of the obligations of the
Company or any Subsidiary Guarantor under the Indenture;
(3) to provide for uncertificated Notes in addition to or in place of
certificated Notes (provided that the uncertificated Notes are issued in
registered form for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated Notes are described in Section 163(f)(2)(B) of
the Code);
(4) to add Guarantees with respect to the Notes, including any Subsidiary
Guaranties, or to secure the Notes;
(5) to add to the covenants of the Company or a Subsidiary Guarantor for
the benefit of the Holders of the Notes or to surrender any right or power
conferred upon the Company or a Subsidiary Guarantor;
(6) to make any change that does not adversely affect the rights of any
Holder of the Notes in any material respect;
(7) to make any change in the subordination provisions of the Indenture
that would limit or terminate the benefits available to any holder of
Senior Indebtedness of the Company or any Subsidiary Guarantor;
(8) to make any change in respect of one or more other series of
subordinated debt securities that is not applicable to the Notes;
(9) to establish any other series of subordinated debt securities as
permitted by the Indenture; or
(10) to provide for a successor Trustee;
However, no amendment may be made to the subordination provisions of the
Indenture that adversely affects the rights of any holder of Senior Indebtedness
of the Company or a Subsidiary Guarantor then outstanding unless such holder of
such Senior Indebtedness (or its Representative) consents to such change or as
otherwise permitted by the notes, debentures, bonds or other similar instruments
evidencing such Senior Indebtedness.
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DEFEASANCE
At any time, we may terminate all our obligations under the Notes and the
Indenture ("legal defeasance"), except for certain obligations, including those
respecting the defeasance trust and obligations to register the transfer or
exchange of the Notes, to replace mutilated, destroyed, lost or stolen Notes and
to maintain a registrar and paying agent in respect of the Notes.
In addition, at any time we may terminate our obligations under "--Change of
Control" and under the covenants described under "--Certain Covenants" (other
than the covenant described under "--Merger and Consolidation"), the operation
of the cross acceleration provision, the bankruptcy provisions with respect to
Subsidiary Guarantors and Significant Subsidiaries and the judgment default and
Guarantor failure provision described under "--Defaults" above and the
limitations contained in clause (3) of the first paragraph under "--Certain
Covenants--Merger and Consolidation" above ("covenant defeasance") if we comply
with the conditions described under "Description of Debt
Securities--Defeasance--Defeasance of Certain Covenants" in the accompanying
prospectus.
We may exercise our legal defeasance option notwithstanding our prior exercise
of our covenant defeasance option. If we exercise our legal defeasance option,
payment of the Notes may not be accelerated because of an Event of Default with
respect thereto. If we exercise our covenant defeasance option, payment of the
Notes may not be accelerated because of an Event of Default specified in clause
(4), (5), (6) (with respect only to Significant Subsidiaries and Subsidiary
Guarantors), (7) or (8) under "--Defaults" above or because of the failure of
the Company to comply with clause (3) of the first paragraph under "--Certain
Covenants--Merger and Consolidation" above. If we exercise our legal defeasance
option or our covenant defeasance option, each Subsidiary Guarantor will be
released from all of its obligations with respect to its Subsidiary Guaranty.
In order to exercise either of our defeasance options, we must comply with the
conditions described under "Description of the Debt
Securities--Defeasance--Defeasance of Certain Covenants" in the accompanying
prospectus.
CERTAIN DEFINITIONS
"Additional Assets" means:
(1) any property, plant or equipment used in a Related Business;
(2) the Capital Stock of a Person that becomes a Restricted Subsidiary as a
result of the acquisition of such Capital Stock by the Company or another
Restricted Subsidiary; or
(3) Capital Stock constituting a minority interest in any Person that at
such time is a Restricted Subsidiary;
provided, however, that any such Restricted Subsidiary described in clause (2)
or (3) above is primarily engaged in a Related Business.
"Adjusted Consolidated Net Tangible Assets" or "ACNTA" means (without
duplication), as of the date of determination:
(a) the sum of:
(1) discounted future net revenue from proved crude oil and natural 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 the Company's reserve engineers in a reserve report prepared
as of the end of the fiscal year ending at least 45 days prior to the date
of determination, as
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increased by, as of the date of determination, the discounted future net
revenue calculated in accordance with SEC guidelines (utilizing the prices
utilized in such year end reserve report) of:
(A) estimated proved crude oil and natural gas reserves of the Company
and its Restricted Subsidiaries attributable to acquisitions consummated
since the date of such reserve report, and
(B) estimated crude oil and natural gas reserves of the Company and its
Restricted Subsidiaries attributable to extensions, discoveries and
other additions and upward determinations of estimates of proved crude
oil and natural gas reserves (including previously estimated development
costs incurred during the period and the accretion of discount since the
prior period end) due to exploration, development or exploitation,
production or other activities which reserves were not reflected in such
reserve report which would, in accordance with standard industry
practice, result in such determinations,
and decreased by, as of the date of determination, the discounted future
net revenue calculated in accordance with SEC guidelines (utilizing the
prices utilized in such year end reserve report) attributable to:
(C) estimated proved crude oil and natural gas reserves of the Company
and its Restricted Subsidiaries reflected in such reserve report
produced or disposed of since the date of such reserve report, and
(D) reductions in the estimated oil and natural gas reserves of the
Company and its Restricted Subsidiaries reflected in such reserve report
since the date of such reserve report attributable to downward
determinations of estimates of proved crude oil and natural gas reserves
due to exploration, development or exploitation, production or other
activities conducted or otherwise occurring since the date of such
reserve report which would, in accordance with standard industry
practice, result in such determinations;
(2) the capitalized costs that are attributable to crude oil and natural
gas properties of the Company and its Restricted Subsidiaries to which no
proved crude oil and natural gas reserves are attributed, based on the
Company's books and records as of a date no earlier than the end of the
most recent fiscal quarter for which financial statements of the Company
have been made publicly available prior to the date of determination;
(3) the Net Working Capital as of the end of the most recent fiscal quarter
for which financial statements of the Company have been made publicly
available prior to the date of determination; and
(4) the greater of (i) the net book value as of a date no earlier than the
end of the most recent fiscal quarter for which financial statements of the
Company have been made publicly available prior to the date of
determination and (ii) the appraised value, as estimated by independent
appraisers, of other tangible assets of the Company and its Restricted
Subsidiaries as of a date no earlier than the most recent fiscal year for
which financial statements of the Company have been made publicly available
prior to the date of determination (provided that the Company shall not be
required to obtain such an appraisal of such assets if no such appraisal
has been performed); minus
(b) to the extent not otherwise taken into account in the immediately preceding
clause (a), the sum of:
(1) minority interests;
(2) any natural gas balancing liabilities of the Company and its Restricted
Subsidiaries reflected in the Company's latest audited consolidated
financial statements;
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(3) the discounted future net revenue, calculated in accordance with SEC
guidelines (utilizing the same prices utilized in the Company's year-end
reserve report), attributable to reserves subject to participation
interests, overriding royalty interests or other interests of third
parties, pursuant to participation, partnership, vendor financing or other
agreements then in effect, or which otherwise are required to be delivered
to third parties;
(4) the discounted future net revenue calculated in accordance with SEC
guidelines (utilizing the same prices utilized in the Company's year-end
reserve report), attributable to reserves that are required to be delivered
to third parties to fully satisfy the obligations of the Company and its
Restricted Subsidiaries with respect to Volumetric Production Payments on
the schedules specified with respect thereto; and
(5) the discounted future net revenue calculated in accordance with SEC
guidelines, attributable to reserves subject to Dollar-Denominated
Production Payments that, based on the estimates of production included in
determining the discounted future net revenue specified in the immediately
preceding clause (a) (1) (utilizing the same prices utilized in the
Company's yearend reserve report), would be necessary to satisfy fully the
obligations of the Company and its Restricted Subsidiaries with respect to
Dollar-Denominated Production Payments on the schedules specified with
respect thereto.
If the Company changes its method of accounting from the full cost method to the
successful efforts method or a similar method of accounting, "ACNTA" will
continue to be calculated as if the Company were 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 the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the covenants described under "--Certain Covenants--Limitation on
Restricted Payments," "--Certain Covenants--Limitation on Affiliate
Transactions" and "--Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner of
Capital Stock representing 10% or more of the total voting power of the Voting
Stock (on a fully diluted basis) of the Company or of rights or warrants to
purchase such Capital Stock (whether or not currently exercisable) and any
Person who would be an Affiliate of any such beneficial owner pursuant to the
first sentence hereof.
"Applicable Premium" means, with respect to a Note at any time, the greater of
(1) 1.0% of the principal amount of such Note at such time and (2) the excess of
(A) the present value at such time of the principal amount of such Note plus any
required interest payments due on such Note from the redemption date to August
, 2007, computed using a discount rate equal to the Treasury Rate plus 50
basis points, over (B) the principal amount of such Note.
"Asset Disposition" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) by the Company or
any Restricted Subsidiary or a Restricted Subsidiary, including any disposition
by means of a merger, consolidation or similar transaction (each referred to for
the purposes of this definition as a "disposition"), of:
(1) any shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares or shares required by applicable law to be
held by a Person other than the Company or a Restricted Subsidiary);
(2) all or substantially all the assets of any division or line of business
of the Company or any Restricted Subsidiary; or
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(3) any other assets of the Company or any Restricted Subsidiary outside of
the ordinary course of business of the Company or such Restricted
Subsidiary
other than, in the case of clauses (1), (2) and (3) above,
(A) a disposition by the Company or a Restricted Subsidiary to the Company
or a Restricted Subsidiary;
(B) for purposes of the covenant described under "--Certain
Covenants--Limitation on Sales of Assets and Subsidiary Stock" only, (x) a
disposition that constitutes a Restricted Payment permitted by the covenant
described under "--Certain Covenants--Limitation on Restricted Payments" or
a Permitted Investment and (y) a disposition of all or substantially all
the assets of the Company in accordance with the covenant described under
"--Certain Covenants--Merger and Consolidation;"
(C) the trade or exchange by the Company or any Restricted Subsidiary of
any property used in the Oil and Gas Business of the Company or a
Restricted Subsidiary for any similar property of another Person, including
any cash or cash equivalents necessary in order to achieve an exchange of
equivalent value; provided, however, that the value of the property
received by the Company or any Restricted Subsidiary in such trade or
exchange (including any cash or cash equivalents) is at least equal to the
fair market value (as determined in good faith by the Board of Directors,
an Officer or an officer of such Restricted Subsidiary with responsibility
for such transaction, which determination shall be conclusive evidence of
compliance with this provision) of the property (including any cash or cash
equivalents) so traded or exchanged;
(D) the creation of a Lien;
(E) a disposition of oil and natural gas properties in connection with tax
credit transactions complying with Section 29 or any successor or analogous
provisions of the Code;
(F) a disposition of the Capital Stock of or any Investment in any
Unrestricted Subsidiary;
(G) surrender or waiver of contract rights or the settlement, release or
surrender of contract, tort or other claims of any kind;
(H) any disposition of defaulted receivables that arose in the ordinary
course of business for collection;
(I) the contribution of overriding royalty interests in oil and natural gas
properties to the Treasure Island Royalty Trust and the disposition of the
Capital Stock of the Treasure Island Royalty Trust, in each case in
connection with the Company's acquisition of EEX Corporation by merger; and
(J) a disposition of assets with a fair market value of less than $5.0
million.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at the
time of determination, the present value (discounted at the interest rate borne
by the Notes, compounded semiannually) of the total obligations of the lessee
for rental payments during the remaining term of the lease included in such
Sale/Leaseback Transaction (including any period for which such lease has been
extended); provided, however, that if such Sale/Leaseback Transaction results in
a Capital Lease Obligation, the amount of Indebtedness represented thereby will
be determined in accordance with the definition of "Capital Lease Obligation."
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"Average Life" means, as of the date of determination, with respect to any
Indebtedness, the quotient obtained by dividing:
(1) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment
of or redemption or similar payment with respect to such Indebtedness
multiplied by the amount of such payment by
(2) the sum of all such payments.
"Bank Indebtedness" means all Obligations pursuant to Credit Facilities.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligation" means an obligation that is required to be classified
and accounted for as a capital lease for financial reporting purposes in
accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, units of beneficial
interests, rights to purchase, warrants, options, participations or other
equivalents of or interests in (however designated) equity of such Person,
including any Preferred Stock, but excluding any debt securities convertible
into such equity.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the ratio of
(x) the aggregate amount of EBITDA for the period of the most recent four
consecutive fiscal quarters for which financial information of the Company has
been made publicly available prior to the date of such determination to (y)
Consolidated Interest Expense for such four fiscal quarters; provided, however,
that:
(1) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding or
if the transaction giving rise to the need to calculate the Consolidated
Coverage Ratio is an Incurrence of Indebtedness, or both, EBITDA and
Consolidated Interest Expense for such period shall be calculated after
giving effect on a pro forma basis to such Indebtedness and the use of
proceeds thereof as if such Indebtedness had been Incurred on the first day
of such period and such proceeds had been applied as of such date;
(2) if the Company or any Restricted Subsidiary has repaid, repurchased,
defeased or otherwise discharged any Indebtedness since the beginning of
such period or if any Indebtedness is to be repaid, repurchased, defeased
or otherwise discharged on the date of the transaction giving rise to the
need to calculate the Consolidated Coverage Ratio, EBITDA and Consolidated
Interest Expense for such period shall be calculated on a pro forma basis
as if such discharge had occurred on the first day of such period and as if
the Company or such Restricted Subsidiary had not earned the interest
income actually earned (if any) during such period in respect of cash or
Temporary Cash Investments used to repay, repurchase, defease or otherwise
discharge such Indebtedness;
(3) if since the beginning of such period the Company or any Restricted
Subsidiary shall have made any Asset Disposition, EBITDA for such period
shall be reduced by an amount equal to EBITDA (if positive) directly
attributable to the assets which were the subject of such Asset
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Disposition for such period, or increased by an amount equal to EBITDA (if
negative), directly attributable thereto for such period and Consolidated
Interest Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Indebtedness of
the Company or any Restricted Subsidiary repaid, repurchased, defeased or
otherwise discharged with respect to the Company and its continuing
Restricted Subsidiaries in connection with such Asset Disposition for such
period (or, if the Capital Stock of any Restricted Subsidiary is sold, the
Consolidated Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent the Company and
its continuing Restricted Subsidiaries are no longer liable for such
Indebtedness after such sale);
(4) if since the beginning of such period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary)
or an acquisition of material assets, including any acquisition of assets
occurring in connection with a transaction requiring a calculation to be
made hereunder, which constitutes all or substantially all of an operating
unit of a business, EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving pro forma effect thereto (including
the Incurrence of any Indebtedness) as if such Investment or acquisition
occurred on the first day of such period; and
(5) if since the beginning of such period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into the Company or
any Restricted Subsidiary since the beginning of such period) shall have
made any Asset Disposition, any Investment or acquisition of assets that
would have required an adjustment pursuant to clause (3) or (4) above if
made by the Company or a Restricted Subsidiary during such period, EBITDA
and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto as if such Asset Disposition, Investment or
acquisition occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of income or earnings relating thereto and the
amount of Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, the pro forma calculations shall be determined
in good faith by a responsible financial or accounting Officer of the Company.
If any Indebtedness bears a floating rate of interest and is being given pro
forma effect, the interest on such Indebtedness shall be calculated as if the
rate in effect on the date of determination had been the applicable rate for the
entire period (taking into account any Interest Rate Agreement applicable to
such Indebtedness, but if the remaining term of such Interest Rate Agreement is
less than 12 months, then such Interest Rate Agreement shall only be taken into
account for that portion of the period equal to the remaining term thereof).
The Consolidated Interest Expense attributable to interest on any Indebtedness
under a revolving credit facility, the outstanding principal balance of which is
required to be computed on a pro forma basis in accordance with the foregoing,
shall be computed based upon the average daily balance of such Indebtedness
during the applicable period, provided, that such average daily balance shall
take into account the amount of any repayment of Indebtedness under such
revolving credit facility during the applicable period, to the extent such
repayment permanently reduced the commitments or amounts available to be
borrowed under such facility.
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries, without duplication:
(1) interest expense attributable to capital leases and the interest
expense attributable to leases constituting part of a Sale/Leaseback
Transaction;
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(2) amortization of debt discount and debt issuance cost;
(3) capitalized interest;
(4) non-cash interest expense;
(5) commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing;
(6) net payments pursuant to Interest Rate Agreements;
(7) Preferred Stock dividends in respect of all Preferred Stock held by
Persons other than the Company or a Wholly Owned Subsidiary (other than
dividends payable solely in Capital Stock (other than Disqualified Stock)
of the Company);
(8) interest incurred in connection with Investments in discontinued
operations;
(9) interest accruing on any Indebtedness of any other Person to the extent
such Indebtedness is Guaranteed by (or secured by the assets of) the
Company or any Restricted Subsidiary; and
(10) the cash contributions to any employee stock ownership plan or similar
trust to the extent such contributions are used by such plan or trust to
pay interest or fees to any Person (other than the Company) in connection
with Indebtedness Incurred by such plan or trust;
minus, to the extent included above, write-off of deferred financing costs and
interest attributable to Dollar-Denominated Production Payments.
"Consolidated Net Income" means, for any period, the net income of the Company
and its consolidated Subsidiaries; provided, however, that there shall not be
included in such Consolidated Net Income:
(1) any net income of any Person (other than the Company) if such Person is
not a Restricted Subsidiary, except that:
(A) subject to the exclusion contained in clause (4) below, the
Company's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income in an amount equal to
the aggregate amount of cash actually distributed by such Person during
such period to the Company or a Restricted Subsidiary as a dividend,
interest payment or other distribution (subject, in the case of a
dividend, interest payment or other distribution paid to a Restricted
Subsidiary, to the limitations contained in clause (3) below); and
(B) the Company's equity in a net loss of any such Person for such
period shall not be included in determining such Consolidated Net
Income, except to the extent of the aggregate cash actually contributed
to such Person by the Company or a Restricted Subsidiary during such
period;
(2) solely for the purposes of determining the aggregate amount available
for Restricted Payments under clause (a) (3) of the covenant described
under "Certain Covenants--Limitation on Restricted Payments," any net
income (or loss) of any Person acquired by the Company or a Subsidiary in a
pooling of interests transaction for any period prior to the date of such
acquisition;
(3) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that:
(A) subject to the exclusion contained in clause (4) below, the
Company's equity in the net income of any such Restricted Subsidiary for
such period shall be included in such
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Consolidated Net Income in an amount equal to the aggregate amount of
cash that could have been distributed by such Restricted Subsidiary
during such period to the Company or another Restricted Subsidiary as a
dividend, interest payment or other distribution (subject, in the case
of a dividend, interest payment or other distribution paid to another
Restricted Subsidiary, to the limitation contained in this clause); and
(B) the Company's equity in a net loss of any such Restricted Subsidiary
for such period shall be included in determining such Consolidated Net
Income;
(4) any gain or loss, together with any related provision for taxes on such
gain or loss and all related fees and expenses, realized in connection with
(A) the sale or other disposition of any assets of the Company, its
consolidated Subsidiaries or any other Person (including pursuant to any
Sale/ Leaseback Transaction) which is not sold or otherwise disposed of in
the ordinary course of business and (B) the disposition of any securities
of any Person or the extinguishment of any Indebtedness of the Company or
any of its Subsidiaries;
(5) extraordinary or non-recurring gains or losses, together with any
related provision for taxes on such gains or losses and all related fees
and expenses; and
(6) the cumulative effect of a change in accounting principles;
(7) any impairment losses on oil and natural gas properties;
(8) any unrealized noncash gains or losses or charges in respect of Hedging
Obligations (including those resulting from the application of SFAS 133);
and
(9) any non-cash compensation charge arising from any grant of stock, stock
options or other equity-based awards.
Notwithstanding the foregoing, for the purposes of the covenant described under
"--Certain Covenants--Limitation on Restricted Payments" only, there shall be
excluded from Consolidated Net Income any repurchases, repayments or redemptions
of Investments, proceeds realized on the sale of Investments or return of
capital to the Company or a Restricted Subsidiary to the extent such
repurchases, repayments, redemptions, proceeds or returns increase the amount of
Restricted Payments permitted under such covenant pursuant to clause (a) (3) (E)
thereof.
"Consolidated Net Worth" means the total of the amounts shown on the balance
sheet of the Company and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company ending at least 45 days prior to the taking of any
action for the purpose of which the determination is being made, as the sum of:
(1) the par or stated value of all outstanding Capital Stock of the Company
plus
(2) paid-in capital or capital surplus relating to such Capital Stock plus
(3) any retained earnings or earned surplus
less (A) any accumulated deficit and (B) any amounts attributable to
Disqualified Stock.
"Credit Facilities" means, with respect to the Company or any Restricted
Subsidiary, one or more debt facilities (including under the Revolving Credit
Facility) or commercial paper facilities with banks or other lenders providing
revolving credit loans, term loans, Production Payments, receivables financing
(including through the sale of 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.
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"Currency Agreement" means in respect of a Person any foreign exchange contract,
currency swap agreement or other similar agreement designed to protect such
Person against fluctuations in currency values.
"Default" means any event which is, or after notice or passage of time or both
would be, an Event of Default.
"Designated Senior Indebtedness," with respect to a Person means:
(1) the Bank Indebtedness; and
(2) any other Senior Indebtedness of such Person which, at the date of
determination, has an aggregate principal amount outstanding of, or under
which, at the date of determination, the holders thereof are committed to
lend up to, at least $25.0 million and is specifically designated by such
Person in the instrument evidencing or governing such Senior Indebtedness
as "Designated Senior Indebtedness" for purposes of the Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock which
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable at the option of the holder) or upon the happening
of any event:
(1) matures or is mandatorily redeemable (other than redeemable only for
Capital Stock of such Person which is not itself Disqualified Stock)
pursuant to a sinking fund obligation or otherwise;
(2) is convertible or exchangeable at the option of the bolder for
Indebtedness or Disqualified Stock; or
(3) is mandatorily redeemable or must be purchased upon the occurrence of
certain events or otherwise, in whole or in part;
in each case on or prior to the first anniversary of the Stated Maturity of the
Notes; provided, however, that (A) any Capital Stock that would not constitute
Disqualified Stock but for provisions thereof giving holders thereof the right
to require such Person to purchase or redeem such Capital Stock upon the
occurrence of an "asset sale" or "change of control" shall not constitute
Disqualified Stock if:
(1) the "asset sale" or "change of control" provisions applicable to such
Capital Stock are not more favorable, as measured by the purchase or
redemption price or the breadth of the definition of the event or events
triggering such purchase or redemption obligation, to the holders of such
Capital Stock than the terms applicable to the Notes and described under
"--Certain Covenants Limitation on Sales of Assets and Subsidiary Stock"
and "--Certain Covenants--Change of Control;" and
(2) any such requirement only becomes operative after compliance with such
terms applicable to the Notes, including the purchase of any Notes tendered
pursuant thereto,
and (B) any Capital Stock that would constitute Disqualified Stock solely
because such Capital Stock is issued pursuant to any plan for the benefit of
employees of the Company or Subsidiaries of the Company or by any such plan to
such employees and may be required to be repurchased by the Company in order to
satisfy applicable statutory or regulatory obligations shall not constitute
Disqualified Stock.
The amount of any Disqualified Stock that does not have a fixed redemption,
repayment or repurchase price will be calculated in accordance with the terms of
such Disqualified Stock as if such Disqualified Stock were redeemed, repaid or
repurchased on any date on which the amount of such Disqualified Stock is to be
determined pursuant to the Indenture; provided, however, that if such
Disqualified Stock
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could not be required to be redeemed, repaid or repurchased at the time of such
determination, the redemption, repayment or repurchase price will be the book
value of such Disqualified Stock as reflected in the most recent financial
statements of such Person.
"Dollar-Denominated Production Payments" means production payment obligations
recorded as liabilities in accordance with GAAP, together with all undertakings
and obligations in connection therewith.
"EBITDA" for any period means the sum of Consolidated Net Income, plus the
following to the extent deducted in calculating such Consolidated Net Income:
(1) all income tax expense of the Company and its consolidated Restricted
Subsidiaries;
(2) Consolidated Interest Expense;
(3) depreciation, depletion, exploration and amortization expense of the
Company and its consolidated Restricted Subsidiaries (excluding
amortization expense attributable to a prepaid operating activity item that
was paid in cash in a prior period); and
(4) all other non-cash charges of the Company and its consolidated
Restricted Subsidiaries (excluding any such non-cash charge to the extent
that it represents an accrual of or reserve for cash expenditures in any
future period);
in each case for such period, and less, to the extent included in calculating
such Consolidated Net Income and in excess of any costs or expenses attributable
thereto and deducted in calculating such Consolidated Net Income, the sum of:
(A) the amount of deferred revenues that are amortized during such period
and are attributable to reserves that are subject to Volumetric Production
Payments; and
(B) amounts recorded in accordance with GAAP as repayments of principal and
interest pursuant to Dollar-Denominated Production Payments.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation, depletion, exploration and amortization and
non-cash charges of, a Restricted Subsidiary shall be added to Consolidated Net
Income to compute EBITDA only to the extent (and in the same proportion,
including by reason of minority interests) that the net income of such
Restricted Subsidiary was included in calculating Consolidated Net Income and
only if a corresponding amount would be permitted at the date of determination
to be dividended to the Company by such Restricted Subsidiary without prior
approval (that has not been obtained), pursuant to the terms of its charter and
all agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to such Restricted Subsidiary or its
stockholders.
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended.
"Existing Investments" means assets (including securities) held by the Company
or any of the Restricted Subsidiaries as consideration for an Investment made on
or before the Issue Date or acquired thereafter pursuant to any agreement or
obligation as in effect on the Issue Date.
"Existing Trust Preferred Securities" means the Company-obligated 6 1/2%
Cumulative Quarterly Income Convertible Preferred Securities, Series A issued by
Newfield Financial Trust I, a statutory business trust, on August 13, 1999, in
an aggregate liquidation amount of $148.2 million.
"Finance Person" means a Subsidiary of the Company that is organized as a
business trust or similar entity for the primary purposes of (1) holding
Subordinated Indebtedness of the Company or a Restricted Subsidiary with respect
to which payments of interest can, at the election of the issuer
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thereof, be deferred for one or more payment periods, and (2) issuing Qualifying
Trust Preferred Securities, the proceeds of which are lent to the Company or
Restricted Subsidiary.
"GAAP" means generally accepted accounting principles in the United States of
America as in effect from time to time.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such Person (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to purchase
assets, goods, securities or services, to take-or-pay or to maintain
financial statement conditions or otherwise); or
(2) entered into for the purpose of assuring in any other manner the
obligee of such Indebtedness of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The term "Guarantor" shall mean any
Person Guaranteeing any Indebtedness.
"Guaranty Agreement" means a supplemental indenture, in a form satisfactory to
the Trustee, pursuant to which a Subsidiary Guarantor guarantees the Company's
obligations with respect to the Notes on the terms provided for in the
Indenture.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Oil and Natural Gas Hedging Contract, Interest Rate Agreement or
Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is registered on
the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable for;
provided, however, that any Indebtedness or Capital Stock of a Person existing
at the time such Person becomes a Restricted Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Person at the time it becomes a Restricted Subsidiary. The term "Incurrence"
when used as a noun shall have a correlative meaning. Solely for purposes of
determining compliance with "--Certain Covenants--Limitation on Indebtedness:"
(1) amortization of debt discount or the accretion of principal with
respect to a non-interest bearing or other discount security;
(2) the payment of regularly scheduled interest in the form of additional
Indebtedness of the same instrument or the payment of regularly scheduled
dividends on Capital Stock in the form of additional Capital Stock of the
same class and with the same terms;
(3) the obligation to pay a premium in respect of Indebtedness arising in
connection with the issuance of a notice of redemption or making of a
mandatory offer to purchase such Indebtedness; and
(4) unrealized losses or charges in respect of Hedging Obligations
(including those resulting from the application of SFAS 133)
will not be deemed to be the Incurrence of Indebtedness.
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"Indebtedness" means, with respect to any Person on any date of determination
(without duplication):
(1) the principal in respect of (A) indebtedness of such Person for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or
other similar instruments for the payment of which such Person is
responsible or liable, including, in each case, any premium on such
indebtedness to the extent such premium has become due and payable;
(2) all Capital Lease Obligations of such Person and all Attributable Debt
in respect of Sale/ Leaseback Transactions entered into by such Person;
(3) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person
and all obligations of such Person under any title retention agreement (but
excluding trade accounts payable and accrued expenses);
(4) all obligations of such Person for the reimbursement of any obligor on
any letter of credit, bankers' acceptance or similar credit transaction
(other than obligations with respect to letters of credit securing
obligations (other than obligations described in clauses (1) through (3)
above) entered into in the ordinary course of business of such Person to
the extent such letters of credit are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed no later than the tenth
Business Day following payment on the letter of credit);
(5) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock of such
Person or, with respect to any Preferred Stock of any Restricted Subsidiary
of such Person the principal amount of such Preferred Stock to be
determined in accordance with the Indenture (but excluding, in each case,
any accrued dividends) (and the term "Incur Indebtedness" and similar terms
include issuances of such Disqualified Stock and Preferred Stock);
(6) all obligations of the types referred to in clauses (1) through (5) of
other Persons and all dividends of other Persons for the payment of which,
in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee;
(7) all obligations of the types referred to in clauses (1) through (6) of
other Persons secured by any Lien on any property or asset of such Person
(whether or not such obligation is assumed by such Person), the amount of
such obligation being deemed to be the lesser of the liquidation value of
such property or asset and the amount of the obligation so secured;
(8) to the extent not otherwise included in this definition, Hedging
Obligations of such Person; and
(9) any Guarantee by such Person of production or payment with respect to a
Production Payment,
if and to the extent, in the case of obligations of the types referred to in
clauses (1), (2) and (3) above, such obligations would appear as a liability
upon a balance sheet of such Person prepared in accordance with GAAP.
Except as expressly provided in clause (9) above, Production Payments and
Reserve Sales shall not constitute "Indebtedness." For purposes of the covenant
captioned "--Certain Covenants--Limitation on Indebtedness," Indebtedness shall
not include Qualifying Trust Preferred Securities and debt securities related to
Qualifying Trust Preferred Securities and held by a Finance Person.
Notwithstanding the preceding, in connection with the purchase by the Company or
any Restricted Subsidiary of any business, the term "Indebtedness" will exclude
post-closing payment adjustments to which the seller may become entitled to the
extent such payment is determined by a final closing
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balance sheet or such payment depends on the performance of such business after
the closing; provided, however, that, at the time of closing, the amount of any
such payment is not determinable and, to the extent such payment thereafter
becomes fixed and determined, the amount is paid within 30 days thereafter.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date; provided, however, that
in the case of Indebtedness sold at a discount, the amount of such Indebtedness
at any time will be the accreted value thereof at such time.
"Independent Qualified Party" means an investment banking firm, accounting firm
or appraisal firm of national standing; provided, however, that such firm is not
an Affiliate of the Company.
"Interest Rate Agreement" means in respect of a Person any interest rate swap
agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect such Person against fluctuations in interest
rates.
"Investment" in any Person means any direct or indirect advance, loan or other
extensions of credit (including by way of Guarantee but excluding any such
extension of credit made in the ordinary course of business to any customer or
supplier) or capital contribution to (by means of any transfer of cash or other
property to others or any payment for property or services for the account or
use of others), or any purchase or acquisition for value of Capital Stock,
Indebtedness or other similar instruments issued by such Person. Except as
otherwise provided for herein, the amount of an Investment shall be its fair
value at the time the Investment is made and without giving effect to subsequent
changes in value.
For purposes of the definition of "Unrestricted Subsidiary," the definition of
"Restricted Payment" and the covenant described under "--Certain
Covenants--Limitation on Restricted Payments:"
(1) "Investment" shall include the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value of the net
assets of any Subsidiary of the Company at the time that such Subsidiary is
designated an Unrestricted Subsidiary; and
(2) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time of such transfer, in each case
as determined in good faith by the Board of Directors.
"Issue Date" means August , 2002.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the State of New York.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Moody's" means Moody's Investors Service, Inc., and any successor to its credit
rating business.
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise and proceeds
from the sale or other disposition of any securities received as consideration,
but only as and when received, but excluding any other consideration received in
the
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form of assumption by the acquiring Person of Indebtedness or other obligations
relating to such properties or assets or received in any other non-cash form),
in each case net of:
(1) all accounting, engineering, investment banking, brokerage, legal,
title and recording tax expenses, commissions and other fees and expenses
incurred, and all Federal, state, provincial, foreign and local and other
taxes required to be accrued as a liability under GAAP, as a consequence of
such Asset Disposition, and any relocation expenses incurred or assumed in
connection with such Asset Disposition;
(2) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any Lien
upon or other security agreement of any kind with respect to such assets,
or which must by its terms, or in order to obtain a necessary consent to
such Asset Disposition, or by applicable law, be repaid out of the proceeds
from such Asset Disposition;
(3) all distributions and other payments required to be made to minority
interest holders in Restricted Subsidiaries as a result of such Asset
Disposition; and
(4) the deduction of appropriate amounts provided by the seller as a
reserve for adjustment in respect of the sale price of the assets that were
the subject of such Asset Disposition or as a reserve, in accordance with
GAAP, against any liabilities associated with the property or other assets
disposed in such Asset Disposition and retained by the Company or any
Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock or
Indebtedness, means the cash proceeds of such issuance or sale net of attorneys'
fees, accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Net Present Value" means, with respect to any proved oil and natural gas
reserves, the discounted future net cash flows associated with such reserves,
determined in accordance with the rules and regulations (including
interpretations thereof) of the SEC in effect on the date of this Prospectus
Supplement.
"Net Working Capital" means:
(1) all current assets of the Company and its Restricted Subsidiaries,
except current assets from commodity price risk management activities
arising in the ordinary course of business; minus
(2) all current liabilities of the Company and its Restricted Subsidiaries,
except current liabilities included in Indebtedness and current liabilities
from commodity price risk management activities arising in the ordinary
course of business,
determined in accordance with GAAP.
"Non-Recourse Purchase Money Indebtedness" means (1) Indebtedness (other than
Capital Lease Obligations) of the Company or any Restricted Subsidiary incurred
in connection with the acquisition by the Company or such Restricted Subsidiary
in the ordinary course of business of fixed assets used in the Oil and Gas
Business (including office buildings and other real property used by the Company
or such Restricted Subsidiary in conducting its operations) and (2) any renewals
and refinancings of such Indebtedness; provided, however, that the holders of
such Indebtedness described in clauses (1) and (2) agree that they will look
solely to the fixed assets so acquired which secure such Indebtedness (subject
to customary exceptions such as indemnifications for environmental and title
matters and fraud) for payment on or in respect of such Indebtedness and no
default with respect to such Indebtedness would permit (after notice or passage
of time or both), according to the terms of any other Indebtedness of the
Company or a Restricted Subsidiary, any holder of such other Indebtedness
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to declare a default under such other Indebtedness or cause the payment of such
other Indebtedness to be accelerated or payable prior to its Stated Maturity.
"Obligations" means, with respect to any Indebtedness, all obligations for
principal, premium, interest, penalties, fees, indemnifications, reimbursements,
and other amounts payable pursuant to the documentation governing such
Indebtedness.
"Officer" means the Chairman of the Board, the President, any Vice President,
the Treasurer or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers.
"Oil and Gas Business" means:
(1) the acquisition, exploration, exploitation, development, operation and
disposition of interests in oil, natural gas, other hydrocarbon and mineral
properties;
(2) the gathering, marketing, distribution, treating, processing, storage,
refining, selling and transporting of any production from such interests or
properties and the marketing of oil, natural gas, other hydrocarbons and
minerals obtained from unrelated Persons;
(3) any business relating to or arising from exploration for or
exploitation, development, production, treatment, processing, storage,
refining, transportation, gathering or marketing of oil, natural gas, other
hydrocarbons and minerals and products produced in association therewith;
and
(4) any activity necessary, appropriate or incidental to the activities
described in the preceding clauses (1) through (3) of this definition.
"Oil and Natural Gas Hedging Contract" means any oil and natural gas hedging
agreement and any other agreement or arrangement designed to protect the Company
or any Restricted Subsidiary against fluctuations in oil and natural gas prices.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"Permitted Business Investments" means Investments and expenditures made in the
ordinary course of, and of a nature that is or shall have become customary in,
the Oil and Gas Business as means of actively exploiting, exploring for,
acquiring, developing, processing, gathering, marketing or transporting oil,
natural gas, other hydrocarbons and minerals through agreements, transactions,
interests or arrangements that permit one to share risks or costs, comply with
regulatory requirements regarding local ownership or satisfy other objectives
customarily achieved through the conduct of the Oil and Gas Business jointly
with third parties, including:
(1) ownership interests in oil, natural gas, other hydrocarbon and mineral
properties or gathering, transportation, processing, storage or related
systems; and
(2) entry into, and Investments and expenditures in the form of or pursuant
to, operating agreements, working interests, royalty interests, mineral
leases, processing agreements, farm-in agreements, farm-out agreements,
contracts for the sale, transportation or exchange of oil, natural gas,
other hydrocarbons and minerals, production sharing agreements, development
agreements, area of mutual interest agreements, unitization agreements,
pooling arrangements, joint bidding agreements, service contracts, joint
venture agreements, partnership agreements (whether general or limited),
limited liability company agreements, subscription agreements, stock
purchase agreements, stockholder agreements and other similar agreements
with third parties (including Unrestricted Subsidiaries).
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"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in:
(1) the Company, a Restricted Subsidiary or a Person that will, upon the
making of such Investment, become a Restricted Subsidiary; provided,
however, that the primary business of such Restricted Subsidiary is a
Related Business;
(2) cash and Temporary Cash Investments;
(3) receivables owing to the Company or any Restricted Subsidiary if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however,
that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances;
(4) payroll, travel and similar advances to cover matters that are expected
at the time of such advances ultimately to be treated as expenses for
accounting purposes and that are made in the ordinary course of business;
(5) loans or advances to officers, directors and employees made in the
ordinary course of business consistent with past practices of the Company
or such Restricted Subsidiary;
(6) Capital Stock, obligations or securities received in settlement of
debts created in the ordinary course of business and owing to the Company
or any Restricted Subsidiary or in satisfaction of judgments;
(7) any Person to the extent such Investment represents the non-cash
portion of the consideration received for an Asset Disposition as permitted
pursuant to the covenant described under "--Certain Covenants--Limitation
on Sales of Assets and Subsidiary Stock" or consideration received for a
disposition not constituting an Asset Disposition;
(8) any Person where such Investment was acquired by the Company or any of
its Restricted Subsidiaries (a) in exchange for any other Investment or
accounts receivable held by the Company or any such Restricted Subsidiary
in connection with or as a result of a bankruptcy, workout, reorganization
or recapitalization of the issuer of such other Investment or accounts
receivable or (b) as a result of a foreclosure by the Company or any of its
Restricted Subsidiaries with respect to any secured Investment or other
transfer of title with respect to any secured Investment in default;
(9) any acquisitions of Capital Stock solely in exchange for Capital Stock
(other than Disqualified Stock) of the Company; provided, however, that the
fair market value of such Capital Stock, when taken together with all other
Capital Stock acquired pursuant to this clause (9) and at the time owned by
the Company or its Restricted Subsidiaries, does not exceed $10.0 million;
(10) Hedging Obligations;
(11) obligations of one or more officers, directors or employees of the
Company or any of its Restricted Subsidiaries in connection with such
individual's acquisition of shares of Capital Stock of the Company (and
refinancings of the principal thereof and accrued interest thereon) so long
as no net cash or other assets of the Company and its Restricted
Subsidiaries is paid by the Company or any of its Restricted Subsidiaries
to such individuals in connection with the acquisition of any such
obligations;
(12) Existing Investments and any Investments made with the proceeds of any
dispositions thereof;
(13) Permitted Business Investments;
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(14) Guarantees of performance or other obligations (other than
Indebtedness) arising in the ordinary course in the Oil and Gas Business,
including obligations under oil and natural gas exploration, development,
joint operating, and related agreements and licenses or concessions related
to the Oil and Gas Business;
(15) Investments in prepaid expenses, negotiable instruments held for
collection or deposit and lease, utility and workers compensation,
performance and similar deposits entered into as a result of the operations
of the business in the ordinary course of business; and
(16) any Person, not otherwise permitted to be made pursuant to clause (1)
through (15), in an aggregate amount, which when taken together with all
other Investments made on or after the Issue Date pursuant to this clause,
does not exceed $50 million at any one time outstanding, measured as of the
date such Investments are made without giving effect to any subsequent
changes in value (which Investments shall be deemed no longer outstanding
only upon the return of capital thereof).
"Permitted Liens" means the following types of Liens:
(1) Liens securing Senior Indebtedness;
(2) Liens in favor of the Company or a Restricted Subsidiary;
(3) Liens securing the Notes;
(4) Liens existing as of the Issue Date; and
(5) Liens arising from the deposit of funds or securities in trust for the
purpose of decreasing or defeasing Indebtedness so long as such deposit of
funds or securities and such decreasing or defeasing of Indebtedness are
permitted under the covenant described under "Certain Covenants--Limitation
on Restricted Payments."
In each case set forth above, notwithstanding any stated limitation on the
assets that may be subject to such Lien, a Permitted Lien on a specified asset
or group or type of assets may include Liens on all improvements, additions and
accessions thereto and all products and proceeds thereof (including, without
limitation, dividends, distributions and increases in respect thereof).
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock," as applied to the Capital Stock of any Person, means Capital
Stock of any class or classes (however designated) which is preferred as to the
payment of dividends or distributions, or as to the distribution of assets upon
any voluntary or involuntary liquidation or dissolution of such Person, over
shares of Capital Stock of any other class of such Person.
"Principal" of a Note means the principal of the Note plus the premium, if any,
payable on the Note which is due or overdue or is to become due at the relevant
time.
"Production Payments" means, collectively, Dollar-Denominated Production
Payments and Volumetric Production Payments.
"Production Payments and Reserve Sales" means the grant or transfer to any
Person of a Dollar Denominated Production Payment, Volumetric Production
Payment, royalty, overriding royalty, net profits interest, master limited
partnership interest or other interest in oil and natural gas properties,
reserves or the right to receive all or a portion of the production or the
proceeds from the sale of production attributable to such properties.
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"Public Equity Offering" means an underwritten primary public offering of common
stock of the Company pursuant to an effective registration statement under the
Securities Act.
"Public Market" exists at any time with respect to the common stock of the
Company if it is then (1) registered with the SEC pursuant to Section 12(b) or
12(g) of the Exchange Act and (2) traded either on a national securities
exchange or on the Nasdaq Stock Market.
"Qualified Redemption Transaction" means redemption of any Capital Stock or
Subordinated Obligation (including any Subordinated Indebtedness accounted for
as a minority interest of the Company that is held by a Finance Person) that by
its terms is convertible into common stock of the Company if on the date of
notice of call for such redemption (1) a Public Market exists in the shares of
common stock of the Company and (2) the average closing price on the Public
Market for shares of common stock of the Company for the 20 trading days
immediately preceding the date of notice exceeds the product of (x) the
redemption price expressed as a percentage of the stated value or amount of the
item being redeemed and (y) 120% of the conversion price per share of common
stock of the Company issuable upon conversion of the Capital Stock or
Subordinated Obligation called for redemption.
"Qualifying Trust Preferred Securities" means preferred trust securities or
similar securities issued by a Finance Person after the Issue Date.
"Refinance" means, in respect of any Indebtedness, to refinance, extend, renew,
refund or to issue other Indebtedness in exchange or replacement for, such
Indebtedness. "Refinanced" and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any Indebtedness
of the Company or any Restricted Subsidiary existing on the Issue Date or
Incurred in compliance with the Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that:
(1) such Refinancing Indebtedness has a Stated Maturity no earlier than the
Stated Maturity of the Indebtedness being Refinanced;
(2) such Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being Refinanced; and
(3) such Refinancing Indebtedness has an aggregate principal amount (or if
Incurred with original issue discount, an aggregate issue price) that is
equal to or less than the aggregate principal amount (or if Incurred with
original issue discount, the aggregate accreted value) then outstanding or
committed (plus accrued interest thereon and fees and expenses, including
any premium and defeasance costs) under the Indebtedness being Refinanced;
provided further, however, that Refinancing Indebtedness shall not include (A)
Indebtedness of a Restricted Subsidiary that is not a Subsidiary Guarantor that
Refinances Indebtedness of the Company or (B) Indebtedness of the Company or a
Restricted Subsidiary that Refinances Indebtedness of an Unrestricted
Subsidiary.
"Related Business" means the Oil and Gas Business and any other business in
which the Company or a Subsidiary was engaged on the Issue Date and any business
related, ancillary or complementary thereto.
"Representative" means, with respect to a Person, any trustee, agent or
representative (if any) for an issue of Senior Indebtedness of such Person.
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"Restricted Payment" with respect to any Person means:
(1) the declaration or payment of any dividends or any other distributions
of any sort in respect of its Capital Stock (including any payment in
connection with any merger or consolidation involving such Person) or
similar payment to the direct or indirect holders of its Capital Stock
(other than dividends or distributions payable solely in its Capital Stock
(other than Disqualified Stock) and dividends or distributions payable
solely to the Company or a Restricted Subsidiary, and dividends or other
distributions made by a subsidiary to the holders of any class of its
Capital Stock on a pro rata basis);
(2) the purchase, redemption or other acquisition or retirement for value
of any Capital Stock of the Company held by any Person (other than a
Restricted Subsidiary) or of any Capital Stock of a Restricted Subsidiary
held by any Affiliate of the Company (other than the Company or a
Restricted Subsidiary), including in connection with any merger or
consolidation and including the exercise of any option to exchange any
Capital Stock (other than into Capital Stock of the Company that is not
Disqualified Stock);
(3) the purchase, repurchase, redemption, defeasance or other acquisition
or retirement for value, prior to scheduled maturity, scheduled repayment
or scheduled sinking fund payment of any Subordinated Obligations of such
Person (other than the purchase, repurchase, redemption, defeasance or
other acquisition of Subordinated Obligations or retirement for value in
anticipation of satisfying a sinking fund obligation, principal installment
or final maturity, in each case due within one year of the date of such
purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value); or
(4) the making of any Investment (other than a Permitted Investment) in any
Person.
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Revolving Credit Facility" means the Credit Agreement dated as of January 23,
2001, among the Company, JPMorgan Chase Bank, as Agent, and the banks signatory
thereto, as amended from time to time.
"S&P" means Standard and Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc., and any successor to its credit rating business.
"Sale/Leaseback Transaction" means an arrangement relating to property owned by
the Company or a Restricted Subsidiary on the Issue Date or thereafter acquired
by the Company or a Restricted Subsidiary whereby the Company or a Restricted
Subsidiary transfers such property to a Person and the Company or a Restricted
Subsidiary leases it from such Person.
"SEC" means the U.S. Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by a Lien.
"Securities Act" means the U.S. Securities Act of 1933, as amended.
"Senior Indebtedness" means with respect to any Person:
(1) Indebtedness of such Person, whether outstanding on the Issue Date or
thereafter Incurred; and
(2) all other Obligations of such Person (including interest accruing on or
after the filing of any petition in bankruptcy or for reorganization
relating to such Person whether or not post-filing interest is allowed in
such proceeding) in respect of Indebtedness described in clause (1) above;
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unless, in the case of clauses (1) and (2), in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is provided
that such Indebtedness or other obligations are subordinate or pari passu in
right of payment to the Notes or the Subsidiary Guaranty of such Person, as the
case may be; provided, however, that Senior Indebtedness shall not include:
(1) any Obligation of such Person to any Subsidiary;
(3) any Disqualified Stock;
(4) any Indebtedness or other Obligation (and any accrued and unpaid
interest in respect thereof) of such Person which is subordinate or junior
in any respect to any other Indebtedness or other Obligation of such
Person; or
(5) that portion of any Indebtedness which at the time of Incurrence is
Incurred in violation of the Indenture.
"Senior Subordinated Indebtedness" means, with respect to a Person, the Notes
(in the case of the Company), the Subsidiary Guaranty (in the case of a
Subsidiary Guarantor) and any other Indebtedness of such Person that
specifically provides that such Indebtedness is to rank pari passu with the
Notes or such Subsidiary Guaranty, as the case may be, in right of payment and
is not subordinated by its terms in right of payment to any Indebtedness or
other obligation of such Person which is not Senior Indebtedness of such Person.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means, with respect to a Person, any Indebtedness of
such Person (whether outstanding on the Issue Date or thereafter Incurred) which
is subordinate or junior in right of payment to the Notes or a Subsidiary
Guaranty of such Person, as the case may be, pursuant to a written agreement to
that effect.
"Subsidiary" means, with respect to any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Voting Stock is at the time owned or controlled, directly or
indirectly, by:
(1) such Person;
(2) such Person and one or more Subsidiaries of such Person; or
(3) one or more Subsidiaries of such Person.
Unless otherwise specified, "Subsidiary" means a Subsidiary of the Company.
"Subsidiary Guarantor" means each Subsidiary of the Company that guarantees the
Notes pursuant to the terms of the Indenture, in each case unless and until such
Subsidiary is released from its obligations under its Subsidiary Guaranty
pursuant to the terms of the Indenture.
"Subsidiary Guaranty" means a Guarantee by a Subsidiary Guarantor of the
Company's obligations with respect to the Notes.
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"Temporary Cash Investments" means any of the following:
(1) any investment in direct obligations of the United States of America or
any agency thereof or obligations guaranteed by the United States of
America or any agency thereof,
(2) investments in demand accounts and time deposit accounts, bankers
acceptances, overnight bank deposits, certificates of deposit and money
market deposits maturing within twelve months of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws
of the United States of America, any State thereof or any foreign country
recognized by the United States of America, and which bank or trust company
has capital, surplus and undivided profits aggregating in excess of $50.0
million (or the foreign currency equivalent thereof) and has outstanding
debt which is rated "A" (or such similar equivalent rating) or higher by at
least one nationally recognized statistical rating organization (as defined
in Rule 436 under the Securities Act) or any money-market fund sponsored by
a registered broker dealer or mutual fund distributor;
(3) investments in deposits available for withdrawal on demand with any
commercial bank that is organized under the laws of any country in which
the Company or any Restricted Subsidiary maintains an office or is engaged
in the Oil and Gas Business, provided that (i) all such deposits have been
made in such accounts in the ordinary course of business and (ii) such
deposits do not at any one time exceed $10.0 million in the aggregate;
(4) repurchase (or reverse repurchase) obligations with a term of not more
than 30 days for underlying securities of the types described in clause (1)
above entered into with a bank meeting the qualifications described in
clause (2) above;
(5) investments in commercial paper, maturing not more than 90 days after
the date of acquisition, issued by a corporation (other than an Affiliate
of the Company) organized and in existence under the laws of the United
States of America or any foreign country recognized by the United States of
America with a rating at the time as of which any investment therein is
made of "P-l" (or higher) according to Moody's or "A-l" (or higher)
according to S&P; and
(6) investments in securities with maturities of six months or less from
the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A"
by S&P or "A" by Moody's.
"Treasury Rate" means the yield to maturity at the time of computation of United
States Treasury securities with a constant maturity (as compiled 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 fixed for
redemption or, in the case of defeasance, prior to the date of deposit (or, if
such Statistical Release is no longer published, any publicly available source
of similar market data)) most nearly equal to the then remaining average life to
August , 2007 or, in the case of defeasance, to maturity; provided, however,
that if the average life to August , 2007 or maturity, as the case may be, of
the Notes is not equal to the constant maturity of a 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 average life to August , 2007
or maturity, as the case may be, of the 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.
"Trustee" means Wachovia Bank, National Association until a successor replaces
it and, thereafter, means the successor.
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"Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.C.
sec.sec. 77aaa-77bbbb) as in effect on the Issue Date.
"Unrestricted Subsidiary" means:
(1) any Subsidiary of the Company that at the time of determination shall
be designated an Unrestricted Subsidiary by the Board of Directors in the
manner provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary of the Company (including
any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary
unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or
Indebtedness of, or holds any Lien on any property of, the Company or any other
Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so
designated; provided, however, that either (A) the Subsidiary to be so
designated has total assets of $1,000 or less or (B) if such Subsidiary has
assets greater than $1,000, such designation would be permitted under the
covenant described under "--Certain Covenants--Limitation on Restricted
Payments."
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided, however, that immediately after giving effect
to such designation (A) the Company could Incur $1.00 of additional Indebtedness
under paragraph (a) of the covenant described under "--Certain
Covenants--Limitation on Indebtedness" and (B) no Default shall have occurred
and be continuing. Any such designation by the Board of Directors shall be
evidenced to the Trustee by promptly filing with the Trustee a copy of the
resolution of the Board of Directors giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Volumetric Production Payments" means production payment obligations recorded
as deferred revenue in accordance with GAAP, together with all undertakings and
obligations in connection therewith.
"Voting Stock" of a Person means all classes of Capital Stock of such Person
then outstanding and normally entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means any Restricted Subsidiary if
(1) all of the Capital Stock of such Restricted Subsidiary, other than any
directors' qualifying shares and, in the case of Newfield China, LDC, its
preferred shares that are outstanding on the Issue Date, is owned directly
or indirectly by the Company or
(2) 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 of 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.
--------------------------------------------------------------------------------
S- 83
--------------------------------------------------------------------------------
Underwriting
We are selling the notes to the underwriters named in the table below pursuant
to an underwriting agreement dated the date of this prospectus supplement. We
have agreed to sell to each of the underwriters, and each of the underwriters
has severally agreed to purchase, the principal amount of notes set forth
opposite that underwriter's name in the table below:
PRINCIPAL
UNDERWRITER AMOUNT OF NOTES
-------------------------------------------------------------------------------
$
UBS Warburg LLC.............................................
J.P. Morgan Securities Inc. ................................
Wachovia Securities, Inc. ..................................
BNY Capital Markets, Inc. ..................................
Credit Lyonnais Securities (USA) Inc. ......................
Fleet Securities, Inc. .....................................
------------
Total............................................. $225,000,000
============
Under the terms and conditions of the underwriting agreement, the underwriters
must buy all of the notes if they buy any of them. The underwriting agreement
provides that the obligations of the underwriters pursuant thereto are subject
to certain conditions. In the event of a default by an underwriter, the
underwriting agreement provides that, in certain circumstances, the purchase
commitments of the non-defaulting underwriters may be increased or the
underwriting agreement may be terminated. The underwriters will sell the notes
to the public when and if the underwriters buy the notes from us.
The notes sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus
supplement. Any notes sold by the underwriters to securities dealers may be sold
at a discount from the initial public offering price of up to % of the
principal amount of notes. Any such securities dealers may resell any notes
purchased from the underwriters to certain other brokers or dealers at a
discount from the initial public offering price of up to % of the principal
amount of notes. If all of the notes are not sold at the initial offering price,
the underwriters may change the offering price and other selling terms.
We have been advised by the underwriters that they intend to make a market in
the notes but they are not obligated to do so and may stop their market making
at any time. Liquidity of the trading market for the notes cannot be assured.
In order to facilitate the offering of the notes, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
notes. Specifically, the underwriters may over-allot in connection with the
offering, creating a short position in the notes for their own accounts. In
addition, to cover over-allotments or to stabilize the price of the notes, the
underwriters may bid for, and purchase, the notes in the open market. Finally,
the underwriters may reclaim selling concessions allowed to a particular
underwriter or dealer for distributing the notes in the offering if the
underwriter or dealer repurchases previously distributed notes in transactions
to cover short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of the notes above
independent market levels. The underwriters are not required to engage in these
activities and may end any of these activities at any time. These transactions
may be effected in the over-the-counter market or otherwise.
--------------------------------------------------------------------------------
S- 84
UNDERWRITING
--------------------------------------------------------------------------------
We estimate that our expenses in connection with the sale of the notes, other
than underwriting discounts, will be approximately $0.5 million. In the event of
a special mandatory redemption of the notes, the underwriters have agreed to
refund a portion of the underwriting discount to us.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933.
Upon our acquisition of EEX, we will use the net proceeds of this offering to
repay a portion of the EEX credit facility. Except for Wachovia Securities, Inc.
and Fleet Securities, Inc., each of the underwriters is affiliated with a
commercial bank that is a lender under the EEX credit facility. Because more
than 10% of the proceeds of this offering, not including underwriting discounts,
may be received by entities who are affiliated with National Association of
Securities Dealers, Inc. members who are participating in this offering, this
offering is being conducted in compliance with National Association of
Securities Dealers Conduct Rule 2710(c)(8). Pursuant to this rule, the yield of
a debt security can be no lower than that recommended by a qualified independent
underwriter ("QIU") which has participated in the preparation of this prospectus
supplement and performed its usual standard of due diligence with respect to
this prospectus supplement. In accordance with this requirement,
has agreed to act as QIU with respect to the offering, and
the yield of the notes will be no lower than that recommended by
. has performed due diligence
investigations and reviewed and participated in the preparation of this
prospectus supplement.
UBS Warburg LLC, J.P. Morgan Securities Inc. and their respective affiliates
have engaged, and may in the future engage, in commercial banking and investment
banking transactions with us and our affiliates and provide other advisory
services to us and our affiliates. They have received, and will continue to
receive, customary compensation for these transactions and services. Commercial
bank affiliates of J.P. Morgan Securities Inc., Wachovia Securities, Inc., BNY
Capital Markets, Inc., Fleet Securities, Inc. and Credit Lyonnais Securities
(USA) Inc. are participants in our credit facility. Affiliates of J.P. Morgan
Securities Inc. and Credit Lyonnais Securities (USA) Inc. are also
counterparties to some of our hedging contracts. By letter dated May 29, 2002,
UBS Warburg LLC and its affiliates have committed to provide, structure, arrange
and syndicate a $325 million senior secured bridge loan facility, the proceeds
of which would be used, if necessary, to refinance the existing credit facility
of EEX and to unwind a forward gas sale of EEX.
--------------------------------------------------------------------------------
S- 85
--------------------------------------------------------------------------------
Legal Matters
Vinson & Elkins L.L.P., Houston, Texas will pass upon the validity of the notes
for us. Baker Botts L.L.P., Houston, Texas will pass upon certain legal matters
for the underwriters. Baker Botts L.L.P. has in the past represented us in
matters unrelated to this offering.
Experts
The consolidated financial statements of Newfield Exploration Company
incorporated in the accompanying prospectus by reference to the Annual Report on
Form 10-K for the year ended December 31, 2001 have been so incorporated in
reliance on the report (which contains an explanatory paragraph relating to
Newfield's change in accounting method for its derivatives and hedging
activities and its crude oil inventories as described in Note 1 to the
consolidated financial statements) of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The consolidated financial statements of EEX Corporation appearing in EEX
Corporation's Annual Report (Form 10-K) for the year ended December 31, 2001
incorporated by reference in the accompanying prospectus have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
(which contains an explanatory paragraph describing conditions that raise
substantial doubt about EEX's ability to continue as a going concern as
described in Note 2 to the consolidated financial statements) included therein
and incorporated by reference in the accompanying prospectus. Such consolidated
financial statements are incorporated by reference in the accompanying
prospectus in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
--------------------------------------------------------------------------------
S- 86
PROSPECTUS
NEWFIELD EXPLORATION COMPANY
DEBT SECURITIES, COMMON STOCK, STOCK PURCHASE CONTRACTS,
STOCK PURCHASE UNITS, PREFERRED STOCK, DEPOSITARY SHARES AND
SECURITIES WARRANTS
----------
We may offer and sell from time to time:
o debt securities;
o shares of common stock;
o stock purchase contracts;
o stock purchase units;
o shares of preferred stock, which may be issued in the form of
depositary shares evidenced by depositary receipts; and
o securities warrants to purchase debt securities, common stock,
preferred stock, depositary shares or other securities.
The aggregate initial offering price of the securities that may be sold
pursuant to this prospectus will not exceed $575,000,000.
This prospectus provides you with a general description of the securities
that may be offered. Each time securities are sold, we will provide one or more
supplements to this prospectus that contain more specific information about the
offering and the terms of the securities. The supplements may also add, update
or change information contained in this prospectus. You should carefully read
this prospectus and any accompanying prospectus supplement before you invest in
any of our securities.
Our common stock is listed on the New York Stock Exchange under the symbol
"NFX."
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 3 OF THIS
PROSPECTUS BEFORE YOU MAKE AN INVESTMENT IN OUR SECURITIES.
----------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------
THIS PROSPECTUS IS DATED DECEMBER 13, 2001
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS...........................................................1
WHERE YOU CAN FIND MORE INFORMATION.............................................1
FORWARD-LOOKING STATEMENTS......................................................2
ABOUT OUR COMPANY...............................................................3
RISK FACTORS....................................................................3
USE OF PROCEEDS.................................................................9
RATIOS OF EARNINGS TO FIXED CHARGES.............................................9
DESCRIPTION OF DEBT SECURITIES..................................................9
DESCRIPTION OF COMMON STOCK AND PREFERRED STOCK................................23
DESCRIPTION OF DEPOSITARY SHARES...............................................28
DESCRIPTION OF SECURITIES WARRANTS.............................................30
DESCRIPTION OF STOCK PURCHASE CONTRACTS AND STOCK PURCHASE UNITS...............32
PLAN OF DISTRIBUTION...........................................................32
LEGAL MATTERS..................................................................33
EXPERTS........................................................................33
----------
You should rely only on the information incorporated by reference or
provided in this prospectus and any accompanying prospectus supplement. We have
not authorized any dealer, salesman or other person to provide you with
additional or different information. This prospectus and any accompanying
prospectus supplement are not an offer to sell or the solicitation of an offer
to buy any securities other than the securities to which they relate and are not
an offer to sell or the solicitation of an offer to buy securities in any
jurisdiction to any person to whom it is unlawful to make an offer or
solicitation in that jurisdiction. You should not assume that the information in
this prospectus or any accompanying prospectus supplement or in any document
incorporated by reference in this prospectus or any accompanying prospectus
supplement is accurate as of any date other than the date of the document
containing the information.
i
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement on Form S-3 that we
filed with the Securities and Exchange Commission, which we refer to as the
"SEC," using a "shelf" registration process. Under this shelf process, we may,
over time, sell any combination of the securities described in this prospectus
and another prospectus included as part of the registration statement in one or
more offerings up to a total dollar amount of $575 million. This prospectus
provides you with a general description of the securities we may offer pursuant
to this prospectus. Each time we sell securities, we will provide one or more
prospectus supplements that will contain specific information about the terms of
that offering. This prospectus does not contain all of the information included
in the registration statement. For a complete understanding of the offering of
securities, you should refer to the registration statement relating to this
prospectus, including its exhibits. A prospectus supplement may also add, update
or change information contained in this prospectus. You should read both this
prospectus and any accompanying prospectus supplement together with the
additional information described under the heading "Where You Can Find More
Information."
Unless the context requires otherwise or unless otherwise noted, all
references in this prospectus or any accompanying prospectus supplement to
"Newfield," "we," "us" or "our" are to Newfield Exploration Company and its
subsidiaries.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file at the SEC's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549. You may obtain information on the operation of the
SEC's public reference room by calling the SEC at 1-800-SEC-0330.
Our common stock is listed on the New York Stock Exchange under the symbol
"NFX." Our reports, proxy statements and other information may be read and
copied at the New York Stock Exchange at 30 Broad Street, New York, New York
10005.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below and any future filings made with the SEC
under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
until we sell all of the securities or until we terminate this offering:
o our annual report on Form 10-K for the year ended December 31, 2000;
o our quarterly reports on Form 10-Q for the quarters ended March 31,
2001, June 30, 2001 and September 30, 2001;
o our current reports on Form 8-K filed on January 8, 2001; February 7,
2001; February 16, 2001; February 28, 2001; May 17, 2001; October 4,
2001 and October 9, 2001 and our amended current report on Form 8-K/A
filed on February 13, 2001;
o the description of our common stock contained in our Form 8-A
registration statement filed on November 4, 1993; and
o the description of our preferred share purchase rights contained in
our Form 8-A registration statement filed on February 18, 1999.
You may request a copy of these filings, at no cost, by writing us at the
following address or telephoning us at the following number:
Newfield Exploration Company
Attention: Stockholder Relations
363 N. Sam Houston Parkway E.,
Suite 2020
Houston, Texas 77060
(281) 847-6000
FORWARD-LOOKING STATEMENTS
This prospectus, any accompanying prospectus supplement and the documents
we incorporate by reference herein may include "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. All statements other than statements of
historical facts included in this prospectus, any accompanying prospectus
supplement and the documents we incorporate by reference herein, including
statements regarding estimated or anticipated operating and financial data,
production targets, anticipated production rates, planned capital expenditures,
the availability of capital resources to fund capital expenditures, estimates of
proved reserves, wells planned to be drilled in the future, our financial
position, business strategy and other plans and objectives for future
operations, are forward-looking statements. Although we believe that the
expectations reflected in these forward-looking statements are reasonable, these
statements are based upon assumptions and anticipated results that are subject
to numerous uncertainties. Actual results may very significantly from those
anticipated due to many factors, including:
o drilling results;
o oil and gas prices;
o industry conditions;
o the prices of goods and services;
o the availability of drilling rigs and other support services; and
o the availability of capital resources.
The information contained in this prospectus and the documents incorporated
by reference into this prospectus identify additional factors that could affect
our operating results and performance. We urge you to carefully consider these
factors.
All forward-looking statements attributable to our company are expressly
qualified in their entirety by this cautionary statement.
2
ABOUT OUR COMPANY
We are an independent oil and gas company engaged in the exploration,
development and acquisition of crude oil and natural gas properties. We were
founded in 1989 and acquired our first oil and gas reserves in 1990. Since that
time, we have grown rapidly. Our initial focus area was the Gulf of Mexico. Over
the last several years we have expanded our areas of operation to include the
U.S. onshore Gulf Coast, the Anadarko and Permian Basins, offshore Australia and
China's Bohai Bay.
Our executive offices are located at 363 N. Sam Houston Parkway E., Suite
2020, Houston, Texas 77060, and our telephone number is (281) 847-6000. We
maintain a website on the Internet at http://www.newfld.com.
RISK FACTORS
Your investment in our securities will involve risks. You should
carefully consider, in addition to the other information contained in, or
incorporated by reference into, this prospectus and any accompanying prospectus
supplement, the risks described below before deciding whether an investment in
our securities is appropriate for you.
RISKS ASSOCIATED WITH OUR DEBT SECURITIES
OUR DEBT SECURITIES WILL BE EFFECTIVELY SUBORDINATED TO OBLIGATIONS OF OUR
SUBSIDIARIES. All of our international and U.S. mid-continent properties are
owned and operated by our subsidiaries. As a result, distributions or advances
from these subsidiaries may be necessary to meet our debt service obligations.
Contractual provisions or laws, as well as our subsidiaries' financial condition
and operating requirements, may limit our ability to obtain cash from our
subsidiaries to pay our debt service obligations, including payments on debt
securities. Debt securities will be structurally subordinated to all obligations
of our subsidiaries, including trade payables. This means that holders of debt
securities will have a junior position to the claims of creditors of our
subsidiaries on their assets and earnings.
UNLESS OTHERWISE INDICATED IN AN ACCOMPANYING PROSPECTUS SUPPLEMENT, THERE
WILL BE NO PUBLIC MARKET FOR DEBT SECURITIES. We do not plan to list any debt
securities on any securities exchange. While the underwriters of a particular
offering of debt securities may advise us that they intend to make a market in
those debt securities, the underwriters will not obligated to do so and may stop
their market making at any time. No assurance can be given:
o that a market for any series of debt securities will develop or
continue;
o as to the liquidity of any market that does develop; or
o as to your ability to sell any debt securities you may own or the
price at which you may be able to sell your debt securities.
RISKS ASSOCIATED WITH OUR COMMON STOCK
WE DO NOT INTEND TO PAY, AND ARE RESTRICTED IN OUR ABILITY TO PAY,
DIVIDENDS ON OUR COMMON STOCK. We have not paid cash dividends in the past and
do not intend to pay dividends on our common stock in the foreseeable future. We
currently intend to retain any earnings for the future operation and development
of our business. Our ability to make dividend payments in the future will depend
on our future performance and liquidity. In addition, our credit facility
contains restrictions on our ability to pay cash dividends on our capital stock,
including our common stock.
3
OUR CERTIFICATE OF INCORPORATION, STOCKHOLDERS RIGHTS AGREEMENT AND BYLAWS
CONTAIN PROVISIONS THAT COULD DISCOURAGE AN ACQUISITION OR CHANGE OF CONTROL OF
OUR COMPANY. Our stockholders rights agreement, together with certain provisions
of our certificate of incorporation and bylaws, may make it more difficult to
effect a change in control of our company, to acquire us or to replace incumbent
management. These provisions could potentially deprive our stockholders of
opportunities to sell shares of our stock at above-market prices.
RISKS ASSOCIATED WITH OUR OPERATIONS
OIL AND GAS PRICES FLUCTUATE WIDELY, AND LOW PRICES FOR AN EXTENDED PERIOD
OF TIME ARE LIKELY TO HAVE A MATERIAL ADVERSE IMPACT ON OUR BUSINESS. Our
revenues, profitability and future growth depend substantially on prevailing
prices for oil and gas. These prices also affect the amount of cash flow
available for capital expenditures and our ability to borrow and raise
additional capital. The amount we can borrow under our credit facility is
subject to periodic redeterminations based in part on changing expectations of
future prices. Lower prices may also reduce the amount of oil and gas that we
can economically produce.
Prices for oil and gas fluctuate widely. Among the factors that can cause
fluctuations are:
o the domestic and foreign supply of oil and natural gas;
o weather conditions;
o the price of foreign imports;
o world-wide economic conditions;
o political conditions in oil and gas producing regions;
o the level of consumer demand;
o domestic and foreign governmental regulations; and
o the price and availability of alternative fuels.
OUR USE OF HEDGING TRANSACTIONS FOR A PORTION OF OUR OIL AND GAS PRODUCTION
INVOLVES CREDIT RISK AND MAY LIMIT FUTURE REVENUES FROM PRICE INCREASES AND
RESULT IN SIGNIFICANT FLUCTUATIONS IN OUR NET INCOME AND STOCKHOLDERS' EQUITY.
We use hedging transactions with respect to a portion of our oil and gas
production to achieve more predictable cash flow and to reduce our exposure to
price fluctuations. While the use of hedging transactions limits the downside
risk of price declines, their use may also limit future revenues from price
increases. Hedging transactions also involve the risk that the counterparty may
be unable to satisfy its obligations.
We adopted Statement of Financial Accounting Standards (SFAS) No. 133 as of
January 1, 2001. SFAS No. 133 generally requires us to record each derivative
instrument as an asset or liability measured at its fair value. Each quarter we
must record changes in the value of our hedges, which could result in
significant fluctuations in our net income and stockholders' equity from period
to period.
OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO REPLACE RESERVES THAT WE
PRODUCE. Our future success depends on our ability to find, develop and acquire
oil and gas reserves that are economically recoverable. As is generally the
case, our producing properties in the Gulf Coast region often have high initial
4
production rates, followed by steep declines. As a result, we must locate and
develop or acquire new oil and gas reserves to replace those being depleted by
production. We must do this even during periods of low oil and gas prices when
it may be difficult to raise the capital necessary to finance these activities.
Without successful exploration or acquisition activities, our reserves,
production and revenues will decline rapidly. We cannot assure you that we will
be able to find and develop or acquire additional reserves at an acceptable
cost.
SUBSTANTIAL CAPITAL IS REQUIRED TO REPLACE AND GROW RESERVES We make, and
will continue to make, substantial expenditures to find, develop, acquire and
produce oil and gas reserves. If, however, lower oil and gas prices or operating
difficulties result in our cash flow from operations being less than expected or
limit our ability to borrow under our credit facility, we may be unable to
expend the capital necessary to undertake or complete our drilling program
unless we raise additional funds through debt or equity financings. We cannot
assure you that debt or equity financing, cash generated by operations or
borrowing capacity will be available to meet these requirements.
RESERVE ESTIMATES ARE INHERENTLY UNCERTAIN AND DEPEND ON MANY ASSUMPTIONS
THAT MAY TURN OUT TO BE INACCURATE. Estimating accumulations of oil and gas is
complex and is not exact because of the numerous uncertainties inherent in the
process. The process relies on interpretations of available geologic, geophysic,
engineering and production data. The extent, quality and reliability of this
data can vary. The process also requires certain economic assumptions, some of
which are mandated by the SEC, such as oil and gas prices, drilling and
operating expenses, capital expenditures, taxes and availability of funds. The
accuracy of a reserve estimate is a function of:
o the quality and quantity of available data;
o the interpretation of that data;
o the accuracy of various mandated economic assumptions; and
o the judgment of the persons preparing the estimate.
The proved reserve information we report is based on estimates we prepared.
Estimates prepared by others might differ materially from our estimates.
Actual future production, oil and gas prices, revenues, taxes, development
expenditures, operating expenses and quantities of recoverable oil and gas
reserves most likely will vary from our estimates. Any significant variance
could materially affect the quantities and present value of our reserves. In
addition, we may adjust estimates of proved reserves to reflect production
history, results of exploration and development and prevailing oil and gas
prices. Our reserves may also be susceptible to drainage by operators on
adjacent properties.
You should not assume that the present value of future net cash flows is
the current market value of our estimated proved oil and gas reserves. In
accordance with SEC requirements, we generally base the estimated discounted
future net cash flows from proved reserves on prices and costs on the date of
the estimate. Actual future prices and costs may be materially higher or lower
than the prices and costs as of the date of the estimate.
IF OIL AND GAS PRICES DECREASE, WE MAY BE REQUIRED TO TAKE WRITEDOWNS.
There is a risk that we will be required to writedown the carrying value of our
oil and gas properties when oil and gas prices are low or if we have substantial
downward adjustments to our estimated proved reserves, increases in our
estimates of development costs or deterioration in our exploration results.
5
We capitalize the costs to acquire, find and develop our oil and gas
properties. Under the full cost accounting method, the net capitalized costs of
our oil and gas properties may not exceed the present value of estimated future
net cash flows from proved reserves, using period end oil and gas prices and a
10% discount factor, plus the lower of cost or fair market value of unproved
properties. If net capitalized costs of our oil and gas properties exceed this
limit, we must charge the amount of the excess to earnings. This type of charge
will not affect our cash flow from operating activities, but it will reduce the
book value of our stockholders' equity. We review the carrying value of our
properties quarterly, based on prices in effect as of the end of each quarter or
as of the time of reporting our results. The carrying value of oil and gas
properties is computed on a country-by-country basis. Therefore, while our
properties in one country may be subject to a writedown, our properties in other
countries could be unaffected. Once incurred, a writedown of oil and gas
properties is not reversible at a later date even if oil and gas prices
increase.
WE MAY BE SUBJECT TO RISKS IN CONNECTION WITH ACQUISITIONS. The successful
acquisition of producing properties requires an assessment of several factors,
including:
o recoverable reserves;
o future oil and gas prices;
o operating costs; and
o potential environmental and other liabilities.
The accuracy of these assessments is inherently uncertain. In connection
with these assessments, we perform a review of the subject properties that we
believe to be generally consistent with industry practices. Our review will not
reveal all existing or potential problems nor will it permit us 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. Even when problems are identified, the seller
may be unwilling or unable to provide effective contractual protection against
all or part of the problems. We are often not entitled to contractual
indemnification for environmental liabilities and acquire properties on an "as
is" basis.
COMPETITIVE INDUSTRY CONDITIONS MAY NEGATIVELY AFFECT OUR ABILITY TO
CONDUCT OPERATIONS. Competition in the oil and gas industry is intense,
particularly with respect to the acquisition of producing properties and proved
undeveloped acreage. Major and independent oil and gas companies actively bid
for desirable oil and gas properties, as well as for the equipment and labor
required to operate and develop their properties. Many of our competitors have
financial resources that are substantially greater than ours, which may
adversely affect our ability to compete with these companies.
DRILLING IS A HIGH-RISK ACTIVITY. Our future success will depend on the
success of our drilling program. In addition to the numerous operating risks
described in more detail below, these activities involve the risk that no
commercially productive oil or gas reservoirs will be discovered. In addition,
we often are uncertain as to the future cost or timing of drilling, completing
and producing wells.
Furthermore, our drilling operations may be curtailed, delayed or canceled
as a result of a variety of factors, including:
o unexpected drilling conditions;
6
o pressure or irregularities in formations;
o equipment failures or accidents;
o adverse weather conditions;
o compliance with governmental requirements; and
o shortages or delays in the availability of drilling rigs and the
delivery of equipment.
THE OIL AND GAS BUSINESS INVOLVES MANY OPERATING RISKS THAT CAN CAUSE
SUBSTANTIAL LOSSES; INSURANCE MAY NOT PROTECT US AGAINST ALL THESE RISKS. These
risks include:
o fires;
o explosions;
o blow-outs;
o uncontrollable flows of oil, gas, formation water or drilling fluids;
o natural disasters;
o pipe or cement failures;
o casing collapses;
o embedded oilfield drilling and service tools;
o abnormally pressured formations; and
o environmental hazards such as oil spills, natural gas leaks, pipeline
ruptures and discharges of toxic gases.
If any of these events occur, we could incur substantial losses as a result
of:
o injury or loss of life;
o severe damage to or destruction of property, natural resources and
equipment;
o pollution and other environmental damage;
o clean-up responsibilities;
o regulatory investigation and penalties;
o suspension of our operations; and
o repairs to resume operations.
If we experience any of these problems, our ability to conduct operations could
be adversely affected.
7
Offshore operations are subject to a variety of operating risks peculiar to
the marine environment, such as capsizing, collisions and damage or loss from
hurricanes or other adverse weather conditions. These conditions can cause
substantial damage to facilities and interrupt production. As a result, we could
incur substantial liabilities that could reduce or eliminate the funds available
for our drilling and development programs and acquisitions, or result in the
loss of properties.
We maintain insurance against some, but not all, of these potential risks.
We may elect not to obtain insurance if we believe that the cost of available
insurance is excessive relative to the risks presented. In addition, pollution
and environmental risks generally are not fully insurable. If a significant
accident or other event occurs and is not fully covered by insurance, it could
adversely affect us.
WE HAVE RISKS ASSOCIATED WITH OUR FOREIGN OPERATIONS. We continue to
evaluate and pursue new opportunities for international expansion in areas where
we can use our core competencies. To date, we have expanded our operations to
Australia and China.
Ownership of property interests and production operations in areas outside
the United States are subject to the various risks inherent in foreign
operations. These risks may include:
o currency restrictions and exchange rate fluctuations;
o loss of revenue, property and equipment as a result of expropriation,
nationalization, war or insurrection;
o increases in taxes and governmental royalties;
o renegotiation of contracts with governmental entities and
quasi-governmental agencies;
o changes in laws and policies governing operations of foreign-based
companies;
o labor problems; and
o other uncertainties arising out of foreign government sovereignty over
our international operations.
Our international operations may also be adversely affected by laws and
policies of the United States affecting foreign trade, taxation and investment.
In addition, if a dispute arises from foreign operations, we may be subject to
the exclusive jurisdiction of foreign courts or may not be successful in
subjecting foreign persons to the jurisdiction of the courts of the United
States.
OTHER INDEPENDENT OIL AND GAS COMPANIES' LIMITED ACCESS TO CAPITAL MAY
CHANGE OUR EXPLORATION AND DEVELOPMENT PLANS. Many independent oil and gas
companies have limited access to the capital necessary to finance their
activities. As a result, some of the other working interest owners of our wells
may be unwilling or unable to pay their share of the costs of projects as they
become due. These problems could cause us to change, suspend or terminate our
drilling and development plans with respect to the affected project.
WE ARE SUBJECT TO COMPLEX LAWS THAT CAN AFFECT THE COST, MANNER OR
FEASIBILITY OF DOING BUSINESS. Exploration, development, production and sale of
oil and gas are subject to extensive federal, state, local and international
regulation. We may be required to make large expenditures to comply with
environmental and other governmental regulations. Matters subject to regulation
include:
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o discharge permits for drilling operations;
o drilling bonds;
o reports concerning operations;
o the spacing of wells;
o unitization and pooling of properties; and
o taxation.
Under these laws, we could be liable for personal injuries, property
damage, oil spills, discharge of hazardous materials, remediation and clean-up
costs and other environmental damages. Failure to comply with these laws also
may result in the suspension or termination of our operations and subject us to
administrative, civil and criminal penalties. Moreover, these laws could change
in ways that substantially increase our costs.
USE OF PROCEEDS
Except as may otherwise be described in an accompanying prospectus
supplement, the net proceeds from the sale of the securities offered pursuant to
this prospectus and any accompanying prospectus supplement will be used for
general corporate purposes. Any specific allocation of the net proceeds of an
offering of securities to a specific purpose will be determined at the time of
the offering and will be described in an accompanying prospectus supplement.
RATIOS OF EARNING TO FIXED CHARGES
We have calculated our ratios of earnings to fixed charges as follows:
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------- -------------
1996 1997 1998 1999 2000 2001
------- ------ ------ ------ ------ -------------
28.4x 9.5x (1) 3.7x 8.9x 9.6x
----------
(1) We had a loss for the year ended December 31, 1998 for purposes of
computing these ratios. Earnings for such year were insufficient to
cover fixed charges by approximately $92.7 million.
For purposes of computing the consolidated ratios of earnings to fixed
charges, earnings consist of income before income taxes plus fixed charges
(excluding capitalized interest) and fixed charges consist of interest (both
expensed and capitalized), distributions on our convertible trust preferred
securities and the estimated interest component of rent expense.
DESCRIPTION OF DEBT SECURITIES
Any debt securities issued using this prospectus will be our direct
unsecured general obligations. The debt securities may be issued from time to
time in one or more series. The particular terms of each series that is offered
will be described in one or more prospectus supplements accompanying this
prospectus. The debt securities will be either senior debt securities or
subordinated debt securities. Any senior debt securities will be issued under
the senior indenture dated as of February 28, 2001 between us and First
9
Union National Bank, as trustee. Subordinated debt securities will be issued
under the subordinated indenture dated as of December 10, 2001 between us and
First Union National Bank, as trustee. We have filed the senior indenture and
the subordinated indenture as exhibits to the registration statement. We have
summarized selected provisions of these indentures below. The summary is not
complete. You should read the indentures for provisions that may be important to
you.
GENERAL
The indentures provide that debt securities in separate series may be
issued from time to time without limitation as to aggregate principal amount. We
may specify a maximum aggregate principal amount for any series of debt
securities. We will determine the terms and conditions of any series of debt
securities, including the maturity, principal and interest, but those terms must
be consistent with the applicable indenture. The terms and conditions of a
particular series of debt securities will be set forth in a supplemental
indenture or in a resolution of our board of directors.
Senior debt securities will rank equally with all of our other senior
unsecured and unsubordinated debt. Subordinated debt securities will be
subordinated in right of payment to the prior payment in full of all or some of
our senior debt as described under "--Subordinated Debt Securities."
A prospectus supplement relating to any series of debt securities being
offered will include specific terms related to that offering, including the
price or prices at which the debt securities will be issued. These terms will
include some or all of the following:
o the title of the debt securities;
o with respect to subordinated debt securities, any addition to or
change in the subordination provisions set forth in the subordinated
indenture;
o the total principal amount of the debt securities;
o the dates on which the principal of the debt securities will be
payable;
o the interest rate and interest payment dates for the debt securities;
o any change in (including the elimination of the applicability of) the
provisions set forth in the applicable indenture that provide the
terms upon which the debt securities may be redeemed at our option;
o any sinking fund or other provisions that would obligate us to
repurchase or otherwise redeem the debt securities;
o any change in (including the elimination of the applicability of) the
defeasance provisions set forth in the applicable indenture;
o any addition to or change in the events of default set forth in the
applicable indenture;
o if convertible into our common stock or any of our other securities,
the terms upon which such debt securities are convertible;
o any addition to or change in the covenants set forth in the applicable
indenture;
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o any other terms of the debt securities.
If so provided in an applicable prospectus supplement, we may issue debt
securities at a discount below their principal amount and may pay less than the
entire principal amount of debt securities upon declaration of acceleration of
their maturity. An applicable prospectus supplement will describe all material
U.S. federal income tax, accounting and other considerations applicable to debt
securities issued with original issue discount.
SENIOR DEBT SECURITIES
Senior debt securities will be our unsecured and unsubordinated obligations
and will rank equally with all of our existing and future unsecured and
unsubordinated debt. Senior debt securities will, however, be subordinated in
right of payment to all our secured indebtedness to the extent of the value of
the assets securing such indebtedness. Unless otherwise specified in an
applicable prospectus supplement, there will be no limit on:
o the amount of additional indebtedness that may rank equally with the
senior debt securities; or
o on the amount of indebtedness, secured or otherwise, that may be
incurred, or preferred stock that may be issued, by any of our
subsidiaries.
SUBORDINATED DEBT SECURITIES
Under the subordinated indenture, payment of the principal of and interest
and any premium on subordinated debt securities will generally be subordinated
in right of payment to the prior payment in full of all of our senior debt,
including any senior debt securities. A prospectus supplement relating to a
particular series of subordinated debt securities will summarize the
subordination provisions applicable to that series, including:
o the applicability and effect of such provisions to and on any payment
or distribution of our assets to creditors upon any liquidation,
bankruptcy, insolvency or similar proceedings;
o the applicability and effect of such provisions upon specified
defaults with respect to senior debt, including the circumstances
under which and the periods in which we will be prohibited from making
payments on subordinated debt securities; and
o the definition of "senior debt" applicable to the subordinated debt
securities of that series.
The failure to make any payment on any of the subordinated debt securities
because of the subordination provisions of the subordinated indenture will not
prevent the occurrence of an event of default under the subordinated debt
securities.
OPTIONAL REDEMPTION
Unless otherwise specified in a prospectus supplement applicable to a
series of debt securities, a series of debt securities will be redeemable, at
our option, at any time in whole, or from time to time in part, at a price equal
to the greater of:
o 100% of the principal amount of the debt securities to be redeemed; or
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o the sum of the present values of the remaining scheduled payments of
principal and interest (at the rate in effect on the date of
calculation of the redemption price) on the debt securities (exclusive
of interest accrued to the date of redemption) discounted to the date
of redemption on a semi-annual basis (assuming a 360-day year
consisting of twelve 30-day months) at the applicable treasury yield,
plus 50 basis points;
o plus, in either case, accrued interest to the date of redemption.
Debt securities called for redemption become due on the date fixed for
redemption. Notices of redemption will be mailed at least 30, but not more than
60, days before the redemption date to each holder of record of the debt
securities to be redeemed at its registered address. The notice of redemption
for the debt securities will state, among other things, the amount of debt
securities to be redeemed, the redemption date, the redemption price and the
place(s) that payment will be made upon presentation and surrender of debt
securities to be redeemed. Unless we default in payment of the redemption price,
interest will cease to accrue on any debt securities that have been called for
redemption at the redemption date. If less than all the debt securities of a
series are redeemed at any time, the trustee will select the debt securities to
be redeemed on a pro rata basis or by any other method the trustee deems fair
and appropriate.
For purposes of determining the optional redemption price, the following
definitions are applicable:
"APPLICABLE TREASURY YIELD" means, with respect to any redemption date
applicable to a series of debt securities, the rate per annum equal to the
semi-annual equivalent yield to maturity (computed as of the third business day
immediately preceding the redemption date) of the comparable treasury issue,
assuming a price for the comparable treasury issue (expressed as a percentage of
its principal amount) equal to the applicable comparable treasury price for the
redemption date.
"COMPARABLE TREASURY ISSUE" means the United States Treasury security
selected by an independent investment banker as having a maturity comparable to
the remaining term of debt securities that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the remaining
terms of the debt securities to be redeemed.
"COMPARABLE TREASURY PRICE" means, with respect to any redemption date:
o the bid price for the comparable treasury issue (expressed as a
percentage of its principal amount) at 4:00 p.m. on the third business
day preceding the redemption date as set forth on "Telerate Page 500"
(or such other page as may replace Telerate Page 500); or
o if such page (or any successor page) is not displayed or does not
contain such bid prices at such time:
o the average of the reference treasury dealer quotations obtained
by the trustee for the redemption date, after excluding the
highest and lowest of all reference treasury dealer quotations
obtained; or
o if the trustee obtains fewer than four such reference treasury
dealer quotations, the average of all reference treasury dealer
quotations obtained by the trustee.
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"INDEPENDENT INVESTMENT BANKER" means the investment banking firm that
acted as lead managing underwriter for the offering of the series of debt
securities or that we name in an accompanying prospectus supplement, or, if such
firm is unwilling or unable to select the applicable comparable treasury issue,
an independent investment banking institution of national standing appointed by
the trustee and reasonably acceptable to us.
"REFERENCE TREASURY DEALER" means any primary U.S. government securities
dealer in New York City named in an accompanying prospectus supplement or
selected by us.
"REFERENCE TREASURY DEALER QUOTATIONS" means, with respect to each
reference treasury dealer and any redemption date applicable to a series of debt
securities, an average, as determined by the trustee, of the bid and asked
prices for the comparable treasury issue for the series of debt securities
(expressed in each case as a percentage of its principal amount) quoted in
writing to the trustee by the reference treasury dealer at 5:00 p.m., New York
City time, on the third business day preceding such redemption date.
DEFEASANCE
Unless otherwise provided in a prospectus supplement relating to a
particular series of debt securities, we may elect, at our option at any time,
to have the provisions of the applicable indenture relating to defeasance and
discharge of indebtedness and to defeasance of certain restrictive covenants
applied to such series of debt securities, or to any specified part of such
series.
DEFEASANCE AND DISCHARGE. The indentures provide that, upon the exercise of
our option, we will be discharged from all our obligations with respect to the
applicable debt securities upon the deposit in trust for the benefit of the
holders of such debt securities of money or U.S. government obligations, or
both, which, through the payment of principal and interest in respect thereof in
accordance with their terms, will provide money in an amount sufficient to pay
the principal of and any premium and interest on such debt securities on the
respective stated maturities in accordance with the terms of the applicable
Indenture and such debt securities.
DEFEASANCE OF CERTAIN COVENANTS. The indentures provide that, upon the
exercise of our option, we may omit to comply with certain restrictive covenants
described in this prospectus, including those described below under "--Certain
Covenants" (if such covenants are applicable to a series of debt securities), or
an applicable prospectus supplement, the occurrence of certain events of default
as described in this prospectus or an applicable prospectus supplement will not
be deemed to either be or result in an event of default and, if such debt
securities are subordinated debt securities of such series, the provisions of
the subordinated indenture relating to subordination will cease to be effective,
in each case with respect to such debt securities. In order to exercise such
option, we must deposit, in trust for the benefit of the holders of debt
securities of such series, money or U.S. government obligations, or both, which,
through the payment of principal and interest in respect thereof in accordance
with their terms, will provide money in an amount sufficient to pay the
principal of and any premium and interest on such debt securities on the
respective stated maturities in accordance with the terms of the applicable
indenture and such debt securities.
In order to exercise either defeasance option, we must comply with certain
other conditions, including that no default has occurred and is continuing after
the deposit in trust and the delivery to the trustee of an opinion of counsel to
the effect that holders of the series of debt securities will not recognize
income, gain or loss for U.S. federal income tax purposes as a result of such
defeasance and will be subject to U.S. federal income tax on the same amount and
in the same manner and at the same times as would have been the case if such
deposit in trust and defeasance had not occurred. In the case of legal
defeasance only,
13
such opinion of counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable U.S. federal income tax law.
CERTAIN COVENANTS
LIMITATION ON LIENS. Nothing in the indentures in any way limits the amount
of indebtedness or securities that we or any of our subsidiaries may incur or
issue. Unless otherwise specified in an accompanying prospectus supplement, we
may not, and may not permit any restricted subsidiary to, issue, assume or
guarantee any indebtedness for borrowed money secured by any lien on any
property or asset now owned or hereafter acquired by us or such restricted
subsidiary without making effective provision whereby any and all debt
securities of such series then or thereafter outstanding will be secured by a
lien equally and ratably with any and all other obligations thereby secured for
so long as any such obligations shall be so secured.
Unless otherwise stated in a prospectus supplement applicable to a series
of debt securities, the foregoing restriction will not, however, apply to:
o liens existing on the date on which the series of debt securities was
originally issued or provided for under the terms of agreements
existing on such date;
o liens on properties securing:
o all or any portion of the cost of exploration, drilling or
development of such properties;
o all or any portion of the cost of acquiring, constructing,
altering, improving or repairing any properties or assets used or
to be used in connection with such properties; or
o indebtedness incurred by us or any restricted subsidiary to
provide funds for the activities set forth in the two bullet
points immediately above with respect to such properties;
o liens securing indebtedness owed by a restricted subsidiary to us or
to any other restricted subsidiary;
o liens on property existing at the time of acquisition of such property
by us or a subsidiary or liens on the property of any corporation or
other entity existing at the time such corporation or other entity
becomes a restricted subsidiary or is merged with us in compliance
with the applicable indenture and in either case not incurred in
connection with the acquisition of such property or such corporation
or other entity becoming a restricted subsidiary or being merged with
us, provided that such liens do not cover any property or assets of
ours or any of our restricted subsidiaries other than the property so
acquired;
o liens on any property securing:
o indebtedness incurred in connection with the construction,
installation or financing of pollution control or abatement
facilities or other forms of industrial revenue bond financing;
or
o indebtedness issued or guaranteed by the United States or any
state thereof;
14
o any lien extending, renewing or replacing (or successive extensions,
renewals or replacements of) any lien of any type permitted under any
bullet point above, provided that such lien extends to or covers only
the property that is subject to the lien being extended, renewed or
replaced;
o certain liens arising in the ordinary course of our business or that
of our restricted subsidiaries;
o any lien resulting from the deposit of moneys or evidences of
indebtedness in trust for the purpose of defeasing indebtedness of
ours or any restricted subsidiary; or
o liens (exclusive of any lien of any type otherwise permitted under any
bullet point above) securing our indebtedness or that of any
restricted subsidiary in an aggregate principal amount which, together
with the aggregate amount of attributable indebtedness deemed to be
outstanding in respect of all sale/leaseback transactions permitted
pursuant to the first bullet point under "--Limitation on
Sale/Leaseback Transactions" below (exclusive of any such
sale/leaseback transactions otherwise permitted under any bullet point
above), does not at the time such indebtedness is incurred exceed 7.5%
of our consolidated net tangible assets (as shown in the most recent
published quarterly or year-end consolidated balance sheet of our
company and its subsidiaries).
Unless otherwise specified in any prospectus supplement applicable to a
particular series of debt securities, the following types of transactions will
not be prohibited or otherwise limited by the foregoing covenant:
o the sale, granting of liens with respect to, or other transfer of,
crude oil, natural gas or other petroleum hydrocarbons in place for a
period of time until, or in an amount such that, the transferee will
realize therefrom a specified amount (however determined) of money or
of such crude oil, natural gas or other petroleum hydrocarbons;
o the sale or other transfer of any other interest in property of the
character commonly referred to as a production payment, overriding
royalty, forward sale or similar interest;
o the entering into of currency hedge obligations, interest rate hedging
agreements or oil and gas hedging contracts, although liens securing
any indebtedness for borrowed money that is the subject of any such
obligation shall not be permitted hereby unless permitted under the
provisions described above; and
o the granting of liens required by any contract or statute in order to
permit us or any restricted subsidiary to perform any contract or
subcontract made by it with or at the request of the United States or
any state thereof, or to secure partial, progress, advance or other
payments to us or any restricted subsidiary by such governmental unit
pursuant to the provisions of any contract or statute.
LIMITATION ON SALE/LEASEBACK TRANSACTIONS. Unless otherwise stated in an
accompanying prospectus supplement, we will not, and will not permit any
restricted subsidiary to, enter into any sale/leaseback transaction with any
person (other than us or a restricted subsidiary) unless:
o we or such restricted subsidiary would be entitled to incur
indebtedness, in a principal amount equal to the attributable
indebtedness with respect to such sale/leaseback transaction, secured
by a lien on the property subject to such sale/leaseback transaction
pursuant to the covenant described in the last bullet point of the
second paragraph under "--Limitation on Liens" above without equally
and ratably securing such series of debt securities pursuant to such
covenant;
15
o after the date on which the series of debt securities is originally
issued and within a period commencing six months prior to the
consummation of such sale/leaseback transaction and ending six months
after the consummation thereof, we or such restricted subsidiary will
have expended for property used or to be used in the ordinary course
of our business or that of our restricted subsidiaries (including
amounts expended for the exploration, drilling or development thereof,
and for additions, alterations, repairs and improvements thereto) an
amount equal to all or a portion of the net proceeds of such
sale/leaseback transaction and we elect to designate such amount
pursuant to this bullet point with respect to such sale/leaseback
transaction (with any such amount not being so designated and not
permitted under the immediately preceding bullet point to be applied
as set forth in the bullet point that immediately follows); or
o we, during the 12-month period after the effective date of such
sale/leaseback transaction, apply to the voluntary defeasance or
retirement of debt securities of such series or any pari passu
indebtedness an amount equal to the greater of the net proceeds of the
sale or transfer of the property leased in such sale/leaseback
transaction and the fair value, as determined by the our board of
directors, of such property at the time of entering into such
sale/leaseback transaction (in either case adjusted to reflect the
remaining term of the lease and any amount designated by us as set
forth in the immediately preceding bullet point), less an amount equal
to the principal amount of such series of securities and pari passu
indebtedness voluntarily defeased or retired by us within such
12-month period and not designated with respect to any other
sale/leaseback transaction entered into by us or any restricted
subsidiary during such period.
SUBSIDIARY GUARANTORS. Initially, no series of debt securities will be
guaranteed by any of our subsidiaries. However, unless otherwise provided in an
accompanying prospectus supplement, if any of our subsidiaries guarantees any of
our funded indebtedness at any time in the future, then we will cause such
series of debt securities to be equally and ratably guaranteed by such
subsidiary.
OTHER COVENANTS. A series of debt securities may provide for other
covenants applicable to us and our subsidiaries. A description of any such
affirmative and negative covenants will be contained in a prospectus supplement
applicable to such series.
CERTAIN DEFINITIONS
"ATTRIBUTABLE INDEBTEDNESS," when used with respect to any sale/leaseback
transaction, means the present value (discounted at a rate equivalent to our
then current weighted average cost of funds for borrowed money, compounded on a
semi-annual basis) of the total obligations of the lessee for rental payments
during the remaining term of the lease included in such sale/leaseback
transaction (including any period for which such lease can be extended).
"CAPITALIZED LEASE OBLIGATION" means any obligation to pay rent or other
amounts under a lease of property that is required to be capitalized for
financial reporting purposes in accordance with generally accepted accounting
principles; and the amount of such obligation shall be the capitalized amount
thereof determined in accordance with generally accepted accounting principles.
"CONSOLIDATED NET TANGIBLE ASSETS" means, for us and our restricted
subsidiaries on a consolidated basis determined in accordance with generally
accepted accounting principles, the aggregate amounts of assets (less
depreciation and valuation reserves and other reserves and items deductible from
gross book value of specific asset accounts under generally accepted accounting
principles) that would be included on a balance sheet after deducting therefrom
(a) all liability items except deferred income taxes, funded indebtedness and
other long-term liabilities and (b) all goodwill, trade names, trademarks,
patents, unamortized debt discount and expense and other like intangibles.
16
"CURRENCY HEDGE OBLIGATIONS" means obligations 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 exposure to fluctuations in foreign currency exchange
rates.
"FUNDED INDEBTEDNESS" means all indebtedness that matures by its terms, or
that is renewable at the option of any obligor thereon to a date, more than one
year after the date on which such indebtedness is originally incurred.
"INDEBTEDNESS" means:
o all indebtedness for borrowed money (whether or not the recourse of
the lender is to the whole of the assets of the borrower or only to a
portion thereof);
o all obligations evidenced by bonds, debentures, notes or other similar
instruments;
o all obligations in respect of letters of credit or other similar
instruments (or reimbursement obligations with respect thereto), other
than standby letters of credit incurred in the ordinary course of
business;
o all obligations to pay the deferred and unpaid purchase price of
property or services, except trade payables and accrued expenses
incurred in the ordinary course of business;
o all capitalized lease obligations;
o all indebtedness of others secured by a lien on any asset of the
relevant entity, whether or not such indebtedness is assumed by such
entity;
o all indebtedness of others guaranteed by the relevant entity to the
extent of such guarantee; and
o all obligations in respect of currency hedge obligations, interest
rate hedging agreements and oil and gas hedging contracts.
"INTEREST RATE HEDGING AGREEMENTS" means obligations under:
o interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; and
o other agreements or arrangements designed to protect the relevant
entity or any of its subsidiaries against fluctuations in interest
rates.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset
(including, any production payment, advance payment or similar arrangement with
respect to minerals in place), whether or not filed, recorded or otherwise
perfected under applicable law. For the purposes of the indentures, we or any
restricted subsidiary will be deemed to own subject to a lien any asset that we
or it has acquired or holds subject to the interest of a vendor or lessor under
any conditional sale agreement, capitalized lease obligation (other than any
capitalized lease obligation relating to property used or to be used in the
ordinary course of our business or that of any restricted subsidiary) or other
title retention agreement relating to such asset.
17
"OIL AND GAS HEDGING CONTRACTS" means any oil and gas purchase or hedging
agreement or other agreement or arrangement that is designed to provide
protection against oil and gas price fluctuations.
"PARI PASSU INDEBTEDNESS" means, with respect to any series of debt
securities, any indebtedness of ours, whether outstanding on the date on which
the series of debt securities were originally issued or thereafter incurred or
assumed, unless, in the case of any particular indebtedness, the instrument
governing the indebtedness expressly provides that such indebtedness shall be
subordinated in right of payment to such series of debt securities.
"RESTRICTED SUBSIDIARY" means any subsidiary the principal business of
which is carried on in, or the majority of the operating assets of which are
located in, the United States (including areas subject to its jurisdiction).
"SALE/LEASEBACK TRANSACTION" means any arrangement with another person
providing for the leasing by us or any restricted subsidiary, for a period of
more than three years, of any property that has been or is to be sold or
transferred by us or such restricted subsidiary to such other person in
contemplation of such leasing.
EVENTS OF DEFAULT
Unless otherwise specified in an accompanying prospectus supplement, each
of the following will constitute an event of default under the indentures with
respect to a series of debt securities:
o default by us for 30 days in payment when due of any interest on any
debt securities of such series;
o default by us in any payment when due of principal of or premium, if
any, on any debt securities of such series;
o default by us in performance of any other covenant or agreement
applicable to such series of debt securities that has not been
remedied within 90 days after written notice by the trustee or by the
holders of at least 25% in principal amount of the series of debt
securities then outstanding;
o the acceleration of the maturity of any of our indebtedness or that of
any restricted subsidiary (other than such series of debt securities)
(provided that such acceleration is not rescinded within a period of
10 days from the occurrence of such acceleration) having an
outstanding principal amount of $10 million or more individually or in
the aggregate, or a default in the payment of any principal of or
interest on any of our indebtedness or that of any restricted
subsidiary (other than such series of debt securities) having an
outstanding principal amount of $10 million or more individually or in
the aggregate and such default shall be continuing for a period of 30
days without us or such restricted subsidiary curing such default;
o failure by us or any restricted subsidiary to pay final,
non-appealable judgments aggregating in excess of $10 million, which
judgments are not paid, discharged or stayed for a period of 60 days;
o certain events involving bankruptcy, insolvency or reorganization of
us or any restricted subsidiary; or
o any other event of default described in an accompanying prospectus
supplement.
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If an event of default (other than as a result of bankruptcy, insolvency or
reorganization) for any series of debt securities occurs and continues, the
trustee or the holders of at least 25% in aggregate principal amount of the
outstanding debt securities of that series may declare the principal amount of
the debt securities of that series (or such portion of the principal amount of
such debt securities as may be specified in an accompanying prospectus
supplement) to be due and payable immediately. If an event of default results
from bankruptcy, insolvency or reorganization, the principal amount of all the
debt securities of a series (or such portion of the principal amount of such
debt securities as may be specified in an accompanying prospectus supplement)
will automatically become immediately due and payable. If an acceleration
occurs, subject to certain conditions, the holders of a majority of the
aggregate principal amount of the debt securities of that series can rescind the
acceleration.
Other than its duties in case of an event of default, a trustee is not
obligated to exercise any of its rights or powers under the applicable indenture
at the request of any of the holders, unless the holders offer the trustee
reasonable indemnity and certain other conditions are satisfied. Subject to
indemnification of the trustee and the satisfaction of certain other conditions,
the holders of a majority in aggregate principal amount of the outstanding debt
securities of any series may direct the time, method and place of conducting any
proceeding for any remedy available to the trustee or exercising any trust or
power conferred on the trustee with respect to the debt securities of that
series.
The holders of debt securities of any series will not have any right to
institute any proceeding with respect to the applicable indenture, unless:
o the holder has given written notice to the trustee of an event of
default;
o the holders of at least 25% in aggregate principal amount of the
outstanding debt securities of that series have made written request,
and such holder or holders have offered reasonable indemnity to the
trustee to institute such proceeding as trustee; and
o the trustee fails to institute such proceeding, and has not received
from the holders of a majority in aggregate principal amount of the
outstanding debt securities of that series a direction inconsistent
with such request, within 60 days after such notice, request and
offer.
Such limitations do not apply, however, to a suit instituted by a holder of
a debt security for the enforcement of payment of the principal of and interest
or premium on such debt security on or after the applicable due date specified
in such debt security.
Pursuant to each indenture, we are or will be required to furnish to the
trustee annually within 120 days of the end of each fiscal year a statement by
certain of our officers as to whether or not we are in default in the
performance of any of the terms of the applicable indenture.
CONVERSION RIGHTS
Unless otherwise specified in an accompanying prospectus supplement, debt
securities will not be convertible into other securities. If a particular series
of debt securities may be converted into other securities, such conversion will
be according to the terms and conditions contained in an accompanying prospectus
supplement. Such terms will include the conversion price, the conversion period,
provisions as to whether conversion will be mandatory, at the option of the
holders of such series of debt securities or at our option, the events requiring
an adjustment of the conversion price and provisions affecting conversion if
such series of debt securities is called for redemption.
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PAYMENT AND TRANSFER
Unless otherwise indicated in an accompanying prospectus supplement, the
debt securities of each series initially will be issued only in book-entry form
represented by one or more global notes initially registered in the name of Cede
& Co., as nominee of The Depository Trust Company (often referred to as DTC), or
such other name as may be requested by an authorized representative of DTC, and
deposited with DTC. Unless otherwise indicated in an accompanying prospectus
supplement, debt securities will be issued in denominations of $1,000 each or
multiples thereof.
Unless otherwise indicated in an accompanying prospectus supplement,
beneficial interests in debt securities in global form will be shown on, and
transfers of interests in debt securities in global form will be made only
through, records maintained by DTC and its participants. Debt securities in
definitive form, if any, may be registered, exchanged or transferred at the
office or agency maintained by us for such purpose (which initially will be the
corporate trust office of the trustee located at 5847 San Felipe, Suite 1050,
Houston, Texas 77057).
Unless otherwise indicated in an accompanying prospectus supplement, no
global security may be exchanged in whole or in part for debt securities
registered in the name of any person other than the depositary for such global
security or any nominee of such depositary unless:
o the depositary is unwilling or unable to continue as depositary;
o an event of default has occurred and is continuing; or
o as otherwise provided in an accompanying prospectus supplement.
Unless otherwise indicated in an accompanying prospectus supplement,
payment of principal of and premium, if any, and interest on debt securities in
global form registered in the name of or held by DTC or its nominee will be made
in immediately available funds to DTC or its nominee, as the case may be, as the
registered holder of such global debt security. However, if any of the debt
securities of such series are no longer represented by global debt securities,
payment of interest on such debt securities in definitive form may, at our
option, be made at the corporate trust office of the trustee or by check mailed
directly to registered holders at their registered addresses or by wire transfer
to an account designated by a registered holder.
No service charge will apply to any registration of transfer or exchange of
debt securities, but we may require payment of a sum sufficient to cover any
applicable transfer tax or other similar governmental charge. We are not
required to transfer or exchange any debt security selected for redemption for a
period of 15 days prior to the selection of the debt securities to be redeemed.
BOOK-ENTRY SYSTEM
DTC has advised us as follows:
o DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New
York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial
Code, and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Securities Exchange Act.
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o DTC holds securities that its participants deposit with DTC and
facilitates the settlement among direct participants of securities
transactions, such as transfers and pledges, in deposited securities,
through electronic computerized book-entry changes in direct
participants' accounts, thereby eliminating the need for physical
movement of securities certificates.
o Direct participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other
organizations.
o DTC is owned by a number of its direct participants and by the New
York Stock Exchange, the American Stock Exchange and the National
Association of Securities Dealers.
o Access to the DTC system is also available to others such as
securities brokers and dealers, banks, and trust companies that clear
through or maintain a custodial relationship with a direct
participant, either directly or indirectly.
o The rules applicable to DTC and its direct and indirect participants
are on file with the SEC.
Purchases of debt securities under the DTC system must be made by or
through direct participants, which will receive a credit for the debt securities
on DTC's records. The ownership interest of each actual purchaser of debt
securities is in turn to be recorded on the direct and indirect participants'
records. Beneficial owners of debt securities will not receive written
confirmation from DTC of their purchase, but beneficial owners are expected to
receive written confirmations providing details of the transaction, as well as
periodic statements of their holdings, from the direct or indirect participants
through which the beneficial owner entered into the transaction. Transfers of
ownership interests in debt securities are to be accomplished by entries made on
the books of direct and indirect participants acting on behalf of beneficial
owners. Beneficial owners will not receive certificates representing their
ownership interests in debt securities unless use of the book-entry system for
such series of debt securities is discontinued.
To facilitate subsequent transfers, all debt securities of a series
deposited by direct participants with DTC are registered in the name of DTC's
partnership nominee, Cede & Co., or such other name as may be requested by DTC.
The deposit of the debt securities with DTC and their registration in the name
of Cede & Co. or such other nominee do not effect any change in beneficial
ownership. DTC has no knowledge of the actual beneficial owners of a series of
debt securities; DTC's records reflect only the identity of the direct
participants to whose accounts such debt securities are credited, which may or
may not be the beneficial owners. The direct and indirect participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants and by direct
participants and indirect participants to beneficial owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote
with respect to debt securities in global form. Under its usual procedures, DTC
mails an omnibus proxy to the issuer as soon as possible after the record date.
The omnibus proxy assigns Cede & Co.'s consenting or voting rights to those
direct participants to whose accounts the debt securities are credited on the
record date (identified in the listing attached to the omnibus proxy).
All payments on the debt securities in global form will be made to Cede &
Co., or such other nominee as may be requested by an authorized representative
of DTC. DTC's practice is to credit direct participants' accounts upon DTC's
receipt of funds and corresponding detail information from us or the
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trustee on payment dates in accordance with their respective holdings shown on
DTC's records. Payments by participants to beneficial owners will be governed by
standing instructions and customary practices, as is the case with securities
held for the accounts of customers in bearer form or registered in "street
name," and will be the responsibility of such participant and not of DTC, us or
the Trustee, subject to any statutory or regulatory requirements as may be in
effect from time to time.
Payment of principal and interest to Cede & Co. (or such other nominee as
may be requested by an authorized representative of DTC) shall be the
responsibility of us or the trustee. Disbursement of such payments to direct
participants shall be the responsibility of DTC, and disbursement of such
payments to the beneficial owners shall be the responsibility of direct and
indirect participants.
DTC may discontinue providing its service as securities depositary with
respect to a series of debt securities at any time by giving reasonable notice
to us or the trustee. In addition, we may decide to discontinue use of the
system of book-entry transfers through DTC (or a successor securities
depositary). Under such circumstances, in the event that a successor securities
depositary is not obtained, debt security certificates in fully registered form
are required to be printed and delivered to beneficial owners of the debt
securities previously held in global form representing such debt securities.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that we believe to be reliable (including DTC),
but we take no responsibility for its accuracy.
Neither we, the trustee nor any underwriters applicable to a series of debt
securities will have any responsibility or obligation to direct participants, or
the persons for whom they act as nominees, with respect to the accuracy of the
records of DTC, its nominee or any direct participant with respect to any
ownership interest in debt securities, or payments to, or the providing of
notice to direct participants or beneficial owners.
So long as debt securities are in DTC's book-entry system, secondary market
trading activity in the notes will settle in immediately available funds. All
applicable payments on debt securities issued in global form will be made by us
in immediately available funds.
CONSOLIDATION, MERGER AND SALE OF ASSETS
We may consolidate with or merge into, or sell or lease substantially all
of our properties to any person if:
o the successor person (if any) is a corporation, partnership, trust or
other entity organized and validly existing under the laws of any
domestic jurisdiction and assumes our obligations on the debt
securities and under the applicable indenture;
o immediately after giving effect to the transaction, no event of
default, and no event which, after notice or lapse of time or both,
would become an event of default, will have occurred and be
continuing; and
o any other conditions (if any) specified in an accompanying prospectus
supplement are met.
MODIFICATION AND WAIVER
Under each indenture, our rights and obligations and the rights of holders
may be modified with the consent of the holders of a majority in aggregate
principal amount of the outstanding debt securities of
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each series affected by the modification. No modification of the principal or
interest payment terms, and no modification reducing the percentage required for
modifications, is effective against any holder without its consent.
NOTICES
Notices to holders of debt securities will be given by mail to the
addresses of such holders as they may appear in the security register.
TITLE
We, the trustee and any agent of ours or of the trustee may treat the
person in whose name a debt security is registered as the absolute owner of the
debt security, whether or not such debt security may be overdue, for the purpose
of making payment and for all other purposes.
GOVERNING LAW
The indentures and the debt securities will be governed by, and construed
in accordance with, the law of the State of New York.
INFORMATION CONCERNING THE TRUSTEE
First Union National Bank:
o serves as trustee under the indenture governing our 7.45% Senior Notes
due 2007;
o serves as trustee under our senior indenture pursuant to which we have
issued $175 million in principal amount of our 7 5/8% Senior Notes due
2011 and may issue additional senior debt securities;
o serves as trustee under our subordinated indenture pursuant to which
we may issue subordinated debt securities;
o provides us with a $15 million money market line of credit; and
o is a lender under our $125 million credit facility.
Neither the senior indenture nor the subordinated indenture places a limit
on the principal amount of debt securities that may be issued thereunder.
DESCRIPTION OF COMMON STOCK AND PREFFERED STOCK
Pursuant to our certificate of incorporation, our authorized capital stock
consists of 100,000,000 shares of common stock and 5,000,000 shares of preferred
stock. As of December 10, 2001, we had 44,039,796 shares of common stock
outstanding, and no shares of preferred stock outstanding.
COMMON STOCK
Our common stockholders are entitled to one vote per share in the election
of directors and on all other matters submitted to a vote of our common
stockholders. Our common stockholders do not have cumulative voting rights.
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Our common stockholders are entitled to receive ratably any dividends
declared by our board of directors out of funds legally available for the
payment of dividends. Dividends on our common stock are, however, subject to any
preferential dividend rights of outstanding preferred stock. We do not intend to
pay cash dividends on our common stock in the foreseeable future. Upon our
liquidation, dissolution or winding up, our common stockholders are entitled to
receive ratably our net assets available after payment of all of our debts and
other liabilities. Any payment is, however, subject to the prior rights of any
outstanding preferred stock. Our common stockholders do not have any preemptive,
subscription, redemption or conversion rights.
PREFERRED STOCK
The following summary describes certain general terms of our authorized
preferred stock. If we offer preferred stock, a description will be filed with
the SEC and the specific terms of the preferred stock will be described in an
accompanying prospectus supplement, including the following terms:
o the series, the number of shares offered and the liquidation value of
the preferred stock;
o the price at which the preferred stock will be issued;
o the dividend rate, the dates on which the dividends will be payable
and other terms relating to the payment of dividends on the preferred
stock;
o the liquidation preference of the preferred stock;
o the voting rights of the preferred stock;
o whether the preferred stock is redeemable or subject to a sinking
fund, and the terms of any such redemption or sinking fund;
o whether the preferred stock is convertible or exchangeable for any
other securities, and the terms of any such conversion; and
o any additional rights, preferences, qualifications, limitations and
restrictions of the preferred stock.
Our certificate of incorporation allows our board of directors to issue
preferred stock from time to time in one or more series, without any action
being taken by our stockholders. Subject to the provisions of our certificate of
incorporation and limitations prescribed by law, our board of directors may
adopt resolutions to issue shares of a series of our preferred stock, and
establish their terms. These terms may include:
o voting powers;
o designations;
o preferences;
o dividend rights;
o dividend rates;
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o terms of redemption;
o redemption process;
o conversion rights; and
o any other terms permitted to be established by our certificate of
incorporation and by applicable law.
The preferred stock will, when issued, be fully paid and non-assessable.
ANTI-TAKEOVER PROVISIONS
Certain provisions in our certificate of incorporation and bylaws may
encourage persons considering unsolicited tender offers or other unilateral
takeover proposals to negotiate with our board of directors rather than pursue
non-negotiated takeover attempts.
STOCKHOLDER ACTION BY WRITTEN CONSENT. Under the Delaware General
Corporation Law, unless the certificate of incorporation of a corporation
specifies otherwise, any action that could be taken by stockholders at an annual
or special meeting may be taken without a meeting and without notice to or a
vote of other stockholders if a consent in writing is signed by the holders of
outstanding stock having voting power that would be sufficient to take such
action at a meeting at which all outstanding shares were present and voted. Our
certificate of incorporation and bylaws provide that stockholder action may be
taken in writing by the consent of holders of not less than 66 2/3% of the
outstanding shares entitled to vote at a meeting of stockholders. As a result,
stockholders may not act upon any matter except at a duly called meeting or by
the written consent of holders of 66 2/3% or more of the outstanding shares
entitled to vote.
SUPERMAJORITY VOTE REQUIRED FOR CERTAIN TRANSACTIONS. The affirmative vote
of the holders of at least 66 2/3% of the outstanding shares of common stock is
required to approve any merger or consolidation of our company or any sale or
transfer of all or substantially all of our assets.
BLANK CHECK PREFERRED STOCK. Our certificate of incorporation authorizes
blank check preferred stock. Our board of directors can set the voting,
redemption, conversion and other rights relating to such preferred stock and can
issue such stock in either a private or public transaction. The issuance of
preferred stock, while providing desired flexibility in connection with possible
acquisitions and other corporate purposes, could adversely affect the voting
power of holders of common stock and the likelihood that holders will receive
dividend payments and payments upon liquidation and could have the effect of
delaying, deferring or preventing a change in control of our company.
BUSINESS COMBINATIONS UNDER DELAWARE LAW. We are a Delaware corporation and
are subject to Section 203 of the Delaware General Corporation Law. Section 203
prevents an interested stockholder (i.e., a person who owns 15% or more of our
outstanding voting stock) from engaging in certain business combinations with
our company for three years following the date that the person became an
interested stockholder. These restrictions do not apply if:
o before the person became an interested stockholder, our board of
directors approved either the business combination or the transaction
that resulted in the interested stockholder becoming an interested
stockholder;
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o upon completion of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned
at least 85% of our outstanding voting stock at the time the
transaction commenced; or
o following the transaction in which the person became an interested
stockholder, the business combination is approved by both our board of
directors and the holders of at least two-thirds of our outstanding
voting stock not owned by the interested stockholder.
These restrictions do not apply to certain business combinations proposed
by an interested stockholder following the announcement of certain extraordinary
transactions involving our company and a person who was not an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of a majority of our directors, if that
extraordinary transaction is approved or goes unopposed by a majority of our
directors who were directors before any person became an interested stockholder
in the previous three years or who were recommended for election or elected to
succeed such directors by a majority of directors then in office.
STOCKHOLDER RIGHTS AGREEMENT. Our board of directors has adopted a
stockholder rights agreement. Under the rights agreement, each right entitles
the registered holder under the circumstances described below to purchase from
our company one one-thousandth of a share of our Junior Participating Preferred
Stock, par value $0.01 per share (the "preferred shares"), at a price of $85 per
one one-thousandth of a preferred share, subject to adjustment. The following is
a summary of certain terms of the rights agreement. The rights agreement is an
exhibit to the registration statement of which this prospectus is a part, and
this summary is qualified by reference to the specific terms of the rights
agreement.
Until the distribution date, the rights attach to all common stock
certificates representing outstanding shares. No separate right certificate will
be distributed. A right is issued for each share of common stock issued. The
rights will separate from the common stock and a distribution date will occur
upon the earlier of:
o 10 business days following a public announcement that a person or
group of affiliated or associated persons has acquired beneficial
ownership of 20% or more of our outstanding voting stock; or
o 10 business days following the commencement or announcement of an
intention to commence a tender offer or exchange offer the completion
of which would result in the beneficial ownership by a person or group
of 20% or more of our outstanding voting stock.
Until the distribution date or the earlier of redemption or expiration of
the rights, the rights will be evidenced by the certificates representing the
common stock. As soon as practicable following the distribution date, separate
certificates evidencing the rights will be mailed to holders of record of our
common stock as of the close of business on the distribution date and such
separate rights certificates alone will thereafter evidence the rights.
The rights are not exercisable until the distribution date. The rights will
expire on February 22, 2009, unless the expiration date is extended or the
rights are earlier redeemed or exchanged.
If a person or group acquires 20% or more of our voting stock, each right
then outstanding, other than rights beneficially owned by the acquiring persons,
which would become null and void, becomes a right to buy that number of shares
of common stock, or under certain circumstances, the equivalent number of one
one-thousandths of a preferred share, that at the time of such acquisition has a
market value of two times the purchase price of the right.
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If we are acquired in a merger or other business combination transaction or
assets constituting more than 50% of our consolidated assets or producing more
than 50% of our earning power or cash flow are sold, proper provision will be
made so that each holder of a right will thereafter have the right to receive,
upon the exercise thereof at the then current purchase price of the right, that
number of shares of common stock of the acquiring company that at the time of
such transaction has a market value of two times the purchase price of the
right.
The dividend and liquidation rights, and the non-redemption feature, of the
preferred shares are designed so that the value of one one-thousandth of a
preferred share purchasable upon exercise of each right will approximate the
value of one share of common stock. The preferred shares issuable upon exercise
of the rights will be non-redeemable and rank junior to all other series of our
preferred stock. Each whole preferred share will be entitled to receive a
quarterly preferential dividend in an amount per share equal to the greater of
(a) $1.00 in cash or (b) 1,000 times the aggregate per share dividend declared
on the common stock. In the event of liquidation, the holders of preferred
shares will be entitled to receive a preferential liquidation payment per whole
share equal to the greater of (a) $1,000 per share or (b) 1,000 times the
aggregate amount to be distributed per share of common stock. In the event of
any merger, consolidation or other transaction in which the shares of common
stock are exchanged for or changed into other stock or securities, cash or other
property, each whole preferred share will be entitled to 1,000 times the amount
received per share of common stock. Each whole preferred share will be entitled
to 1,000 votes on all matters submitted to a vote of our stockholders, and
preferred shares will generally vote together as one class with the common stock
and any other capital stock on all matters submitted to a vote of our
stockholders.
The purchase price and the number of one one-thousandths of a preferred
share or other securities or property issuable upon exercise of the rights may
be adjusted from time to time to prevent dilution.
At any time after a person or group of affiliated or associated persons
acquires beneficial ownership of 20% or more of our outstanding voting stock and
before a person or group acquires beneficial ownership of 50% or more of our
outstanding voting stock, our board of directors may, at its option, issue
common stock in mandatory redemption of, and in exchange for, all or part of the
then outstanding exercisable rights, other than rights owned by such person or
group, which would become null and void, at an exchange ratio of one share of
common stock, or one one-thousandth of a preferred share, for each two shares of
common stock for which each right is then exercisable, subject to adjustment.
At any time prior to the first public announcement that a person or group
has become the beneficial owner of 20% or more of our outstanding voting stock,
our board of directors may redeem all, but not less than all, of the then
outstanding rights at a price of $0.01 per right. The redemption of the rights
may be made effective at such time, on such basis and with such conditions as
our board of directors in its sole discretion may establish. Immediately upon
the action of our board of directors ordering redemption of the rights, the
right to exercise the rights will terminate and the only right of the holders of
rights will be to receive the redemption price.
LIMITATION OF LIABILITY OF OFFICERS AND DIRECTORS
Delaware law authorizes corporations to limit or eliminate the personal
liability of officers and directors to corporations and their stockholders for
monetary damages for breach of officers' and directors' fiduciary duty of care.
The duty of care requires that, when acting on behalf of the corporation,
officers and directors must exercise an informed business judgment based on all
material information reasonably available to them. Absent the limitations
authorized by Delaware law, officers and directors are accountable to
corporations and their stockholders for monetary damages for conduct
constituting
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gross negligence in the exercise of their duty of care. Delaware law enables
corporations to limit available relief to equitable remedies such as injunction
or rescission.
Our certificate of incorporation limits the liability of our officers and
directors to our company and our stockholders to the fullest extent permitted by
Delaware law. Specifically, our officers and directors will not be personally
liable for monetary damages for breach of an officer's or director's fiduciary
duty in such capacity, except for liability
o for any breach of the officer's or director's duty of loyalty to our
company or our stockholders;
o for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General
Corporation law; or
o for any transaction from which the officer or director derived an
improper personal benefit.
The inclusion of this provision in our certificate of incorporation may
reduce the likelihood of derivative litigation against our officers and
directors, and may discourage or deter stockholders or management from bringing
a lawsuit against our officers and directors for breach of their duty of care,
even though such an action, if successful, might have otherwise benefitted our
company and our stockholders. Both our certificate of incorporation and bylaws
provide indemnification to our officers and directors and certain other persons
with respect to certain matters to the maximum extent allowed by Delaware law as
it exists now or may hereafter be amended. These provisions do not alter the
liability of officers and directors under federal securities laws and do not
affect the right to sue, nor to recover monetary damages, under federal
securities laws for violations thereof.
TRANSFER AGENT AND REGISTRAR
Our transfer agent and registrar for the common stock is Mellon Investor
Services.
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
We may offer fractional shares of preferred stock, rather than full shares
of preferred stock. If we decide to offer fractional shares of preferred stock,
we will issue receipts for depositary shares. Each depositary share will
represent a fraction of a share of a particular series of preferred stock. An
accompanying prospectus supplement will indicate that fraction. The shares of
preferred stock represented by depositary shares will be deposited under a
deposit agreement between us and a depositary that is a bank or trust company
that meets certain requirements and is selected by us. Each owner of a
depositary share will be entitled to all of the rights and preferences of the
preferred stock represented by the depositary share. The depositary shares will
be evidenced by depositary receipts issued pursuant to the deposit agreement.
Depositary receipts will be distributed to those persons purchasing the
fractional shares of preferred stock in accordance with the terms of the
offering.
We have summarized selected provisions of the deposit agreement and the
depositary receipts.
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DIVIDENDS AND OTHER DISTRIBUTIONS
If we pay a cash distribution or dividend on a series of preferred stock
represented by depositary shares, the depositary will distribute such dividends
to the record holders of such depositary shares. If the distributions are in
property other than cash, the depositary will distribute the property to the
record holders of the depositary shares. If, however, the depositary determines
that it is not feasible to make the distribution of property, the depositary
may, with our approval, sell such property and distribute the net proceeds from
such sale to the holders of the preferred stock.
REDEMPTION OF DEPOSITARY SHARES
If we redeem a series of preferred stock represented by depositary shares,
the depositary will redeem the depositary shares from the proceeds received by
the depositary in connection with the redemption. The redemption price per
depositary share will equal the applicable fraction of the redemption price per
share of the preferred stock. If fewer than all the depositary shares are
redeemed, the depositary shares to be redeemed will be selected by lot or pro
rata as the depositary may determine.
VOTING THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of the preferred
stock represented by depositary shares are entitled to vote, the depositary will
mail the notice to the record holders of the depositary shares relating to such
preferred stock. Each record holder of these depositary shares on the record
date, which will be the same date as the record date for the preferred stock,
may instruct the depositary as to how to vote the preferred stock represented by
such holder's depositary shares. The depositary will endeavor, insofar as
practicable, to vote the amount of the preferred stock represented by such
depositary shares in accordance with such instructions, and we will take all
action that the depositary deems necessary in order to enable the depositary to
do so. The depositary will abstain from voting shares of the preferred stock to
the extent it does not receive specific instructions from the holders of
depositary shares representing such preferred stock.
AMENDMENT AND TERMINATION OF THE DEPOSITARY AGREEMENT
The form of depositary receipt evidencing the depositary shares and any
provision of the deposit agreement may be amended by agreement between the
depositary and us. Any amendment that materially and adversely alters the rights
of the holders of depositary shares will not, however, be effective unless such
amendment has been approved by the holders of at least a majority of the
depositary shares then outstanding. The deposit agreement may be terminated by
the depositary or us only if (a) all outstanding depositary shares have been
redeemed or (b) there has been a final distribution in respect of the preferred
stock in connection with any liquidation, dissolution or winding up of our
company and such distribution has been distributed to the holders of depositary
receipts.
CHARGES OF DEPOSITARY
We will pay all transfer and other taxes and governmental charges arising
solely from the existence of the depositary arrangements. We will pay charges of
the depositary in connection with the initial deposit of the preferred stock and
any redemption of the preferred stock. Holders of depositary receipts will pay
other transfer and other taxes and governmental charges and any other charges,
including a fee for the withdrawal of shares of preferred stock upon surrender
of depositary receipts, as are expressly provided in the deposit agreement to be
for their accounts.
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WITHDRAWAL OF PREFERRED STOCK
Upon surrender of depositary receipts at the principal office of the
depositary, subject to the terms of the deposit agreement, the owner of the
depositary shares may demand delivery of the number of whole shares of preferred
stock and all money and other property, if any, represented by those depositary
shares. Partial shares of preferred stock will not be issued. If the depositary
receipts delivered by the holder evidence a number of depositary shares in
excess of the number of depositary shares representing the number of whole
shares of preferred stock to be withdrawn, the depositary will deliver to such
holder at the same time a new depositary receipt evidencing the excess number of
depositary shares. Holders of preferred stock thus withdrawn may not thereafter
deposit those shares under the deposit agreement or receive depositary receipts
evidencing depositary shares therefor.
MISCELLANEOUS
The depositary will forward to holders of depositary receipts all reports
and communications from us that are delivered to the depositary and that we are
required to furnish to the holders of the preferred stock.
Neither we nor the depositary will be liable if we are prevented or delayed
by law or any circumstance beyond our control in performing our obligations
under the deposit agreement. The obligations of the depositary and us under the
deposit agreement will be limited to performance in good faith of our duties
thereunder, and we will not be obligated to prosecute or defend any legal
proceeding in respect of any depositary shares or preferred stock unless
satisfactory indemnity is furnished. We may rely upon written advice of counsel
or accountants, or upon information provided by persons presenting preferred
stock for deposit, holders of depositary receipts or other persons believed to
be competent and on documents believed to be genuine.
RESIGNATION AND REMOVAL OF DEPOSITARY
The depositary may resign at any time by delivering notice to us of its
election to do so, and we may at any time remove the depositary. Any such
resignation or removal will take effect upon the appointment of a successor
depositary and its acceptance of such appointment. Such successor depositary
must be appointed within 60 days after delivery of the notice of resignation or
removal and must be a bank or trust company having its principal office in the
United States and having a combined capital and surplus of at least
$100,000,000.
DESCRIPTION OF SECURITIES WARRANTS
We may issue securities warrants for the purchase of debt securities,
preferred stock, depositary shares, common stock or other securities. Securities
warrants may be issued independently or together with debt securities, preferred
stock, depositary shares or common stock offered by any prospectus supplement
and may be attached to or separate from any such offered securities. Each series
of securities warrants will be issued under a separate warrant agreement to be
entered into between us and a bank or trust company, as warrant agent, all as
set forth in a prospectus supplement relating to the particular issue of
securities warrants. The securities warrant agent will act solely as our agent
in connection with the securities warrants and will not assume any obligation or
relationship of agency or trust for or with any holders of securities warrants
or beneficial owners of securities warrants.
We have summarized selected provisions of the securities warrant
agreements. A prospectus supplement relating to a particular issue of securities
warrants will contain the terms of and information relating to that issue of
securities warrants, including, where applicable:
30
o the designation, aggregate principal amount, currencies, denominations
and terms of the series of debt securities purchasable upon exercise
of securities warrants to purchase debt securities and the price at
which such debt securities may be purchased upon such exercise;
o the number of shares of common stock purchasable upon the exercise of
securities warrants to purchase common stock and the price at which
such number of shares of common stock may be purchased upon such
exercise;
o the number of shares and series of preferred stock or depositary
shares purchasable upon the exercise of securities warrants to
purchase preferred stock or depositary shares and the price at which
such number of shares of such series of preferred stock or depositary
shares may be purchased upon such exercise;
o the designation and number of units of other securities purchasable
upon the exercise of securities warrants to purchase other securities
and the price at which such number of units of such other securities
may be purchased upon such exercise;
o the date on which the right to exercise such securities warrants shall
commence and the date on which such right shall expire;
o United States federal income tax consequences applicable to such
securities warrants;
o the amount of securities warrants outstanding as of the most recent
practicable date; and
o any other terms of such securities warrants.
Securities warrants will be issued in registered form only. The exercise price
for securities warrants will be subject to adjustment in accordance with a
prospectus supplement relating to the particular issue of securities warranties.
Each securities warrant will entitle the holder thereof to purchase such
principal amount of debt securities or such number of shares of common stock,
preferred stock, depositary shares or other securities at such exercise price as
shall in each case be set forth in, or calculable from, a prospectus supplement
relating to the securities warrants, which exercise price may be subject to
adjustment upon the occurrence of certain events as set forth in such prospectus
supplement. After the close of business on the expiration date, or such later
date to which such expiration date may be extended by us, unexercised securities
warrants will become void. The place or places where, and the manner in which,
securities warrants may be exercised shall be specified in a prospectus
supplement relating to such securities warrants.
Prior to the exercise of any securities warrants to purchase debt
securities, common stock, preferred stock, depositary shares or other
securities, holders of such securities warrants will not have any of the rights
of holders of debt securities, common stock, preferred stock, depositary shares
or other securities, as the case may be, purchasable upon such exercise,
including the right to receive payments of principal of, premium, if any, or
interest, if any, on the debt securities purchasable upon such exercise or to
enforce covenants in any applicable indenture, or to receive payments of
dividends, if any, on the common stock, preferred stock or depositary shares
purchasable upon such exercise, or to exercise any applicable right to vote.
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DESCRIPTION OF STOCK PURCHASE CONTRACTS AND STOCK PURCHASE UNITS
We may issue stock purchase contracts, including contracts obligating
holders to purchase from us, and obligating us to sell to holders, a specified
number of shares of common stock or other securities at a future date or dates,
which we refer to in this prospectus as "stock purchase contracts." The price
per share of the securities and the number of shares of the securities may be
fixed at the time the stock purchase contracts are issued or may be determined
by reference to a specific formula set forth in the stock purchase contracts.
The stock purchase contracts may be issued separately or as part of units
consisting of a stock purchase contract and debt securities, preferred
securities, warrants or debt obligations of third parties, including U.S.
treasury securities, securing the holders' obligations to purchase the
securities under the stock purchase contracts, which we refer to herein as
"stock purchase units." The stock purchase contracts may require holders to
secure their obligations under the stock purchase contracts in a specified
manner. The stock purchase contracts also may require us to make periodic
payments to the holders of the stock purchase units or vice versa, and those
payments may be unsecured or refunded on some basis.
An accompanying prospectus supplement will describe the terms of the stock
purchase contracts or stock purchase units and, if applicable, collateral or
depositary arrangements relating to the stock purchase contracts or stock
purchase units. Material United States federal income tax considerations
applicable to the stock purchase units and the stock purchase contracts will
also be discussed in the applicable prospectus supplement.
PLAN OF DISTRIBUTION
We may sell the offered securities:
o through underwriters or dealers;
o through agents; or
o directly to one or more purchasers, including existing stockholders in
a rights offering.
BY UNDERWRITERS
If underwriters are used in the sale, the offered securities will be
acquired by the underwriters for their own account. The underwriters may resell
the securities in one or more transactions, including negotiated transactions,
at a fixed public offering price or at varying prices determined at the time of
sale. The obligations of the underwriters to purchase the securities will be
subject to certain conditions. Unless indicated in an accompanying prospectus
supplement, the underwriters must purchase all the securities offered if any of
the securities are purchased. Any initial public offering price and any
discounts or concessions allowed or re- allowed or paid to dealers may be
changed from time to time.
BY AGENTS
Offered securities may also be sold through agents designated by us. Unless
indicated in an accompanying prospectus supplement, any such agent is acting on
a best efforts basis for the period of its appointment.
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DIRECT SALES; RIGHTS OFFERINGS
Offered securities may also be sold directly by us. In this case, no
underwriters or agents would be involved. We may sell offered securities upon
the exercise of rights that may be issued to our securityholders.
DELAYED DELIVERY ARRANGEMENTS
We may authorize agents, underwriters or dealers to solicit offers by
certain institutional investors to purchase offered securities providing for
payment and delivery on a future date specified in an accompanying prospectus
supplement. Institutional investors to which such offers may be made, when
authorized, include commercial and savings banks, insurance companies, pension
funds, investment companies, education and charitable institutions and such
other institutions as may be approved by us. The obligations of any such
purchasers under such delayed delivery and payment arrangements will be subject
to the condition that the purchase of the offered securities will not at the
time of delivery be prohibited under applicable law. The underwriters and such
agents will not have any responsibility with respect to the validity or
performance of such contracts.
GENERAL INFORMATION
Underwriters, dealers and agents that participate in the distribution of
offered securities may be underwriters as defined in the Securities Act of 1933
and any discounts or commissions received by them from us and any profit on the
resale of the offered securities by them may be treated as underwriting
discounts and commissions under the Securities Act. Any underwriters or agents
will be identified and their compensation described in an accompanying
prospectus supplement.
We may have agreements with the underwriters, dealers and agents to
indemnify them against certain civil liabilities, including liabilities under
the Securities Act, or to contribute with respect to payments that the
underwriters, dealers or agents may be required to make.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, us or our subsidiaries in the ordinary course of their
businesses.
LEGAL MATTERS
The validity of securities will be passed upon for us by Vinson & Elkins
L.L.P., Houston, Texas. Legal counsel to any underwriters may pass upon legal
matters for such underwriters.
EXPERTS
The consolidated financial statements incorporated in this prospectus by
reference to our Current Report on Form 8-K filed with the SEC on October 4,
2001 have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
The consolidated financial statements of Lariat Petroleum, Inc. as of
December 31, 1999 and 2000, and for the years then ended, incorporated by
reference in this prospectus, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of that firm as
experts in accounting and auditing in giving such reports.
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$225,000,000
[NEWFIELD EXPLORATION COMPANY LOGO]
NEWFIELD EXPLORATION COMPANY
% Senior Subordinated Notes due 2012
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PROSPECTUS SUPPLEMENT
August , 2002
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Joint Book-Running Managers
UBS WARBURG JPMORGAN
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WACHOVIA SECURITIES
BNY CAPITAL MARKETS, INC.
CREDIT LYONNAIS SECURITIES
FLEET SECURITIES, INC.
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