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Registration No. 333-117036
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Prospectus | ||||
About this Prospectus | i | |||
About Encore Acquisition Company | 1 | |||
Risk Factors | 1 | |||
Forward-Looking Information | 8 | |||
Use of Proceeds | 10 | |||
Ratio of Earnings to Fixed Charges | 10 | |||
Description of Debt Securities | 11 | |||
Description of Capital Stock | 18 | |||
Plan of Distribution | 21 | |||
Legal Opinions | 22 | |||
Independent Auditors | 23 | |||
Independent Petroleum Engineers | 23 | |||
Where You Can Find More Information | 23 |
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Issuer | Encore Acquisition Company. | |
Notes offered | $150.0 million aggregate principal amount of 7.25% senior subordinated notes due 2017. | |
Interest rate and payment dates | 7.25% per annum payable on June 1 and December 1 of each year, commencing on June 1, 2006. | |
Maturity date | December 1, 2017. | |
Ranking | The notes will be our senior subordinated unsecured obligations. They will rank equal in right of payment with any of our existing or future Senior Subordinated Indebtedness and subordinated in right of payment to our obligations under our Revolving Credit Facility and any of our other existing and future Senior Indebtedness. As of September 30, 2005, on a pro forma as adjusted basis after giving effect to this offering, the application of the estimated net proceeds from this offering and amounts outstanding under our Revolving Credit Facility as of October 31, 2005, we had approximately $0.8 million of Senior Indebtedness. The terms “Revolving Credit Facility,” “Senior Indebtedness” and “Senior Subordinated Indebtedness” are defined under “Description of the Notes — Certain Definitions.” | |
Guarantees | The payment of the principal, interest and premium on the notes will be fully and unconditionally guaranteed on a senior subordinated basis by our existing and some of our future restricted subsidiaries. See “Description of the Notes — Guarantees.” | |
Optional redemption | Prior to December 1, 2008, we are entitled to redeem up to 35% of the aggregate principal amount of the notes issued, including any additional notes we may issue, from the proceeds of certain equity offerings, so long as: | |
• we pay to the holders of such notes a redemption price of 107.25% of the principal amount of the notes, plus accrued and unpaid interest to the date of redemption; and | ||
• at least 65% of the aggregate principal amount of the notes issued, including any additional notes we may issue, remains outstanding after each such redemption, other than notes held by us or our affiliates. | ||
Prior to December 1, 2010, we are entitled to redeem the notes as a whole at a redemption price equal to the principal amount of the notes plus the Applicable Premium and accrued and unpaid interest to the date of redemption. The term “Applicable Premium” is defined under “Description of the Notes — Certain Definitions.” | ||
On and after December 1, 2010, we may redeem some or all of the notes at any time at the prices listed under “Description of the Notes — Optional Redemption,” plus accrued and unpaid interest to the date of redemption. |
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Restrictive covenants | The indenture governing the notes will limit what we and our restricted subsidiaries do. The provisions of the indenture will limit our and such subsidiaries’ ability, among other things, to: | |
• incur additional indebtedness; | ||
• pay dividends on our capital stock or redeem, repurchase or retire our capital stock or subordinated indebtedness; | ||
• make investments; | ||
• incur liens; | ||
• create any consensual limitation on the ability of our restricted subsidiaries to pay dividends, make loans or transfer property to us; | ||
• engage in transactions with our affiliates; | ||
• sell assets, including capital stock of our subsidiaries; and | ||
• consolidate, merge or transfer assets. | ||
During any period that the notes have investment grade ratings from both Moody’s Investors Service, Inc. and Standard and Poor’s Ratings Services and no default has occurred and is continuing, the foregoing covenants will cease to be in effect with the exception of covenants that contain limitations on liens and on, among other things, certain consolidations, mergers and transfers of assets. | ||
These covenants are subject to important exceptions and qualifications described under “Description of the Notes — Certain Covenants.” | ||
Change of control | If we experience a Change of Control, subject to certain conditions, we must give holders of the notes the opportunity to sell to us their notes at 101% of the principal amount, plus accrued and unpaid interest. The term “Change of Control” is defined under “Description of the Notes — Change of Control.” | |
Trading | The notes will not be registered on any national securities exchange. | |
Use of proceeds | The net proceeds from this offering will be approximately $148.2 million, after deducting estimated expenses of the offering. We intend to use the net proceeds from this offering to repay amounts outstanding under our revolving credit facility. An affiliate of the underwriter is a lender under our Revolving Credit Facility and will receive a portion of the net proceeds used to repay indebtedness under such facility. See “Use of Proceeds.” |
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Nine Months Ended | ||||||||||||||||||||||
September 30, | Year Ended December 31, | |||||||||||||||||||||
2005 | 2004 | 2004 | 2003 | 2002 | ||||||||||||||||||
(unaudited) | ||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||
Consolidated Statement of Operations Data: | ||||||||||||||||||||||
Revenues:(1) | ||||||||||||||||||||||
Oil | $ | 222,254 | $ | 157,892 | $ | 220,649 | $ | 176,351 | $ | 134,854 | ||||||||||||
Natural gas | 96,616 | 50,773 | 77,884 | 43,745 | 25,838 | |||||||||||||||||
Total revenues | 318,870 | 208,665 | 298,533 | 220,096 | 160,692 | |||||||||||||||||
Expenses: | ||||||||||||||||||||||
Production — | ||||||||||||||||||||||
Lease operations | 48,501 | 33,752 | 47,142 | 37,846 | 30,678 | |||||||||||||||||
Production, ad valorem, and severance taxes | 31,425 | 21,117 | 30,313 | 22,013 | 15,653 | |||||||||||||||||
Depletion, depreciation, and amortization | 59,943 | 33,262 | 48,522 | 33,530 | 34,550 | |||||||||||||||||
Exploration | 11,201 | 2,159 | 3,907 | — | — | |||||||||||||||||
General and administrative (excluding non-cash stock based compensation) | 11,236 | 7,616 | 10,982 | 8,680 | 6,150 | |||||||||||||||||
Non-cash stock based compensation | 3,323 | 1,413 | 1,770 | 614 | — | |||||||||||||||||
Derivative fair value (gain) loss | 5,713 | 3,424 | 5,011 | (885 | ) | (900 | ) | |||||||||||||||
Loss on early redemption of debt | 19,477 | — | — | — | — | |||||||||||||||||
Other operating | 5,822 | 3,462 | 5,028 | 3,481 | 2,045 | |||||||||||||||||
Total expenses | 196,641 | 106,205 | 152,675 | 105,279 | 88,176 | |||||||||||||||||
Operating income | 122,229 | 102,460 | 145,858 | 114,817 | 72,516 | |||||||||||||||||
Other income (expenses): | ||||||||||||||||||||||
Interest | (23,671 | ) | (16,761 | ) | (23,459 | ) | (16,151 | ) | (12,306 | ) | ||||||||||||
Other | 729 | 235 | 240 | 214 | 91 | |||||||||||||||||
Total other income (expenses) | (22,942 | ) | (16,526 | ) | (23,219 | ) | (15,937 | ) | (12,215 | ) | ||||||||||||
Income before income taxes and cumulative effect of accounting change | 99,287 | 85,934 | 122,639 | 98,880 | 60,301 | |||||||||||||||||
Current income tax benefit (provision) | 1,478 | (3,046 | ) | (1,913 | ) | (991 | ) | 745 | ||||||||||||||
Deferred income tax provision | (34,459 | ) | (26,981 | ) | (38,579 | ) | (35,111 | ) | (23,361 | ) | ||||||||||||
Income before cumulative effect of accounting change | 66,306 | 55,907 | 82,147 | 62,778 | 37,685 | |||||||||||||||||
Cumulative effect of accounting change, net of income taxes | — | — | — | 863 | — | |||||||||||||||||
Net income | $ | 66,306 | $ | 55,907 | $ | 82,147 | $ | 63,641 | (2) | $ | 37,685 | |||||||||||
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Nine Months Ended | |||||||||||||||||||||
September 30, | Year Ended December 31, | ||||||||||||||||||||
2005 | 2004 | 2004 | 2003 | 2002 | |||||||||||||||||
(unaudited) | |||||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||
Other Financial Data: | |||||||||||||||||||||
Ratio of earnings to fixed charges(3) | 5.1 | x | 6.1 | x | 6.2 | x | 7.0 | x | 5.8 | x | |||||||||||
Cash provided by (used by): | |||||||||||||||||||||
Operating activities | $ | 204,192 | $ | 127,100 | $ | 171,821 | $ | 123,818 | $ | 91,509 | |||||||||||
Investing activities | (297,018 | ) | (365,814 | ) | (433,470 | ) | (153,747 | ) | (159,316 | ) | |||||||||||
Financing activities | 94,277 | 239,375 | 262,321 | 17,303 | 80,749 |
As of | As of December 31, | ||||||||||||||||
September 30, | |||||||||||||||||
2005 | 2004 | 2003 | 2002 | ||||||||||||||
(unaudited) | |||||||||||||||||
(Dollars in thousands) | |||||||||||||||||
Consolidated Balance Sheet Data: | |||||||||||||||||
Working capital | $ | (54,532 | ) | $ | (15,566 | ) | $ | (52 | ) | $ | 12,489 | ||||||
Total assets | 1,422,376 | 1,123,400 | 672,138 | 549,896 | |||||||||||||
Total long-term debt | 493,581 | 379,000 | 179,000 | 166,000 | |||||||||||||
Stockholders’ equity | 491,212 | 473,575 | 358,975 | 296,266 |
(1) | For the nine months ended September 30, 2005 and 2004, we reduced revenue for the payments of the net profits interests by $14.4 million and $8.3 million, respectively. For the years ended December 31, 2004, 2003 and 2002, we reduced revenue for the payments of the net profits interests by $12.6 million, $5.8 million and $2.0 million, respectively. |
(2) | Net income for the year ended December 31, 2003 includes a $0.9 million gain from the cumulative effect of accounting change related to the adoption of SFAS No. 143,Asset Retirement Obligations, which affects its comparability with other periods presented. |
(3) | For purposes of computing the ratio of earnings to fixed charges, earnings consist of the sum of income from continuing operations before income taxes and the cumulative effect of change in accounting change, interest expense and the portion of the rent expense deemed to represent interest. Fixed charges consist of interest incurred, whether expensed or capitalized, including amortization of debt issuance costs, if applicable, and the portion of rent expense deemed to represent interest. The pro forma ratio of earnings to fixed charges after giving effect to the issuance of the notes and the application of the net proceeds therefrom would have been 4.0x for the nine months ended September 30, 2005 and 4.5x for the year ended December 31, 2004. |
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As of December 31, | |||||||||||||
2004 | 2003 | 2002 | |||||||||||
Proved Reserves: | |||||||||||||
Oil (MBbls) | 134,048 | 117,732 | 111,674 | ||||||||||
Natural Gas (MMcf) | 234,030 | 138,950 | 99,818 | ||||||||||
Combined (MBOE) | 173,053 | 140,890 | 128,310 | ||||||||||
Proved developed reserves (MBOE) | 123,267 | 109,838 | 107,648 |
Nine Months Ended | |||||||||||||||||||||
September 30, | Year Ended December 31, | ||||||||||||||||||||
2005 | 2004 | 2004 | 2003 | 2002 | |||||||||||||||||
Production Volume: | |||||||||||||||||||||
Oil (MBbls) | 5,082 | 4,994 | 6,679 | 6,601 | 6,037 | ||||||||||||||||
Natural gas (MMcf) | 14,874 | 9,796 | 14,089 | 9,051 | 8,175 | ||||||||||||||||
Combined (MBOE) | 7,561 | 6,626 | 9,027 | 8,110 | 7,399 | ||||||||||||||||
Average Realized Prices(1): | |||||||||||||||||||||
Oil ($/Bbl) | $ | 43.73 | $ | 31.62 | $ | 33.04 | $ | 26.72 | $ | 22.34 | |||||||||||
Natural gas ($/Mcf) | 6.50 | 5.18 | 5.53 | 4.83 | 3.16 | ||||||||||||||||
Combined ($/BOE) | 42.17 | 31.49 | 33.07 | 27.14 | 21.72 | ||||||||||||||||
Average Wellhead Prices(2): | |||||||||||||||||||||
Oil ($/Bbl) | $ | 50.07 | $ | 36.35 | $ | 38.24 | $ | 28.82 | $ | 23.38 | |||||||||||
Natural gas ($/Mcf) | 7.04 | 5.35 | 5.76 | 5.00 | 3.03 | ||||||||||||||||
Combined ($/BOE) | 47.49 | 35.30 | 37.28 | 29.03 | 22.42 | ||||||||||||||||
Costs per BOE: | |||||||||||||||||||||
Lease operations | $ | 6.41 | $ | 5.09 | $ | 5.22 | $ | 4.67 | $ | 4.15 | |||||||||||
Production, ad valorem and severance taxes | 4.16 | 3.19 | 3.36 | 2.71 | 2.12 | ||||||||||||||||
Depletion, depreciation and amortization | 7.93 | 5.02 | 5.38 | 4.13 | 4.67 | ||||||||||||||||
Exploration | 1.48 | 0.33 | 0.43 | — | — | ||||||||||||||||
General and administrative (excluding non-cash stock based compensation) | 1.49 | 1.15 | 1.22 | 1.07 | 0.83 |
(1) | Represents revenue per unit as reported, which includes the impact of oil and natural gas hedging transactions. |
(2) | Represents revenue per unit unadjusted for the effect of oil and natural gas hedging transactions. |
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• | it may be more difficult for us to satisfy our obligations with respect to the notes; | |
• | we may have difficulties borrowing money in the future for acquisitions, to meet our operating expenses or for other purposes; | |
• | the amount of our interest expense may increase because certain of our borrowings not subject to interest rate protection hedges are at variable rates of interest, which, if interest rates increase, could result in higher interest expense; | |
• | we will need to use a portion of the money we earn to pay principal and interest on our debt which will reduce the amount of money we have to finance our operations and other business activities; | |
• | we may be more vulnerable to economic downturns and adverse developments in our industry; and | |
• | our debt level could limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate. |
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• | intended to hinder, delay or defraud any present or future creditor or received less than reasonably equivalent value or fair compensation for the guarantee; | |
• | was insolvent or rendered insolvent by making the guarantee; | |
• | was engaged in a business or transaction for which the guarantor’s remaining assets constituted unreasonably small capital; or | |
• | intended to incur, or believed that it would incur, debts beyond its ability to pay them as they mature. |
• | the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all of its assets; | |
• | the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or | |
• | it could not pay its debts as they become due. |
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• | on an actual basis; | |
• | a pro forma basis to reflect amounts outstanding under our revolving credit facility as of October 31, 2005, approximately $96.0 million of which was used to fund our recent acquisition of Crusader Energy Corporation and related expenses; and | |
• | on a pro forma as adjusted basis to reflect the offering by us of the notes and the application of the net proceeds we receive from this offering as described under “Use of Proceeds.” |
September 30, 2005 | |||||||||||||
Pro Forma As | |||||||||||||
Historical | Pro Forma | Adjusted | |||||||||||
(In thousands) | |||||||||||||
Cash and cash equivalents | $ | 2,554 | $ | 2,554 | $ | 2,554 | |||||||
Total long-term debt: | |||||||||||||
Revolving credit facility | $ | 49,000 | $ | 149,000 | $ | 800 | |||||||
6.25% senior subordinated notes due 2014 | 150,000 | 150,000 | 150,000 | ||||||||||
6.0% senior subordinated notes due 2015 (net of discount) | 294,581 | 294,581 | 294,581 | ||||||||||
7.25% senior subordinated notes due 2017 (net of discount) | — | — | 148,500 | ||||||||||
Total long-term debt | $ | 493,581 | $ | 593,581 | $ | 593,881 | |||||||
Stockholders’ equity: | |||||||||||||
Preferred stock | — | — | — | ||||||||||
Common stock | $ | 494 | $ | 494 | $ | 494 | |||||||
Additional paid-in capital | 324,502 | 324,502 | 324,502 | ||||||||||
Deferred compensation | (8,964 | ) | (8,964 | ) | (8,964 | ) | |||||||
Retained earnings | 265,756 | 265,756 | 265,756 | ||||||||||
Accumulated other comprehensive income | (90,576 | ) | (90,576 | ) | (90,576 | ) | |||||||
Total stockholders’ equity | 491,212 | 491,212 | 491,212 | ||||||||||
Total capitalization | $ | 984,793 | $ | 1,084,793 | $ | 1,085,093 | |||||||
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Ratio of Total Outstanding to Borrowing Base | Eurodollar Loans | Base Rate Loans | ||||||
Less than .40 to 1 | LIBOR + 1.000% | Base Rate + 0.000% | ||||||
From .40 to 1 but less than .75 to 1 | LIBOR + 1.250% | Base Rate + 0.000% | ||||||
From .75 to 1 but less than .90 to 1 | LIBOR + 1.500% | Base Rate + 0.250% | ||||||
.90 to 1 or greater | LIBOR + 1.750% | Base Rate + 0.500% |
• | a prohibition against incurring debt in excess of $30.0 million, except for borrowings under the Revolving Credit Facility, certain subordinated debt, permitted refinancing of debt, debt under hedge transactions and intercompany debt; | |
• | a prohibition against paying dividends or purchasing or redeeming capital stock or prepaying indebtedness, subject to permitted exceptions; | |
• | a restriction on creating liens on our assets, subject to permitted exceptions; |
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• | restrictions on merging and selling assets outside the ordinary course of business; | |
• | restrictions on use of proceeds, investments, transactions with affiliates, changing our principal business and incurring funding obligations under ERISA; | |
• | a provision limiting oil and natural gas hedging transactions (other than puts) to a volume not exceeding 75% of anticipated production from proved reserves; | |
• | a requirement that we maintain a ratio of consolidated current assets to consolidated current liabilities of not less than 1.0 to 1.0; and | |
• | a requirement that we maintain a ratio of consolidated EBITDAX (as defined in the Revolving Credit Facility) to the sum of consolidated net interest expense plus letter of credit fees of not less than 2.5 to 1.0. |
• | we pay to the holders of such notes a redemption price of 106.0% of the principal amount of the 6.0% Notes, plus accrued and unpaid interest to the date of redemption; and | |
• | at least 65% of the aggregate principal amount of the 6.0% Notes remains outstanding after each such redemption, other than 6.0% Notes held by us or our affiliates. |
• | incur additional indebtedness; | |
• | pay dividends on our capital stock or redeem, repurchase or retire our capital stock or subordinated indebtedness; | |
• | make investments; | |
• | incur liens; | |
• | create any consensual limitation on the ability of our restricted subsidiaries to pay dividends, make loans or transfer property to us; | |
• | engage in transactions with our affiliates; |
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• | sell assets, including capital stock of our subsidiaries; and | |
• | consolidate, merge or transfer assets. |
• | we pay to the holders of such notes a redemption price of 106.25% of the principal amount of the 6.25% Notes, plus accrued and unpaid interest to the date of redemption; and | |
• | at least 65% of the aggregate principal amount of the 6.25% Notes remains outstanding after each such redemption, other than 6.25% Notes held by us or our affiliates. |
• | incur additional indebtedness; | |
• | pay dividends on our capital stock or redeem, repurchase or retire our capital stock or subordinated indebtedness; | |
• | make investments; | |
• | incur liens; | |
• | create any consensual limitation on the ability of our restricted subsidiaries to pay dividends, make loans or transfer property to us; | |
• | engage in transactions with our affiliates; | |
• | sell assets, including capital stock of our subsidiaries; and | |
• | consolidate, merge or transfer assets. |
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• | are unsecured senior subordinated obligations of the Company; | |
• | are subordinated in right of payment to all existing and future Senior Indebtedness of the Company; | |
• | are senior in right of payment to any future Subordinated Obligations of the Company; and | |
• | are guaranteed by each Subsidiary Guarantor. |
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Period | Redemption Price | |||
2010 | 103.625 | % | ||
2011 | 102.417 | % | ||
2012 | 101.208 | % | ||
2013 and thereafter | 100.000 | % |
(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 180 days after the date of the related Public Equity Offering. |
(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. |
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(1) upon the sale or other disposition (including by way of consolidation or merger) of all of the Capital Stock of that Subsidiary Guarantor; | |
(2) upon the sale or disposition of all or substantially all the assets of that Subsidiary Guarantor; or | |
(3) upon the designation of such Subsidiary Guarantor as an Unrestricted Subsidiary; |
Senior Indebtedness versus Notes |
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(1) the Company’s Senior Indebtedness would have been approximately $0.8 million, all of which would have been secured indebtedness; and | |
(2) the Senior Indebtedness of the Subsidiary Guarantors would have been approximately $0.8 million, all of which would have consisted of their respective guaranties of Senior Indebtedness of the Company under the Revolving Credit Facility. |
Liabilities of Subsidiaries versus Notes |
Other Senior Subordinated Indebtedness versus Notes |
Payment of Notes |
(1) any Obligation on any Designated Senior Indebtedness of the Company is not paid in full in cash when due; or |
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(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; |
(1) by written notice to the Trustee and us from the Person or Persons who gave such Blockage Notice; | |
(2) because the default giving rise to such Blockage Notice is cured, waived or otherwise no longer continuing; or | |
(3) because such Designated Senior Indebtedness has been discharged or repaid in full in cash. |
(1) the holders of Senior Indebtedness of the Company will be entitled to receive payment in full in cash 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, 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 shares of stock and any debt securities that are subordinated to such Senior Indebtedness to at least the same extent as the Notes. |
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(1) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, is or becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-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;provided, however,that the Permitted Holders beneficially own (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, in the aggregate a lesser percentage of the total voting power of the Voting Stock of the Company than such other person and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Directors (for the purposes of this clause (1), such other person shall be deemed to beneficially own any Voting Stock of a Person (the “specified person”) held by any other Person (the “parent entity”), if such other person is the beneficial owner (as defined above in this clause (1)), directly or indirectly, of more than 50% of the voting power of the Voting Stock of such parent entity and the Permitted Holders beneficially own (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, in the aggregate a lesser percentage of the voting power of the Voting Stock of such parent entity and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the board of directors of such parent entity); | |
(2) during any period of two consecutive years, individuals who, at the beginning of such period, constituted the Board of Directors (together with (A) 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 |
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previously so approved and (B) any representative of a Permitted Holder) 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, in all such cases, a Person that is controlled by one or more Permitted Holders), 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. |
(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); | |
(2) the circumstances and relevant facts regarding such Change of Control (including information with respect topro formahistorical 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 this change of control covenant, that a Holder must follow in order to have its Notes purchased. |
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Covenant Suspension |
(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”; |
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(e) “— Limitation on Affiliate Transactions”; | |
(f) clause (3) of the covenant described under “— Merger and Consolidation”; and | |
(g) “— Future Guarantors” (collectively, the “Suspended Covenants”). |
Limitation on 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) $300 million less the sum of all principal payments since the Issue Date 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) $150 million plus 20% of ACNTA as of the date of such Incurrence; | |
(2) Indebtedness owed to and held by the Company or a Restricted Subsidiary;provided, however, that (A) any subsequent issuance or transfer of any Capital Stock which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of such Indebtedness (other than to the Company or a Restricted Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such Indebtedness by the obligor thereon and (B) if the Company or a Subsidiary Guarantor is the obligor on such Indebtedness, unless such Indebtedness is owing to the Company or 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 givingpro formaeffect thereto, the Company would have been able to Incur at least $1.00 of additional Indebtedness pursuant to paragraph (a) of this covenant; |
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(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; | |
(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; | |
(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) Indebtedness 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 $25.0 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) Indebtedness in respect of 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 Incurred by the Company and any Subsidiary Guarantors;provided, however, that immediately after giving effect to any such Incurrence, the aggregate principal amount of all Non-Recourse Purchase Money Indebtedness Incurred under this clause (15) and then outstanding does not exceed $25.0 million; 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 the foregoing paragraph (a)) does not exceed $40.0 million of which not more than $20.0 million may be Indebtedness of Restricted Subsidiaries that are not Subsidiary Guarantors. |
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(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. |
Limitation on Restricted Payments |
(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 April 2, 2004 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 immediately following the fiscal quarter during which April 2, 2004 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 April 2, 2004 (other than an issuance or sale to a Subsidiary of the Company and other than an issuance or sale 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, or the fair market value of property other than cash, received by the Company from its shareholders subsequent to April 2, 2004;plus | |
(C) the aggregate Net Cash Proceeds received by the Company subsequent to April 2, 2004 from the issuance or sale of its Capital Stock (other than Disqualified Stock) to an |
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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 or a Restricted Subsidiary is reduced on the Company’s consolidated balance sheet upon the conversion or exchange subsequent to April 2, 2004 of any Indebtedness of the Company or any Restricted Subsidiary 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 (including any Unrestricted Subsidiary) 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) $25.0 million. |
(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 under clause (a)(3) of this covenant, 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, or out of the proceeds of the substantially concurrent Incurrence or 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 |
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retirement for value shall be excluded in the calculation of the amount of Restricted Payments under clause (a)(3) of this covenant; | |
(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 under clause (a)(3) of this covenant; | |
(4) 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 dividend, no other Default shall have occurred and be continuing (or result therefrom);provided further, however, that such dividend shall be included in the calculation of the amount of Restricted Payments under clause (a)(3) of this covenant 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 the respective heirs, estates 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 $3.0 million in any twelve-month period;provided further, however, that such purchases, redemptions and other acquisitions and retirements shall be excluded in the calculation of the amount of Restricted Payments under clause (a)(3) of this covenant; | |
(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 under clause (a)(3) of this covenant; | |
(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 under clause (a)(3) of this covenant; | |
(8) payments to dissenting stockholders (x) pursuant to applicable law or (y) in connection with the settlement or other satisfaction of legal claims made pursuant to or in connection with a consolidation, merger or transfer of assets in connection with a transaction that is not prohibited by the Indenture;provided, however, that such payments will be included in the calculation of the amount of Restricted Payments under clause (a)(3) of this covenant; and | |
(9) 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 and unpaid interest |
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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 under clause (a)(3) of this covenant. |
Limitation on Restrictions on Distributions from Restricted Subsidiaries |
(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; | |
(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 |
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(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; |
(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 or in Production Payments and Reserve Sales, to the extent such encumbrance or restriction restricts the transfer of the property subject to such credit agreements, security agreements, mortgages or Production Payments and Reserve Sales; | |
(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; | |
(F) restrictions on the transfer of property or assets required by any regulatory authority having jurisdiction over the Company or such Restricted Subsidiary; and | |
(G) customary restrictions contained in asset sale agreements limiting the transfer of such assets pending the closing of such sale. |
Limitation on Liens |
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Limitation on Sales of Assets and Subsidiary Stock |
(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, Additional Assets or any combination thereof (collectively, the “Cash Consideration”); 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. |
(1) any liabilities, as shown on the Company’s or such Restricted Subsidiary’s most recent balance sheet, of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any Subsidiary Guaranty) that are |
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assumed by the transferee of any such assets pursuant to (1) a customary novation agreement that releases the Company or such Restricted Subsidiary from further liability or (2) an assignment agreement that includes, in lieu of such a release, the agreement of the transferee or its parent company to indemnify and hold harmless the Company or such Restricted Subsidiary from and against any loss, liability or cost in respect of such assumed liability (provided, however, that such indemnifying party (or its long-term debt securities) shall have an Investment Grade Rating (with no indication of a negative outlook or credit watch with negative implications, in any case, that contemplates such indemnifying party (or its long-term debt securities) failing to have an Investment Grade Rating) at the time the indemnity is entered into); | |
(2) any non-Cash Consideration received by the Company or any Restricted Subsidiary from the transferee that is converted, monetized, sold or exchanged by the Company or such Restricted Subsidiary into cash or cash equivalents within 120 days of receipt. |
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Limitation on Affiliate Transactions |
(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 $10.0 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 $25.0 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. |
(1) any Investment (other than a Permitted 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 and severance arrangements, stock options and stock ownership plans, phantom stock or other incentive benefit plans approved by the Board of Directors; | |
(3) loans or advances to officers, directors and employees 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 or any renewals, extensions or replacements of any such agreement (so long as such renewals, extensions or replacements are not less favorable to the Company or the Restricted Subsidiaries than the original agreement in effect on the Issue Date) and the transactions evidenced thereby. |
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Merger and Consolidation |
(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 givingpro formaeffect 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 givingpro formaeffect 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 had not occurred; |
(1) except in the case of a Subsidiary Guarantor (other than Encore Operating, L.P. and any Subsidiary Guarantor that directly or indirectly holds any equity interest in Encore Operating, L.P.) that has been disposed of in its entirety to another Person (other than to the Company or an Affiliate of the Company), whether through a merger, consolidation or sale of Capital Stock or assets, if in connection therewith the Company complies with its obligations under the covenant described under “— Limitation on Sales of Assets and Subsidiary Stock” in respect of such disposition, the resulting, |
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surviving or transferee Person (if not such Subsidiary) shall be a Person organized and existing under the laws of the jurisdiction under which such Subsidiary was organized or under the laws of the United States of America, or any State thereof or the District of Columbia, and, if such Person is not already a Subsidiary Guarantor, 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 apro formabasis (and treating any Indebtedness which becomes an obligation of the resulting, surviving or transferee 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) in the event a Guaranty Agreement is executed and delivered pursuant to clause (1) above, the Company delivers to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and such Guaranty Agreement, if any, complies with the Indenture. |
Future Guarantors |
(1) a default in the payment of interest on any Note when due and payable, and such default continues for a period of 30 days; | |
(2) a default in the payment of principal of any Note when due and payable at its Stated Maturity (including upon optional redemption, upon required purchase, upon declaration of acceleration or otherwise); | |
(3) the failure by the Company to comply with its obligations in the covenant described above under “— Certain Covenants — Merger and Consolidation”; | |
(4) the failure by the Company to comply with any of its obligations in the covenants described above under “Change of Control” (other than a failure to purchase Notes) or under “— Certain Covenants” under “— Limitation on Indebtedness,” “— Limitation on Restricted Payments,” “— Limitation on Restrictions on Distributions from Restricted Subsidiaries,” “— Limitation on Sales of Assets and Subsidiary Stock” (other than a failure to purchase Notes), “— Limitation on Affiliate |
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Transactions,” “— Future Guarantors” and “— SEC Reports,” and such failure continues for 30 days after it receives a notice of default; | |
(5) the failure by the Company or any Subsidiary Guarantor to comply with its other agreements contained in the Indenture and such failure continues for 60 days after it receives a notice of default; | |
(6) Indebtedness of the Company, any Subsidiary Guarantor or any Significant Subsidiary (other than Non-Recourse Purchase Money Indebtedness) is not paid within any applicable grace period after final maturity or is accelerated by the holders thereof because of a default and the total amount of such Indebtedness unpaid or accelerated exceeds $10.0 million (the “cross acceleration provision”); provided, that if such default is cured or waived or any such acceleration is rescinded, or such Indebtedness is repaid, within a period of 10 days from the continuance of such default 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; | |
(7) certain events of bankruptcy, insolvency or reorganization of the Company, a Subsidiary Guarantor or any Significant Subsidiary described in the Indenture (the“bankruptcy provisions”); | |
(8) any judgment or decree for the payment of money in excess of $10.0 million above the coverage under applicable insurance policies and indemnities as to which the relevant insurer or indemnitor 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 | |
(9) 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”). |
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(1) the holder gives to the Trustee written notice of a continuing Event of Default; | |
(2) the holders of at least 25% in principal amount of the outstanding Notes make a written request to the Trustee to pursue the remedy; | |
(3) such holder or holders offer to the Trustee indemnity reasonably satisfactory to the Trustee against any loss, liability or expense; | |
(4) the Trustee does not comply with such request within 60 days after the receipt thereof and the offer of indemnity; and | |
(5) during that 60-day period, the holders of a majority in principal amount of the outstanding Notes do not give the Trustee a direction inconsistent with such request. |
(1) reduce the amount of Notes whose holders must consent to an amendment, supplement or waiver; | |
(2) reduce the rate of or change the time for payment of interest, including defaulted interest, on any Note; | |
(3) reduce the principal of, premium on or any mandatory sinking fund payment with respect to, or change the Stated Maturity of, any Note; | |
(4) reduce the premium, if any, payable on the redemption of any Note or change the time at which any Note may or shall be redeemed; | |
(5) make any Note payable in money other than that stated in the Note; | |
(6) impair the right of any holder of the Notes to institute suit for the enforcement of any payment principal of, premium (if any) or interest on or with respect to such holder’s Notes; |
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(7) make any change in the waiver of past defaults provisions, the right of holders to receive payment or the amendment provisions which require each holder’s consent; | |
(8) modify the provisions of the Indenture with respect to the subordination of the Notes in any manner adverse to the holder thereof;provided, however, that any change to conform the Indenture to this prospectus supplement will not be deemed to adversely affect the legal rights of any holder; | |
(9) waive a continuing Default or Event of Default in the payment of principal on, premium (if any) or interest on such holder’s Notes; or | |
(10) make any change in any Subsidiary Guaranty that would adversely affect the holders of the Notes in any material respect. |
(1) to cure any ambiguity, omission, defect or inconsistency; | |
(2) to comply with the covenant described under the caption “— Certain Covenants — Merger and Consolidation”; | |
(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, to secure the Notes, or to confirm the release, termination or discharge of any Subsidiary Guarantor or any such Lien when such release, termination or discharge is permitted under the Indenture; | |
(5) to comply with any requirement of the SEC in connection with the qualification of the Indenture under the Trust Indenture Act; | |
(6) 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; | |
(7) to add any additional Events of Default with respect to the Notes; | |
(8) to change or eliminate any of the provisions of the Indenture; provided that no holder of any Note is adversely affected in any material respect by that change in or elimination of that provision; | |
(9) to supplement any of the provisions of the Indenture to such extent as shall be necessary to permit or facilitate the defeasance and discharge of the Notes; provided, however, that any such action may not adversely affect the interest of the holder of any Notes in any material respect; or | |
(10) to evidence and provide for the acceptance of appointment under the Indenture by a successor trustee with respect to the Notes and to add to or change any of the provisions of the Indenture as shall be necessary to provide for or facilitate the administration of the trusts thereunder by more than one trustee; or | |
(11) to make any change to conform the Indenture to this prospectus supplement that does not adversely affect the holder of any Note. |
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(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; |
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(a) the sum of: |
(1) discounted future net revenue from proved crude oil and natural gas reserves of the Company and its Restricted Subsidiaries (including oil and natural gas reserves attributable to the net profits interests owned by an Oil and Gas Royalty Trust to the extent such net profits interests are attributable to the Company or a Restricted Subsidiary by virtue of its ownership of Capital Stock of such Oil and Gas Royalty Trust) calculated in accordance with SEC guidelines before any state or federal income taxes, as estimated in a reserve report prepared as of the end of the most recently completed fiscal year for which audited financial statements are available, asincreased 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 the case of determinations made under clauses (A) or (B), in accordance with standard industry practice, result in such determinations, |
anddecreased 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 the case of determinations made under clauses (C) or (D), in accordance with standard industry practice, result in such determinations; |
provided, however, that, in the case of each of the determinations made pursuant to clauses (A) through (D), such increases and decreases shall be estimated by the Company’s engineers, except that if as a result of such acquisitions, dispositions, discoveries, extensions or revisions, there is a Material Change, then such increases and decreases in the discounted future net revenue shall be confirmed in writing by an independent petroleum engineer; |
(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; |
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(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; | |
(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 year-end 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. |
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(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) or of an Oil and Gas Royalty Trust; | |
(2) all or substantially all the assets of any division or line of business of the Company or any Restricted Subsidiary; | |
(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; or | |
(4) any net profits interests held by any such Oil and Gas Royalty Trust |
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(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. |
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(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 apro formabasis 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 apro formabasis 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 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 under the Indenture, 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 givingpro formaeffect 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 givingpro formaeffect thereto as if such Asset Disposition, Investment or acquisition occurred on the first day of such period. |
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(1) interest expense attributable to capital leases and the interest expense attributable to leases constituting part of a Sale/ Leaseback Transaction; | |
(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, |
(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 |
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(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 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 non-cash gains or losses or charges in respect of Hedging Obligations (including those resulting from the application of FAS 133); and | |
(9) any non-cash compensation charge arising from any grant of stock, stock options or other equity-based awards. |
(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 |
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(3) any retained earnings or earned surplus |
(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. |
(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 holder 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 (other than redeemable or required to be purchased only for Capital Stock of such Person which is not itself Disqualified Stock), in each case on or prior to the 91st day after 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 |
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repurchased by the Company in order to satisfy applicable statutory or regulatory obligations shall not constitute Disqualified Stock. |
(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), |
(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. |
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(1) the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants; | |
(2) statements and pronouncements of the Financial Accounting Standards Board; | |
(3) such other statements by such other entity as approved by a significant segment of the accounting profession; and | |
(4) the rules and regulations of the SEC governing the inclusion of financial statements (includingpro formafinancial statements) in periodic reports required to be filed pursuant to Section 13 of the Exchange Act, including opinions and pronouncements in staff accounting bulletins and similar written statements from the accounting staff of the SEC. |
(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); |
(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; |
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(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 FAS 133) |
(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 (other than obligations payable solely in Capital Stock of such Person that is not Disqualified Stock) 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 transactions (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 and Reserve Sale, |
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(1) accrued expenses and trade accounts payable arising in the ordinary course of business; | |
(2) except as expressly provided in clause (9) above, Production Payments and Reserve Sales; | |
(3) obligations in respect of farm-in agreements; | |
(4) obligations arising from guarantees to suppliers, lessors, licensees, contractors, franchisees or customers incurred in the ordinary course of business; | |
(5) any obligations under workers’ compensation laws and similar legislation; | |
(6) any obligation in respect of any 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; or | |
(7) any indebtedness which has been defeased in accordance with GAAP or defeased pursuant to the deposit of cash or Government Securities (in an amount sufficient to satisfy all such indebtedness obligations at maturity or redemption, as applicable, and all payments of interest and premium, if any) in a trust or account created or pledged for the sole benefit of the holders of such indebtedness, and subject to no other Liens, and the other applicable terms of the instrument governing such indebtedness. |
(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;provided, however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to |
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continue to have a permanent “Investment” in an Unrestricted Subsidiary equal to an amount (if positive) equal to (A) the Company’s “Investment” in such Subsidiary at the time of such redesignation less (B) the portion (proportionate to the Company’s equity interest in such Subsidiary) of the fair market value of the net assets of such Subsidiary at the time of such redesignation; 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. |
(1) any acquisitions during the fiscal quarter of oil and natural gas reserves that have been estimated by independent petroleum engineers and with respect to which a report or reports of such engineers exist; and | |
(2) any disposition of properties existing at the beginning of such fiscal quarter that have been disposed of in compliance with the covenant described under “— Certain Covenants — Limitation on Sales of Assets and Subsidiary Stock.” |
(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; |
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(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. |
(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, in each case determined in accordance with GAAP. |
(1) the holders of such Indebtedness agree that they will look solely to the fixed assets so acquired which secure such Indebtedness, and neither the Company nor any Restricted Subsidiary (a) is directly or indirectly liable for such Indebtedness or (b) provides credit support, including any undertaking, Guarantee, agreement or instrument that would constitute Indebtedness (other than the grant of a Lien on such acquired fixed assets); and | |
(2) no default or event of default with respect to such Indebtedness would cause or permit (after notice or passage of time or both), any holder of any other Indebtedness of the Company or a Subsidiary Guarantor to declare a default or event of default on such other Indebtedness or cause the payment, repurchase, defeasance or other acquisition or retirement for value thereof to be accelerated or payable prior to any scheduled principal payment, scheduled sinking fund payment, or Stated Maturity. |
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(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; | |
(4) any other related energy business, including power generation and electrical transmission business where fuel required by such business is supplied, directly or indirectly, from oil, natural gas, other hydrocarbons and minerals produced substantially from properties in which the Company or its Restricted Subsidiaries, directly or indirectly, participates; | |
(5) any business relating to oil field sales and service; and | |
(6) any activity necessary, appropriate or incidental to the activities described in the preceding clauses (1) through (5) of this definition. |
(1) holds no assets other than (a) net profits interests in the Company’s and its Restricted Subsidiaries’ oil and natural gas properties and (b) Temporary Cash Investments; | |
(2) conducts no business or activities other than the holding of the assets permitted by clause (1) above and the distribution of its available funds as required by clause (3) below; | |
(3) distributes all funds (less reasonable reserves, if any, for operating liabilities as determined by the trustee) held by it to its unit holders on a pro rata basis no less frequently than monthly; | |
(4) does not incur, nor permit to exist, directly or indirectly, any Indebtedness other than Indebtedness Incurred for its routine administrative expenses; | |
(5) is not permitted to sell its net profits interests except in immaterial amounts or when revenue from such interests fall below $1.0 million annually; | |
(6) is not permitted to sell its net profits interests except for cash equal to the fair market value thereof (as determined in good faith by the trustee of such Oil and Gas Royalty Trust, whose determination shall be conclusive); | |
(7) is not permitted to issue Capital Stock except to the Company or a Restricted Subsidiary in exchange for the conveyance to such Oil and Gas Royalty Trust of net profits interests in connection with its formation; and | |
(8) is governed by a trust agreement that requires the trustee to operate the Oil and Gas Royalty Trust in compliance with the terms of clauses (1) through (7) above. |
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(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). |
(1) I. Jon Brumley; | |
(2) Jon S. Brumley; | |
(3) trusts, the sole beneficiaries and trustees of which are the individuals listed in clauses (1) and (2) above or their immediate family members; and | |
(4) corporations, partnerships and other entities (a) of which the individuals listed in clauses (1) and (2) above or their immediate family members are the beneficial owners of all Capital Stock and other equity or voting interests and (b) that are controlled by such individuals and their immediate family members. |
(1) (a) the Company, (b) a Restricted Subsidiary or (c) 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, or (d) another Person if, as a result of such Investment, such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, the Company or a Restricted Subsidiary; provided, however, that the primary business of such Person 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; |
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(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; | |
(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 are 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; | |
(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; | |
(16) Investments in a wholly-owned Unrestricted Subsidiary that constructs and owns an office building for use as the Company’s headquarters in an aggregate amount not to exceed $10.0 million at any one time outstanding; | |
(17) Investments in Capital Stock of any Oil and Gas Royalty Trust; and | |
(18) Investments in any Person, not otherwise permitted to be made pursuant to clause (1) through (17), 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 $20.0 million at any one time outstanding (after giving effect to any reductions in the aggregate amount of such Investments as a result of the disposition thereof, including through liquidation, repayment or other reduction (but excluding dividends) for cash, the aggregate amount of such reductions not to exceed the aggregate amount of such Investments outstanding and previously made pursuant to this clause (18). |
(1) Liens securing Senior Indebtedness; | |
(2) Liens in favor of the Company or a Restricted Subsidiary; | |
(3) Liens securing the Notes, any Subsidiary Guarantee or other obligations arising under the Indenture; |
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(4) Liens existing as of the Issue Date; | |
(5) Liens for taxes, assessments and governmental charges or claims either (A) not delinquent or (B) contested in good faith by appropriate proceedings and as to which the Company or its Restricted Subsidiaries shall have set aside on its books such reserves as may be required pursuant to GAAP; | |
(6) statutory and contractual Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law or contract incurred in the ordinary course of business for sums not delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect thereof; | |
(7) Liens incurred or deposits or pledges made in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other types of social security, or to secure the payment or performance of tenders, statutory or regulatory obligations, surety and appeal bonds, bids, leases, government contracts and leases, performance and return of money bonds and other similar obligations, including letters of credit and bank guarantees required or requested by the United States, any State thereof or any foreign government or any subdivision, department, agency, organization or instrumentality of any of the foregoing in connection with any contract or statute (exclusive of obligations for the payment of borrowed money but including lessee or operator obligations under statutes, governmental regulations, contracts or instruments related to the ownership, exploration and production of oil, natural gas, other hydrocarbons and minerals on state, Federal or foreign lands or waters); | |
(8) Liens arising out of judgments, decrees, orders or awards not constituting an Event of Default; | |
(9) leases, subleases, licenses or sublicenses to third parties entered into in the ordinary course of business; | |
(10) Liens on, or related to, assets to secure all or part of the costs incurred in the ordinary course of the Oil and Gas Business for the exploration, drilling, development, production, processing, transportation, marketing, storage or operation thereof; | |
(11) Liens on pipeline or pipeline facilities that arise under operation of law; | |
(12) Liens arising under operating agreements, joint venture agreements, partnership agreements, oil, natural gas, other hydrocarbon and mineral leases, farm-out or farm-in agreements, division orders, contracts for the sale, transportation or exchange of oil or natural gas, unitization and pooling declarations and agreements, area of mutual interest agreements and other agreements that are customary in the Oil and Gas Business; | |
(13) Liens reserved in oil, natural gas, other hydrocarbon and mineral leases for bonus or rental payments and for compliance with the terms of such leases; | |
(14) Liens constituting survey exceptions, encumbrances, easements, and reservations of, and rights to others for, rights-of-way, zoning and other restrictions as to the use of real properties, and minor defects of title which, in the case of any of the foregoing, do not secure the payment of borrowed money, and in the aggregate do not materially adversely affect the value of the assets of the Company and its Restricted Subsidiaries, taken as a whole, or materially impair the use of such properties for the purposes for which such properties are held by the Company or such Subsidiaries; | |
(15) Liens encumbering assets under construction arising from progress or partial payments by a customer of the Company or its Restricted Subsidiaries relating to such assets; | |
(16) Liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual or warranty requirements of the Company or any of its Restricted Subsidiaries, including rights of offset and set-off; |
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(17) Liens upon specific items of inventory or other goods and proceeds of any Person securing such Person’s obligations in respect of bankers’ acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods; | |
(18) Liens arising under the Indenture in favor of the Trustee for its own benefit and similar Liens in favor of other trustees, agents and representatives arising under instruments governing Indebtedness permitted to be incurred under the Indenture;provided, however, that such Liens are solely for the benefit of the trustees, agents or representatives in their capacities as such and not for the benefit of the holders of such Indebtedness; | |
(19) set-off, chargeback and other rights of depositary and collection banks and other regulated financial institutions with respect to money or instruments of the Company or any of its Restricted Subsidiaries on deposit with or in the possession of such institutions; | |
(20) 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”; | |
(21) any Lien existing on any Property of a Person at the time such Person is merged or consolidated with or into the Company or a Restricted Subsidiary or becomes a Restricted Subsidiary (and not incurred in anticipation of or in connection with such transaction), provided that such Liens are not extended to other Property of the Company or the Restricted Subsidiaries; | |
(22) any Lien existing on any Property at the time of the acquisition thereof (and not incurred in anticipation of or in connection with such transaction), provided that such Liens are not extended to other Property of the Company or the Restricted Subsidiaries; | |
(23) Liens to secure Production Payments that are not prohibited by the Indenture to the extent such Liens are limited to the assets that are the subject of such Production Payments; | |
(24) Liens to secure a Refinancing Indebtedness incurred to refinance Indebtedness that was secured by a Lien permitted under the Indenture and that was incurred in accordance with the provisions of the Indenture; provided that such Liens do not extend to or cover any property or assets of the Company or any Restricted Subsidiary other than assets or property securing the Indebtedness so refinanced; and | |
(25) Liens incurred in the ordinary course of business of the Company or any Restricted Subsidiary of the Company with respect to obligations that do not exceed $10.0 million at any time outstanding. |
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(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; |
(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 (i) dividends or distributions payable solely in its Capital Stock (other than Disqualified Stock), (ii) dividends or distributions payable solely to the Company or a Restricted Subsidiary and (iii) pro rata dividends or other distributions (or dividends or other distributions on a basis more favorable to the Company or to a Restricted Subsidiary), made by a Subsidiary that is not a Wholly Owned Subsidiary to stockholders (or owners of an equivalent interest in the case of a Subsidiary that is an entity other than a corporation)); | |
(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 |
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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. |
(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; 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; | |
(2) any liability for Federal, state, local or other taxes owed or owing by such Person; | |
(3) any accounts payable or other liability to trade creditors arising in the ordinary course of business (including Guarantees thereof or instruments evidencing such liabilities); | |
(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; | |
(5) that portion of any Indebtedness which at the time of Incurrence is Incurred in violation of the Indenture; or |
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(6) any Preferred Stock or Disqualified Stock. |
(1) such Person; | |
(2) such Person and one or more Subsidiaries of such Person; or | |
(3) one or more Subsidiaries of such Person. |
(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; |
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(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-1” (or higher) according to Moody’s or “A-1” (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. |
(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. |
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(1) upon deposit of the Global Notes, DTC will credit the accounts of Participants designated by the Initial Purchaser with portions of the principal amount of the Global Notes; and | |
(2) ownership of these interests in the Global Notes will be shown on, and the transfer of ownership of these interests will be effected only through, records maintained by DTC (with respect to the Participants) or by the Participants and the Indirect Participants (with respect to other owners of beneficial interests in the Global Notes). |
(1) any aspect of DTC’s records or any Participant’s or Indirect Participant’s records relating to or payments made on account of beneficial ownership interest in the Global Notes or for maintaining, supervising or reviewing any of DTC’s records or any Participant’s or Indirect Participant’s records relating to the beneficial ownership interests in the Global Notes; or | |
(2) any other matter relating to the actions and practices of DTC or any of its Participants or Indirect Participants. |
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(1) DTC (a) notifies the Company that it is unwilling or unable to continue as depository for the Global Notes and DTC fails to appoint a successor depository or (b) has ceased to be a clearing agency registered under the Exchange Act; | |
(2) the Company, at its option, notifies the Trustee in writing that it elects to cause the issuance of the certificated Notes; or | |
(3) there has occurred and is continuing a Default with respect to the Notes. |
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Payments of Interest |
Sale, Exchange, Redemption or Other Disposition of Notes |
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Information Reporting and Backup Withholding |
• | do not own, actually or constructively, within the meaning of Section 871(h)(3)(C) of the Internal Revenue Code, 10 percent or more of the total combined voting power of all classes of our voting stock; | |
• | are not a bank whose receipt of interest on a note is described in Section 881(c)(3)(A) of the Internal Revenue Code; and | |
• | are not a controlled foreign corporation that is related, within the meaning of Section 864(d)(4) of the Internal Revenue Code, to us; and |
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• | a United States person or is a foreign person with sufficient United States contacts; | |
• | a controlled foreign corporation for United States federal income tax purposes; | |
• | a foreign person 50 percent or more of whose gross income is effectively connected with a United States trade or business for a specified three year period; or | |
• | a foreign partnership, if at any time during its tax year, one or more of its partners are United States persons, as defined in Treasury regulations, who in the aggregate hold more than 50 percent of the income or capital interest in the partnership or if, at any time during its tax year, the foreign partnership is engaged in a United States trade or business. |
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• | it has not offered or sold and, prior to the expiry of a period of six months from the closing date, will not offer or sell any notes included in this offering to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; | |
• | it has only communicated and caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000 (“FSMA”)) received by it in connection with the issue or sale of any notes included in this offering in circumstances in which section 21(1) of the FSMA does not apply to us; | |
• | it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the notes included in this offering in, from or otherwise involving the United Kingdom; | |
• | the offer in The Netherlands of the notes included in this offering is exclusively limited to persons who trade or invest in securities in the conduct of a profession or business (which include banks, stockbrokers, insurance companies, pension funds, other institutional investors and finance companies and treasury departments of large enterprises); and | |
• | the notes offered in this prospectus supplement have not been registered under the Securities and Exchange Law of Japan, and it has not offered or sold and will not offer or sell, directly or indirectly, the notes in Japan or to or for the account of any resident of Japan, except (1) pursuant to an exemption from the registration requirements of the Securities and Exchange Law and (2) in compliance with any other applicable requirements of Japanese law. |
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$500,000,000
Encore Acquisition Company
777 Main Street, Suite 1400
Senior Debt Securities
Subordinated Debt Securities
Preferred Stock
Common Stock
We may offer from time to time senior debt securities, subordinated debt securities, preferred stock and common stock. Our subsidiaries may guarantee the senior or subordinated debt securities offered by this prospectus.
We will provide additional terms of our securities in one or more prospectus supplements to this prospectus. You should read this prospectus and the related prospectus supplement carefully before you invest in our securities.
Our common stock is listed on the New York Stock Exchange under the symbol “EAC.”
You should consider carefully “Risk Factors” beginning on page 1 before investing in the notes.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is July 9, 2004.
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ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we have filed with the Securities and Exchange Commission under a “shelf” registration process. Using this process, we may offer the securities this prospectus describes in one or more offerings with a total initial offering price of up to $500,000,000. This prospectus provides you with a general description of the securities we may offer. Each time we use this prospectus to offer securities, we will provide a prospectus supplement and, if applicable, a pricing supplement. The prospectus supplement and any pricing supplement will describe the specific terms of that offering. The prospectus supplement and any pricing supplement may also add to, update or change the information contained in this prospectus. Please carefully read this prospectus, the prospectus supplement and any pricing supplement, in addition to the information contained in the documents we refer to under the heading “Where You Can Find More Information.”
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ABOUT ENCORE ACQUISITION COMPANY
We are a growing independent energy company engaged in the acquisition, development, exploitation and production of onshore North American oil and natural gas reserves. Since our inception in 1998, we have sought to acquire high-quality assets with potential for upside through low-risk development drilling projects. Our properties are currently located in four core areas: the Cedar Creek Anticline of Montana and North Dakota; the Permian Basin of West Texas and Southeastern New Mexico; the Mid Continent area, which includes the Arkoma and Anadarko Basins of Oklahoma, the North Salt Basin of Louisiana and the Barnett Shale near Fort Worth, Texas; and the Rocky Mountains.
Our principal executive offices are located at 777 Main Street, Suite 1400, Fort Worth, Texas 76102. Our main telephone number is (817) 877-9955. We maintain a website on the Internet at http://www.encoreacq.com. The information on our website is not incorporated by reference into this prospectus.
RISK FACTORS
You should carefully consider the following matters, in addition to the other information we have provided in this prospectus, the accompanying prospectus supplement and the documents we incorporate by reference, before reaching a decision regarding an investment in our securities.
Oil and natural gas prices are volatile and sustained periods of low prices could materially and adversely affect our financial condition and results of operations.
Historically, the markets for oil and natural gas have been volatile, and these markets are likely to continue to be volatile in the future. Our revenues, profitability and future growth depend substantially on prevailing oil and natural gas prices. Lower oil and natural gas prices may reduce the amount of oil and natural gas that we can economically produce. Prevailing oil and natural gas prices also affect the amount of internally generated cash flow available for repayment of indebtedness and capital expenditures. In addition, the amount we can borrow under our revolving credit facility is subject to periodic redetermination based in part on changing expectations of future oil and natural gas prices.
The factors that can cause oil and natural gas price volatility include:
• | the supply of domestic and foreign oil and natural gas; | |
• | the ability of members of the Organization of Petroleum Exporting Countries to agree upon and maintain oil prices and production levels; | |
• | political instability or armed conflict in oil or natural gas producing regions; | |
• | the level of consumer demand; | |
• | weather conditions; | |
• | the price and availability of alternative fuels; | |
• | domestic and foreign governmental regulations and taxes; | |
• | domestic political developments; and | |
• | worldwide economic conditions. |
The volatile nature of markets for oil and natural gas makes it difficult to reliably estimate future prices. Any decline in oil and natural gas prices adversely affects our financial condition. If oil or natural gas prices decline significantly for a sustained period of time, we may, among other things, be unable to meet our financial obligations, make planned expenditures or raise additional capital.
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Reserve estimates depend on many assumptions that may prove to be inaccurate. Any material inaccuracies in our reserve estimates or underlying assumptions could cause the quantities and net present value of our reserves to be overstated.
Estimating quantities of proved oil and natural gas reserves is a complex process that requires interpretations of available technical data and numerous assumptions, including certain economic assumptions. Any significant inaccuracies in these interpretations or assumptions or changes in conditions could cause the quantities and net present value of our reserves to be overstated.
To prepare estimates of economically recoverable oil and natural gas reserves and future net cash flows, we must analyze many variable factors, such as historical production from the area compared with production rates from other producing areas. We must also analyze available geological, geophysical, production and engineering data, and the extent, quality and reliability of this data can vary. The process also involves economic assumptions relating to commodity prices, production costs, severance and excise taxes, capital expenditures and workover and remedial costs. Actual results most likely will vary from our estimates. Any significant variance could reduce the estimated quantities and present value of our reserves.
You should not assume that the present value of future net cash flows from our proved reserves referred to in our most recent annual report on Form 10-K and other documents we incorporate by reference is the current market value of our estimated oil and natural gas reserves. In accordance with SEC requirements, we base the estimated discounted future net cash flows from our proved reserves on prices and costs in effect on the date of the estimate, holding the prices and costs constant throughout the life of the properties. Actual future prices and costs may differ materially from those used in the net present value estimate, and future net present value estimates using then current prices and costs may be significantly less than the current estimate.
The results of high-pressure air injection techniques are uncertain.
We utilize high-pressure air injection, or HPAI, techniques on some of our properties and plan to use the techniques in the future on a substantial portion of our properties, including our Cedar Creek Anticline properties. The additional production and reserves attributable to our use of the techniques, if any, are inherently difficult to predict. If our HPAI programs do not allow for the extraction of residual hydrocarbons in the manner or to the extent that we anticipate, our future results of operations and financial condition could be materially adversely affected.
If oil and natural gas prices decrease, we may be required to take write downs.
We may be required to write down the carrying value of our oil and natural gas properties when future estimated oil and gas prices are low or if we have substantial downward adjustments to our estimated proved reserves or increases in our estimates of operating expenses or development costs.
We capitalize the costs to acquire, find and develop our oil and natural gas properties under the successful efforts accounting method. The net capitalized costs of our oil and natural gas properties may not exceed their estimated fair value. If net capitalized costs of our oil and natural gas properties exceed their fair value, we must, under certain circumstances, charge the amount of the excess to earnings. We review the carrying value of our properties quarterly, based on changes in expectations of future oil and natural gas prices, expenses and tax rates. Once incurred, a write down of oil and natural gas properties is not reversible at a later date even if oil or natural gas prices increase.
Our acquisition strategy subjects us to numerous risks that could adversely affect our results of operations.
Acquisitions are an essential part of our growth strategy, and our ability to acquire additional properties on favorable terms is important to our long-term growth. Depending on conditions in the acquisition market, it may be difficult or impossible for us to identify properties for acquisition or we may not be able to make acquisitions on terms that we consider economically acceptable. Even if we are able to identify suitable acquisition opportunities, our acquisition strategy depends upon, among other things, our ability to obtain debt and equity financing and, in some cases, regulatory approvals.
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The successful acquisition of producing properties requires an assessment of several factors, including:
• | recoverable reserves; | |
• | future oil and natural gas prices; | |
• | operating costs; and | |
• | 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 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.
Possible future acquisitions could result in our incurring additional debt, contingent liabilities and expenses, all of which could have a material adverse effect on our financial condition and operating results. Furthermore, our financial position and results of operations may fluctuate significantly from period to period based on whether significant acquisitions are completed in particular periods. Competition for acquisitions is intense and may increase the cost of, or cause us to refrain from, completing acquisitions.
The failure to properly manage growth through acquisitions could adversely affect our results of operations.
Growing through acquisitions and managing that growth will require us to continue to invest in operational, financial and management information systems and to attract, retain, motivate and effectively manage our employees. Pursuing and integrating acquisitions involves a number of risks, including:
• | diversion of management attention from existing operations; | |
• | unexpected losses of key employees, customers and suppliers of the acquired business; | |
• | conforming the financial, technological and management standards, processes, procedures and controls of the acquired business with those of our existing operations; and | |
• | increasing the scope, geographic diversity and complexity of our operations. |
The process of integrating acquired operations into our existing operations may result in unforeseen operating difficulties and may require significant management attention and financial resources that would otherwise be available for the ongoing development or expansion of existing operations.
A substantial portion of our producing properties is located in one geographic area.
We have extensive operations in the Williston Basin of Montana and North Dakota. As of December 31, 2003, our Cedar Creek Anticline properties in the Williston Basin represented approximately 73% of our proved reserves and 61% of our 2003 production. Any circumstance or event that negatively impacts production or marketing of oil and natural gas in the Williston Basin could materially reduce our earnings and cash flow.
Derivative instruments expose us to risks of financial loss in a variety of circumstances.
We use derivative instruments in an effort to reduce our exposure to fluctuations in the prices of oil and natural gas and to reduce our cash outflows related to interest. Our derivative instruments expose us to risks of financial loss in a variety of circumstances, including when:
• | a counterparty to our derivative instruments is unable to satisfy its obligations; | |
• | production is less than expected; or |
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• | there is an adverse change in the expected differential between the underlying price in the derivative instrument and actual prices received for our production. |
Derivative instruments may limit our ability to realize increased revenue from increases in the prices for oil and natural gas.
We adopted Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” on January 1, 2001. SFAS 133 generally requires us to record each hedging transaction as an asset or liability measured at its fair value. Each quarter we must record changes in the fair value of our hedges, which could result in significant fluctuations in net income and stockholders’ equity from period to period. Please read our most recently filed annual report on Form 10-K and quarterly report on Form 10-Q for a more detailed discussion of our hedging program.
Drilling oil and natural gas wells is a high-risk activity.
Drilling oil and natural gas wells, including development wells, involves numerous risks, including the risk that no commercially productive oil or natural gas reservoirs will be discovered. We often are uncertain as to the future cost or timing of drilling, completing and producing wells. We may not recover all or any portion of our investment in drilling oil and natural gas wells.
Our drilling operations may be curtailed, delayed or canceled as a result of a variety of factors, including:
• | unexpected drilling conditions or miscalculations; | |
• | title problems; | |
• | pressure or irregularities in formations; | |
• | equipment failures or accidents; | |
• | adverse weather conditions; | |
• | compliance with environmental and other governmental requirements, which may increase our costs or restrict our activities; and | |
• | cost of, or shortages or delays in the availability of, drilling rigs and equipment. |
The failure to replace our reserves could adversely affect our financial condition.
Our future success depends upon our ability to find, develop or acquire additional oil and natural gas reserves that are economically recoverable. Our proved reserves generally decline when reserves are produced, unless we conduct successful exploitation or development activities or acquire properties containing proved reserves, or both. We may not be able to find, develop or acquire additional reserves on an economic basis.
Substantial capital is required to replace and grow reserves. If lower oil and natural gas prices or operating difficulties result in our cash flow from operations being less than expected or limit on our ability to borrow under our revolving credit facility, we may be unable to expend the capital necessary to find, develop or acquire new oil and natural gas reserves.
We have limited control over the activities on properties we do not operate.
Other companies operate some of the properties in which we have an interest. We have limited ability to influence or control the operation or future development of these non-operated properties or the amount of capital expenditures that we are required to fund with respect to them. Our dependence on the operator and other working interest owners for these projects and our limited ability to influence or control the operation and future development of these properties could materially adversely affect the realization of our targeted returns on capital in drilling or acquisition activities and lead to unexpected future costs.
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Our business involves many operating risks that can cause substantial losses; insurance may be unavailable or inadequate to protect us against these risks.
Our operations are subject to hazards and risks inherent in drilling for, producing and transporting oil and natural gas, such as:
• | fires; | |
• | natural disasters; | |
• | explosions; | |
• | formations with abnormal pressures; | |
• | blowouts; | |
• | collapses of wellbore, casing or other tubulars; | |
• | failure of oilfield drilling and service tools; | |
• | uncontrollable flows of oil, natural gas, formation water or drilling fluids; | |
• | pressure forcing oil or natural gas out of the wellbore at a dangerous velocity coupled with the potential for fire or explosion; | |
• | changes in below-ground pressure in a formation that cause surface collapse or cratering; | |
• | pipeline ruptures or cement failures; | |
• | environmental hazards, such as oil spills, natural gas leaks and discharges of toxic gases; and | |
• | weather. |
If any of these events occur, we could incur substantial losses as a result of:
• | injury or loss of life; | |
• | damage to and destruction of property, natural resources and equipment; | |
• | pollution and other environmental damage; | |
• | regulatory investigations and penalties; | |
• | suspension of our operations; and | |
• | repair and remediation costs. |
We do not maintain insurance against the loss of oil or natural gas reserves as a result of operating hazards, nor do we maintain business interruption insurance. In addition, pollution and environmental risks generally are not fully insurable. We may experience losses for uninsurable or uninsured risks or losses in amounts in excess of existing insurance coverage. The occurrence of an event that is not fully covered by insurance could harm our financial condition and results of operations.
Terrorist activities and the potential for military and other actions could adversely affect our business.
The threat of terrorism and the impact of military and other action have caused instability in world financial markets and could lead to increased volatility in prices for oil and natural gas, all of which could adversely affect the markets for our operations. Future acts of terrorism could be directed against companies operating in the United States. The U.S. government has issued public warnings that indicate that energy assets might be specific targets of terrorist organizations. These developments have subjected our operations to increased risk and, depending on their ultimate magnitude, could have a material adverse effect on our business.
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Our development and exploitation operations require substantial capital, and we may be unable to obtain needed financing on satisfactory terms.
We make and will continue to make substantial capital expenditures in development and exploitation projects. We intend to finance these capital expenditures through a combination of cash flow from operations and external financing arrangements. Additional financing sources may be required in the future to fund our capital expenditures. Financing may not continue to be available under existing or new financing arrangements, or on acceptable terms, if at all. If additional capital resources are not available, we may be forced to curtail our drilling and other activities or be forced to sell some of our assets on an untimely or unfavorable basis.
The loss of key personnel could adversely affect our business.
We depend to a large extent on the efforts and continued employment of I. Jon Brumley, our Chairman of the Board and Chief Executive Officer, Jon S. Brumley, our President, and other key personnel. The loss of the services of Mr. I. Jon Brumley or Mr. Jon S. Brumley or other key personnel could adversely affect our business, and we do not have employment agreements with, and do not maintain key man insurance on the lives of, any of these persons. Our drilling success and the success of other activities integral to our operations will depend, in part, on our ability to attract and retain experienced geologists, engineers and other professionals. Competition for experienced geologists, engineers and some other professionals is extremely intense. If we cannot retain our technical personnel or attract additional experienced technical personnel, our ability to compete could be harmed.
The marketability of our oil and natural gas production is dependent upon transportation facilities over which we have no control.
The marketability of our oil and natural gas production depends in part upon the availability, proximity and capacity of pipelines, oil and natural gas gathering systems and processing facilities. Any significant change in market factors affecting these infrastructure facilities could harm our business. We deliver oil and natural gas through gathering systems and pipelines that we do not own. These facilities may not be available to us in the future.
Competition in the oil and natural gas industry is intense, and many of our competitors have greater financial, technological and other resources than we do.
We operate in the highly competitive areas of oil and natural gas acquisition, development, exploitation and production. The oil and natural gas industry is characterized by rapid and significant technological advancements and introductions of new products and services using new technologies. We face intense competition from independent, technology-driven companies as well as from both major and other independent oil and natural gas companies in each of the following areas:
• | acquiring desirable producing properties or new leases for future exploration; | |
• | marketing our oil and natural gas production; | |
• | integrating new technologies; and | |
• | acquiring the equipment and expertise necessary to develop and operate our properties. |
Many of our competitors have financial, technological and other resources substantially greater than ours, which may adversely affect our ability to compete with these companies. These companies may be able to pay more for development prospects and productive oil and natural gas properties and may be able to define, evaluate, bid for and purchase a greater number of properties and prospects than our financial or human resources permit. Further, these companies may enjoy technological advantages and may be able to implement new technologies more rapidly than we can. Our ability to develop and exploit our oil and natural gas properties and to acquire additional properties in the future will depend upon our ability to successfully
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We are subject to complex federal, state and local laws and regulations that could adversely affect our business.
Exploration, development, production and sale of oil and natural gas in North America are subject to extensive federal, state, provincial and local laws and regulations, including complex tax and environmental laws and regulations. We may be required to make large expenditures to comply with applicable laws and regulations, which could adversely affect our results of operations and financial condition. Matters subject to regulation include:
• | discharge permits for drilling operations; | |
• | drilling bonds; | |
• | spacing of wells; | |
• | unitization and pooling of properties; | |
• | environmental protection; | |
• | reports concerning operations; and | |
• | taxation. |
Under these laws and regulations, we could be liable for:
• | personal injuries; | |
• | property damage; | |
• | oil spills; | |
• | discharge of hazardous materials; | |
• | reclamation costs; | |
• | remediation and clean-up costs; and | |
• | other environmental damages. |
We do not believe that full insurance coverage for all potential environmental damages is available at a reasonable cost, and we may need to expend significant financial and managerial resources to comply with environmental regulations and permitting requirements. We could incur substantial additional costs and liabilities in our oil and natural gas operations as a result of stricter environmental laws, regulations and enforcement policies.
Failure to comply with these laws and regulations also may result in the suspension or termination of our operations and subject us to administrative, civil and criminal penalties. Further, these laws and regulations could change in ways that substantially increase our costs. Any of these liabilities, penalties, suspensions, terminations or regulatory changes could make it more expensive for us to conduct our business or cause us to limit or curtail some of our operations.
The cessation of operations by Arthur Andersen LLP will limit our ability to use the consolidated financial statements audited by Arthur Andersen LLP and could impact our ability to access public capital markets as well as our investors’ ability to seek potential recoveries from Arthur Andersen LLP.
Our consolidated financial statements as of and for the year ended December 31, 2001 were audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are incorporated in this prospectus in reliance upon the authority of said firm as experts in giving said reports. Subsequent to Arthur Andersen LLP’s completion of our 2001 audit, the firm was convicted of obstruction of
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We may issue preferred stock whose terms could adversely affect the voting power or value of our common stock.
Our certificate of incorporation authorizes us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such preferences, powers and relative, participating, optional and other rights, including preferences over our common stock respecting dividends and distributions, as our board of directors generally may determine. The terms of one or more classes or series of preferred stock could adversely impact the voting power or value of our common stock. For example, we might grant holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we might assign to holders of preferred stock could affect the residual value of the common stock. Please read “Description of Capital Stock — Preferred Stock” beginning on page 18.
FORWARD-LOOKING INFORMATION
This prospectus, including the information we incorporate by reference, includes 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. You can identify our forward-looking statements by words such as “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “plan,” “forecast,” “budget,” “goal” or other words that convey the uncertainty of future events or outcomes. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements contained in this prospectus, any prospectus supplement and the documents we have incorporated by reference.
The forward-looking statements are not guarantees of future performance, and we caution you not to rely unduly on them. We have based many of these forward-looking statements on expectations and assumptions about future events that may prove to be inaccurate. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks, contingencies and uncertainties relate to, among other matters, the following:
• | the risks associated with operating in one or two major geographic areas; | |
• | the risks associated with drilling of oil and natural gas wells in our exploitation efforts; | |
• | our ability to find, acquire, market, develop, and produce new properties; | |
• | oil and natural gas price volatility; | |
• | uncertainties in the estimation of proved reserves and in the projection of future rates of production and timing of exploitation expenditures; | |
• | operating hazards attendant to the oil and natural gas business; | |
• | drilling and completion risks that are generally not recoverable from third parties or insurance; | |
• | potential mechanical failure or underperformance of significant wells; | |
• | climatic conditions; |
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• | availability and cost of material and equipment; | |
• | derivative instruments; | |
• | actions or inactions of third-party operators of our properties; | |
• | our ability to find and retain skilled personnel; | |
• | availability of capital; | |
• | the strength and financial resources of our competitors; | |
• | regulatory developments; | |
• | environmental risks; and | |
• | general economic and business conditions and industry trends. |
We have discussed some of these factors in more detail in the “Risk Factors” section of this prospectus. These factors are not necessarily all the important factors that could affect us. We advise you that you should (1) be aware that important factors we do not refer to above could affect the accuracy of our forward-looking statements and (2) use caution and common sense when considering our forward-looking statements. We do not intend to update these statements unless the securities laws require us to do so.
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USE OF PROCEEDS
Unless we inform you otherwise in the prospectus supplement, we will use the net proceeds from the sale of the offered securities for general corporate purposes. These purposes may include funding working capital requirements, capital expenditures, repayment and refinancing of indebtedness and repurchases and redemptions of securities. Pending any specific application, we may initially invest those funds in short-term marketable securities or apply them to the reduction of short-term indebtedness.
RATIO OF EARNINGS TO FIXED CHARGES
Our ratio of earnings to fixed charges for each of the periods shown is as follows:
Three | ||||||||||||||||||||||||
Months | ||||||||||||||||||||||||
Ended | Year Ended December 31, | |||||||||||||||||||||||
March 31, | ||||||||||||||||||||||||
2004 | 2003 | 2002 | 2001 | 2000 | 1999 | |||||||||||||||||||
Ratio of earnings to fixed charges | 7.6 | x | 7.0 | x | 5.8 | x | 6.3 | x | 2.2 | x | 2.0 | x |
We have computed the ratios of earnings to fixed charges by dividing earnings by fixed charges. For this purpose, “earnings” consist of income before income taxes plus fixed charges exclusive of capitalized interest. “Fixed charges” consist of interest, whether expensed or capitalized, amortization of capitalized expenses relating to indebtedness and an estimate of the portion of annual rental expense on operating leases that represents the interest factor.
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DESCRIPTION OF DEBT SECURITIES
The debt securities covered by this prospectus will be our general unsecured obligations. The debt securities will be either senior debt securities or subordinated debt securities. Subject to compliance with our revolving credit agreement and the indentures related to our outstanding subordinated notes, we will issue the debt securities under one or more separate indentures between us and a trustee that we will name in the prospectus supplement. Senior debt securities will be issued under a senior indenture, and subordinated debt securities will be issued under a subordinated indenture. In this description, we sometimes call the senior indenture and the subordinated indenture the “indentures.”
We have summarized the provisions of the indentures and the debt securities below. You should read the indentures for more details regarding the provisions we describe below and for other provisions that may be important to you. We have filed the forms of the indentures with the SEC as exhibits to the registration statement, and we will include the applicable final indenture and any other instrument establishing the terms of any debt securities we offer as exhibits to a filing we will make with the SEC in connection with that offering. Please read “Where You Can Find More Information.”
In this summary description of the debt securities, all references to “Encore,” “us” or “our” mean Encore Acquisition Company only, unless we state otherwise or the context clearly indicates otherwise.
General
The senior debt securities will constitute senior debt and will rank equally with all our unsecured and unsubordinated debt. The subordinated debt securities will be subordinated to, and thus have a junior position to, any senior debt securities and all our other senior debt. The indentures will not limit the amount of debt we may issue under the indentures, and, unless we inform you otherwise in the prospectus supplement, they will not limit the amount of other unsecured debt or securities we may incur or issue. We may issue debt securities under either indenture from time to time in one or more series, each in an amount we authorize prior to issuance.
We conduct a substantial part of our operations through our subsidiaries, and our subsidiaries generate a significant part of our operating income and cash flow. As a result, distributions or advances from our subsidiaries are important sources 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 from our subsidiaries cash that we need to pay our debt service obligations, including payments on the debt securities. In addition, holders of the debt securities will have a junior position to the claims of creditors of our subsidiaries on their assets and earnings.
Unless we inform you otherwise in the prospectus supplement, the indentures and the debt securities will not contain:
• | any covenants or other provisions designed to protect holders of the debt securities in the event we participate in a highly leveraged transaction; or | |
• | provisions that give holders of the debt securities the right to require us to repurchase their securities in the event of a decline in our credit rating resulting from a takeover, recapitalization or similar restructuring or otherwise. |
The prospectus supplement relating to any series of debt securities being offered will include specific terms relating to the offering. These terms will include some or all of the following:
• | the title of the debt securities; | |
• | the total principal amount of the debt securities; | |
• | whether the debt securities are senior debt securities or subordinated debt securities; | |
• | whether we will issue the debt securities in individual certificates to each holder or in the form of temporary or permanent global securities held by a depositary on behalf of holders; |
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• | the date or dates on which the principal of and any premium on the debt securities will be payable; | |
• | any interest rate, the date from which interest will accrue, interest payment dates and record dates for interest payments; | |
• | whether and under what circumstances any additional amounts with respect to the debt securities will be payable; | |
• | the place or places where payments on the debt securities will be payable; | |
• | any provisions for redemption or early repayment; | |
• | any sinking fund or other provisions that would obligate us to redeem, purchase or repay the debt securities prior to maturity; | |
• | the denominations in which we may issue the debt securities; | |
• | whether payments on the debt securities will be payable in foreign currency or currency units or another form, and whether payments on the debt securities will be payable by reference to any index or formula; | |
• | the portion of the principal amount of the debt securities that will be payable if the maturity is accelerated, if other than the entire principal amount; | |
• | any additional means of defeasance of the debt securities, any additional conditions or limitations to defeasance of the debt securities or any changes to those conditions or limitations; | |
• | any changes or additions to the events of default or covenants this prospectus describes; | |
• | any restrictions or other provisions relating to the transfer or exchange of the debt securities; | |
• | any terms for the conversion or exchange of the debt securities for other securities issued by Encore or any other entity; and | |
• | any other terms of the debt securities, whether in addition to, or by modification or deletion of, the terms described herein. |
We may sell the debt securities at a discount, which may be substantial, below their stated principal amount. Those debt securities may bear no interest or may bear interest at a rate that at the time of issuance is below market rates.
Subordination
Under the subordinated indenture, payment of the principal, interest and any premium on the subordinated debt securities will generally be subordinated and junior in right of payment to the prior payment in full of all Senior Debt. Unless we inform you otherwise in the prospectus supplement, we may not make any payment of principal, interest or any premium on the subordinated debt securities if:
• | we fail to pay the principal, interest, premium or any other amounts on any Senior Debt when due; or | |
• | we default in performing any other covenant (a “covenant default”) in any Senior Debt that we have designated if the covenant default allows the holders of that Senior Debt to accelerate the maturity of the Senior Debt they hold. |
Unless we inform you otherwise in the prospectus supplement, a covenant default will prevent us from making payments on the subordinated debt securities only for up to 179 days after holders of the Senior Debt give the trustee for the subordinated debt securities notice of the covenant default.
The subordination provisions will not affect our obligation, which will be absolute and unconditional, to pay, when due, principal of, premium, if any, and interest on the subordinated debt securities. In addition, the subordination provisions will not prevent the occurrence of any default under the subordinated indenture.
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Unless we inform you otherwise in the prospectus supplement, the subordinated indenture will not limit the amount of Senior Debt that we may incur. As a result of the subordination of the subordinated debt securities, if we became insolvent, holders of subordinated debt securities may receive less on a proportionate basis than our other creditors.
Unless we inform you otherwise in the prospectus supplement, “Senior Debt” will mean all notes or other indebtedness, including guarantees, of Encore for money borrowed and similar obligations, unless the indebtedness states that it is not senior to the subordinated debt securities or our other junior debt.
Subsidiary Guarantees
If specified in the prospectus supplement, subsidiaries of Encore may guarantee the obligations of Encore relating to its debt securities issued under this prospectus. The specific terms and provisions of each subsidiary guarantee, including any provisions relating to the subordination of any subsidiary guarantee, will be described in the applicable prospectus supplement. The obligations of each subsidiary guarantor under its subsidiary guarantee will be limited as necessary to seek to prevent that subsidiary guarantee from constituting a fraudulent conveyance or fraudulent transfer under applicable federal or state law.
Consolidation, Merger and Sale of Assets
The indentures generally will permit a consolidation or merger between us and another entity. They also will permit the sale by us of our assets substantially as an entirety. The indentures will provide, however, that we may consolidate with another entity to form a new entity or merge into any other entity or transfer or dispose of our assets substantially as an entirety to any other entity only if:
• | the resulting or surviving entity assumes the due and punctual payments on the debt securities and the performance of our covenants and obligations under the applicable indenture and the debt securities; and | |
• | immediately after giving effect to the transaction, no default or event of default would occur and be continuing. |
Events of Default
Unless we inform you otherwise in the prospectus supplement, the following will be events of default with respect to a series of debt securities:
• | our failure to pay interest or any required additional amounts on any debt securities of that series for 30 days; | |
• | our failure to pay principal of or any premium on any debt securities of that series when due; | |
• | our failure to deposit any mandatory sinking fund payment for that series of debt securities when due for 30 days; | |
• | our failure to comply with any of our covenants or agreements in the debt securities of that series or the applicable indenture, other than an agreement or covenant that we have included in that indenture solely for the benefit of other series of debt securities, for 90 days after written notice by the trustee or by the holders of at least 25% in principal amount of all the outstanding debt securities issued under that indenture that are affected by that failure; | |
• | specified events involving bankruptcy, insolvency or reorganization of Encore; and | |
• | any other event of default provided for that series of debt securities. |
A default under one series of debt securities will not necessarily be a default under another series. The trustee may withhold notice to the holders of the debt securities of any default or event of default, except in any payment on the debt securities, if the trustee in good faith determines that withholding notice is in the interest of the holders of the debt securities.
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If an event of default for any series of debt securities occurs and is continuing, the trustee or the holders of at least 25% in principal amount of the outstanding debt securities of the series affected by the default, or, in some cases, 25% in principal amount of all senior debt securities or subordinated debt securities affected, voting as one class, may declare the principal of and all accrued and all unpaid interest on those debt securities to be immediately due and payable. If an event of default relating to events of bankruptcy, insolvency or reorganization occurs, the principal of and all accrued and unpaid interest on all the debt securities will become immediately due and payable without any action on the part of the applicable trustee or any holder. The holders of a majority in principal amount of the outstanding debt securities of the series affected by the default, or of all senior debt securities or subordinated debt securities affected, voting as one class, may in some cases rescind this accelerated payment requirement. Depending on the terms of our other indebtedness, an event of default under either of the indentures may give rise to cross defaults on our other indebtedness.
A holder of a debt security of any series will be able to pursue any remedy under the applicable indenture only if:
• | the holder gives the trustee written notice of a continuing event of default for that series; | |
• | the holders of at least 25% in principal amount of the outstanding debt securities of that series make a written request to the trustee to pursue the remedy; | |
• | the holder or holders offer to the trustee indemnity reasonably satisfactory to it; | |
• | the trustee fails to act for a period of 60 days after receipt of notice and offer of indemnity; and | |
• | during that 60-day period, the holders of a majority in principal amount of the debt securities of that series do not give the trustee a direction inconsistent with the request. |
This provision will not, however, affect the right of a holder of a debt security to sue for enforcement of any overdue payment.
In most cases, holders of a majority in principal amount of the outstanding debt securities of a series, or of all debt securities affected, voting as one class, will be able to direct the time, method and place of:
• | conducting any proceeding for any remedy available to the applicable trustee; and | |
• | exercising any trust or power conferred on the applicable trustee not relating to or arising under an event of default. |
Each indenture will require us to file with the trustee each year a written statement as to our compliance with the covenants contained in that indenture.
Modification and Waiver
We may amend or supplement either indenture if the holders of a majority in principal amount of the outstanding debt securities of all series issued under the applicable indenture and affected by the amendment or supplement, acting as one class, consent to it. Without the consent of the holder of each debt security affected, however, no amendment or supplement may:
• | reduce the amount of debt securities whose holders must consent to an amendment, supplement or waiver; | |
• | reduce the rate of or change the time for payment of interest on any debt security; | |
• | reduce the principal of, premium on or any mandatory sinking fund payment for any debt security; | |
• | change the stated maturity of any debt security; | |
• | reduce any premium payable on the redemption of any debt security or change the time at which any debt security may or must be redeemed; | |
• | change any obligation to pay additional amounts on any debt security; |
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• | make the payments on any debt security payable in any currency or currency unit other than as the debt security originally states; | |
• | impair the holder’s right to institute suit for the enforcement of any payment on any debt security; | |
• | make any change in the percentage of principal amount of debt securities necessary to waive compliance with specified provisions of the applicable indenture or to make any change in the applicable indenture’s provisions for modification; | |
• | waive a continuing default or event of default regarding any payment on any debt security; or | |
• | with respect to the subordinated indenture, modify the provisions relating to the subordination of any subordinated debt security in a manner adverse to the holder of that security. |
We and the applicable trustee may agree to amend or supplement either indenture or waive any provision of either indenture without the consent of any holders of debt securities in some circumstances, including:
• | to cure any ambiguity, omission, defect or inconsistency; | |
• | to provide for the assumption of our obligations under the indenture by a successor upon any merger, consolidation or asset transfer; | |
• | to provide for uncertificated debt securities in addition to or in place of certificated debt securities or to provide for bearer debt securities; | |
• | to provide any security for or add guarantees of any series of debt securities; | |
• | to comply with any requirement to effect or maintain the qualification of the indenture under the Trust Indenture Act of 1939; | |
• | to add covenants that would benefit the holders of any debt securities or to surrender any rights we have under the indenture; | |
• | to add events of default with respect to any debt securities; | |
• | to make any change that does not adversely affect any outstanding debt securities of any series in any material respect; | |
• | to facilitate the defeasance or discharge of any series of debt securities if that change does not adversely affect the holders of debt securities of that series or any other series under the indenture in any material respect; and | |
• | to provide for the acceptance of a successor or another trustee. |
The holders of a majority in principal amount of the outstanding debt securities of any series, or of all senior debt securities or subordinated debt securities affected, voting as one class, may waive any existing or past default or event of default with respect to those debt securities. Those holders may not, however, waive any default or event of default in any payment on any debt security or compliance with a provision that cannot be amended or supplemented without the consent of each holder affected.
Discharge and Defeasance
We will be discharged from all obligations under the applicable indenture with respect to any series of debt securities, except for surviving obligations relating to any conversion rights and to register the transfer or exchange of the debt securities, if:
• | all debt securities of the series previously authenticated and delivered under the relevant indenture have been delivered to the indenture trustee for cancellation; or | |
• | all debt securities of that series have become due and payable or will become due and payable within one year, at maturity or by redemption, and we deposit with the applicable trustee funds or government |
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securities sufficient to make payments on the debt securities of that series on the dates those payments are due. |
To exercise our right to be discharged, we must deliver to the applicable trustee an opinion of counsel and an officers’ certificate stating that all conditions precedent to the satisfaction and discharge of the applicable indenture have been complied with.
In addition to our right of discharge described above, we may deposit with the applicable trustee funds or government securities sufficient to make payments on the debt securities of a series on the dates those payments are due and payable, then, at our option, either of the following will occur:
• | we will be discharged from our obligations with respect to the debt securities of that series (“legal defeasance”); or | |
• | we will no longer have any obligation to comply with the restrictive covenants under the applicable indenture, and the related events of default will no longer apply to us, but some of our other obligations under the indenture and the debt securities of that series, including our obligation to make payments on those debt securities, will survive (“covenant defeasance”). |
If we defease a series of debt securities, the holders of the debt securities of the series affected will not be entitled to the benefits of the applicable indenture, except for our obligations to:
• | register the transfer or exchange of debt securities; | |
• | replace stolen, lost or mutilated debt securities; and | |
• | maintain paying agencies and hold moneys for payment in trust. |
Unless we inform you otherwise in the prospectus supplement, we will be required to deliver to the applicable trustee an opinion of counsel that the deposit and related defeasance would not cause the holders of the debt securities to recognize income, gain or loss for United States federal income tax purposes. If we elect legal defeasance, that opinion of counsel must be based on a ruling from the United States Internal Revenue Service or a change in law to that effect.
Governing Law
New York law will govern the indentures and the debt securities.
Trustee
If an event of default occurs and is continuing, the trustee will be required to use the degree of care and skill of a prudent person in the conduct of his own affairs. The trustee will become obligated to exercise any of its powers under the indenture at the request of any of the holders of any debt securities only after those holders have offered the trustee indemnity reasonably satisfactory to it.
Each indenture will limit the right of the trustee, if it becomes one of our creditors, to obtain payment of claims or to realize on certain property received for any such claim, as security or otherwise. The trustee may engage in other transactions with us. If it acquires any conflicting interest, however, it must eliminate that conflict or resign.
Form, Exchange, Registration and Transfer
We will issue the debt securities in registered form, without interest coupons. We will not charge a service charge for any registration of transfer or exchange of the debt securities. We may, however, require the payment of any tax or other governmental charge payable for that registration.
Debt securities of any series will be exchangeable for other debt securities of the same series with the same total principal amount and the same terms but in different authorized denominations in accordance with the applicable indenture. Holders may present debt securities for registration of transfer at the office of the security registrar or any transfer agent we designate. The security registrar or transfer agent will effect the
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Unless we inform you otherwise in the prospectus supplement, we will appoint the trustee under each indenture as security registrar for the debt securities we issue under that indenture. If the prospectus supplement refers to any transfer agents initially designated by us, we may at any time rescind that designation or approve a change in the location through which any transfer agent acts. We will be required to maintain an office or agency for transfers and exchanges in each place of payment. We may at any time designate additional transfer agents for any series of debt securities or rescind the designation of any transfer agent.
In the case of any redemption, neither the security registrar nor the transfer agent will be required to register the transfer or exchange of any debt security:
• | during a period beginning 15 business days before the day of mailing of the relevant notice of redemption and ending on the close of business on that day of mailing; or | |
• | if we have called the debt security for redemption in whole or in part, except the unredeemed portion of any debt security being redeemed in part. |
Payment and Paying Agents
Unless we inform you otherwise in the prospectus supplement, we will make payments on the debt securities in U.S. dollars at the office of the applicable trustee or any paying agent we designate. At our option, we may make payments by check mailed to the holder’s registered address or, with respect to global debt securities, by wire transfer. Unless we inform you otherwise in the prospectus supplement, we will make interest payments to the person in whose name the debt security is registered at the close of business on the record date for the interest payment.
Unless we inform you otherwise in the prospectus supplement, we will designate the trustee under each indenture as our paying agent for payments on debt securities we issue under that indenture. We may at any time designate additional paying agents or rescind the designation of any paying agent or approve a change in the office through which any paying agent acts.
Subject to the requirements of any applicable abandoned property laws, the trustee and paying agent will repay to us upon written request any funds held by them for payments on the debt securities that remain unclaimed for two years after the date upon which that payment has become due. After repayment to us, holders entitled to those funds must look only to us for payment.
Book-entry Debt Securities
We may issue the debt securities of a series in the form of one or more global debt securities that would be deposited with a depositary or its nominee identified in the prospectus supplement. We may issue global debt securities in either temporary or permanent form. We will describe in the prospectus supplement the terms of any depositary arrangement and the rights and limitations of owners of beneficial interests in any global debt security.
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of:
• | 60,000,000 shares of common stock; and | |
• | 5,000,000 shares of preferred stock, issuable in series. |
As of June 25, 2004, there were 30,502,681 shares of common stock issued and outstanding, and no shares of our preferred stock were issued and outstanding.
In the discussion that follows, we refer to our certificate of incorporation, as amended and restated, as our “certificate of incorporation” and to our amended and restated by-laws as our “by-laws.” You should read our certificate of incorporation and by-laws as currently in effect for more details regarding the provisions we describe below and for other provisions that may be important to you. We have filed copies of those documents with the SEC, and they are incorporated by reference as exhibits to the registration statement. Please read “Where You Can Find More Information.”
Common Stock
The holders of our common stock are entitled to one vote per share on all matters to be voted on by the stockholders. Holders of common stock may not cumulate their votes in the election of directors. As a result, the holders of a majority of the voting power of the shares voting for the election of directors can elect all directors to be elected if they choose to do so. Our board of directors may grant holders of preferred stock, in the resolutions creating the series of preferred stock, the right to vote on the election of directors or any questions affecting us.
Holders of common stock will be entitled to dividends in such amounts and at such times as our board of directors in its discretion may declare out of funds legally available for the payment of dividends. We have not paid dividends and intend to retain future earnings to provide funds for use in the operation and expansion of our business. In addition, the payment of dividends on the common stock is limited by the provisions of our debt instruments and may be limited by obligations we may have to holders of any preferred stock. In particular, we are prohibited from paying any cash dividends by our revolving credit facility.
If we liquidate or dissolve our business, the holders of common stock will share ratably in all assets available for distribution to stockholders after our creditors are paid in full and the holders of all series of our outstanding preferred stock, if any, receive their liquidation preferences in full.
The common stock has no preemptive rights and is not convertible or redeemable or entitled to the benefits of any sinking or repurchase fund. All issued and outstanding shares of common stock are fully paid and nonassessable. Any shares of common stock we offer and sell under this prospectus will also be fully paid and nonassessable.
Our outstanding shares of common stock are listed on the New York Stock Exchange and trade under the symbol “EAC.” Any additional shares of common stock we offer and sell under this prospectus and related prospectus supplements will also be listed on the New York Stock Exchange.
Preferred Stock
At the direction of our board of directors, without any action by the holders of common stock, we may issue one or more series of preferred stock from time to time. Our board of directors can determine the number of shares of each series of preferred stock and, subject to some limitations our certificate of incorporation set forth, the voting powers, designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions applicable to any of those rights, including dividend rights, voting rights, conversion or exchange rights, terms of redemption and liquidation preferences, of each series.
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The prospectus supplement relating to any series of preferred stock we offer will include specific terms relating to the offering. These terms will include some or all of the following:
• | the series designation of the preferred stock; | |
• | the maximum number of shares of the series; | |
• | the dividend rate or the method of calculating the dividend, the date from which dividends will accrue and whether dividends will be cumulative; | |
• | any liquidation preference; | |
• | any optional redemption provisions; | |
• | any sinking fund or other provisions that would obligate us to redeem or repurchase the preferred stock; | |
• | any terms for the conversion or exchange of the preferred stock for any other securities; | |
• | any voting rights; and | |
• | any other powers, preferences and relative, participating, optional or other special rights or any qualifications, limitations or restrictions on the rights of the shares. |
Any preferred stock we offer and sell under this prospectus will be fully paid and nonassessable.
The registration statement will include the certificate of designation as an exhibit or will incorporate the certificate of designation by reference. You should read that document for provisions that may be important to you.
Undesignated preferred stock may enable our board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a tender offer, proxy contest, merger or otherwise, and to thereby protect the continuity of our management. The issuance of shares of preferred stock may adversely affect the rights of the holders of common stock. For example, any preferred stock issued may rank prior to the common stock as to dividend rights, liquidation preference or both, may have full or limited voting rights and may be convertible into shares of common stock. As a result, the issuance of shares of preferred stock may discourage bids for common stock or may otherwise adversely affect the market price of the common stock or any existing preferred stock.
Limitation on Directors’ Liability
Our certificate of incorporation limits the liability of our directors to us or our stockholders such that no member of our board of directors will be personally liable for monetary damages for any breach of the member’s fiduciary duty as a director, except for liability:
• | for any breach of the member’s duty of loyalty to us or our stockholders; | |
• | for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; | |
• | for unlawful payments of dividends or unlawful stock repurchases or redemptions; and | |
• | for any transaction from which the member derived an improper personal benefit. |
This provision could have the effect of discouraging or deterring our stockholders from bringing a lawsuit against our directors for breach of their duty of care, even though such an action, if successful, might otherwise have benefited our stockholders and us. Our by-laws provide indemnification to our officers and directors and other specified persons with respect to their conduct in various capacities, and we have entered into agreements with each of our directors which provide them with contractual rights of indemnification consistent with our by-laws.
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Anti-Takeover Provisions of Our By-laws
Our by-laws establish an advance notice procedure for the nomination of candidates for election as directors. In general, notice of intent to nominate a director at the annual meeting of stockholders or a special meeting of stockholders must contain specified information concerning the person to be nominated and be delivered to our principal executive offices:
• | with respect to elections to be held at the annual meeting of stockholders: |
• | not later than the 90th day nor earlier than the 120th day prior to the first anniversary of the preceding year’s annual meeting; | |
• | if the date of the annual meeting is advanced by more than 30 days prior to or delayed by more than 90 days after that anniversary date, not earlier than the 120th day before the meeting and not later than the close of business on the later of (1) the 90th day before the meeting or (2) the tenth day following the day on which we first make a public announcement of the date of the meeting; |
• | with respect to elections to be held at a special meeting of stockholders for the election of directors, not earlier than the 120th day before the meeting and not later than the close of business on the later of (1) the 90th day before the meeting and (2) the tenth day following the day on which we first make a public announcement of the date of the meeting and of the nominees proposed by the board of directors to be elected at the meeting. |
These procedures may operate to limit the ability of stockholders to nominate candidates for election as directors.
Delaware Takeover Statute
We have opted out of Section 203 of the Delaware General Corporation Law. Section 203 regulates corporate acquisitions and prevents certain Delaware corporations, including those whose securities are listed on the New York Stock Exchange, from engaging, under certain circumstances, in a “business combination” with any “interested stockholder” for three years following the date that such stockholder became an interested stockholder. For purposes of Section 203, a “business combination” includes, among other things, a merger or consolidation involving Encore and the interested stockholder and the sale of 10% or more of our assets to the interested stockholder. In general, Section 203 defines an “interested stockholder” as any entity or person beneficially owning 15% or more of our outstanding voting stock and any entity or person affiliated with or controlling or controlled by such entity or person.
Delaware Corporate Opportunity Provision
As permitted by Section 122(17) of the DGCL, our certificate of incorporation contains a provision that permits a current and three former investor stockholders and their affiliates to participate in transactions relating exclusively to the acquisition, development and exploitation of North American oil and natural gas reserves without making such opportunities available to Encore. When our certificate of incorporation was adopted in March 2001, these current and former stockholders believed this provision was necessary and appropriate because of their other significant investments in entities that conduct operations in the oil and natural gas industry.
Registration Rights
The holders of approximately 10,386,640 shares of common stock are entitled to rights with respect to the registration of such shares under the Securities Act. Under the terms of the agreement between us and the holders of such registrable securities, if we propose to register any of our securities under the Securities Act, either for our own account or for the account of other security holders exercising registration rights, such holders are entitled to notice of such registration and are entitled to include shares of such common stock in the registration. Additionally, such holders are also entitled to demand registration rights, pursuant to which they may require us on up to three occasions to file a registration statement under the Securities Act at our
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Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Mellon Investor Services LLC.
PLAN OF DISTRIBUTION
We may sell the offered securities in and outside the United States (1) through underwriters or dealers, (2) directly to purchasers or (3) through agents. The prospectus supplement will set forth the following information:
• | the terms of the offering; | |
• | the names of any underwriters or agents; | |
• | the name or names of any managing underwriter or underwriters; | |
• | the purchase price of the securities from us; | |
• | the net proceeds we will receive from the sale of the securities; | |
• | any delayed delivery arrangements; | |
• | any underwriting discounts, commissions and other items constituting underwriters’ compensation; | |
• | the initial public offering price; | |
• | any discounts or concessions allowed or reallowed or paid to dealers; and | |
• | any commissions paid to agents. |
Sale Through Underwriters or Dealers
If we use underwriters in the sale of the offered securities, the underwriters will acquire the securities for their own account. The underwriters may resell the securities from time to time in one or more transactions, including negotiated transactions, at a fixed public offering price or at varying prices determined at the time of sale. Underwriters may offer securities to the public either through underwriting syndicates represented by one or more managing underwriters or directly by one or more firms acting as underwriters. Unless we inform you otherwise in the prospectus supplement, the obligations of the underwriters to purchase the securities will be subject to several conditions, and the underwriters will be obligated to purchase all the offered securities if they purchase any of them. The underwriters may change from time to time any initial public offering price and any discounts or concessions allowed or reallowed or paid to dealers.
If we use underwriters in the sale of the offered securities, rules of the SEC may limit the ability of the underwriters and certain selling group members to bid for and purchase our securities until the distribution of the offered securities is completed. As an exception to these rules, the underwriters are permitted to engage in certain transactions that stabilize, maintain or otherwise affect the price of the offered securities.
In connection with an underwritten offering, the underwriters may make short sales of the offered securities and may purchase our securities on the open market to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of securities than they are required to purchase in the offering. “Covered” short sales are made in an amount not greater than the over-allotment option we may grant to the underwriters in connection with the offering. The underwriters may close out any covered short position by either exercising the over-allotment option or purchasing our securities in the open market. In determining the source of securities to close out the covered short position, the underwriters will consider, among other things, the price of securities available for purchase in the open market as compared to the price
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The underwriters may also impose a penalty bid on certain selling group members. This means that if the underwriters purchase our securities in the open market to reduce the selling group members’ short position or to stabilize the price of the securities, they may reclaim the amount of the selling concession from the selling group members who sold those securities as part of the offering.
In general, purchases of a security for the purpose of stabilization or to reduce a short position could cause the price of the security to be higher than it might be in the absence of those purchases or those purchases could prevent or retard a decline in the price of the security. The imposition of a penalty bid might also have an effect on the price of a security to the extent that it were to discourage resales of the security.
Neither we nor the underwriters will make any representation or prediction as to the direction or magnitude of any effect that the transactions we describe above may have on the price of the offered securities. In addition, neither we nor the underwriters will make any representation that the underwriters will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.
If we use dealers in the sale of securities, we will sell the securities to them as principals. They may then resell those securities to the public at varying prices determined by the dealers at the time of resale. We will include in the prospectus supplement the names of the dealers and the terms of the transaction.
Direct Sales and Sales Through Agents
We may sell the securities directly. In that event, no underwriters or agents would be involved. We may also sell the securities through agents we designate from time to time. In the prospectus supplement, we will name any agent involved in the offer or sale of the offered securities, and we will describe any commissions payable by us to the agent. Unless we inform you otherwise in the prospectus supplement, any agent will agree to use its reasonable best efforts to solicit purchases for the period of its appointment.
We may sell the securities directly to institutional investors or others who may be deemed to be underwriters within the meaning of the Securities Act of 1933 with respect to any sale of those securities. We will describe the terms of any such sales in the prospectus supplement.
Delayed Delivery Contracts
If we so indicate in the prospectus supplement, we may authorize agents, underwriters or dealers to solicit offers from selected types of institutions to purchase securities from us at the public offering price under delayed delivery contracts. These contracts would provide for payment and delivery on a specified date in the future. The contracts would be subject only to those conditions described in the prospectus supplement. The prospectus supplement will describe the commission payable for solicitation of those contracts.
General Information
We may have agreements with the agents, dealers and underwriters to indemnify them against civil liabilities, including liabilities under the Securities Act of 1933, or to contribute with respect to payments that the agents, dealers or underwriters may be required to make. Agents, dealers and underwriters may be customers of, engage in transactions with or perform services for us in the ordinary course of their businesses.
LEGAL OPINIONS
Baker Botts L.L.P., Houston, Texas, our counsel, will issue an opinion about the legality of any common stock, preferred stock or debt securities we offer through this prospectus. Any underwriters will be advised about issues relating to any offering by their own legal counsel.
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INDEPENDENT AUDITORS
The consolidated financial statements of Encore Acquisition Company at December 31, 2003 and 2002, and for each of the two years in the period ended December 31, 2003, appearing in Encore Acquisition Company’s Annual Report (Form 10-K) for the year ended December 31, 2003, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
Our consolidated financial statements as of and for the year ended December 31, 2001 incorporated by reference in the registration statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are incorporated herein in reliance upon the authority of said firm as experts in giving said report. Subsequent to Arthur Andersen LLP’s completion of our 2001 audit, the firm was convicted of obstruction of justice charges relating to a federal investigation of Enron Corporation, has ceased practicing before the SEC, and has lost the services of the material personnel responsible for our audit. As a result, it is not possible to obtain Arthur Andersen LLP’s consent to the incorporation by reference of their report in this prospectus, and we have dispensed with the requirement to file their consent in reliance upon Rule 437a of the Securities Act of 1933. Because Arthur Andersen LLP has not consented to the incorporation by reference of their report in this prospectus, you will not be able to recover against Arthur Andersen LLP under Section 11 of the Securities Act for any untrue statements of a material fact contained in the consolidated financial statements audited by Arthur Andersen LLP or any omissions to state a material fact required to be stated therein.
INDEPENDENT PETROLEUM ENGINEERS
Certain information with respect to the oil and natural gas reserves associated with our oil and natural gas properties is derived from the report of Miller and Lents, Ltd., independent petroleum engineers, and has been incorporated by reference in this prospectus upon the authority of said firm as experts with respect to matters covered by such reports and in giving such report.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the SEC. You can read and copy any materials we file with the SEC at the SEC’s public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can obtain information about the operation of the SEC’s public reference room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a Web site that contains information we file electronically with the SEC, which you can access over the Internet at http://www.sec.gov. You can also obtain information about us at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
This prospectus is part of a registration statement we have filed with the SEC relating to the securities. This prospectus does not contain all the information the registration statement sets forth or includes in its exhibits and schedules, in accordance with the rules and regulations of the SEC, and we refer you to that omitted information. The statements this prospectus makes pertaining to the content of any contract, agreement or other document that is an exhibit to the registration statement necessarily are summaries of their material provisions, and we qualify them in their entirety by reference to those exhibits for complete statements of their provisions. The registration statement and its exhibits and schedules are available at the SEC’s public reference room or through its Web site.
The SEC allows us to “incorporate by reference” the information we file with it, which means we can disclose important information to you by referring you to those documents. The information we incorporate by reference is an important part of this prospectus, and later information we file with the SEC will automatically update and supersede that information. We incorporate by reference the documents listed below and any filings we make with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
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• | our annual report on Form 10-K for the year ended December 31, 2003; | |
• | our quarterly report on Form 10-Q for the quarter ended March 31, 2004; | |
• | our current reports on Form 8-K filed with the SEC on March 30, 2004, March 31, 2004, April 20, 2004, April 30, 2004, June 8, 2004, and June 23, 2004; and | |
• | the description of our common stock in our registration statement on Form 8-A filed with the SEC on December 21, 2000. |
All filings filed by us pursuant to the Exchange Act after the date of the initial registration statement and prior to the effectiveness of the registration statement shall be deemed to be incorporated by reference into this prospectus.
We will provide without charge to each person, including any beneficial owner, to whom a copy of this prospectus has been delivered, upon written or oral request, a copy of any or all the documents we incorporate by reference in this prospectus, other than any exhibit to any of those documents, unless we have specifically incorporated that exhibit by reference into the information this prospectus incorporates. You may request copies by writing or telephoning us at the following address:
Encore Acquisition Company | |
777 Main Street, Suite 1400 | |
Fort Worth, Texas 76102 | |
Attention: Corporate Secretary | |
Telephone: (817) 877-9955 |
You should rely only on the information we have provided or incorporated by reference in this prospectus or any prospectus supplement. We have not authorized any person to provide information other than that provided in this prospectus or any prospectus supplement. We have not authorized anyone to provide you with different information. We are not making an offer of the securities in any jurisdiction where the offer is not permitted. You should not assume that the information in this prospectus or any prospectus supplement is accurate as of any date other than the date on its cover page or that any information contained in any document we have incorporated by reference is accurate as of any date other than the date of the document incorporated by reference. Accordingly, we urge you to review each document we subsequently file with the SEC and incorporate by reference as we describe above for updated information.
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