AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 25, 2002
REGISTRATION 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
---------------------
STONE ENERGY CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
<Table>
DELAWARE 1311 72-1235413
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
Incorporation or Organization) Classification Code Number) Number)
</Table>
625 E. KALISTE SALOOM ROAD
LAFAYETTE, LOUISIANA 70508
(337) 237-0410
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
ANDREW L. GATES, III
VICE PRESIDENT-LEGAL, SECRETARY AND GENERAL COUNSEL
625 E. KALISTE SALOOM ROAD
LAFAYETTE, LOUISIANA 70508
(337) 237-0410
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
COPIES TO:
ALAN P. BADEN
VINSON & ELKINS L.L.P.
666 FIFTH AVENUE
26TH FLOOR
NEW YORK, NEW YORK 10103
(917) 206-8000
(917) 206-8100 (FAX)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
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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TITLE OF EACH CLASS OF AMOUNT OF
SECURITIES TO BE REGISTERED AMOUNT TO BE REGISTERED REGISTRATION FEE
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8 1/4% Senior Subordinated Notes due 2011................... $200,000,000 $18,400
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</Table>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT EXCHANGE FOR THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JANUARY 25, 2002
PROSPECTUS
STONE ENERGY CORPORATION
(STONE LOGO)
OFFER TO EXCHANGE
UP TO $200,000,000 OF
8 1/4% SENIOR SUBORDINATED NOTES DUE 2011
FOR
UP TO $200,000,000 OF
8 1/4% SENIOR SUBORDINATED NOTES DUE 2011
THAT HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933
TERMS OF THE NEW 8 1/4% SENIOR SUBORDINATED NOTES OFFERED IN THE EXCHANGE OFFER:
- The terms of the new notes are identical to the terms of the outstanding
notes, except that the new notes are registered under the Securities Act
of 1933 and will not contain restrictions on transfer, registration
rights or provisions for additional interest.
TERMS OF THE EXCHANGE OFFER:
- We are offering to exchange up to $200,000,000 of our outstanding 8 1/4%
Senior Subordinated Notes due 2011 for new notes with materially
identical terms that have been registered under the Securities Act of
1933 and are generally freely tradable.
- We will exchange all outstanding notes that you validly tender and do not
validly withdraw before the exchange offer expires for an equal principal
amount of new notes.
- The exchange offer expires at 5:00 p.m., New York City time, on
, 2002, unless extended.
- Tenders of outstanding notes may be withdrawn at any time prior to the
expiration of the exchange offer.
- The exchange of new notes for outstanding notes will not be a taxable
event for U.S. federal income tax purposes.
---------------------
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 6 OF THIS
PROSPECTUS BEFORE PARTICIPATING IN 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.
---------------------
The date of this prospectus is , 2002.
TABLE OF CONTENTS
<Table>
Prospectus Summary.......................................... 1
Risk Factors................................................ 6
Forward-Looking Statements.................................. 15
Exchange Offer.............................................. 16
Use of Proceeds............................................. 26
Business.................................................... 26
Description of the Notes.................................... 27
Certain United States Federal Income Tax Consequences....... 62
Plan of Distribution........................................ 63
Legal Matters............................................... 64
Experts..................................................... 64
Independent Oil and Gas Consultants......................... 64
Where You Can Find More Information......................... 64
</Table>
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission. You should rely only on the information
contained or incorporated by reference in this prospectus and in the
accompanying letter of transmittal. We have not authorized any other person to
provide you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted. You should assume that the information appearing in this prospectus
or in any document incorporated by reference is accurate only as of the date
hereof or thereof. Our business, financial condition, results of operations and
prospects may have changed since that date.
PROSPECTUS SUMMARY
This summary highlights selected information from this prospectus to help
you understand our business and the terms of the new notes. It does not contain
all of the information that may be important to you. We urge you to read all of
this prospectus and the documents incorporated herein by reference carefully.
You should pay special attention to the "Risk Factors" section of this
prospectus. In addition, certain statements in this prospectus and in the
documents incorporated herein by reference include forward-looking information
that involves risks and uncertainties. See "Forward-Looking Statements." In this
prospectus, except as otherwise indicated, "Stone", the "Company", "we", "us"
and "our" refer to Stone Energy Corporation and its subsidiaries, and the
"notes" refers to both the new notes offered hereby and the outstanding notes.
OUR COMPANY
We are a leading, Gulf Coast Basin-focused independent oil and gas company
engaged in the acquisition and subsequent exploration, development, production
and operation of oil and gas properties. We have been active in the Gulf Coast
Basin since 1973. Our property portfolio consists of 55 active properties and 41
primary term leases in the Gulf Coast Basin and 32 active properties in the
Rocky Mountains.
Stone Energy Corporation is a Delaware corporation. Our principal executive
offices are located at 625 E. Kaliste Saloom Road, Lafayette, Louisiana 70508,
and our telephone number is (337) 237-0410.
THE EXCHANGE OFFER
On December 10, 2001, we completed a private offering of the outstanding
notes. We entered into a registration rights agreement with the initial
purchasers in the private offering in which we agreed to deliver to you this
prospectus and to use our commercially reasonable efforts to complete the
exchange offer within 210 days after the date we issued the outstanding notes.
Exchange Offer................ We are offering to exchange new notes for
outstanding notes.
Expiration Date............... The exchange offer will expire at 5:00 p.m.,
New York City time, on , 2002, unless
we decide to extend it.
Conditions to the Exchange
Offer......................... The registration rights agreement does not
require us to accept outstanding notes for
exchange if:
- the exchange offer or the making of any
exchange by a holder of the outstanding notes
would violate any applicable law or
interpretation of the staff of the Securities
and Exchange Commission, or
- an action or proceeding has been instituted
or threatened regarding the exchange offer
that, in our judgment, would reasonably be
expected to impair our ability to proceed
with the exchange offer.
The exchange offer is not conditioned on a
minimum aggregate principal amount of
outstanding notes being tendered.
Procedures for Tendering
Outstanding Notes............. To participate in the exchange offer, you must
complete, sign and date the letter of
transmittal, or a facsimile of the letter of
transmittal, and transmit it together with all
other documents required by the letter of
transmittal, including the outstanding notes
that you wish to exchange, to JPMorgan Chase
Bank as
1
exchange agent, at the address indicated on the
cover page of the letter of transmittal. In the
alternative, you can tender your outstanding
notes by following the procedures for
book-entry transfer described in this
prospectus.
If your outstanding notes are held through The
Depository Trust Company, or DTC, and you wish
to participate in the exchange offer, you may
do so through the automated tender offer
program of DTC. If you tender under this
program, you will agree to be bound by the
letter of transmittal that we are providing
with this prospectus as though you had signed
the letter of transmittal.
If a broker, dealer, commercial bank, trust
company or other nominee is the registered
holder of your outstanding notes, we urge you
to contact that person promptly to tender your
outstanding notes in the exchange offer.
For more information on tendering your
outstanding notes, please refer to the sections
in this prospectus entitled "Exchange Offer --
Terms of the Exchange Offer," "-- Procedures
for Tendering" and "-- Book-Entry Transfer."
Guaranteed Delivery
Procedures.................... If you wish to tender your outstanding notes
and you cannot get your required documents to
the exchange agent on time, you may tender your
outstanding notes according to the guaranteed
delivery procedures described in "Exchange
Offer -- Guaranteed Delivery Procedures."
Withdrawal of Tenders......... You may withdraw your tender of outstanding
notes at any time prior to the expiration date.
To withdraw, you must have delivered a written
or facsimile transmission notice of withdrawal
to the exchange agent at its address indicated
on the cover page of the letter of transmittal
before 5:00 p.m., New York City time, on the
expiration date of the exchange offer.
Acceptance of Outstanding
Notes and Delivery of New
Notes......................... If you fulfill all conditions required for
proper acceptance of outstanding notes, we will
accept any and all outstanding notes that you
properly tender in the exchange offer on or
before 5:00 p.m., New York City time, on the
expiration date. We will return any outstanding
notes that we do not accept for exchange to you
without expense as promptly as practicable
after the expiration date and acceptance of the
outstanding notes for exchange. Please refer to
the section in this prospectus entitled
"Exchange Offer -- Terms of the Exchange
Offer."
Fees and Expenses............. We will bear all expenses related to the
exchange offer. Please refer to the section in
this prospectus entitled "Exchange
Offer -- Fees and Expenses."
Use of Proceeds............... The issuance of the new notes will not provide
us with any new proceeds. We are making this
exchange offer solely to satisfy our
obligations under the registration rights
agreement.
Consequences of Failure to
Exchange Outstanding Notes.... If you do not exchange your outstanding notes
in this exchange offer, you will no longer be
able to require us to register the
2
outstanding notes under the Securities Act of
1933 except in the limited circumstances
provided under the registration rights
agreement. In addition, you will not be able to
resell, offer to resell or otherwise transfer
the outstanding notes unless we have registered
the outstanding notes under the Securities Act
of 1933, or unless you resell, offer to resell
or otherwise transfer them under an exemption
from the registration requirements of, or in a
transaction not subject to, the Securities Act
of 1933.
U.S. Federal Income Tax
Considerations................ The exchange of new notes for outstanding notes
in the exchange offer should not be a taxable
event for U.S. federal income tax purposes.
Please read "Certain United States Federal
Income Tax Consequences."
Exchange Agent................ We have appointed JPMorgan Chase Bank as
exchange agent for the exchange offer. You
should direct questions and requests for
assistance, requests for additional copies of
this prospectus or the letter of transmittal
and requests for the notice of guaranteed
delivery to the exchange agent addressed as
follows: JPMorgan Chase Bank, 600 Travis
Street, Suite 1150, Houston, Texas 77002,
Attention: Mr. Jeffrey D. Dunbar. Eligible
institutions may make requests by facsimile at
(713) 577-5200.
THE OFFERING
The new notes will be identical to the outstanding notes except that the
new notes are registered under the Securities Act of 1933 and will not have
restrictions on transfer, registration rights or provisions for additional
interest. The new notes will evidence the same debt as the outstanding notes,
and the same indenture will govern the new notes and the outstanding notes.
The following summary contains basic information about the new notes and is
not intended to be complete. It does not contain all of the information that is
important to you. For a more complete understanding of the new notes, please
refer to the section of this document entitled "Description of the Notes."
Issuer........................ Stone Energy Corporation.
Notes Offered................. $200 million aggregate principal amount of
8 1/4% Senior Subordinated Notes due 2011.
Maturity Date................. December 15, 2011.
Interest Payment Dates........ June 15 and December 15, beginning June 15,
2002. Interest on each new note will accrue
from the last interest payment date on which
interest was paid on the outstanding note
tendered in exchange therefore or, if no
interest has been paid on the outstanding note,
from the date of the original issue of the
outstanding note.
Ranking....................... The new notes will be unsecured senior
subordinated obligations and will be
subordinated to all of our senior debt. The new
notes will rank pari passu with all of our
senior subordinated indebtedness and senior to
all of our subordinated debt. Because the new
notes are subordinated, in the event of
bankruptcy, liquidation or dissolution and
acceleration of or payment default on senior
indebtedness, holders of the new notes will not
receive
3
any payment until holders of senior
indebtedness have been paid in full. In
addition, the new notes will be effectively
subordinated to claims of creditors (other than
us) of our subsidiaries.
As of December 31, 2001, we had $126 million of
senior debt outstanding.
Optional Redemption........... We will have the option to redeem the new
notes, in whole but not in part, at any time
before December 15, 2006, and to redeem the new
notes, in whole or in part, at any time on or
after December 15, 2006, in each case at the
redemption prices described herein under the
heading "Description of the Notes -- Optional
Redemption", together with any accrued and
unpaid interest to the date of redemption.
Public Equity Offering
Optional Redemption........... Before December 15, 2004, we may, at any time
or from time to time, redeem up to 35% of the
aggregate principal amount of the notes issued
under the indenture with the net proceeds of a
public equity offering at 108.25% of the
principal amount of the notes, plus any accrued
and unpaid interest, if at least 65% of the
aggregate principal amount of the notes issued
under the indenture remains outstanding after
such redemption.
Change of Control............. When a change of control event occurs, each
holder of the new notes may require us to
repurchase all or a portion of the new notes at
a price equal to 101% of the principal amount
of the new notes, plus any accrued and unpaid
interest.
Certain Covenants............. The indenture governing the notes contains
covenants that, among other things, limit our
ability and the ability of our subsidiaries to:
- incur additional indebtedness,
- pay dividends on, redeem or repurchase our
capital stock or redeem our subordinated
debt,
- make investments,
- create certain liens,
- sell assets,
- enter into agreements that restrict dividends
or other payments from our restricted
subsidiaries to us,
- guarantee other indebtedness,
- engage in transactions with affiliates,
- create unrestricted subsidiaries, and
- consolidate, merge or transfer all or
substantially all our assets and the assets
of our subsidiaries on a consolidated basis.
These covenants are subject to important
exceptions and qualifications that are
described under the heading "Description of the
Notes" in this prospectus.
4
Suspension of Covenants....... The indenture governing the notes provides that
most of the foregoing covenants will be
suspended if the rating agencies assign and
maintain an investment grade rating on the
notes.
Transfer Restrictions; Absence
of a Public Market for the New
Notes......................... The new notes generally will be freely
transferable, but will also be new securities
for which there will not initially be a market.
There can be no assurance as to the development
or liquidity of any market for the new notes.
We do not intend to apply for listing of the
new notes on any securities exchange or for the
quotation of the new notes in any automated
dealer quotation system.
Risk Factors.................. See "Risk Factors" and the other information
included or incorporated by reference in this
prospectus for a discussion of factors you
should carefully consider before deciding to
participate in the exchange offer.
RATIOS OF EARNINGS TO FIXED CHARGES
For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of net earnings (loss) before income taxes, extraordinary
items, write-downs of oil and gas properties and fixed charges, less capitalized
interest. Fixed charges consist of interest (whether expensed or capitalized),
amortization of debt expenses and discount or premium relating to any
indebtedness and that portion of rental cost equivalent to interest (estimated
to be one-third of rental cost).
<Table>
<Caption>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, --------------------------------
2001 2000 1999 1998 1997 1996
------------- ---- ---- ---- ---- ----
Ratio of earnings to fixed charges.... 16.2x 14.7x 3.9x 1.6x 4.3x 7.2x
</Table>
5
RISK FACTORS
An investment in the notes involves a significant degree of risk, including
the risks described below. You should carefully consider the following risk
factors and the other information included in this prospectus and in the
documents incorporated herein by reference before making an investment decision.
The risks described below are not the only ones facing us. This prospectus also
contains forward-looking statements that involve risks and uncertainties. See
"Forward-Looking Statements." Our actual results could differ materially from
those anticipated in the forward-looking statements as a result of various
factors, including the risks described below and elsewhere in this prospectus
and in the documents incorporated herein by reference.
RISKS RELATING TO THE NOTES
IF YOU DO NOT PROPERLY TENDER YOUR OUTSTANDING NOTES, YOU WILL CONTINUE TO HOLD
UNREGISTERED OUTSTANDING NOTES AND YOUR ABILITY TO TRANSFER OUTSTANDING NOTES
WILL REMAIN RESTRICTED AND MAY BE ADVERSELY AFFECTED.
We will only issue new notes in exchange for outstanding notes that you
timely and properly tender. Therefore, you should allow sufficient time to
ensure timely delivery of the outstanding notes and you should carefully follow
the instructions on how to tender your outstanding notes. Neither we nor the
exchange agent is required to tell you of any defects or irregularities with
respect to your tender of outstanding notes.
If you do not exchange your outstanding notes for new notes pursuant to the
exchange offer, the outstanding notes you hold will continue to be subject to
the existing transfer restrictions. In general, you may not offer or sell the
outstanding notes except under an exemption from, or in a transaction not
subject to, the Securities Act of 1933 and applicable state securities laws. We
do not plan to register outstanding notes under the Securities Act of 1933
unless our registration rights agreement with the initial purchasers of the
outstanding notes requires us to do so. Further, if you continue to hold any
outstanding notes after the exchange offer is consummated, you may have trouble
selling them because there will be fewer of these notes outstanding.
OUR DEBT LEVEL AND THE COVENANTS IN THE AGREEMENTS GOVERNING OUR DEBT COULD
NEGATIVELY IMPACT OUR FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS
PROSPECTS AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE NOTES.
As of December 31, 2001, we had $426 million in outstanding indebtedness
and approximately $117 million of available borrowing capacity under our credit
facility. Following this offering, we will be permitted to incur additional
indebtedness, provided we meet certain requirements in the indenture governing
the notes, the indenture governing our existing 8 3/4% senior subordinated notes
due 2007 and our credit agreement.
The terms of the agreements governing our debt impose significant
restrictions on our ability and the ability of our subsidiaries to take a number
of actions that we may otherwise desire to take, including:
- incurring additional debt;
- paying dividends on stock, redeeming stock or redeeming subordinated
debt;
- making investments;
- creating liens on our assets;
- selling assets;
- guaranteeing other indebtedness;
- entering into agreements that restrict dividends from our subsidiaries to
us;
6
- merging, consolidating or transferring all or substantially all of our
assets; and
- entering into transactions with affiliates.
Our level of indebtedness, and the covenants contained in the agreements
governing our debt, could have important consequences on our operations,
including:
- making it more difficult for us to satisfy our obligations under the
notes or other debt and increasing the risk that we may default on our
debt obligations;
- requiring us to dedicate a substantial portion of our cash flow from
operations to required payments on debt, thereby reducing the
availability of cash flow for working capital, capital expenditures and
other general business activities;
- limiting our ability to obtain additional financing in the future for
working capital, capital expenditures, acquisitions and general corporate
and other activities;
- limiting our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
- detracting from our ability to withstand successfully a downturn in our
business or the economy generally;
- placing us at a competitive disadvantage against other less leveraged
competitors; and
- making us vulnerable to increases in interest rates, because debt under
our credit facility will be at variable rates.
We may be required to repay all or a portion of our debt on an accelerated
basis in certain circumstances. If we fail to comply with the covenants and
other restrictions in the agreements governing our debt, it could lead to an
event of default and the acceleration of our repayment of outstanding debt. Our
ability to comply with these covenants and other restrictions may be affected by
events beyond our control, including prevailing economic and financial
conditions. Moreover, the borrowing base limitation on our credit facility is
periodically redetermined based on an evaluation of our reserves. Upon a
redetermination, if borrowings in excess of the revised borrowing capacity were
outstanding, we could be forced to repay a portion of our bank debt.
We may not have sufficient funds to make such repayments. If we are unable
to repay our debt out of cash on hand, we could attempt to refinance such debt,
sell assets or repay such debt with the proceeds from an equity offering. We
cannot assure you that we will be able to generate sufficient cash flow to pay
the interest on our debt or that future borrowings, equity financings or
proceeds from the sale of assets will be available to pay or refinance such
debt. The terms of our debt, including our credit facility and our indentures,
may also prohibit us from taking such actions. Factors that will affect our
ability to raise cash through an offering of our capital stock, a refinancing of
our debt or a sale of assets include financial market conditions and our market
value and operating performance at the time of such offering or other financing.
We cannot assure you that any such offering, refinancing or sale of assets can
be successfully completed.
WE MAY NOT BE ABLE TO REPURCHASE THE NOTES UPON A CHANGE OF CONTROL.
Upon the occurrence of certain change of control events, holders of the
notes may require us to offer to repurchase all or any part of their notes. We
may not have sufficient funds at the time of the change of control to make the
required repurchases of the notes. Additionally, certain events that would
constitute a "change of control" (as defined in the indenture) would constitute
an event of default under our credit facility that would, if it should occur,
permit the lenders to accelerate the debt outstanding under our credit facility
and that, in turn, would cause an event of default under the indenture.
The source of funds for any repurchase required as a result of any change
of control will be our available cash or cash generated from oil and gas
operations or other sources, including borrowings, sales
7
of assets, sales of equity or funds provided by a new controlling entity. We
cannot assure you, however, that sufficient funds would be available at the time
of any change of control to make any required repurchases of the notes tendered
and to repay debt under our credit facility. Furthermore, using available cash
to fund the potential consequences of a change of control may impair our ability
to obtain additional financing in the future. Any future credit agreements or
other agreements relating to debt to which we may become a party will most
likely contain similar restrictions and provisions.
YOUR ABILITY TO TRANSFER THE NEW NOTES MAY BE LIMITED BY THE ABSENCE OF AN
ACTIVE TRADING MARKET, AND THERE IS NO ASSURANCE THAT ANY ACTIVE TRADING MARKET
WILL DEVELOP FOR THE NEW NOTES.
The new notes are a new issue of securities for which there is no
established public market. Although we have registered the new notes under the
Securities Act of 1933, we do not intend to have the new notes listed on a
national securities exchange or included in any automated dealer quotation
system. The initial purchasers of the outstanding notes have advised us that
they intend to make a market in the new notes, as permitted by applicable laws
and regulations; however, the initial purchasers are not obligated to make a
market in the new notes, and they may discontinue their market-making activities
at any time without notice. Therefore, we cannot assure you that an active
market for the new notes will develop or, if developed, that it will continue.
Finally, if a large number of holders of outstanding notes do not tender
outstanding notes or tender outstanding notes improperly, the limited amount of
new notes that would be issued and outstanding after we consummate the exchange
offer could adversely affect the development of a market for these new notes.
THE NOTES ARE SUBORDINATED TO OUR SENIOR DEBT AND ARE STRUCTURALLY SUBORDINATED
TO OUR SUBSIDIARIES' OBLIGATIONS.
The notes are our senior subordinated obligations. Accordingly, the notes
are subordinated to all of our existing and future senior indebtedness,
including indebtedness under our credit facility. We expect to incur additional
senior indebtedness from time to time in the future under our credit facility or
otherwise. The indenture governing the notes limits, but does not prohibit, the
incurrence of any other indebtedness by us or our subsidiaries, including senior
indebtedness. As a result of such subordination, upon any distribution to our
creditors in a bankruptcy, liquidation, dissolution, reorganization or any
similar proceeding by or relating to us or our property, the holders of our
senior indebtedness would be entitled to receive payment in full before the
holders of the notes would be entitled to receive any payment. In addition, all
payments on the notes could be blocked in the event of a default on our senior
indebtedness. See "Description of the Notes -- Subordination." As of December
31, 2001, we had $126 million of senior debt outstanding.
The notes are also effectively subordinated to claims of creditors (other
than us) of our subsidiaries that are not subsidiary guarantors of the notes,
including lessors, trade creditors, taxing authorities, creditors holding
guarantees and tort claimants. In the event of a liquidation, reorganization or
similar proceeding relating to a subsidiary that is not a guarantor of the
notes, these persons generally will have priority as to the assets of that
subsidiary over our claims and equity interest and, thereby indirectly, holders
of our indebtedness, including the notes.
ANY FUTURE SUBSIDIARY GUARANTEES OF THE NOTES MAY BE SUBORDINATED OR AVOIDED BY
A COURT.
In certain circumstances, our restricted subsidiaries may be required by
the terms of the indenture governing the notes to jointly and severally
guarantee the notes on a senior subordinated basis. Various applicable
fraudulent conveyance or similar laws have been enacted for the protection of
creditors. A court may use those laws to subordinate or avoid any guarantee of
the notes issued by any of our subsidiaries. It is also possible that under
certain circumstances a court could hold that the direct obligations of a
subsidiary guaranteeing the notes could be superior to the obligations under
that guarantee.
8
A court could avoid or subordinate the guarantee of the notes by any of our
subsidiaries in favor of that subsidiary's other debts or liabilities if, among
other things, the court determined either of the following were true at the time
the subsidiary issued the guarantee:
- that subsidiary incurred the guarantee with the intent to hinder, delay
or defraud any of its present or future creditors or that such subsidiary
contemplated insolvency with a design to favor one or more creditors to
the total or partial exclusion of others; or
- that subsidiary did not receive fair consideration or reasonably
equivalent value for issuing the guarantee and, at the time it issued
the guarantee, that subsidiary:
- was insolvent or rendered insolvent by reason of the issuance of the
guarantee,
- was engaged or about to engage in a business or transaction for which
the remaining assets of that subsidiary constituted unreasonably small
capital, or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they matured.
Among other things, a legal challenge of a subsidiary's guarantee of the
notes on fraudulent conveyance grounds may focus on the benefits, if any,
realized by that subsidiary as a result of our issuance of the notes. To the
extent a subsidiary's guarantee of the notes is avoided as a result of
fraudulent conveyance or held unenforceable for any other reason, the note
holders would cease to have any claim in respect of that guarantee and would be
creditors solely of ours.
RISKS RELATING TO OUR COMPANY AND OUR INDUSTRY
OIL AND GAS PRICE DECLINES AND VOLATILITY COULD ADVERSELY AFFECT OUR REVENUES,
CASH FLOWS AND PROFITABILITY.
Our revenues, profitability and future rate of growth depend substantially
upon the market prices of oil and natural gas, which fluctuate widely. Factors
that can cause this fluctuation include:
- relatively minor changes in the supply of and demand for oil and natural
gas;
- market uncertainty;
- the level of consumer product demand;
- weather conditions;
- domestic and foreign governmental regulations;
- the price and availability of alternative fuels;
- political and economic conditions in oil producing countries,
particularly those in the Middle East;
- the foreign supply of oil and natural gas;
- the price of oil and gas imports; and
- overall economic conditions.
We cannot predict future oil and natural gas prices. At various times,
excess domestic and imported supplies have depressed oil and gas prices.
Declines in oil and natural gas prices may adversely affect our financial
condition, liquidity and results of operations. Lower prices may reduce the
amount of oil and natural gas that we can produce economically and may also
create ceiling test write-downs of our oil and gas properties. Substantially all
of our oil and natural gas sales are made in the spot market or pursuant to
contracts based on spot market prices, not long-term fixed price contracts.
In an attempt to reduce our price risk, we periodically enter into hedging
transactions with respect to a portion of our expected future production. We
cannot assure you that such transactions will reduce the risk or minimize the
effect of any decline in oil or natural gas prices. Any substantial or extended
decline
9
in the prices of or demand for oil or natural gas would have a material adverse
effect on our financial condition and results of operations.
THE MARKETABILITY OF OUR PRODUCTION DEPENDS MOSTLY UPON THE AVAILABILITY,
PROXIMITY AND CAPACITY OF GAS GATHERING SYSTEMS, PIPELINES AND PROCESSING
FACILITIES.
The marketability of our production depends upon the availability,
operation and capacity of gas gathering systems, pipelines and processing
facilities. The unavailability of or lack of available capacity on these systems
and facilities could result in the shut-in of producing wells or the delay or
discontinuance of development plans for properties. Federal and state regulation
of oil and gas production and transportation, general economic conditions and
changes in supply and demand could adversely affect our ability to produce and
market our oil and natural gas. If market factors changed dramatically, the
financial impact on us could be substantial. The availability of markets and the
volatility of product prices are beyond our control and represent a significant
risk.
ESTIMATES OF OIL AND GAS RESERVES ARE UNCERTAIN AND INHERENTLY IMPRECISE.
This prospectus contains or incorporates by reference estimates of our
proved oil and gas reserves and the estimated future net revenues from such
reserves. These estimates are based upon various assumptions, including
assumptions required by the Securities and Exchange Commission relating to oil
and gas prices, drilling and operating expenses, capital expenditures, taxes and
availability of funds. The process of estimating oil and gas reserves is
complex. This process requires significant decisions and assumptions in the
evaluation of available geological, geophysical, engineering and economic data
for each reservoir. Therefore, these estimates are inherently imprecise.
Actual future production, oil and gas prices, revenues, taxes, development
expenditures, operating expenses and quantities of recoverable oil and gas
reserves will most likely vary from those estimated. Any significant variance
could materially affect the estimated quantities and present value of reserves
set forth in this prospectus and the information incorporated by reference. Our
properties may also be susceptible to hydrocarbon drainage from production by
other operators on adjacent properties. In addition, we may adjust estimates of
proved reserves to reflect production history, results of exploration and
development, prevailing oil and gas prices and other factors, many of which are
beyond our control. Actual production, revenues, taxes, development expenditures
and operating expenses with respect to our reserves will likely vary from the
estimates used. Such variances may be material.
At December 31, 2000, approximately 23% of our estimated proved reserves
were undeveloped. Undeveloped reserves, by their nature, are less certain.
Recovery of undeveloped reserves requires significant capital expenditures and
successful drilling operations. The reserve data assumes that we will make
significant capital expenditures to develop our reserves. Although we have
prepared estimates of our oil and gas reserves and the costs associated with
these reserves in accordance with industry standards, we cannot assure you that
the estimated costs are accurate, that development will occur as scheduled or
that the actual results will be as estimated.
You should not assume that the present value of future net revenues
referred to or incorporated by reference in this prospectus is the current fair
market value of our estimated oil and gas reserves. In accordance with
Securities and Exchange Commission requirements, the estimated discounted future
net cash flows from proved reserves are generally based on prices and costs as
of the date of the estimate. Actual future prices and costs may be materially
higher or lower than the prices and costs as of the date of the estimate. Any
changes in consumption by oil and gas purchasers or in governmental regulations
or taxation will also affect actual future net cash flows. The timing of both
the production and the expenses from the development and production of oil and
gas properties will affect the timing of actual future net cash flows from
proved reserves and their present value. In addition, the 10% discount factor,
which is required by the Securities and Exchange Commission to be used in
calculating discounted future net cash flows for reporting purposes, is not
necessarily the most appropriate discount factor for Stone.
10
LOWER OIL AND GAS PRICES MAY CAUSE US TO RECORD CEILING TEST WRITE-DOWNS.
We use the full cost method of accounting to account for our oil and gas
operations. Accordingly, we capitalize the cost to acquire, explore for and
develop oil and gas properties. Under full cost accounting rules, the net
capitalized costs of oil and gas properties may not exceed a "ceiling limit"
which is based upon the present value of estimated future net cash flows from
proved reserves, discounted at 10%, plus the lower of cost or fair value of
unproved properties. If net capitalized costs of oil and gas properties exceed
the ceiling limit, we must charge the amount of the excess to earnings. This is
called a "ceiling test write-down." This charge does not impact cash flow from
operating activities, but does reduce our stockholders' equity. The risk that we
will be required to write down the carrying value of oil and gas properties
increases when oil and gas prices are low or volatile. In addition, write-downs
may occur if we experience substantial downward adjustments to our estimated
proved reserves. Due to low oil and gas prices at the end of 1998, in December
1998 we recorded an after-tax write-down of $74.3 million ($114.3 million
pre-tax). We also recorded an after-tax write-down of $154.5 million ($237.7
million pre-tax) at the end of the third quarter of 2001 due to low natural gas
prices on the last day of that quarter. There was no loss of proved reserve
volumes associated with either ceiling-test write-down. We cannot assure you
that we will not experience ceiling test write-downs in the future.
WE MAY NOT BE ABLE TO OBTAIN ADEQUATE FINANCING TO EXECUTE OUR OPERATING
STRATEGY.
We have historically addressed our long-term liquidity needs through the
use of credit facilities, the issuance of debt and equity securities and the use
of cash provided by operating activities. We continue to examine the following
alternative sources of long-term capital:
- bank borrowings or the issuance of debt securities;
- the issuance of common stock, preferred stock or other equity securities;
- joint venture financing; and
- production payments.
The availability of these sources of capital will depend upon a number of
factors, some of which are beyond our control. These factors include general
economic and financial market conditions, oil and natural gas prices and our
market value and operating performance. We may be unable to execute our
operating strategy if we cannot obtain capital from these sources.
WE MAY NOT BE ABLE TO FUND OUR PLANNED CAPITAL EXPENDITURES.
We spend and will continue to spend a substantial amount of capital for the
development, exploration, acquisition and production of oil and gas reserves.
Our capital expenditures during 2001 are estimated to total $330 million.
Capital expenditures totaled $269.1 million during 2000, $194.5 million during
1999 and $265.4 million during 1998. We have budgeted total capital expenditures
in 2002, including estimated acquisition costs and capitalized salaries, general
and administrative costs and interest, of approximately $220 million. If low oil
and natural gas prices, operating difficulties or other factors, many of which
are beyond our control, cause our revenues and cash flows from operations to
decrease, we may be limited in our ability to spend the capital necessary to
complete our drilling program. In addition, if our borrowing base under our
credit facility is redetermined to a lower amount, this could adversely affect
our ability to fund our planned capital expenditures. After utilizing our
available sources of financing, we may be forced to raise additional debt or
equity proceeds to fund such expenditures. We cannot assure you that additional
debt or equity financing or cash generated by operations will be available to
meet these requirements.
WE MAY NOT BE ABLE TO REPLACE PRODUCTION WITH NEW RESERVES.
In general, the volume of production from oil and gas properties declines
as reserves are depleted. The decline rates depend on reservoir characteristics.
Gulf of Mexico reservoirs tend to experience steep declines, while declines in
other regions tend to be relatively slow. During the first nine months of 2001,
96% of our daily production was from Gulf of Mexico reservoirs. Our reserves
will decline as they are
11
produced unless we acquire properties with proved reserves or conduct successful
development and exploration activities. Our future natural gas and oil
production is highly dependent upon our level of success in finding or acquiring
additional reserves.
Our recent growth, including our merger with Basin and our recent
acquisitions from Conoco, is due in part to acquisitions of producing
properties. The successful acquisition of producing properties requires an
assessment of a number of factors, many of which are beyond our control. These
factors include recoverable reserves, future oil and gas prices, operating costs
and potential environmental and other liabilities, title issues and other
factors. Such assessments are inexact and their accuracy is inherently
uncertain. In connection with such assessments, we perform a review of the
subject properties, which we believe is generally consistent with industry
practices. However, such a review will not reveal all existing or potential
problems. In addition, the review will not permit a buyer to become sufficiently
familiar with the properties to fully assess their deficiencies and
capabilities. We cannot assure you that we will be able to acquire properties at
acceptable prices because the competition for producing oil and gas properties
is intense and many of our competitors have financial and other resources which
are substantially greater than those available to us.
Our strategy includes increasing our production and reserves by the
implementation of a carefully designed field-wide development plan. These
development plans are often formulated prior to the acquisition of a property.
However, we cannot assure you that our future development, acquisition and
exploration activities will result in additional proved reserves or that we will
be able to drill productive wells at acceptable costs.
THERE ARE UNCERTAINTIES IN SUCCESSFULLY INTEGRATING OUR ACQUISITIONS, INCLUDING
OUR MERGER WITH BASIN AND OUR RECENT ACQUISITIONS FROM CONOCO.
Integrating acquired businesses and properties, including those acquired in
connection with our merger with Basin and our recent acquisitions from Conoco,
involves a number of special risks. These risks include the possibility that
management may be distracted from regular business concerns by the need to
integrate operations and that unforeseen difficulties can arise in integrating
operations and systems and in retaining and assimilating employees. Any of these
or other similar risks could lead to potential adverse short-term or long-term
effects on our operating results.
OUR OPERATIONS ARE SUBJECT TO NUMEROUS RISKS OF OIL AND GAS DRILLING AND
PRODUCTION ACTIVITIES.
Oil and gas drilling and production activities are subject to numerous
risks, including the risk that no commercially productive oil or natural gas
reservoirs will be found. The cost of drilling and completing wells is often
uncertain and oil and gas drilling and production activities may be shortened,
delayed or canceled as a result of a variety of factors, many of which are
beyond our control. These factors include:
- unexpected drilling conditions;
- geological pressure or irregularities in formations;
- equipment failures or accidents;
- weather conditions;
- shortages in experienced labor; and
- shortages or delays in the delivery of equipment.
The prevailing prices of oil and natural gas also affect the cost of and
the demand for drilling rigs, production equipment and related services.
We cannot assure you that the new wells we drill will be productive or that
we will recover all or any portion of our investment. Drilling for oil and
natural gas may be unprofitable. Drilling activities can result in dry wells and
wells that are productive but do not produce sufficient net revenues after
operating and other costs to cover initial drilling costs.
12
OUR INDUSTRY EXPERIENCES NUMEROUS OPERATING RISKS.
The exploration, development and operation of oil and gas properties
involves a variety of operating risks, including the risk of fire, explosions,
blowouts, pipe failure, abnormally pressured formations and environmental
hazards. Environmental hazards include oil spills, gas leaks, pipeline ruptures
or discharges of toxic gases. If any of these industry operating risks occur, we
could have substantial losses. Substantial losses may be caused by injury or
loss of life, severe damage to or destruction of property, natural resources and
equipment, pollution or other environmental damage, clean-up responsibilities,
regulatory investigation and penalties and suspension of operations.
Additionally, our offshore operations are subject to the additional hazards of
marine operations, such as capsizing, collision and adverse weather and sea
conditions. In accordance with industry practice, we maintain insurance against
some, but not all, of the risks described above.
We currently maintain loss of production insurance to protect against
uncontrollable disruptions in production operations. The policy covers the
majority of our anticipated production volumes from selected offshore properties
on an individual facility basis. The value of lost production would be
calculated using the average of the last 45 days' revenue from the facility
prior to the loss. We currently maintain coverage of up to $100 million per
occurrence that becomes effective after 30 consecutive days of lost production.
We also maintain additional insurance of various types to cover our
operations, including maritime employer's liability and comprehensive general
liability. Coverage amounts are provided by primary and excess umbrella
liability policies with ultimate limits of $100 million. In addition, we
maintain up to $100 million in operator's extra expense insurance, which
provides coverage for the care, custody and control of wells drilled and/or
completed plus redrill and pollution coverage. The exact amount of coverage for
each well is dependent upon its depth and location.
We cannot assure you that our insurance will be adequate to cover losses or
liabilities. Also, we cannot predict the continued availability of insurance at
premium levels that justify its purchase. The occurrence of a significant event,
not fully insured or indemnified against, could materially and adversely affect
our financial condition and operations.
A PORTION OF OUR PRODUCTION, REVENUES AND CASH FLOWS ARE DERIVED FROM ASSETS
THAT ARE CONCENTRATED IN A GEOGRAPHIC AREA.
Production from South Pelto Block 23 and Eugene Island Block 243 accounted
for approximately 18% and 16%, respectively, of our total oil and gas production
volumes during the first nine months of 2001. Accordingly, if the level of
production from either of these fields substantially declines, it could have a
material adverse effect on our overall production levels and our revenues.
COMPETITION WITHIN OUR INDUSTRY MAY ADVERSELY AFFECT OUR OPERATIONS.
Competition in the Gulf Coast Basin and the Rocky Mountains is intense,
particularly with respect to the acquisition of producing properties and proved
undeveloped acreage. We compete with major oil companies and other independent
producers of varying sizes, all of which are engaged in the acquisition of
properties and the exploration and development of such properties. Many of our
competitors have financial resources and exploration and development budgets
that are substantially greater than ours, which may adversely affect our ability
to compete.
OUR OIL AND GAS OPERATIONS ARE SUBJECT TO VARIOUS U.S. FEDERAL, STATE AND LOCAL
GOVERNMENTAL REGULATIONS THAT MATERIALLY AFFECT OUR OPERATIONS.
Our oil and gas operations are subject to various U.S. federal, state and
local laws and regulations. These laws and regulations may be changed in
response to economic or political conditions. Regulated matters include permits
for exploration, development and production operations, such as permits for
discharges of wastewaters and other substances generated in connection with
drilling operations, bonds or other financial responsibility requirements to
cover drilling contingencies and well plugging and
13
abandonment costs, reports concerning operations, the spacing of wells and
unitization and pooling of properties and taxation. At various times, regulatory
agencies have imposed price controls and limitations on oil and gas production.
In order to conserve supplies of oil and gas, these agencies have restricted the
rates of flow of oil and gas wells below actual production capacity. In
addition, the federal Oil Pollution Act, as amended ("OPA"), requires operators
of offshore facilities such as us to prove that they have the financial
capability to respond to costs that may be incurred in connection with potential
oil spills. Under OPA and other federal and state environmental statutes,
including the federal Comprehensive Environmental Response, Compensation and
Liability Act, as amended ("CERCLA"), and the federal Resource Conservation and
Recovery Act, as amended ("RCRA"), owners and operators of certain defined
onshore and offshore facilities are strictly liable for spills of oil and other
regulated substances, subject to certain limitations. Consequently, a
substantial spill from one of our facilities subject to laws such as OPA, CERCLA
and RCRA could have a material adverse effect on our results of operations,
competitive position or financial condition. Federal, state and local laws
regulate production, handling, storage, transportation and disposal of oil and
gas, by-products from oil and gas and other substances, and materials produced
or used in connection with oil and gas operations. We cannot predict the
ultimate cost of compliance with these requirements or their effect on our
operations.
THE LOSS OF KEY PERSONNEL COULD ADVERSELY AFFECT OUR ABILITY TO OPERATE.
Our operations are dependent upon a relatively small group of key
management and technical personnel. We cannot assure you that such individuals
will remain with us for the immediate or foreseeable future. We do not have
employment contracts with any of these individuals. The unexpected loss of the
services of one or more of these individuals could have a detrimental effect on
us.
HEDGING TRANSACTIONS MAY LIMIT OUR POTENTIAL GAINS.
In order to manage our exposure to price risks in the marketing of our oil
and gas, we enter into oil and gas price hedging arrangements with respect to a
portion of our expected production. Our hedging policy provides that, without
prior approval of our board of directors, generally not more than 50% of our
production quantities may be hedged. These arrangements may include futures
contracts on the New York Mercantile Exchange. While intended to reduce the
effects of volatile oil and gas prices, such transactions, depending on the
hedging instrument used, may limit our potential gains if oil and gas prices
were to rise substantially over the price established by the hedge. In addition,
such transactions may expose us to the risk of financial loss in certain
circumstances, including instances in which:
- our production is less than expected;
- there is a widening of price differentials between delivery points for
our production and the delivery point assumed in the hedge arrangement;
- the counterparties to our futures contracts fail to perform the
contracts; or
- a sudden, unexpected event materially impacts oil or gas prices.
OWNERSHIP OF WORKING INTERESTS, NET PROFITS INTERESTS AND OVERRIDING ROYALTY
INTERESTS IN CERTAIN OF OUR PROPERTIES BY CERTAIN OF OUR OFFICERS AND DIRECTORS
MAY CREATE CONFLICTS OF INTEREST.
James H. Stone and Joe R. Klutts, both directors of Stone, collectively own
9% of the working interest in certain wells drilled on Section 19 on the east
flank of Weeks Island Field. These interests were acquired at the same time that
our predecessor company acquired its interests in Weeks Island Field. In their
capacity as working interest owners, they are required to pay their proportional
share of all costs and are entitled to receive their proportional share of
revenues.
Certain of our officers were granted net profits interests in some of our
oil and gas properties acquired prior to 1993. The recipients of net profits
interests are not required to pay capital costs incurred on the properties
burdened by such interests.
14
We received certain fees as a result of our function as managing partner of
certain partnerships. These partnerships were dissolved on December 31, 1999.
All participants in the partnerships, including four of our directors, James H.
Stone, Joe R. Klutts, Raymond B. Gary and Robert A. Bernhard, received
overriding royalty interests in the related properties in exchange for their
partnership interests. For the years ended December 31, 1999 and 1998,
management fees and overhead reimbursements from partnerships totaled $224,000
and $834,000 respectively, the majority of which was treated as a reduction of
our investment in oil and gas properties.
As a result of these transactions, a conflict of interest may exist between
us and such directors and officers with respect to the drilling of additional
wells or other development operations.
FORWARD-LOOKING STATEMENTS
The information in this prospectus and in the documents incorporated by
reference includes "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. All statements, other than statements of historical or present facts,
that address activities, events, outcomes and other matters that we plan,
expect, intend, assume, believe, budget, predict, forecast, project, estimate or
anticipate (and other similar expressions) will, should or may occur in the
future are forward-looking statements. These forward-looking statements are
based on management's current belief, based on currently available information,
as to the outcome and timing of future events. When considering forward-looking
statements, you should keep in mind the risk factors and other cautionary
statements in this prospectus and in the documents incorporated herein by
reference.
Forward-looking statements appear in a number of places and include
statements with respect to, among other things:
- any expected results or benefits associated with our recent acquisitions
from Conoco;
- estimates of our future natural gas and liquids production, including
estimates of any increases in oil and gas production;
- planned capital expenditures and the availability of capital resources to
fund capital expenditures;
- our outlook on oil and gas prices;
- estimates of our oil and gas reserves;
- any estimates of future earnings growth;
- the impact of political and regulatory developments;
- our future financial condition or results of operations and our future
revenues and expenses; and
- our business strategy and other plans and objectives for future
operations.
We caution you that these forward-looking statements are subject to all of
the risks and uncertainties, many of which are beyond our control, incident to
the exploration for and development, production and sale of oil and gas. These
risks include, but are not limited to, commodity price volatility, third party
interruption of sales to market, inflation, lack of availability of goods and
services, environmental risks, drilling and other operating risks, regulatory
changes, the uncertainty inherent in estimating proved oil and natural gas
reserves and in projecting future rates of production and timing of development
expenditures and the other risks described in this prospectus and in the
documents incorporated herein by reference.
Reserve engineering is a subjective process of estimating underground
accumulations of oil and natural gas that cannot be measured in an exact way.
The accuracy of any reserve estimate depends on the quality of available data
and the interpretation of that data by geological engineers. As a result,
estimates made by different engineers often vary from one another. In addition,
the results of drilling, testing and production activities may justify revisions
of estimates that were made previously. If significant, these revisions would
change the schedule of any further production and development drilling.
Accordingly,
15
reserve estimates are generally different from the quantities of oil and natural
gas that are ultimately recovered.
Should one or more of the risks or uncertainties described above or
elsewhere in this prospectus or in the documents incorporated by reference
occur, or should underlying assumptions prove incorrect, our actual results and
plans could differ materially from those expressed in any forward-looking
statements. We specifically disclaim all responsibility to publicly update any
information contained in a forward-looking statement or any forward-looking
statement in its entirety and therefore disclaim any resulting liability for
potentially related damages.
All forward-looking statements attributable to us are expressly qualified
in their entirety by this cautionary statement.
EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the issuance of the outstanding notes, we entered into a
registration rights agreement. The following description of the registration
rights agreement is a summary only. It is not complete and does not describe all
of the provisions of the registration rights agreement. For more information,
you should review the provisions of the registration rights agreement that we
filed with the Securities and Exchange Commission as an exhibit to the
registration statement of which this prospectus is a part.
Under the registration rights agreement, we agreed that, promptly after the
effectiveness of the registration statement of which this prospectus is a part,
we would offer to the holders of outstanding notes who are not prohibited by any
law or policy of the Securities and Exchange Commission from participating in
the exchange offer, the opportunity to exchange their outstanding notes for a
new series of notes, which we refer to as the new notes, that are identical in
all material respects to the outstanding notes, except that these new notes will
not contain transfer restrictions and will be registered under the Securities
Act of 1933 and they will not contain provisions regarding the payment of
additional interest or be subject to further registration rights. We agreed to
keep the exchange offer open for not less than 20 business days, or longer if
required by applicable law, after the date on which notice of the exchange offer
is mailed to the holders of the outstanding notes.
If:
- we are not permitted to effect the exchange offer as contemplated in this
prospectus because of any change in law or applicable interpretations of
the law by the staff of the Securities and Exchange Commission;
- for any other reason the exchange offer is not consummated within 210
days after the date of issuance of the outstanding notes;
- any initial purchaser so requests with respect to outstanding notes held
by the initial purchaser that are not eligible to be exchanged for new
notes in the exchange offer;
- any applicable law or interpretations do not permit any holder of
outstanding notes to participate in the exchange offer; or
- any holder of outstanding notes that participates in the exchange offer
does not receive freely transferable new notes in exchange for tendered
outstanding notes,
then we agreed to file as promptly as practicable, with the Securities and
Exchange Commission, which is referred to as the shelf filing date, a shelf
registration statement to cover resales of the notes by those holders who
satisfy various conditions relating to the provision of information in
connection with the shelf registration statement. We agreed to use our
commercially reasonable efforts to have the shelf registration statement
declared effective by the Securities and Exchange Commission by the 180th day
after the date
16
of issuance of the outstanding notes. We agreed to use our commercially
reasonable efforts to keep the shelf registration statement effective for a
period ending two years after the date of issuance of the outstanding notes or,
if earlier, the date when all of the notes covered by the shelf registration
statement have been sold pursuant thereto or cease to by outstanding or
otherwise to be registrable securities under the registration rights agreement.
If any of the following events occur, each of which is referred to as a
registration default:
- the exchange offer is not consummated on or before 210 days after the
date of issuance of the outstanding notes;
- the shelf registration statement, if applicable, is not declared
effective on or prior to 180 days after the date of issuance of the
outstanding notes; or
- the shelf registration statement, if applicable, is filed and declared
effective but thereafter becomes unusable for more than 30 consecutive
days,
then we will be obligated to pay additional interest on the outstanding notes,
during the period of one or more registration defaults, in an amount equal to
0.25% per annum, which rate will increase by 0.25% per annum for each 90-day
period that additional interest continues to accrue because of a registration
default, with an aggregate maximum increase in the interest rate equal to 1.0%
per annum. All accrued additional interest will be payable to holders in the
same manner as interest payments on the outstanding notes on semi-annual payment
dates that correspond to interest payment dates for the outstanding notes.
Additional interest only accrues during a registration default.
The registration rights agreement also provides that we are obligated to:
- make available a prospectus meeting the requirements of the Securities
Act of 1933 to any broker-dealer, and other persons, if any, subject to
similar prospectus delivery requirements, for use in connection with any
resale of any new notes; and
- pay all expenses incident to our performance of or compliance with the
registration rights agreement, and indemnify certain holders of the
outstanding notes, including any broker-dealer, against some liabilities,
including liabilities under the Securities Act of 1933.
Each holder of outstanding notes who wishes to exchange its outstanding
notes for new notes in the exchange offer will be required to make
representations, including representations that:
- any new notes to be received by it will be acquired in the ordinary
course of its business;
- it has no arrangement or understanding with any person to participate in
the distribution, as defined by the Securities Act of 1933, of the new
notes; and
- it is not our "affiliate," as defined in Rule 405 under the Securities
Act of 1933, or a broker-dealer that acquired outstanding notes directly
from us for its own account.
If the holder is a broker-dealer that will receive new notes for its own
account in exchange for outstanding notes that were acquired as a result of
market-making activities or other trading activities, it will be required to
acknowledge that it will deliver a prospectus in connection with any resale of
its new notes. A broker-dealer that delivers a prospectus to purchasers in
connection with resales of the new notes will be subject to certain of the civil
liability provisions under the Securities Act of 1933 and will be bound by the
provisions of the registration rights agreement that are applicable to it,
including indemnification obligations.
Holders of the outstanding notes will also be required to deliver
information to be used in connection with any shelf registration statement to
have their outstanding notes included in the shelf registration statement and
benefit from the provisions regarding additional interest set forth in the
preceding paragraphs. A holder who sells outstanding notes pursuant to the shelf
registration statement generally will be required to be named as a selling
securityholder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act of 1933 in
17
connection with these sales and will be bound by the provisions of the
registration rights agreement that are applicable to such a holder, including
indemnification obligations.
RESALE OF THE NEW NOTES
Based on no action letters of the Securities and Exchange Commission staff
issued to third parties, we believe that new notes may be offered for resale,
resold and otherwise transferred by you without further compliance with the
registration and prospectus delivery provisions of the Securities Act of 1933
if:
- you are not our "affiliate" within the meaning of Rule 405 under the
Securities Act of 1933 or a broker-dealer that acquired outstanding notes
directly from us for its own account;
- those new notes are acquired in the ordinary course of your business; and
- you do not intend to participate in a distribution of the new notes.
The Securities and Exchange Commission, however, has not considered the
exchange offer for the new notes in the context of a no action letter, and the
Securities and Exchange Commission may not make a similar determination as in
the no action letters issued to these third parties.
If you tender in the exchange offer with the intention of participating in
any manner in a distribution of the new notes or otherwise do not satisfy the
foregoing criteria, you
- cannot rely on such interpretations by the Securities and Exchange
Commission staff;
- will not be able to exchange your outstanding notes for new notes in the
exchange offer; and
- must comply with the registration and prospectus delivery requirements of
the Securities Act of 1933 in connection with a secondary resale
transaction, unless the resale is made pursuant to an exemption from, or
is otherwise not subject to, those requirements.
Unless an exemption from registration is otherwise available, any security
holder intending to distribute new notes should be covered by an effective
registration statement under the Securities Act of 1933. This registration
statement should contain the selling security holder's information required by
Item 507 of Regulation S-K under the Securities Act of 1933. This prospectus may
be used for an offer to resell, resale or other transfer of new notes only as
specifically described in this prospectus. Only broker-dealers that acquired the
outstanding notes as a result of market-making activities or other trading
activities may participate in the exchange offer. Each broker-dealer that
receives new notes for its own account in exchange for outstanding notes, where
such outstanding notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge in the
letter of transmittal that it will deliver a prospectus in connection with any
resale of the new notes. Please read the section captioned "Plan of
Distribution" for more details regarding the transfer of new notes.
TERMS OF THE EXCHANGE OFFER
Subject to the terms and conditions described in this prospectus and in the
letter of transmittal, we will accept for exchange any outstanding notes
properly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the expiration date. We will issue new notes in principal amount equal to the
principal amount of outstanding notes surrendered in the exchange offer.
Outstanding notes may be tendered only for new notes and only in integral
multiples of $1,000.
The exchange offer is not conditioned upon any minimum aggregate principal
amount of outstanding notes being tendered for exchange.
As of the date of this prospectus, $200,000,000 in aggregate principal
amount of the outstanding notes are outstanding. This prospectus and the letter
of transmittal are being sent to all registered holders of outstanding notes.
There will be no fixed record date for determining registered holders of
outstanding notes entitled to participate in the exchange offer.
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We intend to conduct the exchange offer in accordance with the provisions
of the registration rights agreement, the applicable requirements of the
Securities Act of 1933 and the Securities Exchange Act of 1934 and the rules and
regulations of the Securities and Exchange Commission. Outstanding notes that
the holders thereof do not tender for exchange in the exchange offer will remain
outstanding and continue to accrue interest. These outstanding notes will
continue to be entitled to the rights and benefits such holders have under the
indenture relating to the notes.
We will be deemed to have accepted for exchange properly tendered
outstanding notes when we have given oral or written notice of the acceptance to
the exchange agent and complied with the applicable provisions of the
registration rights agreement. The exchange agent will act as agent for the
tendering holders for the purposes of receiving the new notes from us.
If you tender outstanding notes in the exchange offer, you will not be
required to pay brokerage commissions or fees or, subject to the letter of
transmittal, transfer taxes with respect to the exchange of outstanding notes.
We will pay all charges and expenses, other than certain applicable taxes
described below, in connecting with the exchange offer. It is important that you
read the section labeled "-- Fees and Expenses" for more details regarding fees
and expenses incurred in the exchange offer.
We will return any outstanding notes that we do not accept for exchange for
any reason without expense to the tendering holder as promptly as practicable
after the expiration or termination of the exchange offer.
EXPIRATION DATE
The exchange offer will expire at 5:00 p.m., New York City time, on
, 2002, unless, in our sole discretion, we extend it.
EXTENSIONS, DELAYS IN ACCEPTANCE, TERMINATION OR AMENDMENT
We expressly reserve the right, at any time or various times, to extend the
period of time during which the exchange offer is open. We may delay acceptance
of any outstanding notes by giving oral or written notice of such extension to
their holders. During any such extensions, all outstanding notes previously
tendered will remain subject to the exchange offer, and we may accept them for
exchange.
In order to extend the exchange offer, we will notify the exchange agent
orally or in writing of any extension. We will notify the registered holders of
outstanding notes of the extension no later than 9:00 a.m., New York City time,
on the business day after the previously scheduled expiration date.
If any of the conditions described below under "-- Conditions to the
Exchange Offer" have not been satisfied, we reserve the right, in our sole
discretion
- to delay accepting for exchange any outstanding notes,
- to extend the exchange offer, or
- to terminate the exchange offer,
by giving oral or written notice of such delay, extension or termination to the
exchange agent. Subject to the terms of the registration rights agreement, we
also reserve the right to amend the terms of the exchange offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
registered holders of outstanding notes. If we amend the exchange offer in a
manner that we determine to constitute a material change, we will promptly
disclose such amendment by means of a prospectus supplement. The supplement will
be distributed to the registered holders of the outstanding notes. Depending
upon the significance of the amendment and the manner of disclosure to the
registered holders, we may extend the exchange offer.
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CONDITIONS TO THE EXCHANGE OFFER
We will not be required to accept for exchange, or exchange any new notes
for, any outstanding notes if the exchange offer, or the making of any exchange
by a holder of outstanding notes, would violate applicable law or any applicable
interpretation of the staff of the Securities and Exchange Commission, or if any
action or proceeding has been instituted or threatened regarding the exchange
offer that, in our judgment, would reasonably be expected to impair our ability
to proceed with the exchange offer.
In addition, we will not be obligated to accept for exchange the
outstanding notes of any holder that has not made to us the representations
described under "-- Purpose and Effect of the Exchange Offer," "-- Procedures
for Tendering" and "Plan of Distribution" and such other representations as may
be reasonably necessary under applicable Securities and Exchange Commission
rules, regulations or interpretations to allow us to use an appropriate form to
register the new notes under the Securities Act of 1933.
We expressly reserve the right to extend, amend or terminate the exchange
offer, and to reject for exchange any outstanding notes not previously accepted
for exchange, upon the failure to be satisfied of any of the conditions to the
exchange offer specified herein or in the letter of transmittal. We will give
oral or written notice of any extension, amendment, non-acceptance or
termination to the holders of the outstanding notes as promptly as practicable.
These conditions are for our sole benefit, and we may assert them or waive
them in whole or in part at any time or at various times in our sole discretion.
If we fail at any time to exercise any of these rights, this failure will not
mean that we have waived our rights. Each such right will be deemed an ongoing
right that we may assert at any time or at various times.
In addition, we will not accept for exchange any outstanding notes
tendered, and will not issue new notes in exchange for any such outstanding
notes, if at such time any stop order has been threatened or is in effect with
respect to the registration statement of which this prospectus constitutes a
part or the qualification of the indenture relating to the notes under the Trust
Indenture Act of 1939.
PROCEDURES FOR TENDERING
HOW TO TENDER GENERALLY
Only a holder of outstanding notes may tender such outstanding notes in the
exchange offer. To tender in the exchange offer, a holder must:
- complete, sign and date the letter of transmittal, or a facsimile of the
letter of transmittal;
- have the signature on the letter of transmittal guaranteed if the letter
of transmittal so requires; and
- mail or deliver such letter of transmittal or facsimile to the exchange
agent prior to 5:00 p.m., New York City time, on the expiration date; or
- comply with the automated tender offer program procedures of DTC
described below.
In addition, either:
- the exchange agent must receive outstanding notes along with the letter
of transmittal;
- the exchange agent must receive, prior to 5:00 p.m., New York City time,
on the expiration date, a timely confirmation of book-entry transfer of
such outstanding notes into the exchange agent's account at DTC according
to the procedure for book-entry transfer described below or a properly
transmitted agent's message; or
- the holder must comply with the guaranteed delivery procedures described
below.
To be tendered effectively, the exchange agent must receive any physical
delivery of the letter of transmittal and other required documents at its
address indicated on the cover page of the letter of
20
transmittal. The exchange agent must receive such documents prior to 5:00 p.m.,
New York City time, on the expiration date.
The tender by a holder that is not withdrawn prior to 5:00 p.m., New York
City time, on the expiration date will constitute an agreement between the
holder and us in accordance with the terms and subject to the conditions
described in this prospectus and in the letter of transmittal.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES, THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT YOUR ELECTION AND RISK.
RATHER THAN MAIL THESE ITEMS, WE RECOMMEND THAT YOU USE AN OVERNIGHT OR HAND
DELIVERY SERVICE. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO ASSURE
DELIVERY TO THE EXCHANGE AGENT BEFORE 5:00 P.M., NEW YORK CITY TIME, ON THE
EXPIRATION DATE. YOU SHOULD NOT SEND THE LETTER OF TRANSMITTAL OR OUTSTANDING
NOTES TO US. YOU MAY REQUEST YOUR BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR OTHER NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR YOU.
HOW TO TENDER IF YOU ARE A BENEFICIAL OWNER
If you beneficially own outstanding notes that are registered in the name
of a broker, dealer, commercial bank, trust company or other nominee and you
wish to tender those notes, you should contact the registered holder promptly
and instruct it to tender on your behalf. If you are a beneficial owner and wish
to tender on your own behalf, you must, prior to completing and executing the
letter of transmittal and delivering your outstanding notes, either:
- make appropriate arrangements to register ownership of the outstanding
notes in your name; or
- obtain a properly completed bond power from the registered holder of
outstanding notes.
The transfer of registered ownership, if permitted under the indenture for
the notes, may take considerable time and may not be completed prior to the
expiration date.
SIGNATURES AND SIGNATURE GUARANTEES
You must have signatures on a letter of transmittal or a notice of
withdrawal (as described below) guaranteed by a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States, or an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934. In
addition, such entity must be a member of one of the recognized signature
guarantee programs identified in the letter of transmittal.
WHEN YOU NEED ENDORSEMENTS OR BOND POWERS
If the letter of transmittal is signed by a person other than the
registered holder of any outstanding notes, the outstanding notes must be
endorsed or accompanied by a properly completed bond power. The bond power must
be signed by the registered holder as the registered holder's name appears on
the outstanding notes. 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 must guarantee the signature on the
bond power.
If the letter of transmittal or any outstanding notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, those persons should so indicate when signing. Unless waived by us,
they should also submit evidence satisfactory to us of their authority to
deliver the letter of transmittal.
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TENDERING THROUGH DTC'S AUTOMATED TENDER OFFER PROGRAM
The exchange agent and DTC have confirmed that any financial institution
that is a participant in DTC's system may use DTC's automated tender offer
program to tender. Participants in the program may, instead of physically
completing and signing the letter of transmittal and delivering it to the
exchange agent, transmit their acceptance of the exchange offer electronically.
They may do so by causing DTC to transfer the outstanding notes to the exchange
agent in accordance with its procedures for transfer. DTC will then send an
agent's message to the exchange agent.
The term "agent's message" means a message transmitted by DTC, received by
the exchange agent and forming part of the book-entry confirmation, to the
effect that:
- DTC has received an express acknowledgment from a participant in its
automated tender offer program that is tendering outstanding notes that
are the subject of such book-entry confirmation;
- such participant has received and agrees to be bound by the terms of the
letter of transmittal or, in the case of an agent's message relating to
guaranteed delivery, that such participant has received and agrees to be
bound by the applicable notice of guaranteed delivery; and
- the agreement may be enforced against such participant.
DETERMINATIONS UNDER THE EXCHANGE OFFER
We will determine in our sole discretion all questions as to the validity,
form, eligibility, time of receipt, acceptance of tendered outstanding notes and
withdrawal of tendered outstanding notes. Our determination will be final and
binding. We reserve the absolute right to reject any outstanding notes not
properly tendered or any outstanding notes our acceptance of which would, in the
opinion of our counsel, be unlawful. We also reserve the right to waive any
defect, irregularities or conditions of tender as to particular outstanding
notes. 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, all defects or irregularities in
connection with tenders of outstanding notes must be cured within such time as
we shall determine. Although we intend to notify holders of defects or
irregularities with respect to tenders of outstanding notes, neither we, the
exchange agent nor any other person will incur any liability for failure to give
such notification. Tenders of outstanding notes will not be deemed made until
such defects or irregularities have been cured or waived. Any outstanding 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 to
the tendering holder, unless otherwise provided in the letter of transmittal, as
soon as practicable following the expiration date.
WHEN WE WILL ISSUE NEW NOTES
In all cases, we will issue new notes for outstanding notes that we have
accepted for exchange in the exchange offer only after the exchange agent timely
receives:
- outstanding notes or a timely book-entry confirmation of such outstanding
notes into the exchange agent's account at DTC; and
- a properly completed and duly executed letter of transmittal and all
other required documents or a properly transmitted agent's message.
RETURN OF OUTSTANDING NOTES NOT ACCEPTED OR EXCHANGED
If we do not accept any tendered outstanding notes for exchange or if
outstanding notes are submitted for a greater principal amount than the holder
desires to exchange, the unaccepted or non-exchanged outstanding notes will be
returned without expense to their tendering holder. In the case of outstanding
notes tendered by book-entry transfer in the exchange agent's account at DTC
according to the procedures described below, such non-exchanged outstanding
notes will be credited to an account maintained with
22
DTC. These actions will occur as promptly as practicable after the expiration or
termination of the exchange offer.
YOUR REPRESENTATIONS TO US
By signing or agreeing to be bound by the letter of transmittal, you will
represent to us that, among other things:
- any new notes that you receive will be acquired in the ordinary course of
your business;
- you have no arrangement or understanding with any person or entity to
participate in the distribution of the new notes;
- you are not engaged in and do not intend to engage in the distribution of
the new notes;
- if you are a broker-dealer that will receive new notes for your own
account in exchange for outstanding notes, you acquired those outstanding
notes as a result of market-making activities or other trading activities
and you will deliver a prospectus, as required by law, in connection with
any resale of such new notes; and
- you are not our "affiliate," as defined in Rule 405 of the Securities Act
of 1933.
BOOK-ENTRY TRANSFER
The exchange agent will establish an account with respect to the
outstanding notes at DTC for purposes of the exchange offer promptly after the
date of this prospectus. Any financial institution participating in DTC's system
may make book-entry delivery of outstanding notes by causing DTC to transfer
such outstanding notes into the exchange agent's account at DTC in accordance
with DTC's procedures for transfer. Holders of outstanding notes who are unable
to deliver confirmation of the book-entry tender of their outstanding notes into
the exchange agent's account at DTC or all other documents required by the
letter of transmittal to the exchange agent on or prior to 5:00 p.m., New York
City time, on the expiration date must tender their outstanding notes according
to the guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
If you wish to tender your outstanding notes but your outstanding notes are
not immediately available or you cannot deliver your outstanding notes, the
letter of transmittal or any other required documents to the exchange agent or
comply with the applicable procedures under DTC's automated tender offer program
prior to the expiration date, you may tender if:
- the tender is made through 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,
- prior to the expiration date, the exchange agent receives from such
member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., commercial bank or
trust company having a office or correspondent in the United States, or
eligible guarantor institution either a properly completed and duly
executed notice of guaranteed delivery by facsimile transmission, mail or
hand delivery or a properly transmitted agent's message and notice of
guaranteed delivery:
- setting forth your name and address, the registered number(s) of your
outstanding notes and the principal amount of outstanding notes
tendered,
- stating that the tender is being made thereby, and
- guaranteeing that, within three (3) New York Stock Exchange ("NYSE")
trading days after the expiration date, the letter of transmittal or
facsimile thereof, together with the outstanding notes
23
or a book-entry confirmation, 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 such properly completed and executed letter
of transmittal or facsimile thereof, as well as all tendered outstanding
notes in proper form for transfer or a book-entry confirmation, and all
other documents required by the letter of transmittal, within three (3)
NYSE trading days after the expiration date.
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent you if you wish to tender your outstanding notes according to the
guaranteed delivery procedures described above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, you may withdraw your
tender at any time prior to 5:00 p.m., New York City time, on the expiration
date.
For a withdrawal to be effective:
- the exchange agent must receive a written notice of withdrawal at the
address indicated on the cover page of the letter of transmittal, or
- you must comply with the appropriate procedures of DTC's automated tender
offer program system.
Any notice of withdrawal must:
- specify the name of the person who tendered the outstanding notes to be
withdrawn, and
- identify the outstanding notes to be withdrawn, including the principal
amount of such withdrawn outstanding notes.
If outstanding notes have been tendered under the procedure for book-entry
transfer described above, any notice of withdrawal must specify the name and
number of the account at DTC to be credited with withdrawn outstanding notes and
otherwise comply with the procedures of DTC.
We will determine all questions as to the validity, form, eligibility and
time of receipt of notice of withdrawal. Our determination shall be final and
binding on all parties. We will deem any outstanding notes so withdrawn not to
have been validly tendered for exchange for purposes of the exchange offer.
Any outstanding notes that have been tendered for exchange but that are not
exchanged for any reason will be returned to their holder without cost to the
holder. In the case of outstanding notes tendered by book-entry transfer into
the exchange agent's account at DTC according to the procedures described above,
such outstanding notes will be credited to an account maintained with DTC for
the outstanding notes. This return or crediting will take place as soon as
practicable after withdrawal, rejection of tender or termination of the exchange
offer. You may retender properly withdrawn outstanding notes by following one of
the procedures described under "-- Procedures for Tendering" above at any time
on or prior to the expiration date.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail; however, we may make additional solicitation by
facsimile, telephone, electronic mail or in person by our officers and regular
employees and those of our affiliates.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and reimburse it for its related
reasonable out-of-pocket expenses.
24
We will pay the cash expenses to be incurred in connection with the
exchange offer. They include:
- Securities and Exchange Commission registration fees;
- fees and expenses of the exchange agent and trustee;
- accounting and legal fees and printing costs; and
- related fees and expenses.
TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the exchange of
outstanding notes under the exchange offer. The tendering holder, however, will
be required to pay any transfer taxes, whether imposed on the registered holder
or any other person, if:
- certificates representing outstanding notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of
outstanding notes tendered;
- tendered outstanding notes are registered in the name of any person other
than the person signing the letter of transmittal; or
- a transfer tax is imposed for any reason other than the exchange of
outstanding notes under in the exchange offer.
If satisfactory evidence of payment of any transfer taxes payable by a note
holder is not submitted with the letter of transmittal, the amount of such
transfer taxes will be billed directly to that tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
If you do not exchange new notes for your outstanding notes under the
exchange offer, you will remain subject to the existing restrictions on transfer
of the outstanding notes. In general, you may not offer or sell the outstanding
notes unless they are registered under the Securities Act of 1933, or unless the
offer or sale is exempt from the registration requirements under the Securities
Act of 1933 and applicable state securities laws. Except as required by the
registration rights agreement, we do not intend to register resales of the
outstanding notes under the Securities Act of 1933.
ACCOUNTING TREATMENT
We will record the new notes in our accounting records at the same carrying
value as the outstanding notes. This carrying value is the aggregate principal
amount of the outstanding notes less any bond discount, as reflected in our
accounting records on the date of exchange. Accordingly, we will not recognize
any gain or loss for accounting purposes in connection with the exchange offer.
OTHER
Participation in the exchange offer is voluntary, and you should carefully
consider whether to accept. You are urged to consult your financial and tax
advisors in making your own decision on what action to take.
We may in the future seek to acquire untendered outstanding notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. We have no present plans to acquire any outstanding notes that are
not tendered in the exchange offer or to file a registration statement to permit
resales of any untendered outstanding notes.
25
USE OF PROCEEDS
We will not receive any proceeds from the issuance of the new notes. We are
making this exchange offer solely to satisfy our obligations under our
registration rights agreement. In consideration for issuing the new notes as
contemplated by this prospectus, we will receive outstanding notes in a like
principal amount. The form and terms of the new notes are identical in all
respects to the form and terms of the outstanding notes, except the new notes
will be registered under the Securities Act of 1933 and will not contain
restrictions on transfer, registration rights or provisions for additional
interest. Outstanding notes surrendered in exchange for the new notes will be
retired and cancelled and will not be reissued. Accordingly, the issuance of the
new notes will not result in any change in our outstanding indebtedness.
BUSINESS
We are a leading, Gulf Coast Basin-focused independent oil and gas company
engaged in the acquisition and subsequent exploration, development, production
and operation of oil and gas properties. We have been active in the Gulf Coast
Basin since 1973. Our property portfolio consists of 55 active properties and 41
primary term leases in the Gulf Coast Basin and 32 active properties in the
Rocky Mountains.
Additional information concerning us is included in the reports and other
documents incorporated by reference in this prospectus. See "Where You Can Find
More Information."
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DESCRIPTION OF THE NOTES
We will issue the new notes under an indenture (the "Indenture") between us
and JPMorgan Chase Bank, as trustee (the "Trustee"). This is the same Indenture
pursuant to which we issued the outstanding notes. The terms of the new notes
will include those stated in the Indenture and those made part of the Indenture
by reference to the Trust Indenture Act of 1939 (the "1939 Act"). The following
description is a summary of certain provisions of the Indenture. It does not
restate the Indenture in its entirety and is qualified by reference to the 1939
Act, the new notes and the Indenture. We urge you to read the Indenture because
it, and not this description, defines your rights as holders of the new notes.
The Indenture is filed with the Securities and Exchange Commission as an exhibit
to the registration statement of which this prospectus is a part.
You will find definitions of certain capitalized terms used in this
description below under the heading "Certain Definitions." Capitalized terms
used in this description and not otherwise defined below have the meanings
assigned to them in the Indenture. For purposes of this "Description of the
Notes," references to the "Company", "we", "us" and "our" refer only to Stone
Energy Corporation and not to its subsidiaries.
If the exchange offer contemplated by this prospectus is consummated,
holders of outstanding notes who do not exchange those notes for new notes in
the exchange offer will vote together with holders of new notes for all relevant
purposes under the Indenture. In that regard, the Indenture requires that
certain actions by the holders thereunder must be taken, and certain rights must
be exercised, by specified minimum percentages of the aggregate principal amount
of the outstanding securities issued under the Indenture. In determining whether
holders of the requisite percentage in principal amount have given any notice,
consent or waiver or taken any other action permitted under the Indenture, any
outstanding notes that remain outstanding after the exchange offer will be
aggregated with the new notes, and the holders of such outstanding notes and the
new notes will vote together as a single class for all such purposes.
Accordingly, all references herein to specified percentages in aggregate
principal amount of the notes outstanding shall be deemed to mean, at any time
after the exchange offer is consummated, such percentages in aggregate principal
amount of the outstanding notes and the new notes then outstanding.
GENERAL
The new notes:
- will be our unsecured senior subordinated obligations;
- will mature on December 15, 2011;
- will be issued in this exchange offer in an aggregate principal amount of
up to $200 million;
- may be issued subsequent to this offering, as part of the same or an
additional series, in an unlimited principal amount, subject to
compliance with the provisions of the Indenture described below under
"-- Limitation on Indebtedness";
- will be represented by one or more registered notes in global form, but
in certain limited circumstances may be represented by notes in
definitive form (see "-- Book-Entry Delivery and Form");
- will rank junior in right of payment to all of our existing and future
Senior Indebtedness;
- will rank pari passu in right of payment with all of our existing and
future Pari Passu Indebtedness; and
- will rank senior in right of payment to all of our Subordinated
Indebtedness.
Interest on the new notes:
- will accrue at the rate of 8 1/4% per annum from the last interest
payment date on which interest was paid on the outstanding notes tendered
in exchange therefore or, if no interest has been paid on the outstanding
notes, from the date of the original issue of the outstanding notes, and
from the most
27
recent interest payment date to which interest has been paid for each
interest payment date thereafter;
- will be payable semiannually in arrears on June 15 and December 15 of
each year, beginning on June 15, 2002, to the Person in whose name the
new note (or any predecessor new note) is registered at the close of
business on the immediately preceding June 1 or December 1, as the case
may be; and
- will be computed on the basis of a 360-day year comprised of twelve
30-day months.
Principal of, premium, if any, on and interest on the new notes will be
payable, and the new notes will be exchangeable and transferable, at an office
or agency of the Company, one of which will be maintained for such purpose in
The City of New York (which initially will be an office of the Trustee) or such
other office or agency permitted under the Indenture. At the option of the
Company, payment of interest may be made by check mailed to the Person entitled
thereto as shown on the Security Register. The new notes will be issued in
denominations of $1,000 and integral multiples thereof.
Under the circumstances described below, our obligations under the new
notes may in the future be unconditionally guaranteed on an unsecured senior
subordinated basis by our Restricted Subsidiaries. See "-- Future Subsidiary
Guarantees."
SUBORDINATION
The notes are unsecured senior subordinated obligations of the Company. The
payment of the principal of, premium, if any, on and interest on the notes will
be subordinated in right of payment, as set forth in the Indenture, to all
existing and future Senior Indebtedness of the Company, pari passu with all
existing and future Pari Passu Indebtedness of the Company (including the
Company's 8 3/4% Senior Subordinated Notes due 2007, of which $100 million
principal amount is outstanding on the date hereof) and senior to all
Subordinated Indebtedness of the Company. The Subsidiary Guaranty of any
Subsidiary Guarantor will rank subordinate in right of payment to all existing
and future Senior Indebtedness of such Subsidiary Guarantor, pari passu with all
existing and future Pari Passu Indebtedness of such Subsidiary Guarantor and
senior to all existing and future Subordinated Indebtedness of such Subsidiary
Guarantor.
Borrowings under our Bank Credit Facility constitute Senior Indebtedness.
As of December 31, 2001, the Company had $126 million of Senior Indebtedness,
$100 million of Pari Passu Indebtedness and no Subordinated Indebtedness.
Although the Indenture contains limitations on the amount of additional
Indebtedness that the Company and its Restricted Subsidiaries may incur, the
amounts of such Indebtedness could be substantial and such Indebtedness may be
Senior Indebtedness or Pari Passu Indebtedness. In addition, any Subsidiary
Guarantees could be effectively subordinated to all the obligations of any
Subsidiary Guarantors under certain circumstances. The notes and any Subsidiary
Guarantees will also be effectively subordinated to any secured debt of the
Company and the Subsidiary Guarantors as to the assets which secure such debt.
See "-- Certain Covenants -- Limitation on Indebtedness," "Risk Factors -- Risks
Relating to the Notes -- The notes are subordinated to our senior debt and are
structurally subordinated to our subsidiaries' obligations", and "-- Any future
subsidiary guarantees of the notes may be subordinated or avoided by a court".
The Company may not pay principal of, premium, if any, on or interest on,
the notes or make any deposit pursuant to the provisions of the Indenture
described under "-- Defeasance and Covenant Defeasance" and may not repurchase,
redeem or otherwise retire any notes (collectively, "pay the notes") if (i) any
principal, premium, interest or other amounts due in respect of any Senior
Indebtedness of the Company is not paid within any applicable grace period
(including at maturity) or (ii) any other default on Senior Indebtedness of the
Company occurs and the maturity of such 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 Senior Indebtedness
has been paid in full; provided, however, that 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 each issue of
28
Designated Senior Indebtedness. During the continuance of any default (other
than a default described in clause (i) or clause (ii) of the preceding sentence)
with respect to any Designated Senior Indebtedness pursuant to which the
maturity thereof may be accelerated immediately without further notice (except
such notice as may be required to effect such acceleration), the Company may not
pay the notes for a period (a "Payment Blockage Period") commencing upon the
receipt by the Company and the Trustee of written notice of such default from
the Representative of the holders of such Designated Senior Indebtedness
specifying an election to effect a Payment Blockage Period (a "Payment Blockage
Notice") and ending 179 days after receipt of such notice by the Company and the
Trustee unless earlier terminated (a) by written notice to the Company and the
Trustee from the Representative which gave such Payment Blockage Notice, (b)
because such default is no longer continuing or (c) because such Designated
Senior Indebtedness has been repaid in full. 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 and not
rescinded such acceleration, the Company may (unless otherwise prohibited as
described in the first sentence of this paragraph) resume payments on the notes
after the end of such Payment Blockage Period. No more than one Payment Blockage
Notice may be given in any consecutive 360-day period regardless of the number
of defaults with respect to one or more issues of Senior Indebtedness. No
default with respect to Designated Senior Indebtedness that existed or was
continuing on the date of the commencement of any Payment Blockage Period will
be, or can be, made the basis for the commencement of a second Payment Blockage
Period, whether or not within a period of 365 consecutive days, unless such
default has been cured or waived for a period of not less than 90 consecutive
days subsequent to the end of such initial Payment Blockage Period.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation, dissolution or winding up of the Company or in a
bankruptcy, reorganization, insolvency, receivership, or similar proceeding
relating to the Company or its property, the holders of Senior Indebtedness of
the Company will be entitled to receive payment in full before the Holders of
the notes are entitled to receive any payment of principal of, or premium, if
any, or interest on, the notes. In addition, until the Senior Indebtedness of
the Company is paid in full, any distribution made by or on behalf of the
Company to which Holders of notes would be entitled but for the subordination
provisions of the Indenture will be made to holders of the Senior Indebtedness
of the Company, except that Holders of notes may receive and retain shares of
stock and any debt securities that are subordinated to all Senior Indebtedness
of the Company to at least the same extent as the notes.
The Subsidiary Guaranty of any Subsidiary Guarantor will be subordinated to
Senior Indebtedness of such Subsidiary Guarantor to the same extent and in the
same manner as the notes are subordinated to Senior Indebtedness of the Company.
The Indenture provides that the subordination provisions of the Indenture
applicable to the notes and any Subsidiary Guarantees may not be amended, waived
or modified in a manner that would adversely affect the rights of the holders of
any Designated Senior Indebtedness unless the holders of such Indebtedness
consent in writing (in accordance with the provisions of such Indebtedness) to
such amendment, waiver or modification.
FUTURE SUBSIDIARY GUARANTEES
Under the circumstances described below under "-- Certain
Covenants -- Future Subsidiary Guarantors," the Company's payment obligations
under the notes would in the future be jointly and severally guaranteed by one
or more Subsidiary Guarantors. The Subsidiary Guaranty of any Subsidiary
Guarantor will be an unsecured senior subordinated obligation of such Subsidiary
Guarantor. See "-- Subordination."
Certain mergers, consolidations, dispositions of Property or other events
may result in the addition of additional Subsidiary Guarantors or the release of
Subsidiary Guarantors. See "-- Certain Covenants -- Future Subsidiary
Guarantors" and "-- Merger, Consolidation and Sale of Substantially All Assets."
In
29
addition, any Subsidiary Guarantor that is designated an Unrestricted Subsidiary
in accordance with the terms of the Indenture shall be released from and
relieved of its obligations under its Subsidiary Guaranty upon execution and
delivery of a supplemental indenture satisfactory to the Trustee.
Each of the Company and any Subsidiary Guarantors will agree to contribute
to any other Subsidiary Guarantor which makes payments pursuant to its
Subsidiary Guaranty an amount equal to the Company's or such Subsidiary
Guarantor's proportionate share of such payment, based on the net worth of the
Company or such Subsidiary Guarantor relative to the aggregate net worth of the
Company and the Subsidiary Guarantors.
OPTIONAL REDEMPTION
The notes are subject to redemption at any time before December 15, 2006,
at the option of the Company, in whole but not in part, on not less than 30 nor
more than 60 days' prior notice, at a cash redemption price equal to the
Make-Whole Amount, plus accrued and unpaid interest, if any, to the date of
redemption (subject to the right of Holders of record on the relevant record
date to receive interest due on the relevant interest payment date).
The notes are subject to redemption at any time on or after December 15,
2006, at the option of the Company, in whole or in part (equal to $1,000 in
principal amount or an integral multiple thereof), on not less than 30 nor more
than 60 days' prior notice, at the following redemption prices (expressed as
percentages of principal amount), plus accrued and unpaid interest, if any, to
the date of redemption (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date), if redeemed during the 12-month period commencing on December 15 of the
years indicated below:
<Table>
<Caption>
YEAR REDEMPTION PRICE
- ---- ----------------
2006........................................................ 104.125%
2007........................................................ 102.750%
2008........................................................ 101.375%
2009 and thereafter......................................... 100.000%
</Table>
Notwithstanding the foregoing, prior to December 15, 2004, the Company may,
at any time or from time to time, redeem up to 35% of the aggregate principal
amount of the notes issued under the Indenture at a redemption price of 108.25%
of the principal amount thereof, plus accrued and unpaid interest, if any, to
the date of redemption (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date), with the net proceeds of one or more Equity Offerings of the Company,
provided that at least 65% of the aggregate principal amount of the notes issued
under the Indenture remains outstanding after the occurrence of such redemption
and provided, further, that such redemption shall occur not later than 90 days
after the date of the closing of any such Equity Offering. The redemption shall
be made in accordance with procedures set forth in the Indenture.
If less than all the notes are to be redeemed at any time, selection of
notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
notes are listed, or, if the notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate.
SINKING FUND
There is no mandatory sinking fund payments for the notes.
REPURCHASE AT THE OPTION OF HOLDERS UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of notes shall have
the right to require the Company to repurchase all or any part (equal to $1,000
in principal amount or an integral multiple thereof) of such Holder's notes
pursuant to the offer described below (the "Change of Control Offer") at
30
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 due
on the relevant interest payment date (the "Change of Control Payment").
Within 30 days following any Change of Control or, at the Company's option,
prior to such Change of Control but after the public announcement thereof, the
Company shall mail a notice to each Holder stating, among other things:
(i) that a Change of Control has occurred or is expected to occur, as
applicable, and a Change of Control Offer is being made pursuant to the
Indenture and that all notes (or portions thereof) properly tendered will
be accepted for payment;
(ii) the purchase price and the purchase date, which shall be, subject
to any contrary requirements of applicable law, no fewer than 30 days nor
more than 60 days from the date the Company mails such notice and which may
not be prior to the Change of Control (the "Change of Control Payment
Date");
(iii) that any notes (or portion thereof) accepted for payment (and
duly paid on the Change of Control Payment Date) pursuant to the Change of
Control Offer shall cease to accrue interest on the Change of Control
Payment Date;
(iv) that any notes (or portions thereof) not properly tendered will
continue to accrue interest;
(v) a description of the transaction or transactions constituting the
Change of Control;
(vi) the procedures that Holders of notes must follow in order to
tender their notes (or portions thereof) for payment and the procedures
that Holders of notes must follow in order to withdraw an election to
tender notes (or portions thereof) for payment; and
(vii) all other instructions and materials necessary to enable Holders
to tender notes pursuant to the Change of Control Offer.
The Company will comply, to the extent applicable, with the requirements of
Rule 14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the purchase of notes in connection with a Change of Control. To the extent
that the provisions of any securities laws or regulations conflict with the
provisions relating to the Change of Control Offer, the Company will comply with
the applicable securities laws and regulations and will not be deemed to have
breached its obligations described above by virtue thereof.
If a Change of Control were to occur, there can be no assurance that the
Company and any Subsidiary Guarantors would have sufficient financial resources,
or would be able to arrange financing, to pay the purchase price for all notes
tendered by the Holders thereof. In addition, as of the Issue Date, the existing
Bank Credit Facility will, and any future Bank Credit Facilities or other
agreements relating to indebtedness (including Senior Indebtedness or Pari Passu
Indebtedness) to which the Company or any Subsidiary Guarantor becomes a party
may, contain restrictions on the purchase of notes. The Company's existing
8 3/4% Senior Subordinated Notes due 2007 have a similar repurchase requirement
upon a Change of Control. If a Change of Control occurs at a time when the
Company and any Subsidiary Guarantors are unable to purchase the notes (due to
insufficient financial resources, contractual prohibition or otherwise), such
failure to purchase tendered notes would constitute an Event of Default under
the Indenture, which would, in turn, constitute a default under the existing
Bank Credit Facility and may constitute a default under the terms of any other
Indebtedness of the Company or any Subsidiary Guarantors then outstanding. In
such circumstances, the subordination provisions in the Indenture would likely
prohibit payments to Holders of notes. The provisions under the Indenture
related 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 (at any time prior to
the occurrence of such Change of Control) with the written consent of the
Holders of a majority in principal amount of the notes. See "-- Subordination."
31
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all notes validly tendered and not withdrawn under such Change of
Control Offer.
A "Change of Control" shall be deemed to occur if:
(i) any "person" or "group" (within the meaning of Sections 13(d)(3)
and 14(d)(2) of the Exchange Act or any successor provision to either of
the foregoing, including any group acting for the purpose of acquiring,
holding or disposing of securities within the meaning of Rule 13d-5(b)(1)
under the Exchange Act), other than one or more Permitted Holders, becomes
the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a Person will be deemed to have "beneficial
ownership" of all shares that any such Person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time) of more than 50 percent of the total voting power of all classes of
the Voting Stock of the Company or currently exercisable warrants or
options to acquire such Voting Stock,
(ii) the sale, lease, conveyance or transfer of all or substantially
all the assets of the Company and the Restricted Subsidiaries taken as a
whole (other than to any Wholly Owned Subsidiary) shall have occurred,
(iii) the shareholders of the Company shall have approved any plan of
liquidation or dissolution of the Company,
(iv) the Company consolidates with or merges into another Person
(other than one or more Permitted Holders) or any Person (other than one or
more Permitted Holders) consolidates with or merges into the Company in any
such event pursuant to a transaction in which the outstanding Voting Stock
of the Company is reclassified into or exchanged for cash, securities or
other property, other than any such transaction where (a) the outstanding
Voting Stock of the Company is reclassified into or exchanged for Voting
Stock of the surviving corporation that is Capital Stock and (b) either (x)
the holders of the Voting Stock of the Company immediately prior to such
transaction own, directly or indirectly, not less than a majority of the
Voting Stock of the surviving corporation immediately after such
transaction in substantially the same proportion as before the transaction
or (y) within 25 days after the closing of any such transaction both
Moody's and S&P shall have expressly affirmed credit ratings for the notes
(after giving effect to such transaction) that are as high or higher than
the highest such ratings for the notes given by such services,
respectively, at any time during the 90 days immediately prior to the
public announcement of such transaction and such expressly affirmed ratings
are at least "Ba3" from Moody's and "BB" from S&P; or
(v) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Company's Board of Directors
(together with any new directors whose election or appointment by such
Board or whose nomination for election by the shareholders of the Company
was approved by a vote of a majority of the directors 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 Company's Board of Directors then in
office.
"Permitted Holders" means James H. Stone, D. Peter Canty and Joe R. Klutts
and their respective estates, spouses, ancestors, and lineal descendants, the
legal representatives of any of the foregoing and the trustees of any bona fide
trusts of which the foregoing are the sole beneficiaries or the grantors, or any
Person of which the foregoing "beneficially owns" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act) voting securities representing at least 66 2/3% of
the total voting power of all classes of Voting Stock of such Person (exclusive
of any matters as to which class voting rights exist).
The definition of Change of Control includes a phrase relating to the sale,
lease, conveyance or transfer of "all or substantially all" the Company's
assets. The Indenture will be governed by New York law, and there is no
established quantitative definition under New York law of "substantially all"
the assets of a corporation. Accordingly, if the Company and the Restricted
Subsidiaries were to engage in a
32
transaction in which they disposed of less than all the assets of the Company
and the Restricted Subsidiaries taken as a whole, a question of interpretation
could arise as to whether such disposition was of "substantially all" their
assets and whether the Company was required to make a Change of Control Offer.
Except as described above with respect to a Change of Control, the
Indenture does not contain any other provisions that permit the Holders of the
notes to require that the Company repurchase or redeem the notes in the event of
a takeover, recapitalization or similar restructuring.
BOOK-ENTRY DELIVERY AND FORM
The new notes initially will be represented by one or more notes in
registered, global form without interest coupons (collectively, the "Global
Notes" ). The Global Notes will be deposited upon issuance with the Trustee as
custodian for DTC, in New York, New York, and registered in the name of DTC or
its nominee, in each case for credit to an account of a direct or indirect
participant in DTC as described below.
Except as set forth below, the Global Notes may be transferred, in whole
and not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. In addition, transfer of beneficial interests in the Global Notes will
be subject to the applicable rules and procedures of DTC and its direct or
indirect participants, which may change from time to time. Beneficial interests
in the Global Notes may not be exchanged for notes in certificated form except
in the limited circumstances described below. See "-- Exchange of Book-Entry
Notes for Certificated Notes."
Initially, the Trustee will act as Paying Agent and Registrar. The notes
may be presented for registration of transfer and exchange at the offices of the
Registrar.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
A beneficial interest in a Global Note may not be exchanged for a note in
certificated form unless:
(i) DTC (x) notifies the Company that it is unwilling or unable to
continue as depositary for the Global Note or (y) has ceased to be a
clearing agency registered under the Exchange Act, and in either case the
Company thereupon fails to appoint a successor depositary within 90 days;
(ii) the Company, at its option, notifies the Trustee in writing that
it elects to cause the issuance of the notes in certificated form; or
(iii) there shall have occurred and be continuing an Event of Default
or any event which after notice or lapse of time or both would be an Event
of Default with respect to the notes.
In all cases, certificated notes delivered in exchange for any Global Note or
beneficial interests in such Global Note will be registered in the names, and
issued in any approved denominations, requested by or on behalf of the
depositary, in accordance with its customary procedures. Any certificated note
issued in exchange for an interest in a Global Note will bear the legend
restricting transfers that is borne by such Global Note. Any such exchange will
be effected through the DWAC system and an appropriate adjustment will be made
in the records of the Registrar of the notes to reflect a decrease in the
principal amount of the relevant Global Note.
CERTAIN BOOK-ENTRY PROCEDURES FOR GLOBAL NOTES
The following description of the operations and procedures of DTC are
provided solely as a matter of convenience. These operations and procedures are
solely within the control of the DTC settlement system and are subject to
changes by them. The Company takes no responsibility for these operations and
procedures and urges investors to contact the system or their participants
directly to discuss these matters.
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic
book-entry
33
changes in accounts of its Participants. The Participants include securities
brokers and dealers (including the initial purchasers of the outstanding notes),
banks, trust companies, clearing corporations and certain other organizations.
Access to DTC's system is also available to other entities such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may beneficially
own securities held by or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interests in, and transfers of ownership
interests in, each security held by or on behalf of DTC are recorded on the
records of the Participants and Indirect Participants.
DTC has also advised the Company that, pursuant to procedures established
by it:
(i) upon deposit of the Global Notes, DTC will credit the accounts of
Participants exchanging outstanding notes with portions of the principal
amount of the Global Notes; and
(ii) ownership of these interests in the Global Notes will be shown
on, and the transfer of ownership thereof will be effected only through,
records maintained by DTC (with respect to the Participants) or by the
Participants and the Indirect Participants (with respect to other owners of
beneficial interest in the Global Notes).
Investors in the Global Notes who are Participants in DTC's system may hold
their interests therein directly through DTC. Investors in the Global Notes who
are not Participants may hold their interests therein indirectly through
organizations which are Participants in such system. All interests in a Global
Note may be subject to the procedures and requirements of DTC. The laws of some
states require that certain Persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer beneficial
interests in a Global Note to such Persons will be limited to that extent.
Because DTC can act only on behalf of Participants, which in turn act on behalf
of Indirect Participants, the ability of a Person having beneficial interests in
a Global Note to pledge such interests to Persons that do not participate in the
DTC system, or otherwise take actions in respect of such interests, may be
affected by the lack of a physical certificate evidencing such interests.
EXCEPT AS DESCRIBED HEREIN, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL
NOT HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal of, and interest and premium, if any,
on a Global Note registered in the name of DTC or its nominee will be payable to
DTC in its capacity as the registered Holder under the Indenture. Under the
terms of the Indenture, the Company and the Trustee will treat the Persons in
whose names the notes, including the Global Notes, are registered as the owners
thereof for the purpose of receiving payments and for all other purposes.
Consequently, neither the Company nor the Trustee nor any agent of the Company
or the Trustee has or will have any responsibility or liability for:
(i) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interests in the Global Notes or for maintaining, supervising or
reviewing any of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership interests in the
Global Notes; or
(ii) any other matter relating to the actions and practices of DTC or
any of its Participants or Indirect Participants.
DTC has advised the Company that its current practice, upon receipt of any
payment in respect of securities such as the notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date unless DTC has reason to believe it will not receive
payment on such payment date. Each relevant Participant is credited with an
amount proportionate to its beneficial ownership of an interest in the principal
amount of the relevant security as shown on the records of DTC. Payments by the
Participants and the Indirect Participants to the beneficial owners of notes
will be governed by standing instructions and customary practices and will be
the responsibility of the Participants or the Indirect Participants and will not
be the responsibility of DTC, the Trustee or the
34
Company. None of the Company or the Trustee will be liable for any delay by DTC
or any of its Participants in identifying the beneficial owners of the notes;
and the Company and the Trustee may conclusively rely on and will be protected
in relying on instructions from DTC or its nominee for all purposes.
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of notes only at the direction of one or more Participants to
whose account DTC has credited the interests in the Global Notes and only in
respect of such portion of the aggregate principal amount of the notes as to
which such Participant or Participants has or have given such direction.
However, if there is an Event of Default under the notes, DTC reserves the right
to exchange the Global Notes for legended notes in certificated form, and to
distribute such notes to its Participants.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global Notes among participants in DTC, it is under no
obligation to perform or to continue to perform such procedures, and may
discontinue such procedures at any time. None of the Company or the Trustee or
any of their respective agents will have any responsibility for the performance
by DTC or its respective participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
SAME DATE SETTLEMENT AND PAYMENT
The Company will make payments in respect of the notes represented by the
Global Notes (including principal, premium, if any, and interest) by wire
transfer of immediately available funds to the accounts specified by the Global
Note Holder. The Company will make all payments of principal, interest and
premium, if any, with respect to Certificated Notes by wire transfer of
immediately available funds to the accounts specified by the holders thereof or,
if no such account is specified, by mailing a check to each such holder's
registered address. The notes represented by the Global Notes are expected to be
eligible to trade in DTC's Same-Day Funds Settlement System, and any permitted
secondary market trading activity in such notes will, therefore, be required by
DTC to be settled in immediately available funds. The Company expects that
secondary trading in any Certificated Notes will also be settled in immediately
available funds.
CERTAIN COVENANTS
Limitation on Indebtedness. The Indenture provides that the Company will
not, and it will not permit any of its Restricted Subsidiaries to, directly or
indirectly, Incur any Indebtedness unless, after giving pro forma effect to the
Incurrence of such Indebtedness and the receipt and application of the proceeds
thereof, no Default or Event of Default would occur as a consequence of, or be
continuing following, such Incurrence and application and either (a) after
giving pro forma effect to such Incurrence and application, the Consolidated
Interest Coverage Ratio would exceed 2.5 to 1.0 or (b) such Indebtedness is
Permitted Indebtedness.
"Permitted Indebtedness" means any and all of the following:
(i) Indebtedness arising under the Indenture with respect to the notes
and any Subsidiary Guarantees relating thereto;
(ii) Indebtedness under the Bank Credit Facilities, provided that the
aggregate principal amount of all Indebtedness under the Bank Credit
Facilities, together with all Indebtedness Incurred pursuant to clause (x)
of this paragraph in respect of Indebtedness previously Incurred pursuant
to this clause (ii), at any one time outstanding does not exceed the
greater of (a) $450.0 million, which amount shall be permanently reduced by
the amount of Net Available Cash from Asset Sales used to permanently repay
Indebtedness under the Bank Credit Facilities and not subsequently
reinvested in Additional Assets or used to permanently reduce other
Indebtedness to the extent permitted pursuant
35
to the provisions of the Indenture described under "-- Limitation on Asset
Sales," and (b) an amount equal to the sum of (1) $350.0 million and (2)
10% of Adjusted Consolidated Net Tangible Assets determined as of the date
of the Incurrence of such Indebtedness;
(iii) Indebtedness to the Company or any Restricted Subsidiary by any
of its Restricted Subsidiaries or Indebtedness of the Company to any of its
Restricted Subsidiaries (but only so long as such Indebtedness is held by
the Company or a Restricted Subsidiary);
(iv) Indebtedness in respect of bid, performance, reimbursement or
surety obligations issued by or for the account of the Company or any
Restricted Subsidiary in the ordinary course of business, including
guarantees and letters of credit functioning as or supporting such bid,
performance, reimbursement or surety obligations (in each case other than
for an obligation for money borrowed);
(v) Indebtedness under Permitted Hedging Agreements;
(vi) in-kind obligations relating to oil or gas balancing positions
arising in the ordinary course of business;
(vii) Indebtedness outstanding on the Issue Date not otherwise
permitted in clauses (i) through (vi) above;
(viii) Non-recourse Purchase Money Indebtedness;
(ix) Indebtedness not otherwise permitted to be Incurred pursuant to
this paragraph (excluding any Indebtedness Incurred pursuant to clause (a)
of the immediately preceding paragraph), provided that the aggregate
principal amount of all Indebtedness Incurred pursuant to this clause (ix),
together with all Indebtedness Incurred pursuant to clause (x) of this
paragraph in respect of Indebtedness previously Incurred pursuant to this
clause (ix), at any one time outstanding does not exceed $50.0 million;
(x) Indebtedness Incurred in exchange for, or the proceeds of which
are used to refinance, (a) Indebtedness referred to in clauses (i), (vii)
and (ix) of this paragraph (including Indebtedness previously Incurred
pursuant to this clause (x)) and (b) Indebtedness Incurred pursuant to
clause (a) of the immediately preceding paragraph, provided that, in the
case of each of the foregoing clauses (a) and (b), such Indebtedness is
Permitted Refinancing Indebtedness; and
(xi) Indebtedness consisting of obligations in respect of purchase
price adjustments, indemnities or Guarantees of the same or similar matters
in connection with the acquisition or disposition of Property.
For purposes of determining compliance with the foregoing covenant:
- in the event that an item of Indebtedness (including Indebtedness
Incurred by the Company to banks or other lenders) could be Incurred
pursuant to more than one of the above provisions, the Company, in its
sole discretion, will classify or reclassify such item of Indebtedness
and only be required to include the amount and type of such Indebtedness
in (and to have Incurred such Indebtedness pursuant to) one of the above
clauses; and
- an item of Indebtedness (including Indebtedness Incurred by the Company
to banks or other lenders) may for this purpose be divided into more than
one of the types of Indebtedness described above.
Accrual of interest, accretion or amortization of original issue discount
and the payment of interest on any Indebtedness in the form of additional
Indebtedness with the same terms, will not be deemed to be an incurrence of
Indebtedness for purposes of this covenant; provided, in each such case, that
the amount thereof is included in Consolidated Interest Expense of the Company
as accrued.
Limitation on Liens. The Indenture provides that the Company will not, and
will 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
36
Issue Date or acquired after the Issue Date, or any interest therein or any
income or profits therefrom, unless the notes or any Subsidiary Guaranty 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 Liens securing Senior Indebtedness and Permitted Liens.
Limitation on Restricted Payments. (a) The Indenture provides that the
Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, make any Restricted Payment if, at the time of and after
giving effect to the proposed Restricted Payment, (i) any Default or Event of
Default would have occurred and be continuing, (ii) the Company could not Incur
at least $1.00 of additional Indebtedness pursuant to clause (a) of the first
paragraph under "-- Limitation on Indebtedness" or (iii) the aggregate amount
expended or declared for all Restricted Payments from the Issue Date would
exceed the sum (without duplication) of the following:
(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 the Issue Date, and ending on the last day of
the fiscal quarter ending on or immediately preceding the date of such
proposed Restricted Payment (or, if such aggregate Consolidated Net Income
shall be a loss, minus 100% of such loss), plus
(B) the aggregate net cash proceeds, or the Fair Market Value of
Property other than cash, received by the Company on or after the Issue
Date from the issuance or sale (other than to a Subsidiary of the Company)
of Capital Stock of the Company or any options, warrants or rights to
purchase Capital Stock of the Company, plus
(C) the aggregate net cash proceeds, or the Fair Market Value of
Property other than cash, received by the Company as capital contributions
to the Company (other than from a Subsidiary of the Company) on or after
the Issue Date, plus
(D) the aggregate net cash proceeds received by the Company from the
issuance or sale (other than to any Subsidiary of the Company) on or after
the Issue Date of convertible Indebtedness that has been converted into or
exchanged for Capital Stock of the Company, together with the aggregate
cash received by the Company at the time of such conversion or exchange or
received by the Company from any conversion or exchange of convertible
Senior Indebtedness or convertible Pari Passu Indebtedness issued or sold
(other than to any Subsidiary of the Company) prior to the Issue Date, plus
(E) to the extent not otherwise included in the Company's Consolidated
Net Income, an amount equal to the net reduction in Investments made by the
Company and its Restricted Subsidiaries subsequent to the Issue Date in any
Person resulting from (1) payments of interest on debt, dividends,
repayments of loans or advances or other transfers or distributions of
Property, in each case to the Company or any Restricted Subsidiary from any
Person other than the Company or a Restricted Subsidiary, and in an amount
not to exceed the book value of such Investments previously made in such
Person that were treated as Restricted Payments, or (2) the designation of
any Unrestricted Subsidiary as a Restricted Subsidiary, and in an amount
not to exceed the lesser of (x) the book value of all Investments
previously made in such Unrestricted Subsidiary that were treated as
Restricted Payments and (y) the Fair Market Value of such Unrestricted
Subsidiary, plus
(F) $25.0 million.
(b) The limitations set forth in paragraph (a) above will not prevent the
Company or any Restricted Subsidiary from making the following Restricted
Payments so long as, at the time thereof, no Default or
37
Event of Default shall have occurred and be continuing (except in the case of
clause (i) below under which the payment of a dividend is permitted):
(i) the payment of any dividend on Capital Stock or Redeemable Stock
of the Company or any Restricted Subsidiary within 60 days after the
declaration thereof, if at such declaration date such dividend could have
been paid in compliance with paragraph (a) above;
(ii) the repurchase, redemption or other acquisition or retirement for
value of any Capital Stock of the Company or any of its Subsidiaries held
by any current or former officers, directors or employees of the Company or
any of its Subsidiaries pursuant to the terms of agreements (including
employment agreements) or plans approved by the Company's Board of
Directors, including any such repurchase, redemption, acquisition or
retirement of shares of such Capital Stock that is deemed to occur upon the
exercise of stock options or similar rights if such shares represent all or
a portion of the exercise price or are surrendered in connection with
satisfying Federal income tax obligations; provided, however, that the
aggregate amount of such repurchases, redemptions, acquisitions and
retirements shall not exceed the sum of (a) $1.0 million in any
twelve-month period and (b) the aggregate net proceeds, if any, received by
the Company during such 12-month period from any issuance of such Capital
Stock pursuant to such agreements or plans;
(iii) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock or Redeemable Stock of the Company or any
Restricted Subsidiary, in exchange for, or out of the aggregate net cash
proceeds of, a substantially concurrent issuance and sale (other than to a
Subsidiary of the Company or an employee stock ownership plan or trust
established by the Company or any of its Subsidiaries, for the benefit of
their employees) of Capital Stock of the Company;
(iv) the making of any principal payment on or the repurchase,
redemption, legal defeasance or other acquisition or retirement for value,
prior to any scheduled principal payment, scheduled sinking fund payment or
maturity, of any Subordinated Indebtedness (other than Redeemable Stock) in
exchange for, or out of the aggregate net cash proceeds of, a substantially
concurrent issuance and sale (other than to a Subsidiary of the Company or
an employee stock ownership plan or trust established by the Company or any
of its Subsidiaries, for the benefit of their employees) of Capital Stock
of the Company;
(v) the making of any principal payment on or the repurchase,
redemption, legal defeasance or other acquisition or retirement for value
of Subordinated Indebtedness in exchange for, or out of the aggregate net
cash proceeds of a substantially concurrent Incurrence (other than a sale
to a Subsidiary of the Company) of Subordinated Indebtedness so long as
such new Indebtedness is Permitted Refinancing Indebtedness and (A) has an
Average Life that is longer than the Average Life of the notes and (B) has
a Stated Maturity for its final scheduled principal payment that is more
than one year after the Stated Maturity of the final scheduled principal
payment of the notes; and
(vi) 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 (vi).
The actions described in clauses (i) and (ii) of this paragraph (b) shall
be included in the calculation of the amount of Restricted Payments. The actions
described in clauses (iii), (iv), (v) and (vi) of this paragraph (b) shall be
excluded in the calculation of the amount of Restricted Payments, provided that
the net cash proceeds from any issuance or sale of Capital Stock of the Company
pursuant to such clause (iii), (iv) or (vi) shall be excluded from any
calculations pursuant to clause (B) or (C) under the immediately preceding
paragraph (a).
38
(c) In computing Consolidated Net Income of the Company under paragraph (a)
above, (1) the Company shall use audited financial statements for the portions
of the relevant period for which audited financial statements are available on
the date of determination and unaudited financial statements and other current
financial data based on the books and records of the Company for the remaining
portion of such period and (2) the Company shall be permitted to rely in good
faith on the financial statements and other financial data derived from the
books and records of the Company that are available on the date of
determination. If the Company makes a Restricted Payment which, at the time of
the making of such Restricted Payment, would in the good faith determination of
the Company be permitted under the requirements of the Indenture, such
Restricted Payment shall be deemed to have been made in compliance with the
Indenture notwithstanding any subsequent adjustments made in good faith to the
Company's financial statements affecting Consolidated Net Income of the Company
for any period.
Limitation on Asset Sales. The Indenture provides that the Company will
not, and will not permit any Restricted Subsidiary to, consummate any Asset Sale
unless (i) the Company or such Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the Fair
Market Value of the Property subject to such Asset Sale and (ii) all of the
consideration paid to the Company or such Restricted Subsidiary in connection
with such Asset Sale is in the form of cash, cash equivalents, Liquid
Securities, Exchanged Properties or the assumption by the purchaser of
liabilities of the Company (other than liabilities of the Company that are by
their terms subordinated to the Notes) or liabilities of any Restricted
Subsidiary that made such Asset Sale (other than liabilities of a Subsidiary
Guarantor that are by their terms subordinated to such Subsidiary Guarantor's
Subsidiary Guaranty), in each case as a result of which the Company and its
remaining Restricted Subsidiaries are no longer liable for such liabilities
("Permitted Consideration"); provided, however, that the Company and its
Restricted Subsidiaries shall be permitted to receive Property other than
Permitted Consideration, so long as the aggregate Fair Market Value of all such
Property other than Permitted Consideration received from Asset Sales and held
by the Company or any Restricted Subsidiary at any one time shall not exceed
10.0% of Adjusted Consolidated Net Tangible Assets.
The Net Available Cash from Asset Sales by the Company or a Restricted
Subsidiary may be applied by the Company, such Restricted Subsidiary or another
Restricted Subsidiary, to the extent the Company or such Restricted Subsidiary
elects (or is required by the terms of any Senior Indebtedness of the Company or
a Subsidiary Guarantor), to (i) prepay, repay or purchase Senior Indebtedness of
the Company or a Subsidiary Guarantor or any Indebtedness of a Restricted
Subsidiary that is not a Subsidiary Guarantor (in each case excluding
Indebtedness owed to the Company or an Affiliate of the Company), (ii) reinvest
in Additional Assets (including by means of an Investment in Additional Assets
by a Restricted Subsidiary with Net Available Cash received by the Company or
another Restricted Subsidiary) or (iii) purchase notes or purchase both notes
and one or more series or issues of other Pari Passu Indebtedness on a pro rata
basis (excluding notes and Pari Passu Indebtedness owned by the Company or an
Affiliate of the Company). Pending any reinvestment pursuant to clause (ii)
above, the Company may temporarily prepay, repay or purchase Senior Indebtedness
of the Company or a Subsidiary Guarantor.
Any Net Available Cash from an Asset Sale not applied in accordance with
the preceding paragraph within 365 days from the date of such Asset Sale shall
constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
exceeds $20.0 million, the Company will be required to make an offer to purchase
notes having an aggregate principal amount equal to the aggregate amount of
Excess Proceeds (the "Prepayment Offer") at a purchase price equal to 100% of
the principal amount of such notes plus accrued and unpaid interest, if any, to
the Purchase Date (as defined) in accordance with the procedures (including
prorating in the event of oversubscription) set forth in the Indenture, but, if
the terms of any Pari Passu Indebtedness require that a Pari Passu Offer be made
contemporaneously with the Prepayment Offer, then the Excess Proceeds shall be
prorated between the Prepayment Offer and such Pari Passu Offer in accordance
with the aggregate outstanding principal amounts of the notes and such Pari
Passu Indebtedness, and the aggregate principal amount of notes for which the
Prepayment Offer is made shall be reduced accordingly. If the aggregate
principal amount of notes tendered by Holders thereof exceeds
39
the amount of available Excess Proceeds, then such Excess Proceeds will be
allocated pro rata according to the principal amount of the notes tendered and
the Trustee will select the notes to be purchased in accordance with the
Indenture. To the extent that any portion of the amount of Excess Proceeds
remains after compliance with the second sentence of this paragraph and provided
that all Holders of notes have been given the opportunity to tender their notes
for purchase as described in the following paragraph in accordance with the
Indenture, the Company and its Restricted Subsidiaries may use such remaining
amount for purposes permitted by the Indenture and the amount of Excess Proceeds
will be reset to zero.
Within 30 days after the 365th day following the date of an Asset Sale, the
Company shall, if it is obligated to make an offer to purchase the notes
pursuant to the preceding paragraph, send a written Prepayment Offer notice, by
first-class mail, to the Holders of the notes (the "Prepayment Offer Notice"),
accompanied by such information regarding the Company and its Subsidiaries as
the Company believes will enable such Holders of the notes to make an informed
decision with respect to the Prepayment Offer. The Prepayment Offer Notice will
state, among other things, (i) that the Company is offering to purchase notes
pursuant to the provisions of the Indenture, (ii) that any notes (or any portion
thereof) accepted for payment (and duly paid on the Purchase Date) pursuant to
the Prepayment Offer shall cease to accrue interest on the Purchase Date, (iii)
that any notes (or portions thereof) not properly tendered will continue to
accrue interest, (iv) the purchase price and purchase date, which shall be,
subject to any contrary requirements of applicable law, no less than 30 days nor
more than 60 days after the date the Prepayment Offer Notice is mailed (the
"Purchase Date"), (v) the aggregate principal amount of notes to be purchased,
(vi) a description of the procedures which Holders of notes must follow in order
to tender their notes and the procedures that Holders of notes must follow in
order to withdraw an election to tender their notes for payment and (vii) all
other instructions and materials necessary to enable Holders to tender notes
pursuant to the Prepayment Offer.
The Company will comply, to the extent applicable, with the requirements of
Rule 14e-1 under the Exchange Act and any other securities laws or regulations
thereunder to the extent such laws and regulations are applicable in connection
with the purchase of notes as described above. To the extent that the provisions
of any securities laws or regulations conflict with the provisions relating to
the Prepayment Offer, the Company will comply with the applicable securities
laws and regulations and will not be deemed to have breached its obligations
described above by virtue thereof.
Incurrence of Layered Indebtedness. The Indenture provides that (i) the
Company will not Incur any Indebtedness which is subordinated or junior in right
of payment to any Senior Indebtedness of the Company unless such Indebtedness
constitutes Indebtedness which is junior to, or pari passu with, the notes in
right of payment and (ii) no Subsidiary Guarantor will Incur any Indebtedness
that is subordinated or junior in right of payment to any Senior Indebtedness of
such Subsidiary Guarantor unless such Indebtedness constitutes Indebtedness
which is junior to, or pari passu with, such Subsidiary Guarantor's Subsidiary
Guaranty in right of payment.
Limitation on Transactions with Affiliates. The Indenture provides that
the Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, conduct any business or enter into any transaction or
series of transactions (including the sale, transfer, disposition, purchase,
exchange or lease of Property, the making of any Investment, the giving of any
Guarantee or the rendering of any service) with or for the benefit of any
Affiliate of the Company (other than the Company or a Restricted Subsidiary),
unless (i) such transaction or series of transactions is on terms no less
favorable to the Company or such Restricted Subsidiary than those that could be
obtained in a comparable arm's-length transaction with a Person that is not an
Affiliate of the Company or such Restricted Subsidiary, and (ii) with respect to
a transaction or series of transactions involving aggregate payments by or to
the Company or such Restricted Subsidiary having a Fair Market Value equal to or
in excess of (a) $5.0 million but less than $10.0 million, an officer of the
Company certifies that such transaction or series of transactions complies with
clause (i) of this paragraph, as evidenced by an Officer's Certificate delivered
to the Trustee or (b) $10.0 million, the Board of Directors of the Company
(including a majority of the disinterested members of such Board of Directors)
approves such transaction or series of
40
transactions and certifies that such transaction or series of transactions
complies with clause (i) of this paragraph, as evidenced by a certified
resolution delivered to the Trustee.
The limitations of the preceding paragraph do not apply to:
(i) the payment of reasonable and customary regular fees to directors
of the Company or any of its Restricted Subsidiaries who are not employees
of the Company or any of its Restricted Subsidiaries,
(ii) indemnities of officers and directors of the Company or any
Subsidiary consistent with such Person's charter, bylaws and applicable
statutory provisions,
(iii) any issuance of securities, or other payments, awards or grants
in cash, securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans approved by the Board
of Directors of the Company,
(iv) loans made (a) to officers, directors or employees of the Company
or any Restricted Subsidiary approved by the Board of Directors (or by a
duly authorized officer) of the Company, the proceeds of which are used
solely 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 this clause (iv),
(v) advances and loans to officers, directors and employees of the
Company or any Subsidiary, provided such loans and advances (excluding
loans or advances made pursuant to the preceding clause (iv)) do not exceed
$5.0 million at any one time outstanding,
(vi) any Restricted Payment permitted to be paid pursuant to the
provisions of the Indenture described under "-- Limitations on Restricted
Payments,"
(vii) any transaction or series of transactions between the Company
and one or more Restricted Subsidiaries or between two or more Restricted
Subsidiaries in the ordinary course of business, provided that no more than
10% of the total voting power of the Voting Stock of any such Restricted
Subsidiary is owned by an Affiliate of the Company (other than a Restricted
Subsidiary), and
(viii) any transaction or series of transactions pursuant to any
agreement or obligation of the Company or any of its Restricted
Subsidiaries in effect on the Issue Date.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the legal right of any Restricted Subsidiary to
(i) pay dividends, in cash or otherwise, or make any other distributions on or
in respect of its Capital Stock or Redeemable Stock, or pay any Indebtedness or
other obligation owed, to the Company or any other Restricted Subsidiary, (ii)
make loans or advances to the Company or any other Restricted Subsidiary or
(iii) transfer any of its Property to the Company or any other Restricted
Subsidiary. Such limitation will not apply (a) with respect to clauses (i), (ii)
and (iii), to encumbrances and restrictions (1) in the Bank Credit Facilities
and other agreements and instruments, in each case as in effect on the Issue
Date, (2) relating to Indebtedness of a Restricted Subsidiary and existing at
the time it became a Restricted Subsidiary if such encumbrance or restriction
was not created in anticipation of or in connection with the transactions
pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or
(3) which result from the renewal, refinancing, extension or amendment of an
agreement that is the subject of clause (a)(1) or (2) above or clause (b)(1) or
(2) below, provided that such encumbrance or restriction is not materially less
favorable to the Holders of notes than those under or pursuant to the agreement
so renewed, refinanced, extended or amended, and (b) with respect to clause
(iii) only, to (1) any restriction on the sale, transfer or other disposition of
Property relating to Indebtedness that is permitted to be Incurred and secured
under the provisions of the Indenture described under "-- Limitation on
Indebtedness" and "-- Limitation on Liens," (2) any
41
encumbrance or restriction applicable to Property at the time it is acquired by
the Company or a Restricted Subsidiary, so long as such encumbrance or
restriction relates solely to the Property so acquired and was not created in
anticipation of or in connection with such acquisition, (3) customary provisions
restricting subletting or assignment of leases and customary provisions in other
agreements that restrict assignment of such agreements or rights thereunder and
(4) customary restrictions contained in asset sale agreements limiting the
transfer of such assets pending the closing of such sale.
Future Subsidiary Guarantors. The Company shall cause each Restricted
Subsidiary that (i) Incurs Indebtedness or issues Preferred Stock following the
Issue Date or (ii) has Indebtedness or Preferred Stock outstanding on the date
on which such Restricted Subsidiary becomes a Restricted Subsidiary, to execute
and deliver to the Trustee a Subsidiary Guaranty at the time such Restricted
Subsidiary Incurs such Indebtedness or becomes a Restricted Subsidiary;
provided, however, that such Restricted Subsidiary shall not be required to
deliver a Subsidiary Guaranty if the aggregate amount of such Indebtedness or
Preferred Stock, together with all other Indebtedness and Preferred Stock then
outstanding (a) of such Restricted Subsidiary, is less than $10.0 million and
(b) among all Restricted Subsidiaries that are not Subsidiary Guarantors is less
than $25.0 million.
Restricted and Unrestricted Subsidiaries. Unless defined or designated as
an Unrestricted Subsidiary, any Person that becomes a Subsidiary of the Company
or any of its Restricted Subsidiaries shall be classified as a Restricted
Subsidiary subject to the provisions of the next paragraph. The Company may
designate a Subsidiary (including a newly formed or newly acquired Subsidiary)
of the Company or any of its Restricted Subsidiaries as an Unrestricted
Subsidiary if (i) such Subsidiary does not at such time own any Capital Stock or
Indebtedness of, or own or hold any Lien on any Property of, the Company or any
other Restricted Subsidiary, (ii) such Subsidiary does not at such time have any
Indebtedness or other obligations which, if in default, would result (with the
passage of time or notice or otherwise) in a default on any Indebtedness of the
Company or any Restricted Subsidiary and (iii)(a) such designation is effective
immediately upon such Subsidiary becoming a Subsidiary of the Company or of a
Restricted Subsidiary, (b) the Subsidiary to be so designated has total assets
of $1,000 or less or (c) if such Subsidiary has assets greater than $1,000, then
such redesignation as an Unrestricted Subsidiary is deemed to constitute a
Restricted Payment in an amount equal to the Fair Market Value of the Company's
direct and indirect ownership interest in such Subsidiary, and such Restricted
Payment would be permitted to be made at the time of such designation under
"-- Limitation on Restricted Payments." Except as provided in the immediately
preceding sentence, no Restricted Subsidiary may be redesignated as an
Unrestricted Subsidiary. The designation of an Unrestricted Subsidiary or
removal of such designation shall be made by the Board of Directors of the
Company or a committee thereof pursuant to a certified resolution delivered to
the Trustee and shall be effective as of the date specified in the applicable
certified resolution, which shall not be prior to the date such certified
resolution is delivered to the Trustee. Upon designation of a Restricted
Subsidiary as an Unrestricted Subsidiary in compliance with this provision, such
Restricted Subsidiary shall, by delivery of a supplemental indenture in the form
satisfactory to the Trustee, be released from any Subsidiary Guaranty previously
made by such Subsidiary.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, take any action or enter into any transaction or series of
transactions that would result in a Person becoming a Restricted Subsidiary
(whether through an acquisition or otherwise) unless, after giving effect to
such action, transaction or series of transactions, on a pro forma basis, (i)
the Company could Incur at least $1.00 of additional Indebtedness pursuant to
clause (a) of the first paragraph under "-- Limitation on Indebtedness" and (ii)
no Default or Event of Default would occur or be continuing.
MERGER, CONSOLIDATION AND SALE OF SUBSTANTIALLY ALL ASSETS
The Company shall not consolidate with or merge with or into any Person, or
convey, transfer or lease, in one transaction or a series of transactions, all
or substantially all the Property of the Company and its Restricted
Subsidiaries, taken as a whole, unless: (i) the resulting, surviving or
transferee person (the "Successor Company") shall be a Person organized or
existing under the laws of the United States of America, any State thereof or
the District of Columbia and the Successor Company (if not the Company)
42
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; (ii) in the case
of a conveyance, transfer or lease of all or substantially all the Property of
the Company and its Restricted Subsidiaries, taken as a whole, such Property
shall have been so conveyed, transferred or leased as an entirety or virtually
as an entirety to one Person; (iii) immediately after giving effect to such
transaction (and treating, for purposes of this clause (iii) and clause (iv)
below, any Indebtedness which becomes or is anticipated to become an obligation
of the Successor Company or any Restricted Subsidiary as a result of such
transaction as having been Incurred by such Successor Company or such Restricted
Subsidiary at the time of such transaction), no Default or Event of Default
shall have occurred and be continuing; (iv) other than with respect to the
consolidation of the Company with or merger of the Company with or into, or the
conveyance, transfer or lease of all or substantially all of the Property of the
Company and its Restricted Subsidiaries, taken as a whole, to a Wholly Owned
Subsidiary, immediately after giving effect to such transaction, the Successor
Company would be able to Incur an additional $1.00 of Indebtedness pursuant to
clause (a) of the first paragraph under "-- Limitation on Indebtedness"; and (v)
the Company shall have delivered to the Trustee an Officer's Certificate,
stating that such consolidation, merger or transfer and such supplemental
indenture (if any) comply with the Indenture.
The Company shall 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 its Property to, any Person
(other than the Company or any other Subsidiary Guarantor), unless: (a) the
Successor Company (if not such Subsidiary) shall be a person organized and
existing under the laws of the United States of America, any State thereof or
the District of Columbia and the Successor Company (if not such Subsidiary)
shall expressly assume, by a supplemental indenture, in form satisfactory to the
Trustee, all the obligations of such Subsidiary under its Subsidiary Guaranty;
(b) in the case of a conveyance, transfer or lease of all or substantially all
the Property of such Subsidiary Guarantor, such Property shall have been so
conveyed, transferred or leased as an entirety or virtually as an entirety to
one Person; (c) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing; and (d) the Company
shall have delivered to the Trustee an Officers' Certificate, stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indenture.
The provisions of clauses (i), (ii), (iii), (iv) and (v) above and clauses
(a), (b), (c) and (d) above shall not apply to any transactions which constitute
an Asset Sale if the Company has complied with the provisions of the Indenture
described under "-- Limitation on Asset Sales."
The Successor Company shall be the successor to the Company (or the
applicable Subsidiary Guarantor, as the case may be) and shall succeed to, and
be substituted for, and may exercise every right and power of the Company under
the Indenture (or of such Subsidiary Guarantor under its Subsidiary Guaranty),
but the predecessor Company in the case of a conveyance, transfer or lease shall
not be released from the obligation to pay the principal of and interest on the
notes.
FALL AWAY EVENT
In the event of the occurrence of a Fall Away Event, the covenants and
provisions described above under "-- Certain Covenants -- Limitation on
Indebtedness," "-- Limitation on Restricted Payments," "-- Limitation on Asset
Sales," "-- Limitation on Restrictions on Distributions from Restricted
Subsidiaries," "-- Limitation on Transactions with Affiliates," and "-- Future
Subsidiary Guarantors" shall each no longer be in effect for the remaining term
of the notes. In addition, the Company will no longer be subject to the
financial test set forth in clause (iv) of the provisions of the Indenture
described above in the first paragraph under "Merger, Consolidation and Sale of
Substantially All Assets."
If, at any time after the occurrence of a Fall Away Event, the Company
fails to maintain Investment Grade status, then the covenants which are no
longer in effect pursuant to the preceding paragraph will thereafter be
reinstated and be applicable to the Company and its Restricted Subsidiaries
pursuant to the terms of the Indenture unless and until a subsequent Fall Away
Event occurs; provided, however, that no
43
Default, Event of Default or breach of any kind shall be deemed to exist under
the Indenture based on, and none of the Company or any of its Subsidiaries shall
bear any liability for, any actions taken or events occurring after the
occurrence of a Fall Away Event and before any reinstatement of such covenants
as provided above, or any actions taken at any time pursuant to any contractual
obligation arising prior to such reinstatement, regardless of whether such
actions or events would have been permitted if the applicable covenants remained
in effect during such period.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any notes are outstanding, the Company
will file with the Commission and furnish to the Holders of notes all quarterly
and annual financial information required to be contained in a filing with the
Commission on Forms 10-Q and 10-K, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with respect to
the annual consolidated financial statements only, a report thereon by the
Company's independent auditors.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other capitalized terms used herein for which no
definition is provided.
"Additional Assets" means (i) any Property (other than cash, Permitted
Short-Term Investments or securities) used in the Oil and Gas Business or any
business ancillary thereto, (ii) Investments in any other Person engaged in the
Oil and Gas Business or any business ancillary thereto (including the
acquisition from third parties of Capital Stock of such Person) as a result of
which such other Person becomes a Restricted Subsidiary in compliance with the
provisions of the Indenture described under "-- Certain Covenants -- Restricted
and Unrestricted Subsidiaries," (iii) the acquisition from third parties of
Capital Stock of a Restricted Subsidiary or (iv) Permitted Business Investments.
"Adjusted Consolidated Net Tangible Assets" means (without duplication), as
of the date of determination, the remainder of:
(i) the sum of (a) discounted future net revenues from proved oil and
gas reserves of the Company and its Restricted Subsidiaries calculated in
accordance with Commission guidelines before any state, federal or foreign
income taxes, as estimated by the Company and confirmed by a reputable firm
of independent petroleum engineers in a reserve report prepared as of the
end of the Company's most recently completed fiscal year for which audited
financial statements are available, as increased by, as of the date of
determination, the estimated discounted future net revenues from (1)
estimated proved oil and gas reserves acquired since such year-end, which
reserves were not reflected in such year-end reserve report, and (2)
estimated oil and gas reserves attributable to upward revisions of
estimates of proved oil and gas reserves since such year-end due to
exploration, development or exploitation activities, in each case
calculated in accordance with Commission guidelines (utilizing the prices
utilized in such year-end reserve report), and decreased by, as of the date
of determination, the estimated discounted future net revenues from (3)
estimated proved oil and gas reserves produced or disposed of since such
year-end and (4) estimated oil and gas reserves attributable to downward
revisions of estimates of proved oil and gas reserves since such year-end
due to changes in geological conditions or other factors which would, in
accordance with standard industry practice, cause such revisions, in each
case calculated in accordance with Commission guidelines (utilizing the
prices utilized in such year-end reserve report); provided that, in the
case of each of the determinations made pursuant to clauses (1) through
(4), such increases and decreases shall be as estimated by the Company's
petroleum engineers, (b) the capitalized costs that are attributable to oil
and gas properties of the Company and its Restricted Subsidiaries to which
no proved oil and gas reserves are attributable, based on the Company's
books and records as of a date no earlier than the date of the Company's
latest annual or quarterly financial statements, (c) the Net Working
Capital on a date no
44
earlier than the date of the Company's latest annual or quarterly financial
statements and (d) the greater of (1) the net book value on a date no
earlier than the date of the Company's latest annual or quarterly financial
statements and (2) the Fair Market Value, as estimated by the Company, of
other tangible assets (including, without duplication, Investments in
unconsolidated Restricted Subsidiaries) of the Company and its Restricted
Subsidiaries, as of the date no earlier than the date of the Company's
latest audited financial statements, minus (ii) the sum of (a) minority
interests, (b) any net gas balancing liabilities of the Company and its
Restricted Subsidiaries reflected in the Company's latest audited financial
statements, (c) to the extent included in (i)(a) above, the discounted
future net revenues, calculated in accordance with Commission guidelines
(utilizing the prices utilized in the Company's year-end reserve report),
attributable to reserves which are required to be delivered to third
parties to fully satisfy the obligations of the Company and its Restricted
Subsidiaries with respect to Volumetric Production Payments (determined, if
applicable, using the schedules specified with respect thereto) and (d) the
discounted future net revenues, calculated in accordance with Commission
guidelines, attributable to reserves subject to Dollar-Denominated
Production Payments which, based on the estimates of production and price
assumptions included in determining the discounted future net revenues
specified in (i)(a) above, would be necessary to fully satisfy the payment
obligations of the Company and its Restricted Subsidiaries with respect to
Dollar-Denominated Production Payments (determined, if applicable, using
the schedules specified with respect thereto). If the Company changes its
method of accounting from the full cost method to the successful efforts
method or a similar method of accounting, "Adjusted Consolidated Net
Tangible Assets" will continue to be calculated as if the Company were
still using the full cost method of accounting.
"Affiliate" of any specified Person means any other Person (i) which
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person or (ii)
which beneficially owns or holds directly or indirectly 10% or more of any class
of the Voting Stock of such specified Person or of any Subsidiary of such
specified Person. For the purposes of this definition, "control," when used with
respect to any specified Person, means the power to direct the management and
policies of such Person directly or indirectly, whether through the ownership of
Voting Stock, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Asset Sale" means, with respect to any Person, any transfer, conveyance,
sale, lease or other disposition (collectively, "dispositions," and including
dispositions pursuant to any consolidation or merger) by such Person in any
single transaction or series of transactions of (i) shares of Capital Stock or
other ownership interests of another Person (including Capital Stock of
Restricted Subsidiaries and Unrestricted Subsidiaries) or (ii) any other
Property of such Person; provided, however, that the term "Asset Sale" shall not
include: (a) the disposition of Permitted Short-Term Investments, inventory,
accounts receivable, surplus or obsolete equipment or other Property (excluding
the disposition of oil and gas in place and other interests in real property
unless made in connection with a Permitted Business Investment) in the ordinary
course of business; (b) the abandonment, assignment, lease, sublease or farmout
of oil and gas properties, or the forfeiture or other disposition of such
properties pursuant to standard form operating agreements, in each case in the
ordinary course of business in a manner that is customary in the Oil and Gas
Business; (c) the disposition of Property received in settlement of debts owing
to such Person as a result of foreclosure, perfection or enforcement of any Lien
or debt, which debts were owing to such Person in the ordinary course of its
business; (d) any disposition that constitutes a Restricted Payment made in
compliance with the provisions of the Indenture described under "-- Certain
Covenants -- Limitation on Restricted Payments;" (e) when used with respect to
the Company, a Restricted Subsidiary or a Subsidiary Guarantor, any disposition
of all or substantially all of the Property of the Company, such Restricted
Subsidiary or such Subsidiary Guarantor permitted pursuant to the provisions of
the Indenture described under "-- Merger, Consolidation and Sale of
Substantially All Assets;" (f) the disposition of any Property by such Person to
the Company or a Wholly Owned Subsidiary; (g) the disposition of any asset with
a Fair Market Value of less than $2.0 million; or (h) any Production Payments
and Reserve Sales, provided that any such Production Payments and Reserve Sales,
other than incentive compensation
45
programs on terms that are reasonably customary in the Oil and Gas Business for
geologists, geophysicists and other providers of technical services to the
Company or a Restricted Subsidiary, shall have been created, Incurred, issued,
assumed or Guaranteed in connection with the financing of, and within 60 days
after the acquisition of, the Property that is subject thereto.
"Average Life" means, with respect to any Indebtedness, at any date of
determination, the quotient obtained by dividing (i) the sum of the products of
(a) the number of years (and any portion thereof) from the date of determination
to the date or dates of each successive scheduled principal payment (including
any sinking fund or mandatory redemption payment requirements) of such
Indebtedness multiplied by (b) the amount of each such principal payment by (ii)
the sum of all such principal payments.
"Bank Credit Facilities" means, with respect to any Person, one or more
debt facilities or commercial paper facilities with banks or other lenders
providing for revolving credit loans, term loans, 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 trade
letters of credit, together with any full or partial extensions, revisions,
restatements, refinancings or replacements thereof by a lender or syndicate of
lenders; provided, however, that any Indebtedness that otherwise would come
within this definition shall not constitute Indebtedness under Bank Credit
Facilities to the extent that the Company shall have determined at the time of
Incurrence that such Indebtedness was Incurred pursuant to a clause of the
definition of "Permitted Indebtedness" included in the "-- Limitation on
Indebtedness" covenant other than clause (ii) of such definition.
"Basin Merger" means the transactions contemplated by the Agreement and
Plan of Merger, dated as of October 28, 2000, among the Company, Partner
Acquisition Corp. and Basin Exploration, Inc.
"Capital Lease Obligation" means any obligation which is required to be
classified and accounted for as a capital lease obligation 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 date of rent
or any other amount due in respect of such obligation.
"Capital Stock" in any Person means any and all shares, interests,
participations or other equivalents in the equity interest (however designated)
in such Person and any rights (other than debt securities convertible into an
equity interest), warrants or options to subscribe for or to acquire an equity
interest in such Person; provided, however, that "Capital Stock" shall not
include Redeemable Stock.
"Consolidated Interest Coverage Ratio" means, as of the date of the
transaction giving rise to the need to calculate the Consolidated Interest
Coverage Ratio (the "Transaction Date"), the ratio of (i) the aggregate amount
of EBITDA of the Company and its consolidated Restricted Subsidiaries for the
four full fiscal quarters immediately prior to the Transaction Date for which
financial statements are available to (ii) the aggregate Consolidated Interest
Expense of the Company and its Restricted Subsidiaries that is anticipated to
accrue during a period consisting of the fiscal quarter in which the Transaction
Date occurs and the three fiscal quarters immediately subsequent thereto (based
upon the pro forma amount and maturity of, and interest payments in respect of,
Indebtedness of the Company and its Restricted Subsidiaries expected by the
Company to be outstanding on the Transaction Date), assuming for the purposes of
this measurement the continuation of market interest rates prevailing on the
Transaction Date and base interest rates in respect of floating interest rate
obligations equal to the base interest rates on such obligations in effect as of
the Transaction Date; provided, that if the Company or any of its Restricted
Subsidiaries is a party to any Interest Rate Protection Agreement which would
have the effect of changing the interest rate on any Indebtedness of the Company
or any of its Restricted Subsidiaries for such four quarter period (or a portion
thereof), the resulting rate shall be used for such four quarter period or
portion thereof; provided further that any Consolidated Interest Expense with
respect to Indebtedness Incurred or retired by the Company or any of its
Restricted Subsidiaries during the fiscal quarter in which the Transaction Date
occurs shall be calculated as if such Indebtedness was so Incurred or retired on
the first day of the fiscal quarter in which the Transaction Date occurs. In
addition, if since the beginning of
46
the four full fiscal quarter period preceding the Transaction Date, (a) the
Company or any of its Restricted Subsidiaries shall have engaged in any Asset
Sale, EBITDA for such period shall be reduced by an amount equal to the EBITDA
(if positive), or increased by an amount equal to the EBITDA (if negative),
directly attributable to the assets which are the subject of such Asset Sale for
such period calculated on a pro forma basis as if such Asset Sale and any
related retirement of Indebtedness had occurred on the first day of such period
or (b) the Company or any of its Restricted Subsidiaries shall have acquired any
material assets, EBITDA shall be calculated on a pro forma basis as if such
asset acquisitions had occurred on the first day of such four fiscal quarter
period.
"Consolidated Interest Expense" means, with respect to any Person for any
period, without duplication, (i) the sum of (a) the aggregate amount of cash and
noncash interest expense (including capitalized interest) of such Person and its
Restricted Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP in respect of Indebtedness (including (1) any amortization
of debt discount, (2) net costs associated with Interest Rate Protection
Agreements (including any amortization of discounts), (3) the interest portion
of any deferred payment obligation, (4) all accrued interest and (5) all
commissions, discounts, commitment fees, origination fees and other fees and
charges owed with respect to the Bank Credit Facilities and other Indebtedness)
paid, accrued or scheduled to be paid or accrued during such period; (b)
Redeemable Stock dividends of such Person (and of its Restricted Subsidiaries if
paid to a Person other than such Person or its Restricted Subsidiaries) and
Preferred Stock dividends of such Person's Restricted Subsidiaries if paid to a
Person other than such Person or its other Restricted Subsidiaries; (c) the
portion of any rental obligation of such Person or its Restricted Subsidiaries
in respect of any Capital Lease Obligation allocable to interest expense in
accordance with GAAP; (d) the portion of any rental obligation of such Person or
its Restricted Subsidiaries in respect of any Sale and Leaseback Transaction
that is Indebtedness allocable to interest expense (determined as if such
obligation were treated as a Capital Lease Obligation); and (e) to the extent
any Indebtedness of any other Person (other than Restricted Subsidiaries) is
Guaranteed by such Person or any of its Restricted Subsidiaries, the aggregate
amount of interest paid, accrued or scheduled to be paid or accrued by such
other Person during such period attributable to any such Indebtedness; less (ii)
to the extent included in (i) above, amortization or write-off of deferred
financing costs of such Person and its Restricted Subsidiaries during such
period; in the case of both (i) and (ii) above, after elimination of
intercompany accounts among such Person and its Restricted Subsidiaries and as
determined in accordance with GAAP.
"Consolidated Net Income" of any Person means, for any period, the
aggregate net income (or net loss, as the case may be) of such Person and its
Restricted Subsidiaries for such period on a consolidated basis, determined in
accordance with GAAP; provided that there shall be excluded therefrom, without
duplication: (i) items classified as extraordinary gains or losses net of taxes
(less all fees and expenses relating thereto); (ii) any gain or loss net of
taxes (less all fees and expenses relating thereto) realized on the sale or
other disposition of Property, including the Capital Stock of any other Person
(but in no event shall this clause (ii) apply to any gains or losses on the sale
in the ordinary course of business of oil, gas or other hydrocarbons produced or
manufactured); (iii) the net income of any Restricted Subsidiary of such
specified Person to the extent the transfer to that Person of that income is
restricted by contract or otherwise, except for any cash dividends or cash
distributions actually paid by such Restricted Subsidiary to such Person during
such period; (iv) the net income (or loss) of any other Person in which such
specified Person or any of its Restricted Subsidiaries has an interest (which
interest does not cause the net income of such other Person to be consolidated
with the net income of such specified Person in accordance with GAAP or is an
interest in a consolidated Unrestricted Subsidiary), except to the extent of the
amount of cash dividends or other cash distributions actually paid to such
Person or its consolidated Restricted Subsidiaries by such other Person during
such period; (v) for the purposes of "-- Certain Covenants -- Limitation on
Restricted Payments" only, the net income of any Person acquired by such
specified Person or any of its Restricted Subsidiaries in a pooling-of-interests
transaction for any period prior to the date of such acquisition; (vi) any gain
or loss, net of taxes, realized on the termination of any employee pension
benefit plan; (vii) any adjustments of a deferred tax liability or asset
pursuant to Statement of Financial Accounting Standards No. 109 which result
from changes in enacted tax laws or rates; (viii) the cumulative effect of a
change in accounting principles; (ix) any write-downs of non-
47
current assets, provided that any ceiling limitation write-downs under
Commission guidelines shall be treated as capitalized costs, as if such
write-downs had not occurred; (x) 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;
(xi) any non-cash gains or losses related to Exchange Rate Contracts and Oil and
Gas Hedging Contracts, net of taxes; and (xii) any expenses relating to the
Basin Merger, net of taxes.
"Consolidated Net Worth" of any Person means the stockholders' equity of
such Person and its Restricted Subsidiaries, as determined on a consolidated
basis in accordance with GAAP, less (to the extent included in stockholders'
equity) amounts attributable to Redeemable Stock of such Person or its
Restricted Subsidiaries.
"Default" means any event, act or condition the occurrence of which is, or
after notice or the passage of time or both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) the Bank Credit Facilities and
(ii) any other Senior Indebtedness of the Company which has, at the time of
determination, an aggregate principal amount outstanding of at least $10.0
million that is specifically designated in the instrument evidencing such Senior
Indebtedness and is designated in a notice delivered by the Company to the
holders or a Representative of the holders of such Senior Indebtedness and the
Trustee as "Designated Senior Indebtedness" of the Company.
"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" means with respect to any Person for any period, an amount equal
to the Consolidated Net Income of such Person for such period, plus (i) the sum
of, to the extent reflected in the consolidated income statement of such Person
and its Restricted Subsidiaries for such period from which Consolidated Net
Income is determined and deducted in the determination of such Consolidated Net
Income, without duplication: (a) income tax expense (but excluding income tax
expense relating to sales or other dispositions of Property, including the
Capital Stock of any other Person, the gains from which are excluded in the
determination of such Consolidated Net Income), (b) Consolidated Interest
Expense, (c) depreciation and depletion expense, (d) amortization expense, (e)
exploration expense (if applicable) and (f) any other noncash charges including
unrealized foreign exchange (excluding, however, any such other noncash charge
which requires an accrual of or reserve for cash charges for any future period)
less (ii) the sum of, to the extent reflected in the consolidated income
statement of such Person and its Restricted Subsidiaries for such period from
which Consolidated Net Income is determined and added in the determination of
such Consolidated Net Income, without duplication (a) income tax recovery
(excluding, however, income tax recovery relating to sales or other dispositions
of Property, including the Capital Stock of any other Person, the losses from
which are excluded in the determination of such Consolidated Net Income) and (b)
unrealized foreign exchange gains.
"Equity Offering" means a bona fide underwritten sale to the public of
common stock of the Company pursuant to a registration statement (other than a
Form S-8 or any other form relating to securities issuable under any employee
benefit plan of the Company) that is declared effective by the Commission
following the Issue Date.
"Exchanged Properties" means properties or assets used or useful in the Oil
and Gas Business received by the Company or a Restricted Subsidiary in trade or
as a portion of the total consideration for other such properties or assets.
"Exchange Rate Contract" means, with respect to any Person, any currency
swap agreements, forward exchange rate agreements, foreign currency futures or
options, exchange rate collar agreements, exchange rate insurance and other
agreements or arrangements, or any combination thereof, entered into by such
Person in the ordinary course of its business for the purpose of limiting or
managing exchange rate risks to which such Person is subject.
48
"Fair Market Value" means, with respect to any assets to be transferred
pursuant to any Asset Sale or Sale and Leaseback Transaction or any noncash
consideration or property transferred or received by any Person, the fair market
value of such consideration or other property as determined by (i) any officer
of the Company if such fair market value is less than $25.0 million and (ii) the
Board of Directors of the Company as evidenced by a certified resolution
delivered to the Trustee if such fair market value is equal to or in excess of
$25.0 million.
"Fall Away Event" means the notes shall have achieved Investment Grade
status and the Company delivers to the Trustee an officer's certificate
certifying that the foregoing condition has been satisfied.
"GAAP" means United States generally accepted accounting principles as in
effect on the date of the Indenture, unless stated otherwise.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person guaranteeing or having the economic effect of guaranteeing any
Indebtedness of any other Person (the "primary obligor") in any manner, whether
directly or indirectly, and including any Lien on the assets of such Person
securing obligations to pay Indebtedness of the primary obligor and any
obligation of such Person (i) to purchase or pay (or advance or supply funds for
the purchase or payment of) such Indebtedness or to purchase (or to advance or
supply funds for the purchase or payment of) any security for the payment of
such Indebtedness, (ii) to purchase Property, securities or services for the
purpose of assuring the holder of such Indebtedness of the payment of such
Indebtedness or (iii) to maintain working capital, equity capital or other
financial statement condition or liquidity of the primary obligor so as to
enable the primary obligor to pay such Indebtedness (and "Guaranteed",
"Guaranteeing" and "Guarantor" shall have meanings correlative to the
foregoing); provided, however, that a Guarantee by any Person shall not include
(a) endorsements by such Person for collection or deposit, in either case, in
the ordinary course of business or (b) a contractual commitment by one Person to
invest in another Person for so long as such Investment is reasonably expected
to constitute a Permitted Investment under clause (ii) of the definition of
Permitted Investments.
"Holder" means the Person in whose name a note is registered on the
Securities Register.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee or become liable in respect of such Indebtedness or other obligation
or the recording, as required pursuant to GAAP or otherwise, of any such
Indebtedness or obligation on the balance sheet of such Person (and
"Incurrence", "Incurred", "Incurable" and "Incurring" shall have meanings
correlative to the foregoing); provided, however, that a change in GAAP that
results in an obligation of such Person that exists at such time, and is not
theretofore classified as Indebtedness, becoming Indebtedness shall not be
deemed an Incurrence of such Indebtedness. For purposes of this definition,
Indebtedness of the Company held by a Restricted Subsidiary or Indebtedness of a
Restricted Subsidiary held by another Restricted Subsidiary shall be deemed to
be Incurred by the Company or such first Restricted Subsidiary in the event such
other Restricted Subsidiary ceases to be a Restricted Subsidiary or in the event
such Indebtedness is transferred to a Person other than the Company or a
Restricted Subsidiary. For purposes of this definition, any non-interest bearing
or other discount Indebtedness shall be deemed to have been Incurred (in an
amount equal to its aggregate principal amount at its Stated Maturity) only on
the date of original issue thereof.
"Indebtedness" means at any time (without duplication), with respect to any
Person, whether recourse is to all or a portion of the assets of such Person,
and whether or not contingent, (i) any obligation of such Person for borrowed
money, (ii) any obligation of such Person evidenced by bonds, debentures, notes,
Guarantees or other similar instruments, including any such obligations Incurred
in connection with the acquisition of Property, assets or businesses, (iii) any
reimbursement obligation of such Person with respect to letters of credit,
bankers' acceptances or similar facilities issued for the account of such
Person, (iv) any obligation of such Person issued or assumed as the deferred
purchase price of Property or services (other than Trade Accounts Payable), (v)
any Capital Lease Obligation of such Person, (vi) the maximum fixed redemption
or repurchase price of Redeemable Stock of such Person at the time of
determination, (vii) any payment obligation of such Person under Exchange Rate
Contracts, Interest Rate
49
Protection Agreements, Oil and Gas Hedging Contracts or under any similar
agreements or instruments, (viii) any obligation to pay rent or other payment
amounts of such Person with respect to any Sale and Leaseback Transaction to
which such Person is a party, (ix) with respect to a Restricted Subsidiary, for
purposes of the covenants described under "-- Limitation on Indebtedness," and
"-- Future Subsidiary Guarantors," the maximum fixed redemption or repurchase
price of Preferred Stock issued by such Restricted Subsidiary and (x) any
obligation of the type referred to in clauses (i) through (ix) of this paragraph
of another Person and all dividends of another Person the payment of which, in
either case, such Person has Guaranteed or is responsible or liable, directly or
indirectly, as obligor, Guarantor or otherwise; provided, however, that
Indebtedness shall not include Production Payments and Reserve Sales. For
purposes of this definition, the maximum fixed repurchase price of any
Redeemable Stock or Preferred Stock that does not have a fixed redemption or
repurchase price shall be calculated in accordance with the terms of such
Redeemable Stock or Preferred Stock as if such Redeemable Stock or Preferred
Stock were repurchased on any date on which Indebtedness shall be required to be
determined pursuant to the Indenture; provided, however, that if such Redeemable
Stock or Preferred Stock is not then permitted to be repurchased, the repurchase
price shall be the liquidation value of such Redeemable Stock or Preferred Stock
. 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 at such date in respect of any contingent obligations
described above.
"Interest Rate Protection Agreement" means, with respect to any Person, any
interest rate swap agreement, forward rate agreement, interest rate cap or
collar agreement or other financial agreement or arrangement entered into by
such Person in the ordinary course of its business for the purpose of limiting
or managing interest rate risks to which such Person is subject.
"Investment" means, with respect to any Person (i) any amount paid by such
Person, directly or indirectly, to any other Person for Capital Stock or other
Property of, or as a capital contribution to, any other Person or (ii) any
direct or indirect loan or advance to any other Person (other than accounts
receivable of such Person arising in the ordinary course of business); provided,
however, that Investments shall not include (a) in the case of clause (i) as
used in the definition of "Restricted Payments" only, any such amount paid
through the issuance of Capital Stock of the Company and (b) in the case of
clause (i) or (ii), extensions of trade credit on commercially reasonable terms
in accordance with normal trade practices and any increase in the equity
ownership in any Person resulting from retained earnings of such Person.
"Investment Grade" means BBB- or higher by S&P (or its equivalent rating
under any successor rating categories of S&P), Baa3 or higher by Moody's (or its
equivalent rating under any successor rating categories of Moody's) and the
equivalent rating in respect of the rating categories of any Rating Agencies
substituted for S&P or Moody's.
"Issue Date" means December 10, 2001.
"Lien" means, with respect to any Property, any mortgage or deed of trust,
pledge, hypothecation, assignment, deposit arrangement, security interest, lien
(statutory or other), charge, easement, encumbrance, preference, priority or
other security or similar agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such Property (including any conditional
sale or other title retention agreement having substantially the same economic
effect as any of the foregoing). For purposes of the provisions of the Indenture
described under "-- Certain Covenants -- Limitation on Liens," a Capital Lease
Obligation shall be deemed to be secured by a Lien on the property being leased.
"Liquid Securities" means securities (i) of an issuer that is not an
Affiliate of the Company, (ii) that are publicly traded on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market and (iii) as
to which the Company is not subject to any restrictions on sale or transfer
(including any volume restrictions under Rule 144 under the Securities Act or
any other restrictions imposed by the Securities Act) or as to which a
registration statement under the Securities Act covering the resale thereof is
in effect for as long as the securities are held; provided that securities
meeting the requirements of clauses (i), (ii) and (iii) above shall be treated
as Liquid Securities from the date of
50
receipt thereof until and only until the earlier of (x) the date on which such
securities are sold or exchanged for cash or Permitted Short-Term Investments
and (y) 180 days following the date of receipt of such securities. If such
securities are not sold or exchanged for cash or Permitted Short-Term
Investments within 180 days of receipt thereof, for purposes of determining
whether the transaction pursuant to which the Company or a Restricted Subsidiary
received the securities was in compliance with the provisions of the Indenture
described under "-- Certain Covenants -- Limitation on Asset Sales," such
securities shall be deemed not to have been Liquid Securities at any time.
"Make-Whole Amount" means the greater of (1) 104.125% (which percentage is
the optional redemption price that would be payable on December 15, 2006, if the
notes were redeemed on such date) and (2) the sum of the present values of the
remaining scheduled payments of principal and interest (at the rate in effect on
the date of calculation of the redemption price) on the notes (exclusive of
interest accrued to the date of redemption) discounted to the date of redemption
on a semiannual basis (assuming a 360-day year consisting of twelve 30-day
months) at the applicable Treasury Rate plus 50 basis points.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Available Cash" from an Asset Sale means cash proceeds received
therefrom (including (i) any cash proceeds received by way of deferred payment
of principal pursuant to a note or installment receivable or otherwise, but only
as and when received and (ii) the Fair Market Value of Liquid Securities and
Permitted Short-Term Investments, and excluding (a) any other consideration
received in the form of assumption by the acquiring Person of Indebtedness or
other obligations relating to the Property that is the subject of such Asset
Sale and (b) except to the extent subsequently converted to cash, Liquid
Securities or Permitted Short-Term Investments within 240 days after such Asset
Sale, consideration constituting Exchanged Properties or consideration other
than as identified in the immediately preceding clauses (i) and (ii)), in each
case net of (a) all legal, title and recording expenses, commissions and other
fees and expenses incurred, and all federal, state, foreign and local taxes
required to be paid or accrued as a liability under GAAP as a consequence of
such Asset Sale, (b) all payments made on any Indebtedness (but specifically
excluding Indebtedness of the Company and its Restricted Subsidiaries assumed in
connection with or in anticipation of such Asset Sale) which is secured by any
assets subject to such Asset Sale, in accordance with the terms of any Lien upon
such assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Sale or by applicable law, be repaid out of the proceeds
from such Asset Sale, provided that such payments are made in a manner that
results in the permanent reduction in the balance of such Indebtedness and, if
applicable, a permanent reduction in any outstanding commitment for future
incurrences of Indebtedness thereunder, (c) all distributions and other payments
required to be made to minority interest holders in Subsidiaries or joint
ventures as a result of such Asset Sale and (d) the deduction of appropriate
amounts to be provided by the seller as a reserve, in accordance with GAAP,
against any liabilities associated with the assets disposed of in such Asset
Sale and retained by the Company or any Restricted Subsidiary after such Asset
Sale; provided, however, that if any consideration for an Asset Sale (which
would otherwise constitute Net Available Cash) is required to be held in escrow
pending determination of whether a purchase price adjustment will be made, such
consideration (or any portion thereof) shall become Net Available Cash only at
such time as it is released to such Person or its Restricted Subsidiaries from
escrow.
"Net Working Capital" means (i) all current assets of the Company and its
Restricted Subsidiaries, less (ii) all current liabilities of the Company and
its Restricted Subsidiaries, except current liabilities included in
Indebtedness, in each case as set forth in consolidated financial statements of
the Company prepared in accordance with GAAP.
"Non-recourse Purchase Money Indebtedness" means Indebtedness (other than
Capital Lease Obligations) of the Company or any Restricted Subsidiary incurred
in connection with the acquisition by the Company or such Restricted Subsidiary
in the ordinary course of business of fixed assets used in the Oil and Gas
Business (including office buildings and other real property used by the Company
or such Restricted Subsidiary in conducting its operations) with respect to
which (i) the holders of such Indebtedness agree that they will look solely to
the fixed assets so acquired which secure such
51
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 (ii) 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 Restricted
Subsidiary 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 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 exploiting, exploring for,
developing, acquiring, operating, producing, processing, gathering, marketing,
storing, selling, hedging, treating, swapping, refining and transporting
hydrocarbons and other related energy businesses.
"Oil and Gas Hedging Contract" means, with respect to any Person, any
agreement or arrangement, or any combination thereof, relating to oil and gas or
other hydrocarbon prices, transportation or basis costs or differentials or
other similar financial factors, that is entered into by such Person in the
ordinary course of its business for the purpose of limiting or managing risks
associated with fluctuations in such prices, costs, differentials or similar
factors.
"Oil and Gas Liens" means (i) 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); (ii) 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; (iii) Liens arising under partnership agreements,
oil and gas leases, overriding royalty agreements, net profits agreements,
production payment agreements, royalty trust agreements, incentive compensation
programs for geologists, geophysicists and other providers of technical services
to the Company or a Restricted Subsidiary, master limited partnership
agreements, farmout agreements, farmin 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, in all instances that such Liens
are limited to the assets that are the subject of the relevant agreement,
program, order or contract; (iv) Liens arising in connection with Production
Payments and Reserve Sales; and (v) Liens on pipelines or pipeline facilities
that arise by operation of law.
"Pari Passu Indebtedness" means any Indebtedness of the Company (or a
Subsidiary Guarantor) that is pari passu in right of payment to the notes (or a
Subsidiary Guaranty, as appropriate).
"Pari Passu Offer" means an offer by the Company or a Subsidiary Guarantor
to purchase all or a portion of Pari Passu Indebtedness to the extent required
by the indenture or other agreement or instrument pursuant to which such Pari
Passu Indebtedness was issued.
"Permitted Business Investments" means Investments and expenditures made in
the ordinary course of, and of a nature that is or shall have become customary
in, the Oil and Gas Business as a means of actively engaging therein 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,
52
including (i) ownership interests in oil and gas properties or gathering,
transportation, processing, storage or related systems and (ii) Investments and
expenditures in the form of or pursuant to operating agreements, processing
agreements, farmin agreements, farmout agreements, development agreements, area
of mutual interest agreements, unitization agreements, pooling arrangements,
joint bidding agreements, service contracts, joint venture agreements,
partnership agreements (whether general or limited) and other similar agreements
(including for limited liability companies) with third parties, excluding,
however, Investments in corporations other than Restricted Subsidiaries.
"Permitted Hedging Agreements" means (i) Exchange Rate Contracts and Oil
and Gas Hedging Contracts and (ii) Interest Rate Protection Agreements but only
to the extent that the stated aggregate notional amount thereunder does not
exceed 100% of the aggregate principal amount of the Indebtedness of the Company
or a Restricted Subsidiary covered by such Interest Rate Protection Agreements
at the time such agreements were entered into.
"Permitted Investments" means any and all of the following: (i) Permitted
Short-Term Investments; (ii) Investments in property, plant and equipment used
in the ordinary course of business and Permitted Business Investments; (iii)
Investments by any Restricted Subsidiary in the Company; (iv) Investments by the
Company or any Restricted Subsidiary in any Restricted Subsidiary; (v)
Investments by the Company or any Restricted Subsidiary in (a) any Person that
will, upon the making of such Investment, become a Restricted Subsidiary or (b)
any Person if as a result of such Investment such Person is merged or
consolidated with or into, or transfers or conveys all or substantially all its
Property to, the Company or a Restricted Subsidiary; (vi) Investments in the
form of securities received from Asset Sales, provided that such Asset Sales are
made in compliance with the provisions of the Indenture described under
"-- Certain Covenants -- Limitation on Asset Sales;" (vii) Investments in
negotiable instruments held for collection; lease, utility and other similar
deposits; and stock, obligations or other securities received in settlement of
debts (including under any bankruptcy or other similar proceeding) owing to the
Company or any of its Restricted Subsidiaries as a result of foreclosure,
perfection or enforcement of any Liens or Indebtedness, in each of the foregoing
cases in the ordinary course of business of the Company or such Restricted
Subsidiary; (viii) relocation allowances for, and advances and loans to,
officers, directors and employees of the Company or any of its Restricted
Subsidiaries; provided such items do not exceed in the aggregate $3.0 million at
any one time outstanding; (ix) Investments intended to promote the Company's
strategic objectives in the Oil and Gas Business in an amount not to exceed 10%
of Adjusted Consolidated Net Tangible Assets (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 the return of capital
thereof); (x) Investments made pursuant to Permitted Hedging Agreements of the
Company and its Restricted Subsidiaries; and (xi) Investments pursuant to any
agreement or obligation of the Company or any of its Restricted Subsidiaries as
in effect on the Issue Date (other than Investments described in clauses (i)
through (x) above).
"Permitted Liens" means any and all of the following: (i) Liens existing as
of the Issue Date; (ii) Liens securing the notes, any Subsidiary Guarantees and
other obligations arising under the Indenture; (iii) any Lien existing on any
Property of a Person at the time such Person is merged or consolidated with or
into the Company or a Restricted Subsidiary or becomes a Restricted Subsidiary
(and not incurred in anticipation of or in connection with such transaction),
provided that such Liens are not extended to other Property of the Company or
the Restricted Subsidiaries; (iv) 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; (v) 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 (a) easements, rights of way and similar encumbrances, (b) rights or
title of lessors under leases (other than Capital Lease Obligations), (c) 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, (d) Liens
imposed by law, including Liens under workers' compensation or similar
legislation and mechanics', carriers', warehousemen's, materialmen's, suppliers'
53
and vendors' Liens, (e) 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 (f) 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)); (vi) 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; (vii) 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 $25.0 million; (viii) Liens securing Permitted Hedging Agreements of
the Company and its Restricted Subsidiaries so long as such Permitted Hedging
Agreements are permitted under the provisions of the Indenture described under
"-- Limitation on Indebtedness;" (ix) 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 that is the subject of such Capital Lease Obligations; (x) 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 office
buildings and other real property used by the Company or such Restricted
Subsidiary in conducting its operations), provided that (a) such Liens attach
only to the fixed assets acquired with the proceeds of such Non-recourse
Purchase Money Indebtedness and (b) such Non-recourse Purchase Money
Indebtedness is not in excess of the purchase price of such fixed assets; (xi)
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 of its Subsidiaries so long as such deposit of funds is permitted by the
provisions of the Indenture described under "-- Limitation on Restricted
Payments;" (xii) 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; (xiii) 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 (i), (ii), (iii), (iv),
(ix) and (x) above; provided, however, that (a) 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 (b) the Indebtedness
secured by such Lien at such time is not increased to any amount greater than
the sum of (1) 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 (2) an amount
necessary to pay any fees and expenses, including premiums, related to such
refinancing, refunding, extension, renewal or replacement; (xiv) Liens in favor
of the Company or a Restricted Subsidiary; and (xv) Liens not otherwise
permitted by clauses (i) through (xiv) above incurred in the ordinary course of
business of the Company and its Restricted Subsidiaries and encumbering Property
having an aggregate Fair Market Value not in excess of $10.0 million at any one
time. Notwithstanding anything in this paragraph to the contrary, the term
"Permitted Liens" does not include Liens resulting from the creation,
incurrence, issuance, assumption or Guarantee of any Production Payments and
Reserve Sales other than (a) any such Liens existing as of the Issue Date, (b)
Production Payments and Reserve Sales 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,
(c) Production Payments and Reserve Sales, other than those described in clauses
(a) and (b) of this sentence, to the extent such Production Payments and Reserve
Sales constitute Asset Sales made pursuant to and in compliance with the
provisions of the Indenture described under "-- Limitation on Asset Sales" and
(d) incentive compensation programs for geologists, geophysicists and other
providers of technical services to the Company or a Restricted
54
Subsidiary; provided, however, that, in the case of the immediately foregoing
clauses (a), (b), (c) and (d), any Lien created in connection with any such
Production Payments and Reserve Sales shall be limited to the Property that is
the subject of such Product Payments and Reserve Sales.
"Permitted Refinancing Indebtedness" means Indebtedness ("new
Indebtedness") Incurred in exchange for, or proceeds of which are used to
refinance, other Indebtedness ("old Indebtedness"); provided, however, that (i)
such new Indebtedness is in an aggregate principal amount not in excess of the
sum of (a) the aggregate principal amount then outstanding of the old
Indebtedness (or, if such old Indebtedness provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration thereof, such lesser amount as of the date of determination), and
(b) an amount necessary to pay any fees and expenses, including premiums,
related to such exchange or refinancing, (ii) such new Indebtedness has a Stated
Maturity no earlier than the Stated Maturity of the old Indebtedness, (iii) such
new Indebtedness has an Average Life at the time such new Indebtedness is
Incurred that is equal to or greater than the Average Life of the old
Indebtedness at such time, (iv) such new Indebtedness is subordinated in right
of payment to the Notes (or, if applicable, the Subsidiary Guarantees) to at
least the same extent, if any, as the old Indebtedness and (v) if such old
Indebtedness is Non-recourse Purchase Money Indebtedness or Indebtedness that
refinanced Non-recourse Purchase Money Indebtedness, such new Indebtedness
satisfies clauses (i) and (ii) of the definition of "Non-recourse Purchase Money
Indebtedness."
"Permitted Short-Term Investments" means (i) Investments in U.S. Government
Obligations maturing within one year of the date of acquisition thereof, (ii)
Investments in demand accounts, time deposit accounts, certificates of deposit,
bankers' acceptances 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 or any State thereof or the
District of Columbia that is a member of the Federal Reserve System having
capital, surplus and undivided profits aggregating in excess of $500.0 million
and whose long-term Indebtedness is rated "A" (or higher) according to Moody's,
(iii) Investments in deposits available for withdrawal on demand with any
commercial bank that is organized under the laws of any country in which the
Company or any Restricted Subsidiary maintains an office or is engaged in the
Oil and Gas Business, provided that (a) all such deposits have been made in such
accounts in the ordinary course of business and (b) such deposits do not at any
one time exceed $20.0 million in the aggregate, (iv) repurchase and reverse
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clause (i) entered into with a bank meeting
the qualifications described in clause (ii), (v) Investments in commercial paper
or notes, maturing not more than one year after the date of acquisition, issued
by a corporation (other than an Affiliate of the Company) organized and in
existence under the laws of the United States of America or any State thereof or
the District of Columbia with a short-term rating at the time as of which any
Investment therein is made of "P-1" (or higher) according to Moody's or "A-1"
(or higher) according to S&P or a long-term rating at the time as of which any
Investment is made of "A3" (or higher) according to Moody's or "A-" (or higher)
according to S&P, (vi) Investments in any money market mutual fund having assets
in excess of $250.0 million all of which consist of other obligations of the
types described in clauses (i), (ii), (iv) and (v) hereof and (vii) 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) according to Moody's or "A-" (or higher) according
to S&P.
"Person" means any individual, corporation, partnership, joint venture,
limited liability company, unlimited liability company, trust, estate,
unincorporated organization or government or any agency or political subdivision
thereof.
"Preferred Stock" of any Person means Capital Stock of such Person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends or as to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person, to shares of Capital
Stock of any other class of such Person; provided, however, that "Preferred
Stock" shall not include Redeemable Stock.
55
"Principal" of any Indebtedness (including the notes) means the principal
amount of such Indebtedness plus the premium, if any, on such Indebtedness.
"Production Payments and Reserve Sales" means the grant or transfer by the
Company or a Restricted Subsidiary to any Person of a royalty, overriding
royalty, net profits interest, production payment (whether volumetric or dollar
denominated), partnership or other interest in oil and gas properties, reserves
or the right to receive all or a portion of the production or the proceeds from
the sale of production attributable to such properties where the holder of such
interest has recourse solely to such production or proceeds of production,
subject to the obligation of the grantor or transferor to operate and maintain,
or cause the subject interests to be operated and maintained, in a reasonably
prudent manner or other customary standard or subject to the obligation of the
grantor or transferor to indemnify for environmental, title or other matters
customary in the Oil and Gas Business, including any such grants or transfers
pursuant to 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.
"Property" means, with respect to any Person, any interest of such Person
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible, including Capital Stock and other securities issued by any other
Person (but excluding Capital Stock or other securities issued by such first
mentioned Person).
"Rating Agencies" means (i) S&P and Moody's or (ii) if S&P or Moody's or
both of them are not making ratings of the notes publicly available, a
nationally recognized U.S. rating agency or agencies, as the case may be,
selected by the Company, which will be substituted for S&P or Moody's or both,
as the case may be.
"Redeemable Stock" of any Person means any equity security of such Person
that by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable), or otherwise (including on the happening of an
event), is or could become required to be redeemed for cash or other Property or
is or could become redeemable for cash or other Property at the option of the
holder thereof, in whole or in part, on or prior to the first anniversary of the
Stated Maturity of the notes; or is or could become exchangeable at the option
of the holder thereof for Indebtedness at any time in whole or in part, on or
prior to the first anniversary of the Stated Maturity of the notes; provided,
however, that Redeemable Stock shall not include any security by virtue of the
fact that it may be exchanged or converted at the option of the holder for
Capital Stock of the Company having no preference as to dividends or liquidation
over any other Capital Stock of the Company.
"Representative" means the trustee, agent or representative expressly
authorized to act in such capacity, if any, for an issue of Senior Indebtedness.
"Restricted Payment" means (i) a dividend or other distribution declared or
paid on the Capital Stock or Redeemable Stock of the Company or to the Company's
shareholders (other than dividends, distributions or payments made solely in
Capital Stock of the Company or in options, warrants or other rights to purchase
or acquire Capital Stock), or declared and paid to any Person other than the
Company or any of its Restricted Subsidiaries (and, if such Restricted
Subsidiary is not a Wholly Owned Subsidiary, to the other shareholders of such
Restricted Subsidiary on a pro rata basis) on the Capital Stock or Redeemable
Stock of any Restricted Subsidiary, (ii) a payment made by the Company or any of
its Restricted Subsidiaries (other than to the Company or any Restricted
Subsidiary) to purchase, redeem, acquire or retire any Capital Stock or
Redeemable Stock, or any options, warrants or other rights to acquire Capital
Stock or Redeemable Stock, of the Company or of a Restricted Subsidiary, (iii) a
payment made by the Company or any of its Restricted Subsidiaries to redeem,
repurchase, legally defease or otherwise acquire or retire for value (including
pursuant to mandatory repurchase covenants), prior to any scheduled maturity,
scheduled sinking fund or scheduled mandatory redemption, any Indebtedness of
the Company or a Restricted Subsidiary which is subordinate (whether pursuant to
its terms or by operation of law) in right of payment to the notes or the
relevant Subsidiary Guaranty, as the case may be, provided that this clause
(iii) shall not include any such payment with respect to (a) any such
56
subordinated Indebtedness to the extent of Excess Proceeds remaining after
compliance with the provisions of the Indenture described under "-- Certain
Covenants -- Limitation on Asset Sales" and to the extent required by the
indenture or other agreement or instrument pursuant to which such subordinated
Indebtedness was issued or (b) the purchase, repurchase or other acquisition of
any such subordinated Indebtedness purchased in anticipation of satisfying a
scheduled maturity, scheduled sinking fund or scheduled mandatory redemption, in
each case due within one year of the date of acquisition, or (iv) an Investment
(other than a Permitted Investment) by the Company or a Restricted Subsidiary in
any Person.
"Restricted Subsidiary" means any Subsidiary of the Company that has not
been designated an Unrestricted Subsidiary pursuant to the provision of the
Indenture described under "-- Certain Covenants -- Restricted and Unrestricted
Subsidiaries."
"S&P" means Standard & Poor's Ratings Service, a division of The
McGraw-Hill Companies, Inc., and its successors.
"Sale and Leaseback Transaction" means, with respect to any Person, any
direct or indirect arrangement (excluding, however, any such arrangement between
such Person and a Wholly Owned Subsidiary of such Person or between one or more
Wholly Owned Subsidiaries of such Person) pursuant to which Property is sold or
transferred by such Person or a Restricted Subsidiary of such Person and is
thereafter leased back from the purchaser or transferee thereof by such Person
or one of its Restricted Subsidiaries.
"Senior Indebtedness" when used with respect to the Company means the
obligations of the Company with respect to Indebtedness of the Company, whether
outstanding on the date of the Indenture or thereafter created (including
Indebtedness under the Bank Credit Facilities), Incurred or assumed, and any
renewal, refunding, refinancing, replacement or extension thereof, unless, in
the case of any particular Indebtedness, the instrument creating or evidencing
the same or pursuant to which the same is outstanding expressly provides that
such Indebtedness shall not be senior in right of payment to the notes;
provided, however, that Senior Indebtedness of the Company shall not include (i)
Indebtedness of the Company to a Subsidiary of the Company, (ii) amounts owed
for goods, materials or services purchased in the ordinary course of business,
(iii) Indebtedness Incurred in violation of the Indenture, (iv) amounts payable
or any other Indebtedness to employees of the Company or any Subsidiary of the
Company, (v) any liability for federal, state, local or other taxes owed or
owing by the Company, (vi) any Indebtedness of the Company that, when Incurred
and without regard to any election under Section 1111(b) of the United States
Bankruptcy Code, was without recourse to the Company, (vii) Pari Passu or
Subordinated Indebtedness of the Company, (viii) Indebtedness of the Company
that is represented by Redeemable Stock, (ix) Indebtedness evidenced by the
notes and (x) in-kind obligations relating to net oil and gas balancing
positions. "Senior Indebtedness" of any Subsidiary Guarantor has a correlative
meaning; provided, however, that clause (i) above shall be deemed to refer to
Indebtedness of any Subsidiary Guarantor to the Company or any Subsidiary of the
Company.
"Significant Subsidiary" means, at any date of determination, 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
Commission.
"Stated Maturity," when used with respect to any security or any
installment of principal thereof or interest thereon, means the date specified
in such security as the fixed date on which the principal of such security or
such installment of principal or interest is due and payable, including pursuant
to any mandatory redemption provision (but excluding any provision providing for
the repurchase of such security at the option of the holder thereof upon the
happening of any contingency unless such contingency has occurred).
"Subordinated Indebtedness" means Indebtedness of the Company (or a
Subsidiary Guarantor) that is subordinated or junior in right of payment to the
notes (or a Subsidiary Guaranty, as appropriate) pursuant to a written agreement
to that effect.
57
"Subsidiary" of a Person means (i) another Person which is a corporation a
majority of whose Voting Stock is at the time, directly or indirectly, owned or
controlled by (a) the first Person, (b) the first Person and one or more of its
Subsidiaries or (c) one or more of the first Person's Subsidiaries or (ii)
another Person which is not a corporation (x) at least 50% of the ownership
interest of which and (y) the power to elect or direct the election of a
majority of the directors or other governing body of which are controlled by
Persons referred to in clause (a), (b) or (c) above.
"Subsidiary Guarantors" means, unless released from their Subsidiary
Guarantees as permitted by the Indenture, any Restricted Subsidiary that becomes
a guarantor of the notes in compliance with the provisions of the Indenture and
executes a supplemental indenture agreeing to be bound by the terms of the
Indenture.
"Subsidiary Guaranty" means an unconditional, unsecured senior subordinated
guaranty of the notes given by any Restricted Subsidiary pursuant to the terms
of the Indenture.
"Trade Accounts Payable" means accounts payable or other obligations of the
Company or any Restricted Subsidiary to trade creditors created or assumed by
the Company or such Restricted Subsidiary in the ordinary course of business in
connection with the obtaining of goods or services.
"Treasury Rate" means the yield to maturity at the time of the computation
of United States Treasury securities with a constant maturity (as compiled by
and published in the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two Business Days prior to the date
fixed for redemption (or, if such Statistical Release is no longer published,
any publicly available source of similar market data)) most nearly equal to the
period from the redemption date to December 15, 2006.
However, if the period from the redemption date to December 15, 2006 is not
equal to the constant maturity of a United States Treasury security for which a
weekly average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given, except that if the period from the redemption date to December 15, 2006
is less than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
"Unrestricted Subsidiary" means (i) each Subsidiary of the Company that the
Company has designated pursuant to the provision of the Indenture described
under "-- Certain Covenants -- Restricted and Unrestricted Subsidiaries" as an
Unrestricted Subsidiary and (ii) any Subsidiary of an Unrestricted Subsidiary.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the timely payment of which its
full faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America, the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America which, in either
case, are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act), as custodian, with respect to any such U.S.
Government Obligation or a specific payment of principal of or interest on any
such U.S. Government Obligation held by such custodian for the account of the
holder of such depository receipt; provided, however, that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the U.S. Government Obligation or the specific payment
of principal of or interest on the U.S. Government Obligation evidenced by such
depository receipt.
"Volumetric Production Payments" means production payment obligations
recorded as deferred revenue in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
58
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"Wholly Owned Subsidiary" means, at any time, a Restricted Subsidiary of
the Company all the Voting Stock of which (other than directors' qualifying
shares) is at such time owned, directly or indirectly, by the Company and its
other Wholly Owned Subsidiaries.
DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that the Company will be discharged from its
obligations with respect to the notes (except for certain obligations to
exchange or register the transfer of notes, to replace stolen, lost or mutilated
notes, to maintain paying agencies and to hold moneys for payment in trust) upon
the deposit in trust for the benefit of the Holders of the notes of money or
U.S. Government Obligations, or a combination thereof, which, through the
payment of principal, premium, if any, and interest in respect thereof in
accordance with their terms, will provide money in an amount sufficient to pay
the principal of and any premium and interest on the notes at the Stated
Maturity thereof or on earlier redemption in accordance with the terms of the
Indenture and the notes. Such defeasance or discharge may occur only if, among
other things, the Company has delivered to the Trustee an Opinion of Counsel to
the effect that (i) the Company has received from, or there has been published
by, the United States Internal Revenue Service a ruling or (ii) since the date
of the Indenture there has been a change in the applicable federal income tax
law, in either case to the effect that Holders of the notes will not recognize
gain or loss for federal income tax purposes as a result of such deposit,
defeasance and discharge and will be subject to federal income tax on the same
amount, in the same manner and at the same times as would have been the case if
such deposit, defeasance and discharge were not to occur; and that the resulting
trust will not be an "Investment Company" within the meaning of the Investment
Company Act of 1940 unless such trust is qualified thereunder or exempt from
regulation thereunder.
The Indenture provides that if the Company takes the actions described
below, it may omit to comply with certain covenants, including those described
under "-- Repurchase at the Option of Holders Upon a Change of Control,"
"-- Certain Covenants" and in clause (iv) under the first paragraph of
"-- Merger, Consolidation and Sale of Substantially All Assets," and the
occurrence of the Events of Default described below in clauses (iii) and (iv)
(with respect to such covenants) and clauses (v), (vi), (vii) (with respect to
Significant Subsidiaries) and (viii) under "-- Events of Default and Notice"
will be deemed not to be or result in an Event of Default. The Company, in order
to exercise such option, will be required to deposit, in trust for the benefit
of the Holders of the notes, money or U.S. Government Obligations, or a
combination thereof, which, through the payment of principal, premium, if any,
and interest in respect thereof in accordance with their terms, will provide
money in an amount sufficient to pay the principal of and any premium and
interest on the notes at the Stated Maturity thereof or on earlier redemption in
accordance with the terms of the Indenture and the notes. The Company will also
be required, among other things, to deliver to the Trustee an Opinion of Counsel
to the effect that Holders of the notes will not recognize gain or loss for
federal income tax purposes as a result of such deposit and defeasance of
certain obligations and will be subject to federal income tax on the same
amount, in the same manner and at the same times as would have been the case if
such deposit and defeasance were not to occur; and that the resulting trust will
not be an "Investment Company" within the meaning of the Investment Company Act
of 1940 unless such trust is qualified thereunder or exempt from regulation
thereunder. If the Company were to exercise this option and the notes were
declared due and payable because of the occurrence of any Event of Default, the
amount of money and U.S. Government Obligations so deposited in trust would be
sufficient to pay amounts due on the notes at the time of their Stated Maturity
but may not be sufficient to pay amounts due on the notes upon any acceleration
resulting from such Event of Default. In such case, the Company would remain
liable for such payments.
If the Company exercises either of the options described above, any
Subsidiary Guarantors will be released from all of their respective obligations
under their Subsidiary Guaranties.
59
EVENTS OF DEFAULT AND NOTICE
The following are summaries of Events of Default under the Indenture with
respect to the notes: (i) failure to pay any interest on the notes when due,
continued for 30 days; (ii) failure to pay principal of (or premium, if any, on)
the notes when due; (iii) failure to comply with the provisions of the Indenture
described under "Merger, Consolidation and Sale of Substantially All Assets;"
(iv) failure to perform any other covenant of the Company or any Subsidiary
Guarantor in the Indenture, continued for 60 days after written notice to the
Company from the Trustee or the Holders of at least 25% in aggregate principal
amount of the notes; (v) a default by the Company or any Restricted Subsidiary
under any Indebtedness for borrowed money (other than Non-recourse Purchase
Money Indebtedness) which results in acceleration of the maturity of such
Indebtedness, or failure to pay any such Indebtedness at maturity, in an amount
greater than $10.0 million if such Indebtedness is not discharged or such
acceleration is not rescinded or annulled within 10 days after written notice as
provided in the Indenture; (vi) one or more final judgments or orders by a court
of competent jurisdiction are entered against the Company or any Restricted
Subsidiary in an uninsured or unindemnified aggregate amount outstanding at any
time in excess of $10.0 million and such judgments or orders are not discharged,
waived, stayed, satisfied or bonded for a period of 60 consecutive days; (vii)
certain events of bankruptcy, insolvency or reorganization with respect to the
Company or any Significant Subsidiary; or (viii) a Subsidiary Guaranty ceases to
be in full force and effect (other than in accordance with the terms of the
Indenture and such Subsidiary Guaranty) or a Subsidiary Guarantor denies or
disaffirms its obligations under its Subsidiary Guaranty.
The Indenture provides that if an Event of Default (other than an Event of
Default described in clause (vii) above) with respect to the notes at the time
outstanding shall occur and be continuing, either the Trustee or the Holders of
at least 25% in aggregate principal amount of the notes by notice as provided in
the Indenture may declare the principal amount of the notes to be due and
payable immediately. If an Event of Default described in clause (vii) above with
respect to the notes at the time outstanding shall occur, the principal amount
of all the notes will automatically, and without any action by the Trustee or
any Holder, become immediately due and payable. After any such acceleration, but
before a judgment or decree based on acceleration, the Holders of at least a
majority in aggregate principal amount of the notes may, under certain
circumstances, rescind and annul such acceleration if all Events of Default,
other than the nonpayment of accelerated principal (or other specified amount),
have been cured or waived as provided in the Indenture.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the Holders of the notes, unless
such Holders shall have offered to the Trustee reasonable indemnity. Subject to
such provisions for the indemnification of the Trustee, the Holders of at least
a majority in aggregate principal amount of the notes will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee with respect to the notes.
No Holder of notes will have any right to institute any proceeding with
respect to the Indenture, or for the appointment of a receiver or a trustee, or
for any other remedy thereunder, unless (i) such Holder has previously given to
the Trustee written notice of a continuing Event of Default with respect to the
notes, (ii) the Holders of at least 25% in aggregate principal amount of the
notes have made written request, and such Holder or Holders have offered
reasonable indemnity, to the Trustee to institute such proceeding as trustee and
(iii) the Trustee has failed to institute such proceeding and has not received
from the Holders of at least a majority in aggregate principal amount of the
notes a direction inconsistent with such request, within 60 days after such
notice, request and offer. However, such limitations do not apply to a suit
instituted by a Holder of notes for the enforcement of payment of the principal
of or any premium or interest on such notes on or after the applicable due date
specified in such notes.
60
MODIFICATION OF THE INDENTURE; WAIVER
The Indenture provides that modifications and amendments of the Indenture
may be made by the Company, any Subsidiary Guarantors and the Trustee without
the consent of any Holders of notes in certain limited circumstances, including
(i) to cure any ambiguity, omission, defect or inconsistency, (ii) to provide
for the assumption of the obligations of the Company under the Indenture upon
the merger, consolidation or sale or other disposition of all or substantially
all the assets of the Company and the Restricted Subsidiaries taken as a whole
and certain other events specified in the provisions of the Indenture described
under "Merger, Consolidation and Sale of Substantially All Assets," (iii) to
provide for uncertificated notes in addition to or in place of certificated
notes, (iv) to comply with any requirement of the Commission in order to effect
or maintain the qualification of the Indenture under the 1939 Act, (v) to make
any change that does not adversely affect the rights of any Holder of notes in
any material respect, (vi) to add or remove Subsidiary Guarantors pursuant to
the procedure set forth in the Indenture and (vii) certain other modifications
and amendments as set forth in the Indenture.
The Indenture contains provisions permitting the Company, any Subsidiary
Guarantors and the Trustee, with the written consent of the Holders of not less
than a majority in aggregate principal amount of the notes, to execute
supplemental indentures or amendments adding any provisions to or changing or
eliminating any of the provisions of the Indenture or modifying the rights of
the Holders of the notes, except that no such supplemental indenture, amendment
or waiver may, without the consent of all the Holders of notes, among other
things, (i) reduce the principal amount of notes whose Holders must consent to
an amendment or waiver, (ii) reduce the rate of or change the time for payment
of interest on any notes, (iii) change the currency in which any amount due in
respect of the notes is payable, (iv) reduce the principal of or any premium on
or change the Stated Maturity of any notes or alter the redemption or repurchase
provisions with respect thereto, (v) reduce the relative ranking of any notes,
(vi) release any security that may have been granted to the Trustee in respect
of the notes, (vii) at any time after a Change of Control has occurred, change
the time at which the Change of Control Offer relating thereto must be made or
at which the notes must be repurchased pursuant to such Change of Control Offer
or (viii) make certain other significant amendments or modifications as
specified in the Indenture.
The Holders of at least a majority in principal amount of the notes may
waive compliance by the Company with certain restrictive provisions of the
Indenture. The Holders of at least a majority in principal amount of the notes
may waive any past default under the Indenture, except a default in the payment
of principal, premium or interest and certain covenants and provisions of the
Indenture which cannot be amended without the consent of the Holders of each
note.
NOTICES
Notices to Holders of the notes will be given by mail to the addresses of
such Holders as they may appear in the Security Register.
GOVERNING LAW
The Indenture and the notes are governed by and construed in accordance
with the internal laws of the State of New York without reference to principles
of conflicts of law that would otherwise require the application of the laws of
another jurisdiction.
61
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of certain federal income tax
considerations relevant to the exchange of outstanding notes for new notes, but
does not purport to be a complete analysis of all potential tax effects. The
discussion is based upon the Internal Revenue Code of 1986, as amended, Treasury
Regulations, Internal Revenue Service rulings and pronouncements and judicial
decisions now in effect, all of which may be subject to change at any time by
legislative, judicial or administrative action. These changes may be applied
retroactively in a manner that could adversely affect a holder of new notes. The
description does not consider the effect of any applicable foreign, state, local
or other tax laws or estate or gift tax considerations.
We believe that the exchange of outstanding notes for new notes should not
be an exchange or otherwise a taxable event to a holder for United States
federal income tax purposes. Accordingly, a holder should have the same adjusted
issue price, adjusted basis and holding period in the new notes as it had in the
outstanding notes immediately before the exchange.
62
PLAN OF DISTRIBUTION
Based on interpretations by the staff of the Securities and Exchange
Commission in no action letters issued to third parties, we believe that you may
transfer new notes issued in the exchange offer in exchange for the outstanding
notes if:
- you acquire the new notes in the ordinary course of your business; and
- you are not engaged in, and do not intend to engage in, and have no
arrangement or understanding with any person to participate in, a
distribution of such new notes.
You may not participate in the exchange offer if you are:
- our "affiliate" within the meaning of Rule 405 under the Securities Act
of 1933; or
- a broker-dealer that acquired outstanding notes directly from us.
Each broker-dealer that receives new notes for its own account in exchange
for outstanding notes that were acquired 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. To date, the staff of the
Securities and Exchange Commission has taken the position that broker-dealers
may fulfill their prospectus delivery requirements with respect to transactions
involving an exchange of securities such as this exchange offer, other than a
resale of an unsold allotment from the original sale of the outstanding notes,
with the prospectus contained in this registration statement. 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
outstanding notes where such outstanding notes were acquired as a result of
market-making activities or other trading activities. We have agreed that we
will make this prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale.
If you wish to exchange new notes for your outstanding notes in the
exchange offer, you will be required to make representations to us as described
in "Exchange Offer -- Purpose and Effect of the Exchange Offer" and
"-- Procedures for Tendering -- Your Representations to Us" in this prospectus
and in the letter of transmittal.
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; and
- at prices related to such prevailing market prices or negotiated prices.
Any such resale may be made directly to purchasers or to or through brokers
or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer 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 of 1933. 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 of 1933.
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 our performance of or compliance with the registration rights
agreement, and to indemnify certain holders of the outstanding notes, including
any broker-dealers, against some liabilities, including liabilities under the
Securities Act of 1933.
63
LEGAL MATTERS
Certain legal matters relating to this offering will be passed upon for us
by Vinson & Elkins L.L.P., New York, New York.
EXPERTS
The audited consolidated balance sheets as of December 31, 2000 and 1999,
and the consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 2000,
incorporated by reference in this registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
With respect to the unaudited interim financial information for the
quarters ended March 31, 2001, June 30, 2001 and September 30, 2001, 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, the accountants are 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
Securities Act of 1933.
INDEPENDENT OIL AND GAS CONSULTANTS
Atwater Consultants, Ltd., Cawley, Gillespie & Associates, Inc. and Ryder
Scott Company, independent oil and gas consultants, prepared the reserve
information, which is incorporated by reference in this prospectus. This reserve
information is incorporated by reference herein in reliance upon the authority
of said firms as experts with respect to such information.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. Our Securities and
Exchange Commission filings are available to the public over the Internet at the
Securities and Exchange Commission's web site at http://www.sec.gov. You may
also read and copy any document we file at the Securities and Exchange
Commission's public reference room at Judiciary Plaza, 450 Fifth Street,
Washington, D.C. 20549. Please call the Securities and Exchange Commission at
1-800-SEC-0330 for further information on the public reference room and its copy
charges.
We are incorporating by reference the information we file with the
Securities and Exchange Commission, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is an important part of this prospectus, and
information that we file later with the Securities and Exchange Commission will
automatically update and supersede this information. We incorporate by reference
the documents listed below and any future filings made with the Securities and
Exchange Commission under Sections 13(a), 13(c), 14, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the date of this prospectus and prior to the
termination of the notes offering.
- Annual Report on Form 10-K for the year ended December 31, 2000;
- Quarterly Report on Form 10-Q for the quarter ended September 30, 2001;
- Quarterly Report on Form 10-Q for the quarter ended June 30, 2001;
64
- Quarterly Report on Form 10-Q for the quarter ended March 31, 2001;
- Proxy Statement dated March 29, 2001 for our 2001 Annual Meeting of
Stockholders;
- Current Report on Form 8-K dated December 31, 2001;
- Current Report on Form 8-K dated September 19, 2001;
- Current Report on Form 8-K dated May 2, 2001;
- Current Report on Form 8-K dated April 23, 2001;
- Current Report on Form 8-K dated February 21, 2001;
- Current Report on Form 8-K dated February 1, 2001 and filed on February
7, 2001; and
- Current Report on Form 8-K dated and filed on February 1, 2001.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for all purposes to the extent that
a statement contained in this prospectus, or in any other subsequently filed
document which is also incorporated or deemed to be incorporated by reference,
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this prospectus.
We have agreed that, for so long as any notes remain outstanding, if we are
not subject to the informational requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, we will furnish to holders and beneficial
owners of our notes and to prospective purchasers designated by such holders the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act of 1933 to permit compliance with Rule 144A in connection with
resales of the notes.
You may request a copy of any of the documents summarized in this
prospectus or incorporated by reference in this prospectus, at no cost, by
writing or telephoning us at the following address and phone number:
Mr. Andrew L. Gates, III
Vice President, Secretary and General Counsel
Stone Energy Corporation
625 E. Kaliste Saloom Road
Lafayette, Louisiana 70508
(337) 237-0410
65
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Stone Energy Corporation has authority under Section 145 of the General
Corporation Law (the "DGCL") of the State of Delaware, in which Stone is
incorporated, to indemnify its officers, directors, employees and agents to the
extent provided in such statute. Article VI of Stone's Bylaws, referenced as
Exhibit 3.2 hereto, provides for indemnification of Stone's officers, directors,
employees and agents.
Section 145 of the DGCL authorizes, among other things, a corporation to
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 such person is or was
a director, officer, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided that such person acted
in good faith and in a manner such person 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 reasonable cause to believe such person's
conduct was unlawful. A Delaware corporation may indemnify past or present
officers and directors of such corporation, or of another corporation or other
enterprise at the former corporation's request, in an action by or in the right
of the corporation to procure a judgment in its favor under the same conditions,
except that no indemnification is permitted without judicial approval if such
person is adjudged to be liable to the corporation. Where a present or former
officer or director is successful on the merits or otherwise in defense of any
action referred to above, or in defense of any claim, issue or matter therein,
the corporation must indemnify such person against the expenses (including
attorney's fees) that such person actually and reasonably incurred in connection
therewith. Section 145 further provides that any indemnification shall be made
by the corporation only as authorized in each specific case upon a determination
by (i) a majority vote of the directors who were not parties to such action,
suit or proceeding, even though less than a quorum, (ii) a committee of such
directors designated by a majority vote of such directors, even though less than
a quorum, (iii) independent counsel if a quorum of disinterested directors so
directs or (iv) the corporation's stockholders. Section 145 provides that
indemnification pursuant to its provision is not exclusive of other rights of
indemnification to which a person may be entitled under any bylaw, agreement,
vote of stockholders or disinterested directors or otherwise.
Section 145 of the DGCL also empowers Stone to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of Stone, or is or was serving at the request of Stone as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against liability asserted against or incurred by
such person in any such capacity, whether or not Stone would have the power to
indemnify such person against such liability under the provisions of Section
145. Stone has purchased and maintains a directors' and officers' liability
policy for such purposes.
Section 102 of the DGCL permits the limitation of directors' personal
liability to Stone or its stockholders for monetary damage for breach of
fiduciary duties as a director except in certain situations including the breach
of a director's duty of loyalty or acts or omissions not made in good faith.
Article Ninth of Stone's Certificate of Incorporation limits directors' personal
liability to the extent permitted by the DGCL.
Article VI of Stone's Bylaws provides that Stone may purchase and maintain
insurance, at its expense, to protect itself and any of its directors, officers,
employees or agents, or any person serving at the request of Stone as a
director, officer, employee or agent of another corporation, partnership, joint
venture, proprietorship, employee benefit plan, trust or other enterprise,
against any expense, liability or loss,
II-1
whether or not Stone would have the power to indemnify such person against such
expense, liability or loss under the DGCL.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling Stone
pursuant to the foregoing provisions, Stone has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is
therefore unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following documents are filed as exhibits to this registration
statement, including those exhibits incorporated herein by reference to a prior
filing of Stone Energy Corporation under the Securities Act of 1933 or the
Securities Exchange Act of 1934 as indicated in parentheses:
<Table>
3.1 -- Certificate of Incorporation of the Registrant, as amended
(incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1
(Registration No. 33-62362)).
3.2 -- Restated Bylaws of the Registrant (incorporated by reference
to Exhibit 3.2 to the Registrant's Registration Statement on
Form S-1 (Registration No. 33-62362)).
3.3 -- Certificate of Amendment of the Certificate of Incorporation
of Stone Energy Corporation, dated February 1, 2001
(incorporated by reference to Exhibit 4.1 to the
Registrant's Form 8-K, dated February 1, 2001 (File No.
001-12074)).
4.1 -- Rights Agreement, with exhibits A, B and C thereto, dated as
of October 15, 1998, between Stone Energy Corporation and
ChaseMellon Shareholder Services, L.L.C., as Rights Agent
(incorporated by reference to Exhibit 4.1 to the
Registrant's Registration Statement on Form 8-A (File No.
001-12074)).
4.2 -- Indenture between Stone Energy Corporation and Texas
Commerce Bank, National Association dated as of September
19, 1997 (incorporated by reference to Exhibit 4.1 to the
Registrant's Registration Statement on Form S-4 dated
October 22, 1997 (File No. 333-38425)).
4.3 -- Amendment No. 1, dated as of October 28, 2000, to Rights
Agreement dated as of October 15, 1998, between Stone Energy
Corporation and ChaseMellon Shareholder Services, L.L.C., as
Rights Agent (incorporated by reference to Exhibit 4.4 to
the Registrant's Registration Statement on Form S-4
(Registration No. 333-51968)).
4.4* -- Indenture between Stone Energy Corporation and JPMorgan
Chase Bank, dated December 10, 2001.
4.5* -- Registration Rights Agreement, dated as of December 10,
2001, among Stone Energy Corporation and the other
signatories thereto.
5.1* -- Opinion of Vinson & Elkins L.L.P. as to the validity of the
securities being registered.
8.1* -- Opinion of Vinson & Elkins L.L.P. regarding certain tax
matters (included in Exhibit 5.1).
10.1 -- Deferred Compensation and Disability Agreements between TSPC
and D. Peter Canty dated July 16, 1981, and between TSPC and
Joe R. Klutts and James H. Prince dated August 23, 1981 and
September 20, 1981, respectively (incorporated by reference
to Exhibit 10.8 to the Registrant's Registration Statement
on Form S-1 (Registration No. 33-62362)).
10.2 -- Conveyances of Net Profits Interests in certain properties
to D. Peter Canty and James H. Prince (incorporated by
reference to Exhibit 10.9 to the Registrant's Registration
Statement on Form S-1 (Registration No. 33-62362)).
10.3* -- Fourth Amended and Restated Credit Agreement between the
Registrant, the financial institutions named therein and
Bank of America, N.A., as administrative agent, dated as of
December 20, 2001.
10.4 -- Deferred Compensation and Disability Agreement between TSPC
and E. J. Louviere dated July 16, 1981 (incorporated by
reference to Exhibit 10.10 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1995 (File No.
001-12074)).
</Table>
II-2
<Table>
10.5 -- Stone Energy Corporation 2001 Amended and Restated Stock
Option Plan (incorporated by reference to Exhibit 4.1 to the
Registrant's Registration Statement on Form S-8
(Registration No. 333-64448)).
10.6 -- Form of Stone Energy Corporation Nonstatutory Stock Option
Agreement (incorporated by reference to Exhibit 4.2 to the
Registrant's Registration Statement on Form S-8
(Registration No. 333-64448)).
10.7 -- Form of Stone Energy Corporation Nonemployee Director's
Stock Option Agreement (incorporated by reference to Exhibit
4.3 to the Registrant's Registration Statement on Form S-8
(Registration No. 333-64448)).
10.8 -- Stone Energy Corporation Annual Incentive Compensation Plan
(incorporated by reference to Exhibit 10.14 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993 (File No. 001-12074)).
10.9 -- Stone Energy Corporation Amendment to the Annual Incentive
Compensation Plan dated January 15, 1997 (incorporated by
reference to Exhibit 10.9 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 2000 (File No.
001-12074)).
12.1* -- Computation of Ratios of Earnings to Fixed Charges.
21.1* -- Subsidiaries of the Registrant.
23.1* -- Consent of Arthur Andersen LLP.
23.2* -- Consent of Vinson & Elkins L.L.P. (included in Exhibit 5.1).
23.3* -- Consent of Atwater Consultants, Ltd.
23.4* -- Consent of Cawley, Gillespie & Associates, Inc.
23.5* -- Consent of Ryder Scott Company.
24.1* -- Powers of Attorney (included on the signature page hereof).
25.1* -- Statement of Eligibility on Form T-1 of JPMorgan Chase Bank.
99.1* -- Form of Letter of Transmittal.
99.2* -- Form of Letter to Clients.
99.3* -- Form of Letter to Registered Holders and DTC Participants.
99.4* -- Form of Notice of Guaranteed Delivery.
</Table>
- ---------------
* Filed herewith
(b) Financial Data Schedule.
Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions, are inapplicable or not material, or the information
called for thereby is otherwise included in the financial statements or related
notes or elsewhere herein and therefore have been omitted.
ITEM 22. UNDERTAKINGS.
(a) The registrant hereby undertakes 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 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 in 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.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions set forth in Item 20 above, 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 of
II-3
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the 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 of whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form 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 includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lafayette, State of
Louisiana on the 25th day of January, 2002.
STONE ENERGY CORPORATION
By: /s/ D. PETER CANTY
------------------------------------
D. Peter Canty
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints D. Peter Canty and James H. Prince and each of
them, each one of whom may act without the joinder of the other, as his true and
lawful attorney-in-fact to sign on his behalf and in the capacity stated below
and to file any and all amendments and post-effective amendments to this
registration statement, with all exhibits thereto, with the Securities and
Exchange Commission, which amendment or amendments may make such changes and
additions to this registration statement as such attorney-in-fact may deem
necessary or appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JAMES H. STONE Chairman of the Board January 25, 2002
------------------------------------------------
James H. Stone
/s/ JOE R. KLUTTS Vice Chairman of the Board January 25, 2002
------------------------------------------------
Joe R. Klutts
/s/ D. PETER CANTY President, Chief Executive January 25, 2002
------------------------------------------------ Officer and Director
D. Peter Canty (principal executive officer)
/s/ JAMES H. PRINCE Vice President, Chief Financial January 25, 2002
------------------------------------------------ Officer and Treasurer
James H. Prince (principal financial officer)
/s/ J. KENT PIERRET Vice President -- Accounting, January 25, 2002
------------------------------------------------ Chief Accounting Officer and
J. Kent Pierret Controller
(principal accounting officer)
/s/ DAVID R. VOELKER Director January 25, 2002
------------------------------------------------
David R. Voelker
/s/ JOHN P. LABORDE Director January 25, 2002
------------------------------------------------
John P. Laborde
/s/ ROBERT A. BERNHARD Director January 25, 2002
------------------------------------------------
Robert A. Bernhard
</Table>
II-5
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ RAYMOND B. GARY Director January 25, 2002
------------------------------------------------
Raymond B. Gary
/s/ B.J. DUPLANTIS Director January 25, 2002
------------------------------------------------
B.J. Duplantis
/s/ PETER K. BARKER Director January 25, 2002
------------------------------------------------
Peter K. Barker
/s/ RICHARD A. PATTAROZZI Director January 25, 2002
------------------------------------------------
Richard A. Pattarozzi
</Table>
II-6
INDEX TO EXHIBITS
<Table>
3.1 -- Certificate of Incorporation of the Registrant, as amended
(incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1
(Registration No. 33-62362)).
3.2 -- Restated Bylaws of the Registrant (incorporated by reference
to Exhibit 3.2 to the Registrant's Registration Statement on
Form S-1 (Registration No. 33-62362)).
3.3 -- Certificate of Amendment of the Certificate of Incorporation
of Stone Energy Corporation, dated February 1, 2001
(incorporated by reference to Exhibit 4.1 to the
Registrant's Form 8-K, dated February 1, 2001 (File No.
001-12074)).
4.1 -- Rights Agreement, with exhibits A, B and C thereto, dated as
of October 15, 1998, between Stone Energy Corporation and
ChaseMellon Shareholder Services, L.L.C., as Rights Agent
(incorporated by reference to Exhibit 4.1 to the
Registrant's Registration Statement on Form 8-A (File No.
001-12074)).
4.2 -- Indenture between Stone Energy Corporation and Texas
Commerce Bank, National Association dated as of September
19, 1997 (incorporated by reference to Exhibit 4.1 to the
Registrant's Registration Statement on Form S-4 dated
October 22, 1997 (File No. 333-38425)).
4.3 -- Amendment No. 1, dated as of October 28, 2000, to Rights
Agreement dated as of October 15, 1998, between Stone Energy
Corporation and ChaseMellon Shareholder Services, L.L.C., as
Rights Agent (incorporated by reference to Exhibit 4.4 to
the Registrant's Registration Statement on Form S-4
(Registration No. 333-51968)).
4.4* -- Indenture between Stone Energy Corporation and JPMorgan
Chase Bank, dated December 10, 2001.
4.5* -- Registration Rights Agreement, dated as of December 10,
2001, among Stone Energy Corporation and the other
signatories thereto.
5.1* -- Opinion of Vinson & Elkins L.L.P. as to the validity of the
securities being registered.
8.1* -- Opinion of Vinson & Elkins L.L.P. regarding certain tax
matters (included in Exhibit 5.1).
10.1 -- Deferred Compensation and Disability Agreements between TSPC
and D. Peter Canty dated July 16, 1981, and between TSPC and
Joe R. Klutts and James H. Prince dated August 23, 1981 and
September 20, 1981, respectively (incorporated by reference
to Exhibit 10.8 to the Registrant's Registration Statement
on Form S-1 (Registration No. 33-62362)).
10.2 -- Conveyances of Net Profits Interests in certain properties
to D. Peter Canty and James H. Prince (incorporated by
reference to Exhibit 10.9 to the Registrant's Registration
Statement on Form S-1 (Registration No. 33-62362)).
10.3* -- Fourth Amended and Restated Credit Agreement between the
Registrant, the financial institutions named therein and
Bank of America, N.A., as administrative agent, dated as of
December 20, 2001.
10.4 -- Deferred Compensation and Disability Agreement between TSPC
and E. J. Louviere dated July 16, 1981 (incorporated by
reference to Exhibit 10.10 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1995 (File No.
001-12074)).
10.5 -- Stone Energy Corporation 2001 Amended and Restated Stock
Option Plan (incorporated by reference to Exhibit 4.1 to the
Registrant's Registration Statement on Form S-8
(Registration No. 333-64448)).
10.6 -- Form of Stone Energy Corporation Nonstatutory Stock Option
Agreement (incorporated by reference to Exhibit 4.2 to the
Registrant's Registration Statement on Form S-8
(Registration No. 333-64448)).
10.7 -- Form of Stone Energy Corporation Nonemployee Director's
Stock Option Agreement (incorporated by reference to Exhibit
4.3 to the Registrant's Registration Statement on Form S-8
(Registration No. 333-64448)).
10.8 -- Stone Energy Corporation Annual Incentive Compensation Plan
(incorporated by reference to Exhibit 10.14 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993 (File No. 001-12074)).
</Table>
<Table>
10.9 -- Stone Energy Corporation Amendment to the Annual Incentive
Compensation Plan dated January 15, 1997 (incorporated by
reference to Exhibit 10.9 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 2000 (File No.
001-12074)).
12.1* -- Computation of Ratios of Earnings to Fixed Charges.
21.1* -- Subsidiaries of the Registrant.
23.1* -- Consent of Arthur Andersen LLP.
23.2* -- Consent of Vinson & Elkins L.L.P. (included in Exhibit 5.1).
23.3* -- Consent of Atwater Consultants, Ltd.
23.4* -- Consent of Cawley, Gillespie & Associates, Inc.
23.5* -- Consent of Ryder Scott Company.
24.1* -- Powers of Attorney (included on the signature page hereof).
25.1* -- Statement of Eligibility on Form T-1 of JPMorgan Chase Bank.
99.1* -- Form of Letter of Transmittal.
99.2* -- Form of Letter to Clients.
99.3* -- Form of Letter to Registered Holders and DTC Participants.
99.4* -- Form of Notice of Guaranteed Delivery.
</Table>
- ---------------
* Filed herewith