AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 23, 2001
REGISTRATION STATEMENT NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
DENBURY RESOURCES INC.
DENBURY OFFSHORE, INC.
DENBURY MARINE, L.L.C.
DENBURY ENERGY SERVICES, INC.
(Exact name of Registrants)
<Table>
DELAWARE 1311 75-2815171
DELAWARE (Primary Standard Industrial (I.R.S. Employer
LOUISIANA Classification Code Number) Identification No.)
TEXAS
(State of incorporation
or organization)
</Table>
PHIL RYKHOEK, CHIEF FINANCIAL OFFICER
DENBURY RESOURCES INC.
5100 TENNYSON PARKWAY, SUITE 3000
DALLAS, TEXAS 75024
(972) 673-2000
(Name, address and telephone number of Registrants' executive offices and agent
for service)
COPIES TO:
DONALD W. BRODSKY
JUDY G. GECHMAN
JENKENS & GILCHRIST,
A PROFESSIONAL CORPORATION
1100 LOUISIANA STREET, SUITE 1800
HOUSTON, TEXAS 77002
(713) 951-3300
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
<Table>
<Caption>
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED TO BE REGISTERED PER UNIT OFFERING PRICE(1) FEE(2)
---------------------------------------------------------------------------------------------------------------------------
9% Series B Senior Subordinated Notes
Due 2008............................. $75,000,000 100% $75,000,000 $18,750
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Subsidiary Guarantees.................. (3) (3) (3) (4)
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</Table>
(1) Estimated solely for the purpose of calculating the registration fee under
Rule 457 of the Securities Act of 1933.
(2) Calculated pursuant to Rule 457(f)(2).
(3) No separate consideration will be received for the Subsidiary Guarantees.
(4) Pursuant to Rule 457(n) no fee is due with respect to the Subsidiary
Guarantees.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION RELATING TO THESE SECURITIES IS EFFECTIVE.
THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT AN OFFER TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER 23, 2001
(DRI LOGO)
DENBURY RESOURCES INC.
OFFER TO EXCHANGE ALL OUTSTANDING
9% SERIES B SENIOR SUBORDINATED NOTES DUE 2008
($75,000,000 AGGREGATE PRINCIPAL AMOUNT OUTSTANDING)
FOR
A LIKE PRINCIPAL AMOUNT OF REGISTERED
9% SERIES B SENIOR SUBORDINATED NOTES DUE 2008
The terms and covenants of the new registered 9% Series B Senior
Subordinated Notes Due 2008 to be issued are substantially identical to those of
our outstanding unregistered 9% Series B Senior Subordinated Notes Due 2008 that
you currently hold, except for the transfer restrictions and registration rights
applicable to the outstanding notes. This offer will expire at 5:00 p.m., New
York City time, on , 2001, unless we extend it. The new notes will not
trade on any established exchange.
------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
YOU SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER.
------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE NEW NOTES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Each broker-dealer that receives new notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such new notes. The letter of transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act of 1933. This prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in connection with resales of
new notes received in exchange for old notes where such old notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities. We have agreed that, for a period of 180 days after the expiration
date (as defined herein), we will make this prospectus available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
The date of this prospectus is , 2001.
------------------
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
WHERE YOU CAN FIND MORE INFORMATION.... i
INCORPORATION OF DOCUMENTS BY
REFERENCE............................ i
FORWARD-LOOKING STATEMENTS............. ii
SUMMARY................................ 1
RISK FACTORS........................... 6
USE OF PROCEEDS........................ 10
RATIO OF EARNINGS TO FIXED CHARGES..... 10
</Table>
<Table>
<Caption>
PAGE
----
THE EXCHANGE OFFER..................... 10
DESCRIPTION OF THE NEW NOTES........... 17
CERTAIN U.S. FEDERAL INCOME TAX
CONSIDERATIONS....................... 60
PLAN OF DISTRIBUTION................... 61
NOTICE TO CANADIAN RESIDENTS........... 61
LEGAL MATTERS.......................... 61
EXPERTS................................ 62
</Table>
------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS OR TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS
PROSPECTUS MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE
INFORMATION IN THIS PROSPECTUS MAY ONLY BE ACCURATE ON THE DATE OF THIS
PROSPECTUS.
WHERE YOU CAN FIND MORE INFORMATION
Denbury Resources Inc. files annual and quarterly reports and other
information with the SEC. These documents include specific information regarding
Denbury Resources Inc. You may read and copy any document we file with the SEC
at the SEC's public reference rooms in Washington, DC and Chicago, Illinois.
Please call the SEC at 1-800-SEC-0330 for further information about the public
reference rooms. Our SEC filings are also available to the public at the SEC's
web site at http://www.sec.gov. Except as set forth below, our reports and other
information that are filed with the SEC are not incorporated by reference into
this prospectus and, therefore, are not part of this prospectus.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them into this prospectus, which means that:
- incorporated documents are considered part of this prospectus;
- we can disclose to you important business and financial information about
us, that is not included in or delivered with this prospectus, by
referring you to those other documents; and
- information contained in later-dated documents will supplement, modify or
supersede, as applicable, the information contained in earlier-dated
documents, and information that we subsequently file with the SEC will
automatically update and supersede this incorporated information.
We incorporate by reference into this prospectus the documents listed
below, as amended and supplemented, and all documents filed by us with the SEC
under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
after the date of this prospectus and prior to the time that the exchange offer
made hereby is completed:
- Our Annual Report on Form 10-K for the year ended December 31, 2000;
- Our Quarterly Reports on Form 10-Q for the quarterly periods ended March
31, and June 30, 2001;
i
- Our Current Reports on Form 8-K dated January 26, 2001, June 15, 2001,
July 24, 2001 and August 9, 2001 and Amendment No. 1 to Current Report on
Form 8-K/A dated July 24, 2001; and
- Our Definitive Proxy Statement dated April 5, 2001.
You can obtain any of the filings incorporated by reference into this
document through us or from the SEC through the SEC's web site or at the
addresses listed above. Documents incorporated by reference into this
prospectus, except for any exhibits to those documents that are not expressly
incorporated by reference into those documents, are available from us without
charge by requesting them in writing or by telephone at the following address
and telephone number:
Denbury Resources Inc.
5100 Tennyson Parkway, Suite 3000
Dallas, Texas 75024
Attention: Phil Rykhoek
Telephone: (972) 673-2000
If you request any incorporated documents from us, we will mail them to you
by first class mail, or by another equally prompt means, within one business day
after we receive your request. However, in order to obtain timely delivery of
these documents, you must make your request no later than five business days
before the expiration date of the exchange offer. You may also obtain these
reports through our web site: www.denbury.com under "Shareholder Reports."
Unless the context requires otherwise, all references in this document to
"this prospectus" include all documents incorporated by reference into this
prospectus.
------------------
FORWARD-LOOKING STATEMENTS
The statements contained in this prospectus that are not historical facts
are forward-looking statements as that is defined in Section 21E of the
Securities and Exchange Act of 1934, as amended, that involve a number of risks
and uncertainties. Such forward-looking statements may concern, among other
things, capital expenditures, drilling activity, acquisition plans and proposals
and dispositions, development activities, cost savings, production efforts and
volumes, estimated and potential hydrocarbon and carbon dioxide reserves,
hydrocarbon prices, liquidity, regulatory matters and competition. Such
forward-looking statements generally are accompanied by words such as "plan,"
"estimate," "budgeted," "expect," "predict," "anticipate," "projected,"
"should," "assume," "believe" or other words that convey the uncertainty of
future events or outcomes. Such forward-looking information is based upon
management's current plans, expectations, estimates and assumptions and is
subject to a number of risks and uncertainties that could significantly affect
current plans, anticipated actions, the timing of such actions and our financial
condition and results of operations. As a consequence, actual results may differ
materially from expectations, estimates or assumptions expressed in or implied
by any forward-looking statements made by or on behalf of us. Among the factors
that could cause actual results to differ materially are:
- fluctuations of the prices received or demand for our oil and natural
gas;
- the uncertainty of drilling results and reserve estimates;
- operating hazards;
- acquisition risks;
- requirements for capital;
- general economic or international political conditions;
- competition and government regulations; and
- the other risks and uncertainties discussed in this prospectus and set
forth from time to time in our public reports, filings and public
statements.
ii
SUMMARY
The following summary highlights selected information appearing in other
sections of this prospectus and may not contain all of the information that is
important to you. You should read the entire prospectus carefully, including the
"Risk Factors" section. In this prospectus, when we use the terms "Denbury," the
"Company," "we" or "our," we mean Denbury Resources Inc., and its subsidiaries
on a consolidated basis, including Denbury Offshore, Inc., the surviving
corporation in a recent merger acquisition of Matrix Oil & Gas, Inc., unless
otherwise indicated or the context requires otherwise.
ABOUT DENBURY
We are an independent oil and natural gas company engaged in acquisition,
development and exploration activities in the U.S. Gulf Coast region. We have
significant reserves and production in Mississippi, where we are the largest
producer of oil and natural gas, onshore in Louisiana and in the offshore Gulf
of Mexico. We have an established track record for reserve and production
growth, with an average compound annual growth rate, over the four-year period
ended December 31, 2000, of 34% in reserves and 27% in production.
We have a well-balanced portfolio of development, exploitation and
exploration projects. Our drilling inventory includes a mix of long-lived oil
and shorter-lived natural gas properties, which we exploit utilizing primary,
secondary (waterflood) and tertiary (carbon dioxide injection) recovery methods.
We estimate that our production during the second half of 2001 will be
approximately one-half natural gas and one-half oil. We operate properties
accounting for approximately 92% of the total of the present value at June 30,
2001, pro forma for the Matrix acquisition, of our future net revenues
discounted at 10% per year, which gives us a significant advantage in terms of
being able to control our cost structure and the timing of major operational
decisions. A key to our growth has been our strategy of exploitation and
development of acquired properties, with a goal of doubling the reserves in
place at the time of acquisition. From our inception in 1990 through December
31, 2000, approximately 60% of our reserves and cumulative production have come
from acquisitions and 40% from subsequent development activities.
RISK FACTORS
You should carefully consider the matters discussed under "Risk Factors"
and the other information included in this prospectus. See "Risk Factors"
beginning on page 6.
1
THE EXCHANGE OFFER
Background.......................... On August 15, 2001, we completed a
private placement of the old notes. In
connection with that private placement,
we entered into a registration rights
agreement in which we agreed, among
other things, to deliver this
prospectus to you and to complete an
exchange offer.
The Exchange Offer.................. We are offering to exchange our new
notes which have been registered under
the Securities Act of 1933 for a like
principal amount of our outstanding,
unregistered old notes. Old notes may
only be tendered in integral multiples
of $1,000 principal amount at maturity.
As of the date of this prospectus,
$75,000,000 in aggregate principal
amount of our old notes is outstanding.
Resale of New Notes................. We believe that new notes issued
pursuant to the exchange offer in
exchange for old notes may be offered
for resale, resold and otherwise
transferred by you without compliance
with the registration and prospectus
delivery provisions of the Securities
Act, provided that:
- you are acquiring the new notes in
the ordinary course of your business;
- you are not a broker-dealer who
acquired the new notes directly from
us without compliance with the
registration and prospectus delivery
provisions of the Securities Act;
- you have not engaged in, do not
intend to engage in, and have no
arrangement or understanding with any
person to participate in the
distribution of the new notes; and
- you are not our affiliate as defined
under Rule 405 of the Securities Act.
Each participating broker-dealer that
receives new notes for its own account
pursuant to the exchange offer in
exchange for old notes that were
acquired as a result of market-making
or other trading activity must
acknowledge that it will deliver a
prospectus in connection with any
resale of new notes. See "Plan of
Distribution."
Any holder of old notes who:
- is our affiliate;
- does not acquire new notes in the
ordinary course of its business;
2
- tenders in the exchange offer with
the intention to participate, or for
the purpose of participating, in a
distribution of new notes; or
- is a broker-dealer that acquired the
old notes directly from us
must comply with the registration and
prospectus delivery requirements of the
Securities Act in connection with the
resale of new notes.
Consequences If You Do Not Exchange
Your Old Notes...................... Old notes that are not tendered in the
exchange offer or are not accepted for
exchange will continue to bear legends
restricting their transfer. You will
not be able to offer or sell the old
notes unless:
- you do so pursuant to an exemption
from the requirements of the
Securities Act;
- the old notes are registered under
the Securities Act; or
- the transaction requires neither such
an exemption nor registration.
After the exchange offer is closed, we
will no longer have an obligation to
register the old notes, except for some
limited exceptions. See "Risk Factors."
Certain Conditions to the Exchange
Offer............................... The exchange offer is subject to
certain customary conditions, which we
may waive.
Special Procedures for Beneficial
Holders............................. If you beneficially own old notes which
are registered in the name of a broker,
dealer, commercial bank, trust company
or other nominee and you wish to tender
in the exchange offer, you should
contact such registered holder promptly
and instruct such person to tender on
your behalf. If you wish to tender in
the exchange offer on your own behalf
you must, prior to completing and
executing the letter of transmittal and
delivering your old notes, either
arrange to have the old notes
registered in your name or obtain a
properly completed bond power from the
registered holder. The transfer of
registered ownership may take
considerable time.
Withdrawal Rights................... You may withdraw your tender of old
notes at any time before the offer
expires.
Accounting Treatment................ We will not recognize any gain or loss
for accounting purposes upon the
completion of the exchange offer. The
expenses of the exchange offer that we
pay will increase our deferred
financing costs in accordance with
generally accepted accounting
principles. See "The Exchange
Offer -- Accounting Treatment."
3
Certain Tax Consequences............ Your exchange of old notes for new
notes pursuant to the exchange offer
generally will not be a taxable event
for U.S. federal income tax purposes.
Use of Proceeds..................... We will not receive any proceeds from
the exchange or the issuance of new
notes in connection with the exchange
offer.
Exchange Agent...................... The Chase Manhattan Bank is serving as
exchange agent in connection with the
exchange offer.
SUMMARY OF TERMS OF THE NEW NOTES
The terms and covenants of the new notes are substantially identical to
those of the old notes that you currently hold, except for the transfer
restrictions and registration rights applicable to the old notes. The new notes
will evidence the same debt as the old notes and will be governed by the same
indenture under which the old notes were issued. For purposes of the description
of the new notes included in this prospectus, references to "us," "we," "our"
and Denbury refer only to Denbury Resources Inc. and do not include our
subsidiaries. The term "notes" in the following summary refers to the new notes.
Issuer.............................. Denbury Resources Inc.
Notes Offered....................... $75,000,000 aggregate principal amount
of 9% Series B Senior Subordinated
Notes Due 2008.
Maturity Date....................... March 1, 2008.
Interest Payment Dates.............. March 1 and September 1 of each year,
commencing March 1, 2002.
Optional Redemption................. We cannot redeem the notes before March
1, 2003. On or after March 1, 2003, we
can redeem some or all of the notes at
the redemption prices listed under the
caption "Description of the New
Notes -- Optional Redemption."
Change of Control................... If a Change of Control occurs, subject
to certain conditions, we must give
holders of the notes an opportunity to
sell to 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.
The term "Change of Control" is defined
under the caption "Description of the
New 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 all our
existing domestic restricted
subsidiaries. The subsidiary guarantees
will be subordinated to all existing
and future senior indebtedness of our
guarantor subsidiaries, including their
guarantees of our obligations under our
bank credit facility. See "Description
of the New Notes -- Guarantees."
Ranking............................. The notes will be our senior
subordinated unsecured obligations.
They will rank senior in right of
payment
4
to any of our future Subordinated
Obligations, equal in right of payment
with any of our existing and future
Senior Subordinated Indebtedness and
subordinated in right of payment to any
of our existing and future Senior
Indebtedness. As of September 30, 2001,
we had about $121.0 million of Senior
Indebtedness and $200.0 million of
Senior Subordinated Indebtedness. The
terms "Senior Indebtedness," "Senior
Subordinated Indebtedness" and
"Subordinated Obligations" are defined
under the caption "Description of the
New Notes -- Certain Definitions."
Restrictive Covenants............... The indenture governing the notes,
which is the same indenture that
governs the old notes, contains
covenants which limit our ability and
certain of our subsidiaries' ability
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
New Notes -- Certain Covenants."
5
RISK FACTORS
You should consider carefully the following risk factors, in addition to
the other information in this prospectus, before you decide to exchange your old
notes for the new notes, including the factors described under the caption
"Forward-Looking Statements."
RISKS ASSOCIATED WITH THE NOTES
FAILURE TO EXCHANGE YOUR OLD NOTES -- IF YOU FAIL TO EXCHANGE YOUR OLD NOTES,
THEY WILL CONTINUE TO BE RESTRICTED SECURITIES AND MAY BECOME LESS LIQUID.
Old notes that you do not tender or we do not accept will, following the
exchange offer, continue to be restricted securities, and you may not offer to
sell them except pursuant to an exemption from, or in a transaction not subject
to, the Securities Act and applicable state securities law. We will issue new
notes in exchange for the old notes pursuant to the exchange offer only
following the satisfaction of the procedures and conditions set forth in "The
Exchange Offer -- Procedures for Tendering." Such procedures and conditions
include timely receipt by the exchange agent of such old notes and of a properly
completed and duly executed letter of transmittal.
THERE IS CURRENTLY NO MARKET FOR THE NEW NOTES -- IF AN ACTIVE TRADING MARKET
FOR THE NEW NOTES DOES NOT DEVELOP, THE LIQUIDITY AND VALUE OF THE NEW NOTES
COULD BE HARMED.
The new notes constitute a new issue of securities for which there is
currently no trading market. We do not intend to apply for listing of the new
notes on any securities exchange or to seek approval for quotation through an
automated quotation system. Accordingly, we cannot assure you that an active
market will develop upon completion of the exchange offer or, if developed, that
such market will be sustained or as to the liquidity of any market.
Because we anticipate that most holders of old notes will elect to exchange
such old notes, we expect that the liquidity of the market for any old notes
remaining after the completion of the exchange offer may be substantially
limited. Any old notes tendered and exchanged in the exchange offer will reduce
the aggregate principal amount at maturity of the old notes outstanding.
Following the exchange offer, if you did not tender your old notes you generally
will not have any further registration rights, and such old notes will continue
to be subject to certain transfer restrictions. Accordingly, the liquidity of
the market for such old notes could be adversely affected.
YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES IS JUNIOR TO OUR EXISTING SENIOR
INDEBTEDNESS AND THE EXISTING SENIOR INDEBTEDNESS OF OUR SUBSIDIARY GUARANTORS.
The indebtedness evidenced by the notes and the guarantees will be senior
subordinated obligations of Denbury and our subsidiaries, respectively. The
payment of the principal of, premium on, if any, and interest on the notes and
the payment of the subsidiary guarantees are each subordinate in right of
payment, as set forth in the indenture, to the prior payment in full of all
senior indebtedness of Denbury or our subsidiaries, as the case may be,
including the obligations of Denbury under, and any of our subsidiaries'
guarantees of Denbury's obligations with respect to, the bank credit facility.
Any future subsidiary guarantee will be similarly subordinated to senior
indebtedness of such subsidiary guarantor.
As of September 30, 2001, our senior indebtedness was approximately $121.0
million, consisting of borrowings under the bank credit facility. Although the
indenture contains limitations on the amount of additional indebtedness that we
may incur, under certain circumstances the amount of such indebtedness could be
substantial and, in any case, such indebtedness may be senior indebtedness. See
"Description of the Notes -- Certain Covenants -- Limitation on Indebtedness."
6
IF WE UNDERGO A CHANGE OF CONTROL, WE MAY NOT HAVE THE ABILITY TO RAISE THE
FUNDS NECESSARY TO FINANCE THE CHANGE OF CONTROL OFFER REQUIRED BY THE INDENTURE
GOVERNING THE NOTES, WHICH WOULD VIOLATE THE TERMS OF THE NOTES.
Upon the occurrence of a change of control, holders of the notes will have
the right to require us to purchase all or any part of such holders' notes at a
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of purchase. We would also be required to make a
similar offer to purchase our existing 9% senior subordinated notes. The events
that constitute a change of control under the indenture would constitute a
default under the bank credit facility, which prohibits the purchase of the
notes by us in the event of certain change of control events, unless, and until,
such time as our indebtedness under the bank credit facility is repaid in full.
There can be no assurance that Denbury and our subsidiary guarantors would have
sufficient financial resources available to satisfy all of our or their
obligations under the bank credit facility, our existing 9% senior subordinated
notes and these notes in the event of a change in control. Our failure to
purchase the notes as required under the indenture would result in a default
under the indenture and under the bank credit facility, each of which could have
material adverse consequences for us and the holders of the notes. See
"Description of the New Notes -- Change of Control."
A SUBSIDIARY GUARANTEE COULD BE VOIDED IF IT CONSTITUTES A FRAUDULENT TRANSFER
UNDER U.S. BANKRUPTCY OR SIMILAR STATE LAW, WHICH WOULD PREVENT THE HOLDERS OF
THE NOTES FROM RELYING ON THAT SUBSIDIARY TO SATISFY CLAIMS.
Under U.S. bankruptcy law and comparable provisions of state fraudulent
transfer laws, a guarantee can be voided, or claims under the guarantee may be
subordinated to all other debts of that guarantor if, among other things, the
guarantor, at the time it incurred the indebtedness evidenced by its guarantee:
- intended to hinder, delay or defraud any present or future creditor or
received less than reasonably equivalent value or fair consideration for
the incurrence of the guarantee;
- 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.
In addition, any payment by that guarantor under the guarantee could be voided
and required to be returned to the guarantor or to a fund for the benefit of the
creditors of the guarantor.
The measures of insolvency for purposes of fraudulent transfer laws vary
depending upon the governing law. Generally, a guarantor would be considered
insolvent if:
- 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 were 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.
On the basis of historical financial information, recent operating history
and other factors, we believe that the subsidiary guarantees are being incurred
for proper purposes and in good faith and that each subsidiary guarantor, after
giving effect to its guarantee of the notes, will not be insolvent, have
unreasonably small capital for the business in which it is engaged or have
incurred debts beyond its ability to pay those debts as they mature. We cannot
be certain, however, that a court would agree with our conclusions in this
regard.
7
RISKS ASSOCIATED WITH OUR INDUSTRY AND OUR COMPANY
STEEP OR PROLONGED DROPS IN PRICES CAN HARM US FINANCIALLY AND HURT OUR ABILITY
TO GROW.
Our revenue, profitability and cash flow depend upon the prices and demand
for oil and natural gas. The markets for oil and natural gas are very volatile,
as evidenced by the recent volatility in natural gas prices.
WE ARE CONTROLLED BY A SINGLE SHAREHOLDER.
Texas Pacific Group has owned a majority of our outstanding common stock
since April 1999. As such, Texas Pacific Group is able to determine all matters
submitted for shareholder approval, control the election of directors, determine
our corporate and management policies and approve a merger, consolidation or
sale of all of our assets, all of which may adversely affect the market for the
notes.
OIL AND NATURAL GAS DRILLING AND PRODUCING OPERATIONS INVOLVE VARIOUS RISKS.
Our drilling activities are subject to many risks, including the risk that
we will not discover commercially productive reservoirs. Operating and
developing oil and natural gas properties involves a number of inherent risks,
including the risk of personal injury, environmental contamination or loss of
wells. In addition, our drilling operations may be curtailed, delayed or
canceled as a result of other factors including title problems, adverse weather
conditions, and compliance with environmental and other governmental
requirements. We may not be able to insure against all of these risks.
A FAILURE TO ACQUIRE PRODUCING PROPERTIES ON A PROFITABLE BASIS IN THE FUTURE
MAY SIGNIFICANTLY AFFECT OUR PROFITABILITY AND GROWTH.
Our significant growth in recent years is attributable in significant part
to our acquiring producing properties. Our ability to continue to make
successful acquisitions is influenced by many factors beyond our control.
ESTIMATING OUR RESERVES, PRODUCTION AND FUTURE NET CASH FLOW IS DIFFICULT TO DO
WITH ANY CERTAINTY.
Estimates of our proved developed oil and natural gas reserves and the
resulting future net revenues contained in this prospectus and elsewhere are
based on a number of uncertainties. A drop in prices or estimated production
volumes could materially adversely effect our revenues, profitability and
financial health.
OUR LEVEL OF INDEBTEDNESS MAY ADVERSELY AFFECT OPERATIONS AND LIMIT OUR GROWTH.
We make, and will continue to make, substantial capital expenditures to
acquire, develop, produce, explore and abandon our oil and natural gas reserves.
Our bank borrowing base is adjusted at the banks' discretion and is based in
part upon external factors over which we have no control. Further, our cash flow
from operations is highly dependent on the prices that we receive for oil and
natural gas. Any decrease in our revenues, as a result of lower oil or gas
prices or otherwise, could limit our ability to replace reserves or maintain
production at current levels. If our cash flow from operations drops
significantly, we may be unable to find additional debt or equity financing.
SHORTAGES OF OIL FIELD EQUIPMENT, SERVICES AND QUALIFIED PERSONNEL COULD REDUCE
OUR CASH FLOW AND ADVERSELY AFFECT RESULTS OF OPERATIONS.
Our ability to conduct operations in a timely and cost effective manner
depends on the availability of supplies, equipment and personnel. The oil and
gas industry is cyclical and experiences periodic shortages of drilling rigs and
other equipment, tubular goods, supplies and experienced personnel. Shortages
can delay operations and materially increase operating and capital costs.
8
OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO FIND, DEVELOP OR ACQUIRE ADDITIONAL
OIL AND NATURAL GAS RESERVES THAT ARE ECONOMICALLY RECOVERABLE.
Unless we successfully replace the reserves that we produce, our reserves
will decline, resulting eventually in a decrease in oil and natural gas
production. This would lead to lower production and cash flow.
9
USE OF PROCEEDS
We will not receive any proceeds from the exchange offer.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of earnings to fixed charges for
the six months ended June 30, 2001 and June 30, 2000, and for each of the last
five years ended December 31. For purposes of determining the ratio of earnings
to fixed charges, earnings are defined as earnings from continuing operations
before income taxes, plus fixed charges. Fixed charges consist of interest
expense, amortization of debt expense, and imputed preferred stock dividends.
<Table>
<Caption>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- -------------------
1996 1997 1998 1999 2000 2000 2001
------- -------- ------ ------- ------- -------- --------
Ratio of earnings to fixed charges..... 4.4x 19.9x --(a) 1.3x 5.8x 4.4 8.7
</Table>
---------------
(a) Earnings were inadequate to cover fixed charges in 1998 by $285.0 million.
The deficiency was primarily due to a $280 million writedown of our full cost
pool as a result of the low oil prices during 1998.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
In connection with the sale of the old notes, we entered into a
registration rights agreement with the initial purchasers, under which we agreed
to use our best efforts to file and have declared effective under the Securities
Act of 1933 an exchange offer registration statement.
We are making the exchange offer in reliance on the position of the SEC as
set forth in certain no-action letters. However, we have not sought our own
no-action letter. Based upon these interpretations by the SEC, we believe that a
holder of new notes, but not a holder who is our "affiliate" within the meaning
of Rule 405 of the Securities Act, who exchanges old notes for new notes in the
exchange offer, generally may offer the new notes for resale, sell the new notes
and otherwise transfer the new notes without further registration under the
Securities Act and without delivery of a prospectus that satisfies the
requirements of Section 10 of the Securities Act. We also believe that a holder
may offer, sell or transfer the new notes only if the holder acquires the new
notes in the ordinary course of its business and is not participating, does not
intend to participate and has no arrangement or understanding with any person to
participate in a distribution of the new notes.
Any holder of the old notes using the exchange offer to participate in a
distribution of new notes cannot rely on the no-action letters referred to
above. This includes a broker-dealer that acquired old notes directly from us,
but not as a result of market-making activities or other trading activities.
Consequently, the holder must comply with the registration and prospectus
delivery requirements of the Securities Act in the absence of an exemption from
such requirements.
Each broker-dealer that receives new notes for its own account in exchange
for old notes, where such old notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such new
notes. This prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of new notes received
in exchange for old notes where such old notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The letter of transmittal states that by acknowledging and
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. We have agreed that
for a period of 180 days after the expiration date, we will make this prospectus
available to broker-dealers for use in connection with any such resale. See
"Plan of Distribution."
10
Except as described above, this prospectus may not be used for an offer to
resell, resale or other transfer of new notes. The exchange offer is not being
made to, nor will we accept tenders for exchange from, holders of old notes in
any jurisdiction in which the exchange offer or the acceptance of it would not
be in compliance with the securities or blue sky laws of such jurisdiction.
TERMS OF THE EXCHANGE
Upon the terms and subject to the conditions of the exchange offer, we will
accept any and all old notes validly tendered prior to 5:00 p.m., New York time,
on the expiration date. The date of acceptance for exchange of the old notes,
and completion of the exchange offer, is the exchange date, which will be the
first business day following the expiration date, unless extended as described
in this prospectus. We will issue, on or promptly after the exchange date, an
aggregate principal amount of up to $75,000,000 new notes for a like principal
amount of outstanding old notes tendered and accepted in connection with the
exchange offer. The new notes issued in connection with the exchange offer will
be delivered on the earliest practicable date following the exchange date.
Holders may tender some or all of their old notes in connection with the
exchange offer, but only in $1,000 increments of principal amount at maturity.
The terms and covenants of the new registered 9% Series B Senior
Subordinated Notes Due 2008 to be issued are substantially identical to those of
our outstanding unregistered 9% Series B Senior Subordinated Notes Due 2008 that
you currently hold, except for the transfer restrictions and registration rights
applicable to the outstanding notes. The new notes will evidence the same debt
as the old notes and will be issued under the same indenture and entitled to the
same benefits under that indenture as the old notes being exchanged. As of the
date of this prospectus, $75,000,000 in aggregate principal amount of the old
notes is outstanding.
In connection with the issuance of the old notes, we arranged for the old
notes originally purchased by qualified institutional buyers and those sold in
reliance on Regulation S under the Securities Act to be issued and transferable
in book-entry form through the facilities of The Depository Trust Company,
acting as depositary. Except as described under "Description of the New
Notes -- Book-Entry, Delivery and Form," the new notes will be issued in the
form of a global note registered in the name of DTC or its nominee and each
beneficial owner's interest in it will be transferable in book-entry form
through DTC. See "Description of the New Notes -- Book-Entry, Delivery and
Form."
Holders of old notes do not have any appraisal or dissenters' rights in
connection with the exchange offer. Old notes which are not tendered for
exchange or are tendered but not accepted in connection with the exchange offer
will remain outstanding and be entitled to the benefits of the indenture under
which they were issued, but will not be entitled to any registration rights
under the registration rights agreement.
We shall be considered to have accepted validly tendered old notes if and
when we have given oral or written notice to the exchange agent. The exchange
agent will act as agent for the tendering holders for the purposes of receiving
the new notes from us.
If any tendered old notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events described in this
prospectus or otherwise, we will return the old notes, without expense, to the
tendering holder as quickly as possible after the expiration date.
Holders who tender old notes will not be required to pay brokerage
commissions or fees or, subject to the instructions in the letter of
transmittal, transfer taxes on exchange of old notes in connection with the
exchange offer. We will pay all charges and expenses, other than certain
applicable taxes described below, in connection with the exchange offer. See
"-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The expiration date for the exchange offer is 5:00 p.m., New York City
time, on , 2001, unless extended by us in our sole discretion (but in
no event to a date later than , 2001), in which case the term
"expiration date" shall mean the latest date and time to which the exchange
offer is extended.
11
We reserve the right, in our sole discretion:
- to delay accepting any old notes, to extend the offer or to terminate the
exchange offer if, in our reasonable judgment, any of the conditions
described below shall not have been satisfied, by giving oral or written
notice of the delay, extension or termination to the exchange agent, or
- to amend the terms of the exchange offer in any manner.
If we amend the exchange offer in a manner that we consider material, we
will disclose such amendment by means of a prospectus supplement, and we will
extend the exchange offer for a period of five to ten business days.
If we determine to make a public announcement of any delay, extension,
amendment or termination of the exchange offer, we will do so by making a timely
release through an appropriate news agency.
INTEREST ON THE NEW NOTES
Interest on the new notes will accrue at the rate of 9% per annum from the
most recent date to which interest on the new notes has been paid or, if no
interest has been paid, from the date of the indenture governing the notes.
Interest will be payable semiannually in arrears on March 1 and September 1,
commencing on March 1, 2002.
PROCEDURES FOR TENDERING
Unless the tender is being make in book-entry form, to tender in the
exchange offer, a holder must
- complete, sign and date the letter of transmittal, or a facsimile of it,
- have the signatures guaranteed if required by the letter of transmittal,
and
- mail or otherwise deliver the letter of transmittal or the facsimile, the
old notes and any other required documents to the exchange agent prior to
5:00 p.m., New York City time, on the expiration date.
Any financial institution that is a participant in DTC's Book-Entry
Transfer Facility system may make book-entry delivery of the old notes by
causing DTC to transfer the old notes into the exchange agent's account.
Although delivery of old notes may be effected through book-entry transfer into
the exchange agent's account at DTC, the letter of transmittal (or facsimile),
with any required signature guarantees and any other required documents, must,
in any case, be transmitted to and received or confirmed by the exchange agent
at its addresses set forth under the caption "Exchange Agent" below, prior to
5:00 p.m., New York City time, on the expiration date. Delivery of documents to
DTC in accordance with its procedures does not constitute delivery to the
exchange agent.
The tender by a holder of old notes will constitute an agreement between us
and the holder in accordance with the terms and subject to the conditions set
forth in this prospectus and in the letter of transmittal.
The method of delivery of old notes and the letter of transmittal and all
other required documents to the exchange agent is at the election and risk of
the holders. Instead of delivery by mail, we recommend that holders use an
overnight or hand delivery service. In all cases, holders should allow
sufficient time to assure delivery to the exchange agent before the expiration
date. No letter of transmittal of old notes should be sent to us. Holders may
request their respective brokers, dealers, commercial banks, trust companies or
nominees to effect the tenders for such holders.
Any beneficial owner whose old notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on behalf of the beneficial owner. If the beneficial
owner wishes to tender on that owner's own behalf, the owner must, prior to
completing and executing the
12
letter of transmittal and delivery of such owner's old notes, either make
appropriate arrangements to register ownership of the old notes in the owner's
name or obtain a properly completed bond power from the registered holder. The
transfer of registered ownership may take considerable time.
Signature on a letter of transmittal or a notice of withdrawal must be
guaranteed by an eligible guarantor institution within the meaning of Rule
17Ad-15 under the Securities Exchange Act of 1934, unless the old notes tendered
pursuant thereto are tendered:
- by a registered holder who has not completed the box entitled "Special
Payment Instructions" or "Special Delivery Instructions" on the letter of
transmittal, or
- for the account of an eligible guarantor institution.
In the event that signatures on a letter or transmittal or a notice of
withdrawal are required to be guaranteed, such guarantee must be by:
- a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc.,
- a commercial bank or trust company having an office or correspondent in
the United States, or
- an "eligible guarantor institution."
If the letter of transmittal is signed by a person other than the
registered holder of any old notes, the old notes must be endorsed by the
registered holder or accompanied by a properly completed bond power, in each
case signed or endorsed in blank by the registered holder.
If the letter of transmittal or any old notes or bond powers are signed or
endorsed by trustees, executors, administrators, guardians, attorney-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and, unless waived by us,
submit evidence satisfactory to us of their authority to act in that capacity
with the letter of transmittal.
We will determine all questions as to the validity, form, eligibility
(including time of receipt) and acceptance and withdrawal of tendered old notes
in our sole discretion. We reserve the absolute right to reject any and all old
notes not properly tendered or any old notes whose acceptance by us would, in
the opinion of our U.S. counsel, be unlawful. We also reserve the right to waive
any defects, irregularities or conditions of tender as to any particular old
notes either before or after the expiration date. Our interpretation of the
terms and conditions of the exchange offer (including the instructions in the
letter of transmittal) will be final and binding on all parties. Unless waived,
any defects or irregularities in connection with tenders of old notes must be
cured within a time period we will determine. Although we intend to request the
exchange agent to notify holders of defects or irregularities relating to
tenders of old notes, neither we, the exchange agent nor any other person will
have any duty or incur any liability for failure to give such notification.
Tenders of old notes will not be considered to have been made until such defects
or irregularities have been cured or waived. Any old notes received by the
exchange agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the exchange
agent to the tendering holders, unless otherwise provided in the letter of
transmittal, as soon as practicable following the expiration date.
By tendering old notes for exchange, each holder represents to us, among
other things, that:
- the new notes acquired in connection with the exchange offer are being
obtained in the ordinary course of business of the person receiving the
new notes, whether or not such person is the holder;
- neither the holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such
new notes; and
- neither the holder nor any such other person is our "affiliate" (as
defined in Rule 405 under the Securities Act).
13
Each broker-dealer that receives new notes for its own account in exchange
for old notes, where such old notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such new
notes. See "Plan of Distribution."
GUARANTEED DELIVERY PROCEDURES
A holder who wishes to tender its old notes and:
- whose old notes are not immediately available;
- who cannot deliver the holder's old notes, the letter of transmittal or
any other required documents to the exchange agent prior to the
expiration date; or
- who cannot complete the procedures for book-entry transfer before the
expiration date
may effect a tender if:
- the tender is made through an eligible guarantor institution;
- before the expiration date, the exchange agent receives from the eligible
guarantor institution:
- a properly completed and duly executed notice of guaranteed delivery
by facsimile transmission, mail or hand delivery;
- the name and address of the holder;
- the certificate number(s) of the old notes and the principal amount at
maturity of old notes tendered, stating that the tender is being made
and guaranteeing that, within three New York Stock Exchange trading
days after the expiration date, the letter of transmittal and the
certificate(s) representing the old notes (or a confirmation of
book-entry transfer), and any other documents required by the letter
of transmittal will be deposited by the eligible guarantor institution
with the exchange agent; and
- the exchange agent receives, within three New York Stock Exchange trading
days after the expiration date, a properly completed and executed letter
of transmittal or facsimile, as well as the certificate(s) representing
all tendered old notes in proper form for transfer or a confirmation of
book-entry transfer, and all other documents required by the letter of
transmittal.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of old notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the expiration date.
To withdraw a tender of old notes in connection with the exchange offer, a
written facsimile transmission notice of withdrawal must be received by the
exchange agent at its address set forth herein prior to 5:00 p.m., New York City
time, on the expiration date. Any such notice of withdrawal must:
- specify the name of the person who deposited the old notes to be
withdrawn,
- identify the old notes to be withdrawn (including the certificate number
or numbers and principal amount at maturity of such old notes),
- be signed by the depositor in the same manner as the original signature
on the letter of transmittal by which such old notes were tendered
(including any required signature guarantees) or be accompanied by
documents or transfer sufficient to have the trustee register the
transfer of such old notes into the name of the person withdrawing the
tender, and
- specify the name in which any such old notes are to be registered, if
different from that of the depositor.
14
We will determine all questions as to the validity, form and eligibility
(including time of receipt) of such withdrawal notices. Any old notes so
withdrawn will be considered not to have been validly tendered for purposes of
the exchange offer, and no new notes will be issued unless the old notes
withdrawn are validly re-tendered. Any old notes which have been tendered but
which are not accepted for exchange or which are withdrawn will be returned to
the holder without cost to such holder as soon as practicable after withdrawal,
rejection of tender or termination of the exchange offer. Properly withdrawn old
notes may be re-tendered by following one of the procedures described above
under the caption "Procedures for Tendering" at any time prior to the expiration
date.
EXCHANGE AGENT
The Chase Manhattan Bank has been appointed as exchange agent in connection
with the exchange offer. Questions and requests for assistance, requests for
additional copies of this prospectus or of the letter of transmittal should be
directed to the exchange agent, using the contact information set forth in the
letter of transmittal. For information or questions you can reach the exchange
agent at (713) 216-6686.
FEES AND EXPENSES
We will not make any payment to brokers, dealers or others soliciting
acceptances of the exchange offer. We will pay certain other expenses to be
incurred in connection with the exchange offer, including the fees and expenses
of the exchange agent, accounting and certain legal fees.
Holders who tender their old notes for exchange will not be obligated to
pay transfer taxes. If, however:
- new notes are to be delivered to, or issued in the name of, any person
other than the registered holder of the old notes tendered, or
- if tendered old notes are registered in the name of any person other than
the person signing the letter of transmittal, or
- if a transfer tax is imposed for any reason other than the exchange of
old notes in connection with the exchange offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption from them is not
submitted with the letter of transmittal, the amount of such transfer taxes will
be billed directly to the tendering holder.
ACCOUNTING TREATMENT
The new notes will be recorded at the same carrying value as the old notes
as reflected in our accounting records on the date of the exchange. Accordingly,
we will not recognize any gain or loss for accounting purposes upon the
completion of the exchange offer. The expenses of the exchange offer that we pay
will increase our deferred financing costs in accordance with generally accepted
accounting principles.
CONSEQUENCES OF FAILURES TO PROPERLY TENDER OLD NOTES IN THE EXCHANGE
Issuance of the new notes in exchange for the old notes under the exchange
offer will be made only after timely receipt by the exchange agent of such old
notes, a properly completed and duly executed letter of transmittal and all
other required documents. Therefore, holders of the old notes desiring to tender
such old notes in exchange for new notes should allow sufficient time to ensure
timely delivery. We are under no duty to give notification of defects or
irregularities of tenders of old notes for exchange. Old notes that are not
tendered or that are tendered but not accepted by us will, following completion
of the exchange offer, continue to be subject to the existing restrictions upon
transfer thereof under the Securities Act, and,
15
upon completion of the exchange offer, certain registered rights under the
registration rights agreement will terminate.
In the event the exchange offer is completed, we will not be required to
register the remaining old notes. Remaining old notes will continue to be
subject to the following restrictions on transfer:
- the remaining old notes may be resold only if registered pursuant to the
Securities Act, or if any exemption from registration is available, under
such exemption, or may be sold if neither such registration nor such
exemption is required by law;
- the remaining old notes will bear a legend restricting transfer in the
absence of registration.
We do not currently anticipate that we will register the remaining old
notes under the Securities Act. To the extent that old notes are tendered and
accepted in connection with the exchange offer, any trading market for remaining
old notes could be adversely affected.
16
DESCRIPTION OF THE NEW NOTES
Certain terms used in this description are defined under the subheading
"-- Certain Definitions." As used in this section, the terms "Company," "we,"
"us" and "our" refer only to Denbury Resources Inc., the issuer of the Notes,
and not to any of its subsidiaries. The term "Notes" in this description refers
to the new notes.
GENERAL
The Notes are to be issued under an Indenture, dated as of August 15, 2001
(the "Indenture"), among the Company, its subsidiaries and The Chase Manhattan
Bank, as Trustee (the "Trustee"). This is the same indenture under which the old
notes were issued. The terms of the Notes include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act of
1939 (the "Trust Indenture Act"). The following description is only a summary of
the material provisions of the Indenture. We urge you to read the Indenture
because it, not this description, defines your rights as holders of these Notes.
You may request copies of the indenture at our address set forth under the
heading "Incorporation of Documents by Reference."
TERMS OF THE NOTES
The Notes will be unsecured senior subordinated obligations of the Company,
initially limited to $75 million aggregate principal amount, and will mature on
March 1, 2008. The Notes will bear interest at the rate per annum shown on the
cover page hereof from the date of original issuance, or from the most recent
date to which interest has been paid or provided for, payable semiannually to
Holders of record at the close of business on the February 15 or August 15
immediately preceding the interest payment date on March 1 and September 1 of
each year, commencing March 1, 2002. Interest on overdue principal and (to the
extent permitted by law) on overdue installments of interest will accrue at 1%
per annum in excess of such rate. Interest on the Notes will be computed on the
basis of a 360-day year of twelve 30-day months.
Principal of and interest on the Notes will be payable, and the Notes may
be exchanged or transferred, at our office or agency in the Borough of
Manhattan, The City of New York (which initially shall be the corporate trust
office of the Trustee), except that, at our option, payment of interest may be
made by check mailed to the address of the Holders as such address appears in
the Note Register.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
shall be made for any registration of transfer or exchange of Notes, but we may
require payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection therewith.
Subject to the covenants described below under "-- Certain Covenants" and
applicable law, the Company may issue additional Notes under the Indenture in an
unlimited principal amount (the "Additional Notes"). The Notes offered hereby
and any Additional Notes subsequently issued would be treated as a single class
for all purposes under the Indenture. Unless the context otherwise requires, for
all purposes of the Indenture and this "Description of the New Notes,"
references to the Notes include any Additional Notes actually issued.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Notes will not be
redeemable at the option of the Company prior to March 1, 2003. Thereafter, the
Notes will be redeemable, at our option, in whole or in part, at any time or
from time to time, upon not less than 30 nor more than 60 days' prior notice
mailed by first-class mail to each Holder's registered address, at the following
redemption prices (expressed in percentages of principal amount), plus accrued
interest to the redemption date (subject to the right of
17
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date), if redeemed during the 12-month period
commencing on March 1, of the years set forth below:
<Table>
<Caption>
REDEMPTION
PERIOD PRICE
------ ----------
2003...................................................... 104.500%
2004...................................................... 103.000
2005...................................................... 101.500
2006 and thereafter....................................... 100.000
</Table>
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Note of $1,000 in original principal amount or less
shall be redeemed in part. If any Note is to be redeemed in part only, the
notice of redemption relating to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal to
the unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancelation of the original Note. Notes called for redemption become due on
the date fixed for redemption. On and after the redemption date, interest ceases
to accrue on Notes or portions of them called for redemption.
MANDATORY REDEMPTION; OFFERS TO PURCHASE; OPEN MARKET PURCHASES
We are not required to make any mandatory redemption or sinking fund
payments with respect to the Notes. However, under certain circumstances, we may
be required to offer to purchase Notes as described under the captions
"-- Change of Control" and "Certain Covenants -- Limitation on Sales of Assets
and Subsidiary Stock." We may at any time and from time to time purchase Notes
in the open market or otherwise.
GUARANTEES
The Subsidiary Guarantors, jointly and severally, as primary obligors and
not merely as sureties, will irrevocably, fully and unconditionally guarantee
(each, a "Subsidiary Guarantee") on a senior subordinated basis the performance
and the punctual payment when due, whether at Stated Maturity, by acceleration
or otherwise, of all the obligations of the Company under the Indenture and the
Notes (all such obligations guaranteed by the Subsidiary Guarantors being herein
called the "Guaranteed Obligations"). The Company will derive a substantial
portion of its operating income and cash flow from its subsidiaries, including
the Subsidiary Guarantors, the common stock of which may be pledged to secure
the Company's indebtedness outstanding under the Credit Facilities. Each
Subsidiary Guarantor will agree to pay, in addition to the amount stated above,
any and all expenses (including reasonable counsel fees and expenses) incurred
by the Trustee and the Holders in enforcing any rights under the Subsidiary
Guarantee with respect to the Subsidiary Guarantor. Each Subsidiary Guarantee
will be limited in amount to an amount not to exceed the maximum amount that can
be guaranteed by the applicable Subsidiary Guarantor without rendering the
Subsidiary Guarantee, as it relates to such Subsidiary Guarantor, voidable under
applicable law relating to fraudulent conveyance or fraudulent transfer or
similar laws affecting the rights of creditors generally. If a Subsidiary
Guarantee were to be rendered voidable, it could be subordinated by a court to
all other indebtedness (including guarantees and other contingent liabilities)
of the applicable Subsidiary Guarantor, and depending on the amount of such
indebtedness, a Subsidiary Guarantor's liability on its Subsidiary Guarantee
could be reduced to zero.
Each Subsidiary Guarantor that makes a payment under its Subsidiary
Guarantee will be entitled to a contribution from each other Subsidiary
Guarantor in an amount equal to such other Subsidiary Guarantor's pro rata
portion of such payment based on the respective net assets of all the Subsidiary
Guarantors at the time of such payment determined in accordance with GAAP.
18
Each Subsidiary Guarantee is a continuing guarantee and shall:
(1) subject to certain limited exceptions, remain in full force and
effect until payment in full of all the Guaranteed Obligations;
(2) be binding upon the Subsidiary Guarantor; and
(3) enure to the benefit of and be enforceable by the Trustee, the
Holders and their successors, transferees and assigns.
Pursuant to the Indenture, a Subsidiary Guarantor may consolidate with,
merge with or into, or transfer all or substantially all its assets to any other
Person to the extent described below under "-- Certain Covenants -- Merger and
Consolidation"; provided, however, that if such Person is not the Company, the
Subsidiary Guarantor's obligations under the Indenture and its Subsidiary
Guarantee must be expressly assumed by such other Person. However, upon the sale
or other disposition (including by way of consolidation or merger) of a
Subsidiary Guarantor or the sale or disposition of all or substantially all the
assets of a Subsidiary Guarantor (in each case other than to the Company or an
Affiliate of the Company), such Subsidiary Guarantor will be released and
relieved from all its obligations under its Subsidiary Guarantee. See
"-- Certain Covenants -- Merger and Consolidation."
RANKING
Senior Indebtedness versus Notes
The indebtedness evidenced by the Notes and the Subsidiary Guarantees will
be unsecured, general obligations of the Company and the relevant Subsidiary
Guarantor, as the case may be, subordinated in right of payment, as set forth in
the Indenture, to the prior payment of all Senior Indebtedness of the Company or
the relevant Subsidiary Guarantor, as the case may be, whether outstanding on
the Issue Date or thereafter incurred, including the obligations of the Company
under, and such Subsidiary Guarantor's guarantee, if any, of the Company's
obligations with respect to, the Credit Facilities.
As of September 30, 2001:
(1) the Senior Indebtedness of the Company was approximately $121.0
million, all of which was secured debt of the Company under the Credit
Agreement; and
(2) the Senior Indebtedness of the Subsidiary Guarantors was
approximately $121.0 million, all of which represented their respective
guarantees of Senior Indebtedness of the Company under the Credit
Agreement.
Although the Indenture contains limitations on the amount of additional
Indebtedness that the Company and the Subsidiary Guarantors may incur, under
certain circumstances the amount of such Indebtedness could be substantial and,
in any case, such Indebtedness may be Senior Indebtedness. See "-- Certain
Covenants -- Limitation on Indebtedness."
Other Senior Subordinated Indebtedness versus Notes
Only Indebtedness of the Company or a Subsidiary Guarantor that is Senior
Indebtedness will rank senior to the Notes and the relevant Subsidiary Guarantee
in accordance with the provisions of the Indenture. The Notes and each
Subsidiary Guarantee will in all respects rank pari passu with all other Senior
Subordinated Indebtedness of the Company and the relevant Subsidiary Guarantor,
respectively, including the obligations of the Company and such Subsidiary
Guarantor with respect to the Company's existing 9% Senior Subordinated Notes
Due 2008 (the "Existing 9% Senior Subordinated Notes").
As of September 30, 2001:
(1) the Company's Senior Subordinated Indebtedness was approximately
$200.0 million, consisting of the Notes and $125.0 million of Senior
Subordinated Indebtedness represented by the Existing 9% Senior
Subordinated Notes; and
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(2) the Senior Subordinated Indebtedness of the Subsidiary Guarantors
was approximately $200.0 million, consisting of their respective guarantees
of Senior Subordinated Indebtedness of the Company represented by the Notes
and the Existing 9% Senior Subordinated Notes.
The Company and each Subsidiary Guarantor will agree in the Indenture that
they will not Incur, directly or indirectly, any Indebtedness that is
subordinate or junior in ranking in right of payment to its Senior Indebtedness
unless such Indebtedness is Senior Subordinated Indebtedness or is expressly
subordinated in right of payment to Senior Subordinated Indebtedness. Unsecured
Indebtedness is not deemed to be subordinated or junior to Secured Indebtedness
merely because it is unsecured.
Liabilities of Non-Guarantor Subsidiaries versus Notes
A substantial portion of the operations of the Company are currently
conducted through its Subsidiaries. All of our existing Restricted Subsidiaries
are Guaranteeing the Notes. However, our Unrestricted Subsidiaries will not, and
certain future Subsidiaries of the Company may not, be required to guarantee the
Notes. Claims of creditors of any non-guarantor Subsidiaries, including trade
creditors, secured creditors and creditors holding guarantees issued by such
non-guarantor Subsidiaries, and claims of preferred stockholders (if any) of
such non-guarantor Subsidiaries generally would have priority with respect to
the assets and earnings of such non-guarantor Subsidiaries over the claims of
creditors of the Company, including holders of the Notes, even though such
obligations would not constitute Senior Indebtedness of the Company. The Notes,
therefore, would be effectively subordinated to creditors (including trade
creditors) and preferred stockholders (if any) of such non-guarantor
Subsidiaries of the Company. Although the Indenture limits the incurrence of
Indebtedness and the issuance of preferred stock of certain of the Company's
Subsidiaries, such limitation is subject to a number of significant
qualifications. Moreover, the Indenture does not impose any limitation on the
incurrence by such Subsidiaries of liabilities that are not considered
Indebtedness under the Indenture. See "-- Certain Covenants -- Limitation on
Indebtedness."
Payment of Notes
The Company may not pay principal of, premium (if any) or interest on, the
Notes or make any deposit pursuant to the provisions described under
"Defeasance" below or may not repurchase, redeem or otherwise retire any Notes
(collectively, "pay the Notes") if:
(1) any Designated Senior Indebtedness of the Company is not paid when
due; or
(2) any other default on Designated Senior Indebtedness of the Company
occurs and the maturity of such Designated Senior Indebtedness is
accelerated in accordance with its terms;
unless, in either case, the default has been cured or waived and any such
acceleration has been rescinded or such Designated Senior Indebtedness has been
paid in full. However, the Company may pay the Notes without regard to the
foregoing if the Company and the Trustee receive written notice approving such
payment from the Representative of the applicable Designated Senior Indebtedness
with respect to which either of the events set forth in clause (1) or (2) of the
immediately preceding sentence has occurred and is continuing. During the
continuance of any default (other than a default described in clause (1) or (2)
of the second preceding sentence) with respect to any Designated Senior
Indebtedness of the Company pursuant to which the maturity thereof may be
accelerated immediately without further notice (except such notice as may be
required to effect such acceleration) or the expiration of any applicable grace
periods, the Company may not pay the Notes for a period (a "Payment Blockage
Period") commencing upon the receipt by the Trustee (with a copy to the Company)
of written notice (a "Blockage Notice") of such default from the Representative
of the holders of such Designated Senior Indebtedness specifying an election to
effect a Payment Blockage Period and ending 179 days thereafter (or earlier if
such Payment Blockage Period is terminated:
(1) by written notice to the Trustee and the Company from the Person
or Persons who gave such Blockage Notice;
20
(2) because the default giving rise to such Blockage Notice is no
longer continuing; or
(3) because such Designated Senior Indebtedness has been repaid in
full in cash).
Notwithstanding the provisions described in the immediately preceding sentence,
unless the holders of such Designated Senior Indebtedness or the Representative
of such holders have accelerated the maturity of such Designated Senior
Indebtedness, the Company must resume payments on the Notes after the end of
such Payment Blockage Period. The Notes shall not be subject to more than one
Payment Blockage Period in any consecutive 360-day period, irrespective of the
number of defaults with respect to Designated Senior Indebtedness of the Company
during such period.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation or dissolution or reorganization of or similar proceeding
relating to the Company or its property:
(1) the holders of Senior Indebtedness of the Company will be entitled
to receive payment in full in cash of such Senior Indebtedness before the
Noteholders are entitled to receive any payment in respect of the Notes;
(2) until such Senior Indebtedness is paid in full in cash, any
payment or distribution to which Noteholders would be entitled from the
Company but for the subordination provisions of the Indenture will be made
to holders of such Senior Indebtedness of the Company as their interests
may appear; and
(3) if a distribution is made to Noteholders that, due to the
subordination provisions, should not have been made to them, such
Noteholders are required to hold it in trust for the holders of Senior
Indebtedness of the Company and pay it over to them as their interests may
appear.
If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee shall promptly notify the holders of Designated Senior
Indebtedness of the Company or the Representative of such holders of the
acceleration.
The obligations of each Subsidiary Guarantor under its Subsidiary Guarantee
are unsecured senior subordinated obligations. As such, the rights of
Noteholders to receive payment by a Subsidiary Guarantor pursuant to its
Subsidiary Guarantee will be subordinated in right of payment to the rights of
holders of Senior Indebtedness of such Subsidiary Guarantor. The terms of the
subordination provisions described above with respect to the Company's
obligations under the Notes apply equally to each Subsidiary Guarantor and the
obligations of each such Subsidiary Guarantor under its respective Subsidiary
Guarantee.
By reason of the subordination provisions contained in the Indenture, in
the event of insolvency, creditors of the Company or a Subsidiary Guarantor who
are holders of Senior Indebtedness of the Company or such Subsidiary Guarantor,
as the case may be, may recover more, ratably, than the Noteholders, and
creditors of the Company or a Subsidiary Guarantor who are not holders of Senior
Indebtedness of the Company or such Subsidiary Guarantor may recover less,
ratably, than holders of Senior Indebtedness of the Company or such Subsidiary
Guarantor, as the case may be, and may recover more, ratably, than the
Noteholders.
Notwithstanding the foregoing, payment from the money or the proceeds of
U.S. Government Obligations held in any defeasance trust described under
"-- Defeasance" below will not be contractually subordinated in right of payment
to any Senior Indebtedness of the Company or subject to the restrictions
described herein.
BOOK-ENTRY, DELIVERY AND FORM
We will initially issue the Notes in the form of one or more global notes
(the "Global Note"). The Global Note will be deposited with, or on behalf of,
the Depository and registered in the name of the Depository or its nominee.
Except as set forth below, the Global Note may be transferred, in whole and
21
not in part, only to the Depository or another nominee of the Depository. You
may hold your beneficial interests in the Global Note directly through the
Depository if you have an account with the Depository or indirectly through
organizations which have accounts with the Depository.
The Depository has advised us as follows: the Depository is a
limited-purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and "a clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depository was created to hold securities of institutions that have accounts
with the Depository ("participants") and to facilitate the clearance and
settlement of securities transactions among its participants in such securities
through electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depository's participants include securities brokers and dealers (which may
include the initial purchasers), banks, trust companies, clearing corporations
and certain other organizations. Access to the Depository's book-entry system is
also available to others such as banks, brokers, dealers and trust companies
(collectively, the "indirect participants") that clear through or maintain a
custodial relationship with a participant, whether directly or indirectly.
We expect that pursuant to procedures established by the Depository, upon
the deposit of the Global Note with the Depository, the Depository will credit,
on its book-entry registration and transfer system, the principal amount of
Notes represented by such Global Note to the accounts of participants. The
accounts to be credited shall be designated by the initial purchasers. Ownership
of beneficial interests in the Global Note will be limited to participants or
persons that may hold interests through participants. Ownership of beneficial
interests in the Global Note will be shown on, and the transfer of those
ownership interests will be effected only through, records maintained by the
Depository (with respect to participants' interests), the participants and the
indirect participants (with respect to the owners of beneficial interests in the
Global Note other than participants). The laws of some jurisdictions may require
that certain purchasers of securities take physical delivery of such securities
in definitive form. Such limits and laws may impair the ability to transfer or
pledge beneficial interests in the Global Note.
So long as the Depository, or its nominee, is the registered holder and
owner of the Global Note, the Depository or such nominee, as the case may be,
will be considered the sole legal owner and holder of any related Notes
evidenced by the Global Note for all purposes of such Notes and the Indenture.
Except as set forth below, as an owner of a beneficial interest in the Global
Note, you will not be entitled to have the Notes represented by the Global Note
registered in your name, will not receive or be entitled to receive physical
delivery of certificated Notes and will not be considered to be the owner or
holder of any Notes under the Global Note. We understand that under existing
industry practice, in the event an owner of a beneficial interest in the Global
Note desires to take any action that the Depository, as the holder of the Global
Note, is entitled to take, the Depository would authorize the participants to
take such action, and the participants would authorize beneficial owners owning
through such participants to take such action or would otherwise act upon the
instructions of beneficial owners owning through them.
We will make payments of principal of, premium, if any, and interest on
Notes represented by the Global Note registered in the name of and held by the
Depository or its nominee to the Depository or its nominee, as the case may be,
as the registered owner and holder of the Global Note.
We expect that the Depository or its nominee, upon receipt of any payment
of principal of, premium, if any, or interest on the Global Note will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Note as
shown on the records of the Depository or its nominee. We also expect that
payments by participants or indirect participants to owners of beneficial
interests in the Global Note held through such participants or indirect
participants will be governed by standing instructions and customary practices
and will be the responsibility of such participants or indirect participants. We
will not have any responsibility or liability for any aspect of the records
relating to, or payments made on account of, beneficial ownership interests in
the Global Note for any Note or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests or for any other aspect
of the relationship between the Depository and its participants
22
or indirect participants or the relationship between such participants or
indirect participants and the owners of beneficial interests in the Global Note
owning through such participants.
Although the Depository has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Note among participants of the
Depository, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Trustee nor the Company will have any responsibility or liability for the
performance by the Depository or its participants or indirect participants of
their respective obligations under the rules and procedures governing their
operations.
CERTIFICATED NOTES
Subject to certain conditions, the Notes represented by the Global Note are
exchangeable for certificated Notes in definitive form of like tenor in
denominations of $1,000 and integral multiples thereof if:
(1) the Depository notifies us that it is unwilling or unable to
continue as Depository for the Global Note or the Depository ceases to be a
clearing agency registered under the Exchange Act and, in either case, we
are unable to locate a qualified successor within 90 days;
(2) we in our discretion at any time determine not to have all the
Notes represented by the Global Note; or
(3) a default entitling the holders of the Notes to accelerate the
maturity thereof has occurred and is continuing.
Any Note that is exchangeable as above is exchangeable for certificated
Notes issuable in authorized denominations and registered in such names as the
Depository shall direct. Subject to the foregoing, the Global Note is not
exchangeable, except for a Global Note of the same aggregate denomination to be
registered in the name of the Depository or its nominee. In addition, such
certificates will bear the legend referred to under "Transfer Restrictions"
(unless we determine otherwise in accordance with applicable law), subject, with
respect to such certificated Notes, to the provisions of such legend.
SAME-DAY PAYMENT
The Indenture requires us to make payments in respect of Notes (including
principal, premium and interest) by wire transfer of immediately available funds
to the U.S. dollar accounts with banks in the U.S. specified by the holders
thereof or, if no such account is specified, by mailing a check to each such
holder's registered address.
CHANGE OF CONTROL
(a) Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder shall have the right to require that the Company
repurchase such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (subject to the right of Holders of record on the relevant record
date to receive interest on the relevant interest payment date), in accordance
with the terms contemplated in paragraph (b) below:
(1) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than a Permitted Holder, is or becomes the
beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that for purposes of this clause (1) such person shall be
deemed to have "beneficial ownership" of all shares that such person has
the right to acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of more than 40% of the
total voting power of the Voting Stock of the Company (for the purposes of
this clause (1), such person shall be deemed to beneficially own any Voting
Stock of a specified corporation held by a parent corporation, if such
person is the beneficial owner (as defined in this
23
clause (1)), directly or indirectly, of more than 40% of the voting power
of the Voting Stock of such parent corporation);
(2) during any period of two consecutive years from and after the
Issue Date, individuals who at the beginning of such period constituted the
Board of Directors of the Company (together with any new directors whose
election by such Board of Directors or whose nomination for election by the
shareholders of the Company was approved by a vote of a majority of the
directors of the Company then still in office who were either directors at
the beginning of such period or whose election or nomination for election
was previously so approved) cease for any reason to constitute a majority
of the Board of Directors then in office;
(3) the shareholders of the Company shall have approved any plan of
liquidation or dissolution of the Company; or
(4) the merger or consolidation of the Company with or into another
Person or the merger of another Person with or into the Company, or the
sale, lease, conveyance or transfer of all or substantially all the assets
of the Company and its Restricted Subsidiaries, taken as a whole, to
another Person (other than a Person that is controlled (as defined in the
definition of "Affiliate") by the Permitted Holders), and, in the case of
any such merger or consolidation, the securities of the Company that are
outstanding immediately prior to such transaction and which represent 100%
of the aggregate voting power of the Voting Stock of the Company are
changed into or exchanged for cash, securities or property, unless pursuant
to such transaction such securities are changed into or exchanged for, in
addition to any other consideration, securities of the surviving
corporation that represent immediately after such transaction, at least a
majority of the aggregate voting power of the Voting Stock of the surviving
corporation.
In the event that at the time of such Change of Control the terms of the
Indebtedness under the Credit Agreement restrict or prohibit the repurchase of
Notes pursuant to this covenant, then prior to the mailing of the notice to
Holders provided for in paragraph (b) below, but in any event within 30 days
following any Change of Control, the Company shall:
(1) repay in full the Indebtedness under the Credit Agreement; or
(2) obtain the requisite consent under the agreements governing the
Indebtedness under the Credit Agreement to permit the repurchase of the
Notes as provided for in paragraph (b) below.
(b) Within 30 days following a Change of Control, the Company shall mail a
notice to each Holder with a copy to the Trustee stating: (1) that a Change of
Control has occurred and that such Holder has the right to require the Company
to purchase such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (subject to the right of Holders of record on the relevant record
date to receive interest on the relevant interest payment date); (2) the
circumstances and relevant facts regarding such Change of Control (including
information with respect to pro forma historical income, cash flow and
capitalization, in each case after giving effect to such Change of Control); (3)
the purchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed); and (4) the instructions determined by the
Company, consistent with this covenant, that a Holder must follow in order to
have its Notes purchased.
(c) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of this covenant, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under this covenant by virtue thereof.
The Change of Control purchase feature of the Notes may in certain
circumstances make more difficult or discourage a sale or takeover of the
Company and, thus, the removal of incumbent
24
management. The Change of Control purchase feature is a result of negotiations
between the Company and the initial purchasers. Management has no present
intention to engage in a transaction involving a Change of Control, although it
is possible that the Company would decide to do so in the future. Subject to the
limitations discussed below, the Company could, in the future, enter into
certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of indebtedness outstanding at
such time or otherwise affect the Company's capital structure or credit ratings.
Restrictions on the ability of the Company to Incur additional Indebtedness are
contained in the covenants described under "Certain Covenants -- Limitation on
Indebtedness" and "-- Limitation on Liens." Such restrictions can only be waived
with the consent of the holders of a majority in principal amount of the Notes
then outstanding. Except for the limitations contained in such covenants,
however, the Indenture will not contain any covenants or provisions that may
afford holders of the Notes protection in the event of a highly leveraged
transaction.
The Credit Agreement prohibits the Company from purchasing any Notes and
also provides that the occurrence of certain change of control events with
respect to the Company would constitute a default thereunder. In the event a
Change of Control occurs at a time when the Company is prohibited from
purchasing Notes, the Company could seek the consent of its lenders to the
purchase of Notes or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company will remain prohibited from purchasing Notes. In such
case, the Company's failure to purchase tendered Notes would constitute an Event
of Default under the Indenture which would, in turn, constitute a default under
the Credit Agreement. In such circumstances, the subordination provisions in the
Indenture would likely restrict payment to the Holders of Notes.
Future indebtedness of the Company may contain prohibitions on the
occurrence of certain events that would constitute a Change of Control or
require such indebtedness to be repurchased upon a Change of Control. Moreover,
the exercise by the Holders of their right to require the Company to repurchase
the Notes could cause a default under such indebtedness, even if the Change of
Control itself does not, due to the financial effect of such repurchase on the
Company. Finally, the Company's ability to pay cash to the holders of Notes
following the occurrence of a Change of Control may be limited by the Company's
then existing financial resources. There can be no assurance that sufficient
funds will be available when necessary to make any required repurchases.
The provisions under the Indenture relating to the Company's obligation to
make an offer to repurchase the Notes as a result of a Change of Control may be
waived or modified with the written consent of the holders of a majority in
principal amount of the Notes.
The Company will not be required to make an offer to purchase the Notes as
a result of a Change of Control if a third party:
(1) makes such offer in the manner, at the times and otherwise in
compliance with the requirements set forth in the Indenture relating to the
Company's obligations to make such an offer; and
(2) purchases all Notes validly tendered and not withdrawn under such
an offer.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
LIMITATION ON INDEBTEDNESS. (a) The Company shall not, and shall not
permit any Restricted Subsidiary to, Incur, directly or indirectly, any
Indebtedness; provided, however, that the Company or Restricted Subsidiary may
Incur Indebtedness if, on the date of such Incurrence and after giving effect
thereto, the Consolidated Coverage Ratio equals or exceeds 2.25 to 1.0.
25
(b) Notwithstanding the foregoing paragraph (a), the Company and any
Restricted Subsidiary may Incur the following Indebtedness:
(1) Indebtedness Incurred pursuant to any Credit Facility, so long as
the aggregate amount of all Indebtedness outstanding under all Credit
Facilities does not, at any one time, exceed the aggregate amount of
borrowing availability as of such date under all Credit Facilities that
determine availability on the basis of a borrowing base or other
asset-based calculation; provided, however, that in no event shall such
amount exceed the greater of (x) $300 million and (y) 75% of ACNTA as of
the date of such Incurrence;
(2) Indebtedness owed to and held by the Company or a Wholly Owned
Subsidiary; provided, however, that any subsequent issuance or transfer of
any Capital Stock which results in any such Wholly Owned Subsidiary ceasing
to be a Wholly Owned Subsidiary or any subsequent transfer of such
Indebtedness (other than to the Company or another Wholly Owned Subsidiary)
shall be deemed, in each case, to constitute the Incurrence of such
Indebtedness by the issuer thereof;
(3) The Notes and the Exchange Notes (other than any Additional
Notes);
(4) Indebtedness outstanding on February 26, 1998 (other than
Indebtedness described in clause (1), (2) or (3) of this covenant);
(5) Indebtedness of (A) a Restricted Subsidiary Incurred and
outstanding on or prior to the date on which such Restricted Subsidiary was
acquired by the Company (other than Indebtedness Incurred in connection
with, or to provide all or any portion of the funds or credit support
utilized to consummate, the transaction or series of related transactions
pursuant to which such Restricted Subsidiary became a Restricted Subsidiary
or was acquired by the Company) and (B) the Company or a Restricted
Subsidiary Incurred for the purpose of financing all or any part of the
cost of acquiring oil and gas properties, another Person (other than a
Person that was, immediately prior to such acquisition, a Subsidiary of the
Company) engaged in the Oil and Gas Business or all or substantially all
the assets of such a person; provided, however, that, in the case of each
of clause (A) and clause (B) above, on the date of such Incurrence and
after giving effect thereto, the Consolidated Coverage Ratio equals or
exceeds 2.0 to 1.0;
(6) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to paragraph (a) or pursuant to clause (3), (4), (5) above, this
clause (6) or clause (7) below; provided, however, that to the extent such
Refinancing Indebtedness directly or indirectly Refinances Indebtedness or
Preferred Stock of a Restricted Subsidiary described in clause (5), such
Refinancing Indebtedness shall be Incurred only by such Restricted
Subsidiary or the Company;
(7) Non-recourse Purchase Money Indebtedness;
(8) Indebtedness with respect to Production Payments; provided,
however, that any such Indebtedness shall be Limited Recourse Production
Payments; provided further, however, that the Net Present Value of the
reserves related to such Production Payments shall not exceed 30% of ACNTA
at the time of Incurrence;
(9) Indebtedness consisting of the Subsidiary Guarantees and any
Guarantee by a Subsidiary Guarantor of Indebtedness Incurred by the Company
pursuant to clauses (1) and (3);
(10) Indebtedness consisting of Interest Rate Agreements directly
related to Indebtedness permitted to be Incurred by the Company and its
Restricted Subsidiaries pursuant to the Indenture;
(11) Indebtedness under Oil and Gas Hedging Contracts and Currency
Agreements entered into in the ordinary course of business for the purpose
of limiting risks that arise in the ordinary course of business of the
Company and its Restricted Subsidiaries;
(12) Indebtedness in respect of bid, performance or surety obligations
issued by or for the account of the Company or any Restricted Subsidiary in
the ordinary course of business, including
26
Guarantees and letters of credit functioning as or supporting such bid,
performance or surety obligations (in each case other than for an
obligation for money borrowed);
(13) Indebtedness of the Company or a Restricted Subsidiary Incurred
to finance capital expenditures and Refinancing Indebtedness Incurred in
respect thereof in an aggregate amount which, when taken together with the
amount of all other Indebtedness Incurred pursuant to this clause (13)
since February 26, 1998 and then outstanding, does not exceed $20 million;
(14) Permitted Marketing Obligations;
(15) In-kind obligations relating to oil and gas balancing positions
arising in the ordinary course of business; and
(16) Indebtedness in an aggregate amount which, together with the
amount of all other Indebtedness of the Company and its Restricted
Subsidiaries outstanding on the date of such Incurrence (other than
Indebtedness permitted by clauses (1) through (15) above or paragraph (a))
does not exceed $30 million.
(c) Notwithstanding the foregoing, the Company shall not, and shall not
permit any Subsidiary Guarantor to, Incur any Indebtedness pursuant to the
foregoing paragraph (b) if the proceeds thereof are used, directly or
indirectly, to Refinance any Subordinated Obligations unless such Indebtedness
shall be subordinated to the Notes or the relevant Subsidiary Guarantor, as the
case may be, to at least the same extent as such Subordinated Obligations.
(d) For purposes of determining compliance with the foregoing covenant:
(1) in the event that an item of Indebtedness meets the criteria of
more than one of the types of Indebtedness described above, the Company, in
its sole discretion, will classify such item of Indebtedness and only be
required to include the amount and type of such Indebtedness in one of the
above clauses; provided that items of Indebtedness Incurred since February
26, 1998 and prior to the Issue Date shall be deemed to have been Incurred
under the above clause corresponding to the provision in the indenture
governing the Existing 9% Senior Subordinated Notes under which such items
were incurred; and
(2) an item of Indebtedness may be divided and classified in more than
one of the types of Indebtedness described above.
INCURRENCE OF LAYERED INDEBTEDNESS. Notwithstanding paragraphs (a) and (b)
of the covenant described above under "-- Limitation on Indebtedness," the
Company shall not, and the Company shall not permit any Subsidiary Guarantor to,
Incur any Indebtedness if such Indebtedness is subordinate or junior in ranking
in any respect to any Senior Indebtedness of the Company or such Subsidiary
Guarantor, as applicable, unless such Indebtedness is Senior Subordinated
Indebtedness or is expressly subordinated in right of payment to Senior
Subordinated Indebtedness of such Person.
LIMITATION ON RESTRICTED PAYMENTS. (a) The Company shall not, and shall
not permit any Restricted Subsidiary, directly or indirectly, to make a
Restricted Payment if at the time the Company or such Restricted Subsidiary
makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or would result
therefrom);
(2) the Company is not able to Incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) of the covenant described under
"-- Limitation on Indebtedness"; or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments since February 26, 1998 would exceed the sum of
(without duplication):
(A) 50% of the aggregate Consolidated Net Income of the Company
accrued on a cumulative basis commencing on the last day of the fiscal
quarter immediately preceding February 26, 1998, and ending on the last
day of the fiscal quarter ending on or immediately
27
preceding the date of such proposed Restricted Payment (or, if such
aggregate Consolidated Net Income shall be a deficit, minus 100% of such
deficit);
(B) the aggregate Net Cash Proceeds received by the Company from
the issuance or sale of its Capital Stock (other than Disqualified
Stock) subsequent to February 26, 1998 (other than an issuance or sale
to a Subsidiary of the Company and other than an issuance or sale to an
employee stock ownership plan or to a trust established by the Company
or any of its Subsidiaries for the benefit of their employees);
(C) the aggregate Net Cash Proceeds received by the Company from
the issue or sale subsequent to February 26, 1998 of its Capital Stock
(other than Disqualified Stock) to an employee stock ownership plan;
provided, however, that if such employee stock ownership plan incurs any
Indebtedness with respect thereto, such aggregate amount shall be
limited to an amount equal to any increase in the Consolidated Net Worth
of the Company resulting from principal repayments made by such employee
stock ownership plan with respect to such Indebtedness;
(D) the amount by which Indebtedness of the Company is reduced on
the Company's balance sheet upon the conversion or exchange (other than
by a Subsidiary of the Company) subsequent to February 26, 1998, of any
Indebtedness of the Company convertible or exchangeable for Capital
Stock (other than Disqualified Stock) of the Company (less the amount of
any cash, or the fair value of any other property, distributed by the
Company upon such conversion or exchange); and
(E) an amount equal to the sum of (i) the net reduction in
Investments made by the Company or any Restricted Subsidiary in any
Person resulting from dividends, repayments of loans or advances or
other transfers of assets, in each case to the Company or any Restricted
Subsidiary from such Person, and (ii) the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value
of the net assets of an Unrestricted Subsidiary at the time such
Unrestricted Subsidiary is designated a Restricted Subsidiary; provided,
however, that the foregoing sum shall not exceed, in the case of any
such Person or Unrestricted Subsidiary, the amount of Investments
previously made (and treated as a Restricted Payment) by the Company or
any Restricted Subsidiary in such Person or Unrestricted Subsidiary.
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(1) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with this covenant; provided, however, that at the time of payment of such
dividend, no other Default shall have occurred and be continuing (or result
therefrom); provided further, however, that such dividend shall be included
in the calculation of the amount of Restricted Payments;
(2) any purchase or redemption of Capital Stock or Subordinated
Obligations of the Company 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 of the Company or an employee stock ownership plan or to a trust
established by the Company or any of its Subsidiaries for the benefit of
their employees); provided, however, that (A) such purchase or redemption
shall be excluded in the calculation of the amount of Restricted Payments
and (B) the Net Cash Proceeds from such sale shall be excluded from the
calculation of amounts under clause (3) (B) of paragraph (a) above (but
only to the extent that such Net Cash Proceeds were used to purchase or
redeem such Capital Stock as provided in this clause (2));
(3) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations of the
Company made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Subordinated Obligations of the Company; provided,
however, that
28
such purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value shall be excluded in the calculation of the amount of
Restricted Payments;
(4) the repurchase of shares of, or options to purchase shares of,
common stock of the Company or any of its Subsidiaries from employees,
former employees, directors or former directors of the Company or any of
its Subsidiaries (or permitted transferees of such employees, former
employees, directors or former directors), pursuant to the terms of the
agreements (including employment agreements) or plans (or amendments
thereto) approved by the Board of Directors under which such individuals
purchase or sell or are granted the option to purchase or sell, shares of
such common stock; provided, however, that the aggregate amount of such
repurchases shall not exceed $2 million in any calendar year; provided
further, however, that such repurchases shall be excluded in the
calculation of the amount of Restricted Payments;
(5) loans made to officers, directors or employees of the Company or
any Restricted Subsidiary approved by the Board of Directors (or a duly
authorized officer), the net cash proceeds of which are used solely (A) to
purchase common stock of the Company in connection with a restricted stock
or employee stock purchase plan, or to exercise stock options received
pursuant to an employee or director stock option plan or other incentive
plan, in a principal amount not to exceed the exercise price of such stock
options or (B) to refinance loans, together with accrued interest thereon,
made pursuant to item (A) of this clause (5); provided, however, that such
loans shall be excluded in the calculation of the amount of Restricted
Payments; or
(6) other Restricted Payments in an aggregate amount not to exceed $20
million; provided, however, that such Restricted Payments shall be excluded
in the calculation of the amount of Restricted Payments.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED
SUBSIDIARIES. The Company shall not, and shall not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary (a) to pay dividends or make any other distributions on its Capital
Stock or pay any Indebtedness owed to the Company or a Restricted Subsidiary,
(b) to make any loans or advances to the Company or a Restricted Subsidiary or
(c) to transfer any of its property or assets to the Company or a Restricted
Subsidiary, except:
(1) any encumbrance or restriction in the Credit Agreement on the
Issue Date or pursuant to any other agreement in effect on the Issue Date;
(2) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness Incurred
by such Restricted Subsidiary on or prior to the date on which such
Restricted Subsidiary was acquired by the Company (other than Indebtedness
Incurred as consideration in, or to provide all or any portion of the funds
or credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by the Company) and outstanding on
such date;
(3) any encumbrance or restriction pursuant to an agreement effecting
a Refinancing of Indebtedness Incurred pursuant to an agreement referred to
in clause (1) or (2) of this covenant or this clause (3) or contained in
any amendment to an agreement referred to in clause (1) or (2) of this
covenant or this clause (3); provided, however, that the encumbrances and
restrictions with respect to such Restricted Subsidiary contained in any
such refinancing agreement or amendment are no less favorable to the
Noteholders than encumbrances and restrictions with respect to such
Restricted Subsidiary contained in such agreements;
(4) any such encumbrance or restriction consisting of customary
nonassignment provisions in leases governing leasehold interests to the
extent such provisions restrict the transfer of the lease or the property
leased thereunder;
29
(5) in the case of clause (c) above, restrictions contained in
security agreements or mortgages securing Indebtedness of a Restricted
Subsidiary to the extent such restrictions restrict the transfer of the
property subject to such security agreements or mortgages; and
(6) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition.
LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK. (a) In the event and
to the extent that the Net Available Cash received by the Company or any
Restricted Subsidiary from one or more Asset Dispositions (other than an Asset
Disposition referred to in clause (c) below) occurring on or after the Issue
Date in any period of 12 consecutive months exceeds 15% of Adjusted Consolidated
Net Tangible Assets as of the beginning of such 12-month period, then the
Company shall:
(1) within 180 days (in the case of (A) below) or 18 months (in the
case of (B) below) after the date such Net Available Cash so received
exceeds such 15% of Adjusted Consolidated Net Tangible Assets (A) apply an
amount equal to such excess Net Available Cash to repay Senior Indebtedness
of the Company or a Subsidiary Guarantor or Indebtedness of a Restricted
Subsidiary that is not a Subsidiary Guarantor, in each case owing to a
Person other than the Company or any Affiliate of the Company or (B) invest
an equal amount, or the amount not so applied pursuant to clause (A), in
Additional Assets or Permitted Business Investments; or
(2) apply such excess Net Available Cash (to the extent not applied
pursuant to clause (1)) as provided in the following paragraphs of this
covenant. The amount of such excess Net Available Cash required to be
applied during the applicable period and not applied as so required by the
end of such period shall constitute "Excess Proceeds."
(b) If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Excess Proceeds Offer (as defined
below) totals at least $10 million, the Company must, not later than the
fifteenth Business Day of such month, make an offer (an "Excess Proceeds Offer")
to purchase from the Holders on a pro rata basis an aggregate principal amount
of Notes equal to the Excess Proceeds (rounded down to the nearest multiple of
$1,000) on such date, at a purchase price equal to 100% of the principal amount
of such Notes, plus, in each case, accrued interest (if any) to, the date of
purchase (the "Excess Proceeds Payment"), but, if the terms of any other Senior
Subordinated Indebtedness require that an offer be made for such Senior
Subordinated Indebtedness contemporaneously with the Excess Proceeds Offer, then
the Excess Proceeds shall be prorated between the Excess Proceeds Offer and the
offer for such other Senior Subordinated Indebtedness in accordance with the
aggregate outstanding principal amounts (or, in the case of other Senior
Subordinated Indebtedness issued with significant original issue discount,
accreted value) of the Notes and such other Senior Subordinated Indebtedness,
and the aggregate principal amount of Notes for which the Excess Proceeds Offer
is made shall be reduced accordingly.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
thereunder in the event that such Excess Proceeds are received by the Company
under this covenant and the Company is required to repurchase Notes as described
above. To the extent that the provisions of any securities laws or regulations
conflict with the provisions of this covenant, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under this covenant by virtue thereof.
(c) In the event of an Asset Disposition by the Company or any Restricted
Subsidiary that consists of a sale of hydrocarbons and results in Production
Payments, the Company or such Restricted Subsidiary shall apply an amount equal
to the Net Available Cash received by the Company or such Restricted Subsidiary
to:
(1) reduce Senior Indebtedness of the Company or a Subsidiary
Guarantor or Indebtedness of a Restricted Subsidiary that is not a
Subsidiary Guarantor, in each case owing to a Person other than
30
the Company or any Affiliate of the Company, within 180 days after the date
such Net Available Cash is so received; or
(2) invest in Additional Assets or Permitted Business Investments
within 18 months after the date such Net Available Cash is so received.
(d) The amounts of "Net Available Cash" and "Excess Proceeds" outstanding
as of the Issue Date under the indenture governing the Existing 9% Senior
Subordinated Notes shall be deemed to be Net Available Cash or Excess Proceeds,
as applicable, for purposes of this covenant.
LIMITATION ON AFFILIATE TRANSACTIONS. (a) The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into or permit to exist any
transaction (including the purchase, sale, lease or exchange of any property,
employee compensation arrangements or the rendering of any service) with any
Affiliate of the Company (an "Affiliate Transaction") unless the terms thereof:
(1) are no less favorable to the Company or such Restricted Subsidiary
than those that could be obtained at the time of such transaction in
arm's-length dealings with a Person who is not such an Affiliate;
(2) if such Affiliate Transaction involves an amount in excess of $10
million, are set forth in writing and have been approved by the Board of
Directors, including a majority of the members of the Board of Directors
having no personal stake in such Affiliate Transaction; and
(3) if such Affiliate Transaction involves an amount in excess of $20
million, have been determined by a nationally recognized investment banking
firm or other qualified independent appraiser to be fair, from a financial
standpoint, to the Company and its Restricted Subsidiaries.
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(1) any sale of hydrocarbons or other mineral products to an Affiliate
of the Company or the entering into or performance of Oil and Gas Hedging
Contracts, gas gathering, transportation or processing contracts or oil or
natural gas marketing or exchange contracts with an Affiliate of the
Company, in each case, in the ordinary course of business, so long as the
terms of any such transaction are approved by a majority of the members of
the Board of Directors who are disinterested with respect to such
transaction;
(2) the sale to an Affiliate of the Company of Capital Stock of the
Company that does not constitute Disqualified Stock, and the sale to an
Affiliate of the Company of Indebtedness (including Disqualified Stock) of
the Company in connection with an offering of such Indebtedness in a market
transaction and on terms substantially identical to those of other
purchasers in such market transaction;
(3) transactions contemplated by any employment agreement or other
compensation plan or arrangement existing on the Issue Date or thereafter
entered into by the Company or any of its Restricted Subsidiaries in the
ordinary course of business;
(4) the payment of reasonable fees to directors of the Company and its
Restricted Subsidiaries who are not employees of the Company or any
Restricted Subsidiary;
(5) transactions between or among the Company and its Restricted
Subsidiaries;
(6) transactions between the Company or any of its Restricted
Subsidiaries and Persons that are controlled (as defined in the definition
of "Affiliate") by the Company (an "Unrestricted Affiliate"); provided that
no other Person that controls (as so defined) or is under common control
with the Company holds any Investments in such Unrestricted Affiliate;
(7) Restricted Payments that are permitted by the provisions of the
Indenture described above under the caption "-- Limitation on Restricted
Payments"; and
31
(8) loans or advances to employees in the ordinary course of business
and approved by the Company's Board of Directors in an aggregate principal
amount not to exceed $2.5 million outstanding at any one time.
LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES. The Company shall not sell or otherwise dispose of any shares of
Capital Stock of a Restricted Subsidiary, and shall not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any
shares of its Capital Stock except:
(1) to the Company or a Wholly Owned Subsidiary;
(2) if, immediately after giving effect to such issuance, sale or
other disposition, neither the Company nor any of its Subsidiaries own any
Capital Stock of such Restricted Subsidiary;
(3) if, immediately after giving effect to such issuance, sale or
other disposition, such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary and any Investment in such Person remaining after
giving effect thereto is treated as a new Investment by the Company and
such Investment would be permitted to be made under the covenant described
under "-- Limitation on Restricted Payments" if made on the date of such
issuance, sale or other disposition; or
(4) to the extent such shares represent directors' qualifying shares
or shares required by applicable law to be held by a Person other than the
Company or a Restricted Subsidiary.
LIMITATION ON LIENS. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, enter into, create, incur,
assume or suffer to exist any Lien on or with respect to any property of the
Company or such Restricted Subsidiary, whether owned on the Issue Date or
acquired after the Issue Date, or any interest therein or any income or profits
therefrom, unless the Notes or any Subsidiary Guarantee of such Restricted
Subsidiary, as applicable, are secured equally and ratably with (or prior to)
any and all other obligations secured by such Lien, except that the Company and
its Restricted Subsidiaries may enter into, create, incur, assume or suffer to
exist Permitted Liens and Liens securing Senior Indebtedness.
MERGER AND CONSOLIDATION. The Company shall not consolidate with or merge
with or into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all the assets of the Company and its
Restricted Subsidiaries, taken as a whole, to, any Person, unless:
(1) (A) the resulting, surviving or transferee Person (the "Successor
Company") shall be a Person organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia and
(B) the Successor Company (if not the Company) shall expressly assume, by
an indenture supplemental thereto, executed and delivered to the Trustee,
in form satisfactory to the Trustee, all the obligations of the Company
under the Notes and the Indenture;
(2) immediately after giving effect to such transaction (and treating
any Indebtedness which becomes an obligation of the Successor Company or
any Subsidiary as a result of such transaction as having been Incurred by
such Successor Company or such Subsidiary at the time of such transaction),
no Default shall have occurred and be continuing;
(3) immediately after giving effect to such transaction, the Successor
Company would be able to Incur an additional $1.00 of Indebtedness pursuant
to paragraph (a) of the covenant described under "-- Limitation on
Indebtedness";
(4) immediately after giving effect to such transaction, the Successor
Company shall have Adjusted Consolidated Net Tangible Assets that are not
less than the Adjusted Consolidated Net Tangible Assets prior to such
transaction;
(5) in the case of a conveyance, transfer or lease of all or
substantially all the assets of the Company and its Restricted
Subsidiaries, taken as a whole, such assets shall have been so conveyed,
transferred or leased as an entirety or virtually as an entirety to one
Person; and
32
(6) the Company shall have complied with certain additional conditions
set forth in the Indenture;
provided, however, that clauses (3) and (4) shall not be applicable to any such
transaction solely between the Company and any Restricted Subsidiary.
The Successor Company shall be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, and the predecessor Company, except in the case
of a lease, shall be released from the obligation to pay the principal of and
interest on the Notes.
The Company will not permit any Subsidiary Guarantor to consolidate with or
merge with or into, or convey, transfer or lease, in one transaction or a series
of transactions, all or substantially all of its assets to any Person unless:
(1) the resulting, surviving or transferee Person (if not such
Subsidiary) shall be a Person organized and existing under the laws of the
jurisdiction under which such Subsidiary was organized or under the laws of
the United States of America, or any State thereof or the District of
Columbia, and such Person shall expressly assume, by executing a Guarantee
Agreement, all the obligations of such Subsidiary, if any, under its
Subsidiary Guarantee;
(2) immediately after giving effect to such transaction or
transactions on a pro forma basis (and treating any Indebtedness which
becomes an obligation of the resulting, surviving or transferee Person as a
result of such transaction as having been issued by such Person at the time
of such transaction), no Default shall have occurred and be continuing;
(3) in the case of a conveyance, transfer or lease of all or
substantially all the assets of a Subsidiary Guarantor, such assets shall
have been so conveyed, transferred or leased as an entirety or virtually as
an entirety to one Person; and
(4) the Company shall have complied with certain additional conditions
contained in the Indenture.
The provisions of clauses (1) and (2) above shall not apply to any one or more
transactions which constitute an Asset Disposition if the Company has complied
with the applicable provisions of the covenant described under "-- Limitation on
Sales of Assets and Subsidiary Stock" above.
SEC REPORTS. Notwithstanding that the Company may not at any time be
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company shall file with the SEC and provide the Trustee and Noteholders
with such annual reports and such information, documents and other reports as
are specified in Sections 13 and 15(d) of the Exchange Act and applicable to a
U.S. corporation subject to such Sections, such information, documents and other
reports to be so filed and provided at the times specified for the filing of
such information, documents and reports under such Sections.
In addition, the Company shall furnish to the Holders of the Notes and to
prospective investors, upon the requests of such Holders, any information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act so
long as the Notes are not freely transferable under the Securities Act.
FUTURE SUBSIDIARY GUARANTORS. The Company shall cause each Restricted
Subsidiary that represents at least 10% of the book assets of, or 10% of the
ACNTA of, the Company and its Restricted Subsidiaries, taken as a whole, and
that has an aggregate of $15.0 million or more of Indebtedness and Preferred
Stock outstanding at any time to promptly Guarantee the Notes pursuant to a
Subsidiary Guarantee on the terms and conditions set forth in the Indenture.
33
DEFAULTS
An Event of Default is defined in the Indenture as:
(1) a default in the payment of interest on the Notes when due,
continued for 30 days;
(2) a default in the payment of principal of any Note when due at its
Stated Maturity, upon optional redemption, upon required purchase, upon
declaration of acceleration or otherwise;
(3) the failure by the Company to comply with its obligations under
"-- Certain Covenants -- Merger and Consolidation" above;
(4) the failure by the Company to comply for 30 days after notice with
any of its obligations in the covenants described above under "Change of
Control" (other than a failure to purchase Notes), "-- Certain Covenants,"
"-- Limitation on Indebtedness," "-- Limitation on Restricted Payments,"
"-- Limitation on Restrictions on Distributions from Restricted
Subsidiaries," "-- Limitation on Sales of Assets and Subsidiary Stock"
(other than a failure to purchase Notes), "-- Limitation on Affiliate
Transactions," "-- Limitation on the Sale or Issuance of Capital Stock of
Restricted Subsidiaries," "-- Limitation on Liens," "Future Subsidiary
Guarantors" or "SEC Reports";
(5) the failure by the Company to comply for 60 days after notice with
its other agreements contained in the Indenture;
(6) Indebtedness of the Company (other than Limited Recourse
Production Payments and Non-recourse Purchase Money Indebtedness) is not
paid within any applicable grace period after final maturity or the
maturity of such Indebtedness is accelerated by the holders thereof because
of a default (and such acceleration is not rescinded or annulled) and the
total amount of such Indebtedness unpaid or accelerated exceeds $10 million
(the "cross acceleration provision");
(7) certain events of bankruptcy, insolvency or reorganization of the
Company or a Significant Subsidiary (the "bankruptcy provisions");
(8) any judgment or decree for the payment of money in an uninsured or
unindemnified amount in excess of $10 million or its foreign currency
equivalent at the time is rendered against the Company or a Significant
Subsidiary, remains outstanding for a period of 60 days following such
judgment and is not discharged, waived, bonded or stayed within 10 days
after notice (the "judgment default provision"); or
(9) any Subsidiary Guarantee ceases or otherwise fails to be in full
force and effect (other than in accordance with the terms thereof) or a
Subsidiary Guarantor denies or disaffirms its obligations under its
Subsidiary Guarantee if such default continues for a period of ten days
after notice thereof to the Company (the "guarantee default provision").
However, a default under clauses (4), (5), (8) and (9) will not constitute an
Event of Default until the Trustee or the holders of 25% in principal amount of
the outstanding Notes notify the Company of the default and the Company does not
cure such default within the time specified after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding Notes may declare the
principal of and accrued but unpaid interest on all the Notes to be due and
payable. Upon such a declaration, such principal and interest shall be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company occurs and is
continuing, the principal of and interest on all the Notes will ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any holders of the Notes. Under certain
circumstances, the holders of a majority in principal amount of the outstanding
Notes may rescind any such acceleration with respect to the Notes and its
consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or
34
powers under the Indenture at the request or direction of any of the holders of
the Notes unless such holders have offered to the Trustee reasonable indemnity
or security against any loss, liability or expense. Except to enforce the right
to receive payment of principal, premium (if any) or interest when due, no
holder of a Note may pursue any remedy with respect to the Indenture or the
Notes unless:
(1) such holder has previously given the Trustee notice that an Event
of Default is continuing;
(2) holders of at least 25% in principal amount of the outstanding
Notes have requested the Trustee to pursue the remedy;
(3) such holders have offered the Trustee reasonable security or
indemnity against any loss, liability or expense;
(4) the Trustee has not complied with such request within 60 days
after the receipt thereof and the offer of security or indemnity; and
(5) the holders of a majority in principal amount of the outstanding
Notes have not given the Trustee a direction inconsistent with such request
within such 60-day period.
Subject to certain restrictions, the holders of a majority in principal amount
of the outstanding Notes are given the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or the Indenture or
that the Trustee determines is unduly prejudicial to the rights of any other
holder of a Note or that would involve the Trustee in personal liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder of the Notes notice
of the Default within 90 days after it occurs. Except in the case of a Default
in the payment of principal of or interest on any Note, the Trustee may withhold
notice if and so long as a committee of its trust officers determines that
withholding notice is not opposed to the interest of the holders of the Notes.
In addition, the Company is required to deliver to the Trustee, within 120 days
after the end of each fiscal year, a certificate indicating whether the signers
thereof know of any Default that occurred during the previous year. The Company
also is required to deliver to the Trustee, within 30 days after the occurrence
thereof, written notice of any event which would constitute certain Defaults,
their status and what action the Company is taking or proposes to take in
respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the holders of a majority in principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange for the Notes) and any past default or compliance with any provisions
may also be waived with the consent of the holders of a majority in principal
amount of the Notes then outstanding. However, without the consent of each
holder of an outstanding Note affected thereby, an amendment or waiver may not,
among other things:
(1) reduce the amount of Notes whose holders must consent to an
amendment;
(2) reduce the rate of or extend the time for payment of interest on
any Note;
(3) reduce the principal of or extend the Stated Maturity of any Note;
(4) reduce the premium payable upon the redemption of any Note or
change the time at which any Note may be redeemed as described under
"-- Optional Redemption";
(5) make any Note payable in money other than that stated in the Note;
(6) impair the right of any holder of the Notes to receive payment of
principal of and interest on such holder's Notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to such holder's Notes;
35
(7) make any change in the amendment provisions which require each
holder's consent or in the waiver provisions;
(8) make any change to the subordination provisions of the Indenture
that would adversely affect the Noteholders; or
(9) make any change in any Subsidiary Guarantee that could adversely
affect such holder.
Without the consent of any holder of the Notes, the Company, the Subsidiary
Guarantors and the Trustee may amend the Indenture to:
(1) cure any ambiguity, omission, defect or inconsistency;
(2) provide for the assumption by a successor corporation of the
obligations of the Company or the Subsidiary Guarantors under the
Indenture;
(3) provide for uncertificated Notes in addition to or in place of
certificated Notes (provided that the uncertificated Notes are issued in
registered form for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated Notes are described in Section 163(f)(2)(B) of
the Code);
(4) make any change in the subordination provisions of the Indenture
that would limit or terminate the benefits available to any holder of
Senior Indebtedness of the Company or any Subsidiary Guarantor thereunder;
(5) add guarantees with respect to the Notes (including any Subsidiary
Guarantee);
(6) secure the Notes;
(7) add to the covenants of the Company for the benefit of the holders
of the Notes or surrender any right or power conferred upon the Company or
any Subsidiary Guarantor;
(8) make any change that does not adversely affect the rights of any
holder of the Notes; or
(9) comply with any requirement of the SEC in connection with the
qualification of the Indenture under the Trust Indenture Act.
However, no amendment may be made to the subordination provisions of the
Indenture that adversely affects the rights of any holder of Senior Indebtedness
of the Company or a Subsidiary Guarantor then outstanding unless the holders of
such Senior Indebtedness (or their Representative) consents to such change.
The consent of the holders of the Notes is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to holders of the Notes a notice briefly describing such
amendment. However, the failure to give such notice to all holders of the Notes,
or any defect therein, will not impair or affect the validity of the amendment.
TRANSFER
The Notes will be issued in registered form and will be transferable only
upon the surrender of the Notes being transferred for registration of transfer.
The Company may require payment of a sum sufficient to cover any tax, assessment
or other governmental charge payable in connection with certain transfers and
exchanges.
36
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under "Change of
Control" and under the covenants described under "-- Certain Covenants" (other
than the covenant described under "-- Merger and Consolidation"), the operation
of the cross acceleration provision, the bankruptcy provisions with respect to
Significant Subsidiaries, the judgment default provision and the guarantee
default provision described under "-- Defaults" above and the limitations
contained in clauses (3) and (4) under the first and third paragraphs of
"-- Certain Covenants -- Merger and Consolidation" above ("covenant
defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (4), (6), (7) (with respect only to
Significant Subsidiaries) or (8) under "-- Defaults" above or because of the
failure of the Company to comply with clause (3) or (4) under the first or third
paragraph of "-- Certain Covenants -- Merger and Consolidation" above. If the
Company exercises its legal defeasance option or its covenant defeasance option,
each Subsidiary Guarantor will be released from all its obligations with respect
to its Subsidiary Guarantee.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the Notes to
redemption or maturity, as the case may be, and must comply with certain other
conditions, including delivery to the Trustee of an Opinion of Counsel to the
effect that holders of the Notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such deposit and defeasance and will
be subject to Federal income tax on the same amounts and in the same manner and
at the same times as would have been the case if such deposit and defeasance had
not occurred (and, in the case of legal defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable Federal income tax law).
CONCERNING THE TRUSTEE
The Chase Manhattan Bank is to be the Trustee under the Indenture and will
be appointed by the Company as Registrar and Paying Agent with regard to the
Notes.
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; provided, however, if it acquires any conflicting interest it must
either eliminate such conflict within 90 days, apply to the SEC for permission
to continue or resign.
The Holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee, subject to certain
exceptions. The Indenture provides that if an Event of Default occurs (and is
not cured), the Trustee will be required, in the exercise of its power, to use
the degree of care of a prudent man in the conduct of his own affairs. Subject
to such provisions, the Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request of any Holder of Notes,
unless such Holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense and then only to the
extent required by the terms of the Indenture.
37
GOVERNING LAW
The Indenture and the Notes will be governed by, and construed in
accordance with, the laws of the State of New York without giving effect to
applicable principles of conflicts of law to the extent that the application of
the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Additional Assets" means:
(1) any property or assets (other than Indebtedness and Capital Stock)
in the Oil and Gas Business;
(2) the Capital Stock of a Person that becomes a Restricted Subsidiary
as a result of the acquisition of such Capital Stock by the Company or
another Restricted Subsidiary; or
(3) Capital Stock constituting a minority interest in any Person that
at such time is a Restricted Subsidiary;
provided, however, that any such Restricted Subsidiary described in clauses (2)
or (3) above is primarily engaged in the Oil and Gas Business.
"Adjusted Consolidated Net Tangible Assets" or "ACNTA" means (without
duplication), as of the date of determination:
(a) the sum of:
(1) discounted future net revenue from proved crude oil and natural
gas reserves of the Company and its Restricted Subsidiaries calculated in
accordance with SEC guidelines before any state or federal income taxes, as
estimated in a reserve report prepared as of the end of the Company's most
recently completed fiscal year, which reserve report is prepared or
reviewed by independent petroleum engineers, as increased by, as of the
date of determination, the discounted future net revenue of (A) estimated
proved crude oil and natural gas reserves of the Company and its Restricted
Subsidiaries attributable to acquisitions consummated since the date of
such year-end reserve report, and (B) estimated crude oil and natural gas
reserves of the Company and its Restricted Subsidiaries attributable to
extensions, discoveries and other additions and upward determinations of
estimates of proved crude oil and natural gas reserves (including
previously estimated development costs incurred during the period and the
accretion of discount since the prior year end) due to exploration,
development or exploitation, production or other activities which reserves
were not reflected in such year-end reserve report which would, in the case
of determinations made pursuant to clauses (A) and (B), in accordance with
standard industry practice, result in such determinations, in each case
calculated in accordance with SEC guidelines (utilizing the prices utilized
in such year-end reserve report), and decreased by, as of the date of
determination, the discounted future net revenue attributable to (C)
estimated proved crude oil and natural gas reserves of the Company and its
Restricted Subsidiaries reflected in such year-end reserve report produced
or disposed of since the date of such year-end reserve report and (D)
reductions in the estimated oil and gas reserves of the Company and its
Restricted Subsidiaries reflected in such year-end reserve report since the
date of such year-end reserve report attributable to downward
determinations of estimates of proved crude oil and natural gas reserves
due to exploration, development or exploitation, production or other
activities conducted or otherwise occurring since the date of such year-end
reserve report which would, in the case of determinations made pursuant to
clauses (C) and (D), in accordance with standard industry practice, result
in such determinations, in each case calculated in accordance with SEC
guidelines (utilizing the prices utilized in such year-end reserve report);
provided, however, that, in the case of each of the determinations made
pursuant to clauses (A) through (D), such increases and decreases shall be
as estimated by the Company's engineers, except that if as a result of such
acquisitions, dispositions, discoveries, extensions or revisions, there is
a Material Change which is
38
an increase, then such increases and decreases in the discounted future net
revenue shall be confirmed in writing by an independent petroleum engineer;
(2) the capitalized costs that are attributable to crude oil and
natural gas properties of the Company and its Restricted Subsidiaries to
which no proved crude oil and natural gas reserves are attributed, based on
the Company's books and records as of a date no earlier than the date of
the Company's latest annual or quarterly financial statements;
(3) the Net Working Capital on a date no earlier than the date of the
Company's latest annual or quarterly financial statements; and
(4) the greater of (I) the net book value on a date no earlier than
the date of the Company's latest annual or quarterly financial statements
and (II) the appraised value, as estimated by independent appraisers, of
other tangible assets of the Company and its Restricted Subsidiaries as of
a date no earlier than the date of the Company's latest audited financial
statements (provided that the Company shall not be required to obtain such
an appraisal of such assets if no such appraisal has been performed); minus
(b) to the extent not otherwise taken into account in the immediately
preceding clause (a), the sum of:
(1) minority interests;
(2) any natural gas balancing liabilities of the Company and its
Restricted Subsidiaries reflected in the Company's latest audited financial
statements;
(3) the discounted future net revenue, calculated in accordance with
SEC guidelines (utilizing the same prices utilized in the Company's
year-end reserve report), attributable to reserves subject to participation
interests, overriding royalty interests or other interests of third
parties, pursuant to participation, partnership, vendor financing or other
agreements then in effect, or which otherwise are required to be delivered
to third parties;
(4) the discounted future net revenue, calculated in accordance with
SEC guidelines (utilizing the same prices utilized in the Company's
year-end reserve report), attributable to reserves that are required to be
delivered to third parties to fully satisfy the obligations of the Company
and its Restricted Subsidiaries with respect to Volumetric Production
Payments on the schedules specified with respect thereto; and
(5) the discounted future net revenue, calculated in accordance with
SEC guidelines, attributable to reserves subject to Dollar-Denominated
Production Payments that, based on the estimates of production included in
determining the discounted future net revenue specified in the immediately
preceding clause (a)(1) (utilizing the same prices utilized in the
Company's year-end reserve report), would be necessary to satisfy fully the
obligations of the Company and its Restricted Subsidiaries with respect to
Dollar-Denominated Production Payments on the schedules specified with
respect thereto.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "-- Certain Covenants -- Limitation
on Restricted Payments," "-- Certain Covenants -- Limitation on Affiliate
Transactions" and "-- Certain Covenants -- Limitation on Sales of Assets and
Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner of
Capital Stock representing 10% or more of the total voting power of the Voting
Stock (on a fully diluted basis) of the Company or of rights or warrants to
purchase such Capital Stock
39
(whether or not currently exercisable) and any Person who would be an Affiliate
of any such beneficial owner pursuant to the first sentence hereof.
"Asset Disposition" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) by the Company
or any Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of:
(1) any shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares or shares required by applicable law to be
held by a Person other than the Company or a Restricted Subsidiary);
(2) all or substantially all the assets of any division or line of
business of the Company or any Restricted Subsidiary; or
(3) any other assets of the Company or any Restricted Subsidiary
outside of the ordinary course of business of the Company or such
Restricted Subsidiary.
Notwithstanding the foregoing, none of the following shall be deemed to be an
Asset Disposition:
(1) a disposition by a Restricted Subsidiary to the Company or by the
Company or a Restricted Subsidiary to a Wholly Owned Subsidiary;
(2) for purposes of the covenant described under "-- Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock" only, a
disposition that constitutes a Restricted Payment permitted by the covenant
described under "-- Certain Covenants -- Limitation on Restricted
Payments," a disposition of all or substantially all the assets of the
Company in compliance with "-- Certain Covenants -- Merger and
Consolidation" or a disposition that constitutes a Change of Control
pursuant to clause (3) of the definition thereof;
(3) the sale or transfer (whether or not in the ordinary course of
business) of crude oil and natural gas properties or direct or indirect
interests in real property; provided, however, that at the time of such
sale or transfer such properties do not have associated with them any
proved reserves;
(4) the abandonment, farm-out, lease or sublease of developed or
undeveloped crude oil and natural gas properties in the ordinary course of
business;
(5) the trade or exchange by the Company or any Restricted Subsidiary
of any crude oil and natural gas property owned or held by the Company or
such Restricted Subsidiary for any crude oil and natural gas property owned
or held by another Person; or
(6) the sale or transfer of hydrocarbons or other mineral products or
surplus or obsolete equipment;
in each case in the ordinary course of business.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
implicit in the Sale/Leaseback Transaction, compounded annually) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing
(1) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment
of such Indebtedness or redemption or similar payment with respect to such
Preferred Stock multiplied by the amount of such payment by
(2) the sum of all such payments.
40
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday (as defined in
the Indenture).
"Capital Lease Obligation" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of
(x) the aggregate amount of EBITDA for the period of the most recent four
consecutive fiscal quarters ending at least 45 days prior to the date of such
determination to
(y) Consolidated Interest Expense for such four fiscal quarters; provided,
however, that:
(1) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding or
if the transaction giving rise to the need to calculate the Consolidated
Coverage Ratio is an Incurrence of Indebtedness, or both, EBITDA and
Consolidated Interest Expense for such period shall be calculated after
giving effect on a pro forma basis to such Indebtedness as if such
Indebtedness had been Incurred on the first day of such period 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;
(2) if the Company or any Restricted Subsidiary has repaid,
repurchased, defeased or otherwise discharged any Indebtedness since the
beginning of such period or if any Indebtedness is to be repaid,
repurchased, defeased or otherwise discharged on the date of the
transaction giving rise to the need to calculate the Consolidated Coverage
Ratio, EBITDA and Consolidated Interest Expense for such period shall be
calculated on a pro forma basis as if such discharge had occurred on the
first day of such period and as if the Company or such Restricted
Subsidiary has not earned the interest income actually earned during such
period in respect of cash or Temporary Cash Investments used to repay,
repurchase, defease or otherwise discharge such Indebtedness;
(3) if since the beginning of such period the Company or any
Restricted Subsidiary shall have made any Asset Disposition (other than an
Asset Disposition involving assets having a fair market value of less than
the greater of two and one-half percent (2.5%) of Adjusted Consolidated Net
Tangible Assets as of the end of the Company's then most recently completed
fiscal year and $3.0 million), then EBITDA for such period shall be reduced
by an amount equal to 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 EBITDA (if negative), directly attributable
thereto for such period and Consolidated Interest Expense for such period
shall be reduced by an amount equal to the Consolidated Interest Expense
directly attributable to any Indebtedness of the Company or any Restricted
Subsidiary repaid, repurchased, defeased or otherwise discharged with
respect to the Company and its continuing Restricted Subsidiaries in
connection with such Asset Disposition for such period (or, if the Capital
Stock of any Restricted Subsidiary is sold, the Consolidated Interest
Expense for such period directly attributable to the Indebtedness of such
Restricted Subsidiary to the extent the Company and its continuing
Restricted Subsidiaries are no longer liable for such Indebtedness after
such sale);
41
(4) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary (or any person which becomes a
Restricted Subsidiary) or an acquisition (including by way of lease) of
assets, including any acquisition of assets occurring in connection with a
transaction requiring a calculation to be made hereunder, EBITDA and
Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto (including the Incurrence of any
Indebtedness) as if such Investment or acquisition occurred on the first
day of such period; and
(5) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period)
shall have made any Asset Disposition, any Investment or acquisition of
assets that would have required an adjustment pursuant to clause (3) or (4)
above if made by the Company or a Restricted Subsidiary during such period,
EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto as if such Asset
Disposition, Investment or acquisition occurred on the first day of such
period.
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of income or earnings relating thereto and the
amount of Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, the pro forma calculations shall be determined
in good faith by a responsible financial or accounting Officer of the Company.
If any Indebtedness bears a floating rate of interest and is being given pro
forma effect, the interest on such Indebtedness shall be calculated as if the
rate in effect on the date of determination had been the applicable rate for the
entire period (taking into account any Interest Rate Agreement applicable to
such Indebtedness if such Interest Rate Agreement has a remaining term in excess
of 12 months).
"Consolidated Current Liabilities" as of the date of determination means
the aggregate amount of liabilities of the Company and its consolidated
Restricted Subsidiaries which would properly be classified as current
liabilities (including taxes accrued as estimated), on a consolidated balance
sheet of the Company and its Restricted subsidiaries at such date, after
eliminating:
(1) all intercompany items between the Company and any Restricted
Subsidiary; and
(2) all current maturities of long-term Indebtedness, all as
determined in accordance with GAAP consistently applied.
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP, plus, to the extent
not included in such total interest expense, and to the extent incurred by the
Company or its Restricted Subsidiaries, without duplication:
(1) interest expense attributable to Capital Lease Obligations and
imputed interest with respect to Attributable Debt;
(2) capitalized interest;
(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) net costs (including amortization of fees and up-front payments)
associated with interest rate caps and other interest rate and currency
options that, at the time entered into, resulted in the Company and its
Restricted Subsidiaries being net payees as to future payouts under such
caps or options, and interest rate and currency swaps and forwards for
which the Company or any of its Restricted Subsidiaries has paid a premium;
42
(6) dividends (excluding dividends paid in shares of Capital Stock
which is not Disqualified Stock) in respect of all Disqualified Stock held
by Persons other than the Company or a Wholly Owned Subsidiary;
(7) interest accruing on any Indebtedness of any other Person to the
extent such Indebtedness is Guaranteed by the Company or any Restricted
Subsidiary or secured by a Lien on assets of the Company or any Restricted
Subsidiary to the extent such Indebtedness constitutes Indebtedness of the
Company or any Restricted Subsidiary (whether or not such Guarantee or Lien
is called upon); provided, however, "Consolidated Interest Expense" shall
not include any (x) amortization of costs relating to original debt
issuances other than the amortization of debt discount related to the
issuance of zero coupon securities or other securities with an original
issue price of not more than 90% of the principal thereof, (y) Consolidated
Interest Expense with respect to any Indebtedness Incurred pursuant to
clause (b) (8) of the covenant described under "-- Certain
Covenants -- Limitation on Indebtedness" and (z) noncash interest expense
Incurred in connection with interest rate caps and other interest rate and
currency options that, at the time entered into, resulted in the Company
and its Restricted Subsidiaries being either neutral or net payors as to
future payouts under such caps or options.
"Consolidated Net Income" means, for any period, the net income of the
Company and its Subsidiaries determined on a consolidated basis in accordance
with GAAP; provided, however, that there shall not be included in such
Consolidated Net Income:
(1) any net income of any Person (other than the Company) if such
Person is not a Restricted Subsidiary, except that:
(A) subject to the exclusion contained in clause (4) below, the
Company's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income 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
paid to a Restricted Subsidiary, to the limitations contained in clause
(3) below); and
(B) the Company's equity in a net loss of any such Person for such
period shall be included in determining such Consolidated Net Income;
(2) any net income (or loss) of any Person acquired by the Company or
a Subsidiary in a pooling of interests transaction for any period prior to
the date of such acquisition;
(3) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that:
(A) subject to the exclusion contained in clause (4) below, the
Company's equity in the net income of any such Restricted Subsidiary for
such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Restricted
Subsidiary during such period to the Company or another Restricted
Subsidiary as a dividend or other distribution (subject, in the case of
a dividend or other distribution paid to another Restricted Subsidiary,
to the limitation contained in this clause); and
(B) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such
Consolidated Net Income;
(4) any gain or loss realized upon the sale or other disposition of
any assets of the Company or its consolidated Subsidiaries (including
pursuant to any sale-and-leaseback arrangement) which is not sold or
otherwise disposed of in the ordinary course of business and any gain or
loss realized upon the sale or other disposition of any Capital Stock of
any Person;
(5) extraordinary gains or losses;
43
(6) any non-cash compensation expense realized for grants of
performance shares, stock options or stock awards to officers, directors
and employees of the Company or any of its Restricted Subsidiaries;
(7) any write-downs of noncurrent assets; provided, however, that any
ceiling limitation write-downs under SEC guidelines shall be treated as
capitalized costs, as if such write-downs had not occurred; and
(8) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purposes of the covenant described
under "Certain Covenants -- Limitation on Restricted Payments" only, there shall
be excluded from Consolidated Net Income any dividends, repayments of loans or
advances or other transfers of assets from Unrestricted Subsidiaries to the
Company or a Restricted Subsidiary to the extent such dividends, repayments or
transfers increase the amount of Restricted Payments permitted under such
covenant pursuant to clause (a) (3) (E) thereof.
"Consolidated Net Tangible Assets," as of any date of determination, means
the total amount of assets (less accumulated depreciation and amortization,
allowances for doubtful receivables, other applicable reserves and other
properly deductible items) which would appear on a balance sheet of the Company
and its Restricted Subsidiaries, determined on a consolidated basis in
accordance with GAAP, and after giving effect to purchase accounting and after
deducting therefrom Consolidated Current Liabilities and, to the extent
otherwise included, the amounts of:
(1) minority interests in Restricted Subsidiaries held by Persons
other than the Company or a Restricted Subsidiary;
(2) excess of cost over fair value of assets of businesses acquired,
as determined in good faith by the Board of Directors;
(3) any revaluation or other write-up in book value of assets
subsequent to February 26, 1998 as a result of a change in the method of
valuation in accordance with GAAP consistently applied;
(4) unamortized debt discount and expenses and other unamortized
deferred charges, goodwill, patents, trademarks, service marks, trade
names, copyrights, licenses, organization or developmental expenses and
other intangible items;
(5) treasury stock;
(6) cash set apart and held in a sinking or other analogous fund
established for the purpose of redemption or other retirement of Capital
Stock to the extent such obligation is not reflected in Consolidated
Current Liabilities; and
(7) Investments in and assets of Unrestricted Subsidiaries.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its Subsidiaries, determined on a consolidated
basis in accordance with GAAP, as of the end of the most recent fiscal quarter
of the Company ending at least 45 days prior to the taking of any action for the
purpose of which the determination is being made, as the sum of:
(1) the par or stated value of all outstanding Capital Stock of the
Company plus
(2) paid-in capital or capital surplus relating to such Capital Stock
plus
(3) any retained earnings or earned surplus
less (A) any accumulated deficit and (B) any amounts attributable to
Disqualified Stock.
"Credit Agreement" means that certain Second Amended and Restated Credit
Agreement, dated October 13, 2000, as amended, by and among the Company and Bank
of America, N.A. (or any successor
44
thereto or replacement thereof), as administrative agent and as a lender, and
certain other institutions, as lenders, including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, and in each case as amended, restated, modified, renewed, refunded,
replaced, refinanced or increased in whole or in part, from time to time.
"Credit Facilities" means, with respect to the Company or any Restricted
Subsidiary, one or more debt facilities (including the Credit Agreement) or
commercial paper facilities with banks or other institutional lenders providing
for revolving credit loans, term loans, production payments, receivables
financing (including through the sale of receivables to such lenders or to
special purpose entities formed to borrow from such lenders against such
receivables) or letters of credit, in each case, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to time.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" in respect of a Person means:
(1) all the obligations of such Person under any Credit Facility
(including the Credit Agreement); and
(2) any other Senior Indebtedness of such Person which, at the date of
determination, has an aggregate principal amount outstanding of, or under
which, at the date of determination, the holders thereof are committed to
lend up to, at least $20 million and is specifically designated by such
Person in the instrument evidencing or governing such Senior Indebtedness
as "Designated Senior Indebtedness" for purposes of the Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
that by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or upon the happening of any event:
(1) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise;
(2) is convertible or exchangeable for Indebtedness or Disqualified
Stock; or
(3) is redeemable, in whole or in part, at the option of the holder
thereof;
in each case described in the immediately preceding clauses (1), (2) or (3), on
or prior to the Stated Maturity of the Notes; provided, however, that any
Capital Stock that would not constitute Disqualified Stock but for provisions
thereof giving holders thereof the right to require such Person to purchase or
redeem such Capital Stock upon the occurrence of an "asset sale" or "change of
control" occurring prior to the Stated Maturity of the Notes shall not
constitute Disqualified Stock if:
(x) the "asset sale" or "change of control" provisions applicable to
such Capital Stock are not more favorable to the holders of such Capital
Stock than the provisions described under "-- Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock" and
"-- Certain Covenants -- Change of Control"; and
(y) any such requirement only becomes operative after compliance with
such corresponding terms applicable to the Notes, including the purchase of
any Notes tendered pursuant thereto.
The amount of any Disqualified Stock that does not have a fixed redemption,
repayment or repurchase price will be calculated in accordance with the terms of
such Disqualified Stock as if such Disqualified Stock were redeemed, repaid or
repurchased on any date on which the amount of such Disqualified Stock is to be
determined pursuant to the Indenture; provided, however, that if such
Disqualified Stock could not be required to be redeemed, repaid or repurchased
at the time of such determination, the redemption,
45
repayment or repurchase price will be the book value of such Disqualified Stock
as reflected in the most recent financial statements of such Person.
"Dollar-Denominated Production Payments" means production payment
obligations recorded as liabilities in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"EBITDA" for any period means the sum of Consolidated Net Income, plus
Consolidated Interest Expense plus the following to the extent deducted in
calculating such Consolidated Net Income:
(1) provision for taxes based on income or profits;
(2) depletion and depreciation expense;
(3) amortization expense;
(4) exploration expense (if applicable to the Company after February
26, 1998);
(5) unrealized foreign exchange losses; and
(6) all other non-cash charges (excluding any such non-cash charge to
the extent that it represents an accrual of or reserve for cash charges in
any future period or amortization of a prepaid cash expense that was paid
in a prior period except such amounts as the Company determines in good
faith are nonrecurring);
and less, to the extent included in calculating such Consolidated Net Income and
in excess of any costs or expenses attributable thereto and deducted in
calculating such Consolidated Net Income, the sum of:
(1) the amount of deferred revenues that are amortized during such
period and are attributable to reserves that are subject to Volumetric
Production Payments;
(2) amounts recorded in accordance with GAAP as repayments of
principal and interest pursuant to Dollar-Denominated Production Payments;
and
(3) unrealized foreign exchange gains.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depletion, depreciation, amortization and exploration and
other non-cash charges of, a Restricted Subsidiary shall be added to
Consolidated Net Income to compute EBITDA only to the extent (and in the same
proportion) that the net income of such Restricted Subsidiary was included in
calculating Consolidated Net Income and only if a corresponding amount would be
permitted at the date of determination to be dividended to the Company by such
Restricted Subsidiary without prior approval (that has not been obtained),
pursuant to the terms of its charter and all agreements, instruments, judgments,
decrees, orders, statutes, rules and governmental regulations applicable to such
Restricted Subsidiary or its stockholders.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect on February 26, 1998, including those set forth in:
(1) the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants;
(2) statements and pronouncements of the Financial Accounting
Standards Board;
(3) such other statements by such other entity as approved by a
significant segment of the accounting profession; and
(4) the rules and regulations of the SEC governing the inclusion of
financial statements (including pro forma financial statements) in periodic
reports required to be filed pursuant to
46
Section 13 of the Exchange Act, including opinions and pronouncements in
staff accounting bulletins and similar written statements from the
accounting staff of the SEC.
"Guarantee" means, without duplication, any obligation, contingent or
otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of
any Person and any obligation, direct or indirect, contingent or otherwise, of
such Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such Person (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to purchase
assets, goods, securities or services, to take-or-pay or to maintain
financial statement conditions or otherwise); or
(2) entered into for the purpose of assuring in any other manner the
obligee of such Indebtedness of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The term "Guarantor" shall mean any
Person Guaranteeing any obligation.
"Guarantee Agreement" means a supplemental indenture, in a form
satisfactory to the Trustee, pursuant to which a Subsidiary Guarantor or any
other Person becomes subject to the applicable terms and conditions of the
Indenture.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Oil and Gas Hedging Contract, Interest Rate Agreement or
Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used
as a noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security shall not be deemed the
Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(1) the principal of and premium (if any) in respect of (A)
indebtedness of such Person for money borrowed and (B) indebtedness
evidenced by notes, debentures, bonds or other similar instruments for the
payment of which such Person is responsible or liable;
(2) all Capital Lease Obligations of such Person and all Attributable
Debt in respect of Sale/ Leaseback Transactions entered into by such
Person;
(3) all obligations of such Person issued or assumed as the deferred
purchase price of property (which purchase price is due more than six
months after the date of taking delivery of title to such property),
including all obligations of such Person for the deferred purchase price of
property under any title retention agreement (but excluding trade accounts
payable arising in the ordinary course of business);
(4) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit
securing obligations (other than obligations described in clauses (1)
through (3) above) entered into in the ordinary course of business of such
Person to the extent such letters of credit are not drawn upon or, if and
to the extent drawn upon, such drawing is reimbursed no later than the
47
tenth Business Day following receipt by such Person of a demand for
reimbursement following payment on the letter of credit);
(5) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock (but
excluding any accrued dividends);
(6) all obligations of such Person relating to any Production Payment;
(7) all obligations of the type referred to in clauses (1) through (6)
of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee (including, with respect to any Production Payment, any
warranties or guarantees of production or payment by such Person with
respect to such Production Payment but excluding other contractual
obligations of such Person with respect to such Production Payment);
(8) all obligations of the type referred to in clauses (1) through (7)
of other Persons secured by any Lien on any property or asset of such
first-mentioned Person (whether or not such obligation is assumed by such
first-mentioned Person), the amount of such obligation being deemed to be
the lesser of the value of such property or assets or the amount of the
obligation so secured; and
(9) to the extent not otherwise included in this definition, Hedging
Obligations of such Person. The amount of Indebtedness of any Person at any
date shall be the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability, assuming the
contingency giving rise to the obligation were to have occurred on such
date, of any Guarantees outstanding at such date.
None of the following shall constitute Indebtedness:
(1) indebtedness arising from agreements providing for indemnification
or adjustment of purchase price or from guarantees securing any obligations
of the Company or any of its Subsidiaries pursuant to such agreements,
incurred or assumed in connection with the disposition of any business,
assets or Subsidiary of the Company, other than guarantees or similar
credit support by the Company or any of its Subsidiaries of Indebtedness
incurred by any Person acquiring all or any portion of such business,
assets or Subsidiary for the purpose of financing such acquisition;
(2) any trade payables or other similar liabilities to trade creditors
and other accrued current liabilities incurred in the ordinary course of
business as the deferred purchase price of property;
(3) any liability for Federal, state, local or other taxes owed or
owing by such Person;
(4) amounts due in the ordinary course of business to other royalty
and working interest owners;
(5) obligations arising from guarantees to suppliers, lessors,
licensees, contractors, franchisees or customers incurred in the ordinary
course of business;
(6) obligations (other than express Guarantees of indebtedness for
borrowed money) in respect of Indebtedness of other Persons arising in
connection with (A) the sale or discount of accounts receivable, (B) trade
acceptances and (C) endorsements of instruments for deposit in the ordinary
course of business;
(7) obligations in respect of performance bonds provided by the
Company or its Subsidiaries in the ordinary course of business and
refinancing thereof;
(8) obligations arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument drawn against
insufficient funds in the ordinary course of business, provided, however
that such obligation is extinguished within two Business Days of its
incurrence; and
(9) obligations in respect of any obligations under workers'
compensation laws and similar legislation.
48
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement or other financial agreement or arrangement designed to
protect the Company or any Restricted Subsidiary against fluctuations in
interest rates.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers or joint interest partners or drilling
partnerships sponsored by the Company or any Restricted Subsidiary in the
ordinary course of business that are recorded as accounts receivable on the
balance sheet of the lender) or other extensions of credit (including by way of
Guarantee or similar arrangement) or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition of
Capital Stock, Indebtedness or other similar instruments issued by such Person.
Except as otherwise provided for herein, the amount of an Investment shall be
its fair value at the time the Investment is made and without giving effect to
subsequent changes in value.
For purposes of the definition of "Unrestricted Subsidiary," the definition
of "Restricted Payment" and the covenant described under "-- Certain
Covenants -- Limitation on Restricted Payments":
(1) "Investment" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of
the net assets of any Subsidiary of the Company at the time that such
Subsidiary is designated an Unrestricted Subsidiary; provided, however,
that upon a redesignation of such Subsidiary as a Restricted Subsidiary,
the Company shall be deemed to continue to have a permanent "Investment" in
an Unrestricted Subsidiary equal to an amount (if positive) equal to (x)
the Company's "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of
such Subsidiary at the time of such redesignation; and
(2) any property transferred to or from an Unrestricted Subsidiary
shall be valued at its fair market value at the time of such transfer, in
each case as determined in good faith by the Board of Directors.
"Issue Date" means the date on which the Notes are originally issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Limited Recourse Production Payments" means, with respect to any
Production Payments, Indebtedness, the terms of which limit the liability of the
Company and its Restricted Subsidiaries solely to the hydrocarbons covered by
such Production Payments; provided, however, that no default with respect to
such Indebtedness would permit any holder of any other Indebtedness of the
Company or any Restricted Subsidiary to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity.
"Material Change" means an increase or decrease (excluding changes that
result solely from changes in prices and changes resulting from the incurrence
of previously estimated future development costs) of more than 25% during a
fiscal quarter in the discounted future net revenues from proved crude oil and
natural gas reserves of the Company and its Restricted Subsidiaries, calculated
in accordance with clause (a)(1) of the definition of Adjusted Consolidated Net
Tangible Assets; provided, however, that the following will be excluded from the
calculation of Material Change:
(1) any acquisitions during the fiscal quarter of oil and gas reserves
that have been estimated by independent petroleum engineers and with
respect to which a report or reports of such engineers exist; and
(2) any disposition of properties existing at the beginning of such
fiscal quarter that have been disposed of in compliance with the covenant
described under "-- Certain Covenants -- Limitation on Sales of Assets and
Subsidiary Stock."
49
"Moody's" means Moody's Investor's Service, Inc. and its successors.
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to such properties or assets or received in any other noncash form), in each
case net of:
(1) all legal, title and recording tax expenses, commissions and other
fees (including financial and other advisory fees) and expenses incurred,
and all Federal, state, provincial, foreign and local taxes required to be
accrued as a liability under GAAP, 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 or other security agreement of any kind with respect to such
assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Disposition, or by applicable law, be repaid out of
the proceeds from such Asset Disposition;
(3) all distributions and other payments required to be made to
minority interest holders in Subsidiaries or joint ventures as a result of
such Asset Disposition; and
(4) the deduction of appropriate amounts provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with
the property or other assets disposed in such Asset Disposition and
retained by the Company or any Restricted Subsidiary after such Asset
Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Net Present Value" means, with respect to any proved hydrocarbon reserves,
the discounted future net cash flows associated with such reserves, determined
in accordance with the rules and regulations (including interpretations thereof)
of the SEC in effect on February 26, 1998.
"Net Working Capital" means:
(1) all current assets of the Company and its Restricted Subsidiaries;
minus
(2) all current liabilities of the Company and its Restricted
Subsidiaries, except current liabilities included in Indebtedness;
determined in accordance with GAAP.
"Non-recourse Purchase Money Indebtedness" means Indebtedness (other than
Capital Lease Obligations) of the Company or any Subsidiary Guarantor incurred
in connection with the acquisition by the Company or such Subsidiary Guarantor
in the ordinary course of business of fixed assets used in the Oil and Gas
Business (including office buildings and other real property used by the Company
or such Subsidiary Guarantor in conducting its operations) with respect to
which:
(1) the holders of such Indebtedness agree that they will look solely
to the fixed assets so acquired which secure such Indebtedness, and neither
the Company nor any Restricted Subsidiary (a) is directly or indirectly
liable for such Indebtedness or (b) provides credit support, including any
undertaking, Guarantee, agreement or instrument that would constitute
Indebtedness (other than the grant of a Lien on such acquired fixed
assets); and
(2) no default or event of default with respect to such Indebtedness
would cause, or permit (after notice or passage of time or otherwise), any
holder of any other Indebtedness of the Company or a Subsidiary Guarantor
to declare a default or event of default on such other Indebtedness or
cause the payment, repurchase, redemption, defeasance or other acquisition
or retirement for value thereof
50
to be accelerated or payable prior to any scheduled principal payment,
scheduled sinking fund payment or maturity.
"Oil and Gas Business" means the business of the exploration for, and
exploitation, development, acquisition, production, processing (but not
refining), marketing, storage and transportation of, hydrocarbons, and other
related energy and natural resource businesses (including oil and gas services
businesses related to the foregoing).
"Oil and Gas Hedging Contract" means any oil and gas purchase or hedging
agreement, and other agreement or arrangement, in each case, that is designed to
provide protection against oil and gas price fluctuations.
"Oil and Gas Liens" means:
(1) Liens on any specific property or any interest therein,
construction thereon or improvement thereto to secure all or any part of
the costs incurred for surveying, exploration, drilling, extraction,
development, operation, production, construction, alteration, repair or
improvement of, in, under or on such property and the plugging and
abandonment of wells located thereon (it being understood that, in the case
of oil and gas producing properties, or any interest therein, costs
incurred for "development" shall include costs incurred for all facilities
relating to such properties or to projects, ventures or other arrangements
of which such properties form a part or which relate to such properties or
interests);
(2) Liens on an oil or gas producing property to secure obligations
incurred or guarantees of obligations incurred in connection with or
necessarily incidental to commitments for the purchase or sale of, or the
transportation or distribution of, the products derived from such property;
(3) Liens arising under partnership agreements, oil and gas leases,
overriding royalty agreements, net profits agreements, production payment
agreements, royalty trust agreements, 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, master limited partnership agreements,
farm-out agreements, farm-in agreements, division orders, contracts for the
sale, purchase, exchange, transportation, gathering or processing of oil,
gas or other hydrocarbons, 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, that in all
instances such Liens are limited to the assets that are the subject of the
relevant agreement, program, order or contract;
(4) Liens arising in connection with Production Payments; and
(5) Liens on pipelines or pipeline facilities that arise by operation
of law.
"Permitted Business Investment" means any investment made in the ordinary
course of, and of a nature that is or shall have become customary in, the Oil
and Gas Business including investments or expenditures for actively exploiting,
exploring for, acquiring, developing, producing, processing, gathering,
marketing or transporting oil and gas through agreements, transactions,
interests or arrangements which permit one to share risks or costs, comply with
regulatory requirements regarding local ownership or satisfy other objectives
customarily achieved through the conduct of Oil and Gas Business jointly with
third parties, including:
(1) ownership interests in oil and gas properties, processing
facilities, gathering systems, pipelines or ancillary real property
interests; and
51
(2) Investments in the form of or pursuant to operating agreements,
processing agreements, farm-in agreements, farm-out agreements, development
agreements, area of mutual interest agreements, unitization agreements,
pooling 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,
excluding, however, Investments in corporations other than Restricted
Subsidiaries.
"Permitted Holders" means TPG Advisors, Inc. or any Person who on February
26, 1998 was an Affiliate thereof or any Person controlled by TPG Advisors, Inc.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in:
(1) a Restricted Subsidiary or a Person that will, upon the making of
such Investment, become a Restricted Subsidiary; provided, however, that
the primary business of such Restricted Subsidiary is an 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 an Oil and Gas
Business;
(3) Temporary Cash Investments;
(4) receivables owing to the Company or any Restricted Subsidiary if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however,
that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances;
(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 made in the ordinary course of
business;
(7) 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;
(8) any Person to the extent such Investment represents the noncash
portion of the consideration received for an Asset Disposition as permitted
pursuant to the covenant described under "-- Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock";
(9) Permitted Business Investments;
(10) Investments intended to promote the Company's strategic
objectives in the Oil and Gas Business in an aggregate amount not to exceed
5.0% of ACNTA (determined as of the date of the making of any such
Investment) at any one time outstanding (which Investments shall be deemed
to be no longer outstanding only upon and to the extent of the return of
capital thereof); and
(11) Investments made pursuant to Hedging Obligations of the Company
and the Restricted Subsidiaries.
"Permitted Liens" means, with respect to any Person:
(1) Liens existing as of the Issue Date;
(2) Liens securing the Notes, any Subsidiary Guarantee and other
obligations arising under the Indenture;
(3) any Lien existing on any property of a Person at the time such
Person is merged or consolidated with or into the Company or a Restricted
Subsidiary or becomes a Restricted Subsidiary
52
(and not incurred in anticipation of or in connection with such
transaction), provided that such Liens are not extended to other property
of the Company or the Restricted Subsidiaries;
(4) any Lien existing on any property at the time of the acquisition
thereof (and not incurred in anticipation of or in connection with such
transaction), provided that such Liens are not extended to other property
of the Company or the Restricted Subsidiaries;
(5) any Lien incurred in the ordinary course of business incidental to
the conduct of the business of the Company or the Restricted Subsidiaries
or the ownership of their property (including (i) easements, rights of way
and similar encumbrances, (ii) rights or title of lessors under leases
(other than Capital Lease Obligations), (iii) rights of collecting banks
having rights of setoff, revocation, refund or chargeback with respect to
money or instruments of the Company or the Restricted Subsidiaries on
deposit with or in the possession of such banks, (iv) Liens imposed by law,
including Liens under workers' compensation or similar legislation and
mechanics', carriers', warehousemen's, materialmen's, suppliers' and
vendors' Liens, (v) Liens incurred to secure performance of obligations
with respect to statutory or regulatory requirements, performance or
return-of-money bonds, surety bonds or other obligations of a like nature
and incurred in a manner consistent with industry practice and (vi) Oil and
Gas Liens, in each case which are not incurred in connection with the
borrowing of money, the obtaining of advances or credit or the payment of
the deferred purchase price of property (other than trade accounts payable
arising in the ordinary course of business);
(6) Liens for taxes, assessments and governmental charges not yet due
or the validity of which are being contested in good faith by appropriate
proceedings, promptly instituted and diligently conducted, and for which
adequate reserves have been established to the extent required by GAAP as
in effect at such time;
(7) Liens incurred to secure appeal bonds and judgment and attachment
Liens, in each case in connection with litigation or legal proceedings that
are being contested in good faith by appropriate proceedings, so long as
reserves have been established to the extent required by GAAP as in effect
at such time and so long as such Liens do not encumber assets by an
aggregate amount (together with the amount of any unstayed judgments
against the Company or any Restricted Subsidiary but excluding any such
Liens to the extent securing insured or indemnified judgments or orders) in
excess of $10.0 million;
(8) Liens securing Hedging Obligations of the Company and its
Restricted Subsidiaries;
(9) Liens securing purchase money Indebtedness or Capital Lease
Obligations, provided that such Liens attach only to the property acquired
with the proceeds of such purchase money Indebtedness or the property which
is the subject of such Capital Lease Obligations;
(10) Liens securing Non-recourse Purchase Money Indebtedness granted
in connection with the acquisition by the Company or any Restricted
Subsidiary in the ordinary course of business of fixed assets used in the
Oil and Gas Business (including the office buildings and other real
property used by the Company or such Restricted Subsidiary in conducting
its operations), provided that (i) such Liens attach only to the fixed
assets acquired with the proceeds of such Non-recourse Purchase Money
Indebtedness; and (ii) such Non-recourse Purchase Money Indebtedness is not
in excess of the purchase price of such fixed assets;
(11) Liens resulting from the deposit of funds or evidences of
Indebtedness in trust for the purpose of decreasing or legally defeasing
Indebtedness of the Company or any Restricted Subsidiary so long as such
deposit of funds is permitted by the provisions of the Indenture described
under "-- Limitation on Restricted Payments";
(12) Liens resulting from a pledge of Capital Stock of a Person that
is not a Restricted Subsidiary to secure obligations of such Person and any
refinancings thereof;
53
(13) Liens to secure any permitted extension, renewal, refinancing,
refunding or exchange (or successive extensions, renewals, refinancings,
refundings or exchanges), in whole or in part, of or for any Indebtedness
secured by Liens referred to in clauses (1), (2), (3), (4), (9) and (10)
above; provided, however, that (i) such new Lien shall be limited to all or
part of the same property (including future improvements thereon and
accessions thereto) subject to the original Lien and (ii) the Indebtedness
secured by such Lien at such time is not increased to any amount greater
than the sum of (A) the outstanding principal amount or, if greater, the
committed amount of the Indebtedness secured by such original Lien
immediately prior to such extension, renewal, refinancing, refunding or
exchange and (B) an amount necessary to pay any fees and expenses,
including premiums, related to such refinancing, refunding, extension,
renewal or replacement; and
(14) Liens in favor of the Company or a Restricted Subsidiary.
Notwithstanding anything in this definition to the contrary, the term "Permitted
Liens" shall not include Liens resulting from the creation, incurrence,
issuance, assumption or Guarantee of any Production Payments other than:
(1) any such Liens existing as of the Issue Date;
(2) Production Payments in connection with the acquisition of any
property after the Issue Date; provided that any such Lien created in
connection therewith is created, incurred, issued, assumed or Guaranteed in
connection with the financing of, and within 60 days after the acquisition
of, such property;
(3) Production Payments other than those described in clauses (1) and
(2), to the extent such Production Payments constitute Asset Dispositions
made pursuant to and in compliance with the provisions of the Indenture
described under "-- Limitation on Sales of Assets and Subsidiary Stock";
and
(4) incentive compensation programs for geologists, geophysicists and
other providers of technical services to the Company and any Restricted
Subsidiary;
provided, however, that, in the case of the immediately foregoing clauses (1),
(2), (3) and (4), any Lien created in connection with any such Production
Payments shall be limited to the property that is the subject of such Production
Payments.
"Permitted Marketing Obligations" means Indebtedness of the Company or any
Restricted Subsidiary under letter of credit or borrowed money obligations, or
in lieu of or in addition to such letters of credit or borrowed money,
guarantees of such Indebtedness or other obligation, of the Company or any
Restricted Subsidiary by any other Restricted Subsidiary, as applicable, related
to the purchase by the Company or any Restricted Subsidiary of hydrocarbons for
which the Company or such Restricted Subsidiary has contracts to sell; provided,
however, that in the event that such Indebtedness or obligations are guaranteed
by the Company or any Restricted Subsidiary, then either:
(1) the Person with which the Company or such Restricted Subsidiary
has contracts to sell has an investment grade credit rating from S&P or
Moody's, or in lieu thereof, a Person guaranteeing the payment of such
obligated Person has an investment grade credit rating from S&P or Moody's;
or
(2) such Person posts, or has posted for it, a letter of credit in
favor of the Company or such Restricted Subsidiary with respect to all such
Person's obligations to the Company or such Restricted Subsidiary under
such contracts.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
54
"Preferred Stock," as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over shares of Capital Stock of any other class of such Person.
The term "principal" of a Note means the principal of the Note plus the
premium, if any, payable on the Note which is due or overdue or is to become due
at the relevant time.
"Production Payments" means, collectively, Dollar-Denominated Production
Payments and Volumetric Production Payments.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on February
26, 1998 or Incurred in compliance with the Indenture, including Indebtedness
that Refinances Refinancing Indebtedness; provided, however, that:
(1) such Refinancing Indebtedness has a Stated Maturity no earlier
than the Stated Maturity of the Indebtedness being Refinanced;
(2) such Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being Refinanced;
(3) such Refinancing Indebtedness has an aggregate principal amount
(or if Incurred with original issue discount, an aggregate issue price)
that is equal to or less than the aggregate principal amount (or if
Incurred with original issue discount, the aggregate accreted value) then
outstanding or committed (plus fees and expenses, including any premium and
defeasance costs) under the Indebtedness being Refinanced; and
(4) if the Indebtedness being Refinanced is Non-recourse Purchase
Money Indebtedness, such Refinancing Indebtedness satisfies clauses (1) and
(2) of the definition of "Non-recourse Purchase Money Indebtedness;"
provided further, however, that Refinancing Indebtedness shall not include
(x) Indebtedness of a Subsidiary that Refinances Indebtedness of the
Company or (y) Indebtedness of the Company or a Restricted Subsidiary that
Refinances Indebtedness of an Unrestricted Subsidiary.
"Representative" means any trustee, agent or representative (if any) for an
issue of Senior Indebtedness of the Company or of a Subsidiary Guarantor.
"Restricted Payment" with respect to any Person means:
(1) the declaration or payment of any dividends or any other
distributions of any sort in respect of its Capital Stock (including any
payment in connection with any merger or consolidation involving such
Person) or similar payment to the direct or indirect holders of its Capital
Stock (other than (x) dividends or distributions payable solely in its
Capital Stock (other than Disqualified Stock), (y) dividends or
distributions payable solely to the Company or a Restricted Subsidiary, and
(z) pro rata dividends or other distributions made by a Subsidiary that is
not a Wholly Owned Subsidiary to minority stockholders (or owners of an
equivalent interest in the case of a Subsidiary that is an entity other
than a corporation));
(2) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock of the Company held by any Person or of any
Capital Stock of a Restricted Subsidiary held by any Affiliate of the
Company (other than a Restricted Subsidiary), including the exercise of any
option to exchange any Capital Stock (other than into Capital Stock of the
Company that is not Disqualified Stock);
55
(3) the purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value, prior to scheduled maturity, scheduled
repayment or scheduled sinking fund payment of any Subordinated Obligations
of such Person (other than the purchase, repurchase or other acquisition of
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 acquisition); or
(4) the making of any Investment (other than a Permitted Investment)
in any Person.
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"S&P" means Standard & Poor's Rating Services, a division of The
McGraw-Hill Company, Inc., and its successors.
"Sale/Leaseback Transaction" means an arrangement relating to property
owned on February 26, 1998 or thereafter acquired whereby the Company or a
Restricted Subsidiary transfers such property to a Person and the Company or a
Restricted Subsidiary leases it from such Person, provided that the fair market
value of such property (as reasonably determined by the Board of Directors
acting in good faith) is $10 million or more.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
"Senior Indebtedness" means with respect to any Person:
(1) Indebtedness of such Person, and all obligations of such Person
under any Credit Facility, whether outstanding on the Issue Date or
thereafter Incurred; and
(2) accrued and unpaid interest (including interest accruing on or
after the filing of any petition in bankruptcy or for reorganization
relating such Person to the extent post-filing interest is allowed in such
proceeding) in respect of (A) indebtedness of such Person for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or
other similar instruments for the payment of which such Person is
responsible or liable;
unless, with respect to obligations described in the immediately preceding
clause (1) or (2), in the instrument creating or evidencing the same or pursuant
to which the same is outstanding, it is provided that such obligations are not
superior in right of payment to the Notes or the applicable Subsidiary
Guarantee; provided, however, that Senior Indebtedness shall not include:;
(1) any obligation of such Person to any Subsidiary of such Person;
(2) any liability for Federal, state, local or other taxes owed or
owing by such Person;
(3) any accounts payable or other liability to trade creditors arising
in the ordinary course of business (including guarantees thereof or
instruments evidencing such liabilities);
(4) any Indebtedness of such Person (and any accrued and unpaid
interest in respect thereof) which is subordinate or junior in any respect
to any other Indebtedness or other obligation of such Person; or
(5) that portion of any Indebtedness which at the time of Incurrence
is Incurred in violation of the Indenture (other than, in the case of the
Company or any Subsidiary Guarantor that Guarantees any Credit Facility,
Indebtedness under any Credit Facility that is Incurred on the basis of a
representation by the Company or the applicable Subsidiary Guarantor to the
applicable lenders that such Person is permitted to Incur such Indebtedness
under the Indenture).
"Senior Subordinated Indebtedness" means:
(1) with respect to the Company, the Notes, the Existing 9% Senior
Subordinated Notes and any other Indebtedness of the Company that
specifically provides that such Indebtedness is to rank
56
pari passu with the Notes in right of payment and is not subordinated by
its terms in right of payment to any Indebtedness or other obligation of
the Company which is not Senior Indebtedness of the Company; and
(2) with respect to each Subsidiary Guarantor, its Subsidiary
Guarantee of the Notes and the Existing 9% Senior Subordinated Notes and
any other Indebtedness of such Person that specifically provides that such
Indebtedness rank pari passu with its applicable Subsidiary Guarantee in
respect of payment and is not subordinated by its terms in respect of
payment to any Indebtedness or other obligation of such Person which is not
Senior Indebtedness of such Person.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Stock Offering" means a primary offering, whether public or private, of
shares of common stock of the Company.
"Subordinated Obligation" means any Indebtedness of the Company or any
Subsidiary Guarantor (whether outstanding on the Issue Date or thereafter
Incurred) which is subordinate or junior in right of payment to, in the case of
the Company, the Notes or, in the case of a Subsidiary Guarantor, its Subsidiary
Guarantee pursuant to a written agreement to that effect.
"Subsidiary" means, in respect of any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by:
(1) such Person;
(2) such Person and one or more Subsidiaries of such Person; or
(3) one or more Subsidiaries of such Person.
"Subsidiary Guarantor" means each Subsidiary of the Company that executes
the Indenture as a guarantor and each other Subsidiary of the Company that
thereafter Guarantees the Notes pursuant to the terms of the Indenture.
"Temporary Cash Investments" means any of the following:
(1) any investment in direct obligations of the United States of
America or any agency thereof or obligations guaranteed by the United
States of America or any agency thereof;
(2) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within one year of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws
of the United States of America, any state thereof or any foreign country
recognized by the United States, and which bank or trust company has
capital, surplus and undivided profits aggregating in excess of $200.0
million (or the foreign currency equivalent thereof) and has outstanding
debt which is rated "A" (or such similar equivalent rating) or higher by at
least one nationally recognized credit rating organization (as defined in
Rule 436 under the Securities Act) or any money-market fund sponsored by a
registered broker dealer or mutual fund distributor whose assets consist of
obligations of the types described in clauses (1), (2), (3), (4) and (5)
hereof;
57
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above entered
into with a bank meeting the qualifications described in clause (2) above;
(4) investments in commercial paper, maturing not more than one year
after the date of acquisition, issued by a Person (other than an Affiliate
of the Company) organized and in existence under the laws of the United
States of America or any foreign country recognized by the United States of
America with a rating at the time as of which any investment therein is
made of "P-2" (or higher) according to Moody's or "A-2" (or higher)
according to S&P or "R-1" (or higher) by Dominion Bond Rating Service
Limited or Canadian Bond Rating Service, Inc. (in the case of a Canadian
issuer);
(5) investments in securities with maturities of six months or less
from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A"
by S&P or "A" by Moody's; and
(6) investments in asset-backed securities maturing within one year of
the date of acquisition thereof with a long-term rating at the time as of
which any investment therein is made of "A3" (or higher) by Dominion Bond
Rating Service Limited or Canadian Bond Rating Service, Inc. (in the case
of a Canadian issuer).
"Unrestricted Subsidiary" means:
(1) Denbury Carbonics, L.L.C. and Tallahatchie Resources, Inc;
(2) any Subsidiary of the Company that at the time of determination
shall be designated an Unrestricted Subsidiary by the Board of Directors in
the manner provided below; and
(3) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary of the Company (including
any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary
unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or
Indebtedness of, or holds any Lien on any property of, the Company or any other
Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so
designated; provided, however, that either (A) the Subsidiary to be so
designated has total assets of $1,000 or less or (B) if such Subsidiary has
assets greater than $1,000, such designation would be permitted under the
covenant described under "-- Certain Covenants -- Limitation on Restricted
Payments." The Board of Directors may designate any Unrestricted Subsidiary to
be a Restricted Subsidiary; provided, however, that immediately after giving
effect to such designation (x) the Company could Incur $1.00 of additional
Indebtedness under paragraph (a) of the covenant described under "-- Certain
Covenants -- Limitation on Indebtedness" and (y) no Default shall have occurred
and be continuing. Any such designation by the Board of Directors shall be
evidenced by the Company to the Trustee by promptly filing with the Trustee a
copy of the board resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Volumetric Production Payments" means production payment obligations
recorded as deferred revenue in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
58
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares and shares held by other
Persons to the extent such shares are required by applicable law to be held by a
Person other than the Company or a Restricted Subsidiary) is owned by the
Company or one or more Wholly Owned Subsidiaries.
59
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a summary of the material U.S. federal income tax
consequences to holders exchanging old notes for new notes pursuant to the
exchange offer. This discussion is based on currently existing provisions of the
Internal Revenue Code of 1986, as amended, the "Code," existing, temporary and
proposed Treasury regulations promulgated thereunder, Internal Revenue Services,
or "IRS" rulings and pronouncements, reports of congressional committees,
judicial decisions and current administrative rulings and practice, all as in
effect or proposed on the date hereof, and all of which are subject to change at
any time, possibly with retroactive effect or different interpretation.
This discussion is limited to initial purchasers of the old notes who hold
the old notes as capital assets within the meaning of section 1221 of the Code,
capital assets generally referring to property held for investment and not for
sale to customers in the ordinary course of a trade or business. This discussion
is for general information only and does not address all of the tax consequences
that may be relevant to particular initial purchasers in light of their
particular circumstances or to certain types of initial purchasers, such as
persons having a functional currency other than the U.S. dollar, persons subject
to special rules applicable to former citizens and residents of the U.S.,
persons subject to the alternative minimum tax, certain financial institutions,
insurance companies, tax-exempt organizations, dealers in securities or
currencies or persons holding the notes in connection with a hedging
transaction, straddle, conversion transaction or other integrated transaction,
corporations treated as foreign or domestic personal holding companies,
controlled foreign corporations, or passive foreign investment companies.
Moreover, this discussion does not address any of the U.S. federal income tax
consequences to holders that do not acquire new notes pursuant to the exchange
offer, nor does it address the applicability or effect of any state, local or
foreign tax laws and any changes or proposed changes in applicable tax laws or
interpretations thereof.
We have not sought and will not seek any rulings from the IRS regarding our
position discussed herein. We cannot assure you that the IRS will not take a
different position concerning the U.S. federal income tax consequences of
exchanging old notes for new notes.
EXCHANGE OFFER
The exchange of old notes for new notes pursuant to the exchange offer will
not be treated as a taxable "exchange" for U.S. federal income tax purposes
because the new notes will not be considered to differ materially in kind or
extent from the old notes. New notes received by a holder of old notes will be
treated as a continuation of the old notes in the hands of such holder.
Accordingly, there will not be any U.S. federal income tax consequences to the
holders exchanging old notes for new notes pursuant to the exchange offer. A
holder's holding period of new notes will include the holding period of the old
notes exchanged therefor and the adjusted tax basis of the new notes should be
the same as the adjusted tax basis of the old notes exchanged therefor
immediately before the exchange.
ALL HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO THE
APPLICATION OF THE TAX CONSIDERATIONS DISCUSSED ABOVE TO THEIR PARTICULAR
SITUATIONS AS WELL AS THE APPLICATION OR EFFECT OF ANY STATE, LOCAL, FOREIGN OR
OTHER TAX LAWS AND ANY CHANGES OR PROPOSED CHANGES IN APPLICABLE TAX LAWS OR
INTERPRETATIONS THEREOF.
60
PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account pursuant to
this exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such new notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of new notes received in exchange for old notes where
such old notes were acquired as a result of market-making activities or other
trading activities. We have agreed that, for a period of 180 days after the
expiration date, we will make this prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until , 2001, all dealers effecting transactions in the new
notes may be required to deliver a prospectus.
We will not receive any proceeds from any sale of new notes by
broker-dealers. New notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the new notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such new notes. Any broker-dealer that
resells new notes that were received by it for its own account pursuant to the
exchange offer and any broker or dealer that participates in a distribution of
such new notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of new notes and any commission
or concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The letter of transmittal states that, by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
For a period of 180 days after the expiration date we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests such documents in the letter of
transmittal. We have agreed to pay all expenses incident to the exchange offer
(including the expenses of one counsel for the holders of the new notes) other
than commissions or concessions of any brokers or dealers and will indemnify the
holders of the securities (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
NOTICE TO CANADIAN RESIDENTS
Any resale of the notes in Canada must be made under applicable securities
laws which will vary depending on the relevant jurisdiction, and which may
require resales to be made under available statutory exemptions or under a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Note holders resident in Canada are advised to seek legal advice
prior to any resale of the notes.
LEGAL MATTERS
Certain legal matters with respect to the exchange offer will be passed
upon for us by Jenkens & Gilchrist, A Professional Corporation, Houston, Texas.
61
EXPERTS
The consolidated financial statements of the Company as of and for the
years ended December 31, 1998, 1999 and 2000, incorporated in this prospectus by
reference have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report incorporated herein by reference, and have been so
incorporated in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
With respect to the unaudited interim financial information of the Company
for the periods ended March 31, 2001 and 2000 and June 30, 2001 and 2000 which
are incorporated herein by reference, Deloitte & Touche LLP have applied limited
procedures in accordance with professional standards for a review of such
information. However, as stated in their reports included in the Company's
Quarterly Reports on Form 10-Q for the quarters ended March 31, 2001 and June
30, 2001 and incorporated herein by reference, they did not audit and they do
not express an opinion on that interim financial information. Accordingly, the
degree of reliance on their reports on such information should be restricted in
light of the limited nature of the review procedures applied. Deloitte & Touche
LLP are not subject to the liability provisions of Section 11 of the Securities
Act of 1933 for their reports on the unaudited interim financial information
because those reports are not "reports" or a "part" of the registration
statement prepared or certified by an accountant within the meaning of Sections
7 and 11 of the Act.
The balance sheet of Matrix as of December 31, 2000, and the related
statements of income, stockholders' equity and cash flows for the year then
ended incorporated herein by reference have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and is incorporated herein in reliance upon the authority of said firm
as experts in accounting and auditing in giving said report.
With respect to the unaudited interim financial information of Matrix Oil
and Gas for the quarter ended March 31, 2001, which is incorporated herein by
reference, Arthur Andersen LLP has applied limited procedures in accordance with
professional standards for a review of that information. However, their separate
report thereon states that they did not audit and they do not express an opinion
on that interim financial information. Accordingly, the degree of reliance on
their report on that information should be restricted in light of the limited
nature of the review procedures applied. In addition Arthur Andersen LLP is not
subject to the liability provisions of Section 11 of the Securities Act of 1933
for their report on the unaudited interim financial information because that
report is not a "report" or a "part" of the registration statement prepared or
certified by the accountants within the meaning of Sections 7 and 11 of the Act.
Certain estimates of our oil and natural gas reserves and related
information incorporated by reference in this prospectus have been derived from
engineering reports prepared by DeGolyer and MacNaughton as of June 30, 2001 and
December 31, 2000 and by Netherland, Sewell and Associates, Inc. for the prior
years, and all such information has been so included on the authority of such
firms as experts regarding the matters contained in their reports.
62
$75,000,000 9% SERIES B SENIOR SUBORDINATED
NOTES DUE 2008
---------------------------------------------------------------------------
(DRI LOGO)
OFFER TO EXCHANGE
ALL OUTSTANDING 9% SERIES B SENIOR SUBORDINATED
NOTES DUE 2008 FOR 9% SERIES B
SENIOR SUBORDINATED NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933
------------------------------
PROSPECTUS
OCTOBER , 2001
------------------------------
Until , 2002, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145(a) of the Delaware General Corporation Law of the State of
Delaware ("DGCL") provides that a Delaware corporation may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation), by reason of the fact that he is or was a director, officer,
employee or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
enterprise, against expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no cause to believe his conduct was
unlawful.
Section 145(b) of the DGCL provides that a Delaware corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses actually
and reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted under similar standards, except that no
indemnification may be made in respect of any claim, issue or matter as to which
such person shall have been adjudged to be liable to the corporation unless and
only to the extent that the court in which such action or suit was brought shall
determine that despite the adjudication of liability, such person is fairly and
reasonably entitled to be indemnified for such expenses which the court shall
deem proper.
Section 145 of the DGCL further provides that to the extent a director or
officer of a corporation has been successful in the defense of an action, suit
or proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein, he shall be indemnified against expenses
actually and reasonably incurred by him in connection therewith, that
indemnification provided for by Section 145 of the DGCL shall not be deemed
exclusive of any other rights to which the indemnified party may be entitled;
and that the corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or enterprise, against any liability
asserted against him or incurred by him in any such capacity or arising out of
his status as such whether or not the corporation would have the power to
indemnify him against such liabilities under such Section 145.
Our certificate of incorporation provides that we shall indemnify certain
persons, including officers, directors, employees and agents, to the fullest
extent permitted by Section 145 of the DGCL of the State of Delaware. Reference
is made to the Certificate of Incorporation incorporated by reference to Exhibit
3(a) of our Quarterly Report on Form 10-Q for the quarter ended March 31, 1999.
Our directors and officers are insured against losses arising from any claim
against them as such for wrongful acts or omission, subject to certain
limitations.
II-1
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits. The following exhibits are part of this Registration
Statement:
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
2(a) Agreement and Plan of Merger and Reorganization, by and
among Denbury Resources Inc., Denbury Offshore, Inc., and
Matrix Oil & Gas, Inc., and its shareholders, dated as of
June 4, 2001 (incorporated by reference to Exhibit 2 of the
Registrant's Current Report on Form 8-K, dated June 15,
2001).
3(a) Certificate of Incorporation of Denbury Resources Inc. filed
with the Delaware Secretary of State on April 20, 1999
(incorporated by reference to Exhibit 3(a) of the
Registrant's Form 10-Q for the quarter ended March 31,
1999).
3(b) Bylaws of Denbury Resources Inc., a Delaware corporation,
adopted April 20, 1999 (incorporated by reference to Exhibit
3(b) of the Registrant's Form 10-Q for the quarter ended
March 31, 1999).
4(a) Form of Indenture between Denbury Management and Chase Bank
of Texas, National Association, as trustee (incorporated by
reference to Exhibit 4(b) of Registrant's Registration
Statement on Form S-3 dated February 19, 1998).
4(b) First Supplemental Indenture dated as of April 21, 1999,
between Denbury Resources Inc., a Delaware corporation, and
Chase Bank of Texas, National Association, as Trustee,
relating to Denbury Management, Inc.'s 9% Senior
Subordinated Notes due 2008 (incorporated by reference to
Exhibit 4(a) of the Registrant's Form 10-Q for the quarter
ended March 31, 1999).
4(c)* Indenture dated as of August 15, 2001, among Denbury
Resources Inc., a Delaware corporation, certain of its
subsidiaries and The Chase Manhattan Bank.
4(d)* Registration Rights Agreement dated August 8, 2001.
5* Opinion of Jenkens & Gilchrist, A Professional Corporation.
12* Statement regarding Computation of Ratios.
15(a)* Letter from Deloitte & Touche LLP, independent accountants,
as to unaudited interim financial information.
15(b)* Letter from Arthur Andersen LLP, independent accountants, as
to unaudited interim financial information.
23(a)* Consent of Deloitte & Touche LLP.
23(b)* Consent of Arthur Andersen LLP.
23(c)* Consent of Netherland, Sewell & Associates, Inc.
23(d)* Consent of DeGolyer and MacNaughton.
23(e)* Consent of Jenkens & Gilchrist, A Professional Corporation
(included in Exhibit 5).
24* Powers of Attorney (included on signature page).
25* Statement of eligibility of trustee under the indenture
filed herewith as Exhibit 4(c).
99(a)* Form of Letter of Transmittal.
99(b)* Form of Notice of Guaranteed Delivery.
99(c)* Form of Letter to Registered Holders and DTC Participants.
99(d)* Form of Letter to Clients.
99(e)* Form of Instructions to Registered Holder and/or Book-Entry
Transfer Participant from beneficial owner.
</Table>
---------------
* Filed herewith.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes that insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Registrant
II-2
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. If a claim for indemnification against such
liabilities (other than payment by the Registrant of expenses incurred or paid
by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes:
(a) to respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of Form
S-4, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This undertaking also includes documents filed subsequent to the effective
date of the Registration Statement through the date of responding to the
request.
(b) that, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report
pursuant to section 13(a) or section 15(d) of the Securities Exchange Act
of 1934 (and where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference into the Registration Statement
shall be deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) to supply by means of a post- effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration Statement when
it became effective.
The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
undersigned undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
Registrant hereby undertakes that every prospectus (i) that is filed
pursuant to the immediately preceding paragraph, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the Registration Statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Plano, State of Texas, on
October 19, 2001.
DENBURY RESOURCES INC.
BY: /s/ PHIL RYKHOEK
------------------------------------
Phil Rykhoek
Chief Financial Officer
Each person whose signature appears below as a signatory to this
registration statement constitutes and appoints Gareth Roberts and Phil Rykhoek,
or either one of them, his true and lawful attorney-in-fact and agent with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this
Registration Statement, and to file the same, with all exhibits thereto, and all
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitute may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated, in multiple counterparts with the effect
of one original.
<Table>
<Caption>
SIGNATURES TITLE DATE
---------- ----- ----
/s/ GARETH ROBERTS Chief Executive Officer and October 19, 2001
---------------------------------------------------- Director
Gareth Roberts (Principal Executive Officer)
/s/ PHIL RYKHOEK Chief Financial Officer and October 19, 2001
---------------------------------------------------- Secretary
Phil Rykhoek (Principal Financial Officer)
/s/ MARK C. ALLEN Chief Accounting Officer October 19, 2001
---------------------------------------------------- and Controller
Mark C. Allen (Principal Accounting
Officer)
/s/ RONALD G. GREENE Chairman of the Board October 19, 2001
---------------------------------------------------- and Director
Ronald G. Greene
/s/ DAVID I. HEATHER Director October 19, 2001
----------------------------------------------------
David I. Heather
/s/ WIELAND F. WETTSTEIN Director October 8, 2001
----------------------------------------------------
Wieland F. Wettstein
/s/ CARRIE A. WHEELER Director October 19, 2001
----------------------------------------------------
Carrie A. Wheeler
</Table>
II-4
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
2(a) Agreement and Plan of Merger and Reorganization, by and
among Denbury Resources Inc., Denbury Offshore, Inc., and
Matrix Oil & Gas, Inc., and its shareholders, dated as of
June 4, 2001 (incorporated by reference to Exhibit 2 of the
Registrant's Current Report on Form 8-K, dated June 15,
2001).
3(a) Certificate of Incorporation of Denbury Resources Inc. filed
with the Delaware Secretary of State on April 20, 1999
(incorporated by reference to Exhibit 3(a) of the
Registrant's Form 10-Q for the quarter ended March 31,
1999).
3(b) Bylaws of Denbury Resources Inc., a Delaware corporation,
adopted April 20, 1999 (incorporated by reference to Exhibit
3(b) of the Registrant's Form 10-Q for the quarter ended
March 31, 1999).
4(a) Form of Indenture between Denbury Management and Chase Bank
of Texas, National Association, as trustee (incorporated by
reference to Exhibit 4(b) of Registrant's Registration
Statement on Form S-3 dated February 19, 1998).
4(b) First Supplemental Indenture dated as of April 21, 1999,
between Denbury Resources Inc., a Delaware corporation, and
Chase Bank of Texas, National Association, as Trustee,
relating to Denbury Management, Inc.'s 9% Senior
Subordinated Notes due 2008 (incorporated by reference to
Exhibit 4(a) of the Registrant's Form 10-Q for the quarter
ended March 31, 1999).
4(c)* Indenture dated as of August 15, 2001, among Denbury
Resources Inc., a Delaware corporation, certain of its
subsidiaries and The Chase Manhattan Bank.
4(d)* Registration Rights Agreement dated August 8, 2001.
5* Opinion of Jenkens & Gilchrist, A Professional Corporation.
12* Statement regarding Computation of Ratios.
15(a)* Letter from Deloitte & Touche LLP, independent accountants,
as to unaudited interim financial information.
15(b)* Letter from Arthur Andersen LLP, independent accountants, as
to unaudited interim financial information.
23(a)* Consent of Deloitte & Touche LLP.
23(b)* Consent of Arthur Andersen LLP.
23(c)* Consent of Netherland, Sewell & Associates, Inc.
23(d)* Consent of DeGolyer and MacNaughton.
23(e)* Consent of Jenkens & Gilchrist, A Professional Corporation
(included in Exhibit 5).
24* Powers of Attorney (included on signature page).
25* Statement of eligibility of trustee under the indenture
filed herewith as Exhibit 4(c).
99(a)* Form of Letter of Transmittal.
99(b)* Form of Notice of Guaranteed Delivery.
99(c)* Form of Letter to Registered Holders and DTC Participants.
99(d)* Form of Letter to Clients.
99(e)* Form of Instructions to Registered Holder and/or Book-Entry
Transfer Participant from beneficial owner.
</Table>
---------------
* Filed herewith.