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The information in this prospectus supplement is not complete and may be changed. This prospectus supplement is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. |
Underwriting | Proceeds to | |||||||||||
discounts and | Quicksilver | |||||||||||
Price to public(1) | commissions | Resources Inc. | ||||||||||
Per note | % | % | % | |||||||||
Total | $ | $ | $ | |||||||||
JPMorgan | Credit Suisse |
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Prospectus | ||
About this prospectus | 2 | |
Where you can find more information | 2 | |
Incorporation by reference | 2 | |
Forward-looking statements | 3 | |
Description of debt securities | 3 | |
Description of capital stock | 11 | |
Description of depositary shares | 15 | |
Description of warrants | 15 | |
Description of purchase contracts | 16 | |
Description of units | 16 | |
Ratio of earnings to fixed charges | 17 | |
Use of proceeds | 17 | |
Certain legal matters | 17 | |
Experts | 17 | |
Reserve engineers | 17 |
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Proved reserves as of | Average daily | |||||||||||||||
December 31, 2005 | production | |||||||||||||||
Year ended | ||||||||||||||||
Total | % natural | % proved | December 31, 2005 | |||||||||||||
Areas of operations | Bcfe | gas | developed | (Mcfed) | ||||||||||||
Michigan | 581.5 | 95% | 90% | 80,656 | ||||||||||||
Alberta, Canada | 304.9 | 100% | 66% | 40,672 | ||||||||||||
Texas | 183.1 | 74% | 48% | 10,463 | ||||||||||||
Other | 44.7 | 66% | 91% | 9,104 | ||||||||||||
Total | 1,114.2 | 92% | 77% | 140,895 | ||||||||||||
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Issuer | Quicksilver Resources Inc. | |
Securities offered | $300,000,000 aggregate principal amount of % Senior Subordinated Notes due 2016. | |
Maturity | , 2016. | |
Interest payment dates | and , commencing , 2006 | |
Optional redemption | The notes will be redeemable at our option, in whole or in part, at any time on and after , 2011 at the redemption prices described in this prospectus supplement, together with accrued and unpaid interest, if any, to the date of redemption. | |
At any time prior to , 2009, we may redeem up to 35% of the original principal amount of the notes with the proceeds of certain equity offerings of our shares of common stock at a redemption price of % of the principal amount of the notes, together with accrued and unpaid interest, if any, to the date of redemption. | ||
Additionally, at any time prior to , 2011, we may redeem the notes, in whole but not in part, at a price equal to 100% of the principal amount of the notes plus a “make-whole” premium. | ||
Change of control | If a change of control occurs, subject to certain conditions, we must give holders of the notes an opportunity to sell us the notes at a purchase price of 101% of the principal amount of the notes, plus accrued and unpaid interest to the date of the purchase. See “Description of the notes— Change of control.” | |
Guarantees | The payment of the principal, premium and interest on the notes will be fully and unconditionally guaranteed on a senior subordinated basis by some of our current and future domestic subsidiaries. The subsidiary guarantees will be subordinated to all existing and future senior indebtedness of our subsidiary guarantors, including their guarantees of our obligations under our senior secured revolving credit facilities. See “Description of the notes— Subsidiary guarantees.” | |
Ranking | The notes will be our unsecured senior subordinated obligations. The notes and the subsidiary guarantees will rank: | |
• junior in right of payment to all of our and the subsidiary guarantors’ existing and future senior indebtedness and guarantor senior indebtedness including the senior secured revolving credit facilities; |
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• equally in right of payment with any of our and the subsidiary guarantors’ existing and future senior subordinated indebtedness and guarantor senior subordinated indebtedness; and | ||
• senior in right of payment to any of our and the subsidiary guarantors’ existing and future subordinated obligations. | ||
As of December 31, 2005, after giving pro forma effect to this offering and the application of the net proceeds from this offering the notes would have ranked junior to approximately $240 million of senior indebtedness, all of which would have been secured. See “Description of the notes— Ranking and subordination.” | ||
Covenants | We will issue the notes under an indenture with JPMorgan Chase Bank, National Association, as trustee. The indenture will, among other things, limit our ability and the ability of our restricted subsidiaries to: | |
• incur additional debt; | ||
• pay dividends on our capital stock or redeem, repurchase or retire our capital stock or subordinated debt; | ||
• make investments; | ||
• create liens on our assets; | ||
• create restrictions on the ability of our restricted subsidiaries to pay dividends or make other payments to us; | ||
• engage in transactions with our affiliates; | ||
• transfer or sell assets; and | ||
• consolidate, merge or transfer all or substantially all of our assets and the assets of our subsidiaries. | ||
These covenants are subject to important exceptions and qualifications, which are described under the caption “Description of the notes— Certain covenants.” | ||
Use of proceeds | We intend to use approximately $265 million of the net proceeds from this offering to repay our second lien mortgage notes and/or to repay current borrowings under our senior secured revolving credit facilities. We intend to use the remainder of the proceeds for general corporate purposes. See “Use of proceeds.” |
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Years ended December 31, | ||||||||||||||||
($ in thousands unless otherwise indicated) | 2003 | 2004 | 2005 | |||||||||||||
Statement of operations data: | ||||||||||||||||
Revenues: | ||||||||||||||||
Oil, gas and NGL sales | $ | 139,037 | $ | 177,173 | $ | 306,204 | ||||||||||
Other revenue | 1,912 | 2,556 | 4,244 | |||||||||||||
Total revenues | 140,949 | 179,729 | 310,448 | |||||||||||||
Expenses: | ||||||||||||||||
Oil and gas production costs | 52,524 | 65,626 | 86,272 | |||||||||||||
Other operating costs | 971 | 810 | 1,661 | |||||||||||||
Depletion, depreciation and amortization | 32,067 | 40,691 | 55,213 | |||||||||||||
Provision for doubtful accounts | 87 | 153 | 108 | |||||||||||||
General and administrative | 8,133 | 12,934 | 18,979 | |||||||||||||
Total expenses | 93,782 | 120,214 | 162,233 | |||||||||||||
Income from equity affiliates | 1,331 | 1,178 | 914 | |||||||||||||
Operating income | 48,498 | 60,693 | 149,129 | |||||||||||||
Other income/expense: | ||||||||||||||||
Other income—net | (186 | ) | (415 | ) | (585 | ) | ||||||||||
Interest expense | 20,182 | 15,662 | 21,740 | |||||||||||||
Income before income taxes | 28,502 | 45,446 | 127,974 | |||||||||||||
Income tax expense | 9,997 | 14,174 | 40,702 | |||||||||||||
Income from continuing operations | 18,505 | 31,272 | 87,272 | |||||||||||||
Discontinued operations(1) | — | — | 162 | |||||||||||||
Income before cumulative effect of change in accounting principle | 18,505 | 31,272 | 87,434 | |||||||||||||
Cumulative effect of change in accounting principle, net of tax(2) | 2,297 | — | — | |||||||||||||
Net income | $ | 16,208 | $ | 31,272 | $ | 87,434 | ||||||||||
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Years ended December 31, | ||||||||||||||
($ in thousands unless otherwise indicated) | 2003 | 2004 | 2005 | |||||||||||
Balance sheet (as of period end): | ||||||||||||||
Working capital (deficit)(3) | $ | (30,803 | ) | $ | (17,255 | ) | $ | (98,606 | ) | |||||
Property, plant and equipment—net | 604,576 | 802,610 | 1,112,002 | |||||||||||
Total assets | 666,934 | 888,334 | 1,243,094 | |||||||||||
Long-term debt | 249,097 | 399,134 | 506,039 | |||||||||||
Stockholders’ equity | 241,816 | 304,276 | 383,615 | |||||||||||
Cash flow data: | ||||||||||||||
Net cash flow provided by (used in): | ||||||||||||||
Operating activities | $ | 49,602 | $ | 84,847 | $ | 144,468 | ||||||||
Investing activities | (137,744 | ) | (205,898 | ) | (319,269 | ) | ||||||||
Financing activities | 79,369 | 134,389 | 172,426 | |||||||||||
Other financial data: | ||||||||||||||
EBITDA(4) | $ | 78,454 | $ | 101,799 | $ | 205,089 | ||||||||
EBITDA/interest expense(5) | 3.9x | 6.5x | 9.4x | |||||||||||
Ratio of earnings to fixed charges(6) | 2.4x | 3.8x | 6.8x | |||||||||||
Years ended December 31, | |||||||||||||
($ in thousands) | 2003 | 2004 | 2005 | ||||||||||
Net income | $ | 16,208 | $ | 31,272 | $ | 87,434 | |||||||
Adjustments: | |||||||||||||
Depletion, depreciation and amortization | 32,067 | 40,691 | 55,213 | ||||||||||
Interest expense | 20,182 | 15,662 | 21,740 | ||||||||||
Income tax expense | 9,997 | 14,174 | 40,702 | ||||||||||
EBITDA | $ | 78,454 | $ | 101,799 | $ | 205,089 | |||||||
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As of December 31, | ||||||||||||||
2003 | 2004 | 2005 | ||||||||||||
Proved reserves: | ||||||||||||||
Natural gas (MMcf) | 790,152 | 888,753 | 1,020,953 | |||||||||||
Crude oil (MBbl) | 13,173 | 9,067 | 5,915 | |||||||||||
NGL (MBbl) | 1,918 | 4,187 | 9,623 | |||||||||||
Total (MMcfe) | 880,696 | 968,276 | 1,114,181 | |||||||||||
% natural gas | 90% | 92% | 92% | |||||||||||
% proved developed | 81% | 77% | 77% | |||||||||||
Reserve life (years)(1) | 21.9 | 21.9 | 21.7 | |||||||||||
Costs incurred (in thousands): | ||||||||||||||
Proved acreage acquisition costs | $ | 6,603 | $ | 14,849 | $ | 2,441 | ||||||||
Unproved acreage acquisition costs | 30,802 | 39,001 | 52,203 | |||||||||||
Development costs | 79,502 | 116,307 | 106,395 | |||||||||||
Exploration costs | 26,477 | 48,304 | 118,977 | |||||||||||
Total | $ | 143,384 | $ | 218,461 | $ | 280,016 | ||||||||
Annual reserve replacement ratio(2) | 299% | 345% | 384% | |||||||||||
Three-year average F&D cost per Mcfe(3) | $ | 0.81 | $ | 0.79 | $ | 1.09 | ||||||||
All in three-year average F&D cost per Mcfe(3) | $ | 0.77 | $ | 0.78 | $ | 1.12 | ||||||||
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Thirty-six months ended December 31, | ||||||||||||||
($ in thousands, unless otherwise indicated) | 2003 | 2004 | 2005 | |||||||||||
Three-year average F&D cost: | ||||||||||||||
Unproved acreage acquisition costs | $ | 39,566 | $ | 75,775 | $ | 122,006 | ||||||||
Development costs | 164,623 | 230,925 | 302,204 | |||||||||||
Exploration costs | 51,164 | 89,365 | 193,758 | |||||||||||
Total exploration, development and acquisition capital expenditures | 255,353 | 396,065 | 617,968 | |||||||||||
Adjustments: | ||||||||||||||
Unevaluated costs at beginning of period | 8,239 | 14,458 | 16,913 | |||||||||||
Unevaluated costs at end of period | (49,918 | ) | (97,168 | ) | (132,090 | ) | ||||||||
Adjusted capital expenditures related to reserve additions | $ | 213,674 | $ | 313,355 | $ | 502,791 | ||||||||
Reserve extensions, discoveries and revisions (MMcfe) | 263,972 | 398,293 | 460,221 | |||||||||||
F&D cost per Mcfe | $ | 0.81 | $ | 0.79 | $ | 1.09 | ||||||||
All in three-year average F&D cost: | ||||||||||||||
Proved acreage acquisition costs | $ | 41,956 | $ | 53,651 | $ | 23,893 | ||||||||
Unproved acreage acquisition costs | 39,566 | 75,775 | 122,006 | |||||||||||
Development costs | 164,623 | 230,925 | 302,204 | |||||||||||
Exploration costs | 51,164 | 89,365 | 193,758 | |||||||||||
Total exploration, development and acquisition capital expenditures | 297,309 | 449,716 | 641,861 | |||||||||||
Adjustments: | ||||||||||||||
Unevaluated costs at beginning of period | 8,239 | 14,458 | 16,913 | |||||||||||
Unevaluated costs at end of period | (49,918 | ) | (97,168 | ) | (132,090 | ) | ||||||||
Adjusted capital expenditures related to reserve additions | $ | 255,630 | $ | 367,006 | $ | 526,684 | ||||||||
Reserve extensions, discoveries and revisions (MMcfe) | 331,510 | 472,381 | 470,131 | |||||||||||
F&D cost per Mcfe | $ | 0.77 | $ | 0.78 | $ | 1.12 | ||||||||
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($ in thousands, unless otherwise indicated) | Twelve months ended December 31, 2005 | |||||
All in 2005 F&D cost: | ||||||
Proved acreage acquisition costs | $ | 2,441 | ||||
Unproved acreage acquisition costs | 52,203 | |||||
Development costs | 106,395 | |||||
Exploration costs | 118,977 | |||||
Total exploration, development and acquisition capital expenditures | 280,016 | |||||
Adjustments: | ||||||
Unevaluated cost at beginning of period | 97,168 | |||||
Unevaluated cost at end of period | (132,090 | ) | ||||
Adjusted capital expenditures related to reserve additions | $ | 245,094 | ||||
Reserve extensions, discoveries and revisions (MMcfe) | 197,396 | |||||
F&D cost per Mcfe | $ | 1.24 | ||||
As of December 31, | ||||||||||||||
2003 | 2004 | 2005 | ||||||||||||
Production data: | ||||||||||||||
Natural gas (MMcf) | 34,536 | 39,351 | 46,769 | |||||||||||
Crude oil (MBbl) | 808 | 689 | 553 | |||||||||||
NGL (MBbl) | 135 | 129 | 223 | |||||||||||
Total production (MMcfe) | 40,192 | 44,257 | 51,427 | |||||||||||
Product sale revenues (in thousands): | ||||||||||||||
Natural gas sales | $ | 116,563 | $ | 150,716 | $ | 269,547 | ||||||||
Crude oil sales | 19,576 | 22,782 | 27,947 | |||||||||||
NGL sales | 2,898 | 3,675 | 8,710 | |||||||||||
Total gas, oil and NGL sales | $ | 139,037 | $ | 177,173 | $ | 306,204 | ||||||||
Effective unit prices—including impact of hedges: | ||||||||||||||
Natural gas (per Mcf) | $ | 3.38 | $ | 3.83 | $ | 5.76 | ||||||||
Crude oil (per Bbl) | $ | 24.23 | $ | 33.07 | $ | 50.50 | ||||||||
NGL (per Bbl) | $ | 21.50 | $ | 28.52 | $ | 39.08 | ||||||||
Production expenses (per Mcfe)(1): | $ | 1.31 | $ | 1.48 | $ | 1.68 | ||||||||
General and administrative expenses (per Mcfe): | $ | 0.20 | $ | 0.29 | $ | 0.37 | ||||||||
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• | domestic and foreign demand for natural gas and crude oil; | |
• | the level of domestic and foreign natural gas and crude oil supplies; | |
• | the price and availability of alternative fuels; | |
• | weather conditions; | |
• | domestic and foreign governmental regulations; | |
• | political conditions in oil and gas producing regions; and | |
• | worldwide economic conditions. |
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• | timing and amount of capital expenditures; | |
• | the operator’s expertise and financial resources; | |
• | approval of other participants in drilling wells; and | |
• | selection of technology. |
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• | our production is materially less than expected; or | |
• | the other parties to the hedging contracts fail to perform their contractual obligations. |
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• | discharge permits for drilling operations; | |
• | drilling permits and bonds; | |
• | reports concerning operations; | |
• | spacing of wells; | |
• | unitization and pooling of properties; |
• | environmental protection; and | |
• | taxation. |
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• | make it more difficult for us to satisfy our obligations with respect to the notes and our other debt; | |
• | require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing the amount of our cash flow available for working capital, capital expenditures, acquisitions and other general corporate purposes; | |
• | require us to make principal payments under our senior secured revolving credit facilities if the quantity of proved reserves attributable to our natural gas and crude oil properties are insufficient to support our level of borrowings under such credit facilities; | |
• | limit our flexibility in planning for, or reacting to, changes in the oil and gas industry; | |
• | place us at a competitive disadvantage compared to our competitors that have lower debt service obligations and significantly greater operating and financing flexibility than we do; | |
• | limit our financial flexibility, including our ability to borrow additional funds; | |
• | increase our interest expense if interest rates increase, because certain of our borrowings are at variable rates of interest; | |
• | increase our vulnerability to foreign exchange risk associated with Canadian dollar denominated indebtedness and operations in Canada; | |
• | increase our vulnerability to general adverse economic and industry conditions; and | |
• | result in an event of default upon a failure to comply with financial covenants contained in our senior secured revolving credit facilities which, if not cured or waived, could have a material adverse effect on our business, financial condition or results of operations. |
• | reducing or delaying capital expenditures; | |
• | seeking additional debt financing or equity capital; | |
• | selling assets; or |
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• | restructuring or refinancing debt. |
• | incur additional debt; | |
• | pay dividends on or redeem or repurchase capital stock; | |
• | make certain investments; | |
• | incur or permit to exist certain liens; | |
• | enter into transactions with affiliates; | |
• | merge, consolidate or amalgamate with another company; | |
• | transfer or otherwise dispose of assets, including capital stock of subsidiaries; and | |
• | redeem subordinated debt. |
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• | was insolvent or rendered insolvent by reason of such incurrence; | |
• | 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 those debts as they mature. |
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• | the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all 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 became absolute and mature; or | |
• | it could not pay its debts as they became due. |
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As of December 31, 2005 | ||||||||||
As | ||||||||||
(in thousands, except par value and number of shares) | Actual | adjusted | ||||||||
Cash and cash equivalents (1) | $ | 14,318 | $ | 71,768 | ||||||
Total debt including current portion: | ||||||||||
Senior secured revolving credit facilities (1) | 357,788 | 192,788 | ||||||||
Convertible subordinated debentures | 147,881 | 147,881 | ||||||||
Second lien mortgage notes payable | 70,000 | — | ||||||||
Other loans | 746 | 746 | ||||||||
Deferred gain — fair value interest hedge | 117 | — | ||||||||
Notes offered hereby | — | 300,000 | ||||||||
Total debt including current portion | $ | 576,532 | $ | 641,415 | ||||||
Stockholders’ equity: | ||||||||||
Preferred stock, $0.01 par value, 10,000,000 shares authorized; 1 share issued and outstanding | — | — | ||||||||
Common stock, $0.01 par value, 100,000,000 shares authorized; and 78,650,110 shares issued (2) | 787 | 787 | ||||||||
Paid-in capital in excess of par value | 215,175 | 215,175 | ||||||||
Deferred compensation | (3,332 | ) | (3,332 | ) | ||||||
Treasury stock of 2,571,069 shares | (10,353 | ) | (10,353 | ) | ||||||
Accumulated other comprehensive loss | (12,382 | ) | (12,382 | ) | ||||||
Retained earnings (3) | 193,720 | 193,008 | ||||||||
Total stockholders’ equity | 383,615 | 382,903 | ||||||||
Total capitalization | $ | 960,147 | $ | 1,024,318 | ||||||
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Years ended December 31, | ||||||||||||||||||||||||
(in thousands, except per share data) | 2005 | 2004 | 2003 | 2002 | 2001 | |||||||||||||||||||
Consolidated statements of income data: | ||||||||||||||||||||||||
Total revenues | $ | 310,448 | $ | 179,729 | $ | 140,949 | $ | 121,979 | $ | 141,963 | ||||||||||||||
Income before income taxes | 127,974 | 45,446 | 28,502 | 21,333 | 30,110 | |||||||||||||||||||
Income from continuing operations | 87,272 | 31,272 | 18,505 | 13,835 | 19,310 | |||||||||||||||||||
Income before cumulative effect of change in accounting principle | 87,434 | 31,272 | 18,505 | 13,835 | 19,310 | |||||||||||||||||||
Net income | 87,434 | 31,272 | 16,208 | 13,835 | 19,310 | |||||||||||||||||||
Net income from continuing operations— per share (1) | ||||||||||||||||||||||||
Basic | $ | 1.15 | $ | 0.42 | $ | 0.28 | $ | 0.23 | $ | 0.34 | ||||||||||||||
Diluted | 1.08 | 0.41 | 0.27 | 0.23 | 0.33 | |||||||||||||||||||
Net income before accounting change— per share (1) | ||||||||||||||||||||||||
Basic | $ | 1.15 | $ | 0.42 | $ | 0.28 | $ | 0.23 | $ | 0.34 | ||||||||||||||
Diluted | 1.08 | 0.41 | 0.27 | 0.23 | 0.33 | |||||||||||||||||||
Net income— per share (1) | ||||||||||||||||||||||||
Basic | $ | 1.15 | $ | 0.42 | $ | 0.24 | $ | 0.23 | $ | 0.34 | ||||||||||||||
Diluted | 1.08 | 0.41 | 0.24 | 0.23 | 0.33 | |||||||||||||||||||
Consolidated statements of cash flows data: | ||||||||||||||||||||||||
Net cash provided by (used in): | ||||||||||||||||||||||||
Operating activities | $ | 144,468 | $ | 84,847 | $ | 49,602 | $ | 41,650 | $ | 51,624 | ||||||||||||||
Investing activities | (319,269 | ) | (205,898 | ) | (137,744 | ) | (81,111 | ) | (60,930 | ) | ||||||||||||||
Financing activities | 172,426 | 134,389 | 79,369 | 40,050 | 5,199 | |||||||||||||||||||
Purchases of property, plant and equipment | $ | 329,495 | $ | 215,106 | $ | 137,895 | $ | 86,417 | $ | 61,112 | ||||||||||||||
Consolidated balance sheet data (at end of period): | ||||||||||||||||||||||||
Working capital (deficit) (2) | $ | (98,606 | ) | $ | (17,255 | ) | $ | (30,803 | ) | $ | (23,678 | ) | $ | (19,141 | ) | |||||||||
Net property, plant and equipment | 1,112,002 | 802,610 | 604,576 | 470,078 | 412,455 | |||||||||||||||||||
Total assets | 1,243,094 | 888,334 | 666,934 | 529,538 | 471,884 | |||||||||||||||||||
Long-term debt | 506,039 | 399,134 | 249,097 | 248,493 | 248,425 | |||||||||||||||||||
Total stockholders’ equity | 383,615 | 304,276 | 241,816 | 128,905 | 94,387 | |||||||||||||||||||
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• | Overview— a general description of our business; the value drivers of our business; measurements; and opportunities, challenges and risks. | |
• | Financial risk management— information about debt financing and financial risk management. | |
• | Application of critical accounting policies— a discussion of accounting policies that represent choices between acceptable alternatives and/or require critical judgments and estimates. | |
• | Results of operations— an analysis of our consolidated results of operations for the three years presented in our financial statements. We operate in one business— exploration, development and production of natural gas, NGLs and crude oil. Except to the extent that differences between our geographic operating segments are material to an understanding of our business as a whole, we present this MD&A on a consolidated basis. | |
• | Liquidity, capital resources and financial position—an analysis of our cash flows, sources and uses of cash, contractual obligations and commercial commitments. | |
• | Forward-looking statements— cautionary information about forward-looking statements and a description of certain risks and uncertainties that could cause our actual results to differ materially from our historical results or our current expectations or projections. |
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• | reserve growth; | |
• | production growth; and | |
• | improving the Company’s cash flows. |
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Years ended December 31, | ||||||||||||
(in thousands, except costs per Mcfe and production) | 2005 | 2004 | 2003 | |||||||||
Operating income | $ | 149,129 | $ | 60,693 | $ | 48,498 | ||||||
Cash flow from operations | 144,468 | 84,847 | 49,602 | |||||||||
Production cost per Mcfe (1) | $ | 1.44 | $ | 1.25 | $ | 1.09 | ||||||
General and administrative cost per Mcfe | 0.37 | 0.29 | 0.20 | |||||||||
Production (MMcfe) | 51,427 | 44,257 | 40,192 | |||||||||
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Weighted avg | ||||||||||||||||||||||
price per | Fair value | |||||||||||||||||||||
Product | Type | Contract period | Volume | Mcf or Bbl | (in thousands) | |||||||||||||||||
Gas | Collar | Jan 2006-Mar 2006 | 10,000 Mcfd | 6.50-11.20 | $ | (812 | ) | |||||||||||||||
Gas | Collar | Jan 2006-Mar 2006 | 10,000 Mcfd | 6.50-11.20 | (812 | ) | ||||||||||||||||
Gas | Collar | Jan 2006-Mar 2006 | 5,000 Mcfd | 7.00-10.00 | (964 | ) | ||||||||||||||||
Gas | Collar | Jan 2006-Mar 2006 | 5,000 Mcfd | 7.00-10.00 | (964 | ) | ||||||||||||||||
Gas | Collar | Jan 2006-Mar 2006 | 5,000 Mcfd | 7.00-10.10 | (949 | ) | ||||||||||||||||
Gas | Collar | Jan 2006-Mar 2006 | 5,000 Mcfd | 7.00-10.17 | (879 | ) | ||||||||||||||||
Gas | Collar | Jan 2006-Mar 2006 | 10,000 Mcfd | 7.50-9.55 | (2,372 | ) | ||||||||||||||||
Gas | Collar | Jan 2006-Mar 2006 | 5,000 Mcfd | 7.50-9.55 | (1,186 | ) | ||||||||||||||||
Gas | Collar | Jan 2006-Mar 2006 | 5,000 Mcfd | 7.50-9.60 | (1,160 | ) | ||||||||||||||||
Gas | Collar | Jan 2006-Mar 2006 | 5,000 Mcfd | 7.50-10.55 | (767 | ) | ||||||||||||||||
Gas | Collar | Jan 2006-Mar 2006 | 5,000 Mcfd | 7.50-10.60 | (747 | ) | ||||||||||||||||
Gas | Collar | Jan 2006-Mar 2006 | 10,000 Mcfd | 9.50-12.01 | (302 | ) | ||||||||||||||||
Gas | Collar | Apr 2006-Oct 2006 | 5,000 Mcfd | 5.50-8.10 | (2,695 | ) | ||||||||||||||||
Gas | Collar | Apr 2006-Oct 2006 | 5,000 Mcfd | 5.50-8.25 | (2,513 | ) | ||||||||||||||||
Gas | Collar | Apr 2006-Oct 2006 | 10,000 Mcfd | 6.50-8.25 | (5,044 | ) | ||||||||||||||||
Gas | Collar | Apr 2006-Oct 2006 | 5,000 Mcfd | 6.50-8.25 | (2,522 | ) | ||||||||||||||||
Gas | Collar | Apr 2006-Oct 2006 | 5,000 Mcfd | 7.00-8.35 | (2,394 | ) | ||||||||||||||||
Gas | Collar | Apr 2006-Oct 2006 | 5,000 Mcfd | 7.00-8.35 | (2,394 | ) | ||||||||||||||||
Gas | Collar | Apr 2006-Oct 2006 | 5,000 Mcfd | 7.00-8.35 | (2,394 | ) | ||||||||||||||||
Gas | Collar | Apr 2006-Oct 2006 | 5,000 Mcfd | 8.00-10.10 | (1,131 | ) | ||||||||||||||||
Gas | Collar | Apr 2006-Oct 2006 | 5,000 Mcfd | 8.00-10.10 | (1,131 | ) | ||||||||||||||||
Gas | Collar | Apr 2006-Oct 2006 | 10,000 Mcfd | 8.00-10.20 | (1,085 | ) | ||||||||||||||||
Gas | Collar | Apr 2006-Oct 2006 | 10,000 Mcfd | 8.00-10.20 | (1,085 | ) | ||||||||||||||||
Gas | Collar | Nov 2006-Mar 2007 | 10,000 Mcfd | 7.50-9.65 | (3,749 | ) | ||||||||||||||||
Gas | Collar | Nov 2006-Mar 2007 | 10,000 Mcfd | 8.50-11.35 | (2,254 | ) | ||||||||||||||||
Gas | Collar | Nov 2006-Mar 2007 | 10,000 Mcfd | 8.50-11.50 | (2,175 | ) | ||||||||||||||||
Oil | Collar | Jan 2006-Jun 2006 | 500 Bbld | 47.00-62.20 | (320 | ) | ||||||||||||||||
Net open positions | $ | (44,800 | ) | |||||||||||||||||||
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Weighted avg | Fair value | |||||||||||
Contract period | Volume | price per Mcf | (in thousands) | |||||||||
Natural Gas Sales Contracts | ||||||||||||
Jan 2006 | 6,000 Mcf | $13.37 | $ | 17 | ||||||||
Jan 2006-Feb 2006 | 10,000 Mcf | $7.27 | (35 | ) | ||||||||
Jan 2006-Feb 2006 | 16,000 Mcf | $12.21 | 22 | |||||||||
Jan 2006-Feb 2006 | 54,500 Mcf | $13.09 | 131 | |||||||||
Jan 2006-Mar 2006 | 240,000 Mcf | $12.90 | 461 | |||||||||
Feb 2006-Mar 2006 | 16,350 Mcf | $11.63 | 7 | |||||||||
$ | 603 | |||||||||||
Natural Gas Financial Derivatives | ||||||||||||
Jan 2006 | 10,000 Mcf | Floating Price | $ | (5 | ) | |||||||
Jan 2006 | 10,000 Mcf | Floating Price | (22 | ) | ||||||||
Jan 2006 | 20,000 Mcf | Floating Price | (19 | ) | ||||||||
Jan 2006 | 20,000 Mcf | Floating Price | (55 | ) | ||||||||
Feb 2006 | 10,000 Mcf | Floating Price | (8 | ) | ||||||||
Feb 2006 | 20,000 Mcf | Floating Price | (22 | ) | ||||||||
Jan 2006-Mar 2006 | 120,000 Mcf | Floating Price | (74 | ) | ||||||||
Jan 2006-Mar 2006 | 120,000 Mcf | Floating Price | (257 | ) | ||||||||
Feb 2006-Mar 2006 | 20,000 Mcf | Floating Price | (1 | ) | ||||||||
(463 | ) | |||||||||||
Total-net | $ | 140 | ||||||||||
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Years ended December 31, | ||||||||||||
(in thousands) | 2005 | 2004 | 2003 | |||||||||
Total operating revenues | $ | 310,448 | $ | 179,729 | $ | 140,949 | ||||||
Total operating expenses | 162,233 | 120,214 | 93,782 | |||||||||
Operating income | 149,129 | 60,693 | 48,498 | |||||||||
Income from continuing operations | 87,272 | 31,272 | 18,505 | |||||||||
Income before accounting change | 87,434 | 31,272 | 18,505 | |||||||||
Net income | 87,434 | 31,272 | 16,208 | |||||||||
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Years ended December 31, | |||||||||||||||
2005 | 2004 | 2003 | |||||||||||||
Average daily sales volume | |||||||||||||||
Natural gas— Mcfd | |||||||||||||||
United States | 87,518 | 83,727 | 86,608 | ||||||||||||
Canada | 40,617 | 23,789 | 8,011 | ||||||||||||
Total | 128,135 | 107,516 | 94,619 | ||||||||||||
Crude oil— Bbld | |||||||||||||||
United States | 1,516 | 1,882 | 2,212 | ||||||||||||
Canada | — | — | 1 | ||||||||||||
Total | 1,516 | 1,882 | 2,213 | ||||||||||||
NGL— Bbld | |||||||||||||||
United States | 603 | 351 | 365 | ||||||||||||
Canada | 8 | 1 | 4 | ||||||||||||
Total | 611 | 352 | 369 | ||||||||||||
Total sales— Mcfed | |||||||||||||||
United States | 100,223 | 97,120 | 102,073 | ||||||||||||
Canada | 40,672 | 23,802 | 8,042 | ||||||||||||
Total | 140,895 | 120,922 | 110,115 | ||||||||||||
Natural gas, oil and NGL revenue (in thousands) | |||||||||||||||
United States | $ | 209,715 | $ | 134,268 | $ | 127,339 | |||||||||
Canada | 96,489 | 42,905 | 11,698 | ||||||||||||
Total natural gas, oil and NGL revenue | $ | 306,204 | $ | 177,173 | $ | 139,037 | |||||||||
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Years ended December 31, | ||||||||||||||||
2005 | 2004 | 2003 | ||||||||||||||
Product revenue (in thousands) | ||||||||||||||||
Natural gas sales | $ | 269,547 | $ | 150,716 | $ | 116,563 | ||||||||||
Crude oil sales | 27,947 | 22,782 | 19,576 | |||||||||||||
NGL sales | 8,710 | 3,675 | 2,898 | |||||||||||||
Total product sale revenue | $ | 306,204 | $ | 177,173 | $ | 139,037 | ||||||||||
Unit prices— including impact of hedges | ||||||||||||||||
Natural gas— per Mcf | ||||||||||||||||
United States | $ | 5.42 | $ | 3.52 | $ | 3.32 | ||||||||||
Canada | 6.50 | 4.92 | 3.98 | |||||||||||||
Consolidated | 5.76 | 3.83 | 3.38 | |||||||||||||
Crude oil— per Bbl | ||||||||||||||||
United States | $ | 50.50 | $ | 33.07 | $ | 24.23 | ||||||||||
Canada | — | — | 24.46 | |||||||||||||
Consolidated | 50.50 | 33.07 | 24.23 | |||||||||||||
NGL— per Bbl | ||||||||||||||||
United States | $ | 38.88 | $ | 28.55 | $ | 21.45 | ||||||||||
Canada | 53.91 | 22.18 | 26.01 | |||||||||||||
Consolidated | 39.08 | 28.52 | 21.50 | |||||||||||||
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Years ended December 31, | ||||||||||||||
(In thousands, except per unit amounts) | 2005 | 2004 | 2003 | |||||||||||
Production expenses | ||||||||||||||
United States | $ | 69,609 | $ | 55,223 | $ | 48,572 | ||||||||
Canada | 16,663 | 10,403 | 3,952 | |||||||||||
$ | 86,272 | $ | 65,626 | $ | 52,524 | |||||||||
Production expenses— per Mcfe | ||||||||||||||
United States | $ | 1.90 | $ | 1.54 | $ | 1.30 | ||||||||
Canada | 1.12 | 1.19 | 1.35 | |||||||||||
Consolidated | 1.68 | 1.48 | 1.31 | |||||||||||
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Years ended December 31, | ||||||||||||
(In thousands, except per unit amounts) | 2005 | 2004 | 2003 | |||||||||
Depletion | $ | 46,615 | $ | 34,530 | $ | 27,379 | ||||||
Depreciation of other fixed assets | 7,599 | 5,179 | 3,949 | |||||||||
Accretion | 999 | 982 | 739 | |||||||||
Total depletion, depreciation and accretion | $ | 55,213 | $ | 40,691 | $ | 32,067 | ||||||
Average depletion cost per Mcfe | $ | 0.91 | $ | 0.78 | $ | 0.68 | ||||||
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Years ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Income tax provision (in thousands) | $ | 40,702 | $ | 14,174 | $ | 9,997 | ||||||
Effective tax rate | 31.8% | 31.2% | 35.1% | |||||||||
Years ended December 31, | ||||||||||||
(In thousands) | 2005 | 2004 | 2003 | |||||||||
Net cash flow provided by operating activities | $ | 144,468 | $ | 84,847 | $ | 49,602 | ||||||
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Years ended December 31, | |||||||||||||
(In thousands) | 2005 | 2004 | 2003 | ||||||||||
Cash flow used in investing activities: | |||||||||||||
Purchases of property, plant and equipment | $ | (329,495 | ) | $ | (215,106 | ) | $ | (138,579 | ) | ||||
Return of investment from equity affiliates | 533 | 48 | 734 | ||||||||||
Proceeds from sale of properties and equipment | 9,693 | 9,160 | 101 | ||||||||||
Net cash used in investing activities | $ | (319,269 | ) | $ | (205,898 | ) | $ | (137,744 | ) | ||||
Net working capital changes related to acquisition of property and equipment | $ | (31,475 | ) | $ | (16,651 | ) | $ | (10,593 | ) | ||||
United | |||||||||||||
(In thousands) | States | Canada | Consolidated | ||||||||||
2005 | |||||||||||||
Proved acreage | $ | 821 | $ | 1,620 | $ 2,441 | ||||||||
Unproved acreage | 48,419 | 3,784 | 52,203 | ||||||||||
Development costs | 24,007 | 82,388 | 106,395 | ||||||||||
Exploration costs | 109,148 | 9,829 | 118,977 | ||||||||||
Gas processing, transportation and administrative | 59,894 | 21,059 | 80,953 | ||||||||||
Total | $ | 242,289 | $ | 118,680 | $360,969 | ||||||||
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United | |||||||||||||
(In thousands) | States | Canada | Consolidated | ||||||||||
2004 | |||||||||||||
Proved acreage | $ | 11,907 | $ | 2,942 | $ 14,849 | ||||||||
Unproved acreage | 31,857 | 7,144 | 39,001 | ||||||||||
Development costs | 45,213 | 71,094 | 116,307 | ||||||||||
Exploration costs | 25,673 | 22,631 | 48,304 | ||||||||||
Gas processing, transportation and administrative | 12,527 | 769 | 13,296 | ||||||||||
Total | $ | 127,177 | $ | 104,580 | $231,757 | ||||||||
2003 | |||||||||||||
Proved acreage | $ | 3,215 | $ | 3,388 | $ 6,603 | ||||||||
Unproved acreage | 24,063 | 6,739 | 30,802 | ||||||||||
Development costs | 37,682 | 41,820 | 79,502 | ||||||||||
Exploration costs | 9,411 | 17,066 | 26,477 | ||||||||||
Gas processing, transportation and administrative | 4,820 | 284 | 5,104 | ||||||||||
Total | $ | 79,191 | $ | 69,297 | $148,488 | ||||||||
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Years ended December 31, | |||||||||||||
(In thousands) | 2005 | 2004 | 2003 | ||||||||||
Cash flow provided by financing activities: | |||||||||||||
Issuance of debt | $ | 183,469 | $ | 511,091 | $ | 114,000 | |||||||
Repayment of debt | (13,079 | ) | (371,178 | ) | (113,116 | ) | |||||||
Issuance of common stock, net of issuance costs | 2,894 | 2,499 | 79,926 | ||||||||||
Purchase of treasury stock | (95 | ) | — | — | |||||||||
Payment for fractional shares | (18 | ) | — | — | |||||||||
Debt issuance costs | (745 | ) | (8,023 | ) | (1,441 | ) | |||||||
Net cash provided by financing activities: | $ | 172,426 | $ | 134,389 | $ | 79,369 | |||||||
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Years ended December 31, | |||||||||||||
(In thousands) | 2005 | 2004 | 2003 | ||||||||||
Long-term and short-term debt: | |||||||||||||
Senior secured credit facility | $ | 357,788 | $ | 180,422 | $ | 178,000 | |||||||
Convertible subordinated debentures | 147,881 | 147,769 | — | ||||||||||
Second lien mortgage notes payable | 70,000 | 70,000 | 70,000 | ||||||||||
Various loans | 746 | 1,073 | 1,386 | ||||||||||
Deferred gain— fair value interest hedge | 117 | 226 | — | ||||||||||
Fair value interest hedge | — | — | 50 | ||||||||||
Total debt | 576,532 | 399,490 | 249,436 | ||||||||||
Stockholders’ equity | 383,615 | 304,276 | 241,816 | ||||||||||
Total capitalization | $ | 960,147 | $ | 703,766 | $ | 491,252 | |||||||
• | A $177.0 million increase in our debt used to finance the development, exploitation and exploration of our oil and gas properties in 2005. |
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• | A $364.4 million increase in our net property, plant and equipment balances before 2005 depletion and depreciation resulting from capital expenditures for development, exploitation and exploration of our oil and gas properties. | |
• | Our current portion of long-term debt has increased by approximately $70.0 million. Our second lien mortgage notes are due December 31, 2006. We expect to refinance these notes through the issuance of debt or other securities or drawing upon our senior secured credit facility. | |
• | A $27.8 million and $4.6 million increase in our current and deferred derivative obligations, respectively, reflecting the relative increase in natural gas prices as compared to the price caps for our natural gas collars at December 31, 2005. |
Payments due by period | |||||||||||||||||||||
Contractual obligations | Less than | 1-3 | 4-5 | More than | |||||||||||||||||
(In thousands) | Total | 1 year | years | years | 5 years | ||||||||||||||||
Long-term debt | $ | 578,534 | $ | 70,493 | $ | 358,041 | $ | — | $150,000 | ||||||||||||
Scheduled interest obligations | 109,559 | 9,190 | 16,728 | 11,152 | 72,489 | ||||||||||||||||
Derivative obligations | 45,263 | 40,632 | 4,631 | — | — | ||||||||||||||||
Purchase obligations | 6,894 | 6,894 | — | — | — | ||||||||||||||||
Asset retirement obligations | 20,965 | 73 | 173 | 115 | 20,604 | ||||||||||||||||
Operating lease obligations | 8,132 | 2,819 | 5,313 | — | — | ||||||||||||||||
Total obligations | $ | 769,347 | $ | 130,101 | $ | 384,886 | $ | 11,267 | $243,093 | ||||||||||||
• | Long-term debt— As of December 31, 2005, we had $357.8 million outstanding under our senior secured credit facility, $150 million of contingently convertible debentures (before discount), $70 million of second lien mortgage notes and $0.7 million of other debt. Based upon our debt outstanding and interest rates in effect at December 31, 2005, we anticipate interest payments to be approximately $27.7 million in 2006. We expect to increase borrowings under our senior secured credit facility to fund our capital spending program throughout 2006. For each additional $10 million in borrowings, annual interest payments will increase by approximately $0.5 million. If the borrowing base under our senior secured credit facility were to be fully utilized by year-end 2006 at interest rates in effect at December 31, 2005, we estimate that interest payments would increase by approximately $6.5 million. If interest rates on our December 31, 2005 variable debt balance of $387.8 million increase or decrease by one percentage point, our annual pretax income will decrease or increase by $3.9 million. | |
• | Scheduled interest obligations— As of December 31, 2005, we had scheduled interest payments in place for $5.6 million annually on our $150 million of contingently convertible debentures due November 1, 2024 and $2.8 million annually on our $70 million of second lien mortgage notes due December 31, 2006. |
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• | Derivative obligations— We utilize financial derivatives to manage price risk associated with our natural gas and crude oil product revenue. We also manage interest rate risk associated with our long-term debt. The recorded assets and liabilities associated with our derivative obligations were estimated based on published market prices of natural gas and crude oil for the periods covered by the contracts. Estimates of the liability associated with our interest rate derivative obligations are based upon estimates prepared by our counterparties. These amounts do not necessarily reflect what payments will be made to settle these obligations. | |
• | Purchase obligations— At December 31, 2005, we were under contract to purchase goods and services for completion of our gas processing plant in Texas. Total remaining obligations for construction and completion of the gas processing plant were $6.9 million including liabilities of $2.8 million recorded at December 31, 2005 for goods received and work performed. | |
• | Asset retirement obligations— Our liabilities include the fair value, $21.0 million, of asset retirement obligations that result from the acquisition, construction or development and the normal operation of our long-lived assets. | |
• | Operating leases— We lease office buildings and other property under operating leases. Our operating lease obligations include $3.8 million of future lease payments to an affiliate of Mercury, which is owned by members of the Darden family. |
We have the following commercial commitments as of December 31, 2005: |
Amounts of commitments expiration per period | |||||||||||||||||||||
Commercial commitments | Total | Less than | 1-3 | 4-5 | More than | ||||||||||||||||
(In thousands) | committed | 1 year | years | years | 5 years | ||||||||||||||||
Drilling rig commitment | 4,448 | 4,448 | — | — | — | ||||||||||||||||
Standby letters of credit | $ | 997 | $ | 420 | $ | 557 | $— | $— | |||||||||||||
Total commitments | $ | 5,445 | $ | 4,868 | $ | 557 | $— | $— | |||||||||||||
• | Drilling rig commitment— We lease drilling rigs from third parties for use in our development and exploration programs. At December 31, 2005, we had a commitment for the use of one drilling rig at a rate of $15,500 per day through October 14, 2006. | |
• | Standby letters of credit— Our letters of credit have been issued to fulfill contractual or regulatory requirements. The majority of these letters of credit were issued under our senior credit facility. All letters have an annual renewal option. |
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• | changes in general economic conditions; | |
• | fluctuations in natural gas and crude oil prices; | |
• | failure or delays in achieving expected production from natural gas and crude oil exploration and development projects; | |
• | uncertainties inherent in estimates of natural gas and crude oil reserves and predicting natural gas and crude oil reservoir performance; | |
• | effects of hedging natural gas and crude oil prices; | |
• | competitive conditions in our industry; | |
• | actions taken by third-party operators, processors and transporters; | |
• | changes in the availability and cost of capital; | |
• | delays in obtaining oil field equipment and increases in drilling and other service costs; | |
• | operating hazards, natural disasters, weather-related delays, casualty losses and other matters beyond our control; | |
• | the effects of existing and future laws and governmental regulations; and | |
• | the effects of existing or future litigation. |
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2005 | |||||||||||||||||
Total | % Natural | % Proved | production | ||||||||||||||
Areas of operations | Bcfe | gas | developed | (MMcfed) | |||||||||||||
Michigan | 581.5 | 95% | 90% | 80.7 | |||||||||||||
Alberta, Canada | 304.9 | 100% | 66% | 40.7 | |||||||||||||
Texas | 183.1 | 74% | 48% | 10.5 | |||||||||||||
Other | 44.7 | 66% | 91% | 9.0 | |||||||||||||
Total | 1,114.2 | 92% | 77% | 140.9 | |||||||||||||
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Proved | 2005 | |||||||||||||||
reserves | % Proved | production | ||||||||||||||
Producing formation | (Bcfe) | % Gas | developed | (MMcfed) | ||||||||||||
Antrim Shale | 503.5 | 100% | 92% | 59.7 | ||||||||||||
Non-Antrim | 78.0 | 62% | 82% | 21.0 | ||||||||||||
All formations | 581.5 | 95% | 90% | 80.7 | ||||||||||||
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• | require the acquisition of a permit before drilling commences; | |
• | restrict the types, quantities and concentrations of various substances that can be released into the environment in connection with drilling, production, processing and pipeline gathering activities; | |
• | limit or prohibit drilling activities on certain lands lying within wilderness, wetlands, frontier and other protected areas; | |
• | require remedial action to prevent pollution from former operations such as plugging abandoned wells; and | |
• | impose substantial liabilities for pollution resulting from operations. |
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Name | Age | Position(s) | ||||
James A. Hughes | 43 | Director | ||||
Steven M. Morris | 54 | Director | ||||
W. Yandell Rogers, III | 43 | Director | ||||
Mark J. Warner | 42 | Director | ||||
Thomas F. Darden | 52 | Chairman of the Board | ||||
Glenn Darden | 50 | President, Chief Executive Officer and Director | ||||
Anne Darden Self | 48 | Vice President— Human Resources and Director | ||||
Jeff Cook | 49 | Executive Vice President— Operations | ||||
John C. Cirone | 56 | Senior Vice President, General Counsel and Secretary | ||||
Philip W. Cook | 44 | Senior Vice President— Chief Financial Officer | ||||
D. Wayne Blair | 49 | Vice President, Controller and Chief Accounting Officer | ||||
William S. Buckler | 44 | Vice President— U.S. Operations | ||||
Robert N. Wagner | 42 | Vice President— Reservoir Engineering | ||||
• | James A. Hugheshas been an executive of Priest River Ltd., a privately owned holding company, since 2003. Mr. Hughes served as a director of Quicksilver from 2001 through 2004 and again since March 2005. He served as President and Chief Operating Officer of Enron Global Assets, an international energy infrastructure company from 1994 until 2003. Mr. Hughes’ term expires in 2006. | |
• | Steven M. Morrishas served as President of Morris & Company, a private investment firm, since 1992. He is a Certified Public Accountant, and has been a director of Quicksilver since 1999. Mr. Morris’ term expires in 2007. | |
• | W. Yandell Rogers, IIIhas served as Chief Executive Officer of Priest River Ltd. and Lewiston Atlas Ltd., each a privately owned holding company since 2002. Mr. Rogers has served as a director of Quicksilver since 1999. Mr. Roger’s term expires in 2006. He was Chief Executive Officer of Ridgway’s, Inc., a provider of reprographics to the engineering and construction industries from 1997 until 2002. | |
• | Mark J. Warnerhas been Director of Corporate Development of Point One, a telecommunications company, since April 2004. He served as Senior Vice President, Growth Capital Partners, L.P., an investment banking firm from 2000 until 2004. Mr. Warner has served as a director of Quicksilver since 1999. Mr. Warner’s term expires in 2008. From 1995 until 2000, he was Director of Domestic Finance at Enron Corporation, an energy trading company. | |
• | Thomas F. Dardenhas served on our board of directors since December 1997. He also served at that time as President of Mercury Exploration Company. During his term as President of Mercury, Mercury developed and acquired interests in over 1,200 producing |
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wells in Michigan, Indiana, Kentucky, Wyoming, Montana, New Mexico and Texas. Prior to joining us, Mr. Darden was employed by Mercury or its parent corporation, Mercury Production Company, for 22 years. He became a director and the President of MSR on March 7, 1997. On January 1, 1998, he was named Chairman of the Board and Chief Executive Officer of MSR. He was elected our President when we were formed and then Chairman of the Board and Chief Executive Officer on March 4, 1999, the date of our acquisition of MSR. He served as our Chief Executive Officer until November 1999. Mr. Darden’s term expires in 2008. | ||
• | Glenn Dardenhas served on our board of directors since December 1997. Prior to that time, he served with Mercury for 18 years, and for the last five of those 18 years was the Executive Vice President of Mercury. Prior to working for Mercury, Mr. Darden worked as a geologist for Mitchell Energy Company LP (subsequently merged with Devon Energy). Mr. Darden became a director and Vice President of MSR on March 7, 1997, and was named President and Chief Operating Officer of MSR on January 1, 1998. He served as our Vice President until he was elected President and Chief Operating Officer on March 4, 1999. Mr. Darden became our Chief Executive Officer in November 1999. Mr. Darden’s term expires in 2006. | |
• | Anne Darden Selfhas served on our board of directors since September 1999, and became our Vice President— Human Resources in July 2000. She is also currently President of Mercury, where she has worked since 1992. From 1988 to 1991, she was with Banc PLUS Savings Association in Houston, Texas. She was employed as Marketing Director and then spent three years as Vice President of Human Resources. She worked from 1987 to 1988 as an Account Executive for NW Ayer Advertising Agency. Prior to 1987, she spent several years in real estate management. Ms. Self’s term expires in 2007. |
• | Jeff Cookbecame our Executive Vice President— Operations in January 2006, after serving as our Senior Vice President— Operations since July 2000. From 1979 to 1981, he held the position of Operations Supervisor with Western Company of North America. In 1981, he became a District Production Superintendent for Mercury and became Vice President of Operations in 1991 and Executive Vice President of Mercury in 1998 before joining us. | |
• | John C. Cironewas named as our Senior Vice President, General Counsel and Secretary in January 2006, after serving as our Vice President, General Counsel and Secretary since July 2002. He was employed by Union Pacific Resources from 1978 to 2000. During that time, he served in various positions in the Law Department and from 1997 to 2000 he was the Manager of Land and Negotiations. In 2000, he was promoted to the position of Assistant General Counsel of Union Pacific Resources. After leaving Union Pacific Resources in August 2000, Mr. Cirone was engaged in the private practice of law prior to joining us in July 2002. | |
• | Philip W. Cookbecame our Senior Vice President— Chief Financial Officer in October 2005. From October 2004 until October 2005, Mr. Cook served as President, Chief Financial Officer and Director of EcoProduct Solutions, a Houston-based chemical company. From August 2001 until September 2004, he served as Vice President and Chief Financial Officer of PPI Technology Services, an oilfield service company. From August 1993 to July 2001, he served in various capacities, including Vice President and |
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Controller, Vice President and Chief Information Officer and Vice President of Audit, of Burlington Resources Inc., an independent oil and gas company engaged in exploration, development, production and marketing. | ||
• | D. Wayne Blairbecame our Vice President, Controller and Chief Accounting Officer in 2002, after serving as our Vice President – Controller since July 2000. He is a Certified Public Accountant with over 25 years of experience in the oil and gas industry. He was employed by Sabine Corporation from 1980 through 1988 where he held the position of Assistant Controller. From 1988 through 1994, he served as Controller for a group of private businesses involved in the oil and gas industry. Prior to joining us in April 2000 as Vice President – Controller, he served as the Controller for Mercury since 1996. | |
• | William S. Bucklerbecame our Vice President— U. S. Operations in August 2005. He joined us in September 2003 as an Engineering Manager. Prior to that, he was an Operations/ Engineering Supervisor with Mitchell Energy Company LP (subsequently merged with Devon Energy) from January 2002 until August 2003, and held various other positions with Mitchell Energy, including Region Engineer, from July 1997 until January 2002. | |
• | Robert N. Wagnerbecame our Vice President— Reservoir Engineering in December 2002. He had served as our Vice President— Engineering since July 1999. From January 1999 to July 1999, he was our manager of eastern region field operations. From November 1995 to January 1999, Mr. Wagner held the position of District Engineer with Mercury. Prior to 1995, he was with Mesa, Inc. for over eight years and served as both drilling engineer and production engineer. |
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Beneficial share ownership | ||||||||
Percent of | ||||||||
Number | outstanding | |||||||
Directors, Named Executive Officers and 5% stockholders | of shares | shares | ||||||
Directors/ Named Executive Officers | ||||||||
Glenn Darden(1)(2)(3) | 1,763,945 | 2.24% | ||||||
Thomas F. Darden(1)(2)(3)(4) | 1,833,430 | 2.32% | ||||||
Anne Darden Self(1)(2)(3) | 1,376,257 | 1.75% | ||||||
James A. Hughes(3) | 4,547 | * | ||||||
Steven M. Morris(3) | 491,689 | * | ||||||
W. Yandell Rogers, III(3) | 73,357 | * | ||||||
Mark J. Warner(3) | 49,752 | * | ||||||
William S. Buckler(2)(3) | 18,118 | * | ||||||
John C. Cirone(3)(4) | 18,637 | * | ||||||
Jeff Cook(3) | 317,785 | * | ||||||
Directors and executive officers as a group (13 persons)(1)(2)(3)(4) | 5,581,916 | 7.05% | ||||||
5% or more stockholders | ||||||||
Mercury Production Company(5)(7) | 13,117,935 | 16.65% | ||||||
Mercury Exploration Company(5)(7) | 13,113,435 | 16.64% | ||||||
Quicksilver Energy, L.P.(6)(7) | 9,092,583 | 11.54% | ||||||
Pennsylvania Management, LLC(6)(7) | 9,092,583 | 11.54% | ||||||
FMR Corp.(8) | 9,766,379 | 12.72% | ||||||
Neuberger Berman, Inc.(9) | 7,944,173 | 10.46% | ||||||
Capital Research and Management Company(10) | 7,853,850 | 10.30% | ||||||
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• | are general unsecured, senior subordinated obligations of the Company; | |
• | are limited to an aggregate principal amount of $300 million, subject to our ability to issue Additional Notes; | |
• | mature on , 2016; | |
• | will be issued only in fully registered form, without coupons; | |
• | will be issued in denominations of $1,000 and integral multiples of $1,000; | |
• | will generally be represented by one or more registered Notes in global form, but in certain circumstances may be represented by Notes in definitive form, in each case as described in “Book-entry, Delivery and Form;” | |
• | are subordinated in right of payment to all existing and future Senior Indebtedness of the Company, including the Senior Secured Credit Agreement; | |
• | rank equally in right of payment to any future Senior Subordinated Indebtedness of the Company; and | |
• | are unconditionally guaranteed on a senior subordinated basis by Mercury Michigan Inc., Terra Energy Ltd., GTG Pipeline Corporation, Cowtown Pipeline Funding, Inc., |
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Cowtown Pipeline Management, Inc., Terra Pipeline Company, Beaver Creek Pipeline, L.L.C., Cowtown Pipeline, LP and Cowtown Gas Processing L.P., each a Domestic Subsidiary of the Company, as described in “Subsidiary Guarantees.” |
• | accrue at the rate of % per annum; | |
• | accrue from the date of original issuance or, if interest has already been paid, from the most recent interest payment date; | |
• | be payable in cash semi-annually in arrears on and , commencing on , 2006; | |
• | be payable to the holders of record on the close of business on the and immediately preceding the related interest payment dates; and | |
• | be computed on the basis of a 360-day year comprised of twelve 30-day months. |
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Year | Percentage | |||
2011 | % | |||
2012 | % | |||
2013 | % | |||
2014 and thereafter | 100.00% | |||
(1) at least 65% of the original principal amount of the Notes remains outstanding after each such redemption; and | |
(2) the redemption occurs within 90 days after the closing of such equity offering. |
• | in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed; or | |
• | if the Notes are not listed, then on a pro rata basis, by lot or by such other method as the Trustee in its sole discretion may deem to be fair and appropriate. |
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• | our outstanding Senior Indebtedness would have been $240 million, which includes letters of credit and hedging obligations with parties to our senior secured revolving credit facilities, all of which would have been secured; | |
• | we would have had no Senior Subordinated Indebtedness other than the Notes; | |
• | our Restricted Subsidiaries would have had $325 million of liabilities (excluding intercompany liabilities); and |
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• | our non-guarantor Subsidiaries would have had $298 million of liabilities (excluding intercompany liabilities). |
(1) | any Senior Indebtedness is not paid when due in cash or Cash Equivalents; or | |
(2) | any other default on Senior Indebtedness occurs and the maturity of the Senior Indebtedness is accelerated in accordance with its terms; |
(1) | by written notice to the Trustee and the Company from the Person or Persons who gave the Blockage Notice; | |
(2) | because the default giving rise to the Blockage Notice is no longer continuing; or | |
(3) | because the Designated Senior Indebtedness has been repaid in full. |
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(1) | a total or partial liquidation or a dissolution of the Company; | |
(2) | a reorganization, bankruptcy, insolvency, receivership of or similar proceeding relating to the Company or its property; or | |
(3) | an assignment for the benefit of creditors or marshaling of the Company’s assets and liabilities, then |
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(1) | the sale or other disposition is in compliance with the Indenture, including the covenants “Limitation on sales of assets and subsidiary stock” and “Limitation on sales of capital stock of restricted subsidiaries;” and | |
(2) | all of the obligations of the Subsidiary Guarantor under any Credit Facility and related documentation and any other agreements relating to any other Indebtedness of the Company or its Restricted Subsidiaries terminate upon consummation of such transaction. |
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(1) | that a Change of Control has occurred and that the Company is offering to purchase the holder’s Notes at a purchase price in cash equal to 101% of the principal amount of the Notes plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record at the close of business on a record date to receive interest on the relevant interest payment date) (the “Change of Control Payment”); | |
(2) | the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the “Change of Control Payment Date”); and | |
(3) | the procedures determined by the Company, consistent with the Indenture, that a holder must follow in order to have its Notes repurchased. |
(1) | accept for payment all Notes or portions of Notes (in integral multiples of $1,000) properly tendered pursuant to the Change of Control Offer; | |
(2) | deposit with the paying agent for the Notes an amount equal to the Change of Control Payment in respect of all Notes or portions of Notes so tendered; and | |
(3) | deliver or cause to be delivered to the Trustee the Notes so accepted together with an officers’ certificate stating the aggregate principal amount of Notes or portions of Notes being purchased by the Company. |
• | all Senior Indebtedness must be repaid in full and, in the case of revolving Indebtedness, all commitments to lend thereunder have been terminated, or we must offer to repay all Senior Indebtedness and make payment to the holders that accept |
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such offer and obtain waivers of any event of default from the remaining holders of such Senior Indebtedness; or | ||
• | the requisite holders of each issue of Senior Indebtedness must have consented to the Change of Control Offer being made. |
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(1) | the Notes have an Investment Grade Rating from both of the Ratings Agencies; and | |
(2) | no Default has occurred and is continuing under the Indenture; |
(1) | “Limitation on indebtedness,” | |
(2) | “Limitation on restricted payments,” | |
(3) | “Limitation on restrictions on distributions from restricted subsidiaries,” | |
(4) | “Limitation on sales of assets and subsidiary stock,” | |
(5) | “Limitation on affiliate transactions,” | |
(6) | “Limitation on sale of capital stock of restricted subsidiaries,” | |
(7) | “Limitation on lines of business,” and | |
(8) | Clause (4) of “Merger and consolidation” |
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(1) | the Consolidated Coverage Ratio for the Company and its Restricted Subsidiaries is at least 2.25 to 1.0; and | |
(2) | no Default or Event of Default shall have occurred and be continuing or would occur as a consequence of Incurring the Indebtedness or the transactions relating to such Incurrence. |
(1) | Indebtedness of the Company and its Restricted Subsidiaries Incurred pursuant to a Credit Facility in an aggregate principal amount up to the greater of (x) $750 million or (y) 30% of Adjusted Consolidated Net Tangible Assets, in each case, determined as of the date of the Incurrence of the Indebtedness; | |
(2) | Guarantees of Indebtedness Incurred in accordance with the provisions of the Indenture; provided that if the Indebtedness that is being Guaranteed is Guaranteed by a Subsidiary Guarantor and is (a) Senior Subordinated Indebtedness or Guarantor Senior Subordinated Indebtedness, then the related Guarantee shall rank equally in right of payment to the Subsidiary Guarantee or (b) a Subordinated Obligation or a Guarantor Subordinated Obligation, then the related Guarantee shall be subordinated in right of payment to the Subsidiary Guarantee; | |
(3) | Indebtedness of the Company owing to and held by any Wholly-Owned Subsidiary or Indebtedness of a Restricted Subsidiary owing to and held by the Company or any Wholly-Owned Subsidiary; provided, however, that: |
(a) | if the Company is the obligor on the Indebtedness, the Indebtedness is subordinated in right of payment to all obligations with respect to the Notes; |
(b) | if a Subsidiary Guarantor is the obligor on the Indebtedness and the Company or a Subsidiary Guarantor is not the obligee, such Indebtedness is subordinated in right of payment to the Subsidiary Guarantees of that Subsidiary Guarantor; and |
(c) | any subsequent issuance or transfer of Capital Stock, sale or other transfer of any such Indebtedness or other event that results in any such Indebtedness being held by a Person other than the Company or a Wholly-Owned Subsidiary of the Company shall be deemed, in each case, to constitute an Incurrence of such Indebtedness by the Company or such Subsidiary, as the case may be, as of the date such Indebtedness first became held by such Person; |
(4) | Indebtedness represented by (a) the Notes issued on the Issue Date, and the Subsidiary Guarantees, (b) any Indebtedness (other than the Indebtedness described in clauses (1), (2), (3), (6), (8), (9) and (10)) outstanding on the Issue Date, and (c) any Refinancing |
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Indebtedness Incurred in respect of any Indebtedness described in this clause (4) or clause (5) or Incurred pursuant to the first paragraph of this covenant; | ||
(5) | Indebtedness of a Restricted Subsidiary Incurred and outstanding on the date on which such Restricted Subsidiary was acquired by the Company (other than Indebtedness Incurred (a) to provide all or any portion of the funds utilized to consummate the transaction or series of related transactions pursuant to which such Restricted Subsidiary was acquired by the Company or (b) otherwise in connection with, or in contemplation of, such acquisition); provided, however, that, at the time such Restricted Subsidiary is acquired by the Company, the Company would have been able to Incur $1.00 of additional Indebtedness pursuant to the first paragraph of this covenant after giving effect to the Incurrence of such Indebtedness; | |
(6) | Indebtedness under Currency Agreements, Commodity Agreements and Interest Rate Agreements; provided, that, in the case of Currency Agreements or Commodity Agreements, such Currency Agreements or Commodity Agreements are related to business transactions of the Company or its Restricted Subsidiaries entered into in the ordinary course of business and, in the case of Currency Agreements, Commodity Agreements and Interest Rate Agreements, such Currency Agreements, Commodity Agreements and Interest Rate Agreements are entered into for bona fide hedging purposes of the Company or its Restricted Subsidiaries (as determined in good faith by the Board of Directors or senior management of the Company); | |
(7) | the Incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations with respect to assets other than Capital Stock or other Investments, in each case Incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvements of property used in the business of the Company or the Restricted Subsidiary, in an aggregate principal amount not to exceed $20 million at any time outstanding; | |
(8) | Indebtedness Incurred in respect of workers’ compensation claims, self-insurance obligations, bid, reimbursement, performance, surety, appeal and similar bonds, completion guarantees provided by the Company or a Restricted Subsidiary in the ordinary course of business, or required by regulatory authorities in connection with the conduct by the Company and its Restricted Subsidiaries of their businesses, including supporting Guarantees and letters of credit (in each case other than for an obligation for money borrowed); | |
(9) | Indebtedness arising from agreements of the Company or a Restricted Subsidiary providing for indemnification, adjustment of purchase price or similar obligations, in each case, Incurred or assumed in connection with the disposition of any business, assets or Capital Stock of the Company or a Restricted Subsidiary; |
(10) | Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business; provided, however, that such Indebtedness is extinguished within five business days of the Incurrence; and | |
(11) | in addition to the items referred to in clauses (1) through (10) above, Indebtedness of the Company and its Restricted Subsidiaries in an aggregate outstanding principal amount which, when taken together with the principal amount of all other |
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Indebtedness Incurred pursuant to this clause (11) and then outstanding, will not exceed $40 million at any time outstanding. |
(1) | Indebtedness permitted by this covenant need not be permitted solely by one provision permitting such Indebtedness but may be permitted in part by one such provision and in part by one or more other provisions of this covenant permitting such Indebtedness; | |
(2) | in the event that Indebtedness meets the criteria of more than one of the provisions permitting the Incurrence of Indebtedness described in the first and second paragraphs above, the Company, in its sole discretion, may classify (or subsequently reclassify) such item of Indebtedness as being permitted by one or more such provisions; | |
(3) | all Indebtedness outstanding on the date of the Indenture under the Senior Secured Credit Agreement shall be deemed initially Incurred on the Issue Date under clause (1) of the second paragraph above and not the first paragraph or clause (4) of the second paragraph above; | |
(4) | Guarantees of, or obligations in respect of letters of credit relating to, Indebtedness which is otherwise included in the determination of a particular amount of Indebtedness shall not be included; | |
(5) | if obligations in respect of letters of credit are Incurred pursuant to a Credit Facility and are being treated as Incurred pursuant to clause (1) of the second paragraph above and the letters of credit relate to other Indebtedness, then such other Indebtedness shall not be included; | |
(6) | no item of Indebtedness will be given effect more than once in any calculation contemplated by this covenant and no individual item or related items of Indebtedness will be given effect at an aggregate amount in excess of the aggregate amount required to satisfy and discharge the principal amount of such item or related items of Indebtedness; | |
(7) | the principal amount of any Disqualified Stock of the Company or a Restricted Subsidiary, or Preferred Stock of a Restricted Subsidiary that is not a Subsidiary Guarantor, will be equal to the greater of the maximum mandatory redemption or |
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repurchase price (not including, in either case, any redemption or repurchase premium) or the liquidation preference thereof; and | ||
(8) | the amount of Indebtedness issued at a price that is less than the principal amount thereof will be equal to the amount of the liability in respect thereof determined in accordance with GAAP. |
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(1) | pay any dividend or make any distribution on or in respect of its Capital Stock (including any payment in respect of its Capital Stock in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries) except: |
(a) | dividends or distributions payable in Capital Stock of the Company (other than Disqualified Stock) or in options, warrants or other rights to purchase Capital Stock of the Company; and |
(b) | dividends or distributions payable to the Company or a Restricted Subsidiary (and if the Restricted Subsidiary is not a Wholly-Owned Subsidiary, to its other holders of Capital Stock on a pro rata basis); |
(2) | purchase, redeem, retire or otherwise acquire for value any Capital Stock of the Company or any direct or indirect parent of the Company held by Persons other than the Company or a Restricted Subsidiary (other than in exchange for Capital Stock of the Company or any direct or indirect parent of the Company (other than Disqualified Stock)); | |
(3) | purchase, repurchase, redeem, defease or otherwise acquire or retire for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment, any Subordinated Obligations or Guarantor Subordinated Obligations (other than the purchase, repurchase, redemption, defeasance or other acquisition or retirement of Subordinated Obligations or Guarantor Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of purchase, repurchase, redemption, defeasance or other acquisition or retirement); or | |
(4) | make any Restricted Investment in any Person; |
(a) | a Default shall have occurred and be continuing (or would result therefrom); or |
(b) | the Company is not able to Incur an additional $1.00 of Indebtedness pursuant to the first paragraph under “Limitation on indebtedness” above after giving effect, on a pro forma basis, to the Restricted Payment; or |
(c) | the aggregate amount of the Restricted Payment and all other Restricted Payments made subsequent to the Issue Date would exceed the sum of: |
(i) | 50% of Consolidated Net Income for the period (treated as one accounting period) from the beginning of the most recent fiscal quarter ended prior to the Issue Date to the end of the most recent fiscal quarter ending prior to the date of such Restricted Payment for which financial statements are in existence (or, in case such Consolidated Net Income is a deficit, minus 100% of such deficit); |
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(ii) | 100% of the aggregate Net Cash Proceeds received by the Company from the issue or sale of its Capital Stock (other than Disqualified Stock) or other capital contributions subsequent to the Issue Date (other than Net Cash Proceeds received from an issuance or sale of such Capital Stock to a Subsidiary of the Company or an employee stock ownership plan, option plan or similar trust to the extent such sale to an employee stock ownership plan, option plan or similar trust is financed by loans from or Guaranteed by the Company or any Restricted Subsidiary unless such loans have been repaid with cash on or prior to the date of determination); | |
(iii) | the amount by which Indebtedness of the Company or its Restricted Subsidiaries is reduced on the Company’s balance sheet upon the conversion or exchange (other than by a Subsidiary of the Company) subsequent to the Issue Date of any Indebtedness of the Company or its Restricted Subsidiaries convertible into or exchangeable for Capital Stock (other than Disqualified Stock) of the Company (less the amount of any cash, or the fair market value of any other property, distributed by the Company upon such conversion or exchange); and | |
(iv) | the amount equal to payments received by the Company or any Restricted Subsidiary in respect of, or the net reduction in, Restricted Investments made by the Company or any of its Restricted Subsidiaries in any Person resulting from: |
(A) | repurchases or redemptions of such Restricted Investments by the Person in which such Restricted Investments are made, proceeds realized upon the sale of such Restricted Investment to an unaffiliated purchaser or payments in respect of such Restricted Investment, whether through interest payments, principal payments, dividends, distributions or otherwise, by such Person to the Company or any Restricted Subsidiary; or |
(B) | the redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the definition of “Investment”) not to exceed, in the case of any Unrestricted Subsidiary, the amount of Investments previously made by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary; |
(1) | any purchase, repurchase, redemption, defeasance or other acquisition or retirement of Capital Stock, Disqualified Stock or Subordinated Obligations or Guarantor Subordinated Obligations made by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary or an employee stock ownership plan or similar trust to the extent such sale to an employee stock ownership plan or similar trust is financed by loans from or Guaranteed by the Company or any Restricted Subsidiary unless such loans have been repaid with cash on or prior to the date of determination); provided, however, that (a) such purchase, repurchase, redemption, defeasance, acquisition or retirement will be excluded in subsequent calculations of the amount of Restricted Payments and (b) the Net Cash Proceeds from |
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such sale of Capital Stock will be excluded from clause (c)(ii) of the preceding paragraph; | ||
(2) | any purchase, repurchase, redemption, defeasance or other acquisition or retirement of Subordinated Obligations or Guarantor Subordinated Obligations made by exchange for, or out of the proceeds of the substantially concurrent sale of, Subordinated Obligations or any purchase, repurchase, redemption, defeasance or other acquisition or retirement of Guarantor Subordinated Obligations made by exchange for or out of the proceeds of the substantially concurrent sale of Guarantor Subordinated Obligations that, in each case, is permitted to be Incurred as described under “Limitation on indebtedness” and that in each case constitutes Refinancing Indebtedness; provided, however, that such purchase, repurchase, redemption, defeasance, acquisition or retirement will be excluded in subsequent calculations of the amount of Restricted Payments; | |
(3) | any purchase, repurchase, redemption, defeasance or other acquisition or retirement of Disqualified Stock of the Company or a Restricted Subsidiary made by exchange for or out of the proceeds of the substantially concurrent sale of Disqualified Stock of the Company or such Restricted Subsidiary, as the case may be, that, in each case, is permitted to be Incurred pursuant to the covenant described under “Limitation on indebtedness” and that in each case constitutes Refinancing Indebtedness; provided, however, that such purchase, repurchase, redemption, defeasance, acquisition or retirement will be excluded in subsequent calculations of the amount of Restricted Payments; | |
(4) | so long as no Default or Event of Default has occurred and is continuing, any purchase or redemption of Subordinated Obligations or Guarantor Subordinated Obligations from Net Available Cash to the extent permitted under “Limitation on sales of assets and subsidiary stock” below; provided, however, that such purchase or redemption will be excluded in subsequent calculations of the amount of Restricted Payments; | |
(5) | dividends paid within 60 days after the date of declaration if at such date of declaration the dividend would have complied with this provision; provided, however, that such dividends will be included in subsequent calculations of the amount of Restricted Payments; | |
(6) | so long as no Default or Event of Default has occurred and is continuing, |
(a) | the purchase, redemption or other acquisition, cancellation or retirement for value of Capital Stock, or options, warrants, equity appreciation rights or other rights to purchase or acquire Capital Stock of the Company or any Restricted Subsidiary or any direct or indirect parent of the Company held by any existing or former employees or directors of the Company or any Subsidiary of the Company or their assigns, estates or heirs, in each case in accordance with the terms of employee stock option or stock purchase agreements or other agreements to compensate employees or directors; provided that such purchases, redemptions acquisitions, cancellations or retirements pursuant to this clause will not exceed $2.0 million in the aggregate during any calendar year; provided further however, that the amount of any such purchases, redemptions, acquisitions, cancellations or retirements will be included in subsequent calculations of the amount of Restricted Payments; and |
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(b) | loans or advances to employees or directors of the Company or any Subsidiary of the Company the proceeds of which are used to purchase Capital Stock of the Company, in an aggregate amount not in excess of $2.0 million at any one time outstanding; provided, however, that the amount of such loans and advances will be included in subsequent calculations of the amount of Restricted Payments; |
(7) | so long as no Default or Event of Default has occurred and is continuing, the declaration and payment of dividends to holders of any class or series of Disqualified Stock of the Company issued in accordance with the terms of the Indenture to the extent such dividends are included in the definition of “Consolidated Interest Expense;” provided, however, that the payment of such dividends will be excluded in subsequent calculations of the amount of Restricted Payments; | |
(8) | repurchases of Capital Stock deemed to occur upon the exercise of stock options, warrants or other convertible securities if such Capital Stock represents a portion of the exercise price thereof; provided, however, that such repurchases will be excluded from subsequent calculations of the amount of Restricted Payments; | |
(9) | the purchase, repurchase, redemption, defeasance or other acquisition or retirement for value of any Subordinated Obligation (i) at a purchase price not greater than 101% of the principal amount of such Subordinated Obligation in the event of a Change of Control in accordance with provisions similar to the “Change of control” covenant described herein or (ii) at a purchase price not greater than 100% of the principal amount thereof in accordance with provisions similar to the “Limitation on sales of assets and subsidiary stock” covenant described herein; provided that, prior to or simultaneously with such purchase, repurchase, redemption, defeasance or other acquisition or retirement, the Company has made the Change of Control Offer or Asset Disposition Offer, as applicable, as required with respect to the Notes and has completed the repurchase or redemption of all Notes validly tendered for payment in connection with such Change of Control Offer or Asset Disposition Offer; provided, however, that such repurchases will be excluded from subsequent calculations of the amount of Restricted Payments; |
(10) | any redemption of share purchase rights at a redemption price not to exceed $0.01 per right; provided, however, that such redemption will be included in subsequent calculations of the amount of Restricted Payments; | |
(11) | the payment of cash in lieu of fractional shares of Capital Stock in connection with any transaction otherwise permitted under the Indenture; provided, however, that such payment will be included in subsequent calculations of the amount of Restricted Payments; | |
(12) | payments to dissenting stockholders not to exceed $5 million (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 subsequent calculations of the amount of Restricted Payments; and | |
(13) | Restricted Payments in an amount not to exceed $25 million; provided, however, that the amount of the Restricted Payments will be included in subsequent calculations of the amount of Restricted Payments. |
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(1) | pay dividends or make any other distributions on its Capital Stock or pay any Indebtedness or other obligations owed to the Company or any Restricted Subsidiary (the priority of any Preferred Stock in receiving dividends or liquidating distributions prior to dividends or liquidating distributions being paid on Common Stock and any subordination of any such Indebtedness or other obligations being deemed not to constitute such encumbrances or restrictions); | |
(2) | make any loans or advances to the Company or any Restricted Subsidiary (the subordination of loans or advances made to the Company or any Restricted Subsidiary to other Indebtedness Incurred by the Company or any Restricted Subsidiary being deemed not to constitute such an encumbrance or restriction); or | |
(3) | transfer any of its property or assets to the Company or any Restricted Subsidiary. |
(a) | any encumbrance or restriction pursuant to an agreement in effect at or entered into on the Issue Date, including, without limitation, the Indenture, the Notes and the Senior Secured Credit Agreement in effect on such date; |
(b) | any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement relating to any Capital Stock or Indebtedness Incurred by a Restricted Subsidiary on or before the date on which the Restricted Subsidiary was acquired by |
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the Company (other than Capital Stock or Indebtedness Incurred as consideration in, or to provide all or any portion of the funds 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 or in contemplation of the transaction or transactions) and outstanding on such date provided, that any such encumbrance or restriction shall not extend to any assets or property of the Company or any other Restricted Subsidiary other than the assets and property so acquired; |
(c) | any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement effecting a refunding, replacement or refinancing of Indebtedness Incurred pursuant to an agreement referred to in clause (a) or (b) of this paragraph or this clause (c) or contained in any amendment to an agreement referred to in clause (a) or (b) of this paragraph or this clause (c), including successive refundings, replacements or refinancings; provided, however, that the encumbrances and restrictions with respect to such Restricted Subsidiary contained in any such agreement are no less favorable in any material respect to the holders of the Notes than the encumbrances and restrictions contained in such agreements referred to in clauses (a) or (b) of this paragraph on the Issue Date or the date such Restricted Subsidiary became a Restricted Subsidiary, whichever is applicable; |
�� | (d) | in the case of clause (3) of the first paragraph of this covenant, any encumbrance or restriction: |
(i) | that restricts in a customary manner the subletting, assignment or transfer of any property or asset that is subject to a lease, license or similar contract, or the assignment or transfer of any such lease, license or other contract; | |
(ii) | contained in mortgages, pledges or other security agreements permitted under the Indenture securing Indebtedness of the Company or a Restricted Subsidiary to the extent such encumbrances or restrictions restrict the transfer of the property subject to such mortgages, pledges or other security agreements; or | |
(iii) | pursuant to customary provisions restricting dispositions of real property interests set forth in any reciprocal easement agreements of the Company or any Restricted Subsidiary; |
(e) | (i) purchase money obligations for property acquired in the ordinary course of business and (ii) Capital Lease Obligations permitted under the Indenture, in each case, that impose encumbrances or restrictions of the nature described in clause (3) of the first paragraph of this covenant on the property so acquired; |
(f) | any restriction with respect to a Restricted Subsidiary (or any of its property or assets) imposed pursuant to an agreement entered into for the direct or indirect sale or disposition of all or substantially all the Capital Stock or assets of such Restricted Subsidiary (or the property or assets that are subject to such restriction) pending the closing of such sale or disposition; |
(g) | customary encumbrances or restrictions imposed pursuant to any agreement referred to in the definition of “Permitted Business Investment;” |
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(h) | net worth provisions in leases and other agreements entered into by the Company or any Restricted Subsidiary in the ordinary course of business; and |
(i) | encumbrances or restrictions arising or existing by reason of applicable law or any applicable rule, regulation or order. |
(1) | the Company or the Restricted Subsidiary, as the case may be, receives consideration at the time of the Asset Disposition at least equal to the fair market value of the assets subject to the Asset Disposition (determined on the date of contractually agreeing to such Asset Disposition), as determined in good faith by senior management of the Company or, if the consideration with respect to such Asset Disposition exceeds $10 million, the Board of Directors of the Company (including as to the value of all non-cash consideration); and | |
(2) | at least 75% of the consideration from the Asset Disposition received by the Company or the Restricted Subsidiary, as the case may be, is in the form of cash or Cash Equivalents. |
(1) | to prepay, repay, purchase, repurchase, redeem, defease or otherwise acquire or retire Senior Indebtedness of the Company (other than Disqualified Stock or Subordinated Obligations) or Indebtedness of a Wholly-Owned Subsidiary (other than any Disqualified Stock or Guarantor Senior Subordinated Indebtedness or Guarantor Subordinated Obligation of a Wholly-Owned Subsidiary Guarantor) (in each case other than Indebtedness owed to the Company or an Affiliate of the Company) within 365 days from the later of the date of such Asset Disposition or the receipt of such Net Available Cash; provided, however, that, in connection with any prepayment, repayment, purchase, repurchase, redemption, defeasance, or acquisition of Indebtedness pursuant to this clause (1), the Company or such Restricted Subsidiary will retire such Indebtedness and, in the case of revolving Indebtedness, will cause the related commitment (if any) to be permanently reduced in an amount equal to the principal amount so retired; or | |
(2) | to invest in Additional Assets or make Permitted Business Investments within 365 days from the later of the date of such Asset Disposition or the receipt of such Net Available Cash; |
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(1) | the assumption by the transferee of Indebtedness (other than Senior Subordinated Indebtedness, Subordinated Obligations or Disqualified Stock) of the Company or Indebtedness of a Wholly-Owned Subsidiary (other than Guarantor Senior Subordinated Indebtedness, Guarantor Subordinated Obligations or Disqualified Stock of any Wholly-Owned Subsidiary that is a Subsidiary Guarantor) and the release of the Company or the Restricted Subsidiary from all liability on such Indebtedness in connection with the Asset Disposition; and | |
(2) | securities, notes or other obligations received by the Company or any Restricted Subsidiary from the transferee that are converted by the Company or such Restricted Subsidiary into cash within 60 days after consummation of the Asset Disposition. |
(1) | at the time of entering into the Asset Swap and immediately after giving effect to the Asset Swap, no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; | |
(2) | in the event the Asset Swap involves the transfer by the Company or any Restricted Subsidiary of assets having an aggregate fair market value, as determined by the Board of Directors of the Company in good faith, in excess of $10 million, the terms of the Asset Swap have been approved by a majority of the members of the Board of Directors of the Company; and | |
(3) | in the event the Asset Swap involves the transfer by the Company or any Restricted Subsidiary of assets having an aggregate fair market value, as determined by the Board of Directors of the Company in good faith, in excess of $25 million, the Company has received a written opinion from an independent investment banking firm of nationally recognized standing that the Asset Swap is fair to the Company or the Restricted Subsidiary, as the case may be, from a financial point of view. |
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(1) | the terms of the Affiliate Transaction are not materially less favorable to the Company or the Restricted Subsidiary, as the case may be, than those that might reasonably have been obtained in a comparable transaction at the time of such transaction on an arm’s-length basis from a Person that is not an Affiliate of the Company; | |
(2) | in the event the Affiliate Transaction involves an aggregate consideration in excess of $10 million, the terms of the transaction have been approved by a majority of the members of the Board of Directors of the Company having no personal stake in the transaction, if any (and such majority determines that the Affiliate Transaction satisfies the criteria in clause (1) above); and | |
(3) | in the event the Affiliate Transaction involves an aggregate consideration in excess of $25 million, the Company has received a written opinion from an independent investment banking, accounting or appraisal firm of nationally recognized standing to the effect that the terms of the Affiliate Transaction is not materially less favorable than those that might reasonably have been obtained in a comparable transaction at the time of such transaction on an arm’s-length basis from a Person that is not an Affiliate of the Company. |
(1) | any Restricted Payment (other than a Restricted Investment) permitted 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 agreements and other compensation arrangements, options to purchase Capital Stock of the Company, restricted stock plans, long-term incentive plans, stock appreciation rights plans, participation plans or similar employee plans and/or insurance and indemnification arrangements provided to or for the benefit of employees and directors approved by the Board of Directors of the Company; | |
(3) | loans or advances to employees, officers or directors in the ordinary course of business of the Company or any of its Restricted Subsidiaries, but in any event not to exceed $2.5 million in the aggregate outstanding at any one time with respect to all loans or advances made since the Issue Date; | |
(4) | any transaction between the Company and a Restricted Subsidiary or between Restricted Subsidiaries and Guarantees issued by the Company or a Restricted Subsidiary for the benefit of the Company or a Restricted Subsidiary, as the case may be, in accordance with the covenant described under “Limitations on indebtedness;” | |
(5) | the performance of obligations of the Company or any of its Restricted Subsidiaries under the terms of any agreement to which the Company or any of its Restricted Subsidiaries is a party as of or on the Issue Date, as these agreements may be amended, modified, supplemented, extended or renewed from time to time; provided, however, that any future amendment, modification, supplement, extension or renewal entered into after the Issue Date will be so excluded only if its terms are not more disadvantageous to the holders of the Notes than the terms of the agreements in effect on the Issue Date. |
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(1) | to the Company or a Wholly-Owned Subsidiary; or | |
(2) | in compliance with the covenant described under “Limitation on sales of assets and subsidiary stock” and if immediately after giving effect to such issuance or sale, such Restricted Subsidiary would continue to be a Restricted Subsidiary. |
(1) | the Company is the continuing or surviving Person in the consolidation or merger; or | |
(2) | the Person (if other than the Company) formed by the consolidation or into which the Company is merged or to which all or substantially all of the Company’s properties and assets are transferred is a corporation, partnership, limited liability company, business trust, trust or other legal entity organized and validly existing under the laws of the United States, any State thereof, or the District of Columbia, and expressly assumes, by a supplemental indenture, all of the Company’s obligations under the Notes and the Indenture; and |
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(3) | immediately after the transaction and the Incurrence or anticipated Incurrence of any Indebtedness to be Incurred in connection therewith, no Event of Default exists; and | |
(4) | immediately after giving effect to such transaction, the continuing or surviving Person would be able to Incur at least an additional $1.00 of Indebtedness pursuant to the first paragraph of the “Limitation on indebtedness” covenant; and | |
(5) | each Subsidiary Guarantor shall have by supplemental indenture confirmed that its Subsidiary Guarantee shall apply to such Person’s obligations (if other than the Company) in respect of the Indenture and the Notes shall continue to be in effect; | |
(6) | an officer’s certificate is delivered to the Trustee to the effect that the conditions set forth above have been satisfied and an opinion of counsel has been delivered to the Trustee to the effect that the conditions set forth above have been satisfied. |
(1) | (a) the Person formed by the consolidation or into which the Subsidiary Guarantor merged or to which all, or substantially all of the Subsidiary Guarantor’s properties and assets are transferred is a corporation, partnership, limited liability company, business trust, trust or other legal entity organized and validly existing under the laws of the United States, any State thereof, or the District of Columbia and such Person (if not such Subsidiary Guarantor) will expressly assume, by supplemental indenture, all the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee; (b) immediately after the transaction and the Incurrence or anticipated Incurrence of any Indebtedness to be Incurred in connection therewith, no Event of Default exists; |
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and (c) the Company will deliver to the Trustee an officers’ certificate and an opinion of counsel, each to the effect that the conditions set forth above have been satisfied; and | ||
(2) | the transaction is made in compliance with the covenant described under “Limitation on sales of assets and subsidiary stock.” |
(1) | failure to pay principal of or premium, if any, on any Note when due at its Stated Maturity; | |
(2) | failure to pay any interest on any Note when due, which failure continues for 30 calendar days; | |
(3) | failure by the Company or any Subsidiary Guarantor to comply with its obligations under “Certain covenants— Merger and consolidation”; | |
(4) | failure by the Company to comply with any of its obligations under the provisions described under “Change of control” above or under the covenants described under “Certain covenants” above (in each case, other than a failure to purchase Notes which will constitute an Event of Default under clause (5) below and other than a failure to comply with “Certain covenants— Merger and consolidation” which is covered by clause (3)), which failure or breach continues for 30 calendar days after written notice thereof has been given to the Company as provided in the Indenture; | |
(5) | failure to redeem or repurchase any Note when required to do so under the terms thereof; |
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(6) | failure to perform, or breach of, any other covenant of the Company in the Indenture (other than a covenant included in the Indenture solely for the benefit of a series of debt securities other than the Notes), which failure or breach continues for 60 calendar days after written notice thereof has been given to the Company as provided in the Indenture; | |
(7) | any nonpayment at maturity or other default (beyond any applicable grace period) under any agreement or instrument relating to any other Indebtedness of the Company or a Significant Subsidiary, the unpaid principal amount of which is not less than $15 million, which default results in the acceleration of the maturity of the Indebtedness prior to its stated maturity or occurs at the final maturity thereof; | |
(8) | specified events of bankruptcy, insolvency, or reorganization involving the Company or a Significant Subsidiary; | |
(9) | failure by the Company or any Significant Subsidiary or group of Restricted Subsidiaries that, taken together (as of the latest audited consolidated financial statements for the Company and its Restricted Subsidiaries), would constitute a Significant Subsidiary to pay final judgments aggregating in excess of $15 million (net of any amounts that a reputable and creditworthy insurance company has acknowledged liability for in writing), which judgments are not paid, discharged or stayed for a period of 60 days; or |
(10) | any Subsidiary Guarantee of a Significant Subsidiary or group of Subsidiary Guarantors that taken together as of the latest audited consolidated financial statements for the Company and its Restricted Subsidiaries would constitute a Significant Subsidiary ceases to be in full force and effect (except as contemplated by the terms of the Indenture) or is declared null and void in a judicial proceeding or any Subsidiary Guarantor that is a Significant Subsidiary or group of Subsidiary Guarantors that taken together as of the latest audited consolidated financial statements of the Company and its Restricted Subsidiaries would constitute a Significant Subsidiary denies or disaffirms its obligations under the Indenture or its Subsidiary Guarantee. |
• | in the case of a Default in the performance of any covenant of the character contemplated in clause (4) above, no notice will be given until at least 30 calendar days after the occurrence of the Default; and | |
• | other than in the case of a Default of the character contemplated in clause (1) or (2) above, the Trustee may withhold notice if and so long as it in good faith determines that the withholding of notice is in the interests of the holders of the Notes. |
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• | the holder has previously given to the Trustee written notice of a continuing Event of Default; | |
• | the holders of at least 25% in aggregate principal amount of the outstanding Notes have requested the Trustee to institute a proceeding in respect of the Event of Default; | |
• | the holder or holders have furnished reasonable indemnity to the Trustee to institute the proceeding as Trustee; | |
• | the Trustee has not received from the holders of a majority in principal amount of the outstanding Notes a direction inconsistent with the request; and | |
• | the Trustee has failed to institute the proceeding within 60 calendar days. |
• | reduce the principal amount of, the rate of interest on, or the premium, if any, payable upon the redemption or repurchase of, the Notes; | |
• | change the Stated Maturity of, or any installment of principal of, or interest on, the Notes; | |
• | change the time at which any Note may be redeemed or repurchased as described above under “Optional redemption,” “Change of control” or “Certain covenants— Limitation on sales of assets and subsidiary stock”; | |
• | change the place or currency of payment of principal of, or premium, if any, or interest on the Notes; |
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• | impair the right to institute suit for the enforcement of any payment on or with respect to the Notes on or after the Stated Maturity or prepayment date thereof; | |
• | reduce the percentage in principal amount of the Notes required for modification or amendment of the Indenture or the Notes or for waiver of compliance with certain provisions of the Indenture or the Notes or for waiver of certain defaults; or | |
• | modify the Subsidiary Guarantees in any manner adverse to the holders of the Notes. |
• | a default in the payment of the principal of, or premium, if any, or interest on, the Notes; or | |
• | a default of a provision of the Indenture that cannot be modified or amended without the consent of the each holder of the Notes. |
(1) | will be deemed to have been discharged from our obligations with respect to the Notes; or | |
(2) | will be released from its obligations to comply with certain covenants in the Indenture with respect to the Notes, and the occurrence of an event described in any of clauses (3), (4), (7), (9) and (10) under “Events of default” above will no longer be an Event of Default with respect to the Notes |
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• | no Event of Default or event which with the giving of notice or lapse of time, or both, would become an Event of Default under the Indenture shall have occurred and be continuing on the date of such deposit; | |
• | no Event of Default described in clause (8) under “Events of default” above or event that with the giving of notice or lapse of time, or both, would become an Event of Default described in such clause (8) shall have occurred and be continuing at any time on or prior to the 90th calendar day following the date of deposit; | |
• | in the event of any defeasance described in clause (1) above, the Company shall have delivered an opinion of counsel, stating that (a) the Company has received from, or there has been published by, the IRS a ruling or (b) there has been a change in applicable federal law, in either case to the effect that, among other things, the holders of the Notes will not recognize gain or loss for United States federal income tax purposes as a result of such deposit or defeasance and will be subject to United States federal income tax in the same manner as if such defeasance had not occurred; | |
• | in the event of any defeasance described in clause (2) above, the Company shall have delivered an opinion of counsel to the effect that, among other things, the holders of the Notes will not recognize gain or loss for United States federal income tax purposes as a result of such deposit or defeasance and will be subject to United States federal income tax in the same manner as if such defeasance had not occurred; | |
• | the Company shall have delivered to the Trustee a certificate from a nationally recognized firm of independent accountants or other Person acceptable to the Trustee expressing their opinion that the payments of principal and interest when due and without reinvestment on the deposited U.S. Government Obligations plus any deposited money without investment will provide the case at such times and in such amounts as will be sufficient to pay the principal of and any premium and interest when due on the Notes on the Stated Maturity of the Notes or on any earlier date on which the Notes shall be subject to redemption; and | |
• | such defeasance must not result in a breach or violation of, or constitute a default under, any other agreement to which the Company is a party. |
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(1) | any property or assets (other than Indebtedness and Capital Stock) to be used by the Company or a Restricted Subsidiary in the Oil and Gas Business; | |
(2) | capital expenditures by the Company or a Restricted Subsidiary in the Oil and Gas Business; | |
(3) | 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 a Restricted Subsidiary; or | |
(4) | Capital Stock constituting a minority interest in any Person that at such time is a Restricted Subsidiary; |
(a) | the sum of: |
(i) | estimated discounted future net revenues from proved oil and gas reserves of the Company and its Restricted Subsidiaries calculated in accordance with SEC guidelines before any provincial, territorial, state, federal or foreign income taxes, as estimated by the Company in a reserve report prepared as of the end of the Company’s most recently completed fiscal year for which audited financial statements are available, as increased by, as of the date of determination, the estimated discounted future net revenues from |
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(A) | estimated proved oil and gas reserves acquired since such year end, which reserves were not reflected in such year end reserve report, and |
(B) | estimated oil and gas reserves attributable to upward revisions of estimates of proved oil and gas reserves since such year end due to exploration, development, exploitation or other activities, in each case calculated in accordance with SEC guidelines (utilizing the prices for the fiscal quarter ending prior to the date of determination), and decreased by, as of the date of determination, the estimated discounted future net revenues from development, exploitation or other activities, in each case calculated in accordance with SEC guidelines (utilizing the prices for the fiscal quarter ending prior to the date of determination), and decreased by, as of the date of determination, the estimated discounted future net revenues from | |
(C) | estimated proved oil and gas reserves included therein that shall have been produced or disposed of since such year end, and |
(D) | estimated oil and gas reserves included therein that are subsequently removed from the proved oil and gas reserves of the Company and its Restricted Subsidiaries as so calculated due to downward revisions of estimates of proved oil and gas reserves since such year end due to changes in geological conditions or other factors which would, in accordance with standard industry practice, cause such revisions, in each case calculated on a pre-tax basis and substantially in accordance with SEC guidelines (utilizing the prices for the fiscal quarter ending prior to the date of determination), in each case as estimated by the Company’s petroleum engineers or any independent petroleum engineers engaged by the Company for that purpose; |
(ii) | the capitalized costs that are attributable to oil and gas properties of the Company and its Restricted Subsidiaries to which no proved oil and gas reserves are attributable, based on the Company’s books and records as of a date no earlier than the date of the Company’s latest available consolidated annual or quarterly financial statements; | |
(iii) | the Net Working Capital on a date no earlier than the date of the Company’s latest annual or quarterly consolidated financial statements; and |
(iv) | the greater of |
(A) | the net book value of other tangible assets of the Company and its Restricted Subsidiaries, as of a date no earlier than the date of the Company’s latest annual or quarterly consolidated financial statement, and |
(B) | 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 date of the Company’s latest audited financial statements (provided that the Company shall not be required to obtain any appraisal of any assets); minus |
(b) | the sum of: |
(i) | any amount included in (a)(i) through (a)(iv) above that is attributable to Minority Interests; |
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(ii) | any net gas balancing liabilities of the Company and its Restricted Subsidiaries reflected in the Company’s latest audited consolidated financial statements; | |
(iii) | to the extent included in (a)(i) above, the estimated discounted future net revenues, calculated in accordance with SEC guidelines (utilizing the prices utilized in the Company’s year end reserve report), attributable to reserves which are required to be delivered to third parties to fully satisfy the obligations of the Company and its Restricted Subsidiaries with respect to Volumetric Production Payments (determined, if applicable, using the schedules specified with respect thereto); and | |
(iv) | to the extent included in (a)(i) above, the estimated discounted future net revenues, calculated in accordance with SEC guidelines, attributable to reserves subject to Dollar-Denominated Production Payments which, based on the estimates of production and price assumptions included in determining the estimated discounted future net revenues specified in (a)(i) above, would be necessary to fully satisfy the payment obligations of the Company and its Restricted Subsidiaries with respect to Dollar-Denominated Production Payments (determined, if applicable, using the schedules specified with respect thereto). |
(1) | a disposition by a Restricted Subsidiary to the Company or by the Company or a Restricted Subsidiary to a Wholly-Owned Subsidiary; | |
(2) | the sale of Cash Equivalents in the ordinary course of business; | |
(3) | a disposition of Hydrocarbons or mineral products in the ordinary course of the Oil and Gas Business; | |
(4) | a disposition of obsolete or worn out equipment or equipment that is no longer useful in the conduct of the business of the Company and its Restricted Subsidiaries and that is disposed of in each case in the ordinary course of business; | |
(5) | transactions permitted by the covenant described under “Certain covenants— Merger and consolidation;” |
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(6) | an issuance of Capital Stock by a Restricted Subsidiary to the Company or to a Wholly-Owned Subsidiary; | |
(7) | for purposes of the covenant described under “Certain covenants— Limitation on sales of assets and subsidiary stock” only, the making of a Permitted Investment or a disposition subject to the covenant described under “Certain covenants— Limitation on restricted payments;” | |
(8) | an Asset Swap effected in compliance with the covenant described under “Certain covenants— Limitation on sales of assets and subsidiary stock;” | |
(9) | dispositions of assets with an aggregate fair market value since the Issue Date of less than $5 million; |
(10) | dispositions in connection with the creation, Incumbrance or existence of Permitted Liens or the exercise of any rights or remedies with respect thereof; | |
(11) | dispositions of receivables in connection with the compromise, settlement or collection thereof in the ordinary course of business or in bankruptcy or similar proceedings and exclusive of factoring or similar arrangements; | |
(12) | the licensing or sublicensing of intellectual property or other general intangibles and licenses, leases or subleases of other property in the ordinary course of business and which do not materially interfere with the business of the Company and its Restricted Subsidiaries; | |
(13) | any Production Payments and Reserve Sales, provided that any such Production Payments and Reserve Sales, other than incentive compensation programs on terms that are reasonably customary in the Oil and Gas Business for geologists, geophysicists and other providers of technical services to the Company or a Restricted Subsidiary, shall have been created, Incurred, issued, assumed or Guaranteed in connection with the acquisition or financing of, and no later than 60 days after the acquisition of, the property that is subject thereto; | |
(14) | the sale or transfer (whether or not in the ordinary course of the Oil and Gas Business) of oil and/or gas properties or direct or indirect interests in real property; provided, that at the time of such sale or transfer such properties do not have associated with them any proved reserves capable of being produced in material economic quantities; and | |
(15) | the abandonment, farm-out, exchange, lease or sublease of developed or undeveloped oil and/or gas properties or interests therein in the ordinary course of business or in exchange for oil and/or gas properties or interests therein owned or held by another Person. |
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(1) | securities issued or directly and fully guaranteed or insured by the United States Government or any agency or instrumentality of the United States (provided that the full faith and credit of the United States is pledged in support thereof), having a maturity within one year after the date of acquisition thereof; | |
(2) | marketable general obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year after the date of acquisition thereof and, at the time of such acquisition, having a credit rating of at least “A” or the equivalent thereof from either Standard & Poor’s Ratings Services or Moody’s Investors Service, Inc. (or an equivalent rating by another nationally recognized rating agency if both of the two named rating agencies cease publishing ratings of investments); |
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(3) | certificates of deposit, time deposits, eurodollar time deposits, overnight bank deposits or bankers’ acceptances having maturities of not more than one year after the date of acquisition thereof issued by any commercial bank the long-term debt of which is rated at the time of acquisition at least “A” or the equivalent thereof by Standard & Poor’s Ratings Services, or “A” or the equivalent thereof by Moody’s Investors Service, Inc. (or an equivalent rating by another nationally recognized rating agency if both of the two named rating agencies cease publishing ratings of investments), and having combined capital and surplus in excess of $500 million; | |
(4) | repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (1), (2) and (3) entered into with any bank meeting the qualifications specified in clause (3) above; | |
(5) | commercial paper rated at the time of acquisition thereof at least“A-2” or the equivalent thereof by Standard & Poor’s Ratings Services or“P-2” or the equivalent thereof by Moody’s Investors Service, Inc. (or an equivalent rating by another nationally recognized rating agency if both of the two named rating agencies cease publishing ratings of investments), and in any case maturing within one year after the date of acquisition thereof; and | |
(6) | interests in any investment company or money market fund which invests 95% or more of its assets in instruments of the type specified in clauses (1) through (5) above. |
(1) | Any “person” or “group” of related persons (as such terms are 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 and13d-5 under the Exchange Act, except that such person or group shall be deemed to have “beneficial ownership” of all shares that such person or group 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 (or its successor by merger, consolidation or purchase of all or substantially all of its assets) (for the purposes of this clause, such person or group shall be deemed to beneficially own any Voting Stock of the Company held by a parent entity of the Company, if such person or group “beneficially owns” (as defined above), directly or indirectly, more than 50% of the voting power of the Voting Stock of such parent entity); or | |
(2) | the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors; or | |
(3) | the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole to any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) other than a Permitted Holder; or | |
(4) | the adoption by the stockholders of the Company of a plan or proposal for the liquidation or dissolution of the Company. |
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(1) | if the Company or any Restricted Subsidiary: |
(a) | has Incurred any Indebtedness since the beginning of such period that remains outstanding on such date of determination or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, Consolidated EBITDA and Consolidated Interest Expense for such period will be calculated after giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been Incurred on the first day of such period (except that in making such computation, the amount of Indebtedness under any revolving credit facility outstanding on the date of such calculation will be deemed to be (i) the average daily balance of such Indebtedness during such four fiscal quarters or such shorter period for which such facility was outstanding or (ii) if such facility was created after the end of such four fiscal quarters, the average daily balance of such Indebtedness during the period from the date of creation of such facility to the date of such calculation) and the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period; or |
(b) | has repaid, repurchased, defeased or otherwise discharged any Indebtedness since the beginning of the period that is no longer outstanding on such date of determination or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio involves a discharge of Indebtedness (in each case other than Indebtedness Incurred under any revolving credit facility unless such Indebtedness has been permanently repaid and the related commitment terminated), Consolidated EBITDA and Consolidated Interest Expense for such period will be calculated after giving effect on a pro forma basis to such discharge of such Indebtedness, including with the proceeds of such new Indebtedness, as if such discharge had occurred on the first day of such period; |
(2) | if since the beginning of such period the Company or any Restricted Subsidiary shall have made any Asset Disposition or the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is such an Asset Disposition: |
(a) | the Consolidated EBITDA for such period will be reduced by an amount equal to the Consolidated EBITDA (if positive) directly attributable to the assets which are the subject of such Asset Disposition for such period or increased by an amount equal to the absolute value of the Consolidated EBITDA (if negative) directly attributable thereto for such period; and |
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(b) | Consolidated Interest Expense for such period will 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); |
(3) | 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 is merged with or into the Company) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction giving rise to the need to calculate the Consolidated Coverage Ratio, which constitutes all or substantially all of a company, division, operating unit, segment, business, group of related assets or line of business, Consolidated EBITDA and Consolidated Interest Expense for such period will be calculated after giving pro forma effect thereto (including the Incurrence of any Indebtedness) as if such Investment or acquisition occurred on the first day of such period; and | |
(4) | 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 Incurred any Indebtedness or discharged any Indebtedness, made any Asset Disposition or any Investment or acquisition of assets that would have required an adjustment pursuant to clause (2) or (3) above if made by the Company or a Restricted Subsidiary during such period, Consolidated EBITDA and Consolidated Interest Expense for such period will be calculated after giving pro forma effect thereto as if such Asset Disposition or Investment or acquisition of assets occurred on the first day of such period. |
(1) | Consolidated Interest Expense; | |
(2) | Consolidated Income Taxes; | |
(3) | consolidated depletion, depreciation and amortization expenses; |
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(4) | consolidated impairment charges recorded in connection with the application of Financial Accounting Standard No. 142 “Goodwill and Other Intangibles;” | |
(5) | consolidated exploration expenses, if applicable; | |
(6) | (a) any write-off of deferred financing costs, (b) any capitalized interest, and (c) the interest portion of any deferred payment obligations; and | |
(7) | other consolidated non-cash charges reducing Consolidated Net Income (excluding any such non-cash charge to the extent it represents an accrual of or reserve for cash charges in any future period or amortization of a prepaid cash expense that was paid in a prior period not included in the calculation); |
(1) | interest expense attributable to Capital Lease Obligations and the interest portion of rent expense associated with Attributable Indebtedness in respect of the relevant lease giving rise thereto, determined as if such lease were a Capital Lease in accordance with GAAP and the interest component of any deferred payment obligations; | |
(2) | amortization of debt discount and debt issuance cost (provided that any amortization of bond premium will be credited to reduce Consolidated Interest Expense unless, |
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pursuant to GAAP, such amortization of bond premium has otherwise reduced Consolidated Interest Expense); | ||
(3) | non-cash interest expense; | |
(4) | commissions, discounts and other fees and charges owed with respect to letters of credit and bankers’ acceptance financing; | |
(5) | the interest expense on Indebtedness of another Person that is Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries; | |
(6) | costs associated with Hedging Obligations (including amortization of fees) provided, however, that if Hedging Obligations result in net benefits rather than costs, such net benefits shall be credited to reduce Consolidated Interest Expense unless, pursuant to GAAP, such net benefits are otherwise reflected in Consolidated Net Income; | |
(7) | the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period; | |
(8) | the product of (a) all dividends paid or payable, in cash, Cash Equivalents or Indebtedness or accrued during such period on any series of Disqualified Stock of such Person or on Preferred Stock of its Restricted Subsidiaries payable to a party other than the Company or a Wholly-Owned Subsidiary, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state, provincial and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP; | |
(9) | Receivables Fees; 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. |
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(1) | any net income (loss) of any Person (other than the Company) if such Person is not a Restricted Subsidiary, except that: |
(a) | subject to the limitations contained in clauses (3), (4) and (5) below, the Company’s equity in the net income of any such Person for such period will be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to a Restricted Subsidiary, to the limitations contained in clause (2) below); and |
(b) | the Company’s equity in a net loss of any such Person (other than an Unrestricted Subsidiary) for such period will be included in determining such Consolidated Net Income to the extent such loss has been funded with cash from the Company or a Restricted Subsidiary; |
(2) | any net income (but not loss) of any Restricted Subsidiary if such 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 limitations contained in clauses (3), (4) and (5) below, the Company’s equity in the net income of any such Restricted Subsidiary for such period will be included in such Consolidated Net Income up 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 (subject, in the case of a dividend to another Restricted Subsidiary, to the limitation contained in this clause; provided, however, that the net income of a Special Entity that does not Guarantee the Notes will not be included in such Consolidated Net Income except for the amount of cash actually distributed by such Special Entity during such period to the Company or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to a 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 will be included in determining such Consolidated Net Income; |
(3) | any after tax gain (loss) realized upon the sale or other disposition of any property, plant or equipment of the Company or its consolidated Restricted Subsidiaries (including pursuant to any Sale/ Leaseback Transaction) which is not sold or otherwise disposed of in the ordinary course of business and any gain (loss) realized upon the sale or other disposition of any Capital Stock of any Person; | |
(4) | any after tax extraordinary gain or loss; | |
(5) | the cumulative effect of a change in accounting principles; | |
(6) | any asset impairment writedowns on Oil and Gas Properties under GAAP or SEC guidelines; and |
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(7) | any unrealized non-cash gains or losses on charges in respect of Hedging Obligations (including those resulting from the application of SFAS 133). |
(1) | matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise; | |
(2) | is convertible or exchangeable for Indebtedness or Disqualified Stock (excluding Capital Stock which is convertible or exchangeable solely at the option of the Company or a Restricted Subsidiary); or | |
(3) | is redeemable at the option of the holder of the Capital Stock in whole or in part, |
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(1) | to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness of such other Person (whether arising by virtue of partnership arrangements, or by agreement 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 purposes 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); |
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(1) | any Guarantee of the Bank Indebtedness by such Subsidiary Guarantor and all other Guarantees by such Subsidiary Guarantor of Senior Indebtedness of the Company or Guarantor Senior Indebtedness of any other Subsidiary Guarantor; and | |
(2) | all obligations consisting of principal of and premium, if any, accrued and unpaid interest on, and fees and other amounts relating to, all other Indebtedness of the Subsidiary Guarantor. Guarantor Senior Indebtedness includes interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Subsidiary Guarantor regardless of whether post-filing interest is allowed in such proceeding. |
(1) | any Indebtedness Incurred in violation of the Indenture; | |
(2) | any obligations of such Subsidiary Guarantor to the Company or another Subsidiary; | |
(3) | any liability for federal, state, local, foreign or other taxes owed or owing by such Subsidiary Guarantor; | |
(4) | any accounts payable or other liability to trade creditors arising in the ordinary course of business (including Guarantees thereof or instruments evidencing such liabilities); | |
(5) | any Indebtedness, Guarantee or obligation of such Subsidiary Guarantor that is expressly subordinate or junior in right of payment to any other Indebtedness, Guarantee or obligation of such Subsidiary Guarantor, including, without limitation, any Guarantor Senior Subordinated Indebtedness and Guarantor Subordinated Obligations of such Guarantor; or | |
(6) | any Capital Stock. |
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(1) | all obligations of such Person for borrowed money; | |
(2) | all obligations of such Person for the deferred purchase price of property or services (other than property and services purchased, and expense accruals and deferred compensation items arising, in the ordinary course of business); | |
(3) | all obligations of such Person evidenced by notes, bonds, debentures, mandatorily redeemable preferred stock or other similar instruments (other than performance, surety and appeals bonds arising in the ordinary course of business); | |
(4) | all payment obligations created or arising under any conditional sale, deferred price or other title retention agreement with respect to property acquired by such Person (unless the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property); | |
(5) | any Capital Lease Obligation of such Person, other than obligations under oil and gas leases entered into in the ordinary course of business; | |
(6) | all reimbursement, payment or similar obligations, contingent or otherwise, of such Person under acceptance, letter of credit or similar facilities (other than letters of credit in support of trade obligations or incurred in connection with public liability insurance, workers’ compensation, unemployment insurance, old-age pensions and other social security benefits other than in respect of employee benefit plans subject to ERISA); | |
(7) | all obligations of such Person, contingent or otherwise, under any guarantee by such Person of the obligations of another Person of the type referred to in clauses (1) through (6) above; and | |
(8) | the principal component or liquidation preference of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock or, with respect to any Subsidiary that is not a Subsidiary Guarantor, any Preferred Stock (but excluding, in each case, any accrued dividends); | |
(9) | to the extent not otherwise included in this definition, net obligations of such Person under Commodity Agreements, Currency Agreements and Interest Rate Agreements (the amount of any such obligations to be equal at any time to the termination value |
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of such agreement or arrangement giving rise to such obligation that would be payable by such Person at such time); and |
(10) | all obligations referred to in clauses (1) through (6) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage or security interest in property (including without limitation accounts, contract rights and general intangibles) owned by such Person and as to which such Person has not assumed or become liable for the payment of such obligations other than to the extent of the property subject to such mortgage or security interest; |
(1) | such Indebtedness is the obligation of a partnership or joint venture that is not a Restricted Subsidiary (a “Joint Venture”); | |
(2) | such Person or a Restricted Subsidiary of such Person is a general partner of the Joint Venture (a “General Partner”); and | |
(3) | there is recourse, by contract or operation of law, with respect to the payment of such Indebtedness to property or assets of such Person or a Restricted Subsidiary of such Person; |
(a) | the lesser of (i) the net assets of the General Partner and (ii) the amount of such obligations to the extent that there is recourse, by contract or operation of law, to the property or assets of such Person or a Restricted Subsidiary of such Person; or |
(b) | if less than the amount determined pursuant to clause (a) immediately above, the actual amount of such Indebtedness that is recourse to such Person or a Restricted Subsidiary of such Person, if the Indebtedness is evidenced by a writing and is for a determinable amount. |
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(1) | Hedging Obligations Incurred in the ordinary course of business and in compliance with the Indenture; | |
(2) | endorsements of negotiable instruments and documents in the ordinary course of business; and | |
(3) | an acquisition of assets, Capital Stock or other securities by the Company or a Subsidiary for consideration to the extent such consideration consists of Common Stock of the Company. |
(1) | “Investment” will include the portion (proportionate to the Company’s equity interest in a Restricted Subsidiary to be designated as an Unrestricted Subsidiary) of the fair market value of the net assets of such Restricted Subsidiary at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary; provided, however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company will be deemed to continue to have a permanent “Investment” in an Unrestricted Subsidiary in 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 (as conclusively determined by the Board of Directors of the Company in good faith) of such Subsidiary at the time that such Subsidiary is so re-designated a Restricted Subsidiary; and | |
(2) | any property transferred to or from an Unrestricted Subsidiary will 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 of the Company. |
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(1) | all legal, accounting, investment banking, title and recording tax expenses, commissions and other fees and expenses Incurred, and all Federal, state, provincial, foreign and local taxes required to be paid or accrued as a liability under GAAP (after taking into account any available tax credits or deductions and any tax sharing agreements), as a consequence of 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 such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law be repaid out of the proceeds from such Asset Disposition; | |
(3) | all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Disposition; and | |
(4) | amounts accrued in accordance with GAAP in respect of liabilities associated with the assets disposed of in such Asset Disposition and retained by the Company or any Restricted Subsidiary after such Asset Disposition or liabilities incurred in connection with such Asset Disposition. |
(1) | as to which neither the Company nor any Restricted Subsidiary (a) provides any Guarantee or credit support of any kind (including any undertaking, guarantee, indemnity, agreement or instrument that would constitute Indebtedness) or (b) is directly or indirectly liable (as a guarantor or otherwise); | |
(2) | no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company or any Restricted Subsidiary to declare a default under such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and | |
(3) | the explicit terms of which provide there is no recourse against any of the assets of the Company or its Restricted Subsidiaries. |
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(1) | ownership interests in oil and gas properties, liquid natural gas facilities, refineries, drilling operations, processing facilities, gathering systems, pipelines or ancillary real property interests; and | |
(2) | Investments in the form of or pursuant to oil and gas leases, operating agreements, gathering agreements, processing agreements, farm-in agreements, farm-out agreements, development agreements, area of mutual interest agreements, unitization or pooling designations, declarations, orders and agreements, gas balancing or deferred production agreements, joint bidding agreements, service contracts, joint venture agreements, partnership agreements (whether general or limited), subscription agreements, stock purchase agreements and other similar agreements (including for limited liability companies) with third parties. |
(1) | the Company or any Subsidiary of the Company; | |
(2) | a trustee or other fiduciary holding securities under any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary of the Company; and | |
(3) | Mercury Exploration Company, Quicksilver Energy, L.P., The Discovery Fund, Pennsylvania Avenue Limited Partnership, Pennsylvania Management Company, the estate of Frank Darden, Lucy Darden, Anne Darden Self, Glenn Darden or Thomas Darden, and their respective successors, assigns, designees, heirs, beneficiaries, trusts, estates or Controlled affiliates. |
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(1) | a Restricted Subsidiary (other than a Special Entity that does not Guarantee the Notes) or a Person which will, upon the making of such Investment, become a Restricted Subsidiary (other than a Special Entity that does not Guarantee the Notes); provided, however, that the primary business of such Restricted Subsidiary is the Oil and Gas Business; | |
(2) | 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 such Person’s primary business is the Oil and Gas Business; | |
(3) | cash and Cash Equivalents; | |
(4) | receivables owing to the Company or any Restricted Subsidiary created or acquired in the ordinary course of the Oil and Gas 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; | |
(5) | 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; | |
(6) | loans or advances to employees and directors made in the ordinary course of business of the Company or such Restricted Subsidiary; | |
(7) | 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 or pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of a debtor; | |
(8) | Investments made as a result of the receipt of non-cash consideration from an Asset Disposition that was made pursuant to and in compliance with “Certain covenants— Limitation on sales of assets and subsidiary stock;” | |
(9) | Investments in existence on the Issue Date or made pursuant to agreements or commitments in effect on the Issue Date; |
(10) | Commodity Agreements, Currency Agreements, Interest Rate Agreements and related Hedging Obligations, which transactions or obligations are Incurred in compliance with “Certain covenants— Limitation on indebtedness;” | |
(11) | Investments by the Company or any of its Restricted Subsidiaries, together with all other Investments pursuant to this clause (11), in an aggregate amount at the time of such Investment not to exceed $10 million outstanding at any one time (with the fair market value of such Investment being measured at the time made and without giving effect to subsequent changes in value); | |
(12) | Guarantees made in accordance with “Certain covenants— Limitations on indebtedness;” | |
(13) | Investments in a Special Entity that does not Guarantee the Notes in an aggregate amount not to exceed 10% of Adjusted Consolidated Net Tangible Assets (with |
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Adjusted Consolidated Net Tangible Assets and the fair market value of such Investment being measured at the time such Investment is made and without giving effect to subsequent changes in value); | ||
(14) | Permitted Business Investments in an aggregate amount not to exceed 5% of Adjusted Consolidated Net Tangible Assets (with Adjusted Consolidated Net Tangible Assets and the fair market value of such Investment being measured at the time such Investment is made and without giving effect to subsequent changes in value); and | |
(15) | any Asset Swap made in accordance with “Certain covenants— Limitation on asset swaps.” |
(1) | Liens securing Indebtedness and other obligations under a Credit Facility, including the Senior Secured Credit Agreement and related Hedging Obligations and other Senior Indebtedness and liens on assets of Restricted Subsidiaries securing Guarantees of Indebtedness and other obligations of the Company under a Credit Facility and other Guarantor Senior Indebtedness permitted to be Incurred under the Indenture under the covenants described in clause (1) of the second paragraph under “Certain covenants— Limitation on indebtedness;” | |
(2) | pledges or deposits by such Person under workmen’s compensation laws, unemployment insurance laws or similar legislation, or earnest money, good faith or similar deposits in connection with bids, tenders, contracts (other than for the payment of Indebtedness) or leases to which such Person is a party, or deposits to secure public, regulatory or statutory obligations of such Person or deposits of cash or Cash Equivalents to secure surety or appeal bonds to which such Person is a party, or deposits as security for contested taxes or import or customs duties or for the payment of rent, in each case Incurred in the ordinary course of business; | |
(3) | Liens imposed by law, including carriers’, warehousemen’s, suppliers’, materialmen’s and mechanics’ Liens, in each case for sums not yet due or being contested in good faith by appropriate proceedings if appropriate reserves or other provisions required by GAAP, if any, shall have been made in respect thereof; | |
(4) | Liens for taxes, assessments or other governmental charges not yet subject to penalties for non-payment or which are being contested in good faith by appropriate proceedings if appropriate reserves or other provisions required by GAAP shall have been made in respect thereof; | |
(5) | Liens in favor of issuers of surety or performance bonds or letters of credit or bankers’ acceptances issued pursuant to the request of and for the account of such Person in the ordinary course of its business; provided, however, that such letters of credit do not constitute Indebtedness; |
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(6) | encumbrances, easements or reservations of, or rights of others for, licenses, rights of way, servitudes, permits, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning, building codes or surface leases and other similar rights in respect of surface operations or other restrictions (including, without limitation, minor defects or irregularities in title and similar encumbrances) as to the use of real properties or liens incidental to the conduct of the business of such Person or to the ownership of its properties which do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of such Person; | |
(7) | Liens securing Hedging Obligations; | |
(8) | leases, licenses, subleases and sublicenses of assets (including, without limitation, real property and intellectual property rights) which do not materially interfere with the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries; | |
(9) | judgment Liens not giving rise to an Event of Default so long as such Lien is adequately bonded and any appropriate legal proceedings which may have been duly initiated for the review of such judgment have not been finally terminated or the period within which such proceedings may be initiated has not expired; |
(10) | Liens for the purpose of securing the payment of all or a part of the purchase price of, or Capital Lease Obligations, purchase money obligations or other payments Incurred to finance the acquisition, improvement or construction of, assets or property acquired or constructed in the ordinary course of business; provided that: |
(a) | the aggregate principal amount of Indebtedness secured by such Liens is otherwise permitted to be Incurred under the Indenture and does not exceed the cost of the assets or property so acquired or constructed; and |
(b) | such Liens are created within 180 days of construction or acquisition of such assets or property and do not encumber any other assets or property of the Company or any Restricted Subsidiary other than such assets or property and assets affixed or appurtenant thereto; |
(11) | Liens arising solely by virtue of any statutory or common law provisions relating to banker’s Liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a depositary institution; provided that: |
(a) | such deposit account is not a dedicated cash collateral account and is not subject to restrictions against access by the Company in excess of those set forth by regulations promulgated by the Federal Reserve Board; and |
(b) | such deposit account is not intended by the Company or any Restricted Subsidiary to provide collateral to the depository institution; |
(12) | Liens arising from Uniform Commercial Code financing statement filings regarding operating leases entered into by the Company and its Restricted Subsidiaries in the ordinary course of business; | |
(13) | Liens existing on the Issue Date; | |
(14) | Liens on property or shares of stock of a Person at the time such Person becomes a Restricted Subsidiary; provided, however, that such Liens are not created, Incurred or assumed in connection with, or in contemplation of, such other Person becoming a |
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Restricted Subsidiary; provided further, however, that any such Lien may not extend to any other property owned by the Company or any Restricted Subsidiary; | ||
(15) | Liens on property at the time the Company or a Restricted Subsidiary acquired the property, including any acquisition by means of a merger or consolidation with or into the Company or any Restricted Subsidiary; provided, however, that such Liens are not created, Incurred or assumed in connection with, or in contemplation of, such acquisition; provided further, however, that such Liens may not extend to any other property owned by the Company or any Restricted Subsidiary; | |
(16) | Liens securing Indebtedness or other obligations of a Restricted Subsidiary owing to the Company or a Wholly-Owned Subsidiary; | |
(17) | Liens securing the Notes and Subsidiary Guarantees; | |
(18) | Liens securing Refinancing Indebtedness Incurred to refinance Indebtedness that was previously so secured, provided that any such Lien is limited to all or part of the same property or assets (plus improvements, accessions, proceeds or dividends or distributions in respect thereof) that secured (or, under the written arrangements under which the original Lien arose, could secure) the Indebtedness being refinanced or is in respect of property that is the security for a Permitted Lien hereunder; | |
(19) | any interest or title of a lessor under any Capital Lease Obligation or operating lease; | |
(20) | Liens in respect of Production Payments and Reserve Sales, which Liens shall be limited to the oil and gas property or other interest that is subject to such Production Payments and Reserve Sales; | |
(21) | Liens arising under oil and gas leases, farm-out agreements, farm-in agreements, division orders, contracts for the sale, purchase, exchange, transportation, gathering or processing of Hydrocarbons, partnership agreements, joint venture agreements, unitizations and pooling designations, declarations, orders and agreements, development agreements, operating agreements, production sales contracts, area of mutual interest agreements, gas balancing or deferred production agreements, injection, repressuring and recycling agreements, salt water or other disposal agreements, seismic or geophysical permits or agreements, and other agreements which are customary in the Oil and Gas Business; provided, however, in all instances that such Liens are limited to the assets that are subject to the relevant agreement, program, order or contract; | |
(22) | Liens on pipelines or pipeline facilities that arise by operation of law; and | |
(23) | Liens securing Indebtedness (other than Subordinated Obligations and Guarantor Subordinated Obligations) in an aggregate principal amount outstanding at any one time not to exceed $10 million. |
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(1) | (a) if the Stated Maturity of the Indebtedness being refinanced is earlier than the Stated Maturity of the Notes, the Refinancing Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Indebtedness being refinanced or (b) if the Stated Maturity of the Indebtedness being refinanced is later than the Stated Maturity of the Notes, the Refinancing Indebtedness has a Stated Maturity at least 91 days later than the Stated Maturity of the Notes; |
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(2) | the 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; | |
(3) | such Refinancing Indebtedness is Incurred in an aggregate principal amount (or if issued with original issue discount, an aggregate issue price) that is equal to or less than the sum of the aggregate principal amount (or if issued with original issue discount, the aggregate accreted value) then outstanding of the Indebtedness being refinanced (plus, without duplication, any additional Indebtedness Incurred to pay interest or premiums required by the instruments governing such existing Indebtedness and fees and expenses Incurred in connection therewith); and | |
(4) | if the Indebtedness being refinanced is subordinated in right of payment to the Notes or the Subsidiary Guarantee, such Refinancing Indebtedness is subordinated in right of payment to the Notes or the Subsidiary Guarantee on terms at least as favorable to the holders as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. |
(1) | any Indebtedness Incurred in violation of the Indenture; | |
(2) | any obligation of the Company to any Subsidiary; | |
(3) | any liability for Federal, state, foreign, local or other taxes owed or owing by the Company; | |
(4) | any accounts payable or other liability to trade creditors arising in the ordinary course of business (including Guarantees thereof or instruments evidencing such liabilities); |
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(5) | any Indebtedness, Guarantee or obligation of the Company that is expressly subordinate or junior in right of payment to any other Indebtedness, Guarantee or obligation of the Company, including, without limitation, any Senior Subordinated Indebtedness and any Subordinated Obligations; or | |
(6) | any Capital Stock. |
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(1) | Saginaw Bay Lateral Limited Partnership; | |
(2) | any other Subsidiary of the Company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors of the Company in the manner provided below; and | |
(3) | any Subsidiary of an Unrestricted Subsidiary. |
(1) | such Subsidiary or any of its Subsidiaries does not own any Capital Stock or Indebtedness of or have any Investment in, or own or hold any Lien on any property of, any other Subsidiary of the Company which is not a Subsidiary of the Subsidiary to be so designated or otherwise an Unrestricted Subsidiary; | |
(2) | all the Indebtedness of such Subsidiary and its Subsidiaries shall, at the date of designation and at all times thereafter, consist of Non-Recourse Debt; | |
(3) | such designation and the Investment of the Company in such Subsidiary complies with “Certain covenants— Limitation on restricted payments;” | |
(4) | such Subsidiary, either alone or in the aggregate with all other Unrestricted Subsidiaries, does not operate, directly or indirectly, all or substantially all of the business of the Company and its Subsidiaries; | |
(5) | such Subsidiary is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation: |
(a) | to subscribe for additional Capital Stock of such Person; or |
(b) | to maintain or preserve such Person’s financial condition or to cause such Person to achieve any specified levels of operating results; and |
(6) | on the date such Subsidiary is designated an Unrestricted Subsidiary, such Subsidiary is not a party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary with terms materially less favorable to the |
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Company than those that might have been reasonably obtained from Persons that are not Affiliates of the Company. |
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• | holders subject to the alternative minimum tax; | |
• | banks, insurance companies, or other financial institutions; | |
• | tax-exempt organizations; | |
• | dealers in securities or commodities; | |
• | expatriates; | |
• | traders in securities that elect to use a mark-to-market method of accounting for their securities holdings; | |
• | holders whose functional currency is not the U.S. dollar; | |
• | persons that will hold the notes as a position in a hedging transaction, straddle, conversion transaction or other risk reduction transaction; | |
• | persons deemed to sell the notes under the constructive sale provisions of the Code; or | |
• | partnerships or other pass-through entities. |
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• | an individual citizen or resident of the United States; | |
• | a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States or any political subdivision of the United States; | |
• | an estate the income of which is subject to U. S. federal income taxation regardless of its source; or | |
• | a trust that (1) is subject to the supervision of a court within the United States and the control of one or more “United States person” (as defined in the Code) or (2) has a valid election in effect under applicable Treasury Regulations to be treated as a United States person. |
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• | the Non-U.S. Holder does not actually or constructively (under applicable attribution rules) own 10% or more of the total combined voting power of our voting stock, within the meaning of Section 871(h)(3) of the Code; | |
• | the Non-U.S. Holder is not a controlled foreign corporation that is related to us directly or indirectly through stock ownership; and | |
• | (a) the Non-U.S. Holder provides its name and address, and certifies, under penalties of perjury, that it is not a United States person (which certification may be made on an I.R.S. Form W-8BEN) or (b) a securities clearing organization, bank, or other financial institution that holds customers’ securities in the ordinary course of its business holds the note on a Non-U.S. Holder’s behalf and certifies, under penalties of perjury, either that it has received I.R.S. Form W-8BEN from the holder or from another qualifying financial institution intermediary or that it is permitted to establish and has established the holder’s foreign status through other documentary evidence, and otherwise complies with applicable requirements. If the notes are held by or through certain foreign intermediaries or certain foreign partnerships, such foreign intermediaries or partnerships must also satisfy the certification requirements of applicable Treasury Regulations. |
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• | that gain is effectively connected with a Non-U.S. Holder’s conduct of a trade or business in the United States; or | |
• | the Non-U.S. Holder is an individual who is present in the United States for 183 days or more in the taxable year of the disposition, and certain other conditions are met. |
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Underwriter | Principal amount | |||
J.P. Morgan Securities Inc. | $ | |||
Credit Suisse Securities (USA) LLC | ||||
Banc of America Securities LLC | ||||
BNP Paribas Securities Corp. | ||||
Goldman, Sachs & Co. | ||||
Total | $ | 300,000,000 | ||
• | We will not offer or sell any of our debt securities (other than the notes) for a period of 90 days after the date of this prospectus supplement without the prior consent of J.P. Morgan Securities Inc. and Credit Suisse Securities (USA) LLC. | |
• | We will indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933. |
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All-in average F&D cost | All-in average F&D cost is calculated by dividing (x) development, exploitation, exploration and acquisition capital expenditures for the period, plus unevaluated capital expenditures as of the beginning of the period, less unevaluated capital expenditures as of the end of the period, by (y) reserve additions for the period. | |
Bbl | One stock tank barrel, or 42 U.S. gallons liquid volume, used herein in reference to crude oil or other liquid hydrocarbons. | |
Bcf | One billion cubic feet. | |
Bcfe | One billion cubic feet of natural gas equivalents, based on a ratio of 6 Mcf for each barrel of oil, which reflects the relative energy content. | |
Dry hole | A well found to be incapable of producing oil or natural gas in sufficient economic quantities. | |
Exploitation | Optimization of the recovery of reserves. | |
Exploratory well or prospect | A well drilled to find oil or gas in an unproved area, to find a new reservoir in an existing field or to extend a known reservoir. | |
F&D cost | F&D cost is calculated by dividing (x) development, exploitation and exploration capital expenditures for the period, plus unevaluated capital expenditures as of the beginning of the period, less unevaluated capital expenditures as of the end of the period, by (y) reserve additions excluding purchases for the period. | |
Gross acres or gross wells | The total acres or wells, as the case may be, in which a working interest is owned. | |
Infill well | A well drilled between known producing wells to better exploit the reservoir | |
MBbl | One thousand barrels of crude oil or other liquid hydrocarbons. | |
Mcf | One thousand cubic feet of gas. | |
Mcf per day | One thousand cubic feet of gas per day. | |
Mcfe | One thousand cubic feet of natural gas equivalents, based on a ratio of 6 Mcf for each barrel of oil or NGL, which reflects relative energy content. | |
Mmbbl | One million barrels of crude oil or other liquid hydrocarbons. | |
Mmbtu | One million British thermal units. A British thermal unit is the heat required to raise the temperature of one-pound of water one degree Fahrenheit. |
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MMcf | One million cubic feet of gas. | |
MMcfe | One million cubic feet of gas equivalents. | |
Net acres or net wells | The sum of the fractional working interests owned in gross acres or gross wells. | |
Productive well | A well that is producing oil or natural gas or that is capable of production. | |
Proved developed reserves | Proved reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. | |
Proved reserves | The estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. | |
Proved undeveloped reserves | Proved reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. | |
Recompletion | The completion for production of another formation in an existing well bore. | |
Reserve life | Proved reserves at a point in time divided by the then annual production rate. | |
Reserve replacement ratio | The reserve replacement ratio is calculated by dividing the sum of reserve additions from all sources (revisions, purchases, extensions and discoveries) for a specified period by the actual production for the period. | |
Working interest | The operating interest that gives the owner the right to drill, produce and conduct operating activities on the property and a share of production, subject to all royalties, overriding royalties and other burdens, and to all costs of exploration, development and operations, and all risks in connection therewith. |
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/s/ Glenn Darden | /s/ Philip W. Cook | |
President and Chief Executive Officer | Senior Vice President—Chief Financial Officer |
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in thousands, except for share data | 2005 | 2004(1) | ||||||||
Assets | ||||||||||
Current assets | ||||||||||
Cash and cash equivalents | $ | 14,318 | $ | 15,947 | ||||||
Accounts receivable, net of allowance of $425 and $314 | 76,121 | 38,037 | ||||||||
Current deferred income taxes | 14,614 | 3,523 | ||||||||
Other current assets | 8,531 | 8,689 | ||||||||
Total current assets | 113,584 | 66,196 | ||||||||
Investments in and advances to equity affiliates | 8,353 | 8,254 | ||||||||
Property, plant and equipment | ||||||||||
Oil and gas properties, full-cost method | ||||||||||
Subject to depletion | 1,079,662 | 838,134 | ||||||||
Unevaluated costs | 132,090 | 97,168 | ||||||||
Pipelines and processing facilities | 157,396 | 70,851 | ||||||||
General properties | 14,086 | 12,597 | ||||||||
Accumulated depletion and depreciation | (271,232 | ) | (216,140 | ) | ||||||
Property, plant and equipment— net | 1,112,002 | 802,610 | ||||||||
Other assets | 9,155 | 11,274 | ||||||||
$ | 1,243,094 | $ | 888,334 | |||||||
Liabilities and stockholders’ equity | ||||||||||
Current liabilities | ||||||||||
Current portion of long-term debt | $ | 70,493 | $ | 356 | ||||||
Accounts payable | 48,409 | 28,407 | ||||||||
Accrued derivative obligations | 40,632 | 12,784 | ||||||||
Accrued liabilities | 52,656 | 41,904 | ||||||||
Total current liabilities | 212,190 | 83,451 | ||||||||
Long-term debt | 506,039 | 399,134 | ||||||||
Deferred derivative obligations | 4,631 | — | ||||||||
Asset retirement obligations | 20,891 | 17,967 | ||||||||
Deferred income taxes | 115,728 | 83,506 | ||||||||
Commitments and contingencies (Note 13) | — | — | ||||||||
Stockholders’ equity | ||||||||||
Preferred stock, $0.01 par value, 10,000,000 shares authorized, 1 share issued as of December 31, 2005 and 2004 | — | — | ||||||||
Common stock, $0.01 par value, 100,000,000 and 80,000,000 shares authorized, and 78,650,110 and 77,752,151 shares issued as of December 31, 2005 and 2004, respectively | 787 | 778 | ||||||||
Paid in capital in excess of par value | 215,175 | 200,690 | ||||||||
Deferred compensation | (3,332 | ) | — | |||||||
Treasury stock of 2,571,069 and 2,568,611 shares as of December 31, 2005 and 2004, respectively | (10,353 | ) | (10,258 | ) | ||||||
Accumulated other comprehensive income (loss) | (12,382 | ) | 6,762 | |||||||
Retained earnings | 193,720 | 106,304 | ||||||||
Total stockholders’ equity | 383,615 | 304,276 | ||||||||
$ | 1,243,094 | $ | 888,334 | |||||||
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in thousands, except for per share data | 2005 | 2004(1) | 2003(1) | |||||||||||
Revenues | ||||||||||||||
Natural gas, NGL and crude oil sales | $ | 306,204 | $ | 177,173 | $ | 139,037 | ||||||||
Other revenue | 4,244 | 2,556 | 1,912 | |||||||||||
Total revenues | 310,448 | 179,729 | 140,949 | |||||||||||
Expenses | ||||||||||||||
Oil and gas production costs | 86,272 | 65,626 | 52,524 | |||||||||||
Other operating costs | 1,661 | 810 | 971 | |||||||||||
Depletion, depreciation and amortization | 55,213 | 40,691 | 32,067 | |||||||||||
Provision for doubtful accounts | 108 | 153 | 87 | |||||||||||
General and administrative | 18,979 | 12,934 | 8,133 | |||||||||||
Total expenses | 162,233 | 120,214 | 93,782 | |||||||||||
Income from equity affiliates | 914 | 1,178 | 1,331 | |||||||||||
Operating income | 149,129 | 60,693 | 48,498 | |||||||||||
Other income— net | (585 | ) | (415 | ) | (186 | ) | ||||||||
Interest expense | 21,740 | 15,662 | 20,182 | |||||||||||
Income from continuing operations before income taxes | 127,974 | 45,446 | 28,502 | |||||||||||
Income tax expense | 40,702 | 14,174 | 9,997 | |||||||||||
Income from continuing operations | 87,272 | 31,272 | 18,505 | |||||||||||
Discontinued operations— gain from discontinued drilling operations net of income tax of $86 | 162 | — | — | |||||||||||
Income before cumulative effect of change in accounting principle | 87,434 | 31,272 | 18,505 | |||||||||||
Cumulative effect of change in accounting principle, net of tax | — | — | 2,297 | |||||||||||
Net income | $ | 87,434 | $ | 31,272 | $ | 16,208 | ||||||||
Other comprehensive income— net of taxes | ||||||||||||||
Net derivative settlements | 26,892 | 26,875 | 27,037 | |||||||||||
Net change in derivative fair value | (49,743 | ) | (5,174 | ) | (20,939 | ) | ||||||||
Foreign currency translation adjustment | 3,707 | 2,744 | 10,389 | |||||||||||
Comprehensive income | $ | 68,290 | $ | 55,717 | $ | 32,695 | ||||||||
Basic net income per common share: | ||||||||||||||
Income before cumulative effect of change in accounting principle | $ | 1.15 | $ | 0.42 | $ | 0.28 | ||||||||
Discontinued operations | — | — | — | |||||||||||
Cumulative effect of change in accounting principle, net of tax | — | — | (0.04 | ) | ||||||||||
Net income | $ | 1.15 | $ | 0.42 | $ | 0.24 | ||||||||
Diluted net income per common share: | ||||||||||||||
Income before cumulative effect of change in accounting principle | $ | 1.08 | $ | 0.41 | $ | 0.27 | ||||||||
Discontinued operations | — | — | — | |||||||||||
Cumulative effect of change in accounting principle, net of tax | — | — | (0.03 | ) | ||||||||||
Net income | $ | 1.08 | $ | 0.41 | $ | 0.24 | ||||||||
Basic weighted average shares outstanding | 75,716 | 74,654 | 67,183 | |||||||||||
Diluted weighted average shares outstanding | 82,455 | 77,015 | 68,534 | |||||||||||
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in thousands, except for share data | 2005 | 2004(1) | 2003(1) | |||||||||||
Preferred stock, $0.01 par value, 10,000,000 shares authorized | ||||||||||||||
Balance at end of year: 1 share issued at December 31, 2005, 2004 and 2003 | $ | — | $ | — | $ | — | ||||||||
Common stock, $0.01 par value, 100,000,000 shares authorized | ||||||||||||||
Balance at beginning of year | 778 | 768 | 658 | |||||||||||
Issuance of common stock | 9 | 10 | 110 | |||||||||||
Balance at end of year: 78,650,110, 77,752,151 and 76,779,137 shares issued at December 31, 2005, 2004 and 2003, respectively | 787 | 778 | 768 | |||||||||||
Paid in capital in excess of par value | ||||||||||||||
Balance at beginning of year | 200,690 | 193,998 | 113,692 | |||||||||||
Acquisition of Voyager Compression Services assets | — | — | (515 | ) | ||||||||||
Treasury stock reissued | — | 147 | — | |||||||||||
Issuance of common stock | — | — | 79,170 | |||||||||||
Stock options exercised | 2,885 | 2,302 | 1,011 | |||||||||||
Issuance of restricted stock | 5,064 | — | — | |||||||||||
Tax benefit related to stock options exercised | 6,536 | 4,243 | 739 | |||||||||||
Stock issuance costs | — | — | (99 | ) | ||||||||||
Balance at end of year | 215,175 | 200,690 | 193,998 | |||||||||||
Deferred compensation | ||||||||||||||
Balance at beginning of year | — | — | — | |||||||||||
Issuance of restricted stock | (5,064 | ) | — | — | ||||||||||
Compensation expense recognized | 1,732 | — | — | |||||||||||
Balance at end of year | (3,332 | ) | — | — | ||||||||||
Treasury stock, at cost | ||||||||||||||
Balance at beginning of year | (10,258 | ) | (10,299 | ) | (10,099 | ) | ||||||||
(Acquisition) reissuance of treasury stock, net | (95 | ) | 41 | (200 | ) | |||||||||
Balance at end of year: 2,571,069, 2,568,611 and 2,578,904 shares at December 31, 2005, 2004, and 2003, respectively | (10,353 | ) | (10,258 | ) | (10,299 | ) | ||||||||
Accumulated other comprehensive loss | ||||||||||||||
Deferred losses on hedge derivatives | ||||||||||||||
Balance at beginning of year | (5,658 | ) | (27,359 | ) | (33,457 | ) | ||||||||
Net change during the year related to cash flow hedges | (22,851 | ) | 21,701 | 6,098 | ||||||||||
Balance at end of year | (28,509 | ) | (5,658 | ) | (27,359 | ) | ||||||||
Deferred foreign exchange adjustment | ||||||||||||||
Balance at beginning of year | 12,420 | 9,676 | (713 | ) | ||||||||||
Foreign currency translation adjustment | 3,707 | 2,744 | 10,389 | |||||||||||
Balance at end of year | 16,127 | 12,420 | 9,676 | |||||||||||
Total accumulated other comprehensive income (loss) | (12,382 | ) | 6,762 | (17,683 | ) | |||||||||
Retained earnings | ||||||||||||||
Balance at beginning of year | 106,304 | 75,032 | 58,824 | |||||||||||
Payment for fractional shares | (18 | ) | — | — | ||||||||||
Net income | 87,434 | 31,272 | 16,208 | |||||||||||
Balance at end of year | 193,720 | 106,304 | 75,032 | |||||||||||
Total stockholders’ equity | $ | 383,615 | $ | 304,276 | $ | 241,816 | ||||||||
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in thousands | 2005 | 2004 | 2003 | |||||||||||
Operating activities: | ||||||||||||||
Net income | $ | 87,434 | $ | 31,272 | $ | 16,208 | ||||||||
Charges and credits to net income not affecting cash | ||||||||||||||
Cumulative effect of accounting change, net of tax | — | — | 2,297 | |||||||||||
Depletion, depreciation and amortization | 55,213 | 40,691 | 32,067 | |||||||||||
Deferred income taxes | 40,298 | 12,989 | 9,736 | |||||||||||
Non-cash compensation | 1,732 | — | — | |||||||||||
Amortization of deferred loan costs | 1,429 | 1,249 | 2,637 | |||||||||||
Recognition of unearned revenues | — | — | 507 | |||||||||||
Income from equity affiliates | (914 | ) | (1,178 | ) | (1,331 | ) | ||||||||
Non-cash gain from hedging activities | (462 | ) | (786 | ) | (678 | ) | ||||||||
Other | 265 | 91 | 455 | |||||||||||
Changes in assets and liabilities | ||||||||||||||
Accounts receivable | (38,192 | ) | (11,562 | ) | (5,259 | ) | ||||||||
Inventory, prepaid expenses and other assets | (1,919 | ) | 4,413 | (3 | ) | |||||||||
Accounts payable | 1,963 | 2,220 | 1,246 | |||||||||||
Accrued and other liabilities | (2,379 | ) | 5,448 | (8,280 | ) | |||||||||
Net cash provided by operating activities | 144,468 | 84,847 | 49,602 | |||||||||||
Investing activities: | ||||||||||||||
Purchases of property, plant and equipment | (329,495 | ) | (215,106 | ) | (137,895 | ) | ||||||||
Acquisition of Voyager Compression Service assets | — | — | (684 | ) | ||||||||||
Return of investment from equity affiliates | 533 | 48 | 734 | |||||||||||
Proceeds from sale of properties | 9,693 | 9,160 | 101 | |||||||||||
Net cash used for investing activities | (319,269 | ) | (205,898 | ) | (137,744 | ) | ||||||||
Financing activities: | ||||||||||||||
Issuance of debt | 183,469 | 511,091 | 114,000 | |||||||||||
Repayments of debt | (13,079 | ) | (371,178 | ) | (113,116 | ) | ||||||||
Proceeds from issuance of common stock, net of issuance costs | — | — | 79,176 | |||||||||||
Proceeds from exercise of stock options | 2,894 | 2,499 | 750 | |||||||||||
Purchase of treasury stock | (95 | ) | — | — | ||||||||||
Payment for fractional shares | (18 | ) | — | — | ||||||||||
Debt issuance costs | (745 | ) | (8,023 | ) | (1,441 | ) | ||||||||
Net cash provided by financing activities | 172,426 | 134,389 | 79,369 | |||||||||||
Effect of exchange rates on cash | 746 | (1,507 | ) | 3,773 | ||||||||||
Net increase (decrease) in cash and equivalents | (1,629 | ) | 11,831 | (5,000 | ) | |||||||||
Cash and equivalents at beginning of period | 15,947 | 4,116 | 9,116 | |||||||||||
Cash and equivalents at end of period | $ | 14,318 | $ | 15,947 | $ | 4,116 | ||||||||
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Years ended December 31, | |||||||||||||
(in thousands, except per share data) | 2005 | 2004 | 2003 | ||||||||||
Income from continuing operations | $ | 87,272 | $ | 31,272 | $ | 18,505 | |||||||
Income from discontinued operations, net of income taxes | 162 | — | — | ||||||||||
Income from before effect of change in accounting principle | 87,434 | 31,272 | 18,505 | ||||||||||
Cumulative effect of change in accounting principle | — | — | 2,297 | ||||||||||
Net income | 87,434 | 31,272 | 16,208 | ||||||||||
Impact of assumed conversions—interest on 1.875% contingently convertible debentures, net of income taxes | 1,901 | 317 | — | ||||||||||
Income available to stockholders assuming conversion Of contingently convertible debentures | $ | 89,335 | $ | 31,589 | $ | 16,208 | |||||||
Weighted average common shares—basic | 75,715 | 74,654 | 67,183 | ||||||||||
Effect of dilutive securities: | |||||||||||||
Employee stock options | 1,718 | 1,544 | 1,351 | ||||||||||
Employee stock awards | 113 | — | — | ||||||||||
Contingently convertible debentures | 4,908 | 817 | — | ||||||||||
Weighted average common shares—diluted | 82,455 | 77,015 | 68,534 | ||||||||||
Basic: | |||||||||||||
Income from continuing operations | $ | 1.15 | $ | 0.42 | $ | 0.28 | |||||||
Income from discontinued operations, net of income taxes | — | — | — | ||||||||||
Cumulative effect of change in accounting principle | — | — | (0.04 | ) | |||||||||
Net income | $ | 1.15 | $ | 0.42 | $ | 0.24 | |||||||
Diluted: | |||||||||||||
Income from continuing operations | $ | 1.08 | $ | 0.41 | $ | 0.27 | |||||||
Income from discontinued operations, net of income taxes | — | — | — | ||||||||||
Cumulative effect of change in accounting principle | — | — | (0.03 | ) | |||||||||
Net income | $ | 1.08 | $ | 0.41 | $ | 0.24 | |||||||
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Years ended December 31, | |||||||||||||
(in thousands, except per share data) | 2005 | 2004 | 2003 | ||||||||||
Net income | $ | 87,434 | $ | 31,272 | $ | 16,208 | |||||||
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of income taxes | (11,359 | ) | (4,524 | ) | (423 | ) | |||||||
Pro forma net income | $ | 76,075 | $ | 26,748 | $ | 15,785 | |||||||
Net income | |||||||||||||
Basic – as reported | $ | 1.15 | $ | 0.42 | $ | 0.24 | |||||||
Basic—pro forma | $ | 1.00 | $ | 0.36 | $ | 0.23 | |||||||
Diluted—as reported | $ | 1.08 | $ | 0.41 | $ | 0.24 | |||||||
Diluted—pro forma | $ | 0.95 | $ | 0.35 | $ | 0.23 | |||||||
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As of December 31, | |||||||||
(in thousands) | 2005 | 2004 | |||||||
Derivative assets: | |||||||||
Fixed price sale commitments | $ | 638 | $ | 314 | |||||
Natural gas financial collars | — | 3,563 | |||||||
Crude oil financial collars | — | 106 | |||||||
$ | 638 | $ | 3,983 | ||||||
Derivative liabilities: | |||||||||
Fixed price natural gas financial swaps | $ | — | $ | 12,066 | |||||
Natural gas financial collars | 44,480 | 158 | |||||||
Floating price natural gas financial swaps | 463 | 322 | |||||||
Crude oil financial collars | 320 | 5 | |||||||
Fixed price sale commitments | 35 | — | |||||||
Floating to fixed interest rate swap | — | 233 | |||||||
$ | 45,298 | $ | 12,784 | ||||||
F-17
Table of Contents
F-18
Table of Contents
Weighted avg | ||||||||||||||
price per | Fair value | |||||||||||||
Product | Type | Contract period | Volume | Mcf or Bbl | (in thousands) | |||||||||
Gas | Collar | Jan 2006-Mar 2006 | 10,000 Mcfd | 6.50-11.20 | $(812 | ) | ||||||||
Gas | Collar | Jan 2006-Mar 2006 | 10,000 Mcfd | 6.50-11.20 | (812 | ) | ||||||||
Gas | Collar | Jan 2006-Mar 2006 | 5,000 Mcfd | 7.00-10.00 | (964 | ) | ||||||||
Gas | Collar | Jan 2006-Mar 2006 | 5,000 Mcfd | 7.00-10.00 | (964 | ) | ||||||||
Gas | Collar | Jan 2006-Mar 2006 | 5,000 Mcfd | 7.00-10.10 | (949 | ) | ||||||||
Gas | Collar | Jan 2006-Mar 2006 | 5,000 Mcfd | 7.00-10.17 | (879 | ) | ||||||||
Gas | Collar | Jan 2006-Mar 2006 | 10,000 Mcfd | 7.50-9.55 | (2,372 | ) | ||||||||
Gas | Collar | Jan 2006-Mar 2006 | 5,000 Mcfd | 7.50-9.55 | (1,186 | ) | ||||||||
Gas | Collar | Jan 2006-Mar 2006 | 5,000 Mcfd | 7.50-9.60 | (1,160 | ) | ||||||||
Gas | Collar | Jan 2006-Mar 2006 | 5,000 Mcfd | 7.50-10.55 | (767 | ) | ||||||||
Gas | Collar | Jan 2006-Mar 2006 | 5,000 Mcfd | 7.50-10.60 | (747 | ) | ||||||||
Gas | Collar | Jan 2006-Mar 2006 | 10,000 Mcfd | 9.50-12.01 | (302 | ) | ||||||||
Gas | Collar | Apr 2006-Oct 2006 | 5,000 Mcfd | 5.50-8.10 | (2,695 | ) | ||||||||
Gas | Collar | Apr 2006-Oct 2006 | 5,000 Mcfd | 5.50-8.25 | (2,513 | ) | ||||||||
Gas | Collar | Apr 2006-Oct 2006 | 10,000 Mcfd | 6.50-8.25 | (5,044 | ) | ||||||||
Gas | Collar | Apr 2006-Oct 2006 | 5,000 Mcfd | 6.50-8.25 | (2,522 | ) | ||||||||
Gas | Collar | Apr 2006-Oct 2006 | 5,000 Mcfd | 7.00-8.35 | (2,394 | ) | ||||||||
Gas | Collar | Apr 2006-Oct 2006 | 5,000 Mcfd | 7.00-8.35 | (2,394 | ) | ||||||||
Gas | Collar | Apr 2006-Oct 2006 | 5,000 Mcfd | 7.00-8.35 | (2,394 | ) | ||||||||
Gas | Collar | Apr 2006-Oct 2006 | 5,000 Mcfd | 8.00-10.10 | (1,131 | ) | ||||||||
Gas | Collar | Apr 2006-Oct 2006 | 5,000 Mcfd | 8.00-10.10 | (1,131 | ) | ||||||||
Gas | Collar | Apr 2006-Oct 2006 | 10,000 Mcfd | 8.00-10.20 | (1,085 | ) | ||||||||
Gas | Collar | Apr 2006-Oct 2006 | 10,000 Mcfd | 8.00-10.20 | (1,085 | ) | ||||||||
Gas | Collar | Nov 2006-Mar 2007 | 10,000 Mcfd | 7.50-9.65 | (3,749 | ) | ||||||||
Gas | Collar | Nov 2006-Mar 2007 | 10,000 Mcfd | 8.50-11.35 | (2,254 | ) | ||||||||
Gas | Collar | Nov 2006-Mar 2007 | 10,000 Mcfd | 8.50-11.50 | (2,175 | ) | ||||||||
Oil | Collar | Jan 2006-Jun 2006 | 500 Bbld | 47.00-62.20 | (320 | ) | ||||||||
Net Open Positions | $(44,800 | ) | ||||||||||||
F-19
Table of Contents
Weighted avg | Fair value | |||||||||||
Contract period | Volume | price per Mcf | (in thousands) | |||||||||
Natural Gas Sales Contracts | ||||||||||||
Jan 2006 | 6,000 Mcf | $13.37 | $ 17 | |||||||||
Jan 2006-Feb 2006 | 10,000 Mcf | $ 7.27 | (35 | ) | ||||||||
Jan 2006-Feb 2006 | 16,000 Mcf | $12.21 | 22 | |||||||||
Jan 2006-Feb 2006 | 54,500 Mcf | $13.09 | 131 | |||||||||
Jan 2006-Mar 2006 | 240,000 Mcf | $12.90 | 461 | |||||||||
Feb 2006-Mar 2006 | 16,350 Mcf | $11.63 | 7 | |||||||||
$ 603 | ||||||||||||
Natural Gas Financial Derivatives | ||||||||||||
Jan 2006 | 10,000 Mcf | Floating Price | $ (5 | ) | ||||||||
Jan 2006 | 10,000 Mcf | Floating Price | (22 | ) | ||||||||
Jan 2006 | 20,000 Mcf | Floating Price | (19 | ) | ||||||||
Jan 2006 | 20,000 Mcf | Floating Price | (55 | ) | ||||||||
Feb 2006 | 10,000 Mcf | Floating Price | (8 | ) | ||||||||
Feb 2006 | 20,000 Mcf | Floating Price | (22 | ) | ||||||||
Jan 2006-Mar 2006 | 120,000 Mcf | Floating Price | (74 | ) | ||||||||
Jan 2006-Mar 2006 | 120,000 Mcf | Floating Price | (257 | ) | ||||||||
Feb 2006-Mar 2006 | 20,000 Mcf | Floating Price | (1 | ) | ||||||||
(463 | ) | |||||||||||
Total-net | $ 140 | |||||||||||
F-20
Table of Contents
F-21
Table of Contents
As of December 31, | ||||||||
(in thousands) | 2005 | 2004 | ||||||
Accrued production receivables | $ | 48,392 | $ | 24,351 | ||||
Joint interest receivables | 26,430 | 13,247 | ||||||
Other receivables | 1,724 | 753 | ||||||
Allowance for bad debts | (425 | ) | (314 | ) | ||||
$ | 76,121 | $ | 38,037 | |||||
As of December 31, | ||||||||
(in thousands) | 2005 | 2004 | ||||||
Parts and supplies | $ | 6,137 | $ | 4,161 | ||||
Hedge derivatives (see note 4) | 602 | 2,383 | ||||||
Prepaid expenses and deposits | 1,792 | 2,145 | ||||||
$ | 8,531 | $ | 8,689 | |||||
F-22
Table of Contents
As of December 31, | |||||||||
(in thousands) | 2005 | 2004 | |||||||
Oil and gas properties | |||||||||
Subject to depletion | $ | 1,079,662 | $ | 838,134 | |||||
Unevaluated costs | 132,090 | 97,168 | |||||||
Accumulated depletion | (243,094 | ) | (195,415 | ) | |||||
Net oil and gas properties | 968,658 | 739,887 | |||||||
Other equipment | |||||||||
Pipelines and processing facilities | 157,396 | 70,851 | |||||||
General properties | 14,086 | 12,597 | |||||||
Accumulated depreciation | (28,138 | ) | (20,725 | ) | |||||
Net other property and equipment | 143,344 | 62,723 | |||||||
Property and equipment, net of accumulated depreciation and depletion | $ | 1,112,002 | $ | 802,610 | |||||
December 31, 2005 costs incurred during | December 31, 2004 costs incurred during | |||||||||||||||||||||||||||||||||||||||
(in thousands) | 2005 | 2004 | 2003 | Prior | Total | 2004 | 2003 | 2002 | Prior | Total | ||||||||||||||||||||||||||||||
Acquisition costs | $ | 44,069 | $ | 39,711 | $ | 27,168 | $ | 4,641 | $ | 115,589 | $ | 40,051 | $ | 31,972 | $ | 6,809 | $ | 1,258 | $ | 80,090 | ||||||||||||||||||||
Exploration costs | 7,559 | 8,658 | 284 | — | 16,501 | 16,125 | 845 | 108 | — | 17,078 | ||||||||||||||||||||||||||||||
Total | $ | 51,628 | $ | 48,369 | $ | 27,452 | $ | 4,641 | $ | 132,090 | $ | 56,176 | $ | 32,817 | $ | 6,917 | $ | 1,258 | $ | 97,168 | ||||||||||||||||||||
F-23
Table of Contents
As of December 31, | |||||||||
(in thousands) | 2005 | 2004 | |||||||
Deferred financing costs | $ | 15,763 | $ | 15,018 | |||||
Less accumulated amortization | (7,320 | ) | (5,891 | ) | |||||
Net deferred financing costs | 8,443 | 9,127 | |||||||
Hedge derivatives (see note 4) | — | 1,600 | |||||||
Other | 712 | 547 | |||||||
$ | 9,155 | $ | 11,274 | ||||||
As of December 31, | ||||||||
(in thousands) | 2005 | 2004 | ||||||
Accrued capital expenditures | $ | 32,033 | $ | 18,597 | ||||
Prepayments from partners | 2,110 | 7,607 | ||||||
Accrued operating expenses | 8,143 | 4,382 | ||||||
Revenue payable | 5,288 | 3,834 | ||||||
Accrued property and production taxes | 877 | 2,430 | ||||||
Accrued product purchases | 1,192 | 1,421 | ||||||
Interest payable | 1,355 | 1,112 | ||||||
Environmental liabilities | 1,301 | 972 | ||||||
Other | 357 | 1,549 | ||||||
$ | 52,656 | $ | 41,904 | |||||
F-24
Table of Contents
As of December 31, | ||||||||
(in thousands) | 2005 | 2004 | ||||||
Senior secured credit facility | $ | 357,788 | $ | 180,422 | ||||
Contingently convertible debentures, net of unamortized discount of $2,119 and $2,231 | 147,881 | 147,769 | ||||||
Second lien mortgage notes payable | 70,000 | 70,000 | ||||||
Other loans | 746 | 1,073 | ||||||
Deferred gain—fair value interest hedge | 117 | 226 | ||||||
576,532 | 399,490 | |||||||
Less current maturities | (70,493 | ) | (356 | ) | ||||
$ | 506,039 | $ | 399,134 | |||||
2006 | $ | 70,493 | ||
2007 | 370 | |||
2008 | — | |||
2009 | 357,788 | |||
2010 | — | |||
Thereafter | 150,000 | |||
$ | 578,651 | |||
F-25
Table of Contents
F-26
Table of Contents
(in thousands) | 2005 | 2004 | ||||||
Beginning asset retirement obligation | $ | 18,471 | $ | 15,189 | ||||
Additional liability incurred | 2,123 | 2,538 | ||||||
Accretion expense | 999 | 982 | ||||||
Change in estimates | (581 | ) | — | |||||
Sale of properties | (109 | ) | (680 | ) | ||||
Asset retirement costs incurred | (125 | ) | (267 | ) | ||||
Loss on settlement of liability | 39 | 143 | ||||||
Currency translation adjustment | 148 | 566 | ||||||
Ending asset retirement obligation | $ | 20,965 | $ | 18,471 | ||||
F-27
Table of Contents
2006 | $ | 2,819 | ||
2007 | 2,494 | |||
2008 | 1,586 | |||
2009 | 1,233 | |||
Thereafter | — | |||
Total lease commitments | $ | 8,132 | ||
F-28
Table of Contents
F-29
Table of Contents
(in thousands) | 2005 | 2004 | |||||||||
Current | |||||||||||
Deferred tax asset | |||||||||||
Deferred tax benefit on cash flow hedge losses | $ | 14,614 | $ | 3,523 | |||||||
Non-current | |||||||||||
Deferred tax assets | |||||||||||
Deferred tax benefit on cash flow hedge losses | $ | 1,677 | $ | — | |||||||
Net operating loss carry forwards | 30,176 | 18,118 | |||||||||
Other | 130 | 233 | |||||||||
Total deferred tax assets | 31,983 | 18,351 | |||||||||
Deferred tax liabilities | |||||||||||
Properties, plant, and equipment | 144,628 | 100,845 | |||||||||
Deferred tax liability on cash flow hedge gains | — | 593 | |||||||||
Deferred tax liability on convertible debenture interest | 2,997 | 419 | |||||||||
Deferred tax liability on discontinued operations | 86 | — | |||||||||
Total deferred tax liabilities | 147,711 | 101,857 | |||||||||
Net deferred tax liabilities | $ | 115,728 | $ | 83,506 | |||||||
(in thousands) | 2005 | 2004 | 2003 | ||||||||||
Current state income tax expense | $ | 51 | $ | 70 | $ | 79 | |||||||
Current federal income tax expense | (23 | ) | 814 | — | |||||||||
Current foreign income tax expense | 462 | 301 | 182 | ||||||||||
Total current income tax expense | 490 | 1,185 | 261 | ||||||||||
Deferred federal income tax expense | 26,312 | 8,756 | 8,175 | ||||||||||
Deferred foreign income tax expense | 13,900 | 4,233 | 1,561 | ||||||||||
Total deferred income tax expense | 40,212 | 12,989 | 9,736 | ||||||||||
Total | $ | 40,702 | $ | 14,174 | $ | 9,997 | |||||||
Deferred federal income tax expense on discontinued operations | $ | 86 | $ | — | $ | — | |||||||
F-30
Table of Contents
2005 | 2004 | 2003 | ||||||||||
U.S. federal statutory tax rate | 35.00% | 35.00% | 35.00% | |||||||||
Dividend income from Canadian subsidiary | — | 1.79% | — | |||||||||
Permanent differences | .11% | .12% | .18% | |||||||||
State income taxes net of federal deduction | .03% | .10% | .18% | |||||||||
Foreign income taxes | (3.36)% | (5.77)% | (.27)% | |||||||||
Other | .02% | (.05)% | (.02)% | |||||||||
Effective income tax rate | 31.80% | 31.19% | 35.07% | |||||||||
(in thousands) | 2005 | 2004 | 2003 | |||||||||
Income tax benefit recognized on employee stock option exercises | $ | 6,536 | $ | 4,243 | $ | 739 | ||||||
F-31
Table of Contents
Common | Treasury | |||||||
shares issued | shares held | |||||||
Opening Balance January 1, 2003 | 65,849,337 | 2,570,502 | ||||||
Stock options exercised | 429,800 | 8,402 | ||||||
Stock issuance | 10,500,000 | — | ||||||
Balance at December 31, 2003 | 76,779,137 | 2,578,902 | ||||||
Stock options exercised | 973,014 | (10,293 | ) | |||||
Balance at December 31, 2004 | 77,752,151 | 2,568,611 | ||||||
Stock options exercised | 747,988 | — | ||||||
Stock issuance | 149,971 | 2,458 | ||||||
Balance at December 31, 2005 | 78,650,110 | 2,571,069 | ||||||
F-32
Table of Contents
F-33
Table of Contents
2005 | 2004 | 2003 | |||||||||||||||||||||||
Wtd avg | Wtd avg | Wtd avg | |||||||||||||||||||||||
exercise | exercise | exercise | |||||||||||||||||||||||
Shares | price | Shares | price | Shares | price | ||||||||||||||||||||
Outstanding at beginning of year | 3,653,755 | $ | 14.34 | 1,888,068 | $ | 2.97 | 2,214,633 | $ | 2.50 | ||||||||||||||||
Granted | 16,100 | 24.90 | 2,766,744 | 17.99 | 156,282 | 7.63 | |||||||||||||||||||
Exercised | (747,988 | ) | 3.87 | (983,307 | ) | 2.31 | (446,604 | ) | 2.13 | ||||||||||||||||
Forfeited | (81,172 | ) | 12.64 | (17,750 | ) | 11.01 | (36,243 | ) | 5.64 | ||||||||||||||||
Outstanding at the end of year | 2,840,695 | $ | 17.13 | 3,653,755 | $ | 14.34 | 1,888,068 | $ | 2.97 | ||||||||||||||||
Exercisable at end of year | 2,190,679 | $ | 18.65 | 874,745 | $ | 3.30 | 1,370,772 | $ | 2.55 | ||||||||||||||||
Weighted average fair value of options granted | $ | 17.67 | $ | 6.62 | $ | 4.12 | |||||||||||||||||||
2005 | 2004 | 2003 | ||||||||||
Wtd avg grant date | Jan 14, 2005 | Jul 6, 2004 | Feb 21, 2003 | |||||||||
Risk-free interest rate | 4.0% | 2.7% | 2.8% | |||||||||
Expected life (in years) | 7.0 | 4.1 | 6.0 | |||||||||
Expected volatility | 38.2% | 45.4% | 54.9% | |||||||||
Dividend yield | — | — | — | |||||||||
F-34
Table of Contents
Options outstanding | Options exercisable | |||||||||||||||||
Wtd avg | ||||||||||||||||||
remaining | Wtd avg | Wtd avg | ||||||||||||||||
Range of | contractual | exercise | exercise | |||||||||||||||
exercisable prices | Shares | life | price | Shares | price | |||||||||||||
$ 3-6 | 176,269 | 0.8 | $ | 4.91 | 176,269 | $ | 4.91 | |||||||||||
6-11 | 113,556 | 2.1 | 7.65 | 88,222 | 7.73 | |||||||||||||
11-16 | 679,557 | 4.1 | 11.17 | 110,577 | 12.00 | |||||||||||||
16-22 | 1,775,135 | 3.0 | 20.85 | 1,775,135 | 20.85 | |||||||||||||
22-25 | 93,722 | 4.5 | 23.78 | 38,635 | 23.71 | |||||||||||||
30-35 | 2,456 | 9.2 | 33.09 | 1,841 | 33.09 | |||||||||||||
2,840,695 | 3.1 | $ | 17.13 | 2,190,679 | $ | 18.65 | ||||||||||||
For the years ended December 31, | ||||||||||||
(in thousands) | 2005 | 2004 | 2003 | |||||||||
Tax credit revenue | $ | 1,229 | $ | 221 | $ | (582 | ) | |||||
Marketing | (137 | ) | 928 | 1,208 | ||||||||
Processing and transportation | 3,152 | 1,407 | 1,286 | |||||||||
$ | 4,244 | $ | 2,556 | $ | 1,912 | |||||||
F-35
Table of Contents
December 31, 2005 | ||||||||||||||||||||||
Quicksilver | ||||||||||||||||||||||
Quicksilver | Guarantor | Non-guarantor | Resources Inc. | |||||||||||||||||||
(amounts in thousands) | Resources Inc. | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||
Assets | ||||||||||||||||||||||
Current assets | $ | 101,587 | $ | 201,458 | $ | 62,105 | $ | (251,566 | ) | $ | 113,584 | |||||||||||
Property and equipment, net | 638,355 | 141,193 | 332,454 | — | 1,112,002 | |||||||||||||||||
Investments in subsidiaries (equity method) | 290,951 | 8,932 | — | (291,530 | ) | 8,353 | ||||||||||||||||
Other assets | 8,000 | — | 1,155 | — | 9,155 | |||||||||||||||||
Total assets | $ | 1,038,893 | $ | 351,583 | $ | 395,714 | $ | (543,096 | ) | $ | 1,243,094 | |||||||||||
Liabilities | ||||||||||||||||||||||
Current liabilities | $ | 247,065 | $ | 124,780 | $ | 91,911 | $ | (251,566 | ) | $ | 212,190 | |||||||||||
Long-term liabilities | 408,213 | 24,542 | 214,534 | 647,289 | ||||||||||||||||||
Stockholders’ equity | 383,615 | 202,261 | 89,269 | (291,530 | ) | 383,615 | ||||||||||||||||
Total liabilities and stockholders’ equity | $ | 1,038,893 | $ | 351,583 | $ | 395,714 | $ | (543,096 | ) | $ | 1,243,094 | |||||||||||
F-36
Table of Contents
December 31, 2004 | |||||||||||||||||||||
Quicksilver | |||||||||||||||||||||
Quicksilver | Guarantor | Non-guarantor | Resources Inc. | ||||||||||||||||||
(amounts in thousands) | Resources Inc. | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Assets | |||||||||||||||||||||
Current assets | $ | 57,804 | $ | 137,095 | $ | 28,796 | $ | (157,499 | ) | $ | 66,196 | ||||||||||
Property and equipment, net | 486,327 | 97,094 | 219,189 | — | 802,610 | ||||||||||||||||
Investments in subsidiaries (equity method) | 228,438 | 9,438 | — | (229,622 | ) | 8,254 | |||||||||||||||
Other assets | 9,153 | 7 | 2,114 | — | 11,274 | ||||||||||||||||
Total assets | $ | 781,722 | $ | 243,634 | $ | 250,099 | $ | (387,121 | ) | $ | 888,334 | ||||||||||
Liabilities | |||||||||||||||||||||
Current liabilities | $ | 148,115 | $ | 52,148 | $ | 40,687 | $ | (157,499 | ) | $ | 83,451 | ||||||||||
Long-term liabilities | 329,331 | 24,556 | 146,720 | 500,607 | |||||||||||||||||
Stockholders’ equity | 304,276 | 166,930 | 62,692 | (229,622 | ) | 304,276 | |||||||||||||||
Total liabilities and stockholders’ equity | $ | 781,722 | $ | 243,634 | $ | 250,099 | $ | (387,121 | ) | $ | 888,334 | ||||||||||
Year ended December 31, 2005 | |||||||||||||||||||||
Quicksilver | |||||||||||||||||||||
Quicksilver | Guarantor | Non-guarantor | Resources Inc. | ||||||||||||||||||
(amounts in thousands) | Resources Inc. | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Revenues | $ | 165,194 | $ | 52,678 | $ | 97,044 | $ | (4,468 | ) | $ | 310,448 | ||||||||||
Operating expenses | 111,552 | 18,243 | 36,906 | (4,468 | ) | 162,233 | |||||||||||||||
Income from equity affiliates | 62 | 852 | — | — | 914 | ||||||||||||||||
Income from operations | 53,704 | 35,287 | 60,138 | — | 149,129 | ||||||||||||||||
Equity in net earnings of subsidiaries | 61,716 | — | — | (61,716 | ) | — | |||||||||||||||
Interest expense and other | 14,174 | (43 | ) | 7,024 | — | 21,155 | |||||||||||||||
Income tax provision | 13,974 | 12,366 | 14,362 | — | 40,702 | ||||||||||||||||
Net income from continuing operations | 87,272 | 22,964 | 38,752 | (61,716 | ) | 87,272 | |||||||||||||||
Gain from discontinued operations, net | 162 | — | — | — | — | ||||||||||||||||
Net income | $ | 87,434 | $ | 22,964 | $ | 38,752 | $ | (61,716 | ) | $ | 87,434 | ||||||||||
F-37
Table of Contents
Year ended December 31, 2004 | |||||||||||||||||||||
Quicksilver | |||||||||||||||||||||
Quicksilver | Guarantor | Non-guarantor | Resources Inc. | ||||||||||||||||||
(amounts in thousands) | Resources Inc. | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Revenues | $ | 100,126 | $ | 38,099 | $ | 42,925 | $ | (1,421 | ) | $ | 179,729 | ||||||||||
Operating expenses | 87,179 | 13,641 | 20,815 | (1,421 | ) | 120,214 | |||||||||||||||
Income from equity affiliates | 75 | 1,103 | — | — | 1,178 | ||||||||||||||||
Income from operations | 13,022 | 25,561 | 22,110 | — | 60,693 | ||||||||||||||||
Equity in net earnings of subsidiaries | 32,539 | — | — | (32,539 | ) | — | |||||||||||||||
Interest expense and other | 13,600 | (14 | ) | 1,661 | — | 15,247 | |||||||||||||||
Income tax provision | 689 | 8,951 | 4,534 | — | 14,174 | ||||||||||||||||
Net income | $ | 31,272 | $ | 16,624 | $ | 15,915 | $ | (32,539 | ) | $ | 31,272 | ||||||||||
Year ended December 31, 2003 | |||||||||||||||||||||
Quicksilver | |||||||||||||||||||||
Quicksilver | Guarantor | Non-guarantor | Resources Inc. | ||||||||||||||||||
(amounts in thousands) | Resources Inc. | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Revenues | $ | 95,481 | $ | 34,789 | $ | 11,540 | $ | (861 | ) | $ | 140,949 | ||||||||||
Operating expenses | 75,517 | 12,694 | 6,432 | (861 | ) | 93,782 | |||||||||||||||
Income from equity affiliates | 86 | 1,245 | — | — | 1,331 | ||||||||||||||||
Income from operations | 20,050 | 23,340 | 5,108 | — | 48,498 | ||||||||||||||||
Equity in net earnings of subsidiaries | 18,784 | — | — | (18,784 | ) | — | |||||||||||||||
Interest expense and other | 20,093 | (11 | ) | (86 | ) | — | 19,996 | ||||||||||||||
Income tax provision | 160 | 8,095 | 1,742 | — | 9,997 | ||||||||||||||||
Net income before accounting change | 18,581 | 15,256 | 3,452 | (18,784 | ) | 18,505 | |||||||||||||||
Cumulative effect of accounting change | 2,373 | 13 | (89 | ) | — | 2,297 | |||||||||||||||
Net income | $ | 16,208 | $ | 15,243 | $ | 3,541 | $ | (18,784 | ) | $ | 16,208 | ||||||||||
F-38
Table of Contents
Year ended December 31, 2005 | ||||||||||||||||||||
Quicksilver | ||||||||||||||||||||
Quicksilver | Guarantor | Non-guarantor | Resources Inc. | |||||||||||||||||
(amounts in thousands) | Resources Inc. | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Cash flow provided by operations | $ | 58,242 | $ | 40,201 | $ | 46,024 | $ | — | $ | 144,467 | ||||||||||
Cash flow used for investing activities | (181,613 | ) | (45,691 | ) | (91,964 | ) | — | (319,268 | ) | |||||||||||
Cash flow provided by financing activities | 121,933 | — | 50,493 | — | 172,426 | |||||||||||||||
Effect of exchange rates on cash | — | — | 746 | — | 746 | |||||||||||||||
Net increase (decrease) in cash & equivalents | (1,438 | ) | (5,490 | ) | 5,299 | — | (1,629 | ) | ||||||||||||
Cash & equivalents at beginning of period | 10,428 | 1,080 | 4,439 | — | 15,947 | |||||||||||||||
Cash & equivalents at end of period | $ | 8,990 | $ | (4,410 | ) | $ | 9,738 | $ | — | $ | 14,318 | |||||||||
Year ended December 31, 2004 | ||||||||||||||||||||
Quicksilver | ||||||||||||||||||||
Quicksilver | Guarantor | Non-guarantor | Resources Inc. | |||||||||||||||||
(amounts in thousands) | Resources Inc. | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Cash flow provided by operations | $ | 48,415 | $ | 9,749 | $ | 26,683 | $ | — | $ | 84,847 | ||||||||||
Cash flow used for investing activities | (103,201 | ) | (9,071 | ) | (93,626 | ) | — | (205,898 | ) | |||||||||||
Cash flow provided by financing activities | 62,549 | — | 71,840 | — | 134,389 | |||||||||||||||
Effect of exchange rates on cash | — | — | (1,507 | ) | — | (1,507 | ) | |||||||||||||
Net increase (decrease) in cash & equivalents | 7,763 | 678 | 3,390 | — | 11,831 | |||||||||||||||
Cash & equivalents at beginning of period | 2,665 | 402 | 1,049 | — | 4,116 | |||||||||||||||
Cash & equivalents at end of period | $ | 10,428 | $ | 1,080 | $ | 4,439 | $ | — | $ | 15,947 | ||||||||||
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Year ended December 31, 2003 | ||||||||||||||||||||
Quicksilver | ||||||||||||||||||||
Quicksilver | Guarantor | Non-guarantor | Resources Inc. | |||||||||||||||||
(amounts in thousands) | Resources Inc. | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Cash flow provided by operations | $ | 41,351 | $ | 4,567 | $ | 3,684 | $ | — | $ | 49,602 | ||||||||||
Cash flow used for investing activities | (75,230 | ) | (4,848 | ) | (57,666 | ) | — | (137,744 | ) | |||||||||||
Cash flow provided by financing activities | 28,193 | — | 51,176 | — | 79,369 | |||||||||||||||
Effect of exchange rates on cash | — | — | 3,773 | — | 3,773 | |||||||||||||||
Net increase (decrease) in cash & equivalents | (5,686 | ) | (281 | ) | 967 | — | (5,000 | ) | ||||||||||||
Cash & equivalents at beginning of period | 8,351 | 683 | 82 | — | 9,116 | |||||||||||||||
Cash & equivalents at end of period | $ | 2,665 | $ | 402 | $ | 1,049 | $ | — | $ | 4,116 | ||||||||||
For the years ended December 31, | ||||||||||||
(In thousands) | 2005 | 2004 | 2003 | |||||||||
Interest | $ | 21,466 | $ | 14,742 | $ | 19,543 | ||||||
Income taxes | 888 | 72 | 66 | |||||||||
For the years ended December 31, | |||||||||||||
(In thousands) | 2005 | 2004 | 2003 | ||||||||||
Noncash changes in working capital related to acquisition of property and equipment— net | $ | (31,475 | ) | $ | (16,651 | ) | $ | (10,593 | ) | ||||
Distribution of equity to Mercury Exploration Company | $ | — | $ | — | $ | (515 | ) | ||||||
Tax benefit recognized on employee stock option exercises | 6,536 | 4,243 | 739 | ||||||||||
Treasury stock (acquired) reissued: | |||||||||||||
10,293 shares for non-employee director stock option exercise | — | 189 | — | ||||||||||
8,402 shares for employee stock option exercise | — | — | (200 | ) | |||||||||
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F-41
Table of Contents
United | ||||||||||||||||
(In thousands) | States | Canada | Corporate | Consolidated | ||||||||||||
2005 | ||||||||||||||||
Revenues | $ | 212,704 | $ | 97,744 | $ | — | $ | 310,448 | ||||||||
Depletion, depreciation and accretion | 35,509 | 19,089 | 615 | 55,213 | ||||||||||||
Operating income (loss) | 106,730 | 61,992 | (19,593 | ) | 149,129 | |||||||||||
Fixed assets— net | 777,330 | 332,580 | 2,092 | 1,112,002 | ||||||||||||
Property and equipment costs incurred | 241,245 | 118,680 | 1,044 | 360,969 | ||||||||||||
2004 | ||||||||||||||||
Revenues | $ | 136,580 | $ | 43,149 | $ | — | $ | 179,729 | ||||||||
Depletion, depreciation and accretion | 30,808 | 9,282 | 601 | 40,691 | ||||||||||||
Operating income (loss) | 50,763 | 23,465 | (13,535 | ) | 60,693 | |||||||||||
Fixed assets— net | 581,575 | 219,369 | 1,666 | 802,610 | ||||||||||||
Property and equipment costs incurred | 126,512 | 104,580 | 665 | 231,757 | ||||||||||||
2003 | ||||||||||||||||
Revenues | $ | 129,235 | $ | 11,714 | $ | — | $ | 140,949 | ||||||||
Depletion, depreciation and accretion | 29,036 | 2,562 | 469 | 32,067 | ||||||||||||
Operating income (loss) | 51,898 | 5,202 | (8,602 | ) | 48,498 | |||||||||||
Fixed assets— net | 496,102 | 106,789 | 1,685 | 604,576 | ||||||||||||
Property and equipment costs incurred | 78,936 | 69,297 | 255 | 148,488 | ||||||||||||
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Natural Gas (MMcf) | Crude Oil (MBbl) | NGL (MBbl) | |||||||||||||||||||||||||||||||||||
United | United | United | |||||||||||||||||||||||||||||||||||
States | Canada | Total | States | Canada | Total | States | Canada | Total | |||||||||||||||||||||||||||||
December 31, 2002 | 637,984 | 53,602 | 691,586 | 16,002 | — | 16,002 | 2,216 | — | 2,216 | ||||||||||||||||||||||||||||
Revisions | (9,137 | ) | 2,363 | (6,774 | ) | (2,022 | ) | 1 | (2,021 | ) | (165 | ) | 2 | (163 | ) | ||||||||||||||||||||||
Extensions and discoveries | 45,081 | 93,591 | 138,672 | — | — | — | — | — | — | ||||||||||||||||||||||||||||
Purchases in place | 1,204 | — | 1,204 | — | — | — | — | — | — | ||||||||||||||||||||||||||||
Production | (31,612 | ) | (2,924 | ) | (34,536 | ) | (807 | ) | (1 | ) | (808 | ) | (133 | ) | (2 | ) | (135 | ) | |||||||||||||||||||
December 31, 2003 | 643,520 | 146,632 | 790,152 | 13,173 | — | 13,173 | 1,918 | — | 1,918 | ||||||||||||||||||||||||||||
Revisions | (18,350 | ) | (12,105 | ) | (30,455 | ) | (43 | ) | — | (43 | ) | (44 | ) | 1 | (43 | ) | |||||||||||||||||||||
Extensions and discoveries | 28,752 | 131,796 | 160,548 | 3 | — | 3 | 2,447 | — | 2,447 | ||||||||||||||||||||||||||||
Purchases in place | 5,000 | 3,461 | 8,461 | — | — | — | — | — | — | ||||||||||||||||||||||||||||
Sales in place | (602 | ) | — | (602 | ) | (3,377 | ) | — | (3,377 | ) | (6 | ) | — | (6 | ) | ||||||||||||||||||||||
Production | (30,644 | ) | (8,707 | ) | (39,351 | ) | (689 | ) | — | (689 | ) | (128 | ) | (1 | ) | (129 | ) | ||||||||||||||||||||
December 31, 2004 | 627,676 | 261,077 | 888,753 | 9,067 | — | 9,067 | 4,187 | — | 4,187 | ||||||||||||||||||||||||||||
Revisions | (7,898 | ) | (21,155 | ) | (29,053 | ) | (2,883 | ) | — | (2,883 | ) | (1,233 | ) | 3 | (1,230 | ) | |||||||||||||||||||||
Extensions and discoveries | 128,038 | 79,813 | 207,851 | 280 | — | 280 | 6,884 | — | 6,884 | ||||||||||||||||||||||||||||
Purchases in place | 236 | — | 236 | 4 | — | 4 | 5 | — | 5 | ||||||||||||||||||||||||||||
Sales in place | (65 | ) | — | (65 | ) | — | — | — | — | — | — | ||||||||||||||||||||||||||
Production | (31,944 | ) | (14,825 | ) | (46,769 | ) | (553 | ) | — | (553 | ) | (220 | ) | (3 | ) | (223 | ) | ||||||||||||||||||||
December 31, 2005 | 716,043 | 304,910 | 1,020,953 | 5,915 | — | 5,915 | 9,623 | — | 9,623 | ||||||||||||||||||||||||||||
Proved developed reserves | |||||||||||||||||||||||||||||||||||||
December 31, 2003 | 569,979 | 83,698 | 653,677 | 8,734 | — | 8,734 | 1,405 | — | 1,405 | ||||||||||||||||||||||||||||
December 31, 2004 | 556,999 | 149,453 | 706,452 | 4,587 | — | 4,587 | 2,464 | — | 2,464 | ||||||||||||||||||||||||||||
December 31, 2005 | 593,630 | 199,859 | 793,489 | 4,986 | — | 4,986 | 5,153 | — | 5,153 | ||||||||||||||||||||||||||||
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United | ||||||||||||
(in thousands) | States | Canada | Consolidated | |||||||||
2005 | ||||||||||||
Proved properties | $ | 779,661 | $ | 300,001 | $ | 1,079,662 | ||||||
Unevaluated properties | 102,206 | 29,884 | 132,090 | |||||||||
Accumulated DD&A | (210,495 | ) | (32,599 | ) | (243,094 | ) | ||||||
Net capitalized costs | $ | 671,372 | $ | 297,286 | $ | 968,658 | ||||||
2004 | ||||||||||||
Proved properties | $ | 644,527 | $ | 193,607 | $ | 838,134 | ||||||
Unevaluated properties | 57,929 | 39,239 | 97,168 | |||||||||
Accumulated DD&A | (180,975 | ) | (14,440 | ) | (195,415 | ) | ||||||
Net capitalized costs | $ | 521,481 | $ | 218,406 | $ | 739,887 | ||||||
2003 | ||||||||||||
Proved properties | $ | 577,322 | $ | 88,135 | $ | 665,457 | ||||||
Unevaluated properties | 27,110 | 22,809 | 49,919 | |||||||||
Accumulated DD&A | (155,183 | ) | (4,618 | ) | (159,801 | ) | ||||||
Net capitalized costs | $ | 449,249 | $ | 106,326 | $ | 555,575 | ||||||
(in thousands) | United | Canada | Consolidated | ||||||||||
States | |||||||||||||
2005 | |||||||||||||
Proved acreage | $ | 821 | $ | 1,620 | $ | 2,441 | |||||||
Unproved acreage | 48,419 | 3,784 | 52,203 | ||||||||||
Development costs | 24,007 | 82,388 | 106,395 | ||||||||||
Exploration costs | 109,148 | 9,829 | 118,977 | ||||||||||
Total | $ | 182,395 | $ | 97,621 | $ | 280,016 | |||||||
2004 | |||||||||||||
Proved acreage | $ | 11,907 | $ | 2,942 | $ | 14,849 | |||||||
Unproved acreage | 31,857 | 7,144 | 39,001 | ||||||||||
Development costs | 45,213 | 71,094 | 116,307 | ||||||||||
Exploration costs | 25,673 | 22,631 | 48,304 | ||||||||||
Total | $ | 114,650 | $ | 103,811 | $ | 218,461 | |||||||
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United | |||||||||||||
(in thousands) | States | Canada | Consolidated | ||||||||||
2003 | |||||||||||||
Proved acreage | $ | 3,215 | $ | 3,388 | $ | 6,603 | |||||||
Unproved acreage | 24,063 | 6,739 | 30,802 | ||||||||||
Development costs | 37,682 | 41,820 | 79,502 | ||||||||||
Exploration costs | 9,411 | 17,066 | 26,477 | ||||||||||
Total | $ | 74,371 | $ | 69,013 | $ | 143,384 | |||||||
United | ||||||||||||
(in thousands) | States | Canada | Consolidated | |||||||||
2005 | ||||||||||||
Natural gas, crude oil & NGL sales | $ | 209,715 | $ | 96,489 | $ | 306,204 | ||||||
Oil & gas production expense | 69,609 | 16,663 | 86,272 | |||||||||
Depletion expense | 30,174 | 17,347 | 47,521 | |||||||||
109,932 | 62,479 | 172,411 | ||||||||||
Income tax expense | 38,476 | 21,005 | 59,481 | |||||||||
Results from producing activities | $ | 71,456 | $ | 41,474 | $ | 112,930 | ||||||
2004 | ||||||||||||
Natural gas, crude oil & NGL sales | $ | 134,268 | $ | 42,905 | $ | 177,173 | ||||||
Oil & gas production expense | 55,224 | 10,402 | 65,626 | |||||||||
Depletion expense | 26,444 | 8,980 | 35,424 | |||||||||
53,600 | 23,523 | 76,123 | ||||||||||
Income tax expense | 18,410 | 7,908 | 26,318 | |||||||||
Results from producing activities | $ | 34,190 | $ | 15,615 | $ | 49,805 | ||||||
2003 | ||||||||||||
Natural gas, crude oil & NGL sales | $ | 127,339 | $ | 11,698 | $ | 139,037 | ||||||
Oil & gas production expense | 48,572 | 3,952 | 52,524 | |||||||||
Depletion expense | 25,681 | 2,428 | 28,109 | |||||||||
53,086 | 5,318 | 58,404 | ||||||||||
Income tax expense | 18,580 | 2,107 | 20,687 | |||||||||
Results from producing activities | $ | 34,506 | $ | 3,211 | $ | 37,717 | ||||||
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At December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Natural gas—Henry Hub-Spot | $ | 10.08 | $ | 6.18 | $ | 5.97 | ||||||
Natural gas—AECO | 8.41 | 5.18 | 5.32 | |||||||||
Crude oil—WTI Cushing | 61.06 | 43.36 | 32.55 |
United | ||||||||||||
(in thousands) | States | Canada | Consolidated | |||||||||
2005 | ||||||||||||
Future revenues | $ | 7,387,151 | $ | 2,487,289 | $ | 9,874,440 | ||||||
Future production costs | (1,974,844 | ) | (494,056 | ) | (2,468,900 | ) | ||||||
Future development costs | (179,141 | ) | (145,303 | ) | (324,444 | ) | ||||||
Future income taxes | (1,719,136 | ) | (539,167 | ) | (2,258,303 | ) | ||||||
Future net cash flows | 3,514,030 | 1,308,763 | 4,822,793 | |||||||||
10% discount— calculated difference | (2,283,052 | ) | (715,609 | ) | (2,998,661 | ) | ||||||
Standardized measure of discounted future net cash flows relating to proved reserves | $ | 1,230,978 | $ | 593,154 | $ | 1,824,132 | ||||||
F-46
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United | ||||||||||||
(in thousands) | States | Canada | Consolidated | |||||||||
2004 | ||||||||||||
Future revenues | $ | 4,241,385 | $ | 1,306,819 | $ | 5,548,204 | ||||||
Future production costs | (1,456,005 | ) | (295,443 | ) | (1,751,448 | ) | ||||||
Future development costs | (116,559 | ) | (145,297 | ) | (261,856 | ) | ||||||
Future income taxes | (836,557 | ) | (238,141 | ) | (1,074,698 | ) | ||||||
Future net cash flows | 1,832,264 | 627,938 | 2,460,202 | |||||||||
10% discount— calculated difference | (1,133,990 | ) | (355,481 | ) | (1,489,471 | ) | ||||||
Standardized measure of discounted future net cash flows relating to proved reserves | $ | 698,274 | $ | 272,457 | $ | 970,731 | ||||||
2003 | ||||||||||||
Future revenues | $ | 4,125,685 | $ | 746,722 | $ | 4,872,407 | ||||||
Future production costs | (1,342,167 | ) | (122,164 | ) | (1,464,331 | ) | ||||||
Future development costs | (117,330 | ) | (60,696 | ) | (178,026 | ) | ||||||
Future income taxes | (851,337 | ) | (162,636 | ) | (1,013,973 | ) | ||||||
Future net cash flows | 1,814,851 | 401,226 | 2,216,077 | |||||||||
10% discount— calculated difference | (1,120,056 | ) | (247,280 | ) | (1,367,336 | ) | ||||||
Standardized measure of discounted future net cash flows relating to proved reserves | $ | 694,795 | $ | 153,946 | $ | 848,741 | ||||||
As of December 31, | |||||||||||||
(in thousands) | 2005 | 2004 | 2003 | ||||||||||
Net changes in price and production costs | $ | 734,930 | $ | (82,974 | ) | $ | 140,623 | ||||||
Development costs incurred | 44,399 | 61,069 | 44,167 | ||||||||||
Revision of estimates | (29,506 | ) | (30,509 | ) | (27,901 | ) | |||||||
Changes in estimated future development costs | 43,939 | 3,183 | (12,703 | ) | |||||||||
Purchase and sale of reserves, net | 824 | (23,367 | ) | 1,832 | |||||||||
Extensions and discoveries | 515,810 | 219,656 | 170,660 | ||||||||||
Net change in income taxes | (405,724 | ) | (21,638 | ) | (99,013 | ) | |||||||
Sales of oil and gas net of production costs | (219,932 | ) | (111,987 | ) | (86,843 | ) | |||||||
Accretion of discount | 134,428 | 120,065 | 86,775 | ||||||||||
Other | 34,233 | (11,508 | ) | 16,293 | |||||||||
Net increase | $ | 853,401 | $ | 121,990 | $ | 233,890 | |||||||
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(in thousands, except per share data) | Mar 31 | Jun 30 | Sep 30 | Dec 31 | ||||||||||||
2005 | ||||||||||||||||
Operating revenues | $ | 55,249 | $ | 68,540 | $ | 83,773 | $ | 102,886 | ||||||||
Operating income | 19,943 | 30,026 | 41,228 | 57,932 | ||||||||||||
Net income from continuing operations | 10,754 | 17,185 | 24,693 | 34,640 | ||||||||||||
Net income | 10,754 | 17,185 | 24,755 | 34,740 | ||||||||||||
Basic net income per share from continuing operations | $ | 0.14 | $ | 0.23 | $ | 0.33 | $ | 0.46 | ||||||||
Basic net income per share | 0.14 | 0.23 | 0.33 | 0.46 | ||||||||||||
Diluted net income per share from continuing operations | 0.14 | 0.21 | 0.31 | 0.43 | ||||||||||||
Diluted net income per share | 0.14 | 0.21 | 0.31 | 0.43 | ||||||||||||
2004 | ||||||||||||||||
Operating revenues | $ | 39,777 | $ | 41,980 | $ | 45,544 | $ | 52,428 | ||||||||
Operating income | 12,012 | 13,172 | 16,109 | 19,400 | ||||||||||||
Net income | 5,937 | 7,500 | 7,889 | 9,946 | ||||||||||||
Basic net income per share | $ | 0.08 | $ | 0.10 | $ | 0.11 | $ | 0.13 | ||||||||
Diluted net income per share | 0.08 | 0.10 | 0.10 | 0.13 | ||||||||||||
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1
Table of Contents
• | Our Annual Report on Form 10-K for the fiscal year ended December 31, 2005; | |
• | Our Current Reports on Form 8-K filed on January 19, 2006, January 31, 2006, February 1, 2006 and February 22, 2006; | |
• | The description of our common stock, par value $0.01 per share, contained in our Registration Statement on Form 8-A filed on October 11, 2001, including any amendments thereto; and | |
• | The description of our rights to purchase our Series A Junior Participating Preferred Stock contained in our Registration Statement on Form 8-A filed on March 14, 2003, including any amendments thereto. |
2
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• | changes in general economic conditions; | |
• | fluctuations in natural gas and crude oil prices; | |
• | failure or delays in achieving expected production from natural gas and crude oil exploration and development projects; | |
• | uncertainties inherent in estimates of natural gas and crude oil reserves and predicting natural gas and crude oil reservoir performance; | |
• | effects of hedging natural gas and crude oil prices; | |
• | competitive conditions in our industry; | |
• | actions taken by third-party operators, processors and transporters; | |
• | changes in the availability and cost of capital; | |
• | delays in obtaining oil field equipment and increases in drilling and other service costs; | |
• | operating hazards, natural disasters, weather-related delays, casualty losses and other matters beyond our control; | |
• | the effects of existing and future laws and governmental regulations; and | |
• | the effects of existing or future litigation. |
3
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• | the title of the debt securities; | |
• | the extent, if any, to which the debt securities are subordinated in right of payment to other indebtedness of Quicksilver; | |
• | any limit on the aggregate principal amount of the debt securities; | |
• | any guarantees applicable to the debt securities, and any subordination provisions or other limitations applicable to any such guarantees; | |
• | the persons to whom any interest on the debt securities will be payable, if other than the registered holders thereof on the regular record date therefor; | |
• | the date or dates on which the principal of the debt securities will be payable; | |
• | the rate or rates at which the debt securities will bear interest, if any, and the date or dates from which interest will accrue; | |
• | the dates on which interest will be payable and the regular record dates for interest payment dates; | |
• | the place or places where the principal of and any premium and interest on the debt securities will be payable; | |
• | the period or periods, if any, within which, and the price or prices at which, the debt securities may be redeemed, in whole or in part, at our option; | |
• | our obligation, if any, to redeem or purchase the debt securities pursuant to sinking fund or similar provisions and the terms and conditions of any such redemption or purchase; | |
• | the denominations in which the debt securities will be issuable, if other than denominations of $1,000 and any integral multiple thereof; | |
• | the currency, currencies or currency units, if other than currency of the United States of America, in which payment of the principal of and any premium or interest on the debt securities will be payable, and the terms and conditions of any elections that may be made available with respect thereto; | |
• | any index or formula used to determine the amount of payments of principal of and any premium or interest on the debt securities; | |
• | whether the debt securities are to be issued in whole or in part in the form of one or more global securities and, if so, the identity of the depositary, if any, for the global securities; | |
• | the terms and conditions, if any, pursuant to which the debt securities are convertible into or exchangeable for the common stock or other securities of Quicksilver or any other person; | |
• | the principal amount (or any portion of the principal amount) of the debt securities which will be payable upon any declaration of acceleration of the maturity of the debt securities pursuant to an event of default; and | |
• | the applicability to the debt securities of the provisions described in “— Defeasance” below. |
4
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• | the debt securities will be issued only in fully registered form (without coupons) in denominations of $1,000 or integral multiples thereof; and | |
• | payment of principal, premium, if any, and interest on the debt securities will be payable, and the exchange, conversion, and transfer of debt securities will be registrable, at our office or agency maintained for those purposes and at any other office or agency maintained for those purposes. No service charge will be made for any registration of transfer or exchange of the debt securities, but we may require payment of a sum sufficient to cover any tax or other governmental charge imposed in connection therewith. |
• | by the depositary to a nominee of the depositary; | |
• | by a nominee of the depositary to the depositary or another nominee of the depositary; | |
• | by the depositary or any nominee of the depositary to a successor depositary or a nominee of the successor depositary; or | |
• | in any other circumstances described in an applicable prospectus supplement. |
5
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• | the applicable depositary would authorize its participants to give the notice or take the action; and | |
• | the participants would authorize persons owning the beneficial interests through the participants to give the notice or take the action or would otherwise act upon the instructions of the persons owning the beneficial interests. |
6
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(1) failure to pay principal of or premium, if any, on any debt security of that series when due; | |
(2) failure to pay any interest on any debt security of that series when due, which failure continues for 30 calendar days; | |
(3) failure to make any sinking fund payment when and as due by the terms of any debt security of that series; | |
(4) failure to redeem any debt security of that series when required to do so under the terms thereof; | |
(5) failure to perform, or breach of, any other of our covenants in the indenture (other than a covenant included in the indenture solely for the benefit of a series of debt securities other than that series), which failure or breach continues for 60 calendar days after written notice thereof has been given to us as provided in the indenture; | |
(6) any nonpayment at maturity or other default (beyond any applicable grace period) under any agreement or instrument relating to any other of our or certain of our subsidiaries’ indebtedness, the unpaid principal amount of which is not less than $15 million, which default results in the acceleration of the maturity of the indebtedness prior to its stated maturity or occurs at the final maturity thereof; | |
(7) specified events of bankruptcy, insolvency, or reorganization involving us or certain of our subsidiaries; and | |
(8) any other Event of Default provided with respect to debt securities of that series. |
• | in the case of a default in the performance of any covenant of the character contemplated in clause (5) above, no notice will be given until at least 30 calendar days after the occurrence of the default; and | |
• | other than in the case of a default of the character contemplated in clause (1), (2), or (3) above, the trustee may withhold notice if and so long as it in good faith determines that the withholding of notice is in the interests of the holders of the debt securities of that series. |
7
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• | the holder has previously given to the trustee written notice of a continuing Event of Default; | |
• | the holders of at least 25% in aggregate principal amount of the outstanding debt securities of the same series have requested the trustee to institute a proceeding in respect of the Event of Default; | |
• | the holder or holders have furnished reasonable indemnity to the trustee to institute the proceeding as trustee; | |
• | the trustee has not received from the holders of a majority in principal amount of the outstanding debt securities of the same series a direction inconsistent with the request; and | |
• | the trustee has failed to institute the proceeding within 60 calendar days. |
• | change the stated maturity of, or any installment of principal of, or interest on, any debt security; | |
• | reduce the principal amount of, the rate of interest on, or the premium, if any, payable upon the redemption of, any debt security; | |
• | reduce the amount of principal of an original issue discount security payable upon acceleration of the maturity thereof; | |
• | change the place or currency of payment of principal of, or premium, if any, or interest on any debt security; | |
• | impair the right to institute suit for the enforcement of any payment on or with respect to any debt security on or after the stated maturity or prepayment date thereof; or | |
• | reduce the percentage in principal amount of debt securities of any series required for modification or amendment of the indenture or for waiver of compliance with certain provisions of the indenture or for waiver of certain defaults. |
• | a default in the payment of the principal of, or premium, if any, or interest on, any debt security of that series; or |
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• | a default of a provision of the indenture that cannot be modified or amended without the consent of the holder of each debt security of that series. |
(1) will be deemed to have been discharged from our obligations with respect to the debt securities of that series; or | |
(2) will be released from our obligations to comply with certain covenants described under “— Certain Covenants of Quicksilver” above with respect to the debt securities of that series, and the occurrence of an event described in any of clauses (3), (4), (5), (6), and (8) under “— Events of Default” above will no longer be an Event of Default with respect to the debt securities of that series except to the limited extent described below. |
• | no Event of Default or event which with the giving of notice or lapse of time, or both, would become an Event of Default under the indenture shall have occurred and be continuing on the date of such deposit; | |
• | no Event of Default described in clause (7) under “— Events of Default” above or event that with the giving of notice or lapse of time, or both, would become an Event of Default described in such clause (7) shall have occurred and be continuing at any time on or prior to the 90th calendar day following the date of deposit; | |
• | in the event of any defeasance described in clause (1) above, we shall have delivered an opinion of counsel, stating that (a) we have received from, or there has been published by, the IRS a ruling or (b) there has been a change in applicable federal law, in either case to the effect that, among other things, the holders of the debt securities of such series will not recognize gain or loss for United States federal income tax purposes as a result of such deposit or defeasance and will be subject to United States federal income tax in the same manner as if such defeasance had not occurred; and | |
• | in the event of any defeasance described in clause (2) above, we shall have delivered an opinion of counsel to the effect that, among other things, the holders of the debt securities of such series will not recognize gain or loss for United States federal income tax purposes as a result of such deposit or defeasance and will be subject to United States federal income tax in the same manner as if such defeasance had not occurred. |
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• | either: |
(1) all of our debt securities previously authenticated and delivered under the indenture (subject to specified exceptions relating to debt securities that have otherwise been satisfied or provided for) have been delivered to the trustee for cancellation; or | |
(2) all of our debt securities not previously delivered to the trustee for cancellation have become due and payable, will become due and payable at their stated maturity within one year, or are to be called for redemption within one year under arrangements satisfactory to the trustee for the giving of notice of redemption by the trustee, and we have deposited or caused to be deposited with the trustee as trust funds for such purpose an amount sufficient to pay and discharge the entire indebtedness on such debt securities, for principal and any premium and interest to the date of such deposit (in the case of debt securities which have become due and payable) or to the stated maturity or redemption date, as the case may be; |
• | we have paid or caused to be paid all other sums payable by us under the indenture; and | |
• | we have delivered to the trustee an officer’s certificate and an opinion of counsel, each to the effect that all conditions precedent relating to the satisfaction and discharge of the indenture have been satisfied. |
• | either |
(1) we are the continuing or surviving person in the consolidation or merger; or | |
(2) the person (if other than us) formed by the consolidation or into which we are merged or to which all or substantially all of our properties and assets are transferred is a corporation, partnership, limited liability company, business trust, trust or other legal entity organized and validly existing under the laws of the United States, any State thereof, or the District of Columbia, and expressly assumes, by a supplemental indenture, all of our obligations under the debt securities and the indenture; |
• | immediately after the transaction and the incurrence or anticipated incurrence of any indebtedness to be incurred in connection therewith, no Event of Default exists; and | |
• | an officer’s certificate is delivered to the trustee to the effect that both of the conditions set forth above have been satisfied and an opinion of outside counsel has been delivered to the trustee to the effect that the first condition set forth above has been satisfied. |
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• | the ownership or acquisition of securities issued under any indenture or having a maturity of one year or more at the time of acquisition by the trustee; | |
• | specified advances authorized by a receivership or bankruptcy court of competent jurisdiction or by the indenture; | |
• | disbursements made in the ordinary course of business in its capacity as indenture trustee, transfer agent, registrar, custodian, or paying agent or in any other similar capacity; | |
• | indebtedness created as a result of goods or securities sold in a cash transaction or services rendered or premises rented; or | |
• | the acquisition, ownership, acceptance, or negotiation of specified drafts, bills of exchange, acceptances, or other obligations. |
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• | the designation of the series; | |
• | the rate and time of, and conditions and preferences with respect to, dividends, and whether the dividends will be cumulative; | |
• | the voting rights, if any, of shares of the series; | |
• | the price, timing and conditions regarding the redemption of shares of the series and whether a sinking fund should be established for the series; | |
• | the rights and preferences of shares of the series in the event of voluntary or involuntary dissolution, liquidation or winding up of our affairs; and | |
• | the right, if any, to convert or exchange shares of the series into or for stock or securities of any other series or class. |
General |
Preferred Stock |
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Classified Board of Directors; Removable Only for Cause |
Supermajority Voting |
• | our restated certificate of incorporation governing the election and removal of directors; and | |
• | our restated certificate of incorporation prohibiting stockholder actions by written consent. |
Limitation of Director Liability |
• | any breach of the director’s duty of loyalty to our company or our stockholders; | |
• | acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; | |
• | violations under Section 174 of the Delaware General Corporation Law, which relates to unlawful payments of dividends or unlawful stock repurchases or redemptions; or | |
• | any transaction from which the director derived an improper personal benefit. |
No Stockholder Action by Written Consent |
Special Meetings of Stockholders |
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• | the first date of public announcement of a person or group of affiliated or associated persons (referred to herein as an acquiring person) having acquired beneficial ownership of 15% or more of our outstanding common shares, except pursuant to a permitted offer or if such person or group is a grandfathered stockholder; or | |
• | 10 days, or such later date as our board of directors may determine, following the commencement of, or first public announcement of an intention to make, a tender offer or exchange offer, the consummation of which would result in a person or group becoming an acquiring person. |
• | a person becoming an acquiring person; or | |
• | the expiration of the rights. |
• | prior to that time, either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder is approved by the board of directors of the corporation; | |
• | upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the outstanding voting stock of the corporation, excluding for this purpose shares owned by persons who are directors and also officers of the corporation and by specified employee benefit plans; or |
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• | at or after such time the business combination is approved by the board of directors of the corporation and by the affirmative vote of at least 662/3% of the outstanding voting stock which is not owned by the interested stockholder. |
• | the title of the warrants; | |
• | the aggregate number of the warrants; | |
• | the price or prices at which the warrants will be issued; | |
• | the designation, number or principal amount and terms of the debt securities, common stock, preferred stock, and/or depositary shares purchasable upon exercise of the warrants; | |
• | the designation and terms of the other securities, if any, with which the warrants are issued and the number of warrants issued with each security; | |
• | the date, if any, on and after which the warrants and the related underlying securities will be separately transferable; | |
• | whether the warrants will be issued in registered form or bearer form; |
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• | the price at which each underlying security purchasable upon exercise of the warrants may be purchased; | |
• | the date on which the right to exercise the warrants will commence and the date on which that right will expire; | |
• | the identity of the warrant agent; | |
• | the maximum or minimum number of the warrants that may be exercised at any one time; | |
• | information with respect to book-entry procedures, if any; | |
• | a discussion of any material federal income tax considerations; and | |
• | any other terms of the warrants, including terms, procedures, and limitations relating to the transferability, exchange, and exercise of the warrants. |
• | whether the purchase contracts obligate the holder or us to purchase or sell, or both purchase and sell the securities subject to purchase under the purchase contract, and the nature and amount of each of those securities, or the method of determining those amounts; | |
• | whether the purchase contracts are to be prepaid or not; | |
• | whether the purchase contracts are to be settled by delivery, or by reference or linkage to the value, performance or level of the securities subject to purchase under the purchase contract; | |
• | any acceleration, cancellation, termination or other provisions relating to the settlement of the purchase contracts; and | |
• | whether the purchase contracts will be issued in fully registered or global form. |
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• | the designation and terms of the units and the securities comprising the units, including whether and under what circumstances those securities may be held or transferred separately; | |
• | any provision for the issuance, payment, settlement, transfer or exchange of the units or of the securities comprising the units; and | |
• | whether the units will be issued in fully registered or global form. |
Year Ended December 31, | ||||||||||||||||||
2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||
6.8x | 3.8x | 2.4x | 2.3x | 2.2x |
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