-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EHaRVA+js578qRGOJKlYuZ4/SVPk6nfHRGdBwSfG0ARZz/hbT9r+H4uBDYcbRVpH CATY47AcuM7S9Y86SFazQw== 0000950129-97-002691.txt : 19970703 0000950129-97-002691.hdr.sgml : 19970703 ACCESSION NUMBER: 0000950129-97-002691 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19970702 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: POGO PRODUCING CO CENTRAL INDEX KEY: 0000230463 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 741659398 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-30613 FILM NUMBER: 97635384 BUSINESS ADDRESS: STREET 1: 5 GREENWAY PLAZA STE 2700 STREET 2: P O BOX 2504 CITY: HOUSTON STATE: TX ZIP: 77046-0504 BUSINESS PHONE: 7132975017 MAIL ADDRESS: STREET 1: 5 GREENWAY PLAZA SUITE 2700 STREET 2: P O BOX 2504 CITY: HOUSTON STATE: TX ZIP: 77046-0504 FORMER COMPANY: FORMER CONFORMED NAME: PENNZOIL OFFSHORE GAS OPERATORS INC /TX/ DATE OF NAME CHANGE: 19600201 S-4 1 POGO PRODUCING CO -- FORM S-4 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 2, 1997 REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------- FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------- POGO PRODUCING COMPANY (Exact name of Registrant as specified in its charter) DELAWARE 1311 74-1659398 (State of other jurisdiction (Primary Standard Industrial (I.R.S. Employer of incorporation or organization) Classification Code Number) Identification No.) 5 GREENWAY PLAZA, SUITE 2700 GERALD A. MORTON HOUSTON, TEXAS 77046 VICE PRESIDENT -- LAW (713) 297-5000 AND CORPORATE SECRETARY (Address, including zip code, and telephone number, 5 GREENWAY PLAZA, SUITE 2700 including area code, of registrant's principal HOUSTON, TEXAS 77046 executive offices) (713) 297-5000 (Name, Address, including zip code, and telephone number, including area code, of agent for service)
Copy to: STEPHEN A. MASSAD BAKER & BOTTS, L.L.P. 3000 ONE SHELL PLAZA HOUSTON, TEXAS 77002 (713) 229-1234 Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable following the effectiveness of this Registration Statement. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] ------------- CALCULATION OF REGISTRATION FEE
============================================================================================================== Title of each class of Proposed maximum Proposed securities to be Amount to be offering price per maximum aggregate Amount of registered registered share (1) offering price (1) registration fee - -------------------------------------------------------------------------------------------------------------- 8 3/4% Senior Subordinated Notes due 2007 . . . . . $100,000,000 100% $100,000,000 $30,304 ==============================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ 2 POGO PRODUCING COMPANY CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
Form S-4 Item Number and Heading Location in Prospectus -------------------------------- ---------------------- 1. Forepart of Registration Statement and Outside Front Cover Page of Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . Front cover page 2. Inside Front and Outside Bank Cover Pages of Prospectus . . . . Inside front cover page; "Available Information"; Table of Contents 3. Risk Factors, Ratio of Earnings to Fixed Charges and Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . "Prospectus Summary" 4. Terms of the Transaction . . . . . . . . . . . . . . . . . . . "Prospectus Summary"; "The Exchange Offer"; "Description of the Notes"; "Exchange Offer; Registration Rights"; "Certain Federal Income Tax Consequences" 5. Pro Forma Financial Information . . . . . . . . . . . . . . . . Not applicable 6. Material Contacts with the Company Being Acquired . . . . . . . Not applicable 7. Additional Information Required for Reoffering by Persons and Parties Deemed to be Underwriters . . . . . . . . . . . . . . . Not applicable 8. Interests of Named Experts and Counsel . . . . . . . . . . . . "Legal Matters" 9. Disclosure of Commission Position on Indemnification for Securities Act Liabilities . . . . . . . . . . . . . . . . . . Not applicable 10. Information with Respect to S-3 Registrants . . . . . . . . . . "Incorporation of Certain Documents by Reference"; "Prospectus Summary"; "Management's Discussion and Analysis of Financial Condition and Results of Operations"; "Business and Properties"; "Management and Board of Directors" 11. Incorporation of Certain Information by Reference . . . . . . . "Incorporation of Certain Documents by Reference" 12. Information with Respect to S-2 or S-3 Registrants . . . . . . Not applicable 13. Incorporation of Certain Information by Reference . . . . . . . Not applicable 14. Information with Respect to Registrants Other Than S-2 or S-3 Registrants . . . . . . . . . . . . . . . . . . . . . . . . . Not applicable 15. Information with Respect to S-3 Companies . . . . . . . . . . Not applicable 16. Information with Respect to S-2 or S-3 Companies . . . . . . . Not applicable 17. Information with Respect to Companies Other Than S-2 or S-3 Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . Not applicable 18. Information if Proxies, Consents or Authorizations are to be Solicited . . . . . . . . . . . . . . . . . . . . . . . . . . . Not applicable
(i) 3 19. Information if Proxies, Consents or Authorization are not to be Solicited or in an Exchange Offer . . . . . . . . . . . . . . . "Incorporation of Certain Documents by Reference", "Management and Board of Directors"
(ii) 4 Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state. Subject to Completion, Dated July 2, 1997 PROSPECTUS POGO PRODUCING COMPANY OFFER TO EXCHANGE 8 3/4% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B FOR ALL OUTSTANDING 8 3/4% SENIOR SUBORDINATED NOTES DUE 2007, SERIES A THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON , 1997, UNLESS EXTENDED _______________ Pogo Producing Company, a Delaware corporation (the "Company"), hereby offers, upon the terms and subject to the conditions set forth in this Prospectus and the accompanying letter of transmittal (the "Letter of Transmittal," and together with this Prospectus, the "Exchange Offer"), to exchange $1,000 principal amount of its 8 3/4% Senior Subordinated Notes due 2007, Series B (the "Exchange Notes"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement (as defined herein) of which this Prospectus constitutes a part, for each $1,000 principal amount of its outstanding 8 3/4% Senior Subordinated Notes due 2007, Series A (the "Old Notes"), of which $100,000,000 principal amount is outstanding. The form and terms of the Exchange Notes are identical in all material respects to the form and terms of the Old Notes except for certain transfer restrictions and registration rights relating to the Old Notes. The Exchange Notes will evidence the same debt as the Old Notes and will be issued under and be entitled to the benefits of the Indenture (as defined herein). The Exchange Notes and the Old Notes are collectively referred to herein as the "Notes." The Notes are general unsecured senior subordinated obligations of the Company that are subordinated in right of payment to all existing and future Senior Indebtedness (as defined herein) of the Company including indebtedness under the Credit Agreement (as defined herein), pari passu in right of payment with all future senior subordinated indebtedness of the Company and senior in right of payment to all existing and future subordinated indebtedness of the Company. The Company will accept for exchange any and all Old Notes that are validly tendered on or prior to 5:00 p.m., New York City time, on the date the Exchange Offer expires, which will be , 1997, unless the Exchange Offer is extended. See "The Exchange Offer -- Expiration Date; Extensions; Amendment." Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date (as defined herein), unless previously accepted for exchange. The Exchange Offer is not conditioned upon any minimum principal amount of Old Notes being tendered for exchange. However, the Exchange Offer is subject to certain conditions which may be waived by the Company and to the terms and provisions of the Registration Rights Agreement (as defined herein). Old Notes may be tendered only in denominations of $1,000 principal amount and integral multiples thereof. The Company has agreed to pay the expenses of the Exchange Offer. See "The Exchange Offer." (cover continued on next page) -------------- SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN EVALUATING AN INVESTMENT IN THE EXCHANGE NOTES. THE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. _______________ The date of this Prospectus is , 1997. 5 The Exchange Notes will bear interest at the rate of 8 3/4% per annum, payable semi-annually on May 15 and November 15 of each year, commencing November 15, 1997. Holders of Exchange Notes of record on November 1, 1997 will receive interest on November 15, 1997 from the date of issuance of the Exchange Notes, plus an amount equal to the accrued interest on the Old Notes from the date of issuance of the Old Notes, May 22, 1997, to the date of exchange thereof. Interest on the Old Notes accepted for exchange will cease to accrue upon issuance of the Exchange Notes. The Notes are general unsecured senior subordinated obligations of the Company that are subordinated in right of payment to all existing and future Senior Indebtedness (as defined herein) of the Company including indebtedness under the Credit Agreement (as defined herein), pari passu in right of payment with all future senior subordinated indebtedness of the Company and senior in right of payment to all existing and future subordinated indebtedness of the Company. The net proceeds of the sale of the Old Notes by the Company was used to repay outstanding Senior Indebtedness of the Company. As of March 31, 1997, on a pro forma basis, after giving effect to the sale of the Old Notes by the Company and the application of the proceeds therefrom, the Company would have had approximately $9 million of outstanding Senior Indebtedness, no indebtedness that would rank pari passu with the Notes, and $201.2 million principal amount of indebtedness that would rank subordinated to the Notes. On May 31, 1997, the Company had approximately $33 million of outstanding Senior Indebtedness, no indebtedness that ranked pari passu with the Old Notes and $201.2 million principal amount of indebtedness that ranked subordinated to the Old Notes. The Old Notes were sold by the Company on May 22, 1997 to the Initial Purchasers (as defined herein) in a transaction not registered under the Securities Act in reliance upon Section 4(2) of the Securities Act. The Old Notes were thereupon offered and sold by the Initial Purchasers only to "qualified institutional buyers" (as defined in Rule 144A under the Securities Act) and to a limited number of institutional "accredited investors" (as defined in Rule 501(a)(1),(2),(3) or (7) under the Securities Act), each of whom agreed to comply with certain transfer restrictions and other conditions. Accordingly, the Old Notes may not be offered, resold or otherwise transferred unless registered under the Securities Act or unless an applicable exemption from the registration requirements of the Securities Act is available. The Exchange Notes are being offered hereunder in order to satisfy the obligations of the Company under the Registration Rights Agreement entered into with the Initial Purchasers in connection with the offering of the Old Notes. See "Exchange Offer; Registration Rights." Based on no-action letters issued by the staff of the Securities and Exchange Commission (the "Commission" or "SEC") to third parties, including Exxon Capital Holdings Corporation, SEC No-Action Letter (available April 13, 1989), Morgan Stanley & Co. Inc., SEC No-Action Letter (available June 5, 1991) (the "Morgan Stanley Letter") and Mary Kay Cosmetics, Inc., SEC No-Action Letter (available June 5, 1991), the Company believes that the Exchange Notes issued pursuant to the Exchange Offer may be offered for resale, resold and otherwise transferred by the respective holders thereof (other than a "Restricted Holder," being (i) a broker-dealer who purchased Old Notes exchanged for such Exchange Notes directly from the Company to resell pursuant to Rule 144A or any other available exemption under the Securities Act or (ii) a person that is an affiliate of the Company within the meaning of Rule 405 under the Securities Act), without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holder's business and such holder is not participating in, and has no arrangement with any person to participate in, the distribution (within the meaning of the Securities Act) of such Exchange Notes. Eligible holders wishing to accept the Exchange Offer must represent to the Company that such conditions have been met. Holders who tender Old Notes in the Exchange Offer with the intention to participate in a distribution of the Exchange Notes may not rely upon the Morgan Stanley Letter or similar no-action letters. See "The Exchange Offer -- General." 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. A broker-dealer that delivers such a prospectus to purchasers in connection with such resales will be subject to certain of the civil liability provisions under the Securities Act and will be bound by the provisions of the Registration Rights Agreement (including certain indemnification rights and obligations). 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. The Company has agreed that it will make this Prospectus and any amendment or supplement to this Prospectus available to any broker-dealer for use in connection with any such resale for a period of up to 180 days after consummation of the Exchange Offer. See "Plan of Distribution." The Company will not receive any proceeds from the Exchange Offer. The Exchange Notes will constitute a new issue of securities with no established trading market, and there can be no assurance as to the liquidity of any markets that may develop for the Exchange Notes or as to the ability of or price at which the holders of Exchange Notes would be able to sell their Exchange Notes. Future trading prices of the Exchange Notes will depend on many factors, including, among others, prevailing interest rates, the Company's operating results and the market for similar securities. The Company does not intend to apply for listing of the Exchange Notes on any securities exchange. Merrill Lynch & Co. and Goldman, Sachs & Co. (together, the "Initial 2 6 Purchasers") have informed the Company that they currently intend to make a market for the Exchange Notes. However, they are not so obligated, and any such market making may be discontinued at any time without notice. Accordingly, no assurance can be given that an active public or other market will develop for the Exchange Notes or as to the liquidity of or the trading market for the Exchange Notes. THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION. -------------------------- FORWARD-LOOKING STATEMENTS CERTAIN STATEMENTS CONTAINED IN THIS PROSPECTUS UNDER "PROSPECTUS SUMMARY," "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS AND PROPERTIES," IN ADDITION TO CERTAIN STATEMENTS CONTAINED ELSEWHERE IN THIS PROSPECTUS, ARE "FORWARD-LOOKING STATEMENTS" AND ARE THUS PROSPECTIVE. SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM FUTURE RESULTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE MOST SIGNIFICANT OF SUCH RISKS, UNCERTAINTIES AND OTHER FACTORS ARE DISCUSSED UNDER "RISK FACTORS," BEGINNING ON PAGE 15 OF THIS PROSPECTUS, AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," BEGINNING ON PAGE 30 OF THIS PROSPECTUS, AND PROSPECTIVE INVESTORS ARE URGED TO CAREFULLY CONSIDER SUCH FACTORS. 3 7 CERTAIN DEFINITIONS As used in this Prospectus, "Mcf" means thousand cubic feet, "MMcf" means million cubic feet, "Bcf" means billion cubic feet, "Bbl" means barrel, "MBbls" means thousand barrels and "MMBbls" means million barrels. "BOE" means barrel of oil equivalent, "Mcfe" means thousand cubic feet equivalent, "MMcfe" means million cubic feet equivalent and "Bcfe" means billion cubic feet equivalent. Natural gas equivalents and crude oil equivalents are determined using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids. References to "$" and "dollar" shall, in each instance, refer to United States dollars. All estimates of reserves contained herein are set forth on a "net" basis, unless otherwise noted, whereas information regarding production, acreage and numbers of well are set forth on a gross basis, unless otherwise noted. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The Company incorporates herein by reference the following documents (File No. 1-7792) (collectively, the "Reports"): (a) The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (the "Annual Report"); (b) The Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997; and (c) All other documents filed by the Company pursuant to Section 13(a), 13(c) 14 or 15(d) of the Securities and Exchange Act of 1934, as amended (the "Exchange Act") subsequent to the date hereof and prior to the termination of the offering made hereby. Any statement contained herein or in a document or Report, all or a portion of which is incorporated by or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document that also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. As used herein, the terms "Prospectus" and "herein" mean this Prospectus, including the Reports and documents incorporated or deemed to be incorporated herein by reference, as the same may be amended, supplemented or otherwise modified from time to time. Statements contained in this Prospectus as to the contents of any contract or other document referred to are not necessarily complete and in each instance reference is made to the copy of such contract or other document, copies of which are available from the Company as described below, each such statement being qualified in all respects by such reference. This Prospectus incorporates Reports and documents by reference which are not presented herein or delivered herewith. The Company will furnish without charge to each person to whom a copy of this Prospectus has been delivered, on the written or oral request of any such person, a copy of any and all of the Reports and documents referred to above which are incorporated in this Prospectus by reference, other than exhibits to such Reports and documents (unless such exhibits are specifically incorporated by reference into such Reports or documents). Such requests for Reports and documents should be directed to Pogo Producing Company, 5 Greenway Plaza, Suite 2700, Houston, Texas 77046-0504, Attention: Corporate Secretary, telephone number (713) 297-5017. In order to ensure timely delivery of such documents prior to the Expiration Date, any request should be made by , 1997. 4 8 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information appearing elsewhere in this Prospectus or incorporated by reference herein. Prospective investors should consider carefully the information set forth in this Prospectus under the heading "Risk Factors". This Prospectus contains certain forward-looking statements which involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in "Risk Factors". THE COMPANY Pogo Producing Company (the "Company") is an independent oil and gas exploration and production company, based in Houston, Texas. Incorporated in 1970, the Company has, in recent years, established a record of increasing its proven hydrocarbon reserves, principally through the exploration, exploitation and development of its properties and the selective acquisition of additional interests in producing properties in which the Company already has an interest. As a reflection of this historical success, in 1992, 1993, 1994, 1995 and 1996, the Company replaced 143%, 204%, 153%, 305%, and 187%, respectively, of that year's total production of proven hydrocarbon reserves. Through a portfolio of domestic and international properties, the Company concentrates its efforts on a mix of both offshore and onshore opportunities which provide a balanced exposure to oil and natural gas production. In recent years, the Company has concentrated its efforts in selected areas where it believes that its expertise, competitive acreage position, or ability to quickly take advantage of new opportunities offer the possibility of relatively high rates of return. Domestically, the Company has an extensive Gulf of Mexico reserve and acreage position and is also active in the Permian Basin of southeast New Mexico and west Texas and in other selected areas of Texas and Louisiana. Internationally, the Company, through its subsidiary Thaipo Limited ("Thaipo"), is the operator of the 1,300,000 acre Block B8/32 concession license in the Gulf of Thailand (the "Thailand Concession"). As of December 31, 1996, the Company had estimated net worldwide proven reserves of 360.9 Bcf of natural gas and 49.6 MMBbls of crude oil, or approximately 658.6 Bcfe, of which 64% were classified proved developed. Natural gas accounted for 55% of total net proved reserves at December 31, 1996, and 57% of 1996 production. Based on December 31, 1996, prices of $3.65 per Mcf for natural gas production and $24.14 per Bbl for oil and condensate production, the discounted future net cash flow before income taxes attributable to the Company's net proved reserves as of December 31, 1996, was $954.5 million. The Company has maintained its successful drilling record over the last five years, having participated in drilling 426 gross wells, of which 386 were completed as producers. During this period, net proved reserves, as estimated by Ryder Scott Petroleum Engineers ("Ryder Scott") more than doubled, increasing 109% from December 31, 1991 to December 31, 1996. STRENGTHS The Company believes it is well positioned to continue to build upon its historical success by capitalizing on its strengths, including the following: o Diversified Portfolio of Core Properties. The Company benefits from a portfolio of existing properties which provide geographic diversification while being of sufficient size and potential to enable the Company to concentrate its resources and regional expertise. As of January 1, 1997, seven distinct operating areas in four geographic regions accounted for approximately 90% of the Company's estimated proved natural gas reserves and approximately 93% of its proved oil, condensate and natural gas liquids reserves, and were the principal areas where the Company achieved the historical reserve replacement record discussed above. The nature of the Company's existing properties permit it to maintain a focused exploration and development program by utilizing the substantial geological and operating expertise it has gained over years of participation in these areas, as well as providing a base from which to evaluate new opportunities with similar characteristics. The Company utilized its offshore expertise gained primarily in the Gulf of Mexico to develop its Thailand Concession, which currently represents a substantial portion of the Company's total reserves and a growing portion of its total production. Since the Thailand Concession was granted in August 1991, the Company has discovered 273 Bcfe of proven reserves (as of December 31, 1996) on this acreage net to its interest. Production from the Tantawan Field, located on a portion of the Thailand Concession commenced in February, 1997. Production from the Tantawan Field averaged 88.7 MMcf of natural gas per day and 6,158 Bbls of crude oil and condensate per day (41.1 MMcf per day and 2,854 Bbls per day net to the Company's working interest) during the first two weeks of April, 1997. 5 9 o Significant Further Potential. The Company believes that its existing properties continue to hold significant further potential for the discovery of additional reserves. In addition to capital expenditures for platforms, equipment, workovers, recompletions and certain land and lease acquisition costs, the Company has budgeted approximately $111 million to participate in drilling approximately 148 gross exploration and development wells during 1997 on its existing properties. o Balanced Risk Profile; Prudent Exposure to Higher Return Opportunities. The Company seeks to manage its risk exposure by maintaining a prudent level of participation in its projects. The Company seeks to operate certain of its properties, particularly where it believes that its working interest percentage, expertise or ability to control the timing or cost of a project provides a competitive advantage to it and its partners. The Company is currently the operator on all or a portion of 27 of the 93 offshore blocks in which it holds an interest (and will be designated as operator on three of the five blocks that it still expects to be awarded from the March 1997 Outer Continental Shelf lease sale). The Company is also the operator of a majority of its domestic onshore wells; and, through its subsidiary Thaipo, is the operator of its 1.3 million acre Thailand Concession. In instances where the Company is not the operator, it seeks to have a meaningful working interest in its projects so that it can influence decisions regarding their development and operations. Generally, the Company seeks a higher level of participation in projects which it views as having a potentially high rate of return and which have lower anticipated exploration and development costs, such as its operations in southeastern New Mexico and West Texas, while it seeks a lower level of participation where drilling or development costs may be disproportionately high, such as wells in intermediate water depths (400 to 1,200 feet) in the Gulf of Mexico or wells that are unusually deep or are considered highly risky. o Technical Expertise. The Company has an experienced staff of engineers and geoscientists that comprises over 40% of the Company's total full-time personnel. The experience of its personnel, augmented by data from over 426 gross wells drilled over the past five years, more than 3,500,000 acres of 3-D seismic data and 500,000 miles of 2-D seismic data, create a knowledge base which the Company utilizes in establishing its drilling priorities and associated capital budget. o Strong Financial Position. The Company endeavors to maintain both a low financial risk profile and sufficient capital resources to augment internally generated cash flow where necessary to satisfy its capital budget requirements. On a pro forma basis as of, and for the year ended, December 31, 1996, after giving effect to the sale of the Old Notes by the Company, the Company's long term obligations to EBITDA (as defined) and EBITDA to net interest expense ratios would have been 2.2x and 9.4x, respectively. BUSINESS STRATEGY The Company's business strategy is to maximize profitability and shareholder value by (i) increasing hydrocarbon production levels, leading to increased revenues, cash flow and earnings, (ii) replacing and expanding its proven hydrocarbon reserves base, (iii) maintaining appropriate levels of debt and interest, and controlling overhead and operating costs and (iv) expanding exploration and production activities into new and promising geographic areas consistent with Company expertise. To implement its business strategy, the Company currently is principally focused in the following four geographic areas: DOMESTIC Gulf of Mexico. As of December 31, 1996, approximately 38% of the Company's total net proved oil and gas equivalent reserves and approximately 66% of the Company's domestic net proved oil and gas equivalent reserves are located in the Gulf of Mexico, where the Company has been exploring for oil and gas for over 27 years. Most of these proved reserves are concentrated in four significant producing areas, including eight fields in the Eugene Island area located off the Louisiana coast. This concentration allows the Company to closely manage costs and to develop detailed geologic and other information relating to its properties. The Company believes that the Gulf of Mexico will continue to provide the Company with substantial opportunities to expand its hydrocarbon reserves and increase its deliverability by utilizing its extensive inventory of 3-D seismic data (covering the equivalent of 550 federal Gulf of Mexico lease blocks) to locate low risk exploration and development projects, and by using advanced drilling technology, including horizontal drilling, to accelerate development of these projects. As operator of its newly constructed East Cameron Block 334 "E" platform, the Company recently used advanced drilling and completion technology to drill and complete two deep, high pressure wells that added significant new reserves in 1996 and which commenced production in April, 1997. As of April 17, 1997, production from this new field was approximately 145 MMcf of natural gas per day and 6 10 approximately 5,000 Bbls of crude oil and condensate per day (approximately 84.5 MMcf per day and approximately 2,900 Bbls per day net to the Company's working interest). Permian Basin. As of December 31, 1996, approximately 12% of the Company's total net proved oil and gas equivalent reserves, and approximately 21% of the Company's domestic net proved oil and gas equivalent reserves are located in the Permian Basin where the Company has been exploring for oil and gas for over 19 years. According to the most recent annual figures published by the State of New Mexico, the Company is recognized as the ninth largest producer of crude oil in the state. The Company believes that it continues to be one of the most active companies drilling for oil and gas in the southeastern New Mexico portion of the Permian Basin, where it has interests in over 75,000 gross acres. The Company's primary drilling objective in this region is the Brushy Canyon (Delaware) formation, which produces oil at depths of approximately 6,000 to 9,000 feet. Commencing in late 1989 and continuing through March 31, 1997, the Company and its partners have drilled 315 wells in the Permian Basin, West and Northwest Texas areas, 97% of which were completed as productive. The Company has achieved rapid cost recovery with respect to its Permian Basin wells drilled to date because of relatively low capital costs and high initial rates of production. Due to its historic drilling success, its current undeveloped acreage position and its significant budgetary commitment to additional drilling, the Company expects its Permian Basin operations to continue to be a source of significant oil production. Onshore Gulf Coast Region. The Company has maintained an active presence in the Onshore Gulf Coast region for over 19 years. Recently, the Company has committed considerable resources to increasing its presence in promising areas where it believes its technological expertise, acreage position and comparatively low operating costs provide a competitive advantage. Commencing in 1995, the Company has participated in seven proprietary 3-D seismic surveys in the Onshore Gulf Coast region. Over sixteen prospects developed from these surveys are currently budgeted for exploration or appraisal drilling during 1997. During 1996, the Company participated in the drilling of seven new wells in the Lopeno Field located in South Texas. The Company and its partners currently plan to drill an additional seven wells in this field during 1997. Successful development drilling in the Lopeno Field and elsewhere in the Gulf Coast Region enabled the Company to double its proven reserves in this region during 1996 from approximately 25 Bcfe as of December 31, 1995 to approximately 50 Bcfe as of December 31, 1996. INTERNATIONAL Gulf of Thailand. In August 1991, the Company and its joint venture partners were awarded a license to explore for oil and gas on the Thailand Concession. Through March 31, 1997, the Company and its joint venture partners have drilled 51 exploratory and development wells on the Thailand Concession and acquired 3-D seismic surveys covering approximately 452,000 acres of the Thailand Concession. Significant oil and gas reserves have been discovered on several areas on the Thailand Concession and accounted, at December 31, 1996, for approximately 41% of the Company's total net proved oil and gas equivalent reserves. The first area of the Thailand Concession to be developed has been named the Tantawan Field. Production from the Tantawan Field commenced in early February, 1997, and averaged 88.7 MMcf of natural gas per day and 6,158 Bbls of crude oil and condensate per day (41.1 MMcf per day and 2,854 Bbls per day net to the Company's working interest) during the first two weeks of April, 1997. Exploration efforts also continue on portions of the Thailand Concession outside the Tantawan Field. Oil and gas accumulations have been identified in areas designated as the Benchamas Field, the Pakakrong Field, North Benchamas Field and the Maliwan prospect. In addition, Thaipo and its joint venture partners have formally requested that the government of Thailand designate certain portions of the Thailand Concession outside the Tantawan Field as producing areas, including the Benchamas and Pakakrong fields. The government is currently considering the request. Thaipo and its joint venture partners have also identified other potentially promising areas on the Thailand Concession. Since acquiring their interest in the Thailand Concession, Thaipo and its joint venture partners have acquired 3-D seismic surveys covering approximately 452,000 acres of the Thailand Concession and currently plan to acquire an additional 216,000 acres of 3-D seismic data over other prospective portions of the Thailand Concession during 1997 while continuing to develop the Tantawan Field and to carry out an active exploration drilling program. While continuing the development of the Thailand Concession, the Company intends to pursue a strategy of evaluating potentially high return prospects in other areas of the world with a stable political and financial climate, such as certain European and ASEAN ("Association of Southeast Asian Nations") countries. 7 11 THE PRIVATE PLACEMENT AND USE OF PROCEEDS The Old Notes were sold by the Company on May 22, 1997 to the Initial Purchasers and were thereupon offered and sold by the Initial Purchasers only to certain qualified buyers. The net proceeds received by the Company in connection with the sale of the Old Notes were used to repay a portion of the Company's then outstanding Senior Indebtedness. See "Private Placement" and "Capitalization." THE EXCHANGE OFFER The Exchange Offer relates to the exchange of up to $100,000,000 principal amount of Exchange Notes for up to $100,000,000 principal amount of Old Notes. The form and terms of the Exchange Notes are identical in all material respects to the form and terms of the Old Notes except that the Exchange Notes have been registered under the Securities Act and will not contain certain transfer restrictions and hence are not entitled to the benefits of the Registration Rights Agreement relating to the contingent increases in the interest rate provided for pursuant thereto. The Exchange Notes will evidence the same debt as the Old Notes and will be issued under and be entitled to the benefits of the Indenture governing the Old Notes. See "Description of the Notes." The Exchange Offer . . . . . . . . . . . . Each $1,000 principal amount of Exchange Notes will be issued in exchange for each $1,000 principal amount of outstanding Old Notes. As of the date hereof, $100,000,000 principal amount of Old Notes are issued and outstanding. The Company will issue the Exchange Notes to tendering holders of Old Notes on or promptly after the Expiration Date. Resale . . . . . . . . . . . . . . . . . . The Company believes that the Exchange Notes issued pursuant to the Exchange Offer generally will be freely transferable by the holders thereof without registration or any prospectus delivery requirement under the Securities Act, except for certain Restricted Holders who may be required to deliver copies of this Prospectus in connection with any resale of the Exchange Notes issued in exchange for such Old Notes. See "The Exchange Offer -- General" and "Plan of Distribution." Expiration Date . . . . . . . . . . . . . . 5:00 p.m., New York City time, on 1997, unless the Exchange Offer is extended, in which case the term "Expiration Date" means the latest date to which the Exchange Offer is extended. See "The Exchange Offer--Expiration Date; Extensions; Amendments." Interest on the Notes . . . . . . . . . . . The Exchange Notes will bear interest payable semi-annually on May 15 and November 15 of each year, commencing November 15, 1997. Holders of Exchange Notes of record on November 1, 1997, will receive interest on November 15, 1997 from the date of issuance of the Exchange Notes, plus an amount equal to the accrued interest on the Old Notes from the date of issuance of the Old Notes, May 22, 1997, to the date of exchange thereof. Consequently, assuming the Exchange Offer is consummated prior to the record date in respect of the November 15, 1997, interest payment for the Old Notes, holders who exchange their Old Notes for Exchange Notes will receive the same interest payment on November 15, 1997, that they would have received had they not accepted the Exchange Offer. Interest on the Old Notes accepted for exchange will cease to accrue upon issuance of the Exchange Notes. See "The Exchange Offer -- Interest on the Exchange Notes." Procedures for Tendering Old Notes . . . . Each holder of Old Notes wishing to accept the Exchange Offer must complete, sign and date the Letter of Transmittal, or a facsimile thereof, in accordance with the instructions contained herein and therein, and mail or otherwise deliver such Letter of Transmittal, or such facsimile, or an Agent's Message (as defined herein) together 8 12 with the Old Notes to be exchanged and any other required documentation to the Exchange Agent at the address set forth herein and therein or effect a tender of Old Notes pursuant to the procedures for book-entry transfer as provided for herein. See "The Exchange Offer -- Procedures for Tendering." Special Procedures for Beneficial Holders . . . . . . . . . . . . . . . . . . Any beneficial holder whose Old Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender in the Exchange Offer should contact such registered holder promptly and instruct such registered holder to tender on the beneficial holder's behalf. If such beneficial holder wishes to tender directly, such beneficial holder must, prior to completing and executing the Letter of Transmittal and delivering the Old Notes, either make appropriate arrangements to register ownership of the Old Notes in such holder's name or obtain a properly completed bond power from the registered holder. The transfer of record ownership may take considerable time. See "The Exchange Offer -- Procedures for Tendering." Guaranteed Delivery Procedures . . . . . . Holders of Old Notes who wish to tender their Old Notes and whose Old Notes are not immediately available or who cannot deliver their Old Notes and a properly completed Letter of Transmittal or any other documents required by the Letter of Transmittal to the Exchange Agent prior to the Expiration Date, or who cannot complete the procedure for book-entry transfer on a timely basis and deliver an Agent's Message, may tender their Old Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer -- Guaranteed Delivery Procedures." Withdrawal Rights . . . . . . . . . . . . . Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date, unless previously accepted for exchange. See "The Exchange Offer -- Withdrawal of Tenders." Termination of the Exchange Offer . . . . . The Company may terminate the Exchange Offer if it determines that the Exchange Offer violates any applicable law or interpretation of the staff of the SEC. Holders of Old Notes will have certain rights against the Company under the Registration Rights Agreement should the Company fail to consummate the Exchange Offer. See "The Exchange Offer -- Termination" and "Description of the Notes -- Registration Rights; Liquidated Damages." Acceptance of Old Notes and Delivery of Exchange Notes . . . . . . . . Subject to certain conditions (as summarized above in "Termination of the Exchange Offer" and described more fully in "The Exchange Offer -- Termination"), the Company will accept for exchange any and all Old Notes which are properly tendered in the Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date. The Exchange Notes issued pursuant to the Exchange Offer will be delivered promptly following the Expiration Date. See "The Exchange Offer -- General." Exchange Agent . . . . . . . . . . . . . . State Street Bank & Trust Company is serving as exchange agent (the "Exchange Agent") in connection with the Exchange Offer. The mailing address of the Exchange Agent is: State Street Bank & Trust Company, Corporate Trust Department, P.O. Box 778, Boston, Massachusetts 02102-0078. Hand deliveries and deliveries by overnight courier should be addressed to State Street Bank & Trust Company, Corporate Trust Department, 4th Floor, Two International Place, Boston Massachusetts 02110. For information with respect to the Exchange Offer, the telephone number for the 9 13 Exchange Agent is (617) 664-5314 and the facsimile number for the Exchange Agent is 617) 664-5739. See "The Exchange Offer -- Exchange Agent." Use of Proceeds . . . . . . . . . . . . . . There will be no cash proceeds payable to the Company from the issuance of the Exchange Notes pursuant to the Exchange Offer. See "Use of Proceeds." For a discussion of the use of the net proceeds received by the Company from the sale of the Old Notes, see "Private Placement." SUMMARY TERMS OF THE NOTES Notes Outstanding . . . . . . . . . . . . . . $100,000,000 aggregate principal amount of 8 3/4% Senior Subordinated Notes due 2007. Maturity Date . . . . . . . . . . . . . . . . May 15, 2007. Interest Payment Dates . . . . . . . . . . . May 15 and November 15 of each year, commencing November 15, 1997. Optional Redemption . . . . . . . . . . . . . The Notes are redeemable at the option of the Company, in whole or in part, at any time on or after May 15, 2002, at the redemption prices set forth herein, together with accrued and unpaid interest, if any, to the date of redemption. See "Description of the Notes -- Redemption; Optional Redemption." Guarantee . . . . . . . . . . . . . . . . . . Under certain circumstances, the Company's payment obligations under the Notes will be jointly and severally guaranteed on a senior subordinated basis (the "Subsidiary Guarantees") by certain of the Company's existing or future restricted subsidiaries (the "Subsidiary Guarantors"). Any Subsidiary Guarantees will be limited to the extent of any payment that would not constitute a fraudulent transfer or conveyance under federal or state law. See "Risk Factors -- Fraudulent Conveyance Considerations Relating to Future Subsidiary Guarantees" and "Description of the Notes -- Subsidiary Guarantees of the Notes." Change of Control . . . . . . . . . . . . . . Upon the occurrence of a Change of Control, each Holder (as defined) may require the Company to purchase all or a portion of such Holder's Notes at a purchase price equal to 101% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of purchase. See "Description of the Notes -- Certain Covenants; Change of Control." 10 14 Ranking . . . . . . . . . . . . . . . . . . . The Notes are general unsecured senior subordinated obligations of the Company that are subordinated in right of payment to all existing and future Senior Indebtedness of the Company, pari passu with all future senior subordinated indebtedness of the Company and senior in right of payment to all existing and future subordinated indebtedness of the Company. As of March 31, 1997, on a pro forma basis after giving effect to the sale of the Old Notes, the Company would have had approximately $9,000,000 principal amount of outstanding Senior Indebtedness, no indebtedness that would rank pari passu with the Old Notes and $201,230,000 of indebtedness that would rank subordinated to the Old Notes. On May 31, 1997, the Company had approximately $33 million of outstanding Senior Indebtedness, no indebtedness that ranked pari passu with the Old Notes and $201.2 million principal amount of indebtedness that ranked subordinated to the Old Notes. Subject to certain limitations set forth in the Indenture, the Company and its Subsidiaries (as defined) may incur additional indebtedness. See "Capitalization," "Description of the Notes" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." Certain Covenants . . . . . . . . . . . . . . The Indenture pursuant to which the Old Notes have been and the Exchange Notes will be issued (the "Indenture") will contain certain covenants, including, without limitation, covenants with respect to the following matters: (i) limitation on indebtedness; (ii) limitation on restricted payments; (iii) limitation on issuances and sales of Restricted Subsidiary (as defined) capital stock; (iv) limitation on transactions with affiliates; (v) limitation on liens; (vi) limitation on disposition of proceeds of asset sales; (vii) limitation on non-guarantor Restricted Subsidiaries; (viii) limitation on dividends and other payment restrictions affecting Restricted Subsidiaries; (ix) limitation on other senior subordinated indebtedness; and (x) limitation on merger, consolidation and sale of assets. See "Description of the Notes -- Certain Covenants." Use of Proceeds . . . . . . . . . . . . . . . The net proceeds to the Company from the offering of the Old Notes were used to repay a portion of the Company's outstanding Senior Indebtedness. See "Capitalization." Exchange Offer; Registration Rights . . . . . . . . . . . . . Pursuant to a registration rights agreement relating to the Old Notes (the "Registration Rights Agreement") by and among the Company and the Initial Purchasers, the Company agreed to use its reasonable best efforts to (1) file with the Securities and Exchange Commission (the "Commission") a registration statement (the "Exchange Offer Registration Statement") with respect to an offer to exchange the Old Notes (the "Exchange Offer") for notes of the Company having substantially identical terms as the Old Notes (the "New Notes") (except that the New Notes will not contain terms with respect to transfer restrictions or interest rate increases) not later than July 6, 1997, (2) cause the Exchange Offer Registration Statement to become effective not later than September 4, 1997 and (3) cause the Exchange Offer to be consummated not later than November 18, 1997. The Registration Statement of which this Prospectus forms a part constitutes such Exchange Offer Registration Statement. In certain circumstances, the Company will file a shelf registration statement (a "Shelf Registration Statement") with respect to the Old Notes in lieu of effecting the Exchange Offer. 11 15 Absence of a Public Market for the Exchange Notes . . . . . . . . The Exchange Notes will be a new issue of securities for which there is currently no market. Although the Initial Purchasers have informed the Company that they each currently intend to make a market in the Exchange Notes, they are not obligated to do so, and any such market making may be discontinued at any time without notice. Accordingly, there can be no assurance as to the development or liquidity of any market for the Exchange Notes. RISK FACTORS See "Risk Factors" beginning on page 15 for a discussion of certain factors that should be considered by prospective investors in evaluating an investment in the Notes. 12 16 SUMMARY FINANCIAL DATA The Summary Financial Data presented below as of, and for each of the years in the five-year period ended, December 31, 1996, are derived from the consolidated financial statements of the Company and its subsidiaries, which are incorporated by reference herein and which have been audited by independent public accountants. The financial data as of, and for the three month periods ended, March 31, 1996 and 1997, are derived from the Company's unaudited financial statements which, in the opinion of management, include all adjustments (which consist only of normal recurring adjustments) necessary for the fair presentation of the financial position and results of operations of the Company for such interim periods. This data should be read in conjunction with the consolidated financial statements and related notes thereto incorporated by reference herein and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere herein and in the Reports.
QUARTER ENDED YEAR ENDED DECEMBER 31, MARCH 31, ---------------------------------------------------- -------------------- 1992 1993 1994 1995 1996 1996 1997 -------- --------- --------- --------- --------- --------- -------- (EXPRESSED IN THOUSANDS, EXCEPT RATIOS) Income Statement Data: Total revenues . . . . . . . $140,830 $139,554 $173,608 $157,559 $203,977 $48,052 $61,314 Operating income . . . . . . 47,141 50,533 52,203 23,428 61,108 11,583 21,940 Net interest expense(a) . . . 18,645 10,505 9,365 9,333 8,959 2,186 2,425 Net income . . . . . . . . . 18,495 25,061 27,067 9,230 32,760 6,265 12,818 Other Financial Data: EBITDA(b) . . . . . . . . . . $98,948 $95,930 $122,652 $98,646 $131,776 $29,861 $41,337 Capital and exploration expenditures (excluding interest capitalized) . . . 41,300 74,600 120,800 110,400 206,200 18,800 69,900 Selected Ratios: EBITDA/Net interest expense . 5.3x 9.1x 13.1x 10.6x 14.7x 13.7x 17.0x Ratio of earnings to fixed charges(c) . . . . . . . . 2.5x 4.5x 5.1x 2.1x 4.6x 3.8x 5.0x Long-term obligations/ EBITDA(d) . . . . . . . . . 1.5x 1.4x 1.2x 1.7x 1.9x n/a n/a Long-term obligations/Total proved reserves(BOE)(d) . . $2.52 $1.95 $2.01 $1.63 $2.24 n/a n/a Pro Forma Selected Ratios(e): EBITDA/Pro forma net interest expense . . . . . . . . . . -- -- -- -- 9.4x -- 14.7x Pro forma ratio of earnings to fixed charges . . . . . . . -- -- -- -- 3.3x -- 4.4x Pro forma long-term obligations/EBITDA . . . . -- -- -- -- 2.2x -- n/a
MARCH 31, 1997 -------------------------- ACTUAL AS ADJUSTED(E) ----------- ---------------- Balance Sheet Data: Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $552,832 $556,832 Long-term obligations, including current portion . . . . . . . . . . . . . . . . 306,230 310,230 Shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,238 120,238
- ---------- (a) Net interest expense represents interest charges net of interest capitalized of $391 in 1992, $451 in 1993, $739 in 1994, $1,834 in 1995, $4,244 in 1996, $826 in the three months ended March 31, 1996, and $1,870 in the three months ended March 31, 1997. (b) EBITDA represents income from continuing operations before provision for income taxes, interest expense, depreciation, depletion and amortization, and dry hole and impairment costs. EBITDA is presented as a measure of the Company's debt service ability, and not as an alternative to (i) operating income (as determined in accordance with generally accepted accounting principles) as an indicator of the Company's operating performance, or (ii) cash flows from operating activities (as determined in accordance with generally accepted accounting principles) as a measure of liquidity. (c) Pre-tax earnings plus total interest charges, including amortization of debt issue expenses, divided by total interest charges, including amortization of debt issue expenses. (d) Long-term obligations include long-term debt and the non-current portion of the Eugene Island 330 Production Payment obligation until such obligation was satisfied in 1993. (e) Adjusted to give effect to the sale of the Old Notes and the application of the net proceeds therefrom. 13 17 SUMMARY RESERVE AND OPERATING DATA The Summary Reserve and Operating Data presented below under the captions "Production (Sales) Data" as of, and for each of the years in the five-year period ended, December 31, 1996, and for the three month periods ended March 31, 1996 and 1997, is unaudited and should be read in conjunction with the consolidated financial statements and related notes thereto which are incorporated by reference herein and "Business and Properties -- Exploration and Production Data; Production and Sales" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The reserve information presented under the caption "Reserve Data" as of, and for each of the years in the five-year period ended, December 31, 1996 has been derived from the summary reserve report prepared by Ryder Scott and attached as an exhibit to the Annual Report on Form 10-K filed with the Commission for each of the years presented and should be read in conjunction with the notes to Company's consolidated financial statements which are incorporated by reference herein and "Business and Properties -- Exploration and Production Data; Reserves" included elsewhere herein. The data included in the Reports are incorporated in this Prospectus by reference.
QUARTER ENDED YEAR ENDED DECEMBER 31, MARCH 31, ------------------------------------------------------ -------------------- 1992 1993 1994 1995 1996 1996 1997 --------- --------- --------- --------- --------- --------- --------- (DOLLARS EXPRESSED IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) Production (Sales) Data: Net daily average and weighted average price: Natural gas: Mcf per day................... 105,200 91,700 144,800 121,000 107,700 111,200 129,700 Price per Mcf................. $1.75 $1.98 $1.88 $1.63 $2.40 $2.41 $2.67 Crude oil and condensate: Bbls per day.................. 8,699 9,851 11,100 11,786 11,968 11,889 13,903 Price per Bbl................. $20.17 $17.81 $16.08 $17.80 $22.12 $19.61 $22.29 Natural gas liquids: Bbls per day.................. 1,181 1,678 2,222 1,998 2,173 1,984 1,312 Price per Bbl................. $13.50 $11.90 $11.33 $11.10 $14.92 $13.52 $15.79 Reserve Data (a): Estimated proved reserves Crude oil, condensate and natural gas liquids (MBbls)..... 22,556 28,268 33,862 45,182 49,602 -- -- Natural gas (MMcf).............. 207,068 232,866 242,890 328,061 360,944 -- -- Natural gas equivalents (MMcfe)....................... 342,404 402,474 446,062 599,153 658,566 -- -- Estimated future net revenues before income taxes, discounted at 10%(b)(c).................... $405,101 $403,840 $382,980 $532,475 $954,545 -- -- Estimated future net revenues after income taxes, discounted at 10%(b)...................... $307,657 $300,260 $290,069 $377,145 $686,040 -- --
- ---------- (a) Proved reserves were estimated in accordance with Commission guidelines using oil and gas prices and production and development costs as of December 31 of each such year. (b) These values were estimated in accordance with Commission guidelines. See "Business and Properties -- Exploration and Production Data; Reserves." (c) Based on assumed Company-wide flat prices of $20.00 per barrel for oil and condensate and $2.00 per Mcf for gas, the Company's reservoir engineers estimate that the present value of future net revenues before income taxes, discounted at 10%, of the Company's proved reserves would have been approximately $553 million at December 31, 1996. This calculation represents an internal Company estimate, is presented for information purposes and has not been calculated entirely in accordance with Commission guidelines. 14 18 RISK FACTORS In addition to the other information included elsewhere in this Prospectus, the following risk factors should be carefully considered in evaluating an investment in the Exchange Notes offered hereby. This Prospectus contains certain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, which involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this section. VOLATILITY OF OIL AND GAS MARKETS The Company's profitability and cash flow are highly dependent upon the prices of oil and natural gas, which historically have been seasonal, cyclical and volatile. In general, prices of oil and gas are dependent upon numerous factors beyond the control of the Company, including various weather, economic, political and regulatory conditions. During 1996, the average prices that the Company received for its crude oil, condensate and natural gas production were substantially higher than they have been in recent years. In the first quarter of 1997, the average prices that the Company received for its production were substantially less than those the Company received in 1996. See "Selected Reserve and Operating Data." In the past, when natural gas prices in the United States were lower than they are currently, the Company at times elected to curtail certain quantities of its production. Should natural gas prices fall further in the future, the Company may again elect to curtail certain quantities of its natural gas production. Any significant decline in oil or gas prices could have a material adverse effect on the Company's operations and financial condition and could, under certain circumstances, result in a reduction in funds available under the Company's Credit Agreement. Because it is impossible to predict future oil and gas price movements with any certainty, the Company from time to time enters into contracts on a portion of its production to hedge against the volatility in oil and gas prices. Such hedging transactions, historically, have never exceeded 50% of the Company's total oil and gas production on an energy equivalent basis for any given period. While intended to limit the negative effect of further price declines, such transactions could effectively limit the Company's participation in price increases for the covered period, which increases could be significant. Furthermore, no assurance can be given that such transactions will reduce risk or mitigate the effect of any substantial declines in oil and gas prices. As of June 1, 1997, the Company was not a party to any natural gas futures contracts or crude oil swap agreements. See "Business and Properties -- Miscellaneous; Competition and Market Conditions" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Results of Operations." UNCERTAINTIES INHERENT IN ESTIMATES OF RESERVES AND FUTURE NET REVENUES There are numerous uncertainties in estimating the quantity of proved reserves and in projecting the future rates of production and timing of development expenditures. Oil and gas reserve engineering must be recognized as a subjective process of estimating underground accumulations of oil and gas that cannot be measured in an exact way, and estimates of other engineers might differ materially from those of Ryder Scott, the Company's reserve engineers. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Results of drilling, testing and production subsequent to the date of the estimate may justify revision of such estimate, which revisions may be material. Accordingly, reserve estimates are often different from the quantities of oil and gas that are ultimately recovered. In addition, estimates of the Company's future net revenues from proved reserves and the present value thereof are based on certain assumptions regarding future oil and gas prices, production levels and operating and development costs that may not prove to be correct. Any significant variance in these assumptions could materially affect the estimates of reserves and future net revenues therefrom set forth in the Reports. See "Business and Properties -- Exploration and Production Data; Reserves." OPERATING AND UNINSURED RISKS The Company must continually acquire or explore for and develop new oil and natural gas reserves to replace those produced and sold. Without successful drilling, acquisition or exploration operations, the Company's hydrocarbon reserves and revenues would decline. Although the Company has historically maintained its reserves base primarily through successful exploration and development operations, there can be no assurance that future efforts will be similarly successful. The Company's operations are also subject to risks inherent in the exploration for and production of oil and natural gas, such as blowouts, cratering, explosions, uncontrollable flows of oil, natural gas or well fluids, fires, pollution and other environmental risks. Offshore oil and gas operations are subject to the additional hazards of marine and helicopter operations, such as capsizing, collision and adverse weather and sea conditions. These hazards 15 19 could result in substantial losses to the Company due to injury or loss of life, severe damage to and destruction of property and equipment, pollution and other environmental damage and suspension of operations. The Company carries insurance which it believes is in accordance with customary industry practices, but is not fully insured against all risks incident to its business. Drilling activities are subject to numerous risks, including the risk that no commercially productive hydrocarbon reserves will be encountered. The cost of drilling, completing and operating wells and of installing production facilities and pipelines is often uncertain. The Company's drilling operations may be curtailed, delayed or canceled as a result of numerous factors, including title problems, weather conditions, compliance with governmental requirements and shortages or delays in the delivery or availability of equipment or fabrication yards. The availability of a ready market for the Company's natural gas production depends on a number of factors, including the demand for and supply of natural gas, the proximity of natural gas reserves to pipelines, the available capacity of such pipelines and government regulations. The marketing of offshore oil and gas production is subject to the availability of pipelines and other transportation, processing and refining facilities, as well as the existence of adequate markets. As a result, even if hydrocarbons are discovered in commercial quantities, a substantial period of time may elapse before commercial production commences. If pipeline facilities in an area are insufficient, the Company may have to await the construction or expansion of pipeline capacity before production from that area can be marketed. The marketing of domestic onshore oil and gas production is also subject to the availability of pipelines, crude oil hauling and other transportation, processing and refining facilities as well as the existence of adequate markets. See "Business and Properties -- Miscellaneous; Operating and Uninsured Risks", "Business and Properties -- Miscellaneous; Sales" and "-- Additional Risks Related to the Company's Operations in the Kingdom of Thailand." AVAILABILITY OF EQUIPMENT AND PERSONNEL The recent increase in drilling activity throughout the world has increased the demand for drilling rigs, drilling vessels, supply boats and personnel experienced in the oil and gas industry in general, and the offshore oil and gas industry in particular. The Company has recently experienced difficulty and delays in consistently obtaining certain services and equipment from vendors, obtaining drilling rigs and other equipment at favorable rates, and scheduling equipment fabrication at factories and fabrication yards. In addition, the Company has noted that the costs of such services, equipment and personnel have recently risen significantly. No assurance can be given that such services, equipment and personnel will be available in a timely manner, or that the cost thereof will not increase significantly. See "Business and Properties -- Miscellaneous; Operating and Uninsured Risks" and "Management's Analysis and Discussion of Financial Condition and Results of Operations -- Results of Operations." DEPENDENCE ON OTHER OPERATORS A significant percentage of the Company's oil and gas properties are not operated by the Company. As a result, the Company has limited control over the manner in which operations are conducted on such non-operated properties, including the safety and environmental standards used in connection therewith. Pursuant to the operating agreements governing operations on the properties in which the Company has an interest, the Company maintains significant influence or control over the nature and timing of exploration and development activities on the majority of its properties. Such agreements do not, however, allow the Company such influence or control with respect to a portion of its properties; in such cases, the operators of such properties generally have control with respect to the nature and timing of exploration or development activities. In such instances, the operators of such properties could refuse to initiate exploration or development projects, in which case the Company would be required to propose such activities and may be required to proceed with such activities without receiving any funding from the operator, or the operators may initiate exploration or development projects on a slower schedule than that preferred by the Company. Any of these events could have a significant effect on the Company's anticipated exploration and development activities. SUBSTANTIAL CAPITAL REQUIREMENTS The Company makes, and will continue to make, substantial expenditures for the acquisition, development, production, exploration and abandonment of its oil and natural gas reserves. The Company intends to finance such capital and exploration expenditures primarily with funds provided by operations and borrowings under the Credit Agreement. The Company increased its capital and exploration expenditures from $98,560,000 in 1995 (excluding purchased reserves and interest capitalized) to $206,267,000 in 1996 (excluding purchased reserves and interest capitalized). The Company has currently budgeted $210,000,000 for capital and exploration expenditures in 1997. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." 16 20 COMPETITION The oil and natural gas industry is highly competitive. The Company competes in the acquisition, development, production and marketing of oil and natural gas with major oil companies, other independent oil and natural gas concerns and individual producers and operators. Many of these competitors have substantially greater financial and other resources than the Company. Furthermore, the oil and natural gas industry competes with other industries in supplying the energy and fuel needs of industrial, commercial and other consumers. See "Business and Properties -- Miscellaneous; Competition and Market Conditions." SUBORDINATION OF NOTES; LEVERAGE AND DEBT SERVICE The Notes are senior subordinated obligations of the Company and, as such, are subordinated to all of the Company's existing and future Senior Indebtedness (as defined in the Indenture relating to the Notes), including indebtedness under the Credit Agreement. The Company expects to incur additional Senior Indebtedness from time to time in the future under the Credit Agreement or otherwise, and the Indenture relating to the Notes will limit, but not prohibit, the incurrence of any other Indebtedness (as defined) by the Company or its Subsidiaries, including Senior Indebtedness. As of May 31, 1997, the Company had approximately $33 million principal amount of outstanding Senior Indebtedness. Upon any distribution of assets, liquidation, dissolution, reorganization or any similar proceeding by or relating to the Company, the holders of Senior Indebtedness of the Company would be entitled to receive payment in full before the holders of the Notes would be entitled to receive any payment. The terms and conditions of the subordination provisions pertinent to the Notes are described in more detail in "Description of the Notes -- Subordination." Further, the Notes are effectively subordinated to claims of holders of any preferred stock and claims of creditors (other than the Company) of the Company's Subsidiaries that are not Subsidiary Guarantors, including trade creditors, secured creditors, taxing authorities, creditors holding guarantees, and tort claimants. In the event of a liquidation, reorganization, or similar proceeding relating to a Subsidiary that is not a Subsidiary Guarantor, these persons generally will have priority as to the assets of such Subsidiary over the claims and equity interest of the Company and, thereby indirectly, holders of Indebtedness of the Company, including the Notes. No Subsidiary of the Company is, as of the date of this Prospectus, a Subsidiary Guarantor. However, under certain circumstances, the Company's payment obligations under the Notes may in the future be required to be severally guaranteed by existing or future Subsidiaries of the Company. See "Description of the Notes -- Subsidiary Guarantees of the Notes." At March 31, 1997, Subsidiaries of the Company (principally Thaipo) had total combined assets of $175,267,000 (exclusive of net receivables from the Company) and liabilities of $16,601,000 (exclusive of net payables to the Company and assets and liabilities associated with transactions treated as operating leases in the consolidated financial statements of the Company). Among other obligations, Thaipo has guaranteed its pro rata portion of obligations under an eleven and a half year bareboat charter of a Floating Production, Storage and Offloading system (a "FPSO") used for development of the Tantawan production area. The portion of the obligations under the bareboat charter guaranteed by Thaipo is currently estimated at $11,122,000 per year for the first ten years. The documents governing such obligations state that the Company has no liability for such obligations. In addition, other liabilities may be incurred by the Company's subsidiaries in the future. The Indenture imposes limits on the ability of the Company and its Subsidiaries to incur additional indebtedness and liens and to enter into agreements that would restrict the ability of such Subsidiaries to make distributions, loans or other payments to the Company. The Indenture also imposes limits on the ability of the Company to transfer assets to Restricted Subsidiaries or acquire Restricted Subsidiaries. However, these limitations are subject to various qualifications. Subject to certain limitations, the Company and its Subsidiaries may incur secured indebtedness. For additional details of these provisions and the applicable qualifications, see "Description of the Notes -- Subordination" and "-- Certain Covenants." As of March 31, 1997, on a pro forma basis after giving effect to the sale of the Old Notes and application of proceeds therefrom, the Company's long-term debt (including the current portion) would have been $309,230,000 and shareholders' equity would have been $120,238,000, and thus the Company may continue to be considered highly leveraged. The Company believes that its cash flow from operations, together with the proceeds from the sale of the Old Notes, the funds available under the Credit Agreement and its other sources of liquidity, will be adequate to meet its anticipated requirements for working capital, capital expenditures, interest payments and scheduled principal payments. However, the Company's ability to meet its debt service obligations will be dependent upon its future 17 21 performance, which, in turn, will be subject to general economic conditions and to financial, business and other factors affecting the operations of the Company, many of which are beyond its control. REPURCHASE OF NOTES UPON A CHANGE OF CONTROL In the event of a Change of Control, holders of the Notes will have the right to require the Company, subject to certain conditions, to repurchase all or any part of such holders' Notes at a price equal to 101% of the principal thereof, plus accrued and unpaid interest, if any, to the date of repurchase. See "Description of the Notes -- Certain Covenants -- Change of Control." Existing Senior Indebtedness under the Credit Agreement includes, and future Indebtedness may include, change of control provisions pursuant to which the Company would be required to repurchase, or the lender could demand the repayment of, upon a change of control (as defined thereunder), the Indebtedness due thereunder. Upon such an occurrence, the Company would be required to redeem or repay such Senior Indebtedness before repurchasing the Notes and then outstanding indebtedness pari passu with the Notes that contain similar change of control provisions. No assurance can be given that the Company would have sufficient funds available or could obtain the financing required to repurchase Notes and such other outstanding Indebtedness that is pari passu with, or senior to, the Notes tendered by holders thereof following a Change of Control. If a Change of Control occurred and the Company had inadequate funds or financing available to pay for Notes and such other Indebtedness that is pari passu with, or senior to, the Notes that are tendered for repurchase, an Event of Default (as defined) would be triggered under the indenture and under such other outstanding Indebtedness, each of which could have a material adverse consequence for the Company and the holders of the Notes. In addition, the 2004 Notes (as defined) and the 2006 Notes (as defined), which are contractually subordinated to the Notes, contain change of control provisions that are similar to the Change of Control provisions contained in the Notes. Consequently, an event triggering a Change of Control repurchase obligation under the Notes may also trigger a change of control repurchase obligation under such subordinated indebtedness, if the then current market price of the Company's common stock is less than 105% of the respective conversion prices of such notes. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." FRAUDULENT CONVEYANCE CONSIDERATIONS RELATING TO FUTURE SUBSIDIARY GUARANTEES The Company's obligations under the Notes may under certain circumstances be guaranteed on an unsecured senior subordinated basis by existing and future Restricted Subsidiaries. Various fraudulent conveyance laws have been enacted for the protection of creditors and may be utilized by a court of competent jurisdiction to subordinate or avoid any Subsidiary Guarantee issued by a Subsidiary Guarantor. It is also possible that under certain circumstances a court could hold that the direct obligations of a Subsidiary Guarantor could be superior to the obligations under the Subsidiary Guarantee. To the extent that a court were to find that at the time a Subsidiary Guarantor entered into a Subsidiary Guarantee either (x) the Subsidiary Guarantee was incurred by Subsidiary Guarantor with the intent to hinder, delay or defraud any present or future creditor or that a Subsidiary Guarantor contemplated insolvency with a design to favor one or more creditors to the exclusion in whole or in part of others or (y) the Subsidiary Guarantor did not receive fair consideration or reasonably equivalent value for issuing the Subsidiary Guarantee and, at the time it issued the Subsidiary Guarantee, the Subsidiary Guarantor (i) was insolvent or rendered insolvent by reason of the issuance of the Subsidiary Guarantee, (ii) was engaged or about to engage in a business or transaction for which the remaining assets of the Subsidiary Guarantor constituted unreasonably small capital or (iiii) intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they matured, the court could avoid or subordinate the Subsidiary Guarantee in favor of the Subsidiary Guarantor's other debts or liabilities. Among other things, a legal challenge of a Subsidiary Guarantee issued by a Subsidiary Guarantor on fraudulent conveyance grounds may focus on the benefits, if any, realized by the Subsidiary Guarantor as a result of the issuance by the Company of the Notes. To the extent a Subsidiary Guarantee is avoided as a result of fraudulent conveyance or held unenforceable for any other reason, the Holders of the Notes would cease to have any claim in respect of such Subsidiary Guarantor and would be creditors solely of the Company. GOVERNMENT REGULATION AND ENVIRONMENTAL RISKS The Company's business is subject to certain laws and regulations relating to taxation, exploration for and development and production of oil and gas, and environmental and safety matters in both the United States and the foreign countries in which the Company or any of its subsidiaries operates or owns property. Various laws and regulations often require permits for drilling wells and also cover spacing of wells, the prevention of waste of oil and gas including maintenance of certain gas/oil ratios, rates of production and other matters. The effect of these statutes 18 22 and regulations, as well as other regulations that could be promulgated by the jurisdictions in which the Company has production, could be to limit the number of wells that could be drilled on the Company's properties and to limit the allowable production from the successful wells completed on the Company's properties, thereby limiting the Company's revenues. The discharge of oil, natural gas or other pollutants into the air, soil or water may give rise to liabilities to the government and third parties and may require the Company to incur costs to remedy the discharge. Oil or natural gas may be discharged in many ways, including from a well or drilling equipment at a drill site, leakage from storage tanks, pipelines or other gathering and transportation facilities and discharges resulting from damage to oil or natural gas wells resulting from accidents during normal operations, as well as blowouts, cratering and explosions. Discharged oil and gas may migrate through soil to water supplies or adjoining properties, giving rise to additional liabilities. A variety of laws and regulations govern the environmental aspects of oil and gas production, transportation and processing and may, in addition to other laws, impose liability in the event of discharges (whether or not accidental), for failure to notify the proper authorities of a discharge and other failures to comply with those laws. Environmental laws may also affect the costs of the Company's acquisitions of oil and gas properties. The Company does not believe that its environmental risks are materially different from those of comparable companies in the oil and gas industry. Nevertheless, no assurance can be given that environmental laws will not, in the future, result in a curtailment of production or a material increase in the costs of production, development or exploration or otherwise adversely affect the Company's operations and financial condition. Pollution and similar environmental risks generally are not fully insurable. See "-- Operating and Uninsured Risks." RISKS OF FOREIGN OPERATIONS Ownership of property interests and production operations in Thailand, and in any other areas outside the United States in which the Company may choose to do business, are subject to the various risks inherent in foreign operations. These risks may include, among other things, currency restrictions and exchange rate fluctuations, loss of revenue, property and equipment as a result of hazards such as expropriation, nationalization, war, insurrection and other political risks, risks of increases in taxes and governmental royalties, renegotiation of contracts with governmental entities and quasi-governmental agencies, changes in laws and policies governing operations of foreign-based companies and other uncertainties arising out of foreign government sovereignty over the Company's international operations. The Company's international operations may also be adversely affected by laws and policies of the United States affecting foreign trade, taxation and investment. In addition, in the event of a dispute arising from foreign operations, the Company may be subject to the exclusive jurisdiction of foreign courts or may not be successful in subjecting foreign persons to the jurisdiction of the courts of the United States. See "Business and Properties -- Miscellaneous; Risks of Foreign Operations" and "-- International Operations." ADDITIONAL RISKS RELATED TO THE COMPANY'S OPERATIONS IN THE KINGDOM OF THAILAND The Company's operations in the Kingdom of Thailand are subject to additional risks. Among other things, the Company and its joint venture partners will be required, on August 1, 1997, unless extended, to relinquish the remaining exploration acreage in the Thailand Concession and may be able to retain only those areas which have been designated by the Thai government as production areas, which currently includes only the Tantawan Field. A substantial portion of the Company's proven reserves in the Kingdom of Thailand are located in areas not currently designated as production areas. Although an application has been made to designate additional areas of the Concession as production areas and to extend the exploratory term on a portion of the existing exploratory acreage, no assurance can be given that such applications will be granted. In addition, the marketing and sale of hydrocarbons produced from the Thailand Concession is subject to numerous risks and uncertainties. For example, all oil and natural gas produced from the Thailand Concession is expected to be sold to The Petroleum Authority of Thailand ("PTT"), which maintains a monopoly over oil and gas transmission and distribution in Thailand. The Thailand Concession is traversed by two major natural gas pipelines that are owned and operated by PTT. One of these pipelines is currently running at or near capacity and the other pipeline may also become full as a result of production from the Tantawan Field, the Benchamas Field and other fields in the Gulf of Thailand. There can be no assurance that, even if the Company is successful in its exploration efforts, it will be able to successfully, economically and profitably transport, process, refine and market the oil and gas it produces. PTT has constructed a lateral pipeline from its main pipeline to the Tantawan production area and has agreed to take the gas produced therefrom pursuant to a Gas Sales Agreement (the "GSA"). In the event that the required reserves or production rates of natural gas at a specified quality level under the GSA are not delivered, then the Company and its joint venture partners in the Tantawan production area will be obligated to contribute to PTT's capital costs incurred in the construction of the lateral pipeline. Also, under the GSA, the Tantawan joint venturers' liability for failure to deliver the minimum contracted daily rate is limited to PTT's right to take from subsequent 19 23 deliveries an amount equal to the quantity of natural gas not delivered at 75% of the contracted price. Cash flows resulting from operations in Thailand are subject to Thai governmental royalties, other governmental charges and income taxes. Since all gas sales under the GSA are expected to be recognized in Baht, the Thai currency, fluctuations in the exchange rate between Baht and dollars could have an adverse effect on the anticipated profits of the Company's operations in Thailand. See "Business and Properties -- International Operations" and "-- Miscellaneous; Sales." ABSENCE OF TRADING MARKET; TRANSFER RESTRICTIONS The Exchange Notes will be new securities for which currently there is no trading market. The Company does not currently intend to apply for listing of the Exchange Notes on any securities exchange or stock market. Although the Initial Purchasers have informed the Company that they currently intend to make a market in the Exchange Notes, the Initial Purchasers are not obligated to do so, and any such market making may be discontinued at any time without notice. The liquidity of any market for the Exchange Notes will depend upon the number of Holders of such Exchange Notes, the interest of securities dealers in making a market in such securities and other factors. Accordingly, there can be no assurance as to the development or liquidity of any market for the Exchange Notes. Historically, the market for noninvestment grade debt has been subject to disruptions that have caused substantial volatility in the prices of securities similar to the Exchange Notes. There can be no assurance that the market, if any, for the Exchange Notes will not be subject to similar disruptions. Any such disruptions may have an adverse effect on the Holders of the Exchange Notes. PRIVATE PLACEMENT On May 22, 1997, the Company completed the private sale to the Initial Purchasers of $100,000,000 principal amount of the Old Notes at a price of 97.27% of the principal amount thereof in a transaction not registered under the Securities Act in reliance upon Section 4(2) of the Securities Act. The Initial Purchasers thereupon offered and resold the Old Notes only to qualified institutional buyers and a limited number of institutional accredited investors at an initial price to such purchasers of 99.77% of the principal amount thereof. The $97,270,000 million proceeds received by the Company in connection with the sale of the Old Notes were used to repay a portion of the Company's outstanding Senior Indebtedness. USE OF PROCEEDS The Company will not receive any cash proceeds from the issuance of the Exchange Notes offered hereby. In consideration for issuing the Exchange Notes as contemplated in this Prospectus, the Company will receive in exchange a like principal amount of Old Notes, the terms of which are identical in all material respects to the Exchange Notes. The Old Notes surrendered in exchange for the Exchange Notes will be retired and canceled and cannot be reissued. Accordingly, issuance of the Exchange Notes will not result in any change in capitalization of the Company. 20 24 CAPITALIZATION The following table sets forth the consolidated debt and capitalization of the Company and its subsidiaries at March 31, 1997. The table has also been adjusted to reflect the sale of the Old Notes and the application of the net proceeds therefrom assuming those transactions occurred on March 31, 1997. This table should be read in conjunction with the Consolidated Financial Statements and related notes thereto included in the Company's Annual Report and incorporated by reference in this Prospectus.
MARCH 31, 1997 --------------------------- ACTUAL AS ADJUSTED ---------- ----------- (IN THOUSANDS) (UNAUDITED) Long-term debt, including current portion Credit Agreement indebtedness(a) . . . . . . . . . . . . . . . . . . . . . $ 95,000 $ -- Uncommitted credit lines with banks . . . . . . . . . . . . . . . . . . . . 10,000 9,000 8 3/4% Senior Subordinated Notes, due 2007, offered hereby . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 100,000 5 1/2% Convertible subordinated notes, due 2004 . . . . . . . . . . . . . . 86,230 86,230 5 1/2% Convertible subordinated notes, due 2006 . . . . . . . . . . . . . . 115,000 115,000 ---------- ---------- Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . 306,230 310,230 ---------- ---------- Shareholders' equity: Preferred stock, $1 par value; 2,000,000 shares authorized; no shares issued and outstanding . . . . . . . . . . . . . . -- -- Common stock, $1 par value; 100,000,000 shares authorized; 33,378,664 shares issued . . . . . . . . . . . . . . . . . . . . . . . . 33,379 33,379 Additional capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,496 140,496 Retained earnings (deficit) . . . . . . . . . . . . . . . . . . . . . . . . (53,258) (53,258) Currency translation adjustment . . . . . . . . . . . . . . . . . . . . . . (55) (55) Treasury stock, at cost; 15,575 shares . . . . . . . . . . . . . . . . . . . (324) (324) ---------- ---------- Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . 120,238 120,238 ---------- ---------- Total capitalization (including current maturities) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 426,468 $ 430,468 ========== ==========
- ---------- (a) As of May 31, 1997, the outstanding indebtedness under the Credit Agreement was $25,000,000. 21 25 SELECTED FINANCIAL DATA The Selected Financial Data presented below as of, and for the years in the five-year period ended, December 31, 1996, are derived from the consolidated financial statements of the Company and its subsidiaries, which are incorporated by reference herein and which have been audited by independent public accountants. The financial data as of, and for the three month periods ended, March 31, 1996 and 1997, are derived from the Company's unaudited financial statements which, in the opinion of management, include all adjustments (which consists only of normal recurring adjustments) necessary for a fair presentation of the financial position and results of operations of the Company for such interim periods. This data should be read in conjunction with the consolidated financial statements and related notes thereto incorporated by reference herein and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere herein and in the Reports.
QUARTER YEAR ENDED DECEMBER 31, ENDED MARCH 31, ------------------------------------------------------------------------------- 1992 1993 1994 1995 1996 1996 1997 ---- ---- ---- ---- ---- ---- ---- (EXPRESSED IN THOUSANDS, EXCEPT RATIOS AND UNIT AMOUNTS) (UNAUDITED) INCOME STATEMENT DATA: Revenues: Crude oil and condensate . $64,224 $64,042 $65,141 $76,557 $96,908 $21,212 $27,886 Natural gas . . . . . . . . 67,366 66,173 99,093 72,032 94,589 24,433 31,154 Natural gas liquids . . . . 5,833 7,288 9,189 8,097 11,867 2,441 1,864 Other, net . . . . . . . . 1,705 (950) 133 773 778 131 410 ------- ------- ------- ------ ------- ------ ------- Oil and gas revenues . . . 139,128 136,553 173,556 157,459 204,142 48,217 61,314 Interest on tax refunds . . -- 2,322 -- -- -- -- -- Gains (losses) on sales . . 1,702 679 52 100 (165) (165) -- ------- ------- ------- ------ ------- ------ ------- Total . . . . . . . . . 140,830 139,554 173,608 157,559 203,977 48,052 61,314 ------- ------- ------- ------ ------- ------ ------- Operating Costs and Expenses: Lease operating . . . . . . 25,842 26,633 29,768 35,071 37,628 8,875 12,297 General and administrative 13,129 14,550 15,984 16,400 18,028 5,421 5,836 Exploration . . . . . . . . 3,102 2,455 5,257 7,468 16,777 3,910 1,900 Dry hole and impairment . . 9,314 4,690 7,088 6,703 8,579 2,550 921 Depreciation, depletion and amortization . . . . . 42,302 40,693 63,308 68,489 61,857 15,713 18,420 ------- ------- ------- ------ ------- ------ ------- Total . . . . . . . . . 93,689 89,021 121,405 134,131 142,869 36,469 39,374 ------- ------- ------- ------ ------- ------ ------- Operating Income 47,141 50,533 52,203 23,428 61,108 11,583 21,940 Interest Charges . . . . . . (19,036) (10,956) (10,104) (11,167) (13,203) (3,012) (4,295) Interest Income . . . . . . . 191 14 53 26 232 15 56 Interest Capitalized . . . . 391 451 739 1,834 4,244 826 1,870 ------- ------- ------- ------ ------- ------ ------- Income Before Taxes and 28,687 40,042 42,891 14,121 52,381 9,412 19,571 Extraordinary Items . . . Income Tax Expense . . . . . (10,192) (14,981) (15,517) (4,891) (18,800) (3,147) (6,753) ------- ------- ------- ------ ------- ------ ------- Income Before Extraordinary Items . . . . . . . . . . . . 18,495 25,061 27,374 9,230 33,581 6,265 12,818 Extraordinary Losses on Early Extinguishments of Debt, Net of Taxes . . . . . . . -- -- (307) -- (821) -- -- ------- ------- ------- ------ ------- ------ ------- Net Income . . . . . . $18,495 $25,061 $27,067 $9,230 $32,760 $6,265 $12,818 ======= ======= ======= ====== ======= ====== ======= OTHER FINANCIAL DATA: EBITDA(a) $98,948 $95,930 $122,652 $98,646 $131,776 $29,861 $41,337 Capital and exploration expenditures (excluding interest capitalized) . . . . 41,300 74,600 120,800 110,400 206,200 18,800 69,900 SELECTED RATIOS: EBITDA/Net interest expense . 5.3x 9.1x 13.1x 10.6x 14.7x 13.7x 17.0x Ratio of earnings to fixed charges(b) . . . . . . . . . 2.5x 4.5x 5.1x 2.1x 4.6x 3.8x 5.0x Long-term obligations/EBITDA(c) . . . 1.5x 1.4x 1.2x 1.7x 1.9x n/a n/a Long-term obligations/Total proved reserves (BOE)(c) . . $2.52 $1.95 $2.01 $1.63 $2.24 n/a n/a
MARCH 31, 1997 -------------------------- ACTUAL AS ADJUSTED (d) ----------- --------------- BALANCE SHEET DATA: Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $552,832 $556,832 Long-term obligations, including current portion . . . . . . . . . . . . . . . . 306,230 310,230 Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,238 120,238
- ---------- (a) EBITDA represents income from continuing operations before provision for income taxes, interest expense, depreciation, depletion and amortization, and dry hole and impairment costs. EBITDA is presented as a measure of the Company's debt service ability, and not as an alternative to (i) operating income (as determined in accordance with generally accepted accounting principles) as an indicator of the Company's operating performance, or (ii) cash flows from operating activities (as determined in accordance with generally accepted accounting principles) as a measure of liquidity. (b) Pre-tax earnings plus total interest charges, including amortization of debt issue expenses, divided by total interest charges, including amortization of debt issue expenses. Pro forma after giving effect to the sale of the Old Notes by the Company and the use of proceeds therefrom the ratios of earnings to fixed charges for the year ended December 31, 1996, and the quarter ended March 31, 1997, would have been 3.3x and 4.4x, respectively. (c) Long-term obligations include long-term debt and the non-current portion of the Eugene Island 330 Production Payment obligation until such obligation was satisfied in 1993. (d) Adjusted to give effect to the sale of the Old Notes and the application of the net proceeds therefrom. 22 26 SELECTED RESERVE AND OPERATING DATA The Selected Reserve and Operating Data presented below under the captions "Production (Sales) Data" as of, and for each of the years in the five-year period ended, December 31, 1996, and for the three month periods ended March 31, 1996 and 1997, is unaudited and should be read in conjunction with the consolidated financial statements and related notes thereto which are incorporated by reference herein and "Business and Properties -- Exploration and Production Data; Production and Sales" and "Management's Discussion and Analysis of Financial Condition and Results of Operations". The reserve information presented under the caption "Reserve Data" as of, and for each of the years in the five-year period ended, December 31, 1996 has been derived from the summary reserve report prepared by Ryder Scott and attached as an exhibit to the Annual Report on Form 10-K filed with the Commission for each of the years presented and should be read in conjunction with the notes to Company's consolidated financial statements which are incorporated by reference herein and "Business and Properties -- Exploration and Production Data; Reserves" included elsewhere herein. The data included in the Reports are incorporated in this Prospectus by reference.
QUARTER YEAR ENDED DECEMBER 31, ENDED MARCH 31, ------------------------------------------------------------ ------------------- 1992 1993 1994 1995 1996 1996 1997 ------------------------------------------------------------ ------------------- (DOLLARS EXPRESSED IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) PRODUCTION (SALES) DATA: Net daily average and weighted average price: Natural gas: Mcf per day . . . . . . . 105,200 91,700 144,800 121,000 107,700 111,200 129,700 Price per Mcf . . . . . . $1.75 $1.98 $1.88 $1.63 $2.40 $2.41 $2.67 Crude oil and condensate: Bbls per day . . . . . . 8,699 9,851 11,100 11,786 11,968 11,889 13,903 Price per Bbl . . . . . . $20.17 $17.81 $16.08 $17.80 $22.12 $19.61 $22.29 Natural gas liquids: Bbls per day . . . . . . 1,181 1,678 2,222 1,998 2,173 1,984 1,312 Price per Bbl . . . . . . $13.50 $11.90 $11.33 $11.10 $14.92 $13.52 $15.79 RESERVE DATA(A): Estimated proved reserves Crude oil, condensate and natural gas liquids . . . 22,556 28,268 33,862 45,182 49,602 -- -- (MBbls) . . . . . . . . . . . Natural gas (MMcf) . . . . 207,068 232,866 242,890 328,061 360,944 -- -- Natural gas equivalents (MMcfe) . . . . . . . . . 342,404 402,474 446,062 599,153 658,566 -- -- Estimated future net revenues before income taxes, discounted at 10%(b)(c) . . . . . . . . $405,101 $403,840 $382,980 $532,475 $954,545 -- -- Estimated future net revenues after income taxes discounted at 10%(b). . . . . . . . . . $307,657 $300,260 $290,069 $377,145 $686,040 -- --
__________ (a) Proved reserves were estimated in accordance with Commission guidelines using oil and gas prices and production and development costs as of December 31 of each such year. (b) These values were estimated in accordance with Commission guidelines. See "Business and Properties -- Exploration and Production Data; Reserves." (c) Based on assumed Company-wide flat prices of $20.00 per barrel for oil and condensate and $2.00 per Mcf for gas, the Company's reservoir engineers estimate that the present value of future net revenues before income taxes, discounted at 10%, of the Company's proved reserves would have been approximately $553 million at December 31, 1996. This calculation represents an internal Company estimate, is presented for information purposes and has not been calculated entirely in accordance with Commission guidelines. 23 27 THE EXCHANGE OFFER GENERAL In connection with the sale of the Old Notes, the purchasers thereof became entitled to the benefits of certain registration rights under the Registration Rights Agreement. The Exchange Notes are being offered hereunder in order to satisfy the obligations of the Company under the Registration Rights Agreement. See "Exchange Offer; Registration Rights." For each $1,000 principal amount of Old Notes surrendered to the Company pursuant to the Exchange Offer, the holder of such Old Notes will receive $1,000 principal amount of Exchange Notes. Upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal, the Company will accept all Old Notes properly tendered prior to 5:00 p.m., New York City time, on the Expiration Date. Holders may tender some or all of their Old Notes pursuant to the Exchange Offer in integral multiples of $1,000 principal amount. Under existing interpretations of the staff of the SEC, including Exxon Capital Holdings Corporation, SEC No-Action Letter (available April 13, 1989), the Morgan Stanley Letter and Mary Kay Cosmetics, Inc., SEC No-Action Letter (available June 5, 1991), the Company believes that the Exchange Notes would in general be freely transferable after the Exchange Offer without further registration under the Securities Act by the respective holders thereof (other than a "Restricted Holder," being (i) a broker-dealer who purchased Old Notes exchanged for such Exchange Notes directly from the Company to resell pursuant to Rule 144A or any other available exemption under the Securities Act or (ii) a person that is an affiliate of the Company within the meaning of Rule 405 under the Securities Act), without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holder's business and such holder is not participating in, and has no arrangement with any person to participate in, the distribution (within the meaning of the Securities Act) of such Exchange Notes. Eligible holders wishing to accept the Exchange Offer must represent to the Company that such conditions have been met. Any holder of Old Notes who tenders in the Exchange Offer for the purpose of participating in a distribution of the Exchange Notes must not rely on the interpretation by the staff of the SEC enunciated in the Morgan Stanley Letter and similar no-action letters, and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each holder of Old Notes who wishes to exchange Old Notes for Exchange Notes in the Exchange Offer will be required to make certain representations, including a representation that (i) it is neither an affiliate of the Company nor a broker-dealer tendering Old Notes acquired directly from the Company for its own account, (ii) any Exchange Notes to be received by it are being acquired in the ordinary course of its business and (iii) it is not participating in, and it has no arrangement with any person to participate in, the distribution (within the meaning of the Securities Act) of the Exchange Notes. In addition, in connection with any resales of Exchange Notes, any broker-dealer (a "Participating Broker-Dealer") who acquired Old Notes for its own account as a result of market-making activities or other trading activities must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes. The staff of the SEC has taken the position in no-action letters issued to third parties including Shearman & Sterling, SEC No-Action Letter (available July 2, 1993), that 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 Old Notes) with this Prospectus, as it may be amended or supplemented from time to time. Under the Registration Rights Agreement, the Company is required to allow Participating Broker-Dealers to use this Prospectus, as it may be amended or supplemented from time to time, in connection with the resale of such Exchange Notes. See "Plan of Distribution." The Exchange Offer shall be deemed to have been consummated upon the earlier to occur of (i) the Company having exchanged Exchange Notes for all outstanding Old Notes (other than Old Notes held by a Restricted Holder) pursuant to the Exchange Offer and (ii) the Company having exchanged, pursuant to the Exchange Offer, Exchange Notes for all Old Notes that have been tendered and not withdrawn on the date that is 30 days following the commencement of the Exchange Offer. In such event, holders of Old Notes seeking liquidity in their investment would have to rely on exemptions to registration requirements under the securities laws, including the Securities Act. As of the date of this Prospectus, $100,000,000 aggregate principal amount of Old Notes are issued and outstanding. In connection with the issuance of the Old Notes, the Company arranged for the Old Notes to be eligible for trading in the Private Offering, Resale and Trading through Automated Linkages (PORTAL) Market, the National Association of Securities Dealers' screen based, automated market trading of securities eligible for resale under Rule 144A. 24 28 The Company shall be deemed to have accepted for exchange validly tendered Old Notes when, as and if the Company has given oral or written notice thereof to the Exchange Agent. See "-- Exchange Agent." The Exchange Agent will act as agent for the tendering holders of Old Notes for the purpose of receiving Exchange Notes from the Company and delivering Exchange Notes to such holders. If any tendered Old Notes are not accepted for exchange because of an invalid tender or the occurrence of certain other events set forth herein, certificates for any such unaccepted Old Notes will be returned, without expense, to the tendering holder thereof as promptly as practicable after the Expiration Date. Holders of Old Notes who tender in the Exchange Offer 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 Old Notes pursuant to the Exchange Offer. The Company will pay all charges and expenses, other than certain applicable taxes, in connection with the Exchange Offer. See "-- Fees and Expenses." This Prospectus, together with the accompanying Letter of Transmittal, is being sent to all registered holders as of the date of this Prospectus. EXPIRATION DATE; EXTENSIONS; AMENDMENTS The term "Expiration Date" shall mean , 1997 unless the Company, in its sole discretion, extends the Exchange Offer, in which case the term "Expiration Date" shall mean the latest date to which the Exchange Offer is extended. In order to extend the Expiration Date, the Company will notify the Exchange Agent of any extension by oral or written notice and will make a public announcement thereof, each prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Such announcement may state that the Company is extending the Exchange Offer for a specified period of time. The Company reserves the right (i) to delay acceptance of any Old Notes, to extend the Exchange Offer or to terminate the Exchange Offer and to refuse to accept Old Notes not previously accepted, if any of the conditions set forth herein under "-- Termination" shall have occurred and shall not have been waived by the Company (if permitted to be waived by the Company), by giving oral or written notice of such delay, extension or termination to the Exchange Agent, and (ii) to amend the terms of the Exchange Offer in any manner. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof. If the Exchange Offer is amended in a manner determined by the Company to constitute a material change, the Company will promptly disclose such amendment in a manner reasonably calculated to inform the holders of the Old Notes of such amendment. Without limiting the manner in which the Company may choose to make public announcements of any delay in acceptance, extension, termination or amendment of the Exchange Offer, the Company shall have no obligation to publish, advertise, or otherwise communicate any such public announcement, other than by making a timely release to the Dow Jones News Service. INTEREST ON THE EXCHANGE NOTES The Exchange Notes will bear interest payable semi-annually on May 15 and November 15 of each year, commencing November 15, 1997. Holders of Exchange Notes of record on November 1, 1997 will receive interest on November 15, 1997 from the date of issuance of the Exchange Notes, plus an amount equal to the accrued interest on the Old Notes from the date of issuance of the Old Notes, May 22, 1997, to the date of exchange thereof. Consequently, assuming the Exchange Offer is consummated prior to the record date in respect of the November 15, 1997 interest payment for the Old Notes, holders who exchange their Old Notes for Exchange Notes will receive the same interest payment on November 15, 1997 that they would have received had they not accepted the Exchange Offer. Interest on the Old Notes accepted for exchange will cease to accrue upon issuance of the Exchange Notes. PROCEDURES FOR TENDERING To tender in the Exchange Offer, a holder must complete, sign and date the Letter of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed if required by the Letter of Transmittal, and mail or otherwise deliver such Letter of Transmittal or such facsimile, or an Agent's Message, together with the Old Notes and any other required documents, to the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date. In addition, either (i) the certificates for such Old Notes must be received by the Exchange Agent along with the Letter of Transmittal or (ii) a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old Notes, if such procedure is available, into the Exchange Agent's account at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry transfer described below, must be received by the Exchange Agent prior to the Expiration Date or (iii) the Holder must comply with the guaranteed delivery procedures described below. The tender by a holder of Old Notes will constitute an agreement between such holder and the Company in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal. Delivery of all documents must 25 29 be made to the Exchange Agent at its address set forth herein. Holders may also request that their respective brokers, dealers, commercial banks, trust companies or nominees effect such tender for such holders. The term "Agent's Message" means a message, transmitted by the Book-Entry Transfer Facility to, and received by, the Exchange Agent and forming a part of a Book-Entry Confirmation, which states that such Book-Entry Transfer Facility has received an express acknowledgment from the participant in such Book-Entry Transfer Facility tendering Old Notes which are the subject of such Book-Entry Confirmation that such participant has received and agrees to be bound by the terms of the Letter of Transmittal, and that the Company may enforce such agreement against such participant. The method of delivery of Old Notes and the Letter of Transmittal and all other required documents to the Exchange Agent is at the election and risk of the holders. Instead of delivery by mail, it is recommended that holders use an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure timely delivery. No Letter of Transmittal or Old Notes should be sent to the Company. Only a holder of Old Notes may tender such Old Notes in the Exchange Offer. The term "holder" with respect to the Exchange Offer means any person in whose name Old Notes are registered on the books of the Company or any other person who has obtained a properly completed stock power from the registered holder. Any beneficial holder whose Old Notes are registered in the name of such holder's broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact such registered holder promptly and instruct such registered holder to tender on behalf of the registered holder. If such beneficial holder wishes to tender directly, such beneficial holder must, prior to completing and executing the Letter of Transmittal and delivering his Old Notes, either make appropriate arrangements to register ownership of the Old Notes in such holder's name or obtain a properly completed bond power from the registered holder. The transfer of record ownership may take considerable time. If the Letter of Transmittal is signed by the record holder(s) of the Old Notes tendered thereby, the signature must correspond with the name(s) written on the face of the Old Notes without alteration, enlargement or any change whatsoever. If the Letter of Transmittal is signed by a participant in Depositary Trust Company ("DTC"), the signature must correspond with the name as it appears on the security position listing as the holder of the Old Notes. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution") unless the Old Notes tendered pursuant thereto are tendered (i) by a registered holder (or by a participant in DTC whose name appears on a security position listing as the owner) who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the Letter of Transmittal and the Exchange Notes are being issued directly to such registered holder (or deposited into the participant's account at DTC) or (ii) 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 listed therein, such Old Notes must be endorsed or accompanied by appropriate bond powers which authorize such person to tender the Old Notes on behalf of the registered holder, in either case signed as the name of the registered holder or holders appears on the Old Notes. 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, such persons should so indicate when signing, and unless waived by the Company, evidence satisfactory to the Company of their authority to so act must be submitted with the Letter of Transmittal. A tender will be deemed to have been received as of the date when the tendering holder's duly signed Letter of Transmittal accompanied by Old Notes (or a timely confirmation received of a book-entry transfer of Old Notes into the Exchange Agent's account at DTC with an Agent's Message) or a Notice of Guaranteed Delivery from an Eligible Institution is received by the Exchange Agent. Issuances of Exchange Notes in exchange for Old Notes tendered pursuant to a Notice of Guaranteed Delivery by an Eligible Institution will be made only against delivery of the Letter of Transmittal (and any other required documents) and the tendered Old Notes (or a timely confirmation received of a book-entry transfer of Old Notes into the Exchange Agent's account at DTC) with the Exchange Agent. All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of the tendered Old Notes will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the absolute right to reject any and all Old Notes not properly tendered or any Old Notes the Company's acceptance of which would, in the opinion of the Company or its counsel, be unlawful. The Company also reserves the absolute right to waive any conditions of the Exchange Offer or defects or irregularities in tender as to particular Old Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in the Letter of Transmittal) shall be final and binding on all parties. Unless waived, any 26 30 defects or irregularities in connection with tenders of Old Notes must be cured within such time as the Company shall determine. Neither the Company, the Exchange Agent nor any other person shall be under any duty to give notification of defects or irregularities with respect to tenders of Old Notes nor shall any of them incur any liability for failure to give such notification. Tenders of Old Notes will not be deemed to have been made until such irregularities have been cured or waived. Any Old Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned without cost by the Exchange Agent to the tendering holder of such Old Notes unless otherwise provided in the Letter of Transmittal, as soon as practicable following the Expiration Date. In addition, the Company reserves the right in its sole discretion to (i) purchase or make offers for any Old Notes that remain outstanding subsequent to the Expiration Date, or, as set forth under "-- Termination," to terminate the Exchange Offer and (ii) to the extent permitted by applicable law, purchase Old Notes in the open market, in privately negotiated transactions or otherwise. The terms of any such purchases or offers may differ from the terms of the Exchange Offer. BOOK-ENTRY TRANSFER The Exchange Agent will establish an account with respect to the Old Notes at DTC within two business days after the date of this Prospectus, and any financial institution which is a participant in DTC may make book-entry delivery of the Old Notes by causing DTC to transfer such Old Notes into the Exchange Agent's account in accordance with DTC's procedure for such transfer. Although delivery of Old Notes may be effected through book-entry transfer into the Exchange Agent's account at DTC, an Agent's Message must be transmitted to and received by the Exchange Agent on or prior to the Expiration Date at one of its addresses set forth below under "-- Exchange Agent", or the guaranteed delivery procedure described below must be complied with. DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. All references in this Prospectus to deposit or delivery of Old Notes shall be deemed to include DTC's book-entry delivery method. GUARANTEED DELIVERY PROCEDURES Holders who wish to tender their Old Notes and whose Old Notes are not immediately available or who cannot deliver their Old Notes, the Letter of Transmittal or any other required documents to the Exchange Agent prior to the Expiration Date, or who cannot complete the procedure for book-entry transfer on a timely basis and deliver an Agent's Message, may effect a tender if: (i) the tender is made by or through an Eligible Institution; (ii) prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting forth the name and address of the holder of the Old Notes, the registration number or numbers of such Old Notes (if applicable), and the total principal amount of Old Notes tendered, stating that the tender is being made thereby and guaranteeing that, within five business days after the Expiration Date, the Letter of Transmittal, together with the Old Notes in proper form for transfer (or a confirmation of a book-entry transfer into the Exchange Agent's account at DTC) and any other documents required by the Letter of Transmittal, will be deposited by the Eligible Institution with the Exchange Agent; and (iii) such properly completed and executed Letter of Transmittal, together with the certificate(s) representing all tendered Old Notes in proper form for transfer (or a confirmation of such a book-entry transfer) and all other documents required by the Letter of Transmittal are received by the Exchange Agent within five business days after the Expiration Date. TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL The Letter of Transmittal contains, among other things, certain terms and conditions which are summarized below and are part of the Exchange Offer. Each holder who participates in the Exchange Offer will be required to represent that any Exchange Notes received by it will be acquired in the ordinary course of its business, that such holder is not participating in, and has no arrangement with any person to participate in, the distribution (within the meaning of the Securities Act) of the Exchange Notes, and that such holder is not a Restricted Holder. Old Notes tendered in exchange for Exchange Notes (or a timely confirmation of a book-entry transfer of such Old Notes into the Exchange Agent's account at DTC) must be received by the Exchange Agent, with the Letter of Transmittal or an Agent's Message and any other required documents, by the Expiration Date or within the time periods set forth above pursuant to a Notice of Guaranteed Delivery from an Eligible Institution. Each holder tendering the Old Notes for exchange sells, assigns and transfers the Old Notes to the Exchange Agent, as agent of the Company, and irrevocably constitutes and appoints the Exchange Agent as the holder's agent and attorney-in-fact to cause the Old Notes to be transferred and exchanged. The holder warrants that it has full power and authority to tender, exchange, 27 31 sell, assign and transfer the Old Notes and to acquire the Exchange Notes issuable upon the exchange of such tendered Old Notes, that the Exchange Agent, as agent of the Company, will acquire good and unencumbered title to the tendered Old Notes, free and clear of all liens, restrictions, charges and encumbrances, and that the Old Notes tendered for exchange are not subject to any adverse claims when accepted by the Exchange Agent, as agent of the Company. The holder also warrants and agrees that it will, upon request, execute and deliver any additional documents deemed by the Company or the Exchange Agent to be necessary or desirable to complete the exchange, sale, assignment and transfer of the Old Notes. All authority conferred or agreed to be conferred in the Letter of Transmittal by the holder will survive the death, incapacity or dissolution of the holder and any obligation of the holder shall be binding upon the heirs, personal representatives, successors and assigns of such holder. WITHDRAWAL OF TENDERS Except as otherwise provided herein, tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date, unless previously accepted for exchange. To withdraw a tender of Old Notes in the Exchange Offer, a written or facsimile transmission notice of withdrawal must be received by the Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City time, on the Expiration Date and prior to acceptance for exchange thereof by the Company. Any such notice of withdrawal must (i) specify the name of the person having deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to be withdrawn (including, if applicable, the registration number or numbers and total principal amount of such Old Notes), (iii) be signed by the Depositor in the same manner as the original signature on the Letter of Transmittal by which such Old Notes were tendered (including any required signature guarantees) or be accompanied by documents of transfer sufficient to permit the Trustee with respect to the Old Notes to register the transfer of such Old Notes into the name of the Depositor withdrawing the tender, (iv) specify the name in which any such Old Notes are to be registered, if different from that of the Depositor and (v) if applicable because the Old Notes have been tendered pursuant to the book-entry procedures, specify the name and number of the participant's account at DTC to be credited, if different than that of the Depositor. All questions as to the validity, form and eligibility (including time of receipt) of such withdrawal notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Old Notes so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offer and no Exchange Notes will be issued with respect thereto unless the Old Notes so withdrawn are validly retendered. Any Old Notes which have been tendered but which are not accepted for exchange will be returned to the holder thereof without cost to such holder as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may be retendered by following one of the procedures described above under "-- Procedures for Tendering" at any time prior to the Expiration Date. TERMINATION Notwithstanding any other term of the Exchange Offer, the Company will not be required to accept for exchange any Old Notes not theretofore accepted for exchange, and may terminate the Exchange Offer if it determines that the Exchange Offer violates any applicable law or interpretation of the staff of the SEC. If the Company determines that it may terminate the Exchange Offer, as set forth above, the Company may (i) refuse to accept any Old Notes and return any Old Notes that have been tendered to the holders thereof, (ii) extend the Exchange Offer and retain all Old Notes tendered prior to the Expiration of the Exchange Offer, subject to the rights of such holders of tendered Old Notes to withdraw their tendered Old Notes or (iii) waive such termination event with respect to the Exchange Offer and accept all properly tendered Old Notes that have not been withdrawn. If such waiver constitutes a material change in the Exchange Offer, the Company will disclose such change by means of a supplement to this Prospectus that will be distributed to each registered holder of Old Notes, and the Company will extend the Exchange Offer for a period of five to ten business days, depending upon the significance of the waiver and the manner of disclosure to the registered holders of the Old Notes, if the Exchange Offer would otherwise expire during such period. Holders of Old Notes will have certain rights against the Company under the Registration Rights Agreement should the Company fail to consummate the Exchange Offer. EXCHANGE AGENT State Street Bank & Trust Company (successor in interest as trustee under the Indenture) has been appointed as Exchange Agent for the Exchange Offer. Questions and requests for assistance and requests for additional copies of this Prospectus or of the Letter of Transmittal should be directed to the Exchange Agent addressed as follows: 28 32 By Mail: By Hand or Overnight Courier: State Street Bank & Trust Company State Street Bank & Trust Company Corporate Trust Department Corporate Trust Department P.O. Box 778 4th Floor Boston, MA 02102-0078 Two International Place Boston, MA 02110 Facsimile Transmission: (617) 664-5739 Confirm by Telephone: (617) 664-5314 FEES AND EXPENSES The expenses of soliciting tenders pursuant to the Exchange Offer will be borne by the Company. The principal solicitation for tenders pursuant to the Exchange Offer is being made by mail. Additional solicitations may be made by officers and regular employees of the Company and its affiliates in person, by telegraph or telephone. The Company will not make any payments to brokers, dealers or other persons soliciting acceptances of the Exchange Offer. The Company, however, will pay the Exchange Agent reasonable and customary fees for its services and will reimburse the Exchange Agent for its reasonable out-of-pocket expenses in connection therewith. The Company may also pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding copies of this Prospectus, Letters of Transmittal and related documents to the beneficial owners of the Old Notes and in handling or forwarding tenders for exchange. The other expenses incurred in connection with the Exchange Offer, including fees and expenses of the Exchange Agent and Trustee and accounting and legal fees, will be paid by the Company. The Company will pay all transfer taxes, if any, applicable to the exchange of Old Notes pursuant to the Exchange Offer. If, however, Exchange Notes or Old Notes not tendered or accepted for exchange are to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the Old Notes tendered, or if tendered Old Notes are registered in the name of any person other than the person signing the Letter of Transmittal, or if a transfer tax is imposed for any reason other than the exchange of Old Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder. ACCOUNTING TREATMENT No gain or loss for accounting purposes will be recognized by the Company upon the consummation of the Exchange Offer. The expenses of the Exchange Offer will be amortized by the Company over the term of the Exchange Notes under generally accepted accounting principles. 29 33 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Quarter Ended March 31, 1997, Compared with Quarter Ended March 31, 1996 The Company reported net income for the first quarter of 1997 of $12,818,000 or $0.38 per share ($0.36 per share on a fully diluted basis) compared to net income for the first quarter of 1996 of $6,265,000 or $0.19 per share (on both a primary and a fully diluted basis). Earnings per common share are based on the weighted average number of common and common equivalent shares outstanding for the first quarter of 1997 of 34,176,000 (40,789,000 on a fully diluted basis), compared to 33,834,000 (33,856,000 on a fully diluted basis) for the first quarter of 1996. The increase in the weighted average number of common and common equivalent shares outstanding for the first quarter of 1997, compared to the first quarter of 1996, resulted primarily from the issuance of shares of common stock upon the exercise of stock options pursuant to the Company's stock option plans and the conversion of $1,300,000 of the Company's 8% Convertible Subordinated Debentures, due 2005 (the "8% Debentures") in July 1996. The increase in the number of shares used in the fully-diluted computation of earnings per share primarily reflects additional shares of common stock issuable upon the assumed conversion of the Company's 2004 Notes (which were dilutive in both periods) and the 2006 Notes (which were dilutive during the first quarter of 1997, the only comparative period in which they were outstanding) and the elimination of related interest requirements, as adjusted for applicable federal income taxes. Earnings applicable to common stock, assuming full dilution, for the first quarter of 1997 was $14,617,000, compared to $6,265,000 for the first quarter of 1996. The Company's total revenues for the first quarter of 1997 were $61,314,000, an increase of approximately 28% from total revenues of $48,052,000 for the first quarter of 1996. The increase in the Company's total revenues for the first quarter of 1997, compared to the first quarter of 1996, resulted primarily from increases in the Company's natural gas, crude oil and condensate production volumes and, to a lesser extent, increases in the average prices that the Company received for its natural gas and liquid hydrocarbon (including crude oil, condensate and natural gas liquids ("NGL")) production volumes, that was only partially offset by a decrease in the Company's NGL production volumes. The following table reflects an analysis of differences in the Company's oil and gas revenues (expressed in thousands of dollars) between the first quarter of 1997 and the first quarter of 1996:
1ST QUARTER 1997 COMPARED TO 1ST QUARTER 1996 ---------------- (IN THOUSANDS) Increase (decrease) in oil and gas revenues resulting from variances in: Natural Gas -- Price . . . . . . . . . . . . . . . . . . . . . . . . $ 2,581 Production . . . . . . . . . . . . . . . . . . . . . . 4,140 ----- 6,721 ----- Crude oil and condensate -- Price . . . . . . . . . . . . . . . . . . . . . . . . 2,900 Production . . . . . . . . . . . . . . . . . . . . . . 3,774 ----- 6,674 ----- NGL and other, net . . . . . . . . . . . . . . . . . . . (298) ----- Increase (decrease) in oil and gas revenues . . . . . . . . $13,097 =======
Prices that the Company received for its natural gas production during the first quarter of 1997 averaged $2.67 per Mcf, compared to $2.41 per Mcf for the first quarter of 1996, an increase of approximately 11%. The average price that the Company received for its natural gas production includes an average price of approximately $1.50, or a discount of 25% off of the contract price of approximately $2.00 that the Company is currently receiving under its long term gas sales contract governing production from the Tantawan Field in the Gulf of Thailand. The Company received the discounted price (denominated in Baht as set forth in the gas sales contract) for its natural gas production from the Tantawan Field during the startup phase of production from the Tantawan Field, which period ended on March 15, 1997. 30 34 The Company's natural gas production during the first quarter of 1997 averaged 129.7 MMcf per day, an increase of approximately 17% from an average of 111.2 MMcf per day during the first quarter of 1996. The increase in the Company's natural gas production during the first quarter of 1997, compared to the first quarter of 1996, was related in large measure to production from the Tantawan Field (an average over the quarter of 17.6 MMcf per day net to the Company's working interest) which commenced in early February, 1997. During the first two weeks of April, production from the Tantawan Field averaged 88.7 MMcf per day (41.1 MMcf per day net to the Company's working interest). In addition, production from the Company's new "E" platform on East Cameron Block 334, which commenced production in early April, 1997, is not included in the results for the first quarter. As of April 17, 1997, production from the East Cameron Block 334 "E" platform was averaging approximately 145 MMcf per day (approximately 84.5 MMcf per day net to the Company's working interest). As of June 1, 1997, the Company was not a party to any natural gas futures contracts. Prices received by the Company for its crude oil and condensate production during the first quarter of 1997 averaged $22.29 per Bbl, an increase of approximately 14% from the average price of $19.61 per Bbl that the Company received for its crude oil and condensate production during the first quarter of 1996. The Company's crude oil and condensate production during the first quarter of 1997 averaged 13,903 Bbls per day, an increase of approximately 17% from an average of 11,889 Bbls per day during the first quarter of 1996. This increase resulted primarily from new production from the Tantawan Field which, during the first two weeks in April 1997, averaged 6,158 Bbls per day (2,854 Bbls net to the Company's working interest) and, to a lesser extent, the success of the Company's oil well drilling and workover operations in the offshore Gulf of Mexico. This increased production does not include any crude oil, condensate or NGL production attributable to the Company's East Cameron Block 334 "E" platform, from which production commenced in early April, 1997. As of April 17, 1997, oil and condensate production from this new field was averaging approximately 5,000 Bbls per day (approximately 2,900 Bbls per day net to the Company's working interest). As of June 1, 1997, the Company was not a party to any crude oil swap agreements. Liquid products are often extracted from natural gas streams and sold separately as NGL. The prices that the Company receives for its NGL production is related to crude oil prices. However, because NGL is extracted from liquid rich natural gas, the Company's NGL production volumes correlate most closely with increases (or decreases) from certain of the Company's natural gas fields. Natural gas production from the Company's East Cameron Block 334 "E" platform is considered to be relatively rich in NGL. Therefore, the Company currently anticipates that its NGL production volumes should increase in the future as a result of production from this field. However, the Company can give no assurances that such increases will not be offset by decreases in NGL production volumes from other fields where the Company extracts NGL from the natural gas it produces. In addition, the Company's oil and gas revenues for the first quarter of 1997 and the first quarter of 1996 also reflect adjustments for various miscellaneous items. The Company's NGL and other net revenues for the first quarter of 1997 decreased $298,000 from those reported in the first quarter of 1996. The decrease in the Company's NGL revenues for the first quarter of 1997, compared to the first quarter of 1996, primarily resulted from decreased NGL production volumes that were not entirely offset by increased prices that the Company received for its NGL production and various miscellaneous net income items. The Company's average liquid hydrocarbons (including crude oil, condensate and NGL) production during the first quarter of 1997 was 15,215 Bbls per day, an increase of approximately 10% from an average liquid hydrocarbons production of 13,874 Bbls per day during the first quarter of 1996. The increase in the Company's average liquid hydrocarbon production during the first quarter of 1997, compared to the first quarter of 1996, primarily resulted from an increase in the Company's crude oil and condensate production, that was only partially offset by a decline in the Company's NGL production. Lease operating expenses for the first quarter of 1997 were $12,297,000, an increase of approximately 39% from lease operating expenses of $8,875,000 for the first quarter of 1996. The increase in lease operating expenses for the first quarter of 1997, compared to the first quarter of 1996, resulted primarily from the higher expenses of operating in Thailand, including expenses related to the leasing of equipment (principally the FPSO); increased severance taxes resulting from increased production from certain of the Company's onshore properties that have higher severance tax obligations; increased operating activity by the Company; and increased costs to the Company (and the entire offshore oil industry) due to a shortage of qualified offshore service contractors, which has permitted such contractors to increase the costs of their services. General and administrative expenses for the first quarter of 1997 were $5,836,000, an increase of approximately 8% from general and administrative expenses of $5,421,000 for the first quarter of 1996. The increase 31 35 in general and administrative expenses for the first quarter of 1997, compared to the first quarter of 1996, was related to, among other things, an increase in the size of the Company's work force and leased office space in the United States and Bangkok, Thailand and normal salary and concomitant benefit expense adjustments that were not entirely offset by decreases in various general and administrative expense items. Exploration expenses consist primarily of delay rentals and geological and geophysical costs which are expensed as incurred. Exploration expenses for the first quarter of 1997 were $1,900,000, a decrease of approximately 51% from exploration expenses of $3,910,000 for the first quarter of 1996. This decrease in exploration expenses resulted primarily from the completion of certain proprietary 3-D seismic surveys on Company leases in South Louisiana and East Texas incurred in the first quarter of 1996 and for which no comparable expense was incurred in the first quarter of 1997. This decrease in exploration expenses was partially offset by ongoing geophysical activity by the Company in other regions. Dry hole and impairment expenses relate to costs of unsuccessful wells drilled, along with impairments due to decreases in expected reserves from producing wells. The Company's dry hole and impairment expenses for the first quarter of 1997 were $921,000, a decrease of approximately 64% from dry hole and impairment expenses of $2,550,000 for the first quarter of 1996. The Company accounts for its oil and gas activities using the successful efforts method of accounting. Under the successful efforts method, lease acquisition costs and all development costs are capitalized. Proved properties are reviewed whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Unproved properties are reviewed quarterly, with any such impairment charged to expense in the period. Exploratory drilling costs are capitalized until the results are determined. If proved reserves are not discovered, the exploratory drilling costs are expensed. Other exploratory costs are expensed as incurred. The provision for depreciation, depletion and amortization ("DD&A") is based on the capitalized costs, as determined in the preceding paragraph, plus future costs to abandon offshore wells and platforms, and is determined on a cost center by cost center basis using the units of production method. The Company's DD&A expense for the first quarter of 1997 was $18,420,000, an increase of approximately 17% from DD&A expense of $15,713,000 for the first quarter of 1996. The increase in the Company's DD&A expense for the first quarter of 1997, compared to the first quarter of 1996, resulted primarily from increased oil and natural gas production from the Company's properties and, to a lesser extent, from an increase in the Company's DD&A rate. The composite DD&A rate for all of the Company's producing fields for the first quarter of 1997 was $0.912 per Mcfe ($5.47 per BOE), an increase of approximately 4% from a composite DD&A rate of $0.877 per Mcfe ($5.26 per BOE) for the first quarter of 1996. The increase in the composite DD&A rate for all of the Company's producing fields for the first quarter of 1997, compared with the first quarter of 1996, resulted primarily from an increased percentage of the Company's production coming from certain of the Company's fields that have DD&A rates that are higher than the Company's recent historical composite rate and a corresponding decrease in the percentage of the Company's production from fields that have DD&A rates that are lower than the Company's recent historical composite DD&A rate. The Company produced 19,888,000 Mcfe (3,315,000 BOE) during the first quarter of 1997, an increase of approximately 12% from the 17,696,000 Mcfe (2,949,000 BOE) produced by the Company during the first quarter of 1996. The Company incurred interest charges of $4,295,000 for the first quarter of 1997, an increase of approximately 43% from interest charges of $3,012,000 for the first quarter of 1996. The increase in interest charges for the first quarter of 1997, compared to the first quarter of 1996, resulted primarily from an increase in the amount of the Company's outstanding debt and, to a lesser extent, increased amortization and debt issuance expense resulting from the issuance of the 2006 Notes, that was partially offset by lower average interest rate levels on the debt outstanding (resulting primarily from the retirement of the 8% Debentures which bore interest at an 8% annual rate and the issuance of the 2006 Notes that bear interest at a 5 1/2% annual rate). Capitalized interest expense for the first quarter of 1997 was $1,870,000, an increase of approximately 126% from capitalized interest expense of $826,000 for the first quarter of 1996. The increase in capitalized interest expense for the first quarter of 1997, compared to the first quarter of 1996, resulted primarily from the requirement to capitalize interest expense attributable to capital expenditures on non-producing properties which, during portions of the first quarter of 1997 included capital expenditures related to the Company's development of the Tantawan Field and, during the entire first quarter of 1997, capital expenditures related to development of the Benchamas Field in the Gulf of Thailand and construction and installation of the East Cameron Block 334 "E" platform. 32 36 As of June 1, 1997, the Company was a party to an interest rate swap agreement. The swap agreement, which terminates on March 10, 1998, effectively changes the interest rate paid by the Company on $5,000,000 of debt from a market based variable rate to a fixed rate of 7.2%. Income tax expense for the first quarter of 1997 was $6,753,000, an increase of approximately 115% from income tax expense of $3,147,000 for the first quarter of 1996. The increase in income tax expense for the first quarter of 1997, compared to the first quarter of 1996, resulted primarily from increased pretax income. Year Ended December 31, 1996, Compared with Years Ended December 31, 1995 and 1994, Respectively The Company reported net income for 1996 of $32,760,000 or $0.96 per share ($35,843,000 or $0.94 per share on a fully diluted basis) compared to net income for 1995 of $9,230,000 or $0.28 per share (on both a primary and a fully diluted basis) and net income for 1994 of $27,067,000 or $0.81 per share (on both a primary and a fully diluted basis). The Company recorded extraordinary losses of $307,000 during the second quarter of 1994 related to the early retirement of the Company's 10.25% Convertible Subordinated Notes, due 1999 (the "10.25% Notes") with the proceeds from the Company's issuance on March 16, 1994, of its 5 1/2% Convertible Subordinated Notes, due 2004 (the "2004 Notes") and $821,000 during the second quarter of 1996 related to the early retirement of the Company's 8% Debentures with the proceeds from the Company's issuance on June 18, 1996, of its 5 1/2% Convertible Subordinated Notes, due 2006 (the "2006 Notes"). Earnings per common share are based on the weighted average number of common and common equivalent shares outstanding for 1996 of 34,034,000 (37,951,000 on a fully diluted basis), compared to 33,490,000 (on both a primary and a fully diluted basis) for 1995 and 33,352,000 (36,451,000 on a fully diluted basis) for 1994. The yearly increases in the weighted average number of common and common equivalent shares outstanding resulted primarily from the issuance of shares of common stock upon the exercise of stock options pursuant to the Company's stock option plans. Earnings per common share computations on a fully diluted basis primarily reflect additional common shares issuable upon the assumed conversion of the Company's 2004 Notes in 1994 and 1996 (the only convertible securities of the Company that were dilutive during the applicable periods) and the elimination of related interest requirements, as adjusted for applicable federal income taxes. Earnings applicable to common stock for 1994, assuming full dilution was $29,448,000. However, the dilution resulting from the assumed conversion of the 2004 Notes in 1994 was not sufficient to change reported earnings per share in 1994. The Company's total revenues for 1996 were $203,977,000, an increase of approximately 29% from total revenues of $157,559,000 for 1995, and an increase of approximately 17% from total revenues of $173,608,000 for 1994. The increase in the Company's total revenues for 1996, compared to 1995 and 1994, resulted primarily from the substantial increase in prices that the Company received for its NGL production volumes and, to a lesser extent, an increase in the Company's liquid hydrocarbon production volumes, which was only partially offset by a decline in the Company's natural gas production volumes. The Company's oil and gas revenues for 1996 were $204,142,000, an increase of approximately 30% from oil and gas revenues of $157,459,000 for 1995, and an increase of approximately 18% from oil and gas revenues of $173,556,000 for 1994. The following table reflects an analysis of variances in the Company's oil and gas revenues between 1996 and the previous two years:
1996 COMPARED TO ---------------------- 1995 1994 ---------- ---------- (IN THOUSANDS) Increase (decrease) in oil and gas revenues resulting from variances in: Natural Gas Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 33,907 $27,685 Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,350) (32,189) -------- ------- 22,557 (4,504) -------- ------- Crude oil and condensate Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,614 24,486 Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,737 7,281 -------- ------- 20,351 31,767 -------- ------- NGL and other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,775 3,323 -------- ------- Increase (decrease) in oil and gas revenues . . . . . . . . . . . . . . . . . . . . $ 46,683 $30,586 ======== =======
33 37 The average price that the Company received for its natural gas production during 1996 averaged $2.40 per Mcf. The average price that the Company received for its natural gas production in 1996 compared favorably with the average price that the Company had received during the preceding two years of $1.63 per Mcf for 1995 (an increase of approximately 47%) and $1.88 per Mcf for 1994 (an increase of approximately 28%). The Company's natural gas production for 1996 averaged 107.7 MMcf per day, a decrease of approximately 11% from average production of 121 MMcf per day in 1995, and a decrease of approximately 26% from average production of 144.8 MMcf per day for 1994. The decrease in the Company's average natural gas production for 1996, compared to 1995, resulted primarily from the difference between the high initial natural gas production rates from horizontal wells drilled from the Company's Eugene Island 295 "B" platform which commenced in late February 1994 and the subsequent natural production decline from those reservoirs, the slowdown of development drilling, workover and recompletion work on certain of the Company's non-operated properties in the Gulf of Mexico, largely due to a decrease in planned drilling by the operators of such properties and production curtailments due to adverse weather conditions (and drilling and workover operations on certain of the Company's properties), along with the natural decline in deliverability from certain of the Company's more mature properties. Those decreases were only partially offset by new and increased production from the Company's continued offshore drilling and workover program. Crude oil and condensate prices received by the Company averaged $22.12 per barrel in 1996, an increase of approximately 24% compared to an average of $17.80 per barrel in 1995, and an increase of approximately 38% compared to an average price of $16.08 per barrel that the Company received in 1994. Crude oil and condensate production for 1996 averaged 11,968 Bbls per day, an increase of approximately 2% from 11,786 Bbls per day for 1995, and an increase of approximately 8% from 11,100 Bbls per day for 1994. The increase in the Company's crude oil and condensate production for 1996, compared to 1995 and 1994, resulted primarily from ongoing development drilling and workover programs in the Gulf of Mexico and in Lea and Eddy Counties of southeastern New Mexico, which was only partially offset by the slowdown of development drilling, workover and recompletion work on certain of the Company's non-operated properties in the Gulf of Mexico, largely due to a decrease in planned drilling by the operators of such properties and production curtailments due to adverse weather conditions (and drilling and workover operations on certain of the Company's properties), along with the natural decline in deliverability from certain of the Company's more mature properties. See "Business and Properties." The Company's oil and gas revenues for 1996, 1995 and 1994 include revenue from the sale of NGL, as well as adjustments for various miscellaneous items. The Company's NGL and other, net revenues for 1996 increased $3,775,000 from those reported in 1995, and $3,323,000 from those reported in 1994. The increase in NGL and other, net revenues in 1996, compared with 1995 and 1994, primarily related to an increase in the price that the Company received for its NGL production volumes and, to a lesser extent, an increase in such production volumes. The Company's average liquid hydrocarbon (including crude oil, condensate and NGL) production during 1996 was 14,141 Bbls per day, an increase of approximately 3% from an average total liquids production of 13,784 Bbls per day for 1995, and an increase of approximately 6% from an average total liquids production of 13,322 Bbls per day for 1994. Lease operating expenses for 1996 were $37,628,000, an increase of approximately 7% from lease operating expenses of $35,071,000 for 1995, and an increase of approximately 26% from lease operating expenses of $29,768,000 for 1994. The increase in lease operating expenses for 1996, compared to 1995 and 1994, resulted primarily from increased costs to the Company (and the entire offshore oil industry) because of an increasing shortage of qualified offshore service contractors, which has permitted such contractors to increase the costs of their services significantly in the last year, a year to year increase in the level of the Company's operating activities, including increased operating costs related to additional properties brought on production and an increased ownership interest in certain properties as a result of the acquisition of such interests. To a lesser extent, lease operating expenses for 1996, compared to 1995 and 1994, also increased as a result of a general maintenance and repair program that was undertaken on many of the Company's operated properties, for which no corresponding offsets of such magnitude existed in the comparable prior periods. General and administrative expenses for 1996 were $18,028,000, an increase of approximately 10% from general and administrative expenses of $16,400,000 for 1995, and an increase of approximately 13% from general and administrative expenses of $15,984,000 for 1994. The increase in general and administrative expenses for 1996, compared to 1995 and 1994, was related to, among other things, the costs associated with the establishment of a Company office in Bangkok, Thailand in connection with the Company's development project and other activities in 34 38 the Gulf of Thailand, an increase in the number of Company employees resulting from the Company's increased exploration and production related activities and to normal salary and concomitant benefit expense adjustments. Exploration expenses for 1996 were $16,777,000, an increase of approximately 125% from exploration expenses of $7,468,000 for 1995, and an increase of approximately 219% from exploration expenses of $5,257,000 for 1994. The increase in exploration expenses for 1996, compared to 1995 and 1994, resulted primarily from increased geophysical activity by the Company, including the costs of conducting and processing certain proprietary 3-D seismic surveys on its domestic onshore and offshore properties, as well as in the Gulf of Thailand, together with the cost of acquiring several non-proprietary 3-D seismic surveys in the Gulf of Mexico. In addition, a portion of the increase in exploration expenses was attributable to increased delay rental expense resulting from the Company's acquisition of additional prospective oil and gas acreage. While increases in the Company's exploration expenses are a component of, and generally correlate fairly closely with, increases in the Company's capital and exploration budget, the Company does not currently expect its exploration expenses in 1997 to increase significantly over those incurred in 1996. Dry hole and impairment expenses relate to costs of unsuccessful wells drilled along with impairments due to decreases in expected reserves from producing wells. The Company's dry hole and impairment expenses for 1996 were $8,579,000, an increase of approximately 28% from dry hole and impairment costs of $6,703,000 for 1995, and an increase of approximately 21% from dry hole and impairment costs of $7,088,000 for 1994. The Company's DD&A expense for 1996 was $61,857,000, a decrease of approximately 10% from DD&A expenses of $68,489,000 for 1995, and a decrease of approximately 2% from DD&A expenses of $63,308,000 for 1994. The decrease in the Company's DD&A expenses for 1996, compared to 1995, resulted primarily from a decrease in the Company's composite DD&A rate and from a decrease in the Company's natural gas production. The decreases in the Company's DD&A expenses for 1996, compared to 1994, resulted primarily from a decrease in the Company's natural gas production, partially offset by an increase in the Company's composite DD&A rate. The composite DD&A rate for all of the Company's producing fields for 1996 was $0.87 per Mcfe ($5.20 per BOE), a decrease of approximately 4% from a composite DD&A rate of $0.91 per Mcfe ($5.47 per BOE) for 1995, but an increase of approximately 13% from a composite DD&A rate of $0.77 per Mcfe ($4.59 per BOE) for 1994. The Company produced 70,472,000 Mcfe (11,745,000 BOE) in 1996, a decrease of approximately 5% from the 74,337,000 Mcfe (12,389,000 BOE) produced in 1995, and a decrease of approximately 14% from the 82,008,000 Mcfe (13,668,000 BOE) produced in 1994. See "Consolidated Financial Statements - -- Note 1 of Notes to Consolidated Financial Statements" in the Company's Annual Report incorporated by reference herein. Interest charges for 1996 were $13,203,000, an increase of approximately 18% from interest charges of $11,167,000 for 1995, and an increase of approximately 31% from interest charges of $10,104,000 for 1994. The increase in the Company's interest charges for 1996, compared to 1995 and 1994, resulted primarily from an increase in the amount of debt outstanding that was only partially offset by, among other things, a decrease in the average interest rate paid by the Company on its debt. Capitalized interest for 1996 was $4,244,000, an increase of approximately 131% from capitalized interest of $1,834,000 for 1995, and an increase of approximately 474% from capitalized interest of $739,000 for 1994. The increase in the amount of interest capitalized by the Company in 1996, compared to 1995 and 1994, related primarily to the capitalization of interest expenses resulting from the engineering, acquisition and construction of facilities and equipment for the Company's Tantawan Field and the Company's East Cameron 334/335 "D" platform (both of which commenced in 1995) and the Company's East Cameron 334/335 "E" platform (commencing in 1996). See "Business and Properties -- Domestic Offshore Operations; Significant Domestic Offshore Operating Areas During 1996; East Cameron." Income tax expense for 1996 was $18,800,000, an increase of approximately 284% from income tax expense of $4,891,000 for 1995, and an increase of approximately 21% from income tax expense of $15,517,000 for 1994. The increase in income tax expense for 1996, compared to 1995 and 1994, resulted primarily from increased pre-tax income. LIQUIDITY AND CAPITAL RESOURCES The Company's Consolidated Statement of Cash Flows for the three months ended March 31, 1997, reflects net cash provided by operating activities of $45,899,000. In addition to the net cash provided by operating activities, the Company also received $717,000 from the exercise of stock options. The Company also had net borrowings of $60,000,000 under its Credit Agreement. During the first three months of 1997, the Company invested $70,388,000 of such cash flow in capital projects, purchased proved reserves for $28,617,000 and paid $1,001,000 ($0.03 per share) in cash dividends to holders of the Company's common stock. Of the $70,388,000 invested in capital projects, $49,908,000 was applicable to 1996 capital 35 39 projects and $20,480,000 was applicable to 1997 capital projects. As of March 31, 1997, the Company's cash and cash investments were $9,586,000 and its long-term debt totaled $306,230,000. The Company's Consolidated Statement of Cash Flows for the year ended December 31, 1996, reflects net cash provided by operating activities of $92,898,000. In addition to the net cash provided by operating activities, the Company also received $3,378,000 from the exercise of stock options, had net borrowings of $7,000,000 under its revolving credit agreement and uncommitted money market credit lines with certain banks and received net proceeds totaling $111,884,000 from the offering of the 2006 Notes. The Company invested $172,032,000 of such cash flow in capital projects during 1996, paid $40,699,000 to redeem its 8% Debentures and paid $3,979,000 ($0.03 per share for four quarters) in cash dividends to holders of the Company's common stock. Of the $172,032,000 invested in capital projects, $35,254,000 was applicable to 1995 projects and $136,778,000 was applicable to 1996 capital projects. The Company's long-term debt at December 31, 1996, was $246,230,000. As of December 31, 1996, the Company had $3,054,000 in cash and cash investments. The Company's capital and exploration budget for 1997, which does not include any amounts which may be expended for the purchase of proved reserves or any interest which may be capitalized resulting from projects in progress, was established by the Company's Board of Directors at $210,000,000, an increase of approximately 2% from the Company's capital and exploration expenditures (excluding purchased reserves and interest capitalized) of $206,267,000 for 1996, an increase of approximately 113% over capital and exploration expenditures (excluding purchased reserves and interest capitalized) of $98,560,000 for 1995, and an increase of approximately 139% over capital and exploration expenditures (excluding purchased reserves and interest capitalized) of approximately $88,300,000 for 1994. In addition to anticipated capital and exploration expenditures, other material 1997 cash requirements that the Company currently anticipates include ongoing operating, general and administrative, income tax, interest expense and payments of dividends on its common stock. The Company currently anticipates that cash provided by operating activities, funds available under its Credit Agreement, uncommitted money market credit lines and amounts that the Company currently believes it can raise from external sources will be sufficient to fund the Company's ongoing expenses, its 1997 capital and exploration budget and anticipated future dividend payments. The declaration and payment of future dividends will depend upon, among other things, the Company's future earnings and financial condition, liquidity and capital requirements, the general economic and regulatory climate and other factors deemed relevant by the Company's Board of Directors. Effective June 1, 1995, the Company entered into an amended and restated credit agreement (the "Credit Agreement") with the same banks that were parties to the credit agreement that it superseded. The Credit Agreement provides for an unsecured $150,000,000 revolving/term credit facility which will be fully revolving until January 1, 1998, after which the balance will be due in eight quarterly term loan installments, commencing April 30, 1998. However, the Company has established a history or refinancing its bank debt before scheduled maturity payments commence and expects to do so again before the amortization of the amounts due under the Credit Agreement which commences in 1998. The amount that may be borrowed under the Credit Agreement may not exceed a borrowing base, determined semiannually by the lenders in accordance with the Credit Agreement, based primarily on the discounted present value of future net revenues from certain of the Company's oil and gas reserves. As of June 1, 1997, the borrowing base exceeded $150,000,000. The Credit Agreement is governed by various financial and other covenants, including requirements to maintain positive working capital (excluding current maturities of debt) and a fixed charge coverage ratio, and limitations on indebtedness, creation of liens, the prepayment of subordinated debt, the payment of dividends, mergers and consolidations, investments and asset dispositions. See "Market for the Registrant's Common Stock and Related Security Holder Matters" in the Annual Report. In addition, the Company is prohibited from pledging borrowing base properties as security for other debt. Borrowings under the Credit Agreement currently bear interest at a base (prime) rate, a certificate of deposit rate plus 1 1/8%, or LIBOR plus 1%, at the Company's option. A commitment fee on the unborrowed amount under the Credit Agreement is also charged. The commitment fee is 5/16 of 1% per annum on the unborrowed amount under the Credit Agreement that is designated as "active" and 1/8 of 1% per annum on the unborrowed amount under the Credit Agreement that is designated as "inactive." Of the $150,000,000 that is currently available under the Credit Agreement (subject to borrowing base limitations), $125,000,000 is designated as "active" and $25,000,000 is designated as "inactive." The Company is currently discussing with its lenders an amendment to the Credit Agreement that, if consummated, will, among other things, extend the maturity of the facility, increase the maximum commitment amount and expand the borrowing base to include properties located in the Gulf of Thailand. No assurance can be given that the Company and its lenders will consummate this transaction and, if such transaction is agreed to, that it will contain the terms discussed in the preceding sentence. 36 40 The Company has also entered into separate letter agreements with two banks under which each bank may provide a $10,000,000 uncommitted money market line of credit. The two lines of credit are on an as available or offered basis and neither bank has an obligation to make any advances under its respective line of credit. Although loans made under these letter agreements are for a maximum term of 30 days, they are reflected as long-term debt on the Company's balance sheet because the Company currently has the ability and intent to reborrow such amounts under its Credit Agreement. Both letter agreements permit either party to terminate such letter agreement at any time. Under its Credit Agreement, the Company is currently limited to incurring a maximum of $10,000,000 of additional senior debt, which would include debt incurred under these lines of credit. As of May 31, 1997, indebtedness in the principal amount of $33,000,000 was outstanding under the Credit Agreement and the two letter agreements. The outstanding principal amount of the 2004 Notes was $86,230,000 as of May 31, 1997. The 2004 Notes are convertible into Common Stock at $22.188 per share, subject to adjustment upon the occurrence of certain events. The 2004 Notes will be redeemable at the option of the Company, in whole or in part, at any time on or after March 15, 1998, at a redemption price of 103.3% of their principal amount and decreasing percentages thereafter. No sinking fund payments are required on the 2004 Notes. The 2004 Notes are redeemable at the option of the holder, upon the occurrence of a repurchase event (a change of control and other circumstances as defined in the indenture governing the 2004 Notes), at 100% of the principal amount. The outstanding principal amount of the 2006 Notes was $115,000,000 as of May 31, 1997. The 2006 Notes are convertible into Common Stock at $42.185 per share, subject to adjustment upon the occurrence of certain events. The 2006 Notes will be redeemable at the option of the Company, in whole or in part, at any time on or after June 15, 1999, at a redemption price of 103.85% of their principal amount and decreasing percentages thereafter. No sinking fund payments are required on the 2006 Notes. The 2006 Notes are redeemable at the option of the holder, upon the occurrence of a repurchase event (a change of control and other circumstances as defined in the indenture governing the 2006 Notes), at 100% of the principal amount. As of February 9, 1996, Tantawan Services, LLC ("TS"), a company that is currently a wholly owned subsidiary of the Company, entered into a Bareboat Charter Agreement (the "Charter") with Tantawan Production B.V. for the charter of a FPSO for use in the Tantawan Field. See "Business and Properties -- International Operations." The term of the Charter is for a period ending July 31, 2008, subject to extension. In addition, TS has a purchase option on the FPSO throughout the term of the Charter. The Charter currently provides for an estimated charter hire commitment of $24,000,000 per year ($11,122,000 net to Thaipo), which commenced upon its installation in the field on January 31, 1997. TS has also contracted with another company, SBM Marine Services (Thailand) Ltd., to operate the FPSO on a reimbursable basis throughout the initial term of the Charter. Performance of both the Charter and the agreement to operate the FPSO are non-recourse to TS and the Company. However, performance is secured by a lien on any hydrocarbons stored on the FPSO and is guaranteed by each of the working interest holders in the Tantawan Field, including Thaipo. Thaipo's guarantee is limited to its percentage interest in the Tantawan Field (currently 46.34%). OTHER MATTERS Publicly held companies are asked to comment on the effects of inflation on their business. Currently annual inflation in terms of the decrease in the general purchasing power of the dollar is running much below the general annual inflation rates experienced in the past. While the Company, like other companies, continues to be affected by fluctuations in the purchasing power of the dollar, such effect is not currently considered significant. BUSINESS AND PROPERTIES The Company was incorporated in 1970 and is engaged in oil and gas exploration, development and production activities on its properties located offshore in the Gulf of Mexico, onshore in selected areas in New Mexico, Texas and Louisiana, and internationally in the Gulf of Thailand. As of December 31, 1996, the Company had interests in 86 lease blocks offshore Louisiana and Texas, approximately 212,000 gross acres onshore in the United States and approximately 1,300,000 gross acres offshore in the Kingdom of Thailand. Unless otherwise specifically identified, the information set forth in this Prospectus, including production rates and the number of wells, platforms and blocks, is presented on a gross basis, rather than net to the Company. In recent years, the Company has concentrated its efforts in selected areas where it believes that its expertise, competitive acreage position, or ability to quickly take advantage of new opportunities offer the possibility of superior 37 41 rates of return. As of January 1, 1997, seven significant operating areas, of which four are located in the Gulf of Mexico and one each in New Mexico, South Texas and Thailand, accounted for approximately 90% of the estimated proved natural gas reserves and approximately 93% of the estimated proved oil, condensate and natural gas liquids reserves of the Company. Six of these operating areas also accounted for approximately 73% of natural gas production and 88% of oil, condensate and natural gas liquids production for 1996. The seventh operating area, the Gulf of Thailand, did not commence production until February 1, 1997. Reserves, as estimated by Ryder Scott, and production data, as estimated by the Company, for the seven significant operating areas are shown in the following table. No other producing area accounted for more than 3% of the Company's estimated proved reserves as of January 1, 1997. SIGNIFICANT OPERATING AREAS
1996 AVERAGE NET NET PROVED RESERVES(A) DAILY PRODUCTION ---------------------- ---------------- NATURAL GAS LIQUIDS(B) TOTAL NATURAL GAS LIQUIDS(B) ----------- ---------- ----- ----------- ---------- (MMCF) % (MBBLS) % % (MCF) % (BBLS) % ------ - ------- - - ----- - ------ - DOMESTIC OFFSHORE Eugene Island . . . . 40,911 11.3% 8,378 16.9% 13.8% 27,800 25.7% 4,701 33.2% East Cameron 44,293 12.3 1,015 2.0 7.7 11,587 10.7 94 0.7 Main Pass 16,970 4.7 4,573 9.2 6.7 7,828 7.2 2,209 15.6 South Pass 16,200 4.5 1,229 2.5 3.6 15,302 14.2 661 4.7 DOMESTIC ONSHORE New Mexico 21,687 6.0 9,639 19.4 12.1 11,842 11.0 4,752 33.5 South Texas -- Lopeno 40,843 11.3 -- -- 6.2 4,902 4.5 -- -- INTERNATIONAL Kingdom of Thailand(c) 144,998 40.2 21,332 43.0 41.5 n/a -- n/a --
__________ (a) Net proved reserves and total net proved reserves are each as of January 1, 1997. Total net reserves are calculated on an energy equivalent basis using a ratio of six Mcf equal to one Bbl of oil. (b) "Liquids," includes oil, condensate and natural gas liquids. (c) Initial production from the Tantawan Field commenced on February 1, 1997. After giving effect to the Company's March 1997 acquisition of its proportionate share of the shares of Maersk Oil (Thailand) Ltd., the Company's net proved reserves of natural gas and hydrocarbon liquids located in the Kingdom of Thailand would have been 166,160 MMcf and 26,163 MBbls, respectively, on a pro forma basis on January 1, 1997. This would have equated to 46% of the Company's total net proved hydrocarbon reserves, 43% of net proved natural gas reserves, and 48% of net proved liquids on a pro forma basis as of January 1, 1997, while the respective percentages of the Company's domestic hydrocarbon reserves as a percentage of the Company's total net proved reserves would have been proportionately reduced. DOMESTIC OFFSHORE OPERATIONS Historically, the Company's interests have been concentrated in the Gulf of Mexico, where approximately 66% of the Company's domestic proved reserves and 38% of its total proved reserves are now located. During 1996, approximately 82% of the Company's natural gas production and 67% of its oil and condensate production was from its domestic offshore properties, contributing approximately 72% of consolidated oil and gas revenues. Four offshore producing areas, Eugene Island, East Cameron, Main Pass and South Pass, account for approximately 33% of the Company's net proved natural gas reserves and approximately 31% of the Company's proved crude oil, condensate and natural gas liquids reserves. See "Significant Domestic Offshore Operating Areas during 1996." Lease Acquisitions The Company has participated, either on its own or with other companies, in bidding on and acquiring interests in federal and state leases offshore in the Gulf of Mexico since December 1970. As a result of such sales and subsequent activities, as of June 12, 1997, the Company owned interests in 84 federal leases and 9 state leases offshore Louisiana 38 42 and Texas (and is currently awaiting the award of interests in an additional five federal lease blocks on which it and its partners were the apparent high bidders in the March 1997 Outer Continental Shelf lease sale). Federal leases generally have primary terms of five years and state leases generally have terms of three years, in each case subject to extension by development and production operations. As part of its strategy, the Company intends to continue an active lease evaluation program in the Gulf of Mexico in order to identify exploration and exploitation opportunities. During 1996, the Company was successful in acquiring interests in ten lease blocks through federal Outer Continental Shelf oil and gas lease sales. The Department of the Interior held one lease sale in March 1997 (at which the Company and its partners were apparent high bidders on thirteen blocks, of which it has currently been awarded eight) and has announced its intention to hold another lease sale during 1997 covering federal acreage in the Western portions of the Gulf of Mexico; and it is anticipated that various states will also hold sales covering offshore state acreage from time to time. As in the case of prior sales, the extent to which the Company participates in future bidding will depend on the availability of funds and its estimates of hydrocarbon deposits, operating expenses and future revenues which reasonably may be expected from available lease blocks. Such estimates typically take into account, among other things, estimates of future hydrocarbon prices, federal regulations, and taxation policies applicable to the petroleum industry. It is also the Company's objective to acquire certain producing leasehold properties in areas where additional low-risk drilling or improved production methods by the Company can provide attractive rates of return. Exploration and Development The scope of exploration and development programs relating to the Company's offshore interests is affected by prices for oil and gas, and by federal, state and local legislation, regulations and ordinances applicable to the petroleum industry. The Company's domestic offshore capital and exploration expenditures for 1996 were approximately $92,400,000 (excluding approximately $2,000,000 of net property acquisitions), or 144% higher than the Company's domestic offshore capital and exploration expenditures of approximately $37,800,000 (excluding approximately $650,000 of net property acquisitions) for 1995 and 91% higher than the Company's domestic offshore capital and exploration expenditures of approximately $48,400,000 for 1994 (excluding approximately $32,600,000 of net property acquisitions). The increase in the Company's domestic offshore capital and exploration expenditures for 1996, compared to 1995, resulted primarily from increased drilling activity and increased costs associated with the construction and installation of offshore platforms, pipelines and other facilities. The increase in the Company's domestic offshore capital and exploration expenditures for 1996, compared to 1994, resulted primarily from increased costs associated with construction and installation of offshore platforms, pipelines and other facilities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Leases acquired by the Company and other participants in its bidding groups are customarily committed, on a block-by-block basis, to separate operating agreements under which the appointed operator supervises exploration and development operations for the account and at the expense of the group. These agreements usually contain terms and conditions which have become relatively standardized in the industry. Major decisions regarding development and operations typically require the consent of at least a majority (in working interest) of the participants. Because the Company generally has a meaningful working interest position, the Company believes it can significantly influence (but not always control) decisions regarding development and operations on most of the leases in which it has a working interest even though it may not be the operator of a particular lease. The Company is currently the operator on all or a portion of 27 of the 93 offshore leases in which it has an interest. Platforms are installed on an offshore lease block when, in the judgment of the lease interest owners, the necessary capital expenditures are justified. A decision to install a platform generally is made after the drilling of one or more exploratory wells with contracted drilling equipment. Platforms are used to accommodate both development drilling and additional exploratory drilling. Over the last three years, the gross cost of production platforms to the joint ventures in which the Company has varying net interests has averaged approximately $7,000,000. Platform costs vary and more expensive platforms could be required in the future depending on, among other factors, the number of slots, water depth, currents, and sea floor conditions. During 1996, the Company installed, or substantially completed construction of, two new platforms on East Cameron Block 334 and one new platform on Ship Shoal Block 240. See "Significant Domestic Offshore Operating Areas During 1996." 39 43 Significant Domestic Offshore Operating Areas During 1996 Eugene Island A significant portion of the Company's reserves and a substantial part of its production are located in the Eugene Island area off the Louisiana coast in the Gulf of Mexico. The Eugene Island area has been an important part of the Company's operations since the first lease in that area was purchased in 1970 and production began in 1973. The Company currently holds interests in 10 blocks in the Eugene Island area. These blocks comprise eight fields containing 67 oil and gas wells producing from multiple reservoirs and horizons. Through January 1997, the Company participated in the drilling of six wells in the Eugene Island operating area, including three highly successful wells in its Eugene Island 261 field where the Company has a 66.67% working interest that added new reserves and production capacity, bringing the total number of productive wells in this field to six. The Eugene Island Block 330 field is one of the Company's most significant producing assets. The field, located in 245 feet of water, contains three drilling and production platforms in which the Company holds a 35% working interest, as well as an additional platform in which the Company holds a 30% working interest. There are currently 9 wells producing primarily natural gas and 34 wells producing primarily oil on the block. Reserves have been added to this field consistently since production commenced. These increases have been derived from new exploratory horizons, infill drilling, field expansions and higher than anticipated recovery efficiencies. The Company and its joint venture partners currently plan to drill seven wells in this field during 1997. East Cameron The first leasehold interest acquired by the Company in the East Cameron area off the Texas/Louisiana border in the Gulf of Mexico commenced production in February 1973. Presently, the Company has interests in five offshore blocks in this area which contain two fields and 15 producing gas wells. During 1996, the Company and its partners were active in the East Cameron Block 334/335 field. In August 1996, the Company and one of its joint venture partners commenced production from the fourth platform to be installed in this field. In addition, together with the same partner, the Company drilled two additional wells and installed a fifth platform. Production from this platform commenced in April, 1997. Finally, during the fourth quarter of 1996, the Company and its joint venture partners drilled another exploratory well into a new untested fault block. As a result of the success of this well, the Company and its joint venture partners currently intend to set a sixth platform in the field. Main Pass The Company's 14 lease blocks in the Main Pass area, including one acquired in 1997, are located near the mouth of the Mississippi River in the Gulf of Mexico and include leases in which the Company has held an interest since 1974. The Company currently plans an active exploratory drilling program during 1997 to evaluate the new lease blocks that it acquired in the Main Pass Area. The majority of the Company's production from the Main Pass area comes from a field that includes Main Pass Blocks 72, 73 and 72/74 which was unitized in 1982. The Company's working interest in this field is 35%. This field contains 26 producing oil wells and 6 producing natural gas wells from three platforms operated by the Company's joint venture partner. The field is located in 125 feet of water. The Company plans to continue into 1997 its drilling program that commenced in 1995 which has been based in part on the analysis of a recent 3-D seismic survey over the field. South Pass The Company acquired its first leasehold interest in the South Pass area off of the mouth of the Mississippi River in September 1972. In 1996, the Company acquired an interest in three additional blocks in this area, bringing the total number of blocks in the South Pass area in which the Company currently owns an interest to ten, on which four production platforms have been set that produce oil and gas from 25 wells. One of the Company's fields in the South Pass area is located on South Pass Blocks 49 and 50. The Company holds a 50% working interest in South Pass Block 50 and a 20% interest in South Pass Block 49. The Company plans to drill additional wells in this field during 1997. Another field in which the Company has an interest in the South Pass area is the South Pass Block 78 field. Following analysis of a recently acquired 3-D seismic survey, the Company and several of its joint venture partners drilled and completed four highly deviated wells into previously unexplored reservoirs during late 1995 and 1996. The Company and its joint venture partners currently plan to drill an additional well or wells in this field during 1997. 40 44 DOMESTIC ONSHORE OPERATIONS The Company has onshore division staffs in Houston and Midland, Texas. Its onshore activities are concentrated in known oil and gas provinces, principally the Permian Basin area of southeastern New Mexico, West Texas and Northwest Texas, and in the onshore Gulf Coast areas of South Texas, East Texas and South Louisiana. See "Significant Domestic Onshore Operating Areas During 1996." Lease Acquisitions Commencing in 1995 and continuing in 1996, the Company increased its activities in the onshore Gulf Coast areas of East Texas and South Louisiana. In addition to participating in the acquisition of several large 3-D seismic surveys, the Company acquired an interest in, or the right to acquire an interest in, 22,395 gross acres in East Texas and South Louisiana. As it has in recent years, in 1996 the Company also successfully participated in various onshore federal and state lease sales and acquired interests in prospective acreage from private individuals. As of December 31, 1996, the Company held interests in approximately 212,000 gross (103,000 net) acres onshore in the United States, an increase of approximately 40% (9% net) from year end 1995. Exploration and Development The Company's primary drilling objective in the Permian Basin is the Brushy Canyon (Delaware) formation which generally produces oil from depths of 6,000 to 9,000 feet. Since the Company began exploring in the Brushy Canyon (Delaware) formation in October 1989, it has participated in drilling 299 wells in the Permian Basin, West and Northwest Texas areas through December 31, 1996, including 40 wells in 1996. The Company is also active in exploring for oil and gas in several other onshore Gulf Coast areas in Texas and Louisiana. In addition to the wells drilled in the Permian Basin, during 1996 the Company participated in the drilling of eight exploratory wells (principally in East Texas and South Louisiana) and ten development wells (principally in the Lopeno Field in South Texas). See "Significant Domestic Onshore Operating Areas During 1996." During 1996, approximately 18% of the Company's natural gas production and 33% of its oil and condensate production was from its domestic onshore properties, contributing approximately 23% of consolidated oil and gas revenues. The Company generally conducts its onshore activities through joint ventures and other interest-sharing arrangements with major and independent oil companies. The Company operates many of its own onshore properties using independent contractors. The Company's domestic onshore capital and exploration expenditures were approximately $43,000,000 (excluding approximately $3,800,000 of net property acquisitions) for 1996, or 31% higher than the Company's domestic onshore capital and exploration expenditures of approximately $32,950,000 (excluding approximately $7,750,000 of net property acquisitions) for 1995 and 34% higher than the Company's domestic onshore capital and exploration expenditures of approximately $32,000,000 for 1994. The increase in the Company's domestic onshore capital and exploration expenditures for 1996, compared to 1995 and 1994, resulted primarily from increased drilling activity in South Texas, East Texas and South Louisiana, as well as increased exploration costs associated with conducting, processing and interpreting 3-D seismic surveys. Onshore reserves as of December 31, 1996, accounted for approximately 34% of the Company's domestic proved reserves and approximately 20% of its total proved reserves. Significant Domestic Onshore Operating Areas During 1996 New Mexico The Company believes that during the past five years it has been one of the most active companies drilling for oil and natural gas in the southeastern New Mexico (Lea and Eddy Counties) portion of the Permian Basin where the Company has interests in over 75,000 gross acres. The Company's primary drilling objective is the Brushy Canyon (Delaware) formation. Fields in the Brushy Canyon (Delaware) formation in the southeastern New Mexico portion of the Permian Basin are generally characterized by production from relatively shallow depths (6,000 to 9,000 feet), multiple producing zones in most wells and relatively high initial rates of production (frequently equaling the top field allowables which typically range from of 142 Bbls to 230 Bbls per day, depending on the depth of production from the field). The Company has achieved rapid cost recovery with respect to its New Mexico wells drilled to date because of relatively low capital costs and high initial rates of production. 41 45 Since the Company began exploring in the Brushy Canyon (Delaware) formation in the southeastern New Mexico portion of the Permian Basin in October 1989, it has participated through December 31, 1996, in the drilling of, among others, 92 wells in the Sand Dunes field where the Company's working interest ranges from 4% to 100%, 27 wells in the East Loving field where the Company's working interest ranges from 33% to 98%, 57 wells in the Livingston Ridge field where the Company's working interest ranges from 25% to 100%, 58 wells in the Red Tank field where the Company's working interest ranges from 89% to 100%, 16 wells in the Cedar Canyon field where the Company's working interest ranges from 38% to 100% (including nine during 1996), and 3 wells in the Lost Tank field where the Company's working interest ranges from 50% to 100%. The oil fields in this area are generally developed on a 40 acre spacing pattern. The Company anticipates drilling many additional locations in these and other fields in southeastern New Mexico during 1997 including, in particular, an aggressive drilling program in the Cedar Canyon and Lost Tank fields. Lopeno Field The Lopeno Field is located in south Texas, within 40 miles of the Mexican border. The Company acquired its initial interest in the Lopeno Field in 1983. The Company currently has interests in over 7,800 gross acres containing 23 wells, with working interests generally averaging approximately 50%. The Lopeno Field produces from over 20 upper Wilcox sandstone reservoirs ranging in depth up to 12,500 feet. Following acquisition, processing and interpretation of a 3-D seismic survey over the field, the Company and its joint venture partners commenced an active development drilling program in the fourth quarter of 1995, including the drilling of seven wells in 1996. The Company and its joint venture partners currently plan to drill an additional seven wells in the Lopeno Field during 1997. INTERNATIONAL OPERATIONS The Company has conducted international exploration activities since the late 1970's in numerous oil and gas areas throughout the world. The Company pursues a strategy of evaluating potentially high return prospects in areas of the world with a stable political and financial climate such as certain European and ASEAN countries. Currently, the Company maintains an office in Bangkok, Thailand from which it directs a field development project in the Gulf of Thailand on a portion of its Thailand Concession through its wholly owned subsidiary, Thaipo. The Company's international capital and exploration expenditures were approximately $64,400,000 for 1996, or 84% higher than the Company's international capital and exploration expenditures of approximately $34,950,000 (excluding approximately $4,171,000 of net property acquisitions) for 1995 and 914% higher than the Company's international capital and exploration expenditures of approximately $6,350,000 for 1994. Substantially all of the Company's international capital and exploration expenditures for 1996 were related to the Company's license in the Kingdom of Thailand. In addition, the Company continues to evaluate other international opportunities that are consistent with the Company's international exploration strategy. Platforms are installed on the Thailand Concession in fields where, in the judgment of Thaipo and its joint venture partners, the necessary capital expenditures are justified. A decision to install a platform generally is made after the drilling of one or more exploratory wells with contracted drilling equipment and the area where the platform would be located has been designated a production area by the Thai government. See "-- Contractual Terms Governing the Thailand Concession and Related Production." Platforms are used to accommodate both development drilling and additional exploratory drilling. Over the last two years, the gross cost of the first three production platforms in the Tantawan Field (which includes the "C" platform being set in the first quarter of 1997) has averaged approximately $20,000,000. Platform costs vary and more (or less) expensive platforms could be required in the future depending on, among other factors, the number of slots, water depth, currents, and sea floor conditions. See "-- Significant International Operating Areas During 1996; Tantawan Field." Significant International Operating Areas During 1996 Tantawan Field In August 1995, at the request of Thaipo and its two joint venture partners, the government of Thailand designated a portion of the Thailand Concession comprising approximately 68,000 acres as the Tantawan production area. The Tantawan production area, of which Thaipo is the operator and has a 46.34% working interest, has been named the Tantawan Field. Through March 1, 1997, eleven exploration and twenty three development wells have been drilled in the Tantawan Field. Initial production from the Tantawan Field commenced on February 1, 1997, from wells located on two platforms. Development drilling has commenced from a third platform that is currently being installed and will 42 46 commence in the second quarter of 1997. A fourth platform has been announced for the field and is currently under construction. Production from the Tantawan Field averaged 88.7 MMcf per day and 6,158 Bbls per day (41.1 MMcf per day and 2,854 Bbls per day net to the Company's working interest) during the first two weeks of April, 1997. Oil and gas production from the field is gathered through pipelines from the platforms into a FPSO named the "Tantawan Explorer." The FPSO Tantawan Explorer is a converted oil tanker with a capacity of slightly less than 1,000,000 Bbls, that is moored in the Tantawan Field, on which hydrocarbon processing, separation, dehydration, compression, metering and other production related equipment is installed. Following processing on board the FPSO, natural gas produced from the field is delivered to the PTT through an export pipeline. Oil and condensate produced from the field is stored on board the FPSO and transferred to shore by oil tanker. The FPSO and its processing equipment is leased from a third party under a bareboat charter by Tantawan Services, LLC, an affiliate of Thaipo. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." Thaipo and its joint venture partners pay a processing fee to Tantawan Services, LLC, to process the production from the Tantawan Field through the FPSO. Benchamas and Pakakrong Fields Exploration efforts also continue on those portions of the Thailand Concession outside the Tantawan Field. Through March 1, 1997, fourteen exploration wells have been drilled on the Thailand Concession outside of the Tantawan Field. This includes nine wells, all of which have encountered hydrocarbons, in the Benchamas Field and two wells, which also encountered hydrocarbons, in the Pakakrong Field. In January 1997, Thaipo and its joint venture partners formally requested that the government of Thailand designate certain Thailand Concession areas outside the Tantawan Field, including the Benchamas and Pakakrong fields, as production areas. The government is currently considering the request. In the interim, Thaipo and its joint venture partners have commenced preliminary planning for the development of these fields. In March 1997, the Company and its joint venture partners in the Tantawan Field or their affiliates, acquired all of the outstanding shares of Maersk Oil (Thailand) Ltd., a former joint venture partner that owned 31.67% of those portions of the Thailand Concession not currently a part of the Tantawan Field, including the Benchamas and Pakakrong Fields. With this acquisition, the Company now indirectly owns a 46.34% working interest in the entire Thailand Concession and its subsidiary Thaipo is the operator of the entire Thailand Concession. Thaipo and its joint venture partners are currently engaged in additional delineation drilling in the Benchamas Field. Other Areas on the Thailand Concession In addition to the above mentioned fields, Thaipo and its joint venture partners have identified other potentially promising areas on the Thailand Concession including, among others, the Mailwan prospect where Thaipo and its joint venture partners recently drilled two successfull wells. Since acquiring their interest in the Thailand Concession, Thaipo and its joint venture partners have acquired 3-D seismic surveys covering approximately 452,000 acres of the Thailand Concession and are currently planning to acquire additional 3-D seismic data over other prospective portions of the Thailand Concession during 1997. Contractual Terms Governing the Thailand Concession and Related Production As set forth in the August 1991 Thailand Concession agreement, the current exploratory term of the concession agreement expires on July 31, 1997, subject to further extension as described below. At the end of the concession agreement's current exploration term on July 31, 1997, Thai petroleum law permits the government to grant, upon application by a concessionaire, an additional three year exploration term on up to fifty percent of the Thailand Concession acreage that has not been previously designated as a production area or returned to the government, subject to certain terms and conditions including the agreement to undertake a work program and the payment of substantial fees and rentals. The Company and its joint venture partners are currently discussing with the relevant government authorities what the relevant work program, fees and rentals may be for an extension of the current exploratory term. Currently, the Company and its joint venture partners intend to apply to the government for a three year extension of the exploratory term of the Thailand Concession which would include the maximum amount of acreage permitted by applicable law. For those portions of the Thailand Concession designated as production areas, which currently includes the Tantawan Field and, subject to the governmental approval discussed above, may include other portions of the Thailand Concession such as the Maliwan, North Benchamas, Benchamas and Pakakrong fields, the initial production period term is 20 years, which is also subject to extension. See also "-- Miscellaneous; Sales." Production resulting from the Thailand Concession (including the Tantawan production area) is subject to a royalty ranging from 5% to 15% of oil and gas sales, plus certain fixed dollar amounts payable at specified cumulative production levels. Revenue from production in Thailand is also subject to income taxes and other similar governmental charges including a Special Remuneratory Benefit tax ("SRB"). 43 47 On November 7, 1995, Thaipo and its joint venture partners announced the signing of a thirty-year gas sales agreement with PTT, initially governing gas production from the Tantawan Field. Subsequently, Thaipo and its joint venture partners reached an agreement in principle to amend this gas sales agreement to include the reserves and anticipated gas production from the remainder of the Thailand Concession, including the Benchamas Field. Initial terms of the agreement include an initial minimum daily contract quantity ("DCQ") during the first year of production of 75 MMcf per day with the DCQ rising to 85 MMcf per day in the following year. The DCQ is the minimum daily volume that PTT has agreed to take, or pay for if not taken under the agreement. Mutual agreement on dedicated reserves would be renegotiated as and when the DCQ exceeds 125 MMcf per day. Initial base gas prices start at approximately $2.00 per Mcf (payable in Baht), subject to semi-annual adjustments based upon a formula which takes into account, among other things, changes in Singapore fuel oil prices, Thai wholesale prices and the U.S./Thai currency exchange rate. In late 1996, Thaipo and its joint venture partners signed a memorandum of understanding with PTT providing for the sale of crude oil and condensate to PTT at prices which fluctuate, based upon posted world prices, and which take into account the anticipated high quality of the production from Tantawan Field, and the field's close proximity to Thai markets. MISCELLANEOUS Other Assets The Company and a subsidiary, Pogo Offshore Pipeline Co., own interests in seven pipelines (excluding field gathering pipelines) through which offshore hydrocarbon production is transported. In addition, the Company owns an approximately 19.3% interest in a cryogenic gas processing plant near Erath, Louisiana, which entitles it to process up to 186 MMcf of natural gas and 5,478 Bbls of natural gas liquids per day. The plant is not currently operating at full capacity. In 1989, the Company entered into a limited partnership agreement as general partner of Pogo Gulf Coast, Ltd., a Texas limited partnership ("Pogo Gulf Coast"). As of December 31, 1996, Pogo Gulf Coast had interests in 5 federal offshore leases. The Company owns 40% of any interest in properties acquired by the limited partnership. Unless otherwise noted, the statistical data reported in this Prospectus reflect only the Company's share of Pogo Gulf Coast's holdings. Sales The marketing of offshore oil and gas production is subject to the availability of pipelines and other transportation, processing and refining facilities, as well as the existence of adequate markets. As a result, even if hydrocarbons are discovered in commercial quantities, a substantial period of time may elapse before commercial production commences. If pipeline facilities in an area are insufficient, the Company may have to await the construction or expansion of pipeline capacity before production from that area can be marketed. The Company's domestic offshore properties are generally located in areas where a pipeline infrastructure is well developed and there is adequate availability in such pipelines to handle the Company's current and projected future production. The Company's Thailand Concession is traversed by two major (34 inches and 36 inches in diameter, respectively) natural gas pipelines that are owned and operated by PTT and which come within approximately 25 miles of the Tantawan Field (and are slightly closer to the Benchamas and Pakakrong Fields). Thaipo and its joint venture partners in the Tantawan Field signed a long term gas sales contract with PTT in November 1995 covering production from the Tantawan Field. In addition, in November 1996, Thaipo and its joint venture partners entered into a memorandum of understanding which provides that oil and condensate production from the Tantawan Field will initially be stored aboard the FPSO, sold to PTT and transferred to shore by means of oil tankers. See "-- International Operations; Contractual Terms Governing the Thailand Concession and Related Production." The marketing of onshore oil and gas production is also subject to the availability of pipelines, crude oil hauling and other transportation, processing and refining facilities as well as the existence of adequate markets. Generally, the Company's onshore domestic oil and gas production is located in areas where commercial production of economic discoveries can be rapidly effectuated. Most of the Company's domestic natural gas sales are currently made in the "spot market" for no more than one month at a time at then currently available prices. Prices on the spot market fluctuate with demand. Crude oil and condensate production is also generally sold one month at a time at the currently available prices. Other than any futures contracts which may exist from time to time, and which are referred to in "-- Miscellaneous; Competition and Market Conditions," and the gas sales contract for production from the Thailand Concession (see "-- International Operations; 44 48 Contractual Terms Governing the Thailand Concession and Related Production") the Company has no existing contracts that require the delivery of fixed quantities of oil or natural gas other than on a best efforts basis. See also "Consolidated Financial Statements -- Note 4 to Notes to Consolidated Financial Statements and -- Unaudited Supplementary Financial Data." Competition and Market Conditions The Company experiences competition from other oil and gas companies in all phases of its operations, as well as competition from other energy related industries. The Company's profitability and cash flow are highly dependent upon the prices of oil and natural gas, which historically have been seasonal, cyclical and volatile. In general, prices of oil and gas are dependent upon numerous factors beyond the control of the Company, including various weather, economic, political and regulatory conditions. During 1996, the average price that the Company received for its crude oil, condensate and natural gas production was substantially higher than it has been in recent years. In the first quarter of 1997, the average prices that the Company received for its production were substantially less than what it received in 1996. See "Selected Reserve and Operating Data." In the past, when natural gas prices in the United States were lower than they are currently, the Company at times elected to curtail certain quantities of its production. Should natural gas prices fall further in the future, the Company may again elect to curtail certain quantities of its natural gas production. Any significant decline in oil or gas prices could have a material adverse effect on the Company's operations and financial condition and could, under certain circumstances, result in a reduction in funds available under the Company's bank credit facility. Because it is impossible to predict future oil and gas price movements with any certainty, the Company from time to time enters into contracts on a portion of its production to hedge against the volatility in oil and gas prices. Such hedging transactions, historically, have never exceeded 50% of the Company's total oil and gas production on an energy equivalent basis for any given period. While intended to limit the negative effect of further price declines, such transactions could effectively limit the Company's participation in price increases for the covered period, which increases could be significant. Furthermore, no assurance can be given that such transactions will reduce risk or mitigate the effect of any substantial decline in oil and gas prices. As of June 1, 1997, the Company was not a party to any natural gas futures contracts or crude oil swap agreements. When the Company does engage in such hedging activities, it may satisfy its obligations with its own production or by the purchase (or sale) of third party production. The Company may also cancel all delivery obligations by offsetting such obligations with equivalent agreements, thereby effecting a purely cash transaction. Operating and Uninsured Risks The Company's operations are subject to risks inherent in the exploration for and production of oil and natural gas, such as blowouts, cratering, explosions, uncontrollable flows of oil, natural gas or well fluids, fires, pollution and other environmental risks. Offshore oil and gas operations are subject to the additional hazards of marine and helicopter operations, such as capsizing, collision and adverse weather and sea conditions. These hazards could result in substantial losses to the Company due to injury or loss of life, severe damage to and destruction of property and equipment, pollution and other environmental damage and suspension of operations. The Company carries insurance which it believes is in accordance with customary industry practices, but is not fully insured against all risks incident to its business. Drilling activities are subject to numerous risks, including the risk that no commercially productive hydrocarbon reserves will be encountered. The cost of drilling, completing and operating wells and of installing production facilities and pipelines is often uncertain. The Company's drilling operations may be curtailed, delayed or canceled as a result of numerous factors, including title problems, weather conditions, compliance with governmental requirements and shortages or delays in the delivery or availability of equipment and fabrication yards. The availability of a ready market for the Company's natural gas production depends on a number of factors, including the demand for and supply of natural gas, the proximity of natural gas reserves to pipelines, the capacity of such pipelines and government regulations. Risks of Foreign Operations Ownership of property interests and production operations in Thailand, and in any other areas outside the United States in which the Company may choose to do business, are subject to the various risks inherent in foreign operations. These risks may include, among other things, currency restrictions and exchange rate fluctuations, loss of revenue, property and equipment as a result of hazards such as expropriation, nationalization, war, insurrection and other 45 49 political risks, risks of increases in taxes and governmental royalties, renegotiation of contracts with governmental entities, changes in laws and policies governing operations of foreign-based companies and other uncertainties arising out of foreign government sovereignty over the Company's international operations. The Company's international operations may also be adversely affected by laws and policies of the United States affecting foreign trade, taxation and investment. In addition, in the event of a dispute arising from foreign operations, the Company may be subject to the exclusive jurisdiction of foreign courts or may not be successful in subjecting foreign persons to the jurisdiction of the courts of the United States. The Company seeks to manage these risks by concentrating its international exploration efforts in areas where the Company believes that the existing government is stable and favorably disposed towards United States exploration and production companies. The Company believes that the Kingdom of Thailand currently presents favorable conditions in which to conduct international operations. EXPLORATION AND PRODUCTION DATA In the following data "gross" refers to the total acres or wells in which the Company has an interest and "net" refers to gross acres or wells multiplied by the percentage working interest owned by the Company. Acreage The following table shows the Company's interest in developed and undeveloped oil and gas acreage as of December 31, 1996:
DEVELOPED ACREAGE(A) UNDEVELOPED ACREAGE(B) -------------------- ---------------------- GROSS NET GROSS NET ------- ------- --------- ------- Domestic Onshore Louisiana 869 209 28,072 9,373 New Mexico 21,246 11,882 54,354 39,119 Texas 13,676 4,987 90,597 37,452 Other 3,200 333 238 55 ------- ------- --------- ------- Total Domestic 38,991 17,411 173,261 85,999 ------- ------- --------- ------- Onshore Domestic Offshore Louisiana (State) 8,756 3,326 1,508 753 Louisiana (Federal)(c) 169,625 58,453 117,901 35,797 Texas (Federal) 46,080 11,819 17,280 8,640 ------- ------- --------- ------- Total Domestic 224,461 73,598 136,689 45,190 ------- ------- --------- ------- Offshore Total Domestic 263,452 91,009 309,950 131,189 ------- ------- --------- ------- International Thailand (Offshore) 67,995 31,510 1,283,561 406,461 ------- ------- --------- ------- TOTAL COMPANY 331,447 122,519 1,593,511 537,650 ======= ======= ========= =======
__________ (a) "Developed acreage" consists of lease acres spaced or assignable to production on which wells have been drilled or completed to a point that would permit production of commercial quantities of oil or natural gas. (b) "Undeveloped acreage" includes acreage under lease or subject to lease or purchase options that the Company currently expects to exercise. Approximately 9% of the Company's total domestic offshore net undeveloped acreage is under leases that have terms expiring in 1997 (unless otherwise extended) and no domestic offshore undeveloped acreage will expire in 1998. Approximately 5% of the Company's total domestic onshore net undeveloped acreage is under leases that have terms expiring in 1997 (unless otherwise extended) and another approximately 10% of total domestic onshore net undeveloped acreage will expire in 1998 (unless otherwise extended). All of the Company's international undeveloped acreage must be relinquished to the Thai government in 1997 unless designated as a production area or unless the exploration term is extended as discussed above. See "Business -- International Operations; Contractual Terms Governing the Thailand Concession and Related Production." (c) The Company also owns overriding royalty interests in one federal lease offshore Louisiana totaling 5,000 gross acres (1,250 net acres). 46 50 Drilling Activity and Productive Wells The following table shows the number of successful gross and net exploratory and development wells in which the Company has participated and the number of gross and net wells abandoned as dry holes during the periods indicated. An onshore well is considered successful upon the installation of permanent equipment for the production of hydrocarbons or when electric logs run to evaluate such wells indicate the presence of commercial hydrocarbons and the Company currently intends to complete such wells. Successful offshore wells consist of exploratory or development wells that have been completed or are "suspended" pending completion (which has been determined to be feasible and economic) and exploratory test wells that were not intended to be completed and that encountered commercially producible hydrocarbons. A well is considered a dry hole upon reporting of permanent abandonment to the appropriate agency.
1996 1995 1994 --------------- -------------- -------------- SUCCESSFUL DRY SUCCESSFUL DRY SUCCESSFUL DRY ---------- --- ---------- --- ---------- --- GROSS WELLS: Offshore United States Exploratory 4.0 2.0 7.0 4.0 2.0 -- Development 17.0 3.0 3.0 1.0 25.0 2.0 Onshore United States Exploratory 12.0 4.0 8.0 1.0 3.0 6.0 Development 39.0 1.0 47.0 1.0 51.0 3.0 Offshore Kingdom of Thailand Exploratory 7.0 -- 3.0 -- 5.0 -- Development 16.0 -- 7.0 -- -- -- ---- --- ---- --- ---- --- Total 95.0 10.0 75.0 7.0 86.0 11.0 ==== ==== ==== === ==== ==== NET WELLS: Offshore United States Exploratory 1.7 1.5 3.0 1.6 0.6 - Development 4.9 1.5 1.0 0.4 8.4 1.4 Onshore United States Exploratory 6.5 0.9 4.6 1.0 2.8 3.6 Development 24.4 0.7 31.3 0.1 29.9 0.9 Offshore Kingdom of Thailand Exploratory 2.4 - 1.1 - 1.6 - Development 7.4 - 3.2 - - - ---- --- ---- --- ---- --- Total 47.3 4.6 44.2 3.1 43.3 5.9 ==== === ==== === ==== ===
As of December 31, 1996, the Company was participating in the drilling of 3 gross (1.3 net) offshore domestic wells, 6 gross (4.2 net) onshore wells and 1 gross (0.3 net) wells offshore the Kingdom of Thailand. The following table shows the Company's interest in productive oil and natural gas wells as of December 31, 1996. Productive wells are producing wells plus wells "capable of production" (e.g., natural gas wells waiting for pipeline connections or necessary governmental certification to commence deliveries and oil wells waiting to be connected to production facilities). 47 51
NATURAL GAS OIL WELLS(A) WELLS(A) ------------- -------------- GROSS NET GROSS NET ----- ------ ------ ------ Offshore United States . . . . . . . . . . . . . . . . . . 180 46.0 178 58.8 Onshore United States . . . . . . . . . . . . . . . . . . . 285 183.4 84 35.2 Kingdom of Thailand(b) . . . . . . . . . . . . . . . . . . -- -- 9 4.2 --- ----- --- ---- Total . . . . . . . . . . . . . . . . . . . . . . 465 229.4 271 98.2 === ===== === ====
__________ (a) One or more completions in the same bore hole are counted as one well. The data in the above table includes 25 gross (6.7 net) oil wells and 14 gross (5.7 net) natural gas wells with multiple completions. (b) The number of wells set forth in this table as "capable of production" in Thailand does not include 9 gross (4.2 net) wells that had been drilled and were awaiting completion and connection at year end. All of such wells have subsequently been completed as productive wells during the first two months of 1997. Production and Sales The following table summarizes the Company's average daily production, net of all royalties, overriding royalties and other outstanding interests, for the periods indicated. Natural gas production refers only to marketable production of natural gas on an "as sold" basis.
1996 1995 1994 --------- -------- -------- Production Sales: Natural Gas (Mcf per day) . . . . . . . . . . . . . . . . . . . . . . 107,700 121,000 144,800 ======== ======= ======= Liquid Hydrocarbons (Bbls per day) Crude Oil and Condensate . . . . . . . . . . . . . . . . . . . . . 11,968 11,786 11,100 Natural Gas Liquids(a) . . . . . . . . . . . . . . . . . . . . . . 2,173 1,998 2,222 -------- ------- ------- Total Liquid Hydrocarbons . . . . . . . . . . . . . . . . . . 14,141 13,784 13,322 ======== ======= =======
__________ (a) Natural Gas Liquids production sales includes sales attributable to both the Company's leasehold and plant ownership. The following table shows the average sales prices received by the Company for its production and the average production (lifting) costs per unit of production during the periods indicated. See "-- Miscellaneous; Competition and Market Conditions and Sales."
1996 1995 1994 ------- ------ ------ Sales Prices: Natural Gas (per Mcf) . . . . . . . . . . . . . . . . . . . . . . . . $2.40 $1.63 $1.88 Crude Oil and Condensate (per Bbl) . . . . . . . . . . . . . . . . . $22.12 $17.80 $16.08 Natural Gas Liquids (per Bbl) . . . . . . . . . . . . . . . . . . . . $14.92 $11.10 $11.33 Production (lifting) Costs(a): Natural Gas, Crude Oil, Condensate and Natural Gas Liquids (per Mcf equivalent) . . . . . . . . . . . . . . . . . . . $0.53 $0.47 $0.36
__________ (a) Production costs were converted to common units of measure on the basis of relative energy content. Such production costs exclude all depletion and amortization associated with property and equipment. 48 52 Reserves The following table sets forth information as to the Company's net proved and proved developed reserves as of December 31, 1996, 1995, and 1994, and the present value as of such dates (based on an annual discount rate of 10%) of the estimated future net revenues from the production and sale of those reserves, as estimated by Ryder Scott in accordance with criteria prescribed by the Commission. The summary report of Ryder Scott on the reserve estimates, which includes definitions and assumptions, is set forth as an exhibit to the Annual Report, and the definitions, assumptions and descriptions of methodology following the tables are based upon the Ryder Scott report. See "Incorporation of Certain Documents by Reference."
AS OF DECEMBER 31, ------------------------------ 1996 1995 1994 -------- -------- --------- Total Proved Reserves: Oil, condensate, and natural gas liquids (MBbls) -- Located in the United States . . . . . . . . . . . . . . . . . . . 28,270 26,185 26,188 Located in the Kingdom of Thailand . . . . . . . . . . . . . . . . 21,332 18,997 7,674 -------- -------- -------- Total Company(a) . . . . . . . . . . . . . . . . . . . . . . 49,602 45,182 33,862 ======== ======== ======== Natural Gas (MMcf) -- Located in the United States . . . . . . . . . . . . . . . . . . . 215,946 196,454 186,151 Located in the Kingdom of Thailand(a) . . . . . . . . . . . . . . 144,998 131,607 56,739 -------- -------- -------- Total Company . . . . . . . . . . . . . . . . . . . . . . . . 360,944 328,061 242,890 ======== ======== ======== Present value of estimated future net revenues, before income taxes (in thousands)(b) -- Located in the United States . . . . . . . . . . . . . . . . . . . $773,127 $400,845 $330,868 Located in the Kingdom of Thailand . . . . . . . . . . . . . . . . 181,418 131,630 52,112 -------- -------- -------- Total Company . . . . . . . . . . . . . . . . . . . . . . . . $954,545 $532,475 $382,980 ======== ======== ======== Total Developed Reserves: Oil, condensate, and natural gas liquids (MBbls) -- Located in the United States . . . . . . . . . . . . . . . . . . . 25,898 22,488 24,670 Located in the Kingdom of Thailand . . . . . . . . . . . . . . . . 5,192 -- -- -------- -------- -------- Total Company . . . . . . . . . . . . . . . . . . . . . . . . 31,090 22,488 24,670 ======== ======== ======== Natural Gas (MMcf) -- Located in the United States . . . . . . . . . . . . . . . . . . . 192,034 164,679 178,518 Located in the Kingdom of Thailand . . . . . . . . . . . . . . . . 45,998 -- -- -------- -------- -------- Total Company . . . . . . . . . . . . . . . . . . . . . . . . 238,032 164,679 178,518 ======== ======== ======== Present value of estimated future net revenues, before income taxes (in thousands)(a) -- Located in the United States . . . . . . . . . . . . . . . . . . . $710,871 $359,984 $321,514 Located in the Kingdom of Thailand . . . . . . . . . . . . . . . . 69,062 -- -- -------- -------- -------- Total Company . . . . . . . . . . . . . . . . . . . . . . . . $779,933 $359,984 $321,514 ======== ======== ========
__________ (a) After giving effect to the Company's March 1997 acquisition of its proportionate share of the shares of Maersk Oil (Thailand) Ltd., the Company's net proved reserves of natural gas and hydrocarbon liquids located in the Kingdom of Thailand would have been 166,160 MMcf and 26,163 MBbls, respectively, on a pro forma basis on December 31, 1996. (b) The Company believes, for the reasons set forth in succeeding paragraphs, that the present value of estimated future net revenues set forth in this Prospectus and calculated in accordance with Commission guidelines are not necessarily indicative of the true present value of the Company's reserves and, due to the fact that essentially all of the Company's domestic natural gas production is currently sold on the spot market, whereas all of the Company's Thai natural gas production is sold pursuant to a long term gas sales contract, such estimates of future net revenues from the Company's domestic and Thai reserves are, accordingly, not useful for comparative purposes. 49 53 Natural gas liquids comprise approximately 8% of the Company's total proved liquids reserves and approximately 12% of the Company's proved developed liquids reserves. All hydrocarbon liquid reserves are expressed in standard 42 gallon Bbls. All gas volumes and gas sales are expressed in MMcf at the pressure and temperature bases of the area where the gas reserves are located. Proved reserves of crude oil, condensate, natural gas, and natural gas liquids are estimated quantities that geological and engineering data demonstrate with reasonable certainty to be recoverable in the future from known reservoirs under existing conditions. Reservoirs are considered proved if economic producibility is supported by actual production or formation tests. In certain instances, proved reserves are assigned on the basis of a combination of core analysis and electrical and other type logs which indicate the reservoirs are analogous to reservoirs in the same field which are producing or have demonstrated the ability to produce on a formation test. The area of a reservoir considered proved includes (i) that portion delineated by drilling and defined by fluid contacts, if any, and (ii) the adjoining portions not yet drilled that can be reasonably judged as economically productive on the basis of available geological and engineering data. In the absence of data on fluid contacts, the lowest known structural occurrence of hydrocarbons controls the lower proved limit of the reservoir. Proved reserves are estimates of hydrocarbons to be recovered from a given date forward. They may be revised as hydrocarbons are produced and additional data becomes available. Proved natural gas reserves are comprised of nonassociated, associated and dissolved gas. An appropriate reduction in gas reserves has been made for the expected removal of liquids, for lease and plant fuel and the exclusion of non-hydrocarbon gases if they occur in significant quantities and are removed prior to sale. Reserves that can be produced economically through the application of established improved recovery techniques are included in the proved classification when these qualifications are met: (i) successful testing by a pilot project or the operation of an installed program in the reservoir provides support for the engineering analysis on which the project or program was based, and (ii) it is reasonably certain the project will proceed. Improved recovery includes all methods for supplementing natural reservoir forces and energy, or otherwise increasing ultimate recovery from a reservoir, including, (i) pressure maintenance, (ii) cycling, and (iii) secondary recovery in its original sense. Improved recovery also includes the enhanced recovery methods of thermal, chemical flooding, and the use of miscible and immiscible displacement fluids. Estimates of proved reserves do not include crude oil, condensate, natural gas, or natural gas liquids being held in underground storage. Depending on the status of development, these proved reserves are further subdivided into: (i) "developed reserves" which are those proved reserves reasonably expected to be recovered through existing wells with existing equipment and operating methods, including (a) "developed producing reserves" which are those proved developed reserves reasonably expected to be produced from existing completion intervals now open for production in existing wells, and (b) "developed non-producing reserves" which are those proved developed reserves which exist behind casing of existing wells which are reasonably expected to be produced through these wells in the predictable future where the cost of making such hydrocarbons available for production should be relatively small compared to the cost of new wells; and (ii) "undeveloped reserves" which are those proved reserves reasonably expected to be recovered from new wells on undrilled acreage, from existing wells where a relatively large expenditure is required and from acreage for which an application of fluid injection or other improved recovery technique is contemplated where the technique has been proved effective by actual tests in the area in the same reservoir. Reserves from undrilled acreage are limited to those drilling units offsetting productive units that are reasonably certain of production when drilled. Proved reserves for other undrilled units are included only where it can be demonstrated with reasonable certainty that there is continuity of production from the existing productive formation. In computing future revenues from gas reserves attributable to the Company's domestic interests, prices in effect at December 31, 1996 were used, including current market prices, contract prices and fixed and determinable price escalations where applicable. In accordance with Commission guidelines, the gas prices that were used make no allowances for seasonal variations in gas prices which are likely to cause future yearly average gas prices to be somewhat lower than December gas prices. For domestic gas sold under contract, the contract gas price including fixed and determinable escalations, exclusive of inflation adjustments, was used until the contract expires and then was adjusted to the current market price for the area and held at this adjusted price to depletion of the reserves. In computing future revenues from liquids attributable to the Company's domestic interests, prices in effect at December 31, 1996 were used and these prices were held constant to depletion of the properties. The future revenues are adjusted to reflect the Company's net revenue interest in these reserves as well as any ad valorem and other severance taxes but do not include, unless otherwise noted, any provisions for corporate income taxes. 50 54 In computing future revenues from the Company's gas reserves attributable to the Company's interests in the Kingdom of Thailand, the current contract price under the gas sales agreement with PTT was used, without giving effect to any of the adjustments provided for in the gas sales agreement due to their indeterminate nature as of December 31, 1996 in accordance with Commission guidelines. In computing future revenues from liquids attributable to the Company's interests in the Kingdom of Thailand, a price of $24.56 was used, which the Company believes approximates the price that the Company would have received for production from the Thailand Concession under the memorandum of understanding with PTT on December 31, 1996 if production had been sold to PTT on that date, and this price was held constant until depletion of the Company's reserves in the Kingdom of Thailand. The future revenues are adjusted to reflect the Company's net revenue interest in these reserves and the Company's obligations under the Thailand Concession, including the payment of SRB and applicable production bonuses, but does not include, unless otherwise noted, any provisions for U.S. or Thai corporate income or other taxes. The estimates of future net revenue from the Company's domestic and Thailand properties are based on existing law where the properties are located and are calculated in accordance with Commission guidelines. Operating costs for the leases and wells include only those costs directly applicable to the leases or wells. When applicable, the operating costs include a portion of general and administrative costs allocated directly to the leases and wells under terms of operating agreements. Development costs are based on authorization for expenditure for the proposed work or actual costs for similar projects. The current operating and development costs were held constant throughout the life of the properties. For properties located onshore, the estimates of future net revenues and the present value thereof do not consider the salvage value of the lease equipment or the abandonment cost of the lease since both are relatively insignificant and tend to offset each other. The estimated net cost of abandonment after salvage was considered for offshore properties where such costs net of salvage are significant. No deduction was made for indirect costs such as general and administrative and overhead expenses, loan repayments, interest expenses, and exploration and development prepayments. Accumulated gas production imbalances, if any, have been taken into account. Production data used to arrive at the estimates set forth above includes estimated production for the last few months of 1996. The future production rates from reservoirs now on production may be more or less than estimated because of, among other reasons, mechanical breakdowns and changes in market demand or allowables set by regulatory bodies. Properties which are not currently producing may start producing earlier or later than anticipated in the estimates of future production rates. The future prices received by the Company for the sales of its production may be higher or lower than the prices used in calculating the estimates of future net revenues and the present value thereof as set forth herein, and the operating costs and other costs relating to such production may also increase or decrease from existing levels; however, such possible changes in prices and costs were, in accordance with rules adopted by the Commission, omitted from consideration in arriving at such estimates. There are numerous uncertainties in estimating the quantity of proved reserves and in projecting the future rates of production and timing of development expenditures. Oil and gas reserve engineering must be recognized as a subjective process of estimating underground accumulations of oil and gas that cannot be measured in an exact way, and estimates of other engineers might differ materially from those of Ryder Scott, the Company's reserve engineers. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Results of drilling, testing and production subsequent to the date of the estimate may justify revision of such estimate, which revisions may be material. Accordingly, reserve estimates are often different from the quantities of oil and gas that are ultimately recovered. The Company is periodically required to file estimates of its oil and gas reserve data with various U.S. governmental regulatory authorities and agencies, including the Federal Energy Regulatory Commission ("FERC") and the Federal Trade Commission and, with respect to reserves located in Thailand, the Kingdom of Thailand's Department of Mineral Resources. In addition, estimates are from time to time furnished to governmental agencies in connection with specific matters pending before such agencies. The basis for reporting reserves to these agencies, in some cases, is not comparable to that furnished by Ryder Scott because of the nature of the various reports required. The major differences generally include differences in the time as of which such estimates are made, differences in the definition of reserves, requirements to report in some instances on a gross, net or total operator basis and requirements to report in terms of smaller geographical units. During 1996, no estimates by the Company of its total proved net oil and gas reserves were filed with or included in reports to any governmental authority or agency other than the Commission and, 51 55 with respect to reserves relating to the Company's properties located in Thailand, the Kingdom of Thailand's Department of Mineral Resources. GOVERNMENT REGULATION The Company's operations are affected from time to time in varying degrees by political developments and governmental laws and regulations. Rates of production of oil and gas have for many years been subject to governmental conservation laws and regulations, and the petroleum industry has been subject to federal and state tax laws dealing specifically with it. Federal Income Tax The Company's operations are significantly affected by certain provisions of the federal income tax laws applicable to the petroleum industry. The principal provisions affecting the Company are those that permit the Company, subject to certain limitations, to deduct as incurred, rather than to capitalize and amortize, its domestic "intangible drilling and development costs" and to claim depletion on a portion of its domestic oil and gas properties based on 15% of its oil and gas gross income from such properties (up to an aggregate of 1,000 Bbls per day of domestic crude oil and/or equivalent units of domestic natural gas) even though the Company has little or no basis in such properties. Under certain circumstances, however, a portion of such intangible drilling and development costs and the percentage depletion allowed in excess of basis will be tax preference items that will be taken into account in computing the Company's alternative minimum tax. Environmental Matters Domestic oil and gas operations are subject to extensive federal regulation and, with respect to federal leases, to interruption or termination by governmental authorities on account of environmental and other considerations including the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") also known as the "Superfund Law." The recent trend towards stricter standards in environmental legislation and regulation may continue, and this could increase costs to the Company and others in the industry. Regulations of the Department of the Interior currently impose absolute liability upon the lessee under a federal lease for the costs of clean-up of pollution resulting from a lessee's operations, and such lessee may also be subject to possible legal liability for pollution damages. The Company maintains insurance against costs of clean-up operations, but is not fully insured against all such risks. A serious incident of pollution may, as it has in the past, also result in the Department of the Interior requiring lessees under federal leases to suspend or cease operation in the affected area. The operators of the Company's properties have numerous applications pending before the Environmental Protection Agency (the "EPA") for National Pollution Discharge Elimination System water discharge permits with respect to offshore drilling and production operations. The issue generally involved is whether effluent discharges from each facility or installation comply with the applicable federal regulations. The Oil Pollution Act of 1990 (the "OPA") and regulations thereunder impose a variety of regulations on "responsible parties" related to the prevention of oil spills and liability for damages resulting from such spills in United States waters. A "responsible party" includes the owner or operator of a facility or vessel, or the lessee or permittee of the area in which an offshore facility is located. The OPA assigns liability to each responsible party for oil removal costs and a variety of public and private damages. While liability limits apply in some circumstances, a party cannot take advantage of liability limits if the spill was caused by gross negligence or willful misconduct or resulted from violation of a federal safety, construction or operating regulation. If the party fails to report a spill or cooperate fully in the cleanup, liability limits likewise do not apply. Few defenses exist to the liability imposed by the OPA. The OPA also imposes ongoing requirements on responsible parties, including proof of financial responsibility to cover at least some costs in a potential spill. For tank vessels, including mobile offshore drilling rigs, the OPA imposes on owners, operators and charterers of the vessels, an obligation to maintain evidence of financial responsibility of up to $10,000,000 depending on gross tonnage. With respect to offshore facilities, proof of greater levels of financial responsibility may be applicable. For offshore facilities that have a worst case oil spill potential of more than 1,000 barrels (which includes many of the Company's offshore producing facilities), certain amendments to the OPA that were enacted in 1996 provide that the amount of financial responsibility that must be demonstrated for most facilities ranging from $10,000,000 to $35,000,000, depending upon location, with higher amounts, up to $150,000,000 in certain limited circumstances. The Company believes that it currently has established adequate proof of financial responsibility for its offshore facilities at no significant increase in expense over recent prior years. However, the Company cannot predict 52 56 whether these financial responsibility requirements under the OPA amendments will result in the imposition of substantial additional annual costs to the Company in the future or otherwise materially adversely effect the Company. The impact, however, should not be any more adverse to the Company that it will be to other similarly situated or less capitalized owners or operators in the Gulf of Mexico. The Company's onshore operations are subject to numerous United States federal, state, and local laws and regulations controlling the discharge of materials into the environment or otherwise relating to the protection of the environment including CERCLA. Such laws and regulations, among other things, impose absolute liability on the lessee under a lease for the cost of clean-up of pollution resulting from a lessee's operations, subject the lessee to liability for pollution damages, may require suspension or cessation of operations in affected areas, and impose restrictions on the injection of liquids into subsurface aquifers that may contaminate groundwater. Such laws could have a significant impact on the operating costs of the Company, as well as the oil and gas industry in general. Federal, state and local initiatives to further regulate the disposal of oil and gas wastes are also pending in certain states, and these initiatives could have a similar impact on the Company. The Company is asked to comment on the costs it incurred during the prior year on capital expenditures for environmental control facilities and the amount it anticipates incurring during the coming year. The Company believes that, in the course of conducting its oil an gas operations, many of the costs attributable to environmental control facilities would have been incurred absent environmental regulations as prudent, safe oilfield practice. During 1996, the Company incurred capital expenditures of approximately $1,971,000 for environmental control facilities, primarily relating to the completion of two salt water disposal facilities in New Mexico and the installation of certain environmental control facilities on two platforms installed in the Gulf of Thailand and on one platform installed in the Gulf of Mexico. The Company currently has budgeted approximately $1,240,000 for expenditures involving environmental control facilities during 1997, including, among other things, two salt water disposal facilities and environmental control equipment for one platform in the Gulf of Mexico. Other Laws and Regulations Various laws and regulations often require permits for drilling wells and also cover spacing of wells, the prevention of waste of oil and gas including maintenance of certain gas/oil ratios, rates of production and other matters. The effect of these laws and regulations, as well as other regulations that could be promulgated by the jurisdictions in which the Company has production, could be to limit the number of wells that could be drilled on the Company's properties and to limit the allowable production from the successful wells completed on the Company's properties, thereby limiting the Company's revenues. The MMS administers the oil and gas leases held by the Company on federal onshore lands and offshore tracts in the Outer Continental Shelf. The MMS holds a royalty interest in these federal leases on behalf of the federal government. While the royalty interest percentage is fixed at the time that the lease is entered into, from time to time the MMS changes or reinterprets the applicable regulations governing its royalty interests, and such action can indirectly affect the actual royalty obligation that the Company is required to pay. In a letter dated May 3, 1993, the MMS announced a reinterpretation of its right to collect royalty payments from producers on certain settlements in which such producers and pipeline companies were involved a number of years ago. The MMS reinterpretation has been challenged in court by various producers and trade groups representing them. On August 27, 1996, in Independent Petroleum Association of America, et al. v. Babbit et al., Nos. 95-5210 etc., the United States Court of Appeals for the District of Columbia Circuit held that the May 3, 1993, reinterpretation was invalid and unenforceable. Unless and until this or other similar cases are resolved in favor of the MMS' reinterpretation of its regulations, it is unlikely that the Company or other producers will be legally required to pay royalties on such settlement agreements. The Company was involved in several settlement agreements with pipelines that could be subject to the MMS' new reinterpretation. The MMS has reviewed the Company's and other producers' settlement agreements, to determine whether it believes any additional royalty payments may be due and has asserted that additional royalties may be due in connection with two of the Company's settlement agreements. Based upon existing case law, the Company has asserted through the administrative appeals process, and continues to believe, that it does not owe any additional royalties beyond what it has previously paid. However, in the event that the MMS is able to successfully assert that additional royalty is due from the Company in connection with settlement agreements to which the Company is a party, the Company does not currently believe that such additional assessment will have a material adverse impact on the financial position or results of operations of the Company. The FERC has recently embarked on regulatory initiatives relating to its jurisdiction over rates for natural gas gathering services provided by interstate pipelines and to the availability of market-based and other alternative rate 53 57 mechanisms to such pipelines for transmission and storage services. Among the FERC initiatives is a policy allowing pipelines and transportation customers to negotiate rates above the otherwise applicable maximum lawful cost-based rates on the condition that the pipelines alternatively offer so-called recourse rates equal to the maximum lawful cost-based rates. This negotiated/recourse rate policy has been challenged in the United States Court of Appeals for the District of Columbia, and the appeal remains pending. With respect to gathering services, the FERC has issued orders declaring that certain facilities owned by interstate pipelines primarily perform a gathering function, and may be transferred to affiliated and non- affiliated entities that are not subject to the FERC's rate jurisdiction. Many of these orders have been challenged on rehearing to the FERC, and on appeal to the courts. The Company cannot predict the ultimate outcome of these developments, nor the effect of these developments on transportation rates. Inasmuch as the rates for these pipeline services can affect the gas prices received by the Company for the sale of its production, the FERC's actions may have an impact on the Company. However, the impact should not be substantially different on the Company than it will on other similarly situated gas producers and sellers. EMPLOYEES As of May 1, 1997, the Company and its subsidiary Thaipo had 150 full-time employees, including sixteen in its Bangkok, Thailand office. None of the Company's employees are presently represented by a union for collective bargaining purposes. The Company considers its relations with its employees to be excellent. MANAGEMENT AND BOARD OF DIRECTORS EXECUTIVE OFFICERS Executive officers of the Company are appointed annually to serve for the ensuing year or until their successors have been elected or appointed. The executive officers of the Company, their age as of June 1, 1997, and the year each was elected to his present position are as follows:
YEAR EXECUTIVE OFFICER EXECUTIVE OFFICE AGE ELECTED ------------------- --------------------------- --- ------- Paul G. Van Wagenen . . . . . . . . . . . . . . . . . Chairman of the Board, 51 1991 President and Chief Executive Officer Kenneth R. Good . . . . . . . . . . . . . . . . . . . Corporate Senior Vice 59 1996 President Bruce E. Archinal . . . . . . . . . . . . . . . . . . Vice President and Onshore 44 1997 Division Manager Stuart P. Burbach . . . . . . . . . . . . . . . . . . Vice President and Offshore 45 1991 Division Manager Jerry A. Cooper . . . . . . . . . . . . . . . . . . . Vice President and Western 48 1990 Division Manager John W. Elsenhans . . . . . . . . . . . . . . . . . . Vice President -- Finance and 44 1995 Treasurer Harvey L. Gold . . . . . . . . . . . . . . . . . . . Vice President -- Engineering 61 1988 Thomas E. Hart . . . . . . . . . . . . . . . . . . . Vice President and Controller 54 1988 R. Phillip Laney . . . . . . . . . . . . . . . . . . Vice President and 56 1991 International Division Manager John O. McCoy, Jr . . . . . . . . . . . . . . . . . . Vice President and Chief 45 1989 Administrative Officer J. D. McGregor . . . . . . . . . . . . . . . . . . . Vice President -- Sales 52 1988 Ronald B. Manning . . . . . . . . . . . . . . . . . . Vice President and General 43 1995 Counsel Gerald A. Morton . . . . . . . . . . . . . . . . . . Vice President -- Law and 38 1997 Corporate Secretary Sammie M. Shaw . . . . . . . . . . . . . . . . . . . Vice President -- Operations 65 1992
Prior to assuming their present positions with the Company, the business experience of each executive officer for more than the last five years was as follows: Mr. Van Wagenen, who joined the Company in 1979, served as President and Chief Operating Officer of the Company since 1990; Mr. Good, who joined the Company in 1977, served as Senior Vice President -- Land and Budgets since 1991; Mr. Archinal, who joined the Company in 1982, was Onshore Division Manager since 1994, and prior thereto served as Offshore Division Exploration Manager since 1991; Mr. Burbach, who rejoined the Company in 1991, was Vice President of Norfolk Holding Inc. from 1986 until rejoining the 54 58 Company; Mr. Cooper served in various positions since joining the Company in 1979; Mr. Elsenhans was Director, Corporate Finance for the Company since 1991; Mr. Gold was Manager of Reservoir Engineering for the Company since joining the Company in 1977; Mr. Hart was Controller for the Company since joining the Company in 1977; Mr. Laney, who joined the Company in 1977, served as International Exploration Manager for the Company since 1983; Mr. McCoy served as Director of Personnel and Administration for the Company since joining the Company in 1978; Mr. McGregor was Manager of Hydrocarbon Sales and Contracts for the Company since joining the Company in 1981; Mr. Manning, who joined the Company in 1987, was Corporate Secretary and an Associate General Counsel for the Company since 1990; Mr. Morton was Corporate Secretary and Associate General Counsel for the Company since 1995, an Associate General Counsel since joining the Company in 1993, and prior thereto was an attorney with the law firm of Weil, Gotshal & Manges since 1988; Mr. Shaw was Operations Manager for the Company since joining the Company in 1981. BOARD OF DIRECTORS The following is a list of the members of the Company's Board of Directors and their principal occupations.
NAME PRINCIPAL OCCUPATION ---------------------- --------------------------------------- Paul G. Van Wagenen . . . . . Chairman of the Board, President and Chief Executive Officer of the Company Tobin Armstrong . . . . . . . Rancher Jack S. Blanton . . . . . . . President, Eddy Refining Company; Chairman, Houston Endowment, Inc. W. M. Brumley, Jr . . . . . . Personal Investments John B. Carter, Jr . . . . . Chairman of the Board, Houston National Bank William L. Fisher . . . . . . Barrow Chair and Geological Sciences Professor University of Texas at Austin William E. Gipson . . . . . . Independent Petroleum Geologist, President, Wines of Pheasant Ridge Gerrit W. Gong . . . . . . . Director, Asian Studies, Center for Strategic and International Studies J. Stuart Hunt . . . . . . . Personal Investments Frederick A. Klingenstein . . Chairman of the Board, Klingenstein, Fields & Co., L.P. Nicholas R. Petry . . . . . . Chairman of the Board, Petry Company Jack A. Vickers . . . . . . . Chairman of the Board, The Vickers Companies
DESCRIPTION OF THE NOTES The Exchange Notes will be issued, and the Old Notes were issued, pursuant to an indenture (the "Indenture") between the Company, as issuer, and State Street Bank & Trust Company (as successor in interest to Fleet National Bank under the Indenture), as trustee (the "Trustee"). The terms of the Notes include those set forth or referred to in the Indenture and those made part of the Indenture by the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Notes are subject to all such terms, and prospective Holders of the Notes are referred to the Indenture, the documents referred to in the Indenture and the Trust Indenture Act for a statement thereof. The following summary of the material provisions of the Indenture does not purport to be complete and is subject to, and qualified in its entirety by reference to, all of the provisions of the Indenture, including the definitions of certain terms contained therein, the documents referred to therein and the Trust Indenture Act. The definitions of certain capitalized terms used in the following summary are set forth below under "-- Certain Definitions." If this Exchange Offer is consummated, Holders of Old Notes who do not exchange their Old Notes for Exchange Notes will vote together with Holders of Exchange Notes for all relevant purposes under the Indenture. In that regard, the Indenture requires that certain actions by the Holders thereunder (including acceleration following an Event of Default) must be taken, and certain rights must be exercised, by specified minimum percentages of the aggregate principal amount of the outstanding securities issued under the Indenture. In determining whether Holders of the requisite percentage in principal amount have given any notice, consent or waiver or taken any other action permitted under the Indenture, any Old Notes that remain outstanding after the Exchange Offer will be aggregated with the Exchange Notes, and the Holders of such Old Notes and the Exchange Notes will vote together as a single series for all such purposes. Accordingly, all references herein to specified percentages in aggregate principal amount of the outstanding Notes shall be deemed to mean, at any time after the Exchange Offer is consummated, such percentages in aggregate principal amount of the Old Notes and the Exchange Notes then outstanding. 55 59 GENERAL The Notes are unsecured senior subordinated obligations of the Company limited to $100,000,000 aggregate principal amount. The Exchange Notes will be issued, and the Old Notes were issued, only in registered form, without coupons, in denominations of $1,000 and integral multiples thereof. Principal of, premium, if any, on and interest on the Notes is payable, and the Notes are transferable, at the office or agency of the Company in the City of New York maintained for such purposes, which initially will be the corporate trust office or agency of the Trustee maintained at New York, New York. In addition, interest may be paid, at the option of the Company, by check mailed to the registered Holders of the Notes at their respective addresses as shown on the Note Register or, upon application to the Trustee by any Holder of an aggregate principal amount of Notes in excess of $500,000 not later than the applicable Regular Record Date, by transfer to an account (such transfer to be made only to a Holder of an aggregate principal amount of Notes in excess of $500,000) maintained by such Holder with a bank in New York City. No transfer will be made to any such account unless the Trustee has received written wire instructions not less than 15 days prior to the relevant payment date. No service charge will be made for any transfer, exchange or redemption of Notes, but the Company or the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge that may be payable in connection therewith. For a discussion of the circumstances in which the interest rate on the Notes may be temporarily increased, see "Exchange Offer; Registration Rights." Any Old Notes that remain outstanding after the completion of the Exchange Offer, together with the Exchange Notes issued in connection with the Exchange Offer, will be treated as a single class of securities under the Indenture. MATURITY, INTEREST AND PRINCIPAL PAYMENTS The Notes will mature on May 15, 2007. Interest on the Notes will accrue at the rate of 8 3/4% per annum and will be payable semiannually on May 15 and November 15 of each year (each an "Interest Payment Date"), commencing November 15, 1997, to the Person in whose name the Note is registered in the Note Register at the close of business on the May 1, or November 1 next preceding such interest payment date. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. REDEMPTION Optional Redemption. The Notes will be redeemable at the option of the Company, in whole or in part, at any time on or after May 15, 2002, at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest, if any, to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on an interest payment date that is on or prior to the redemption date), if redeemed during the 12-month period beginning on May 15 of the years indicated below:
YEAR PRICE ---------------- -------- 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . 104.375% 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . 102.917% 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . 101.458% 2005 and thereafter . . . . . . . . . . . . . . . . . . . . 100%
Selection and Notice. In the event that less than all of the Notes are to be redeemed at any time, selection of such Notes (or any portion thereof that is an integral multiple of $1,000) for redemption will be made by the Trustee from the outstanding Notes not previously called for redemption (or otherwise purchased by the Company) on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided, however, that no Note with a principal amount of $1,000 or less shall be redeemed in part. Notice of redemption shall 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 such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in a principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note. On and after the redemption date, interest will cease to accrue on the Notes or portions thereof called for redemption and accepted for payment. Offers to Purchase. As described below, (a) upon the occurrence of a Change of Control, the Company is obligated to make an offer to purchase all outstanding Notes at a purchase price equal to 101% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of purchase and (b) upon the occurrence of an Asset Sale, the Company may be obligated to make offers to purchase Notes with a portion of the Net Cash Proceeds of such Asset Sale at a purchase price equal to 100% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of purchase. See "-- Certain Covenants -- Change of Control" and "-- Limitation on Disposition of Proceeds of Asset Sales." 56 60 SUBORDINATION Payments of and distributions on or with respect to the Note Obligations is subordinated, to the extent set forth in the Indenture, in right of payment to the prior payment in full in cash or Cash Equivalents of all existing and future Senior Indebtedness, which includes, without limitation, all Credit Agreement Obligations of the Company. The Notes will rank prior in right of payment only to other Indebtedness of the Company which is, by its terms, subordinated in right of payment to the Notes. As of June 1, 1997, there was $201,230,000 of Indebtedness of the Company which would constitute such Subordinated Indebtedness. In addition, the Note Obligations are effectively subordinated to all creditors of the Company's Subsidiaries, including trade creditors. See "Risk Factors -- Subordination of Notes" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." The Indenture provides that in the event of (a) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding in connection therewith, relating to the Company (or its creditors, as such) or its properties and assets, or (b) any liquidation, dissolution or other winding-up of the Company, whether voluntary or involuntary or (c) any assignment for the benefit of creditors or other marshaling of assets or liabilities of the Company, all Senior Indebtedness of the Company must be paid in full in cash or Cash Equivalents before any direct or indirect payment or distribution, whether in cash, property or securities (excluding certain permitted equity and subordinated debt securities referred to in the Indenture as "Permitted Junior Securities"), is made on account of the Note Obligations. In the event that, notwithstanding the foregoing, the Trustee or the Holder of any Note receives any payment or distribution of properties or assets of the Company of any kind or character, whether in cash, property or securities, by set-off or otherwise, in respect of Note Obligations before all Senior Indebtedness is paid or provided for in full in cash or Cash Equivalents, then the Trustee or the Holders of Notes receiving any such payment or distribution (other than a payment or distribution in the form of Permitted Junior Securities) will be required to pay or deliver such payment or distribution forthwith to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other person making payment or distribution of assets of the Company for application to the payment of all Senior Indebtedness remaining unpaid, to the extent necessary to pay all Senior Indebtedness in full. During the continuance of any default in the payment when due (whether at Stated Maturity, upon scheduled repayment, upon acceleration or otherwise) of principal of or premium, if any, or interest on, or of unreimbursed amounts under drawn letters of credit or fees relating to letters of credit constituting, any Designated Senior Indebtedness (a "Payment Default"), no direct or indirect payment or distribution by or on behalf of the Company of any kind or character shall be made on account of the Note Obligations or any obligation under any Subsidiary Guarantee unless and until such default has been cured or waived or has ceased to exist or such Designated Senior Indebtedness shall have been discharged or paid in full in cash or Cash Equivalents. In addition, 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 then be accelerated (a "Non-payment Default"), after receipt by the Trustee from the holders (or their representative) of such Designated Senior Indebtedness of a written notice of such Non-payment Default, no payment or distribution of any kind or character may be made by the Company on account of the Note Obligations for the period specified below (the "Payment Blockage Period"). The Payment Blockage Period shall commence upon the receipt of notice of a Non-payment Default by the Trustee from the holders (or their representative) of Designated Senior Indebtedness stating that such notice is a payment blockage notice pursuant to the Indenture and shall end on the earliest to occur of the following events: (a) 179 days shall have elapsed since the receipt by the Trustee of such notice; (b) the date, as set forth in a written notice to the Company or the Trustee from the holders (or their representative) of the Designated Senior Indebtedness initiating such Payment Blockage Period, on which such default is cured or waived or ceases to exist (provided, that no other Payment Default or Non-payment Default has occurred or is then continuing after giving effect to such cure or waiver); (c) the date on which such Designated Senior Indebtedness is discharged or paid in full in cash or Cash Equivalents; and (d) the date, as set forth in a written notice to the Company or the Trustee from the holders (or their representative) of the Designated Senior Indebtedness initiating such Payment Blockage Period, on which such Payment Blockage Period shall have been terminated by written notice to the Company or the Trustee from the holders (or their representative) of Designated Senior Indebtedness initiating such Payment Blockage Period, after which the Company, subject to the subordination provisions set forth above and the existence of another Payment Default, shall promptly resume making any and all required payments in respect of the Notes, including any missed payments. Only one Payment Blockage Period with respect to the Notes may be commenced within any 360 consecutive day period. No Non-payment Default with respect to Designated Senior Indebtedness that existed or was continuing on the date of the commencement of any Payment Blockage Period with respect to the Designated Senior Indebtedness initiating such Payment Blockage Period will be, or can be, made the basis for the commencement of a second Payment Blockage Period, whether or not within a period of 360 consecutive days, unless such default has been cured or waived for a period of not less than 90 consecutive days (it being acknowledged that any subsequent action, or any breach of any financial covenant for a period commencing after the date of commencement of such Payment Blockage Period, that, in either case, would give rise to a Non-payment Default pursuant to any provision under which a Non-payment Default previously existed or was continuing shall constitute a new Non-payment Default for this purpose; provided, however, that, in the case of a breach 57 61 of a particular financial covenant, the Company shall have been in compliance for at least one full 90 consecutive day period commencing after the date of commencement of such Payment Blockage Period). In no event will a Payment Blockage Period extend beyond 179 days from the date of the receipt by the Trustee of the notice, and there must be a 181 consecutive day period in any 360-day period during which no Payment Blockage Period is in effect. In the event that, notwithstanding the foregoing, the Company makes any payment or distribution to the Trustee or the Holder of any Note prohibited by the subordination provision of the Indenture, then such payment or distribution will be required to be paid over and delivered forthwith to the holders (or their representative) of Designated Senior Indebtedness. If the Company fails to make any payment on the Notes when due or within any applicable grace period, whether or not on account of the payment blockage provisions referred to above, such failure will constitute an Event of Default under the Indenture and will enable the Holders of the Notes to accelerate the maturity thereof. See "-- Events of Default." By reason of such subordination, in the event of liquidation, receivership, reorganization or insolvency, creditors of the Company who are holders of Senior Indebtedness may recover more, ratably, than the Holders of the Notes, and funds which would be otherwise payable to the Holders of the Notes will be paid to the holders of the Senior Indebtedness to the extent necessary to pay the Senior Indebtedness in full, and the Company may be unable to meet its obligations in full with respect to the Notes. As of May 31, 1997, the aggregate amount of outstanding Senior Indebtedness was approximately $33,000,000. See "Capitalization" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." Although the Indenture contains limitations on the amount of additional Indebtedness that the Company and the Restricted Subsidiaries may incur, the amounts of such Indebtedness could be substantial and, in any case, such Indebtedness may be Senior Indebtedness or Indebtedness of Subsidiaries to which the Notes will be subordinated. The Indenture prohibits the incurrence by the Company of Indebtedness that is contractually subordinated in right of payment to any Senior Indebtedness of the Company and senior in right of payment to the Notes. As of June 1, 1997, there was $201,230,000 of Indebtedness of the Company that was contractually subordinated in right of payment to the Old Notes and there was no Indebtedness of the Company which was pari passu in right of payment with the Old Notes. SUBSIDIARY GUARANTEES OF THE NOTES Under the circumstances described below, the Company's payment obligations under the Notes may in the future be jointly and severally guaranteed by existing and future Restricted Subsidiaries of the Company as Subsidiary Guarantors. Currently, no Subsidiaries of the Company have executed or are required to execute and deliver the Indenture as a Subsidiary Guarantor. Each Subsidiary Guarantor will guarantee, jointly and severally, to each Holder of Notes and the Trustee, the full and prompt performance of the Company's obligations under the Indenture and the Notes, including the payment of principal of (or premium, if any, on) and interest on the Notes pursuant to its Subsidiary Guarantee. The Subsidiary Guarantees will be subordinated to Guarantor Senior Indebtedness of the Subsidiary Guarantors to the same extent and in the same manner as the Notes are subordinated to Senior Indebtedness. The obligations of each Subsidiary Guarantor will be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities (including, but not limited to, Guarantor Senior Indebtedness) of such Subsidiary Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Subsidiary Guarantor in respect of the obligations of such other Subsidiary Guarantor under its Subsidiary Guarantee or pursuant to its contribution obligations under the Indenture, result in the obligations of such Subsidiary Guarantor under the Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. Each Subsidiary Guarantor that makes a payment or distribution under a Subsidiary Guarantee shall be entitled to a contribution from each other Subsidiary Guarantor (if any) in a pro rata amount based on the Adjusted Net Assets (as defined in the Indenture) of each Subsidiary Guarantor. Each Subsidiary Guarantor may consolidate with or merge into or sell, assign, convey, transfer, lease or otherwise dispose of its properties and assets substantially as an entirety (or any portion thereof) to the Company or another Subsidiary Guarantor without limitation, except to the extent any such transaction is subject to the covenants described below under the caption "-- Merger, Consolidation and Sale of Assets." Each Subsidiary Guarantor may consolidate with or merge into or sell, assign, convey, transfer, lease or otherwise dispose of its properties and assets substantially as an entirety in one transaction or series of related transactions to a Person other than the Company or another Subsidiary Guarantor (whether or not affiliated with the Subsidiary Guarantor); provided, that (a) in the case of a merger or consolidation, if the surviving Person is not the Subsidiary Guarantor, such surviving Person or, in the case of a sale, assignment, conveyance, transfer, lease or other disposition, the transferee Person agrees to assume such Subsidiary Guarantor's Subsidiary Guarantee and all its obligations pursuant to the Indenture, except to the extent that the following paragraph would result in the release of such Subsidiary Guarantee and (b) such transaction does not (i) violate any of the covenants described below under the caption "-- Certain Covenants" or in the Indenture or (ii) result in a Default or Event of Default immediately thereafter. 58 62 The Subsidiary Guarantee of any Restricted Subsidiary may be released upon the terms and subject to the conditions described under paragraph (b) of the caption "-- Certain Covenants -- Limitation on Non-Guarantor Restricted Subsidiaries." Each Subsidiary Guarantor that is designated as an Unrestricted Subsidiary in accordance with the Indenture shall be released from its Subsidiary Guarantee and related obligations set forth in the Indenture for so long as it remains an Unrestricted Subsidiary. Although the Indenture does not contain any requirement that any Subsidiary execute and deliver a Subsidiary Guarantee, certain covenants described below require a Restricted Subsidiary in the future to execute and deliver a Subsidiary Guarantee prior to the guarantee of other Indebtedness. See "Certain Covenants -- Limitation on Non-Guarantor Restricted Subsidiaries." CERTAIN COVENANTS The Indenture contains, among others, the covenants described below. Limitation on Indebtedness. The Indenture provides that neither the Company nor any Restricted Subsidiary will create, incur, issue, assume, guarantee or in any manner become directly or indirectly liable for the payment of (collectively "incur") any Indebtedness (including any Acquired Indebtedness), other than Permitted Indebtedness and Permitted Subsidiary Indebtedness, as the case may be; provided, however, that the Company and its Restricted Subsidiaries that are Subsidiary Guarantors may incur additional Indebtedness if (i) the Company's Consolidated Fixed Charge Coverage Ratio for the four full fiscal quarters immediately preceding the incurrence of such Indebtedness (and for which financial statements are available), taken as one period (at the time of such incurrence, after giving pro forma effect to: (A) the incurrence of such Indebtedness and (if applicable) the application of the net proceeds therefrom as if such Indebtedness had been incurred and the application of such proceeds had occurred at the beginning of such four-quarter period; (B) the incurrence, repayment or retirement of any other Indebtedness (including Permitted Indebtedness and Permitted Subsidiary Indebtedness) by the Company or its Restricted Subsidiaries since the first day of such four-quarter period (including any other Indebtedness to be incurred concurrent with the incurrence of such Indebtedness) as if such Indebtedness had been incurred, repaid or retired at the beginning of such four-quarter period; and (C) notwithstanding clause (d) of the definition of Consolidated Net Income, the acquisition (whether by purchase, merger or otherwise) or disposition (whether by sale, merger or otherwise) of any Person acquired or disposed of by the Company or its Restricted Subsidiaries, as the case may be, since the first day of such four-quarter period, as if such acquisition or disposition had occurred at the beginning of such four-quarter period), would have been equal to at least 2.5 to 1.0 and (ii) no Default or Event of Default would occur or be continuing. Limitation on Restricted Payments. (a) The Indenture provides that the Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, take any of the following actions (unless such action constitutes a Permitted Investment): (i) declare or pay any dividend on, or make any distribution to holders of, any shares of the Company's Capital Stock (other than dividends or distributions payable solely in shares of Qualified Capital Stock of the Company, options, warrants or other rights to purchase Qualified Capital Stock of the Company); (ii) purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company or any Affiliate thereof (other than any Wholly Owned Restricted Subsidiary of the Company) or any options, warrants or other rights to acquire such Capital Stock; provided, however, that the Company may make any payment of the applicable redemption price in connection with a Qualified Redemption Transaction; (iii) make any principal payment on or repurchase, redeem, defease or otherwise acquire or retire for value, prior to any scheduled principal payment, scheduled sinking fund payment or maturity, any Pari Passu Indebtedness or Subordinated Indebtedness, except in any case out of a Pari Passu Offer (as defined herein) or a Net Proceeds Deficiency (as defined herein) pursuant to the provisions of the Indenture described under the caption "-- Limitation on Disposition of Proceeds of Asset Sales" and except upon a Change of Control or similar event required by the indenture or other agreement or instrument pursuant to which such Pari Passu Indebtedness or Subordinated Indebtedness was issued, provided the Company is then obligated to make a Change of Control Offer in compliance with the covenant described below under "-- Change of Control;" provided, however, that the Company may make any payment of the applicable redemption price in connection with a Qualified Redemption Transaction; (iv) declare or pay any dividend on, or make any distribution to the holders of, any shares of Capital Stock of any Restricted Subsidiary of the Company (other than to the Company or any of its Wholly Owned Restricted Subsidiaries) or purchase, redeem or otherwise acquire or retire for value any Capital Stock of any Restricted Subsidiary (other than a Wholly Owned Restricted Subsidiary) or any options, warrants or other rights to acquire any such Capital Stock (other than with respect to any such Capital Stock held by the Company or any Wholly Owned Restricted Subsidiary of the Company); (v) make any Investment; or 59 63 (vi) in connection with the acquisition of any property or asset by the Company or its Restricted Subsidiaries after the date of the Indenture, which property or asset would secure or be subject to any Production Payment obligations of the Company or its Restricted Subsidiaries, make any investment (of cash, property or other assets) in such property or asset so acquired in addition to the amount of Indebtedness (including Production Payment obligations) incurred by the Company or its Restricted Subsidiaries in connection with such acquisition; (such payments or other actions described in (but not excluded from) clauses (i) through (vi) are collectively referred to as "Restricted Payments"), unless at the time of and after giving effect to the proposed Restricted Payment (with the amount of any such Restricted Payment, if other than cash, being the amount determined by the Board of Directors, whose determination shall be conclusive and evidenced by a resolution), (1) no Default or Event of Default shall have occurred and be continuing, (2) the Company could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) in accordance with the covenant described above under the caption " -- Limitation on Indebtedness" and (3) the aggregate amount of all Restricted Payments declared or made after the date of the Indenture shall not exceed the sum (without duplication) of the following: (A) 50% of the aggregate Consolidated Net Income of the Company accrued on a cumulative basis during the period beginning on the first day of the first month after the date of the Indenture and ending on the last day of the Company's last fiscal quarter ending prior to the date of such proposed Restricted Payment (or, if such aggregate cumulative Consolidated Net Income shall be a loss, minus 100% of such loss), plus (B) the aggregate net cash proceeds received after the date of the Indenture by the Company as capital contributions to the Company (other than from any Restricted Subsidiary), plus (C) the aggregate net cash proceeds received after the date of the Indenture by the Company from the issuance or sale (other than to any of its Restricted Subsidiaries) of shares of Qualified Capital Stock of the Company or any options, warrants or rights to purchase such shares of Qualified Capital Stock of the Company, plus (D) the aggregate net cash proceeds received after the date of the Indenture by the Company (other than from any of its Restricted Subsidiaries) upon the exercise of any options, warrants or rights to purchase shares of Qualified Capital Stock of the Company, plus (E) the aggregate net cash proceeds received after the date of the Indenture by the Company from the issuance or sale (other than to any of its Restricted Subsidiaries) of debt securities or shares of Redeemable Capital Stock that have been converted into or exchanged for Qualified Capital Stock of the Company to the extent such debt securities were originally sold for cash, together with the aggregate cash received by the Company at the time of such conversion or exchange, plus (F) to the extent not otherwise included in the Company's Consolidated Net Income, the net reduction in Investments in Affiliates and Unrestricted Subsidiaries resulting from the payments of interest on Indebtedness, dividends, repayments of loans or advances, or other transfers of assets, in each case to the Company or a Restricted Subsidiary after the date of the Indenture from any Affiliate or Unrestricted Subsidiary or from the redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary (valued in each case as provided in the definition of "Investment"), not to exceed in the case of any Affiliate or Unrestricted Subsidiary the total amount of Investments (other than Permitted Investments) in such Affiliate or Unrestricted Subsidiary made by the Company and its Restricted Subsidiaries in such Affiliate or Unrestricted Subsidiary after the date of the Indenture, plus (G) $15,000,000. (b) Notwithstanding paragraph (a) above, the Company and its Restricted Subsidiaries may take the following actions so long as (in the case of clauses (ii), (iii) and (iv) below) no Default or Event of Default shall have occurred and be continuing: (i) the payment of any dividend within 60 days after the date of declaration thereof, if at such declaration date such declaration complied with the provisions of paragraph (a) above (and such payment shall be deemed to have been paid on such date of declaration for purposes of any calculation required by the provisions of paragraph (a) above); (ii) the repurchase, redemption or other acquisition or retirement of any shares of any class of Capital Stock of the Company or any Restricted Subsidiary, in exchange for, or out of the aggregate net cash proceeds of, a substantially concurrent issue and sale (other than to a Restricted Subsidiary) of shares of Qualified Capital Stock of the Company; 60 64 (iii) the purchase, redemption, repayment, defeasance or other acquisition or retirement for value of any Subordinated Indebtedness (other than Redeemable Capital Stock) in exchange for or out of the aggregate net cash proceeds of a substantially concurrent issue and sale (other than to a Restricted Subsidiary) of shares of Qualified Capital Stock of the Company; (iv) the purchase, redemption, repayment, defeasance or other acquisition or retirement for value of Subordinated Indebtedness (other than Redeemable Capital Stock) in exchange for, or out of the aggregate net cash proceeds of, a substantially concurrent incurrence (other than to a Restricted Subsidiary) of Subordinated Indebtedness of the Company so long as (A) the principal amount of such new Indebtedness does not exceed the principal amount (or, if such Subordinated Indebtedness being refinanced provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration thereof, such lesser amount as of the date of determination) of the Subordinated Indebtedness being so purchased, redeemed, repaid, defeased, acquired or retired, plus the amount of any premium required to be paid in connection with such refinancing pursuant to the terms of the Subordinated Indebtedness refinanced or the amount of any premium reasonably determined by the Company as necessary to accomplish such refinancing, plus the amount of fees and expenses of the Company incurred in connection with such refinancing, (B) such new Subordinated Indebtedness is subordinated to the Notes at least to the same extent as such Subordinated Indebtedness so purchased, redeemed, repaid, defeased, acquired or retired, (C) such new Subordinated Indebtedness has an Average Life to Stated Maturity that is longer than the Average Life to Stated Maturity of the Notes and such new Subordinated Indebtedness has a Stated Maturity for its final scheduled principal payment that is at least 91 days later than the Stated Maturity for the final scheduled principal payment of the Notes; and (v) repurchases, acquisitions or retirements of shares of Qualified Capital Stock of the Company deemed to occur upon the exercise of stock options or similar rights issued under employee benefit plans of the Company if such shares represent all or a portion of the exercise price or are surrendered in connection with satisfying any Federal income tax obligation. The actions described in clauses (i), (ii) and (iii) of this paragraph (b) shall be Restricted Payments that shall be permitted to be taken in accordance with this paragraph (b) but shall reduce the amount that would otherwise be available for Restricted Payments under clause (3) of paragraph (a) (provided, that any dividend paid pursuant to clause (i) of this paragraph (b) shall reduce the amount that would otherwise be available under clause (3) of paragraph (a) when declared, but not also when subsequently paid pursuant to such clause (i)), and the actions described in clauses (iv) and (v) of this paragraph (b) shall be Restricted Payments that shall be permitted to be taken in accordance with this paragraph and shall not reduce the amount that would otherwise be available for Restricted Payments under clause (3) of paragraph (a). (c) In computing Consolidated Net Income of the Company under paragraph (a) above, (i) the Company shall use audited financial statements for the portions of the relevant period for which audited financial statements are available on the date of determination and unaudited financial statements and other current financial data based on the books and records of the Company for the remaining portion of such period and (ii) the Company shall be permitted to rely in good faith on the financial statements and other financial data derived from the books and records of the Company that are available on the date of determination. If the Company makes a Restricted Payment which, at the time of the making of such Restricted Payment, would in the good faith determination of the Company be permitted under the requirements of the Indenture, such Restricted Payment shall be deemed to have been made in compliance with the Indenture notwithstanding any subsequent adjustments made in good faith to the Company's financial statements affecting Consolidated Net Income of the Company for any period. Limitation on Issuances and Sales of Restricted Subsidiary Capital Stock. The Indenture provides that the Company (a) will not permit any Restricted Subsidiary to issue any Preferred Stock (other than to the Company or a Wholly Owned Restricted Subsidiary) and (b) will not permit any Person (other than the Company and/or one or more Wholly Owned Restricted Subsidiaries) to own any Capital Stock of any Restricted Subsidiary; provided, however, that this covenant shall not prohibit (i) the issuance and sale of all, but not less than all, of the issued and outstanding Capital Stock of any Restricted Subsidiary owned by the Company or any of its Restricted Subsidiaries in compliance with the other provisions of the Indenture, (ii) the ownership by directors of directors' qualifying shares, (iii) the ownership by any Person of Capital Stock of a Restricted Subsidiary that was owned by a Person at the time such Restricted Subsidiary became a Restricted Subsidiary or acquired by a Person in connection with the formation of the Restricted Subsidiary (including, in each case, any Capital Stock issued as a result of a stock split, a dividend of shares of Capital Stock to holders of such Capital Stock, a recapitalization affecting such Capital Stock or similar event) and (iv) the ownership by any Person of Capital Stock of any Foreign Subsidiary so long as none of the Capital Stock of that Subsidiary has been issued in a public offering. Limitation on Transactions with Affiliates. The Indenture provides that the Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, enter into any transaction or series of related transactions (including, without limitation, the sale, purchase, exchange or lease of assets, property or the rendering of any services) with, or for the benefit of, any Affiliate of the Company other than a Restricted Subsidiary (each, other than a Restricted Subsidiary, being an "Interested Person"), unless (a) such transaction or series of transactions is on terms that are no 61 65 less favorable to the Company or such Restricted Subsidiary, as the case may be, than those that would be available in a comparable arm's length transaction with unrelated third parties who are not Interested Persons, or, in the event no comparable transaction with an unrelated third party who is not an Interested Person is available, on terms that are fair from a financial point of view to the Company or such Restricted Subsidiary, as the case may be, (b) with respect to any one transaction or series of related transactions involving aggregate payments in excess of $10,000,000, the Company delivers an Officers' Certificate to the Trustee certifying that such transaction or series of transactions complies with clause (a) above and such transaction or series of transactions has been approved by the Board of Directors and (c) with respect to any one transaction or series of related transactions involving aggregate payments in excess of $20,000,000, the Officers' Certificate referred to in clause (b) above also includes a certification that such transaction or series of transactions has been approved by a majority of the Disinterested Directors (either of the full Board of Directors or, in the case of action by a committee thereof, of such committee) or, in the event there are no such Disinterested Directors, that the Company has obtained a written opinion from an independent nationally recognized investment banking firm or appraisal firm, in either case specializing or having a specialty in the type and subject matter of the transaction or series of related transactions at issue, which opinion shall be to the effect set forth in clause (a) above; provided, however, that this covenant will not restrict the Company from (i) paying reasonable and customary regular compensation and fees to directors of the Company who are not employees of the Company or any Restricted Subsidiary, (ii) paying dividends on, or making distributions with respect to, shares of Capital Stock of the Company on a pro rata basis to the extent permitted by the covenant described above under the caption "-- Limitation on Restricted Payments," (iii) making Restricted Payments that are permitted by the provisions of the Indenture described above under the caption "-- Limitation on Restricted Payments," (iv) making loans or advances to officers, directors and employees of the Company or any Restricted Subsidiary in the ordinary course of business and consistent with customary practices in the Oil and Gas Business in an aggregate amount not to exceed $1,000,000 outstanding at any one time, (v) making any indemnification or similar payment to any director or officer (A) in accordance with the corporate charter or bylaws of the Company or any Restricted Subsidiary, (B) under any agreement or (C) under applicable law and (vi) fulfilling obligations of the Company or any Restricted Subsidiary under employee compensation and other benefit arrangements entered into or provided for in the ordinary course of business. Limitation on Liens. The Indenture provides that the Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume, affirm or suffer to exist or become effective any Lien of any kind, except for Permitted Liens, on or with respect to any of its property or assets (including any intercompany notes), whether owned at the date of the Indenture or thereafter acquired, or any income, profits or proceeds therefrom, or assign or otherwise convey any right to receive income thereon, unless (a) in the case of any Lien securing Subordinated Indebtedness, the Notes are secured by a Lien on such property, assets or proceeds that is senior in priority to such Lien and (b) in the case of any other Lien, the Notes are directly secured equally and ratably with the obligation or liability secured by such Lien. The incurrence of additional secured Indebtedness by the Company or any Restricted Subsidiary is subject to further limitations on the incurrence of Indebtedness as described above under the caption "-- Limitation on Indebtedness." Change of Control. Upon the occurrence of a Change of Control, the Company shall be obligated to make an offer to purchase all of the then outstanding Notes (a "Change of Control Offer"), and shall purchase, on a business day (the "Change of Control Purchase Date") not more than 75 nor less than 30 days following the Change of Control, all of the then outstanding Notes validly tendered pursuant to such Change of Control Offer at a purchase price (the "Change of Control Purchase Price") equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the Change of Control Purchase Date. The Change of Control Offer is required to remain open for at least 20 Business Days and until the close of business on the Change of Control Purchase Date. In order to effect such Change of Control Offer, the Company shall, not later than the 30th day after the Change of Control, mail to each Holder of a Note a notice of the Change of Control Offer, which notice shall govern the terms of the Change of Control Offer and shall state, among other things, the procedures that Holders of the Notes must follow to accept the Change of Control Offer. If a Change of Control Offer is made, there can be no assurance that the Company will have available funds sufficient to pay the Change of Control Purchase Price for all of the Notes delivered by Holders of the Notes seeking to accept the Change of Control Offer. If on a Change of Control Purchase Date the Company does not have available funds sufficient to pay the Change of Control Purchase Price or is prohibited from purchasing the Notes, an Event of Default will occur under the Indenture. The Company will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer at the same purchase price, at the same times and otherwise in substantial compliance with the requirements applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. The Company intends to comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder, if applicable, in the event that a Change of Control occurs and the Company is required to purchase Notes as described above. The existence of a Holder's right to require, subject to certain conditions, the 62 66 Company to repurchase its Notes upon a Change of Control may deter a third party from acquiring the Company in a transaction that constitutes, or results in, a Change of Control. Limitation on Disposition of Proceeds of Asset Sales. (a) The Indenture provides that the Company will not, and will not permit any Restricted Subsidiary to, engage in any Asset Sale unless (i) the Company or such Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets and properties sold or otherwise disposed of pursuant to the Asset Sale (as determined by the Board of Directors, whose determination shall be conclusive and evidenced by a resolution) and (ii) at least 75% of the consideration received by the Company or the Restricted Subsidiary, as the case may be, in respect of such Asset Sale consists of cash, Cash Equivalents and/or the assumption by the purchaser of liabilities of the Company (other than liabilities of the Company that are by their terms subordinated to the Notes) or any Restricted Subsidiary as a result of which the Company and its remaining Restricted Subsidiaries are no longer liable. (b) If the Company or any Restricted Subsidiary engages in an Asset Sale, the Company may either (i) apply the Net Cash Proceeds thereof to reduce Senior Indebtedness, to reduce Guarantor Senior Indebtedness or to reduce Indebtedness of any Restricted Subsidiary incurred pursuant to clause (m) of the definition of Permitted Subsidiary Indebtedness, provided, if any such Senior Indebtedness, Guarantor Senior Indebtedness or Permitted Subsidiary Indebtedness has been incurred under any revolving credit facility, that the related commitment to lend or the amount available to be reborrowed under such facility is also reduced, or (ii) invest all or any part of the Net Cash Proceeds thereof, within 365 days after such Asset Sale, in properties and assets which replace the properties and assets that were the subject of the Asset Sale or in properties and assets that will be used in the business of the Company or its Restricted Subsidiaries, as the case may be ("Replacement Assets"). The amount of such Net Cash Proceeds not applied or invested as provided in this paragraph constitutes "Excess Proceeds." (c) When the aggregate amount of Excess Proceeds equals or exceeds $15,000,000, the Company shall make an offer to purchase, from all Holders of the Notes and any then outstanding Pari Passu Indebtedness required to be repurchased or repaid on a permanent basis in connection with an Asset Sale, an aggregate principal amount of Notes and any then outstanding Pari Passu Indebtedness equal to such Excess Proceeds as follows: (i) (A) the Company shall make an offer to purchase (a "Net Proceeds Offer") from all Holders of the Notes in accordance with the procedures set forth in the Indenture the maximum principal amount (expressed as a multiple of $1,000) of Notes that may be purchased out of an amount (the "Payment Amount") equal to the product of such Excess Proceeds, multiplied by a fraction, the numerator of which is the outstanding principal amount of the Notes and the denominator of which is the sum of the outstanding principal amount of the Notes and such Pari Passu Indebtedness, if any (subject to proration in the event such amount is less than the aggregate Offered Price (as defined herein) of all Notes tendered), and (B) to the extent required by such Pari Passu Indebtedness and provided there is a permanent reduction in the principal amount of such Pari Passu Indebtedness, the Company shall make an offer to purchase Pari Passu Indebtedness (a "Pari Passu Offer") in an amount (the "Pari Passu Indebtedness Amount") equal to the excess of the Excess Proceeds over the Payment Amount. (ii) The offer price for the Notes shall be payable in cash in an amount equal to 100% of the principal amount of the Notes tendered pursuant to a Net Proceeds Offer, plus accrued and unpaid interest, if any, to the date such Net Proceeds Offer is consummated (the "Offered Price"), in accordance with the procedures set forth in the Indenture. To the extent that the aggregate Offered Price of the Notes tendered pursuant to a Net Proceeds Offer is less than the Payment Amount relating thereto or the aggregate amount of the Pari Passu Indebtedness that is purchased or repaid pursuant to the Pari Passu Offer is less than the Pari Passu Indebtedness Amount (such shortfall constituting a "Net Proceeds Deficiency"), the Company may use such Net Proceeds Deficiency for general corporate purposes, subject to the limitations described above under the caption "-- Limitation on Restricted Payments." (iii) If the aggregate Offered Price of Notes validly tendered and not withdrawn by Holders thereof exceeds the Payment Amount, Notes to be purchased will be selected on a pro rata basis. Upon completion of such Net Proceeds Offer and Pari Passu Offer, the amount of Excess Proceeds shall be reset to zero. The Company intends to comply with Rule 14e-1 under the Exchange Act, and any other securities laws and regulations thereunder, if applicable, in the event that an Asset Sale occurs and the Company is required to purchase Notes as described above. The Credit Agreement may prohibit the Company from purchasing any Notes from Excess Proceeds. Any future credit agreements or other agreements relating to Senior Indebtedness to which the Company becomes a party may contain similar restrictions. In the event a Net Proceeds Offer occurs at a time when the Company is prohibited by the terms of any Senior Indebtedness from purchasing the Notes, the Company could seek the consent of the holders of such Senior Indebtedness to the purchase or could attempt to refinance such Senior Indebtedness. If the Company does not obtain such a consent or repay such Senior Indebtedness, the Company may remain prohibited from purchasing the Notes. In such case, the Company's failure to purchase tendered Notes would constitute an Event of Default under 63 67 the Indenture which would, in turn, constitute a default under the Credit Agreement and possibly a default under other agreements relating to Senior Indebtedness. In such circumstances, the subordination provisions in the Indenture would likely restrict payments to the Holders of the Notes. Limitation on Non-Guarantor Restricted Subsidiaries. (a) The Indenture provides that the Company will not permit any Restricted Subsidiary that is not a Subsidiary Guarantor to guarantee the payment of any Indebtedness of the Company unless (i)(A) such Restricted Subsidiary simultaneously executes and delivers a supplemental indenture to the Indenture providing for a Subsidiary Guarantee of the Notes by such Restricted Subsidiary which Subsidiary Guarantee will be subordinated to Guarantor Senior Indebtedness (but no other Indebtedness) to the same extent that the Notes are subordinated to Senior Indebtedness and (B), with respect to any guarantee of Subordinated Indebtedness by a Restricted Subsidiary, any such guarantee shall be subordinated to such Restricted Subsidiary's Subsidiary Guarantee at least to the same extent as such Subordinated Indebtedness is subordinated to the Notes; (ii) such Restricted Subsidiary waives, and agrees not in any manner whatsoever to claim or take the benefit or advantage of, any rights of reimbursement, indemnity or subrogation or any other rights against the Company or any other Restricted Subsidiary as a result of any payment by such Restricted Subsidiary under its Subsidiary Guarantee until such time as the obligations guaranteed thereby are paid in full; and (iii) such Restricted Subsidiary shall deliver to the Trustee an Opinion of Counsel to the effect that such Subsidiary Guarantee has been duly executed and authorized and constitutes a valid, binding and enforceable obligation of such Restricted Subsidiary, except insofar as enforcement thereof (A) may be limited by bankruptcy, insolvency or similar laws (including, without limitation, all laws relating to fraudulent transfers and fraudulent conveyances), (B) is subject to general principles of equity and (C) any implied covenant of good faith or fair dealing. (b) Notwithstanding the foregoing and the other provisions of the Indenture, each Subsidiary Guarantee shall provide by its terms that it shall be automatically and unconditionally released and discharged upon (i)(A) any sale, exchange or transfer of all the Capital Stock in the applicable Subsidiary Guarantor owned by the Company and any Restricted Subsidiary or (B) any sale, assignment, conveyance, transfer, lease or other disposition of the properties and assets of such Subsidiary Guarantor substantially as an entirety, in each case, in a single transaction or series of related transactions to any Person that is not a Restricted Subsidiary (provided, that such transaction or series of transactions is not prohibited by the Indenture), (ii) the merger or consolidation of such Subsidiary Guarantor with or into the Company or a Restricted Subsidiary (provided, that, in the case of a merger into or consolidation with a Restricted Subsidiary that is not then a Subsidiary Guarantor, the surviving Restricted Subsidiary assumes the Subsidiary Guarantee and that transaction or series of transactions is not prohibited by the Indenture) or (iii) the release or discharge of all guarantees by such Subsidiary Guarantor of Indebtedness other than the Note Obligations, except a discharge or release by or as a result of the payment of such Indebtedness by such Subsidiary Guarantor pursuant to its Subsidiary Guarantee. Limitation on Dividends and Other Payment Restrictions Affecting Restricted Subsidiaries. The Indenture provides that the Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Restricted Subsidiary to (a) pay dividends, in cash or otherwise, or make any other distributions on or in respect of its Capital Stock to the Company or any Restricted Subsidiary, (b) pay any Indebtedness owed to the Company or any Restricted Subsidiary, (c) make an Investment in the Company or any Restricted Subsidiary or (d) transfer any of its properties or assets to the Company or any Restricted Subsidiary, except for such encumbrances or restrictions (i) pursuant to any agreement in effect or entered into on the date of the Indenture, (ii) pursuant to any agreement or other instrument of a Person acquired by the Company or any Restricted Subsidiary in existence at the time of such acquisition (but not created in contemplation thereof), which encumbrance or restriction is not applicable to any other Person, or the properties or assets of any other Person, other than the Person, or the property or assets of the Person, so acquired, (iii) by reason of customary non-assignment provisions in leases and licenses entered into in the ordinary course of business, (iv) pursuant to capital leases and purchase money obligations for property leased or acquired in the ordinary course of business that impose restrictions of the nature described in clause (d) above on the property so leased or acquired, (v) pursuant to any merger agreements, stock purchase agreements, asset sale agreements and similar agreements limiting the transfer of properties and assets pending consummation of the subject transaction, (vi) pursuant to Permitted Liens which are customary limitations on the transfer of collateral, (vii) pursuant to applicable law, (viii) pursuant to agreements among holders of Capital Stock of any Restricted Subsidiary of the Company requiring distributions in respect of such Capital Stock to be made pro rata based on the percentage of ownership in and/or contribution to such Restricted Subsidiary or (ix) existing under any agreement that extends, renews, refinances or replaces the agreements containing the restrictions in the foregoing clauses (i) and (ii), provided, that the terms and conditions of any such restrictions are not materially less favorable to the Holders of the Notes than those under or pursuant to the agreement evidencing the Indebtedness so extended, renewed, refinanced or replaced. Limitation on Other Senior Subordinated Indebtedness. The Indenture provides that the Company will not incur, directly or indirectly, any Indebtedness which is expressly subordinate or junior in right of payment in any respect to Senior Indebtedness unless such Indebtedness ranks pari passu in right of payment with the Notes, or is expressly subordinated in right of payment to the Notes. Reports. The Indenture requires that the Company (and the Subsidiary Guarantors, if applicable) file on a timely basis with the Commission, to the extent such filings are accepted by the Commission and whether or not the 64 68 Company has a class of securities registered under the Exchange Act, the annual reports, quarterly reports and other documents that the Company would be required to file if it were subject to Section 13 or 15(d) of the Exchange Act). The Company (and the Subsidiary Guarantors, if applicable) will also be required (a) to file with the Trustee, and provide to each holder of Notes, without cost to such holder, copies of such reports and documents within 15 days after the date on which the Company files such reports and documents with the Commission or the date on which the Company (and the Subsidiary Guarantors, if applicable) would be required to file such reports and documents if the Company (and the Subsidiary Guarantors, if applicable) were so required and (b) if filing such reports and documents with the Commission is not accepted by the Commission or is prohibited under the Exchange Act, to furnish at the Company's cost copies of such reports and documents to any holder of Notes promptly upon written request. The Company is obligated to make available, upon request, to any Holder of Notes the information required by Rule 144A(d)(4) under the Securities Act, during any period in which the Company is not subject to Section 13 or 15(d) of the Exchange Act. Future Designation of Restricted and Unrestricted Subsidiaries. The foregoing covenants (including calculation of financial ratios and the determination of limitations on the incurrence of Indebtedness and Liens) may be affected by the designation by the Company of any existing or future Subsidiary of the Company as an Unrestricted Subsidiary. Generally, a Restricted Subsidiary includes any Subsidiary of the Company, whether existing on or after the date of the Indenture, unless the Subsidiary of the Company is designated as an Unrestricted Subsidiary pursuant to the terms of the Indenture. The definition of "Unrestricted Subsidiary" set forth below under the caption "-- Certain Definitions" describes the circumstances under which a Subsidiary of the Company may be designated as an Unrestricted Subsidiary by the Board of Directors. MERGER, CONSOLIDATION AND SALE OF ASSETS, ETC. The Indenture provides that the Company will not, in any single transaction or series of related transactions, consolidate or merge with or into any other Person, or sell, assign, convey, transfer, lease or otherwise dispose of the properties and assets of the Company and its Restricted Subsidiaries substantially as an entirety on a consolidated basis to any Person, and the Company will not permit any Restricted Subsidiary to enter into any transaction or series of related transactions if such transaction or series of transactions would result in a sale, assignment, conveyance, transfer, lease or other disposition of the properties and assets of the Company and its Restricted Subsidiaries substantially as an entirety on a consolidated basis to any Person, unless at the time and after giving effect thereto (a) either (i) if the transaction or series of related transactions is a merger or consolidation, the Company shall be the surviving Person of such merger or consolidation, or (ii) the Person (if other than the Company) formed by such consolidation or into which the Company or such Restricted Subsidiary is merged or to which the properties and assets of the Company or such Restricted Subsidiary, as the case may be, are sold, assigned, conveyed, transferred, leased or otherwise disposed of (any such surviving Person or transferee Person being the "Surviving Entity") shall be a corporation organized and existing under the laws of the United States of America, any state thereof or the District of Columbia and shall, in either case, expressly assume by a supplemental indenture to the Indenture executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Notes and the Indenture, and, in each case, the Indenture shall remain in full force and effect; (b) immediately before and immediately after giving effect to such transaction or series of transactions on a pro forma basis (and treating any Indebtedness not previously an obligation of Company or any of its Restricted Subsidiaries in connection with or as a result of such transaction or series of transactions as having been incurred at the time of such transaction or series of transactions), no Default or Event of Default shall have occurred and be continuing; (c) except in the case of the consolidation or merger of any Restricted Subsidiary with or into the Company, immediately after giving effect to such transaction or series of transactions on a pro forma basis, the Consolidated Net Worth of the Company (or the Surviving Entity if the Company is not the continuing obligor under the Indenture) is at least equal to the Consolidated Net Worth of the Company immediately before such transaction or series of transactions; (d) except in the case of the consolidation or merger of (i) any Restricted Subsidiary with or into the Company or any Wholly Owned Restricted Subsidiary or (ii) the Company with or into any Person that has no Indebtedness outstanding, immediately before and immediately after giving effect to such transaction or series of transactions on a pro forma basis (on the assumption that the transaction or series of transactions occurred on the first day of the period of four fiscal quarters ending immediately prior to the consummation of such transaction or series of transactions, with the appropriate adjustments with respect to such transaction or series transactions being included in such pro forma calculation), the Company (or the Surviving Entity if the Company is not the continuing obligor under the Indenture) could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the covenant described above under the caption " -- Limitation on Indebtedness;" (e) each Subsidiary Guarantor, unless it is the other party to the transactions or series of transactions described above, shall have by supplemental indenture to the Indenture confirmed that its Subsidiary Guarantee shall apply to such Person's obligations under the Indenture and the Notes; and (f) if any of the properties or assets of the Company or any Restricted Subsidiary would upon such transaction or series of transactions become subject to any Lien (other than a Permitted Lien), the creation and imposition of such Lien shall have been in compliance with the covenant described above under the caption "-- Limitation on Liens." In connection with any consolidation, merger, transfer, lease or other disposition contemplated hereby, the Company shall deliver, or cause to be delivered, to the Trustee, in form and substance reasonably satisfactory to the Trustee, an Officers' Certificate stating that such consolidation, merger, transfer, lease or other disposition and the 65 69 supplemental indenture in respect thereto comply with the requirements under the Indenture and an Opinion of Counsel stating that the requirements of clause (a) of the preceding paragraph have been complied with. Upon any such consolidation or merger or any such sale, assignment, transfer, lease or other disposition substantially as an entirety on a consolidated basis of the properties and assets of the Company in accordance with the foregoing in which the Company is not the continuing Person, the Surviving Entity shall succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture with the same effect as if the Surviving Entity had been named as the Company therein, and thereafter the Company, except in the case of a lease, will be discharged from all obligations and covenants under the Indenture and the Notes. EVENTS OF DEFAULT The following will be "Events of Default" under the Indenture: (a) default in the payment of the principal of or premium, if any, on any of the Notes, whether such payment is due at maturity, upon redemption, upon repurchase pursuant to a Change of Control Offer or a Net Proceeds Offer, upon acceleration or otherwise; or (b) default in the payment of any installment of interest on any of the Notes, when it becomes due and payable, and the continuance of such default for a period of 30 days; or (c) default in the performance or breach of the provisions of the "Merger, Consolidation and Sale of Assets" section of the Indenture, the failure to make or consummate a Change of Control Offer in accordance with the provisions of the Indenture described under the caption " -- Change of Control" or the failure to make or consummate a Net Proceeds Offer in accordance with the provisions of the Indenture described under the caption " -- Limitation on Disposition of Proceeds of Asset Sales;" or (d) the Company or any Subsidiary Guarantor shall fail to perform or observe any other term, covenant or agreement contained in the Notes, any Subsidiary Guarantee or the Indenture (other than a default specified in (a), (b) or (c) above) for a period of 45 days after written notice of such failure requiring the Company to remedy the same shall have been given (i) to the Company by the Trustee or (ii) to the Company and the Trustee by the holders of at least 25% in aggregate principal amount of the Notes then outstanding; or (e) the occurrence and continuation beyond any applicable grace period of any default in the payment of the principal of (or premium, if any, on) or interest on any Indebtedness of the Company (other than the Notes or any Non-Recourse Indebtedness) or any Restricted Subsidiary for money borrowed when due, or any other default causing acceleration of any Indebtedness (other than Non-Recourse Indebtedness) of the Company or any Restricted Subsidiary for money borrowed, provided, that the aggregate principal amount of such Indebtedness shall exceed $12,000,000; provided further, that if any such default is cured or waived or any such acceleration rescinded, or such Indebtedness is repaid, within a period of 10 days from the continuation of such default beyond the applicable grace period or the occurrence of such acceleration, as the case may be, such Event of Default under the Indenture and any consequential acceleration of the Notes shall be automatically rescinded, so long as such rescission does not conflict with any judgment or decree; or (f) the commencement of proceedings, or the taking of any enforcement action (including by way of set-off), by any holder of at least $12,000,000 in aggregate principal amount of Indebtedness (other than Nonrecourse Indebtedness) of the Company or any Restricted Subsidiary, after a default under such Indebtedness, to retain in satisfaction of such Indebtedness or to collect or seize, dispose of or apply in satisfaction of such Indebtedness, property or assets of the Company or any Restricted Subsidiary having a fair market value (as determined by the Board of Directors) in excess of $12,000,000 individually or in the aggregate, provided, that if any such proceedings or actions are terminated or rescinded, or such Indebtedness is repaid, such Event of Default under the Indenture and any consequential acceleration of the Notes shall be automatically rescinded, so long as (i) such rescission does not conflict with any judgment or decree and (ii) the holder of such Indebtedness shall not have applied any such property or assets in satisfaction of such Indebtedness; or (g) any Subsidiary Guarantee shall for any reason cease to be, or be asserted by the Company or any Subsidiary Guarantor, as applicable, not to be, in full force and effect, enforceable in accordance with its terms (except pursuant to the release of any such Subsidiary Guarantee in accordance with the Indenture); or (h) certain events giving rise to ERISA liability; or (i) final judgments or orders rendered against the Company or any Restricted Subsidiary that are unsatisfied and that require the payment in money, either individually or in an aggregate amount, that is more than $12,000,000 over the coverage under applicable insurance policies and either (i) commencement by any creditor of an enforcement proceeding upon such judgment (other than a judgment that is stayed by reason of 66 70 pending appeal or otherwise) or (ii) the occurrence of a 60-day period during which a stay of such judgment or order, by reason of pending appeal or otherwise, was not in effect; or (j) the entry of a decree or order by a court having jurisdiction in the premises (i) for relief in respect of the Company or any Material Restricted Subsidiary in an involuntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or (ii) adjudging the Company or any Material Restricted Subsidiary bankrupt or insolvent, or approving a petition seeking reorganization, arrangement, adjustment or composition of the Company or a Material Restricted Subsidiary under any applicable federal or state law, or appointing under any such law a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or any Material Restricted Subsidiary or of a substantial part of their consolidated assets, or ordering the winding up or liquidation of their affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or (k) the commencement by the Company or any Material Restricted Subsidiary of a voluntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or any other case or proceeding to be adjudicated bankrupt or insolvent, or the consent by the Company or any Material Restricted Subsidiary to the entry of a decree or order for relief in respect thereof in an involuntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by the Company or any Material Restricted Subsidiary of a petition or consent seeking reorganization or relief under any applicable federal or state law, or the consent by it under any such law to the filing of any such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee or sequestrator (or other similar official) of any of the Company or any Material Restricted Subsidiary or of any substantial part of their consolidated assets, or the making by it of an assignment for the benefit of creditors under any such law. If an Event of Default (other than as specified in clause (j) or (k) above) shall occur and be continuing, the Trustee, by written notice to the Company, or the holders of at least 25% in aggregate principal amount of the Notes then outstanding, by notice to the Trustee and the Company, may declare the principal of, premium, if any, and accrued interest on all of the outstanding Notes due and payable immediately, upon which declaration all amounts payable in respect of the Notes shall be immediately due and payable. If an Event of Default specified in clause (j) or (k) above occurs and is continuing, then the principal of, premium, if any, and accrued and unpaid interest on all of the outstanding Notes shall ipso facto become and be immediately due and payable without any declaration, notice or other act on the part of the Trustee or any Holder of Notes. After a declaration of acceleration under the Indenture, but before a judgment or decree for payment of the money due has been obtained by the Trustee, the Holders of a majority in aggregate principal amount of the outstanding Notes, by written notice to the Company and the Trustee, may rescind such declaration if (a) the Company or any Subsidiary Guarantor has paid or deposited with the Trustee a sum sufficient to pay (i) all sums paid or advanced by the Trustee under the Indenture and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, (ii) all overdue interest on all outstanding Notes, (iii) the unpaid principal of and premium, if any, on any Notes which have become due otherwise than by such declaration of acceleration, including any securities required to have been purchased on a Change of Control Date or Net Proceeds Date pursuant to a Change of Control Offer or a Net Proceeds Offer, as applicable, and interest thereon at the rate borne by the Notes, and (iv) to the extent that payment of such interest is lawful, interest upon overdue interest and overdue principal at the rate borne by the Notes which has become due otherwise than by such declaration of acceleration; (b) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction; and (c) all Events of Default, other than the nonpayment of principal of, premium, if any, and interest on the Notes that has become due solely by such declaration of acceleration, have been cured or waived. The Holders of not less than a majority in aggregate principal amount of the outstanding Notes may on behalf of the Holders of all the Notes waive any past defaults under the Indenture, except a default in the payment of the principal of (or premium, if any, on) or interest on any Note or a default in respect of a covenant or provision which under the Indenture cannot be modified or amended without the consent of the Holder of each outstanding Note affected thereby. No Holder of any of the Notes has any right to institute any proceeding with respect to the Indenture or any remedy thereunder, unless such Holder has previously given written notice to the Trustee of a continuing Event of Default, the Holders of at least 25% in aggregate principal amount of the outstanding Notes have made written request, and offered reasonable indemnity, to the Trustee to institute such proceeding as Trustee under the Notes and the Indenture, the Trustee has failed to institute such proceeding within 60 days after receipt of such notice and offer of indemnity and the Trustee, within such 60-day period, has not received directions inconsistent with such written request by Holders of a majority in principal amount of the outstanding Notes. Such limitations do not apply, however, to a suit instituted by a Holder of a Note for the enforcement of the payment of the principal of, premium, if any, or interest on such Note on or after the respective due dates expressed in such Note. 67 71 During the existence of an Event of Default, the Trustee is required to exercise such of the rights and powers vested in it under the Indenture, and use the same degree of care and skill in its exercise, as a prudent Person would exercise or use under the circumstances in the conduct of such Person's own affairs. Subject to the provisions of the Indenture relating to the duties of the Trustee, the Trustee under the Indenture is not under any obligation to exercise any of its rights or powers under the Indenture at the request or direction of any Holders of the Notes unless such Holders shall have offered to the Trustee reasonable security or indemnity. Subject to certain provisions in the Indenture relating to the rights of the Trustee, the Holders of a majority in aggregate principal amount of the outstanding Notes have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee under the Indenture. If a Default or an Event of Default occurs and is known to the Trustee, the Trustee shall mail to each Holder of Notes notice of the Default or Event of Default within 60 days after the occurrence thereof in the manner and to the extent provided in Section 313(c) of the Trust Indenture Act. Except in the case of a Default or an Event of Default in payment of principal of, premium, if any, or interest on any Notes, the Trustee may withhold the notice to the Holders of such Notes if and so long as the board of directors, the executive committee, or a trust committee of directors and/or responsible officers of the Trustee in good faith determines that the withholding of such notice is in the interest of the Holders of the Notes. The Company is required to furnish to the Trustee annual and quarterly statements as to the performance by the Company and the Subsidiary Guarantors of its obligations under the Indenture and as to any default in such performance. The Company is also required to notify the Trustee within ten days after any Default. LEGAL DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE The Company may, at its option and at any time, terminate the obligations of the Company and the Subsidiary Guarantors with respect to the outstanding Notes ("legal defeasance"). Such legal defeasance means that the Company and the Subsidiary Guarantors shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, except for (a) the rights of Holders of outstanding Notes to receive payment in respect of the principal of, premium, if any, on and interest on such Notes when such payments are due, (b) the Company's obligations to issue temporary Notes, register the transfer or exchange of any Notes, replace mutilated, destroyed, lost or stolen Notes and maintain an office or agency for payments in respect of the Notes, (c) the rights, powers, trusts, duties and immunities of the Trustee, and (d) the defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time, elect to terminate the obligations of the Company and any Subsidiary Guarantor with respect to certain covenants that are set forth in the Indenture, some of which are described above under the caption " -- Certain Covenants," and any omission to comply with such obligations shall not constitute a Default or an Event of Default with respect to the Notes ("covenant defeasance"). In order to exercise either legal defeasance or covenant defeasance, (a) the Company or any Subsidiary Guarantor must irrevocably deposit, with the Trustee, in trust, for the benefit of the holders of the Notes, cash in United States dollars, U.S. Government Obligations (as defined in the Indenture), or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, on and interest on the outstanding Notes to redemption or maturity; (b) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such legal defeasance or covenant defeasance 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 legal defeasance or covenant defeasance had not occurred (in the case of legal defeasance, such opinion must refer to and be based upon a published ruling of the Internal Revenue Service or a change in applicable federal income tax laws); (c) no Default or Event of Default shall have occurred and be continuing on the date of such deposit; (d) such legal defeasance or covenant defeasance shall not cause the Trustee to have a conflicting interest under the Indenture or the Trust Indenture Act with respect to any securities of the Company or any Subsidiary Guarantor; (e) such legal defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument to which the Company or any Subsidiary Guarantor is a party or by which it is bound; and (f) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel satisfactory to the Trustee, which, taken together, state that all conditions precedent under the Indenture to either legal defeasance or covenant defeasance, as the case may be, have been complied with and that no violations under agreements governing any other outstanding Indebtedness would result therefrom. 68 72 SATISFACTION AND DISCHARGE The Indenture will be discharged and will cease to be of further effect (except as to surviving rights or registration of transfer or exchange of the Notes, as expressly provided for in the Indenture) as to all outstanding Notes when (a) either (i) all the Notes theretofore authenticated and delivered (except lost, stolen or destroyed Notes which have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust) have been delivered to the Trustee for cancellation or (ii) all Notes not theretofore delivered to the Trustee for cancellation have become due and payable or will become due and payable at their Stated Maturity within one year, or are to be called for redemption within one year under arrangements satisfactory to the Trustee for the serving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company has irrevocably deposited or caused to be deposited with the Trustee funds in an amount sufficient to pay and discharge the entire indebtedness on the Notes not theretofore delivered to the Trustee for cancellation, for principal of (and premium, if any, on) and interest on the Notes to the date of deposit (in the case of Notes which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be, together with instructions from the Company irrevocably directing the Trustee to apply such funds to the payment thereof at maturity or redemption, as the case may be; (b) the Company has paid all other sums payable under the Indenture by the Company; and (c) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel satisfactory to the Trustee, which, taken together, state that all conditions precedent under the Indenture relating to the satisfaction and discharge of the Indenture have been complied with and that no violations under agreements governing any other outstanding Indebtedness would result therefrom. AMENDMENTS AND WAIVERS From time to time, the Company and the Trustee may, without the consent of the Holders of the Notes, modify, amend or supplement the Indenture or the Notes for certain specified purposes, including, among other things, curing ambiguities, defects or inconsistencies, qualifying, or maintaining the qualification of, the Indenture under the Trust Indenture Act of 1939, provided that such change does not adversely affect the rights of any Holder of the Notes. Other modifications and amendments of the Indenture or the Notes may be made by the Company, the Subsidiary Guarantors and the Trustee with the consent of the Holders of not less than a majority of the aggregate principal amount of the outstanding Notes; provided, however, that no such modification or amendment may, without the consent of the Holder of each outstanding Note affected thereby, (a) change the Stated Maturity of the principal of, or any installment of interest on any Note, (b) reduce the principal amount of (or the premium, if any, on) or interest on any Note, (c) change the place, coin or currency of payment of principal of (or the premium, if any, on) or interest on, any Note, (d) impair the right to institute suit for the enforcement of any payment on or with respect to any Note, (e) reduce the above-stated percentage of aggregate principal amount of outstanding Notes necessary to modify or amend the Indenture, (f) reduce the percentage of aggregate principal amount of outstanding Notes necessary for waiver of compliance with certain provisions of the Indenture or for waiver of certain defaults under the Indenture, (g) modify or amend any provisions of the Indenture relating to the modification and amendment of the Indenture or relating to the waiver of past defaults or covenants, except as otherwise specified, (h) modify or amend any provision of the Indenture relating to Subsidiary Guarantees in a manner adverse to the Holders or (i) modify or amend the obligation of the Company to make and consummate a Change of Control Offer in the event of a Change of Control or to make and consummate the Net Proceeds Offer with respect to any Asset Sale or modify any of the provisions or definitions with respect thereto. THE TRUSTEE Prior to a Default, the Trustee shall not be liable except for the performance of such duties as are specifically set out in the Indenture. If an Event of Default has occurred and is continuing, the Trustee will exercise such rights and powers vested in it under the Indenture, and use the same degree of care and skill in its exercise, as a prudent Person would exercise or use under the circumstances in the conduct of such Person's own affairs. The Indenture and provisions of the Trust Indenture Act of 1939, as amended, contains limitations on the rights of the Trustee thereunder, should it become a creditor of the Company, to obtain payment of claims in certain cases or to realize on certain property received by it in respect of any such claims, as security or otherwise. The Trustee is permitted to engage in other transactions; provided, however, that if it acquires any conflicting interest (as defined in the Trust Indenture Act) it must eliminate such conflict or resign. GOVERNING LAW The Indenture, the Notes and the Subsidiary Guarantees provide that they will be governed by the laws of the State of New York, without regard to the principles of conflicts of law. BOOK-ENTRY, DELIVERY AND FORM Except as set forth in the next paragraph, the Old Notes were issued, and the Exchange Notes will be issued, in the form of one or more global Notes (the "Global Notes"). The Global Notes will be deposited on the original date of issuance of the Notes with, or on behalf of, The Depository Trust Company ("DTC") and registered in the name of 69 73 Cede & Co., as nominee of DTC. The interest of "qualified institutional buyers" ("QIBs") in the Global Notes are represented through financial institutions acting on their behalf as direct or indirect participants of DTC. Old Notes (a) originally purchased by or transferred to an institutional "accredited investor" within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Securities Act (each an "Institutional Accredited Investor") who are not QIBs or (b) held by QIBs who elect to take physical delivery of their certificates instead of holding their interest the Global Notes (and which are thus ineligible to trade through DTC) will be represented by certificates in definitive form registered in the names of such investors or their nominees ("Certificated Securities"). Upon the transfer of Certificated Securities to a QIB, such Certificated Securities will, unless the transferee requests otherwise or the Global Notes have previously been exchanged in whole for Certificated Securities, be exchanged for an interest in the Global Notes. Ownership of beneficial interests in a Global Note will be limited to persons who have accounts with DTC ("participants") or persons who hold interests through participants. Ownership of beneficial interests in the Global Notes will be shown on, and the transfer of these ownership interests will be effected only through, records maintained by DTC or its nominee (with respect to interests of participants) and the records of participants (with respect to interests of persons other than participants). So long as DTC, or its nominee, is the registered owner or holder of a Global Note, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the Notes represented by such Global Note for all purposes under the Indenture and the Notes. In addition, no beneficial owner of an interest in a Global Note will be able to transfer that interest except in accordance with the applicable procedures of DTC (in addition to those under the Indenture referred to herein). Payments on Global Notes will be made to DTC or its nominee, as the registered owner thereof. None of the Company, the Trustee or any paying agent will 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 Notes or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. The Company expects that DTC or its nominee, upon receipt of any payment in respect of a Global Note representing any Notes held by it or its nominee, will immediately credit participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of such Global Note for such Notes as shown on the records of DTC or its nominee. The Company also expects that payments by participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers registered in the names of nominees for such customers. Such payments will be the responsibility of such participants. Transfers between participants in DTC will be effected in the ordinary way in accordance with DTC rules. The laws of some states require that certain persons take physical delivery of securities in definitive form. Consequently, the ability to transfer beneficial interests in a Global Note to such persons may be limited. Because DTC can only act on behalf of participants, who in turn act on behalf of indirect participants (as defined below) and certain banks, the ability of a person having a beneficial interest in a Global Note to pledge such interest to persons that do not participate in the DTC system, or otherwise take actions in respect of such interest, may be affected by the lack of a physical certificate of such interest. DTC has advised the Company as follows: DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, 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. DTC holds securities that its participants deposit with DTC and facilitates the settlement among participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. Access to the DTC system is also available to others such as securities brokers and dealers, banks and trust companies that clear through or maintain a custodial relationship with a direct participant, either directly or indirectly ("indirect participants"). The rules applicable to DTC and its participants are on file with the Commission. Although DTC is expected to follow the foregoing procedures in order to facilitate transfers of interests in the Global Notes among participants of DTC it is under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. Neither the Company nor the Trustee will have any responsibility for the performance by DTC or the participants or indirect participants of their respective obligations under the rules and procedures governing their operations. CERTIFICATED SECURITIES Subject to certain conditions, any Person having a beneficial interest in a Global Note may, upon request to the Company or the Trustee, exchange such beneficial interest for Notes in the form of Certificated Securities. Upon any such issuance, the Trustee is required to register such Notes in the name of, and cause the same to be delivered to, such Person or Persons (or the nominee of any thereof). In addition, if (a) DTC or any successor depositary (the 70 74 "Depositary") notifies the Company in writing that the Depositary is no longer willing or able to act as a depositary and the Company is unable to locate a qualified successor within 90 days or (b) the Company, at its option, notifies the Trustee in writing that it elects to cause the issuance of Notes in the form of Certificated Securities under the Indenture, then, upon surrender by the registered owner or holder of a Global Note (a "Global Note Holder") of its Global Note, Notes in such form will be issued to each Person that such Global Note Holder and the Depositary identify as the beneficial owner of the related Notes. Neither the Company nor the Trustee will be liable for any delay by the related Global Note Holder or the Depositary in identifying the beneficial owners of the related Notes, and each such Person may conclusively rely on, and will be protected in relying on, instructions from such Global Note Holder or of the Depositary for all purposes (including with respect to the registration and delivery, and the respective principal amounts, of the Notes to be issued). CERTAIN DEFINITIONS "Acquired Indebtedness" means Indebtedness of a Person (a) assumed in connection with an Asset Acquisition from such Person, (b) outstanding at the time such Person becomes a Subsidiary of any other Person (other than any Indebtedness incurred in connection with, or in contemplation of, such Asset Acquisition or such Person becoming such a Subsidiary) or (c) any renewals, extensions, substitutions, refinancings or replacements (each, for purposes of this clause, a "refinancing") by the Company of any Indebtedness described in clause (a) or (b) of this definition, including any successive refinancings, so long as (i) any such new Indebtedness shall be in a principal amount that does not exceed the principal amount (or, if such Indebtedness being refinanced provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration thereof, such lesser amount as of the date of determination) so refinanced plus the amount of any premium required to be paid in connection with such refinancing pursuant to the terms of the Indebtedness refinanced or the amount of any premium reasonably determined by the Company as necessary to accomplish such refinancing, plus the amount of expenses of the Company incurred in connection with such refinancing, (ii) in the case of any refinancing of Subordinated Indebtedness, such new Indebtedness is made subordinate to the Notes at least to the same extent as the Indebtedness being refinanced and (iii) such new Indebtedness has an Average Life longer than the Average Life of the Notes and a final Stated Maturity later than the final Stated Maturity of the Notes. "Adjusted Consolidated Net Tangible Assets" means (without duplication), as of the date of determination, (a) the sum of (i) discounted future net revenues from proved oil and gas reserves of the Company and its Restricted Subsidiaries calculated in accordance with SEC guidelines before any state or federal income taxes, as estimated by a nationally recognized firm of independent petroleum engineers in a reserve report prepared as of the end of the Company's most recently completed fiscal year, as increased by, as of the date of determination, the estimated discounted future net revenues from (A) estimated proved oil and gas reserves acquired since the date of such year-end reserve report, and (B) estimated oil and gas reserves attributable to upward revisions of estimates of proved oil and gas reserves since the date of such year-end reserve report due to exploration, development or exploitation activities, 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 estimated discounted future net revenues from (C) estimated proved oil and gas reserves produced or disposed of since the date of such year-end reserve report and (D) estimated oil and gas reserves attributable to downward revisions of estimates of proved oil and gas reserves since the date of such year-end reserve report due to changes in geological conditions or other factors which would, in accordance with standard industry practice, cause such revisions, in each case calculated in accordance with SEC guidelines (utilizing the prices utilized in such year-end reserve report); provided, that in the case of each of the determinations made pursuant to clauses (A) through (D), such increases and decreases shall be as estimated by the Company's petroleum engineers, except that in the event there is a Material Change as a result of such acquisitions, dispositions or revisions, then the discounted future net revenues utilized for purposes of this clause (a)(i) shall be confirmed in writing by a nationally recognized firm of independent petroleum engineers, (ii) the capitalized costs that are attributable to oil and gas properties of the Company and its Restricted Subsidiaries to which no proved oil and gas reserves are attributable, based on the Company's books and records as of a date no earlier than the date of the Company's latest annual or quarterly financial statements, (iii) the Net Working Capital on a date no earlier than the date of the Company's latest annual or quarterly financial statements and (iv) the greater of (A) the net book value on a date no earlier than the date of the Company's latest annual or quarterly financial statements or (B) the appraised value, as estimated by independent appraisers, of other tangible assets (including, without duplication, Investments in unconsolidated Restricted Subsidiaries) of the Company and its Restricted Subsidiaries, as of the date no earlier than the date of the Company's latest audited financial statements, minus (b) the sum of (i) minority interests (other than a minority interest in a Subsidiary that is a business trust or similar entity formed for the primary purpose of issuing preferred securities the proceeds of which are loaned to the Company or a Restricted Subsidiary), (ii) any net gas balancing liabilities of the Company and its Restricted Subsidiaries reflected in the Company's latest audited financial statements, (iii) to the extent included in (a)(i) above, the discounted future net revenues, calculated in accordance with SEC guidelines (utilizing the prices utilized in the Company's year-end reserve report), attributable to reserves which are required to be delivered to third parties to fully satisfy the obligations of the Company and its Restricted Subsidiaries with respect to Volumetric Production Payments on the schedules specified with respect thereto and (iv) the discounted future net revenues, calculated in accordance with SEC guidelines, attributable to reserves subject to Dollar-Denominated Production Payments which, based on the estimates of production and price assumptions included in determining the discounted 71 75 future net revenues specified in (a)(i) above, would be necessary to fully satisfy the payment obligations of the Company and its Restricted Subsidiaries with respect to Dollar-Denominated Production Payments 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, "Adjusted Consolidated Net Tangible Assets" will continue to be calculated as if the Company were still using the successful efforts method of accounting. "Affiliate" means, with respect to any specified Person, 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 this definition, beneficial ownership of 10% or more of the voting common equity (on a fully diluted basis) or options or warrants to purchase such equity (but only if exercisable at the date of determination or within 60 days thereof) of a Person shall be deemed to constitute control of such Person. No Person shall be deemed an Affiliate of an oil and gas royalty trust solely by virtue of ownership of units of beneficial interest in such trust. "Asset Acquisition" means (a) an Investment by the Company or any Restricted Subsidiary in any other Person pursuant to which such Person shall become a Restricted Subsidiary or any Restricted Subsidiary shall be merged with or into the Company or any Restricted Subsidiary or (b) the acquisition by the Company or any Restricted Subsidiary of the properties and assets of any Person which constitute all or substantially all of the properties and assets of such Person or any division or line of business of such Person. "Asset Sale" means any sale, issuance, conveyance, transfer, lease or other disposition to any Person other than the Company or any of its Restricted Subsidiaries (including by means of a Sale/Leaseback Transaction or by way of merger or consolidation) (collectively, for purposes of this definition, a "transfer"), directly or indirectly, in one or a series of related transactions, of (a) any Capital Stock of any Restricted Subsidiary held by the Company or any Restricted Subsidiary; (b) the properties and assets of any division or line of business of the Company or any of its Restricted Subsidiaries substantially as an entirety; or (c) any other properties or assets of the Company or any of its Restricted Subsidiaries other than a disposition of hydrocarbons or other mineral products in the ordinary course of business. For the purposes of this definition, the term "Asset Sale" shall not include (i) any transfer of properties or assets that is governed by, and made in accordance with, the provisions described under the caption "-- Merger, Consolidation and Sale of Assets;" (ii) any transfer of properties or assets to any Person, if permitted under the provisions described under the caption "-- Limitation on Restricted Payments;" (iii) any trade or exchange of properties and assets used in the Oil and Gas Business of the Company or any Restricted Subsidiary or shares of Capital Stock in any Person in the Oil and Gas Business owned by the Company or any Restricted Subsidiary for properties and assets used in the Oil and Gas Business of any Person or shares of Capital Stock in any Person owned or held by another Person, provided, that (A) the fair market value of the properties, assets and shares traded or exchanged by the Company or such Restricted Subsidiary (including any cash or Cash Equivalents, not to exceed 15% of such fair market value, to be delivered by the Company or such Restricted Subsidiary) is reasonably equivalent to the fair market value of the properties, assets and shares of Capital Stock (together with any cash or Cash Equivalents, not to exceed 15% of such fair market value) to be received by the Company or such Restricted Subsidiary as determined in good faith by (x) any officer of the Company if such fair market value is less than $5,000,000 and (y) the Board of Directors of the Company as certified by a certified resolution delivered to the Trustee if such fair market value is equal to or in excess of $5,000,000; provided, that if such fair market value is equal to or in excess of $10,000,000 the Company shall deliver a written appraisal by a nationally recognized investment banking firm or appraisal firm, in each case specializing or having a speciality in oil and gas properties, and (B) such exchange is approved by a majority of the Disinterested Directors; or (iv) any transfer of properties or assets in a single transaction or series of related transactions having a fair market value of less than $5,000,000. "Attributable Indebtedness" means, with respect to any particular lease under which any Person is at the time liable and at any date as of which the amount thereof is to be determined, the present value of the total net amount of rent required to be paid by such Person under the lease during the primary term thereof, without giving effect to any renewals at the option of the lessee, discounted from the respective due dates thereof to such date of determination at the rate of interest per annum implicit in the terms of the lease. As used in the preceding sentence, the "net amount of rent" under any lease for any such period shall mean the sum of rental and other payments required to be paid with respect to such period by the lessee thereunder, excluding any amounts required to be paid by such lessee on account of maintenance and repairs, insurance, taxes, assessments, water rates or similar charges. In the case of any lease which is terminable by the lessee upon payment of a penalty, such net amount of rent shall also include the amount of such penalty, but no rent shall be considered as required to be paid under such lease subsequent to the first date upon which it may be so terminated. "Average Life" means, with respect to any Indebtedness, as at any date of determination, the quotient obtained by dividing (a) the sum of the products of (i) the number of years (and any portion thereof) from the date of determination to the date or dates of each successive scheduled principal payment (including, without limitation, any sinking fund or mandatory redemption payment requirements) of such Indebtedness multiplied by (ii) the amount of each such principal payment by (b) the sum of all such principal payments. 72 76 "Board of Directors" means, (a) with respect to the Company, either the board of directors of the Company or any properly constituted committee thereof that is (i) authorized to take the action in question and (ii) comprised of members, a majority of whom are not officers or employees of the Company or any Subsidiary of the Company, and (b) with respect to any Restricted Subsidiary, the board of directors of that Restricted Subsidiary or any properly constituted committee thereof that is authorized to take the action in question. "Capital Stock" means, with respect to any Person, any and all shares, interests, participations, rights in or other equivalents in the equity interests (however designated) in such Person, and any rights (other than debt securities convertible into an equity interest), warrants or options exercisable for, exchangeable for or convertible into such an equity interest in such Person. "Capitalized Lease Obligation" means any obligation to pay rent or other amounts under a lease of (or other agreement conveying the right to use) any property (whether real, personal or mixed) that is required to be classified and accounted for as a capital lease obligation under GAAP, and, for the purpose of the Indenture, the amount of such obligation at any date shall be the capitalized amount thereof at such date, determined in accordance with GAAP. "Cash Equivalents" means (a) any evidence of Indebtedness with a maturity of 365 days or less issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided, that the full faith and credit of the United States of America is pledged in support thereof), (b) demand and time deposits and certificates of deposit or acceptances with a maturity of 365 days or less of any financial institution that is a member of the Federal Reserve System having combined capital and surplus and undivided profits of not less than $100,000,000 or any commercial bank organized under the laws of any country other than the United States of America that is a member of the Organization for Economic Cooperation and Development ("OECD") and has total assets in excess of $100,000,000, (c) commercial paper with a maturity of 365 days or less issued by a Person that is not an Affiliate of the Company and is organized under the laws of any state of the United States of America or the District of Columbia and rated at least A-1 by S&P or at least P-1 by Moody's (or, if at any time neither S&P nor Moody's shall be rating such obligations, then from such other rating service as may be acceptable to the Trustee), (d) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (a) above entered into with any commercial bank meeting the specifications of clause (b) above, (e) overnight bank deposits and bankers' acceptances at any commercial bank meeting the qualifications specified in clause (b) above, and (f) investments in money market mutual or similar funds which have assets in excess of $500,000,000. "Change of Control" means the occurrence of any of the following events: (a) the Company's properties and assets are sold or otherwise disposed of substantially as an entirety on a consolidated basis to any Person or related group of Persons in any one transaction or a series of related transactions; (b) there shall be consummated any consolidation or merger of the Company (i) in which the Company is not the continuing or surviving Person (other than a consolidation or merger with a wholly owned Subsidiary of the Company in which all shares of Common Stock outstanding immediately prior to the effectiveness thereof are changed into or exchanged for the same number of shares of Common Stock of such Subsidiary) or (ii) pursuant to which the Common Stock would be converted into cash, securities or other property, in each case, other than a consolidation or merger of the Company in which the holders of the Common Stock immediately prior to the consolidation or merger have, directly or indirectly, at least a majority of the Common Stock of the continuing or surviving Person immediately after such consolidation or merger; or (c) any Person or any Persons acting together which would constitute a "group" for purposes of Section 13(d) of the Exchange Act (other than the Company, any Subsidiary of the Company, any employee stock purchase plan, stock option plan or other stock incentive plan or program, retirement plan or automatic dividend reinvestment plan or any substantially similar plan of the Company or any Subsidiary of the Company or any Person holding securities of the Company for or pursuant to the terms of any such employee benefit plan), together with any Affiliates thereof, shall acquire beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of at least 50% of the Voting Stock of the Company. "Common Stock" of any Person means Capital Stock of such Person that does not rank prior, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of such Person, to shares of Capital Stock of any other class of such Person. "Consolidated Fixed Charge Coverage Ratio" means, for any period, the ratio of (a) the sum of Consolidated Net Income, Consolidated Interest Expense, Consolidated Income Tax Expense and Consolidated Non-cash Charges deducted in computing Consolidated Net Income, in each case, for such period, of the Company and its Restricted Subsidiaries on a consolidated basis, all determined in accordance with GAAP, decreased (to the extent included in determining Consolidated Net Income) by the sum of (i) the amount of deferred revenues that are amortized during such period and are attributable to reserves that are subject to Volumetric Production Payments and (ii) amounts recorded in accordance with GAAP as repayments of principal and interest pursuant to Dollar-Denominated Production Payments, to (b) the sum of such Consolidated Interest Expense for such period; provided, that (A) in making such computation, the Consolidated Interest Expense attributable to interest on any Indebtedness required to be computed on a pro forma basis in accordance with clause (i) of the covenant described under the caption "-- Limitation on Indebtedness" and bearing a floating interest rate shall be computed as if the rate in effect on the date of computation had been the applicable rate for the entire period, (B) in making such computation, the Consolidated Interest Expense attributable to interest on any Indebtedness under a revolving credit facility required to be computed on a pro forma basis in 73 77 accordance with clause (i) of the covenant described under the caption "-- Limitation on Indebtedness" shall be computed based upon the average daily balance of such Indebtedness during the applicable period, provided, that such average daily balance shall be reduced by the amount of any repayment of Indebtedness under a revolving credit facility during the applicable period, which repayment permanently reduced the commitments or amounts available to be reborrowed under such facility, (C) notwithstanding clauses (A) and (B) of this proviso, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by agreements relating to Interest Rate Protection Obligations, shall be deemed to have accrued at the rate per annum resulting after giving effect to the operation of such agreements and (D) in making such calculation, Consolidated Interest Expense shall exclude interest attributable to Dollar-Denominated Production Payments. "Consolidated Income Tax Expense" means, for any period, the provision for federal, state, local and foreign income taxes of the Company and its Restricted Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP. "Consolidated Interest Expense" means, for any period, without duplication, the sum of (a) the interest expense of the Company and its Restricted Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP, including, without limitation, (i) any amortization of debt discount, (ii) the net cost under Interest Rate Protection Obligations (including any amortization of discounts), (iii) the interest portion of any deferred payment obligation, (iv) all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and (v) all accrued interest, in each case to the extent attributable to such period, (b) to the extent any Indebtedness of any Person (other than the Company or a Restricted Subsidiary) is guaranteed by the Company or any Restricted Subsidiary, the aggregate amount of interest paid or accrued by such other Person during such period attributable to any such Indebtedness, in each case to the extent attributable to that period, (c) the aggregate amount of the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by the Company and its Restricted Subsidiaries during such period as determined on a consolidated basis in accordance with GAAP and (d) the aggregate amount of dividends paid or accrued on Redeemable Capital Stock or Preferred Stock of the Company and its Restricted Subsidiaries, to the extent such Redeemable Capital Stock or Preferred Stock is owned by Persons other than Restricted Subsidiaries. "Consolidated Net Income" means, for any period, the consolidated net income (or loss) of the Company and its Restricted Subsidiaries for such period as determined in accordance with GAAP, adjusted by excluding (a) net after-tax extraordinary gains or losses (less all fees and expenses relating thereto), (b) net after-tax gains or losses (less all fees and expenses relating thereto) attributable to Asset Sales, (c) the net income (or net loss) of any Person (other than the Company or any of its Restricted Subsidiaries), in which the Company or any of its Restricted Subsidiaries has an ownership interest, except to the extent of the amount of dividends, interest on indebtedness or other distributions actually paid to the Company or its Restricted Subsidiaries in cash by such other Person during such period (regardless of whether such cash dividends, interest on indebtedness or other distributions is attributable to net income (or net loss) of such Person during such period or during any prior period), (d) net income (or net loss) of any Person combined with the Company or any of its Restricted Subsidiaries on a "pooling of interests" basis attributable to any period prior to the date of combination, (e) the net income of any Restricted Subsidiary to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary is not at the date of determination permitted, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders, (f) income resulting from transfers of assets received by the Company or any Restricted Subsidiary from an Unrestricted Subsidiary and (g) any write-downs of non-current assets; provided, however, that any ceiling limitation write-downs under SEC guidelines shall be treated as capitalized costs, as if such write-downs had not occurred. "Consolidated Net Worth" means, at any date, the consolidated stockholders' equity of the Company less the amount of such stockholders' equity attributable to Redeemable Capital Stock or treasury stock of the Company and its Restricted Subsidiaries, as determined in accordance with GAAP. "Consolidated Non-cash Charges" means, for any period, the aggregate depreciation, depletion, amortization, impairment and other non-cash expenses of the Company and its Restricted Subsidiaries reducing Consolidated Net Income for such period, determined on a consolidated basis in accordance with GAAP (excluding any such non-cash charge which requires an accrual of or reserve for cash charges for any future period). "Credit Agreement" means the Amended and Restated Credit Agreement dated June 1, 1995 among the Company and Bank of Montreal and Banque Paribas, as co-agents, and the other banks specified therein, including any notes and guarantees executed in connection therewith, as such agreement may be amended, modified, supplemented, extended, restated, replaced (including replacement after the termination of such agreement), restructured, increased, renewed or refinanced from time to time in one or more credit agreements, loan agreements, instruments or similar agreements, whether or not with the same lenders or agents, as such may be further amended, modified, supplemented, extended, restated, replaced (including replacement after the termination of such agreement), restructured, increased, renewed or refinanced from time to time. 74 78 "Credit Agreement Obligations" means all monetary obligations of every nature of the Company or a Restricted Subsidiary, including without limitation, obligations to pay principal and interest, reimbursement obligations under letters of credit, fees, expenses and indemnities, from time to time owed to the lenders or any agent under or in respect of the Credit Agreement. "Default" means any event, act or condition that is, or after notice or passage of time or both would be, an Event of Default. "Designated Senior Indebtedness" means (a) all Senior Indebtedness constituting Credit Agreement Obligations and (b) any other Senior Indebtedness which (i) at the time of incurrence equals or exceeds $10,000,000 in aggregate principal amount and (ii) is specifically designated by the Company in the instrument evidencing such Senior Indebtedness as "Designated Senior Indebtedness" for purpose of the Indenture. "Disinterested Director" means, with respect to any transaction or series of transactions in respect of which the Board of Directors is required to deliver its resolution under the Indenture, a member of the Board of Directors who does not have any material direct or indirect financial interest (other than an interest arising solely from the beneficial ownership of Capital Stock of the Company) in or with respect to such transaction or series of transactions. "Dollar-Denominated Production Payments" means production payment obligations recorded as liabilities in accordance with GAAP, together with all undertakings and obligations in connection therewith. "Event of Default" has the meaning set forth above under the caption "Events of Default." "Foreign Subsidiary" means (a) any Restricted Subsidiary engaged in the Oil and Gas Business having the majority of its operations outside the United States of America, irrespective of its jurisdiction of organization, and (b) any other Restricted Subsidiary whose assets (excluding any cash and Cash Equivalents) consist exclusively of Capital Stock or Indebtedness of one or more Restricted Subsidiaries described in clause (a) of this definition. "GAAP" means generally accepted accounting principles, consistently applied, that are set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States of America, which are applicable as of the date of the Indenture. "guarantee" means, as applied to any obligation, (a) a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner, of any part or all of such obligation and (b) an agreement, direct or indirect, contingent or otherwise, the practical effect of which is to assure in any way the payment or performance (or payment of damages in the event of nonperformance) of all or any part of such obligation, including, without limiting the foregoing, the payment of amounts drawn down by letters of credit. When used as a verb, "guarantee" shall have a corresponding meaning. "Guarantor Senior Indebtedness" means all Indebtedness of a Subsidiary Guarantor created, incurred, assumed or guaranteed by such Subsidiary Guarantor (and all renewals, substitutions, refinancings or replacements thereof) (including the principal of, interest on and fees, premiums, expenses (including costs of collection), indemnities and other amounts payable in connection with such Indebtedness) (and including, in the case of the Credit Agreement, interest accruing after the filing of a petition by or against such Subsidiary Guarantor under any bankruptcy law, in accordance with and at the rate, including any default rate, specified with respect to such Indebtedness, whether or not a claim for such interest is allowed as a claim after such filing in any proceeding under such bankruptcy law), unless the instrument governing such Indebtedness expressly provides that such Indebtedness is not senior in right of payment to its Subsidiary Guarantee. Notwithstanding the foregoing, Guarantor Senior Indebtedness of a Subsidiary Guarantor will not include (a) Indebtedness of such Subsidiary Guarantor evidenced by its Subsidiary Guarantee, (b) Indebtedness of such Subsidiary Guarantor that is expressly subordinated or junior in right of payment to any Guarantor Senior Indebtedness of such Subsidiary Guarantor or its Subsidiary Guarantee, (c) Indebtedness which, when incurred and without respect to any election under Section 1111(b) of Title 11 United States Code, is by its terms without recourse to such Subsidiary Guarantor or Non-Recourse Indebtedness, (d) any repurchase, redemption or other obligation in respect of Redeemable Capital Stock of such Subsidiary Guarantor, (e) to the extent it might constitute Indebtedness, any liability for federal, state, local or other taxes owed or owing by such Subsidiary Guarantor, (f) Indebtedness of such Subsidiary Guarantor to the Company or any of the Company's other Subsidiaries or any other Affiliate of the Company or any of such Affiliate's Subsidiaries and (g) that portion of any Indebtedness of such Subsidiary Guarantor which at the time of issuance is issued in violation of the Indenture (but, as to any such Indebtedness, no such violation shall be deemed to exist for purposes of this clause (g) if the holder(s) of such Indebtedness or their representative or such Subsidiary Guarantor shall have furnished to the Trustee an Opinion of Counsel, addressed to the Trustee (which counsel may, as to matters of fact, rely upon a certificate of such Subsidiary Guarantor) to the effect that the incurrence of such Indebtedness does not violate the provisions of such Indenture); provided, that the foregoing exclusions shall not affect the priorities of any Indebtedness arising solely by operation of law in any case or proceeding or similar event described in clause (a), (b) or (c) of the second paragraph described under the caption "-- Subordination." 75 79 "Hedging Obligations" means obligations of any Person arising out of hedging transactions entered into in the ordinary course of business, including, without limitation, swaps, options, forward sales and futures contracts entered into in connection with interest rates, currencies and energy-related commodities. "Holder" means a Person in whose name a Note is registered in the Note Register. "Indebtedness" means, with respect to any Person, without duplication, (a) all liabilities of such Person for borrowed money or for the deferred purchase price of property or services, excluding any trade accounts payable and other accrued current liabilities incurred in the ordinary course of business, but including, without limitation, all obligations, contingent or otherwise, of such Person in connection with any letters of credit, bankers' acceptance or other similar credit transaction and in connection with any agreement to purchase, redeem, exchange, convert or otherwise acquire for value any Capital Stock of such Person, or any warrants, rights or options to acquire such Capital Stock, now or hereafter outstanding, if, and to the extent, any of the foregoing would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, (b) all obligations of such Person evidenced by bonds, notes, debentures or other similar instruments, if, and to the extent, any of the foregoing would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, (c) all Indebtedness of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even if the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), but excluding trade accounts payable arising in the ordinary course of business, (d) all Capitalized Lease Obligations of such Person, (e) the Attributable Indebtedness (in excess of any related Capitalized Lease Obligations) related to any Sale/Leaseback Transaction of such Person, (f) all Indebtedness referred to in the preceding clauses of other Persons and all dividends of other Persons, the payment of which is secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness (the amount of such obligation being deemed to be the lesser of the value of such property or asset or the amount of the obligation so secured), (g) all guarantees by such Person of Indebtedness referred to in this definition (including, with respect to any Production Payment, any warranties or guarantees of production or payment by such Person with respect to such Production Payment but excluding other contractual obligations of such Person with respect to such Production Payment), (h) all Redeemable Capital Stock of such Person valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued dividends, (i) all obligations of such Person under or in respect of currency exchange contracts and Interest Rate Protection Obligations and (j) any amendment, supplement, modification, deferral, renewal, extension or refunding of any liability of such Person of the types referred to in clauses (a) through (i) above. For purposes hereof, the "maximum fixed repurchase price" of any Redeemable Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Redeemable Capital Stock as if such Redeemable Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to the Indenture, and if such price is based upon, or measured by, the fair market value of such Redeemable Capital Stock, such fair market value shall be determined in good faith by the board of directors of the issuer of such Redeemable Capital Stock, provided, however, that if such Redeemable Capital Stock is not at the date of determination permitted or required to be repurchased, the "maximum fixed repurchase price" shall be the book value of such Redeemable Capital Stock. Subject to clause (g) of the first sentence of this definition, neither Dollar-Denominated Production Payments nor Volumetric Production Payments shall be deemed to be Indebtedness. "Interest Rate Protection Obligations" means the obligations of any Person pursuant to any arrangement with any other Person whereby, directly or indirectly, such Person is entitled to receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made by such Person calculated by applying a fixed or a floating rate of interest on the same notional amount and includes, without limitation, interest rate swaps, caps, floors, collars and similar agreements or arrangements designed to protect against or manage such Person's and any of its Subsidiaries' exposure to fluctuations in interest rates. "Investment" means, with respect to any Person, any direct or indirect advance, loan, guarantee of Indebtedness or other extension of credit or capital contribution to (by means of any transfer of cash or other property or assets to others or any payment for property, assets or services for the account or use of others), or any purchase or acquisition by such Person of any Capital Stock, bonds, notes, debentures or other securities (including derivatives) or evidences of Indebtedness issued by, any other Person. In addition, the fair market value of the net assets of any Restricted Subsidiary at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary shall be deemed to be an "Investment" made by the Company in such Unrestricted Subsidiary at such time. "Investments" shall exclude (a) extensions of trade credit on commercially reasonable terms in accordance with normal trade practices and (b) Interest Rate Protection Obligations entered into in the ordinary course of business or as required by any Permitted Indebtedness, Permitted Subsidiary Indebtedness or any Indebtedness incurred in compliance with the covenant described above under the caption "-- Limitation on Indebtedness," but only to the extent that the notional principal amount of such Interest Rate Protection Obligations does not exceed 105% of the principal amount of such Indebtedness to which such Interest Rate Protection Obligations relate and (c) bonds, notes, debentures or other securities received in compliance with the covenant described under the caption "-- Limitation on Disposition of Proceeds of Asset Sales". 76 80 "Lien" means any mortgage, charge, pledge, lien (statutory or other), security interest, hypothecation, assignment for security, claim, or preference or priority or other encumbrance or similar agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any agreement to give or grant a Lien or any lease, conditional sale or other title retention agreement having substantially the same economic effect as any of the foregoing) upon or with respect to any property of any kind; provided, however, "Lien" shall not include rights created in a third Person in connection with the creation by the Company or a Subsidiary of a Production Payment. A Person shall be deemed to own subject to a Lien any property which such Person has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement. "Material Change" means an increase or decrease (excluding changes that result solely from changes in prices) of more than 50% during a fiscal quarter in the estimated discounted future net cash flows from proved oil and gas reserves of the Company and its Restricted Subsidiaries, calculated in accordance with clause (a) (i) of the definition of Adjusted Consolidated Net Tangible Assets; provided, however, that the following will be excluded from the calculation of Material Change: (i) any acquisitions during the quarter of oil and gas reserves that have been estimated by a nationally recognized firm of independent petroleum engineers and on which a report or reports exist and (ii) any disposition of properties held at the beginning of such quarter that have been disposed of as provided in the covenant described under the caption "-- Limitation on Disposition of Proceeds of Asset Sales". "Material Restricted Subsidiary" means, at any particular time, (a) any Subsidiary Guarantor and (b) any other Restricted Subsidiary that, together with its Subsidiaries, (i) accounted for more than 5% of the consolidated revenues of the Company and its Restricted Subsidiaries for the most recently completed fiscal year of the Company or (ii) was the owner of more than 5% of the consolidated assets of the Company and its Restricted Subsidiaries at the end of such fiscal year, all as shown in the case of (i) and (ii) on the consolidated financial statements of the Company and its Restricted Subsidiaries for such fiscal year. "Maturity" means, with respect to any Note, the date on which any principal of such Note becomes due and payable as provided therein or in the Indenture, whether at the Stated Maturity with respect to such principal or by declaration of acceleration, call for redemption or purchase or otherwise. "Moody's" means Moody's Investors Service, Inc. and its successors. "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds thereof received by the Company or any Restricted Subsidiary in the form of cash or Cash Equivalents (including payments in respect of deferred payment obligations when received in the form of cash or Cash Equivalents (except to the extent that such obligations are financed or sold with recourse to the Company or any Restricted Subsidiary)), net of (a) brokerage commissions and other fees and expenses (including fees and expenses of engineers, legal counsel, accountants and investment banks) related to such Asset Sale, (b) provisions for all taxes payable as a result of such Asset Sale, (c) amounts required to be paid (i) to any minority interest holder or other Person (other than the Company or any Restricted Subsidiary) owning a beneficial interest in the assets subject to the Asset Sale or (ii) in respect of any Indebtedness (other than Indebtedness under the Credit Agreement) secured by a Lien on any of the properties or assets that were the subject of such Asset Sale and (d) appropriate amounts to be provided by the Company or any Restricted Subsidiary, as the case may be, as a reserve required in accordance with GAAP consistently applied against any liabilities associated with such Asset Sale and retained by the Company or any Restricted Subsidiary, as the case may be, after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as reflected in an Officers' Certificate delivered to the Trustee; provided, however, that any amounts remaining after adjustments, revaluations or liquidations of such reserves shall constitute Net Cash Proceeds. "Net Working Capital" means (a) all current assets of the Company and its Restricted Subsidiaries, minus (b) all current liabilities of the Company and its Restricted Subsidiaries, except current liabilities included in Indebtedness, in each case as set forth in financial statements of the Company prepared in accordance with GAAP. "Non-Recourse Indebtedness" means Indebtedness or that portion of Indebtedness of the Company or a Restricted Subsidiary incurred in connection with the acquisition by the Company or a Restricted Subsidiary of any property or assets and as to which (a) the holders of such Indebtedness agree that they will look solely to the property or assets so acquired and securing such Indebtedness for payment on or in respect of such Indebtedness and (b) no default with respect to such Indebtedness would permit (after notice or passage of time or both), according to the terms of any other Indebtedness of the Company or a Restricted Subsidiary, any holder of such other Indebtedness to declare a default under such other Indebtedness or cause the payment of such other Indebtedness to be accelerated or payable prior to its stated maturity. "Note Obligations" means any principal of, premium, if any, and interest on, and any other amounts (including, without limitation, any payment obligations with respect to the Notes as a result of any Asset Sale, Change of Control or redemption) owing in respect of, the Notes payable pursuant to the terms of the Notes or the Indenture or upon acceleration of the Notes. 77 81 "Note Register" means the register maintained by or for the Company in which the Company shall provide for the registration of the Notes and, after the Exchange Offer, the Exchange Notes and of transfer of the Notes and the Exchange Notes. "Officers' Certificate" means a certificate delivered to the Trustee signed by the Chairman, the President, a Vice President or the Chief Financial Officer, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company. "Oil and Gas Business" means (a) the acquisition, exploration, exploitation, development, operation and disposition of interests in oil, gas and other hydrocarbon properties, (b) the gathering, marketing, treating, processing, storage, refining, selling and transporting of any production from such interests or properties, (c) any business relating to or arising from exploration for or exploitation, development, production, treatment, processing, storage, refining, transportation or marketing of oil, gas and other minerals and products produced in association therewith, (d) any 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 and (e) any activity necessary, appropriate or incidental to the activities described in the foregoing clauses (a) through (d) of this definition. "Opinion of Counsel" means a written opinion of legal counsel for the Company (or any Subsidiary Guarantor, if applicable) including an employee of the Company (or any Subsidiary Guarantor, if applicable), who is reasonably acceptable to the Trustee. "Pari Passu Indebtedness" means any Indebtedness of the Company that is pari passu in right of payment to the Notes. "Permitted Indebtedness" means any of the following: (a) Indebtedness of the Company under one or more bank credit or revolving credit facilities in an aggregate principal amount at any one time outstanding not to exceed (i) the greater of (A) $270,000,000 and (B) an amount equal to the sum of (1) $170,000,000 and (2) 10% of Adjusted Consolidated Net Tangible Assets determined as of the date of the most recent quarterly consolidated financial statements of the Company and its Restricted Subsidiaries, less (ii) the amount of Net Cash Proceeds applied to reduce Indebtedness pursuant to the covenant of the Indenture described under the caption "-- Limitation on Disposition of Proceeds of Asset Sales" (together with interest and fees under such facilities, the "Maximum Credit Amount," with the Maximum Credit Amount being an aggregate maximum amount for the Company and all Guarantor Subsidiaries, pursuant to clause (a) of the definition of "Permitted Subsidiary Indebtedness"), and any renewals, amendments, extensions, supplements, modifications, deferrals, refinancings or replacements (each, for purposes of this clause, a "refinancing") thereof by the Company, including any successive refinancings thereof by the Company, so long as the aggregate principal amount of any such new Indebtedness, together with the aggregate principal amount of all other Indebtedness outstanding pursuant to this clause (a) (and clause (a) of the definition of "Permitted Subsidiary Indebtedness"), shall not at any one time exceed the Maximum Credit Amount; (b) Indebtedness of the Company under the Notes; (c) Indebtedness of the Company outstanding on the date of the Indenture (and not repaid or defeased with the proceeds of the sale of the Old Notes by the Company); (d) obligations of the Company pursuant to Interest Rate Protection Obligations, but only to the extent such obligations do not exceed 105% of the aggregate principal amount of the Indebtedness covered by such Interest Rate Protection Obligations; obligations under currency exchange contracts entered into in the ordinary course of business; and Hedging Obligations; (e) Indebtedness of the Company to any Restricted Subsidiaries; (f) in-kind obligations relating to net gas balancing positions arising in the ordinary course of business and consistent with past practice; (g) Indebtedness in respect of bid, performance or surety bonds issued or other reimbursement obligations for the account of the Company in the ordinary course of business, including guarantees and letters of credit supporting such bid, performance, surety bonds or other reimbursement obligations (in each case other than for an obligation for money borrowed); (h) Non-Recourse Indebtedness; 78 82 (i) Indebtedness incurred in respect of any letters of credit in the ordinary course of business of the Company or reimbursement obligations in respect thereof; (j) any renewals, extensions, substitutions, refinancings or replacements (each, for purposes of this clause, a "refinancing") by the Company of any Indebtedness of the Company described in clauses (b) or (c) above, including any successive refinancings by the Company, so long as (i) any such new Indebtedness shall be in a principal amount that does not exceed the principal amount (or, if such Indebtedness being refinanced provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration thereof, such lesser amount as of the date of determination) so refinanced plus the amount of any premium required to be paid in connection with such refinancing pursuant to the terms of the Indebtedness refinanced or the amount of any premium reasonably determined by the Company as necessary to accomplish such refinancing, plus the amount of expenses of the Company incurred in connection with such refinancing, and (ii) in the case of any refinancing of Subordinated Indebtedness, such new Indebtedness is made subordinate to the Notes at least to the same extent as the Indebtedness being refinanced and (iii) such new Indebtedness has an Average Life equal to or longer than the Average Life of the Indebtedness being refinanced and a final Stated Maturity equal to or later than the final Stated Maturity of the Indebtedness being refinanced; (k) other Indebtedness of the Company in an aggregate principal amount not in excess of $25,000,000 at any one time outstanding. "Permitted Investments" means any of the following: (a) Investments in Cash Equivalents; (b) Investments in the Company or any of its Restricted Subsidiaries; (c) Investments by the Company or any of its Restricted Subsidiaries in another Person, if as a result of such Investment (i) such other Person becomes a Restricted Subsidiary of the Company or (ii) such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all of its properties and assets to, the Company or a Restricted Subsidiary; (d) entry into operating agreements, joint ventures, partnership agreements, working interests, royalty interests, mineral leases, processing agreements, farm-out agreements, contracts for the sale, transportation or exchange of oil and natural gas, unitization agreements, pooling arrangements, area of mutual interest agreements, development agreements, joint ownership arrangements and other similar or customary agreements, transactions, properties, interests and arrangements, whether or not any such Investment involves or results in the creation of a legal entity, and Investments and expenditures in connection therewith or pursuant thereto, in each case made or entered into in the ordinary course of the Company or its Restricted Subsidiaries' Oil and Gas Business; (e) entry into any arrangement pursuant to which the Company or any of its Restricted Subsidiaries may incur Hedging Obligations; and (f) other Investments having an aggregate fair market value (measured on the date each such Investment was made without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (f) that are at the time outstanding (net of repayments, dividends and distributions received with respect to such Investments), not to exceed $25,000,000 at any one time outstanding. "Permitted Liens" means the following types of Liens: (a) Liens existing as of the date the Notes are first issued; (b) Liens securing the Notes; (c) Liens in favor of the Company or a Subsidiary Guarantor; (d) Liens securing Senior Indebtedness or Guarantor Senior Indebtedness; (e) Liens for taxes, assessments and governmental charges or claims either (i) not delinquent or (ii) 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; (f) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business for sums 79 83 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; (g) Liens incurred and deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, and Liens incurred and deposits made to secure the payment or performance of tenders, statutory or regulatory obligations, surety and appeal bonds, bids, leases, government contracts and leases, trade contracts (other than to secure an obligation for borrowed money), performance and return of money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money but including lessee and operator obligations under statutes, governmental regulations or instruments related to the ownership, exploration and production of oil, gas and minerals on state, federal or foreign lands or waters); (h) pre-judgment Liens and judgment Liens not giving rise to an Event of Default so long as any appropriate legal proceedings which may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such proceeding may be initiated shall not have expired; (i) any interest or title of a lessor under any Capitalized Lease Obligation or operating lease; (j) Liens resulting from the deposit of funds or evidences of Indebtedness in trust for the purpose of defeasing Indebtedness of the Company or any of the Subsidiaries; customary Liens for the fees, costs and expenses of trustees and escrow agents pursuant to the indenture, escrow agreement or other similar agreement establishing such trust or escrow arrangement; and Liens pursuant to merger agreements, stock purchase agreements, asset sale agreements and similar agreements (i) limiting the transfer of properties and assets pending consummation of the subject transaction or (ii) in respect of earnest money deposits, good faith deposits, purchase price adjustment escrows or similar deposits or escrow arrangements made or established thereunder; (k) Liens securing any Hedging Obligations of the Company or any Restricted Subsidiary; (l) 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; (m) Liens securing reimbursement obligations with respect to commercial letters of credit which encumber documents and other property relating to such letters of credit and products and proceeds thereof; (n) Liens encumbering property or assets under construction arising from progress or partial payments by a customer of the Company or its Restricted Subsidiaries relating to such property or assets and Liens to secure Indebtedness used to finance all or a part of the construction of property or assets used by the Company or any of its Restricted Subsidiaries in the Oil and Gas Business, provided, that such Liens do not extend to any other property or assets owned by the Company or its Restricted Subsidiaries; (o) 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; (p) Liens securing Interest Rate Protection Obligations which Interest Rate Protection Obligations relate to Indebtedness that is secured by Liens otherwise permitted under this Indenture; (q) Liens on, or related to, properties or assets to secure all or part of the costs incurred in the ordinary course of business for the exploration, drilling, development or operation thereof; (r) Liens on pipeline or pipeline facilities which arise out of operation of law; (s) Liens arising under operating agreements, joint venture agreements, partnership agreements, oil and gas leases, farm-out agreements, division orders, contracts for the sale, purchase, transportation, processing or exchange of oil, gas or other hydrocarbons, unitization and pooling declarations and agreements, area of mutual interest agreements, development agreements, joint ownership arrangements and other agreements which are customary in the Oil and Gas Business; (t) Liens reserved in oil and gas mineral leases for bonus or rental payments and for compliance with the terms of such leases; (u) Liens constituting survey exceptions, encumbrances, easements, or reservations of, or rights to others for, rights-of-way, zoning, restrictions and other similar charges and encumbrances as to the use of 80 84 real properties, and minor defects of title which, in the case of any of the foregoing, were not incurred or created to secure the payment of borrowed money or the deferred purchase price of property, assets or services, and in the aggregate do not interfere in any material respect with the ordinary conduct of the business of the Company or its Restricted Subsidiaries; (v) rights reserved to or vested in any municipality or governmental, statutory or public authority by the terms of any right, power, franchise, grant, license or permit, or by any provision of law, to terminate such right, power, franchise, grant, license or permit or to purchase, condemn, expropriate or recapture or to designate a purchaser of any of the property of such Person; rights reserved to or vested in any municipality or governmental, statutory or public authority to control or regulate any property of such Person, or to use such property in a manner which does not materially impair the use of such property for the purposes for which it is held by such Person; any obligation or duties affecting the property of such Person to any municipality or governmental, statutory or public authority with respect to any franchise, grant, license or permit; (w) Liens securing Non-Recourse Indebtedness; provided, however, that the related Non-Recourse Indebtedness shall not be secured by any property or assets of the Company or any Restricted Subsidiary other than the property and assets acquired by the Company with the proceeds of such Non-Recourse Indebtedness; and (x) Liens securing Acquired Indebtedness; provided, however, that any such lien extends only to the properties or assets that were subject to such Lien prior to the related acquisition by the Company or such Restricted Subsidiary and was not created, incurred or assumed in contemplation of such transaction. Notwithstanding anything in clauses (a) through (x) of this definition, the term "Permitted Liens" does not include any Liens resulting from the creation, incurrence, issuance, assumption or guarantee of any Production Payments other than Production Payments that are created, incurred, issued, assumed or guaranteed in connection with the financing of, and within 30 days after, the acquisition of the properties or assets that are subject thereto. "Permitted Subsidiary Indebtedness" means any of the following: (a) Indebtedness of any Guarantor Subsidiary under one or more bank credit or revolving credit facilities (and "refinancings" thereof) in an amount at any one time outstanding not to exceed the Maximum Credit Amount (in the aggregate for all Guarantor Subsidiaries and the Company, pursuant to clause (a) of the definition of "Permitted Indebtedness"); (b) Indebtedness of any Restricted Subsidiary outstanding on the date of the Indenture; (c) obligations of any Restricted Subsidiary pursuant to Interest Rate Protection Obligations, but only to the extent such obligations do not exceed 105% of the aggregate principal amount of the Indebtedness covered by such Interest Rate Protection Obligations; and Hedging Obligations of any Restricted Subsidiary; (d) the Subsidiary Guarantees (and any assumption of the obligations guaranteed thereby); (e) Indebtedness of any Restricted Subsidiary relating to guarantees by such Restricted Subsidiary of Permitted Indebtedness; (f) in-kind obligations relating to net gas balancing positions arising in the ordinary course of business and consistent with past practice; (g) Indebtedness in respect of bid, performance or surety bonds or other reimbursement obligations issued for the account of any Restricted Subsidiary in the ordinary course of business, including guarantees and letters of credit supporting such bid, performance, surety bonds or other reimbursement obligations (in each case other than for an obligation for money borrowed); (h) Indebtedness of any Restricted Subsidiary to any other Restricted Subsidiary or to the Company; (i) Indebtedness relating to guarantees by any Restricted Subsidiary permitted to be incurred pursuant to paragraph (a) of the provisions of the Indenture described under the caption "-- Limitation on Non-Guarantor Restricted Subsidiaries"; (j) Indebtedness incurred in respect of letters of credit in the ordinary course of business of any Restricted Subsidiary or reimbursement obligation in respect thereof; (k) Non-Recourse Indebtedness; 81 85 (l) any renewals, extensions, substitutions, refinancings or replacements (each, for purposes of this clause, a "refinancing") by any Restricted Subsidiary of any Indebtedness of such Restricted Subsidiary, including any successive refinancings by such Restricted Subsidiary, so long as (i) any such new Indebtedness shall be in a principal amount that does not exceed the principal amount (or, if such Indebtedness being refinanced provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration thereof, such lesser amount as of the date of determination) so refinanced plus the amount of any premium required to be paid in connection with such refinancing pursuant to the terms of the Indebtedness refinanced or the amount of any premium reasonably determined by such Restricted Subsidiary as necessary to accomplish such refinancing, plus the amount of expenses of such Subsidiary incurred in connection with such refinancing and (ii) such new Indebtedness has an Average Life equal to or longer than the Average Life of the Indebtedness being refinanced and a final Stated Maturity equal to or later than the final Stated Maturity of the Indebtedness being refinanced; and (m) other Indebtedness incurred by one or more Restricted Subsidiaries that are not Guarantor Subsidiaries in an aggregate principal amount not to exceed $20,000,000 at any time outstanding. "Person" means any individual, corporation, limited liability company, partnership, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Preferred Stock" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated) of such Person's preferred or preference stock, whether now outstanding or issued after the date of the Indenture, including, without limitation, all classes and series of preferred or preference stock of such Person. "Production Payments" means, collectively, Dollar-Denominated Production Payments and Volumetric Production Payments. "Public Market" exists at any time with respect to the Qualified Capital Stock of the Company if such Qualified Capital Stock of the Company is then (a) registered with the Commission pursuant to Section 12(b) or 12(g) of the Exchange Act and (b) traded either on a national securities exchange or on the NASDAQ Stock Market. "Qualified Capital Stock" of any Person means any and all Capital Stock of such Person other than Redeemable Capital Stock. "Qualified Redemption Transaction" means a call for redemption of any Capital Stock or Subordinated Indebtedness (including any Subordinated Indebtedness accounted for as a minority interest of the Company that is held by a Subsidiary that is a business trust or similar entity formed for the primary purpose of issuing preferred securities the proceeds of which are loaned to the Company or a Restricted Subsidiary) that by its terms is convertible into Common Stock of the Company if on the date of notice of such call for redemption (a) a Public Market exists in the shares of Common Stock of the Company and (b) the average closing price on the Public Market for shares of Common Stock of the Company for the twenty trading days immediately preceding the date of such notice exceeds 120% of the conversion price per share (determined by reference to the redemption price) of Common Stock of the Company issuable upon conversion of the Capital Stock or Subordinated Indebtedness called for redemption. "Redeemable Capital Stock" means any class or series of Capital Stock that, either by its terms, by the terms of any security into which it is convertible or exchangeable or by contract or otherwise, is, or upon the happening of an event or passage of time would be, required to be redeemed prior to 91 days after the final Stated Maturity of the Notes or is redeemable at the option of the holder thereof at any time prior to 91 days after such final Stated Maturity, or is convertible into or exchangeable for debt securities at any time prior to 91 days after such final Stated Maturity. "Regular Record Date" for the interest payable on any Interest Payment Date means May 1 or November 1 (whether or not a business day, as the case may be) next preceding each such Interest Payment Date. "Restricted Subsidiary" means any Subsidiary of the Company, whether existing on or after the date of the Indenture, unless such Subsidiary of the Company is an Unrestricted Subsidiary or is designated as an Unrestricted Subsidiary pursuant to the terms of the Indenture. "S&P" means Standard and Poor's Rating Group, a division of The McGraw-Hill Companies, Inc., and its successors. "Sale/Leaseback Transaction" means, with respect to any Person, any direct or indirect arrangement pursuant to which properties or assets are sold or transferred by such Person or a Subsidiary of such Person and are thereafter leased back from the purchaser or transferee thereof by such Person or one of its Subsidiaries; provided, however, Sale/Leaseback Transactions shall not include transactions whereby property or assets are sold or transferred by the Company or any of its Restricted Subsidiaries to any Affiliate of the Company or pursuant to any Permitted Investment 82 86 constituting a joint ownership arrangement, which property or assets are leased back, directly or indirectly, to the Company, any Affiliate of the Company or to the constituent parties to any such joint venture arrangement. "Senior Indebtedness" means the principal of, premium, if any, and interest on any Indebtedness of the Company (including, in the case of the Credit Agreement, interest accruing after the filing of a petition by or against the Company under any bankruptcy law, in accordance with and at the rate, including any default rate, specified with respect to such indebtedness, whether or not a claim for such interest is allowed as a claim after such filing in any proceeding under such bankruptcy law), whether outstanding on the date of the Indenture or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Notes. Notwithstanding the foregoing, "Senior Indebtedness" shall not include (a) Indebtedness evidenced by the Notes, (b) Indebtedness that is expressly subordinate or junior in right of payment to any Senior Indebtedness of the Company, (c) Indebtedness which, when incurred and without respect to any election under Section 1111(b) of Title 11 United States Code, is by its terms without recourse to the Company or which is Non-Recourse Indebtedness, (d) any repurchase, redemption or other obligation in respect of Redeemable Capital Stock of the Company, (e) to the extent it might constitute Indebtedness, any liability for federal, state, local or other taxes owed or owing by the Company, (f) Indebtedness of the Company to a Subsidiary of the Company or any other Affiliate of the Company or any of such Affiliate's Subsidiaries and (g) that portion of any Indebtedness of the Company which at the time of issuance is issued in violation of the Indenture (but, as to any such Indebtedness, no such violation shall be deemed to exist for purposes of this clause (g) if the holder(s) of such Indebtedness or their representative or the Company shall have furnished to the Trustee an Opinion of Counsel addressed to the Trustee (which counsel may, as to matters of fact, rely upon a certificate of the Company) to the effect that the incurrence of such Indebtedness does not violate the provisions of such Indenture); provided, that the foregoing exclusions shall not affect the priorities of any Indebtedness arising solely by operation of law in any case or proceeding or similar event described in clause (a), (b) or (c) of the second paragraph under the caption "-- Subordination." "Stated Maturity" means, when used with respect to any Note or any installment of interest thereon, the date specified in such Note as the fixed date on which the principal of such Note or such installment of interest is due and payable, and, when used with respect to any other Indebtedness or any installment of interest thereon, means the date specified in the instrument evidencing or governing such Indebtedness as the fixed date on which the principal of such Indebtedness or such installment of interest is due and payable. "Subordinated Indebtedness" means (a) the Company's 5 1/2% Convertible Subordinated Notes due 2006 issued under the Indenture dated as of June 15, 1996, between the Company and Fleet National Bank, as Trustee, (b) the Company's 5 1/2% Convertible Subordinated Notes due 2004 issued under the Indenture dated as of March 23, 1994, between the Company and Fleet National Bank, as Trustee, and (c) other Indebtedness of the Company which, by its terms, is subordinated in right of payment to the Notes. "Subsidiary" means, with respect to any Person, a corporation, partnership, limited liability company, association or other business entity a majority of whose Voting Stock is at the time, directly or indirectly, owned by such Person, by one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries thereof. For purposes of the foregoing definition, an arrangement by which a Person who owns an interest in an oil and gas property is subject to a joint operating agreement, processing agreement, net profits interest, overriding royalty interest, farmout agreement, development agreement, area of mutual interest agreement, joint bidding agreement, unitization agreement, pooling arrangement or other similar agreement or arrangement shall not, in and of itself, be considered a Subsidiary. "Subsidiary Guarantee" means any guarantee of the Notes by (a) any Subsidiary Guarantor in accordance with the provisions set forth in "-- Subsidiary Guarantees of the Notes" and (b) any Restricted Subsidiary in accordance with the provisions set forth in the covenant described under the caption "-- Limitation on Non-Guarantor Restricted Subsidiaries." "Subsidiary Guarantor" means each of the Company's Restricted Subsidiaries that becomes a guarantor of the Notes in compliance with the provisions described under the caption "-- Subsidiary Guarantees of the Notes" or the provisions of the covenant described under the caption "-- Limitation on Non-Guarantor Restricted Subsidiaries" or otherwise executes a supplemental indenture in which such Subsidiary agrees to be bound by the terms of the Indenture and to guarantee the payment of the Notes pursuant to the provisions described under the caption "-- Subsidiary Guarantees of the Notes." "Unrestricted Subsidiary" means (a) any Subsidiary of the Company that at the time of determination will be designated an Unrestricted Subsidiary by the Board of Directors of the Company as provided below and (b) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the Company may designate any Subsidiary of the Company as an Unrestricted Subsidiary so long as (i) neither the Company nor any Restricted Subsidiary is directly or indirectly liable pursuant to the terms of any Indebtedness of such Subsidiary; (ii) no default with respect to any Indebtedness of such Subsidiary would permit (upon notice, lapse of time or otherwise) any holder of any other Indebtedness of the Company or any Restricted Subsidiary to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; (iii) neither the Company nor any Restricted 83 87 Subsidiary has made an Investment in such Subsidiary unless such Investment was made pursuant to, and in accordance with, the covenant described under the caption "-- Limitation on Restricted Payments" (other than Investments of the type described in clause (d) of the definition of "Permitted Investments"); and (iv) such designation shall not result in the creation or imposition of any Lien on any of the Properties of the Company or any Restricted Subsidiary (other than any Permitted Lien or any Lien the creation or imposition of which shall have been in compliance with the covenant described under the caption "-- Limitation on Liens"); provided, however, that with respect to clause (i), the Company or a Restricted Subsidiary may be liable for Indebtedness of an Unrestricted Subsidiary if (A) such liability constituted a Permitted Investment or a Restricted Payment permitted by the provisions of the Indenture described under the caption "-- Limitation on Restricted Payments," in each case at the time of incurrence, or (B) the liability would be a Permitted Investment at the time of designation of such Subsidiary as an Unrestricted Subsidiary. Any such designation by the Board of Directors shall be evidenced to the Trustee by filing a resolution with the Trustee giving effect to such designation. The Board of Directors may designate any Unrestricted Subsidiary as a Restricted Subsidiary if, immediately after giving effect to such designation, (1) no Default or Event of Default shall have occurred and be continuing, (2) the Company could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) under the first paragraph of the covenant described above under the caption "-- Limitation on Indebtedness" and (3) if any of the Properties of the Company or any of its Restricted Subsidiaries would upon such designation become subject to any Lien (other than a Permitted Lien), the creation or imposition of such Lien shall have been in compliance with the covenant described under the caption "-- Limitations on Liens." "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" means any class or classes of Capital Stock pursuant to which the holders thereof have the general voting power under ordinary circumstances to vote in the election of the directors, managers or trustees of any Person (irrespective of whether or not, at the time, Capital Stock of any other class or classes shall have, or might have, voting power by reason of the happening of any contingency). "Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary to the extent (a) all of the Capital Stock in such Restricted Subsidiary, other than any directors qualifying shares mandated by applicable law, is owned directly or indirectly by the Company or (b) such Restricted Subsidiary is organized in a foreign jurisdiction and is required by the applicable laws and regulations of such foreign jurisdiction to be partially owned by the government of such foreign jurisdiction or individual or corporate citizens of such foreign jurisdiction in order for such Restricted Subsidiary to transact business in such foreign jurisdiction, provided, that the Company, directly or indirectly, owns the remaining Capital Stock or ownership interest in such Restricted Subsidiary and, by contract or otherwise, controls the management and business of such Restricted Subsidiary and derives the economic benefits of ownership of such Restricted Subsidiary to substantially the same extent as if such Restricted Subsidiary were a wholly owned Subsidiary. EXCHANGE OFFER; REGISTRATION RIGHTS In connection with the sale of the Old Notes, the Company entered into a registration rights agreement with the Initial Purchasers pursuant to which the Company agreed, for the benefit of the holders of the Old Notes, at the Company's cost, to use its reasonable best efforts (i) to file with the Commission the Exchange Offer Registration Statement with respect to the Exchange Offer of the Exchange Notes not later than July 6, 1997, (ii) to cause the Exchange Offer Registration Statement to be declared effective under the Securities Act not later than September 4, 1997, (iii) to keep the Exchange Offer Registration Statement effective until the closing of the Exchange Offer, and (iv) to cause the Exchange Offer to be consummated not later than November 18, 1997. Promptly after the Exchange Offer Registration Statement has been declared effective, the Company will offer the Exchange Notes in exchange for surrender of the Old Notes. The Company will 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 has been mailed to the holders of the Old Notes. For each Old Note validly tendered to the Company pursuant to the Exchange Offer and not withdrawn by the holder thereof, the holder of such Old Note will receive an Exchange Note having a principal amount equal to the principal amount of such surrendered Old Note. Interest on each Exchange Note will accrue from the last interest payment date to which interest was paid on the Old Note surrendered in exchange therefor or, if no interest has been paid on such Note, from the date of the original issuance of the Old Note. Based on existing interpretations of the Securities Act by the staff of the Commission set forth in several no- action letters to third parties, and subject to the immediately following sentence, the Company believes that the Exchange Notes issued pursuant to the Exchange Offer may be offered for resale, resold and transferred by the holders thereof without further compliance with the registration and prospectus delivery provisions of the Securities Act. However, any purchaser of Old Notes who is an affiliate of the Company or who intends to participate in the Exchange Offer for the purpose of distributing the Exchange Notes, or any broker-dealer who purchased the Old Notes from the Company to resell pursuant to Rule 144A or any other available exemption under the Securities Act, (i) will not be able to rely on the interpretations by the staff of the Commission set forth in the above-mentioned no-action letters, (ii) will not be able to tender its Old Notes in the Exchange Offer and (iii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or transfer of the Notes unless such sale or transfer is made pursuant to an exemption from such requirements. The Company does not intend to seek its own no-action letter and there is no assurance that the staff of the Commission would make a similar determination with respect to the Exchange Notes as it has in such no-action letters to third parties. Each holder of Old Notes (other than certain specified holders) who wishes to exchange Old Notes for Exchange Notes in the Exchange Offer will be required to represent that (i) it is not an affiliate of the Company nor a broker- dealer tendering Old Notes acquired directly from the Company for its own account, (ii) any Exchange Notes to be received by it were acquired in the ordinary course of its business and (iii) at the time of the commencement of the Exchange Offer, it has no arrangement with any person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Notes. In addition, in connection with any resales of Exchange Notes, any broker-dealer who acquired the Old Notes for its own account as a result of market-making activities or other trading activities (a "Participating Broker-Dealer") must deliver a prospectus meeting the requirements of the Securities Act. The staff of the Commission has taken the position that 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 the Exchange Offer Registration Statement. Under the Registration Rights Agreement, the Company will be required to allow Participating Broker-Dealers to use the prospectus contained in the Exchange Offer Registration Statement in connection with the resale of Exchange Notes received in exchange for Old Notes acquired by such Participating Broker-Dealers for their own account as a result of market-making or other trading activities. In the event that any changes in law or the applicable interpretations of the staff of the Commission do not permit the Company to effect the Exchange Offer, or if for any reason the Exchange Offer Registration Statement is not declared effective or the Exchange Offer is not consummated by November 18, 1997, or upon the request of the Initial Purchasers in certain circumstances, the Company will, in lieu of effecting (or, in the case of such a request by the Initial Purchasers, in addition to effecting) the registration of the Exchange Notes pursuant to the Exchange Offer Registration Statement (i) as promptly as practicable, file with the Commission the Shelf Registration Statement covering sales of the Old Notes, (ii) use its reasonable best efforts to cause the Shelf Registration Statement to be declared effective under the Securities Act by (or promptly in the event of a request by the Initial Purchasers) and (iii) use its reasonable best efforts to keep effective the Shelf Registration Statement (subject to the Company's right to suspend use of the Shelf Registration Statement in limited circumstances for no more than 60 days within any twelve month period (a "Shelf Registration Suspension"), as set forth in the Registration Rights Agreement) until two years after its effective date (or until one year after such effective date if such Shelf Registration Statement is filed at the request of the Initial Purchasers) or until all of the Old Notes covered by such Shelf Registration Statement have been sold. In the event of the filing of a Shelf Registration Statement, the Company will provide to each holder of the Old Notes copies of the prospectus which is a part of the Shelf Registration Statement and notify each such holder when the Shelf Registration Statement has become effective. A holder of Old Notes that sells such Old Notes pursuant to the Shelf Registration Statement generally will 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 which are applicable to such a holder (including certain indemnification obligations). In addition, each holder of the Old Notes will be required to deliver information to be used in connection with the Shelf Registration Statement and in order to have its Old Notes included in the Shelf Registration Statement and to benefit from the provisions regarding the increase in the interest rate borne by the Old Notes described in the second succeeding paragraph. Each Note will contain a legend to the effect that the holder of such Notes, by its acceptance thereof, will be deemed to have agreed to be bound by the provisions of the Registration Rights Agreement. In that regard, each holder will be deemed to have agreed that, upon receipt of notice from the Company of the occurrence of any event that makes any statement in the prospectus that is part of the Shelf Registration Statement (or, in the case of Participating Broker-Dealers, the prospectus that is a part of the Exchange Offer Registration Statement) untrue in any material respect or that requires the making of any changes in such prospectus in order to make the statements therein not misleading or of certain other events specified in the Registration Rights Agreement, such holder (or Participating Broker-Dealer, as the case may be) will suspend the sale of Notes pursuant to such prospectus until the Company has 84 88 amended or supplemented such prospectus to correct such misstatement or omission, has furnished copies of the amended or supplemented prospectus to such holder (or Participating Broker-Dealer, as the case may be) or the Company has given notice that the sale of the Notes may be resumed, as the case may be. If the Company shall give such notice to suspend the sale of the Notes, it shall extend the relevant period referred to above during which it is required to keep effective the Shelf Registration Statement (or the period during which Participating Broker-Dealers are entitled to use the prospectus included in the Exchange Offer Registration Statement in connection with the resale of Exchange Notes, as the case may be) by the number of days during the period from and including the date of the giving of such notice to and including the date when holders shall have received copies of the supplemented or amended prospectus necessary to permit resales of the Notes or to and including the date on which the Company has given notice that the sale of Notes may be resumed, as the case may be. In the event that (a) the Exchange Offer Registration Statement is not filed with the Commission on or prior to July 6, 1997, (b) the Exchange Offer Registration Statement is not declared effective on or prior to September 4, 1997, (c) the Exchange Offer is not consummated or a Shelf Registration Statement with respect to the Notes is not declared effective on or prior to November 18, 1997, (d) any required Exchange Offer Registration Statement or Shelf 85 89 Registration Statement is filed and declared effective but shall thereafter either be withdrawn by the Company or becomes subject to an effective stop order suspending the effectiveness of such registration statement (except as specifically permitted in the Registration Rights Agreement) without being succeeded immediately by an additional registration statement filed and declared effective, or (e) the Company effects a Shelf Registration Suspension for more than 60 days, whether or not consecutive, within any period of 12 consecutive months (each such event referred to in clauses (a) through (e), a "Registration Default") then, as liquidated damages for such Registration Default, subject to certain limitations, special interest ("Special Interest"), in addition to stated interest on the Notes, shall accrue on the Notes at a per annum rate of 0.50% from and including the day following such Registration Default to but excluding the date on which the Registration default is cured or ceases as described below (such period being the "Registration Default Period"); provided, that if the Exchange Offer Registration Statement is not declared effective on or prior to September 4, 1997 and the Company shall request holders of Notes to provide the information called for by the Registration Rights Agreement for inclusion in the Shelf Registration Statement, then Notes owned by holders who do not deliver such information to the Company when required pursuant to the Registration Rights Agreement will not be entitled to any such increase in the interest rate for any day after September 4, 1997. Special Interest will be paid in the same manner as interest is paid on the Notes pursuant to the Indenture. Upon (1) the filing of the Exchange Registration Statement after July 6, 1997 as described in clause (a) above, (2) the effectiveness of the Exchange Registration Statement after September 4, 1997 as described in clause (b) above, (3) the consummation of the Exchange Offer or the effectiveness of the Shelf Registration Statement, as the case may be, after November 18, 1997 as described in clause (c) above, (4) removal of the suspension or stop order referred to in clause (d) above or the filing and effectiveness of a new registration statement in respect thereof, (5) cessation of the Shelf Registration Suspension referred to in clause (e) above, or (6) expiration of the period for which the Company is obligated to keep the Shelf Registration Statement effective, Special Interest shall cease to accrue unless a new Registration Default shall occur. The Registration Rights Agreement is governed by, and construed in accordance with, the laws of the State of New York. The summary herein of certain provisions of the Registration Rights Agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Registration Rights Agreement, a form of which is available upon request to the Company. See "Incorporation of Certain Documents by Reference." In addition, the information set forth above concerning certain interpretations of and positions taken by the staff of the Commission is not intended to constitute legal advice and prospective investors should consult their own legal advisors with respect to such matters. CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following discussion is based on the current provisions of the Internal Revenue Code of 1986, as amended (the "Code"), applicable Treasury regulations, judicial authority and administrative rulings and practice. There can be no assurance that the Internal Revenue Service (the "Service") will not take a contrary view, and no ruling from the Service has been or will be sought. Legislative, judicial or administrative changes or interpretations may be forthcoming that could alter or modify the statements and conditions set forth herein. Any such changes or interpretations may or may not be retroactive and could affect the tax consequences to holders. Certain holders (including insurance companies, tax-exempt organizations, financial institutions, broker-dealers, foreign corporations and persons who are not citizens or residents of the United States) may be subject to special rules not discussed below. The Company recommends that each holder consult such holder's own tax advisor as to the particular tax consequences of exchanging such holder's Old Notes for Exchange Notes, including the applicability and effect of any state, local or foreign tax laws. The Company believes that the exchange of Old Notes for Exchange Notes pursuant to the Exchange Offer will not be treated as an "exchange" for federal income tax purposes because the Exchange Notes will not be considered to differ materially in kind or extent from the Old Notes. Rather, the Exchange Notes received by a holder will be treated as a continuation of the Old Notes in the hands of such holder. As a result, there will be no federal income tax consequences to holders exchanging Old Notes for Exchange Notes pursuant to the Exchange Offer. PLAN OF DISTRIBUTION 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. 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 as a result of market-making activities or other trading activities. The Company has agreed that it will make this Prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale for a period of 180 days after consummation of the Exchange Offer, or such shorter period as will terminate when all Old Notes acquired by broker- dealers for their own accounts as a result of market-making activities or other trading activities have been exchanged for Exchange Notes and resold by such broker-dealers. A broker-dealer that delivers such a prospectus to purchasers in connection with such resales will be subject to certain of the civil liability provisions under the Securities Act and will be bound by the provisions of the Registration Rights Agreement (including certain indemnification rights and obligations). 86 90 The Company will not receive any proceeds from any sale of Exchange Notes by broker-dealers. 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 such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such Exchange Notes. Any broker-dealer that resells 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 such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. For a period of 180 days after consummation of the Exchange Offer, or such shorter period as will terminate when all Old Notes acquired by broker-dealers for their own accounts as a result of market-making activities or other trading activities have been exchanged for Exchange Notes and resold by such broker-dealers, the Company 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. The Company has agreed in the Registration Rights Agreement to indemnify such broker-dealers against certain liabilities, including liabilities under the Securities Act. TRANSFER RESTRICTIONS ON OLD NOTES OFFERS AND SALES BY THE INITIAL PURCHASERS The Old Notes were not registered under the Securities Act and may not be offered or sold in the United States or to, or for the account or benefit of, U.S. persons except in accordance with an applicable exemption from the registration requirements thereof. Accordingly, the Old Notes were offered and sold only in the United States to QIBs under Rule 144A under the Securities Act and other Institutional Accredited Investors who, prior to their purchase of Old Notes, delivered to the Initial Purchasers a letter containing certain representations and agreements, in a private sale exempt from the registration requirements of the Securities Act. 87 91 LEGAL MATTERS The validity of the issuance of the Exchange Notes offered hereby is being passed upon for the Company by Gerald A. Morton, Vice President-Law and Corporate Secretary of the Company. Mr. Morton owns approximately 1,595 shares of the Company's Common Stock through the Company's tax advantaged savings plan and options to purchase an aggregate of 22,000 shares of the Company's common stock, which are or become exercisable in periodic installments through August 1, 1999. EXPERTS The consolidated financial statements of Pogo Producing Company as of December 31, 1996 and 1995, and for the three years in the period ended December 31, 1996, incorporated by reference in this Prospectus have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are incorporated by reference herein in reliance upon the authority of said firm as experts in accounting and auditing in giving said report. The estimates of oil and gas reserves set forth herein and in the Annual Report, and the related estimates set forth herein and therein of discounted present values of estimated future net revenues therefrom, are extracted from the report of Ryder Scott attached as an exhibit to the Annual Report. Such information is incorporated by reference herein in reliance on the authority of said firm as experts with respect to matters contained in such report. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Exchange Act . In accordance with the Exchange Act, the Company files reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information filed by the Company may be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's following Regional Offices: New York Regional Office, 7 World Trade Center, New York, New York 10048; and Chicago Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material also may be obtained at prescribed rates from the Public Reference Branch of the Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549-1004. The Company's Common Stock is listed on The New York Stock Exchange and the Pacific Stock Exchange. Consequently, such reports, proxy statements and other information concerning the Company may be inspected at the offices of The New York Stock Exchange, 20 Broad Street, New York, New York 10005 and the Pacific Stock Exchange, 301 Pine Street, San Francisco, California 94104. In addition, the Commission maintains an Internet web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission (http://www.sec.gov). While any Old Notes remain outstanding, the Company will make available, upon request, to any holder and any prospective purchaser of Old Notes, the information required pursuant to Rule 144A(d)(4) under the Securities Act during any period in which the Company is not subject to Section 13 or 15(d) of the Exchange Act. Any such request should be directed to the Corporate Secretary of the Company, 5 Greenway Plaza, Suite 2700, Houston, Texas 77046. This Prospectus constitutes part of a Registration Statement filed by the Company with the Commission under the Securities Act. This Prospectus omits certain of the information set forth in the Registration Statement. Reference is hereby made to the Registration Statement and to the exhibits relating thereto for further information with respect to the Company and the securities offered hereby. Statements contained herein concerning the provisions of contracts or other documents are not necessarily complete, and each such statement is qualified in its entirety by reference to the copy of the applicable contract or other document filed with the Commission. Copies of the Registration Statement and the exhibits thereto are on file at the offices of the Commission and may be obtained upon payment of the fee prescribed by the Commission, or may be examined without charge at the public reference facilities of the Commission described above. 88 92 ================================================================================ NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND THE ACCOMPANYING LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, EXCHANGE AGENT, THE INITIAL PURCHASERS OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF TRANSMITTAL CONSTITUTES AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE EXCHANGE NOTES IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. -------------- TABLE OF CONTENTS
PAGE ---- Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Incorporation of Certain Documents by Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Private Placement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Selected Reserve and Operating Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 The Exchange Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . 30 Business and Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Management and Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Description of the Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Exchange Offer; Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Transfer Restrictions on Old Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
================================================================================ ================================================================================ $100,000,000 EXCHANGE OFFER [POGO LOGO] 8 3/4% SENIOR SUBORDINATED NOTES DUE 2007 --------------- PROSPECTUS , 1997 ================================================================================ 93 PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law, inter alia, empowers a Delaware corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director, officer, employee or agent of another corporation or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Similar indemnity is authorized for such persons against expenses (including attorneys' fees) actually and reasonably incurred in connection with the defense or settlement of any such threatened, pending or completed action or suit if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and provided further that (unless a court of competent jurisdiction otherwise provides) such person shall not have been adjudged liable to the corporation. Any such indemnification may be made only as authorized in each specific case upon a determination by the shareholders or disinterested directors or by independent legal counsel in a written opinion that indemnification is proper because the indemnitee has met the applicable standard of conduct. Section 145 further authorizes a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would otherwise have the power to indemnify him under Section 145. The Company maintains policies insuring its and its subsidiaries' officers and directors against certain liabilities for actions taken in such capacities, including liabilities under the Securities Act of 1933, as amended. Article X of the Restated Certificate of Incorporation of the Registrant eliminates the personal liability of each director of the Registrant to the Registrant and its stockholders for monetary damages for breach of fiduciary duty as a director involving any act or omission of any such director occurring on or after September 30, 1986; provided, however, that such provision does not eliminate or limit the liability of a director (i) for any breach of such director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Title 8, Section 174 of the General Corporation Law of the State of Delaware or (iv) for any transaction from which such director derived an improper personal benefit. The Bylaws of the Registrant contain the following provisions: ARTICLE VII INDEMNIFICATION Section 1. Right to Indemnification. The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding") by reason of the fact that he, or a person for whom he is the legal representative, is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, fiduciary or agent of another corporation or of a partnership, joint venture, trust, enterprise or non-profit entity including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such person. The Corporation shall indemnify a person in connection with a proceeding initiated by such person only if the proceeding was authorized by the Board of Directors of the Corporation. Section 2. Prepayment of Expenses. The Corporation shall pay the expenses incurred in defending any proceeding in advance of its final disposition, provided, however, that the payment of expenses incurred by a director or officer in his capacity as a director or officer (except with regard to service to an employee benefit plan or non-profit organizations in advance of the final disposition of the II-1 94 proceeding) shall be made only upon receipt of an undertaking by the director or officer to repay all amounts advanced if it should be ultimately determined that the director or officer is not entitled to be indemnified under this Article or otherwise. Section 3. Claims. If a claim for indemnification or payment of expenses under this Article is not paid in full within ninety days after a written claim therefor has been received by the Corporation the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification or payment of expenses under applicable law. Section 4. Non-Exclusivity of Rights. The rights conferred on any person by this Article shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, these Bylaws, agreement, vote of stockholders or disinterested directors or otherwise. Section 5. Amendment or Repeal. Any repeal or modification of the foregoing provisions of this Article VII shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. The Registrant has placed in effect insurance which purports (a) to insure it against certain costs of indemnification which may be incurred by it pursuant to the aforementioned Bylaw provision or otherwise and (b) to insure the officers and directors of the Company and of specified subsidiaries against certain liabilities incurred by them in the discharge of their functions as officers and directors except for liabilities arising from their own malfeasance. ITEM 21. EXHIBITS AND FINANCIAL SCHEDULES The following instruments and documents are included as Exhibits to this Registration Statement. Exhibits incorporated by reference are so indicated by parenthetical information.
Exhibit No. Exhibit ----------- ------- 4.1 -- Restated Certificate of Incorporation of Pogo Producing Company (filed as Exhibit 3(a) to Pogo Producing Company's Annual Report on Form 10-K for the year ended December 31, 1996 and included herein by reference (File No. 1-7792)) 4.2 -- By-Laws of Pogo Producing Company, as amended and restated through April 22, 1997 (filed as Exhibit 3(b) to Pogo Producing Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 and included herein by reference (File No. 1-7792)) 4.3** -- Indenture dated as of May 15, 1997 between Pogo Producing Company and Fleet National Bank (now State Street Bank & Trust Company as successor in interest under the Indenture), as Trustee, which includes the form of the 8 3/4% Senior Subordinated Note due 2007 as an exhibit thereto 4.4** -- Registration Rights Agreement dated May 22, 1997 among Pogo Producing Company, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Goldman Sachs & Co. 5.1** -- Opinion of Gerald A. Morton 23.1** -- Consent of Arthur Andersen LLP 23.2** -- Consent of Ryder Scott Company Petroleum Engineers
II-2 95 23.3** -- Consent of Gerald A. Morton (contained in his opinion filed as Exhibit 5) 24.1** -- Powers of Attorney 25.1** -- Statement of Eligibility of Trustee 99.1* -- Form of Letter of Transmittal
- ------------------------ * To be filed by amendment. ** Filed herewith. ITEM 22. UNDERTAKINGS The Company hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the Company's annual report pursuant to section 13(a) or section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Exchange Act) that is incorporated by reference in the Registration Statement 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. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the provisions described under Item 20 above, or otherwise, the Company has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the Company 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 Company will, unless, in the opinion of its counsel, the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes 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. The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the Registration Statement when it became effective. II-3 96 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, the State of Texas on July 2, 1997. POGO PRODUCING COMPANY By: /s/ Paul G. Van Wagenen ------------------------------------------------ Paul G. Van Wagenen Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Name Title Date ---- ----- ---- /s/ Paul G. Van Wagenen Chairman of the Board, President and July 2, 1997 - -------------------------------------- Chief Executive Officer (Principal Paul G. Van Wagenen Executive Officer and Director) July 2, 1997 /s/ John W. Elsenhans Vice President and Treasurer - -------------------------------------- (Principal Financial Officer) John W. Elsenhans /s/ Thomas E. Hart Vice President and Controller July 2, 1997 - -------------------------------------- (Principal Accounting Officer) Thomas E. Hart * Director July 2, 1997 - -------------------------------------- Tobin Armstrong * Director July 2, 1997 - -------------------------------------- Jack S. Blanton * Director July 2, 1997 - -------------------------------------- W. M. Brumley, Jr. * Director July 2, 1997 - -------------------------------------- John B. Carter, Jr. * Director July 2, 1997 - -------------------------------------- William L. Fisher * Director July 2, 1997 - -------------------------------------- William E. Gipson * Director July 2, 1997 - -------------------------------------- Gerrit W. Gong * Director July 2, 1997 - -------------------------------------- J. Stuart Hunt * Director July 2, 1997 - -------------------------------------- Frederick A. Klingenstein
II-4 97 * Director July 2, 1997 - -------------------------------------- Nicholas R. Petry * Director July 2, 1997 - -------------------------------------- Jack A. Vickers *By: /s/ Thomas E. Hart -------------------------------------- Thomas E. Hart, Attorney-in-Fact
II-5 98 INDEX TO EXHIBITS
Exhibit No. Exhibit ----------- ------- 4.1 -- Restated Certificate of Incorporation of Pogo Producing Company (filed as Exhibit 3(a) to Pogo Producing Company's Annual Report on Form 10-K for the year ended December 31, 1996 and included herein by reference (File No. 1-7792)) 4.2 -- By-Laws of Pogo Producing Company, as amended and restated through April 22, 1997 (filed as Exhibit 3(b) to Pogo Producing Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 and included herein by reference (File No. 1-7792)) 4.3** -- Indenture dated as of May 15, 1997 between Pogo Producing Company and Fleet National Bank (now State Street Bank & Trust Company as successor in interest under the Indenture), as Trustee, which includes the form of the 8 3/4% Senior Subordinated Note due 2007 as an exhibit thereto 4.4** -- Registration Rights Agreement dated May 22, 1997 among Pogo Producing Company, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Goldman Sachs & Co. 5.1** -- Opinion of Gerald A. Morton 23.1** -- Consent of Arthur Andersen LLP 23.2** -- Consent of Ryder Scott Company Petroleum Engineers 23.3** -- Consent of Gerald A. Morton (contained in his opinion filed as Exhibit 5) 24.1** -- Powers of Attorney 25.1** -- Statement of Eligibility of Trustee 99.1* -- Form of Letter of Transmittal
- ------------------------ * To be filed by amendment. ** Filed herewith. EX-4.3 2 INDENTURE DATED MAY 15, 1997 1 EXECUTION 4.3 [EXECUTION COPY] - -------------------------------------------------------------------------------- POGO PRODUCING COMPANY AND FLEET NATIONAL BANK Trustee --------------------- Indenture Dated as of May 15, 1997 --------------------- $100,000,000 8 3/4% Series A Senior Subordinated Notes due 2007 and 8 3/4% Series B Senior Subordinated Notes due 2007 - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1.2 Other Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 SECTION 1.3 Incorporation by Reference of Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 1.4 Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 ARTICLE II THE SECURITIES SECTION 2.1 Forms Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 SECTION 2.2 Title and Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 SECTION 2.3 Denominations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 SECTION 2.4 Execution, Authentication, Delivery and Dating . . . . . . . . . . . . . . . . . . . . . . . 36 SECTION 2.5 Temporary Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 SECTION 2.6 Security Register and Depositary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 SECTION 2.7 Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 SECTION 2.8 Additional Provisions for Global Securities . . . . . . . . . . . . . . . . . . . . . . . . . 45 SECTION 2.9 Mutilated, Destroyed, Lost and Stolen Securities . . . . . . . . . . . . . . . . . . . . . . 46 SECTION 2.10 Payment of Interest; Interest Rights Preserved . . . . . . . . . . . . . . . . . . . . . . . 46 SECTION 2.11 Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 SECTION 2.12 Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 SECTION 2.13 Computation of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 SECTION 2.14 CUSIP Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 ARTICLE III SATISFACTION AND DISCHARGE SECTION 3.1 Satisfaction and Discharge of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 SECTION 3.2 Application of Trust Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
i 3 ARTICLE IV REMEDIES SECTION 4.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 SECTION 4.2 Acceleration of Maturity; Rescission and Annulment . . . . . . . . . . . . . . . . . . . . . 53 SECTION 4.3 Collection of Indebtedness and Suits for Enforcement by Trustee . . . . . . . . . . . . . . . 54 SECTION 4.4 Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 SECTION 4.5 Trustee May Enforce Claims Without Possession of Securities . . . . . . . . . . . . . . . . . 56 SECTION 4.6 Application of Money Collected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 SECTION 4.7 Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 SECTION 4.8 Unconditional Right of Holders to Receive Principal, Premium and Interest . . . . . . . . . . 57 SECTION 4.9 Restoration of Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 SECTION 4.10 Rights and Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 SECTION 4.11 Delay or Omission Not Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 SECTION 4.12 Control by Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 SECTION 4.13 Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 SECTION 4.14 Waiver of Stay, Extension or Usury Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 SECTION 4.15 Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 ARTICLE V THE TRUSTEE SECTION 5.1 Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 SECTION 5.2 Certain Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 SECTION 5.3 Trustee Not Responsible for Recitals or Issuance of Securities . . . . . . . . . . . . . . . 61 SECTION 5.4 May Hold Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 SECTION 5.5 Money Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 SECTION 5.6 Compensation and Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 SECTION 5.7 Corporate Trustee Required; Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 SECTION 5.8 Conflicting Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 SECTION 5.9 Resignation and Removal; Appointment of Successor . . . . . . . . . . . . . . . . . . . . . . 63 SECTION 5.10 Acceptance of Appointment by Successor . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 SECTION 5.11 Merger, Conversion, Consolidation or Succession to Business . . . . . . . . . . . . . . . . . 65 SECTION 5.12 Preferential Collection of Claims Against Company . . . . . . . . . . . . . . . . . . . . . . 66
ii 4 ARTICLE VI HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 6.1 Disclosure of Names and Addresses of Holders . . . . . . . . . . . . . . . . . . . . . . . . 66 SECTION 6.2 Reports By Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 SECTION 6.3 Reports by Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 ARTICLE VII CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION 7.1 Company May Consolidate, etc., Only on Certain Terms . . . . . . . . . . . . . . . . . . . . 67 SECTION 7.2 Successor Substituted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 ARTICLE VIII SUPPLEMENTAL INDENTURES SECTION 8.1 Supplemental Indentures without Consent of Holders . . . . . . . . . . . . . . . . . . . . . 70 SECTION 8.2 Supplemental Indentures with Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . 71 SECTION 8.3 Execution of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 SECTION 8.4 Effect of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 SECTION 8.5 Conformity with Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 SECTION 8.6 Reference in Securities to Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . 72 SECTION 8.7 Notice of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 ARTICLE IX COVENANTS SECTION 9.1 Payment of Principal, Premium, if any, and Interest . . . . . . . . . . . . . . . . . . . . . 73 SECTION 9.2 Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 SECTION 9.3 Money for Security Payments to Be Held in Trust . . . . . . . . . . . . . . . . . . . . . . . 74 SECTION 9.4 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 SECTION 9.5 Payment of Taxes and Other Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 SECTION 9.6 Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 SECTION 9.7 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 SECTION 9.8 Statement by Officers as to Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 SECTION 9.9 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 SECTION 9.10 Limitation on Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 SECTION 9.11 Limitation on Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
iii 5 SECTION 9.12 Limitation on Non-Guarantor Restricted Subsidiaries . . . . . . . . . . . . . . . . . . . . . 82 SECTION 9.13 Limitation on Issuances and Sales of Restricted Subsidiary Capital Stock . . . . . . . . . . 83 SECTION 9.14 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 SECTION 9.15 Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 SECTION 9.16 Limitation on Disposition of Proceeds of Asset Sales . . . . . . . . . . . . . . . . . . . . 85 SECTION 9.17 Limitation on Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . 88 SECTION 9.18 Limitation on Dividends and Other Payment Restrictions Affecting Restricted Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 SECTION 9.19 Limitation on Other Senior Subordinated Indebtedness . . . . . . . . . . . . . . . . . . . . 89 SECTION 9.20 Limitation on Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 SECTION 9.21 Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 SECTION 9.22 Waiver of Certain Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 ARTICLE X REDEMPTION OF SECURITIES SECTION 10.1 Right of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 SECTION 10.2 Applicability of Article . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 SECTION 10.3 Election to Redeem; Notice to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 SECTION 10.4 Selection by Trustee of Securities to Be Redeemed . . . . . . . . . . . . . . . . . . . . . . 91 SECTION 10.5 Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 SECTION 10.6 Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 SECTION 10.7 Securities Payable on Redemption Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 SECTION 10.8 Securities Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 ARTICLE XI DEFEASANCE AND COVENANT DEFEASANCE SECTION 11.1 Company's Option to Effect Defeasance or Covenant Defeasance . . . . . . . . . . . . . . . . 93 SECTION 11.2 Defeasance and Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 SECTION 11.3 Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 SECTION 11.4 Conditions to Defeasance or Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . 94 SECTION 11.5 Deposited Money and U.S. Government Obligations to Be Held in Trust; Other Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 SECTION 11.6 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
iv 6 ARTICLE XII GUARANTEES SECTION 12.1 Unconditional Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 SECTION 12.2 Subsidiary Guarantors May Consolidate, etc. on Certain Terms . . . . . . . . . . . . . . . . 98 SECTION 12.3 Release of a Subsidiary Guarantor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 SECTION 12.4 Limitation of Subsidiary Guarantor's Liability . . . . . . . . . . . . . . . . . . . . . . . 100 SECTION 12.5 Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 SECTION 12.6 Execution and Delivery of Notation of Subsidiary Guarantee . . . . . . . . . . . . . . . . . 100 SECTION 12.7 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 SECTION 12.8 Subsidiary Guarantees Subordinated to Guarantor Senior Indebtedness . . . . . . . . . . . . . 101 SECTION 12.9 Subsidiary Guarantors Not to Make Payments with Respect to Subsidiary Guarantees in Certain Circumstances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 SECTION 12.10 Subsidiary Guarantees Subordinated to Prior Payment of All Guarantor Senior Indebtedness upon Dissolution, etc . . . . . . . . . . . . . . . . . . . . . . . . . . 103 SECTION 12.11 Holders to be Subrogated to Rights of Holders of Guarantor Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 SECTION 12.12 Obligations of the Subsidiary Guarantors Unconditional . . . . . . . . . . . . . . . . . . . 105 SECTION 12.13 Trustee Entitled to Assume Payments Not Prohibited in Absence of Notice . . . . . . . . . . . 106 SECTION 12.14 Application by Trustee of Money Deposited with it . . . . . . . . . . . . . . . . . . . . . . 106 SECTION 12.15 Subordination Rights Not Impaired by Acts or Omissions of Subsidiary Guarantors or Holders of Guarantor Senior Indebtedness . . . . . . . . . . . . . . . . . . . 107 SECTION 12.16 Holders Authorize Trustee to Effectuate Subordination of Subsidiary Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 SECTION 12.17 Right of Trustee to Hold Guarantor Senior Indebtedness . . . . . . . . . . . . . . . . . . . 108 SECTION 12.18 Article XII Not to Prevent Events of Default . . . . . . . . . . . . . . . . . . . . . . . . 108 SECTION 12.19 Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 ARTICLE XIII SUBORDINATION OF SECURITIES SECTION 13.1 Securities Subordinate to Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . 108 SECTION 13.2 Payment Over of Proceeds upon Dissolution, etc . . . . . . . . . . . . . . . . . . . . . . . 109 SECTION 13.3 Suspension of Payment When Senior Indebtedness in Default . . . . . . . . . . . . . . . . . . 110 SECTION 13.4 Trustee's Relation to Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . 112 SECTION 13.5 Subrogation to Rights of Holders of Senior Indebtedness . . . . . . . . . . . . . . . . . . . 112 SECTION 13.6 Provisions Solely To Define Relative Rights . . . . . . . . . . . . . . . . . . . . . . . . . 113 SECTION 13.7 Trustee To Effectuate Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 SECTION 13.8 No Waiver of Subordination Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 SECTION 13.9 Notice to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
v 7 SECTION 13.10 Reliance on Judicial Order or Certificate of Liquidating Agent . . . . . . . . . . . . . . . 115 SECTION 13.11 Rights of Trustee as Holder of Senior Indebtedness; Preservation of Trustee's Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 SECTION 13.12 Article Applicable to Paying Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 SECTION 13.13 No Suspension of Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 ARTICLE XIV MISCELLANEOUS SECTION 14.1 Compliance Certificates and Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 SECTION 14.2 Form of Documents Delivered to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 SECTION 14.3 Acts of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 SECTION 14.4 Notices, etc. to Trustee, Company and Subsidiary Guarantors . . . . . . . . . . . . . . . . . 118 SECTION 14.5 Notice to Holders; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 SECTION 14.6 Effect of Headings and Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . 119 SECTION 14.7 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 SECTION 14.8 Separability Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 SECTION 14.9 Benefits of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 SECTION 14.10 Governing Law; Trust Indenture Act Controls . . . . . . . . . . . . . . . . . . . . . . . . . 120 SECTION 14.11 Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 SECTION 14.12 No Recourse Against Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 SECTION 14.13 Duplicate Originals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 SECTION 14.14 No Adverse Interpretation of Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . 121
EXHIBIT A FORM OF SECURITY . . . . . . . . . . . . . . . . . . . . . .A-1 EXHIBIT B FORM OF NOTATION RELATING TO SUBSIDIARY GUARANTEES . . . . .B-1 EXHIBIT C CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF SECURITIES . . . . . . . . . . . . . . . . . C-1 EXHIBIT D TRANSFEREE LETTER OF REPRESENTATIONS . . . . . . . . . . . .D-1 NOTE: THIS TABLE OF CONTENTS SHALL NOT, FOR ANY PURPOSE, BE DEEMED TO BE A PART OF THE INDENTURE. vi 8 Reconciliation and tie between Trust Indenture Act of 1939 and Indenture
Trust Indenture Indenture Act Section Section - --------------- ----------- Section 310 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7, 5.8 Section 311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.12 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.12 Section 312(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1 Section 313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2, 6.3(c) Section 314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3, 9.9 (a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.8(a) (c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.1 (c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.1 (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.1 (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.1 Section 315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2 (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2 (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.14 Section 316(a) (last sentence) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 ("Outstanding") (a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2, 4.12 (a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.13 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.8 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.3(d) Section 317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.3 Section 318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.10(b)
NOTE: THIS RECONCILIATION AND TIE SHALL NOT, FOR ANY PURPOSE, BE DEEMED TO BE A PART OF THE INDENTURE. vii 9 INDENTURE, dated as of May 15, 1997 between POGO PRODUCING COMPANY, a Delaware corporation (hereinafter called the "Company") and Fleet National Bank, trustee (hereinafter called the "Trustee"). RECITALS OF THE COMPANY Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of the Company's 8 3/4% Series A Senior Subordinated Notes due 2007 (the "Series A Securities") and the Company's 8 3/4% Series B Senior Subordinated Notes due 2007 (the "Series B Securities" and, collectively with the Series A Securities, the "Securities" or each, a "Security"). This Indenture is subject to the provisions of the Trust Indenture Act of 1939, as amended, that are required to be part of this Indenture and shall, to the extent applicable, be governed by such provisions. All things necessary have been done to make the Securities, when executed by the Company and authenticated and delivered hereunder and duly issued by the Company, the valid obligations of the Company, and to make this Indenture a valid agreement of the Company and the Trustee, in accordance with their and its terms. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows: ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.1 Definitions. "Acquired Indebtedness" means Indebtedness of a Person (a) assumed in connection with an Asset Acquisition from such Person, (b) outstanding at the time such Person becomes a Subsidiary of any other Person (other than any Indebtedness incurred in connection with, or in contemplation of, such Asset Acquisition or such Person becoming such a Subsidiary) or (c) any renewals, extensions, substitutions, refinancings or replacements (each, for purposes of this clause, a "refinancing") by the Company of any Indebtedness described in clause (a) or (b) of this definition, including any successive refinancings, so long as (i) any such new Indebtedness shall be in a principal amount that does not exceed the principal amount (or, if such Indebtedness being refinanced provides for an amount less than the principal amount thereof to be due and 1 10 payable upon a declaration of acceleration thereof, such lesser amount as of the date of determination) so refinanced plus the amount of any premium required to be paid in connection with such refinancing pursuant to the terms of the Indebtedness refinanced or the amount of any premium reasonably determined by the Company as necessary to accomplish such refinancing, plus the amount of expenses of the Company incurred in connection with such refinancing, (ii) in the case of any refinancing of Subordinated Indebtedness, such new Indebtedness is made subordinate to the Securities at least to the same extent as the Indebtedness being refinanced and (iii) such new Indebtedness has an Average Life longer than the Average Life of the Securities and a final Stated Maturity later than the final Stated Maturity of the Securities. "Act," when used with respect to any Holder, has the meaning specified in Section 14.3. "Adjusted Consolidated Net Tangible Assets" means (without duplication), as of the date of determination, (a) the sum of (i) discounted future net revenues from proved oil and gas reserves of the Company and its Restricted Subsidiaries calculated in accordance with SEC guidelines before any state or federal income taxes, as estimated by a nationally recognized firm of independent petroleum engineers in a reserve report prepared as of the end of the Company's most recently completed fiscal year, as increased by, as of the date of determination, the estimated discounted future net revenues from (A) estimated proved oil and gas reserves acquired since the date of such year-end reserve report, and (B) estimated oil and gas reserves attributable to upward revisions of estimates of proved oil and gas reserves since the date of such year-end reserve report due to exploration, development or exploitation activities, 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 estimated discounted future net revenues from (C) estimated proved oil and gas reserves produced or disposed of since the date of such year-end reserve report and (D) estimated oil and gas reserves attributable to downward revisions of estimates of proved oil and gas reserves since the date of such year-end reserve report due to changes in geological conditions or other factors which would, in accordance with standard industry practice, cause such revisions, in each case calculated in accordance with SEC guidelines (utilizing the prices utilized in such year-end reserve report); provided, that in the case of each of the determinations made pursuant to clauses (A) through (D), such increases and decreases shall be as estimated by the Company's petroleum engineers, except that in the event there is a Material Change as a result of such acquisitions, dispositions or revisions, then the discounted future net revenues utilized for purposes of this clause (a)(i) shall be confirmed in writing by a nationally recognized firm of independent petroleum engineers, (ii) the capitalized costs that are attributable to oil and gas properties of the Company and its Restricted Subsidiaries to which no proved oil and gas reserves are attributable, based on the Company's books and records as of a date no earlier than the date of the Company's latest annual or quarterly financial statements, (iii) the Net Working Capital on a date no earlier than the date of the Company's latest annual or quarterly financial statements and (iv) the greater of (A) the net book value on a date no earlier than the date of the Company's latest annual or quarterly financial statements or (B) the appraised value, as estimated by independent appraisers, of other tangible assets (including, without duplication, Investments in unconsolidated Restricted Subsidiaries) of the 2 11 Company and its Restricted Subsidiaries, as of the date no earlier than the date of the Company's latest audited financial statements, minus (b) the sum of (i) minority interests (other than a minority interest in a Subsidiary that is a business trust or similar entity formed for the primary purpose of issuing preferred securities the proceeds of which are loaned to the Company or a Restricted Subsidiary), (ii) any net gas balancing liabilities of the Company and its Restricted Subsidiaries reflected in the Company's latest audited financial statements, (iii) to the extent included in (a)(i) above, the discounted future net revenues, calculated in accordance with SEC guidelines (utilizing the prices utilized in the Company's year-end reserve report), attributable to reserves which are required to be delivered to third parties to fully satisfy the obligations of the Company and its Restricted Subsidiaries with respect to Volumetric Production Payments on the schedules specified with respect thereto and (iv) the discounted future net revenues, calculated in accordance with SEC guidelines, attributable to reserves subject to Dollar-Denominated Production Payments which, based on the estimates of production and price assumptions included in determining the discounted future net revenues specified in (a)(i) above, would be necessary to fully satisfy the payment obligations of the Company and its Restricted Subsidiaries with respect to Dollar-Denominated Production Payments 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, "Adjusted Consolidated Net Tangible Assets" will continue to be calculated as if the Company were still using the successful efforts method of accounting. "Adjusted Net Assets" of a Subsidiary Guarantor at any date shall mean (a) the amount by which the fair value of the Properties of such Subsidiary Guarantor exceeds (b) the total amount of liabilities of such Subsidiary Guarantor at such date including, without limitation, contingent liabilities (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date), but excluding liabilities under its Subsidiary Guarantee. "Affiliate" means, with respect to any specified Person, 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 this definition, beneficial ownership of 10% or more of the voting common equity (on a fully diluted basis) or options or warrants to purchase such equity (but only if exercisable at the date of determination or within 60 days thereof) of a Person shall be deemed to constitute control of such Person. No Person shall be deemed an Affiliate of an oil and gas royalty trust solely by virtue of ownership of units of beneficial interest in such trust. "Asset Acquisition" means (a) an Investment by the Company or any Restricted Subsidiary in any other Person pursuant to which such Person shall become a Restricted Subsidiary or any Restricted Subsidiary shall be merged with or into the Company or any Restricted Subsidiary or (b) the acquisition by the Company or any Restricted Subsidiary of the Properties of any Person 3 12 which constitute all or substantially all of the Properties of such Person or any division or line of business of such Person. "Asset Sale" means any sale, issuance, conveyance, transfer, lease or other disposition to any Person other than the Company or any of its Restricted Subsidiaries (including by means of a Sale/Leaseback Transaction or by way of merger or consolidation) (collectively, for purposes of this definition, a "transfer"), directly or indirectly, in one or a series of related transactions, of (a) any Capital Stock of any Restricted Subsidiary held by the Company or any Restricted Subsidiary; (b) the properties and assets of any division or line of business of the Company or any of its Restricted Subsidiaries substantially as an entirety; or (c) any other Properties of the Company or any of its Restricted Subsidiaries other than a disposition of hydrocarbons or other mineral products in the ordinary course of business. For the purposes of this definition, the term "Asset Sale" shall not include (i) any transfer of Properties that is governed by, and made in accordance with, the provisions of Article VII hereof; (ii) any transfer of Properties to any Person, if permitted under Section 9.10 hereof; (iii) any trade or exchange of properties and assets used in the Oil and Gas Business of the Company or any Restricted Subsidiary or shares of Capital Stock in any Person in the Oil and Gas Business owned by the Company or any Restricted Subsidiary for properties and assets used in the Oil and Gas Business of any Person or shares of Capital Stock in any Person owned or held by another Person, provided, that (A) the Fair Market Value of the Properties traded or exchanged by the Company or such Restricted Subsidiary (including any cash or Cash Equivalents, not to exceed 15% of such Fair Market Value, to be delivered by the Company or such Restricted Subsidiary) is reasonably equivalent to the Fair Market Value of the Properties (together with any cash or Cash Equivalents, not to exceed 15% of such Fair Market Value) to be received by the Company or such Restricted Subsidiary; provided, that if such Fair Market Value is equal to or in excess of $10,000,000 the Company shall deliver to the Trustee a written appraisal by a nationally recognized investment banking firm or appraisal firm, in each case specializing or having a speciality in oil and gas Properties, and (B) such exchange is approved by a majority of the Disinterested Directors; or (iv) any transfer of Properties in a single transaction or series of related transactions having a Fair Market Value of less than $5,000,000. "Attributable Indebtedness" means, with respect to any particular lease under which any Person is at the time liable and at any date as of which the amount thereof is to be determined, the present value of the total net amount of rent required to be paid by such Person under the lease during the primary term thereof, without giving effect to any renewals at the option of the lessee, discounted from the respective due dates thereof to such date of determination at the rate of interest per annum implicit in the terms of the lease. As used in the preceding sentence, the "net amount of rent" under any lease for any such period shall mean the sum of rental and other payments required to be paid with respect to such period by the lessee thereunder, excluding any amounts required to be paid by such lessee on account of maintenance and repairs, insurance, taxes, assessments, water rates or similar charges. In the case of any lease which is terminable by the lessee upon payment of a penalty, such net amount of rent shall also include the amount 4 13 of such penalty, but no rent shall be considered as required to be paid under such lease subsequent to the first date upon which it may be so terminated. "Average Life" means, with respect to any Indebtedness, as at any date of determination, the quotient obtained by dividing (a) the sum of the products of (i) the number of years (and any portion thereof) from the date of determination to the date or dates of each successive scheduled principal payment (including, without limitation, any sinking fund or mandatory redemption payment requirements) of such Indebtedness multiplied by (ii) the amount of each such principal payment by (b) the sum of all such principal payments. "Bank Co-agents" mean Bank of Montreal and Banque Paribas as co-agents, or any successor or replacement agents, under the Credit Agreement. "Board of Directors" means, (a) with respect to the Company, either the board of directors or any properly constituted committee thereof that is (i) authorized to take the action in question and (ii) comprised of members, a majority of whom are not Officers or employees of the Company or any Subsidiary of the Company and (b) with respect to any Restricted Subsidiary, the board of directors of that Restricted Subsidiary or any properly constituted committee thereof that is authorized to take the action in question. "Board Resolution" means, with respect to the Company, a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by its Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee, and, with respect to a Restricted Subsidiary, a copy of a resolution certified by the Secretary or an Assistant Secretary of such Restricted Subsidiary to have been duly adopted by its Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in the Borough of Manhattan, the City of New York, New York, or the city in which the Trustee's Corporate Trust Office is located, are authorized or obligated by law or executive order to close. "Capital Stock" means, with respect to any Person, any and all shares, interests, participations, rights in or other equivalents in the equity interests (however designated) in such Person, and any rights (other than debt securities convertible into an equity interest), warrants or options exercisable for, exchangeable for or convertible into such an equity interest in such Person. "Capitalized Lease Obligation" means any obligation to pay rent or other amounts under a lease of (or other agreement conveying the right to use) any property (whether real, personal or mixed) that is required to be classified and accounted for as a capital lease obligation under 5 14 GAAP, and, for the purpose of this Indenture, the amount of such obligation at any date shall be the capitalized amount thereof at such date, determined in accordance with GAAP. "Cash Equivalents" means (a) any evidence of Indebtedness with a maturity of 365 days or less issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided, that the full faith and credit of the United States of America is pledged in support thereof), (b) demand and time deposits and certificates of deposit or acceptances with a maturity of 365 days or less of any financial institution that is a member of the Federal Reserve System having combined capital and surplus and undivided profits of not less than $100,000,000 or any commercial bank organized under the laws of any country other than the United States of America that is a member of the Organization for Economic Cooperation and Development ("OECD") and has total assets in excess of $100,000,000, (c) commercial paper with a maturity of 365 days or less issued by a Person that is not an Affiliate of the Company and is organized under the laws of any state of the United States of America or the District of Columbia and rated at least A-1 by S&P or at least P-1 by Moody's (or, if at any time neither S&P nor Moody's shall be rating such obligations, then from such other rating service as may be acceptable to the Trustee), (d) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (a) above entered into with any commercial bank meeting the specifications of clause (b) above, (e) overnight bank deposits and bankers' acceptances at any commercial bank meeting the qualifications specified in clause (b) above and (f) investments in money market mutual or similar funds which have assets in excess of $500,000,000. "Change of Control" means the occurrence of any of the following events: (a) the Company's properties and assets are sold or otherwise disposed of substantially as an entirety on a consolidated basis to any Person or related group of Persons in any one transaction or a series of related transactions; (b) there shall be consummated any consolidation or merger of the Company (i) in which the Company is not the continuing or surviving Person (other than a consolidation or merger with a wholly owned Subsidiary of the Company in which all shares of Common Stock outstanding immediately prior to the effectiveness thereof are changed into or exchanged for the same number of shares of Common Stock of such Subsidiary) or (ii) pursuant to which the Common Stock would be converted into cash, securities or other property, in each case, other than a consolidation or merger of the Company in which the holders of the Common Stock immediately prior to the consolidation or merger have, directly or indirectly, at least a majority of the Common Stock of the continuing or surviving Person immediately after such consolidation or merger; or (c) any Person or any Persons acting together which would constitute a "group" for purposes of Section 13(d) of the Exchange Act (other than the Company, any Subsidiary of the Company, any employee stock purchase plan, stock option plan or other stock incentive plan or program, retirement plan or automatic dividend reinvestment plan or any substantially similar plan of the Company or any Subsidiary of the Company or any Person holding securities of the Company for or pursuant to the terms of any such employee benefit plan), together with any Affiliates thereof, shall acquire beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of at least 50% of the Voting Stock of the Company. 6 15 "Code" shall mean the Internal Revenue Code of 1986, as amended, as now or hereafter in effect, together with all regulations and rulings thereof or thereunder issued by the Internal Revenue Service. "Commission" or "SEC" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this Indenture such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Stock" of any Person means Capital Stock of such Person that does not rank prior, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of such Person, to shares of Capital Stock of any other class of such Person. "Company" means the Person named as the "Company" in the first paragraph of this Indenture, until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by its Chairman, its President, any Vice President, its Treasurer or an Assistant Treasurer, and delivered to the Trustee. "Consolidated Fixed Charge Coverage Ratio" means, for any period, the ratio of (a) the sum of Consolidated Net Income, Consolidated Interest Expense, Consolidated Income Tax Expense and Consolidated Non-cash Charges deducted in computing Consolidated Net Income, in each case, for such period, of the Company and its Restricted Subsidiaries on a consolidated basis, all determined in accordance with GAAP, decreased (to the extent included in determining Consolidated Net Income) by the sum of (i) the amount of deferred revenues that are amortized during such period and are attributable to reserves that are subject to Volumetric Production Payments and (ii) amounts recorded in accordance with GAAP as repayments of principal and interest pursuant to Dollar-Denominated Production Payments, to (b) the sum of such Consolidated Interest Expense for such period; provided, that (A) in making such computation, the Consolidated Interest Expense attributable to interest on any Indebtedness required to be computed on a pro forma basis in accordance with clause (i) of Section 9.11 hereof and bearing a floating interest rate shall be computed as if the rate in effect on the date of computation had been the applicable rate for the entire period, (B) in making such computation, the Consolidated Interest Expense attributable to interest on any Indebtedness under a revolving credit facility required to be computed on a pro forma basis in accordance with clause (i) of Section 9.11 hereof shall be computed based upon the average daily balance of such Indebtedness during the applicable period, provided, that such average daily balance shall be reduced by the amount of any repayment of Indebtedness under a revolving credit facility during the applicable period, which repayment permanently reduced the commitments or amounts available to be reborrowed under such facility, (C) notwithstanding clauses (A) and (B) of this proviso, interest on 7 16 Indebtedness determined on a fluctuating basis, to the extent such interest is covered by agreements relating to Interest Rate Protection Obligations, shall be deemed to have accrued at the rate per annum resulting after giving effect to the operation of such agreements and (D) in making such calculation, Consolidated Interest Expense shall exclude interest attributable to Dollar-Denominated Production Payments. "Consolidated Income Tax Expense" means, for any period, the provision for federal, state, local and foreign income taxes of the Company and its Restricted Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP. "Consolidated Interest Expense" means, for any period, without duplication, the sum of (a) the interest expense of the Company and its Restricted Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP, including, without limitation, (i) any amortization of debt discount, (ii) the net cost under Interest Rate Protection Obligations (including any amortization of discounts), (iii) the interest portion of any deferred payment obligation, (iv) all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and (v) all accrued interest, in each case to the extent attributable to such period, (b) to the extent any Indebtedness of any Person (other than the Company or a Restricted Subsidiary) is guaranteed by the Company or any Restricted Subsidiary, the aggregate amount of interest paid or accrued by such other Person during such period attributable to any such Indebtedness, in each case to the extent attributable to that period, (c) the aggregate amount of the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by the Company and its Restricted Subsidiaries during such period as determined on a consolidated basis in accordance with GAAP and (d) the aggregate amount of dividends paid or accrued on Redeemable Capital Stock or Preferred Stock of the Company and its Restricted Subsidiaries, to the extent such Redeemable Capital Stock or Preferred Stock is owned by Persons other than Restricted Subsidiaries. "Consolidated Net Income" means, for any period, the consolidated net income (or loss) of the Company and its Restricted Subsidiaries for such period as determined in accordance with GAAP, adjusted by excluding (a) net after-tax extraordinary gains or losses (less all fees and expenses relating thereto), (b) net after-tax gains or losses (less all fees and expenses relating thereto) attributable to Asset Sales, (c) the net income (or net loss) of any Person (other than the Company or any of its Restricted Subsidiaries), in which the Company or any of its Restricted Subsidiaries has an ownership interest, except to the extent of the amount of interest on indebtedness, dividends or other distributions actually paid to the Company or its Restricted Subsidiaries in cash by such other Person during such period (regardless of whether such cash interest on indebtedness, dividends or other distributions is attributable to net income (or net loss) of such Person during such period or during any prior period), (d) net income (or net loss) of any Person combined with the Company or any of its Restricted Subsidiaries on a "pooling of interests" basis attributable to any period prior to the date of combination, (e) the net income of any Restricted Subsidiary to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary is not at the date of determination permitted, directly 8 17 or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders, (f) income resulting from transfers of assets received by the Company or any Restricted Subsidiary from an Unrestricted Subsidiary and (g) any write-downs of non-current assets; provided, however, that any ceiling limitation write-downs under SEC guidelines shall be treated as capitalized costs, as if such write-downs had not occurred. "Consolidated Net Worth" means, at any date, the consolidated stockholders' equity of the Company less the amount of such stockholders' equity attributable to Redeemable Capital Stock or treasury stock of the Company and its Restricted Subsidiaries, as determined in accordance with GAAP. "Consolidated Non-cash Charges" means, for any period, the aggregate depreciation, depletion, amortization, impairment and other non-cash expenses of the Company and its Restricted Subsidiaries reducing Consolidated Net Income for such period, determined on a consolidated basis in accordance with GAAP (excluding any such non-cash charge which requires an accrual of or reserve for cash charges for any future period). "Corporate Trust Office" means the principal corporate trust office of the Trustee, at which at any particular time its corporate trust business shall be administered, which office at the date of execution of this Indenture is located at 777 Main Street, Hartford, Connecticut 06115, Attention: Corporate Trust Administration. "Credit Agreement" means the Amended and Restated Credit Agreement dated June 1, 1995 among the Company and Bank of Montreal and Banque Paribas, as co-agents, and the other banks specified therein, including any notes and guarantees executed in connection therewith, as such agreement may be amended, modified, supplemented, extended, restated, replaced (including replacement after the termination of such agreement), restructured, increased, renewed or refinanced from time to time in one or more credit agreements, loan agreements, instruments or similar agreements, whether or not with the same lenders or agents, as such may be further amended, modified, supplemented, extended, restated, replaced (including replacement after the termination of such agreement), restructured, increased, renewed or refinanced from time to time. "Credit Agreement Obligations" means all monetary obligations of every nature of the Company or a Restricted Subsidiary, including without limitation, obligations to pay principal and interest, reimbursement obligations under letters of credit, fees, expenses and indemnities, from time to time owed to the lenders or any agent under or in respect of the Credit Agreement. "Default" means any event, act or condition that is, or after notice or passage of time or both would be, an Event of Default. 9 18 "Definitive Securities" means Securities that are in the form set forth in Exhibit A attached hereto (but without including the paragraph referred to in the footnote on page A-2 thereof). "Depositary" means with respect to the Securities issuable or issued in whole or in part in global form, the Person specified in Section 2.6 hereof as the Depositary with respect to the Securities, until a successor shall have been appointed and become such pursuant to the applicable provision of this Indenture, and, thereafter, "Depositary" shall mean or include such successor. "Designated Guarantor Senior Indebtedness" means, with respect to a Subsidiary Guarantor, (a) all Guarantor Senior Indebtedness of such Subsidiary Guarantor under the Credit Agreement Obligations and (b) any other Guarantor Senior Indebtedness which (i) at the time of incurrence equals or exceeds $10,000,000 in aggregate principal amount and (ii) is specifically designated by such Subsidiary Guarantor in the instrument evidencing such Guarantor Senior Indebtedness as "Designated Guarantor Senior Indebtedness" for purposes of this Indenture. "Designated Senior Indebtedness" means (a) all Senior Indebtedness constituting Credit Agreement Obligations and (b) any other Senior Indebtedness which (i) at the time of incurrence equals or exceeds $10,000,000 in aggregate principal amount and (ii) is specifically designated by the Company in the instrument evidencing such Senior Indebtedness as "Designated Senior Indebtedness" for purpose of this Indenture. "Disinterested Director" means, with respect to any transaction or series of transactions in respect of which the Board of Directors is required to deliver its resolution under this Indenture, a member of the Board of Directors who does not have any material direct or indirect financial interest (other than an interest arising solely from the beneficial ownership of Capital Stock of the Company) in or with respect to such transaction or series of transactions. "Dollar-Denominated Production Payments" means production payment obligations recorded as liabilities in accordance with GAAP, together with all undertakings and obligations in connection therewith. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and all rules, regulations and rulings thereof issued by the Internal Revenue Service or the Department of Labor thereunder. "ERISA Affiliate" shall mean any subsidiary or trade or business (whether or not incorporated) which is a member of a group of which the Company is a member and which is under common control within the meaning of Section 414 of the Code (such rules and regulations shall also be deemed to apply to foreign corporations and entities). "Event of Default" has the meaning specified in Section 4.1 hereto. 10 19 "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, and any successor act thereto. "Exchange Offer" means the offer by the Company to the Holders of all outstanding Transfer Restricted Securities to exchange all such outstanding Transfer Restricted Securities held by such Holders for Series B Securities, in an aggregate principal amount equal to the aggregate principal amount of the Transfer Restricted Securities tendered in such exchange offer by such Holders. "Fair Market Value" means the fair market value of any Property as determined in good faith (a) by the Board of Directors if the fair market value of such Property, as evidenced by a Board Resolution, is $5 million or more, or (b) by an Officer of the Company if the fair market value of such Property, as evidenced by an Officers' Certificate, is less than $5 million which determination shall be conclusive for purposes of this Indenture. Unless specifically required by the terms of this Indenture, no valuation or assessment from any investment banker, appraiser or other third party shall be required to be obtained in connection with either determination contemplated by the first sentence of this definition of Fair Market Value. "Federal Bankruptcy Code" means the United States Bankruptcy Code of Title 11 of the United States Code, as amended from time to time. "Foreign Subsidiary" means (a) any Restricted Subsidiary engaged in the Oil and Gas Business having the majority of its operations outside the United States of America, irrespective of its jurisdiction of organization, and (b) any other Restricted Subsidiary whose assets (excluding any cash and Cash Equivalents) consist exclusively of Capital Stock or Indebtedness of one or more Restricted Subsidiaries described in clause (a) of this definition. "GAAP" means generally accepted accounting principles, consistently applied, that are set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States of America, which are applicable as of the date of this Indenture. "Global Security" means a Security that is issued in global form in the name of Cede & Co. or such other name as may be requested by an authorized representative of the Depositary and that contains the paragraph referred to in the footnote on page A-2 of, and the additional schedule referred to in, the form of Security attached hereto as Exhibit A. "guarantee" means, as applied to any obligation, (a) a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner, of any part or all of such obligation and (b) an agreement, direct or indirect, contingent or otherwise, the practical effect of which is to assure in any way the payment or 11 20 performance (or payment of damages in the event of nonperformance) of all or any part of such obligation, including, without limiting the foregoing, the payment of amounts drawn down by letters of credit. When used as a verb, "guarantee" shall have a corresponding meaning. "Guarantor Senior Indebtedness" means all Indebtedness of a Subsidiary Guarantor created, incurred, assumed or guaranteed by such Subsidiary Guarantor (and all renewals, substitutions, refinancings or replacements thereof) (including the principal of, interest on and fees, premiums, expenses (including costs of collection), indemnities and other amounts payable in connection with such Indebtedness) (and including, in the case of the Credit Agreement, interest accruing after the filing of a petition by or against such Subsidiary Guarantor under any bankruptcy law, in accordance with and at the rate, including any default rate, specified with respect to such Indebtedness, whether or not a claim for such interest is allowed as a claim after such filing in any proceeding under such bankruptcy law), unless the instrument governing such Indebtedness expressly provides that such Indebtedness is not senior in right of payment to its Subsidiary Guarantee. Notwithstanding the foregoing, Guarantor Senior Indebtedness of a Subsidiary Guarantor will not include (a) Indebtedness of such Subsidiary Guarantor evidenced by its Subsidiary Guarantee, (b) Indebtedness of such Subsidiary Guarantor that is expressly subordinated or junior in right of payment to any Guarantor Senior Indebtedness of such Subsidiary Guarantor or its Subsidiary Guarantee, (c) Indebtedness which, when incurred and without respect to any election under Section 1111(b) of Title 11 United States Code, is by its terms without recourse to such Subsidiary Guarantor or Non-Recourse Indebtedness, (d) any repurchase, redemption or other obligation in respect of Redeemable Capital Stock of such Subsidiary Guarantor, (e) to the extent it might constitute Indebtedness, any liability for federal, state, local or other taxes owed or owing by such Subsidiary Guarantor, (f) Indebtedness of such Subsidiary Guarantor to the Company or any of the Company's other Subsidiaries or any other Affiliate of the Company or any of such Affiliate's Subsidiaries, and (g) that portion of any Indebtedness of such Subsidiary Guarantor which at the time of issuance is issued in violation of this Indenture (but, as to any such Indebtedness, no such violation shall be deemed to exist for purposes of this clause (g) if the holder(s) of such Indebtedness or their representative or such Subsidiary Guarantor shall have furnished to the Trustee an Opinion of Counsel, addressed to the Trustee (which counsel may, as to matters of fact, rely upon a certificate of such Subsidiary Guarantor) to the effect that the incurrence of such Indebtedness does not violate the provisions of such Indenture); provided, that the foregoing exclusions shall not affect the priorities of any Indebtedness arising solely by operation of law in any case or proceeding or similar event described in clause (a), (b) or (c) of the definition of "Insolvency or Liquidation Proceedings." "Hedging Obligations" means obligations of any Person arising out of hedging transactions entered into in the ordinary course of business, including, without limitation, swaps, options, forward sales and futures contracts entered into in connection with interest rates, currencies and energy-related commodities. "Holder" or "Noteholder" means a Person in whose name a Security is registered in the Security Register. 12 21 "Indebtedness" means, with respect to any Person, without duplication, (a) all liabilities of such Person for borrowed money or for the deferred purchase price of property or services, excluding any trade accounts payable and other accrued current liabilities incurred in the ordinary course of business, but including, without limitation, all obligations, contingent or otherwise, of such Person in connection with any letters of credit, bankers' acceptance or other similar credit transaction and in connection with any agreement to purchase, redeem, exchange, convert or otherwise acquire for value any Capital Stock of such Person, or any warrants, rights or options to acquire such Capital Stock, now or hereafter outstanding, if, and to the extent, any of the foregoing would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, (b) all obligations of such Person evidenced by bonds, notes, debentures or other similar instruments, if, and to the extent, any of the foregoing would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, (c) all Indebtedness of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even if the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), but excluding trade accounts payable arising in the ordinary course of business, (d) all Capitalized Lease Obligations of such Person, (e) the Attributable Indebtedness (in excess of any related Capitalized Lease Obligations) related to any Sale/Leaseback Transaction of such Person, (f) all Indebtedness referred to in the preceding clauses of other Persons and all dividends of other Persons, the payment of which is secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness (the amount of such obligation being deemed to be the lesser of the value of such property or asset or the amount of the obligation so secured), (g) all guarantees by such Person of Indebtedness referred to in this definition (including, with respect to any Production Payment, any warranties or guarantees of production or payment by such Person with respect to such Production Payment but excluding other contractual obligations of such Person with respect to such Production Payment), (h) all Redeemable Capital Stock of such Person valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued dividends, (i) all obligations of such Person under or in respect of currency exchange contracts and Interest Rate Protection Obligations and (j) any amendment, supplement, modification, deferral, renewal, extension or refunding of any liability of such Person of the types referred to in clauses (a) through (i) above. For purposes hereof, the "maximum fixed repurchase price" of any Redeemable Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Redeemable Capital Stock as if such Redeemable Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Indenture, and if such price is based upon, or measured by, the fair market value of such Redeemable Capital Stock, such fair market value shall be determined in good faith by the board of directors of the issuer of such Redeemable Capital Stock, provided, however, that if such Redeemable Capital Stock is not at the date of determination permitted or required to be repurchased, the "maximum fixed repurchase price" shall be the book value of such Redeemable Capital Stock. Subject to clause 13 22 (g) of the first sentence of this definition, neither Dollar-Denominated Production Payments nor Volumetric Production Payments shall be deemed to be Indebtedness. "Indenture" means this instrument as originally executed and as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof. "Initial Purchasers" means Merrill Lynch, Pierce, Fenner & Smith Incorporated and Goldman Sachs & Co., as initial purchasers in the Offering. "Insolvency or Liquidation Proceeding" means, with respect to any Person, (a) an insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization proceeding or other similar case or proceeding in connection therewith, relating to such Person or to its creditors, as such, or its assets, (b) any liquidation, dissolution or other winding-up of such Person, whether voluntary or involuntary, or (c) any assignment for the benefit of creditors or any other marshaling of assets and liabilities of such Person. "Interest Payment Date" means the Stated Maturity of an installment of interest on the Securities. "Interest Rate Protection Obligations" means the obligations of any Person pursuant to any arrangement with any other Person whereby, directly or indirectly, such Person is entitled to receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made by such Person calculated by applying a fixed or a floating rate of interest on the same notional amount and includes, without limitation, interest rate swaps, caps, floors, collars and similar agreements or arrangements designed to protect against or manage such Person's and any of its Subsidiaries' exposure to fluctuations in interest rates. "Investment" means, with respect to any Person, any direct or indirect advance, loan, guarantee of Indebtedness or other extension of credit or capital contribution to (by means of any transfer of cash or other property or assets to others or any payment for property, assets or services for the account or use of others), or any purchase or acquisition by such Person of any Capital Stock, bonds, notes, debentures or other securities (including derivatives) or evidences of Indebtedness issued by, any other Person. In addition, the Fair Market Value of the net assets of any Restricted Subsidiary at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary shall be deemed to be an "Investment" made by the Company in such Unrestricted Subsidiary at such time. "Investments" shall exclude (a) extensions of trade credit on commercially reasonable terms in accordance with normal trade practices and (b) Interest Rate Protection Obligations entered into in the ordinary course of business or as required by any Permitted Indebtedness, Permitted Subsidiary Indebtedness or any Indebtedness incurred in compliance with Section 9.11 hereof, but only to the extent that the notional principal amount of such Interest Rate Protection Obligations does not exceed 105% of the principal amount of 14 23 such Indebtedness to which such Interest Rate Protection Obligations relate and (c) bonds, notes, debentures or other securities received as a result of Asset Sales permitted under Section 9.16 hereof. "Lien" means any mortgage, charge, pledge, lien (statutory or other), security interest, hypothecation, assignment for security, claim, or preference or priority or other encumbrance or similar agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any agreement to give or grant a Lien or any lease, conditional sale or other title retention agreement having substantially the same economic effect as any of the foregoing) upon or with respect to any property of any kind; provided, however, "Lien" shall not include rights created in a third Person in connection with the creation by the Company or a Subsidiary of a Production Payment. A Person shall be deemed to own subject to a Lien any property which such Person has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement. "Material Change" means an increase or decrease (excluding changes that result solely from changes in prices) of more than 50% during a fiscal quarter in the estimated discounted future net cash flows from proved oil and gas reserves of the Company and its Restricted Subsidiaries, calculated in accordance with clause (a) (i) of the definition of Adjusted Consolidated Net Tangible Assets; provided, however, that the following will be excluded from the calculation of Material Change: (i) any acquisitions during the quarter of oil and gas reserves that have been estimated by a nationally recognized firm of independent petroleum engineers and on which a report or reports exist and (ii) any disposition of properties held at the beginning of such quarter that have been disposed of as provided in Section 9.16 hereof. "Material Restricted Subsidiary" means, at any particular time, (a) any Subsidiary Guarantor and (b) any other Restricted Subsidiary that, together with its Subsidiaries, (i) accounted for more than 5% of the consolidated revenues of the Company and its Restricted Subsidiaries for the most recently completed fiscal year of the Company or (ii) was the owner of more than 5% of the consolidated assets of the Company and its Restricted Subsidiaries at the end of such fiscal year, all as shown in the case of (i) and (ii) on the consolidated financial statements of the Company and its Restricted Subsidiaries for such fiscal year. "Maturity" means, with respect to any Security, the date on which any principal of such Security becomes due and payable as provided therein or herein, whether at the Stated Maturity with respect to such principal or by declaration of acceleration, call for redemption or purchase or otherwise. "Moody's" means Moody's Investors Service, Inc. and its successors. "Multiemployer Plan" shall mean a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA, Section 414 of the Code or Section 3(37) of ERISA, subject to Title IV of ERISA, 15 24 to which the Company or any ERISA Affiliate is making or accruing or has made or accrued an obligation to make contributions. "Multiple Employer Plan" shall mean any employee benefit plan within the meaning of Section 3(3) of ERISA, other than a Multiemployer Plan, subject to Title IV of ERISA, to which the Company or any ERISA Affiliate and an employer other than an ERISA Affiliate or the Company contribute and which is subject to Section 4064 of ERISA. "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds thereof received by the Company or any Restricted Subsidiary in the form of cash or Cash Equivalents (including payments in respect of deferred payment obligations when received in the form of cash or Cash Equivalents (except to the extent that such obligations are financed or sold with recourse to the Company or any Restricted Subsidiary)), net of (a) brokerage commissions and other fees and expenses (including fees and expenses of engineers, legal counsel, accountants and investment banks) related to such Asset Sale, (b) provisions for all taxes payable as a result of such Asset Sale, (c) amounts required to be paid (i) to any minority interest holder or other Person (other than the Company or any Restricted Subsidiary) owning a beneficial interest in the assets subject to the Asset Sale or (ii) in respect of any Indebtedness (other than Indebtedness under the Credit Agreement) secured by a Lien on any of the Properties that were the subject of such Asset Sale and (d) appropriate amounts to be provided by the Company or any Restricted Subsidiary, as the case may be, as a reserve required in accordance with GAAP consistently applied against any liabilities associated with such Asset Sale and retained by the Company or any Restricted Subsidiary, as the case may be, after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as reflected in an Officers' Certificate delivered to the Trustee; provided, however, that any amounts remaining after adjustments, revaluations or liquidations of such reserves shall constitute Net Cash Proceeds. "Net Working Capital" means (a) all current assets of the Company and its Restricted Subsidiaries, minus (b) all current liabilities of the Company and its Restricted Subsidiaries, except current liabilities included in Indebtedness, in each case as set forth in financial statements of the Company prepared in accordance with GAAP. "Non-payment Default" means, for purposes of Article XIII hereof, any event (other than a Payment Default) the occurrence of which entitles one or more Persons to act to accelerate the maturity of any Designated Senior Indebtedness. "Non-Recourse Indebtedness" means Indebtedness or that portion of Indebtedness of the Company or a Restricted Subsidiary incurred in connection with the acquisition by the Company or a Restricted Subsidiary of any property or assets and as to which (a) the holders of such Indebtedness agree that they will look solely to the property or assets so acquired and securing such Indebtedness for payment on or in respect of such Indebtedness and (b) no default with 16 25 respect to such Indebtedness would permit (after notice or passage of time or both), according to the terms of any other Indebtedness of the Company or a Restricted Subsidiary, any holder of such other Indebtedness to declare a default under such other Indebtedness or cause the payment of such other Indebtedness to be accelerated or payable prior to its stated maturity. "Note Obligations" means any principal of, premium, if any, and interest on, and any other amounts (including, without limitation, any payment obligations with respect to the Securities as a result of any Asset Sale, Change of Control or redemption) owing in respect of, the Securities payable pursuant to the terms of the Securities or this Indenture or upon acceleration of the Securities. "Offering" means the Offering of the Series A Securities pursuant to the Offering Memorandum. "Offering Memorandum" means the Offering Memorandum of the Company, dated May 15, 1997, relating to the Offering. "Officer" means, with respect to any Person, the Chairman of the Board, the President, a Vice President, the Chief Financial Officer, the Treasurer or an Assistant Treasurer of such Person or any individual holding a similar or greater position of authority within the organization of such Person or, if such Person is a limited partnership, within the organization of the general partner of such limited partnership, including, without limitation, the manager or managing member of a limited liability company or a director or managing director of a foreign subsidiary. "Officers' Certificate" means a certificate delivered to the Trustee signed by the Chairman, the President, a Vice President or the Chief Financial Officer, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company. "Oil and Gas Business" means (a) the acquisition, exploration, exploitation, development, operation and disposition of interests in oil, gas and other hydrocarbon properties, (b) the gathering, marketing, treating, processing, storage, refining, selling and transporting of any production from such interests or properties, (c) any business relating to or arising from exploration for or exploitation, development, production, treatment, processing, storage, refining, transportation or marketing of oil, gas and other minerals and products produced in association therewith, (d) any 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 and (e) any activity necessary, appropriate or incidental to the activities described in the foregoing clauses (a) through (d) of this definition. "Opinion of Counsel" means a written opinion of legal counsel for the Company (or any Subsidiary Guarantor, if applicable), including an employee of the Company (or any Subsidiary Guarantor, if applicable), who is reasonably acceptable to the Trustee. 17 26 "Outstanding," when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (a) Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (b) Securities or portions thereof, for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided, that if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; (c) Securities, except to the extent provided in Sections 11.2 and 11.3 hereof, with respect to which the Company has effected defeasance and/or covenant defeasance as provided in Article XI hereof; and (d) Securities which have been paid pursuant to Section 2.9 hereof or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands the Securities are valid obligations of the Company; provided, however, that in determining whether the Holders of the requisite principal amount of Outstanding Securities have given any request, demand, authorization, direction, consent, notice or waiver hereunder, and for the purpose of making the calculations required by TIA Section 313, Securities owned by the Company, any Subsidiary Guarantor or any other obligor upon the Securities, or any Affiliate of the Company, any Subsidiary Guarantor or such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in making such calculation or in relying upon any such request, demand, authorization, direction, consent, notice or waiver, only Securities which a Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company, any Subsidiary Guarantor or any other obligor upon the Securities, or any Affiliate of the Company, any Subsidiary Guarantor, or such other obligor. "Pari Passu Indebtedness" means any Indebtedness of the Company that is pari passu in right of payment to the Securities. 18 27 "Paying Agent" means any Person (including the Company acting as Paying Agent) authorized by the Company to pay the principal of (and premium, if any, on) or interest on any Securities on behalf of the Company. "Payment Default" means any default in the payment when due (whether at Stated Maturity, upon scheduled repayment, upon acceleration or otherwise) of principal of (or premium, if any, on) or interest on, or of unreimbursed amounts under any drawn letter of credit or fees relating to any letter of credit constituting, any Designated Senior Indebtedness. "PBGC" shall mean the Pension Benefit Guaranty Corporation. "PBGC Plan" shall mean any employee pension benefit plan as defined in Section 3(2) of ERISA sponsored by the Company or an ERISA Affiliate (excluding any Multiemployer Plan and any Multiple Employer Plan) and which is subject to Title IV of ERISA or Section 412 of the Code. "Permitted Guarantor Junior Securities" means, with respect to any Subsidiary Guarantor, debt or equity securities of such Subsidiary Guarantor or any successor corporation provided for or by a plan of reorganization or readjustment that are subordinated at least to the same extent that such Subsidiary Guarantee is subordinated to the payment of all Guarantor Senior Indebtedness of such Subsidiary Guarantor when outstanding, so long as the effect of any exclusion employing this definition is not to cause such Subsidiary Guarantee to be treated in any case or proceeding or similar event described in clause (a), (b) or (c) of the definition of Insolvency or Liquidation Proceeding as part of the same class of claims as Guarantor Senior Indebtedness of such Subsidiary Guarantor or any class of claims pari passu with, or senior to, Guarantor Senior Indebtedness of such Subsidiary Guarantor, for any payment or distribution; provided, that (a) if a new corporation results from such reorganization or readjustment, such corporation assumes any Guarantor Senior Indebtedness of such Subsidiary Guarantor not paid in full in cash or Cash Equivalents in connection with such reorganization or readjustment and (b) the rights of the holders of such Guarantor Senior Indebtedness are not, without the consent of such holders, altered by such reorganization or readjustment. "Permitted Indebtedness" means any of the following: (a) Indebtedness of the Company under one or more bank credit or revolving credit facilities in an aggregate principal amount at any one time outstanding not to exceed (i) the greater of (A) $270,000,000 and (B) an amount equal to the sum of (1) $170,000,000 and (2) 10% of Adjusted Consolidated Net Tangible Assets determined as of the date of the most recent quarterly consolidated financial statements of the Company and its Restricted Subsidiaries, less (ii) the amount of Net Cash Proceeds applied to reduce Indebtedness pursuant to Section 9.16 hereof (together with interest and fees under such facilities, the "Maximum Credit Amount," with the Maximum Credit Amount being an aggregate maximum amount for the Company and all Guarantor Subsidiaries, 19 28 pursuant to clause (a) of the definition of "Permitted Subsidiary Indebtedness"), and any renewals, amendments, extensions, supplements, modifications, deferrals, refinancings or replacements (each, for purposes of this clause, a "refinancing") thereof by the Company, including any successive refinancings thereof by the Company, so long as the aggregate principal amount of any such new Indebtedness, together with the aggregate principal amount of all other Indebtedness outstanding pursuant to this clause (a) (and clause (a) of the definition of "Permitted Subsidiary Indebtedness"), shall not at any one time exceed the Maximum Credit Amount; (b) Indebtedness of the Company under the Securities; (c) Indebtedness of the Company outstanding on the date of this Indenture (and not repaid or defeased with the proceeds of the Offering); (d) obligations of the Company pursuant to Interest Rate Protection Obligations, but only to the extent such obligations do not exceed 105% of the aggregate principal amount of the Indebtedness covered by such Interest Rate Protection Obligations; obligations under currency exchange contracts entered into in the ordinary course of business; and Hedging Obligations; (e) Indebtedness of the Company to any Restricted Subsidiaries; (f) in-kind obligations relating to net gas balancing positions arising in the ordinary course of business and consistent with past practice; (g) Indebtedness in respect of bid, performance or surety bonds issued or other reimbursement obligations for the account of the Company in the ordinary course of business, including guarantees and letters of credit supporting such bid, performance, surety bonds or other reimbursement obligations (in each case other than for an obligation for money borrowed); (h) Non-Recourse Indebtedness; (i) Indebtedness incurred in respect of any letters of credit in the ordinary course of business of the Company or reimbursement obligations in respect thereof; (j) any renewals, extensions, substitutions, refinancings or replacements (each, for purposes of this clause, a "refinancing") by the Company of any Indebtedness of the Company described in clause (b) or (c) above, including any successive refinancings by the Company, so long as (i) any such new Indebtedness shall be in a principal amount that does not exceed the principal amount (or, if such Indebtedness being refinanced provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration thereof, such lesser amount as of the date 20 29 of determination) so refinanced plus the amount of any premium required to be paid in connection with such refinancing pursuant to the terms of the Indebtedness refinanced or the amount of any premium reasonably determined by the Company as necessary to accomplish such refinancing, plus the amount of expenses of the Company incurred in connection with such refinancing, and (ii) in the case of any refinancing of Subordinated Indebtedness, such new Indebtedness is made subordinate to the Securities at least to the same extent as the Indebtedness being refinanced and (iii) such new Indebtedness has an Average Life equal to or longer than the Average Life of the Indebtedness being refinanced and a final Stated Maturity equal to or later than the final Stated Maturity of the Indebtedness being refinanced; (k) other Indebtedness of the Company in an aggregate principal amount not in excess of $25,000,000 at any one time outstanding. "Permitted Investments" means any of the following: (a) Investments in Cash Equivalents; (b) Investments in the Company or any of its Restricted Subsidiaries; (c) Investments by the Company or any of its Restricted Subsidiaries in another Person, if as a result of such Investment (i) such other Person becomes a Restricted Subsidiary of the Company or (ii) such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all of its properties and assets to, the Company or a Restricted Subsidiary; (d) entry into operating agreements, joint ventures, partnership agreements, working interests, royalty interests, mineral leases, processing agreements, farm-out agreements, contracts for the sale, transportation or exchange of oil and natural gas, unitization agreements, pooling arrangements, area of mutual interest agreements, development agreements, joint ownership arrangements and other similar or customary agreements, transactions, properties, interests, and arrangements, whether or not any such Investment involves or results in the creation of a legal entity, and Investments and expenditures in connection therewith or pursuant thereto, in each case made or entered into in the ordinary course of the Company or its Restricted Subsidiaries' Oil and Gas Business; (e) entry into any arrangement pursuant to which the Company or any of its Restricted Subsidiaries may incur Hedging Obligations; and (f) other Investments having an aggregate fair market value (measured on the date each such Investment was made without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (f) 21 30 that are at the time outstanding (net of repayments, dividends and distributions received with respect to such Investments), not to exceed $25,000,000 at any one time outstanding. "Permitted Junior Securities" means debt or equity securities of the Company or any successor corporation provided for or by a plan of reorganization or readjustment that are subordinated at least to the same extent that the Securities are subordinated to the payment of all Senior Indebtedness when outstanding, so long as the effect of any exclusion employing this definition is not to cause the Securities to be treated in any case or proceeding or similar event described in clause (a), (b) or (c) of the definition of Insolvency or Liquidation Proceeding as part of the same class of claims as Senior Indebtedness or any class of claims pari passu with, or senior to, Senior Indebtedness, for any payment or distribution; provided, that (a) if a new corporation results from such reorganization or readjustment, such corporation assumes any Senior Indebtedness not paid in full in cash or Cash Equivalents in connection with such reorganization or readjustment and (b) the rights of the holders of such Senior Indebtedness are not, without the consent of such holders, altered by such reorganization or readjustment. "Permitted Liens" means the following types of Liens: (a) Liens existing as of the date the Securities are first issued; (b) Liens securing the Securities; (c) Liens in favor of the Company or a Subsidiary Guarantor; (d) Liens securing any Senior Indebtedness or Guarantor Senior Indebtedness; (e) Liens for taxes, assessments and governmental charges or claims either (i) not delinquent or (ii) 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; (f) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law 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; (g) Liens incurred and deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security and Liens incurred and deposits made to secure the payment or performance of tenders, statutory or regulatory obligations, surety and appeal bonds, bids, leases, government contracts and leases, trade contracts (other than to secure an obligation for borrowed money), performance and return of money bonds and other similar obligations (exclusive of obligations for the 22 31 payment of borrowed money but including lessee and operator obligations under statutes, governmental regulations or instruments related to the ownership, exploration and production of oil, gas and minerals on state, federal or foreign lands or waters); (h) pre-judgment Liens and judgment Liens not giving rise to an Event of Default so long as any appropriate legal proceedings which may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such proceeding may be initiated shall not have expired; (i) any interest or title of a lessor under any Capitalized Lease Obligation or operating lease; (j) Liens resulting from the deposit of funds or evidences of Indebtedness in trust for the purpose of defeasing Indebtedness of the Company or any of the Subsidiaries; customary Liens for the fees, costs and expenses of trustees and escrow agents pursuant to the indenture, escrow agreement or other similar agreement establishing such trust or escrow arrangement; and Liens pursuant to merger agreements, stock purchase agreements, asset sale agreements and similar agreements (i) limiting the transfer of properties and assets pending consummation of the subject transaction and (ii) in respect of earnest money deposits, good faith deposits, purchase price adjustment escrows or similar deposits or escrow arrangements made or established thereunder; (k) Liens securing any Hedging Obligations of the Company or any Restricted Subsidiary; (l) 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; (m) Liens securing reimbursement obligations with respect to commercial letters of credit which encumber documents and other property relating to such letters of credit and products and proceeds thereof; (n) Liens encumbering property or assets under construction arising from progress or partial payments by a customer of the Company or its Restricted Subsidiaries relating to such property or assets and Liens to secure Indebtedness used to finance all or a part of the construction of property or assets used by the Company or any of its Restricted Subsidiaries in the Oil and Gas Business, provided, that such Liens do not extend to any other property or assets owned by the Company or its Restricted Subsidiaries; 23 32 (o) 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; (p) Liens securing Interest Rate Protection Obligations which Interest Rate Protection Obligations relate to Indebtedness that is secured by Liens otherwise permitted under this Indenture; (q) Liens on, or related to, properties or assets to secure all or part of the costs incurred in the ordinary course of business for the exploration, drilling, development or operation thereof; (r) Liens on pipeline or pipeline facilities which arise out of operation of law; (s) Liens arising under operating agreements, joint venture agreements, partnership agreements, oil and gas leases, farm-out agreements, division orders, contracts for the sale, purchase, transportation, processing or exchange of oil, gas or other hydrocarbons, unitization and pooling declarations and agreements, area of mutual interest agreements, development agreements, joint ownership arrangements and other agreements which are customary in the Oil and Gas Business; (t) Liens reserved in oil and gas mineral leases for bonus or rental payments and for compliance with the terms of such leases; (u) Liens constituting survey exceptions, encumbrances, easements, or reservations of, or rights to others for, rights-of-way, zoning, restrictions and other similar charges and encumbrances as to the use of real properties, and minor defects of title which, in the case of any of the foregoing, were not incurred or created to secure the payment of borrowed money or the deferred purchase price of Property or services, and in the aggregate do not interfere in any material respect with the ordinary conduct of the business of the Company or its Restricted Subsidiaries; (v) rights reserved to or vested in any municipality or governmental, statutory or public authority by the terms of any right, power, franchise, grant, license or permit, or by any provision of law, to terminate such right, power, franchise, grant, license or permit or to purchase, condemn, expropriate or recapture or to designate a purchaser of any of the property of such Person; rights reserved to or vested in any municipality or governmental, statutory or public authority to control or regulate any property of such Person, or to use such property in a manner which does not materially impair the use of such property for the purposes for which it is held by such Person; any obligation or duties affecting the property of such Person to any municipality or governmental, statutory or public authority with respect to any franchise, grant, license or permit; 24 33 (w) Liens securing Non-Recourse Indebtedness; provided, however, that the related Non-Recourse Indebtedness shall not be secured by any property or assets of the Company or any Restricted Subsidiary other than the property and assets acquired by the Company with the proceeds of such Non-Recourse Indebtedness; and (x) Liens securing Acquired Indebtedness; provided, however, that any such lien extends only to the properties or assets that were subject to such Lien prior to the related acquisition by the Company or such Restricted Subsidiary and was not created, incurred or assumed in contemplation of such transaction. Notwithstanding anything in clauses (a) through (x) of this definition, the term "Permitted Liens" does not include any Liens resulting from the creation, incurrence, issuance, assumption or guarantee of any Production Payments other than Production Payments that are created, incurred, issued, assumed or guaranteed in connection with the financing of, and within 30 days after, the acquisition of the Properties are subject thereto. "Permitted Subsidiary Indebtedness" means any of the following: (a) Indebtedness of any Guarantor Subsidiary under one or more bank credit or revolving credit facilities (and "refinancings" thereof) in an amount at any one time outstanding not to exceed the Maximum Credit Amount (in the aggregate for all Guarantor Subsidiaries and the Company, pursuant to clause (a) of the definition of "Permitted Indebtedness"); (b) Indebtedness of any Restricted Subsidiary outstanding on the date of this Indenture; (c) obligations of any Restricted Subsidiary pursuant to Interest Rate Protection Obligations, but only to the extent such obligations do not exceed 105% of the aggregate principal amount of the Indebtedness covered by such Interest Rate Protection Obligations; and Hedging Obligations of any Restricted Subsidiary; (d) the Subsidiary Guarantees (and any assumption of the obligations guaranteed thereby); (e) Indebtedness of any Restricted Subsidiary relating to guarantees by such Restricted Subsidiary of Permitted Indebtedness; (f) in-kind obligations relating to net gas balancing positions arising in the ordinary course of business and consistent with past practice; (g) Indebtedness in respect of bid, performance or surety bonds or other reimbursement obligations issued for the account of any Restricted Subsidiary in the ordinary 25 34 course of business, including guarantees and letters of credit supporting such bid, performance, surety bonds or other reimbursement obligations (in each case other than for an obligation for money borrowed); (h) Indebtedness of any Restricted Subsidiary to any other Restricted Subsidiary or to the Company; (i) Indebtedness relating to guarantees by any Restricted Subsidiary permitted to be incurred pursuant to Section 9.12(a) hereof; (j) Indebtedness incurred in respect of letters of credit in the ordinary course of business of any Restricted Subsidiary or reimbursement obligation in respect thereof; (k) Non-Recourse Indebtedness; (l) any renewals, extensions, substitutions, refinancings or replacements (each, for purposes of this clause, a "refinancing") by any Restricted Subsidiary of any Indebtedness of such Restricted Subsidiary, including any successive refinancings by such Restricted Subsidiary, so long as (i) any such new Indebtedness shall be in a principal amount that does not exceed the principal amount (or, if such Indebtedness being refinanced provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration thereof, such lesser amount as of the date of determination) so refinanced plus the amount of any premium required to be paid in connection with such refinancing pursuant to the terms of the Indebtedness refinanced or the amount of any premium reasonably determined by such Restricted Subsidiary as necessary to accomplish such refinancing, plus the amount of expenses of such Subsidiary incurred in connection with such refinancing and (ii) such new Indebtedness has an Average Life equal to or longer than the Average Life of the Indebtedness being refinanced and a final Stated Maturity equal to or later than the final Stated Maturity of the Indebtedness being refinanced; and (m) other Indebtedness incurred by one or more Restricted Subsidiaries that are not Guarantor Subsidiaries in an aggregate principal amount not to exceed $20,000,000 at any time outstanding. "Person" means any individual, corporation, limited liability company, partnership, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 2.9 hereof in exchange for a mutilated security or in lieu of a lost, destroyed or stolen Security shall be deemed to evidence the same debt as the mutilated, lost, destroyed or stolen Security. 26 35 "Preferred Stock" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated) of such Person's preferred or preference stock, whether now outstanding or issued after the date of this Indenture, including, without limitation, all classes and series of preferred or preference stock of such Person. "Production Payments" means, collectively, Dollar-Denominated Production Payments and Volumetric Production Payments. "Property" means, with respect to any Person, any interest of such Person in any kind of property or asset, whether real, personal or mixed, or tangible or intangible, including, without limitation, Capital Stock in any other Person. "Public Market" exists at any time with respect to the Qualified Capital Stock of the Company if such Qualified Capital Stock of the Company is then (a) registered with the Commission pursuant to Section 12(b) or 12(g) of the Exchange Act and (b) traded either on a national securities exchange or on the NASDAQ Stock Market. "Qualified Capital Stock" of any Person means any and all Capital Stock of such Person other than Redeemable Capital Stock. "Qualified Redemption Transaction" means a call for redemption of any Capital Stock or Subordinated Indebtedness (including any Subordinated Indebtedness accounted for as a minority interest of the Company that is held by a Subsidiary that is a business trust or similar entity formed for the primary purpose of issuing preferred securities the proceeds of which are loaned to the Company or a Restricted Subsidiary) that by its terms is convertible into Common Stock of the Company if on the date of notice of such call for redemption (a) a Public Market exists in the shares of Common Stock of the Company and (b) the average closing price on the Public Market for shares of Common Stock of the Company for the twenty trading days immediately preceding the date of such notice exceeds 120% of the conversion price per share (determined by reference to the redemption price) of Common Stock of the Company issuable upon conversion of the Capital Stock or Subordinated Indebtedness called for redemption. "Redeemable Capital Stock" means any class or series of Capital Stock that, either by its terms, by the terms of any security into which it is convertible or exchangeable or by contract or otherwise, is, or upon the happening of an event or passage of time would be, required to be redeemed prior to 91 days after the final Stated Maturity of the Securities or is redeemable at the option of the holder thereof at any time prior to 91 days after such final Stated Maturity, or is convertible into or exchangeable for debt securities at any time prior to 91 days after such final Stated Maturity. "Redemption Date," when used with respect to any Security to be redeemed, in whole or in part, means the date fixed for such redemption by or pursuant to this Indenture. 27 36 "Redemption Price," when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "Registrable Securities" shall have the meaning assigned to such term in the Registration Rights Agreement. "Registration Rights Agreement" means that certain Registration Rights Agreement dated as of May 22, 1997, among the Company and the Initial Purchasers. "Regular Record Date" for the interest payable on any Interest Payment Date means the May 1 or November 1 (whether or not a Business Day, as the case may be), next preceding each such Interest Payment Date. "Reportable Event" shall mean any event described in Section 4043 (excluding subsections (b)(7) and (b)(9)) of ERISA and the regulations issued thereunder (other than a Reportable Event not subject to the provision for thirty-day notice to the PBGC under such regulations). "Responsible Officer," when used with respect to the Trustee, means any officer in the corporate trust department of the Trustee and also means, with respect to a particular corporate trust matter, any other officer of the Trustee to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Subsidiary" means any Subsidiary of the Company, whether existing on or after the date of this Indenture, unless such Subsidiary of the Company is an Unrestricted Subsidiary or is designated as an Unrestricted Subsidiary pursuant to the terms of this Indenture. "S&P" means Standard and Poor's Rating Group, a division of The McGraw-Hill Companies, Inc., and its successors. "Sale/Leaseback Transaction" means, with respect to any Person, any direct or indirect arrangement pursuant to which properties or assets are sold or transferred by such Person or a Subsidiary of such Person and are thereafter leased back from the purchaser or transferee thereof by such Person or one of its Subsidiaries; provided, however, Sale/Leaseback Transactions shall not include transactions whereby property or assets are sold or transferred by the Company or any of its Restricted Subsidiaries to any Affiliate of the Company or pursuant to any Permitted Investment constituting a joint ownership arrangement, which property or assets are leased back, directly or indirectly, to the Company, any Affiliate of the Company or to the constituent parties to any such joint venture arrangement. "Securities" means the Series A Securities and the Series B Securities treated as a single class of Securities. For purposes of this Indenture, the term "Securities" shall, except where the context otherwise requires, include the Subsidiary Guarantees, if any. 28 37 "Securities Act" means the Securities of 1933, as amended, or any successor statute. "Security Custodian" means the Trustee, as custodian with respect to the Global Securities, or any successor entity thereto. "Senior Indebtedness" means the principal of, premium, if any, and interest on any Indebtedness of the Company (including, in the case of the Credit Agreement, interest accruing after the filing of a petition by or against the Company under any bankruptcy law, in accordance with and at the rate, including any default rate, specified with respect to such indebtedness, whether or not a claim for such interest is allowed as a claim after such filing in any proceeding under such bankruptcy law), whether outstanding on the date of this Indenture or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Securities. Notwithstanding the foregoing, "Senior Indebtedness" shall not include (a) Indebtedness evidenced by the Securities, (b) Indebtedness that is expressly subordinate or junior in right of payment to any Senior Indebtedness of the Company, (c) Indebtedness which, when incurred and without respect to any election under Section 1111(b) of Title 11 United States Code, is by its terms without recourse to the Company or which is Non-Recourse Indebtedness, (d) any repurchase, redemption or other obligation in respect of Redeemable Capital Stock of the Company, (e) to the extent it might constitute Indebtedness, any liability for federal, state, local or other taxes owed or owing by the Company, (f) Indebtedness of the Company to a Subsidiary of the Company or any other Affiliate of the Company or any of such Affiliate's Subsidiaries, and (g) that portion of any Indebtedness of the Company which at the time of issuance is issued in violation of this Indenture (but, as to any such Indebtedness, no such violation shall be deemed to exist for purposes of this clause (g) if the holder(s) of such Indebtedness or their representative or the Company shall have furnished to the Trustee an Opinion of Counsel addressed to the Trustee (which counsel may, as to matters of fact, rely upon a certificate of the Company) to the effect that the incurrence of such Indebtedness does not violate the provisions of such Indenture); provided, that the foregoing exclusions shall not affect the priorities of any Indebtedness arising solely by operation of law in any case or proceeding or similar event described in clause (a), (b) or (c) of the definition of "Insolvency or Liquidation Proceeding." "Senior Representative" means the Bank Co-agents or any other representatives designated in writing to the Trustee of the holders of any class or issue of Designated Senior Indebtedness; provided, in the absence of a representative of the type described above, any holder or holders of a majority of the principal amount outstanding of any class or issue of Designated Senior Indebtedness may collectively act as Senior Representative for such class or issue, subject to the provisions of any agreements relating to such Designated Senior Indebtedness. "Series A Securities" means the Company's 8 3/4% Series A Senior Notes due 2007 to be issued pursuant to this Indenture. 29 38 "Series B Securities" means the Company's 8 3/4% Series B Senior Notes due 2007 to be issued pursuant to this Indenture in the Exchange Offer. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 2.10 hereof. "Stated Maturity" means, when used with respect to any Security or any installment of interest thereon, the date specified in such Security as the fixed date on which the principal of such Security or such installment of interest is due and payable and, when used with respect to any other Indebtedness or any installment of interest thereon, means the date specified in the instrument evidencing or governing such Indebtedness as the fixed date on which the principal of such Indebtedness or such installment of interest is due and payable. "Subordinated Indebtedness" means (a) the Company's 5 1/2% Convertible Subordinated Notes due 2006 issued under the Indenture dated as of June 15, 1996 between the Company and Fleet National Bank, as Trustee, (b) the Company's 5 1/2% Convertible Subordinated Notes due 2004 issued under the Indenture dated as of March 23, 1994 between the Company and Fleet National Bank, as Trustee, and (c) other Indebtedness of the Company which, by its terms, is subordinated in right of payment to the Notes. "Subsidiary" means, with respect to any Person, a corporation, partnership, limited liability company, association or other business entity a majority of whose Voting Stock is at the time, directly or indirectly, owned by such Person, by one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries thereof. For purposes of the foregoing definition, an arrangement by which a Person who owns an interest in an oil and gas property is subject to a joint operating agreement, processing agreement, net profits interest, overriding royalty interest, farmout agreement, development agreement, area of mutual interest agreement, joint bidding agreement, unitization agreement, pooling arrangement or other similar agreement or arrangement shall not, in and of itself, be considered a Subsidiary. "Subsidiary Guarantee" means any guarantee of the Securities by (a) any Subsidiary Guarantor in accordance with the provisions of Section 12.1 hereof and (b) any Restricted Subsidiary in accordance with Section 9.12 hereof. "Subsidiary Guarantor" means each of the Company's Restricted Subsidiaries that becomes a guarantor of the Securities in compliance with the provisions of Section 9.12 or Section 12.1 hereof or otherwise executes a supplemental indenture in which such Subsidiary agrees to be bound by the terms of this Indenture and to guarantee on an unsubordinated basis the payment of the Securities pursuant to the provisions of Article XII hereof. "Transfer Restricted Securities" means the Registrable Securities under the Registration Rights Agreement. 30 39 "Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939, as amended and in force at the date as of which this Indenture was executed, except as provided in Section 8.5 hereof. "Trustee" means the Person named as the "Trustee" in the first paragraph of this Indenture, and its successors and assigns, until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "Unrestricted Subsidiary" means (a) any Subsidiary of the Company that at the time of determination will be designated an Unrestricted Subsidiary by the Board of Directors as provided below and (b) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of the Company as an Unrestricted Subsidiary so long as (i) neither the Company nor any Restricted Subsidiary is directly or indirectly liable pursuant to the terms of any Indebtedness of such Subsidiary, (ii) no default with respect to any Indebtedness of such Subsidiary would permit (upon notice, lapse of time or otherwise) any holder of any other Indebtedness of the Company or any Restricted Subsidiary to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity, (iii) neither the Company nor any Restricted Subsidiary has made an Investment in such Subsidiary unless such Investment was made pursuant to, and in accordance with, Section 9.10 hereof (other than Investments of the type described in clause (d) of the definition of "Permitted Investments"), and (iv) such designation shall not result in the creation or imposition of any Lien on any of the Properties of the Company or any Restricted Subsidiary (other than any Permitted Lien or any Lien the creation or imposition of which shall have been in compliance with Section 9.14 hereof); provided, however, that with respect to clause (i), the Company or a Restricted Subsidiary may be liable for Indebtedness of an Unrestricted Subsidiary if (A) such liability constituted a Permitted Investment or a Restricted Payment permitted by Section 9.10 hereof, in each case at the time of incurrence, or (B) the liability would be a Permitted Investment at the time of designation of such Subsidiary as an Unrestricted Subsidiary. Any such designation by the Board of Directors shall be evidenced to the Trustee by filing a Board Resolution of the Company with the Trustee giving effect to such designation. The Board of Directors may designate any Unrestricted Subsidiary as a Restricted Subsidiary if, immediately after giving effect to such designation, (1) no Default or Event of Default shall have occurred and be continuing, (2) the Company could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) under Section 9.11 hereof and (3) if any of the Properties of the Company or any of its Restricted Subsidiaries would upon such designation become subject to any Lien (other than a Permitted Lien), the creation or imposition of such Lien shall have been in compliance with Section 9.14 hereof. "Vice President," when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president." 31 40 "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" means any class or classes of Capital Stock pursuant to which the holders thereof have the general voting power under ordinary circumstances to vote in the election of the board of directors, managers or trustees of any Person (irrespective of whether or not, at the time, Capital Stock of any other class or classes shall have, or might have, voting power by reason of the happening of any contingency). "Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary to the extent (a) all of the Capital Stock in such Restricted Subsidiary, other than any directors qualifying shares mandated by applicable law, is owned directly or indirectly by the Company or (b) such Restricted Subsidiary is organized in a foreign jurisdiction and is required by the applicable laws and regulations of such foreign jurisdiction to be partially owned by the government of such foreign jurisdiction or individual or corporate citizens in order for such Restricted Subsidiary to transact business in such foreign jurisdiction, provided, that the Company, directly or indirectly, owns the remaining Capital Stock or ownership interest in such Restricted Subsidiary and, by contract or otherwise, controls the management and business of such Restricted Subsidiary and derives the economic benefits of ownership of such Restricted Subsidiary to substantially the same extent as if such Restricted Subsidiary were a wholly owned Subsidiary. SECTION 1.2 Other Definitions.
Defined Term in Section - ---- ---------- "Agent Members" . . . . . . . . . . . . . . . . . . . . . . . . 2.8(b) "Change of Control Notice" . . . . . . . . . . . . . . . . . . 9.15(c) "Change of Control Offer" . . . . . . . . . . . . . . . . . . . 9.15(a) "Change of Control Purchase Date" . . . . . . . . . . . . . . . 9.15(c) "Change of Control Purchase Price" . . . . . . . . . . . . . . 9.15(a) "Defaulted Interest" . . . . . . . . . . . . . . . . . . . . . 2.10 "Excess Proceeds" . . . . . . . . . . . . . . . . . . . . . . . 9.16(b) "Funding Guarantor" . . . . . . . . . . . . . . . . . . . . . . 12.5 "Net Proceeds Deficiency" . . . . . . . . . . . . . . . . . . . 9.16(c) "Net Proceeds Offer" . . . . . . . . . . . . . . . . . . . . . 9.16(c) "Net Proceeds Payment Date" . . . . . . . . . . . . . . . . . . 9.16(c) "Offered Price" . . . . . . . . . . . . . . . . . . . . . . . . 9.16(c) "Pari Passu Indebtedness Amount" . . . . . . . . . . . . . . . 9.16(c) "Pari Passu Offer" . . . . . . . . . . . . . . . . . . . . . . 9.16(c) "Payment Amount" . . . . . . . . . . . . . . . . . . . . . . . 9.16(b) "Payment Blockage Notice" . . . . . . . . . . . . . . . . . . . 13.3(b)
32 41 "Payment Blockage Period" . . . . . . . . . . . . . . . . . . 13.3(b) "Purchase Notice" . . . . . . . . . . . . . . . . . . . . . . . 9.16(c) "Restricted Payment" . . . . . . . . . . . . . . . . . . . . . 9.10(a) "Security Register" . . . . . . . . . . . . . . . . . . . . . . 2.6 "Security Registrar" . . . . . . . . . . . . . . . . . . . . . 2.6 "Subsidiary Guarantor Non-payment Default" . . . . . . . . . . 12.9(b) "Subsidiary Guarantor Payment Default" . . . . . . . . . . . . 12.9(a) "Subsidiary Guarantor Payment Notice" . . . . . . . . . . . . . 12.9(b) "Surviving Entity" . . . . . . . . . . . . . . . . . . . . . . 7.1(a) "Trigger Date" . . . . . . . . . . . . . . . . . . . . . . . . 9.16(c) "U.S. Government Obligations" . . . . . . . . . . . . . . . . . 11.4(a)
SECTION 1.3 Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Securities, "indenture security holder" means a Holder, "indenture to be qualified" means this Indenture, "indenture trustee" or "institutional trustee" means the Trustee, and "obligor" on the indenture securities means the Company or any other obligor on the Securities. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by Commission rule and not otherwise defined herein have the meanings assigned to them therein. SECTION 1.4 Rules of Construction. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (a) The terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular; (b) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP; 33 42 (c) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; (d) unless the context otherwise requires, the word "or" is not exclusive; (e) the word "including" (and, with correlative meaning, the word "include") means including, without limiting the generality of any description preceding such word; (f) provisions apply to successive events and transactions; and (g) references to agreements and other instruments include subsequent amendments and waivers but only to the extent not prohibited by this Indenture. ARTICLE II THE SECURITIES SECTION 2.1 Forms Generally. The Definitive Securities shall be printed, lithographed or engraved on steel-engraved borders or may be produced in any other manner, all as determined by the officers executing such Securities or notations of Subsidiary Guarantees, as the case may be, as evidenced by their execution of such Securities or notations of Subsidiary Guarantees, as the case may be. Securities (including the notations thereon relating to the Subsidiary Guarantees and the Trustees certificate of authentication) bought and sold in reliance on Rule 144A shall be issued initially in the form of one or more permanent Global Securities substantially in the form set forth in Exhibit A attached hereto deposited with the Trustee, as custodian for the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. Subject to the limitation set forth in Section 2.2, the principal amount of the Global Securities may be increased or decreased from time to time by adjustments made on the records of the Trustee as custodian for the Depositary, as hereinafter provided. Securities (including the notations thereon relating to any Subsidiary Guarantees and the Trustees certificate of authentication) offered and sold other than as described in the preceding paragraph shall be issued in the form of Definitive Securities in registered form in substantially the form set forth in Exhibit A. The Securities, the notations thereon relating to any Subsidiary Guarantees and the Trustee's certificate of authentication shall be in substantially the forms set forth in Exhibit A attached hereto, with such appropriate insertions, omissions, substitutions and other variations 34 43 as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or as may, consistently herewith, be determined by the officers executing such Securities or notations of Subsidiary Guarantees, as the case may be, as evidenced by their execution of the Securities or notations of Subsidiary Guarantees, as the case may be. Any portion of the text of any Security may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Security. The Securities may also have set forth on the reverse side thereof a form of assignment and forms to elect purchase by the Company pursuant to Sections 9.15 and 9.16 hereof. SECTION 2.2 Title and Terms. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is limited to $100,000,000 except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities pursuant to Section 2.5, 2.7, 2.9, 8.6, 9.15, 9.16 or 10.8 hereof. The Securities shall be known and designated as the "8 3/4% Series A Senior Subordinated Notes due 2007" and the "8 3/4% Series B Senior Subordinated Notes due 2007" of the Company. Their Stated Maturity shall be May 15, 2007, and they shall bear interest at the rate of 8 3/4% per annum from May 22, 1997, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, payable semiannually on May 15 and November 15 in each year, commencing November 15, 1997, and at said Stated Maturity, until the principal thereof is paid or duly provided for. The principal of (and premium, if any, on) and interest on the Securities shall be payable at the office or agency of the Company maintained for such purpose in the City of New York; provided, however, interest may be paid, at the option of the Company, by check mailed to the Persons entitled thereto at their respective addresses as shown on the Security Register or, upon application to the Trustee by any Holder of an aggregate principal amount of Securities in excess of $500,000 not later than the applicable Regular Record Date, by transfer to an account (such transfer to be made only to a Holder of an aggregate principal amount of Securities in excess of $500,000) maintained by such Holder with a bank in the City of New York. No transfer will be made to any such account unless the Trustee has received written wire instructions not less than 15 days prior to the relevant payment date. The Securities shall be redeemable as provided in Article X hereof. The Securities shall be subject to defeasance at the option of the Company as provided in Article XI hereof. The Securities shall be guaranteed by the Subsidiary Guarantors as provided in Article XII hereof. 35 44 The Securities shall be subordinated in right of payment to Senior Indebtedness as provided in Article XIII hereof. SECTION 2.3 Denominations. The Securities shall be issuable only in registered form without coupons and only in denominations of $1,000 and any integral multiple thereof. SECTION 2.4 Execution, Authentication, Delivery and Dating. The Securities shall be executed on behalf of the Company by its Chairman, its President or one of its Vice Presidents, under its corporate seal reproduced thereon and attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimile signatures of the present or any future such authorized officer and may be imprinted or otherwise reproduced on the Securities. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company and, if guaranteed by a Subsidiary Guarantor, having the notation of Subsidiary Guarantees executed by the Subsidiary Guarantors to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with such Company Order shall authenticate and deliver such Securities with the notation of Subsidiary Guarantees, if any, thereon as provided in this Indenture. Each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein duly executed by the Trustee by manual signature of an authorized signatory, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture. In case the Company, pursuant to and in compliance with Article VII hereof, shall be consolidated or merged with or into any other Person or shall convey, transfer, lease or otherwise dispose of its Properties substantially as an entirety to any Person, and the successor Person resulting from such consolidation, or surviving such merger, or into which the Company shall have been merged, or the Person which shall have received a conveyance, transfer, lease or other 36 45 disposition as aforesaid, shall have executed an indenture supplemental hereto with the Trustee pursuant to Article VII hereof, any of the Securities authenticated or delivered prior to such consolidation, merger, conveyance, transfer, lease or other disposition may, from time to time, at the request of the successor Person, be exchanged for other Securities executed in the name of the successor Person with such changes in phraseology and form as may be appropriate, but otherwise in substance of like tenor as the Securities surrendered for such exchange and of like principal amount and the Trustee, upon Company Request of the successor Person, shall authenticate and deliver Securities as specified in such request for the purpose of such exchange. If Securities shall at any time be authenticated and delivered in any new name of a successor Person pursuant to this Section in exchange or substitution for or upon registration of transfer of any Securities, such successor Person, at the option of the Holders but without expense to them, shall provide for the exchange of all Securities at the time Outstanding for Securities authenticated and delivered in such new name. SECTION 2.5 Temporary Securities. Pending the preparation of Definitive Securities, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the Definitive Securities in lieu of which they are issued and having the notations of Subsidiary Guarantees, if any, thereon and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities and notations of Subsidiary Guarantees may determine, as conclusively evidenced by their execution of such Securities and notations of Subsidiary Guarantees. If temporary Securities are issued, the Company will cause Definitive Securities to be prepared without unreasonable delay. After the preparation of Definitive Securities, the temporary Securities shall be exchangeable for Definitive Securities upon surrender of the temporary Securities at the office or agency of the Company designated for such purpose pursuant to Section 9.2 hereof, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of Definitive Securities of authorized denominations having notations of Subsidiary Guarantees, if any, thereon. Until so exchanged, the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as Definitive Securities. SECTION 2.6 Security Register and Depositary. The Company shall cause to be kept at the Corporate Trust Office a register (the register maintained in such office and in any other office or agency designated pursuant to Section 9.2 hereof being herein sometimes referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. The Security Register shall be in written form or any 37 46 other form capable of being converted into written form within a reasonable time. At all reasonable times and during normal business hours, the Security Register shall be open to inspection by the Trustee. The Trustee is hereby initially appointed as security registrar (the "Security Registrar") for the purpose of registering Securities and transfers of Securities as herein provided. The Company initially appoints The Depository Trust Company to act as Depositary with respect to the Global Security. SECTION 2.7 Transfer and Exchange. (a) Transfer and Exchange of Definitive Securities. When Definitive Securities are presented to the Securities Registrar with the request: (x) to register the transfer of the Definitive Securities, or (y) to exchange such Definitive Securities for an equal principal amount of Definitive Securities of other authorized denominations, the Securities Registrar shall register the transfer or make the exchange as requested if its requirement for such transactions are met; provided, however, that the Definitive Securities presented or surrendered for registration of transfer or exchange: (i) shall be duly endorsed or accompanied by a written instrument of transfer in form satisfactory to the Securities Registrar duly executed by the Holder thereof or by his attorney, duly authorized in writing; and (ii) in the case of Transfer Restricted Securities that are Definitive Securities, shall be accompanied by the following additional information and documents, as applicable, upon which the Securities Registrar may conclusively rely: (A) if such Transfer Restricted Securities are being delivered to the Registrar by a Holder for registration in the name of such Holder, without transfer, a certification from such Holder to that effect (in substantially the form of Exhibit C hereto); or (B) if such Transfer Restricted Securities are being transferred (1) to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act) in accordance with Rule 144A under the Securities Act or (2) pursuant to an exemption from registration in accordance with Rule 144 under the Securities Act (and based upon an opinion of counsel if the Company or the Trustee so requests) or (3) pursuant to an effective registration statement under 38 47 the Securities Act, a certification to that effect from such Holder (in substantially the form of Exhibit C hereto); or (C) if such Transfer Restricted Securities are being transferred to an institutional "accredited investor," within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act pursuant to a private placement exemption from the registration requirements of the Securities Act (and based upon an opinion of counsel if the Company or the Trustee so requests), a certification to that effect from such Holder (in substantially the form of Exhibit C hereto) and a certification from the applicable transferee (in substantially the form of Exhibit D hereto); or (D) if such Transfer Restricted Securities are being transferred in reliance on another exemption from the registration requirements of the Securities Act (and based upon an opinion of counsel if the Company or the Trustee so requests), a certification to that effect from such Holder (in substantially the form of Exhibit C hereto). (b) Restriction on Transfer of a Definitive Security for a Beneficial Interest in a Global Security. A Definitive Security may not be exchanged for a beneficial interest in a Global Security except upon satisfaction of the requirements set forth below. Upon receipt by the Trustee of a Definitive Security, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Trustee, together with: (i) if such Definitive Security is a Transfer Restricted Security, certification, substantially in the form of Exhibit C hereto, upon which the Trustee may conclusively rely, that such Definitive Security is being transferred to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act) in accordance with Rule 144A under the Securities Act; and (ii) whether or not such Definitive Security is a Transfer Restricted Security, written instructions directing the Trustee to make, or direct the Security Custodian to make, an endorsement on the Global Security to reflect an increase in the aggregate principal amount of the Securities represented by the Global Security; then the Trustee shall cancel such Definitive Security in accordance with Section 2.12 hereof and cause, or direct the Security Custodian to cause, in accordance with the standing instructions and procedures existing between the Depositary and the Security Custodian, the aggregate principal amount of Securities represented by the Global Security to be increased accordingly. If no Global Securities are then outstanding, the Company shall issue and the Trustee shall authenticate a new Global Security in the appropriate principal amount. 39 48 (c) Transfer and Exchange of Global Securities. The transfer and exchange of Global Securities or beneficial interests therein shall be effected through the Depositary, in accordance with this Indenture (including the restrictions on transfer set forth herein) and the procedures of the Depositary therefor, which shall include restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. (d) Transfer of a Beneficial Interest in a Global Security for a Definitive Security. (i) Any Person having a beneficial interest in a Global Security may upon request exchange such beneficial interest for a Definitive Security. Upon receipt by the Trustee of written instructions or such other form of instructions as is customary for the Depositary, from the Depositary or its nominee on behalf of any Person having a beneficial interest in a Global Security, and in the case of a Transfer Restricted Security, the following additional information and documents (all of which may be submitted by facsimile), upon which the Trustee may conclusively rely: (A) if such beneficial interest is being transferred to the Person designated by the Depositary as being the beneficial owner, a certification from such Person to that effect (in substantially the form of Exhibit C hereto); or (B) if such beneficial interest is being transferred (1) to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act) in accordance with Rule 144A under the Securities Act or (2) pursuant to an exemption from registration in accordance with Rule 144 under the Securities Act (and based upon an opinion of counsel if the Company or the Trustee so requests) or (3) pursuant to an effective registration statement under the Securities Act, a certification to that effect from the transferor (in substantially the form of Exhibit C hereto); or (C) if such beneficial interest is being transferred to an institutional "accredited investor," within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act pursuant to a private placement exemption from the registration requirements of the Securities Act (and based upon an opinion of counsel if the Company or the Trustee so requests), a certification to that effect from such transferor (in substantially the form of Exhibit C hereto) and a certification from the applicable transferee (in substantially the form of Exhibit D hereto); or (D) if such beneficial interest is being transferred in reliance on another exemption from the registration requirements of the Securities Act (and based upon an opinion of counsel if the Company or the Trustee so 40 49 requests), a certification to that effect from such transferor (in substantially the form of Exhibit C hereto); the Trustee or the Security Custodian, at the direction of the Trustee, shall, in accordance with the standing instructions and procedures existing between the Depositary and the Security Custodian, cause the aggregate principal amount of Global Securities to be reduced accordingly and, following such reduction, the Company shall execute and the Trustee shall authenticate and deliver to the transferee a Definitive Security in the appropriate principal amount. (ii) Definitive Securities issued in exchange for a beneficial interest in a Global Security pursuant to this Section 2.7(d) shall be registered in such names and in such authorized denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. The Trustee shall deliver such Definitive Securities to the Persons in whose names such Securities are so registered. (e) Restrictions on Transfer and Exchange of Global Securities. Notwithstanding any other provisions of this Indenture (other than the provisions set forth in subsection (f) of this Section 2.7), a Global Security may not be transferred as a whole except by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. (f) Authentication of Definitive Securities in Absence of Depositary. If at any time: (i) the Depositary for the Securities notifies the Company that the Depositary is unwilling or unable to continue as Depositary for the Global Securities and a successor Depositary for the Global Securities is not appointed by the Company within 90 days after delivery of such notice; (ii) an Event of Default has occurred and is continuing and the Security Registrar has received a request from the Depositary to issue Definitive Securities in lieu of all or a portion of the Global Security (in which case the Company shall deliver Definitive Securities within 30 days of such request); or (iii) the Company, at its sole discretion, notifies the Trustee in writing that it elects to cause the issuance of Definitive Securities under this Indenture, then the Company will execute, and the Trustee will authenticate and deliver Definitive Securities, in an aggregate principal amount equal to the principal amount of the Global Securities, in exchange for such Global Securities and registered in such names as the Depositary shall instruct the Trustee or the Company in writing. 41 50 (g) Legends. (i) Except as permitted by the following paragraphs (ii) and (iii) immediately below, each Security certificate evidencing the Global Securities and the Definitive Securities (and all Securities issued in exchange therefor or substitution thereof) shall bear a legend in substantially the following form: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE THAT IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DAY ON WHICH POGO PRODUCING COMPANY (THE "COMPANY") OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) (THE "RESALE RESTRICTION TERMINATION DATE") ONLY (A) TO THE COMPANY, (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT IS ACQUIRING SUCH SECURITY FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT ("INSTITUTIONAL ACCREDITED INVESTOR") THAT IS ACQUIRING SUCH SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF ANOTHER INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSES (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS 42 51 LEGEND WILL BE REMOVED UPON THE REQUEST OF A HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. Each Security certificate evidencing the Global Securities also shall bear the paragraph referred to in the first footnote on page A-2 of the form of Security attached hereto as Exhibit A. (ii) Upon any sale or transfer of a Transfer Restricted Security (including any Transfer Restricted Security represented by a Global Security) pursuant to Rule 144 under the Securities Act or an effective registration statement under the Securities Act: (A) in the case of any Transfer Restricted Security that is a Definitive Security, the Registrar shall permit the Holder thereof to exchange such Transfer Restricted Security for a Definitive Security that does not bear the legend set forth in (i) above and rescind any restriction on the transfer of such Transfer Restricted Security; and (B) in the case of any Transfer Restricted Security represented by a Global Security, such Transfer Restricted Security shall not be required to bear the legend set forth in (i) above if all other interests in such Global Security have been or are concurrently being sold or transferred pursuant to Rule 144 under the Securities Act or pursuant to an effective registration statement under the Securities Act, but such Transfer Restricted Security shall continue to be subject to the provisions of Section 2.7(c) hereof; provided, however, that with respect to any request for an exchange of a Transfer Restricted Security that is represented by a Global Security for a Definitive Security that does not bear a legend set forth in (i) above, which request is made in reliance upon Rule 144 under the Securities Act, the Holder thereof shall certify in writing to the Registrar that such request is being made pursuant to Rule 144 under the Securities Act (such certification to be substantially in the form of Exhibit C hereto). (iii) Notwithstanding the foregoing, upon consummation of the Exchange Offer, the Company shall issue and, upon receipt of an authentication order in accordance with Section 2.4 hereof, the Trustee shall authenticate Series B Securities in exchange for Series A Securities accepted for exchange in the Exchange Offer, which Series B Securities shall not bear the legend set forth in (i) above, and the Registrar shall rescind any restriction on the transfer of such Securities, in each case unless the Holder of such Series A Securities is either (A) a broker-dealer, (B) a Person participating in the distribution of the Series A Securities or (C) a Person who is an affiliate (as defined in Rule 144 under the Securities Act) of the Company. The Company shall identify to the Trustee such Holders of the Securities in a written certification signed by an Officer of 43 52 the Company and, absent certification from the Company to such effect, the Trustee shall assume that there are no such Holders. (h) Cancellation and/or Adjustment of Global Security. At such time as all beneficial interests in a Global Security have either been exchanged for Definitive Securities, redeemed, repurchased or canceled, such Global Security shall be returned to or retained and canceled by the Trustee. At any time prior to such cancellation, if any beneficial interest in a Global Security is exchanged for Definitive Securities, redeemed, repurchased or canceled, the principal amount of Securities represented by such Global Security shall be reduced and an endorsement shall be made on such Global Security, by the Trustee or the Security Custodian, at the direction of the Trustee to reflect such reduction. (i) General Provisions with respect to Transfer and Exchanges. (i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Definitive Securities and Global Securities at the Registrar's request. (ii) No service charge shall be made to a Holder for any registration of transfer or exchange or redemption of Securities (except as otherwise permitted herein), but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than such transfer tax or similar governmental charge payable upon exchanges pursuant to the last paragraph of Section 2.4 or Sections 2.5, 8.6 or 10.8 hereof). (iii) The Trustee shall authenticate Definitive Securities and Global Securities in accordance with the provisions of Section 2.4 hereof. (iv) Notwithstanding any other provisions of this Indenture to the contrary, the Company shall not be required to register the transfer or exchange of a Security between a Regular Record Date and the next succeeding Interest Payment Date. (v) Neither the Company nor the Trustee will have any responsibility or liability for any aspect of the records relating to, or payments made on account of, Securities by the Depositary, or for maintaining, supervising or reviewing any records of the Depositary relating to such Securities. Neither the Company nor the Trustee shall be liable for any delay by the related Global Security Holder or the Depositary in identifying the beneficial owners of the related Securities and each such Person may conclusively rely on, and shall be protected in relying on, instructions from such Global Security Holder or the Depositary for all purposes (including with respect to the registration and delivery, and the respective principal amounts, of the Securities to be issued). 44 53 (vi) Neither the Trustee, the Security Registrar nor the Company shall be required (A) to issue, register the transfer of or exchange any Security during a period beginning at the opening of business 15 days before the mailing of a notice of redemption of Securities selected for redemption under Section 10.4 hereof and ending at the close of business on the day of such mailing of the relevant notice of redemption, or (B) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part. (vii) All Securities and the Subsidiaries Guarantees, if any, noted thereon issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company and the respective Subsidiary Guarantors, if any, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. (viii) Each Holder of a Security agrees to indemnify the Company and the Trustee against any liability that may result from the transfer, exchange or assignment of such Holder's Security in violation of any provision of this Indenture and/or applicable federal or state securities law. (ix) The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Security other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by the terms of, this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof. SECTION 2.8 Additional Provisions for Global Securities. (a) The Global Security initially shall be registered in the name of the Depositary for such Global Security or the nominee of such Depositary and be delivered to the Trustee as custodian for such Depositary. (b) Members of, or participants in, the Depositary ("Agent Members") shall have no rights under this Indenture with respect to any Global Security held on their behalf by the Depositary, or the Trustee as its custodian, or under the Global Security, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee, from giving effect to any written certification, proxy or other authorization furnished by the Depositary or shall impair, as between the Depositary and its Agent Members, the operation of customary practices governing the exercise of the rights of a Holder of any Security. 45 54 (c) The registered Holder of the Global Security may grant proxies and otherwise authorize any person, including Agent Members and persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Securities. SECTION 2.9 Mutilated, Destroyed, Lost and Stolen Securities. If (a) any mutilated Security is surrendered to the Trustee or (b) the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Security, and there is delivered to the Company and the Trustee such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute, any Subsidiary Guarantors shall execute the notations of Subsidiary Guarantees, and upon Company Order the Trustee shall authenticate and deliver, in exchange for any such mutilated Security or in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and principal amount, having the notations of Subsidiary Guarantees, if any, thereon bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security issued pursuant to this Section in lieu of any mutilated, destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company and the respective Subsidiary Guarantors, if any, whether or not the mutilated, destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. SECTION 2.10 Payment of Interest; Interest Rights Preserved. Interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name such Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date 46 55 for such interest at the office or agency of the Company maintained for such purpose pursuant to Section 9.2 hereof. Any interest on any Security which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date shall forthwith cease to be payable to the Holder on the Regular Record Date by virtue of having been such Holder, and such defaulted interest and (to the extent lawful) interest on such defaulted interest at the rate borne by the Securities (such defaulted interest and interest thereon herein collectively called "Defaulted Interest") may be paid by the Company, at its election in each case, as provided in clause (a) or (b) below: (a) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited shall be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date, and in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be given in the manner provided for in Section 14.5 hereof, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so given, such Defaulted Interest shall be paid to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (b). (b) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. 47 56 SECTION 2.11 Persons Deemed Owners. Prior to the due presentment of a Security for registration of transfer, the Company, the Subsidiary Guarantors, if any, the Security Registrar, the Trustee and any agent of the Company, the Subsidiary Guarantors or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of (and premium, if any, on) and interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and none of the Company, the Subsidiary Guarantors, if any, the Security Registrar, the Trustee or any agent of the Company, the Subsidiary Guarantors or the Trustee shall be affected by notice to the contrary. SECTION 2.12 Cancellation. All Securities surrendered for payment, redemption, registration of transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly canceled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly canceled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities canceled as provided in this Section, except as permitted by this Indenture. All canceled Securities held by the Trustee shall be delivered to the Company. SECTION 2.13 Computation of Interest. Interest on the Securities shall be computed on the basis of a 360-day year comprised of twelve 30-day months. SECTION 2.14 CUSIP Numbers. The Company in issuing the Securities may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided, that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the CUSIP numbers. 48 57 ARTICLE III SATISFACTION AND DISCHARGE SECTION 3.1 Satisfaction and Discharge of Indenture. This Indenture shall upon a Company Request cease to be of further effect (except as to surviving rights of registration of transfer or exchange of Securities, as expressly provided for in this Indenture) as to all Outstanding Securities, and the Trustee, at the expense of the Company, shall, upon payment of all amounts due the Trustee under Section 5.6 hereof, execute proper instruments acknowledging satisfaction and discharge of this Indenture when (a) either (i) all Securities theretofore authenticated and delivered (other than (A) Securities which have been mutilated, destroyed, lost or stolen and which have been replaced or paid as provided in Section 2.9 hereof and (B) Securities for whose payment money or United States governmental obligations of the type described in clause (a) of the definition of Cash Equivalents has theretofore been deposited in trust with the Trustee or any Paying Agent or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust as provided in Section 9.3 hereof) have been delivered to the Trustee for cancellation, or (ii) all such Securities not theretofore delivered to the Trustee for cancellation (A) have become due and payable, or (B) will become due and payable at their Stated Maturity within one year, or (C) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of (ii)(A), (ii)(B) or (ii)(C) above, has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and interest to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be, together with instructions from the Company irrevocably directing the Trustee to apply such funds to the payment thereof at maturity or redemption, as the case may be; 49 58 (b) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (c) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel each satisfactory in form to the Trustee, which, taken together, state that all conditions precedent herein relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 5.6 hereof and, if money shall have been deposited with the Trustee pursuant to subclause (B) of clause (a)(i) of this Section, the obligations of the Trustee under Section 3.2 hereof and the last paragraph of Section 9.3 hereof shall survive. SECTION 3.2 Application of Trust Money. Subject to the provisions of the last paragraph of Section 9.3 hereof, all money deposited with the Trustee pursuant to Section 3.1 hereof shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with the Trustee. ARTICLE IV REMEDIES SECTION 4.1 Events of Default. "Event of Default," wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) default in the payment of the principal of or premium, if any, on any of the Securities, whether such payment is due at maturity, upon redemption, upon repurchase pursuant to a Change of Control Offer or a Net Proceeds Offer, upon acceleration or otherwise; or (b) default in the payment of any installment of interest on any of the Securities, when it becomes due and payable, and the continuance of such default for a period of 30 days; or 50 59 (c) default in the performance or breach of the provisions of Article VII hereof, the failure to make or consummate a Change of Control Offer in accordance with Section 9.15 hereof or the failure to make or consummate a Net Proceeds Offer in accordance with the provisions of Section 9.16 hereof; or (d) the Company or any Subsidiary Guarantor shall fail to perform or observe any other term, covenant or agreement contained in the Securities, any Subsidiary Guarantee or this Indenture (other than a default specified in (a), (b) or (c) above) for a period of 45 days after written notice of such failure requiring the Company to remedy the same shall have been given (i) to the Company by the Trustee or (ii) to the Company and the Trustee by the holders of at least 25% in aggregate principal amount of the Securities then outstanding; or (e) the occurrence and continuation beyond any applicable grace period of any default in the payment of the principal of (or premium, if any, on) or interest on any Indebtedness of the Company (other than the Securities or any Non-Recourse Indebtedness) or any Restricted Subsidiary for money borrowed when due, or any other default causing acceleration of any Indebtedness (other than Non-Recourse Indebtedness) of the Company or any Restricted Subsidiary for money borrowed; provided, that the aggregate principal amount of such Indebtedness shall exceed $12,000,000; provided further, that if any such default is cured or waived or any such acceleration rescinded, or such Indebtedness is repaid, within a period of 10 days from the continuation of such default beyond the applicable grace period or the occurrence of such acceleration, as the case may be, such Event of Default under this Indenture and any consequential acceleration of the Securities shall be automatically rescinded, so long as such rescission does not conflict with any judgment or decree; or (f) the commencement of proceedings, or the taking of any enforcement action (including by way of set-off), by any holder of at least $12,000,000 in aggregate principal amount of Indebtedness (other than Non-Recourse Indebtedness) of the Company or any Restricted Subsidiary, after a default under such Indebtedness, to retain in satisfaction of such Indebtedness or to collect or seize, dispose of or apply in satisfaction of such Indebtedness, Property of the Company or any Restricted Subsidiary having a Fair Market Value in excess of $12,000,000 individually or in the aggregate; provided, that if any such proceedings or actions are terminated or rescinded, or such Indebtedness is repaid, such Event of Default under this Indenture and any consequential acceleration of the Securities shall be automatically rescinded, so long as (i) such rescission does not conflict with any judgment or decree and (ii) the holder of such Indebtedness shall not have applied any such Property in satisfaction of such Indebtedness; or (g) any Subsidiary Guarantee shall for any reason cease to be, or be asserted by the Company or any Subsidiary Guarantor, as applicable, not to be, in full force and effect, enforceable in accordance with its terms (except pursuant to the release of any such Subsidiary Guarantee in accordance with this Indenture); or 51 60 (h) if (i) any material "accumulated funding deficiency" (as defined in Section 302 of ERISA or Section 412 of the Code), shall exist with respect to any PBGC Plan or Multiple Employer Plan (unless a waiver or extension is obtained under Section 412(d) or (e) of the Code and Sections 303 and 304 of ERISA), if such accumulated funding deficiency would give rise to a material liability of the Company, (ii) a Reportable Event shall occur with respect to any PBGC Plan or Multiple Employer Plan, which Reportable Event is likely to result in the termination of such PBGC Plan or Multiple Employer Plan for purposes of Title IV of ERISA and to give rise to a material liability of the Company, (iii) proceedings to have a trustee appointed shall commence, or a trustee shall be appointed to terminate or administer a PBGC Plan or Multiple Employer Plan, which proceeding is likely to result in the termination of such PBGC Plan or Multiple Employer Plan and to give rise to a material liability of the Company with respect to such termination, (iv) a notice of intent to terminate a PBGC Plan or Multiple Employer Plan in a distress termination under Section 4041(c) of ERISA is furnished to participants, (v) any Multiemployer Plan is in reorganization or is insolvent and the circumstances are such that such reorganization or insolvency will likely result in a material liability to the Company, (vi) there is a complete or partial withdrawal from a Multiemployer Plan under circumstances that would likely subject the Company to material liability, or (vii) any event or condition described in (i) through (vi) above (determined without regard to whether the event or condition taken alone would or could result in a material liability) shall occur or exist with respect to a PBGC Plan, Multiple Employer Plan or Multiemployer Plan which in combination with one or more of any events described in (i) through (vi) above (determined without regard to whether the event or condition taken alone would or could result in a material liability) that has occurred or exists, would likely subject the Company, any Subsidiary Guarantor or any other Restricted Subsidiary to any material tax, penalty or other liability (for purposes of this paragraph (i) the term "material" and "material liability" shall mean any tax, penalty or liability in excess of $12,000,000); or (i) final judgments or orders rendered against the Company or any Restricted Subsidiary that are unsatisfied and that require the payment in money, either individually or in an aggregate amount, that is more than $12,000,000 over the coverage under applicable insurance policies and either (i) commencement by any creditor of an enforcement proceeding upon such judgment (other than a judgment that is stayed by reason of pending appeal or otherwise) or (ii) the occurrence of a 60-day period during which a stay of such judgment or order, by reason of pending appeal or otherwise, was not in effect; or (j) the entry of a decree or order by a court having jurisdiction in the premises (i) for relief in respect of the Company or any Material Restricted Subsidiary in an involuntary case or proceeding under the Federal Bankruptcy Code or any other applicable federal or state bankruptcy, insolvency, reorganization or other similar law or (ii) adjudging the Company or any Material Restricted Subsidiary bankrupt or insolvent, or approving a petition seeking reorganization, arrangement, adjustment or composition of the Company or a Material Restricted Subsidiary under the Federal Bankruptcy Code or any other applicable federal or state law, or appointing under any such law a custodian, receiver, liquidator, assignee, trustee, sequestrator 52 61 or other similar official of the Company or any Material Restricted Subsidiary or of a substantial part of their consolidated assets, or ordering the winding up or liquidation of their affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or (k) the commencement by the Company or any Material Restricted Subsidiary of a voluntary case or proceeding under the Federal Bankruptcy Code or any other applicable federal or state bankruptcy, insolvency, reorganization or other similar law or any other case or proceeding to be adjudicated bankrupt or insolvent, or the consent by the Company or any Material Restricted Subsidiary to the entry of a decree or order for relief in respect thereof in an involuntary case or proceeding under the Federal Bankruptcy Code or any other applicable federal or state bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by the Company or any Material Restricted Subsidiary of a petition or consent seeking reorganization or relief under any applicable federal or state law, or the consent by it under any such law to the filing of any such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee or sequestrator (or other similar official) of any of the Company or any Material Restricted Subsidiary or of any substantial part of their consolidated assets, or the making by it of an assignment for the benefit of creditors under any such law. SECTION 4.2 Acceleration of Maturity; Rescission and Annulment. If an Event of Default (other than an Event of Default specified in Section 4.1(j) or (k) hereof) shall occur and be continuing, the Trustee, by written notice to the Company, or the Holders of at least 25% in aggregate principal amount of the Outstanding Securities, by notice to the Trustee and the Company, may declare all unpaid principal of (premium, if any, on), and accrued and unpaid interest on all of the Securities to be due and payable immediately, upon which declaration all amounts payable in respect of the Securities shall be immediately due and payable. If an Event of Default specified in Section 4.1(j) or (k) occurs and is continuing, then the principal of (premium, if any, on), and accrued and unpaid interest on all of the Securities shall ipso facto become and be immediately due and payable without any declaration, notice or other act on the part of the Trustee or any Holder. At any time after a declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in aggregate principal amount of the Outstanding Securities, by written notice to the Company and the Trustee, may rescind such declaration and its consequences if: (a) the Company or any Subsidiary Guarantor has paid or deposited with the Trustee a sum sufficient to pay 53 62 (i) all sums paid or advanced by the Trustee under this Indenture and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, (ii) all overdue interest on all Outstanding Securities, (iii) all unpaid principal of (and premium, if any, on) any Outstanding Securities which has become due otherwise than by such declaration of acceleration, including any Securities required to have been purchased on a Change of Control Date or Net Proceeds Payment Date pursuant to a Change of Control Offer or a Net Proceeds Offer, as applicable, and interest on such unpaid principal at the rate borne by the Securities, and (iv) to the extent that payment of such interest is lawful, interest upon overdue interest and overdue principal at the rate borne by the Securities which has become due otherwise than by such declaration of acceleration (without duplication of any amount deposited pursuant to clauses (ii) and (iii) above); (b) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction; and (c) all Events of Default, other than the nonpayment of principal of (or premium, if any, on) and interest on Securities that has become due solely by such declaration of acceleration, have been cured or waived as provided in Section 4.13 hereof. No such rescission shall affect any subsequent Default or impair any right consequent thereon. SECTION 4.3 Collection of Indebtedness and Suits for Enforcement by Trustee. Subject to Article XIII, the Company covenants that if (a) default is made in the payment of any installment of interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days or (b) default is made in the payment of the principal of (or premium, if any, on) any Security at the Maturity thereof or with respect to any Security required to have been purchased by the Company on the Change of Control Purchase Date or the Net Proceeds Payment Date pursuant to a Change of Control Offer or a Net Proceeds Offer, as applicable, the Company will, upon demand of the Trustee, pay to the Trustee for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal (and premium, if any) and interest and interest on any overdue principal (and premium, if any) and, to the extent that payment of such interest shall be legally enforceable, upon any overdue 54 63 installment of interest at the rate borne by the Securities and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon the Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the Property of the Company or any other obligor upon the Securities, wherever situated. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in any provision of the Securities, this Indenture or the Registration Rights Agreement in aid of the exercise of any power granted therein or herein, or to enforce any other proper remedy. SECTION 4.4 Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company, any Subsidiary Guarantor or any other obligor upon the Securities or the Property of the Company, any Subsidiary Guarantor or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company, any Subsidiary Guarantor or such other obligor for the payment of overdue principal, premium, if any, or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, (a) to file and prove a claim for the whole amount of principal (and premium, if any) and interest owing and unpaid in respect of the Securities and to file such other papers or documents and take any other actions including participation as a full member of any creditor or other committee as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding and (b) to collect and receive any moneys or other Property payable or deliverable on any such claims and to distribute the same, and any custodian, receiver, assignee, trustee, liquidator, sequestrator or similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the 55 64 Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 5.6 hereof. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or any Subsidiary Guarantees or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 4.5 Trustee May Enforce Claims Without Possession of Securities. All rights of action and claims under this Indenture or the Securities or any Subsidiary Guarantees may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name and as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. SECTION 4.6 Application of Money Collected. Subject to Sections 12.8, 12.9 and 12.10 and Article XIII, any money collected by the Trustee pursuant to this Article shall be applied in the following order at the date or dates fixed by the Trustee and, in the case of the distribution of such money on account of principal (or premium, if any) or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 5.6 hereof; SECOND: To the payment of the amounts then due and unpaid for principal of (and premium, if any, on) and interest on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal (and premium, if any) and interest, respectively; and THIRD: The balance, if any, to the Company. 56 65 SECTION 4.7 Limitation on Suits. No Holder of any Securities shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless: (a) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (b) the Holders of not less than 25% in principal amount of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (c) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (e) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority or more in principal amount of the Outstanding Securities; it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders. SECTION 4.8 Unconditional Right of Holders to Receive Principal, Premium and Interest. Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment, as provided herein (including, if applicable, Article XI hereof) and in such Security of the principal of (and premium, if any, on) and (subject to Section 2.10 hereof) interest on, such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. 57 66 SECTION 4.9 Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Subsidiary Guarantors, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereunder and all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 4.10 Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 2.9 hereof, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 4.11 Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. SECTION 4.12 Control by Holders. The Holders of not less than a majority in principal amount of the Outstanding Securities shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee; provided, that: (a) such direction shall not be in conflict with any rule of law or with this Indenture; (b) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction; and 58 67 (c) the Trustee need not take any action which might involve it in personal liability or be unduly prejudicial to the Holders not joining therein. SECTION 4.13 Waiver of Past Defaults. The Holders of not less than a majority in aggregate principal amount of the outstanding Securities may on behalf of the Holders of all the Securities waive any existing Default or Event of Default hereunder and its consequences, except a Default or Event of Default: (a) in respect of the payment of the principal of (premium, if any, on), or interest on any Security; or (b) in respect of a covenant or provision hereof which under Article VIII hereof cannot be modified or amended without the consent of the Holder of each Outstanding Security affected thereby. Upon any such waiver, such Default or Event of Default shall cease to exist for every purpose under this Indenture, but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon. SECTION 4.14 Waiver of Stay, Extension or Usury Laws. The Company covenants, and each Subsidiary Guarantor shall covenant, (to the extent that each may lawfully do so) that it will not at any time insist upon, plead or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension, or usury law or other law, which would prohibit or forgive the Company or any Subsidiary Guarantor from paying all or any portion of the principal of (premium, if any, on) and/or interest on the Securities as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) the Company hereby expressly waives, and each Subsidiary Guarantor shall expressly waive all benefit or advantage of any such law, and the Company covenants and each Subsidiary Guarantor shall covenant that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 4.15 Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith 59 68 of the claims or defenses made by the party litigant. This Section 4.15 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 4.8 hereof or a suit by Holders of more than 10% in principal amount of the then Outstanding Securities. ARTICLE V THE TRUSTEE The Trustee hereby accepts the trust imposed upon it by this Indenture and covenants and agrees to perform the same, as herein expressed. SECTION 5.1 Notice of Defaults. If a Default or Event of Default occurs and is known to the Trustee, the Trustee shall mail to each Holder notice of the Default or Event of Default within 60 days after the occurrence thereof in the manner and to the extent provided in TIA Section 313(c), provided, however, that, except in the case of a Default or Event of Default in the payment of the principal of (or premium, if any, on) or interest on any Security, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee, or a trust committee of directors and/or Responsible Officers, of the Trustee in good faith determine that the withholding of such notice is in the interests of the Holders. SECTION 5.2 Certain Rights of Trustee. Subject to the provisions of TIA Sections 315(a) through 315(d): (a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (d) the Trustee may consult with counsel of its selection, and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection 60 69 in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (h) the Trustee shall not be liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture; and (i) the Trustee shall not be deemed to know or otherwise have notice of any Default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact a Default or Event of Default is received by a Responsible Officer of the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Securities and this Indenture. The Trustee shall not be required to advance, expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. SECTION 5.3 Trustee Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Securities and the notations of Subsidiary Guarantees thereon, except for the Trustee's certificates of authentication, shall be taken as the statements of the Company or the Subsidiary Guarantors, as the case may be, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the 61 70 validity or sufficiency of this Indenture or of the Securities, except that the Trustee represents that it is duly authorized to execute and deliver this Indenture, authenticate the Securities and perform its obligations hereunder, and that the statements made by it in a Statement of Eligibility on Form T-1 supplied to the Company are true and accurate, subject to the qualifications set forth herein. The Trustee shall not be accountable for the use or application by the Company of the Securities or the proceeds thereof. SECTION 5.4 May Hold Securities. The Trustee, any Paying Agent, any Security Registrar or any other agent of the Company, any Subsidiary Guarantor or of the Trustee, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to TIA Sections 310(b) and 311, may otherwise deal with the Company and any Subsidiary Guarantor with the same rights it would have if it were not the Trustee, Paying Agent, Security Registrar or such other agent. SECTION 5.5 Money Held in Trust. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company or any Subsidiary Guarantor. SECTION 5.6 Compensation and Reimbursement. The Company agrees: (a) to pay to the Trustee from time to time such compensation as shall be agreed in writing from time to time between the Company and the Trustee for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (b) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel, except any such expense, disbursement or advance as may be attributable to the Trustee's negligence or bad faith); and (c) to indemnify the Trustee or any predecessor Trustee for, and to hold it harmless against, any and all loss, liability, damage, claim or expense, including taxes (other than taxes based on the income of the Trustee) incurred without negligence or bad faith on its part, (i) arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim or liability in connection with the 62 71 exercise or performance of any of its powers or duties hereunder or (ii) in connection with enforcing this indemnification provision. The obligations of the Company under this Section 5.6 to compensate the Trustee, to pay or reimburse the Trustee for expenses, disbursements and advances and to indemnify and hold harmless the Trustee shall constitute additional indebtedness hereunder and shall survive the satisfaction and discharge of this Indenture or any other termination under any Insolvency or Liquidation Proceeding. As security for the performance of such obligations of the Company, the Trustee shall have a claim and lien prior to the Securities upon all Property and funds held or collected by the Trustee as such, except funds held in trust for payment of principal of (and premium, if any, on) or interest on particular Securities. Such lien shall survive the satisfaction and discharge of this Indenture or any other termination under any Insolvency or Liquidation Proceeding. When the Trustee incurs expenses or renders services after the occurrence of a Default or an Event of Default specified in paragraphs (j) or (k) of Section 4.1 of this Indenture, such expenses and the compensation for such services are intended to constitute expenses of administration under any Insolvency or Liquidation Proceeding. SECTION 5.7 Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which shall be eligible to act as Trustee under TIA Section 310(a)(1) and shall have a combined capital and surplus of at least $50,000,000. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of federal, state, territorial or District of Columbia supervising or examining authority, then for the purposes of this Section 5.7, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. SECTION 5.8 Conflicting Interests. The Trustee shall comply with the provisions of Section 310(b) of the Trust Indenture Act. SECTION 5.9 Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 5.10 hereof. 63 72 (b) The Trustee may resign at any time by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 5.10 hereof shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time by Act of the Holders of not less than a majority in principal amount of the Outstanding Securities, delivered to the Trustee and to the Company. If the instrument of acceptance by a successor Trustee required by Section 5.10 shall not have been delivered to the Trustee within 30 days after the giving of such notice of removal, the Trustee being removed may petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a successor Trustee. (d) If at any time (i) the Trustee shall fail to comply with the provisions of TIA Section 310(b) after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or (ii) the Trustee shall cease to be eligible under Section 5.7 hereof and shall fail to resign after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or (iii) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (A) the Company, by a Board Resolution, may remove the Trustee, or (B) subject to TIA Section 315(e), any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment in the manner hereinafter provided, any Holder who has been a bona fide Holder of a Security for at least six 64 73 months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. Such successorship may, but need not be, evidenced by a supplemental indenture. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to the Holders of Securities in the manner provided for in Section 14.5 hereof. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. SECTION 5.10 Acceptance of Appointment by Successor. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of all amounts due it under Section 5.6 hereof, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. SECTION 5.11 Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities; and in case at that time any of the Securities shall not have been authenticated, any successor Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Securities or in this Indenture; provided, however, that the right to adopt the certificate of authentication of any 65 74 predecessor Trustee or to authenticate Securities in the name of any predecessor Trustee shall apply only to its successor or successors by merger, conversion or consolidation. SECTION 5.12 Preferential Collection of Claims Against Company. If and when the Trustee shall be or become a creditor of the Company (or any other obligor under the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company or any such other obligor. ARTICLE VI HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 6.1 Disclosure of Names and Addresses of Holders. Every Holder of Securities, by receiving and holding the same, agrees with the Company, the Subsidiary Guarantors, if any, the Security Registrar and the Trustee that none of the Company, the Subsidiary Guarantors, the Security Registrar or the Trustee, or any agent of either of them, shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders in accordance with TIA Section 312, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under TIA Section 312(b). SECTION 6.2 Reports By Trustee. Within 60 days after May 15 of each year commencing with May 15, 1998, the Trustee shall transmit by mail to the Holders, as their names and addresses appear in the Security Register, a brief report dated as of such May 15 in accordance with and to the extent required under TIA Section 313(a). The Trustee shall also comply with TIA Sections 313(b) and 313(c). The Company shall promptly notify the Trustee in writing if the Securities become listed on any stock exchange or automatic quotation system. A copy of each Trustee's report, at the time of its mailing to Holders of Securities, shall be mailed to the Company and filed with the Commission and each stock exchange, if any, on which the Securities are listed. SECTION 6.3 Reports by Company. The Company (and any Subsidiary Guarantor, if applicable) shall: 66 75 (a) file with the Trustee, and provide to each Holder, without cost to such Holder, within 15 days after the Company (and any Subsidiary Guarantor, if applicable) is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company (and any Subsidiary Guarantor, if applicable) may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if the Company (and any Subsidiary Guarantor, if applicable) is not required to file information, documents or reports pursuant to either of said Sections, then it shall file with the Trustee and the Commission, in accordance with the rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Exchange Act in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations; (b) file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company (and any Subsidiary Guarantor, if applicable) with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations; and (c) transmit by mail to all Holders, in the manner and to the extent provided in TIA Section 313(c), within 30 days after the filing thereof with Trustee, such summaries of any information, documents and reports required to be filed by the Company (and any Subsidiary Guarantor, if applicable) pursuant to paragraphs (a) and (b) of this Section as may be required by rules and regulations prescribed from time to time by the Commission. Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). ARTICLE VII CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION 7.1 Company May Consolidate, etc., Only on Certain Terms. The Company shall not, in any single transaction or a series of related transactions, merge or consolidate with or into any other Person, or sell, assign, convey, transfer or lease or otherwise dispose of the Property of the Company and its Restricted Subsidiaries substantially as an entirety on a consolidated basis to any Person, and the Company shall not permit any Restricted 67 76 Subsidiary to enter into any transaction or series of related transactions if such transaction or series of transactions would result in a sale, assignment, conveyance, transfer, lease or other disposition of the Properties of the Company and its Restricted Subsidiaries substantially as an entirety on a consolidated basis to any Person, unless at the time and after giving affect thereto: (a) either (i) if the transaction or series of related transactions is a merger or consolidation, the Company shall be the surviving Person of such merger or consolidation, or (ii) the Person (if other than the Company) formed by such consolidation or into which the Company or such Restricted Subsidiary is merged or to which the Properties of the Company or such Restricted Subsidiary, as the case may be, are sold, assigned, conveyed, transferred, leased or otherwise disposed of (any such surviving Person or transferee Person being the "Surviving Entity") shall be a corporation organized and existing under the laws of the United States of America, any state thereof or the District of Columbia and shall, in either case, expressly assume by a supplemental indenture to this Indenture executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company for the due and punctual payment of the principal of (and premium, if any, on) and interest on all the Securities and the performance and observance of every covenant of this Indenture on the part of the Company to be performed or observed, and this Indenture shall remain in full force and effect; (b) immediately before and immediately after giving effect to such transaction or series of transactions on a pro forma basis (and treating any Indebtedness not previously an obligation of the Company or any of its Restricted Subsidiaries which becomes the obligation of the Company or any of its Restricted Subsidiaries in connection with or as a result of such transaction or series of transactions as having been incurred at the time of such transaction or series of transactions), no Default or Event of Default shall have occurred and be continuing; (c) except in the case of the consolidation or merger of any Restricted Subsidiary with or into the Company, immediately after giving effect to such transaction or series of transactions on a pro forma basis, the Consolidated Net Worth of the Company (or the Surviving Entity if the Company is not the continuing obligor under this Indenture) is at least equal to the Consolidated Net Worth of the Company immediately before such transaction or series of transactions; (d) except in the case of the consolidation or merger of (i) any Restricted Subsidiary with or into the Company or any Wholly Owned Restricted Subsidiary or (ii) the Company with or into any Person that has no Indebtedness outstanding, immediately before and after giving effect to such transaction or series of transactions on a pro forma basis (on the assumption that the transaction or series of transactions occurred on the first day of the period of four full fiscal quarters ending immediately prior to the consummation of such transaction or series of transactions, with the appropriate adjustments with respect to such transaction or series of transactions being included in such pro forma calculation) the Company (or the Surviving Entity if the Company is not the continuing obligor under this Indenture) could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) under Section 9.11 hereof; 68 77 (e) each Subsidiary Guarantor, unless it is the party to the transactions or series of transactions described above, shall have by supplemental indenture confirmed that its Subsidiary Guarantee shall apply to such Person's obligations under this Indenture and the Securities; (f) if any of the Properties of the Company or any Restricted Subsidiary would upon such transaction or series of transactions become subject to any Lien (other than a Permitted Lien), the creation or imposition of such Lien shall have been in compliance with Section 9.14 hereof; and (g) the Company or such Person shall have delivered to the Trustee (i) an Officers' Certificate in form and substance reasonably acceptable to the Trustee, stating that such consolidation, merger, conveyance, transfer, lease or other disposition and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture, complies with this Indenture and that all conditions precedent herein relating to such transaction or transactions have been satisfied and (ii) an Opinion of Counsel stating that the requirements of Section 7.1(a) hereof have been complied with. SECTION 7.2 Successor Substituted. Upon any consolidation of the Company with or merger of the Company into any other corporation or any sale, assignment, lease, conveyance, transfer or other disposition substantially as an entirety on a consolidated basis of the Properties of the Company to any Person in accordance with Section 7.1 hereof, the Surviving Entity formed by such consolidation or into which the Company is merged or to which such sale, assignment, conveyance, transfer or other disposition (other than by lease) is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such Surviving Entity had been named as the Company herein, and in the event of any such sale, assignment, lease, conveyance, transfer or other disposition, the Company (which term shall for this purpose mean the Person named as the "Company" in the first paragraph of this Indenture or any Surviving Entity which shall theretofore become such in the manner described in Section 7.1 hereof), except in the case of a lease, shall be discharged of all obligations and covenants under this Indenture and the Securities and the Company may be dissolved and liquidated and such dissolution and liquidation shall not cause a Change of Control under clause (e) of the definition thereof to occur unless the merger, or the sale, assignment, lease, conveyance, transfer or other disposition substantially as an entirety of the Properties of the Company to any Person otherwise results in a Change of Control. 69 78 ARTICLE VIII SUPPLEMENTAL INDENTURES SECTION 8.1 Supplemental Indentures without Consent of Holders. Without the consent of any Holders, the Company, when authorized by a Board Resolution, any Subsidiary Guarantors, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (a) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company contained herein and in the Securities; or (b) to add to the covenants of the Company for the benefit of the Holders or to surrender any right or power herein conferred upon the Company; or (c) to add any additional Events of Default; or (d) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee pursuant to the requirements of Sections 5.9 and 5.10 hereof; or (e) to cure any ambiguity, to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or to qualify, or maintain the qualification of, the Indenture under the TIA or to make any other provisions with respect to matters or questions arising under this Indenture or the Registration Rights Agreement; provided, that such action shall not adversely affect the interests of the Holders; or (f) to secure the Securities pursuant to the requirements of Section 9.14 hereof or otherwise; or (g) to add any Person as a Subsidiary Guarantor as provided in Section 12.1 hereof to evidence the succession of another Person to any Subsidiary Guarantor and the assumption by any such successor of the covenants and agreements of such Subsidiary Guarantor contained herein, in the Securities and in the Subsidiary Guarantee; or (h) to release a Subsidiary Guarantor from its Subsidiary Guarantee pursuant to Section 9.12 hereof; or (i) to provide for uncertificated Securities in addition to or in place of certificated Securities. 70 79 SECTION 8.2 Supplemental Indentures with Consent of Holders. With the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, any Subsidiary Guarantors, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby: (a) change the Stated Maturity of the principal of, or any installment of interest on, any Security, or reduce the principal amount thereof or the rate of interest thereon or any premium payable upon the redemption thereof, or change the place of payment of any Security, or change the coin or currency in which any Security or any premium or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date); or (b) reduce the percentage of aggregate principal amount of the Outstanding Securities, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver of compliance with certain provisions of this Indenture or certain Defaults or Events of Default hereunder and their consequences provided for in this Indenture; or (c) modify any of the provisions of this Section or Section 4.13 or 9.22 hereof, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby; (d) modify Section 9.12 hereof or any provisions of this Indenture relating to any Subsidiary Guarantees in a manner adverse to the Holders thereof; or (e) amend or modify the obligation of the Company to make and consummate a Change of Control Offer in the event of a Change of Control, or to make and consummate a Net Proceeds Offer with respect to any Asset Sale or modify any of the provisions or definitions with respect thereto. It shall not be necessary for any Act of the Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. 71 80 SECTION 8.3 Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 8.4 Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 8.5 Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act as then in effect. SECTION 8.6 Reference in Securities to Supplemental Indentures. Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company, with the notations of Subsidiary Guarantees thereon executed by the Subsidiary Guarantors, if any, and authenticated and delivered by the Trustee in exchange for Outstanding Securities. SECTION 8.7 Notice of Supplemental Indentures. Promptly after the execution by the Company and the Trustee of any supplemental indenture pursuant to the provisions of Section 8.2 hereof, the Company shall give notice thereof to the Holders of each Outstanding Security affected, in the manner provided for in Section 14.5 hereof, setting forth in general terms the substance of such supplemental indenture. 72 81 ARTICLE IX COVENANTS SECTION 9.1 Payment of Principal, Premium, if any, and Interest. The Company covenants and agrees for the benefit of the Holders that it will duly and punctually pay the principal of (and premium, if any, on) and interest on the Securities in accordance with the terms of the Securities and this Indenture. The Company shall pay interest (including post-petition interest in any proceeding under the Federal Bankruptcy Code or any similar state bankruptcy law) on overdue principal, and premium, if any, at the rate borne by the Securities to the extent lawful; and it shall pay interest (including post-petition interest in any proceeding under the Federal Bankruptcy Code or any similar state bankruptcy law) on overdue installments of interest (without regard to any applicable grace period) at the same rate to the extent lawful. SECTION 9.2 Maintenance of Office or Agency. The Company shall maintain in the Borough of Manhattan, the City of New York, an office or agency where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities, the Subsidiary Guarantees and this Indenture may be served. The office of Fleet National Bank, c/o First Chicago, 14 Wall Street, 8th Floor - -- Window No. 2, New York, New York 10005 shall be such office or agency of the Company, unless the Company shall designate and maintain some other office or agency for one or more of such purposes. The Company will give prompt written notice to the Trustee of any change in the location of any such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the aforementioned office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies (in or outside of the City of New York) where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind any such designation; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and any change in the location of any such other office or agency. 73 82 SECTION 9.3 Money for Security Payments to Be Held in Trust. If the Company shall at any time act as its own Paying Agent, it shall, on or before each due date of the principal of (and premium, if any, on) or interest on any of the Securities, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal (and premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents for the Securities, it will, on or before 11:00 A.M., New York City time, on each due date of the principal of (and premium, if any, on), or interest on, any Securities, deposit with a Paying Agent a sum sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest, and (unless such Paying Agent is the Trustee) the Company shall promptly notify the Trustee of such action or any failure so to act. The Company shall cause each Paying Agent (other than the Trustee) to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will: (a) hold all sums held by it for the payment of the principal of (and premium, if any, on) or interest on Securities in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (b) give the Trustee notice of any Default by the Company (or any other obligor upon the Securities) in the making of any payment of principal (and premium, if any) or interest; and (c) at any time during the continuance of any such Default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such sums. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any, on) or interest on any Security and remaining unclaimed for two years or such lesser period of time as may be required 74 83 by applicable escheat laws after such principal (and premium, if any) or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in the Borough of Manhattan, the City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 9.4 Corporate Existence. Except as permitted by Article VII hereof, Section 9.16 hereof or other provisions of this Indenture, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect the corporate existence, rights (charter and statutory) and franchises of the Company and each Restricted Subsidiary; provided, however, that the Company shall not be required to preserve any such existence of its Restricted Subsidiaries, right or franchise, if the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Restricted Subsidiaries, taken as a whole, and that the loss thereof is not disadvantageous in any material respect to the Holders. SECTION 9.5 Payment of Taxes and Other Claims. The Company shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (a) all taxes, assessments and governmental charges levied or imposed upon the Company or any Restricted Subsidiary or upon the income, profits or Property of the Company or any Restricted Subsidiary and (b) all lawful claims for labor, materials and supplies, which, if unpaid, could by law become a Lien upon the Property of the Company or any Restricted Subsidiary; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which appropriate provision has been made in accordance with GAAP. SECTION 9.6 Maintenance of Properties. The Company shall cause all material Properties owned by the Company or any Restricted Subsidiary and used or held for use in the conduct of its business or the business of any Restricted Subsidiary to be maintained and kept in good condition, repair and working order (ordinary wear and tear excepted); provided, however, that nothing in this Section shall prevent the Company from discontinuing the maintenance of any of such Properties if such 75 84 discontinuance is, in the judgment of the Company, desirable in the conduct of its business or the business of any Restricted Subsidiary and not disadvantageous in any material respect to the Holders. Notwithstanding the foregoing, nothing contained in this Section 9.6 shall limit or impair in any way the right of the Company and its Restricted Subsidiaries to sell, divest and otherwise to engage in transactions that are otherwise permitted by this Indenture. SECTION 9.7 Insurance. The Company shall at all times keep all of its and its Restricted Subsidiaries' Properties which are of an insurable nature insured with insurers, believed by the Company to be responsible, against loss or damage to the extent that Property of similar character is usually so insured by corporations similarly situated and owning like Properties. The Company may adopt such other plan or method of protection, in lieu of or supplemental to insurance with insurers, whether by the establishment of an insurance fund or reserve to be held and applied to make good losses from casualties, or otherwise, conforming to the systems of self-insurance maintained by corporations similarly situated and owning like Properties, as may be determined by the Company. SECTION 9.8 Statement by Officers as to Default. (a) The Company shall deliver to the Trustee, within 90 days after the end of each fiscal year of the Company and within 45 days of the end of each of the first, second and third quarters of each fiscal year of the Company, in each case ending after the date hereof, an Officers' Certificate stating that a review of the activities of the Company during the preceding fiscal quarter or fiscal year, as applicable, has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his knowledge the Company is not in Default in the performance or observance of any of the terms, provisions and conditions hereof or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he may have knowledge and that to the best of his knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Securities are prohibited or if such event has occurred, a description of the event. Such Officers' Certificate shall comply with TIA Section 314(a)(4). For purposes of this Section 9.8(a), such compliance shall be determined without regard to any period of grace or requirement of notice under this Indenture. (b) The Company and any Subsidiary Guarantors shall, so long as any of the Securities are outstanding, deliver to the Trustee forthwith upon any Officer becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action the Company or any Subsidiary Guarantor proposes to take with respect 76 85 thereto within 10 days after its becoming aware of the occurrence of such Default or Event of Default. SECTION 9.9 Reports. The Company and any Subsidiary Guarantors shall file on a timely basis with the Commission, to the extent such filings are accepted by the Commission and whether or not the Company has a class of securities registered under the Exchange Act, the annual reports, quarterly reports and other documents that the Company would be required to file if it were subject to Section 13 or 15(d) of the Exchange Act). The Company (and the Subsidiary Guarantors, if applicable) will also be required (a) to file with the Trustee, and provide to each Holder of Securities, without cost to such Holder, copies of such reports and documents within 15 days after the date on which the Company files such reports and documents with the Commission or the date on which the Company (and the Subsidiary Guarantors, if applicable) would be required to file such reports and documents if the Company (and the Subsidiary Guarantors, if applicable) were so required and (b) if filing such reports and documents with the Commission is not accepted by the Commission or is prohibited under the Exchange Act, to furnish at the Company's cost copies of such reports and documents to any Holder of Securities promptly upon written request. The Company is obligated to make available, upon request, to any Holder of Securities the information required by Rule 144A(d)(4) under the Securities Act, during any period in which the Company is not subject to Section 13 or 15(d) of the Exchange Act and, for so long as any Transfer Restricted Securities remain outstanding, the Company shall furnish to all Holders and prospective purchasers of the Securities designated by the Holders of Transfer Restricted Securities, promptly upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) of the Securities Act. The Company and each Subsidiary Guarantor also shall comply with the other provisions of TIA Section 314(a). SECTION 9.10 Limitation on Restricted Payments. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, take any of the following actions (unless such action constitutes a Permitted Investment): (i) declare or pay any dividend on, or make any distribution to holders of, any shares of the Company's Capital Stock (other than dividends or distributions payable solely in shares of Qualified Capital Stock of the Company, options, warrants or other rights to purchase Qualified Capital Stock of the Company); (ii) purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company or any Affiliate thereof (other than any Wholly Owned Restricted Subsidiary of the Company) or any options, warrants or other rights to acquire such Capital Stock; provided, however, that the Company may make any payment of the applicable redemption price in connection with a Qualified Redemption Transaction; 77 86 (iii) make any principal payment on or repurchase, redeem, defease or otherwise acquire or retire for value, prior to any scheduled principal payment, scheduled sinking fund payment or maturity, any Pari Passu Indebtedness or Subordinated Indebtedness, except in any case out of a Pari Passu Offer or a Net Proceeds Deficiency pursuant to the provisions of Section 9.16 hereof and except upon a Change of Control or similar event required by the indenture or other agreement or instrument pursuant to which such Pari Passu Indebtedness or Subordinated Indebtedness was issued, provided the Company is then obligated to make a Change of Control Offer in compliance with Section 9.15 hereof; provided, however, that the Company may make any payment of the applicable redemption price in connection with a Qualified Redemption Transaction; (iv) declare or pay any dividend on, or make any distribution to the holders of, any shares of Capital Stock of any Restricted Subsidiary of the Company (other than to the Company or any of its Wholly Owned Restricted Subsidiaries) or purchase, redeem or otherwise acquire or retire for value any Capital Stock of any Restricted Subsidiary (other than a Wholly Owned Restricted Subsidiary) or any options, warrants or other rights to acquire any such Capital Stock (other than with respect to any such Capital Stock held by the Company or any Wholly Owned Restricted Subsidiary of the Company); (v) make any Investment; or (vi) in connection with the acquisition of any property or asset by the Company or its Restricted Subsidiaries after the date of this Indenture, which property or asset would secure or be subject to any Production Payment obligations of the Company or its Restricted Subsidiaries, make any investment (of cash, property or other assets) in such property or asset so acquired in addition to the amount of Indebtedness (including Production Payment obligations) incurred by the Company or its Restricted Subsidiaries in connection with such acquisition; (such payments or other actions described in (but not excluded from) clauses (i) through (vi) are collectively referred to as "Restricted Payments"), unless at the time of and after giving effect to the proposed Restricted Payment (with the amount of any such Restricted Payment, if other than cash, being the amount determined by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution), (1) no Default or Event of Default shall have occurred and be continuing, (2) the Company could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) in accordance with Section 9.11 hereof and (3) the aggregate amount of all Restricted Payments declared or made after the date of this Indenture shall not exceed the sum (without duplication) of the following: (I) 50% of the aggregate Consolidated Net Income of the Company accrued on a cumulative basis during the period beginning on the first 78 87 day of the first month after the date of this Indenture and ending on the last day of the Company's last fiscal quarter ending prior to the date of such proposed Restricted Payment (or, if such aggregate cumulative Consolidated Net Income shall be a loss, minus 100% of such loss), plus (II) the aggregate net cash proceeds received after the date of this Indenture by the Company as capital contributions to the Company (other than from any Restricted Subsidiary), plus (III) the aggregate net cash proceeds received after the date of this Indenture by the Company from the issuance or sale (other than to any of its Restricted Subsidiaries) of shares of Qualified Capital Stock of the Company or any options, warrants or rights to purchase such shares of Qualified Capital Stock of the Company, plus (IV) the aggregate net cash proceeds received after the date of this Indenture by the Company (other than from any of its Restricted Subsidiaries) upon the exercise of any options, warrants or rights to purchase shares of Qualified Capital Stock of the Company, plus (V) the aggregate net cash proceeds received after the date of this Indenture by the Company from the issuance or sale (other than to any of its Restricted Subsidiaries) of debt securities or shares of Redeemable Capital Stock that have been converted into or exchanged for Qualified Capital Stock of the Company to the extent such debt securities were originally sold for cash, together with the aggregate cash received by the Company at the time of such conversion or exchange, plus (VI) to the extent not otherwise included in the Company's Consolidated Net Income, the net reduction in Investments in Affiliates and Unrestricted Subsidiaries resulting from the payments of interest on Indebtedness, dividends, repayments of loans or advances, or other transfers of assets, in each case to the Company or a Restricted Subsidiary after the date of this Indenture from any Affiliate or Unrestricted Subsidiary or from the redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary (valued in each case as provided in the definition of "Investment"), not to exceed in the case of any Affiliate or Unrestricted Subsidiary the total amount of Investments (other than Permitted Investments) in such Affiliate or Unrestricted Subsidiary made by the Company and its Restricted Subsidiaries in such Affiliate or Unrestricted Subsidiary after the date of this Indenture, plus (VII) $15,000,000. 79 88 (b) Notwithstanding paragraph (a) above, the Company and its Restricted Subsidiaries may take the following actions so long as (in the case of clauses (ii), (iii) and (iv) below) no Default or Event of Default shall have occurred and be continuing: (i) the payment of any dividend within 60 days after the date of declaration thereof, if at such declaration date such declaration complied with the provisions of paragraph (a) above (and such payment shall be deemed to have been paid on such date of declaration for purposes of any calculation required by the provisions of paragraph (a) above); (ii) the repurchase, redemption or other acquisition or retirement of any shares of any class of Capital Stock of the Company or any Restricted Subsidiary, in exchange for, or out of the aggregate net cash proceeds of, a substantially concurrent issue and sale (other than to a Restricted Subsidiary) of shares of Qualified Capital Stock of the Company; (iii) the purchase, redemption, repayment, defeasance or other acquisition or retirement for value of any Subordinated Indebtedness (other than Redeemable Capital Stock) in exchange for or out of the aggregate net cash proceeds of a substantially concurrent issue and sale (other than to a Restricted Subsidiary) of shares of Qualified Capital Stock of the Company; (iv) the purchase, redemption, repayment, defeasance or other acquisition or retirement for value of Subordinated Indebtedness (other than Redeemable Capital Stock) in exchange for, or out of the aggregate net cash proceeds of, a substantially concurrent incurrence (other than to a Restricted Subsidiary) of Subordinated Indebtedness of the Company so long as (A) the principal amount of such new Indebtedness does not exceed the principal amount (or, if such Subordinated Indebtedness being refinanced provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration thereof, such lesser amount as of the date of determination) of the Subordinated Indebtedness being so purchased, redeemed, repaid, defeased, acquired or retired, plus the amount of any premium required to be paid in connection with such refinancing pursuant to the terms of the Subordinated Indebtedness refinanced or the amount of any premium reasonably determined by the Company as necessary to accomplish such refinancing, plus the amount of fees and expenses of the Company incurred in connection with such refinancing, (B) such new Subordinated Indebtedness is subordinated to the Securities at least to the same extent as such Subordinated Indebtedness so purchased, redeemed, repaid, defeased, acquired or retired, (C) such new Subordinated Indebtedness has an Average Life to Stated Maturity that is longer than the Average Life to Stated Maturity of the Securities and such new Subordinated Indebtedness has a Stated Maturity for its final scheduled principal payment that is at least 91 days later than the Stated Maturity for the final scheduled principal payment of the Securities; and 80 89 (v) repurchases, acquisitions or retirements of shares of Qualified Capital Stock of the Company deemed to occur upon the exercise of stock options or similar rights issued under employee benefit plans of the Company if such shares represent all or a portion of the exercise price or are surrendered in connection with satisfying any Federal income tax obligation. The actions described in clauses (i), (ii) and (iii) of this paragraph (b) shall be Restricted Payments that shall be permitted to be taken in accordance with this paragraph (b) but shall reduce the amount that would otherwise be available for Restricted Payments under clause (3) of paragraph (a) (provided, that any dividend paid pursuant to clause (i) of this paragraph (b) shall reduce the amount that would otherwise be available under clause (3) of paragraph (a) when declared, but not also when subsequently paid pursuant to such clause (i)), and the actions described in clauses (iv) and (v) of this paragraph (b) shall be Restricted Payments that shall be permitted to be taken in accordance with this paragraph and shall not reduce the amount that would otherwise be available for Restricted Payments under clause (3) of paragraph (a). (c) In computing Consolidated Net Income of the Company under paragraph (a) above, (i) the Company shall use audited financial statements for the portions of the relevant period for which audited financial statements are available on the date of determination and unaudited financial statements and other current financial data based on the books and records of the Company for the remaining portion of such period and (ii) the Company shall be permitted to rely in good faith on the financial statements and other financial data derived from the books and records of the Company that are available on the date of determination. If the Company makes a Restricted Payment which, at the time of the making of such Restricted Payment, would in the good faith determination of the Company be permitted under the requirements of this Indenture, such Restricted Payment shall be deemed to have been made in compliance with this Indenture notwithstanding any subsequent adjustments made in good faith to the Company's financial statements affecting Consolidated Net Income of the Company for any period. SECTION 9.11 Limitation on Indebtedness. The Company shall not, and shall not permit any Restricted Subsidiary to, create, incur, issue, assume, guarantee or in any manner become directly or indirectly liable for the payment of (collectively "incur") any Indebtedness (including any Acquired Indebtedness), other than Permitted Indebtedness and Permitted Subsidiary Indebtedness, as the case may be; provided, however, that the Company and its Restricted Subsidiaries that are Subsidiary Guarantors may incur additional Indebtedness if (i) the Company's Consolidated Fixed Charge Coverage Ratio for the four full fiscal quarters immediately preceding the incurrence of such Indebtedness (and for which financial statements are available), taken as one period (at the time of such incurrence, after giving pro forma effect to: (A) the incurrence of such Indebtedness and (if applicable) the application of the net proceeds therefrom as if such Indebtedness had been incurred and the application of such proceeds had occurred at the beginning of such four-quarter period; (B) the 81 90 incurrence, repayment or retirement of any other Indebtedness (including Permitted Indebtedness and Permitted Subsidiary Indebtedness) by the Company or its Restricted Subsidiaries since the first day of such four-quarter period (including any other Indebtedness to be incurred concurrent with the incurrence of such Indebtedness) as if such Indebtedness had been incurred, repaid or retired at the beginning of such four-quarter period; and (C) notwithstanding clause (d) of the definition of Consolidated Net Income, the acquisition (whether by purchase, merger or otherwise) or disposition (whether by sale, merger or otherwise) of any Person acquired or disposed of by the Company or its Restricted Subsidiaries, as the case may be, since the first day of such four-quarter period, as if such acquisition or disposition had occurred at the beginning of such four-quarter period), would have been equal to at least 2.5 to 1.0 and (ii) no Default or Event of Default would occur or be continuing. SECTION 9.12 Limitation on Non-Guarantor Restricted Subsidiaries. (a) The Company shall not permit any Restricted Subsidiary that is not a Subsidiary Guarantor to guarantee the payment of any Indebtedness of the Company unless (i)(A) such Restricted Subsidiary simultaneously executes and delivers a supplemental indenture to this Indenture providing for a Subsidiary Guarantee of the Securities by such Restricted Subsidiary which Subsidiary Guarantee will be subordinated to Guarantor Senior Indebtedness (but no other Indebtedness) to the same extent that the Securities are subordinated to Senior Indebtedness and (B), with respect to any guarantee of Subordinated Indebtedness by a Restricted Subsidiary, any such guarantee shall be subordinated to such Restricted Subsidiary's Subsidiary Guarantee at least to the same extent as such Subordinated Indebtedness is subordinated to the Securities; (ii) such Restricted Subsidiary waives, and agrees not in any manner whatsoever to claim or take the benefit or advantage of, any rights of reimbursement, indemnity or subrogation or any other rights against the Company or any other Restricted Subsidiary as a result of any payment by such Restricted Subsidiary under its Subsidiary Guarantee until such time as the obligations guaranteed thereby are paid in full; and (iii) such Restricted Subsidiary shall deliver to the Trustee an Opinion of Counsel to the effect that such Subsidiary Guarantee has been duly executed and authorized and constitutes a valid, binding and enforceable obligation of such Restricted Subsidiary, except insofar as enforcement thereof (A) may be limited by bankruptcy, insolvency or similar laws (including, without limitation, all laws relating to fraudulent transfers and fraudulent conveyances), (B) is subject to general principles of equity and (C) any implied covenant of good faith or fair dealing. (b) Notwithstanding the foregoing and the other provisions of this Indenture, each Subsidiary Guarantee shall provide by its terms that it shall be automatically and unconditionally released and discharged upon (i)(A) any sale, exchange or transfer of all the Capital Stock in the applicable Subsidiary Guarantor owned by the Company and any Restricted Subsidiary or (B) any sale, assignment, conveyance, transfer, lease or other disposition of the properties and assets of such Subsidiary Guarantor substantially as an entirety, in each case, in a single transaction or series of related transactions to any Person that is not a Restricted Subsidiary (provided, that such transaction or series of transactions is not prohibited by the 82 91 Indenture), (ii) the merger or consolidation of such Subsidiary Guarantor with or into the Company or a Restricted Subsidiary (provided, that, in the case of a merger into or consolidation with a Restricted Subsidiary that is not then a Subsidiary Guarantor, the surviving Restricted Subsidiary assumes the Subsidiary Guarantee and such transaction or series of transactions is not prohibited by this Indenture) or (iii) the release or discharge of all guarantees by such Subsidiary Guarantor of Indebtedness other than the Note Obligations, except a discharge or release by or as a result of the payment of such Indebtedness by such Subsidiary Guarantor pursuant to its Subsidiary Guarantee. SECTION 9.13 Limitation on Issuances and Sales of Restricted Subsidiary Capital Stock. The Company (a) shall not permit any Restricted Subsidiary to issue any Preferred Stock (other than to the Company or a Wholly Owned Restricted Subsidiary) and (b) shall not permit any Person (other than the Company and/or one or more Wholly Owned Restricted Subsidiaries) to own any Capital Stock of any Restricted Subsidiary; provided, however, that this covenant shall not prohibit (i) the issuance and sale of all, but not less than all, of the issued and outstanding Capital Stock of any Restricted Subsidiary owned by the Company or any of its Restricted Subsidiaries in compliance with the other provisions of this Indenture, (ii) the ownership by directors of directors' qualifying shares, (iii) the ownership by any Person of Capital Stock of a Restricted Subsidiary that was owned by a Person at the time such Restricted Subsidiary became a Restricted Subsidiary or acquired by a Person in connection with the formation of the Restricted Subsidiary (including, in each case, any Capital Stock issued as a result of a stock split, a dividend of shares of Capital Stock to holders of such Capital Stock, a recapitalization affecting such Capital Stock or similar event) and (iv) the ownership by any Person of Capital Stock of any Foreign Subsidiary so long as none of the Capital Stock of that Subsidiary has been issued in a public offering. SECTION 9.14 Limitation on Liens. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume, affirm or suffer to exist or become effective any Lien of any kind, except for Permitted Liens, on or with respect to any of its Property (including any intercompany notes), whether owned at the date of this Indenture or thereafter acquired, or any income, profits or proceeds therefrom, or assign or otherwise convey any right to receive income thereon, unless (a) in the case of any Lien securing Subordinated Indebtedness, the Securities are secured by a Lien on such Property or proceeds that is senior in priority to such Lien and (b) in the case of any other Lien, the Securities are directly secured equally and ratably with the obligation or liability secured by such Lien. 83 92 SECTION 9.15 Change of Control. (a) Upon the occurrence of a Change of Control, the Company shall be obligated to make an offer to purchase (a "Change of Control Offer") all of the then outstanding Securities, in whole or in part, from the Holders of such Securities in integral multiples of $1,000, at a purchase price (the "Change of Control Purchase Price") equal to 101% of the aggregate principal amount of such Securities, plus accrued and unpaid interest, if any, to the Change of Control Purchase Date (as defined below), in accordance with the procedures set forth in paragraphs (b), (c) and (d) of this Section. The Company shall, subject to the provisions described below, be required to purchase all Securities properly tendered into the Change of Control Offer and not withdrawn. The Company will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer at the same purchase price, at the same times and otherwise in substantial compliance with the requirements applicable to a Change of Control Offer made by the Company and purchases all Securities validly tendered and not withdrawn under such Change of Control Offer. (b) The Change of Control Offer is required to remain open for at least 20 Business Days and until the close of business on the Change of Control Purchase Date (as defined below). (c) Not later than the 30th day following any Change of Control, the Company shall give to the Trustee in the manner provided in Section 14.4 and each Holder of the Securities in the manner provided in Section 14.5, a notice (the "Change of Control Notice") stating: (i) that a Change in Control has occurred and that such Holder has the right to require the Company to repurchase such Holder's Securities, or portion thereof, at the Change of Control Purchase Price; (ii) any information regarding such Change of Control required to be furnished pursuant to Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder; (iii) a purchase date (the "Change of Control Purchase Date") which shall be on a Business Day and no earlier than 30 days nor later than 75 days from the date the Change of Control occurred; (iv) that any Security, or portion thereof, not tendered or accepted for payment will continue to accrue interest; (v) that unless the Company defaults in depositing money with the Paying Agent in accordance with clause (e) of this Section 9.15, or payment is otherwise prevented, any Security, or portion thereof, accepted 84 93 for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Purchase Date; and (vi) the instructions a Holder must follow in order to have its Securities repurchased in accordance with paragraph (e) of this Section. (d) Holders electing to have Securities purchased will be required to surrender such Securities to the Company at the address specified in the Change of Control Notice on or prior to the Change of Control Purchase Date. Holders will be entitled to withdraw their election if the Company receives, not later than one Business Day prior to the Change of Control Purchase Date, a facsimile transmission or letter setting forth the name of the Holder, the certificate number(s) and principal amount of the Securities delivered for purchase by the Holder as to which his election is to be withdrawn and a statement that such Holder is withdrawing his election to have such Securities purchased. Holders whose Securities are purchased only in part will be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered. (e) On the Change of Control Payment Date, the Company shall (i) accept for payment Securities or portions thereof tendered pursuant to a Change of Control Offer, (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Securities or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee the Securities so accepted. The Paying Agent shall promptly mail or deliver to Holders of the Securities so accepted payment in an amount equal to the purchase price, and the Company shall execute and the Trustee will promptly authenticate and mail or make available for delivery to such Holders a new Security equal in principal amount to any unpurchased portion of the Security which any such Holder did not surrender for purchase. Any Securities not so accepted will be promptly mailed or delivered to the Holder thereof. The Company shall announce the results of a Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. For purposes of this Section 9.15, the Trustee will act as the Paying Agent. SECTION 9.16 Limitation on Disposition of Proceeds of Asset Sales. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, engage in any Asset Sale unless (i) the Company or such Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the Fair Market Value of the Properties sold or otherwise disposed of pursuant to the Asset Sale and (ii) at least 75% of the consideration received by the Company or the Restricted Subsidiary, as the case may be, in respect of such Asset Sale consists of cash, Cash Equivalents and/or the assumption by the purchaser of liabilities of the Company (other than liabilities of the Company that are by their terms subordinated to the Securities) or any Restricted Subsidiary as a result of which the Company and its remaining Restricted Subsidiaries are no longer liable. 85 94 (b) If the Company or any Restricted Subsidiary engages in an Asset Sale, the Company may either (i) apply the Net Cash Proceeds thereof to reduce Senior Indebtedness, to reduce Guarantor Senior Indebtedness or to reduce Indebtedness of any Restricted Subsidiary incurred pursuant to clause (m) of the definition of Permitted Subsidiary Indebtedness, provided, if any such Senior Indebtedness, Guarantor Senior Indebtedness or Permitted Subsidiary Indebtedness has been incurred under any revolving credit facility, that the related commitment to lend or the amount available to be reborrowed under such facility is also reduced, or (ii) invest all or any part of the Net Cash Proceeds thereof, within 365 days after such Asset Sale, in Properties which replace the Properties that were the subject of the Asset Sale or in Properties that will be used in the business of the Company or its Restricted Subsidiaries, as the case may be ("Replacement Assets"). The amount of such Net Cash Proceeds not applied or invested as provided in this paragraph constitutes "Excess Proceeds." (c) When the aggregate amount of Excess Proceeds equals or exceeds $15,000,000 (the "Trigger Date") the Company shall make an offer to purchase, from all Holders of the Securities and any then outstanding Pari Passu Indebtedness required to be repurchased or repaid on a permanent basis in connection with an Asset Sale, an aggregate principal amount of Securities and any then outstanding Pari Passu Indebtedness equal to such Excess Proceeds as follows: (i) (A) No later than the 30th day following the Trigger Date, the Company shall give to the Trustee in the manner provided in Section 14.4 hereof and each Holder of the Securities in the manner provided in Section 14.5 hereof, notice (a "Purchase Notice") offering to purchase (a "Net Proceeds Offer") from all Holders of the Securities the maximum principal amount (expressed as a multiple of $1,000) of Securities that may be purchased out of an amount (the "Payment Amount") equal to the product of such Excess Proceeds multiplied by a fraction, the numerator of which is the outstanding principal amount of the Securities and the denominator of which is the sum of the outstanding principal amount of the Securities and such Pari Passu Indebtedness, if any (subject to proration in the event such amount is less than the aggregate Offered Price (as defined herein) of all Securities tendered), and (B) to the extent required by such Pari Passu Indebtedness and provided there is a permanent reduction in the principal amount of such Pari Passu Indebtedness, the Company shall make an offer to purchase Pari Passu Indebtedness (a "Pari Passu Offer") in an amount (the "Pari Passu Indebtedness Amount") equal to the excess of the Excess Proceeds over the Payment Amount. (ii) The offer price for the Securities shall be payable in cash in an amount equal to 100% of the principal amount of the Securities tendered pursuant to a Net Proceeds Offer, plus accrued and unpaid interest, if any, to the date such Net Proceeds Offer is consummated (the "Offered Price"), in accordance with paragraph (e) of this Section. To the extent that the aggregate Offered Price of the Securities tendered pursuant to a Net Proceeds Offer is less than the Payment Amount relating thereto or the 86 95 aggregate amount of the Pari Passu Indebtedness that is purchased or repaid pursuant to the Pari Passu Offer is less than the Pari Passu Indebtedness Amount (such shortfall constituting a "Net Proceeds Deficiency"), the Company may use such Net Proceeds Deficiency for general corporate purposes, subject to the limitations of Section 9.10 hereof. (iii) If the aggregate Offered Price of Securities validly tendered and not withdrawn by Holders thereof exceeds the Payment Amount, Securities to be purchased will be selected on a pro rata basis. Upon completion of such Net Proceeds Offer and Pari Passu Offer, the amount of Excess Proceeds shall be reset to zero. (iv) The Purchase Notice shall set forth a purchase date (the "Net Proceeds Payment Date"), which shall be on a Business Day no earlier than 30 days nor later than 75 days from the Trigger Date. The Purchase Notice shall also state (A) that a Trigger Date with respect to one or more Asset Sales has occurred and that such Holder has the right to require the Company to repurchase such Holder's Securities at the Offered Price, subject to the limitations described in the forgoing paragraph (iii), (B) any information regarding such Net Proceeds Offer required to be furnished pursuant to Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder, (C) that any Security, or portion thereof, not tendered or accepted for payment will continue to accrue interest, (D) that, unless the Company defaults in depositing money with the Paying Agent in accordance with clause (e) of this Section 9.16, or payment is otherwise prevented, any Security, or portion thereof, accepted for payment pursuant to the Net Proceeds Offer shall cease to accrue interest after the Net Proceeds Payment Date and (E) the instructions a Holder must follow in order to have its Securities repurchased in accordance with paragraph (e) of this Section. (d) Holders electing to have Securities purchased will be required to surrender such Securities to the Company at the address specified in the Purchase Notice at least one Business Day prior to the Net Proceeds Payment Date. Holders will be entitled to withdraw their election if the Company receives, not later than one Business Day prior to the Net Proceeds Payment Date, a facsimile transmission or letter setting forth the name of the Holder, the certificate number(s) and principal amount of the Securities delivered for purchase by the Holder as to which his election is to be withdrawn and a statement that such Holder is withdrawing his election to have such Securities purchased. Holders whose Securities are purchased only in part will be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered. (e) On the Net Proceeds Payment Date, the Company shall (i) accept for payment Securities or portions thereof tendered pursuant to a Net Proceeds Offer in an aggregate principal amount equal to the Payment Amount or such lesser amount of Securities as has been tendered, (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Securities or portions thereof so tendered in an aggregate principal amount equal to the Payment 87 96 Amount or such lesser amount and (iii) deliver or cause to be delivered to the Trustee the Securities so accepted. The Paying Agent shall promptly mail or deliver to Holders of the Securities so accepted payment in an amount equal to the purchase price, and the Company shall execute and the Trustee will promptly authenticate and mail or make available for delivery to such Holders a new Security equal in principal amount to any unpurchased portion of the Security which any such Holder did not surrender for purchase. Any Securities not so accepted will be promptly mailed or delivered to the Holder thereof. The Company shall announce the results of a Net Proceeds Offer on or as soon as practicable after the Net Proceeds Payment Date. For purposes of this Section 9.16, the Trustee will act as the Paying Agent. SECTION 9.17 Limitation on Transactions with Affiliates. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, enter into any transaction or series of related transactions (including, without limitation, the sale, purchase, exchange or lease of assets, property or the rendering of any services) with, or for the benefit of, any Affiliate of the Company other than a Restricted Subsidiary (each, other than a Restricted Subsidiary, being an "Interested Person"), unless (a) such transaction or series of transactions is on terms that are no less favorable to the Company or such Restricted Subsidiary, as the case may be, than those that would be available in a comparable arm's length transaction with unrelated third parties who are not Interested Persons, or, in the event no comparable transaction with an unrelated third party who is not an Interested Person is available, on terms that are fair from a financial point of view to the Company or such Restricted Subsidiary, as the case may be, (b) with respect to any one transaction or series of related transactions involving aggregate payments in excess of $10,000,000, the Company delivers an Officers' Certificate to the Trustee certifying that such transaction or series of transactions complies with clause (a) above and such transaction or series of transactions has been approved by the Board of Directors and (c) with respect to any one transaction or series of related transactions involving aggregate payments in excess of $20,000,000, the Officers' Certificate referred to in clause (b) above also includes a certification that such transaction or series of transactions has been approved by a majority of the Disinterested Directors (either of the full Board of Directors or, in the case of action by a committee thereof, of such committee) or, in the event there are no such Disinterested Directors, that the Company has obtained a written opinion from an independent nationally recognized investment banking firm or appraisal firm, in either case specializing or having a specialty in the type and subject matter of the transaction or series of related transactions at issue, which opinion shall be to the effect set forth in clause (a) above; provided, however, that this covenant will not restrict the Company from (i) paying reasonable and customary regular compensation and fees to directors of the Company who are not employees of the Company or any Restricted Subsidiary, (ii) paying dividends on, or making distributions with respect to, shares of Capital Stock of the Company on a pro rata basis to the extent permitted by Section 9.10 hereof, (iii) Restricted Payments that are permitted by Section 9.10 hereof, (iv) making loans or advances to officers, directors and employees of the Company or any Restricted Subsidiary made in the ordinary course of business and consistent with customary practices in the Oil and Gas Business in an aggregate amount not to exceed 88 97 $1,000,000 outstanding at any one time, (v) making any indemnification or similar payment to any director or officer (A) in accordance with the corporate charter or bylaws of the Company or any Restricted Subsidiary, (B) under any agreement or (C) under applicable law and (vi) fulfilling obligations of the Company or any Restricted Subsidiary under employee compensation and other benefit arrangements entered into or provided for in the ordinary course of business. SECTION 9.18 Limitation on Dividends and Other Payment Restrictions Affecting Restricted Subsidiaries. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Restricted Subsidiary to (a) pay dividends, in cash or otherwise, or make any other distributions on or in respect of its Capital Stock to the Company or any Restricted Subsidiary, (b) pay any Indebtedness owed to the Company or any Restricted Subsidiary, (c) make an Investment in the Company or any Restricted Subsidiary or (d) transfer any of its properties or assets to the Company or any Restricted Subsidiary, except for such encumbrances or restrictions (i) pursuant to any agreement in effect or entered into on the date of this Indenture, (ii) pursuant to any agreement or other instrument of a Person acquired by the Company or any Restricted Subsidiary in existence at the time of such acquisition (but not created in contemplation thereof), which encumbrance or restriction is not applicable to any other Person, or the properties or assets of any other Person, other than the Person, or the property or assets of the Person, so acquired, (iii) by reason of customary non-assignment provisions in leases and licenses entered into in the ordinary course of business, (iv) pursuant to capital leases and purchase money obligations for property leased or acquired in the ordinary course of business that impose restrictions of the nature described in clause (d) above on the property so leased or acquired, (v) pursuant to any merger agreements, stock purchase agreements, asset sale agreements and similar agreements limiting the transfer of properties and assets pending consummation of the subject transaction, (vi) pursuant to Permitted Liens which are customary limitations on the transfer of collateral, (vii) pursuant to applicable law, (viii) pursuant to agreements among holders of Capital Stock of any Restricted Subsidiary of the Company requiring distributions in respect of such Capital Stock to be made pro rata based on the percentage of ownership in and/or contribution to such Restricted Subsidiary or (ix) existing under any agreement that extends, renews, refinances or replaces the agreements containing the restrictions in the foregoing clauses (i) and (ii), provided, that the terms and conditions of any such restrictions are not materially less favorable to the Holders of the Securities than those under or pursuant to the agreement evidencing the Indebtedness so extended, renewed, refinanced or replaced. SECTION 9.19 Limitation on Other Senior Subordinated Indebtedness. The Company shall not incur, directly or indirectly, any Indebtedness which is expressly subordinate or junior in right of payment in any respect to Senior Indebtedness unless such 89 98 Indebtedness ranks pari passu in right of payment with the Securities, or is expressly subordinated in right of payment to the Securities. SECTION 9.20 Limitation on Conduct of Business. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, engage in the conduct of any business other than the Oil and Gas Business, except that the Company and the Restricted Subsidiaries may engage in any business other than the Oil and Gas Business; provided, that the consolidated assets of the Company and the Restricted Subsidiaries used in such business shall not exceed, at any time, 10% of Adjusted Consolidated Net Tangible Assets. SECTION 9.21 Registration Rights Agreement. The Company shall perform its obligations under the Registration Rights Agreement and shall comply in all material respects with the terms and conditions contained therein including, without limitation, the payment of additional interest as described in Section 2(d) of the Registration Rights Agreement. SECTION 9.22 Waiver of Certain Covenants. The Company may omit in any particular instance to comply with any term, provision or condition set forth in Sections 9.5 through 9.11, Sections 9.13 and 9.14 and Sections 9.17 through 9.20 hereof if, before or after the time for such compliance, the Holders of at least a majority in principal amount of the Outstanding Securities and the Subsidiary Guarantors, by Act of such Holders and written agreement of the Subsidiary Guarantors, waive such compliance in such instance with such term, provision or condition, but no such waiver shall extend to or affect such term, provision or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such term, provision or condition shall remain in full force and effect. ARTICLE X REDEMPTION OF SECURITIES SECTION 10.1 Right of Redemption. The Securities may be redeemed, at the option of the Company, in whole or in part, at any time on or after May 15, 2002, upon not less than 30 or more than 60 days' notice to each Holder of Securities to be redeemed, subject to the conditions and at the Redemption Prices (expressed as percentages of principal amount) specified in the form of Security, together with accrued and unpaid interest, if any, to the Redemption Date. 90 99 SECTION 10.2 Applicability of Article. Redemption of Securities at the election of the Company or otherwise, as permitted or required by any provision of this Indenture, shall be made in accordance with such provision and this Article. SECTION 10.3 Election to Redeem; Notice to Trustee. The election of the Company to redeem any Securities pursuant to Section 10.1 hereof shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company, the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities to be redeemed and shall deliver to the Trustee such documentation and records as shall enable the Trustee to select the Securities to be redeemed pursuant to Section 10.4 hereof. Any election to redeem Securities shall be revocable until the Company gives a notice of redemption pursuant to Section 10.5 hereof to the Holders of Securities to be redeemed. SECTION 10.4 Selection by Trustee of Securities to Be Redeemed. If less than all the Securities are to be redeemed, the particular Securities to be redeemed shall be selected not less than 30 days nor more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities not previously called for redemption, pro rata, by lot or by any other method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions of the principal of Securities; provided, however, that any such partial redemption shall be in integral multiples of $1,000. The Trustee shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to redemption of Securities shall relate, in the case of any Security redeemed or to be redeemed only in part, to the portion of the principal amount of such Security which has been or is to be redeemed. SECTION 10.5 Notice of Redemption. Notice of redemption shall be given in the manner provided for in Section 14.5 hereof not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed. 91 100 All notices of redemption shall identify the Securities to be redeemed (including CUSIP number) and shall state: (a) the Redemption Date; (b) the Redemption Price; (c) if less than all Outstanding Securities are to be redeemed, the identification (and, in the case of a partial redemption, the principal amounts) of the particular Securities to be redeemed; (d) that on the Redemption Date the Redemption Price (together with accrued interest, if any, to the Redemption Date payable as provided in Section 10.7 hereof) will become due and payable upon each such Security, or the portion thereof, to be redeemed, and that, unless the Company shall default in the payment of the Redemption Price and any applicable accrued interest, interest thereon will cease to accrue on and after said date; and (e) the place or places where such Securities are to be surrendered for payment of the Redemption Price. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. Failure to give such notice by mailing to any Holder of Securities or any defect therein shall not affect the validity of any proceedings for the redemption of other Securities. SECTION 10.6 Deposit of Redemption Price. On or before 11:00 A.M., New York City time, on any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 9.3 hereof) an amount of money sufficient to pay the Redemption Price of, and accrued and unpaid interest on, all the Securities which are to be redeemed on such Redemption Date. SECTION 10.7 Securities Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified (together with accrued and unpaid interest, if any, to the Redemption Date), and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued and unpaid interest) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price, together with accrued and unpaid interest, if any, to the 92 101 Redemption Date; provided, however, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 2.10 hereof. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the rate borne by the Securities. SECTION 10.8 Securities Redeemed in Part. Any Security which is to be redeemed only in part shall be surrendered at the office or agency of the Company maintained for such purpose pursuant to Section 9.2 hereof (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal amount of the Security so surrendered. ARTICLE XI DEFEASANCE AND COVENANT DEFEASANCE SECTION 11.1 Company's Option to Effect Defeasance or Covenant Defeasance. The Company may, at its option by Board Resolution, at any time, with respect to the Securities, elect to have either Section 11.2 or Section 11.3 hereof be applied to all Outstanding Securities upon compliance with the conditions set forth below in this Article XI. SECTION 11.2 Defeasance and Discharge. Upon the Company's exercise under Section 11.1 hereof of the option applicable to this Section 11.2, the Company shall be deemed to have been discharged from its obligations with respect to all Outstanding Securities on the date the conditions set forth in Section 11.4 hereof are satisfied (hereinafter, "legal defeasance"). For this purpose, such legal defeasance means that the Company and the Subsidiary Guarantors shall be deemed (a) to have paid and discharged their respective obligations under the Outstanding Securities; provided, however, that the Securities shall continue to be deemed to be "Outstanding" for purposes of Section 11.5 hereof and the other Sections of this Indenture referred to in clauses (i) and (ii) below, and (b) to have satisfied all their other obligations under such Securities and this Indenture insofar as such 93 102 Securities are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (i) the rights of Holders of Outstanding Securities to receive, solely from the trust fund described in Section 11.4 hereof and as more fully set forth in such Section, payments in respect of the principal of (and premium, if any, on) and interest on such Securities when such payments are due (or at such time as the Securities would be subject to redemption at the option of the Company in accordance with this Indenture), (ii) the respective obligations of the Company and any Subsidiary Guarantors under Sections 2.4, 2.5, 2.6, 2.7, 2.8, 2.9, 4.8, 5.6, 5.9, 5.10, 9.1, 9.2, 9.3, 9.4, 12.1 (to the extent it relates to the foregoing Sections and Article XI hereof), 12.4 and 12.5 hereof, (iii) the rights, powers, trusts, duties and immunities of the Trustee hereunder, and (iv) the obligations of the Company and any Subsidiary Guarantors under this Article XI. Subject to compliance with this Article XI, the Company may exercise its option under this Section 11.2 notwithstanding the prior exercise of its option under Section 11.3 hereof with respect to the Securities. SECTION 11.3 Covenant Defeasance. Upon the Company's exercise under Section 11.1 hereof of the option applicable to this Section 11.3, the Company shall be released from its obligations under any covenant contained in Article VII and in Sections 9.6 through 9.20 hereof with respect to the Outstanding Securities on and after the date the conditions set forth below are satisfied (hereinafter, "covenant defeasance"), and the Securities shall thereafter be deemed not to be "Outstanding" for the purposes of any direction, waiver, consent or declaration or Act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "Outstanding" for all other purposes hereunder. For this purpose, such covenant defeasance means that, with respect to the Outstanding Securities, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Sections 4.1(c) or 4.1(d) hereof, but, except as specified above, the remainder of this Indenture and such Securities shall be unaffected thereby. SECTION 11.4 Conditions to Defeasance or Covenant Defeasance. The following shall be the conditions to application of either Section 11.2 or Section 11.3 hereof to the Outstanding Securities: (a) The Company or any Subsidiary Guarantor shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 5.7 hereof who shall agree to comply with the provisions of this Article XI applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such 94 103 Securities, (i) cash in U.S. Dollars in an amount, or (ii) U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, money in an amount, or (iii) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, the principal of (and premium, if any, on) and interest on the Outstanding Securities on the Stated Maturity (or Redemption Date, if applicable) of such principal (and premium, if any) or installment of interest; provided, that the Trustee shall have been irrevocably instructed in writing by the Company to apply such money or the proceeds of such U.S. Government Obligations to said payments with respect to the Securities. Before such a deposit, the Company may give to the Trustee, in accordance with Section 10.3 hereof, a notice of its election to redeem all of the Outstanding Securities at a future date in accordance with Article X hereof, which notice shall be irrevocable. Such irrevocable redemption notice, if given, shall be given effect in applying the foregoing. For this purpose, "U.S. Government Obligations" means securities that are (x) direct obligations of the United States of America for the timely payment of which its full faith and credit is pledged or (y) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act), as custodian with respect to any such U.S. Government Obligation or a specific payment of principal of or interest on any such U.S. Government Obligation held by such custodian for the account of the holder of such depository receipt, provided, that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal of or interest on the U.S. Government Obligation evidenced by such depository receipt. (b) No Default or Event of Default with respect to the Securities shall have occurred and be continuing on the date of such deposit. (c) Such legal defeasance or covenant defeasance shall not cause the Trustee to have a conflicting interest under this Indenture or the Trust Indenture Act with respect to any securities of the Company. (d) Such legal defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under any other material agreement or instrument to which the Company or any Subsidiary Guarantor is a party or by which it is bound, as evidenced to the Trustee in an Officers' Certificate delivered to the Trustee concurrently with such deposit. 95 104 (e) In the case of an election under Section 11.2 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (i) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (ii) since the date of this Indenture there has been a change in the applicable Federal income tax laws; in either case providing that the Holders of the Outstanding Securities will not recognize income, gain or loss for federal income tax purposes as a result of such legal defeasance 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 legal defeasance had not occurred (it being understood that (A) such Opinion of Counsel shall also state that such ruling or applicable law is consistent with the conclusions reached in such Opinion of Counsel and (B) the Trustee shall be under no obligation to investigate the basis of correctness of such ruling). (f) In the case of an election under Section 11.3 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of the Outstanding Securities will not recognize income, gain or loss for federal income tax purposes as a result of such covenant defeasance 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 covenant defeasance had not occurred. (g) The Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to either the legal defeasance under Section 11.2 hereof or the covenant defeasance under Section 11.3 (as the case may be) have been complied with and that no violation under agreements governing any other outstanding Indebtedness would result therefrom. SECTION 11.5 Deposited Money and U.S. Government Obligations to Be Held in Trust; Other Miscellaneous Provisions. Subject to the provisions of the last paragraph of Section 9.3 hereof, all money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 11.5, the "Trustee") pursuant to Section 11.4 hereof in respect of the Outstanding Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Securities of all sums due and to become due thereon in respect of principal (and premium, if any) and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Governmental Obligations deposited pursuant to Section 11.4 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the Outstanding Securities. 96 105 Anything in this Article XI to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or U.S. Government Obligations held by it as provided in Section 11.4 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent legal defeasance or covenant defeasance, as applicable, in accordance with this Article. SECTION 11.6 Reinstatement. If the Trustee or any Paying Agent is unable to apply any money in accordance with Section 11.5 hereof by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's and any Subsidiary Guarantors' obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 11.2 or 11.3 hereof, as the case may be, until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 11.5 hereof; provided, however, that if the Company or any Subsidiary Guarantor makes any payment of principal of (or premium, if any, on) or interest on any Security following the reinstatement of its obligations, the Company or such Subsidiary Guarantor shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE XII GUARANTEES SECTION 12.1 Unconditional Guarantee. Each Restricted Subsidiary that hereafter becomes a Subsidiary Guarantor shall unconditionally, jointly and severally, guarantee (each such guarantee to be referred to herein as a "Subsidiary Guarantee," with all such guarantees being referred to herein as the "Subsidiary Guarantees") to each Holder of Securities authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, the full and prompt performance of the Company's obligations under this Indenture and the Securities and that: (a) the principal of (or premium, if any, on) and interest on the Securities will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Securities, if any, to the extent lawful, and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and 97 106 (b) in case of any extension of time of payment or renewal of any Securities or of any such other obligations, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at Stated Maturity, by acceleration or otherwise; subject, however, in the case of clauses (a) and (b) above, to the limitations set forth in Section 12.4 hereof. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Subsidiary Guarantors will be jointly and severally obligated to pay the same immediately. The obligations of each Subsidiary Guarantor hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Securities or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Securities with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each Subsidiary Guarantor shall waive diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and shall covenant that its Subsidiary Guarantee will not be discharged except by complete performance of the obligations contained in the Securities, this Indenture and in the Subsidiary Guarantee. If any Holder or the Trustee is required by any court or otherwise to return to the Company, any Subsidiary Guarantor, or any custodian, trustee, liquidator or other similar official acting in relation to the Company or any Subsidiary Guarantor, any amount paid by the Company or any Subsidiary Guarantor to the Trustee or such Holder, the Subsidiary Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. No Subsidiary Guarantor shall be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed by the Subsidiary Guarantee until payment in full of all obligations guaranteed thereby. Each Subsidiary Guarantor shall further agree that, as between each Subsidiary Guarantor, on the one hand, and the Holders and the Trustee, on the other hand, (i) the maturity of the obligations guaranteed by the Subsidiary Guarantee may be accelerated as provided in Article IV hereof for the purposes of the Subsidiary Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed by the Subsidiary Guarantee, and (ii) in the event of any acceleration of such obligations as provided in Article IV hereof, such obligations (whether or not due and payable) shall forthwith become due and payable by each Subsidiary Guarantor for the purpose of the Subsidiary Guarantee. SECTION 12.2 Subsidiary Guarantors May Consolidate, etc. on Certain Terms. (a) Except as set forth in Articles VII and IX hereof, nothing contained in this Indenture or in any of the Securities shall prevent any consolidation or merger of a Subsidiary Guarantor with or into the Company or another Subsidiary Guarantor or shall prevent any sale 98 107 or conveyance of the assets of a Subsidiary Guarantor substantially as an entirety to the Company or another Subsidiary Guarantor. (b) Except as set forth in Articles VII and IX hereof, nothing contained in this Indenture or in any of the Securities shall prevent any consolidation or merger of a Subsidiary Guarantor with or into any Person or Persons other than the Company or a Subsidiary Guarantor (whether or not affiliated with the Subsidiary Guarantor), or successive consolidations or mergers in which a Subsidiary Guarantor or its successor or successors shall be a party or parties, or shall prevent any sale or conveyance of the Properties of a Subsidiary Guarantor substantially as an entirety, to a Person other than the Company or another Subsidiary Guarantor (whether or not Affiliated with the Subsidiary Guarantor) authorized to acquire and operate the same; provided, however, that, subject to Sections 12.2(a) and 12.3 hereof, (A) immediately after such transaction, and giving effect thereto, no Default or Event of Default shall have occurred as a result of such transaction and be continuing and (B) each Subsidiary Guarantor shall covenant and agree that, upon any such consolidation, merger, sale or conveyance, such Subsidiary Guarantor's Subsidiary Guarantee set forth in this Article XII and in a notation to the Securities, and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed by such Subsidiary Guarantor, shall be expressly assumed (in the event that the Subsidiary Guarantor is not the surviving Person in the merger), by supplemental indenture satisfactory in form to the Trustee, executed and delivered to the Trustee, by such Person formed by such consolidation, or into which the Subsidiary Guarantor shall have merged, or by the Person that shall have acquired such Property (except to the extent the following Section 12.3 would result in the release of such Subsidiary Guarantee in which case such surviving Person does not have to execute any such supplemental indenture). In the case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor Person, by supplemental indenture executed and delivered to the Trustee and satisfactory in form to the Trustee of the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Subsidiary Guarantor, such successor Person shall succeed to and be substituted for the Subsidiary Guarantor with the same effect as if it had been named herein as a Subsidiary Guarantor. SECTION 12.3 Release of a Subsidiary Guarantor. The Subsidiary Guarantee of any Restricted Subsidiary shall be released upon the terms and subject to the conditions set forth in Section 9.12 (b) hereof. Each Subsidiary Guarantor that is designated as an Unrestricted Subsidiary in accordance with the provisions of this Indenture shall be released from all of its Subsidiary Guarantee and related obligations set forth in this Indenture for so long as it remains an Unrestricted Subsidiary. The Trustee shall deliver an appropriate instrument evidencing such release upon receipt of a Company Request accompanied by an Officers' Certificate and an Opinion of Counsel certifying that such sale or other disposition was made by the Company in accordance with the provisions of this Indenture. Any Subsidiary Guarantor not so released remains liable for the full amount of principal of (and premium, if any, on) and interest on the Securities as provided in this Article XII. 99 108 SECTION 12.4 Limitation of Subsidiary Guarantor's Liability. Each Subsidiary Guarantor shall confirm, and by its acceptance hereof each Holder hereby confirms, that it is the intention of all such parties that the Guarantee by such Subsidiary Guarantor pursuant to its Subsidiary Guarantee not constitute a fraudulent transfer or conveyance for purposes of any federal or state law. To effectuate the foregoing intention, the Holders hereby irrevocably agree, and each Subsidiary Guarantor shall irrevocably agree, that the obligations of each Subsidiary Guarantor under its Subsidiary Guarantee shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities (including, but not limited to, Guarantor Senior Indebtedness) of such Subsidiary Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Subsidiary Guarantor in respect of the obligations of such other Subsidiary Guarantor under its Subsidiary Guarantee or pursuant to Section 12.5 hereof, result in the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. This Section 12.4 is for the benefit of the creditors of each Subsidiary Guarantor. SECTION 12.5 Contribution. In order to provide for just and equitable contribution among the Subsidiary Guarantors, the Subsidiary Guarantors shall agree, inter se, that in the event any payment or distribution is made by any Subsidiary Guarantor (a "Funding Guarantor") under its Subsidiary Guarantee, such Funding Guarantor shall be entitled to a contribution from each other Subsidiary Guarantor (if any) in a pro rata amount based on the Adjusted Net Assets of each Subsidiary Guarantor (including the Funding Guarantor) for all payments, damages and expenses incurred by that Funding Guarantor in discharging the Company's obligations with respect to the Securities or any other Subsidiary Guarantor's obligations with respect to its Subsidiary Guarantee. SECTION 12.6 Execution and Delivery of Notation of Subsidiary Guarantee. To evidence the Subsidiary Guarantee set forth in Section 12.1 hereof, the Company shall cause each Subsidiary Guarantor to execute the notation of Subsidiary Guarantee in substantially the form set forth in Exhibit B attached hereto to be endorsed on each Security ordered to be authenticated and delivered by the Trustee, and shall cause this Indenture or a supplemental indenture to be executed on behalf of each Subsidiary Guarantor by its President or one of its Vice Presidents and attested to by one of its Secretaries or Assistant Secretaries. Each Subsidiary Guarantor shall agree that its Subsidiary Guarantee set forth in Section 12.1 hereof shall remain in full force and effect notwithstanding any failure to endorse on each Security a notation of such Subsidiary Guarantee. Each such notation of Subsidiary Guarantee shall be signed on behalf of each Subsidiary Guarantor by two Officers, or an Officer and an Assistant Secretary or one Officer shall sign and one Officer or an Assistant Secretary (each of whom shall, in each case, have been duly authorized by all requisite corporate actions) shall attest to such notation of Subsidiary Guarantee prior to the authentication of the Security on which it is endorsed, and the 100 109 delivery of such Security by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Subsidiary Guarantee set forth in this Indenture on behalf of the Subsidiary Guarantors. Such signatures upon the notation of Subsidiary Guarantee may be by manual or facsimile signature of such Officers and may be imprinted or otherwise reproduced on the Subsidiary Guarantee, and in case any such Officer who shall have signed the notation of Subsidiary Guarantee shall cease to be such Officer before the Security on which such notation of Subsidiary Guarantee is endorsed shall have been authenticated and delivered by the Trustee or disposed of by the Company, such Security nevertheless may be authenticated and delivered or disposed of as though the person who signed the notation of Subsidiary Guarantee had not ceased to be such Officer of the Subsidiary Guarantor. SECTION 12.7 Severability. In case any provision of the Subsidiary Guarantee shall be invalid, illegal or unenforceable, that portion of such provision that is not invalid, illegal or unenforceable shall remain in effect, and the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 12.8 Subsidiary Guarantees Subordinated to Guarantor Senior Indebtedness. Each Subsidiary Guarantor shall covenant and agree, and each Holder of a Security, by his acceptance of the Subsidiary Guarantees, covenants and agrees, for the benefit of the holders, from time to time, of Guarantor Senior Indebtedness, that the payments by such Subsidiary Guarantor in respect of its Subsidiary Guarantee are subordinated and subject in right of payment, to the extent and in the manner provided in this Article XII, to the prior payment in full in cash or Cash Equivalents of all Guarantor Senior Indebtedness of such Subsidiary Guarantor, whether outstanding on the date of this Indenture or thereafter created, incurred, assumed or guaranteed; provided, however, that the Subsidiary Guarantees of the Subsidiary Guarantors, the Indebtedness represented thereby and the payment of the principal of (and premium, if any, on) and the interest on the Securities pursuant to the Subsidiary Guarantees in all respects shall rank pari passu with, or prior to, all existing and future unsecured indebtedness (including, without limitation, Indebtedness) of the Subsidiary Guarantors that is subordinated to the Guarantor Senior Indebtedness. This Article XII shall constitute a continuing offer to all Persons who, in reliance upon such provisions, become holders of, or continue to hold, Guarantor Senior Indebtedness, and such provisions are made for the benefit of the holders of Guarantor Senior Indebtedness, and such holders are made obligees hereunder and any of them may enforce such provisions. 101 110 SECTION 12.9 Subsidiary Guarantors Not to Make Payments with Respect to Subsidiary Guarantees in Certain Circumstances. (a) No payment or distribution of any Property of any Subsidiary Guarantor of any kind or character (other than Permitted Guarantor Junior Securities) may be made by such Subsidiary Guarantor in respect of its Subsidiary Guarantee upon the happening of any default in respect of the payment or required prepayment of any of its Guarantor Senior Indebtedness when the same becomes due and payable (a "Subsidiary Guarantor Payment Default"), unless and until such Subsidiary Guarantor Payment Default shall have been cured or waived in writing or shall have ceased to exist or such Guarantor Senior Indebtedness shall have been paid in full or otherwise discharged, after which such Subsidiary Guarantor shall resume making any and all required payments in respect of its Subsidiary Guarantee, including any missed payments. (b) Upon the happening of any event (other than a Subsidiary Guarantor Payment Default) that entitles one or more Persons to accelerate the maturity of any Designated Guarantor Senior Indebtedness (a "Subsidiary Guarantor Non-payment Default"), and receipt by the applicable Subsidiary Guarantor and a Responsible Officer of the Trustee, on behalf of the Trustee, of written notice thereof from one or more of the holders of such Designated Guarantor Senior Indebtedness or their representative (a "Subsidiary Guarantor Payment Notice"), then, unless and until such Subsidiary Guarantor Non-payment Default shall have been cured or waived in writing or shall have ceased to exist or such Designated Guarantor Senior Indebtedness is paid in full or otherwise discharged or the holders (or a representative of the holders) of such Designated Guarantor Senior Indebtedness give their written approval, no payment or distribution shall be made by such Subsidiary Guarantor in respect of its Subsidiary Guarantee (other than Permitted Guarantor Junior Securities); provided, however, that these provisions will not prevent the making of any payment for more than 179 days after a Subsidiary Guarantor Payment Notice shall have been given after which, subject to Section 12.9(a), such Subsidiary Guarantor will resume making any and all required payments in respect of its Subsidiary Guarantee, including any missed payments. Notwithstanding any other provision of this Indenture, only one Subsidiary Guarantor Payment Notice shall be given with respect to any Subsidiary Guarantee within any 360 consecutive day period. No Subsidiary Guarantor Non-payment Default with respect to Designated Guarantor Senior Indebtedness that existed or was continuing on the date of any Subsidiary Guarantor Payment Notice with respect to the Designated Guarantor Senior Indebtedness initiating such Subsidiary Guarantor Payment Notice shall be, or can be, made the basis for the commencement of a subsequent Subsidiary Guarantor Payment Notice with respect to such Subsidiary Guarantee, whether or not within a period of 360 consecutive days, unless such default shall have been cured or waived for a period of not less than 90 consecutive days (it being acknowledged that any subsequent event, or any breach of any financial covenant for a period commencing after the date of commencement of such Subsidiary Guarantor Payment Notice, that, in either case, would give rise to a Subsidiary Guarantor Non-payment Default pursuant to any provision under which a Subsidiary Guarantor Non-payment Default previously existed or was continuing shall constitute a new Subsidiary Guarantor Non-payment Default for this purpose; provided, that, in the case of a breach of a 102 111 particular financial covenant, such Subsidiary Guarantor shall have been in compliance for at least one full 90 consecutive day period commencing after the date of commencement of such Subsidiary Guarantor Payment Notice). In no event shall a Subsidiary Guarantor Payment Notice extend beyond 179 days from the date of its receipt and there must be a 181 consecutive day period in any 360 consecutive day period during which no Subsidiary Guarantor Payment Notice is in effect with respect to such Subsidiary Guarantee. (c) In the event that, notwithstanding the foregoing, a Subsidiary Guarantor shall make any payment in respect of its Subsidiary Guarantee to the Trustee or the Holder of any Security prohibited by the foregoing provisions of this Section 12.9, then and in such event such payment shall be paid over and delivered forthwith to the Company. In the event that a Subsidiary Guarantor shall make any payment in respect of its Subsidiary Guarantee to the Trustee and a Responsible Officer of the Trustee, on behalf of the Trustee, shall receive written notice of a Subsidiary Guarantor Payment Default or a Subsidiary Guarantor Non-payment Default from one or more of the Holders of Guarantor Senior Indebtedness (or their representative) prior to making any payment to Holders in respect of the Subsidiary Guarantee and prior to 11:00 a.m. Eastern Time on the date which is two Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose, such payments shall be paid over by the Trustee and delivered forthwith to the Company. Each Subsidiary Guarantor shall give prompt written notice to the Trustee of any default under any of its Guarantor Senior Indebtedness or under any agreement pursuant to which its Guarantor Senior Indebtedness may have been issued. SECTION 12.10 Subsidiary Guarantees Subordinated to Prior Payment of All Guarantor Senior Indebtedness upon Dissolution, etc. Upon any distribution of Properties of any Subsidiary Guarantor or payment on behalf of a Subsidiary Guarantor in the event of any Insolvency or Liquidation Proceeding with respect to such Subsidiary Guarantor: (a) the holders of such Subsidiary Guarantor's Guarantor Senior Indebtedness shall be entitled to receive payment in full in cash or Cash Equivalents of such Guarantor Senior Indebtedness (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Indebtedness, whether or not a claim for such interest would be allowed in such a proceeding) before the Holders are entitled to receive any direct or indirect payment or distribution of any kind or character, whether in cash, property or securities (other than Permitted Guarantor Junior Securities), on account of any payment in respect of such Subsidiary Guarantor's Subsidiary Guarantee; (b) any direct or indirect payment or distribution of Properties of such Subsidiary Guarantor of any kind or character, whether in cash, property or securities (other than a payment or distribution in the form of Permitted Guarantor Junior Securities), by set-off or otherwise, to which the Holders or the Trustee, on behalf of the Holders, would be entitled except 103 112 for the provisions of this Article XII, shall be paid by the Subsidiary Guarantor or by any liquidating trustee or agent or other Person making such payment or distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee or otherwise, directly to the holders of such Guarantor Senior Indebtedness or their representative or representatives or to the trustee or trustees under any indenture under which any instruments evidencing any of such Senior Guarantor Indebtedness may have been issued, ratably according to the aggregate amounts remaining unpaid on account of such Guarantor Senior Indebtedness held or represented by each, to the extent necessary to make payment in full in cash or Cash Equivalents of all such Guarantor Senior Indebtedness, after giving effect to any concurrent payment or distribution to the holders of such Guarantor Senior Indebtedness; (c) in the event that, notwithstanding the foregoing provisions of this Section 12.10, any direct or indirect payment or distribution of Properties of such Subsidiary Guarantor of any kind or character, whether in cash, property or securities (other than a payment or distribution in the form of Permitted Guarantor Junior Securities), shall be received by the Trustee or the Holders before all such Guarantor Senior Indebtedness is paid in full or otherwise discharged, such Properties shall be received and held in trust for and shall be paid over to the holders of such Guarantor Senior Indebtedness remaining unpaid or their representatives, for application to the payment of such Guarantor Senior Indebtedness until all such Guarantor Senior Indebtedness shall have been paid or provided for in full in cash or Cash Equivalents, after giving effect to any concurrent payment or distribution to the holders of such Guarantor Senior Indebtedness; (d) to the extent any payment of or distribution in respect of Guarantor Senior Indebtedness (whether by or on behalf of the Company or any Subsidiary Guarantor, 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, fraudulent transfer 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 similar person, the Guarantor Senior Indebtedness or part thereof originally intended to be satisfied shall be deemed to be reinstated and outstanding as if such payments had not occurred; and (e) to the extent that the obligation to repay any Guarantor Senior Indebtedness is declared to be fraudulent, invalid or otherwise set aside under any bankruptcy, insolvency, receivership, fraudulent conveyance, fraudulent transfer or similar law, then the obligation so declared fraudulent, invalid or otherwise set aside (and all other amounts that would come due with respect thereto had such obligation not been so affected) shall be deemed to be reinstated and outstanding as Guarantor Senior Indebtedness for all purposes hereof as if such declaration, invalidity or setting aside had not occurred. 104 113 The Company or a Subsidiary Guarantor shall give prompt written notice to a Responsible Officer of the Trustee, on behalf of the Trustee, of the occurrence of any Insolvency or Liquidation Proceeding with respect to such Subsidiary Guarantor. SECTION 12.11 Holders to be Subrogated to Rights of Holders of Guarantor Senior Indebtedness. After the payment in full in cash or Cash Equivalents of all Guarantor Senior Indebtedness of a Subsidiary Guarantor, the Holders shall be subrogated (equally and ratably with the holders of all other Indebtedness of such Subsidiary Guarantor which by its express terms is subordinated to such Guarantor Senior Indebtedness to substantially the same extent as such Subsidiary Guarantee is so subordinated and which is entitled to like rights of subrogation as a result of payments made to the holders of such Guarantor Senior Indebtedness) to the rights of the holders of such Guarantor Senior Indebtedness to receive payments or distributions of cash, property and securities of such Subsidiary Guarantor applicable to such Guarantor Senior Indebtedness until all amounts owing on the Securities shall be paid in full in cash or Cash Equivalents, and for the purpose of such subrogation no payments or distributions to the holders of such Guarantor Senior Indebtedness by or on behalf of such Subsidiary Guarantor or by or on behalf of the Holders by virtue of this Article XII which otherwise would have been made to the Holders shall, as between such Subsidiary Guarantor, its creditors other than the holders of Guarantor Senior Indebtedness, and the Holders of the Securities, be deemed to be a payment or distribution by such Subsidiary Guarantor to or on account of such Guarantor Senior Indebtedness, it being understood that the subordination provisions of this Article XII are, and are intended solely for, the purpose of defining the relative rights of the Holders, on the one hand, and the holders of Guarantor Senior Indebtedness, on the other hand. SECTION 12.12 Obligations of the Subsidiary Guarantors Unconditional. Nothing contained in this Article XII or elsewhere in this Indenture or in any Security is intended to or shall impair, as between Subsidiary Guarantors and the Holders, the obligation of the Subsidiary Guarantors under the Subsidiary Guarantees, or is intended to or shall affect the relative rights of the Holders and creditors of the Subsidiary Guarantors, nor shall anything herein or therein prevent the Trustee or any Holder from exercising all remedies otherwise permitted by applicable law upon Default under this Indenture subject to the rights, if any, under this Article XII of the holders of Guarantor Senior Indebtedness in respect of cash, property or securities of any Subsidiary Guarantor received upon the exercise of any such remedy. Upon any distribution of Properties of a Subsidiary Guarantor referred to in this Article XII, the Trustee, subject to the provisions of Section 5.2 hereof, and the Holders of the Securities shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which such dissolution, winding up, liquidation or reorganization proceedings are pending, or a certificate of a trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, or agent or other person making any distribution to the Trustee or to the Holders of the Securities, for the purpose of ascertaining the persons entitled to participate in such distribution, 105 114 the holders of the related Guarantor Senior Indebtedness and other indebtedness of such Subsidiary Guarantor, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article XII. SECTION 12.13 Trustee Entitled to Assume Payments Not Prohibited in Absence of Notice. The Trustee shall not at any time be charged with knowledge of the existence of any facts (other than the existence of a Payment Default or a Payment Blockage Period) that would prohibit the making of any payment to or by the Trustee, unless a Responsible Officer of the Trustee, on behalf of the Trustee, shall have received at the Corporate Trust Office written notice thereof from a Subsidiary Guarantor or from one or more holders of Guarantor Senior Indebtedness or Designated Guarantor Senior Indebtedness, in the case of a Subsidiary Guarantor Non-payment Default, or from any representative thereof; and, prior to the receipt of any such written notice, the Trustee, subject to TIA Sections 315(a) through 315(d), shall be entitled to assume conclusively that no such facts exist. The Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself to be a holder of Guarantor Senior Indebtedness or Designated Guarantor Senior Indebtedness, in the case of a Subsidiary Guarantor Non-payment Default (or a representative on behalf of such holder), to establish that such notice has been given by a holder of Guarantor Senior Indebtedness or Designated Guarantor Senior Indebtedness, in the case of a Subsidiary Guarantor Non-payment Default, or a representative on behalf of any such holder or holders. SECTION 12.14 Application by Trustee of Money Deposited with it. Except as provided in Article XIV, any deposit of money by a Subsidiary Guarantor with the Trustee or any Paying Agent (whether or not in trust) for any payment in respect of the related Subsidiary Guarantee shall be subject to the provisions of Sections 12.8, 12.9, 12.10 and 12.11 hereof except that, if a Payment Default does not exist, a Payment Blockage Period is not in effect and if prior to 11:00 a.m. Eastern time on the date which is one Business Day prior to the date on which by the terms of this Indenture any such money may become payable for any purpose, the Trustee or, in the case of any such deposit of money with a Paying Agent, the Paying Agent shall not have received with respect to such money the notice provided for in Section 12.13 hereof, then the Trustee or such Paying Agent, as the case may be, shall have full power and authority to receive such money and to apply the same to the purpose for which it was received, and shall not be affected by any notice to the contrary which may be received by it on or after 11:00 a.m., Eastern time, one Business Day prior to such payment date. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Guarantor Senior Indebtedness to participate in any payment or distribution pursuant to this Article XII, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Guarantor Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article XII, 106 115 and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. The Trustee, however, shall not be deemed to owe any fiduciary duty to the holders of Guarantor Senior Indebtedness but shall have only such obligations to such holders as are expressly set forth in this Article XII. SECTION 12.15 Subordination Rights Not Impaired by Acts or Omissions of Subsidiary Guarantors or Holders of Guarantor Senior Indebtedness. No right of any present or future holders of any Guarantor Senior Indebtedness of a Subsidiary Guarantor to enforce subordination as provided herein shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of such Subsidiary Guarantor or by any act or failure to act by any such holder, or by any noncompliance by such Subsidiary Guarantor with the terms of this Indenture, regardless of any knowledge thereof which any such holder may have or be otherwise charged with. Without in any way limiting the generality of the preceding paragraph of this Section, the holders of Guarantor Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Securities, without incurring responsibility to the Holders of the Securities and without impairing or releasing the subordination or other benefits provided in this Article, or the obligations hereunder of the Holders of the Securities to the holders of Guarantor Senior Indebtedness, do any one or more of the following: (a) change the manner, place or terms of payment or extend the time of payment of, or renew, exchange, amend, increase or alter, Guarantor Senior Indebtedness or the term of any instrument evidencing the same or any agreement under which Guarantor Senior Indebtedness is outstanding or any liability of any obligor thereon (unless such change, extension or alteration results in such Indebtedness no longer being Guarantor Senior Indebtedness as defined in this Indenture); (b) sell, exchange, release or otherwise deal with any Property pledged, mortgaged or otherwise securing Guarantor Senior Indebtedness; (c) settle or compromise any Guarantor Senior Indebtedness or any liability of any obligor thereon or release any Person liable in any manner for the collection of Guarantor Senior Indebtedness; and (d) exercise or refrain from exercising any rights against the Company and any other Person. SECTION 12.16 Holders Authorize Trustee to Effectuate Subordination of Subsidiary Guarantees. Each Holder, by his acceptance thereof, authorizes and expressly directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article XII and appoints the Trustee as his attorney-in-fact for such purpose, including, in the event of any Insolvency or Liquidation Proceeding with respect to any Subsidiary Guarantor, the immediate filing of a claim for the unpaid balance of his Securities 107 116 pursuant to the related Subsidiary Guarantee in the form required in said proceedings and the causing of said claim to be approved. SECTION 12.17 Right of Trustee to Hold Guarantor Senior Indebtedness. The Trustee shall be entitled to all of the rights set forth in this Article XII in respect of any Guarantor Senior Indebtedness at any time held by it to the same extent as any other holder of Guarantor Senior Indebtedness, and nothing in this Indenture shall be construed to deprive the Trustee of any of its rights as such holder. SECTION 12.18 Article XII Not to Prevent Events of Default. The failure to make a payment on account of the Subsidiary Guarantees by reason of any provision in this Article XII shall not be construed as preventing the occurrence of an Event of Default under this Indenture. SECTION 12.19 Payment. For purposes of this Article XII, a payment with respect to any Subsidiary Guarantee or with respect to principal of or interest on any Security or any Subsidiary Guarantee shall include, without limitation, payment of principal of and interest on any Security, any depositing of funds under Article IV hereof, any payment on account of any repurchase or redemption of any Security and any payment or recovery on any claim (whether for rescission or damages and whether based on contract, tort, duty imposed by law, or any other theory of liability) relating to or arising out of the offer, sale or purchase of any Security. ARTICLE XIII SUBORDINATION OF SECURITIES SECTION 13.1 Securities Subordinate to Senior Indebtedness. The Company covenants and agrees, and each Holder of a Security, by his acceptance thereof, likewise covenants and agrees for the benefit of the holders, from time to time, of Senior Indebtedness, that, to the extent and in the manner hereinafter set forth in this Article XIII, the Indebtedness represented by the Securities and the payment of and distributions of or with respect to the Note Obligations are hereby expressly made subordinate and subject in right of payment as provided in this Article XIII to the prior payment in full in cash or Cash Equivalents of all amounts payable under all existing and future Senior Indebtedness which includes, without limitation, all Credit Agreement Obligations of the Company. This Article XIII shall constitute a continuing offer to all Persons who, in reliance upon such provisions, become Holders of, or continue to hold Senior Indebtedness; and such 108 117 provisions are made for the benefit of the holders of Senior Indebtedness; and the holders of Senior Indebtedness are made obligees hereunder and they or each of them may enforce such provisions. SECTION 13.2 Payment Over of Proceeds upon Dissolution, etc. In the event of an Insolvency or Liquidation Proceeding with respect to the Company: (i) the holders of all Senior Indebtedness shall be entitled to receive payment in full in cash or Cash Equivalents of all Senior Indebtedness (including interest after the commencement of such proceeding at the rate specified in the applicable Senior Indebtedness, whether or not a claim for such interest would be allowed in such proceeding) before the Holders of the Securities are entitled to receive any direct or indirect payment or distribution whether in cash, property or securities (excluding Permitted Junior Securities of the Company) on account of the Note Obligations; (ii) any direct or indirect payment or distribution of Properties of the Company of any kind or character, whether in cash, property or securities (excluding Permitted Junior Securities of the Company), by set-off or otherwise, to which the Holders or the Trustee would be entitled but for the provisions of this Article XIII shall be paid by the liquidating trustee or agent or other Person making such payment or distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee or otherwise, directly to the holders of Senior Indebtedness or their representative or representatives or to the trustee or trustees under any indenture under which any instruments evidencing any of such Senior Indebtedness may have been issued, ratably according to the aggregate amounts remaining unpaid on account of the Senior Indebtedness held or represented by each, to the extent necessary to make payment in full in cash or Cash Equivalents of all Senior Indebtedness remaining unpaid, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness; (iii) in the event that, notwithstanding the foregoing provisions of this Section 13.2, the Trustee or the Holder of any Security shall have received any payment or distribution of Properties of the Company of any kind or character, whether in cash, property or securities, by set off or otherwise, in respect of any Note Obligations before all Senior Indebtedness is paid or provided for in full in cash or Cash Equivalents, then and in such event such payment or distribution (excluding Permitted Junior Securities of the Company) shall be paid over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other person making payment or distribution of assets of the Company for application to the payment of all Senior Indebtedness remaining unpaid, to the extent necessary to pay all Senior Indebtedness in full in cash or Cash Equivalents, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness; 109 118 (iv) 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, 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, fraudulent transfer 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 similar person, the Senior Indebtedness or part thereof originally intended to be satisfied shall be deemed to be reinstated and outstanding as if such payments had not occurred; and (v) to the extent that the obligation to repay any Senior Indebtedness is declared to be fraudulent, invalid or otherwise set aside under any bankruptcy, insolvency, receivership, fraudulent conveyance, fraudulent transfer or similar law, then the obligation so declared fraudulent, invalid or otherwise set aside (and all other amounts that would come due with respect thereto had such obligation not been so affected) shall be deemed to be reinstated and outstanding as Senior Indebtedness for all purposes hereof as if such declaration, invalidity or setting aside had not occurred. The consolidation of the Company with, or the merger of the Company with or into, another Person or the liquidation or dissolution of the Company following the conveyance, transfer or lease of its Properties substantially as an entirety to another corporation upon the terms and conditions set forth in Article VII hereof shall not be deemed a dissolution, winding-up, liquidation, reorganization, assignment for the benefit of creditors or marshaling of assets and liabilities of the Company for the purposes of this Article if the corporation formed by such consolidation or the surviving entity of such merger or the corporation which acquires by conveyance, transfer or lease such Properties substantially as an entirety, as the case may be, shall, as a part of such consolidation, merger, conveyance, transfer or lease, comply with the conditions set forth in such Article VII hereof to the extent applicable. SECTION 13.3 Suspension of Payment When Senior Indebtedness in Default. (a) Unless Section 13.2 hereof shall be applicable, upon the occurrence of a Payment Default, no direct or indirect payment or distribution of any Property of the Company of any kind or character shall be made by or on behalf of the Company on account of the Note Obligations or on account of the purchase or redemption or other acquisition of any Note Obligations unless and until such Payment Default shall have been cured or waived or shall have ceased to exist or such Designated Senior Indebtedness shall have been discharged or paid in full in cash or Cash Equivalents, after which, subject to Section 13.2 hereof (if applicable), the Company shall resume making any and all required payments in respect of the Securities and the other Note Obligations, including any missed payments. 110 119 (b) Unless Section 13.2 hereof shall be applicable, upon (i) the occurrence of a Non-payment Default and (ii) receipt by the Trustee from a Senior Representative of written notice (a "Payment Blockage Notice") of such occurrence stating that such notice is a Payment Blockage Notice pursuant to this Section 13.3(b) of this Indenture, no payment or distribution of any Property of the Company of any kind or character shall be made by or on behalf of the Company on account of any Note Obligations or on account of the purchase or redemption or other acquisition of Note Obligations for a period ("Payment Blockage Period") commencing on the date of receipt by the Trustee of such notice unless and until the earliest to occur of the following events (subject to any blockage of payments that may then be in effect under Section 13.2 hereof or subsection (a) of this Section 13.3 hereof) (A) 179 days shall have elapsed since receipt of such written notice by the Trustee, (B) the date, as set forth in a written notice to the Company or the Trustee from the Senior Representative initiating such Payment Blockage Period, on which such Non-payment Default shall have been cured or waived or shall have ceased to exist (provided, that no other Payment Default or Non-payment Default has occurred and is then continuing after giving effect to such cure or waiver), (C) the date on which such Designated Senior Indebtedness shall have been discharged or paid in full in cash or Cash Equivalents and (D) the date on which such Payment Blockage Period shall have been terminated by written notice to the Company or the Trustee from the Senior Representative initiating such Payment Blockage Period, after which, subject to Sections 13.2 and 13.3(a) hereof (if applicable), the Company shall promptly resume making any and all required payments in respect of the Note Obligations, including any missed payments. Notwithstanding any other provision of this Indenture, only one Payment Blockage Period may be commenced within any 360 consecutive day period. No Non-payment Default with respect to Designated Senior Indebtedness that existed or was continuing on the date of the commencement of any Payment Blockage Period with respect to the Designated Senior Indebtedness initiating such Payment Blockage Period shall be, or can be, made the basis for the commencement of a second Payment Blockage Period, whether or not within a period of 360 consecutive days, unless such default shall have been cured or waived for a period of not less than 90 consecutive days (it being acknowledged that any subsequent event, or any breach of any financial covenant for a period commencing after the date of commencement of such Payment Blockage Period, that, in either case, would give rise to a Non-payment Default pursuant to any provision under which a Non-payment Default previously existed or was continuing shall constitute a new Non-payment Default for this purpose; provided, however, that, in the case of a breach of a particular financial covenant, the Company shall have been in compliance for at least one full 90 consecutive day period commencing after the date of commencement of such Payment Blockage Period). In no event shall a Payment Blockage Period extend beyond 179 days from the date of the receipt of the notice referred to in clause (ii) hereof and there must be a 181 consecutive day period in any 360 consecutive day period during which no Payment Blockage Period is in effect pursuant to this Section 13.3(b). (c) In the event that, notwithstanding the foregoing, the Trustee or the Holder of any Security shall have received any payment or distribution prohibited by the foregoing provisions of this Section 13.3, then and in such event such payment or distribution shall be paid 111 120 over and delivered forthwith to the Senior Representatives or as a court of competent jurisdiction shall direct for application to the payment of any due and unpaid Senior Indebtedness, to the extent necessary to pay all such due and unpaid Senior Indebtedness in cash or Cash Equivalents, after giving effect to any concurrent payment to or for the holders of Senior Indebtedness. SECTION 13.4 Trustee's Relation to Senior Indebtedness. With respect to the holders of Senior Indebtedness, notwithstanding any other provisions of this Indenture, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article XIII, and no implied covenants or obligations with respect to the holders of Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and the Trustee shall not be liable to any holder of Senior Indebtedness if it shall mistakenly (but not as a result of willful misconduct or gross negligence of the Trustee) pay over or deliver to Holders, the Company or any other Person moneys or assets to which any holder of Senior Indebtedness shall be entitled by virtue of this Article XIII or otherwise. SECTION 13.5 Subrogation to Rights of Holders of Senior Indebtedness. Upon the payment in full of cash or Cash Equivalents of all Senior Indebtedness, the Holders of the Securities shall be subrogated (equally and ratably with the holders of all indebtedness of the Company which by its express terms is subordinated to Senior Indebtedness to substantially the same extent as the Securities are so subordinated and which is entitled to like rights of subrogation as a result of the payments made to the holders of Senior Indebtedness) to the rights of the holders of such Senior Indebtedness to receive payments and distributions of cash, property and securities applicable to the Senior Indebtedness until the principal of, premium, if any, and interest on the Securities shall be paid in full in cash or Cash Equivalents. For purposes of such subrogation, no payments or distributions to the holders of Senior Indebtedness of any cash, property or securities to which the Holders of the Securities or the Trustee would be entitled except for the provisions of this Article XIII, and no payments over pursuant to the provisions of this Article XIII to the holders of Senior Indebtedness by Holders of the Securities or the Trustee shall, as among the Company, its creditors other than holders of Senior Indebtedness, and the Holders of the Securities, be deemed to be payment or distribution by the Company to or on account of the Senior Indebtedness. If any payment or distribution to which the Holders would otherwise have been entitled but for the provisions of this Article XIII shall have been applied, pursuant to the provisions of this Article XIII, to the payment of all amounts payable under the Senior Indebtedness of the Company and such payments or distributions received by such holders of such Senior Indebtedness shall be in excess of the amount sufficient to pay all amounts payable under or in respect of such Senior Indebtedness in full in cash or Cash Equivalents, then and in such case the Holders shall be entitled to receive the amount of such excess from the Company upon and to the extent of any return of such excess by the holders of such Senior Indebtedness. 112 121 SECTION 13.6 Provisions Solely To Define Relative Rights. The provisions of this Article XIII are and are intended solely for the purpose of defining the relative rights of the Holders of the Securities on the one hand and the holders of Senior Indebtedness on the other hand. Nothing contained in this Article XIII or elsewhere in this Indenture or in the Securities is intended to or shall (a) impair, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of the Securities, the obligation of the Company, which is absolute and unconditional, to pay to the Holders of the Securities the principal of, premium, if any, and interest on the Securities as and when the same shall become due and payable in accordance with their terms; or (b) affect the relative rights against the Company of the Holders of the Securities and creditors of the Company other than the holders of the Senior Indebtedness; or (c) prevent the Trustee or the Holder of any Security from exercising all remedies otherwise permitted by applicable law upon a Default or an Event of Default under this Indenture, subject to the rights, if any, under this Article XIII of the holders of Senior Indebtedness. The failure of the Company to make a payment on account of any Note Obligations by reason of any provision of this Article XIII shall not be construed as preventing the occurrence of a Default or an Event of Default hereunder. SECTION 13.7 Trustee To Effectuate Subordination. Each Holder of a Security by his acceptance thereof authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article XIII and appoints the Trustee his attorney-in-fact for any and all such purposes, including, in the event of any dissolution, winding-up, liquidation or reorganization of the Company whether in bankruptcy, insolvency, receivership proceedings, or otherwise, the timely filing of a claim for the unpaid balance of the Indebtedness of the Company owing to such Holder in the form required in such proceedings and the causing of such claim to be approved. If the Trustee does not file such a claim prior to 30 days before the expiration of the time to file such a claim, the holders of Senior Indebtedness, or any Senior Representative, may file such a claim on behalf of Holders of the Securities. SECTION 13.8 No Waiver of Subordination Provisions. (a) No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any non-compliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. 113 122 (b) Without limiting the generality of subsection (a) of this Section 13.8, the holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Securities, without incurring responsibility to the Holders of the Securities and without impairing or releasing the subordination provided in this Article XIII or the obligations hereunder of the Holders of the Securities to the holders of Senior Indebtedness, do any one or more of the following: (i) 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 any liability of any obligor thereon; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness; (iii) settle or compromise any Senior Indebtedness or any liability of any obligor thereon or release any Person liable in any manner for the collection or payment of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights against the Company and any other Person; provided, however, that in no event shall any such actions limit the right of the Holders of the Securities to take any action to accelerate the maturity of the Securities pursuant to Article IV hereof or to pursue any rights or remedies hereunder or under applicable laws if the taking of such action does not otherwise violate the terms of this Indenture. SECTION 13.9 Notice to Trustee. (a) The Company shall give prompt written notice to the Trustee of any fact (other than the existence of a Payment Default or a Payment Blockage Period) known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Securities. Notwithstanding the provisions of this Article XIII or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts (other than the existence of a Payment Default or a Payment Blockage Period) which would prohibit the making of any payment to or by the Trustee in respect of the Securities, unless and until a Responsible Officer of the Trustee, on behalf of the Trustee, shall have received written notice thereof from the Company or a holder of Senior Indebtedness or from any trustee, fiduciary or agent therefor; and, prior to the receipt of any such written notice, the Trustee, subject to the provisions of this Section 13.9, shall be entitled in all respects to assume that no such facts exist; provided, however, that if a Payment Default does not exist, a Payment Blockage Period is not in effect and the Trustee shall not have received the notice provided for in this Section 13.9 at least one Business Day prior to the date upon which by the terms hereof any money may become payable for any purpose under this Indenture (including, without limitation, the payment of the principal of, premium, if any, or interest on any Security), then, anything herein contained to the contrary notwithstanding but without limiting the rights and remedies of the holders of Senior Indebtedness or any trustee, fiduciary or agent thereof, the Trustee shall have full power and authority to receive such money and to apply the same to the purpose for which such money was received and shall not be affected by any notice to the contrary which may be received by it within one Business Day prior to such date; nor shall the Trustee be charged with knowledge of the curing of any such default or the elimination of the act or condition preventing any such payment unless and until the Trustee shall have received an Officers' Certificate to such effect. 114 123 (b) Subject to TIA Sections 315(a) through 315(d), the Trustee shall be entitled to rely on the delivery to it of a written notice to a Responsible Officer of the Trustee, on behalf of the Trustee, by a Person representing himself to be a holder of Senior Indebtedness (or a trustee, fiduciary or agent therefor) to establish that such notice has been given by a holder of Senior Indebtedness (or a trustee, fiduciary or agent therefor). In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article XIII, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such Person, the extent to which such person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article XIII, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. SECTION 13.10 Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets of the Company referred to in this Article XIII, the Trustee, subject to TIA Sections 315(a) through 315(d), and the Holders, shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution, winding-up or similar case or proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of Senior Indebtedness and other Indebtedness of the Company, the amount thereof or payable thereof, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article XIII. SECTION 13.11 Rights of Trustee as Holder of Senior Indebtedness; Preservation of Trustee's Rights. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article XIII with respect to any Senior Indebtedness which may at any time be held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. Nothing in this Article XIII shall apply to claims of, or payments to, the Trustee under or pursuant to Section 5.6 hereof. SECTION 13.12 Article Applicable to Paying Agents. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article XIII shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such 115 124 Paying Agent were named in this Article XIII in addition to or in place of the Trustee; provided, however, that Section 13.11 hereof shall not apply to the Company or any Affiliate of the Company if it or such Affiliate acts as Paying Agent. SECTION 13.13 No Suspension of Remedies. Nothing contained in this Article XIII shall limit the right of the Trustee or the Holders of Securities to take any action to accelerate the maturity of the Securities pursuant to Article IV hereof or to pursue any rights or remedies hereunder or under applicable law, subject to the rights, if any, under this Article XIII of the holders, from time to time, of Senior Indebtedness. ARTICLE XIV MISCELLANEOUS SECTION 14.1 Compliance Certificates and Opinions. Upon any application or request by the Company and/or any Subsidiary Guarantor to the Trustee to take any action under any provision of this Indenture, the Company and/or such Subsidiary Guarantor, as the case may be, shall furnish to the Trustee such certificates and opinions as may be required under the Trust Indenture Act or this Indenture. Each such certificate and each such opinion shall be in the form of an Officers' Certificate or an Opinion of Counsel, as applicable, and shall comply with the requirements of this Indenture. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (a) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. The certificates and opinions provided pursuant to this Section 14.1 and the statements required by this Section 14.1 shall comply in all respects with TIA Sections 314(c) and (e). 116 125 SECTION 14.2 Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an Officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such Opinion of Counsel may be based, insofar as it relates to factual matters, upon an Officers' Certificate of an Officer or Officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate with respect to such matters is erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 14.3 Acts of Holders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agents duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of authority. The fact and date of the 117 126 execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. (c) The ownership, principal amount and serial numbers of Securities held by any Person, and the date of holding the same, shall be proved by the Security Register. (d) If the Company shall solicit from the Holders of Securities any request, demand, authorization, direction, notice, consent, waiver or other Act, the Company may, at its option, by or pursuant to a Board Resolution, fix in advance a record date for the determination of Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act, but the Company shall have no obligation to do so. Notwithstanding TIA Section 316(c), such record date shall be the record date specified in or pursuant to such Board Resolution, which shall be a date not earlier than the date 30 days prior to the first solicitation of Holders generally in connection therewith and not later than the date such solicitation is completed. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only the Holders of record at the close of business on such record date shall be deemed to be Holders for the purposes of determining whether Holders of the requisite proportion of Outstanding Securities have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for that purpose the Outstanding Securities shall be computed as of such record date; provided, that no such authorization, agreement or consent by the Holders on such record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than eleven months after the record date. (e) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. SECTION 14.4 Notices, etc. to Trustee, Company and Subsidiary Guarantors. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (a) the Trustee by any Holder or by the Company or any Subsidiary Guarantor shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing and delivered in person or mailed by certified or registered mail (return receipt requested) to the Trustee at its Corporate Trust Office; or 118 127 (b) the Company or any Subsidiary Guarantor by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and delivered in person or mailed by certified or registered mail (return receipt requested) to the Company addressed to it or a Subsidiary Guarantor, as applicable, at the Company's principal office located at 5 Greenway Plaza, Suite 2700, Houston, Texas 77046-2504, or at any other address otherwise furnished in writing to the Trustee by the Company. SECTION 14.5 Notice to Holders; Waiver. Where this Indenture provides for notice of any event to Holders by the Company or the Trustee, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Any notice mailed to a Holder in the manner herein prescribed shall be conclusively deemed to have been received by such Holder, whether or not such Holder actually receives such notice. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of or irregularities in regular mail service or by reason of any other cause, it shall be impracticable to mail notice of any event to Holders when such notice is required to be given pursuant to any provision of this Indenture, then any manner of giving such notice as shall be satisfactory to the Trustee shall be deemed to be a sufficient giving of such notice for every purpose hereunder. SECTION 14.6 Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 14.7 Successors and Assigns. All covenants and agreements in this Indenture by the Company and any Subsidiary Guarantors shall bind their respective successors and assigns, whether so expressed or not. All agreements of the Trustee in this Indenture shall bind its successor. 119 128 SECTION 14.8 Separability Clause. In case any provision in this Indenture or in the Securities or the Subsidiary Guarantees shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby, and a Holder shall have no claim therefore against any party hereto. SECTION 14.9 Benefits of Indenture. Nothing in this Indenture or in the Securities, express or implied, shall give to any Person (other than the parties hereto, any Paying Agent, any Securities Registrar and their successors hereunder, the Holders, the holders of Senior Indebtedness, the holders of Guarantor Senior Indebtedness and, to the extent set forth in Section 12.4 hereof, creditors of Subsidiary Guarantors) any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 14.10 Governing Law; Trust Indenture Act Controls. (a) THIS INDENTURE, THE SUBSIDIARY GUARANTEES, IF ANY, AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. THE COMPANY IRREVOCABLY SUBMITS AND WILL CAUSE EACH SUBSIDIARY GUARANTOR TO IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN, THE CITY OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE, THE SECURITIES OR A SUBSIDIARY GUARANTEE, AND THE COMPANY IRREVOCABLY AGREES AND WILL CAUSE EACH SUBSIDIARY GUARANTOR TO IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED BY ANY SUCH COURT. (b) This Indenture is subject to the provisions of the Trust Indenture Act of 1939, as amended, that are required to be part of this Indenture and shall, to the extent applicable, be governed by such provisions. If and to the extent that any provision of this Indenture limits, qualifies or conflicts with the duties imposed by Sections 310 and 318, inclusive, of the Trust Indenture Act, or conflicts with any provision (an "incorporated provision") required by or deemed to be included in this Indenture by operation of such Trust Indenture Act sections, such imposed duties or incorporated provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or excluded, as the case may be. 120 129 SECTION 14.11 Legal Holidays. In any case where any Interest Payment Date, Redemption Date, or Stated Maturity or Maturity of any Security shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Securities or any Subsidiary Guarantees) payment of interest or principal (and premium, if any) need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date, Redemption Date or at the Stated Maturity or Maturity; provided, that no additional interest shall accrue for the period from and after such Interest Payment Date, Redemption Date, Stated Maturity or Maturity, as the case may be, by reason of such delay. SECTION 14.12 No Recourse Against Others. A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder, by accepting any of the Securities, waives and releases all such liability to the extent permitted by applicable law. SECTION 14.13 Duplicate Originals. The parties may sign any number of copies or counterparts of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. SECTION 14.14 No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or any of its Subsidiaries. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. 121 130 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the day and year first above written. ISSUER: POGO PRODUCING COMPANY a Delaware corporation By: /s/ JOHN W. ELSENHANS -------------------------------------- Name: John W. Elsenhans ------------------------------- Title: VICE PRESIDENT-FINANCE AND TREASURER ------------------------------ TRUSTEE: FLEET NATIONAL BANK as Trustee By: /s/ PHILIP G. KANE, JR. -------------------------------------- Name: Philip G. Kane, Jr. ------------------------------- Title: Vice President ------------------------------ 122 131 EXHIBIT A FORM OF SECURITY POGO PRODUCING COMPANY 8 3/4% SERIES [A/B] SENIOR SUBORDINATED NOTE DUE 2007 [FORM OF FACE] No. _____ $__________ Cusip No. [Series A: 730 448 AF4]* [Series B: __________] Pogo Producing Company, a Delaware corporation (herein called the "Company," which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to ________________________ or registered assigns the principal sum of _______________ Dollars on May 15, 2007, at the office or agency of the Company referred to below, and to pay interest thereon, commencing on November 15, 1997 and continuing semiannually thereafter, on May 15 and November 15 of each year, from May 22, 1997, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, at the rate of 8 3/4% per annum, until the principal hereof is paid or duly provided for, and (to the extent lawful) to pay on demand, interest on any overdue interest at the rate borne by the Securities from the date on which such overdue interest becomes payable to the date payment of such interest has been made or duly provided for. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the May 1 or November 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date, and such defaulted interest, and (to the extent lawful) interest on such defaulted interest at the rate borne by the Securities, may be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Interest on the Securities shall be computed on the basis of a 360-day year comprised of twelve 30-day months. - -------------------------------- * So long as the restrictive legend is included on a Definitive Security, a CUSIP number is not needed for a Definitive Security transferred to an institutional accredited investor (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933). A-1 132 The principal of (and premium, if any, on) and interest on the Securities shall be payable at the office or agency of the Company maintained for such purpose in the City of New York, or at such other office or agency of the Company as may be maintained for such purpose; provided, however, at the option of the Company, interest may be paid (i) by check mailed to addresses of the Persons entitled thereto as such addresses shall appear on the Security Register, or (ii) with respect to any Holder owning Securities in the aggregate principal amount of $500,000 or more, by wire transfer to an account maintained by the Holder located in the City of New York, as specified in a written notice to the Trustee, received prior to the relevant Regular Record Date, by any such Holder requesting payment by wire transfer and specifying the account to which transfer is requested. [Unless and until it is exchanged in whole or in part for Securities in definitive form, this Security may not be transferred except as a whole by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. The Depository Trust Company shall act as the Depositary until a successor shall be appointed by the Company and the Registrar. Unless this certificate is presented by an authorized representative of The Depository Trust Company (55 Water Street, New York, New York) ("DTC"), to the issuer or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or such other name as may be requested by an authorized representative of DTC (and any payment is made to Cede & Co. or such other entity as may be requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.]* THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE THAT IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DAY ON WHICH POGO PRODUCING COMPANY (THE "COMPANY") OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) (THE "RESALE RESTRICTION TERMINATION DATE") ONLY (A) TO THE COMPANY, (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER - -------------------------- *This paragraph should be included only if the Security is issued in global form. A-2 133 THE SECURITIES ACT, (C) FOR SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT IS ACQUIRING SUCH SECURITY FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT ("INSTITUTIONAL ACCREDITED INVESTOR") THAT IS ACQUIRING SUCH SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF ANOTHER INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSES (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF A HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been duly executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture, or be valid or obligatory for any purpose. A-3 134 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. POGO PRODUCING COMPANY [SEAL] By: ------------------------------- Name: Title: Attest: ------------------------------ Secretary Dated: ----------------- TRUSTEE'S CERTIFICATE OF AUTHENTICATION Fleet National Bank, as Trustee, Certifies that this is one of the 8 3/4% Series [A/B] Senior Subordinated Notes due 2007 referred to in the within-mentioned Indenture. FLEET NATIONAL BANK By: -------------------------------- Authorized Signatory A-4 135 FORM OF REVERSE OF SECURITY POGO PRODUCING COMPANY 8 3/4% SERIES [A/B] SENIOR SUBORDINATED NOTE DUE 2007 This Security is one of a duly authorized issue of securities of the Company designated as its 8 3/4% [Series A/B] Senior Subordinated Notes due 2007 (herein called the "Securities"), limited (except as otherwise provided in the Indenture referred to below) in aggregate principal amount to $100,000,000, which may be issued under an indenture (herein called the "Indenture") dated as of May 15, 1997, between the Company and Fleet National Bank, as trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties, obligations and immunities thereunder of the Company, the Trustee and the Holders of the Securities, and of the terms upon which the Securities are, and are to be, authenticated and delivered. The Indebtedness evidenced by the Securities is, to the extent and in the manner provided in the Indenture, subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness (as defined in the Indenture) and this Security is issued subject to such provisions. Each Holder of this Security, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in the Indenture and (c) appoints the Trustee as his attorney-in-fact for such purpose. The Securities are subject to redemption at the option of the Company, in whole or in part, at any time on or after May 15, 2002, upon not less than 30 or more than 60 days notice at the following Redemption Prices (expressed as percentages of principal amount) set forth below, if redeemed during the 12-month period beginning on May 15 of the years indicated below:
YEAR PRICE ---- ----- 2002 . . . . . . . . . . 104.375% 2003 . . . . . . . . . . 102.917% 2004 . . . . . . . . . . 101.458% 2005 and thereafter . . 100%
together in the case of any such redemption with accrued and unpaid interest, if any, to the Redemption Date (subject to the right of Holders of record on the relevant Regular Record Date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date), all as provided in the Indenture. In the case of any redemption of Securities, interest installments whose Stated Maturity is on or prior to the Redemption Date will be payable to the Holders of such Securities, or one A-5 136 or more Predecessor Securities, of record at the close of business on the relevant Record Date referred to on the face hereof. Securities (or portions thereof) for whose redemption and payment provision is made in accordance with the Indenture shall cease to bear interest from and after the Redemption Date. In the event of redemption or purchase of this Security in part only, a new Security or Securities for the unredeemed or unpurchased portion hereof shall be issued in the name of the Holder hereof upon the cancellation hereof. The Securities do not have the benefit of any sinking fund obligations. In the event of a Change of Control of the Company, and subject to certain conditions and limitations provided in the Indenture, the Company will be obligated to make an offer to purchase, on a Business Day not more than 75 or less than 30 days following the occurrence of a Change of Control of the Company, all of the then outstanding Securities validly tendered at a purchase price equal to 101% of the principal amount thereof, together with accrued and unpaid interest to the Change of Control Purchase Date, all as provided in the Indenture. In the event of Asset Sales, under certain circumstances, the Company will be obligated to make a Net Proceeds Offer to purchase all or a specified portion of each Holder's Securities at a purchase price equal to 100% of the principal amount of the Securities, together with accrued and unpaid interest to the Net Proceeds Payment Date. As set forth in the Indenture, an Event of Default is generally (a) failure to pay principal upon maturity, redemption or otherwise (including pursuant to a Change of Control Offer or a Net Proceeds Offer); (b) default for 30 days in payment of interest on any of the Securities; (c) default in the performance of agreements relating to mergers, consolidations and sales of all or substantially all assets or the failure to make or consummate a Change of Control Offer or a Net Proceeds Offer; (d) failure for 45 days after notice to comply with any other covenants in the Indenture or the Securities; (e) certain payment defaults under, the acceleration prior to the maturity of, and the exercise of certain enforcement rights with respect to, certain Indebtedness of the Company or any Restricted Subsidiary in an aggregate principal amount in excess of $12,000,000; (f) the failure of any Subsidiary Guarantee to be in full force and effect or otherwise to be enforceable (except as permitted by the Indenture); (g) certain events giving rise to ERISA liability; (h) certain final judgments against any Restricted Subsidiary in an aggregate amount of $12,000,000 or more which remain unsatisfied and either become subject to commencement or enforcement proceedings or remain unstayed for a period of 60 days; and (i) certain events of bankruptcy, insolvency or reorganization of the Company or any Material Restricted Subsidiary. If any Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in aggregate principal amount of the Outstanding Securities may declare the principal amount of all the Securities to be due and payable immediately, except that (i) in the case of an Event of Default arising from certain events of bankruptcy, insolvency or reorganization of the Company or any Restricted Subsidiary, the principal amount of the Securities will become due and payable immediately without further action or notice, and (ii) in the case of an Event of Default which relates to certain payment defaults, acceleration or the A-6 137 exercise of certain enforcement rights with respect to certain Indebtedness, any acceleration of the Securities will be automatically rescinded if any such Indebtedness is repaid or if the default relating to such Indebtedness is cured or waived and if the holders thereof have accelerated such Indebtedness then such holders have rescinded their declaration of acceleration or if in certain circumstances the proceedings or enforcement action with respect to the Indebtedness that is the subject of such Event of Default is terminated or rescinded. No Holder may pursue any remedy under the Indenture unless the Trustee shall have failed to act after notice of an Event of Default and written request by Holders of at least 25% in principal amount of the Outstanding Securities, and the offer to the Trustee of indemnity reasonably satisfactory to it; provided, however, such provision does not affect the right to sue for enforcement of any overdue payment on a Security by the Holder thereof. Subject to certain limitations, Holders of a majority in principal amount of the Outstanding Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders notice of any continuing default (except default in payment of principal, premium or interest) if it determines in good faith that withholding the notice is in the interest of the Holders. The Company is required to file quarterly reports with the Trustee as to the absence or existence of defaults. The Indenture contains provisions for defeasance at any time of (i) the entire indebtedness of the Company on this Security and (ii) certain restrictive covenants and the related Defaults and Events of Default, upon compliance by the Company with certain conditions set forth therein, which provisions apply to this Security. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and any Subsidiary Guarantors and the rights of the Holders under the Indenture at any time by the Company, any Subsidiary Guarantors and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Securities at the time Outstanding. The Indenture also contains provisions permitting the Holders of specified percentages in aggregate principal amount of the Securities at the time Outstanding, on behalf of the Holders of all the Securities, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by or on behalf of the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such consent or waiver is made upon this Security. Without the consent of any Holder, the Company, any Subsidiary Guarantors and the Trustee may amend or supplement the Indenture or the Securities to cure any ambiguity, defect or inconsistency, to provide for uncertificated Securities in addition to or in place of Definitive Securities and to make certain other specified changes and other changes that do not adversely affect the rights of any Holder. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay A-7 138 the principal of (and premium, if any, on) and interest on this Security at the times, place, and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registerable on the Security Register of the Company, upon surrender of this Security for registration of transfer at the office or agency of the Company maintained for such purpose in the City of New York, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, the Securities are exchangeable for a like aggregate principal amount of Securities of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. A director, officer, incorporator, or stockholder of the Company or any Subsidiary Guarantor, as such, shall not have any personal liability under this Security or the Indenture by reason of his or its status as such director, officer, incorporator or stockholder. Each Holder, by accepting this Security with or without the notation of Subsidiary Guarantee endorsed hereon, waives and releases all such liability. Such waiver and release are part of the consideration for the issuance of this Security with the notation of Subsidiary Guarantee endorsed hereon. Prior to the time of due presentment of this Security for registration of transfer, the Company, any Subsidiary Guarantors, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security is overdue, and neither the Company, the Subsidiary Guarantors, if any, the Trustee nor any agent shall be affected by notice to the contrary. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to the Company, Attention: Corporate Secretary, at 5 Greenway Plaza, Suite 2700, Houston, Texas 77046-2504. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Securities as a convenience to the Holders thereof. No representation is made as to the accuracy A-8 139 of such numbers as printed on the Securities and reliance may be placed only on the other identifying information printed hereon. This Security shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflicts of law principles. A-9 140 ASSIGNMENT FORM To assign this Security, fill in the form below: (I) or (we) assign and transfer this Security to ___________________________________________ (Insert assignee's social security or tax I.D. number) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint ________________________________________________________ as agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. - -------------------------------------------------------------------------------- Date: Your Signature: ------------------------- -------------------------------- (Sign exactly as your name appears on the face of this Security) Signature Guarantee: ----------------------------------------------------------- (Participant in a Recognized Signature Guaranty Medallion Program) A-10 141 FORM OF OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased by the Company pursuant to Section 9.15 or Section 9.16 of the Indenture, check the appropriate box: Section 9.15 [ ] Section 9.16 [ ] If you want to have only part of this Security purchased by the Company pursuant to Section 9.15 or Section 9.16 of the Indenture, state the amount in integral multiples of $1,000: $ ------------------------------ Date: Signature: -------------------------- ---------------------------------- (Sign exactly as your name appears on the other side of this Security) Signature Guarantee: -------------------------------------------------------------------- (Participant in a Recognized Signature Guaranty Medallion Program) A-11 142 SCHEDULE OF EXCHANGES OF DEFINITIVE SECURITY* The following exchanges of a part of this Global Security for Definitive Securities have been made:
Principal Amount Amount of Amount of of this Global Signature of decrease in increase in Security following authorized signatory Principal Amount Principal Amount such decrease of Trustee or Date of Exchange of this Global Security of this Global Security (or increase) Security Custodian - ---------------- ----------------------- ----------------------- -------------------- ------------------
- ---------------------------------------------- * This should be included only if the Security is issued in global form. A-12 143 EXHIBIT B FORM OF NOTATION RELATING TO SUBSIDIARY GUARANTEES The form of notation to be set forth on each Security relating to the Subsidiary Guarantees shall be in substantially the following form: SUBSIDIARY GUARANTEE Subject to the limitations set forth in the Indenture, the Subsidiary Guarantors (as defined in the Indenture referred to in the Security upon which this notation is endorsed and each hereinafter referred to as a "Subsidiary Guarantor," which term includes any successor or additional Subsidiary Guarantor under the Indenture) have, jointly and severally, unconditionally guaranteed (a) the due and punctual payment of the principal (and premium, if any) of and interest on the Securities, whether at maturity, acceleration, redemption or otherwise, (b) the due and punctual payment of interest on the overdue principal of and interest on the Securities, if any, to the extent lawful, (c) the due and punctual performance of all other obligations of the Company to the Holders or the Trustee, all in accordance with the terms set forth in the Indenture, and (d) in case of any extension of time of payment or renewal of any Securities or any of such other obligations, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at Stated Maturity, by acceleration or otherwise. The obligations of each Subsidiary Guarantor are limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities and after giving effect to any collections from or payments made by or on behalf of any other Subsidiary Guarantor in respect of the obligations of such other Subsidiary Guarantor under its Subsidiary Guarantee or pursuant to its contribution obligations under the Indenture, result in the obligations of such Subsidiary Guarantor under the Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. Each Subsidiary Guarantor that makes a payment or distribution under a Subsidiary Guarantee shall be entitled to a contribution from each other Subsidiary Guarantor in a pro rata amount based on the Adjusted Net Assets of each Subsidiary Guarantor. The obligations of the Subsidiary Guarantors to the Holders or the Trustee pursuant to the Subsidiary Guarantee and the Indenture are expressly subordinate to all Guarantor Senior Indebtedness to the extent set forth in Article XII of the Indenture and reference is made to such Indenture for the precise terms of such subordination. No stockholder, officer, director or incorporator, as such, past, present or future, of the Subsidiary Guarantors shall have any personal liability under the Subsidiary Guarantee by reason of his or its status as such stockholder, officer, director or incorporator. B-1 144 Any Subsidiary Guarantor may be released from its Subsidiary Guarantee upon the terms and subject to the conditions provided in the Indenture. All terms used in this notation of Subsidiary Guarantee which are defined in the Indenture referred to in this Security upon which this notation of Subsidiary Guarantee is endorsed shall have the meanings assigned to them in such Indenture. The Subsidiary Guarantee shall be binding upon each Subsidiary Guarantor and its successors and assigns and shall inure to the benefit of the Trustee and the Holders and, in the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and privileges herein conferred upon that party shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof and in the Indenture. The Subsidiary Guarantee shall not be valid or obligatory for any purpose until it has been executed by the manual or facsimile signature of an authorized officer of each Subsidiary Guarantor and the certificate of authentication on the Security upon which this Subsidiary Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized officers. [SUBSIDIARY GUARANTOR] Date: By: ---------------------------- -------------------------------- Name: --------------------------- Title: -------------------------- Attest: ----------------------------- Secretary B-2 145 EXHIBIT C CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF SECURITIES Re: 8 3/4% Series [A/B] Senior Subordinated Notes due 2007 of Pogo Producing Company (the "Company") This Certificate relates to $_____ principal amount of Securities held in *______ book-entry or *______ definitive form by _____________________ (the "Transferor"). The Transferor*: [ ] has requested the Trustee by written order to deliver in exchange for its beneficial interest in the Global Securities held by the Depositary, a Security or Securities in definitive registered form equal to its beneficial interest in such Global Securities (or the portion thereof indicated above); or [ ] has requested the Trustee by written order to exchange or register the transfer of a Security or Securities. In connection with such request and in respect of each such Security, the Transferor does hereby certify that the Transferor is familiar with the Indenture relative to the above captioned Securities and that the transfer of this Security does not require registration under the Securities Act (as defined below) because:* [ ] Such Security is being acquired for the Transferor's own account without transfer (in satisfaction of Section 2.07(a)(ii)(A) or Section 2.07(d)(i)(A) of the Indenture). [ ] Such Security is being transferred to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act of 1933, as amended (the "Securities Act")), in reliance on Rule 144A under the Securities Act. [ ] Such Security is being transferred (i) in accordance with Rule 144 under the Securities Act (and based on an opinion of counsel if the Company so requests) or (ii) pursuant to an effective registration statement under the Securities Act. - ------------------------ *Check appropriate box. C-1 146 [ ] Such Security is being transferred to an institutional "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act pursuant to a private placement exemption from the registration requirements of the Securities Act (and based on an opinion of counsel if the Company so requests) together with a certification in substantially the form of Exhibit D to the Indenture and, to the knowledge of the Transferor, such institutional accredited investor to whom such Security is to be transferred is not an "affiliate" (as defined in Rule 144 under the Securities Act) of the Company. [ ] Such Security is being transferred in reliance on and in compliance with another exemption from the registration requirements of the Securities Act (and based on an opinion of counsel if the Company so requests). --------------------------------- [INSERT NAME OF TRANSFEROR] By: ------------------------------ Name: Title: Address: Date: ----------------------------- C-2 147 EXHIBIT D TRANSFEREE LETTER OF REPRESENTATIONS Pogo Producing Company c/o Fleet National Bank 777 Main Street Hartford, Connecticut 06115 Attn: Corporate Trust Administration Dear Sirs and Madams: In connection with our proposed purchase of $_________ aggregate principal amount of 8 3/4% Senior Subordinated Notes due 2007 (the "Securities") of Pogo Producing Company, a Delaware corporation (the "Company"): 1. We understand that the Securities have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or under any other applicable securities laws, and may not be sold except as permitted in the following sentence. We agree on our own behalf and on behalf of any investor account for which we are purchasing the Securities to offer, sell or otherwise transfer such Securities prior to the date which is two years after the later of the date of original issue and the last date on which the Company or any affiliate of the Company was the owner of such Securities, or any predecessor, thereto (the "Resale Restriction Termination Date") only (a) to the Company, (b) pursuant to a registration statement that has been declared effective by the Securities and Exchange Commission (the "SEC"), (c) for so long as the Securities are eligible for resale pursuant to Rule 144A under the Securities Act, to a person we reasonably believe is a qualified institutional buyer under Rule 144A (a "QIB") that purchases for its own account or for the account of a QIB to whom notice is given that the transfer is being made in reliance on Rule 144A, (d) to an institutional "accredited investor" within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Securities Act (an "Institutional Accredited Investor") that is acquiring the Securities for its own account or for the account of another Institutional Accredited Investor for investment purposes and not with a view to, or for offer or sale in connection with, any distribution thereof in violation of the regulations of the Securities Act and any other applicable securities laws or (e) pursuant to any other available exemption from the registration requirements of the Securities Act, subject in each of the foregoing cases to any requirement of law that the disposition of our property and the property of such investor account or accounts be at all times within our or their control. The foregoing restrictions on resale will not apply subsequent to the Resale Restriction Termination Date. If any resale or other transfer of the Securities is proposed to be made pursuant to clause (d) above prior to the Resale Restriction Termination Date, the transferor shall deliver a letter from the transferee substantially in the form of this letter to the Trustee, which shall provide, D-1 148 among other things, that the transferee is an Institutional Accredited Investor and that it is acquiring such Securities for investment purposes and not for distribution in violation of the Securities Act. We acknowledge that the Company and the Trustee reserve the right prior to any offer, sale or other transfer pursuant to clauses (d) or (e) prior to the Resale Restriction Termination Date of the Securities to require the delivery of an opinion of counsel, certifications and/or other information satisfactory to the Company and the Trustee. 2. We are an Institutional Accredited Investor purchasing for our own account or for the account of another Institutional Accredited Investor. 3. We are acquiring the Securities purchased by us for our own account, or for one or more accounts as to each of which we exercise sole investment discretion, for investment purposes and not with a view to, or for offer or sale in connection with any distribution in violation of, the Securities Act. We have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of investment in the Securities, we invest in securities similar to the Securities in the normal course of our business and we, and all accounts for which we are acting, are able to bear the economic risks of investment in the Securities. 4. You are entitled to rely upon this letter and you are irrevocably authorized to produce this letter or a copy thereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. Very truly yours, By: ------------------------------------ (Name of Purchaser) Upon transfer, the Securities should be registered in the name of the new beneficial owner as follows: Name: -------------------------------------------------- Address: -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- Taxpayer ID No: -------------------------------------------- D-2 EX-4.4 3 REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 4.4 POGO PRODUCING COMPANY REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT dated as of May 22, 1997, among Pogo Producing Company, a Delaware corporation (the "Company"), Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and Goldman, Sachs & Co., as representatives of the purchasers (the "Initial Purchasers"), identified on Schedule I to the Purchase Agreement (as defined herein), of the 8 3/4% Senior Subordinated Notes due 2007, of the Company. The Company proposes to issue and sell to the Initial Purchasers upon the terms set forth in the Purchase Agreement the Securities (as defined herein). As an inducement to the Initial Purchasers to enter into the Purchase Agreement and in satisfaction of a condition to the obligations of the Initial Purchasers thereunder, the Company agrees with the Initial Purchasers for the benefit of holders (as defined herein) from time to time of the Registrable Securities (as defined herein) as follows: 1. Certain Definitions. For purposes of this Registration Rights Agreement, the following terms shall have the following respective meanings: "Base Interest" shall mean the interest that would otherwise accrue on the Securities under the terms thereof and the Indenture, without giving effect to the provisions of this Agreement. "broker-dealer" shall mean any broker or dealer registered with the Commission under the Exchange Act. "Closing Time" shall have the meaning set forth in the Purchase Agreement. "Commission" shall mean the United States Securities and Exchange Commission, or any other federal agency at the time administering the Exchange Act or the Securities Act, whichever is the relevant statute for the particular purpose. "Effective Time," in the case of (i) an Exchange Registration, shall mean the time and date as of which the Commission declares the Exchange Registration Statement effective or as of which the Exchange Registration Statement otherwise becomes effective and (ii) a Shelf Registration, shall mean the time and date as of which the Commission declares the Shelf Registration Statement effective or as of which the Shelf Registration Statement otherwise becomes effective. "Electing Holder" shall mean any holder of Registrable Securities that has returned a completed and signed Notice and Questionnaire to the Company in accordance with Section 3(d)(ii) or 3(d)(iii) hereof. "Exchange Act" shall mean the Securities Exchange Act of 1934, or any successor thereto, as the same shall be amended from time to time. "Exchange Offer" shall have the meaning assigned thereto in Section 2(a) hereof. 2 "Exchange Registration" shall have the meaning assigned thereto in Section 3(c) hereof. "Exchange Registration Statement" shall have the meaning assigned thereto in Section 2(a) hereof. "Exchange Securities" shall have the meaning assigned thereto in Section 2(a) hereof. "holder" shall mean each of the Initial Purchasers and other persons who acquire Registrable Securities from time to time (including any successors or assigns), in each case for so long as such person owns any Registrable Securities. "Indenture" shall mean the Indenture, dated as of May 15, 1997, among the Company and Fleet National Bank, as Trustee, as the same shall be amended from time to time. "Purchase Agreement" shall mean the Purchase Agreement, dated as of May 15, 1997, between the Initial Purchasers and the Company relating to the Securities. "Notice and Questionnaire" means a Notice of Registration Statement and Selling Securityholder Questionnaire substantially in the form of Exhibit A hereto. The term "person" shall mean a corporation, association, partnership, limited liability company, organization, business, individual, government or political subdivision thereof or governmental agency. "Registrable Securities" shall mean the Securities; provided, however, that a Security shall cease to be a Registrable Security when (i) in the circumstances contemplated by Section 2(a) hereof, the Security has been exchanged for an Exchange Security in an Exchange Offer as contemplated in Section 2(a) hereof (provided that any Exchange Security received by a broker-dealer in an Exchange Offer in exchange for a Registrable Security that was not acquired by the broker-dealer directly from the Company will also be a Registrable Security through and including the earlier of the 90th day after the Exchange Offer is completed or such time as such broker-dealer no longer owns such Security); (ii) in the circumstances contemplated by Section 2(b) hereof, a Shelf Registration Statement registering such Security under the Securities Act has been declared or becomes effective and such Security has been sold or otherwise transferred by the holder thereof pursuant to and in a manner contemplated by such effective Shelf Registration Statement; (iii) such Security is sold pursuant to Rule 144 (or any similar provisions then in force, but not Rule 144A) under circumstances in which any legend borne by such Security relating to restrictions on transferability thereof, under the Securities Act or otherwise, is removed by the Company or pursuant to the Indenture; (iv) such Security is eligible to be sold pursuant to paragraph (k) of Rule 144; or (v) such Security shall cease to be outstanding. "Registration Default" shall have the meaning assigned thereto in Section 2(d) hereof. "Registration Expenses" shall have the meaning assigned thereto in Section 4 hereof. "Resale Period" shall have the meaning assigned thereto in Section 2(a) hereof. "Restricted Holder" shall mean (i) a holder that is an affiliate of the Company within the meaning of Rule 405, (ii) a holder who acquires Exchange Securities outside the ordinary course of 2 3 such holder's business, (iii) a holder who has arrangements or understandings with any person to participate in the Exchange Offer for the purpose of distributing Exchange Securities and (iv) a holder that is a broker- dealer, but only with respect to Exchange Securities received by such broker-dealer pursuant to an Exchange Offer in exchange for Registrable Securities acquired by the broker-dealer directly from the Company. "Rule 144," "Rule 144A," "Rule 405" and "Rule 415" shall mean, in each case, such rule promulgated under the Securities Act (or any successor provision), as the same shall be amended from time to time. "Securities" shall mean, collectively, the 8 3/4% Senior Subordinated Notes due 2007 of the Company to be issued and sold to the Initial Purchasers, and securities issued in exchange therefor or in lieu thereof pursuant to the Indenture. Under certain circumstances specified in the Indenture, each Security will entitled to the benefit of certain guarantees by one or more subsidiaries of the Company (the "Guarantees") and, unless the context otherwise requires, any reference herein to a "Security," an "Exchange Security" or a "Registrable Security" shall include a reference to any such related Guarantees. "Securities Act" shall mean the Securities Act of 1933, or any successor thereto, as the same shall be amended from time to time. "Shelf Registration" shall have the meaning assigned thereto in Section 2(b) hereof. "Shelf Registration Statement" shall have the meaning assigned thereto in Section 2(b) hereof. "Shelf Registration Suspension" shall have the meaning assigned thereto in Section 2(c) hereof. "Special Interest" shall have the meaning assigned thereto in Section 2(d) hereof. "Trust Indenture Act" shall mean the Trust Indenture Act of 1939, or any successor thereto, and the rules, regulations and forms promulgated thereunder, all as the same shall be amended from time to time. Unless the context otherwise requires, any reference herein to a "Section" or "clause" refers to a Section or clause, as the case may be, of this Registration Rights Agreement, and the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Registration Rights Agreement as a whole and not to any particular Section or other subdivision. 2. Registration Under the Securities Act. (a) Except as set forth in Section 2(b) below, the Company agrees to use its reasonable best efforts to file under the Securities Act, no later than 45 days after the Closing Time, a registration statement relating to an offer to exchange (such registration statement, the "Exchange Registration Statement", and such offer, the "Exchange Offer") any and all of the then outstanding Registrable Securities (except Registrable Securities held by an Initial Purchaser and acquired directly from the Company if such Initial Purchaser is not permitted, in the reasonable opinion of counsel to the Initial Purchasers, pursuant to applicable law or Commission interpretation, to participate in the Exchange Offer) for a like aggregate 3 4 principal amount of debt securities issued by the Company (and, if applicable, guarantees issued by subsidiaries of the Company as may be required pursuant to the Indenture), which are substantially identical to the Securities (and are entitled to the benefits of a trust indenture which is substantially identical to the Indenture or is the Indenture and which has been qualified under the Trust Indenture Act), except that (i) they have been registered pursuant to an effective registration statement under the Securities Act, (ii) interest thereon shall accrue from the last date on which interest was paid or duly provided for on the Securities in exchange for which such new debt securities are issued in the Exchange Offer, or, if no interest has been paid, from May 22, 1997, and (iii) they do not contain provisions for the additional interest contemplated in Section 2(d) below (such new debt securities, together with any guarantees thereof, as applicable, are hereinafter called "Exchange Securities"). The Company agrees to use its reasonable best efforts to cause the Exchange Registration Statement to become effective under the Securities Act no later than 105 days after the Closing Time. The Exchange Offer will be registered under the Securities Act on an appropriate form and will comply with all applicable tender offer rules and regulations under the Exchange Act. The Company further agrees to use its reasonable best efforts to commence and complete the Exchange Offer no later than 180 days after the Closing Time, hold the Exchange Offer open for at least 30 days (or longer if required by law) after notice of the Exchange Offer is sent to holders of Registrable Securities, and issue Exchange Securities for all Registrable Securities that have been properly tendered and not withdrawn on or prior to the expiration of the Exchange Offer. The Exchange Offer will be deemed to have been "completed" only if the debt securities and related guarantees received by holders other than Restricted Holders in the Exchange Offer for Registrable Securities are, upon receipt, transferable by each such holder without need for further compliance with Section 5 of the Securities Act and the Exchange Act (except for the requirement to deliver a prospectus included in the Exchange Registration Statement applicable to resales by broker- dealers of Exchange Securities received by such broker-dealer pursuant to an Exchange Offer in exchange for Registrable Securities other than those acquired by the broker-dealer directly from the Company), and without material restrictions under the blue sky or securities laws of a substantial majority of the States of the United States of America. The Exchange Offer shall be deemed to have been completed upon the Company having exchanged, pursuant to the Exchange Offer, Exchange Securities for all Registrable Securities that may legally be exchanged in the Exchange Offer and that have been properly tendered and not withdrawn before the expiration of the Exchange Offer, which shall be on a date that is at least 30 days following the commencement of the Exchange Offer. The Company agrees (x) to include in the Exchange Registration Statement a prospectus for use in connection with any resales of Exchange Securities by a broker-dealer, other than resales of Exchange Securities received by a broker-dealer pursuant to an Exchange Offer in exchange for Registrable Securities acquired by the broker-dealer directly from the Company, and (y) to keep such Exchange Registration Statement effective for a period (the "Resale Period") beginning when Exchange Securities are first issued in the Exchange Offer and ending upon the earlier of the expiration of the 90th day after the Exchange Offer has been completed or such time as such broker-dealers no longer own any Registrable Securities. With respect to such Exchange Registration Statement, each broker-dealer that holds Exchange Securities received in an Exchange Offer in exchange for Registerable Securities not acquired by it directly from the Company shall have the benefit of the rights of indemnification and contribution set forth in Section 6 hereof. (b) Subject to Section 2(c), (i) if, prior to the time the Exchange Offer is completed, existing Commission interpretations are changed such that the Exchange Offer cannot be completed as contemplated by Section 2(a), (ii) if the Exchange Registration Statement is not declared effective under the Securities Act within 105 days after the Closing Time, or (iii) if, for any other reason the Exchange Offer is not consummated within 180 days of the Closing Time, then in lieu of conducting the Exchange Offer contemplated by Section 2(a) the Company shall use its reasonable best efforts to file under the Securities Act as soon as practicable, but no later than 30 days after the time such obligation to file arises, a registration statement providing for the registration of, and the sale on a continuous or delayed basis by the holders of, 4 5 all of the Registrable Securities, pursuant to Rule 415 or any similar rule that may be adopted by the Commission (such filing, the "Shelf Registration" and such registration statement, the "Shelf Registration Statement"). In addition, in the event that the Initial Purchasers shall not have resold all of the Registrable Securities initially purchased by them from the Company pursuant to the Purchase Agreement prior to the consummation of the Exchange Offer, the Company shall use its reasonable best efforts to file under the Securities Act as soon as practicable after a request therefor a Shelf Registration Statement. The Company agrees to use its reasonable best efforts (i) to cause the Shelf Registration Statement to become or be declared effective no later than 180 days after the Closing Time (or promptly in the event of a Shelf Registration effected at the request of the Initial Purchasers pursuant to the preceding sentence) and, subject to Section 2(c), to keep such Shelf Registration Statement continuously effective in order to permit the prospectus forming a part thereof to be usable by holders for resales of Registrable Securities for a period (the "Effective Period") ending on the earlier of the second anniversary of the Effective Time (or one year in the case of a Shelf Registration Statement filed at the request of an Initial Purchaser) or such time as there are no longer any Registrable Securities outstanding, provided, however, that no holder shall be entitled to be named as a selling securityholder in the Shelf Registration Statement or to use the prospectus forming a part thereof for resales of Registrable Securities unless such holder is an Electing Holder, and (ii) after the Effective Time of the Shelf Registration Statement, promptly upon the request of any holder of Registrable Securities that is not then an Electing Holder, to take any action reasonably necessary to enable such holder to use the prospectus forming a part thereof for resales of Registrable Securities, including, without limitation, any action necessary to identify such holder as a selling securityholder in the Shelf Registration Statement, provided, however, that nothing in this clause (ii) shall relieve any such holder of the obligation to return a completed and signed Notice and Questionnaire to the Company in accordance with Section 3(d)(iii) hereof. The Company further agrees to supplement or make amendments to the Shelf Registration Statement, as and when required by the rules, regulations or instructions applicable to the registration form used by the Company for such Shelf Registration Statement or by the Securities Act or rules and regulations thereunder for shelf registration, and the Company agrees to furnish to each Electing Holder copies of any such supplement or amendment prior to its being used or promptly following its filing with the Commission. (c) Notwithstanding anything in Section 2(b) or 3(d) to the contrary, if the Company determines in its good faith judgment that the filing of any supplement or amendment to the Shelf Registration Statement to keep such Shelf Registration Statement continuously effective under the Securities Act and usable by Electing Holders for resales of Registrable Securities on a particular date would require the disclosure of material information that the Company has a bona fide business purpose for preserving as confidential, or the disclosure of which would materially adversely affect the Company's ability to consummate a significant transaction, then upon written notice of such determination by the Company to the Electing Holders, the obligation of the Company to supplement or amend the Shelf Registration Statement (including any action with respect thereto contemplated by Section 3(d) hereof) will be suspended until the Company notifies the Electing Holders in writing that the reasons for suspension of such obligations on the part of the Company as set forth in Section 2(b) no longer exist and the Company amends or supplements the Shelf Registration Statement as may be required (such suspension, a "Shelf Registration Suspension"); provided that the aggregate number of days (whether or not consecutive) during which the Company may delay the filing of any such supplement or amendment shall in no event exceed 60 days during any period of 12 consecutive months and the right of the Company to suspend its obligation to supplement or amend the Shelf Registration Statement under the preceding sentence shall not limit any obligation of the Company to pay Special Interest pursuant to Section 2(d). (d) In the event that (i) the Exchange Registration Statement is not filed with the Commission on or prior to the 45th day following the Closing Time, (ii) the Exchange Registration Statement is not declared effective on or prior to the 105th day following the Closing Time or (iii) the Exchange Offer (if then 5 6 required to be made) is not consummated or a Shelf Registration Statement (if required pursuant to Section 2(b)) with respect to the Notes is not declared effective on or prior to the 180th day following the Closing Time, (iv) any Exchange Registration Statement or Shelf Registration Statement required by Section 2(a) or 2(b) hereof is filed and declared effective but shall thereafter either be withdrawn by the Company or shall become subject to an effective stop order issued pursuant to Section 8(d) of the Securities Act suspending the effectiveness of such registration statement (except as specifically permitted herein) without being succeeded immediately by an additional registration statement filed and declared effective, or (v) the Company effects a Shelf Registration Suspension for more than 60 days, whether or not consecutive, within any period of 12 consecutive months (each such event referred to in clauses (i) through (v), a "Registration Default") then, as liquidated damages for such Registration Default, subject to the provisions of Section 9(b), special interest ("Special Interest"), in addition to the Base Interest, shall accrue on the Securities at a per annum rate of 0.50% from and including the day following such Registration Default to but excluding the date on which the Registration default is cured or ceases as described below (such period being the "Registration Default Period"); provided, that if the Exchange Registration Statement is not declared effective on or prior to the 105th day after the Closing Time and the Company sends the Notice and Questionnaire to holders of Registrable Securities in accordance with Section 3(d)(ii), then no holder who is not an Electing Holder shall be entitled to Special Interest after the 180th day after the Closing Time. Special Interest shall be paid in the same manner as interest is paid on the Securities pursuant to the Indenture. Upon (A) the filing of the Exchange Registration Statement after the 45th day described in clause (i) above, (B) the effectiveness of the Exchange Registration Statement after the 105th day described in clause (ii) above, (C) the consummation of the Exchange Offer or the effectiveness of the Shelf Registration Statement, as the case may be, after the 180th day described in clause (iii) above, (D) removal of the suspension or stop order referred to in clause (iv) above or the filing and effectiveness of a new registration statement in respect thereof, (E) cessation of the Shelf Registration Suspension referred to in clause (v) above or (F) expiration of the Effective Period, Special Interest shall cease to accrue unless a new Registration Default shall occur. (e) The Company shall take all reasonable actions necessary or advisable to be taken by it to ensure that the transactions contemplated herein are effected as so contemplated. (f) Any reference herein to a registration statement as of any time shall be deemed to include any document incorporated, or deemed to be incorporated, therein by reference as of such time and any reference herein to any post-effective amendment to a registration statement as of any time shall be deemed to include any document incorporated, or deemed to be incorporated, therein by reference as of such time. 3. Registration Procedures. If the Company files a registration statement pursuant to Section 2(a) or Section 2(b), the following provisions shall apply: (a) At or before the Effective Time of the Exchange Offer or the Shelf Registration, as the case may be, the Company shall qualify the Indenture under the Trust Indenture Act of 1939. (b) In the event that such qualification would require the appointment of a new trustee under the Indenture, the Company shall appoint a new trustee thereunder pursuant to the applicable provisions of the Indenture. 6 7 (c) In connection with the Company's obligations with respect to the registration of Exchange Securities as contemplated by Section 2(a) (the "Exchange Registration"), if applicable, the Company shall, as soon as practicable (or as otherwise specified): (i) use its reasonable best efforts to prepare and file with the Commission, no later than 45 days after the Closing Time, an Exchange Registration Statement on any form which may be utilized by the Company and which shall permit the Exchange Offer and resales of Exchange Securities by broker-dealers during the Resale Period to be effected as contemplated by Section 2(a), and use its reasonable best efforts to cause such Exchange Registration Statement to become effective as soon as practicable thereafter, but no later than 105 days after the Closing Time; (ii) as soon as practicable prepare and file with the Commission such amendments and supplements to such Exchange Registration Statement and the prospectus included therein as may be necessary to effect and maintain the effectiveness of such Exchange Registration Statement for the periods and purposes contemplated in Section 2(a) hereof and as may be required by the applicable rules and regulations of the Commission and the instructions applicable to the form of such Exchange Registration Statement, and promptly provide each broker-dealer holding Exchange Securities with such number of copies of the prospectus included therein (as then amended or supplemented), in conformity in all material respects with the requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder, as such broker-dealer reasonably may request prior to the expiration of the Resale Period, for use in connection with resales of Exchange Securities; (iii) promptly notify each broker-dealer that has requested or received copies of the prospectus included in such registration statement, and confirm such advice in writing, (A) when such Exchange Registration Statement or the prospectus included therein or any prospectus amendment or supplement or post-effective amendment has been filed, and, with respect to such Exchange Registration Statement or any post-effective amendment, when the same has become effective, (B) of any comments are made to the Company or its counsel by the Commission and by the blue sky or securities commissioner or regulator of any state with respect thereto or any request is made to the Company or its counsel by the Commission for amendments or supplements to such Exchange Registration Statement or prospectus or for additional information, (C) of the issuance by the Commission of any stop order suspending the effectiveness of such Exchange Registration Statement or the initiation or threatening of any proceedings for that purpose, (D) if at any time the Company becomes aware that the representations and warranties of the Company contemplated by Section 5 cease to be true and correct in all material respects, (E) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Exchange Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, or (F) at any time during the Resale Period when a prospectus is required to be delivered under the Securities Act, that such Exchange Registration Statement, prospectus, prospectus amendment or supplement or post-effective amendment does not conform in all material respects to the applicable requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder or contains an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; (iv) in the event that the Company would be required, pursuant to Section 3(c)(iii)(F) above, to notify any broker-dealers holding Exchange Securities, without unreasonable delay prepare and furnish to each such holder a reasonable number of copies of a prospectus supplemented or 7 8 amended so that, as thereafter delivered to purchasers of such Exchange Securities during the Resale Period, such prospectus shall conform in all material respects to the applicable requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder and shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; (v) use its reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of such Exchange Registration Statement or any post-effective amendment thereto at the earliest practicable date; (vi) use its reasonable best efforts to (A) register or qualify the Exchange Securities under the securities laws or blue sky laws of such jurisdictions as are contemplated by Section 2(a) no later than the commencement of the Exchange Offer, (B) keep such registrations or qualifications in effect and comply with such laws so as to permit the continuance of offers, sales and dealings therein in such jurisdictions until the expiration of the Resale Period and (C) take any and all other actions as may be reasonably necessary or advisable to enable each broker-dealer holding Exchange Securities to consummate the disposition thereof in such jurisdictions; provided, however, that the Company shall not be required for any such purpose to (1) qualify as a foreign corporation or as a dealer in securities in any jurisdiction wherein it would not otherwise be required to qualify but for the requirements of this Section 3(c)(vi), (2) consent to general service of process, or take any action that would subject it to general service of process or taxation, in any such jurisdiction if it is not then so subject or (3) make any changes to its certificate of incorporation or by-laws or any agreement between it and its stockholders; (vii) use its reasonable best efforts to obtain the consent or approval of each governmental agency or authority, whether federal, state or local, which may be required to effect the Exchange Registration, the Exchange Offer and the offering and sale of Exchange Securities by broker-dealers during the Resale Period; (viii) provide a CUSIP number for all Exchange Securities, not later than the applicable Effective Time; (ix) comply with all applicable rules and regulations of the Commission, and make generally available to its securityholders as soon as practicable but no later than eighteen months after the effective date of such Exchange Registration Statement, an earning statement complying with Section 11(a) of the Securities Act (including, at the option of the Company, Rule 158 thereunder). (d) In connection with the Company's obligations with respect to the Shelf Registration, if applicable, the Company shall, subject to Section 2(c), as soon as practicable (or as otherwise specified): (i) use its reasonable best efforts to prepare and file with the Commission, as soon as practicable but in any case within the time periods specified in Section 2(b), a Shelf Registration Statement on any form which may be utilized by the Company and which shall register all of the Registrable Securities for resale by the holders thereof in accordance with such method or methods of disposition as may be specified by such of the holders as, from time to time, may be Electing Holders and use its reasonable best efforts to cause such Shelf Registration Statement to become effective as soon as practicable but in any case within the time periods specified in Section 2(b); 8 9 (ii) not less than 30 calendar days prior to the Effective Time of the Shelf Registration Statement, mail the Notice and Questionnaire to the holders of Registrable Securities; no holder shall be entitled to be named as a selling securityholder in the Shelf Registration Statement as of the Effective Time, and no holder shall be entitled to use the prospectus forming a part thereof for resales of Registrable Securities at any time, unless such holder has returned a completed and signed Notice and Questionnaire to the Company by the deadline for response set forth therein; provided, however, holders of Registrable Securities shall have at least 28 calendar days from the date on which the Notice and Questionnaire is first mailed to such holders to return a completed and signed Notice and Questionnaire to the Company; (iii) after the Effective Time of the Shelf Registration Statement, upon the request of any holder of Registrable Securities that is not then an Electing Holder, promptly send a Notice and Questionnaire to such holder; provided that the Company shall not be required to take any action to name such holder as a selling securityholder in the Shelf Registration Statement or to enable such holder to use the prospectus forming a part thereof for resales of Registrable Securities until such holder has returned a completed and signed Notice and Questionnaire to the Company; (iv) as soon as practicable prepare and file with the Commission such amendments and supplements to such Shelf Registration Statement and the prospectus included therein as may be necessary to effect and maintain the effectiveness of such Shelf Registration Statement for the period specified in Section 2(b) hereof and as may be required by the applicable rules and regulations of the Commission and the instructions applicable to the form of such Shelf Registration Statement, and furnish to the Electing Holders copies of any such supplement or amendment simultaneously with or prior to its being used or filed with the Commission; (v) comply with the provisions of the Securities Act with respect to the disposition of all of the Registrable Securities covered by such Shelf Registration Statement in accordance with the intended methods of disposition by the Electing Holders provided for in such Shelf Registration Statement; (vi) provide (A) the Electing Holders, (B) the underwriters (which term, for purposes of this Registration Rights Agreement, shall include a person deemed to be an underwriter within the meaning of Section 2(11) of the Securities Act), if any, thereof, (C) any sales or placement agent therefor, (D) not more than one counsel for all such underwriters and agents and (E) not more than one counsel for all the Electing Holders the opportunity to participate in the preparation of such Shelf Registration Statement, each prospectus included therein or filed with the Commission and each amendment or supplement thereto; (vii) for a reasonable period prior to the filing of such Shelf Registration Statement, and throughout the period specified in Section 2(b), make available (solely for the purpose of verifying the accuracy of information contained in the Shelf Registration Statement) at reasonable times at the Company's principal place of business or such other reasonable place as the Company shall determine for inspection by the persons referred to in Section 3(d)(vi) who shall certify to the Company that they have a current intention to sell the Registrable Securities pursuant to the Shelf Registration such relevant financial and other information and books and records of the Company, and cause the officers, employees, counsel and independent certified public accountants of the Company to respond to such inquiries, as shall be 9 10 reasonably necessary, in the judgment of the respective counsel referred to in such Section, to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act; provided, however, that each such party shall be required to maintain in confidence and not to disclose to any other person any information or records reasonably designated by the Company as being confidential, until such time as (A) such information becomes a matter of public record (whether by virtue of its inclusion in such registration statement or otherwise), or (B) such person shall be required so to disclose such information pursuant to a subpoena or order of any court or other governmental agency or body having jurisdiction over the matter (subject to the requirements of such order, and only after such person shall have given the Company prompt prior written notice of such requirement); (viii) promptly notify each of the Electing Holders, any sales or placement agent therefor and any underwriter thereof (which notification may be made through any managing underwriter that is a representative of such underwriter for such purpose) and confirm such advice in writing, (A) when such Shelf Registration Statement or the prospectus included therein or any prospectus amendment or supplement or post-effective amendment has been filed, and, with respect to such Shelf Registration Statement or any post-effective amendment, when the same has become effective, (B) of any comments made to the Company or its counsel by the Commission and by the blue sky or securities commissioner or regulator of any state with respect thereto or any request made to the Company or its counsel by the Commission for amendments or supplements to such Shelf Registration Statement or prospectus or for additional information, (C) of the issuance by the Commission of any stop order suspending the effectiveness of such Shelf Registration Statement or the initiation or threatening of any proceedings for that purpose, (D) if at any time the Company becomes aware that representations and warranties of the Company contemplated by Section 3(d)(xvii) or Section 5 cease to be true and correct in all material respects, (E) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, or (F) if at any time when a prospectus is required to be delivered under the Securities Act, such Shelf Registration Statement, prospectus, prospectus amendment or supplement or post-effective amendment does not conform in all material respects to the applicable requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder or contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; (ix) use its reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of such registration statement or any post-effective amendment thereto at the earliest practicable date; (x) if requested by any managing underwriter or underwriters, any placement or sales agent or any Electing Holder, promptly incorporate in a prospectus supplement or post-effective amendment such information as is required by the applicable rules and regulations of the Commission and as such managing underwriter or underwriters, such agent or such Electing Holder specifies should be included therein relating to the terms of the sale of such Registrable Securities, including information with respect to the principal amount of Registrable Securities being sold by such Electing Holder or agent or to any underwriters, the name and description of such Electing Holder, agent or underwriter, the offering price of such Registrable Securities and any discount, commission or other compensation payable in respect thereof, the purchase price being paid therefor by such underwriters and with respect to any other terms of the offering of the Registrable Securities to be sold by such Electing Holder or agent or to such underwriters; and make all required filings of such prospectus supplement or post-effective amendment promptly after notification of the matters to be incorporated in such prospectus supplement or post-effective amendment; 10 11 (xi) furnish to each Electing Holder, each placement or sales agent, if any, therefor, each underwriter, if any, thereof and the respective counsel referred to in Section 3(d)(vi) a copy of such Shelf Registration Statement, each such amendment and supplement thereto (in each case including all exhibits thereto (in the case of an Electing Holder of Registrable Securities, upon request) and documents incorporated by reference therein) and such number of copies of such Shelf Registration Statement (excluding exhibits thereto and documents incorporated by reference therein unless specifically so requested by such Electing Holder, agent or underwriter, as the case may be) and of the prospectus included in such Shelf Registration Statement (including each preliminary prospectus and any summary prospectus), in conformity in all material respects with the applicable requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder, and such other documents, as such Electing Holder, agent, if any, and underwriter, if any, may reasonably request in order to facilitate the offering and disposition of the Registrable Securities owned by such Electing Holder, offered or sold by such agent or underwritten by such underwriter and to permit such Electing Holder, agent and underwriter to satisfy the prospectus delivery requirements of the Securities Act; and the Company hereby consents to the use of such prospectus (including such preliminary and summary prospectus) and any amendment or supplement thereto by each such Electing Holder and by any such agent and underwriter, in each case in the form most recently provided to such person by the Company, in connection with the offering and sale of the Registrable Securities covered by the prospectus (including such preliminary and summary prospectus) or any supplement or amendment thereto; (xii) use its reasonable best efforts to (A) register or qualify the Registrable Securities to be included in such Shelf Registration Statement under such securities laws or blue sky laws of such jurisdictions as any Electing Holder and each placement or sales agent, if any, therefor and underwriter, if any, thereof shall reasonably request, (B) keep such registrations or qualifications in effect and comply with such laws so as to permit the continuance of offers, sales and dealings therein in such jurisdictions during the period the Shelf Registration is required to remain effective under Section 2(b) above and for so long as may be necessary to enable any such Electing Holder, agent or underwriter to complete its distribution of Securities pursuant to such Shelf Registration Statement and (C) take any and all other actions as may be reasonably necessary or advisable to enable each such Electing Holder, agent, if any, and underwriter, if any, to consummate the disposition in such jurisdictions of such Registrable Securities; provided, however, that the Company shall not be required for any such purpose to (1) qualify as a foreign corporation or as a dealer in securities in any jurisdiction wherein it would not otherwise be required to qualify but for the requirements of this Section 3(d)(xii), (2) consent to general service of process or take any action that would subject it to general service of process or taxation, in any such jurisdiction if it is not then so subject or (3) make any changes to its certificate of incorporation or by-laws or any agreement between it and its stockholders; (xiii) use its reasonable best efforts to obtain the consent or approval of each governmental agency or authority, whether federal, state or local, which may be required to effect the Shelf Registration or the offering or sale in connection therewith or to enable the selling holder or holders to offer, or to consummate the disposition of, their Registrable Securities; (xiv) cooperate with the Electing Holders and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, which certificates shall be printed, lithographed or engraved, or produced by any combination of such methods, and which shall not bear any restrictive legends; and, in the case of an underwritten offering, enable such Registrable Securities to be in such denominations and 11 12 registered in such names as the managing underwriters may request at least two business days prior to any sale of the Registrable Securities; (xv) provide a CUSIP number for all Registrable Securities, not later than the applicable Effective Time; (xvi) enter into one or more underwriting agreements, engagement letters, agency agreements, "best efforts" underwriting agreements or similar agreements, as appropriate, in each case, that are satisfactory to the Company, including customary provisions relating to indemnification and contribution, and take such other actions in connection therewith as any Electing Holders shall reasonably request and as are customarily taken in order to expedite or facilitate the disposition of such Registrable Securities; (xvii) whether or not an agreement of the type referred to in Section 3(d)(xvi) hereof is entered into and whether or not any portion of the offering contemplated by the Shelf Registration is an underwritten offering or is made through a placement or sales agent or any other entity, (A) make such representations and warranties to the Electing Holders and the placement or sales agent, if any, therefor and the underwriters, if any, thereof in form, substance and scope as are customarily made in connection with a similar offering of debt securities pursuant to any appropriate agreement or to a registration statement filed on the form applicable to the Shelf Registration; (B) obtain an opinion of counsel to the Company in customary form and covering such matters, of the type customarily covered by such an opinion, as the managing underwriters, if any, or as any Electing Holders may reasonably request, addressed to such Electing Holder or Electing Holders and the placement or sales agent, if any, therefor and the underwriters, if any, thereof, dated the effective date of such Shelf Registration Statement (and if such Shelf Registration Statement contemplates an underwritten offering of a part or all of the Registrable Securities, dated the date of the closing under the underwriting agreement relating thereto) (it being agreed that the matters to be covered by such opinion shall include the due incorporation and good standing of the Company and its significant subsidiaries; the qualification of the Company and its significant subsidiaries to transact business as foreign corporations; the due authorization, execution and delivery of the relevant agreement of the type referred to in Section 3(d)(xvi) hereof; the due authorization, execution, authentication and issuance, and the validity and enforceability, of the Securities; the absence of material legal or governmental proceedings involving the Company; the absence of governmental approvals required to be obtained in connection with the Shelf Registration, the offering and sale of the Registrable Securities, this Registration Rights Agreement or any agreement of the type referred to in Section 3(d)(xvi) hereof, except such approvals as may be required under state securities or blue sky laws; the material compliance as to form of such Shelf Registration Statement and any documents incorporated by reference therein and of the Indenture with the requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder, respectively; and, as of the date of the opinion and of the Shelf Registration Statement or most recent post-effective amendment thereto, as the case may be, the absence from such Shelf Registration Statement and the prospectus included therein, as then amended or supplemented, and from the documents incorporated by reference therein (in each case other than the financial statements and other financial information contained therein) of an untrue statement of a material fact or the omission to state therein a material fact necessary to make the statements therein not misleading (in the case of such documents, in the light of the circumstances existing at the time that such documents were filed with the Commission under the Exchange Act)); (C) obtain a "cold comfort" letter or letters from the independent certified public accountants of the Company addressed to the placement or sales agent, if any, or the underwriters, if any, and use its reasonable 12 13 best efforts to have such letter also addressed to the selling Electing Holders (provided, however, that such letter need not be addressed to any person to whom, in the reasonable opinion of the Company's public accountants, addressing such letter is not permissible under applicable accounting standards) dated (i) the effective date of such Shelf Registration Statement and (ii) the effective date of any prospectus supplement to the prospectus included in such Shelf Registration Statement or post-effective amendment to such Shelf Registration Statement which includes unaudited or audited financial statements as of a date or for a period subsequent to that of the latest such statements included in such prospectus (and, if such Shelf Registration Statement contemplates an underwritten offering pursuant to any prospectus supplement to the prospectus included in such Shelf Registration Statement or post-effective amendment to such Shelf Registration Statement which includes unaudited or audited financial statements as of a date or for a period subsequent to that of the latest such statements included in such prospectus, dated the date of the closing under the underwriting agreement relating thereto), such letter or letters to be in customary form and covering such matters of the type customarily covered by letters of such type; (D) deliver such documents and certificates, including officers' certificates, as may be reasonably requested by any Electing Holders or the placement or sales agent, if any, therefor and the managing underwriters, if any, thereof to evidence the accuracy of the representations and warranties made pursuant to clause (A) above or those contained in Section 5(a) hereof and the compliance with or satisfaction of any agreements or conditions contained in the underwriting agreement or other agreement entered into by the Company; and (E) undertake such obligations relating to expense reimbursement, indemnification and contribution as are provided in Section 6 hereof; (xviii) notify in writing each holder of Registrable Securities of any proposal by the Company to amend or waive any provision of this Registration Rights Agreement pursuant to Section 9(h) hereof and of any amendment or waiver effected pursuant thereto, each of which notices shall contain the text of the amendment or waiver proposed or effected, as the case may be; (xix) in the event that any broker-dealer registered under the Exchange Act shall underwrite any Registrable Securities or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the Rules of Fair Practice and the By-Laws of the National Association of Securities Dealers, Inc. ("NASD") or any successor thereto, as amended from time to time) thereof, whether as a holder of such Registrable Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, assist such broker-dealer in complying with the requirements of such Rules and By-Laws, including by (A) if such Rules or By-Laws shall so require, engaging a "qualified independent underwriter" (as defined in such Schedule (or any successor thereto)) to participate in the preparation of the Shelf Registration Statement relating to such Registrable Securities, to exercise usual standards of due diligence in respect thereto and, if any portion of the offering contemplated by such Shelf Registration Statement is an underwritten offering or is made through a placement or sales agent, to recommend the yield of such Registrable Securities, (B) indemnifying any such qualified independent underwriter to the extent of the indemnification of underwriters provided in Section 6 hereof, and (C) providing such information to such broker-dealer as may be required in order for such broker-dealer to comply with the requirements of the Rules of Fair Practice of the NASD; and (xx) comply with all applicable rules and regulations of the Commission, and make generally available to its securityholders as soon as practicable but in any event not later than eighteen months after the effective date of such Shelf Registration Statement, an earning statement complying with Section 11(a) of the Securities Act (including, at the option of the Company, Rule 158 thereunder). 13 14 (e) In the event that the Company would be required, pursuant to Section 3(d)(viii)(F) above, to notify the Electing Holders, the placement or sales agent, if any, therefor and the managing underwriters, if any, thereof, the Company shall without delay prepare and furnish to each of the Electing Holders, to each placement or sales agent, if any, and to each such underwriter, if any, a reasonable number of copies of a prospectus supplemented or amended so that, as thereafter delivered to purchasers of Registrable Securities, such prospectus shall conform in all material respects to the applicable requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder and shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. Each Electing Holder agrees that upon receipt of any notice from the Company pursuant to Section 3(d)(viii)(F) hereof, such Electing Holder shall forthwith discontinue the disposition of Registrable Securities pursuant to the Shelf Registration Statement applicable to such Registrable Securities until such Electing Holder shall have received copies of such amended or supplemented prospectus, and if so directed by the Company, such Electing Holder shall deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Electing Holder's possession of the prospectus covering such Registrable Securities at the time of receipt of such notice. (f) In the event of a Shelf Registration, in addition to the information required to be provided by each Electing Holder in its Notice Questionnaire, the Company may require such Electing Holder to furnish to the Company such additional information regarding such Electing Holder and such Electing Holder's intended method of distribution of Registrable Securities as may be required in order to comply with the Securities Act. Each such Electing Holder agrees to notify the Company as promptly as practicable of any inaccuracy or change in information previously furnished by such Electing Holder to the Company or of the occurrence of any event in either case as a result of which any prospectus relating to such Shelf Registration contains or would contain an untrue statement of a material fact regarding such Electing Holder or such Electing Holder's intended method of disposition of such Registrable Securities or omits to state any material fact regarding such Electing Holder or such Electing Holder's intended method of disposition of such Registrable Securities required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they are made, not misleading, and promptly to furnish to the Company any additional information required to correct and update any previously furnished information or required so that such prospectus shall not contain, with respect to such Electing Holder or the disposition of such Registrable Securities, an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they are made, not misleading. 4. Registration Expenses. The Company agrees to bear and to pay or cause to be paid promptly upon request being made therefor all expenses incident to the Company's performance of or compliance with this Registration Rights Agreement, including (a) all Commission and any NASD registration, filing and review fees and expenses including fees and disbursements of counsel for the placement or sales agent or underwriters in connection with such registration, filing and review, (b) all fees and expenses in connection with the qualification of the Securities for offering and sale under the State securities and blue sky laws referred to in Section 3(d)(xii) hereof and determination of their eligibility for investment under the laws of such jurisdictions as any managing underwriters or the Electing Holders may designate, including any fees and disbursements of counsel for the Electing Holders (subject to the limitations of Clause (i) below) or underwriters in connection with such qualification and determination, (c) all expenses relating to the preparation, printing, production, distribution and reproduction of each registration statement required to be filed hereunder, each prospectus 14 15 included therein or prepared for distribution pursuant hereto, each amendment or supplement to the foregoing, the expenses of preparing the Securities for delivery and preparation and printing of certificates representing the Securities or delivery of Securities to be disposed of (including certificates representing the Securities), (d) messenger, telephone and delivery expenses relating to the offering, sale or delivery of Securities and the preparation of documents referred in clause (c) above, (e) fees and expenses of the Trustee under the Indenture, any agent of the Trustee and any counsel for the Trustee and of any collateral agent or custodian, (f) internal expenses (including all salaries and expenses of the Company's officers and employees performing legal or accounting duties), (g) fees, disbursements and expenses of counsel and independent certified public accountants of the Company (including the expenses of any opinions or "cold comfort" letters required by or incident to such performance and compliance), (h) fees, disbursements and expenses of one counsel for the Electing Holders retained in connection with a Shelf Registration, as selected by the Electing Holders of at least a majority in aggregate principal amount of the Registrable Securities held by Electing Holders (which counsel shall be reasonably satisfactory to the Company), (i) any fees charged by securities rating services for rating the Securities, and (j) fees, expenses and disbursements of any other persons, including special experts, retained by the Company in connection with such registration (collectively, the "Registration Expenses"). To the extent that any Registration Expenses are incurred, assumed or paid by any holder of Registrable Securities or any placement or sales agent therefor or underwriter thereof, the Company shall reimburse such person for the full amount of the Registration Expenses so incurred, assumed or paid promptly after receipt of a request therefor. Notwithstanding the foregoing, the holders of the Registrable Securities being registered shall pay all agency fees and commissions and underwriting discounts and commissions attributable to the sale of such Registrable Securities and the fees and disbursements of any counsel, any "qualified independent underwriter" engaged pursuant to Section 3(d)(xix) hereof, or other advisors or experts retained by such holders (severally or jointly), other than the counsel and experts specifically referred to above. 5. Representations and Warranties. The Company represents and warrants to, and agrees with, each Purchaser and each of the holders from time to time of Registrable Securities that: (a) Each registration statement covering Registrable Securities and each prospectus (including any preliminary or summary prospectus) contained therein or furnished pursuant to Section 3(d) or Section 3(c) hereof and any further amendments or supplements to any such registration statement or prospectus, when it becomes effective or is filed with the Commission, as the case may be, and, in the case of an underwritten offering of Registrable Securities, at the time of the closing under the underwriting agreement relating thereto, will conform in all material respects to the applicable requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make 15 16 the statements therein not misleading; and at all times subsequent to the Effective Time when a prospectus would be required to be delivered under the Securities Act, other than from (i) such time as a notice has been given to holders of Registrable Securities pursuant to Section 3(d)(viii)(F) or Section 3(c)(iii)(F) hereof until (ii) such time as the Company furnishes an amended or supplemented prospectus pursuant to Section 3(e) or Section 3(c)(iv) hereof, each such registration statement, and each prospectus (including any summary prospectus) contained therein or furnished pursuant to Section 3(d) or Section 3(c) hereof, as then amended or supplemented, will conform in all material respects to the applicable requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein in light of the circumstances in which they were made not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by a holder of Registrable Securities expressly for use therein. (b) Any documents incorporated by reference in any prospectus referred to in Section 5(a) hereof, when they become or became effective or are or were filed with the Commission, as the case may be, will conform or conformed in all material respects to the requirements of the Securities Act or the Exchange Act, as applicable, and none of such documents will contain or contained an untrue statement of a material fact or will omit or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by a holder of Registrable Securities expressly for use therein. (c) The compliance by the Company with all of the provisions of this Registration Rights Agreement and the consummation of the transactions herein contemplated will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any subsidiary of the Company is a party or by which the Company or any subsidiary of the Company is bound or to which any of the property or assets of the Company or any subsidiary of the Company is subject, nor will such action result in any violation of the provisions of the certificate of incorporation, as amended, or the by-laws of the Company or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any subsidiary of the Company or any of their properties; and no consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the consummation by the Company of the transactions contemplated by this Registration Rights Agreement, except the registration under the Securities Act of the Securities, qualification of the Indenture under the Trust Indenture Act and such consents, approvals, authorizations, registrations or qualifications as may be required under State securities or blue sky laws in connection with the offering and distribution of the Securities. (d) This Registration Rights Agreement has been duly authorized, executed and delivered by the Company. 6. Indemnification. (a) Indemnification by the Company. The Company shall indemnify and hold harmless each of the holders of Registrable Securities included in an Exchange Registration Statement, each of the Electing Holders of Registrable Securities included in a Shelf Registration Statement and each person who participates as a placement or sales agent or as an underwriter in any offering or sale of such Registrable Securities as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in any Exchange Registration Statement or Shelf Registration Statement, as the case may be, under which such Registrable Securities were registered under the Securities Act, or any preliminary, final or summary prospectus contained therein or furnished by the Company to any such holder, Electing Holder, agent or underwriter, or any amendment or supplement thereto, or the omission or alleged 16 17 omission therefrom of a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission; provided that (subject to Section 6(d) below) any such settlement is effected with the written consent of the Company; and (iii) against any and all expense whatsoever, as incurred (including the fees and disbursements of counsel chosen by the holders of Registrable Securities), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above; provided, however, that the Company shall not be liable to any such person in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, or preliminary, final or summary prospectus, or amendment or supplement thereto, in reliance upon and in conformity with written information furnished to the Company by such person expressly for use therein; (b) Indemnification by the Holders and any Agents and Underwriters. The Company may require, as a condition to including any Registrable Securities in any registration statement filed pursuant to Section 2(b) hereof and to entering into any underwriting agreement with respect thereto, that the Company shall have received an undertaking reasonably satisfactory to it from the Electing Holder of such Registrable Securities and from each underwriter named in any such underwriting agreement, severally and not jointly, to (i) indemnify and hold harmless the Company, and all other holders of Registrable Securities, against any losses, claims, damages or liabilities to which the Company or such other holders of Registrable Securities may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in such registration statement, or any preliminary, final or summary prospectus contained therein or furnished by the Company to any such Electing Holder, agent or underwriter, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Electing Holder or underwriter expressly for use therein, and (ii) reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that no such Electing Holder shall be required to undertake liability to any person under this Section 6(b) for any amounts in excess of the dollar amount of the proceeds to be received by such Electing Holder from the sale of such Electing Holder's Registrable Securities pursuant to such registration. (c) Notices of Claims, Etc. Promptly after receipt by an indemnified party under subsection (a) or (b) above of written notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against an indemnifying party pursuant to the indemnification provisions of 17 18 or contemplated by this Section 6, notify such indemnifying party in writing of the commencement of such action; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party other than under the indemnification provisions of or contemplated by Section 6(a) or 6(b) hereof. In the case of parties indemnified pursuant to Section 6(a) above, counsel to the indemnified parties shall be selected by the holders of a majority of the Registrable Securities held by Electing Holders, and, in the case of parties indemnified pursuant to Section 6(b) above, counsel to the indemnified parties shall be selected by the Company. In case any such action shall be brought against any indemnified party and it shall notify an indemnifying party of the commencement thereof, such indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, such indemnifying party shall not be liable to such indemnified party for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the written consent of the indemnified party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) Settlement without Consent if Failure to Reimburse. If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 6(a)(ii) effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement. Notwithstanding the immediately preceding sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, an indemnifying party shall not be liable for any settlement of the nature contemplated by Section 6(a)(ii) effected without its consent if such indemnifying party (i) reimburses such indemnified party in accordance with such request to the extent the indemnifying party considers such request to be reasonable and (ii) provided written notice to the indemnified party substantiating the unpaid balance as unreasonable, in each case prior to the date of such settlement. (e) Contribution. If for any reason the indemnification provisions contemplated by Section 6(a) or Section 6(b) are unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the indemnifying party and the indemnified party in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such indemnifying party or by such indemnified party, and the parties' relative 18 19 intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just and equitable if contributions pursuant to this Section 6(e) were determined by pro rata allocation (even if the holders or any agents or underwriters or all of them were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 6(e). The amount paid or payable by an indemnified party as a result of the losses, claims, damages, or liabilities (or actions in respect thereof) referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 6(e), no holder shall be required to contribute any amount in excess of the amount by which the dollar amount of the proceeds received by such holder from the sale of any Registrable Securities (after deducting any fees, discounts and commissions applicable thereto) exceeds the amount of any damages which such holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, and no underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The holders' and any underwriters' obligations in this Section 6(e) to contribute shall be several in proportion to the principal amount of Registrable Securities registered or underwritten, as the case may be, by them and not joint. (f) The obligations of the Company under this Section 6 shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions, to each officer, director and partner of each holder, agent and underwriter and each person, if any, who controls any holder, agent or underwriter within the meaning of the Securities Act; and the obligations of the holders and any agents or underwriters contemplated by this Section 6 shall be in addition to any liability which the respective holder, agent or underwriter may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company (including any person who, with his consent, is named in any registration statement as about to become a director of the Company) and to each person, if any, who controls the Company within the meaning of the Securities Act. 7. Underwritten Offerings. (a) Right to Effect Underwritten Offering. The holders of Registrable Securities covered by a Shelf Registration Statement filed pursuant to this Registration Rights Agreement may sell such Registrable Securities in an underwritten offering, provided that the holders of at least 20% in the aggregate principal amount of the Registrable Securities initially outstanding elect to participate in such offering and except that any such underwritten offering shall be suspended during any Shelf Registration Suspension. (b) Selection of Underwriters. If any of the Registrable Securities covered by the Shelf Registration are to be sold pursuant to an underwritten offering, the managing underwriter or underwriters thereof shall be designated by Electing Holders holding at least a majority in aggregate principal amount of the Registrable Securities to be included in such offering, provided that such designated managing underwriter or underwriters is or are reasonably acceptable to the Company. (c) Participation by Holders. Each holder of Registrable Securities hereby agrees with each other such holder that no such holder may participate in any underwritten offering hereunder unless such holder (i) agrees to sell such holder's Registrable Securities on the basis provided in any underwriting 19 20 arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 8. Rule 144. The Company covenants to the holders of Registrable Securities that to the extent it shall be required to do so under the Exchange Act, the Company shall timely file the reports required to be filed by it under the Exchange Act or the Securities Act (including the reports under Section 13 and 15(d) of the Exchange Act referred to in subparagraph (c)(1) of Rule 144 adopted by the Commission under the Securities Act) and the rules and regulations adopted by the Commission thereunder, and shall take such further action as any holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such holder to sell Registrable Securities without registration under the Securities Act within the limitations of the exemption provided by Rule 144 under the Securities Act, as such Rule may be amended from time to time, or any similar or successor rule or regulation hereafter adopted by the Commission. Upon the request of any holder of Registrable Securities in connection with that holder's sale pursuant to Rule 144, the Company shall deliver to such holder a written statement as to whether it has complied with such requirements. 9. Miscellaneous. (a) No Inconsistent Agreements. The Company represents, warrants, covenants and agrees that it has not granted, and shall not grant, registration rights with respect to Registrable Securities or any other securities which prevents the exercise of or otherwise conflicts with the terms contained in this Registration Rights Agreement. (b) Specific Performance. The parties hereto acknowledge that there would be no adequate remedy at law if the Company fails to perform any of its obligations hereunder and that the Initial Purchasers and the holders from time to time of the Registrable Securities may be irreparably harmed by any such failure, and accordingly agree that the Initial Purchasers and such holders, in addition to any other remedy to which they may be entitled at law or in equity, shall be entitled to compel specific performance of the respective obligations of the Company under this Registration Rights Agreement in accordance with the terms and conditions of this Registration Rights Agreement, in any court of the United States or any State thereof having jurisdiction. (c) Notices. All notices, requests, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered by hand, if delivered personally or by courier, or three days after being deposited in the mail (registered or certified mail, postage prepaid, return receipt requested) as follows: If to the Company, to it at Pogo Producing Company, 5 Greenway Plaza, Suite 2700, Houston, Texas 77046-0504, attention Corporate Secretary, and if to a holder, to the address of such holder set forth in the security register or other records of the Company, or to such other address as the Company or any such holder may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. For purposes of any notice to holders required hereunder, the Company, absent knowledge to the contrary, may presume that all holders are listed in the security register. (d) Parties in Interest. All the terms and provisions of this Registration Rights Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the parties hereto and the holders from time to time of the Registrable Securities and the respective successors and assigns of the parties hereto 20 21 and such holders. In the event that any transferee of any holder of Registrable Securities shall acquire Registrable Securities, in any manner, whether by gift, bequest, purchase, operation of law or otherwise, such transferee shall, without any further writing or action of any kind, be deemed a beneficiary hereof for all purposes and such Registrable Securities shall be held subject to all of the terms of this Registration Rights Agreement, and by taking and holding such Registrable Securities such transferee shall be entitled to receive the benefits of, and be conclusively deemed to have agreed to be bound by all of the applicable terms and provisions of this Registration Rights Agreement. If the Company shall so request, any such successor, assign or transferee shall agree in writing to acquire and hold the Registrable Securities subject to all of the applicable terms hereof. (e) Survival. The respective indemnities, agreements, representations, warranties and each other provision set forth in this Registration Rights Agreement or made pursuant hereto shall remain in full force and effect regardless of any investigation (or statement as to the results thereof) made by or on behalf of any holder of Registrable Securities, any director, officer or partner of such holder, any agent or underwriter or any director, officer or partner thereof, or any controlling person of any of the foregoing, and shall survive delivery of and payment for the Registrable Securities pursuant to the Purchase Agreement and the transfer and registration of Registrable Securities by such holder and the consummation of an Exchange Offer. (f) LAW GOVERNING. THIS REGISTRATION RIGHTS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. (g) Headings. The descriptive headings of the several Sections and paragraphs of this Registration Rights Agreement are inserted for convenience only, do not constitute a part of this Registration Rights Agreement and shall not affect in any way the meaning or interpretation of this Registration Rights Agreement. (h) Entire Agreement; Amendments. This Registration Rights Agreement and the other writings referred to herein (including the Indenture and the form of Securities) or delivered pursuant hereto which form a part hereof contain the entire understanding of the parties with respect to its subject matter. This Registration Rights Agreement supersedes all prior agreements and understandings between the parties with respect to its subject matter. This Registration Rights Agreement may be amended and the observance of any term of this Registration Rights Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only by a written instrument duly executed by the Company and the holders of at least a majority in aggregate principal amount of the Registrable Securities at the time outstanding. Each holder of any Registrable Securities at the time or thereafter outstanding shall be bound by any amendment or waiver effected pursuant to this Section 9(h), whether or not any notice, writing or marking indicating such amendment or waiver appears on such Registrable Securities or is delivered to such holder. (i) Inspection. For so long as this Registration Rights Agreement shall be in effect, this Registration Rights Agreement and a complete list of the names and addresses of all the holders of Registrable Securities shall be made available upon reasonable prior written notice for inspection and copying on any business day by any holder of Registrable Securities for proper purposes only (which shall include any purpose related to the rights of the holders of Registrable Securities under the Securities, the Indenture and this Agreement) at the offices of the Company at the address thereof set forth in Section 9(c) above and at the office of the Trustee under the Indenture. (j) Counterparts. This agreement may be executed by the parties in counterparts, each of which shall be deemed to be an original, but all such respective counterparts shall together constitute one and the same instrument. 21 22 Agreed to and accepted as of the date referred to above. POGO PRODUCING COMPANY By: /s/ JOHN W. ELSENHANS -------------------------------------- Name: John W. Elsenhans Title: Vice President-Finance and Treasurer MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED GOLDMAN, SACHS & CO. By: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By: [ILLEGIBLE] ----------------------------------- Authorized signatory On behalf of each of the Initial Purchasers 22 23 Exhibit A POGO PRODUCING COMPANY. INSTRUCTION TO DTC PARTICIPANTS (Date of Mailing) URGENT - IMMEDIATE ATTENTION REQUESTED DEADLINE FOR RESPONSE: [DATE]1/ The Depository Trust Company ("DTC") has identified you as a DTC Participant through which beneficial interests in the Pogo Producing Company (the "Company") 8 3/4% Senior Subordinated Notes due 2007 (the "Securities") are held. The Company is in the process of registering the Securities under the Securities Act of 1933 for resale by the beneficial owners thereof. In order to have their Securities included in the registration statement, beneficial owners must complete and return the enclosed Notice of Registration Statement and Selling Securityholder Questionnaire. It is important that beneficial owners of the Securities receive a copy of the enclosed materials as soon as possible as their rights to have the Securities included in the registration statement depend upon their returning the Notice and Questionnaire by [DEADLINE FOR RESPONSE]. Please forward a copy of the enclosed documents to each beneficial owner that holds interests in the Securities through you. If you require more copies of the enclosed materials or have any questions pertaining to this matter, please contact Pogo Producing Company, 5 Greenway Plaza, Suite 2700, Houston, Texas 77046-0504, attention Corporate Secretary, (713) 297-5017. - ---------------------- 1) Not less than 28 calendar days from date of mailing. A-1 24 Pogo Producing Company Notice of Registration Statement and Selling Securityholder Questionnaire (Date) Reference is hereby made to the Registration Rights Agreement (the "Registration Rights Agreement") between Pogo Producing Company (the "Company") and the Initial Purchasers named therein. Pursuant to the Registration Rights Agreement, the Company has filed with the United States Securities and Exchange Commission (the "Commission") a registration statement on Form [___] (the "Shelf Registration Statement") for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the "Securities Act"), of the Company's 8 3/4% Senior Subordinated Notes due 2007 (the "Securities"). A copy of the Registration Rights Agreement is attached hereto. All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Registration Rights Agreement. Each beneficial owner of Registrable Securities (as defined below) is entitled to have the Registrable Securities beneficially owned by it included in the Shelf Registration Statement. In order to have Registrable Securities included in the Shelf Registration Statement, this Notice of Registration Statement and Selling Securityholder Questionnaire ("Notice and Questionnaire") must be completed, executed and delivered to the Company's counsel at the address set forth herein for receipt ON OR BEFORE [DEADLINE FOR RESPONSE]. Beneficial owners of Registrable Securities who do not complete, execute and return this Notice and Questionnaire by such date (i) will not be named as selling securityholders in the Shelf Registration Statement and (ii) may not use the Prospectus forming a part thereof for resales of Registrable Securities. Certain legal consequences arise from being named as a selling securityholder in the Shelf Registration Statement and related Prospectus. Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling securityholder in the Shelf Registration Statement and related Prospectus. The term "Registrable Securities" is defined in the Registration Rights Agreement. A-2 25 ELECTION The undersigned holder (the "Selling Securityholder") of Registrable Securities hereby elects to include in the Shelf Registration Statement the Registrable Securities beneficially owned by it and listed below in Item (3). The undersigned, by signing and returning this Notice and Questionnaire, agrees to be bound with respect to such Registrable Securities by the terms and conditions of this Notice and Questionnaire and the Registration Rights Agreement, including, without limitation, Section 6 of the Registration Rights Agreement, as if the undersigned Selling Securityholder were an original party thereto. Upon any sale of Registrable Securities pursuant to the Shelf Registration Statement, the Selling Securityholder will be required to deliver to the Company and Trustee the Notice of Transfer set forth in Appendix A to the Prospectus and as Exhibit B to the Registration Rights Agreement. The Selling Securityholder hereby provides the following information to the Company and represents and warrants that such information is accurate and complete: A-3 26 QUESTIONNAIRE (1) (a) Full Legal Name of Selling Securityholder: --------------------------------------------------------------- (b) Full Legal Name of Registered Holder (if not the same as in (a) above) of Registrable Securities Listed in Item (3) below: --------------------------------------------------------------- (c) Full Legal Name of DTC Participant (if applicable and if not the same as (b) above) Through Which Registrable Securities Listed in Item (3) below are Held: --------------------------------------------------------------- (2) Address for Notices to Selling Securityholder: ----------------------------------------------------------------------- ----------------------------------------------------------------------- ----------------------------------------------------------------------- Telephone: ------------------------ Fax: ------------------------ Contact Person: ------------------------ (3) Beneficial Ownership of Securities: Except as set forth below in this Item (3), the undersigned does not beneficially own any Securities. (a) Principal amount of Registrable Securities beneficially owned: --------------------------------------------------------- CUSIP No(s). of such Registrable Securities: ------------------- (b) Principal amount of Securities other than Registrable Securities beneficially owned: --------------------------------- CUSIP No(s). of such other Securities: ------------------------- A-4 27 (c) Principal amount of Registrable Securities which the undersigned wishes to be included in the Shelf Registration Statement: ----------------------------------------------------- CUSIP No(s). of such Registrable Securities to be included in the Shelf Registration Statement: ------------------ (4) Beneficial Ownership of Other Securities of the Company: Except as set forth below in this Item (4), the undersigned Selling Securityholder is not the beneficial or registered owner of any other securities of the Company, other than the Securities listed above in Item (3). State any exceptions here: (5) Relationships with the Company: Except as set forth below, neither the Selling Securityholder nor any of its affiliates, officers, directors or principal equity holders (5% or more) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years. State any exceptions here: (6) Plan of Distribution: Except as set forth below, the undersigned Selling Securityholder intends to distribute the Registrable Securities listed above in Item (3) only as follows (if at all): Such Registrable Securities may be sold from time to time directly by the undersigned Selling Securityholder or, alternatively, through underwriters, broker-dealers or agents. Such Registrable Securities may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale, or at negotiated prices. Such sales may be effected in transactions (which may involve crosses or block transactions) (i) on any national securities exchange or quotation service on which the Registered Securities may be listed or quoted at the time of sale, (ii) in the over-the-counter market, (iii) in transactions otherwise than on such exchanges or services or in the over-the-counter market, or (iv) through the writing of options. In connection with sales of the Registrable Securities or otherwise, the Selling Securityholder may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the Registrable Securities in the course of hedging the positions they assume. The Selling Securityholder may also sell Registrable Securities short and deliver Registrable Securities to close out such short positions, or loan or pledge Registrable Securities to broker-dealers that in turn may sell such securities. A-5 28 State any exceptions here: (7) Specify the number of copies of the prospectus needed: ----------------- By signing below, the Selling Securityholder acknowledges that it understands its obligation to comply, and agrees that it will comply, with the provisions of the Exchange Act and the rules and regulations thereunder, particularly Regulation M thereunder. In the event that the Selling Securityholder transfers all or any portion of the Registrable Securities listed in Item (3) above after the date on which such information is provided to the Company, the Selling Securityholder agrees to notify the transferee(s) at the time of the transfer of its rights and obligations under this Notice and Questionnaire and the Registration Rights Agreement. By signing below, the Selling Securityholder consents to the disclosure of the information contained herein in its answers to Items (1) through (7) above and the inclusion of such information in the Shelf Registration Statement and related Prospectus. The Selling Securityholder understands that such information will be relied upon by the Company in connection with the preparation of the Shelf Registration Statement and related Prospectus. In accordance with the Selling Securityholder's obligation under Section 3(d) of the Registration Rights Agreement to provide such information as may be required by law for inclusion in the Shelf Registration Statement, the Selling Securityholder agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein which may occur subsequent to the date hereof at any time while the Shelf Registration Statement remains in effect. All notices hereunder and pursuant to the Exchange and Registration Rights Agreement shall be made in writing, by hand-delivery, first-class mail, or air courier guaranteeing overnight delivery to the Company as follows: Pogo Producing Company 5 Greenway Plaza, Suite 2700 Houston, Texas 77046-0504 Attention: Corporate Secretary (713) 297-5017 Once this Notice and Questionnaire is executed by the Selling Securityholder and received by the Company's counsel, the terms of this Notice and Questionnaire, and the representations and warranties contained herein, shall be binding on, shall inure to the benefit of and shall be enforceable by the respective successors, heirs, personal representatives, and assigns of the Company and the Selling Securityholder (with respect to the Registrable Securities beneficially owned by such Selling Securityholder and listed in Item (3) above. This Agreement shall be governed in all respects by the laws of the State of New York. A-6 29 IN WITNESS WHEREOF, the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent. Dated: --------------- --------------------------------------------- Selling Securityholder (Print/type full legal name of beneficial owner of Registrable Securities) By: ------------------------------------------ Name: Title: PLEASE RETURN THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE FOR RECEIPT ON OR BEFORE [DEADLINE FOR RESPONSE] TO THE COMPANY AT Pogo Producing Company 5 Greenway Plaza, Suite 2700 Houston, Texas 77046-0504 Attention: Corporate Secretary (713) 297-5017 A-7 30 Exhibit B [FORM OF REPRESENTATION LETTER TO TRANSFER NOTES TO UNRESTRICTED CUSIP] [DATE] Pogo Producing Company 5 Greenway Plaza, Suite 2700 Houston, TX 77046-0504 (713) 297-4970 (fax) Attention: Gerald Morton Fleet National Bank, as Trustee 777 Main St. Mail Stop 238 Hartford, CT 06115 (860) 986-7920 (fax) Attention: Phillip Kane Re: Pogo Producing Company 8 3/4% Senior Subordinated Notes due 2007 Gentlemen: We hereby certify that Pogo Producing Company (the "Company") and to Fleet National Bank, as Trustee, that [NAME OF SELLER] (the "Seller") sold $[AMOUNT SOLD] of the Company's 8 3/4% Senior Subordinated Notes due 2007 (the "Notes") held on behalf of the Seller in the name of [DTC NOMINEE'S NAME] with the Depository Trust Company as a portion of the unregistered Global Security and representing a portion of the Series A Securities (CUSIP No. _________). The Notes sold by the undersigned were sold pursuant to a prospectus for the Notes dated [DATE OF PROSPECTUS, AS SUPPLEMENTED] (the "Prospectus"). In connection with the sale of the Notes, Seller hereby represents and warrants to the Company and the Trustee that: (i) such Notes were sold in accordance with the section of the Prospectus entitled "Plan of Distribution", (ii) a copy of the Prospectus was delivered in connection with the sale, (iii) to Seller's knowledge, the purchaser was not an Affiliate (as such term is defined in the Securities Act of 1933, as amended (the "Act")) of the Company, and (iv) that all of the provisions of the Act were complied with in connection with such sale. The amount of Notes sold, and their trade date(s) is a follows: Trade Date Amount of Notes Sold ---------- -------------------- [INSERT TRADE DATE] [AMOUNT SOLD] The undersigned represents and warrants that he is a duly authorized officer or representative of Seller, with the full power and authority to make the representations and statements contained herein, B-1 31 and that such representations and statements are for the benefit of the Company and Trustee and may be relied upon by them in effecting the transfer of the amount of Notes sold from the Global Security representing the Series A Securities (CUSIP No. __________) to the Global Security representing the Series B Securities (CUSIP No. __________). [SELLER] By: ------------------------------- Name: ----------------------------- Title: ---------------------------- B-2 EX-5.1 4 OPINION OF GERALD A. MORTON 1 EXHIBIT 5.1 July 2, 1997 Pogo Producing Company 5 Greenway Plaza Suite 2700 Houston, Texas 77046 Ladies and Gentlemen: As set forth in the Registration Statement on Form S-4 ("Registration Statement"), filed by Pogo Producing Company, a Delaware corporation (the "Company"), under the Securities Act of 1933, as amended (the "Act"), relating to $100,000,000 aggregate principal amount of 8-3/4% Senior Subordinated Notes due 2004 of the Company (the "Notes"), certain legal matters in connection with the Notes are being passed upon for you by me. The Notes are to be issued under an indenture (the "Indenture") between the Company and State Street Bank and Trust Company, as succesor in iterest to Fleet National Bank, as trustee (the "Trustee"). At your request, this opinion is being furnished to you for filing as Exhibit 5 to the Registration Statement. I have acted as counsel for the Company in connection with the registration and sale of the Notes. In such capacity, I have examined the Company's Restated Certificate of Incorporation and Bylaws, each as amended to date, and have examined the originals, or copies certified or otherwise identified, of corporate records of the Company, certificates of public officials and of representatives of the Company, statutes and other records, instruments and documents as a basis for the opinions hereinafter expressed. Based upon our examination as aforesaid, and subject to the assumptions, qualifications, limitations and exceptions set forth herein, I am of the opinion that: 1. The Company is a corporation duly organized and validly existing under the laws of the State of Delaware. 2 Pogo Producing Company July 2, 1997 2. The Indenture constitutes a legal, valid and binding instrument of the Company, enforceable against the Company in accordance with its terms. 3. The Notes constitute legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms. The opinions as to enforceability of obligations set forth in paragraphs 2 and 3 above are each subject to the effect on such enforceability of (i) bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting creditors' rights and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). I hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of my name under the caption "Legal Matters." Very truly yours, /s/ GERALD A. MORTON Gerald A. Morton -2- EX-23.1 5 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this Registration Statement on Form S-4 of our report dated February 3, 1997 included in Pogo Producing Company's Annual Report on Form 10-K for the year ended December 31, 1996, and to all references to our Firm included in this Registration Statement. /s/ ARTHUR ANDERSEN LLP Arthur Andersen LLP Houston, Texas July 2, 1997 EX-23.2 6 CONSENT OF RYDER SCOTT COMPANY 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT PETROLEUM ENGINEERS We hereby consent to the use of our name in this Registration Statement on Form S-4 under the heading "Experts". We further consent to the incorporation by reference of our estimates of reserves and present value of future net reserves in such Registration Statement. RYDER SCOTT COMPANY PETROLEUM ENGINEERS /s/ Ryder Scott Company Petroleum Engineers Houston, Texas July 2, 1997 EX-24.1 7 POWERS OF ATTORNEY 1 EXHIBIT 24.1 POWER OF ATTORNEY WHEREAS, POGO PRODUCING COMPANY, a Delaware corporation (the "Company"), intends to file with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Act"), a Registration Statement on Form S-4 (the "Registration Statement") in order to register certain securities pursuant to the Act as have been approved by the Board of Directors pursuant to resolutions adopted thereby, and also to file any and all exhibits and other documents relating to said Registration Statement that are necessary or advisable; NOW, THEREFORE, I Tobin Armstrong, in my capacity as a director of the Company, do hereby appoint PAUL G. VAN WAGENEN, JOHN W. ELSENHANS, and THOMAS E. HART, and each of them severally, my true and lawful attorney or attorneys with power to act with or without the others, and with full power of substitution and resubstitution, to execute in my name, place and stead in my capacity as a director of the Company, said Registration Statement, any and all amendments to said Registration Statement and all instruments as said attorneys or any of them shall deem necessary or incidental in connection therewith and to file the same with the Commission. Each of said attorneys shall have full power and authority to do and perform in my name and on my behalf in my capacity as a director any act whatsoever that is necessary or desirable to be done in the premises as fully and to all intents and purposes as I might or could do in person, and by my signature hereto, I hereby ratify and approve all of such acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument on this 30th day of June, 1997. /s/ TOBIN ARMSTRONG Tobin Armstrong 2 POWER OF ATTORNEY WHEREAS, POGO PRODUCING COMPANY, a Delaware corporation (the "Company"), intends to file with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Act"), a Registration Statement on Form S-4 (the "Registration Statement") in order to register certain securities pursuant to the Act as have been approved by the Board of Directors pursuant to resolutions adopted thereby, and also to file any and all exhibits and other documents relating to said Registration Statement that are necessary or advisable; NOW, THEREFORE, I Jack S. Blanton, in my capacity as a director of the Company, do hereby appoint PAUL G. VAN WAGENEN, STEPHEN SLACK, and THOMAS E. HART, and each of them severally, my true and lawful attorney or attorneys with power to act with or without the others, and with full power of substitution and resubstitution, to execute in my name, place and stead in my capacity as a director of the Company, said Registration Statement, any and all amendments to said Registration Statement and all instruments as said attorneys or any of them shall deem necessary or incidental in connection therewith and to file the same with the Commission. Each of said attorneys shall have full power and authority to do and perform in my name and on my behalf in my capacity as a director any act whatsoever that is necessary or desirable to be done in the premises as fully and to all intents and purposes as I might or could do in person, and by my signature hereto, I hereby ratify and approve all of such acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument on this 30th day of June, 1997. /s/ JACK S. BLANTON Jack S. Blanton 3 POWER OF ATTORNEY WHEREAS, POGO PRODUCING COMPANY, a Delaware corporation (the "Company"), intends to file with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Act"), a Registration Statement on Form S-4 (the "Registration Statement") in order to register certain securities pursuant to the Act as have been approved by the Board of Directors pursuant to resolutions adopted thereby, and also to file any and all exhibits and other documents relating to said Registration Statement that are necessary or advisable; NOW, THEREFORE, I W. M. Brumley, Jr., in my capacity as a director of the Company, do hereby appoint PAUL G. VAN WAGENEN, JOHN W. ELSENHANS, and THOMAS E. HART, and each of them severally, my true and lawful attorney or attorneys with power to act with or without the others, and with full power of substitution and resubstitution, to execute in my name, place and stead in my capacity as a director of the Company, said Registration Statement, any and all amendments to said Registration Statement and all instruments as said attorneys or any of them shall deem necessary or incidental in connection therewith and to file the same with the Commission. Each of said attorneys shall have full power and authority to do and perform in my name and on my behalf in my capacity as a director any act whatsoever that is necessary or desirable to be done in the premises as fully and to all intents and purposes as I might or could do in person, and by my signature hereto, I hereby ratify and approve all of such acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument on this 30th day of June, 1997. /s/ W. M. BRUMLEY, JR. W. M. Brumley, Jr. 4 POWER OF ATTORNEY WHEREAS, POGO PRODUCING COMPANY, a Delaware corporation (the "Company"), intends to file with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Act"), a Registration Statement on Form S-4 (the "Registration Statement") in order to register certain securities pursuant to the Act as have been approved by the Board of Directors pursuant to resolutions adopted thereby, and also to file any and all exhibits and other documents relating to said Registration Statement that are necessary or advisable; NOW, THEREFORE, I John B. Carter, Jr., in my capacity as a director of the Company, do hereby appoint PAUL G. VAN WAGENEN, JOHN W. ELSENHANS, and THOMAS E. HART, and each of them severally, my true and lawful attorney or attorneys with power to act with or without the others, and with full power of substitution and resubstitution, to execute in my name, place and stead in my capacity as a director of the Company, said Registration Statement, any and all amendments to said Registration Statement and all instruments as said attorneys or any of them shall deem necessary or incidental in connection therewith and to file the same with the Commission. Each of said attorneys shall have full power and authority to do and perform in my name and on my behalf in my capacity as a director any act whatsoever that is necessary or desirable to be done in the premises as fully and to all intents and purposes as I might or could do in person, and by my signature hereto, I hereby ratify and approve all of such acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument on this 30th day of June, 1997. /s/ JOHN B. CARTER, JR. John B. Carter, Jr. 5 POWER OF ATTORNEY WHEREAS, POGO PRODUCING COMPANY, a Delaware corporation (the "Company"), intends to file with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Act"), a Registration Statement on Form S-4 (the "Registration Statement") in order to register certain securities pursuant to the Act as have been approved by the Board of Directors pursuant to resolutions adopted thereby, and also to file any and all exhibits and other documents relating to said Registration Statement that are necessary or advisable; NOW, THEREFORE, I William L. Fisher, in my capacity as a director of the Company, do hereby appoint PAUL G. VAN WAGENEN, JOHN W. ELSENHANS, and THOMAS E. HART, and each of them severally, my true and lawful attorney or attorneys with power to act with or without the others, and with full power of substitution and resubstitution, to execute in my name, place and stead in my capacity as a director of the Company, said Registration Statement, any and all amendments to said Registration Statement and all instruments as said attorneys or any of them shall deem necessary or incidental in connection therewith and to file the same with the Commission. Each of said attorneys shall have full power and authority to do and perform in my name and on my behalf in my capacity as a director any act whatsoever that is necessary or desirable to be done in the premises as fully and to all intents and purposes as I might or could do in person, and by my signature hereto, I hereby ratify and approve all of such acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument on this 30th day of June, 1997. /s/ WILLIAM L. FISHER William L. Fisher 6 POWER OF ATTORNEY WHEREAS, POGO PRODUCING COMPANY, a Delaware corporation (the "Company"), intends to file with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Act"), a Registration Statement on Form S-4 (the "Registration Statement") in order to register certain securities pursuant to the Act as have been approved by the Board of Directors pursuant to resolutions adopted thereby, and also to file any and all exhibits and other documents relating to said Registration Statement that are necessary or advisable; NOW, THEREFORE, I William E. Gipson, in my capacity as a director of the Company, do hereby appoint PAUL G. VAN WAGENEN, JOHN W. ELSENHANS, and THOMAS E. HART, and each of them severally, my true and lawful attorney or attorneys with power to act with or without the others, and with full power of substitution and resubstitution, to execute in my name, place and stead in my capacity as a director of the Company, said Registration Statement, any and all amendments to said Registration Statement and all instruments as said attorneys or any of them shall deem necessary or incidental in connection therewith and to file the same with the Commission. Each of said attorneys shall have full power and authority to do and perform in my name and on my behalf in my capacity as a director any act whatsoever that is necessary or desirable to be done in the premises as fully and to all intents and purposes as I might or could do in person, and by my signature hereto, I hereby ratify and approve all of such acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument on this 30th day of June, 1997. /s/ WILLIAM E. GIPSON William E. Gipson 7 POWER OF ATTORNEY WHEREAS, POGO PRODUCING COMPANY, a Delaware corporation (the "Company"), intends to file with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Act"), a Registration Statement on Form S-4 (the "Registration Statement") in order to register certain securities pursuant to the Act as have been approved by the Board of Directors pursuant to resolutions adopted thereby, and also to file any and all exhibits and other documents relating to said Registration Statement that are necessary or advisable; NOW, THEREFORE, I Gerrit W. Gong, in my capacity as a director of the Company, do hereby appoint PAUL G. VAN WAGENEN, JOHN W. ELSENHANS, and THOMAS E. HART, and each of them severally, my true and lawful attorney or attorneys with power to act with or without the others, and with full power of substitution and resubstitution, to execute in my name, place and stead in my capacity as a director of the Company, said Registration Statement, any and all amendments to said Registration Statement and all instruments as said attorneys or any of them shall deem necessary or incidental in connection therewith and to file the same with the Commission. Each of said attorneys shall have full power and authority to do and perform in my name and on my behalf in my capacity as a director any act whatsoever that is necessary or desirable to be done in the premises as fully and to all intents and purposes as I might or could do in person, and by my signature hereto, I hereby ratify and approve all of such acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument on this 30th day of June, 1997. /s/ GERRIT W. GONG Gerrit W. Gong 8 POWER OF ATTORNEY WHEREAS, POGO PRODUCING COMPANY, a Delaware corporation (the "Company"), intends to file with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Act"), a Registration Statement on Form S-4 (the "Registration Statement") in order to register certain securities pursuant to the Act as have been approved by the Board of Directors pursuant to resolutions adopted thereby, and also to file any and all exhibits and other documents relating to said Registration Statement that are necessary or advisable; NOW, THEREFORE, I J. Stuart Hunt, in my capacity as a director of the Company, do hereby appoint PAUL G. VAN WAGENEN, JOHN W. ELSENHANS, and THOMAS E. HART, and each of them severally, my true and lawful attorney or attorneys with power to act with or without the others, and with full power of substitution and resubstitution, to execute in my name, place and stead in my capacity as a director of the Company, said Registration Statement, any and all amendments to said Registration Statement and all instruments as said attorneys or any of them shall deem necessary or incidental in connection therewith and to file the same with the Commission. Each of said attorneys shall have full power and authority to do and perform in my name and on my behalf in my capacity as a director any act whatsoever that is necessary or desirable to be done in the premises as fully and to all intents and purposes as I might or could do in person, and by my signature hereto, I hereby ratify and approve all of such acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument on this 30th day of June, 1997. /s/ J. STUART HUNT J. Stuart Hunt 9 POWER OF ATTORNEY WHEREAS, POGO PRODUCING COMPANY, a Delaware corporation (the "Company"), intends to file with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Act"), a Registration Statement on Form S-4 (the "Registration Statement") in order to register certain securities pursuant to the Act as have been approved by the Board of Directors pursuant to resolutions adopted thereby, and also to file any and all exhibits and other documents relating to said Registration Statement that are necessary or advisable; NOW, THEREFORE, I Frederick A. Klingenstein, in my capacity as a director of the Company, do hereby appoint PAUL G. VAN WAGENEN, JOHN W. ELSENHANS, and THOMAS E. HART, and each of them severally, my true and lawful attorney or attorneys with power to act with or without the others, and with full power of substitution and resubstitution, to execute in my name, place and stead in my capacity as a director of the Company, said Registration Statement, any and all amendments to said Registration Statement and all instruments as said attorneys or any of them shall deem necessary or incidental in connection therewith and to file the same with the Commission. Each of said attorneys shall have full power and authority to do and perform in my name and on my behalf in my capacity as a director any act whatsoever that is necessary or desirable to be done in the premises as fully and to all intents and purposes as I might or could do in person, and by my signature hereto, I hereby ratify and approve all of such acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument on this 30th day of June, 1997. /s/ FREDERICK A. KLINGENSTEIN Frederick A. Klingenstein 10 POWER OF ATTORNEY WHEREAS, POGO PRODUCING COMPANY, a Delaware corporation (the "Company"), intends to file with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Act"), a Registration Statement on Form S-4 (the "Registration Statement") in order to register certain securities pursuant to the Act as have been approved by the Board of Directors pursuant to resolutions adopted thereby, and also to file any and all exhibits and other documents relating to said Registration Statement that are necessary or advisable; NOW, THEREFORE, I Nicholas R. Petry, in my capacity as a director of the Company, do hereby appoint PAUL G. VAN WAGENEN, JOHN W. ELSENHANS, and THOMAS E. HART, and each of them severally, my true and lawful attorney or attorneys with power to act with or without the others, and with full power of substitution and resubstitution, to execute in my name, place and stead in my capacity as a director of the Company, said Registration Statement, any and all amendments to said Registration Statement and all instruments as said attorneys or any of them shall deem necessary or incidental in connection therewith and to file the same with the Commission. Each of said attorneys shall have full power and authority to do and perform in my name and on my behalf in my capacity as a director any act whatsoever that is necessary or desirable to be done in the premises as fully and to all intents and purposes as I might or could do in person, and by my signature hereto, I hereby ratify and approve all of such acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument on this 30th day of June, 1997. /s/ NICHOLAS R. PETRY Nicholas R. Petry 11 POWER OF ATTORNEY WHEREAS, POGO PRODUCING COMPANY, a Delaware corporation (the "Company"), intends to file with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Act"), a Registration Statement on Form S-4 (the "Registration Statement") in order to register certain securities pursuant to the Act as have been approved by the Board of Directors pursuant to resolutions adopted thereby, and also to file any and all exhibits and other documents relating to said Registration Statement that are necessary or advisable; NOW, THEREFORE, I Jack A. Vickers, in my capacity as a director of the Company, do hereby appoint PAUL G. VAN WAGENEN, JOHN W. ELSENHANS, and THOMAS E. HART, and each of them severally, my true and lawful attorney or attorneys with power to act with or without the others, and with full power of substitution and resubstitution, to execute in my name, place and stead in my capacity as a director of the Company, said Registration Statement, any and all amendments to said Registration Statement and all instruments as said attorneys or any of them shall deem necessary or incidental in connection therewith and to file the same with the Commission. Each of said attorneys shall have full power and authority to do and perform in my name and on my behalf in my capacity as a director any act whatsoever that is necessary or desirable to be done in the premises as fully and to all intents and purposes as I might or could do in person, and by my signature hereto, I hereby ratify and approve all of such acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument on this 30th day of June, 1997. /s/ JACK A. VICKERS Jack A. Vickers EX-25.1 8 STATEMENT OF ELIGIBILITY OF TRUSTEE 1 EXHIBIT 25.1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM T-1 ______ STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE Check if an Application to Determine Eligibility of a Trustee Pursuant to Section 305(b)(2) __ STATE STREET BANK AND TRUST COMPANY (Exact name of trustee as specified in its charter) Massachusetts 04-1867445 (Jurisdiction of incorporation or (I.R.S. Employer organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110 (Address of principal executive offices) (Zip Code) John R. Towers, Esq. Executive Vice President and General Counsel 225 Franklin Street, Boston, Massachusetts 02110 (617) 654-3253 (Name, address and telephone number of agent for service) _____________________ POGO PRODUCING COMPANY (Exact name of obligor as specified in its charter) DELAWARE 74-1659398 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
5 GREENWAY PLAZA, SUITE 2700 HOUSTON, TEXAS 77046-0504 (Address of principal executive offices) (Zip Code) ____________________ 8 3/4% SENIOR SUBORDINATED NOTES DUE 5/15/2007 (Title of indenture securities) 2 GENERAL ITEM 1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE: (A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO WHICH IT IS SUBJECT. Department of Banking and Insurance of The Commonwealth of Massachusetts, 100 Cambridge Street, Boston, Massachusetts. Board of Governors of the Federal Reserve System, Washington, D.C., Federal Deposit Insurance Corporation, Washington, D.C. (B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS. Trustee is authorized to exercise corporate trust powers. ITEM 2. AFFILIATIONS WITH OBLIGOR. IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH AFFILIATION. The obligor is not an affiliate of the trustee or of its parent, State Street Boston Corporation. (See note on page 2.) ITEM 3. THROUGH ITEM 15. NOT APPLICABLE. ITEM 16. LIST OF EXHIBITS. LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF ELIGIBILITY. 1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN EFFECT. A copy of the Articles of Association of the trustee, as now in effect, is on file with the Securities and Exchange Commission as Exhibit 1 to Amendment No. 1 to the Statement of Eligibility and Qualification of Trustee (Form T-1) filed with the Registration Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated herein by reference thereto. 2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION. A copy of a Statement from the Commissioner of Banks of Massachusetts that no certificate of authority for the trustee to commence business was necessary or issued is on file with the Securities and Exchange Commission as Exhibit 2 to Amendment No. 1 to the Statement of Eligibility and Qualification of Trustee (Form T-1) filed with the Registration Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated herein by reference thereto. 3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE TRUST POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS SPECIFIED IN PARAGRAPH (1) OR (2), ABOVE. A copy of the authorization of the trustee to exercise corporate trust powers is on file with the Securities and Exchange Commission as Exhibit 3 to Amendment No. 1 to the Statement of Eligibility and Qualification of Trustee (Form T-1) filed with the Registration Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated herein by reference thereto. 4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS CORRESPONDING THERETO. A copy of the by-laws of the trustee, as now in effect, is on file with the Securities and Exchange Commission as Exhibit 4 to the Statement of Eligibility and Qualification of Trustee (Form T-1) filed with the Registration Statement of Eastern Edison Company (File No. 33-37823) and is incorporated herein by reference thereto. 1 3 5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS IN DEFAULT. Not applicable. 6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY SECTION 321(B) OF THE ACT. The consent of the trustee required by Section 321(b) of the Act is annexed hereto as Exhibit 6 and made a part hereof. 7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING AUTHORITY. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority is annexed hereto as Exhibit 7 and made a part hereof. NOTES In answering any item of this Statement of Eligibility which relates to matters peculiarly within the knowledge of the obligor or any underwriter for the obligor, the trustee has relied upon information furnished to it by the obligor and the underwriters, and the trustee disclaims responsibility for the accuracy or completeness of such information. The answer furnished to Item 2. of this statement will be amended, if necessary, to reflect any facts which differ from those stated and which would have been required to be stated if known at the date hereof. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, State Street Bank and Trust Company, a corporation organized and existing under the laws of The Commonwealth of Massachusetts, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Boston and The Commonwealth of Massachusetts, on the 30th day of June, 1997. STATE STREET BANK AND TRUST COMPANY By: /S/ PAUL D. ALLEN ------------------------------ PAUL D. ALLEN VICE PRESIDENT 2 4 EXHIBIT 6 CONSENT OF THE TRUSTEE Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of 1939, as amended, in connection with the proposed issuance by POGO PRODUCING COMPANY of its 8 3/4% SENIOR SUBORDINATED NOTES DUE 5/15/2007, we hereby consent that reports of examination by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. STATE STREET BANK AND TRUST COMPANY By: /S/ PAUL D. ALLEN --------------------------------- PAUL D. ALLEN VICE PRESIDENT DATED: JUNE 30, 1997 3 5 EXHIBIT 7 Consolidated Report of Condition of State Street Bank and Trust Company, Massachusetts and foreign and domestic subsidiaries, a state banking institution organized and operating under the banking laws of this commonwealth and a member of the Federal Reserve System, at the close of business March 31, 1997, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act and in accordance with a call made by the Commissioner of Banks under General Laws, Chapter 172, Section 22(a).
Thousands of ASSETS Dollars Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin ......................................... 1,665,142 Interest-bearing balances .................................................................. 8,193,292 Securities........................................................................................... 10,238,113 Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and its Edge subsidiary ........................................................ 5,853,144 Loans and lease financing receivables: Loans and leases, net of unearned income ......................... 4,936,454 Allowance for loan and lease losses .............................. 70,307 Allocated transfer risk reserve................................... 0 Loans and leases, net of unearned income and allowances .................................... 4,866,147 Assets held in trading accounts............................................................................................. 957,478 Premises and fixed assets............................................................................................... 380,117 Other real estate owned ...................................................................................................... 884 Investments in unconsolidated subsidiaries ........................................................... 25,835 Customers' liability to this bank on acceptances outstanding ......................................... 45,548 Intangible assets..................................................................................... 158,080 Other assets................................................................................................ 1,066,957 ----------- Total assets.......................................................................................... 33,450,737 =========== LIABILITIES Deposits: In domestic offices ...................................................................................................... 8,270,845 Noninterest-bearing ..................................... 6,318,360 Interest-bearing ........................................ 1,952,485 In foreign offices and Edge subsidiary ...................................................... 12,760,086 Noninterest-bearing ..................................... 53,052 Interest-bearing ........................................ 12,707,034 Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge subsidiary.......................................................... 8,216,641 Demand notes issued to the U.S. Treasury and Trading Liabilities ..................................... 926,821 Other borrowed money ................................................................................. 671,164 Subordinated notes and debentures .................................................................... 0 Bank's liability on acceptances executed and outstanding ............................................. 46,137 Other liabilities .................................................................................... 745,529 Total liabilities .................................................................................... 31,637,223 ------------ EQUITY CAPITAL Perpetual preferred stock and related surplus......................................................... 0 Common stock ......................................................................................... 29,931 Surplus .............................................................................................. 360,717 Undivided profits and capital reserves/Net unrealized holding gains (losses) ......................... 1,426,881 Cumulative foreign currency translation adjustments ................................................. (4,015) - Total equity capital ................................................................................. 1,813,514 ------------ Total liabilities and equity capital.................................................................. 33,450,737 ============
4 6 I, Rex S. Schuette, Senior Vice President and Comptroller of the above named bank do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true to the best of my knowledge and belief. Rex S. Schuette We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true and correct. David A. Spina Marshall N. Carter Charles F. Kaye 5 -----END PRIVACY-ENHANCED MESSAGE-----