AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 12, 2003
REGISTRATION NO. 333-105834
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
WESTPORT RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
---------------------
<Table>
NEVADA 1311 13-3869719
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</Table>
ADDITIONAL SUBSIDIARY GUARANTOR REGISTRANTS
LISTED ON FOLLOWING PAGE
<Table>
HOWARD L. BOIGON
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
1670 BROADWAY STREET, SUITE 2800 1670 BROADWAY STREET, SUITE 2800
DENVER, COLORADO 80202-4800 DENVER, COLORADO 80202-4800
(303) 573-5404 (303) 573-5404
(Address, including zip code, and telephone (Name, address, including zip code, and
number, telephone number,
including area code, of registrant's principal including area code, of agent for service)
executive offices)
</Table>
---------------------
Copies to:
MICHAEL E. DILLARD, P.C.
JOSEPH L. MOTES III
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
1700 PACIFIC AVENUE, SUITE 4100
DALLAS, TEXAS 75201-4675
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the registration statement becomes effective.
---------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
---------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ADDITIONAL SUBSIDIARY GUARANTOR REGISTRANTS
<Table>
<Caption>
STATE OR OTHER JURISDICTION OF I.R.S. EMPLOYER
EXACT NAME OF SUBSIDIARY GUARANTOR REGISTRANT(1) INCORPORATION OR ORGANIZATION IDENTIFICATION NUMBER
- ------------------------------------------------ ------------------------------ ---------------------
Westport Finance Co. .............................. Wyoming 13-3878989
Jerry Chambers Exploration Company................. Colorado N/A
Westport Argentina LLC............................. Colorado N/A
Westport Canada LLC................................ Delaware N/A
Westport Oil and Gas Company, L.P. ................ Delaware 84-1175723
Westport Overriding Royalty LLC.................... Colorado N/A
WHG, Inc. ......................................... Delaware 40-0001409
WHL, Inc. ......................................... Delaware 40-0001414
Horse Creek Trading & Compression Company LLC...... Colorado 84-1516414
Westport Field Services, LLC....................... Delaware 14-1860614
</Table>
- ---------------
(1) The address for each Subsidiary Guarantor Registrant is 1670 Broadway
Street, Suite 2800, Denver, Colorado, 80202-4800.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT EXCHANGE 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, DATED SEPTEMBER 12, 2003
PROSPECTUS
(WESTPORT RESOURCES CORPORATION LOGO)
WESTPORT RESOURCES CORPORATION
OFFER TO EXCHANGE
ALL OUTSTANDING 8 1/4% SENIOR SUBORDINATED NOTES DUE 2011
($125,000,000 PRINCIPAL AMOUNT)
ISSUED ON APRIL 3, 2003
FOR
8 1/4% SENIOR SUBORDINATED NOTES DUE 2011
($125,000,000 PRINCIPAL AMOUNT)
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 2003, UNLESS WE EXTEND THE OFFER. WE DO NOT CURRENTLY INTEND TO
EXTEND THE EXCHANGE OFFER.
---------------------
- We are offering to exchange up to $125,000,000 aggregate principal amount
of new 8 1/4% Senior Subordinated Notes Due 2011, or exchange notes,
which have been registered under the Securities Act of 1933, as amended,
for an equal principal amount of our outstanding 8 1/4% Senior
Subordinated Notes Due 2011, issued in a private offering on April 3,
2003, or old notes. The old notes were issued as additional debt
securities under an indenture pursuant to which, on November 5, 2001, we
issued $275,000,000 of 8 1/4% Senior Subordinated Notes Due 2011 and, on
December 17, 2002, we issued $300,000,000 of 8 1/4% Senior Subordinated
Notes Due 2011, all of which were subsequently exchanged for equal
principal amounts of notes registered under the Securities Act.
- We will exchange all old notes that are validly tendered and not validly
withdrawn prior to the closing of the exchange offer for an equal
principal amount of exchange notes that have been registered.
- You may withdraw tenders of old notes at any time prior to the expiration
of the exchange offer.
- The terms of the exchange notes to be issued are identical in all
material respects to the old notes, except for transfer restrictions and
registration rights that do not apply to the exchange notes, and
different administrative terms.
- The exchange notes, together with any old notes not exchanged in the
exchange offer and the initial exchange notes, will constitute a single
class of debt securities under the indenture.
- The exchange notes will be subordinated in right of payment to our
obligations under our revolving credit facility. As of June 30, 2003, we
had no borrowings outstanding under our revolving credit facility and
available unused borrowing capacity of approximately $365.5 million. The
unused borrowing capacity reflects approximately $104.5 million of
letters of credit outstanding under our revolving credit facility as of
June 30, 2003.
- The exchange of notes will be a tax-free recapitalization for United
States federal income tax purposes.
- We will not receive any proceeds from the exchange offer.
- No public market exists for the old notes. We do not intend to list the
exchange notes on any securities exchange and, therefore, no active
public market is anticipated.
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF FACTORS THAT WE
URGE YOU TO CONSIDER BEFORE TENDERING YOUR OLD NOTES.
---------------------
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. The letter of
transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. 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 exchange notes received in exchange for old notes where such old
notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. We have agreed that, for a period of 180
days after the consummation of the exchange offer, we will make this prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
---------------------
The date of this prospectus is , 2003
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
Where You Can Find More Information......................... i
Special Note Regarding Forward-Looking Statements........... ii
Prospectus Summary.......................................... 1
Risk Factors................................................ 8
The Exchange Offer.......................................... 20
Use of Proceeds............................................. 32
Capitalization.............................................. 33
Description of Certain Indebtedness......................... 34
Description of the Exchange Notes........................... 36
Material United States Federal Income Tax Consequences...... 85
Plan of Distribution........................................ 89
Legal Matters............................................... 90
Independent Public Accountants.............................. 90
Independent Petroleum Engineers............................. 91
</Table>
---------------------
WE URGE YOU TO RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
ADDITIONAL OR DIFFERENT INFORMATION. IF ANYONE PROVIDES YOU WITH ADDITIONAL,
DIFFERENT OR INCONSISTENT INFORMATION, YOU SHOULD NOT RELY ON IT. YOU SHOULD NOT
ASSUME THAT THE INFORMATION WE HAVE INCLUDED IN THIS PROSPECTUS IS ACCURATE AS
OF ANY DATE OTHER THAN THE DATE ON THE FRONT COVER OF THIS PROSPECTUS OR THAT
ANY INFORMATION WE HAVE INCORPORATED BY REFERENCE IS ACCURATE AS OF ANY DATE
OTHER THAN THE DATE OF THE DOCUMENT INCORPORATED BY REFERENCE.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission, or SEC. You may read
and copy any document we file at the public reference room of the SEC, 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference room. Our SEC filings are also
available to the public from the SEC's website at http://www.sec.gov and on our
website at http://www.westportresourcescorp.com. Information contained on our
website does not constitute part of this prospectus. Reports and other
information concerning us can also be inspected at the offices of the New York
Stock Exchange, 20 Broad Street, New York, New York 10005. Our common stock and
6 1/2% convertible preferred stock are listed and traded on the New York Stock
Exchange under the trading symbols "WRC" and "WRCPR," respectively.
The information included in the following documents is incorporated by
reference and is considered to be a part of this prospectus. The most recent
information that we file with the SEC automatically updates and supersedes older
information. We have previously filed the following documents with the SEC and
we are incorporating them by reference into this prospectus:
- Annual Report on Form 10-K for the fiscal year ended December 31, 2002
filed by us on March 10, 2003;
- Definitive Proxy Statement on Schedule 14A filed by us on April 21, 2003;
- Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 filed
by us on May 8, 2003;
- Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 filed
by us on August 14, 2003;
- Current Report on Form 8-K filed by us on December 2, 2002 (excluding any
information furnished pursuant to Item 9 on such Current Report on Form
8-K), as amended by the Current Report on Form 8-K/A, filed by us on
December 12, 2002, as further amended by the Current Report on Form 8-K/A
filed by us on December 27, 2002 and by the Current Report Form 8-K/A
filed by us on February 26, 2003;
- Current Report on Form 8-K filed by us on May 7, 2003 (excluding any
information furnished pursuant to Item 9 or Item 12 on such Current
Report on Form 8-K);
- Current Report on Form 8-K filed by us on June 3, 2003;
- Current Report on Form 8-K filed by us on June 10, 2003; and
- Current Report on Form 8-K filed by us on August 5, 2003 (excluding any
information furnished pursuant to Item 12 on such Current Report on Form
8-K).
We also incorporate by reference each of the documents that we may file
with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange
Act of 1934, as amended (excluding any information furnished pursuant to Item 9
or Item 12 on such Current Report on Form 8-K), after the date we file with the
SEC the registration statement on Form S-4 of which this prospectus is a part,
and before the date such registration statement is declared effective by the
SEC, and any future filings we will make with the SEC under Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (excluding
any information furnished pursuant to Item 9 or Item 12 on such Current Report
on Form 8-K), after the date and time the SEC declares such registration
statement effective until the exchange offer has been completed.
You may request copies of these documents at no cost by contacting us at:
Westport Resources Corporation, 1670 Broadway Street, Suite 2800, Denver,
Colorado 80202-4800 (Telephone: (303) 573-5404), Attention: Investor Relations.
To obtain timely delivery of any of our filings, agreements or other
documents, you must make your request to us no later than five business days
before the expiration date of the exchange offer. The exchange offer will expire
at 5:00 p.m. New York City time on , 2003. The exchange offer can be
extended by us in our sole discretion. See the caption "The Exchange Offer" for
more detailed information.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Our disclosure and analysis in this prospectus, including information
incorporated by reference, may include forward-looking statements that are
subject to risks and uncertainties. Certain forward-looking statements give our
current expectations and projections relating to the acquisition, which closed
on December 17, 2002, of certain natural gas properties and midstream gathering
and compression assets located in Utah from certain affiliates of El Paso
Corporation, and the financial condition, results of operations, plans,
objectives, future performance and business of Westport Resources Corporation
and its subsidiaries. You can identify these statements by the fact that they do
not relate strictly to historical or current facts. These statements may include
words such as "anticipate," "estimate," "expect," "project," "intend," "plan,"
"believe" and other words and expressions of similar meaning in connection with
any discussion of the timing or nature of future operating or financial
performance or other events. All statements other than statements of historical
facts included or incorporated by reference in this prospectus that address
activities, events or developments that we expect, believe or anticipate will or
may occur in the future are forward-looking statements, including, among other
things, statements relating to:
- the amount, nature and timing of capital expenditures;
- projected drilling of wells;
ii
- reserve estimates;
- the timing and amount of future production of oil and natural gas;
- operating costs and other expenses;
- cash flow, anticipated liquidity and prospects for growth;
- estimates of proved reserves and exploitation and exploration
opportunities; and
- marketing of oil and natural gas.
These forward-looking statements are based on our expectations and beliefs
concerning future events affecting us and are subject to uncertainties and
factors relating to our operations and business environment, all of which are
difficult to predict and many of which are beyond our control. Although we
believe that the expectations reflected in our forward-looking statements are
reasonable, we do not know whether our expectations will prove correct. Any or
all of our forward-looking statements included or incorporated by reference in
this prospectus may turn out to be wrong. They can be affected by inaccurate
assumptions we might make or by known or unknown risks and uncertainties. Many
factors mentioned or incorporated by reference in this prospectus will be
important in determining future results. Actual future results may vary
materially. Because of these factors, we caution that investors should not place
undue reliance on any of our forward-looking statements. Further, any
forward-looking statement speaks only as of the date on which it is made, and
except as required by law we undertake no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which it is made or to reflect the occurrence of anticipated or unanticipated
events or circumstances.
iii
PROSPECTUS SUMMARY
This section is a summary of the material terms of the exchange offer. We
urge you to read this entire prospectus and the documents to which we refer you,
including the financial data and related notes, before making an investment
decision. We encourage you to carefully consider the information set forth under
"Risk Factors." In addition, certain statements include forward-looking
information that involves risks and uncertainties. See "Special Note Regarding
Forward-Looking Statements." Unless otherwise indicated in this prospectus or
the context otherwise requires, all references in this prospectus to "Westport,"
the "Company," "us," "our," or "we" are to Westport Resources Corporation and
its consolidated subsidiaries.
On December 17, 2002, we closed, effective as of June 1, 2002, the
acquisition, also referred to as the Acquisition, of certain natural gas
properties and midstream gathering and compression assets located in Uinta
Basin, Utah, also referred to as the Acquired Properties, from certain
affiliates of El Paso Corporation.
WESTPORT RESOURCES CORPORATION
We are an independent energy company engaged in oil and natural gas
exploitation, acquisition and exploration activities primarily in the United
States. Based upon production levels during the first quarter of 2003, we are
among the 20 largest domestic independent exploration and production companies.
Our reserves and operations are concentrated in the following divisions:
Northern, which primarily includes properties in North Dakota and Wyoming;
Western, which includes the Acquired Properties in the Uinta Basin; Southern,
which primarily includes properties in Oklahoma, Texas and Louisiana; and Gulf
of Mexico, which includes our offshore properties. We focus on maintaining a
balanced portfolio of lower-risk, long-life onshore reserves and higher-margin
offshore reserves to provide a diversified cash flow foundation for our
exploitation, acquisition and exploration activities.
---------------------
Our principal offices are located at 1670 Broadway Street, Suite 2800,
Denver, Colorado 80202-4800, telephone number (303) 573-5404, and our web site
can be found at www.westportresourcescorp.com. Information contained on our
website does not constitute part of this prospectus.
THE EXCHANGE OFFER
On April 3, 2003, we completed a private offering of $125 million of our
unregistered 8 1/4% Senior Subordinated Notes Due 2011, or the old notes. The
old notes were offered as additional debt securities under the Indenture
(defined below) pursuant to which, on November 5, 2001, we issued $275 million
of our 8 1/4% Senior Subordinated Notes Due 2011 and, on December 17, 2002, we
issued $300 million of our 8 1/4% Senior Subordinated Notes Due 2011. On March
14, 2002 and March 12, 2003, respectively, all of the 2001 and 2002 notes were
exchanged for equal principal amounts of the notes registered under the
Securities Act, also referred to as the initial exchange notes. In this exchange
offer, we are offering to exchange, for your old notes, new 8 1/4% Senior
Subordinated Notes Due 2011, also referred to as the exchange notes, that are
identical in all material respects to the old notes, except for transfer
restrictions and registration rights that do not apply to the exchange notes,
and different administrative terms. All of the initial exchange notes and the
old notes were, and the exchange notes will be, issued under an indenture, dated
as of November 5, 2001, as supplemented on December 31, 2001, December 17, 2002
and April 3, 2003, or the Indenture, and are collectively referred to in this
prospectus as the notes.
Registration Rights
Agreement..................... We sold the old notes on April 3, 2003 to the
initial purchaser, Lehman Brothers Inc.
Simultaneously with the sale of the old notes,
we entered into a registration rights agreement
that provides for, among other things, this
exchange offer. You may exchange your old notes
for exchange notes, which have substantially
identical terms. After the exchange offer is
over,
1
you will not be entitled to any exchange or
registration rights with respect to your old
notes, except under limited circumstances. The
initial exchange notes and the exchange notes,
together with any old notes that are not
exchanged in the exchange offer, will
constitute a single class of debt securities
under the Indenture.
The Exchange Offer............ We are offering to exchange up to $125 million
aggregate principal amount of old notes for an
equal principal amount of exchange notes. You
may exchange your old notes only by following
the procedures described elsewhere in this
prospectus under the heading "The Exchange
Offer."
Expiration Date; Withdrawal of
Tender........................ The exchange offer will expire at 5:00 p.m.,
New York City time, on , 2003, unless
we extend it, provided, however, that the
maximum period of time during which the
exchange offer, including any extension
thereof, may be in effect will not exceed 90
days. We do not currently intend to extend the
exchange offer. You may withdraw your tender of
old notes pursuant to the exchange offer at any
time prior to the expiration date of the
exchange offer. See "The Exchange Offer" for a
more complete description of the tender and
withdrawal provisions.
Resale........................ We believe that the exchange notes issued
pursuant to the exchange offer in exchange for
old notes may be offered for resale, resold and
otherwise transferred by you (unless you are an
"affiliate" of ours within the meaning of Rule
405 under the Securities Act) without
compliance with the registration and prospectus
delivery provisions of the Securities Act, so
long as you are acquiring the exchange notes in
the ordinary course of your business and you
have not engaged in, do not intend to engage
in, and have no arrangement or understanding
with any person to participate in, a
distribution of the exchange notes.
Each participating broker-dealer that receives
exchange notes for its own account under the
exchange offer in exchange for old notes that
were acquired by the broker-dealer as a result
of market-making or other trading activity must
acknowledge that it will deliver a prospectus
in connection with any resale of the exchange
notes. See "Plan of Distribution."
Any holder of old notes who:
- is our affiliate;
- does not acquire the exchange notes in the
ordinary course of its business; or
- exchanges the old notes in the exchange offer
with the intention to participate, or for the
purpose of participating, in a distribution
of the exchange notes
must, in the absence of an exemption, comply
with the registration and prospectus delivery
requirements of the Securities Act in
connection with the resale of the exchange
notes.
2
Conditions to the Exchange
Offer......................... The exchange offer is subject to conditions
described in this prospectus under the heading
"The Exchange Offer -- Conditions to the
Exchange Offer", which we may, but are not
required to, waive. If we waive a condition for
one participant in the exchange offer, we must
waive that condition for all participants. We
currently anticipate that each of the
conditions will be satisfied and that we will
not need to waive any conditions. We reserve
the right to terminate or amend the exchange
offer at any time before the expiration date if
any such condition occurs. For additional
information regarding the conditions to the
exchange offer, see "The Exchange
Offer -- Conditions to the Exchange Offer."
Procedures for Tendering Old
Notes......................... If you are a holder of old notes who wishes to
accept the exchange offer, you must:
- complete, sign and date the accompanying
letter of transmittal, or a facsimile of the
letter of transmittal, and mail or otherwise
deliver the letter of transmittal, together
with all other documents required by the
letter of transmittal, including your old
notes, to the exchange agent at the address
set forth under "The Exchange
Offer -- Exchange Agent;" or
- arrange for The Depository Trust Company to
transmit certain required information,
including an agent's message forming part of
a book-entry transfer in which you agree to
be bound by the terms of the letter of
transmittal, to the exchange agent in
connection with a book-entry transfer.
By tendering your old notes in either manner,
you will be representing among other things,
that:
- the exchange notes you receive pursuant to
the exchange offer are being acquired in the
ordinary course of your business;
- you are not participating, do not intend to
participate and have no arrangement or
understanding with any person to participate,
in the distribution of the exchange notes
issued to you in the exchange offer; and
- you are not an "affiliate" of ours, or if you
are an affiliate of ours you will comply with
the applicable registration and prospectus
delivery requirements of the Securities Act.
If a broker, dealer, commercial bank, trust
company or other nominee is the registered
holder of your old notes, we urge you to
contact that person or entity promptly to
tender your old notes in the exchange offer.
For more information on tendering your old
notes, please refer to the sections in this
prospectus entitled "The Exchange Offer --
Acceptance of Old Notes for Exchange" and
"-- Procedures for Tendering Old Notes."
United States Federal Income
Tax Consequences.............. Your exchange of your old notes for the
exchange notes in the exchange offer will not
result in any gain or loss to you for United
States federal income tax purposes. See
"Material United
3
States Federal Income Tax Consequences" for a
more detailed description of the tax
consequences of the exchange offer associated
with the exchange of the old notes for the
exchange notes to be issued in the exchange
offer and the ownership and disposition of the
exchange notes.
Use of Proceeds............... We will not receive any cash proceeds from the
issuance of the exchange notes pursuant to the
exchange offer. We received net proceeds of
approximately $131.5 million from the sale of
the old notes. We used the net proceeds from
the sale of the old notes to redeem all of our
outstanding 8 7/8% Senior Subordinated Notes
due 2007 in the aggregate principal amount of
approximately $123 million at a total
redemption price of approximately $129.6
million. We used the remaining net proceeds
from the sale of the old notes to reduce our
indebtedness under the New Revolving Credit
Facility, described under the heading
"Description of Certain Indebtedness." See also
"Use of Proceeds."
Exchange Agent................ The Bank of New York.
Consequences of Failure to
Exchange Your Old Notes....... Old notes not exchanged in the exchange offer
will continue to be subject to the restrictions
on transfer that are described in the legend on
the old notes. In general, you may offer or
sell your old notes only if they are registered
under, or offered or sold under an exemption
from, the Securities Act and applicable state
securities laws. Because we anticipate that
most holders of the old notes will elect to
exchange their old notes, we expect that the
liquidity of the market, if any, for any old
notes remaining after the completion of the
exchange offer will be substantially limited.
Any old notes tendered and exchanged in the
exchange offer will reduce the aggregate
principal amount of the old notes. We do not
currently intend to register the old notes
under the Securities Act. If your old notes are
not tendered and accepted in the exchange
offer, it may become more difficult for you to
sell or transfer your old notes.
4
THE EXCHANGE NOTES
The terms of the exchange notes are identical in all material respects to
those of the old notes, except for the transfer restrictions and registration
rights that do not apply to the exchange notes and different administrative
terms. The exchange notes will evidence the same debt as the old notes, and the
same Indenture will govern the exchange notes as the old notes. The summary
below describes the principal terms of the exchange notes. Certain of the terms
and conditions described below are subject to important limitations and
exceptions. The "Description of the Exchange Notes" section of this prospectus
contains a more detailed description of the terms and conditions of the exchange
notes.
Issuer........................ Westport Resources Corporation.
Securities.................... Up to $125 million principal amount of our
8 1/4% Senior Subordinated Notes Due 2011
registered under the Securities Act.
Interest Rate and Payment
Dates......................... 8 1/4% per annum, payable on May 1 and November
1 of each year, accruing from May 1, 2003, the
last interest payment date on which interest
was paid on each old note surrendered in
exchange for the exchange note. Our first
interest payment on the exchange notes will be
November 1, 2003.
Maturity Date................. November 1, 2011.
Ranking....................... The exchange notes will be senior subordinated
unsecured obligations. They will rank equal in
right of payment with the initial exchange
notes, any old notes that are not exchanged in
the exchange offer and any of our other
existing and future Senior Subordinated
Indebtedness and will be subordinated in right
of payment to our obligations under the New
Revolving Credit Facility and any of our other
existing and future Senior Indebtedness. As of
June 30, 2003, we had no Senior Indebtedness
outstanding (as we had no borrowings
outstanding under the New Revolving Credit
Facility) and $700 million aggregate principal
amount of Senior Subordinated Indebtedness
outstanding. Our available unused borrowing
capacity under the New Revolving Credit
Facility was approximately $365.5 million,
subject to specific requirements, including
compliance with financial covenants. See
"Description of Certain Indebtedness." The
unused borrowing capacity reflects
approximately $104.5 million of letters of
credit outstanding under the New Revolving
Credit Facility as of June 30, 2003. The term
"New Revolving Credit Facility" is defined
under "Description of Certain Indebtedness" and
the terms "Senior Indebtedness" and "Senior
Subordinated Indebtedness" are defined under
"Description of the Exchange Notes -- Certain
Definitions."
Optional Redemption........... Prior to November 1, 2004, we are entitled to
redeem up to 35% of the original principal
amount of the notes, including the original
principal amount of any additional notes we may
issue in the future under the Indenture, from
the proceeds of certain equity offerings, so
long as:
- we pay to the holders of such notes a
redemption price of 108.25% of the principal
amount of the notes, plus accrued and unpaid
interest to the date of redemption; and
5
- at least 65% of the original aggregate
principal amount of the notes and any
additional notes issued under the Indenture
remains outstanding after each such
redemption, other than notes held by us or
our affiliates.
Prior to November 1, 2006, we are entitled to
redeem the notes as a whole at a redemption
price equal to the principal amount of the
notes plus the Applicable Premium and accrued
and unpaid interest to the date of redemption.
The term "Applicable Premium" is defined under
"Description of the Exchange Notes -- Certain
Definitions."
On or after November 1, 2006, we are entitled
to redeem some or all of the notes at the fixed
redemption prices listed under "Description of
the Exchange Notes -- Optional Redemption,"
plus accrued and unpaid interest to the date of
redemption.
Guaranties.................... The payment of the principal, interest and
premium on the exchange notes will be fully and
unconditionally guaranteed on a senior
subordinated basis by some of our existing and
future restricted subsidiaries. See
"Description of the Exchange Notes --
Guaranties."
The subsidiary guaranties will rank equal in
right of payment with the guarantor
subsidiaries' guaranties of the initial
exchange notes, any old notes that are not
exchanged in the exchange offer and any other
existing and future Senior Subordinated
Indebtedness of the guarantor subsidiaries and
subordinated in right of payment to the
guarantor subsidiaries' guaranties of our
obligations under the New Revolving Credit
Facility and any other existing and future
Senior Indebtedness of the guarantor
subsidiaries.
Restrictive Covenants......... The Indenture governing the notes limits what
we and our restricted subsidiaries do. The
provisions of the Indenture limit our and such
subsidiaries' ability, among other things, to:
- incur additional indebtedness;
- pay dividends on our capital stock or redeem,
repurchase or retire our capital stock or
subordinated indebtedness;
- make investments;
- incur liens;
- create any consensual limitation on the
ability of our restricted subsidiaries to pay
dividends, make loans or transfer property to
us;
- engage in transactions with our affiliates;
- sell assets, including capital stock of our
subsidiaries; and
- consolidate, merge or transfer assets.
A detailed description of restrictive covenants
appears in this prospectus under the heading
"Description of the Exchange Notes -- Certain
Covenants." During any period that the notes
have investment grade ratings from both Moody's
Investors
6
Service, Inc. and Standard and Poor's Ratings
Group and no default has occurred and is
continuing, the foregoing covenants will cease
to be in effect with the exception of covenants
that contain limitations on liens and on, among
other things, certain consolidations, mergers
and transfers of assets. The notes do not
currently qualify as investment grade.
These covenants are subject to important
exceptions and qualifications described under
"Description of the Exchange Notes -- Certain
Covenants."
Change of Control............. If we experience a Change of Control, subject
to certain conditions, we must give holders of
the notes the opportunity to sell to us their
notes at 101% of the principal amount, plus
accrued and unpaid interest. The term "Change
of Control" is defined under "Description of
the Exchange Notes -- Change of Control."
Absence of a Public Market for
the Exchange Notes............ The exchange notes will be a new issue of debt
securities of the same class as the initial
exchange notes and will generally be freely
transferable. Notwithstanding the foregoing, we
cannot assure you as to the development of an
active market for the exchange notes or their
liquidity. We do not intend to apply for
listing of the exchange notes on any securities
exchange or any automated dealer quotation
system.
WE URGE YOU TO REFER TO THE SECTION ENTITLED "RISK FACTORS" FOR AN
EXPLANATION OF CERTAIN RISKS ASSOCIATED WITH THE EXCHANGE NOTES.
7
RISK FACTORS
We urge you to carefully consider the factors discussed below before
deciding to exchange your old notes for the exchange notes. An investment in the
notes represents a high degree of risk. This section describes the material
risks known to us that may adversely affect our ability to make payments on the
notes. You could therefore lose a substantial portion or all of your investment
in the notes. Consequently, an investment in the notes should only be considered
by persons who can assume such risk. Each of the risks described in this section
with respect to the exchange notes are generally applicable to the old notes.
Before making your investment decision, we encourage you to also read the other
information presented or incorporated by reference in this prospectus, including
our financial statements and the related notes.
RISKS RELATED TO THE EXCHANGE OFFER
THERE IS NO ACTIVE TRADING MARKET FOR THE EXCHANGE NOTES, THE VALUE OF THE
EXCHANGE NOTES MAY FLUCTUATE SIGNIFICANTLY AND ANY MARKET FOR THE EXCHANGE
NOTES MAY BE ILLIQUID.
The exchange notes will be a new issue of debt securities of the same class
as the initial exchange notes and will generally be freely transferable.
Notwithstanding the foregoing, a liquid market may not develop for the exchange
notes, and you may not be able to sell your exchange notes at a particular time,
as we do not intend to apply for the exchange notes to be listed on any
securities exchange or to arrange for quotation on any automated dealer
quotation system. In addition, the trading prices of the exchange notes could be
subject to significant fluctuations in response to government regulations,
variations in quarterly operating results, demand for oil and natural gas,
general economic conditions and various other factors. The liquidity of the
trading market in the exchange notes and the market price quoted for the
exchange notes may also be adversely affected by changes in the overall market
for high yield securities and by changes in our financial performance or
prospects or in the prospects for companies in our industry generally. If no
active trading market develops, you may not be able to resell your exchange
notes at their fair market value or at all. This offer to exchange the exchange
notes for the old notes does not depend on any minimum amount of the old notes
being tendered for exchange.
RISKS RELATED TO THE EXCHANGE NOTES
SUBORDINATION OF THE NOTES AND THE SUBSIDIARY GUARANTEES MAY LIMIT PAYMENT ON
THE NOTES, INCLUDING PAYMENT ON THE EXCHANGE NOTES.
The indebtedness evidenced by the notes, including the exchange notes, and
the subsidiary guarantees is subordinated in right of payment to all of our and
our subsidiary guarantors' existing and future Senior Indebtedness, including
outstanding borrowings under the New Revolving Credit Facility. As of June 30,
2003, we had no Senior Indebtedness outstanding and available unused borrowing
capacity of approximately $365.5 million, subject to certain restrictions
imposed by the Indenture governing the notes. By reason of the subordination of
the notes, including the exchange notes, in the event of our insolvency,
liquidation or other reorganization, or the insolvency, liquidation or other
reorganization of any subsidiary guarantor, creditors who are holders of Senior
Indebtedness must be paid in full before any payments may be made to holders of
the notes, including the exchange notes. There may not be sufficient assets
remaining after payment of prior claims to pay amounts due on the notes,
including the exchange notes. In addition, under certain circumstances, no
payments may be made with respect to the notes, including the exchange notes, if
a default exists with respect to Senior Indebtedness. See "Description of the
Exchange Notes -- Ranking." The term "Senior Indebtedness" is defined in
"Description of the Exchange Notes -- Certain Definitions."
FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
GUARANTEES AND REQUIRE NOTEHOLDERS TO RETURN PAYMENTS RECEIVED FROM
GUARANTORS.
Federal and state statutes allow courts, under specific circumstances, to
void guarantees and require creditors such as the noteholders to return payments
received from guarantors. Under federal bankruptcy law and comparable provisions
of state fraudulent transfer laws, a guarantee could be voided or claims in
8
respect of a guarantee could be subordinated to all other debts of that
guarantor if, for example, the guarantor, at the time it issued its guarantee,
received less than reasonably equivalent value or fair consideration for the
incurrence of such guarantee and:
- was insolvent or rendered insolvent by making the guarantee;
- was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay them as they mature.
A guarantee may also be voided, without regard to the above factors, if a
court found that the guarantor entered into the guarantee with the actual intent
to hinder, delay or defraud its creditors.
A court would likely find that a guarantor did not receive reasonably
equivalent value or fair consideration for its guarantee if the guarantor did
not substantially benefit directly or indirectly from the issuance of the notes.
If a court were to void a guarantee, you would no longer have a claim against
the guarantor. Sufficient funds to repay the notes may not be available from the
other sources, including the remaining guarantors, if any. In addition, the
court might direct you to repay any amounts that you already received from the
subsidiary guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, a guarantor would be considered
insolvent if:
- the sum of its debts, including contingent liabilities, was greater than
the fair saleable value of all of its assets;
- the present fair saleable value of its assets was less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
mature; or
- it could not pay its debts as they become due.
Each subsidiary guarantee will contain a provision intended to limit the
guarantor's liability to the maximum amount that it could incur without causing
the incurrence of obligations under a subsidiary guarantee to be a fraudulent
transfer. This provision may not be effective to protect the subsidiary
guarantees from being voided under fraudulent transfer law.
WE MAY HAVE INSUFFICIENT ASSETS TO REPAY OUR INDEBTEDNESS IN THE EVENT OF A
DEFAULT UNDER THE NEW REVOLVING CREDIT FACILITY.
The New Revolving Credit Facility contains covenants that are similar to,
but more restrictive to us than, those contained in the Indenture governing the
notes, and requires us to maintain specified financial ratios.
Our ability to meet those financial ratios can be affected by events beyond
our control, and we may be unable to meet those ratios. A breach of any of these
covenants, ratios or restrictions could result in an event of default under the
New Revolving Credit Facility. Upon the occurrence of an event of default under
the New Revolving Credit Facility, the lenders could elect to declare all
amounts outstanding under the facility, together with accrued interest, to be
immediately due and payable. If we were unable to repay those amounts, the
lenders could proceed against the collateral granted to them to secure the
indebtedness. If the lenders under the New Revolving Credit Facility accelerate
the payment of the indebtedness, our assets might not be sufficient to repay in
full that indebtedness and our other indebtedness, including the exchange notes.
9
A FINANCIAL FAILURE BY US OR ANY SUBSIDIARY GUARANTOR MAY HINDER THE RECEIPT
OF PAYMENT ON THE EXCHANGE NOTES, AS WELL AS THE ENFORCEMENT OF REMEDIES UNDER
THE SUBSIDIARY GUARANTIES.
An investment in the exchange notes, as in any type of security, involves
insolvency and bankruptcy considerations that we urge investors to carefully
consider. If we or any of our subsidiary guarantors become a debtor subject to
insolvency proceedings under the bankruptcy code, it is likely to result in
delays in the payment of the exchange notes and in the exercise of enforcement
remedies under the exchange notes or the subsidiary guaranties. Provisions under
the bankruptcy code or general principles of equity that could result in the
impairment of your rights include the automatic stay, avoidance of preferential
transfers by a trustee or a debtor-in-possession, substantive consolidation,
limitations of collectability of unmatured interest or attorneys' fees and
forced restructuring of the exchange notes.
A FINANCIAL FAILURE BY US MAY RESULT IN THE ASSETS OF ANY OR ALL SUBSIDIARIES
BECOMING SUBJECT TO THE CLAIMS OF OUR CREDITORS, WHICH COULD AFFECT PAYMENT OF
THE EXCHANGE NOTES.
A financial failure by us could affect payment of the exchange notes if a
bankruptcy court were to "substantively consolidate" us and our subsidiaries. If
a bankruptcy court substantively consolidated us and our subsidiaries, the
assets of each entity would be subject to the claims of creditors of all
entities. This would expose you not only to the usual impairments arising from
bankruptcy, but also to potential dilution of the amount ultimately recoverable
because of the larger creditor base. Furthermore, forced restructuring of the
exchange notes could occur through the "cram-down" provision of the bankruptcy
code. Under this provision, the exchange notes could be restructured over your
objections as to their general terms, primarily interest rate and maturity.
RISKS RELATED TO OUR BUSINESS
OIL AND NATURAL GAS PRICES FLUCTUATE WIDELY, AND LOW PRICES COULD HARM OUR
BUSINESS.
Our results of operations are highly dependent upon the prices of oil and
natural gas. Historically, oil and natural gas prices have been volatile and are
likely to continue to be volatile in the future. For example, our average sales
prices for oil and natural gas for the second quarter ended June 30, 2003 were
$26.90/bbl and $4.90/Mcf, respectively, with production totaling 40.9 Bcfe and
combined oil and natural gas sales of $195.6 million during this period. In
contrast, our average sales prices for oil and natural gas for the second
quarter ended June 30, 2002 were $23.88/bbl and $3.07/Mcf, respectively, with
production totaling 33.1 Bcfe and combined oil and natural gas sales of $113.0
million during this period. The prices received for oil and natural gas
production depend upon numerous factors including, among others:
- consumer demand;
- governmental regulations and taxes;
- the price and availability of alternative fuels;
- geopolitical developments, including military activity in the Middle
East;
- commodity processing, gathering and transportation availability;
- the level of imports of foreign oil and natural gas; and
- the overall economic environment.
All of these factors are beyond our control. Any significant decrease in prices
for oil and natural gas could have a material adverse effect on our financial
condition, results of operations and quantities of reserves that are
commercially recoverable. If the oil and natural gas industry experiences
significant price decreases or other adverse market conditions, we may not be
able to generate sufficient cash flow from operations to meet our obligations
and make planned capital expenditures.
10
OUR REVENUES MAY BE INSUFFICIENT TO FUND OUR OPERATIONS, WHICH MAY RESULT IN A
DECREASE IN PRODUCTION OVER TIME.
We expect for the foreseeable future to make substantial capital
expenditures for the acquisition, exploration and development of oil and natural
gas reserves. Historically, we have paid for these expenditures primarily with
cash from operating activities and with proceeds from debt and equity
financings. If revenues decrease as a result of lower oil and natural gas prices
or for any other reason, we may not have the funds available to replace our
reserves or to maintain production at current levels, which would result in a
decrease in production over time.
OUR FORMER INDEPENDENT PUBLIC ACCOUNTANT, ARTHUR ANDERSEN LLP, HAS BEEN FOUND
GUILTY OF A FEDERAL OBSTRUCTION OF JUSTICE CHARGE, AND YOU MAY BE UNABLE TO
EXERCISE EFFECTIVE REMEDIES AGAINST IT IN ANY LEGAL ACTION.
Our former independent public accountant, Arthur Andersen LLP, provided us
with auditing services for prior fiscal periods through December 31, 2001,
including issuing an audit report with respect to our audited consolidated
financial statements for prior fiscal periods through December 31, 2001
incorporated by reference in this prospectus. On June 15, 2002, a jury in
Houston, Texas found Arthur Andersen LLP guilty of a Federal obstruction of
justice charge arising from the Federal Government's investigation of Enron
Corp. On August 31, 2002, Arthur Andersen LLP ceased practicing before the SEC.
Arthur Andersen has not reissued its audit report with respect to our
audited consolidated financial statements for prior fiscal periods through
December 31, 2001 incorporated by reference into this prospectus. Furthermore,
we are unable to obtain Arthur Andersen LLP's consent to incorporate by
reference its audit report included in our Annual Report on Form 10-K for the
year ended December 31, 2001 or for prior fiscal periods. Under these
circumstances, Rule 437a under the Securities Act permits us to dispense with
the requirement to file Arthur Andersen's consent. As a result, you may not have
an effective remedy against Arthur Andersen LLP in connection with a material
misstatement or omission with respect to our audited consolidated financial
statements for prior fiscal periods through December 31, 2001 that are
incorporated by reference in this prospectus, or any other filing we may make
with the SEC, including, with respect to any offering registered under the
Securities Act, any claim under Section 11 of the Securities Act. In addition,
even if you were able to assert such a claim, as a result of its conviction and
other lawsuits, Arthur Andersen LLP may fail or otherwise have insufficient
assets to satisfy claims made by investors or by us that might arise under
Federal securities laws or otherwise relating to any alleged material
misstatement or omission with respect to our audited consolidated financial
statements for prior fiscal periods through December 31, 2001.
In addition, in connection with any future capital markets transaction in
which we are required to include financial statements that were audited by
Arthur Andersen LLP, as a result of the foregoing, investors may elect not to
participate in any such offering or, in the alternative, may require us to
obtain a new audit with respect to previously audited financial statements.
Consequently, our financing costs may increase or we may miss attractive capital
market opportunities.
INDIAN TRIBES HAVE PREVIOUSLY CHALLENGED THE VALIDITY OF SOME OF THE PROPERTY
INTERESTS COVERED BY OIL AND NATURAL GAS LEASES IN THE AREA IN WHICH THE
ACQUIRED PROPERTIES ARE LOCATED, AND OUR OPERATIONS AND ACTIVITIES ON TRIBAL
LANDS MAY BE SUBJECT TO TRIBAL JURISDICTION.
Substantially all of the oil and natural gas leases we acquired in the
Acquisition cover interests located within the Uintah and Ouray Indian
Reservations, in an area originally known as the Umcompahgre Reservation. These
leases were granted by the State of Utah, the United States (through the Bureau
of Land Management) or holders of patents from the United States. The Ute Indian
Tribe has previously asserted various claims against the State of Utah and the
United States regarding the existence, diminishment and/or abrogation of the
Reservation's boundaries and the extent of Tribal jurisdiction over these lands.
These lawsuits raised questions as to whether the Ute Tribe could invalidate
through litigation fee patents issued by the United States, the State of Utah's
ownership of such lands or the United States'
11
ownership of minerals subject to the acquired leases. These issues were settled
as a result of the Ute Indian Tribe litigation. If claims of this nature were
successfully asserted in the future, we might not be able to continue to produce
hydrocarbons from or develop and exploit these assets, which could adversely
affect our business and profitability.
In addition, the Ute Indian Tribe as a sovereign nation has certain rights
to regulate activities on Tribal lands, to approve access to and the right to
use (occupy) Tribal lands, and to tax revenues from Tribal resources. Exercise
of such rights could result in potential delays or increased costs to our
operations on Tribal lands which may not be foreseeable.
THE GEOGRAPHIC CONCENTRATION OF THE ACQUIRED PROPERTIES IN UTAH SUBJECTS US TO
INCREASED RISK OF REDUCTION IN REVENUES OR CURTAILMENT OF PRODUCTION FROM
CERTAIN NEGATIVE CONDITIONS.
All of the Acquired Properties are located in Uintah County, Utah.
Conditions such as severe weather, delays or decreases in production, the
availability of equipment, facilities or services or the availability of
capacity to transport, gather or process production could subject us to
increased risk of loss of revenues and have a greater impact on our results of
operations since most or all of the Acquired Properties could be affected by the
same event.
WE MAY NOT REALIZE THE ANTICIPATED BENEFITS FROM THE ACQUISITION.
Our estimates regarding the expenses and liabilities or the increase in our
reserves and production resulting from the Acquisition may prove to be incorrect
or we may not be successful in integrating the Acquired Properties into our
existing business, all of which could have a material adverse effect on our
financial condition and results of operations.
WE MAY NOT BE ABLE TO CONSUMMATE FUTURE ACQUISITIONS OR SUCCESSFULLY INTEGRATE
ACQUISITIONS INTO OUR BUSINESS.
Our business strategy includes growing our reserve base through
acquisitions. We may not continue to be successful in identifying or
consummating future acquisitions or integrating acquired businesses successfully
into our existing business, or in anticipating the expenses or liabilities we
will incur in doing so. Such failures may have a material adverse effect on
future growth or results of operations.
We are continually investigating opportunities for acquisitions. In
connection with future acquisitions, the process of integrating acquired
operations into our existing operations may result in unforeseen operating
difficulties and may require significant management attention and financial
resources that would otherwise be available for the ongoing development or
expansion of existing operations. Our ability to make future acquisitions may be
constrained by our ability to obtain additional financing.
Acquisitions may involve a number of special risks, including:
- unexpected losses of key employees, customers and suppliers of the
acquired business;
- conforming the financial, technological and management standards,
processes, procedures and controls of the acquired business with those of
our existing operations; and
- increasing the scope, geographic diversity and complexity of our
operations.
Possible future acquisitions could result in our incurring additional debt and
contingent liabilities, which could have a material adverse effect on our
financial condition and operating results.
TERRORIST ACTIVITIES, U.S. MILITARY ACTIVITY IN IRAQ OR OTHER ARMED CONFLICTS
COULD HARM OUR BUSINESS.
Terrorist activities, anti-terrorist efforts, U.S. military activity in
Iraq or any other armed conflicts involving the United States or its interests
abroad may adversely affect the United States and global economies and could
prevent us from meeting our financial and other obligations. Events of this
nature could result in the political instability and societal disruption, which
could reduce overall demand for oil
12
and natural gas, potentially putting downward pressure on prevailing oil and
natural gas prices and causing a reduction in our revenues. In addition, natural
gas and oil production facilities, transportation systems and storage facilities
could be direct targets of terrorist attacks, and our operations could be
adversely impacted if infrastructure integral to our operations is destroyed or
damaged by such an attack. Costs for insurance and other security may increase
as a result of the U.S. military activity in Iraq and potential threats of
terrorism, and some insurance coverage may become more difficult to obtain if
available at all.
OUR COMMODITY PRICE AND BASIS DIFFERENTIAL RISK MANAGEMENT ARRANGEMENTS MAY
LIMIT OUR POTENTIAL GAINS.
Commodity prices and basis differentials significantly affect our financial
condition, results of operations, cash flows and ability to borrow funds. Oil
and natural gas prices, as well as basis differentials, are affected by several
factors that we cannot control. We attempt to manage our exposure to oil and
natural gas price volatility by entering into commodity price risk management
arrangements for a portion of our expected production. In addition, we attempt
to manage our exposure to basis differentials between delivery points by
entering into basis swaps. In connection with the Acquisition, and as required
by our New Revolving Credit Facility, we entered into a significant number of
hedging arrangements relating to the production from the Acquired Properties to
help us manage our exposure. Commodity price and basis differential risk
management transactions may limit our potential gains if oil and natural gas
prices were to rise substantially, or basis differentials were to fall
substantially, versus the price or basis differential established by the
arrangements. These transactions also expose us to credit risk of
non-performance by the counterparties to the transaction. In addition, our
commodity price and basis differential risk management transactions may limit
our ability to borrow under our New Revolving Credit Facility and 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 non-basis hedge
arrangements;
- basis differentials tighten substantially from the prices established by
these arrangements; or
- the counterparties to our contracts fail to perform under terms of the
contracts.
In 2002, we experienced a $25.9 million loss attributable to our commodity
price risk management activities. In the second quarter 2003, we recorded a $1.6
million gain attributable to our commodity price risk management activities. No
estimate of future settlements or mark-to-market gains or losses is determinable
as such amounts are contingent upon commodity prices at the time of production.
If commodity prices increase, our cash settlement costs will also increase. In
addition, certain of our commodity price risk management arrangements will
require us to deliver cash collateral or other assurances of performance to the
counterparties in the event that payment obligations with respect to commodity
price risk management transactions exceed certain levels. As of June 30, 2003,
we had $100.5 million of letters of credit outstanding for this purpose.
The table below shows the effect of a range of assumed prices on future
settlement of our commodity price risk management contracts outstanding as of
June 30, 2003:
ESTIMATE OF FUTURE SETTLEMENT FOR OUTSTANDING COMMODITY PRICE RISK MANAGEMENT
CONTRACTS (1)
<Table>
<Caption>
GAS
---------------------------------------------------
OIL NORTHWEST CIG
------ -------------------- --------------------
NYMEX NYMEX DIFFERENTIAL PRICE DIFFERENTIAL PRICE SETTLEMENTS(2)
------ ----- ------------ ----- ------------ ----- --------------
(IN THOUSANDS)
PRICE DECK NO. 1........ $30.00 $5.00 $1.60 $3.40 $1.75 $3.25 $(81,460)(3)
PRICE DECK NO. 2........ $18.00 $3.00 $0.51 $2.49 $0.66 $2.34 $129,820(3)
</Table>
13
- ---------------
(1) All of our commodity price risk management contracts outstanding as of June
30, 2003 expire by December 31, 2005.
(2) Settlements were calculated based on the assumed high (Price Deck No. 1) and
low (Price Deck No. 2) oil and natural gas prices on New York Mercantile
Exchange, or NYMEX, Northwest Pipeline Rocky Mountain Index, or Northwest,
and Colorado Interstate Gas Index, or CIG, that we believe were
representative of market pricing assumptions as of June 30, 2003.
(3) Settlements were calculated based on the assumption that oil and natural gas
prices will remain constant during the life of each contract.
EXPLORATION IS A HIGH-RISK ACTIVITY. THE SEISMIC DATA AND OTHER ADVANCED
TECHNOLOGIES WE USE ARE EXPENSIVE AND CANNOT ELIMINATE EXPLORATION RISKS,
WHICH COULD CAUSE US TO LOSE ALL OR A PORTION OF OUR INVESTMENT IN ANY
EXPLORATION ACTIVITY.
Our oil and natural gas operations are subject to the economic risks
typically associated with drilling exploratory wells. In conducting exploration
activities, we may drill unsuccessful wells and experience losses and, if oil
and natural gas are discovered, we may be unable to economically produce or
satisfactorily market such oil and natural gas. The new wells we drill may fail
to be productive and we may be unable to recover all or any portion of our
investment. The presence of unanticipated pressure or irregularities in
formations, miscalculations or accidents may cause our exploration activities to
be unsuccessful, resulting in a total loss of our investment in such activities.
The cost of drilling, completing and operating wells is often uncertain. Our
drilling operations may be curtailed, delayed or canceled as a result of
numerous factors, many of which may be beyond our control, including unexpected
drilling conditions, title problems, weather conditions, compliance with
environmental and other governmental requirements and shortages or delays in the
delivery of equipment and services.
We rely to a significant extent on seismic data and other advanced
technologies in conducting our exploration activities. Even when used and
properly interpreted, seismic data and visualization techniques only assist
geoscientists in identifying subsurface structures and hydrocarbon indicators.
Such data is not conclusive in determining if hydrocarbons are present or
economically producible. The use of seismic data and other technologies also
requires greater pre-drilling expenditures than traditional drilling strategies.
We could incur losses as a result of these expenditures.
FAILURE TO REPLACE RESERVES MAY NEGATIVELY AFFECT OUR BUSINESS.
Our future success depends upon our ability to find, develop or acquire
additional oil and natural gas reserves that are economically recoverable. Our
proved reserves generally decline when reserves are produced, unless we conduct
successful exploration or development activities or acquire properties
containing proved reserves, or both. We may not be able to find, develop or
acquire additional reserves on an economic basis. Furthermore, if oil and
natural gas prices increase, our finding costs for additional reserves could
also increase.
RESERVE ESTIMATES ARE INHERENTLY UNCERTAIN. ANY MATERIAL INACCURACIES IN OUR
RESERVE ESTIMATES OR ASSUMPTIONS UNDERLYING OUR RESERVE ESTIMATES, SUCH AS THE
DISCOUNT RATE USED, COULD CAUSE THE QUANTITIES AND NET PRESENT VALUE OF OUR
RESERVES TO BE OVERSTATED.
There are numerous uncertainties inherent in estimating quantities of
proved reserves, including many factors beyond our control, that could cause the
quantities and net present value of our reserves to be overstated. The reserve
information included or incorporated by reference in this prospectus represents
estimates based on reports prepared or audited by independent petroleum
engineers and prepared by our internal engineers. Reserve engineering is not an
exact science. Estimates of economically recoverable oil
14
and natural gas reserves and of future net cash flows necessarily depend upon a
number of variable factors and assumptions, any of which may cause these
estimates to vary considerably from actual results, such as:
- historical production from the area compared with production from other
producing areas;
- assumed effects of regulation by governmental agencies;
- assumptions concerning future oil and natural gas prices, future
operating costs and capital expenditures; and;
- estimates of future severance and excise taxes and workover and remedial
costs.
Estimates of reserves based on risk of recovery and estimates of expected
future net cash flows prepared or audited by different engineers, or by the same
engineers at different times, may vary substantially. Actual production,
revenues and expenditures with respect to our reserves will likely vary from
estimates, and the variance may be material. The net present values referred to
in this prospectus should not be construed as the current market value of the
estimated oil and natural gas reserves attributable to our properties. In
accordance with requirements of the SEC, the estimated discounted net cash flows
from proved reserves are generally based on prices and costs as of the date of
the estimate, whereas actual future prices and costs may be materially higher or
lower.
MANY OF OUR COMPETITORS HAVE GREATER FINANCIAL, TECHNOLOGICAL AND OTHER
RESOURCES THAN WE HAVE, WHICH COULD MAKE IT DIFFICULT FOR US TO EFFECTIVELY
COMPETE WITH OTHER COMPANIES IN OUR INDUSTRY.
We operate in the highly competitive areas of oil and natural gas
exploitation, exploration and acquisition. The oil and natural gas industry is
characterized by rapid and significant technological advancements and
introductions of new products and services using new technologies. We face
intense competition from major and independent oil and natural gas companies in
each of the following areas:
- seeking to acquire desirable producing properties or new leases for
future exploration;
- marketing our oil and natural gas production;
- integrating new technologies; and
- acquiring the personnel, equipment and expertise necessary to develop and
operate our properties.
Many other companies have financial, technological and other resources
substantially greater than our own. These companies may be able to pay more for
exploratory prospects and productive oil and natural gas properties and may be
able to define, evaluate, bid for and purchase a greater number of properties
and prospects than our financial or human resources permit. Further, many of our
competitors may enjoy technological advantages over us and may be able to
implement new technologies more rapidly than we can. Our ability to explore for
oil and natural gas and to acquire additional properties in the future will
depend upon our ability to successfully conduct operations, implement advanced
technologies, evaluate and select suitable properties and consummate
transactions in this highly competitive environment.
WE ARE SUBJECT TO COMPLEX LAWS AND REGULATIONS, INCLUDING ENVIRONMENTAL AND
SAFETY REGULATIONS, THAT CAN ADVERSELY AFFECT THE COST, MANNER OR FEASIBILITY
OF DOING BUSINESS.
Our operations and facilities are subject to certain Federal, state and
local laws and regulations relating to the exploration for, and the development,
production and transportation of, oil and natural gas, as well as environmental
and safety matters. Future laws or regulations, any adverse change in the
interpretation of existing laws and regulations, or our failure to comply with
existing legal requirements may harm our business, results of operations and
financial condition. We may be required to make large and unanticipated capital
expenditures to comply with environmental and other governmental regulations,
such as:
- land use restrictions;
- drilling bonds and other financial responsibility requirements;
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- spacing of wells;
- unitization and pooling of properties;
- habitat and endangered species protection, reclamation and remediation,
and other environmental protection;
- safety precautions;
- operational reporting; and
- taxation.
Under these laws and regulations, we could be liable for:
- personal injuries;
- property and natural resource damages;
- oil spills and releases or discharges of hazardous materials;
- well reclamation costs;
- remediation and clean-up costs and other governmental sanctions, such as
fines and penalties; and
- other environmental damages.
Our operations could be significantly delayed or curtailed and our costs of
operations could significantly increase as a result of regulatory requirements
or restrictions. We are unable to predict the ultimate cost of compliance with
these requirements or their effect on our operations.
WE CANNOT CONTROL ACTIVITIES ON PROPERTIES WE DO NOT OPERATE AND MAY HAVE
LIMITED ABILITY TO INFLUENCE OPERATIONS ON SUCH PROPERTIES TO CONTROL
ASSOCIATED COSTS.
Other companies currently operate approximately 23% of the net present
value of our reserves and we have limited ability to exercise influence over
operations for these properties or their associated costs. Our dependence on the
operator and other working interest owners for these projects and our limited
ability to influence operations and associated costs could prevent the
realization of our targeted returns on capital in drilling or acquisition
activities. The success and timing of drilling and exploitation activities on
properties operated by others, therefore, depend upon a number of factors that
will be outside our control, including:
- timing and amount of capital expenditures;
- the operator's expertise and financial resources;
- approval of other participants in drilling wells; and
- selection of technology.
INABILITY OR UNWILLINGNESS TO FUND OUR CAPITAL EXPENDITURES MAY RESULT IN
REDUCTION OR FORFEITURE OF OUR INTERESTS IN SOME OF OUR NON-OPERATED PROJECTS.
Where we are not the majority owner or operator of a particular oil and
natural gas project, we may have no control over the timing or amount of capital
expenditures associated with such project. If we are unable or unwilling to fund
our capital expenditures relating to such projects when required by the majority
owner or operator, our interests in these projects may be reduced or forfeited.
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OUR BUSINESS INVOLVES MANY OPERATING RISKS THAT MAY RESULT IN SUBSTANTIAL
LOSSES. INSURANCE MAY BE UNAVAILABLE OR INADEQUATE TO PROTECT US AGAINST THESE
RISKS.
Our operations are subject to hazards and risks inherent in drilling for,
producing and transporting oil and natural gas, such as:
- fires;
- natural disasters;
- explosions;
- formations with abnormal pressures;
- casing collapses;
- embedded oilfield drilling and service tools;
- uncontrollable flows of underground natural gas, oil and formation water;
- surface cratering;
- pipeline ruptures or cement failures; and
- environmental hazards such as natural gas leaks, oil spills and
discharges of toxic gases.
Any of these risks can cause substantial losses resulting from:
- injury or loss of life;
- damage to and destruction of property, natural resources and equipment;
- pollution and other environmental damage;
- regulatory investigations and penalties;
- suspension of operations; and
- repair and remediation costs.
As protection against operating hazards, we maintain insurance coverage
against some, but not all, potential losses. However, losses could occur for
uninsurable or uninsured risks, or in amounts in excess of existing insurance
coverage. The occurrence of an event that is not fully covered by insurance
could harm our financial condition and results of operations.
WE ARE VULNERABLE TO RISKS ASSOCIATED WITH OPERATING IN THE GULF OF MEXICO
THAT COULD NEGATIVELY IMPACT OUR OPERATIONS AND FINANCIAL RESULTS.
Our operations and financial results could be significantly impacted by
conditions in the Gulf of Mexico because we explore and produce extensively in
that area. As a result of this activity, we are vulnerable to the risks
associated with operating in the Gulf of Mexico, including those relating to:
- adverse weather conditions;
- oil field service costs and availability;
- compliance with environmental and other laws and regulations;
- remediation and other costs resulting from oil spills or releases of
hazardous materials; and
- failure of equipment or facilities.
For example, in 2002, adverse weather conditions caused us to temporarily
shut-in our offshore operations and reduce production, which resulted in a
decline in production by approximately 0.9 Bcf.
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In addition, we intend to conduct some of our exploration in the deep
waters (greater than approximately 1,000 feet) of the Gulf of Mexico, where
operations are more difficult and costly than in shallower waters. The deep
waters in the Gulf of Mexico lack the physical and oilfield service
infrastructure present in its shallower waters. As a result, deep water
operations may require a significant amount of time between a discovery and the
time that we can market our production, thereby increasing the risk involved
with these operations.
Further, production of reserves from reservoirs in the Gulf of Mexico
generally declines more rapidly than from reservoirs in many other producing
regions of the world. This results in recovery of a relatively higher percentage
of reserves from properties in the Gulf of Mexico during the initial few years
of production, and as a result, our reserve replacement needs from new prospects
may be greater there than for our operations elsewhere. Also, our revenues and
return on capital will depend significantly on prices prevailing during these
relatively short production periods.
THE LOSS OF KEY MEMBERS OF OUR MANAGEMENT TEAM, OR DIFFICULTY ATTRACTING AND
RETAINING EXPERIENCED TECHNICAL PERSONNEL, COULD REDUCE OUR COMPETITIVENESS
AND PROSPECTS FOR FUTURE SUCCESS.
The successful implementation of our strategies and handling of other
issues integral to our future success will depend, in part, on our experienced
management team. The loss of key members of our management team, including
Donald D. Wolf, our Chairman and Chief Executive Officer, and Barth E. Whitham,
our President and Chief Operating Officer, could have an adverse effect on our
business. We entered into employment agreements with Messrs. Wolf and Whitham to
secure their employment with the Company. We do not carry key man insurance. Our
exploratory drilling success and the success of other activities integral to our
operations will depend, in part, on our ability to attract and retain
experienced explorationists, engineers and other professionals. Competition for
experienced explorationists, engineers and some other professionals is extremely
intense. If we cannot retain our technical personnel or attract additional
experienced technical personnel, our ability to compete could be harmed.
THE MARKETABILITY OF OUR PRODUCTION MAY BE NEGATIVELY AFFECTED BY FACTORS OVER
WHICH WE MAY HAVE NO CONTROL, INCLUDING GENERAL ECONOMIC CONDITIONS AND
FEDERAL AND STATE REGULATIONS AND POLICIES.
The marketability of our production depends in part upon the availability,
proximity and capacity of pipelines, natural gas gathering systems and
processing facilities. Any significant change in market factors affecting these
infrastructure facilities could adversely impact our ability to deliver the oil
and natural gas we produce to market in an efficient manner, which could harm
our financial condition and results of operations. We deliver oil and natural
gas through gathering systems and pipelines that we do not own. These facilities
may not be available to us in the future. Our ability to produce and market oil
and natural gas is affected and may be also harmed by:
- Federal and state regulation of oil and natural gas production;
- transportation, tax and energy policies;
- changes in supply and demand; and
- general economic conditions.
OUR PRINCIPAL STOCKHOLDERS OWN A SIGNIFICANT AMOUNT OF OUR COMMON STOCK, WHICH
MAY GIVE THEM A CONTROLLING INFLUENCE OVER CORPORATE TRANSACTIONS AND MAY
DELAY OR PREVENT A CHANGE IN OUR MANAGEMENT OR VOTING CONTROL.
Our principal stockholders include Medicor Foundation, also referred to as
Medicor, Westport Energy LLC, also referred to as WELLC and, together with
Medicor, as the Medicor Group, ERI Investments, Inc., an affiliate of Equitable
Resources Inc., also referred to as ERI, and a group of former stockholders of
Belco Oil & Gas Corp., also referred to as the Belfer Group. The Medicor Group,
ERI and the Belfer Group beneficially owned approximately 21.2%, 19.4% and 8.3%,
respectively, of our outstanding common stock as of July 25, 2003, which
collectively represented approximately 48.9% of our outstanding common
18
stock as of that date. These stockholders, acting together through a
shareholders agreement, based on their current share ownership, may be able to
control the outcome of the election of directors as well as, if they choose to
act together, the adoption or amendment of provisions in our articles of
incorporation or bylaws and the approval of mergers and other significant
corporate transactions. These factors may also delay or prevent a change in our
management or voting control.
OUR OIL AND GAS MARKETING ACTIVITIES MAY EXPOSE US TO CLAIMS FROM ROYALTY
OWNERS.
In addition to marketing our oil and gas production, our marketing
activities generally include marketing oil and gas production for royalty
owners. Recently, royalty owners have commenced litigation against a number of
companies in the oil and gas production business claiming that amounts paid for
production attributable to the royalty owners' interest violated the terms of
the applicable leases and laws in various respects, including the value of
production sold, permissibility of deductions taken and accuracy of quantities
measured. Some of this litigation was commenced as class action suits, including
two class action suits filed against Westport involving some of our Wyoming
properties, and we may be required to make payments as a result of such
litigation. In addition, our costs relating to the marketing of oil and gas may
increase as new cases are decided and the law in this area continues to develop.
RISKS RELATED TO OUR INDEBTEDNESS
OUR LEVERAGE AND DEBT SERVICE OBLIGATIONS MAY ADVERSELY AFFECT OUR CASH FLOW
AND OUR ABILITY TO MAKE PAYMENTS ON OUR LONG-TERM DEBT.
As of June 30, 2003, we had total long-term debt of approximately $731.9
million and stockholders' equity of approximately $1.1 billion. Our level of
debt could have important consequences to our business, including the following:
- it may be more difficult for us to satisfy our debt repayment
obligations;
- we may have difficulties borrowing money in the future for acquisitions,
to meet our operating expenses or for other purposes;
- the amount of our interest expense may increase because certain of our
borrowings are at variable rates of interest, which, if interest rates
increase, could result in higher interest expense;
- we will need to use a portion of the money we earn to pay principal and
interest on our debt which will reduce the amount of money we have to
finance our operations and other business activities;
- we may have a higher level of debt than some of our competitors, which
may put us at a competitive disadvantage;
- we may be more vulnerable to economic downturns and adverse developments
in our industry; and
- our debt level could limit our flexibility in planning for, or reacting
to, changes in our business and the industry in which we operate.
ANY FAILURE TO MEET OUR DEBT OBLIGATIONS COULD HARM OUR BUSINESS, FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Our ability to meet our expenses and debt obligations will depend on our
future performance, which will be affected by financial, business, economic,
regulatory and other factors. We will not be able to control many of these
factors, such as economic conditions and governmental regulation. Our earnings
may be insufficient to allow us to pay the principal and/or interest on our debt
and meet our other obligations. If we do not have enough money, we may be
required to refinance all or part of our existing debt, sell assets, borrow more
money or raise equity. We may not be able to refinance our debt, sell assets,
borrow more money or raise equity on terms acceptable to us, if at all. In
addition, any failure to make scheduled payments of interest and/or principal on
our outstanding indebtedness would likely result in a reduction of our credit
rating, which could harm our ability to incur additional indebtedness on
acceptable terms.
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Further, our failure to make scheduled payments on our outstanding indebtedness
or our failure to comply with the financial and other restrictive covenants in
our debt instruments could result in an event of default under such instruments.
Such a default, or any bankruptcy resulting therefrom, could result in a default
on the notes, could delay or preclude payment of principal of, or interest on,
the notes and could otherwise adversely affect our business, financial condition
and results of operations.
WE MAY BE ABLE TO INCUR SUBSTANTIALLY MORE DEBT. ADDITIONAL DEBT COULD
EXACERBATE THE RISKS DESCRIBED ABOVE.
Together with our subsidiaries, we may be able to incur a substantial
amount of debt in the future. The restrictions in the Indenture governing terms
of our debt relating to the incurrence of indebtedness are subject to a number
of qualifications and exceptions, and under certain circumstances, indebtedness
incurred in compliance with these restrictions could be substantial. Also, these
restrictions do not prevent us from incurring obligations that do not constitute
indebtedness. As of June 30, 2003, we had approximately $365.5 million of
available unused borrowing capacity under our New Revolving Credit Facility,
subject to specific requirements, including compliance with financial covenants.
To the extent new debt is added to our current debt levels, the risks described
above could substantially increase.
THE EXCHANGE OFFER
This section of the prospectus describes the material terms of the proposed
exchange offer. We urge you to carefully read this entire document and the other
documents referred to herein for a more complete understanding of the exchange
offer.
PURPOSE OF THE EXCHANGE OFFER
In connection with the issuance of the old notes, we entered into a
registration rights agreement that provides for the exchange offer. A copy of
the registration rights agreement relating to the old notes is filed as an
exhibit to the registration statement of which this prospectus is a part. Under
the registration rights agreement relating to the old notes we agreed that we
would, subject to certain exceptions:
- within 75 days after the issue date of the old notes, file a registration
statement with the SEC with respect to a registered offer to exchange the
old notes for the exchange notes having terms substantially identical in
all material respects to the old notes (except that the exchange notes
will not contain terms with respect to transfer restrictions and will
have different administrative terms);
- use our reasonable best efforts to cause the registration statement to be
declared effective under the Securities Act within 180 days after the
issue date of the old notes;
- following the declaration of the effectiveness of the registration
statement, promptly offer the exchange notes in exchange for surrender of
the old notes; and
- keep the exchange offer open for not less than 30 days (or longer if
required by applicable law) after the date notice of the exchange offer
is mailed to the holders of the old notes.
For each old note tendered to us pursuant to the exchange offer, we will
issue to the holder of such old note an exchange note having a principal amount
equal to that of the surrendered old note. Interest on each exchange note will
accrue from the last interest payment date on which interest was paid on the old
note surrendered in exchange therefor, or, if no interest has been paid on such
old note, from November 1, 2002.
Under existing SEC interpretations, the exchange notes will be freely
transferable by holders other than our affiliates after the exchange offer
without further registration under the Securities Act if the holder of the
exchange notes represents to us in the exchange offer that it is acquiring the
exchange notes in the ordinary course of its business, that it has no
arrangement or understanding with any person to participate in the distribution
of the exchange notes and that it is not an affiliate of ours, as such terms are
interpreted by the SEC; provided, however, that broker-dealers receiving the
exchange notes in the
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exchange offer will have a prospectus delivery requirement with respect to
resales of such exchange notes. The SEC has taken the position that such
participating broker-dealers may fulfill their prospectus delivery requirements
with respect to the exchange notes (other than a resale of an unsold allotment
from the original sale of the old notes) with the prospectus contained in this
registration statement. Each broker-dealer that receives the exchange notes for
its own account in exchange for the old notes, where such old notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such exchange notes. See "Plan of Distribution."
Under the registration rights agreement relating to the old notes, we are
required to allow participating broker-dealers and other persons, if any, with
similar prospectus delivery requirements to use the prospectus contained in this
registration statement in connection with the resale of the exchange notes for
180 days following the effective date of such registration statement (or such
shorter period during which participating broker-dealers are required by law to
deliver such prospectus).
A holder of old notes (other than certain specified holders) who wishes to
exchange the old notes for the exchange notes in the exchange offer will be
required to represent that any exchange notes to be received by it will be
acquired in the ordinary course of its business and that at the time of the
commencement of the exchange offer it has no arrangement or understanding with
any person to participate in the distribution (within the meaning of the
Securities Act) of the exchange notes and that it is not an "affiliate" of ours,
as defined in Rule 405 of the Securities Act, or if it is an affiliate, that it
will comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable.
In the event that:
(1) any change of law or in applicable interpretations thereof by the
staff of the SEC do not permit us to effect an exchange offer; or
(2) for any other reason we do not consummate the exchange offer
within 220 days of the issue date of the old notes; or
(3) an initial purchaser of the old notes notifies us following
consummation of the exchange offer that the old notes held by it are not
eligible to be exchanged for the exchange notes in the exchange offer; or
(4) certain holders of the old notes are not eligible to participate
in the exchange offer or may not resell the exchange notes acquired by them
in the exchange offer to the public without delivering a prospectus,
then, we will, subject to certain exceptions,
(1) file a shelf registration statement with the SEC covering resales
of the old notes or the exchange notes, as the case may be, on or prior to
the date (which we call the shelf filing date) which is the 75th day after
the date on which the obligation to file the shelf registration statement
arises;
(2) use our reasonable best efforts to cause the shelf registration
statement to be declared effective under the Securities Act on or prior to
the 75th day after the shelf filing date; and
(3) use our reasonable best efforts to keep the shelf registration
statement effective until the earliest of (A) the time when the old notes
or the exchange notes covered by the shelf registration statement can be
sold pursuant to Rule 144 without any limitations under Rule 144, (B) two
years from the effective date of the shelf registration statement and (C)
the date on which all old notes or exchange notes registered thereunder are
disposed of in accordance therewith.
We will, in the event a shelf registration statement is filed, among other
things, provide to each holder for whom such shelf registration statement was
filed copies of the prospectus which is a part of the shelf registration
statement, notify each such holder when the shelf registration statement has
become effective
21
and take certain other actions as are required to permit unrestricted resales of
the old notes or the exchange notes, as the case may be. A holder selling such
old notes or exchange notes pursuant to the shelf registration statement
generally would be required to be named as a selling security holder 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 in connection
with such sales and will be bound by the provisions of the registration rights
agreement that are applicable to such holder (including certain indemnification
obligations).
We will pay additional cash interest on the applicable old notes and
exchange notes, subject to certain exceptions:
(1) if we fail to file the registration statement of which this
prospectus forms a part with the SEC on or prior to the 75th day after the
issue date of the old notes;
(2) if the registration statement of which this prospectus forms a
part is not declared effective by the SEC on or prior to the 180th day
after the issue date of the old notes;
(3) if the exchange offer is not consummated on or before the 40th day
after the registration statement of which this prospectus forms a part is
declared effective;
(4) if obligated to file the shelf registration statement, we fail to
file the shelf registration statement with the SEC on or prior to the shelf
filing date;
(5) if obligated to file a shelf registration statement, the shelf
registration statement is not declared effective on or prior to the 75th
day after the shelf filing date; or
(6) after the registration statement of which this prospectus forms a
part or the shelf registration statement, as the case may be, is declared
effective, such registration statement thereafter ceases to be effective or
usable (subject to certain exceptions);
from and including the date on which any such default shall occur to but
excluding the date on which all such defaults have been cured.
The rate of any such additional interest will be 0.50% per annum. We will
pay any such additional interest on regular interest payment dates. Such
additional interest will be in addition to any other interest payable from time
to time with respect to the old notes and the exchange notes.
All references in the Indenture, in any context, to any interest or other
amount payable on or with respect to the old notes or the exchange notes shall
be deemed to include any additional interest pursuant to the registration rights
agreement relating to the old notes.
If we effect the exchange offer, we will be entitled to close the exchange
offer 30 days after the commencement thereof provided that we have accepted all
old notes theretofore validly tendered in accordance with the terms of the
exchange offer.
BACKGROUND OF THE EXCHANGE OFFER
We issued an aggregate of $125 million principal amount of old notes on
April 3, 2003 under the Indenture. The old notes were issued as additional debt
securities under the Indenture pursuant to which, on November 5, 2001, we issued
$275 million principal amount of our unregistered 8 1/4% Senior Subordinated
Notes Due 2011, and on December 17, 2002, we issued $300 million principal
amount of our unregistered 8 1/4% Senior Subordinated Notes Due 2011, all of
which were exchanged for equal principal amounts of the initial exchange notes
on March 14, 2002 and March 12, 2003, respectively. The maximum principal amount
of the exchange notes that will be issued in this exchange offer for the old
notes is $125 million. The terms of the exchange notes and the old notes will be
identical in all material respects, except for transfer restrictions and
registration rights that will not apply to the exchange notes, and different
administrative terms.
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The exchange notes, any old notes not exchanged in the exchange offer and
the initial exchange notes will constitute a single class of debt securities
under the Indenture. The exchange notes, together with any old notes that are
not exchanged in the exchange offer, will represent approximately 17.9% of all
notes issued under the Indenture as of the date of the closing of the exchange
offer.
The exchange notes will bear interest at a rate of 8 1/4% per year, payable
semiannually on May 1 and November 1 of each year, beginning on November 1,
2003. Interest on each exchange note will accrue from May 1, 2003, the last
interest payment date on which interest was paid on the old note surrendered in
exchange therefor. Holders of the exchange notes will not receive any interest
on old notes tendered and accepted for exchange.
In order to exchange your old notes for the exchange notes containing no
transfer restrictions in the exchange offer, you will be required to make the
following representations:
- the exchange notes will be acquired in the ordinary course of your
business;
- you have no arrangements with any person to participate in the
distribution of the exchange notes; and
- you are not our "affiliate" as defined in Rule 405 of the Securities Act,
or if you are an affiliate of ours, you will comply with the applicable
registration and prospectus delivery requirements of the Securities Act.
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept for exchange any old notes
properly tendered and not validly withdrawn in the exchange offer, and the
exchange agent will deliver the exchange notes promptly after the expiration
date of the exchange offer. We expressly reserve the right to delay acceptance
of any of the tendered old notes or terminate the exchange offer and not accept
for exchange any tendered old notes not already accepted if any conditions set
forth under "-- Conditions to the Exchange Offer" have not been satisfied or
waived by us or do not comply, in whole or in part, with any applicable law.
If you tender your old notes, you will not be required to pay brokerage
commissions or fees or, subject to the instructions in the letter of
transmittal, transfer taxes with respect to the exchange of the old notes. We
will pay all charges, expenses and transfer taxes in connection with the
exchange offer, other than certain taxes described below under "-- Transfer
Taxes."
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The exchange offer will expire at 5:00 p.m., New York City time, on
, 2003, unless we extend it. We expressly reserve the right to extend
the exchange offer on a daily basis or for such period or periods as we may
determine in our sole discretion from time to time by giving oral, confirmed in
writing, or written notice to the exchange agent and by making a public
announcement by press release to the Dow Jones News Service prior to 9:00 a.m.,
New York City time, on the first business day following the previously scheduled
expiration date, provided, however, that the maximum period of time during which
the exchange offer, including any extension thereof, may be in effect will not
exceed 90 days. During any extension of the exchange offer, all old notes
previously tendered, not validly withdrawn and not accepted for exchange will
remain subject to the exchange offer and may be accepted for exchange by us.
To the extent we are legally permitted to do so, we expressly reserve the
absolute right, in our sole discretion, but are not required, to:
- waive any condition of the exchange offer; and
- amend any terms of the exchange offer;
in each case prior to the expiration of the exchange offer, or any extension
thereof.
Any waiver or amendment to the exchange offer will apply to all old notes
tendered, regardless of when or in what order the old notes were tendered. In
particular, if we waive a condition with respect to
23
one participant in the exchange, we will waive such condition with respect to
all participants in the exchange. If we make a material change in the terms of
the exchange offer or if we waive a material condition of the exchange offer, we
will disseminate additional exchange offer materials, and we will extend the
exchange offer to the extent required by law.
We expressly reserve the right, in our sole discretion, to terminate the
exchange offer if any of the conditions set forth under "-- Conditions to the
Exchange Offer" exist. Any such termination will be followed promptly by a
public announcement. In the event we terminate the exchange offer, we will give
immediate notice to the exchange agent, and all old notes previously tendered
and not accepted for exchange will be returned promptly to the tendering
holders.
In the event that the exchange offer is withdrawn or otherwise not
completed, the exchange notes will not be given to holders of old notes who have
validly tendered their old notes. We will return any old notes that have been
tendered for exchange but that are not exchanged for any reason to their holder
without cost to the holder, or, in the case of the old notes tendered by
book-entry transfer into the exchange agent's account at a book-entry transfer
facility under the procedure set forth under "-- Procedures for Tendering Old
Notes; Book-Entry Transfer," such old notes will be credited to the account
maintained at such book-entry transfer facility from which such old notes were
delivered, unless otherwise requested by such holder under "-- Special Delivery
Instructions" in the letter of transmittal, promptly following the exchange date
or the termination of the exchange offer.
RESALE OF THE EXCHANGE NOTES
Based on interpretations of the SEC set forth in no-action letters issued
to third parties, we believe that the exchange notes issued under the exchange
offer in exchange for the old notes may be offered for resale, resold and
otherwise transferred by you without compliance with the registration and
prospectus delivery provisions of the Securities Act, if:
- you are not an "affiliate" of ours within the meaning of Rule 405 under
the Securities Act;
- you are acquiring the exchange notes in the ordinary course of your
business; and
- you do not intend to participate in the distribution of the exchange
notes.
If you tender old notes in the exchange offer with the intention of
participating in any manner in a distribution of the exchange notes:
- you cannot rely on those interpretations of the SEC; and
- you must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction, and the secondary resale transaction must be covered by an
effective registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation S-K
under the Securities Act.
Unless an exemption from registration is otherwise available, any security
holder intending to distribute the exchange notes should be covered by an
effective registration statement under the Securities Act containing the selling
security holder's information required by Item 507 of Regulation S-K. This
prospectus may be used for an offer to resell, a resale or other re-transfer of
the exchange notes only as specifically set forth in the section captioned "Plan
of Distribution." Only broker-dealers that acquired the exchange notes as a
result of market-making activities or other trading activities may participate
in the exchange offer. Each broker-dealer that receives the exchange notes for
its own account in exchange for old notes, where such old notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of the exchange notes. Please read the section captioned "Plan
of Distribution" for more details regarding the transfer of the exchange notes.
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ACCEPTANCE OF OLD NOTES FOR EXCHANGE
We will accept for exchange old notes validly tendered pursuant to the
exchange offer, or defectively tendered, if such defect has been waived by us,
after the later of:
- the expiration date of the exchange offer; and
- the satisfaction or waiver of the conditions specified below under
"-- Conditions to the Exchange Offer."
Except as specified above, we will not accept old notes for exchange
subsequent to the expiration date of the exchange offer. Tenders of old notes
will be accepted only in principal amounts equal to $1,000 or integral multiples
thereof.
We expressly reserve the right, in our sole discretion, to:
- delay acceptance for exchange of old notes tendered under the exchange
offer, subject to Rule 14e-1 under the Exchange Act, which requires that
an offeror pay the consideration offered or return the securities
deposited by or on behalf of the holders promptly after the termination
or withdrawal of a tender offer; or
- terminate the exchange offer and not accept for exchange any old notes,
if any of the conditions set forth below under "-- Conditions to the
Exchange Offer" have not been satisfied or waived by us or in order to
comply in whole or in part with any applicable law.
In all cases, the exchange notes will be issued only after timely receipt
by the exchange agent of certificates representing old notes, or confirmation of
book-entry transfer, a properly completed and duly executed letter of
transmittal, or a manually signed facsimile thereof, and any other required
documents. For purposes of the exchange offer, we will be deemed to have
accepted for exchange validly tendered old notes, or defectively tendered old
notes with respect to which we have waived such defect, if, as and when we give
oral, confirmed in writing, or written notice to the exchange agent. Promptly
after the expiration date, we will deposit the exchange notes with the exchange
agent, who will act as agent for the tendering holders for the purpose of
receiving the exchange notes and transmitting them to the holders. The exchange
agent will deliver the exchange notes to holders of old notes accepted for
exchange after the exchange agent receives the exchange notes.
If, for any reason, we delay acceptance for exchange of validly tendered
old notes or we are unable to accept for exchange validly tendered old notes,
then the exchange agent may, nevertheless, on its behalf, retain tendered old
notes, without prejudice to our rights described in this prospectus under the
captions "-- Expiration Date; Extensions; Termination; Amendments,"
"-- Conditions to the Exchange Offer" and "-- Withdrawal of Tenders," subject to
Rule 14e-1 under the Securities Exchange Act of 1934, which requires that an
offeror pay the consideration offered or return the securities deposited by or
on behalf of the holders thereof promptly after the termination or withdrawal of
a tender offer.
If any tendered old notes are not accepted for exchange for any reason, or
if certificates are submitted evidencing more old notes than those that are
tendered, certificates evidencing old notes that are not exchanged will be
returned, without expense, to the tendering holder, or, in the case of the old
notes tendered by book-entry transfer into the exchange agent's account at a
book-entry transfer facility under the procedure set forth under "-- Procedures
for Tendering Old Notes; Book-Entry Transfer," such old notes will be credited
to the account maintained at such book-entry transfer facility from which such
old notes were delivered, unless otherwise requested by such holder under
"-- Special Delivery Instructions" in the letter of transmittal, promptly
following the exchange date or the termination of the exchange offer.
Tendering holders of old notes exchanged in the exchange offer will not be
obligated to pay brokerage commissions or transfer taxes with respect to the
exchange of their old notes other than as described under the caption
"-- Transfer Taxes" or as set forth in the letter of transmittal. We will pay
all other charges and expenses in connection with the exchange offer.
25
PROCEDURES FOR TENDERING OLD NOTES
Any beneficial owner whose old notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee or held through
a book-entry transfer facility and who wishes to tender old notes should contact
such registered holder promptly and instruct such registered holder to tender
old notes on such beneficial owner's behalf.
TENDER OF OLD NOTES HELD THROUGH THE DEPOSITORY TRUST COMPANY
The exchange agent and The Depository Trust Company, or DTC, have confirmed
that the exchange offer is eligible for the DTC automated tender offer program.
Accordingly, DTC participants may electronically transmit their acceptance of
the exchange offer by causing DTC to transfer old notes to the exchange agent in
accordance with DTC's automated tender offer program 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 and received
by the exchange agent that forms part of the book-entry confirmation. The
agent's message states that DTC has received an express acknowledgment from the
participant in DTC tendering old notes that are the subject of that book-entry
confirmation, that the participant has received and agrees to be bound by the
terms of the letter of transmittal, and that we may enforce such agreement
against such participant. In the case of an agent's message relating to
guaranteed delivery, the term means a message transmitted by DTC and received by
the exchange agent, which states that DTC has received an express acknowledgment
from the participant in DTC tendering old notes that they have received and
agree to be bound by the notice of guaranteed delivery.
TENDER OF OLD NOTES HELD IN PHYSICAL FORM
For a holder to validly tender old notes held in physical form:
- the exchange agent must receive at its address set forth in this
prospectus a properly completed and validly executed letter of
transmittal, or a manually signed facsimile thereof, together with any
signature guarantees and any other documents required by the instructions
to the letter of transmittal; and
- the exchange agent must receive certificates for tendered old notes at
such address, or such old notes must be transferred pursuant to the
procedures for book-entry transfer described above. A confirmation of
such book-entry transfer must be received by the exchange agent prior to
the expiration date of the exchange offer. A holder who desires to tender
old notes and who cannot comply with the procedures set forth herein for
tender on a timely basis or whose old notes are not immediately available
must comply with the procedures for guaranteed delivery set forth below.
LETTERS OF TRANSMITTAL AND OLD NOTES SHOULD BE SENT ONLY TO THE EXCHANGE
AGENT, AND NOT TO US OR TO ANY BOOK-ENTRY TRANSFER FACILITY.
THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE
HOLDER TENDERING OLD NOTES. DELIVERY OF SUCH DOCUMENTS WILL BE DEEMED MADE ONLY
WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF SUCH DELIVERY IS BY MAIL, WE
SUGGEST THAT THE HOLDER USE PROPERLY INSURED, REGISTERED MAIL WITH RETURN
RECEIPT REQUESTED, AND THAT THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE
EXPIRATION DATE OF THE EXCHANGE OFFER TO PERMIT DELIVERY TO THE EXCHANGE AGENT
PRIOR TO SUCH DATE. NO ALTERNATIVE, CONDITIONAL OR CONTINGENT TENDERS OF OLD
NOTES WILL BE ACCEPTED.
SIGNATURE GUARANTEES
A signature on a letter of transmittal or a notice of withdrawal must be
guaranteed by an eligible institution. Eligible institutions include banks,
brokers, dealers, municipal securities dealers, municipal securities brokers,
government securities dealers, government securities brokers, credit unions,
national
26
securities exchanges, registered securities associations, clearing agencies and
savings associations. The signature need not be guaranteed by an eligible
institution if the old notes are tendered:
- by a registered holder who has not completed the box entitled "Special
Registration Instructions" or "Special Delivery Instructions" on the
letter of transmittal; or
- for the account of an eligible institution.
If the letter of transmittal is signed by a person other than the
registered holder of any old notes, the old notes must be endorsed 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 old notes
and an eligible institution must guarantee the signature on the bond power.
If the letter of transmittal or any old 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, these
persons should so indicate when signing. Unless we waive this requirement, they
should also submit evidence satisfactory to us of their authority to deliver the
letter of transmittal.
BOOK-ENTRY TRANSFER
The exchange agent will seek to establish a new account or utilize an
existing account with respect to the old notes at DTC promptly after the date of
this prospectus. Any financial institution that is a participant in the
book-entry transfer facility system and whose name appears on a security
position listing it as the owner of the old notes may make book-entry delivery
of old notes by causing the book-entry transfer facility to transfer such old
notes into the exchange agent's account. HOWEVER, ALTHOUGH DELIVERY OF OLD NOTES
MAY BE EFFECTED THROUGH BOOK-ENTRY TRANSFER INTO THE EXCHANGE AGENT'S ACCOUNT AT
A BOOK-ENTRY TRANSFER FACILITY, A PROPERLY COMPLETED AND VALIDLY EXECUTED LETTER
OF TRANSMITTAL, OR A MANUALLY SIGNED FACSIMILE THEREOF, MUST BE RECEIVED BY THE
EXCHANGE AGENT AT ITS ADDRESS SET FORTH IN THIS PROSPECTUS ON OR PRIOR TO THE
EXPIRATION DATE OF THE EXCHANGE OFFER, OR ELSE THE GUARANTEED DELIVERY
PROCEDURES DESCRIBED BELOW MUST BE COMPLIED WITH. The confirmation of a
book-entry transfer of old notes into the exchange agent's account at a
book-entry transfer facility is referred to in this prospectus as a "book-entry
confirmation." Delivery of documents to the book-entry transfer facility in
accordance with that book-entry transfer facility's procedures does not
constitute delivery to the exchange agent.
GUARANTEED DELIVERY
If you wish to tender your old notes and:
- certificates representing your old notes are not lost but are not
immediately available;
- time will not permit your letter of transmittal, certificates
representing your old notes and all other required documents to reach the
exchange agent on or prior to the expiration date of the exchange offer;
or
- the procedures for book-entry transfer cannot be completed on or prior to
the expiration date of the exchange offer;
you may tender your old notes if:
- your tender is made by or through an eligible institution; and
- on or prior to the expiration date of the exchange offer, the exchange
agent has received from the eligible institution a properly completed and
validly executed notice of guaranteed delivery, by manually signed
facsimile transmission, mail or hand delivery, in substantially the form
provided with this prospectus:
- setting forth your name and address, the registered number(s) of your
old notes and the principal amount of the old notes tendered;
- stating that the tender is being made by guaranteed delivery;
27
- guaranteeing that, within three New York Stock Exchange trading days
after the date of the notice of guaranteed delivery, the letter of
transmittal or facsimile thereof, properly completed and validly
executed, together with certificates representing the old notes, or a
book-entry confirmation, and any other documents required by the letter
of transmittal and the instructions thereto, will be deposited by the
eligible institution with the exchange agent; and
- the exchange agent receives the properly completed and validly executed
letter of transmittal or facsimile thereof with any required signature
guarantees, together with certificates for all old notes in proper form
for transfer, or a book-entry confirmation, and any other required
documents, within three New York Stock Exchange trading days after the
date of the notice of guaranteed delivery.
OTHER MATTERS
Exchange notes will be issued in exchange for old notes accepted for
exchange only after timely receipt by the exchange agent of:
- certificates for, or a timely book-entry confirmation with respect to,
your old notes;
- a properly completed and duly executed letter of transmittal or facsimile
thereof with any required signature guarantees, or, in the case of a
book-entry transfer, an agent's message; and
- any other documents required by the letter of transmittal.
All questions as to the form of all documents and the validity, including
time of receipt, and acceptance of all tenders of old notes will be determined
by us, in our sole discretion, the determination of which shall be final and
binding. ALTERNATIVE, CONDITIONAL OR CONTINGENT TENDERS OF OLD NOTES WILL NOT BE
CONSIDERED VALID. We reserve the absolute right to reject any or all tenders of
old notes that are not in proper form or the acceptance of which, in our
opinion, would be unlawful. We also reserve the right to waive any defects,
irregularities or conditions of tender as to any particular old 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 by us, any defect or irregularity in connection with tenders
of old notes must be cured within the time that we determine. Tenders of old
notes will not be deemed to have been made until all defects and irregularities
have been waived by us or cured. Neither us, the exchange agent, or any other
person will be under any duty to give notice of any defects or irregularities in
tenders of old notes, or will incur any liability to holders for failure to give
any such notice.
- By signing or agreeing to be bound by the letter of transmittal, you will
represent to us that, among other things:
- any exchange 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 exchange notes;
- if you are not a broker-dealer, that you are not engaged in and do not
intend to engage in the distribution of the exchange notes;
- if you are a broker-dealer that will receive the exchange notes for your
own account in exchange for old notes that were acquired as a result of
market-making activities or other trading activities, that you will
deliver a prospectus, as required by law, in connection with any resale
of the exchange notes; and
- you are not an "affiliate" of ours, as defined in Rule 405 of the
Securities Act, or, if you are an affiliate, you will comply with any
applicable registration and prospectus delivery requirements of the
Securities Act.
28
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, you may withdraw your
tender of old notes at any time prior to the expiration date of the exchange
offer.
For a withdrawal to be effective:
- the exchange agent must receive a written notice of withdrawal at the
address set forth below under "-- Exchange Agent"; 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 old notes to be
withdrawn; and
- identify the old notes to be withdrawn, including the principal amount of
the old notes to be withdrawn.
If certificates for the old notes have been delivered or otherwise
identified to the exchange agent, then, prior to the release of those
certificates, the withdrawing holder must also submit:
- the serial numbers of the particular certificates to be withdrawn; and
- a signed notice of withdrawal with signatures guaranteed by an eligible
institution, unless the withdrawing holder is an eligible institution.
If the old notes have been tendered pursuant to 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 the withdrawn old
notes and otherwise comply with the procedures of DTC.
We will determine all questions as to the validity, form and eligibility,
including time of receipt, of notices of withdrawal, and our determination shall
be final and binding on all parties. We will deem any old notes so withdrawn not
to have been validly tendered for exchange for purposes of the exchange offer.
We will return any old notes that have been tendered for exchange but that
are not exchanged for any reason to their holder without cost to the holder. In
the case of old notes tendered by book-entry transfer into the exchange agent's
account at DTC, according to the procedures described above, those old notes
will be credited to an account maintained with DTC for the old 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 re-tender
properly withdrawn old notes by following one of the procedures described under
"-- Procedures for Tendering Old Notes" at any time on or prior to the
expiration date of the exchange offer.
CONDITIONS TO THE EXCHANGE OFFER
Despite any other term of the exchange offer, we will not be required to
accept for exchange any old notes and we may terminate or amend the exchange
offer as provided in this prospectus before accepting any old notes for exchange
if in our reasonable judgment:
- the exchange notes to be received will not be tradable by the holder
without restriction under the Securities Act and the Exchange Act and
without material restrictions under the blue sky or securities laws of
substantially all of the states of the United States;
- the exchange offer, or the making of any exchange by a holder of old
notes, would violate applicable law; or
- any action or proceeding has been instituted or threatened in any court
or by or before any governmental agency with respect to the exchange
offer that would reasonably be expected to impair our ability to proceed
with the exchange offer.
29
We will not be obligated to accept for exchange the old notes of any holder
that has not made to us:
- the representations described under the captions "-- Procedures for
Tendering Old Notes" and "Plan of Distribution;" and
- any other representations that may be reasonably necessary under
applicable SEC rules, regulations or interpretations to make available to
us an appropriate form for registration of the exchange notes under the
Securities Act.
We expressly reserve the right, at any time or at various times, to extend
the period of time during which the exchange offer is open, provided, however,
that the maximum period of time during which the exchange offer, including any
extension thereof, may be in effect will not exceed 90 days. Consequently, we
may delay acceptance of any old notes by giving oral or written notice of an
extension to their holders. During an extension, all old notes previously
tendered will remain subject to the exchange offer, and we may accept them for
exchange. We will return any old notes that we do not accept for exchange for
any reason without expense to their tendering holder as promptly as practicable
after the expiration or termination of the exchange offer.
We expressly reserve the right to amend or terminate the exchange offer and
to reject for exchange any old notes not previously accepted for exchange, upon
the occurrence of any of the conditions of the exchange offer specified above.
By public announcement we will give oral or written notice of any extension,
amendment, non-acceptance or termination to the holders of the old notes as
promptly as practicable. If we amend the exchange offer in a manner that we
consider material, we will disclose the amendment in the manner required by
applicable law.
These conditions are solely for our benefit and we may assert them
regardless of the circumstances that may give rise to them or waive them in
whole or in part at any time or at various times prior to the expiration of the
exchange offer, or any extension thereof, in our sole discretion. If we fail at
any time to exercise any of the foregoing rights, this failure will not
constitute a waiver of that right.
We will not accept for exchange any old notes tendered, and will not issue
the exchange notes in exchange for any old notes, if at any time a stop order is
threatened or in effect with respect to the registration statement of which this
prospectus constitutes a part or the qualification of the Indenture under the
Trust Indenture Act of 1939.
TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the transfer and
exchange of old notes pursuant to the exchange offer. The tendering holder,
however, will be required to pay any transfer taxes, whether imposed on the
record holder or any other person, if:
- delivery of the exchange notes, or certificates for old notes for
principal amounts not exchanged, are to be made to any person other than
the record holder of the old notes tendered;
- tendered certificates for old notes are recorded in the name of any
person other than the person signing any letter of transmittal; or
- a transfer tax is imposed for any reason other than the transfer and
exchange of old notes under the exchange offer.
CONSEQUENCES OF FAILURE TO EXCHANGE
If you do not exchange your old notes for the exchange notes in the
exchange offer, you will remain subject to restrictions on transfer of the old
notes:
- as set forth in the legend printed on the old notes as a consequence of
the issuance of the old notes pursuant to the exemptions from, or in
transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws; and
30
- as otherwise set forth in the prospectus distributed in connection with
the private offering of the old notes.
In general, you may not offer or sell the old notes unless they are
registered under the Securities Act, or if the offer or sale is exempt from
registration under the Securities Act and applicable state securities laws.
Except as required by the registration rights agreement relating to the old
notes, we do not intend to register resales of the old notes under the
Securities Act. Based on interpretations of the SEC, you may offer for resale,
resell or otherwise transfer the exchange notes issued in the exchange offer
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that:
- you are not an "affiliate" within the meaning of Rule 405 under the
Securities Act;
- you acquired the exchange notes in the ordinary course of your business;
and
- you have no arrangement or understanding with respect to the distribution
of the exchange notes to be acquired in the exchange offer.
If you tender old notes in the exchange offer for the purpose of
participating in a distribution of the exchange notes:
- you cannot rely on the applicable interpretations of the SEC; and
- you must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction and that such a secondary resale transaction must be covered
by an effective registration statement containing the selling security
holder information required by Item 507 or 508, as applicable, of
Regulation S-K under the Securities Act.
EXCHANGE AGENT
The Bank of New York has been appointed as exchange agent for the exchange
offer. You should direct questions and requests for assistance, requests for
additional copies of this prospectus, the letter of transmittal or any other
documents to the exchange agent. You should send certificates for old notes,
letters of transmittal and any other required documents to the exchange agent
addressed as follows:
<Table>
By Registered or Certified Mail By Hand or Overnight Delivery Facsimile Transmission
The Bank of New York The Bank of New York (Eligible Institutions Only)
Reorganization Department Lobby Level -- Corporate (212) 298-1915
101 Barclay Street Trust Window To Confirm by Telephone or
7 East Floor 101 Barclay Street for
New York, New York 10286 New York, New York 10286 Information Call:
Attn: Enrique Lopez Attn: Enrique Lopez Enrique Lopez
(Reorganization Dept/7 East) (212) 815-2742
</Table>
Delivery of the letter of transmittal to an address other than as shown
above or transmission via facsimile other than as set forth above does not
constitute a valid delivery of the letter of transmittal.
OTHER
Participation in the exchange offer is voluntary, and we urge you to
carefully consider whether to exchange the old notes for the exchange notes. We
urge you 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 old notes in open market or
privately negotiated transactions, through subsequent exchange offers or
otherwise, on terms that may differ from the terms of the exchange offer. We
have no present plans to acquire any old notes that are not tendered in the
exchange offer or to file a registration statement to permit resales or any
untendered old notes.
31
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the exchange
notes in the exchange offer. In consideration for issuing the exchange notes as
contemplated by this prospectus, we will receive the old notes in like principal
amount. The old notes surrendered in exchange for the exchange notes will be
retired and cancelled and cannot be reissued. Accordingly, the issuance of the
exchange notes will not result in any increase in our indebtedness or capital
stock.
We received net proceeds of approximately $131.5 million from the sale of
the old notes. We used the proceeds from the sale of the old notes to redeem all
of our outstanding 8 7/8% Senior Subordinated Notes due 2007 in the aggregate
principal amount of approximately $123 million on May 5, 2003. The 8 7/8% Senior
Subordinated Notes were redeemed at a redemption price (including redemption
premiums) equal to 104.438% of principal amount, plus accrued and unpaid
interest to the date of redemption. The aggregate redemption price for the
8 7/8% Senior Subordinated Notes, including redemption premiums and accrued and
unpaid interest, was approximately $129.6 million. We used the remaining $1.9
million of the net proceeds from the sale of the old notes to reduce our
indebtedness under the New Revolving Credit Facility.
The New Revolving Credit Facility provides for a maximum committed amount
of $600 million, an initial borrowing base of approximately $470 million and a
maturity date of December 16, 2006. As of June 30, 2003, we had no borrowings
under the New Revolving Credit Facility, as we paid off the amounts borrowed
under the New Revolving Credit Facility out of cash flow from operations and by
using a portion of the proceeds received from the sale of the old notes. As of
June 30, 2003, we had approximately $104.5 million of letters of credit
outstanding and available unused borrowing capacity of approximately $365.5
million. The letters of credit were issued primarily in connection with the
margin requirements of our oil and natural gas derivative contracts. The New
Revolving Credit Facility currently limits our outstanding letters of credit to
$200 million.
32
CAPITALIZATION
The following table sets forth our cash and capitalization as of June 30,
2003. This table should be read in conjunction with our historical consolidated
combined financial statements and related notes, "Management's Discussion and
Analysis of Financial Conditions and Results of Operations" and other financial
information included elsewhere or incorporated by reference in this prospectus.
<Table>
<Caption>
AS OF
JUNE 30,
2003
-----------
(DOLLARS IN
THOUSANDS)
Cash........................................................ $ 65,865
Total debt:
New Revolving Credit Facility............................. $ --
8 7/8% Senior Subordinated Notes due 2007(1).............. --
8 1/4% Senior Subordinated Notes Due 2011(2).............. 700,000
----------
Total debt............................................. 700,000
----------
Stockholders' equity:
Preferred stock........................................... 29
Common stock.............................................. 672
Additional paid-in-capital................................ 1,156,031
Other comprehensive income................................ (70,566)
Treasury stock............................................ (512)
Retained earnings......................................... 32,469
----------
Total stockholders' equity............................. 1,118,123
----------
Total capitalization................................... $1,818,123
==========
</Table>
- ---------------
(1) On May 5, 2003, we redeemed all of our outstanding 8 7/8% Senior
Subordinated Notes due 2007 with the net proceeds from the offering of $125
million of our 8 1/4% Senior Subordinated Notes Due 2011, issued on April 3,
2003. The remaining net proceeds were used to reduce our indebtedness under
the New Revolving Credit Facility.
(2) These note balances are stated at face value and do not reflect the mark to
market fair value of interest rate swaps totaling $16.8 million and the
premium recorded on the issuance of the 8 1/4% Senior Subordinated Notes Due
2011 on December 17, 2002 and April 3, 2003 that are included in the total
debt balance on the balance sheet as of June 30, 2003.
33
DESCRIPTION OF CERTAIN INDEBTEDNESS
NEW REVOLVING CREDIT FACILITY
On December 17, 2002, we entered into a revolving credit facility with
JPMorgan Chase Bank and Credit Suisse First Boston Corporation, also referred to
as the New Revolving Credit Facility, to replace our previous revolving credit
facility. The New Revolving Credit Facility provides for a maximum committed
amount of $600 million and an initial borrowing base of approximately $470
million. The facility matures on December 16, 2006. We made borrowings under the
New Revolving Credit Facility to refinance our outstanding indebtedness under
our previous revolving credit facility and to pay general corporate expenses.
Advances under the New Revolving Credit Facility are in the form of either
an ABR loan or a Eurodollar loan. The interest on an ABR loan is a fluctuating
rate based upon the highest of:
- the rate of interest announced by JP Morgan Chase Bank, formerly known as
The Chase Manhattan Bank, as its prime rate;
- the secondary market rate for three month certificates of deposits plus
1%; or
- the Federal funds effective rate plus 0.5%,
in each case plus a margin of 0% to 0.625% based upon the ratio of total debt to
EBITDAX, as defined below, and the ratings of our senior unsecured debt as
issued by Standard and Poor's Rating Group and Moody's Investor Services, Inc.
EBITDAX is a financial measure calculated in accordance with methodologies other
than Generally Accepted Accounting Principals, or GAAP, which measure is defined
to mean for purposes of the New Revolving Credit Facility as net income of the
Company and its restricted subsidiaries determined on a consolidated basis in
accordance with GAAP, plus (a) to the extent deducted from revenues in
determining consolidated net income, (i) the aggregate amount of consolidated
interest expense, (ii) the aggregate amount of letter of credit fees paid, (iii)
the aggregate amount of income tax expense and (iv) all amounts attributable to
depreciation, depletion, exploration, amortization and other non-cash charges
and expenses, minus (b) to the extent included in revenues in determining
consolidated net income, all non-cash extraordinary income, in each case
determined on a consolidated basis in accordance with GAAP and without
duplication of amounts.
The interest on a Eurodollar loan is a fluctuating rate based upon the rate
at which Eurodollar deposits in the London interbank market are quoted plus a
margin of 1.000% to 1.875% based upon the ratio of total debt to EBITDAX and the
ratings of our senior unsecured debt as issued by Standard and Poor's Rating
Group and Moody's Investor Service, Inc.
The New Revolving Credit Facility contains various covenants and default
provisions applicable to us and our restricted subsidiaries, including two
financial covenants that require us to maintain a current ratio of not less than
1.0 to 1.0 and a ratio of EBITDAX to consolidated interest expense for the
preceding four consecutive fiscal quarters of not less than 3.0 to 1.0.
Commitment fees under the New Revolving Credit Facility range from 0.25% to 0.5%
on the average daily amount of the available unused borrowing capacity based on
the rating of our senior unsecured debt as issued by Standard and Poor's Rating
Group and Moody's Investor Service, Inc.
Under the terms of the New Revolving Credit Facility the we must meet
certain tests before we are able to declare or pay any dividend on (other than
dividends payable solely in equity interests of the Company other than
disqualified stock), or make any payment of, or set apart assets for a sinking
or other analogous fund for the purchase, redemption, defeasance, retirement or
other acquisition of, any shares of any class of equity interests of us or any
of our restricted subsidiary, whether now or hereafter outstanding, or make any
other distribution in respect thereof, either directly or indirectly, whether in
cash or property or in obligations of the Company or any restricted subsidiary.
Other covenants include restrictions on incurring additional indebtedness,
liens, and guarantee obligations; limitations on fundamental changes and sales
of assets; restrictions on making certain investments, loans or advances;
limitations on optional
34
redemption of subordinated indebtedness; restrictions on transacting with
affiliates, changing lines of business and entering into certain hedging
agreements; and limitations on sale and leasebacks and use of proceeds.
As of June 30, 2003, we had no borrowings under the New Revolving Credit
Facility, as we paid off the amounts borrowed under the New Revolving Credit
Facility out of cash flow from operations and by using a portion of the proceeds
received from the sale of the old notes. As of June 30, 2003, we had
approximately $104.5 million of letters of credit outstanding and available
unused borrowing capacity of approximately $365.5 million. The letters of credit
were issued primarily in connection with the margin requirements of our oil and
natural gas derivative contracts. The New Revolving Credit Facility currently
limits our outstanding letters of credit to $200 million.
8 1/4% SENIOR SUBORDINATED NOTES DUE 2011
On April 3, 2003, we issued $125 million in additional principal amount of
our 8 1/4% Senior Subordinated Notes Due 2011 pursuant to Rule 144A and
Regulation S under the Securities Act at a price of 106% of the principal
amount, with accrued interest from November 1, 2002, also referred to as the old
notes. The old notes were issued as additional debt securities under the
Indenture pursuant to which, on November 5, 2001, we issued $275 million of our
8 1/4% Senior Subordinated Notes Due 2011 and, on December 17, 2002, we issued
$300 million of our 8 1/4% Senior Subordinated Notes Due 2011. All of the 2001
notes and 2002 notes were subsequently exchanged on March 14, 2002 and March 12,
2003, respectively, for equal principal amounts of notes having substantially
identical terms and registered under the Securities Act, also referred to as the
initial exchange notes. We used the proceeds from the sale of the old notes to
fund the redemption of our 8 7/8% Senior Subordinated Notes due 2007 (described
below) on May 5, 2003 and to reduce our indebtedness under the New Revolving
Credit Facility. We have agreed to file this exchange offer registration
statement or, under certain circumstances, a shelf registration statement,
pursuant to a registration rights agreement relating to the old notes. In the
event we fail to comply with some of our obligations under the registration
rights agreement relating to the old notes, we will pay additional interest on
the old notes. We are currently offering to exchange up to $125 million
aggregate principal amount of new 8 1/4% Senior Subordinated Notes Due 2011,
also referred to as the exchange notes, that have been registered under the
Securities Act for an equal principal amount of old notes.
The notes are senior subordinated unsecured obligations of Westport and are
fully and unconditionally guaranteed on a senior subordinated basis by some of
our existing and future restricted subsidiaries. The notes mature on November 1,
2011. We pay interest on the notes semiannually on May 1 and November 1. Our
first interest payment on the old notes was May 1, 2003, and our first interest
payment on any exchange notes will be November 1, 2003. We are entitled to
redeem the notes in whole or in part on or after November 1, 2006 for the
redemption price set forth in the notes. Prior to November 1, 2006, we are
entitled to redeem the notes, in whole but not in part, at a redemption price
equal to the principal amount of the notes plus a premium. There is no sinking
fund for the notes.
The Indenture governing the notes limits what we and our restricted
subsidiaries do. The provisions of the Indenture limit our and such subsidiaries
ability to incur additional indebtedness; pay dividends on our capital stock or
redeem, repurchase or retire our capital stock or subordinated indebtedness;
make investments; incur liens; create any consensual limitation on the ability
of our restricted subsidiaries to pay dividends, make loans or transfer property
to us; engage in transactions with our affiliates; sell assets, including
capital stock of our subsidiaries; and consolidate, merge or transfer assets.
During any period that the notes have investment grade ratings from both Moody's
Investors Service, Inc. and Standard and Poor's Ratings Group and no default has
occurred and is continuing, the foregoing covenants will cease to be in effect
with the exception of covenants that contain limitations on liens and on, among
other things, certain consolidations, mergers and transfers of assets. The notes
do not currently qualify as investment grade.
35
8 7/8% SENIOR SUBORDINATED NOTES DUE 2007
In connection with the merger with Belco, we assumed $147 million face
amount, $149 million fair value, of Belco's 8 7/8% Senior Subordinated Notes due
2007. On November 1, 2001, approximately $24.3 million face amount of these
notes was tendered to us pursuant to the change of control provisions of the
related indenture. The tender price was equal to 101% of the principal amount of
each note plus accrued and unpaid interest as of October 29, 2001. Including the
premium and accrued interest, the total amount paid was $24.8 million. We used
borrowings under our previous revolving credit facility to fund the repayment.
No gain or loss was recorded in connection with the redemption as the fair value
of the 8 7/8% Senior Subordinated Notes due 2007 recorded in connection with the
merger with Belco equaled the redemption cost. On May 5, 2003, we redeemed all
of our outstanding 8 7/8% Senior Subordinated Notes due 2007 in the aggregate
principal amount of approximately $123 million at a total redemption price of
approximately $129.6 million. The redemption was funded with the net proceeds
from the offering of the old notes. The remaining net proceeds were used to
reduce our indebtedness under the New Revolving Credit Facility.
DESCRIPTION OF THE EXCHANGE NOTES
Westport Resources Corporation will issue the exchange notes under an
indenture, dated as of November 5, 2001, as supplemented by the First
Supplemental Indenture, dated as of December 31, 2001, the Second Supplemental
Indenture, dated as of December 17, 2002, and the Third Supplemental Indenture,
dated as of April 3, 2003, among itself, the subsidiary guarantors from time to
time parties thereto and The Bank of New York, as Trustee (the "Indenture"). The
form and terms of the exchange notes are the same as the form and terms of the
old notes, except that the exchange notes:
- have been registered under the Securities Act;
- will not bear legends restricting the transfer thereof;
- will not be entitled to certain registration rights under the
registration rights agreement relating to the old notes; and
- will have different administrative terms.
The terms of the notes include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act of 1939.
Certain terms used in this description are defined under the subheading
"-- Certain Definitions." In this description, the words "Company," "we," "us"
and "our" refer only to Westport Resources Corporation and not to any of its
subsidiaries.
On November 5, 2001, we issued $275 million aggregate principal amount of
8 1/4% Senior Subordinated Notes Due 2011 and on December 17, 2002, we issued
$300 million aggregate principal amount of 8 1/4% Senior Subordinated Notes Due
2011 under the Indenture. The 2001 notes and the 2002 notes were subsequently
exchanged for equal principal amounts of notes registered under the Securities
Act, or the initial exchange notes. If the exchange offer is consummated,
holders of old notes that do not exchange their old notes for exchange notes
will vote together with holders of the exchange notes, the initial exchange
notes and, if applicable, any holders of additional notes for all relevant
purposes under the Indenture. Accordingly, in determining whether the required
holders have given any notice, consent or waiver or taken any other action
permitted under the Indenture, any old notes that remain outstanding after the
exchange offer will be aggregated with the exchange notes, the initial exchange
notes and, if applicable, any additional notes, and the holders of the old
notes, the exchange notes, the initial exchange notes and the additional notes
will vote together as a single class.
All references in this prospectus to specified percentages in aggregate
principal amount of the notes that are outstanding means, at any time after the
exchange offer is consummated, the percentage in aggregate principal amount of
the old notes, the exchange notes, the initial exchange notes and the
36
additional notes then outstanding, if any. The exchange notes, together with any
old notes not exchanged in the exchange offer, will represent approximately
17.9% of all the notes issued under the Indenture as of the date of the closing
of the exchange offer.
The following description is only a summary of the material provisions of
the Indenture. We urge you to read the Indenture because it, not this
description, defines your rights as holders of the exchange notes. You may
request copies of the Indenture at our address set forth under the heading
"Where You Can Find More Information." Unless the context otherwise requires,
for all purposes of the Indenture and this "Description of the Exchange Notes,"
references to the "notes" include the initial exchange notes, the old notes, the
exchange notes and any additional notes actually issued under the Indenture.
BRIEF DESCRIPTION OF THE EXCHANGE NOTES
The exchange notes:
- are unsecured senior subordinated obligations of the Company;
- are subordinated in right of payment to all existing and future Senior
Indebtedness of the Company;
- are senior in right of payment to any future Subordinated Obligations of
the Company;
- are guaranteed by each Subsidiary Guarantor; and
- have been registered under the Securities Act.
PRINCIPAL, MATURITY AND INTEREST
We will issue up to $125 million principal amount of exchange notes in this
exchange offer in exchange for any and all of our old notes. We will issue the
exchange notes in denominations of $1,000 and any integral multiple of $1,000.
The notes will mature on November 1, 2011. Subject to our compliance with the
covenant described under the subheading "-- Certain Covenants -- Limitation on
Indebtedness," we are permitted to issue more notes from time to time under the
Indenture ("Additional Notes") in an unlimited principal amount. The old notes
constitute the second issuance of Additional Notes under the Indenture. The
exchange notes, any old notes not exchanged in the exchange offer, the initial
exchange notes and all subsequent Additional Notes, if any, will be treated as a
single class for all purposes of the Indenture, including waivers, amendments,
redemptions and offers to purchase.
Interest on the exchange notes will accrue at the rate of 8 1/4% per annum
and will be payable semiannually in arrears on May 1 and November 1, commencing
on November 1, 2003. We will make each interest payment to the holders of record
of the notes on the immediately preceding April 15 and October 15. We will pay
interest on overdue principal at 1% per annum in excess of the above rate and
will pay interest on overdue installments of interest at such higher rate to the
extent lawful.
Interest on each exchange note will accrue from May 1, 2003, the last
interest payment date on which interest was paid on the old note surrendered in
exchange thereof. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. Additional interest may accrue on the notes
in certain circumstances pursuant to the applicable Registration Rights
Agreement.
OPTIONAL REDEMPTION
Except as set forth below, we will not be entitled to redeem the notes at
our option prior to November 1, 2006.
On and after November 1, 2006, we will be entitled at our option to redeem
all or a portion of the notes upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed in percentages of principal amount
on the redemption date), plus accrued interest to the redemption date (subject
to the right of holders of record on the relevant record date to receive
interest due on the relevant
37
interest payment date), if redeemed during the 12-month period commencing on
November 1 of the years set forth below:
<Table>
<Caption>
REDEMPTION
PERIOD PRICE
- ------ ----------
2006........................................................ 104.125%
2007........................................................ 102.750%
2008........................................................ 101.375%
2009 and thereafter......................................... 100.000%
</Table>
In addition, before November 1, 2004, we may at our option on one or more
occasions redeem notes, which include subsequent Additional Notes, if any, in an
aggregate principal amount not to exceed 35% of the aggregate principal amount
of the notes, which includes subsequent Additional Notes, if any, issued prior
to the redemption date, at a redemption price (expressed as a percentage of
principal amount) of 108.25%, plus accrued and unpaid interest to the redemption
date, with the net cash proceeds from one or more Public Equity Offerings. The
Company's right of optional redemption described in the immediately preceding
sentence is subject to the following conditions:
(1) at least 65% of such aggregate principal amount of notes, which
includes subsequent Additional Notes, if any, remains outstanding
immediately after the occurrence of each such redemption, other than notes
held, directly or indirectly, by the Company or its Affiliates; and
(2) each such redemption occurs within 90 days after the date of the
related Public Equity Offering.
We will be entitled, at our option, at any time as a whole prior to
November 1, 2006, to redeem the notes, which include subsequent Additional
Notes, if any, at a redemption price equal to the sum of:
(1) the principal amount thereof, plus
(2) accrued and unpaid interest, if any, to the redemption date, plus
(3) the Applicable Premium at the redemption date.
SELECTION AND NOTICE OF REDEMPTION
If we are redeeming less than all the notes at any time, the Trustee will
select notes on a pro rata basis, by lot or by such other method as the Trustee
in its sole discretion shall deem to be fair and appropriate.
We will redeem notes of $1,000 or less in whole and not in part. We will
cause notices of redemption to be mailed by first-class mail at least 30 but not
more than 60 days before the redemption date to each holder of notes to be
redeemed at its registered address.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note will state the portion of the principal amount thereof to
be redeemed. We will issue a new note in a principal amount equal to the
unredeemed portion of the original note in the name of the holder upon
cancellation of the original note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on notes or portions of them called for redemption.
MANDATORY REDEMPTION; OFFERS TO PURCHASE; OPEN MARKET PURCHASES
We are not required to make any mandatory redemption or sinking fund
payments with respect to the notes. However, under certain circumstances, we may
be required to offer to purchase notes as described under the captions
"-- Change of Control" and "Certain Covenants -- Limitation on Sales of Assets
and Subsidiary Stock." We may at any time and from time to time purchase notes
in the open market or otherwise.
38
GUARANTIES
The Subsidiary Guarantors will jointly and severally guarantee, on a senior
subordinated basis, our obligations under the notes. The Subsidiary Guarantors
include substantially all of our Subsidiaries existing on the Old Note Issue
Date and, subject to certain exceptions, will include any of our future
Restricted Subsidiaries that Incur Indebtedness. The obligations of each
Subsidiary Guarantor under its Subsidiary Guaranty will be limited as necessary
to prevent that Subsidiary Guaranty from constituting a fraudulent conveyance
under applicable law. See "Risk Factors -- Risks Related to the Exchange
Notes -- Federal and state statutes allow courts, under specific circumstances,
to void guarantees and require noteholders to return payments received from
guarantors."
Each Subsidiary Guarantor that makes a payment under its Subsidiary
Guaranty will be entitled upon payment in full of all guarantied obligations
under the Indenture to a contribution from each other Subsidiary Guarantor in an
amount equal to such other Subsidiary Guarantor's pro rata portion of such
payment based on the respective net assets of all the Subsidiary Guarantors at
the time of such payment determined in accordance with GAAP.
If a Subsidiary Guaranty were rendered voidable, it could be subordinated
by a court to all other indebtedness, including guarantees and other contingent
liabilities, of the applicable Subsidiary Guarantor, and, depending on the
amount of such indebtedness, a Subsidiary Guarantor's liability on its
Subsidiary Guaranty could be reduced to zero. See "Risk Factors -- Risks Related
to the Exchange Notes -- Federal and state statutes allow courts, under specific
circumstances, to void guarantees and require noteholders to return payments
received from guarantors."
The Subsidiary Guaranty of a Subsidiary Guarantor will be released:
(1) upon the sale or other disposition (including by way of
consolidation or merger) of that Subsidiary Guarantor; or
(2) upon the sale or disposition of all or substantially all the
assets of that Subsidiary Guarantor;
in each case other than to the Company or an Affiliate of the Company and as
permitted by the Indenture.
RANKING
SENIOR INDEBTEDNESS VERSUS NOTES
The payment of the principal of, premium, if any, and interest on the notes
and any other payment obligation of the Company in respect of the notes
(including any obligation to purchase notes) and the payment of any Subsidiary
Guaranty will be subordinate in right of payment to the prior payment in full of
all Senior Indebtedness of the Company or the relevant Subsidiary Guarantor, as
the case may be, including the obligations of the Company and such Subsidiary
Guarantor under the New Revolving Credit Facility.
As of June 30, 2003, the Company and the Subsidiary Guarantors had no
outstanding Senior Indebtedness. During the second quarter of 2003, the Company
paid off the amounts previously borrowed under the New Revolving Credit Facility
out of cash flow from operations and by using a portion of the proceeds received
from the sale of the old notes.
Although the Indenture contains limitations on the amount of Indebtedness
that the Company and the Subsidiary Guarantors may incur, under certain
circumstances the amount of such Indebtedness could be substantial, and, in any
case, such Indebtedness may be Senior Indebtedness. See "-- Certain
Covenants -- Limitation on Indebtedness." As of June 30, 2003, the Company had
approximately $365.5 million of available unused borrowing capacity under the
New Revolving Credit Facility, subject to specific requirements, including
compliance with financial covenants.
39
LIABILITIES OF SUBSIDIARIES VERSUS NOTES
A substantial portion of our operations are conducted through our
subsidiaries. Some of our subsidiaries are not guaranteeing the notes. Claims of
creditors of such non-guarantor subsidiaries, including trade creditors and
creditors holding indebtedness or guarantees issued by such non-guarantor
subsidiaries, and claims of preferred stockholders of such non-guarantor
subsidiaries generally will have priority with respect to the assets and
earnings of such non-guarantor subsidiaries over the claims of our creditors,
including holders of the notes, even if such claims do not constitute Senior
Indebtedness. Accordingly, the notes will be effectively subordinated to
creditors, including trade creditors, and preferred stockholders, if any, of
such non-guarantor subsidiaries.
As of June 30, 2003, our subsidiaries (other than the Subsidiary Guarantors
existing as of the Old Note Issue Date) had no significant liabilities. Although
the Indenture limits the incurrence of Indebtedness and preferred stock of
certain of our subsidiaries, such limitation is subject to a number of
significant qualifications. Moreover, the Indenture does not impose any
limitation on the incurrence by such subsidiaries of liabilities that are not
considered Indebtedness under the Indenture. See "-- Certain
Covenants -- Limitation on Indebtedness."
OTHER SENIOR SUBORDINATED INDEBTEDNESS VERSUS NOTES
Only Indebtedness of the Company or a Subsidiary Guarantor that is Senior
Indebtedness will rank senior to the notes and the relevant Subsidiary Guaranty
in accordance with the provisions of the Indenture. The notes and each
Subsidiary Guaranty will in all respects rank pari passu with all other Senior
Subordinated Indebtedness of the Company and the relevant Subsidiary Guarantor,
respectively.
As of June 30, 2003:
(1) the face value of the Company's Senior Subordinated Indebtedness
was $700 million, consisting of $125 million of the old notes and $575
million of Senior Subordinated Indebtedness evidenced by the initial
exchange notes; and
(2) the face value of the Senior Subordinated Indebtedness of the
Subsidiary Guarantors was $700 million, consisting of their respective
Guarantees of Senior Subordinated Indebtedness of the Company represented
by the notes.
We and the Subsidiary Guarantors have agreed in the Indenture that we and
they will not Incur, directly or indirectly, any Indebtedness that is
contractually subordinate or junior in right of payment to our Senior
Indebtedness or the Senior Indebtedness of such Subsidiary Guarantors, unless
such Indebtedness is Senior Subordinated Indebtedness of the applicable Person
or is expressly subordinated in right of payment to Senior Subordinated
Indebtedness of such Person. The Indenture does not treat unsecured Indebtedness
as subordinated or junior to Secured Indebtedness merely because it is
unsecured.
PAYMENT OF NOTES
We are not permitted to pay principal of, premium, if any, or interest on
the notes or any other payment obligation of the Company in respect of the notes
(including any obligation to purchase the notes) or make any deposit pursuant to
the provisions described under "-- Defeasance" below and may not purchase,
redeem or otherwise retire any notes (collectively, "pay the notes") if either
of the following occurs (a "Payment Default"):
(1) a default in the payment of any principal of, premium, if any, or
interest on Designated Senior Indebtedness of the Company occurs; or
(2) any other default on Designated Senior Indebtedness of the Company
occurs and the maturity of such Designated Senior Indebtedness is
accelerated in accordance with its terms;
unless, in either case, the Payment Default has been cured or waived and any
such acceleration has been rescinded or such Designated Senior Indebtedness has
been paid in full in cash. If a distribution is made
40
to holders of the notes that, due to the foregoing provisions limiting payments
on the notes, should not have been made to them, such holders of the notes are
required to hold it in trust for the holders of Senior Indebtedness of the
Company and pay it over to them as their interests may appear. Regardless of the
foregoing, we are permitted to pay the notes if we and the Trustee receive
written notice approving such payment from the Representatives of all Designated
Senior Indebtedness with respect to which the Payment Default has occurred and
is continuing.
During the continuance of any default (other than a Payment Default) with
respect to any Designated Senior Indebtedness pursuant to which the maturity
thereof may be accelerated without further notice (except such notice as may be
required to effect such acceleration) or the expiration of any applicable grace
periods, we are not permitted to pay the notes for a period (a "Payment Blockage
Period") commencing upon the receipt by the Trustee (with a copy to us) of
written notice (a "Blockage Notice") of such default from the Representative of
such Designated Senior Indebtedness specifying an election to effect a Payment
Blockage Period and ending 179 days thereafter. The Payment Blockage Period will
end earlier if such Payment Blockage Period is terminated:
(1) by written notice to the Trustee and us from the Person or Persons
who gave such Blockage Notice;
(2) because the default giving rise to such Blockage Notice is cured,
waived or otherwise no longer continuing; or
(3) because such Designated Senior Indebtedness has been discharged or
repaid in full in cash.
Notwithstanding the provisions described above, unless the holders of such
Designated Senior Indebtedness or the Representative of such Designated Senior
Indebtedness have accelerated the maturity of such Designated Senior
Indebtedness, we are permitted to resume paying the notes after the end of such
Payment Blockage Period. The notes shall not be subject to more than one Payment
Blockage Period in any consecutive 360-day period irrespective of the number of
defaults with respect to Designated Senior Indebtedness during such period,
except that if any Blockage Notice is delivered to the Trustee by or on behalf
of holders of Designated Senior Indebtedness (other than holders of the Bank
Indebtedness), a Representative of holders of Bank Indebtedness may give another
Blockage Notice within such period. However, in no event may the total number of
days during which any Payment Blockage Period or Periods is in effect exceed 179
days in the aggregate during any consecutive 360-day period, and there must be
181 days during any consecutive 360-day period during which no Payment Blockage
Period is in effect.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation or dissolution or reorganization of or similar proceeding
relating to the Company or its property:
(1) the holders of Senior Indebtedness of the Company will be entitled
to receive payment in full in cash of such Senior Indebtedness before the
holders of the notes are entitled to receive any payment;
(2) until the Senior Indebtedness of the Company is paid in full in
cash, any payment or distribution to which holders of the notes would be
entitled but for the subordination provisions of the Indenture will be made
to holders of such Senior Indebtedness as their interests may appear,
except that holders of notes may receive certain Capital Stock and
subordinated debt obligations; and
(3) if a distribution is made to holders of the notes that, due to the
subordination provisions, should not have been made to them, such holders
of the notes are required to hold it in trust for the holders of Senior
Indebtedness of the Company and pay it over to them as their interests may
appear.
To the extent any payment of or distribution in respect of Senior
Indebtedness (whether by or on behalf of the Company or any Subsidiary
Guarantor, if any, as proceeds of security or enforcement of any right of setoff
or otherwise) is declared to be fraudulent or preferential, set aside or
required to be paid to any receiver, trustee in bankruptcy, liquidating trustee,
agent or other similar Person under any bankruptcy, insolvency, receivership,
fraudulent conveyance or similar law, then if such payment or distribution is
recovered by, or paid over to, such receiver, trustee in bankruptcy, liquidating
trustee, agent or other
41
similar Person, the Senior Indebtedness or part thereof originally intended to
be satisfied shall be deemed to be reinstated and outstanding as if such payment
had not occurred.
If payment of the notes is accelerated because of an Event of Default, the
Company or the Trustee must promptly notify the holders of Designated Senior
Indebtedness or the Representative of such Designated Senior Indebtedness of the
acceleration.
A Subsidiary Guarantor's obligations under its Subsidiary Guaranty are
senior subordinated obligations. As such, the rights of noteholders to receive
payment by a Subsidiary Guarantor pursuant to its Subsidiary Guaranty will be
subordinated in right of payment to the rights of holders of Senior Indebtedness
of such Subsidiary Guarantor. The terms of the subordination provisions
described above with respect to the Company's obligations under the notes apply
equally to a Subsidiary Guarantor and the obligations of such Subsidiary
Guarantor under its Subsidiary Guaranty.
By reason of the subordination provisions contained in the Indenture, in
the event of a liquidation or insolvency proceeding, creditors of the Company or
a Subsidiary Guarantor who are holders of Senior Indebtedness of the Company or
a Subsidiary Guarantor, as the case may be, may recover more, ratably, than the
holders of the notes, and creditors of ours who are not holders of Senior
Indebtedness may recover less, ratably, than holders of Senior Indebtedness and
may recover more, ratably, than the holders of the notes.
No right of any present or future holders of any Senior Indebtedness to
enforce subordination as provided in the Indenture will at any time in any way
be prejudiced or impaired by noncompliance by the Company or any Subsidiary
Guarantor (if any) with the terms of the Indenture, regardless of any knowledge
thereof that any such holder of Senior Indebtedness may have or otherwise be
charged with. The subordination provisions of the Indenture are intended to be
for the benefit of, and shall be enforceable directly by, the holders of Senior
Indebtedness.
Each holder of notes by the holder's acceptance thereof authorizes and
directs the Trustee on the holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination as provided in the
Indenture, and appoints the Trustee to act as the holder's attorney-in-fact for
any and all such purposes.
The holders of Senior Indebtedness may, at any time and from time to time
subject to the terms of such Senior Indebtedness, without the consent of or
notice to the Trustee or the holders of the notes, without incurring
responsibility to the holders of the notes and without impairing or releasing
the subordination provided in the Indenture or the obligations hereunder of the
holders of the notes to the holders of Senior Indebtedness, do any one or more
of the following:
(1) change the manner, place or terms of payment or extend the time of
payment of, or renew or alter, Senior Indebtedness or any instrument
evidencing the same or any agreement under which Senior Indebtedness is
outstanding or secured;
(2) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Senior Indebtedness;
(3) release any Person liable in any manner for the collection of
Senior Indebtedness; and
(4) exercise or refrain from exercising any rights against the Company
and each Subsidiary Guarantor (if any) and any other Person.
The terms of the subordination provisions described above will not apply to
payments from money or the proceeds of U.S. Government Obligations held in trust
by the Trustee for the payment of principal of and interest on the notes
pursuant to the provisions described under "-- Defeasance."
BOOK-ENTRY, DELIVERY AND FORM
We will issue the exchange notes in the form of one or more global notes
(the "Global Exchange Note"). The Global Exchange Note will be deposited with,
or on behalf of, The Depository Trust
42
Company (the "Depository") and registered in the name of the Depository or its
nominee. Except as set forth below, the Global Exchange Note may be transferred,
in whole and not in part, and only to the Depository or another nominee of the
Depository. You may hold your beneficial interests in the Global Exchange Note
directly through the Depository if you have an account with the Depository or
indirectly through organizations that have accounts with the Depository.
The Depository has advised the Company as follows: the Depository is a
limited-purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and "a clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depository was created to hold securities of institutions that have accounts
with the Depository ("participants") and to facilitate the clearance and
settlement of securities transactions among its participants in such securities
through electronic book- entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depository's participants include securities brokers and dealers (which may
include the initial purchaser), banks, trust companies, clearing corporations
and certain other organizations. Access to the Depository's book-entry system is
also available to others such as banks, brokers, dealers and trust companies
(collectively, the "indirect participants") that clear through or maintain a
custodial relationship with a participant, whether directly or indirectly.
The Company expects that pursuant to procedures established by the
Depository, upon the deposit of the Global Exchange Note with the Depository,
the Depository will credit, on its book-entry registration and transfer system,
the principal amount of notes represented by such Global Exchange Note to the
accounts of participants. The accounts to be credited shall be designated by the
initial purchaser. Ownership of beneficial interests in the Global Exchange Note
will be limited to participants or persons that may hold interests through
participants. Ownership of beneficial interests in the Global Exchange Note will
be shown on, and the transfer of those ownership interests will be effected only
through, records maintained by the Depository (with respect to participants'
interests), the participants and the indirect participants (with respect to the
owners of beneficial interests in the Global Exchange Note other than
participants). The laws of some jurisdictions may require that certain
purchasers of securities take physical delivery of such securities in definitive
form. Such limits and laws may impair the ability to transfer or pledge
beneficial interests in the Global Exchange Note.
So long as the Depository, or its nominee, is the registered holder and
owner of the Global Exchange Note, the Depository or such nominee, as the case
may be, will be considered the sole legal owner and holder of any related notes
evidenced by the Global Exchange Note for all purposes of such notes and the
Indenture. Except as set forth below, as an owner of a beneficial interest in
the Global Exchange Note, you will not be entitled to have the notes represented
by the Global Exchange Note registered in your name, will not receive or be
entitled to receive physical delivery of certificated notes and will not be
considered to be the owner or holder of any notes under the Global Exchange
Note. We understand that under existing industry practice, in the event an owner
of a beneficial interest in the Global Exchange Note desires to take any action
that the Depository, as the holder of the Global Exchange Note, is entitled to
take, the Depository would authorize the participants to take such action, and
the participants would authorize beneficial owners owning through such
participants to take such action or would otherwise act upon the instructions of
beneficial owners owning through them.
We will make payments of principal of, premium, if any, and interest on
notes represented by the Global Exchange Note registered in the name of and held
by the Depository or its nominee to the Depository or its nominee, as the case
may be, as the registered owner and holder of the Global Exchange Note.
We expect that the Depository or its nominee, upon receipt of any payment
of principal of, premium, if any, or interest on the Global Exchange Note will
credit participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Exchange
Note as shown on the records of the Depository or its nominee. We also expect
that payments by participants or indirect participants to owners of beneficial
interests in the Global Exchange Note held
43
through such participants or indirect participants will be governed by standing
instructions and customary practices and will be the responsibility of such
participants or indirect participants. We will not have any responsibility or
liability for any aspect of the records relating to, or payments made on account
of, beneficial ownership interests in the Global Exchange Note for any exchange
note or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests or for any other aspect of the relationship
between the Depository and its participants or indirect participants or the
relationship between such participants or indirect participants and the owners
of beneficial interests in the Global Exchange Note owning through such
participants.
Although the Depository has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Exchange Note among participants
of the Depository, it is under no obligation to perform or continue to perform
such procedures, and such procedures may be discontinued at any time. Neither
the Trustee nor the Company will have any responsibility or liability for the
performance by the Depository or its participants or indirect participants of
their respective obligations under the rules and procedures governing their
operations.
CERTIFICATED NOTES
Subject to certain conditions, the exchange notes represented by the Global
Exchange Note are exchangeable for certificated notes in definitive form of like
tenor in denominations of $1,000 and integral multiples thereof if:
(1) the Depository notifies us that it is unwilling or unable to
continue as Depository for the Global Exchange Note or the Depository
ceases to be a clearing agency registered under the Exchange Act and, in
either case, we are unable to locate a qualified successor within 90 days;
(2) we in our discretion at any time determine not to have all the
exchange notes represented by the Global Exchange Note; or
(3) a default entitling the holders of the notes to accelerate the
maturity thereof has occurred and is continuing.
Any exchange notes that are exchangeable as described above are
exchangeable for certificated notes issuable in authorized denominations and
registered in such names as the Depository shall direct. Subject to the
foregoing, the Global Exchange Note is not exchangeable, except for a Global
Exchange Note of the same aggregate denomination to be registered in the name of
the Depository or its nominee. In addition, such certificates will bear a
restrictive legend (unless we determine that a restrictive legend is not
required in accordance with applicable law), subject, with respect to such
certificated notes, to the provisions of such legend.
SAME-DAY PAYMENT
The Indenture requires us to make payments in respect of notes (including
principal, premium and interest) by wire transfer of immediately available funds
to the U.S. dollar accounts with banks in the U.S. specified by the holders
thereof or, if no such account is specified, by mailing a check to each such
holder's registered address.
REGISTERED EXCHANGE OFFER; REGISTRATION RIGHTS
Upon the closing of the offering of the old notes, we, the Subsidiary
Guarantors and the initial purchaser entered into the Registration Rights
Agreement relating to the old notes, which provides for this exchange offer. A
copy of the Registration Rights Agreement relating to the old notes is filed as
an exhibit to the registration statement of which this prospectus is a part.
Please read the section captioned "The Exchange Offer" for more details
regarding the terms of the Registration Rights Agreement relating to the old
notes and the exchange offer.
44
CHANGE OF CONTROL
Upon the occurrence of any of the following events, each a "Change of
Control", then unless the Company shall have exercised its right to redeem all
the notes, each noteholder shall have the right to require that the Company
repurchase such holder's notes at a purchase price in cash equal to 101% of the
principal amount thereof on the date of purchase plus accrued and unpaid
interest, if any, to the date of purchase, subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date:
(1) any "person", as such term is used in Sections 13(d) and 14(d) of
the Exchange Act, other than any one or more of the Permitted Holders, is
or becomes the "beneficial owner", as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that for purposes of this clause (1) such
person shall be deemed to have "beneficial ownership" of all shares that
any such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time, directly or indirectly, of
more than 40% of the total voting power of the Voting Stock of the Company;
provided, however, that the Permitted Holders
(A) beneficially own, as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, directly or indirectly, in the aggregate a lesser
percentage of the total voting power of the Voting Stock of the Company
than such other person, and
(B) do not have the right or ability by voting power, contract or
otherwise to elect or designate for election a majority of the Board of
Directors.
For the purposes of this clause (1), such other person shall be deemed
to beneficially own any Voting Stock of the Company held by a parent entity
if:
- such other person is the beneficial owner (as defined in this clause
(1)), directly or indirectly, of more than 40% of the voting power of
the Voting Stock of such parent entity;
- the Permitted Holders beneficially own, as defined in Rules 13d-3 and
13d-5 under the Exchange Act, directly or indirectly, in the aggregate
a lesser percentage of the voting power of the Voting Stock of such
parent entity; and
- the Permitted Holders do not have the right or ability by voting
power, contract or otherwise to elect or designate for election a
majority of the board of directors of such parent entity;
(2) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors, together with
(A) any new directors whose election by such Board of Directors or
whose nomination for election by the shareholders of the Company was
approved by a vote of the majority of the directors of the Company then
still in office who were either directors at the beginning of such
period or whose election or nomination for election was previously so
approved, and
(B) any representative of a Permitted Holder cease for any reason
to constitute a majority of the Board of Directors then in office;
(3) the adoption of a plan relating to the liquidation or dissolution
of the Company; or
(4) the merger or consolidation of the Company with or into another
Person or the merger of another Person with or into the Company, or the
sale of all or substantially all the assets of the Company (determined on a
consolidated basis) to another Person (other than a Permitted Holder),
other than a transaction following which
(A) in the case of a merger or consolidation transaction, holders
of securities that represented 100% of the Voting Stock of the Company
immediately prior to such transaction (or other securities into which
such securities are converted as part of such merger or consolidation
transaction) own directly or indirectly at least a majority of the
voting power of the Voting Stock
45
of the surviving Person in such merger or consolidation transaction
immediately after such transaction and
(B) in the case of a sale of assets transaction, the transferee
Person becomes the obligor in respect of the notes and a Subsidiary of
the transferor of such assets.
Unless the Company has exercised its right to redeem all the notes and
shall have delivered an irrevocable notice of redemption to the Trustee, then
within 30 days following any Change of Control, we will mail a notice to each
noteholder with a copy to the Trustee (the "Change of Control Offer") stating:
(1) that a Change of Control has occurred and that such holder has the
right to require us to purchase such holder's notes at a purchase price in
cash equal to 101% of the principal amount thereof on the date of purchase,
plus accrued and unpaid interest, if any, to the date of purchase (subject
to the right of holders of record on the relevant record date to receive
interest on the relevant interest payment date);
(2) the circumstances and relevant facts regarding such Change of
Control (including information with respect to pro forma historical income,
cash flow and capitalization, in each case after giving effect to such
Change of Control);
(3) the purchase date (which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed); and
(4) the instructions, as determined by us, consistent with the
covenant described hereunder, that a holder must follow in order to have
its notes purchased.
The New Revolving Credit Facility prohibits us from purchasing any notes
except in certain specified circumstances if our senior unsecured debt rating is
BB or less by S&P or Ba2 or less by Moody's, and also provides that the
occurrence of certain change of control events with respect to the Company would
constitute a default thereunder. In the event that at the time of a Change of
Control, the terms of the New Revolving Credit Facility prohibit the Company
from making a Change of Control Offer or from purchasing the notes pursuant
thereto, the Company shall, prior to the mailing of the notice to noteholders
described in the preceding paragraph, but in any event within 30 days following
any Change of Control:
(1) repay in full all Indebtedness outstanding under the New Revolving
Credit Facility or offer to repay in full all such Indebtedness and repay
the Indebtedness of each lender who has accepted such offer; or
(2) obtain the requisite consent under the New Revolving Credit
Facility to permit the purchase of the notes as described above.
The Company must first comply with the covenant described above before it
will be required to purchase notes in the event of a Change of Control,
provided, however, that the Company's failure to comply with the covenant
described in the preceding sentence or to make a Change of Control Offer because
of any such failure shall constitute a default described in clause (4) under
"-- Defaults" below (and not under clause (2) thereof). As a result of the
foregoing, a holder of the notes may not be able to compel the Company to
purchase the notes unless the Company is able at the time to refinance all
Indebtedness outstanding under the New Revolving Credit Facility or obtain
requisite consents under the New Revolving Credit Facility.
We will not be required to make a Change of Control Offer following a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by us and
purchases all notes validly tendered and not withdrawn under such Change of
Control Offer.
We will comply, to the extent applicable, with the requirements of Section
14(e) of the Exchange Act and any other securities laws or regulations in
connection with the repurchase of notes as a result of a Change of Control. To
the extent that the provisions of any securities laws or regulations conflict
with the provisions of the covenant described hereunder, we will comply with the
applicable securities laws and
46
regulations and shall not be deemed to have breached our obligations under the
covenant described hereunder by virtue of our compliance with such securities
laws or regulations.
The Change of Control purchase feature of the notes may in certain
circumstances make more difficult or discourage a sale or takeover of the
Company and, thus, the removal of incumbent management. The Change of Control
purchase feature is a result of negotiations between the Company and the initial
purchaser. We have no present intention to engage in a transaction involving a
Change of Control, although it is possible that we could decide to do so in the
future. Subject to the limitations discussed below, we could, in the future,
enter into certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of indebtedness outstanding at
such time or otherwise affect our capital structure or credit ratings.
Restrictions on our ability to Incur additional Indebtedness are contained in
the covenants described under "-- Certain Covenants -- Limitation on
Indebtedness." Such restrictions can be waived with the consent of the holders
of a majority in principal amount of the notes then outstanding. The covenants
set forth in the Indenture may not afford noteholders protection in the event of
a highly leveraged transaction.
Future indebtedness that we may incur may contain prohibitions on the
occurrence of certain events that would constitute a Change of Control or
require the repurchase of such indebtedness upon a Change of Control. Moreover,
the exercise by the holders of their right to require us to repurchase the notes
could cause a default under such indebtedness, even if the Change of Control
itself does not, due to the financial effect of such repurchase on us. Finally,
our ability to pay cash to the holders of notes following the occurrence of a
Change of Control may be limited by our then existing financial resources. There
can be no assurance that sufficient funds will be available when necessary to
make any required repurchases.
The definition of "Change of Control" includes the sale of all or
substantially all of the assets of the Company (determined on a consolidated
basis) to another Person. Although there is a limited body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, in certain
circumstances there may be a degree of uncertainty as to whether a particular
transaction would involve a disposition of "all or substantially all" of the
assets of the Company. As a result, it may be unclear as to whether a Change of
Control has occurred and whether a holder of notes may require the Company to
make an offer to repurchase the notes as described above.
The provisions under the Indenture relative to our obligation to make an
offer to repurchase the notes as a result of a Change of Control may be waived
or modified with the written consent of the holders of a majority in principal
amount of the notes.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
COVENANT SUSPENSION
During any period that the notes have a rating equal to or higher than BBB-
by S&P and Baa3 by Moody's ("Investment Grade Ratings") and no Default has
occurred and is continuing, the Company and the Restricted Subsidiaries will not
be subject to the following covenants:
(a) paragraphs (a) through (d) of the covenant described under
"-- Limitation on Indebtedness;"
(b) "-- Limitation on Restricted Payments;"
(c) "-- Limitation on Restrictions on Distributions from Restricted
Subsidiaries;"
(d) "-- Limitation on Sales of Assets and Subsidiary Stock;"
(e) "-- Limitation on Affiliate Transactions;"
(f) clause (3) of the covenant described under "-- Merger and
Consolidation;" and
47
(g) "-- Future Guarantors,"
(collectively, the "Suspended Covenants"). In the event that the Company and the
Restricted Subsidiaries are not subject to the Suspended Covenants for any
period of time as a result of the preceding sentence, and subsequently one or
both of S&P and Moody's downgrades the rating assigned to the notes below BBB-,
in the case of S&P, and below Baa3, in the case of Moody's, then the Company and
the Restricted Subsidiaries will thereafter again be subject to the Suspended
Covenants, and, with respect to Restricted Payments proposed to be made after
the time of such downgrade, the permissibility of such proposed Restricted
Payments will be calculated in accordance with the terms of the covenant
described below under "-- Limitation on Restricted Payments" as though such
covenant had been in effect since the Issue Date. The notes do not currently
qualify as investment grade.
Subject to the provisions described under "Amendments and Waivers," if the
Indenture is amended by eliminating the subordination provisions contained
therein, including those set out in paragraph (e) of the covenant described
under "-- Limitation on Indebtedness," in connection with achieving Investment
Grade Ratings for the notes or otherwise, then, in addition to the suspension of
the Suspended Covenants described above and the suspension of the covenant
described under "-- Limitation on Liens," the Indenture will also be amended by
adding covenants, in the form attached as an annex to the Indenture, limiting
the Company and the Restricted Subsidiaries' ability to Incur or permit to exist
Liens on their properties or enter into any Sale/Leaseback Transactions.
LIMITATION ON INDEBTEDNESS
(a) The Company will not, and will not permit any Restricted Subsidiary to,
Incur, directly or indirectly, any Indebtedness; provided, however, that the
Company and the Subsidiary Guarantors will be entitled to Incur Indebtedness if,
on the date of such Incurrence and after giving effect thereto on a pro forma
basis, no Default has occurred and is continuing and the Consolidated Coverage
Ratio exceeds 2.5 to 1.
(b) Notwithstanding the foregoing paragraph (a), the Company and the
Restricted Subsidiaries will be entitled to Incur any or all of the following
Indebtedness:
(1) Indebtedness Incurred pursuant to Credit Facilities; provided,
however, that, after giving effect to any such Incurrence, the aggregate
principal amount of all Indebtedness Incurred under this clause (1) and
then outstanding does not exceed the greater of
(A) $500 million less the sum of all principal payments with
respect to such Indebtedness pursuant to paragraph (a)(3)(A) of the
covenant described under "-- Limitation on Sales of Assets and
Subsidiary Stock" and
(B) $250 million plus 20% of ACNTA as of the date of such
Incurrence;
(2) Indebtedness owed to and held by the Company or a Wholly Owned
Subsidiary; provided, however, that
(A) any subsequent issuance or transfer of any Capital Stock which
results in any such Wholly Owned Subsidiary ceasing to be a Wholly Owned
Subsidiary or any subsequent transfer of such Indebtedness (other than
to the Company or a Wholly Owned Subsidiary) shall be deemed, in each
case, to constitute the Incurrence of such Indebtedness by the obligor
thereon and
(B) if the Company is the obligor on such Indebtedness, unless such
Indebtedness is owing to a Subsidiary Guarantor, such Indebtedness is
expressly subordinated to the prior payment in full in cash of all
obligations with respect to the notes;
(3) the notes (excluding the old notes, the exchange notes and any
other Additional Notes) and all Subsidiary Guaranties;
48
(4) Indebtedness outstanding on the Issue Date (other than
Indebtedness described in clause (1), (2) or (3) of this covenant)
including the Existing Notes;
(5) Indebtedness of a Restricted Subsidiary Incurred and outstanding
on or prior to the date on which such Subsidiary became a Restricted
Subsidiary or was acquired by the Company (other than Indebtedness Incurred
in connection with, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Subsidiary became a Restricted
Subsidiary or was acquired by the Company); provided, however, that on the
date such Subsidiary became a Restricted Subsidiary or was acquired by the
Company and after giving pro forma effect thereto, the Company would have
been able to Incur at least $1.00 of additional Indebtedness pursuant to
paragraph (a) of this covenant;
(6) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to paragraph (a) or pursuant to clause (3), (4) or (5) or this
clause (6); provided, however, that to the extent such Refinancing
Indebtedness directly or indirectly Refinances Indebtedness of a Restricted
Subsidiary Incurred pursuant to clause (5), such Refinancing Indebtedness
shall be Incurred only by such Restricted Subsidiary or, so long as such
Restricted Subsidiary has no liability with respect to such Refinancing
Indebtedness, by the Company or a Subsidiary Guarantor;
(7) Indebtedness consisting of Guarantees of production or payment
with respect to Production Payments; provided, however, that the Net
Present Value of the reserves related to such Production Payments shall not
exceed 2.5% of ACNTA at the time of Incurrence;
(8) Hedging Obligations consisting of Interest Rate Agreements related
to Indebtedness outstanding on the Issue Date or permitted to be Incurred
by the Company and the Restricted Subsidiaries pursuant to the Indenture;
(9) Hedging Obligations consisting of Oil and Natural Gas Hedging
Contracts and Currency Agreements entered into in the ordinary course of
business for the purpose of limiting risks that arise in the ordinary
course of business of the Company and its Subsidiaries;
(10) obligations in respect of performance, bid and surety bonds,
including Guarantees and letters of credit functioning as or supporting
such performance, bid and surety bonds, completion guarantees and other
reimbursement obligations provided by the Company or any Restricted
Subsidiary in the ordinary course of business (in each case other than for
an obligation for money borrowed);
(11) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument drawn against
insufficient funds in the ordinary course of business; provided, however,
that such Indebtedness is extinguished within two Business Days of its
Incurrence;
(12) Indebtedness consisting of any Guarantee by the Company or a
Subsidiary Guarantor of Indebtedness of the Company or a Subsidiary
Guarantor outstanding on the Issue Date or permitted by the Indenture to be
Incurred by the Company or a Subsidiary Guarantor;
(13) Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case, Incurred for the
purpose of financing all or any part of the purchase price, cost of
construction or improvement or carrying cost of assets used in the business
of the Company and its Restricted Subsidiaries and related financing costs,
and Refinancing Indebtedness Incurred to Refinance any Indebtedness
Incurred pursuant to this clause, in an aggregate principal amount at any
one time outstanding not to exceed $20 million;
(14) Indebtedness arising from any agreement providing for
indemnities, Guarantees, purchase price adjustments, holdbacks, contingency
payment obligations based on the performance of the acquired or disposed
assets or similar obligations (other than Guarantees of Indebtedness)
Incurred by any Person in connection with the acquisition or disposition of
assets;
49
(15) in-kind obligations relating to net oil or natural gas balancing
positions arising in the ordinary course of business; and
(16) Indebtedness of the Company or its Restricted Subsidiaries in an
aggregate principal amount which, when taken together with all other
Indebtedness of the Company and its Restricted Subsidiaries outstanding on
the date of such Incurrence (other than Indebtedness permitted by clauses
(1) through (15) above or paragraph (a)) does not exceed $25 million, of
which not more than $10 million may be Indebtedness of Restricted
Subsidiaries that are not Subsidiary Guarantors.
(c) Notwithstanding the foregoing, the Company will not, and will not
permit any Subsidiary Guarantor to, Incur any Indebtedness pursuant to the
foregoing paragraph (b) if the proceeds thereof are used, directly or
indirectly, to Refinance any Subordinated Obligations of the Company or any
Subsidiary Guarantor unless such Indebtedness shall be subordinated to the notes
or the applicable Subsidiary Guaranty to at least the same extent as such
Subordinated Obligations.
(d) For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Indebtedness described above (including paragraph (a) above),
(1) the Company, in its sole discretion may classify such item of
Indebtedness at the time of Incurrence, in any manner in compliance with
this covenant,
(2) the Company will only be required to include the amount and type
of such Indebtedness in one of the above categories and
(3) the Company will be entitled to divide and classify such item of
Indebtedness in more than one of the categories of Indebtedness described
above.
(e) Notwithstanding paragraphs (a) and (b) above, the Company will not, and
will not permit any Subsidiary Guarantor to, Incur any Indebtedness if such
Indebtedness is subordinate or junior in ranking in right of payment to any
Senior Indebtedness of such Person, unless such Indebtedness is Senior
Subordinated Indebtedness of such Person or is expressly subordinated in right
of payment to Senior Subordinated Indebtedness of such Person.
LIMITATION ON RESTRICTED PAYMENTS
(a) The Company will not, and will not permit any Restricted Subsidiary,
directly or indirectly, to make a Restricted Payment if at the time the Company
or such Restricted Subsidiary makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or would result
therefrom);
(2) the Company is not entitled to Incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) of the covenant described under
"-- Limitation on Indebtedness;" or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments since the Issue Date would exceed the sum of (without
duplication):
(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the fiscal
quarter immediately following the fiscal quarter during which the Issue
Date occurs to the end of the most recent fiscal quarter ending at least
45 days prior to the date of such Restricted Payment (or, in case such
Consolidated Net Income shall be a deficit, minus 100% of such deficit);
plus
(B) 100% of the aggregate Net Cash Proceeds or the fair market
value of property other than cash (including Capital Stock of Persons
engaged in the Oil and Gas Business or assets used in the Oil and Gas
Business) received by the Company from the issuance or sale of its
Capital Stock (other than Disqualified Stock) subsequent to the Issue
Date (other than an issuance or sale to a Subsidiary of the Company and
other than an issuance or sale to an
50
employee stock ownership plan or to a trust established by the Company
or any of its Subsidiaries for the benefit of their employees) and 100%
of any capital contribution received by the Company from its
shareholders subsequent to the Issue Date; plus
(C) the aggregate Net Cash Proceeds received by the Company
subsequent to the Issue Date from the issuance or sale of its Capital
Stock (other than Disqualified Stock) to an employee stock ownership
plan or to a trust established by the Company or any of its Subsidiaries
for the benefit of their employees; provided, however, that if such
employee stock ownership plan or trust Incurs any Indebtedness to
finance the purchase of such Capital Stock, such aggregate amount shall
be limited to the excess of such Net Cash Proceeds over the amount of
such Indebtedness plus an amount equal to any increase in the
Consolidated Net Worth of the Company resulting from principal
repayments made from time to time by such employee stock ownership plan
or trust with respect to such Indebtedness; plus
(D) the amount by which Indebtedness of the Company is reduced on
the Company's balance sheet upon the conversion or exchange (other than
by a Subsidiary of the Company) subsequent to the Issue Date of any
Indebtedness of the Company convertible or exchangeable for Capital
Stock (other than Disqualified Stock) of the Company (less the amount of
any cash, or the fair value of any other property, distributed by the
Company upon such conversion or exchange); plus
(E) an amount equal to the sum of
(x) the net reduction in the Investments (other than Permitted
Investments) made by the Company or any Restricted Subsidiary in any
Person resulting from repurchases, repayments or redemptions of such
Investments by such Person, proceeds realized on the sale of such
Investment and proceeds representing the return of capital (excluding
dividends and distributions), in each case received by the Company or
any Restricted Subsidiary and
(y) to the extent such Person is an Unrestricted Subsidiary, the
portion (proportionate to the Company's equity interest in such
Subsidiary) of the fair market value of the net assets of such
Unrestricted Subsidiary at the time such Unrestricted Subsidiary is
designated a Restricted Subsidiary; provided, however, that to the
extent the foregoing sum exceeds, in the case of any such Person or
Unrestricted Subsidiary, the amount of Investments (excluding
Permitted Investments) previously made (and treated as a Restricted
Payment) by the Company or any Restricted Subsidiary in such Person
or Unrestricted Subsidiary, such excess shall not be included in this
clause (E) unless the amount represented by such excess has not been
and will not be taken into account in one of the foregoing clauses
(A)-(D); plus
(F) $15.0 million.
(b) The preceding provisions will not prohibit:
(1) any Restricted Payment made out of the Net Cash Proceeds of the
substantially concurrent issuance or sale of, or made by conversion into or
exchange for, Capital Stock of the Company (other than Disqualified Stock
and other than Capital Stock issued or sold to a Subsidiary of the Company
or an employee stock ownership plan or to a trust established by the
Company or any of its Subsidiaries for the benefit of their employees) or a
substantially concurrent cash capital contribution received by the Company
from one or more of its shareholders; provided, however, that
(A) such Restricted Payment shall be excluded in the calculation of
the amount of Restricted Payments, and
(B) the Net Cash Proceeds from such sale or such cash capital
contribution (to the extent so used for such Restricted Payment) shall
be excluded from the calculation of amounts under clause (3)(B) of
paragraph (a) above;
51
(2) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations of the
Company or a Subsidiary Guarantor made by exchange for, or out of the
proceeds of the substantially concurrent Incurrence or sale of,
Indebtedness which is permitted to be Incurred pursuant to the covenant
described under "-- Limitation on Indebtedness;" provided, however, that
such purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value shall be excluded in the calculation of the amount of
Restricted Payments;
(3) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Disqualified Stock of the Company or
a Subsidiary Guarantor made by conversion into or exchange for, or out of
the proceeds of the substantially concurrent issuance or sale (other than
to a Subsidiary of the Company or an employee stock ownership plan or to a
trust established by the Company or any of its Subsidiaries for the benefit
of their employees) of, Disqualified Stock of the Company which is
permitted to be issued pursuant to the covenant described under
"-- Limitation on Indebtedness;" provided, however, that such purchase,
repurchase, redemption, defeasance or other acquisition or retirement for
value shall be excluded in the calculation of the amount of Restricted
Payments;
(4) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with this covenant; provided, however, that at the time of payment of such
dividend, no other Default shall have occurred and be continuing (or result
therefrom); provided further, however, that such dividend shall be included
in the calculation of the amount of Restricted Payments at the time of
payment;
(5) the purchase, redemption or other acquisition or retirement for
value of shares of Capital Stock of the Company or any of its Subsidiaries
from employees, former employees, directors or former directors of the
Company or any of its Subsidiaries (or permitted transferees of such
employees, former employees, directors or former directors), pursuant to
the terms of the agreements (including employment agreements) or plans (or
amendments thereto) approved by the Board of Directors under which such
individuals purchase or sell or are granted the option to purchase or sell,
shares of such Capital Stock; provided, however, that
(A) the aggregate amount of such purchases, redemptions and other
acquisitions and retirements (excluding amounts representing
cancellation of Indebtedness) shall not exceed $2.0 million in any
calendar year, and
(B) such purchases, redemptions and other acquisitions and
retirements shall be excluded in the calculation of the amount of
Restricted Payments;
(6) the payment of cash in lieu of fractional shares of Capital Stock
in connection with any transaction otherwise permitted under this covenant;
provided, however, that such payment will be excluded in the calculation of
the amount of Restricted Payments;
(7) so long as no Default has occurred and is continuing, the
declaration and payment of regularly accruing dividends to holders of any
class or series of Designated Preferred Stock of the Company issued on or
after the Issue Date; provided, however, that
(A) at the time of the designation of such Preferred Stock as
Designated Preferred Stock, and after giving effect to such designation
on a pro forma basis (for purposes of making determinations on a pro
forma basis pursuant to this clause (7), treating all dividends which
will accrue on such Designated Preferred Stock during the four full
fiscal quarters immediately following such issuance, as well as all
other Designated Preferred Stock then outstanding, as if the same will
in fact be, or have in fact been, paid in cash), the Company would have
been able to incur at least $1.00 of additional Indebtedness under
paragraph (a) of the covenant described under "-- Limitation on
Indebtedness;" and
(B) such declaration and payment shall be excluded from the
calculation of Restricted Payments;
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(8) so long as no Default has occurred and is continuing, any
declaration or payment of dividends and other distributions in respect of,
and any purchase, redemption or other acquisition or retirement for value
of, the Existing Preferred Stock; provided, however, that such dividends,
distributions, purchases, redemptions or other acquisitions or retirements
for value will be excluded from the calculation of Restricted Payments;
(9) Restricted Payments in or to the Company or any of its Restricted
Subsidiaries; provided, however, that such Restricted Payments will be
excluded from the calculation of Restricted Payments; or
(10) upon the occurrence of a Change of Control or an Asset
Disposition and within 60 days after the completion of the offer to
repurchase the notes pursuant to the covenants described under "-- Change
of Control" above or "-- Limitation on Sales of Assets and Subsidiary
Stock" below, (including the purchase of all notes tendered), any purchase,
repurchase, redemption, defeasance, acquisition or other retirement for
value of Subordinated Obligations required pursuant to the terms thereof as
a result of such Change of Control or Asset Disposition at a purchase or
redemption price not to exceed 101% of the outstanding principal amount
thereof, plus accrued and unpaid interest thereon, if any; provided,
however, that
(A) at the time of such purchase, repurchase, redemption,
defeasance or other acquisition or retirement for value, no Default
shall have occurred and be continuing (or would result therefrom), and
(B) such purchase, repurchase redemption, defeasance or other
acquisition and retirement for value will be excluded in the calculation
of the amount of Restricted Payments.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the assets proposed to be
transferred by the Company or such Restricted Subsidiary, as the case may be, in
accordance with the Restricted Payment.
For purposes of determining compliance with this covenant, in the event
that a Restricted Payment meets the criteria of more than one of the types of
Restricted Payments described above, the Company, in its sole discretion, may
order and classify such Restricted Payment in any manner in compliance with this
covenant.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED SUBSIDIARIES
The Company will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to
(a) pay dividends or make any other distributions on its Capital Stock to
the Company or a Restricted Subsidiary or pay any Indebtedness owed to the
Company,
(b) make any loans or advances to the Company or
(c) transfer any of its property or assets to the Company, except:
(1) with respect to clauses (a), (b) and (c),
(A) any encumbrance or restriction pursuant to an agreement
governing Indebtedness, Capital Stock and other agreements or
instruments in effect at or entered into on the Issue Date, including
the Revolving Credit Facility, the Indenture, the notes and the
Subsidiary Guaranties;
(B) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness
Incurred by such Restricted Subsidiary or Capital Stock or other
agreement or instrument of such Restricted Subsidiary in existence on or
prior to the date on which such Restricted Subsidiary was acquired
(including by merger or otherwise) by the Company or otherwise becomes a
Restricted Subsidiary (other than Indebtedness Incurred,
53
Capital Stock issued or agreements or instruments entered into as
consideration in, or to provide all or any portion of the funds or
credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such Restricted Subsidiary became
a Restricted Subsidiary or was acquired by the Company) and outstanding
on such date;
(C) any encumbrance or restriction pursuant to an agreement
effecting a Refinancing in whole or in part of Indebtedness Incurred,
Capital Stock issued or agreements or instruments entered into pursuant
to an agreement referred to in clause (A) or (B) of clause (1) of this
covenant or this clause (C) or clause (B) of clause (2) of this covenant
or contained in any amendment to, or modification, restatement, renewal,
increase, supplement, replacement, or extension of, an agreement
referred to in clause (A) or (B) of clause (1) of this covenant or this
clause (C) or clause (B) of clause (2) of this covenant; provided,
however, that the encumbrances and restrictions with respect to such
Restricted Subsidiary contained in any such refinancing agreement or
amendment, modification, restatement, renewal, increase, supplement,
replacement or extension agreement are not materially more restrictive,
taken as a whole, than encumbrances and restrictions with respect to
such Restricted Subsidiary contained in such predecessor agreements;
(D) any customary restriction with respect to a Restricted
Subsidiary imposed pursuant to a merger agreement or an agreement
entered into for the sale or disposition of the Capital Stock or assets
of such Restricted Subsidiary pending the closing of such sale or
disposition;
(E) customary encumbrances and restrictions contained in agreements
of the types described in the definition of the term "Permitted Business
Investments;"
(F) customary supermajority voting provisions and other customary
provisions with respect to the disposition or distribution of assets,
each contained in corporate charters, bylaws, stockholders' agreements,
limited liability company agreements, partnership agreements, joint
venture agreements and other similar agreements entered into in the
ordinary course of business of the Company and its Restricted
Subsidiaries; and
(2) with respect to clause (c) only,
(A) any such encumbrance or restriction consisting of customary
nonassignment provisions (including provisions forbidding subletting or
sublicensing) in leases governing leasehold interests and licenses to
the extent such provisions restrict the transfer of the lease or license
or the property leased or licensed thereunder;
(B) encumbrances and restrictions contained in any agreement,
instrument or Capital Stock assumed by the Company or any of its
Restricted Subsidiaries or for which any of them becomes liable as in
effect at the time of such transaction (except to the extent such
agreement, instrument or Capital Stock was entered into in connection
with or in contemplation of such transaction), which encumbrances and
restrictions are not applicable to any assets other than assets acquired
in connection with such transaction and all improvements, additions and
accessions thereto and products and proceeds thereof;
(C) restrictions contained in credit agreements, security
agreements or mortgages securing Indebtedness of the Company or a
Restricted Subsidiary to the extent such restrictions restrict the
transfer of the property subject to such security agreements or
mortgages;
(D) restrictions on cash or other deposits imposed by customers
under contracts entered into in the ordinary course of business;
(E) encumbrances and restrictions contained in contracts entered
into in the ordinary course of business, not relating to any
Indebtedness, and that do not, individually or in the aggregate, detract
from the value of, or from the ability of the Company and the Restricted
Subsidiaries to realize the value of, property or assets of the Company
or any Restricted Subsidiary in any manner material to the Company or
any Restricted Subsidiary; and
54
(F) restrictions on the transfer of property or assets required by
any regulatory authority having jurisdiction over the Company or such
Restricted Subsidiary.
LIMITATION ON LIENS
The Company will not, and will not permit any Subsidiary Guarantor to,
directly or indirectly, create, incur, assume or suffer to exist or become
effective any Lien securing Indebtedness of any kind except for Permitted Liens,
on or with respect to any of its assets, whether owned at the Issue Date or
thereafter acquired, unless
(A) in the case of any Lien securing Subordinated Obligations, the notes
are secured by a Lien on such assets that is senior in priority to such Lien and
(B) in the case of any other Lien, the notes are either secured equally and
ratably with such Indebtedness or are secured by a Lien on such assets that is
senior in priority to such Lien.
LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK
(a) The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, consummate any Asset Disposition unless:
(1) the Company or such Restricted Subsidiary receives consideration
at the time of such Asset Disposition at least equal to the fair market
value (as determined in good faith by the Board of Directors, an Officer or
an officer of such Restricted Subsidiary with responsibility for such
transaction, which determination shall be conclusive evidence of compliance
with this provision) of the shares or assets subject to such Asset
Disposition;
(2) in the case of an Asset Disposition in excess of $5.0 million, at
least 75% of the consideration thereof received by the Company or such
Restricted Subsidiary is in the form of cash, cash equivalents, oil and
natural gas properties or capital assets to be used by the Company or any
Restricted Subsidiary in the Oil and Gas Business; and
(3) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or such Restricted Subsidiary, as
the case may be)
(A) first, to the extent the Company so elects, to prepay, repay,
purchase, repurchase, redeem, defease or otherwise acquire or retire for
value Senior Indebtedness of the Company or any Subsidiary Guarantor or
Indebtedness of a Wholly Owned Subsidiary that is not a Subsidiary
Guarantor (in each case other than Indebtedness owed to the Company or
an Affiliate of the Company) within one year from the later of the date
of such Asset Disposition or the receipt of such Net Available Cash;
(B) second, to the extent of the balance of such Net Available Cash
after application in accordance with clause (A), to the extent the
Company so elects, to acquire Additional Assets or make capital
expenditures in the Oil and Gas Business within one year from the later
of the date of such Asset Disposition or the receipt of such Net
Available Cash; and
(C) third, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (A) and (B), to make an
offer to the holders of the notes (and to holders of other Senior
Subordinated Indebtedness of the Company designated by the Company) to
purchase notes (and such other Senior Subordinated Indebtedness of the
Company) pursuant to and subject to the conditions contained in the
Indenture;
provided, however, that in connection with any prepayment,
repayment, purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Indebtedness pursuant to clause
(A) or (C) above, the Company or such Restricted Subsidiary shall
permanently retire such Indebtedness and shall cause the related loan
commitment (if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased.
55
Notwithstanding the foregoing provisions of this covenant, the Company and
the Restricted Subsidiaries will not be required to apply any Net Available Cash
in accordance with this covenant except to the extent that the aggregate Net
Available Cash from all Asset Dispositions which is not applied in accordance
with this covenant exceeds $20 million. Pending application of Net Available
Cash pursuant to this covenant, such Net Available Cash shall be invested in
Temporary Cash Investments or applied to temporarily reduce revolving credit
indebtedness.
For the purposes of paragraph (a)(2) above, the following are deemed to be
cash or cash equivalents:
(1) the release of, pursuant to a novation or other agreement, or the
discharge of, the Company or such Restricted Subsidiary from all liability
on Indebtedness in connection with such Asset Disposition; and
(2) securities received by the Company or any Restricted Subsidiary
from the transferee that are promptly converted by the Company or such
Restricted Subsidiary into cash.
Notwithstanding the foregoing, the 75% limitation referred to in paragraph
(a)(2) above shall be deemed satisfied with respect to any Asset Disposition in
which the cash or cash equivalents portion of the consideration received
therefrom, determined in accordance with the foregoing provision on an after-tax
basis, is equal to or greater than what the after-tax proceeds would have been
had such Asset Disposition complied with the aforementioned 75% limitation.
The requirement of clause (a)(3)(B) above shall be deemed to be satisfied
if an agreement (including a lease, whether a capital lease or an operating
lease) committing to make the acquisitions or expenditures referred to therein
is entered into by the Company or its Restricted Subsidiary within the time
period specified in such clause and such Net Available Cash is subsequently
applied in accordance with such agreement within six months following such
agreement.
(b) In the event of an Asset Disposition that requires the purchase of
notes (and other Senior Subordinated Indebtedness of the Company) pursuant to
clause (a)(3)(C) above, the Company will
(1) make such offer to purchase notes on or before the 366th day after
the later of the date of such Asset Disposition or the receipt of such Net
Available Cash, and
(2) purchase notes tendered pursuant to an offer by the Company for
the notes (and such other Senior Subordinated Indebtedness of the Company)
at a purchase price of 100% of their principal amount (or, in the event
such other Senior Subordinated Indebtedness of the Company was issued with
significant original issue discount, 100% of the accreted value thereof)
without premium, plus accrued but unpaid interest (or, in respect of such
other Senior Subordinated Indebtedness of the Company, such lesser price,
if any, as may be provided for by the terms of such Senior Subordinated
Indebtedness of the Company) in accordance with the procedures (including
prorating in the event of oversubscription) set forth in the Indenture.
If the aggregate purchase price of the notes and any other Senior
Subordinated Indebtedness tendered exceeds the Net Available Cash allotted to
their purchase, the Company will select the notes and other Senior Subordinated
Indebtedness to be purchased on a pro rata basis but in round denominations,
which in the case of the notes will be denominations of $1,000 principal amount
or multiples thereof. The Company shall not be required to make such an offer to
purchase notes (and other Senior Subordinated Indebtedness of the Company)
pursuant to this covenant if the Net Available Cash available therefor is less
than $20 million (which lesser amount shall be carried forward for purposes of
determining whether such an offer is required with respect to the Net Available
Cash from any subsequent Asset Disposition).
(c) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under this covenant by virtue of its compliance
with such securities laws or regulations.
56
LIMITATION ON AFFILIATE TRANSACTIONS
(a) The Company will not, and will not permit any Restricted Subsidiary to,
enter into any transaction (including the purchase, sale, lease or exchange of
any property, employee compensation arrangements or the rendering of any
service) with, or for the benefit of, any Affiliate of the Company (an
"Affiliate Transaction") unless:
(1) the terms of the Affiliate Transaction are no less favorable to
the Company or such Restricted Subsidiary than those that could reasonably
be expected to be obtained at the time of the Affiliate Transaction in
arm's-length dealings with a Person who is not an Affiliate;
(2) if such Affiliate Transaction involves an amount in excess of $15
million, the terms of the Affiliate Transaction are set forth in writing
and a majority of the non-employee directors of the Company disinterested
with respect to such Affiliate Transaction shall have determined in good
faith that the criteria set forth in clause (1) are satisfied and shall
have approved the relevant Affiliate Transaction as evidenced by a
resolution of the Board of Directors; and
(3) if such Affiliate Transaction involves an amount in excess of $30
million, the Board of Directors shall have received a written opinion from
an Independent Qualified Party to the effect that such Affiliate
Transaction is fair, from a financial standpoint, to the Company and its
Restricted Subsidiaries or is not less favorable to the Company and its
Restricted Subsidiaries than could reasonably be expected to be obtained at
the time in an arm's-length transaction with a Person who was not an
Affiliate.
(b) The provisions of the preceding paragraph (a) will not prohibit:
(1) any Investment (other than a Permitted Investment) or other
Restricted Payment, in each case not prohibited to be made pursuant to the
covenant described under "-- Limitation on Restricted Payments;"
(2) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans and other benefit
plans approved by the Board of Directors;
(3) loans or advances to officers, directors and employees in the
ordinary course of business of the Company or its Restricted Subsidiaries,
but in any event not to exceed $3.0 million in the aggregate outstanding at
any one time;
(4) any transaction between or among the Company, a Restricted
Subsidiary or joint venture or other Person that would constitute an
Affiliate Transaction solely because the Company or a Restricted Subsidiary
owns an equity interest in or otherwise controls such Restricted
Subsidiary, joint venture or other Person;
(5) the issuance or sale of any Capital Stock (other than Disqualified
Stock) of the Company;
(6) reasonable fees and reasonable compensation paid to, and indemnity
and similar arrangements provided on behalf of, officers, directors and
employees of the Company or any Restricted Subsidiary as determined in good
faith by the Board of Directors or the Company's senior management; and
(7) with respect to any agreements or arrangements in effect on, or
entered into on or prior to, the Issue Date, and which are disclosed in the
Offering Circular dated October 31, 2001, any amendment, modification, or
supplement thereto or any replacement thereof, so long as any such
amendment, modification, supplement or replacement agreement or arrangement
is not materially more disadvantageous to the holders of the notes than the
original agreements and arrangements as in effect on the Issue Date, and
any transactions contemplated by any of the foregoing agreements or
arrangements.
57
MERGER AND CONSOLIDATION
The Company will not consolidate with or merge with or into, or convey,
transfer or lease, in one transaction or a series of transactions, directly or
indirectly, all or substantially all the assets of the Company and its
Restricted Subsidiaries, taken as a whole, to, any Person, unless:
(1) the resulting, surviving or transferee Person (the "Successor
Company") shall be a Person organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia and
the Successor Company (if not the Company) shall expressly assume, by an
indenture supplemental thereto, executed and delivered to the Trustee, in
form satisfactory to the Trustee, all the obligations of the Company under
the notes and the Indenture;
(2) immediately after giving pro forma effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Successor
Company or any Subsidiary as a result of such transaction as having been
Incurred by such Successor Company or such Subsidiary at the time of such
transaction), no Default shall have occurred and be continuing;
(3) immediately after giving pro forma effect to such transaction, the
Successor Company would be able to Incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) of the covenant described under
"-- Limitation on Indebtedness;"
(4) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer or lease and such supplemental
indenture (if any) comply with the Indenture; and
(5) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that the holders will not recognize income, gain or
loss for Federal income tax purposes as a result of such transaction and
will be subject to Federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such
transaction had not occurred;
provided, however, that clause (3) will not be applicable
(A) to the Company or a Restricted Subsidiary consolidating with, merging
into, conveying, transferring or leasing all or part of its assets to the
Company or a Subsidiary Guarantor,
(B) to the Company merging with an Affiliate of the Company solely for the
purpose and with the sole effect of reincorporating the Company in another
jurisdiction within the United States of America or
(C) at any time when the Company and its Restricted Subsidiaries are not
subject to the Suspended Covenants.
The Successor Company (if not the Company) will be the successor to the
Company and shall succeed to, and be substituted for, and may exercise every
right and power of, the Company under the Indenture, and the predecessor
Company, except in the case of a lease, shall be released from the obligation to
pay the principal of and interest on the notes.
The Company will not permit any Subsidiary Guarantor to consolidate with or
merge with or into, or convey, transfer or lease, in one transaction or a series
of transactions, all or substantially all of its assets to any Person unless:
(1) (other than in the case of a Subsidiary Guarantor that has been
disposed of in its entirety to another Person (other than to the Company or
an Affiliate of the Company), whether through a merger, consolidation or
sale of Capital Stock or assets, if in connection therewith the Company
complies with its obligations under the covenant described under
"-- Limitation on Sales of Assets and Subsidiary Stock" in respect of such
disposition), the resulting, surviving or transferee Person (if not such
Subsidiary) shall be a Person organized and existing under the laws of the
jurisdiction under which such Subsidiary was organized or under the laws of
the United States of America, or any State thereof or the District of
Columbia, and, if such Person is not a Subsidiary Guarantor, such Person
58
shall expressly assume, by a Guaranty Agreement, in a form satisfactory to
the Trustee, all the obligations of such Subsidiary, if any, under its
Subsidiary Guaranty;
(2) immediately after giving effect to such transaction or
transactions on a pro forma basis (and treating any Indebtedness which
becomes an obligation of the resulting, surviving or transferee Person as a
result of such transaction as having been issued by such Person at the time
of such transaction), no Default shall have occurred and be continuing; and
(3) in the event a Guaranty Agreement is executed and delivered
pursuant to clause (1) above, the Company delivers to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer or lease and such Guaranty
Agreement comply with the Indenture.
FUTURE GUARANTORS
The Company will cause each Restricted Subsidiary that Incurs any
Indebtedness (other than Indebtedness Incurred pursuant to and in compliance
with the last clause of paragraph (b)(16) of the covenant described under
"-- Limitation on Indebtedness") to, at the same time, execute and deliver to
the Trustee a Guaranty Agreement pursuant to which such Restricted Subsidiary
will Guarantee payment of the notes on the same terms and conditions as those
set forth in the Indenture.
SEC REPORTS
Notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company will file
with the SEC and provide the Trustee and noteholders with such annual reports
and such information, documents and other reports as are specified in Sections
13 and 15(d) of the Exchange Act and applicable to a U.S. corporation subject to
such Sections (but without exhibits in the case of noteholders), such
information, documents and other reports to be so filed and provided at the
times specified for the filings of such information, documents and reports under
such Sections.
In addition, the Company will furnish to the holders of the notes and to
prospective investors, upon the requests of such holders, any information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act so
long as the notes are not freely transferable under the Securities Act.
DEFAULTS
Each of the following is an Event of Default:
(1) a default in the payment of interest on the notes when due,
continued for 30 days;
(2) a default in the payment of principal of any note when due at its
Stated Maturity, upon optional redemption, upon required purchase, upon
declaration of acceleration or otherwise;
(3) the failure by the Company to comply with its obligations under
"-- Certain Covenants -- Merger and Consolidation" above;
(4) the failure by the Company to comply for 30 days after notice with
any of its obligations in the covenants described above under "Change of
Control" (other than a failure to purchase notes) or under "-- Certain
Covenants" under "-- Limitation on Indebtedness," "-- Limitation on
Restricted Payments," "-- Limitation on Restrictions on Distributions from
Restricted Subsidiaries," "-- Limitation on Liens," "-- Limitation on Sales
of Assets and Subsidiary Stock" (other than a failure to purchase notes),
"-- Limitation on Affiliate Transactions," "-- Future Guarantors" or
"-- SEC Reports;"
(5) the failure by the Company or any Subsidiary Guarantor to comply
for 60 days after notice with its other agreements contained in the
Indenture;
59
(6) Indebtedness of the Company or any Significant Subsidiary is not
paid within any applicable grace period after final maturity or is
accelerated by the holders thereof because of a default and the total
amount of such Indebtedness unpaid or accelerated exceeds $10.0 million
(the "cross acceleration provision");
(7) certain events of bankruptcy, insolvency or reorganization of the
Company or any Significant Subsidiary (the "bankruptcy provisions");
(8) any judgment or decree for the payment of money in excess of $10.0
million above the coverage under applicable insurance policies and
indemnities as to which the relevant insurer or indemnitor has not
disclaimed responsibility is entered against the Company or any Significant
Subsidiary, remains outstanding for a period of 60 consecutive days
following such judgment and is not discharged, waived or stayed (the
"judgment default provision"); or
(9) a Subsidiary Guaranty ceases to be in full force and effect (other
than in accordance with the terms of such Subsidiary Guaranty) for five
days after notice or any Subsidiary Guarantor denies or disaffirms its
obligations under its Subsidiary Guaranty other than in accordance with the
terms of such Subsidiary Guaranty (the "Guarantor failure provision").
However, a default under clauses (4), (5) and (9) will not constitute an
Event of Default until the Trustee or the holders of at least 25% in principal
amount of the outstanding notes notify the Company of the default and the
Company does not cure such default within the time specified after receipt of
such notice.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding notes may declare the
principal of and accrued but unpaid interest on all the notes to be due and
payable. Upon such a declaration, such principal and interest shall be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company occurs and is
continuing, the principal of and interest on all the notes will ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any holders of the notes. Under certain
circumstances, the holders of a majority in principal amount of the outstanding
notes may rescind any such acceleration with respect to the notes and its
consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders of the notes unless
such holders have offered to the Trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium (if any) or interest when due, no holder of a note
may pursue any remedy with respect to the Indenture or the notes unless:
(1) such holder has previously given the Trustee notice that an Event
of Default is continuing;
(2) holders of at least 25% in principal amount of the outstanding
notes have requested the Trustee to pursue the remedy;
(3) such holders have offered the Trustee security or indemnity
satisfactory to it against any loss, liability or expense;
(4) the Trustee has not complied with such request within 60 days
after the receipt thereof and the offer of security or indemnity; and
(5) holders of a majority in principal amount of the outstanding notes
have not given the Trustee a direction inconsistent with such request
within such 60-day period.
Subject to certain restrictions, the holders of a majority in principal
amount of the outstanding notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee. The Trustee,
however, may refuse to follow any direction that conflicts with law or the
Indenture or that the Trustee
60
determines is unduly prejudicial to the rights of any other holder of a note or
that would involve the Trustee in personal liability.
If a Default occurs, is continuing and is known to the Trustee, the Trustee
must mail to each holder of the notes notice of the Default within 90 days after
it occurs (and such notice must specify that it is a notice of default under the
Indenture). Except in the case of a Default in the payment of principal of or
interest on any note, the Trustee may withhold notice if and so long as a
committee of its Trust Officers determines that withholding notice is not
opposed to the interest of the holders of the notes. In addition, we are
required to deliver to the Trustee, within 120 days after the end of each fiscal
year, a certificate indicating whether the signers thereof know of any Default
that occurred during the previous year. We are required to deliver to the
Trustee, within 30 days after the occurrence thereof, written notice of any
event which would constitute certain Defaults, their status and what action we
are taking or propose to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the holders of a majority in principal amount of the notes then
outstanding (including consents obtained in connection with a tender offer or
exchange for the notes) and any past default or compliance with any provisions
may also be waived with the consent of the holders of a majority in principal
amount of the notes then outstanding. However, without the consent of each
holder of an outstanding note affected thereby, an amendment or waiver may not,
among other things:
(1) reduce the amount of notes whose holders must consent to an
amendment;
(2) reduce the rate of or extend the time for payment of interest on
any note;
(3) reduce the principal of or extend the Stated Maturity of any note;
(4) reduce the amount payable upon the redemption of any note or
change the time at which any note may be redeemed as described under
"-- Optional Redemption;"
(5) make any note payable in money other than that stated in the note;
(6) impair the right of any holder of the notes to receive payment of
principal of and interest on such holder's notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to such holder's notes;
(7) make any change in the provisions which require each affected
holder's consent to an amendment or waiver;
(8) make any change in the ranking or priority of any note that would
adversely affect the noteholders; or
(9) make any change in any Subsidiary Guaranty that would adversely
affect the noteholders in any material respect.
Notwithstanding the preceding, the covenant described under the caption
"-- Change of Control" may be amended as described in the last paragraph of that
description.
Notwithstanding the preceding, without the consent of any holder of the
notes, the Company, the Subsidiary Guarantors and Trustee may amend the
Indenture:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to provide for the assumption by a successor corporation of the
obligations of the Company or any Subsidiary Guarantor under the Indenture;
(3) to provide for uncertificated notes in addition to or in place of
certificated notes (provided that the uncertificated notes are issued in
registered form for purposes of Section 163(f) of the Code,
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or in a manner such that the uncertificated notes are described in Section
163(f)(2)(B) of the Code);
(4) to eliminate the subordination provisions contained therein and
add covenants relating to Liens and Sale/Leaseback Transactions described
under "Certain Covenants -- Covenant Suspension;"
(5) to add guarantees with respect to the notes, including any
Subsidiary Guaranties, or to secure the notes;
(6) to add to the covenants of the Company or any Subsidiary Guarantor
for the benefit of the holders of the notes or to surrender any right or
power conferred upon the Company or any Subsidiary Guarantor;
(7) to make any change that does not adversely affect the rights of
any holder of the notes; or
(8) to comply with any requirement of the SEC in connection with the
qualification of the Indenture under the Trust Indenture Act.
Except as is specified in clause (4) above, no amendment may be made to the
subordination provisions of the Indenture that adversely affects the rights of
any holder of Senior Indebtedness of the Company or of a Subsidiary Guarantor
then outstanding unless such holder of such Senior Indebtedness (or its
Representative) consents to such change or as otherwise permitted by the notes,
debentures, bonds or other similar instruments evidencing such Senior
Indebtedness.
The consent of the holders of the notes is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, we are required
to mail to holders of the notes a notice briefly describing such amendment.
However, the failure to give such notice to all holders of the notes, or any
defect therein, will not impair or affect the validity of the amendment.
TRANSFER
The notes will be issued in registered form and will be transferable only
upon the surrender of the notes being transferred for registration of transfer.
We may require payment of a sum sufficient to cover any tax, assessment or other
governmental charge payable in connection with certain transfers and exchanges.
DEFEASANCE
At any time, we may terminate all our obligations under the notes and the
Indenture ("legal defeasance"), except for certain obligations, including those
respecting the defeasance trust and obligations to register the transfer or
exchange of the notes, to replace mutilated, destroyed, lost or stolen notes and
to maintain a registrar and paying agent in respect of the notes.
In addition, at any time we may terminate the subordination provisions
described above under "Ranking" and our obligations under "-- Change of Control"
and under the covenants described under "-- Certain Covenants" (other than the
covenant described under "-- Merger and Consolidation"), the operation of the
cross acceleration provision, the bankruptcy provisions with respect to
Significant Subsidiaries, the judgment default and Guarantor failure provisions
described under "-- Defaults" above and the limitation contained in clause (3)
of the first paragraph under "-- Certain Covenants -- Merger and Consolidation"
above ("covenant defeasance").
We may exercise our legal defeasance option notwithstanding our prior
exercise of our covenant defeasance option. If we exercise our legal defeasance
option, payment of the notes may not be accelerated because of an Event of
Default with respect thereto. If we exercise our covenant defeasance option,
payment of the notes may not be accelerated because of an Event of Default
specified in clause (4), (6),
62
(7) (with respect only to Significant Subsidiaries), (8) or (9) under
"-- Defaults" above or because of the failure of the Company to comply with
clause (3) of the first paragraph under "-- Certain Covenants -- Merger and
Consolidation" above. If we exercise our legal defeasance option or our covenant
defeasance option, each Subsidiary Guarantor will be released from all of its
obligations with respect to its Subsidiary Guaranty.
In order to exercise either of our defeasance options, we must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the notes to
redemption or maturity, as the case may be, and must comply with certain other
conditions, including delivery to the Trustee of an Opinion of Counsel to the
effect that holders of the notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such deposit and defeasance and will
be subject to Federal income tax on the same amounts and in the same manner and
at the same times as would have been the case if such deposit and defeasance had
not occurred (and, in the case of legal defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable Federal income tax law).
CONCERNING THE TRUSTEE
The Bank of New York is the Trustee under the Indenture and Registrar and
Paying Agent with regard to the notes.
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; provided, however, if it acquires any conflicting interest it must
either eliminate such conflict within 90 days, apply to the SEC for permission
to continue or resign. The Bank of New York is currently a lender under the New
Revolving Credit Facility and we are currently in compliance with the terms of
the Indebtedness owed by us to The Bank of New York under the New Revolving
Credit Facility.
The holders of a majority in principal amount of the outstanding notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee, subject to certain
exceptions. If an Event of Default occurs (and is not cured), the Trustee will
be required, in the exercise of its power, to use the degree of care of a
prudent man in the conduct of his own affairs. Subject to such provisions, the
Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request of any holder of notes unless such holder
shall have offered to the Trustee security and indemnity satisfactory to it
against any loss, liability or expense and then only to the extent required by
the terms of the Indenture.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any Subsidiary Guarantor will have any liability for any obligations of the
Company or any Subsidiary Guarantor under the notes, any Subsidiary Guaranty or
the Indenture or for any claim based on, in respect of, or by reason of such
obligations or their creation. Each holder of the notes by accepting a note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the notes. Such waiver and release may not be
effective to waive liabilities under the U.S. federal securities laws, and it is
the view of the SEC that such a waiver is against public policy.
GOVERNING LAW
The Indenture is, and the exchange notes will be, governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
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CERTAIN DEFINITIONS
"Additional Assets" means:
(1) any property, plant, equipment or other assets used in a Related
Business;
(2) the Capital Stock of a Person that becomes a Restricted Subsidiary
as a result of the acquisition of such Capital Stock by the Company or
another Restricted Subsidiary; or
(3) Capital Stock constituting a minority interest in any Person that
at such time is a Restricted Subsidiary;
provided, however, that any such Restricted Subsidiary described in clause (2)
or (3) above is primarily engaged in a Related Business.
"Adjusted Consolidated Net Tangible Assets" or "ACNTA" means (without
duplication), as of the date of determination:
(a) the sum of:
(1) discounted future net revenue from proved crude oil and natural
gas reserves of the Company and its Restricted Subsidiaries calculated in
accordance with SEC guidelines before any state or federal income taxes, as
estimated in a reserve report prepared as of the end of the fiscal year
ending at least 45 days prior to the date of determination (or for the
period prior to the earlier of April 1, 2002 and the date the reserve
report for 2001 is available, as of June 30, 2001), which reserve report is
prepared or audited by independent petroleum engineers, as increased by, as
of the date of determination, the discounted future net revenue of:
(A) estimated proved crude oil and natural gas reserves of the
Company and its Restricted Subsidiaries attributable to acquisitions
consummated since the date of such reserve report, and
(B) estimated crude oil and natural gas reserves of the Company and
its Restricted Subsidiaries attributable to extensions, discoveries and
other additions and upward determinations of estimates of proved crude
oil and natural gas reserves (including previously estimated development
costs incurred during the period and the accretion of discount since the
prior period end) due to exploration, development or exploitation,
production or other activities which reserves were not reflected in such
reserve report which would, in accordance with standard industry
practice, result in such determinations, in each case calculated in
accordance with SEC guidelines (utilizing the prices utilized in such
year-end reserve report),
and decreased by, as of the date of determination, the discounted future
net revenue attributable to:
(C) estimated proved crude oil and natural gas reserves of the
Company and its Restricted Subsidiaries reflected in such reserve report
produced or disposed of since the date of such reserve report, and
(D) reductions in the estimated oil and natural gas reserves of the
Company and its Restricted Subsidiaries reflected in such reserve report
since the date of such reserve report attributable to downward
determinations of estimates of proved crude oil and natural gas reserves
due to exploration, development or exploitation, production or other
activities conducted or otherwise occurring since the date of such
reserve report which would, in accordance with standard industry
practice, result in such determinations, in each case calculated in
accordance with SEC guidelines (utilizing the prices utilized in such
reserve report);
provided, however, that, in the case of each of the determinations made
pursuant to clauses (A) through (D), such increases and decreases shall
be estimated by the Company's engineers, except that if as a result of
such acquisitions, dispositions, discoveries, extensions or revisions,
there is a Material Change, then such increases and decreases in the
discounted future net revenue shall be confirmed in writing by an
independent petroleum engineer;
64
(2) the capitalized costs that are attributable to crude oil and
natural gas properties of the Company and its Restricted Subsidiaries to
which no proved crude oil and natural gas reserves are attributed, based on
the Company's books and records as of a date no earlier than the most
recent fiscal quarter ending at least 45 days prior to the date of
determination;
(3) the Net Working Capital as of the end of the most recent fiscal
quarter ending at least 45 days prior to the date of determination; and
(4) the greater of (i) the net book value as of a date no earlier than
the most recent fiscal quarter ending at least 45 days prior to the date of
determination and (ii) the appraised value, as estimated by independent
appraisers, of other tangible assets of the Company and its Restricted
Subsidiaries as of a date no earlier than the most recent fiscal year
ending at least 45 days prior to the date of determination (provided that
the Company shall not be required to obtain such an appraisal of such
assets if no such appraisal has been performed); minus
(b) to the extent not otherwise taken into account in the immediately
preceding clause (a), the sum of:
(1) minority interests;
(2) any natural gas balancing liabilities of the Company and its
Restricted Subsidiaries reflected in the Company's latest audited financial
statements;
(3) the discounted future net revenue, calculated in accordance with
SEC guidelines (utilizing the same prices utilized in the Company's
year-end reserve report), attributable to reserves subject to participation
interests, overriding royalty interests or other interests of third
parties, pursuant to participation, partnership, vendor financing or other
agreements then in effect, or which otherwise are required to be delivered
to third parties;
(4) the discounted future net revenue calculated in accordance with
SEC guidelines (utilizing the same prices utilized in the Company's
year-end reserve report), attributable to reserves that are required to be
delivered to third parties to fully satisfy the obligations of the Company
and its Restricted Subsidiaries with respect to Volumetric Production
Payments on the schedules specified with respect thereto; and
(5) the discounted future net revenue, calculated in accordance with
SEC guidelines, attributable to reserves subject to Dollar-Denominated
Production Payments that, based on the estimates of production included in
determining the discounted future net revenue specified in the immediately
preceding clause (a)(1) (utilizing the same prices utilized in the
Company's year-end reserve report), would be necessary to satisfy fully the
obligations of the Company and its Restricted Subsidiaries with respect to
Dollar-Denominated Production Payments on the schedules specified with
respect thereto.
If the Company changes its method of accounting from the successful efforts
method to the full cost method or a similar method of accounting, "ACNTA" will
continue to be calculated as if the Company were still using the successful
efforts method of accounting.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the covenants described under "-- Certain Covenants -- Limitation on
Restricted Payments," "-- Certain Covenants -- Limitation on Affiliate
Transactions" and "-- Certain Covenants -- Limitation on Sales of Assets and
Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner of
Capital Stock representing 10% or more of the total voting power of the Voting
Stock (on a fully diluted basis) of the Company or of rights or warrants to
purchase such Capital Stock
65
(whether or not currently exercisable). No Person shall be deemed an Affiliate
of an oil and natural gas royalty trust solely by virtue of ownership of units
of beneficial interest in such trust.
"Applicable Premium" means, with respect to a note at any time, the greater
of (1) 1.0% of the principal amount of such note at such time and (2) the excess
of (A) the present value at such time of the principal amount of such note plus
any required interest payments due on such note through November 1, 2006,
computed using a discount rate equal to the Treasury Rate plus 50 basis points,
over (B) the principal amount of such note.
"Asset Disposition" means any sale, lease, issuance, transfer or other
disposition (or series of related sales, leases, issuances, transfers or
dispositions) by the Company or any Restricted Subsidiary, including any
disposition by means of a merger, consolidation or similar transaction (each
referred to for the purposes of this definition as a "disposition"), of:
(1) any shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares or shares required by applicable law to be
held by a Person other than the Company or a Restricted Subsidiary);
(2) all or substantially all the assets of any division or line of
business of the Company or any Restricted Subsidiary; or
(3) any other assets of the Company or any Restricted Subsidiary
outside of the ordinary course of business of the Company or such
Restricted Subsidiary.
Notwithstanding the foregoing, the following shall be deemed not to be
Asset Dispositions:
(A) a disposition by the Company or a Restricted Subsidiary to the
Company or a Restricted Subsidiary;
(B) for purposes of the covenant described under "-- Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock" only, a
disposition that constitutes a Restricted Payment permitted by the covenant
described under "-- Certain Covenants -- Limitation on Restricted Payments"
or a Permitted Investment;
(C) a disposition of all or substantially all the assets of the
Company in accordance with the covenant described under "-- Certain
Covenants -- Merger and Consolidation;"
(D) the trade or exchange by the Company or any Restricted Subsidiary
of any oil or natural gas property or interest therein of the Company or
such Restricted Subsidiary for any oil or natural gas property or interest
therein of another Person, including any cash or cash equivalents necessary
in order to achieve an exchange of equivalent value; provided, however,
that the value of the oil or natural gas property or interest therein
received by the Company or any Restricted Subsidiary in such trade or
exchange (including any cash or cash equivalents) is at least equal to the
fair market value (as determined in good faith by the Board of Directors,
an Officer or an officer of such Restricted Subsidiary with responsibility
for such transaction, which determination shall be conclusive evidence of
compliance with this provision) of the oil or natural gas property or
interest therein (including any cash or cash equivalents) so traded or
exchanged;
(E) the creation of a Lien;
(F) a disposition of oil and natural gas properties in connection with
tax credit transactions complying with Section 29 or any successor or
analogous provisions of the Code;
(G) a disposition of the Capital Stock of or any Investment in any
Unrestricted Subsidiary;
(H) surrender or waiver of contract rights or the settlement, release
or surrender of contract, tort or other claims of any kind;
(I) any disposition of defaulted receivables that arose in the
ordinary course of business for collection; and
66
(J) a disposition of assets with a fair market value of less than $1.0
million.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the notes, compounded semi-annually) of the total obligations of the
lessee for rental payments during the remaining term of the lease included in
such Sale/Leaseback Transaction (including any period for which such lease has
been extended); provided, however, that if such Sale/Leaseback Transaction
results in a Capital Lease Obligation, the amount of Indebtedness represented
thereby will be determined in accordance with the definition of "Capital Lease
Obligation."
"Average Life" means, as of the date of determination, with respect to any
Indebtedness, the quotient obtained by dividing:
(1) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment
of or redemption or similar payment with respect to such Indebtedness
multiplied by the amount of such payment by
(2) the sum of all such payments.
"Bank Indebtedness" means all obligations pursuant to any Credit
Facilities.
"Board of Directors" means the board of directors of the Company or any
committee thereof duly authorized to act on behalf of such board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligation" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (x) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days prior to the date of
such determination to (y) Consolidated Interest Expense for such four fiscal
quarters; provided, however, that:
(1) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding or
if the transaction giving rise to the need to calculate the Consolidated
Coverage Ratio is an Incurrence of Indebtedness, or both, then EBITDA and
Consolidated Interest Expense for such period shall be calculated after
giving effect on a pro forma basis to such Indebtedness and the use of
proceeds thereof as if such Indebtedness had been Incurred on the first day
of such period and such proceeds had been applied as of such date;
(2) if the Company or any Restricted Subsidiary has repaid,
repurchased, defeased or otherwise discharged any Indebtedness since the
beginning of such period or if any Indebtedness is to be repaid,
repurchased, defeased or otherwise discharged on the date of the
transaction giving rise to the need to calculate the Consolidated Coverage
Ratio, then EBITDA and Consolidated Interest Expense for such period shall
be calculated on a pro forma basis as if such discharge had occurred on the
first day of such period and as if the Company or such Restricted
Subsidiary had not earned the interest income actually earned (if any)
during such period in respect of cash or Temporary Cash Investments used to
repay, repurchase, defease or otherwise discharge such Indebtedness;
67
(3) if, since the beginning of such period, the Company or any
Restricted Subsidiary shall have made any Asset Disposition, then EBITDA
for such period shall be reduced by an amount equal to EBITDA (if positive)
directly attributable to the assets which were the subject of such Asset
Disposition for such period, or increased by an amount equal to EBITDA (if
negative), directly attributable thereto for such period and Consolidated
Interest Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Indebtedness of
the Company or any Restricted Subsidiary repaid, repurchased, defeased or
otherwise discharged with respect to the Company and its continuing
Restricted Subsidiaries in connection with such Asset Disposition for such
period (or, if the Capital Stock of any Restricted Subsidiary is sold, the
Consolidated Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent the Company and
its continuing Restricted Subsidiaries are no longer liable for such
Indebtedness after such sale);
(4) if, since the beginning of such period, the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary (or any Person which becomes a
Restricted Subsidiary) or an acquisition of material assets, then EBITDA
and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto (including the Incurrence of any
Indebtedness) as if such Investment or acquisition had occurred on the
first day of such period; and
(5) if, since the beginning of such period, any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period)
shall have made any Asset Disposition, any Investment or acquisition of
assets that would have required an adjustment pursuant to clause (3) or (4)
above if made by the Company or a Restricted Subsidiary during such period,
then EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto as if such Asset
Disposition, Investment or acquisition had occurred on the first day of
such period.
For purposes of this definition, whenever pro forma effect is to be given
to an acquisition of assets, the amount of income or earnings relating thereto
and the amount of Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, the pro forma calculations shall be determined
in good faith by a responsible financial or accounting Officer.
If any Indebtedness bears a floating rate of interest and is being given
pro forma effect, the interest on such Indebtedness shall be calculated as if
the rate in effect on the date of determination had been the applicable rate for
the entire period (taking into account any Interest Rate Agreement applicable to
such Indebtedness, but if the remaining term of such Interest Rate Agreement is
less than 12 months, then such Interest Rate Agreement shall only be taken into
account for that portion of the period equal to the remaining term thereof).
The Consolidated Interest Expense attributable to interest on any
Indebtedness under a revolving credit facility, the outstanding principal
balance of which is required to be computed on a pro forma basis in accordance
with the foregoing, shall be computed based upon the average daily balance of
such Indebtedness during the applicable period, provided, that such average
daily balance shall take into account the amount of any repayment of
Indebtedness under such revolving credit facility during the applicable period,
to the extent such repayment permanently reduced the commitments or amounts
available to be borrowed under such facility.
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries, without duplication:
(1) interest expense attributable to capital leases and the interest
expense attributable to leases constituting part of a Sale/Leaseback
Transaction;
(2) amortization of debt discount and debt issuance cost;
68
(3) capitalized interest;
(4) non-cash interest expense;
(5) commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing;
(6) net payments pursuant to Interest Rate Agreements;
(7) Preferred Stock dividends in respect of all Preferred Stock held
by Persons other than the Company or a Wholly Owned Subsidiary (other than
dividends payable solely in Capital Stock (other than Disqualified Stock)
of the Company);
(8) interest incurred in connection with Investments in discontinued
operations;
(9) interest accruing on any Indebtedness of any other Person to the
extent such Indebtedness is Guaranteed by (or secured by the assets of) the
Company or any Restricted Subsidiary; and
(10) the cash contributions to any employee stock ownership plan or
similar trust to the extent such contributions are used by such plan or
trust to pay interest or fees to any Person (other than the Company) in
connection with Indebtedness Incurred by such plan or trust;
minus, to the extent included above, write-off of deferred financing costs and
interest attributable to Dollar-Denominated Production Payments.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income:
(1) any net income of any Person (other than the Company) if such
Person is not a Restricted Subsidiary, except that:
(A) subject to the exclusion contained in clause (4) below, the
Company's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income in an amount equal to
the aggregate amount of cash actually distributed by such Person during
such period to the Company or a Restricted Subsidiary as a dividend,
interest payment or other distribution (subject, in the case of a
dividend, interest payment or other distribution paid to a Restricted
Subsidiary, to the limitations contained in clause (3) below); and
(B) the Company's equity in a net loss of any such Person for such
period shall not be included in determining such Consolidated Net
Income, except to the extent of the aggregate cash actually contributed
to such Person by the Company or a Restricted Subsidiary during such
period;
(2) solely for purposes of determining the aggregate amount available
for Restricted Payments under clause (a)(3) of the covenant described under
"Certain Covenants -- Limitation on Restricted Payments," any net income
(or loss) of any Person acquired by the Company or a Subsidiary in a
pooling of interests transaction for any period prior to the date of such
acquisition;
(3) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that:
(A) subject to the exclusion contained in clause (4) below, the net
income of any such Restricted Subsidiary for such period shall be
included in such Consolidated Net Income in an amount equal to the
aggregate amount of cash that could have been distributed by such
Restricted Subsidiary during such period to the Company or another
Restricted Subsidiary as a dividend, interest payment or other
distribution (subject, in the case of a dividend, interest payment or
other distribution paid to another Restricted Subsidiary, to the
limitation contained in this clause); and
69
(B) the net loss of any such Restricted Subsidiary for such period
shall be included in determining such Consolidated Net Income;
(4) any gain or loss, together with any related provision for taxes on
such gain or loss and all related fees and expenses, realized in connection
with (A) the sale or other disposition of any assets of the Company, its
consolidated Subsidiaries or any other Person (including pursuant to any
Sale/ Leaseback Transaction) which is not sold or otherwise disposed of in
the ordinary course of business and (B) the disposition of any securities
of any Person or the extinguishment of any Indebtedness of the Company or
any of its Subsidiaries;
(5) extraordinary or nonrecurring gains or losses, together with any
related provision for taxes on such gains or losses and all related fees
and expenses;
(6) the cumulative effect of a change in accounting principles;
(7) any impairment losses on oil and natural gas properties;
(8) any unrealized non-cash gains or losses or charges in respect of
Hedging Obligations (including those resulting from the application of FAS
133); and
(9) any non-cash compensation charge arising from any grant of stock,
stock options or other equity-based awards.
Notwithstanding the foregoing, for the purposes of the covenant described under
"Certain Covenants -- Limitation on Restricted Payments" only, there shall be
excluded from Consolidated Net Income any repurchases, repayments or redemptions
of Investments, proceeds realized on the sale of Investments or return of
capital to the Company or a Restricted Subsidiary to the extent such
repurchases, repayments, redemptions, proceeds or returns increase the amount of
Restricted Payments permitted under such covenant pursuant to clause (a)(3)(E)
thereof.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company ending at least 45 days prior to the taking of any
action for the purpose of which the determination is being made, as the sum of:
(1) the par or stated value of all outstanding Capital Stock of the
Company; plus
(2) paid-in capital or capital surplus relating to such Capital Stock;
plus
(3) any retained earnings or earned surplus,
less (A) any accumulated deficit and (B) any amounts attributable to
Disqualified Stock.
"Credit Facilities" means, with respect to the Company or any Restricted
Subsidiary, one or more debt facilities (including the Revolving Credit
Facility) or commercial paper facilities with banks or other lenders providing
revolving credit loans, term loans, production payments, receivables financing
(including through the sale of receivables) or letters of credit, in each case,
as amended, restated, modified, renewed, refunded, replaced or refinanced in
whole or in part from time to time.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement designed to protect
such Person against fluctuations in currency values.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Preferred Stock" means Preferred Stock (not constituting
Disqualified Stock) of the Company (excluding any Preferred Stock issued prior
to or on the Issue Date and any Preferred Stock issued in exchange or
substitution therefor or in a transaction to which clause (b)(1) of the covenant
described under "Certain Covenants -- Limitation on Restricted Payments"
applies) that is designated as Designated Preferred Stock on or after the date
of issuance thereof pursuant to an Officers' Certificate
70
delivered to the Trustee on the designation thereof, the cash proceeds of which
are excluded from the calculation set forth in clause (a)(3)(B) of the covenant
described under "Certain Covenants -- Limitation on Restricted Payments."
"Designated Senior Indebtedness" with respect to a Person means:
(1) the Bank Indebtedness; and
(2) any other Senior Indebtedness of such Person which, at the date of
determination, has an aggregate principal amount outstanding of, or under
which, at the date of determination, the holders thereof are committed to
lend up to, at least $25.0 million and is specifically designated by such
Person in the instrument evidencing or governing such Senior Indebtedness
as "Designated Senior Indebtedness" for purposes of the Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable at the option of the holder) or upon the
happening of any event:
(1) matures or is mandatorily redeemable (other than redeemable only
for Capital Stock of such Person which is not itself Disqualified Stock)
pursuant to a sinking fund obligation or otherwise;
(2) is convertible or exchangeable at the option of the holder for
Indebtedness or Disqualified Stock; or
(3) is mandatorily redeemable or must be purchased upon the occurrence
of certain events or otherwise, in whole or in part;
in each case on or prior to the first anniversary of the Stated Maturity of the
notes; provided, however, that:
(A) any Capital Stock that would not constitute Disqualified Stock but
for provisions thereof giving holders thereof the right to require such
Person to purchase or redeem such Capital Stock upon the occurrence of an
"asset sale" or "change of control" shall not constitute Disqualified Stock
if:
(1) the "asset sale" or "change of control" provisions applicable
to such Capital Stock are not more favorable, as measured by the
purchase or redemption price or the breadth of the definition of the
event or events triggering such purchase or redemption obligation, to
the holders of such Capital Stock than the terms applicable to the notes
and described under "-- Certain Covenants -- Limitation on Sales of
Assets and Subsidiary Stock" and "-- Certain Covenants -- Change of
Control;" and
(2) any such requirement only becomes operative after compliance
with such terms applicable to the notes, including the purchase of any
notes tendered pursuant thereto,
and (B) any Capital Stock that would constitute Disqualified Stock solely
because such Capital Stock is issued pursuant to any plan for the benefit of
employees of the Company or Subsidiaries of the Company or by any such plan to
such employees and may be required to be repurchased by the Company in order to
satisfy applicable statutory or regulatory obligations shall not constitute
Disqualified Stock.
The amount of any Disqualified Stock that does not have a fixed redemption,
repayment or repurchase price will be calculated in accordance with the terms of
such Disqualified Stock as if such Disqualified Stock were redeemed, repaid or
repurchased on any date on which the amount of such Disqualified Stock is to be
determined pursuant to the Indenture; provided, however, that if such
Disqualified Stock could not be required to be redeemed, repaid or repurchased
at the time of such determination, the redemption, repayment or repurchase price
will be the book value of such Disqualified Stock as reflected in the most
recent financial statements of such Person.
"Dollar-Denominated Production Payments" means production payment
obligations recorded as liabilities in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
71
"EBITDA" for any period means the sum of Consolidated Net Income, plus the
following to the extent deducted in calculating such Consolidated Net Income:
(1) all income tax expense of the Company and its consolidated
Restricted Subsidiaries;
(2) Consolidated Interest Expense;
(3) depreciation, depletion, exploration and amortization expense of
the Company and its consolidated Restricted Subsidiaries (excluding
amortization expense attributable to a prepaid operating activity item that
was paid in cash in a prior period); and
(4) all other non-cash charges of the Company and its consolidated
Restricted Subsidiaries (excluding any such non-cash charge to the extent
that it represents an accrual of or reserve for cash expenditures in any
future period);
in each case for such period, and less, to the extent included in calculating
such Consolidated Net Income and in excess of any costs or expenses attributable
thereto and deducted in calculating such Consolidated Net Income, the sum of:
(A) the amount of deferred revenues that are amortized during such
period and are attributable to reserves that are subject to Volumetric
Production Payments; and
(B) amounts recorded in accordance with GAAP as repayments of
principal and interest pursuant to Dollar-Denominated Production
Payments.
Notwithstanding the foregoing, the provision for taxes based on the income
or profits of, and the depreciation, depletion, exploration and amortization and
non-cash charges of, a Restricted Subsidiary shall be added to Consolidated Net
Income to compute EBITDA only to the extent (and in the same proportion,
including by reason of minority interests) that the net income of such
Restricted Subsidiary was included in calculating Consolidated Net Income and
only if a corresponding amount would be permitted at the date of determination
to be dividended to the Company by such Restricted Subsidiary without prior
approval (that has not been obtained), pursuant to the terms of its charter and
all agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to such Restricted Subsidiary or its
stockholders.
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended.
"Existing Investments" means assets (including securities) held by the
Company or any of the Restricted Subsidiaries as consideration for an Investment
made on or before the Issue Date or acquired thereafter pursuant to any
agreement or obligation as in effect on the Issue Date.
"Existing Notes" means the Company's 8 7/8% Senior Subordinated Notes due
2007.
"Existing Preferred Stock" means the Company's 6 1/2% Convertible Preferred
Stock, par value $.01 per share and liquidation preference $25.00 per share.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in:
(1) the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants;
(2) statements and pronouncements of the Financial Accounting
Standards Board;
(3) such other statements by such other entity as approved by a
significant segment of the accounting profession; and
(4) the rules and regulations of the SEC governing the inclusion of
financial statements (including pro forma financial statements) in periodic
reports required to be filed pursuant to Section 13 of the Exchange Act,
including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC.
72
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such Person (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to purchase
assets, goods, securities or services, to take-or-pay or to maintain
financial statement conditions or otherwise); or
(2) entered into for the purpose of assuring in any other manner the
obligee of such Indebtedness of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The term "Guarantor" shall mean any
Person Guaranteeing any Indebtedness.
"Guaranty Agreement" means a supplemental indenture, in a form satisfactory
to the Trustee, pursuant to which a Subsidiary Guarantor guarantees the
Company's obligations with respect to the notes on the terms provided for in the
Indenture.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Oil and Natural Gas Hedging Contract, Interest Rate Agreement or
Currency Agreement.
"holder" or "noteholder" means the Person in whose name a note is
registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Restricted Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred
by such Person at the time it becomes a Restricted Subsidiary. The term
"Incurrence" when used as a noun shall have a correlative meaning. Solely for
purposes of determining compliance with "-- Certain Covenants -- Limitation on
Indebtedness," (1) amortization of debt discount or the accretion of principal
with respect to a non-interest bearing or other discount security, (2) the
payment of regularly scheduled interest in the form of additional Indebtedness
of the same instrument or the payment of regularly scheduled dividends on
Capital Stock in the form of additional Capital Stock of the same class and with
the same terms, and (3) unrealized losses or charges in respect of Hedging
Obligations (including those resulting from the application of FAS 133) will be
deemed not to be Incurrences of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(1) the principal in respect of (A) indebtedness of such Person for
money borrowed and (B) indebtedness evidenced by notes, debentures, bonds
or other similar instruments for the payment of which such Person is
responsible or liable, including, in each case, any premium on such
indebtedness to the extent such premium has become due and payable;
(2) all Capital Lease Obligations of such Person and all Attributable
Debt in respect of Sale/ Leaseback Transactions entered into by such
Person;
(3) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person
and all obligations of such Person under any title retention agreement (but
excluding trade accounts payable and accrued expenses);
(4) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit
securing obligations (other than obligations described in clauses (1)
through (3) above) entered into in the ordinary course of business of such
Person to the extent such letters of credit are
73
not drawn upon or, if and to the extent drawn upon, such drawing is
reimbursed no later than the tenth Business Day following payment on the
letter of credit);
(5) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock of such
Person or, with respect to any Preferred Stock of any Restricted Subsidiary
of such Person, the principal amount of such Preferred Stock to be
determined in accordance with the Indenture (but excluding, in each case,
any accrued dividends) (and the term "Incur Indebtedness" and similar terms
include issuances of such Disqualified Stock and Preferred Stock);
(6) all obligations of the types referred to in clauses (1) through
(5) of other Persons for which, and all dividends of other Persons for the
payment of which, in either case, such Person is responsible or liable,
directly or indirectly, including by means of any Guarantee;
(7) all obligations of the types referred to in clauses (1) through
(6) of other Persons secured by any Lien on any property of such Person
(whether or not such obligation is assumed by such Person), the amount of
such obligation being deemed to be the lesser of the liquidation value of
such property and the amount of the obligation so secured;
(8) to the extent not otherwise included in this definition, Hedging
Obligations of such Person; and
(9) any Guarantee by such Person of production or payment with respect
to a Production Payment,
if and to the extent, in the case of obligations of the types referred to in
clauses (1), (2) and (3) above, such obligations would appear as a liability
upon a balance sheet of such Person prepared in accordance with GAAP.
Except as expressly provided in clause (9) above, Production Payments and
Reserve Sales shall not constitute "Indebtedness."
Notwithstanding the foregoing, in connection with the purchase by the
Company or any Restricted Subsidiary of any business, the term "Indebtedness"
will exclude post-closing payment adjustments to which the seller may become
entitled to the extent such payment is determined by a final closing balance
sheet or such payment depends on the performance of such business after the
closing; provided, however, that, at the time of closing, the amount of any such
payment is not determinable and, to the extent such payment thereafter becomes
fixed and determined, the amount is paid within 30 days thereafter.
The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date; provided,
however, that in the case of Indebtedness sold at a discount, the amount of such
Indebtedness at any time will be the accreted value thereof at such time.
"Independent Qualified Party" means an investment banking firm, accounting
firm or appraisal firm of national standing; provided, however, that such firm
is not an Affiliate of the Company.
"Interest Rate Agreement" means in respect of a Person any interest rate
swap agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect such Person against fluctuations in interest
rates.
"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit, including by way of Guarantee (but excluding any such
extension of credit made in the ordinary course of business to any customer or
supplier) or capital contribution to (by means of any transfer of cash or other
property to others or any payment for property or services for the account or
use of others), or any purchase or acquisition for value of Capital Stock,
Indebtedness or other similar instruments issued by, such Person. Except as
otherwise provided for herein, the amount of an Investment shall be its fair
value
74
at the time the Investment is made and without giving effect to subsequent
changes in value therein or in the consideration received in exchange for such
Investment.
For purposes of the definition of "Unrestricted Subsidiary," the definition
of "Restricted Payment" and the covenant described under "-- Certain
Covenants -- Limitation on Restricted Payments:"
(1) "Investment" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of
the net assets of any Subsidiary of the Company at the time that such
Subsidiary is designated an Unrestricted Subsidiary; and
(2) any property transferred to or from an Unrestricted Subsidiary
shall be valued at its fair market value at the time of such transfer, in
each case as determined in good faith by the Board of Directors.
"Issue Date" means November 5, 2001.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the State of New York.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Material Change" means an increase or decrease (excluding changes that
result solely from changes in prices and changes resulting from the incurrence
of previously estimated development costs) of more than 50% during a fiscal
quarter in the discounted future net revenues from proved oil and natural gas
reserves of the Company and its Restricted Subsidiaries, calculated in
accordance with clause (a)(1) of the definition of ACNTA; provided, however,
that the following will be excluded from the calculation of Material Change:
(1) any acquisitions during the fiscal quarter of oil and natural gas
reserves that have been estimated by independent petroleum engineers and
with respect to which a report or reports of such engineers exist; and
(2) any disposition of properties existing at the beginning of such
fiscal quarter that have been disposed of in compliance with the covenant
described under "-- Certain Covenants -- Limitation on Sales of Assets and
Subsidiary Stock."
"Moody's" means Moody's Investors Service, Inc.
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise and proceeds
from the sale or other disposition of any securities received as consideration,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to such assets or received in any other noncash form), in
each case net of:
(1) all accounting, engineering, investment banking, brokerage, legal,
title and recording tax expenses, commissions and other fees and expenses
incurred, and all Federal, state, provincial, foreign and local and other
taxes required to be accrued as a liability under GAAP, as a consequence of
such Asset Disposition, and any relocation expenses incurred or assumed in
connection with such Asset Disposition;
(2) all payments made on any Indebtedness which is secured by any
assets subject to such Asset Disposition, in accordance with the terms of
any Lien upon or other security agreement of any kind with respect to such
assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Disposition, or by applicable law, be repaid out of
the proceeds from such Asset Disposition;
(3) all distributions and other payments required to be made to
minority interest holders in Restricted Subsidiaries as a result of such
Asset Disposition; and
75
(4) the deduction of appropriate amounts provided by the seller as a
reserve for adjustment in respect of the sale price of the assets that were
the subject of such Asset Disposition or as a reserve, in accordance with
GAAP, against any liabilities associated with such assets and retained by
the Company or any Restricted Subsidiary after such Asset Disposition.
Notwithstanding the foregoing, to the extent that any or all of the Net
Available Cash from an Asset Disposition made outside the United States of
America is prohibited or delayed from being repatriated to the United States
pursuant to applicable local law (or to the extent that the Board of Directors
determines, in good faith, that repatriation of such Net Available Cash would
have a material adverse tax consequence to the Company) despite reasonable
effort by the Company or such Restricted Subsidiary to exclude or release those
funds from such restrictions or to avoid such tax, the portion of such Net
Available Cash so affected shall be deemed excluded from Net Available Cash for
so long as such restrictions or material adverse tax consequences exist.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Net Present Value" means, with respect to any proved oil and natural gas
reserves, the discounted future net cash flows associated with such reserves,
determined in accordance with the rules and regulations (including
interpretations thereof) of the SEC in effect on October 31, 2001.
"Net Working Capital" means:
(1) all current assets of the Company and its Restricted Subsidiaries,
except current assets from commodity price risk management activities
arising in the ordinary course of business; minus
(2) all current liabilities of the Company and its Restricted
Subsidiaries, except current liabilities included in Indebtedness and
current liabilities from commodity price risk management activities arising
in the ordinary course of business, determined in accordance with GAAP.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers.
"Oil and Gas Business" means:
(1) the acquisition, exploration, exploitation, development, operation
and disposition of interests in oil, gas and other hydrocarbon properties;
(2) the gathering, marketing, distribution, treating, processing,
storage, refining, selling and transporting of any production from such
interests or properties and the marketing of oil and gas obtained from
unrelated Persons;
(3) any business relating to or arising from exploration for or
exploitation, development, production, treatment, processing, storage,
refining, transportation, gathering or marketing of oil, gas and other
minerals and products produced in association therewith;
(4) any other related energy business, including power generation and
electrical transmission business in a jurisdiction outside North America
where fuel required by such business is supplied, directly or indirectly,
from hydrocarbons produced substantially from properties in which the
Company or its Restricted Subsidiaries, directly or indirectly,
participates;
(5) any business relating to oil field sales and service; and
76
(6) any activity necessary, appropriate or incidental to the
activities described in the preceding clauses (1) through (5) of this
definition.
"Oil and Natural Gas Hedging Contract" means any oil and natural gas
hedging agreement, and other agreement or arrangement designed to protect the
Company or any Restricted Subsidiary against fluctuations in oil and natural gas
prices.
"Old Note Issue Date" means April 3, 2003.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"Permitted Business Investments" means Investments and expenditures made in
the ordinary course of, and of a nature that is or shall have become customary
in, the Oil and Gas Business as means of actively exploiting, exploring for,
acquiring, developing, processing, gathering, marketing or transporting oil and
natural gas through agreements, transactions, interests or arrangements that
permit one to share risks or costs, comply with regulatory requirements
regarding local ownership or satisfy other objectives customarily achieved
through the conduct of the Oil and Gas Business jointly with third parties,
including:
(1) ownership interests in oil and natural gas properties or
gathering, transportation, processing, storage or related systems; and
(2) entry into, and Investments and expenditures in the form of or
pursuant to, operating agreements, working interests, royalty interests,
mineral leases, processing agreements, farm-in agreements, farm-out
agreements, contracts for the sale, transportation or exchange of oil and
natural gas, production sharing agreements, development agreements, area of
mutual interest agreements, unitization agreements, pooling arrangements,
joint bidding agreements, service contracts, joint venture agreements,
partnership agreements (whether general or limited), limited liability
company agreements, subscription agreements, stock purchase agreements,
stockholder agreements and other similar agreements with third parties
(including Unrestricted Subsidiaries).
"Permitted Holders" means:
(1) Robert A. Belfer, Renee E. Belfer, Laurence D. Belfer and Jack
Saltz;
(2) Saltz Investment Group, LLC, Jack & Anita Saltz Foundation, The
Robert A. and Renee E. Belfer Family Foundation, Belfer Corp., Belwest
Petroleum, Inc., A&B Investors, Inc., Renee Holdings Partnership, L.P.,
Trust for the benefit of Elizabeth Kones Belfer (T-6), Trust for the
benefit of Elizabeth Kones Belfer (T-7), The Laurence D. Belfer Family
Foundation, LDB Corp., Robert A. Belfer 1990 Family Trust and Vantz Limited
Partnership (together with the Persons listed in clause (1), the "Belfer
Group");
(3) Westport Energy LLC, Richard J. Haas, Robert A. Haas, Eugen von
Liechtenstein and Graham Garner (the "Westport Energy Group");
(4) ERI Investments, Inc.;
(5) the direct and indirect beneficial owners of the Persons described
in clauses (2), (3) and (4);
(6) the spouses or descendants of such individuals described or listed
above;
(7) the estates or legal representatives of the individuals described
or listed above;
(8) trusts created for the benefit of such Persons; and
(9) entities 80% or more directly or indirectly owned by any of the
preceding Persons,
provided, however, that to the extent Voting Stock beneficially owned (as
defined in clause (1) of the definition of "Change of Control") by any of the
Belfer Group, the Westport Energy Group or ERI Investments, Inc. (together with
their respective related persons identified in clauses (5) to (9)), exceeds
77
in the aggregate 30% of the Voting Stock of the Company, such Voting Stock shall
be deemed not to be beneficially owned by a Permitted Holder.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in:
(1) the Company, a Restricted Subsidiary or a Person that will as a
result of such Investment and all other related transactions, become a
Restricted Subsidiary or be merged, consolidated or amalgamated with or
into, or transfer or convey all or substantially all of its assets to, or
be liquidated into, the Company or a Restricted Subsidiary; provided,
however, that the primary business of such Restricted Subsidiary or Person
is a Related Business;
(2) cash and Temporary Cash Investments;
(3) receivables owing to the Company or any Restricted Subsidiary if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however,
that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances;
(4) payroll, travel and similar extensions of credit to cover matters
that are expected at the time of such extensions of credit ultimately to be
treated as expenses for accounting purposes and that are made in the
ordinary course of business;
(5) extensions of credit to officers, directors and employees made in
the ordinary course of business of the Company or such Restricted
Subsidiary;
(6) Capital Stock, obligations or securities received in settlement of
debts created in the ordinary course of business and owing to the Company
or any Restricted Subsidiary or in satisfaction of judgments;
(7) any Person to the extent such Investment represents the non-cash
portion of the consideration received for an Asset Disposition as permitted
pursuant to the covenant described under "-- Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock" or
consideration received for a disposition not constituting an Asset
Disposition;
(8) any Person where such Investment was acquired by the Company or
any of its Restricted Subsidiaries (a) in exchange for any other Investment
or accounts receivable held by the Company or any such Restricted
Subsidiary in connection with or as a result of a bankruptcy, workout,
reorganization or recapitalization of the issuer of such other Investment
or accounts receivable or (b) as a result of a foreclosure by the Company
or any of its Restricted Subsidiaries with respect to any secured
Investment or other transfer of title with respect to any secured
Investment in default;
(9) any acquisitions of Capital Stock solely in exchange for Capital
Stock (other than Disqualified Stock) of the Company; provided, however,
that the fair market value of such Capital Stock, when taken together with
all other Capital Stock acquired pursuant to this clause (9) and at the
time owned by the Company or its Restricted Subsidiaries, does not exceed
$10.0 million;
(10) Hedging Obligations;
(11) obligations of one or more officers, directors or employees of
the Company or any of its Restricted Subsidiaries in connection with such
individual's acquisition of shares of Capital Stock of the Company (and
refinancings of the principal thereof and accrued interest thereon) so long
as no net cash or other assets of the Company and its Restricted
Subsidiaries is paid by the Company or any of its Restricted Subsidiaries
to such individuals in connection with the acquisition of any such
obligations;
(12) Existing Investments and any Investments made with the proceeds
of any dispositions thereof;
(13) Permitted Business Investments;
78
(14) Guarantees of performance or other obligations (other than
Indebtedness) arising in the ordinary course in the Oil and Gas Business,
including obligations under oil and natural gas exploration, development,
joint operating, and related agreements and licenses or concessions related
to the Oil and Gas Business;
(15) Investments in prepaid expenses, negotiable instruments held for
collection or deposit and lease, utility and workers compensation,
performance and similar deposits entered into as a result of the operations
of the business in the ordinary course of business; and
(16) any Person, not otherwise permitted to be made pursuant to clause
(1) through (15), in an aggregate amount, which when taken together with
all other Investments made on or after the Issue Date pursuant to this
clause, does not exceed $20 million at any one time outstanding.
"Permitted Liens" means the following types of Liens:
(1) Liens securing Senior Indebtedness;
(2) Liens in favor of the Company or a Restricted Subsidiary;
(3) Liens securing the notes;
(4) Liens existing as of the Issue Date;
(5) Liens for taxes, assessments and governmental charges or claims
either (A) not delinquent or (B) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries
shall have set aside on its books such reserves as may be required pursuant
to GAAP;
(6) statutory and contractual Liens of landlords and Liens of
carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and
other Liens imposed by law or contract incurred in the ordinary course of
business for sums not delinquent or being contested in good faith, if such
reserve or other appropriate provision, if any, as shall be required by
GAAP shall have been made in respect thereof;
(7) Liens incurred or deposits or pledges made in the ordinary course
of business in connection with workers' compensation, unemployment
insurance and other types of social security, or to secure the payment or
performance of tenders, statutory or regulatory obligations, surety and
appeal bonds, bids, leases, government contracts and leases, performance
and return of money bonds and other similar obligations, including letters
of credit and bank guarantees required or requested by the United States,
any State thereof or any foreign government or any subdivision, department,
agency, organization or instrumentality of any of the foregoing in
connection with any contract or statute (exclusive of obligations for the
payment of borrowed money but including lessee or operator obligations
under statutes, governmental regulations, contracts or instruments related
to the ownership, exploration and production of oil, gas and minerals on
state, Federal or foreign lands or waters);
(8) Liens arising out of judgments, decrees, orders or awards not
constituting an Event of Default;
(9) leases, subleases, licenses or sublicenses to third parties
entered into in the ordinary course of business;
(10) Liens on, or related to, assets to secure all or part of the
costs incurred in the ordinary course of the Oil and Gas Business for the
exploration, drilling, development, production, processing, transportation,
marketing, storage or operation thereof;
(11) Liens on pipeline or pipeline facilities that arise under
operation of law;
(12) Liens arising under operating agreements, joint venture
agreements, partnership agreements, oil and gas leases, farm-out or farm-in
agreements, division orders, contracts for the sale, transportation or
exchange of oil or natural gas, unitization and pooling declarations and
agreements,
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area of mutual interest agreements and other agreements that are customary
in the Oil and Gas Business;
(13) Liens reserved in oil and gas mineral leases for bonus or rental
payments and for compliance with the terms of such leases;
(14) Liens constituting survey exceptions, encumbrances, easements,
and reservations of, and rights to others for, rights-of-way, zoning and
other restrictions as to the use of real properties, and minor defects of
title which, in the case of any of the foregoing, do not secure the payment
of borrowed money, and in the aggregate do not materially adversely affect
the value of the assets of the Company and its Restricted Subsidiaries,
taken as a whole, or materially impair the use of such properties for the
purposes for which such properties are held by the Company or such
Subsidiaries;
(15) Liens encumbering assets under construction arising from progress
or partial payments by a customer of the Company or its Restricted
Subsidiaries relating to such assets;
(16) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual or warranty requirements of the
Company or any of its Restricted Subsidiaries, including rights of offset
and set-off;
(17) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or other
goods;
(18) Liens arising under the Indenture in favor of the Trustee for its
own benefit and similar Liens in favor of other trustees, agents and
representatives arising under instruments governing Indebtedness permitted
to be incurred under the Indenture, provided, however, that such Liens are
solely for the benefit of the trustees, agents or representatives in their
capacities as such and not for the benefit of the holders of such
Indebtedness;
(19) set-off, chargeback and other rights of depositary and collection
banks and other regulated financial institutions with respect to money or
instruments of the Company or any of its Restricted Subsidiaries on deposit
with or in the possession of such institutions; and
(20) Liens arising from the deposit of funds or securities in trust
for the purpose of decreasing or defeasing Indebtedness so long as such
deposit of funds or securities and such decreasing or defeasing of
Indebtedness are permitted under the covenant described under "Certain
Covenants -- Limitation on Restricted Payments."
In each case set forth above, notwithstanding any stated limitation on the
assets that may be subject to such Lien, a Permitted Lien on a specified asset
or group or type of assets may include Liens on all improvements, additions and
accessions thereto and all products and proceeds thereof (including, without
limitation, dividends, distributions and increases in respect thereof).
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock", as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over shares of Capital Stock of any other class of such Person.
"principal" of a note means the principal of the note plus the premium, if
any, payable on the note which is due or overdue or is to become due at the
relevant time.
"Production Payments" means, collectively, Dollar-Denominated Production
Payments and Volumetric Production Payments.
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"Production Payments and Reserve Sales" means the grant or transfer to any
Person of a Dollar-Denominated Production Payment, Volumetric Production
Payment, royalty, overriding royalty, net profits interest, master limited
partnership interest or other interest in oil and natural gas properties,
reserves or the right to receive all or a portion of the production or the
proceeds from the sale of production attributable to such properties.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company pursuant to an effective registration statement
under the Securities Act.
"Refinance" means, in respect of any Indebtedness, to refinance or refund,
or to issue other Indebtedness in exchange or replacement for, such
Indebtedness. "Refinanced" and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that:
(1) such Refinancing Indebtedness has a Stated Maturity no earlier
than the Stated Maturity of the Indebtedness being Refinanced;
(2) such Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being Refinanced; and
(3) such Refinancing Indebtedness has an aggregate principal amount
(or if Incurred with original issue discount, an aggregate issue price)
that is equal to or less than the aggregate principal amount (or if
Incurred with original issue discount, the aggregate accreted value) then
outstanding or committed (plus accrued interest thereon and fees and
expenses, including any premium and defeasance costs) under the
Indebtedness being Refinanced;
provided further, however, that Refinancing Indebtedness shall not include (A)
Indebtedness of a Restricted Subsidiary that is not a Subsidiary Guarantor which
Refinances Indebtedness of the Company and (B) Indebtedness of the Company or a
Restricted Subsidiary that Refinances Indebtedness of an Unrestricted
Subsidiary.
"Registration Rights Agreement" means the Registration Rights Agreement
dated October 31, 2001, among the Company, Credit Suisse First Boston
Corporation, Fleet Securities, Inc., Fortis Investment Services LLC, J.P. Morgan
Securities Inc., Lehman Brothers Inc., TD Securities (USA) Inc., U.S. Bancorp
Piper Jaffray Inc. and subsidiary guarantors party thereto relating to the notes
originally issued in November 2001, the Registration Rights Agreement dated
December 17, 2002 among the Company, Credit Suisse First Boston Corporation,
J.P. Morgan Securities Inc., Lehman Brothers Inc., Wachovia Securities, Inc.,
Fleet Securities, Inc. and subsidiary guarantors party thereto relating to the
notes issued in December 2002 or the Registration Rights Agreement dated April
3, 2003 among the Company, Lehman Brothers Inc. and subsidiary guarantors party
thereto relating to the old notes, whichever is applicable.
"Related Business" means the Oil and Gas Business and any other business in
which the Company or a Subsidiary was engaged on the Issue Date and any business
related, ancillary or complementary thereto.
"Representative" means with respect to a Person any trustee, agent or
representative (if any) for an issue of Senior Indebtedness of such Person.
"Restricted Payment" with respect to any Person means:
(1) the declaration or payment (without duplication) of any dividends
or any other distributions of any sort in respect of its Capital Stock
(including any payment in connection with any merger or consolidation
involving such Person) or similar payment to the direct or indirect holders
of its Capital Stock (other than (A) dividends or distributions payable
solely in its Capital Stock (other than Disqualified Stock), (B) dividends
or distributions payable solely to the Company or a Restricted
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Subsidiary, and (C) dividends or other distributions made by a Subsidiary
to the holders of any class of its Capital Stock on a pro rata basis);
(2) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock of the Company held by any Person (other than a
Restricted Subsidiary) or of any Capital Stock of a Restricted Subsidiary
held by any Affiliate of the Company (other than the Company or a
Restricted Subsidiary), including the exercise of any option to exchange
any Capital Stock (other than into Capital Stock of the Company that is not
Disqualified Stock);
(3) the purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value, prior to scheduled maturity, scheduled
repayment or scheduled sinking fund payment of any Subordinated Obligations
of such Person (other than the purchase, repurchase, redemption, defeasance
or other acquisition or retirement for value of Subordinated Obligations in
anticipation of satisfying a sinking fund obligation, principal installment
or final maturity, in each case due within one year of the date of such
purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value); or
(4) the making of any Investment (other than a Permitted Investment)
in any Person.
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Revolving Credit Facility" means the Credit Agreement dated as of August
21, 2001 among the Company, the lenders referred to therein, The Chase Manhattan
Bank, as Issuing Bank and Administrative Agent, Credit Suisse First Boston and
Fleet National Bank, as Syndication Agents, and Fortis Capital Corp. and U.S.
Bank National Association, as Documentation Agents, together with the related
documents thereto (including the term loans and revolving loans thereunder, any
guarantees and security documents, whether made by the Company or any Restricted
Subsidiary), as amended, extended, renewed, restated, supplemented or otherwise
modified (in whole or in part, and without limitation as to amount, terms,
conditions, covenants and other provisions) from time to time, and any agreement
(and related document) governing Indebtedness incurred to Refinance, in whole or
in part, the borrowings and commitments then outstanding or permitted to be
outstanding under such credit agreement or a successor credit agreement, whether
by the same or any other lender or agent or group of lenders or agents.
"S&P" means Standard and Poor's Ratings Group.
"Sale/Leaseback Transaction" means an arrangement relating to property
owned by the Company or a Restricted Subsidiary on the Issue Date or thereafter
acquired by the Company or a Restricted Subsidiary whereby the Company or a
Restricted Subsidiary transfers such property to a Person and thereafter the
Company or a Restricted Subsidiary leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the U.S. Securities Act of 1933, as amended.
"Senior Indebtedness" means with respect to any Person:
(1) Indebtedness of such Person, whether outstanding on the Issue Date
or thereafter Incurred; and
(2) (i) accrued and unpaid interest (including interest accruing on or
after the filing of any petition in bankruptcy or for reorganization
relating to such Person whether or not post-filing interest is allowed in
such proceeding) and (ii) reimbursement obligations, fees, commissions,
expenses, indemnitees and other similar amounts in respect of (A)
indebtedness of such Person for money borrowed (and all Hedging Obligations
directly related thereto) and (B) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which
such Person is responsible or liable
unless, in the case of clauses (1) and (2), in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is provided
that such obligations are subordinate or pari passu in right
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of payment to the notes or the Subsidiary Guaranty of such Person, as the case
may be; provided, however, that Senior Indebtedness shall not include:
(A) any obligation of such Person to any Subsidiary;
(B) any liability for Federal, state, local or other taxes owed or
owing by such Person;
(C) any accounts payable or other liability to trade creditors arising
in the ordinary course of business (including Guarantees thereof or
instruments evidencing such liabilities);
(D) any Indebtedness of such Person (and any accrued and unpaid
interest in respect thereof) which is subordinate or junior in right of
payment to any other Indebtedness or other obligation of such Person;
(E) any Disqualified Stock; and
(F) that portion of any Indebtedness which at the time of Incurrence
is Incurred in violation of the Indenture (but, as to any such obligation,
no such violation shall be deemed to exist for the purposes of this clause
(F) if the Trustee shall have received an Officers' Certificate of the
Company at the time of such Incurrence to the effect that the Incurrence of
such Indebtedness does not violate the Indenture) other than Indebtedness
under (i) the Revolving Credit Facility or (ii) any other Credit Facility
that is incurred on the basis of a representation by the Company to the
applicable lenders that it is permitted to incur such Indebtedness under
the Indenture.
"Senior Subordinated Indebtedness" means, with respect to a Person, the
notes and the Existing Notes (in the case of the Company), a Subsidiary Guaranty
and a Guarantee of the Existing Notes (in the case of a Subsidiary Guarantor)
and any other Indebtedness of such Person that specifically provides that such
Indebtedness is to rank pari passu with the notes or such Subsidiary Guaranty,
as the case may be, in right of payment and is not subordinated by its terms in
right of payment to any Indebtedness or other obligation of such Person which is
not Senior Indebtedness of such Person.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means, with respect to a Person, any Indebtedness
of such Person (whether outstanding on the Issue Date or thereafter Incurred)
which is subordinate or junior in right of payment to the notes or a Subsidiary
Guaranty of such Person, as the case may be, pursuant to a written agreement to
that effect.
"Subsidiary" means, with respect to any Person, any corporation,
association, partnership or other business entity of which more than 50% of the
total voting power of shares of Voting Stock is at the time owned or controlled,
directly or indirectly, by:
(1) such Person;
(2) such Person and one or more Subsidiaries of such Person; or
(3) one or more Subsidiaries of such Person.
Unless otherwise specified, "Subsidiary" means a Subsidiary of the Company.
"Subsidiary Guarantor" means each Subsidiary of the Company that executes
the Indenture on the Issue Date as a guarantor and each other Subsidiary of the
Company that thereafter guarantees the notes pursuant to the terms of the
Indenture, in each case unless and until such Subsidiary is released from its
obligations under its Subsidiary Guaranty pursuant to the terms of the
Indenture.
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"Subsidiary Guaranty" means a Guarantee by a Subsidiary Guarantor of the
Company's obligations with respect to the notes.
"Temporary Cash Investments" means any of the following:
(1) any investment in direct obligations of the United States of
America or any agency thereof or obligations guaranteed by the United
States of America or any agency thereof;
(2) investments in demand accounts, time deposit accounts, bankers'
acceptances, overnight bank deposits, certificates of deposit and money
market deposits maturing within twelve months of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws
of the United States of America, any State thereof or any foreign country
recognized by the United States of America, and which bank or trust company
is a lender under the Revolving Credit Facility or has capital, surplus and
undivided profits aggregating in excess of $50.0 million (or the foreign
currency equivalent thereof) and has outstanding debt which is rated "A"
(or such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under
the Securities Act) or any money-market fund sponsored by a registered
broker dealer or mutual fund distributor;
(3) investments in deposits available for withdrawal on demand with
any commercial bank that is organized under the laws of any country in
which the Company or any Restricted Subsidiary maintains an office or is
engaged in the Oil and Gas Business, provided that (i) all such deposits
have been made in such accounts in the ordinary course of business and (ii)
such deposits do not at any one time exceed $10.0 million in the aggregate;
(4) repurchase (or reverse repurchase) obligations with a term of not
more than 30 days for underlying securities of the types described in
clause (1) above entered into with a bank meeting the qualifications
described in clause (2) above;
(5) investments in commercial paper issued by a corporation (other
than an Affiliate of the Company) organized and in existence under the laws
of the United States of America or any foreign country recognized by the
United States of America with a rating at the time as of which any
investment therein is made of "P-1" (or higher) according to Moody's or
"A-1" (or higher) according to S&P; and
(6) investments in securities with maturities of six months or less
from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A"
by S&P or "A" by Moody's.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519) which
has become publicly available at least two Business Days prior to the date fixed
for redemption or, in the case of defeasance, prior to the date of deposit (or,
if such Statistical Release is no longer published, any publicly available
source of similar market data)) most nearly equal to the then remaining average
life to November 1, 2006 or, in the case of defeasance, to maturity; provided,
however, that if the average life to November 1, 2006 or maturity, as the case
may be, of the notes is not equal to the constant maturity of a United States
Treasury security for which a weekly average yield is given, the Treasury Rate
shall be obtained by linear interpolation (calculated to the nearest one-twelfth
of a year) from the weekly average yields of United States Treasury securities
for which such yields are given, except that if the average life to November 1,
2006 or maturity, as the case may be, of the notes is less than one year, the
weekly average yield on actually traded United States Treasury securities
adjusted to a constant maturity of one year shall be used.
"Trustee" means The Bank of New York until a successor replaces it and,
thereafter, means the successor.
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"Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.C.
sec.sec. 77aaa-77bbbb) as in effect on the Issue Date, except as specified in
the Indenture.
"Trust Officer" means any officer or assistant officer of the Trustee
assigned by the Trustee to administer its corporate trust matters.
"Unrestricted Subsidiary" means:
(1) any Subsidiary of the Company that at the time of determination
shall be designated an Unrestricted Subsidiary by the Board of Directors in
the manner provided below;
(2) any Subsidiary of an Unrestricted Subsidiary; and
(3) Belco Energy (Cayman Islands) Corp., AWM-Chile LLC and AWM-Chile
Two LLC,
in each case unless and until such time as such Subsidiary is designated a
Restricted Subsidiary for the purposes of the Indenture.
The Board of Directors may designate any Subsidiary of the Company
(including any newly acquired or newly formed Subsidiary) to be an Unrestricted
Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital
Stock or Indebtedness of, or holds any Lien on any property of, the Company or
any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary
to be so designated; provided, however, that either (A) the Subsidiary to be so
designated has total assets of $1,000 or less or (B) if such Subsidiary has
assets greater than $1,000, such designation would be permitted under the
covenant described under "-- Certain Covenants -- Limitation on Restricted
Payments" (the amount of such Restricted Payment being calculated in the manner
set forth in the definition of the term "Investment").
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided, however, that immediately after giving effect
to such designation (A) the Company could Incur $1.00 of additional Indebtedness
under paragraph (a) of the covenant described under "-- Certain
Covenants -- Limitation on Indebtedness" and (B) no Default shall have occurred
and be continuing. Any such designation by the Board of Directors shall be
evidenced to the Trustee by promptly filing with the Trustee a copy of the
resolution of the Board of Directors giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Volumetric Production Payments" means production payment obligations
recorded as deferred revenue in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares and shares required by
applicable law to be held by a Person other than the Company or a Restricted
Subsidiary) is owned by the Company or one or more Wholly Owned Subsidiaries.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States Federal income tax
consequences of exchanging for, holding and selling the exchange notes. Except
where we state otherwise, this summary deals only with the exchange notes held
as capital assets, as defined in the Internal Revenue Code of 1986,
85
as amended, or the "Code," by a United States Holder (as defined below) or a
Foreign Holder (as defined below) who is the initial beneficial owner of the
exchange notes.
We do not address all of the tax consequences that may be relevant to a
United States Holder or a Foreign Holder. We also do not address any of the tax
consequences to holders that may be subject to special tax treatment, including
banks, thrift institutions, real estate investment trusts, personal holding
companies, insurance companies, and brokers and dealers in securities or
currencies. Further, we do not address:
- the United States Federal income tax consequences to stockholders in, or
partners or beneficiaries of, an entity that is a holder of the old notes
or the exchange notes;
- the United States Federal estate and gift or alternative minimum tax
consequences of the purchase, ownership and sale of the old notes or the
exchange notes;
- the United States Federal income tax consequences to persons who hold the
old notes or the exchange notes in a "straddle" or as part of a
"hedging," "conversion" or "constructive sale" transaction or whose
"functional currency" is not the United States dollar; or
- any state, local or foreign tax consequences of the purchase, ownership
and sale of the old notes or the exchange notes.
ACCORDINGLY, WE URGE YOU TO CONSULT YOUR OWN TAX ADVISOR REGARDING THE
PARTICULAR TAX CONSEQUENCES OF EXCHANGING FOR, OWNING AND SELLING THE EXCHANGE
NOTES IN LIGHT OF YOUR CIRCUMSTANCES.
A "United States Holder" is a beneficial owner of the exchange notes who,
for United States Federal income tax purposes, is:
- an individual who is a citizen or resident of the United States;
- a corporation or another entity taxable as a corporation created or
organized in or under the laws of the United States or any political
subdivision thereof or therein;
- an estate if its income is subject to United States Federal income
taxation regardless of its source;
- a trust if (1) a United States court can exercise primary supervision
over its administration and (2) one or more United States persons have
the authority to control all of its substantial decisions; or
- specified electing trusts that were in existence on August 20, 1996 and
treated as domestic trusts on that date.
If a partnership holds the exchange notes, the tax treatment of a partner
will generally depend upon the status of the partner and upon the activities of
the partnership. If you are a partner of a partnership holding exchange notes,
we urge you to consult your tax advisor.
A "Foreign Holder" is a beneficial owner of the exchange notes other than a
United States Holder.
This summary is based on the currently existing provisions of the Code,
Treasury Regulations issued under the Code, and administrative judicial
interpretations thereof, all as they currently exist as of the date of this
prospectus and all of which are subject to change, possibly with retroactive
effect, or different interpretations. Legislative, judicial, or administrative
changes or interpretations may be forthcoming that could alter or modify the
statements and conclusions made below and that could affect the tax consequences
discussed below. We have not asked, and do not intend to ask, for a ruling from
the Internal Revenue Service on any of the tax consequences discussed below.
Accordingly, the Internal Revenue Service may take a contrary view.
UNITED STATES FEDERAL INCOME TAXATION OF UNITED STATES HOLDERS
PAYMENT OF INTEREST ON THE EXCHANGE NOTES. Interest paid or payable on an
exchange note will be taxable to a United States Holder as ordinary income,
generally at the time it is received or accrued, in
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accordance with such holder's regular method of accounting for United States
Federal income tax purposes.
EXCHANGE OFFER. The exchange of old notes for exchange notes in the
exchange offer will constitute a tax-free recapitalization for United States
Holders. Consequently, a United States Holder will not recognize gain or loss on
the exchange, the holding period of the exchange note will include the holding
period of the old note, and the basis of the exchange note will be the same as
the basis of the old note immediately before the exchange.
If a United States Holder receives additional interest, we believe it
should be treated in the same manner as regular interest on the exchange notes.
However, the United States Holder might instead be required to report it as
income when it accrues or becomes fixed, even if the United States Holder is a
cash method taxpayer.
MARKET DISCOUNT. The holding and disposition of exchange notes may be
affected by the market discount provisions of the Code. These rules generally
provide that if a United States Holder purchases a debt instrument at a market
discount and thereafter recognizes gain on a disposition of the debt instrument,
including payment on maturity, the lesser of such gain and the portion of the
market discount that accrued while the debt instrument was held by such United
States Holder will be treated as ordinary interest income at the time of the
disposition. For this purpose, a purchase at a market discount includes a
purchase after original issuance at a price below the debt instrument's stated
principal amount. The market discount rules also provide that a United States
Holder who acquires a debt instrument at a market discount and who does not
elect to include such market discount in income on a current basis may be
required to defer a portion of any interest expense that may otherwise be
deductible on any indebtedness incurred or maintained to purchase or carry such
debt instrument until the United States Holder disposes of the debt instrument
in a taxable transaction.
A United States Holder of a debt instrument acquired at a market discount
may elect to include the market discount in income as the discount thereon
accrues, either on a straight-line basis or, if elected, on a constant interest
rate basis. The current inclusion election, once made, applies to all market
discount obligations acquired by such United States Holder on or after the first
day of the first taxable year to which the election applies and may not be
revoked without the consent of the IRS. If a United States Holder elects to
include market discount in income in accordance with the preceding sentence, the
foregoing rules with respect to the recognition of ordinary income on a
disposition of the exchange note and the deferral of interest deductions on
indebtedness related to the exchange note would not apply.
AMORTIZABLE BOND PREMIUM. Generally, if the tax basis of an obligation
held as a capital asset exceeds the amount payable at maturity of the
obligation, such excess may constitute amortizable bond premium that the United
States Holder may elect to amortize under the constant interest rate method and
deduct the amortized premium over the period from the United States Holder's
acquisition date to the obligation's maturity date. A United States Holder who
elects to amortize bond premium must reduce the tax basis in the related
obligation by the amount of the aggregate deductions allowable for amortizable
bond premium. The amortizable bond premium deduction is treated as an offset to
interest income on the related note for federal income tax purposes. The
election to amortize bond premium, once made, applies to all taxable bonds owned
by such United States Holder during or after the first taxable year to which the
election applies and may not be revoked without the consent of the IRS. You are
urged to consult your tax advisor as to the consequences of the treatment of
such premium as an offset to interest income for federal income tax purposes.
SALE, EXCHANGE OR RETIREMENT OF THE EXCHANGE NOTES. Upon the sale,
exchange, redemption, retirement at maturity or other disposition of an exchange
note, a United States Holder generally will recognize taxable gain or loss equal
to the difference between the sum of cash plus the fair market value of all
non-cash property received on such disposition (except to the extent such cash
or property is attributable to accrued, but unpaid, interest, which will be
taxable as ordinary income) and such United States Holder's adjusted tax basis
in the exchange note. A United States Holder's adjusted tax basis in an exchange
note generally will equal the cost of the old note to such United States Holder,
increased by any
87
market discount previously included in income and decreased by any amortizable
bond premium deducted over the term of the exchange note. Subject to market
discount and amortizable bond premium rules above, gain or loss recognized on
the disposition of an exchange note will be long-term capital gain or loss if,
at the time of such disposition, the United States Holder's holding period for
the note is more than one year. Long-term capital gain realized by individual
taxpayers is generally taxable at a maximum rate of 15 percent. The
deductibility of capital losses is subject to limitations.
BACKUP WITHHOLDING AND INFORMATION REPORTING. Backup withholding and
information reporting requirements may apply to payments made with respect to
the exchange notes. We, or our agent or a broker, as the case may be, will be
required to withhold from any payment that is subject to backup withholding
United States Federal income tax a portion of such payment not to exceed 28%
(31% beginning January 1, 2011), if a United States Holder fails to furnish its
taxpayer identification number (social security or employer identification
number) or otherwise fails to comply with the applicable requirements of the
backup withholding rules. Corporations and certain other entities are generally
exempt from the backup withholding and information reporting requirements.
Generally, income on the notes will be reported to non-exempt United States
Holders on an applicable Internal Revenue Service Form 1099.
Any amounts withheld under the backup withholding rules from a payment to a
United States Holder will be allowed as a credit against such United States
Holder's United States federal income tax liability and may entitle the United
States Holder to a refund, provided that the required information is furnished
to the Internal Revenue Service by the United States Holder in a timely manner.
UNITED STATES FEDERAL INCOME TAXATION OF FOREIGN HOLDERS
PAYMENT OF INTEREST ON THE EXCHANGE NOTES. Payments of interest to a
Foreign Holder that are not effectively connected to the conduct of a United
States trade or business will generally not be subject to United States Federal
income tax, or the withholding thereof, provided the Foreign Holder:
- does not own (directly or indirectly, actually or constructively) 10% or
more of the total combined voting power of all classes of our capital
stock entitled to vote;
- is not a controlled foreign corporation that is related to us through
stock ownership; and
- is not a bank receiving interest described in section 881(c)(3)(A) of the
Code.
A Foreign Holder that receives interest payments that are not effectively
connected with a United States trade or business but that does not satisfy each
of the three above mentioned conditions will be subject to withholding tax at a
rate of 30%, unless a United States income tax treaty applies to reduce or
eliminate withholding.
To qualify for exemption from withholding, the last United States payor in
the chain of payment prior to payment to a Foreign Holder (the "withholding
agent") must have received in the year in which a payment of interest or
principal occurs, or in either of the two preceding calendar years, a statement
that:
- is signed by the Foreign Holder under penalties of perjury;
- certifies that the holder of the securities is a Foreign Holder; and
- provides the name and address of the Foreign Holder.
The statement may be made on an Internal Revenue Service Form W-8BEN or a
substantially similar form, and the Foreign Holder must inform the withholding
agent of any change in the information on the statement within 30 days of any
change. If the notes are held through a securities clearing organization or
certain other financial institutions that are not qualified intermediaries, the
organization or institution may provide a signed statement to the withholding
agent along with a copy of Internal Revenue Service Form W-8BEN or a substitute
form provided by the Foreign Holder. If the financial institution is a qualified
intermediary, it generally will not be required to furnish a copy of the
Internal Revenue Service Form W-8BEN. A qualified intermediary is a financial
institution that has entered into a withholding agreement with the Internal
Revenue Service.
88
EXCHANGE OFFER. The exchange of old notes for exchange notes in the
exchange offer will not constitute a taxable event for Foreign Holders.
Consequently, for United States Federal income tax purposes, a Foreign Holder
will not recognize gain or loss on the exchange, the holding period of the
exchange note will include the holding period of the old note, and the basis of
the exchange note will be the same as the basis of the old note immediately
before the exchange. If a Foreign Holder receives additional interest on the
exchange notes, we believe it should be treated in the same manner as regular
interest on the notes.
SALE, EXCHANGE OR RETIREMENT OF THE EXCHANGE NOTES. A Foreign Holder will
generally not be subject to United States federal income tax, or the withholding
thereof, on any gain realized upon the sale, exchange, redemption, retirement at
maturity or other disposition of the exchange notes. If, however, the gain is
effectively connected with the conduct of a trade or business within the United
States by the Foreign Holder or if the Foreign Holder is present in the United
States for 183 days or more during the taxable year of sale, redemption,
retirement or other disposition and certain other conditions are met, the
Foreign Holder may be subject to income tax on all income and gains recognized.
UNITED STATES TRADE OR BUSINESS. If a Foreign Holder holds the exchange
notes in connection with a trade or business that the Foreign Holder is
conducting in the United States:
- Any interest on the exchange notes, and any gain from disposing of the
exchange notes, generally will be subject to income tax as if the Foreign
Holder were a United States Holder.
- If the Foreign Holder is a corporation, the Foreign Holder may be subject
to the "branch profits tax" on the earnings that are connected with
Foreign Holder's United States trade or business, including earnings from
the notes. This tax is 30%, but may be reduced or eliminated by an
applicable United States income tax treaty.
BACKUP WITHHOLDING AND INFORMATION REPORTING. Backup withholding and
information reporting requirements do not apply to payments of interest made to
Foreign Holders if the certification needed to avoid withholding tax on
interest, as described above, is received, provided that the payor does not have
actual knowledge that the holder is a United States Holder. If any payments of
principal and interest are made to the beneficial owner of an exchange note by
or through the foreign office of a foreign custodian, foreign nominee or other
foreign agent of such beneficial owner, or if the foreign office of a foreign
"broker" (as defined in applicable United States Treasury Regulations) pays the
proceeds of the sale of an exchange note effected outside the United States to
the seller thereof, backup withholding and information reporting will not apply.
Information reporting requirements (but not backup withholding) will apply,
however, to a payment by or through a foreign office of a broker of principal
and interest or the proceeds of a sale of an exchange note effected outside the
United States if that broker has specified types of relationships with the
United States, unless the broker has documentary evidence in its records that
the holder is a Foreign Holder and certain other conditions are met or the
Foreign Holder otherwise establishes an exemption. Payment by a United States
office of a broker is subject to both backup withholding at a rate not to exceed
30% (31% beginning January 1, 2011) and information reporting unless the holder
certifies, under penalties of perjury, in the manner required as to its Foreign
Holder status or otherwise establishes an exemption.
PLAN OF DISTRIBUTION
Based on interpretations of the SEC set forth in no-action letters issued
to third parties, we believe that the exchange notes issued under the exchange
offer in exchange for old notes may be offered for resale, resold and otherwise
transferred by you without compliance with the registration and prospectus
delivery provisions of the Securities Act, if:
- you are not an "affiliate" of ours within the meaning of Rule 405 under
the Securities Act;
- you are acquiring the exchange notes in the ordinary course of your
business; and
- you do not intend to participate in the distribution of the exchange
notes.
89
If you tender old notes in the exchange offer with the intention of
participating in any manner in a distribution of the exchange notes:
- you cannot rely on those interpretations of the SEC; and
- you must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction, and the secondary resale transaction must be covered by an
effective registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation S-K
under the Securities Act.
Each broker-dealer that receives the exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of the exchange notes. This prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of exchange notes received in exchange
for old notes where the old notes were acquired as a result of market-making
activities or other trading activities. We have agreed that, for a period of 180
days after the exchange offer is completed, we will make this prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any resale of exchange notes. In addition, until 90 days after the date of
this prospectus, all dealers effecting transactions in the exchange notes may be
required to deliver a prospectus.
We will not receive any proceeds from any sales of the exchange notes by
broker-dealers. The exchange 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 exchange notes or a combination of methods
of resale, at market prices prevailing at the time of resale, at prices related
to those prevailing market prices or at negotiated prices. Any resale may be
made directly to the purchaser or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from the
broker-dealer and/or the purchasers of the exchange notes. Any broker-dealer
that resells the exchange 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 the exchange notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any resale of exchange notes
and any commissions or concessions received by any of those persons may be
deemed to be underwriting compensation under the Securities Act. The letter of
transmittal states that, by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the exchange offer is completed 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 the expenses incident to the
exchange offer, other than commissions or concessions of any brokers or dealers
and the fees of any advisors or experts retained by the holders of old notes,
and will indemnify the holders of the old notes (including any broker-dealers)
against related liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain matters related to the exchange offer will be passed upon for us by
Akin Gump Strauss Hauer & Feld LLP, Brown, Drew & Massey, LLP, Woodburn and
Wedge and Howard L. Boigon, General Counsel of Westport. Certain matters related
to material U.S. federal income tax consequences of the exchange offer and the
ownership and disposition of the exchange notes will be passed upon by Akin Gump
Strauss Hauer & Feld LLP.
INDEPENDENT PUBLIC ACCOUNTANTS
Our consolidated financial statements as of December 31, 2000, and December
31, 2001 and for each of the years then ended were incorporated by reference in
this prospectus in reliance upon the audit report
90
of Arthur Andersen LLP, independent certified public accountants and upon the
authority of said firm as experts in accounting and auditing.
After reasonable efforts, however, we have been unable to obtain Arthur
Andersen's written consent to the incorporation by reference of its audit report
in this prospectus.
Section 11(a) of the Securities Act provides that if any part of a
registration statement at the time it becomes effective contains an untrue
statement of a material fact or an omission to state a material fact required to
be stated therein or necessary to make the statements therein not misleading,
any person acquiring a security pursuant to such registration statement (unless
it is proved that at the time of acquisition that such person knew of such
untruth or omission) may sue, among others, every accountant who has consented
to be named as having prepared or certified any part of the registration
statement with respect to the statement in such registration statement, report
or valuation which purports to have been prepared or certified by the
accountant. Since Arthur Andersen LLP has not consented to the incorporation by
reference of our consolidated financial statements as of December 31, 2000 and
December 31, 2001 and for each of years then ended into the registration
statement of which this prospectus is a part, you will not be able to recover
against Arthur Andersen LLP under Section 11 of the Securities Act for any
untrue statements of a material fact contained in our consolidated financial
statements for such fiscal periods or any omissions to state a material fact
required to be stated therein.
Our consolidated financial statements as of December 31, 2002 and for the
year then ended were incorporated by reference into this prospectus in reliance
upon the report of KPMG LLP, independent public accountants.
INDEPENDENT PETROLEUM ENGINEERS
Estimated quantities of our oil and gas reserves and the net present value
of such reserves as of December 31, 2002 included or incorporated by reference
in this prospectus are based upon reserve reports prepared by Ryder Scott
Company, L.P. and our engineering staff. Ryder Scott Company, L.P. reports
covered 81% of the total net present value of estimates of total proved
reserves, evaluating 58% and auditing 23%. The internally generated report
covered the remaining 19% of the net present value. Estimates of total proved
reserves and the net present value of such reserves at December 31, 2001
included or incorporated by reference in this prospectus were prepared by our
engineering staff. Ryder Scott Company, L.P. audited 87% of the total net
present value of estimates of total proved reserves at December 31, 2001, and
the remaining 13% of net present value of the reserves was unaudited. Estimates
of total proved reserves at December 31, 2000 were prepared by Ryder Scott
Company, L.P., Netherland, Sewell & Associates, Inc. and our engineering staff.
The Ryder Scott and Netherland Sewell reports covered an aggregate of
approximately 85% of the total net present value of our estimated proved
reserves and the internally generated report covered the remaining 15% of the
net present value for 2000. Ryder Scott Company, L.P. and Netherland, Sewell &
Associates, Inc. are independent consulting petroleum engineers, and certain
information with respect to the oil and natural gas reserves is derived from
their reports and has been incorporated by reference in this prospectus upon the
authority of said firms as experts with respect to the matters covered by such
reports and in giving such reports.
91
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$125,000,000
OFFER TO EXCHANGE
(WESTPORT RESOURCES CORPORATION LOGO)
WESTPORT RESOURCES CORPORATION
8 1/4% SENIOR SUBORDINATED NOTES DUE 2011
-------------------------
PROSPECTUS
-------------------------
, 2003
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Nevada Revised Statutes, or the NRS, provide that a corporation may
indemnify any person who was or is a party or is threatened to be made a party,
by reason of the fact that such person was an officer or director 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, to:
- any action or suit by or in the right of the corporation against
expenses, including amounts paid in settlement and attorneys' fees,
actually and reasonably incurred, in connection with the defense or
settlement, if such person acted in good faith and in a manner that he or
she reasonably believed to be in, or not opposed to, the best interests
of the corporation, except that indemnification may not be made for any
claim, issue or matter as to which such a person has been adjudged by a
court of competent jurisdiction to be liable to the corporation or for
amounts paid in settlement to the corporation unless and only to the
extent that the court in which the action or suit was brought or other
court of competent jurisdiction determines upon application that in view
of all of the circumstances of the case, the person is fairly and
reasonably entitled to indemnity for such expenses as the court deems
proper; and
- any other action or suit or proceeding against expenses, including
attorneys' fees, judgments, fines and amounts paid in settlement,
actually and reasonably incurred, if he or she acted in good faith and in
a manner which he or she 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 his or her
conduct was unlawful. To the extent that a director, officer, employee or
agent has been "successful on the merits or otherwise" the corporation
must indemnify such person. The articles of incorporation or bylaws may
provide that the expenses of officers and directors incurred in defending
any such action must be paid as incurred and in advance of the final
disposition of such action. The NRS also permits the registrant to
purchase and maintain insurance on behalf of the registrant's directors
and officers against any liability arising out of their status as such,
whether or not the registrant would have the power to indemnify him or
her against such liability. These provisions may be sufficiently broad to
indemnify such persons for liabilities arising under the Securities Act.
Our articles of incorporation eliminate a director's personal liability to
Westport or its stockholders for damages for breach of fiduciary duty as a
director, unless a director is engaged in (a) any breach of the director's duty
of loyalty to Westport or its stockholders, (b) acts or omissions which involve
intentional misconduct, fraud or a knowing violation of law; (c) the payment of
illegal distributions, or (d) any transaction from which the director derived an
improper personal benefit.
Subject to the foregoing, our articles of incorporation provide that we
will indemnify, to the maximum extent permitted by the NRS, any officer or
director of Westport, or any person serving at our request as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with any action, suit or proceeding brought by third parties. In a
derivative action, i.e., one by or in the right of the corporation,
indemnification will be made, to the maximum extent permitted by the NRS, only
for expenses (including attorney's fees) actually and reasonably incurred by
such persons in connection with the defense or settlement of any action or suit
to procure a judgment in our favor. To the extent that a present or former
director or officer of Westport has been successful on the merits or otherwise
in defense of any such action, suit or proceeding, or in defense of any claim,
issue or matter therein, such person will be indemnified against expenses
(including attorney's fees) actually and reasonably incurred by such person in
connection therewith.
II-1
These expenses will be paid by us in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by a director or
officer to repay the advanced amount if it is ultimately determined that such
person is not entitled to be indemnified by us pursuant to the NRS or our
articles of incorporation. The indemnification and advancement of expenses will
not be deemed exclusive of any other rights to which any director or officer of
Westport seeking indemnification or advancement of expenses may be otherwise
entitled.
Our articles of incorporation also permit us to purchase and maintain
insurance on behalf of any person who is or was a director or officer of
Westport, or is or was serving at our request as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability incurred by such person in any such capacity or arising
out of such person' status as officer or director regardless of our power to
indemnify such person under the provision of the NRS or articles of
incorporation.
We have entered into indemnification agreements with our directors and
officers. The agreements provide for indemnification of each such person to the
fullest extent authorized or permitted by Nevada law as it exists now or may
hereafter be amended or changed. Subsequent amendments or changes in Nevada law
affecting indemnification rights will govern the agreements only to the extent
the amendments or changes in law authorize or permit broader indemnification
protections that those permitted prior to such amendments or changes.
Pursuant to the agreements, we also agreed to pay on behalf of each
indemnitee expenses incurred by such indemnitee by reason of the fact that the
person is or was a director or officer of Westport, provided that such person is
otherwise entitled to indemnification. If it is ultimately determined that such
director or officer is not entitled to indemnification, any advances made by us
to such person will be interest-free. We also agreed to maintain directors' and
officers' liability insurance in reasonable amounts from established and
reputable insurers for as long as such directors or officers continue to serve
in such capacity or remain subject to liability as a result of their service as
our directors or officers.
In addition, we will pay expenses and fees of separate counsel for each
individual defendant in any indemnification proceeding where there are conflicts
of interest among defendants. In the event of a change in control of Westport,
each indemnitee also has a right to select independent counsel, subject to the
company's approval, which may not be unreasonably withheld. The independent
counsel will determine the rights of such indemnitee to indemnification and
payment of expenses provided by the indemnification agreement, the standard of
conduct applicable to the indemnitee and the reasonableness of amounts claimed
by such indemnitee. Westport will pay reasonable expenses and fees of such
counsel.
Pursuant to the merger agreement dated as of June 8, 2001, between Westport
Resources Corporation, a Delaware corporation, or Old Westport, and Belco Oil &
Gas Corp., or Belco, we are obligated, for six years after the effective time of
the merger with Belco, to indemnify, defend and hold harmless each person who
has been at any time prior to the effective time of the merger, an officer or
director of Old Westport, Belco or any of their respective subsidiaries who
acted as a fiduciary under any of Old Westport's Benefit Plans or Belco's
Benefit Plans (each as defined in the merger agreement) against all losses,
claims, damages, liabilities, fees and expenses arising in whole or in part out
of actions or omissions in their capacity as such occurring at or prior to the
effective time of the merger to the full extent permitted under Nevada law or
our articles of incorporation and bylaws and Old Westport's and Belco's written
indemnification agreements in effect as of June 8, 2001. Any determination of
whether a person's conduct complies with the required standard will be made by
the independent counsel acceptable to both Westport and the indemnified party.
Pursuant to the merger agreement, we also maintain Westport's and Belco's
directors' and officers' liability insurance policies in effect as of the
effective time of the merger for a period of not less than six years after the
effective time of the merger, but only to the extent related to actions or
omissions prior to the effective time of the merger, subject to certain
provisions.
II-2
Pursuant to the Third Amended and Restated Shareholders Agreement, dated as
of February 14, 2003, between Westport, ERI Investments, Inc., or ERI, Westport
Energy LLC, or WELLC, Medicor Foundation, or Medicor, and a group of former
stockholders of Belco, also known as the Belfer Group, we have agreed to
indemnify ERI, WELLC, the Belfer Group and each of their directors, officers and
controlling persons to the extent permitted by law against any losses, claims,
damages or liabilities to which such person may become subject under the
Securities Act that arise out of any untrue or alleged untrue statement of a
material fact or any omission or alleged omission of a material fact required to
be contained in a registration statement, prospectus, application or other
documentation to be filed with the SEC.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers of controlling persons pursuant to the
foregoing provisions, we have been informed that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following exhibits are filed as part of this Registration Statement:
<Table>
<Caption>
EXHIBIT
NUMBER EXHIBITS
- ------- --------
**1 Purchase Agreement, dated as of March 27, 2003, by and among
Westport, subsidiary guarantors party thereto and Lehman
Brothers Inc.
2.1 Agreement and Plan of Merger, dated as of March 9, 2000, by
and among Westport Oil and Gas Company, Inc., Westport
Energy Corporation, Equitable Production Company, Equitable
Production (Gulf) Company and EPGC Merger Sub Corporation
(incorporated by reference to Exhibit 2.1 to Old Westport's
Registration Statement on Form S-1 (Registration No.
333-40422), filed with the SEC on June 29, 2000).
2.2 Agreement and Plan of Merger, dated as of June 8, 2001,
among Belco and Old Westport (incorporated by reference to
Exhibit 2.1 to Belco's Registration Statement on Form S-4/A
(Registration No. 333-64320), filed with the SEC on July 24,
2001).
4.1 Amended Articles of Incorporation of Westport (incorporated
by reference to Exhibit 3.1 to Westport's Registration
Statement on Form 8-A/A, filed with the SEC on August 31,
2001).
4.2 Certificate of Amendment to the Amended Articles of
Incorporation of Westport dated March 5, 2003 (incorporated
by reference to Exhibit 3.2 to Westport's Quarterly Report
on Form 10-Q for the quarter ended March 31, 2003, filed
with the SEC on May 8, 2003).
4.3 Second Amended and Restated Bylaws of Westport (incorporated
by reference to Exhibit 3.2 to Westport's Registration
Statement on Form 8-A/A, filed with the SEC on August 31,
2001).
4.4 Specimen Certificate for shares of Common Stock of Westport
(incorporated by reference to Exhibit 4.1 to Westport's
Registration Statement on Form 8-A/A, filed with the SEC on
August 31, 2001).
4.5 Specimen Certificate for shares of 6 1/2% Convertible
Preferred Stock of Westport (incorporated by reference to
Exhibit 4 to Westport's Registration Statement on Form
8-A/A, filed with the SEC on August 31, 2001).
4.6 Third Amended and Restated Shareholders Agreement, dated as
of February 14, 2003, among Westport, ERI, WELLC, Medicor
Foundation and certain stockholders named therein (incorpo-
rated by reference to Exhibit 4.3 to Westport's Annual
Report on Form 10-K for the fiscal year ended December 31,
2002, filed with the SEC on March 10, 2003).
**4.7 Registration Rights Agreement, dated as of April 3, 2003,
among Westport, subsidiary guarantors party thereto and
Lehman Brothers Inc.
4.8 Indenture, dated as of November 5, 2001, among Westport,
subsidiary guarantors from time to time party thereto and
The Bank of New York, as trustee (incorporated by reference
to Exhibit 4.4 to Westport's Registration Statement on Form
S-4 (Registration No. 333-77060), filed with the SEC on
January 18, 2002).
</Table>
II-3
<Table>
<Caption>
EXHIBIT
NUMBER EXHIBITS
- ------- --------
4.9 First Supplemental Indenture, dated as of December 31, 2001,
among Westport, existing subsidiary guarantors party
thereto, new subsidiary guarantors named therein and The
Bank of New York, as trustee (incorporated by reference to
Exhibit 4.5 to Westport's Registration Statement on Form S-4
(Registration No. 333-77060), filed with the SEC on January
18, 2002).
4.10 Second Supplemental Indenture, dated as of December 17,
2002, among Westport, existing subsidiary guarantors party
thereto, new subsidiary guarantors named therein and The
Bank of New York, as trustee (incorporated by reference to
Exhibit 4.9 to Westport's Registration Statement on Form S-4
(Registration No. 333-102705), filed with the SEC on January
24, 2003).
**4.11 Third Supplemental Indenture, dated as of April 3, 2002,
among Westport, subsidiary guarantors party thereto and The
Bank of New York, as trustee.
4.12 Certificate of Designations of 6 1/2% Convertible Preferred
Stock dated March 5, 1998 (incorporated by reference to
Exhibit 4.1 to Belco's Current Report on Form 8-K, filed on
March 11, 1998).
4.13 Form of 8 1/4% Note (contained in the Indenture listed as
Exhibit 4.7 above) (incorporated by reference to Exhibit 4.4
to Westport's Registration Statement on Form S-4
(Registration No. 333-77060), filed with the SEC on January
18, 2002).
4.14 Form of Indenture for Senior Debt Securities (incorporated
by reference to Exhibit 4.1 to Westport's Amendment No. 1 to
Form S-3 filed with the SEC on December 23, 1997).
4.15 Form of Indenture for Subordinated Debt Securities
(incorporated by reference to Exhibit 4.2 to Westport's
Amendment No. 1 to Form S-3 filed with the SEC on December
23, 1997).
*5.1 Opinion of Akin Gump Strauss Hauer & Feld LLP.
*5.2 Opinion of Woodburn and Wedge.
*5.3 Opinion of Brown, Drew & Massey, LLP.
*5.4 Opinion of General Counsel of Westport.
*8 Opinion of Akin Gump Strauss Hauer & Feld LLP regarding tax
matters.
*12 Statement regarding Computation of Ratios.
21 List of Subsidiaries of Westport (incorporated by reference
to Exhibit 21 to Westport's Registration Statement on Form
S-4 (Registration No. 333-102705), filed with the SEC on
January 24, 2003).
*23.1 Consent of Akin Gump Strauss Hauer & Feld LLP (included in
the opinion filed as Exhibit 5.1 to this Registration
Statement).
*23.2 Consent of Akin Gump Strauss Hauer & Feld LLP (included in
the opinion filed as Exhibit 8 to this Registration
Statement).
*23.3 Consent of Woodburn and Wedge (included in the opinion filed
as Exhibit 5.2 to this Registration Statement).
*23.4 Consent of Brown, Drew & Massey, LLP (included in the
opinion filed as Exhibit 5.3 to this Registration
Statement).
*23.5 Consent of General Counsel of Westport (included in the
opinion filed as Exhibit 5.4 to this Registration
Statement).
*23.6 Consent of Netherland, Sewell & Associates, Inc.
*23.7 Consent of Ryder Scott Company, L.P.
*23.8 Consent of KPMG LLP.
**24 Power of Attorney.
*25 Statement of Eligibility of Trustee.
**99.1 Letter of Transmittal.
**99.2 Form of Notice of Guaranteed Delivery.
</Table>
II-4
<Table>
<Caption>
EXHIBIT
NUMBER EXHIBITS
- ------- --------
**99.3 Form of Notice to Investors.
**99.4 Form of Notice to Broker Dealers.
</Table>
- ---------------
* Filed herewith.
** Previously filed.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or 15(d) of the
Exchange Act that are incorporated by reference in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The registrants hereby undertake that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the registrants'
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in this registration
statement shall be deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrants pursuant to the foregoing provisions, or otherwise, the
registrants have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than
II-5
the payment by the registrants of expenses incurred or paid by a director,
officer or controlling person of the registrants 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
registrants will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(d) The undersigned registrants hereby undertake 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, 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.
(e) The undersigned registrants hereby undertake 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-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrants
have duly caused this registration statement to be signed on their behalf by the
undersigned, thereunto duly authorized, in the City of Denver, State of
Colorado, on September 12, 2003.
WESTPORT RESOURCES CORPORATION
By: /s/ LON MCCAIN
----------------------------------
Name: Lon McCain
Title: Vice President, Chief Financial
Officer and Treasurer
WESTPORT OIL AND GAS COMPANY, L.P.
by WHG, INC., general partner of
Westport Oil and Gas Company,
L.P.
By: /s/ LON MCCAIN
-------------------------------
Name: Lon McCain
Title: Vice President, Chief
Financial Officer and
Treasurer
WESTPORT FINANCE CO.
By: /s/ LON MCCAIN
----------------------------------
Name: Lon McCain
Title: Treasurer
JERRY CHAMBERS EXPLORATION COMPANY
by WESTPORT OIL AND GAS COMPANY,
L.P., managing general partner
by WHG, INC., general partner of
Westport Oil and Gas Company,
L.P.
By: /s/ LON MCCAIN
------------------------------
Name: Lon McCain
Title: Vice President, Chief
Financial Officer and
Treasurer
II-7
WESTPORT ARGENTINA LLC
By: /s/ DONALD D. WOLF
----------------------------------
Name: Donald D. Wolf
Title: Manager
WESTPORT CANADA LLC
by WESTPORT OIL AND GAS COMPANY,
L.P., member
by WHG, INC., general partner of
Westport Oil and Gas Company,
L.P.
By: /s/ LON MCCAIN
------------------------------
Name: Lon McCain
Title: Vice President, Chief
Financial Officer and
Treasurer
WESTPORT OVERRIDING ROYALTY LLC
by WESTPORT OIL AND GAS COMPANY,
L.P., manager
by WHG, INC., general partner of
Westport Oil and Gas Company,
L.P.
By: /s/ LON MCCAIN
------------------------------
Name: Lon McCain
Title: Vice President, Chief
Financial Officer and
Treasurer
WHG, INC.
By: /s/ LON MCCAIN
----------------------------------
Name: Lon McCain
Title: Vice President, Chief Financial
Officer and Treasurer
II-8
WHL, INC.
By: /s/ LON MCCAIN
----------------------------------
Name: Lon McCain
Title: Vice President, Chief Financial
Officer and Treasurer
HORSE CREEK TRADING & COMPRESSION
COMPANY LLC
by WESTPORT OIL AND GAS COMPANY,
L.P., manager
by WHG, INC., general partner of
Westport Oil and Gas Company,
L.P.
By: /s/ LON MCCAIN
------------------------------
Name: Lon McCain
Title: Vice President, Chief
Financial Officer and
Treasurer
WESTPORT FIELD SERVICES, LLC
by WESTPORT RESOURCES CORPORATION,
manager
By: /s/ LON MCCAIN
-------------------------------
Name: Lon McCain
Title: Vice President, Chief
Financial Officer and
Treasurer
II-9
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities indicated on September 12, 2003.
<Table>
<Caption>
SIGNATURE TITLE
--------- -----
/s/ DONALD D. WOLF Chairman of the Board and Chief Executive Officer
------------------------------------------------ (Principal Executive Officer) of Westport
Donald D. Wolf Resources Corporation, WHG, Inc. and WHL, Inc.,
Chairman and Chief Executive Officer (Principal
Executive Officer) of Westport Oil and Gas
Company, L.P., Manager of Westport Argentina LLC,
and Director of Westport Resources Corporation,
Westport Finance Co., WHG, Inc. and WHL, Inc.
* President (Principal Executive Officer) of
------------------------------------------------ Westport Finance Co.
Barth E. Whitham
* Vice President, Chief Financial Officer and
------------------------------------------------ Treasurer (Principal Financial Officer) of
Lon McCain Westport Resources Corporation, WHG, Inc., WHL,
Inc. and Westport Oil and Gas Company, L.P. and
Treasurer (Principal Financial and Accounting
Officer) of Westport Finance Co.
* Vice President -- Accounting (Principal Accounting
------------------------------------------------ Officer) of Westport Resources Corporation, WHG,
Kenneth D. Anderson Inc., WHL, Inc. and Westport Oil and Gas Company,
L.P.
* Director of Westport Resources Corporation.
------------------------------------------------
Robert A. Belfer
* Director of Westport Resources Corporation.
------------------------------------------------
Laurence D. Belfer
* Director of Westport Resources Corporation.
------------------------------------------------
James M. Funk
* Director of Westport Resources Corporation.
------------------------------------------------
Robert A. Haas
* Director of Westport Resources Corporation.
------------------------------------------------
Murry S. Gerber
* Director of Westport Resources Corporation.
------------------------------------------------
David L. Porges
* Director of Westport Resources Corporation.
------------------------------------------------
Michael Russell
* Director of Westport Resources Corporation.
------------------------------------------------
Randy Stein
</Table>
II-10
<Table>
<Caption>
SIGNATURE TITLE
--------- -----
* Director of Westport Resources Corporation.
------------------------------------------------
William F. Wallace
*By: /s/ DONALD D. WOLF
------------------------------------------
Donald D. Wolf
Attorney-in-Fact
</Table>
II-11
INDEX TO EXHIBITS
<Table>
<Caption>
EXHIBIT
NUMBER EXHIBITS
- ------- --------
**1 Purchase Agreement, dated as of March 27, 2003, by and among
Westport, subsidiary guarantors party thereto and Lehman
Brothers Inc.
2.1 Agreement and Plan of Merger, dated as of March 9, 2000, by
and among Westport Oil and Gas Company, Inc., Westport
Energy Corporation, Equitable Production Company, Equitable
Production (Gulf) Company and EPGC Merger Sub Corporation
(incorporated by reference to Exhibit 2.1 to Old Westport's
Registration Statement on Form S-1 (Registration No.
333-40422), filed with the SEC on June 29, 2000).
2.2 Agreement and Plan of Merger, dated as of June 8, 2001,
among Belco and Old Westport (incorporated by reference to
Exhibit 2.1 to Belco's Registration Statement on Form S-4/A
(Registration No. 333-64320), filed with the SEC on July 24,
2001).
4.1 Amended Articles of Incorporation of Westport (incorporated
by reference to Exhibit 3.1 to Westport's Registration
Statement on Form 8-A/A, filed with the SEC on August 31,
2001).
4.2 Certificate of Amendment to the Amended Articles of
Incorporation of Westport dated March 5, 2003 (incorporated
by reference to Exhibit 3.2 to Westport's Quarterly Report
on Form 10-Q for the quarter ended March 31, 2003, filed
with the SEC on May 8, 2003).
4.3 Second Amended and Restated Bylaws of Westport (incorporated
by reference to Exhibit 3.2 to Westport's Registration
Statement on Form 8-A/A, filed with the SEC on August 31,
2001).
4.4 Specimen Certificate for shares of Common Stock of Westport
(incorporated by reference to Exhibit 4.1 to Westport's
Registration Statement on Form 8-A/A, filed with the SEC on
August 31, 2001).
4.5 Specimen Certificate for shares of 6 1/2% Convertible
Preferred Stock of Westport (incorporated by reference to
Exhibit 4 to Westport's Registration Statement on Form
8-A/A, filed with the SEC on August 31, 2001).
4.6 Third Amended and Restated Shareholders Agreement, dated as
of February 14, 2003, among Westport, ERI, WELLC, Medicor
Foundation and certain stockholders named therein (incorpo-
rated by reference to Exhibit 4.3 to Westport's Annual
Report on Form 10-K for the fiscal year ended December 31,
2002, filed with the SEC on March 10, 2003).
**4.7 Registration Rights Agreement, dated as of April 3, 2003,
among Westport, subsidiary guarantors party thereto and
Lehman Brothers Inc.
4.8 Indenture, dated as of November 5, 2001, among Westport,
subsidiary guarantors from time to time party thereto and
The Bank of New York, as trustee (incorporated by reference
to Exhibit 4.4 to Westport's Registration Statement on Form
S-4 (Registration No. 333-77060), filed with the SEC on
January 18, 2002).
4.9 First Supplemental Indenture, dated as of December 31, 2001,
among Westport, existing subsidiary guarantors party
thereto, new subsidiary guarantors named therein and The
Bank of New York, as trustee (incorporated by reference to
Exhibit 4.5 to Westport's Registration Statement on Form S-4
(Registration No. 333-77060), filed with the SEC on January
18, 2002).
4.10 Second Supplemental Indenture, dated as of December 17,
2002, among Westport, existing subsidiary guarantors party
thereto, new subsidiary guarantors named therein and The
Bank of New York, as trustee (incorporated by reference to
Exhibit 4.9 to Westport's Registration Statement on Form S-4
(Registration No. 333-102705), filed with the SEC on January
24, 2003).
**4.11 Third Supplemental Indenture, dated as of April 3, 2002,
among Westport, subsidiary guarantors party thereto and The
Bank of New York, as trustee.
4.12 Certificate of Designations of 6 1/2% Convertible Preferred
Stock dated March 5, 1998 (incorporated by reference to
Exhibit 4.1 to Belco's Current Report on Form 8-K, filed on
March 11, 1998).
4.13 Form of 8 1/4% Note (contained in the Indenture listed as
Exhibit 4.7 above) (incorporated by reference to Exhibit 4.4
to Westport's Registration Statement on Form S-4
(Registration No. 333-77060), filed with the SEC on January
18, 2002).
4.14 Form of Indenture for Senior Debt Securities (incorporated
by reference to Exhibit 4.1 to Westport's Amendment No. 1 to
Form S-3 filed with the SEC on December 23, 1997).
</Table>
<Table>
<Caption>
EXHIBIT
NUMBER EXHIBITS
- ------- --------
4.15 Form of Indenture for Subordinated Debt Securities
(incorporated by reference to Exhibit 4.2 to Westport's
Amendment No. 1 to Form S-3 filed with the SEC on December
23, 1997).
*5.1 Opinion of Akin Gump Strauss Hauer & Feld, LLP.
*5.2 Opinion of Woodburn and Wedge.
*5.3 Opinion of Brown, Drew & Massey, LLP.
*5.4 Opinion of General Counsel of Westport.
*8 Opinion of Akin Gump Strauss Hauer & Feld LLP regarding tax
matters.
*12 Statement regarding Computation of Ratios.
21 List of Subsidiaries of Westport (incorporated by reference
to Exhibit 21 to Westport's Registration Statement on Form
S-4 (Registration No. 333-102705), filed with the SEC on
January 24, 2003).
*23.1 Consent of Akin Gump Strauss Hauer & Feld LLP (included in
the opinion filed as Exhibit 5.1 to this Registration
Statement).
*23.2 Consent of Akin Gump Strauss Hauer & Feld LLP (included in
the opinion filed as Exhibit 8 to this Registration
Statement).
*23.3 Consent of Woodburn and Wedge (included in the opinion filed
as Exhibit 5.2 to this Registration Statement).
*23.4 Consent of Brown, Drew & Massey, LLP (included in the
opinion filed as Exhibit 5.3 to this Registration
Statement).
*23.5 Consent of General Counsel of Westport (included in the
opinion filed as Exhibit 5.4 to this Registration
Statement).
*23.6 Consent of Netherland, Sewell & Associates, Inc.
*23.7 Consent of Ryder Scott Company, L.P.
*23.8 Consent of KPMG LLP.
**24 Power of Attorney.
*25 Statement of Eligibility of Trustee.
**99.1 Letter of Transmittal.
**99.2 Form of Notice of Guaranteed Delivery.
**99.3 Form of Notice to Investors.
**99.4 Form of Notice to Broker Dealers.
</Table>
- ---------------
* Filed herewith.
** Previously filed.