Filed Pursuant to Rule 424(b)(3)
Registration No. 333-108516
PROSPECTUS
[RANGE RESOURCES LOGO]
OFFER TO EXCHANGE UP TO
$100,000,000 OF 7 3/8% SENIOR SUBORDINATED NOTES DUE 2013
FOR
$100,000,000 OF 7 3/8% SENIOR SUBORDINATED NOTES DUE 2013
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
TERMS OF THE EXCHANGE OFFER
- - We are offering to exchange up to $100,000,000 of our outstanding 7 3/8%
Senior Subordinated Notes due 2013, which we refer to herein as the "old
notes," for new notes with substantially identical terms that have been
registered under the Securities Act.
- - We will exchange all outstanding old notes that you validly tender and do not
validly withdraw before the exchange offer expires for an equal principal
amount of new notes.
- - There is no public market for the old notes or the new notes.
- - We are incurring all expenses associated with this registration.
- - The exchange offer expires at 5:00 p.m., New York City time, on October 22,
2003, unless extended. We do not currently intend to extend the exchange
offer.
- - Tenders of old notes may be withdrawn at any time prior to the expiration of
the exchange offer in accordance with the procedures set forth herein.
- - We believe that the exchange of new notes for old notes should not be an
exchange or otherwise a taxable event to a holder for United States federal
income tax purposes.
- - We will not receive any proceeds from the exchange offer.
TERMS OF THE NEW 7 3/8% SENIOR SUBORDINATED NOTES DUE 2013 OFFERED IN
THE EXCHANGE OFFER
MATURITY
- - The new notes will mature on July 15, 2013.
INTEREST
- - Interest on the new notes is payable on January 15 and July 15 of each year,
beginning January 15, 2004.
- - Interest will accrue from July 21, 2003.
REDEMPTION
- - Prior to July 15, 2006, we may redeem up to 35% of the original aggregate
principal amount of the new notes at a redemption price of 107.375% of the
principal amount, plus accrued and unpaid interest, with the proceeds of
certain equity offerings.
- - On or after July 15, 2008, we may redeem some or all of the new notes pursuant
to the redemption prices specified under the caption "Description of the New
Notes -- Optional Redemption."
CHANGE OF CONTROL
- - Subject to certain conditions, if we experience a change of control, we may be
required to repurchase some or all of the new notes at a purchase price of
101% of the principal amount, plus accrued and unpaid interest.
RANKING
- - The new notes and the guarantees are our and our guarantor subsidiaries'
general, unsecured obligations and are subordinated to our and our
subsidiaries' senior debt and will be subordinated to future senior debt that
we and our subsidiaries are permitted to incur under our senior credit
facilities and the indenture governing the new notes.
---------------------
SEE "RISK FACTORS" ON PAGE 7 FOR A DISCUSSION OF FACTORS YOU SHOULD
CONSIDER BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Each broker-dealer that receives new notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such new notes. The letter of transmittal
accompanying this prospectus states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of new notes received in exchange for old notes where
such old notes were acquired by the broker-dealer as a result of market-making
activities or other trading activities. We and the guarantors have agreed that,
starting on the expiration date of this exchange offer and ending on the close
of business 180 days after the expiration date, we and the guarantors will make
this prospectus available to any broker-dealer for use in connection with any
such resale. See "Plan of Distribution."
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 18, 2003
TABLE OF CONTENTS
Forward Looking Statements.................................. i
Prospectus Summary.......................................... 1
Risk Factors................................................ 7
Exchange Offer.............................................. 14
Use of Proceeds............................................. 21
Capitalization.............................................. 22
Description of the New Notes................................ 23
United States Federal Income Tax Considerations............. 55
Plan of Distribution........................................ 55
Legal Matters............................................... 56
Experts..................................................... 56
Reserve Engineers........................................... 57
Where You Can Find More Information......................... 57
Incorporation by Reference.................................. 57
Letter of Transmittal....................................... A-1
THIS PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND FINANCIAL INFORMATION
ABOUT RANGE RESOURCES CORPORATION THAT IS NOT INCLUDED IN OR DELIVERED WITH THIS
PROSPECTUS. SUCH INFORMATION IS AVAILABLE WITHOUT CHARGE UPON WRITTEN OR ORAL
REQUEST MADE TO THE OFFICE OF THE CORPORATE SECRETARY, RANGE RESOURCES
CORPORATION, 777 MAIN STREET, SUITE 800, FORT WORTH, TEXAS 76102 (TEL.
817-870-2601). TO OBTAIN TIMELY DELIVERY OF ANY REQUESTED INFORMATION, YOU MUST
MAKE ANY REQUEST NO LATER THAN OCTOBER 15, 2003.
---------------------
FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference in this
prospectus contain forward-looking statements. These statements include
statements relating to our plans, strategies, objectives, expectations,
intentions and adequacy of resources and are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
When used herein, the words "anticipate," "believe," "estimate," "expect,"
"intend," "will" and similar expressions as they relate to us or our management
are intended to identify such statements as "forward-looking statements." Such
statements reflect the current views of us and our management with respect to
future events and are subject to certain risks, uncertainties and assumptions.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, our actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements.
Our actual results may differ materially from the results predicted or from
any other forward-looking statements made by, or on behalf of, us and reported
results should not be considered as an indication of future performance. The
potential risks and uncertainties include, among other things, production
variance from expectations, volatility of oil and gas prices, hedging results,
the need to develop and replace reserves, the substantial capital expenditures
required to fund operations, exploration risks, environmental risks,
uncertainties about estimates of reserves, competition, litigation, government
regulation, political risks, our ability to implement our business strategy,
costs and results of drilling new projects, mechanical and other inherent risks
associated with oil and gas production, weather, availability of drilling
equipment and changes in interest rates, as well as the other risks described
under "Risk Factors" in this prospectus.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, events, levels of
activity, performance, or achievements. We do not assume responsibility for the
accuracy and completeness of the forward-looking statements. We do not intend to
update any of the forward-looking statements after the date of this prospectus
to conform them to actual results.
i
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus
and the documents incorporated into it by reference. Because it is a summary, it
does not contain all of the information that you should consider before deciding
to exchange your old notes for new notes. You should read the entire prospectus
and the documents incorporated by reference carefully, including the section
entitled "Risk Factors" and the financial statements and related notes to those
financial statements incorporated by reference in this prospectus
Unless otherwise noted herein, as used in this prospectus, "we," "our,"
"ours," "us" and the "Company" refer to Range Resources Corporation and its
subsidiaries, except where the context otherwise requires or as otherwise
indicated.
OUR COMPANY
We are an independent oil and natural gas company engaged in the
acquisition, development and exploration of oil and natural gas properties,
primarily in the Southwest, Gulf Coast, including the Gulf of Mexico, and
Appalachian regions of the United States. We seek to increase our reserves and
production primarily through development drilling, exploitation projects,
exploration and acquisitions. We also provide financing to smaller oil and
natural gas producers through our wholly-owned subsidiary, Independent Producer
Finance, or IPF, through the purchase of overriding royalty interests.
We have a geographically diverse asset base. The Southwest division's
properties are located in the Permian Basin of West Texas, the East Texas Basin,
the Anadarko Basin of western Oklahoma and the Texas Panhandle. Our Gulf Coast
division operates properties onshore in Texas, Louisiana and Mississippi and
holds an interest in approximately 40 offshore platforms in the shallow waters
of the Gulf of Mexico. Through a 50%-owned joint venture, Great Lakes Energy
Partners L.L.C., or Great Lakes, we operate in the Appalachian and Michigan
Basins.
In 2001, we set out to build a more technically-driven organization. We are
now pursuing a growth strategy that balances the exploitation of our inventory
of lower risk development drilling locations with higher potential exploration
projects and a complementary acquisition effort. Through this approach, we seek
to manage risk in every aspect of our business while generating attractive
returns.
Our principal executive offices are located at 777 Main Street, Suite 800,
Fort Worth, Texas 76102. Our telephone number is (817) 870-2601.
RECENT DEVELOPMENTS
Completion of 7 3/8 senior subordinated notes offering and redemption of
outstanding 8 3/4% senior subordinated notes due 2007. On July 21, 2003, we
completed the private placement of $100 million of 7 3/8% senior subordinated
notes due 2013. The net proceeds of the offering were used to redeem all of our
outstanding 8 3/4% senior subordinated notes due 2007 and to repay approximately
$26 million of amounts outstanding under our senior credit facility. The 8 3/4%
notes were called at 102.9167% of their principal amount, plus accrued interest.
The aggregate redemption price, including the premium, was approximately $71
million.
1
THE EXCHANGE OFFER
On July 21, 2003, we completed a private offering of the old notes. We
entered into a registration rights agreement with the initial purchasers in the
private offering in which we agreed, among other things, to deliver this
prospectus to you and to use our reasonable best efforts to consummate the
exchange offer within 210 days following the date of the original issuance of
the old notes. The following is a summary of the exchange offer.
Exchange Offer................ We are offering to exchange new notes for old
notes.
Expiration date............... The exchange offer will expire at 5:00 p.m. New
York City time, on October 22, 2003, unless we
decide to extend it. We do not currently intend
to extend the exchange offer. The exchange
offer must remain open for not less than thirty
days (or longer if required by applicable law)
after the date notice of the exchange offer is
mailed to holders of the old notes.
Condition to the exchange
offer......................... The registration rights agreement does not
require us to accept old notes for exchange if
the exchange offer or the making of any
exchange by a holder of the old notes would
violate any applicable law or interpretation of
the staff of the Securities and Exchange
Commission. The tender of a minimum aggregate
principal amount of old notes is not a
condition to the exchange offer.
Procedures for tendering old
notes......................... To participate in the exchange offer, you must
follow the automated tender offer program, or
ATOP, procedures established by The Depository
Trust Company, or DTC, for tendering notes held
in book-entry form. The ATOP procedures require
that the exchange agent receive, prior to the
expiration date of the exchange offer, a
computer-generated message known as an "agent's
message" that is transmitted through ATOP and
that DTC confirm that:
- DTC has received instructions to exchange
your notes; and
- you agree to be bound by the terms of the
letter of transmittal.
For more information on tendering your old
notes, please refer to the sections in this
prospectus entitled "Exchange Offer -- Terms of
the Exchange Offer," "-- Procedures for
Tendering" and "-- Book-Entry Transfer."
Guaranteed Delivery
Procedures.................... None.
Withdrawal of tenders......... You may withdraw your tender of old notes at
any time prior to the expiration date. To
withdraw, you must submit a notice of
withdrawal to the exchange agent using ATOP
procedures before 5:00 p.m., New York City
time, on the expiration date of the exchange
offer.
Acceptance of old notes and
delivery of new notes......... If you fulfill all conditions required for
proper acceptance of old notes, we will accept
any and all old notes that you properly tender
in the exchange offer on or before 5:00 p.m.,
New York City time, on the expiration date. We
will return any old notes that we do not accept
for exchange to you without expense as
2
promptly as practicable after the expiration
date. We will also deliver the new notes as
promptly as practicable after the expiration
date. Please refer to the section in this
prospectus entitled "Exchange Offer -- Terms of
the Exchange Offer."
Resale........................ We believe that the new notes issued pursuant
to the exchange offer may be offered for
resale, resold and otherwise transferred by you
(unless you are an "affiliate" of ours within
the meaning of Rule 405 under the Securities
Act) without compliance with the registration
and prospectus delivery provisions of the
Securities Act so long as you are acquiring the
new notes in the ordinary course of your
business and you have not engaged in, do not
intend to engage in, and have no arrangement or
understanding with any person to participate
in, a distribution of the new notes.
Each participating broker-dealer that receives
new notes for its own account under the
exchange offer for old notes that were acquired
by the broker-dealer as a result of
market-making or other trading activity must
acknowledge that it will deliver a prospectus
in connection with any resale of the new notes.
See "Plan of Distribution."
Any holder of old notes who:
- is our affiliate;
- does not acquire new notes in the ordinary
course of its business; or
- exchanges old notes in the exchange offer
with the intention to participate, or for
the purpose of participating, in a
distribution of new notes
must, in the absence of an exemption, comply
with the registration and prospectus delivery
requirements of the Securities Act in
connection with the resale of the new notes.
Fees and Expenses............. We will bear all expenses related to the
exchange offer.
Please refer to the section in this prospectus
entitled "Exchange Offer -- Fees and Expenses."
Use of proceeds............... The issuance of the new notes will not provide
us with any new proceeds. We are making this
exchange offer solely to satisfy our
obligations under our registration rights
agreement.
Consequences of failure to
exchange old notes............ If you do not exchange your old notes in this
exchange offer, you will no longer be able to
require us to register the old notes under the
Securities Act except in the limited
circumstances provided under our registration
rights agreement. In addition, you will not be
able to resell, offer to resell or otherwise
transfer the old notes unless we have
registered the old notes under the Securities
Act, or unless you resell, offer to resell or
otherwise transfer them under an exemption from
the registration requirements of, or in a
transaction not subject to, the Securities Act.
3
Tax consideration............. We believe that the exchange of new notes for
old notes should not be an exchange or
otherwise a taxable event to a holder for
United States federal income tax purposes.
Please read "United States Federal Income Tax
Considerations."
Exchange agent................ We have appointed Bank One, National
Association as exchange agent for the exchange
offer. You should direct questions, requests
for assistance and requests for additional
copies of this prospectus (including the letter
of transmittal) to the exchange agent at the
following address: Bank One, National
Association, c/o Bill Barber, Mail Code
TX1-1306, 420 Throckmorton, 4th Floor, Fort
Worth, Texas 76102. Eligible institutions may
make requests by facsimile at 817-884-4560.
TERMS OF THE NEW NOTES
The new notes will be identical to the old notes except that the new notes
are registered under the Securities Act and will not have restrictions on
transfer, registration rights or provisions for additional interest. The new
notes will evidence the same debt as the old notes, and the same indenture will
govern the new notes and the old notes. When we use the term "notes," we mean
the new notes together with the old notes.
The following summary contains basic information about the new notes and is
not intended to be complete. It does not contain all the information that is
important to you. For a more complete understanding of the new notes, please
refer to the section of this document entitled "Description of the New Notes."
Issuer........................ Range Resources Corporation.
Notes offered................. $100 million aggregate principal amount of
7 3/8% Senior Subordinated Notes due 2013.
Maturity Date................. July 15, 2013.
Interest Payment Dates........ January 15 and July 15 of each year, commencing
on January 15, 2004.
Mandatory redemption.......... None.
Optional redemption........... Except as otherwise described below, the new
notes will not be redeemable at our option
prior to July 15, 2008. Thereafter, the new
notes will be subject to redemption at our
option, in whole or in part, at the redemption
prices set forth under the heading "Description
of the New Notes -- Optional Redemption," plus
accrued and unpaid interest thereon to the
applicable redemption date. In addition, prior
to July 15, 2006, we may, at our option, on any
one or more occasions, redeem up to 35% of the
original aggregate principal amount of the
notes at a redemption price equal to 107.375%
of the principal amount thereof, plus accrued
and unpaid interest, if any, to the redemption
date, with all or a portion of the net proceeds
of public sales of equity interests of the
Company; provided that at least 65% of the
original aggregate principal amount of the
notes remains outstanding immediately after the
occurrence of such redemption. See "Description
of the New Notes -- Optional Redemption."
4
Change of control............. Upon a "change of control," you as a holder of
the notes will have the right to require us to
make an offer to repurchase all or a portion of
the notes at a purchase price of 101% of their
aggregate principal amount, plus accrued and
unpaid interest, if any, to the date of
repurchase. Our credit agreement prohibits us
from repurchasing any notes pursuant to a
change of control offer prior to the repayment
in full of the senior debt under our credit
agreement. Therefore, if a change of control
were to occur, there can be no assurance that
we or the subsidiary guarantors will have the
financial resources or be permitted under the
terms of our or their indebtedness to
repurchase the notes. If any "event of default"
occurs, the trustee or holders of at least 25%
in principal amount of the notes then
outstanding may declare the principal of and
the accrued and unpaid interest on such notes
to be due and payable immediately. However,
such repayment would be subject to the
subordination provisions in our indenture. See
"Description of the New Notes -- Subordination"
and "-- Repurchase at the Option of
Holders -- Change of control," and "-- Events
of Default and Remedies."
Ranking....................... The new notes will be general, unsecured
obligations, will be subordinated in right of
payment to our senior debt, which includes
borrowings under our credit agreement and any
other permitted indebtedness which does not
expressly provide that it is on a parity with
or subordinated in right of payment to the new
notes. The new notes and the old notes will
constitute a single class of securities under
the indenture. See "Capitalization" and
"Description of the New
Notes -- Subordination."
Subsidiary guarantees......... Our payment obligations under the new notes
will be jointly, severally and unconditionally
guaranteed on a senior subordinated basis by
each of our restricted subsidiaries and any
future restricted subsidiaries. The guarantees
will be subordinated to senior debt of the
subsidiary guarantors to the same extent and in
the same manner as the new notes are
subordinated to senior debt. See "Description
of the New Notes -- Guarantees."
Certain covenants............. The new notes will be issued pursuant to the
same indenture as the old notes. This indenture
contains certain covenants that will, among
other things, limit the ability of us and our
restricted subsidiaries to incur additional
indebtedness and issue disqualified stock, pay
dividends, make distributions, make
investments, make certain other restricted
payments, enter into certain transactions with
affiliates, dispose of certain assets, incur
liens securing indebtedness of any kind (other
than permitted liens) and engage in mergers and
consolidations. See "Description of the New
Notes -- Certain Covenants."
Transfer Restrictions; Absence
of a Public Market for the New
Notes......................... The new notes generally will be freely
transferable, but will also be new securities
for which there is no existing market. There
can be no assurance as to the development or
liquidity of any market for trading. We do not
intend to apply for a listing of the new notes
on any securities exchange or any automated
dealer quotation system.
5
RISK FACTORS
You should carefully consider all of the information in this prospectus. In
particular, you should evaluate the specific risk factors set forth under "Risk
Factors," beginning on page 7, for a discussion of risks involved with an
investment in the new notes.
RATIO OF EARNINGS TO FIXED CHARGES
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- ----------
1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ----------
Ratio of earnings to fixed charges........ (4.6) 0.5 1.9 1.5 1.9 2.5
For purposes of calculating the ratio of earnings to fixed charges:
- "fixed charges" represent interest expense, amortization of debt costs
and the portion of rental expense representing the interest factor, and
- "earnings" represent the aggregate of income from continuing operations
and fixed charges.
For the years ended December 31, 1999 and 1998, earnings were inadequate to
cover fixed charges by $22.8 million and $229.6 million, respectively.
6
RISK FACTORS
You should carefully consider and evaluate all the information included or
incorporated by reference in this prospectus, including the risks described
below, before you decide to participate in the exchange offer. Our business,
financial condition and results of operations could be materially adversely
affected by any of these risks. The trading price of the new notes could
decline, and you may lose all or part of your investment. The risks described
below are not the only ones facing our company. Additional risks not presently
known to us or that we currently deem immaterial, individually or in the
aggregate, may also impair our business operations.
This prospectus and the documents incorporated by reference also contain
forward-looking statements that involve risks and uncertainties, some of which
are described in the documents incorporated by reference in this prospectus. Our
actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including the risks
and uncertainties faced by us described below or incorporated by reference in
this prospectus.
RISKS RELATED TO OUR BUSINESS
OIL AND NATURAL GAS PRICES ARE VOLATILE, AND AN EXTENDED DECLINE IN PRICES
WOULD HURT OUR PROFITABILITY AND FINANCIAL CONDITION.
The oil and natural gas industry is cyclical, and prices for oil and
natural gas are volatile. Historically, the industry has experienced severe
downturns characterized by oversupply and/or weak demand. For example, in 1998
and early 1999, oil and natural gas prices fell, which contributed to the
substantial losses we reported in those years. By early 2001, oil and natural
gas prices reached levels above their historical norm. Prices declined in the
second half of 2001 but have risen since mid-2002.
Many factors affect oil and natural gas prices including general economic
conditions, consumer preferences, discretionary spending levels, interest rates
and the availability of capital to the industry. Decreases in oil and natural
gas prices from current levels could adversely affect our revenues, net income,
cash flow and proved reserves. Significant and prolonged price decreases could
have a material adverse effect on our operations and limit our ability to fund
capital expenditures. Without the ability to fund capital expenditures, we may
be unable to replace production.
HEDGING TRANSACTIONS MAY LIMIT OUR POTENTIAL GAINS AND INVOLVE OTHER RISKS.
To manage our exposure to price risk, we enter into hedging arrangements
from time to time with respect to a portion of our future production. The goal
of these hedges is to limit volatility and increase the predictability of cash
flow. These transactions may limit our potential gains if oil and natural gas
prices were to rise over the price established by the hedge. For example, at
December 31, 2002, we were party to hedging arrangements covering 64.6 Bcf and
1.6 million barrels of oil. The hedges' fair value was a pre-tax loss of $32.9
million. Due to additional hedging activity and rising prices, the fair value of
these hedges on June 30, 2003 was a pre-tax loss of $82.0 million. If oil and
natural gas prices continue to rise, we could be subject to margin calls.
In addition, hedging transactions may expose us to the risk of financial
loss in certain circumstances, including instances in which:
- our production is less than expected;
- the counterparties to our futures contracts fail to perform under the
contracts; or
- a sudden, unexpected event materially impacts oil or natural gas prices.
INFORMATION CONCERNING OUR RESERVES AND FUTURE NET RESERVE ESTIMATES IS
UNCERTAIN.
There are numerous uncertainties inherent in estimating quantities of
proved oil and natural gas reserves and their values, including many factors
beyond our control. Estimates of proved undeveloped
7
reserves, which comprise a significant portion of our reserves, are by their
nature uncertain. The reserve data included or incorporated by reference in this
prospectus is estimated. Although we believe these estimates are reasonable,
actual production, revenues and reserve expenditures will likely vary from
estimates, and these variances could be material.
The accuracy of any reserves estimate is a function of the quality of
available data, engineering and geological interpretation and judgment,
assumptions used regarding quantities of oil and natural gas in place, recovery
rates and future prices for oil and natural gas. Actual prices, production,
development expenditures, operating expenses and quantities of recoverable oil
and natural gas reserves will vary from those assumed in our estimates, and such
variances may be material. Any variance in the assumptions could materially
affect the estimated quantity value of the reserves.
For example, in 1997 and 1998, we consummated several large acquisitions
which proved extremely disappointing. Production from the acquired properties
fell more rapidly than anticipated and further development results were far
below the results we had originally projected. The poor production performance
of these properties resulted in material downward reserve revisions.
IF OIL AND NATURAL GAS PRICES DECREASE OR EXPLORATION EFFORTS ARE
UNSUCCESSFUL, WE MAY BE REQUIRED TO TAKE ADDITIONAL WRITEDOWNS OF OUR OIL AND
NATURAL GAS PROPERTIES.
In the past, we have been required to write down the carrying value of our
oil and natural gas properties, and there is a risk that we will be required to
take additional writedowns in the future. This could occur when oil and natural
gas prices are low or if we have substantial downward adjustments to our
estimated proved reserves, increases in our estimates of development costs or
deterioration in our exploration results.
Accounting rules require that the carrying value of oil and natural gas
properties be periodically reviewed for possible impairment. "Impairment" is
recognized when the book value of a proven property is greater than the expected
undiscounted future cash flows from that property and on acreage when the
assessment of fair value is less than the book value. We may be required to
write down the carrying value of a property based on oil and natural gas prices
at the time of the impairment review, as well as a continuing evaluation of
development results, production data, economics and other factors. While an
impairment charge which reflects our long-term ability to recover on a prior
investment does not impact cash or cash flow from operating activities, it
reduces our earnings and increases our leverage ratios.
For example, based primarily on the poor performance of certain properties
acquired in 1997 and 1998 and significantly lower oil and natural gas prices, we
recorded impairments of $215.0 million in 1998 and $29.9 million in 1999. At
year-end 2001, we also recorded an impairment of $31.1 million due to year-end
prices.
OUR BUSINESS IS SUBJECT TO OPERATING HAZARDS AND ENVIRONMENTAL REGULATIONS
THAT COULD RESULT IN SUBSTANTIAL LOSSES OR LIABILITIES.
Oil and natural gas operations are subject to many risks, including well
blowouts, craterings, explosions, uncontrollable flows of oil, natural gas or
well fluids, fires, formations with abnormal pressures, pipeline ruptures or
spills, pollution, releases of toxic gas and other environmental hazards and
risks. If any of these hazards occur, we could sustain substantial losses as a
result of:
- injury or loss of life;
- severe damage to or destruction of property, natural resources and
equipment;
- pollution or other environmental damage;
- clean-up responsibilities;
- regulatory investigations and penalties; and/or
- suspension of operations.
8
Our current and former operations are subject to numerous and increasingly
strict federal, state and local laws, regulations and enforcement policies
relating to the environment. We may incur significant costs and liabilities in
complying with existing or future environmental laws, regulations and
enforcement policies and may incur costs arising out of property damage or
injuries to employees and other persons. These costs may result from our current
and former operations and even may be caused by previous owners of property we
own or lease. Any past, present or future failure by us to completely comply
with environmental laws, regulations and enforcement policies could cause us to
incur substantial fines, sanctions or liabilities for cleanup costs or other
damages. Incurrence of those costs or damages could reduce or eliminate funds
available for exploration, development or acquisitions or cause us to incur
losses.
We maintain insurance against some, but not all, of these potential risks
and losses. We may elect not to obtain insurance if we believe that the cost of
available insurance is excessive relative to the risks presented. In addition,
pollution and environmental risks generally are not fully insurable. If a
significant accident or other event occurs that is not fully covered by
insurance, it could have a material adverse affect on our financial condition
and results of operations.
WE ARE SUBJECT TO FINANCING AND INTEREST RATE EXPOSURE RISKS.
Our business and operating results can be harmed by factors such as the
availability and cost of capital, increases in interest rates or a reduction in
credit rating. These changes could cause our cost of doing business to increase,
limit our ability to pursue opportunities and place us at a competitive
disadvantage. For example, at June 30, 2003, a portion of our borrowings, held
through our Great Lakes joint venture, were subject to interest rate swap
agreements, which were above market, and therefore, increased our interest
expense.
OUR INDUSTRY IS HIGHLY COMPETITIVE.
We face competition in every aspect of our business, including, but not
limited to, acquiring reserves and leases, obtaining goods, services and
employees needed to operate and manage our business, and marketing oil and
natural gas. Competitors include multinational oil companies, independent
production companies and individual producers and operators. Many of our
competitors have greater financial and other resources than we do.
THE OIL AND NATURAL GAS INDUSTRY IS SUBJECT TO EXTENSIVE REGULATION.
The oil and natural gas industry is subject to various types of regulations
in the United States by local, state and federal agencies. Legislation affecting
the industry is under constant review for amendment or expansion, frequently
increasing our regulatory burden. Numerous departments and agencies, both state
and federal, are authorized by statute to issue rules and regulations binding on
participants in the oil and natural gas industry. Compliance with such rules and
regulations often increases our cost of doing business and, in turn, decreases
our profitability. Generally these burdens do not appear to affect us to any
greater or lesser extent than other companies in the oil and natural gas
industry with similar types and quantities of properties in the same areas of
the country.
ACQUISITIONS BY US ARE SUBJECT TO THE RISKS AND UNCERTAINTIES OF EVALUATING
RECOVERABLE RESERVES AND POTENTIAL LIABILITIES.
We could be subject to significant liabilities related to acquisitions by
us. It generally is not feasible to review in detail every individual property
included in an acquisition. Ordinarily, a review is focused on higher valued
properties. However, even a detailed review of all properties and records may
not reveal existing or potential problems, nor will it permit us to become
sufficiently familiar with the properties to assess fully their deficiencies and
capabilities. We do not always inspect every well we acquire, and environmental
problems, such as groundwater contamination, are not necessarily observable even
when an inspection is performed.
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For example, in 1997 and 1998, we consummated a series of acquisitions
which proved unsuccessful. Since the date of these acquisitions, the production
results relating to these acquired properties have indicated that the potential
of the acquired properties was far below the level that our engineering and
geological review, as well as a review by one of our independent petroleum
engineering firms, had initially suggested.
OUR SUCCESS DEPENDS ON KEY MEMBERS OF OUR MANAGEMENT AND OUR ABILITY TO
ATTRACT AND RETAIN EXPERIENCED EXPLORATIONISTS AND OTHER PROFESSIONAL
PERSONNEL.
Our success is highly dependent on our senior management personnel, none of
which are currently subject to an employment contract. The loss of one or more
of these individuals could have a material adverse effect on our business.
Furthermore, competition for experienced explorationists and engineers is
intense. If we cannot retain our current personnel or attract additional
experienced personnel, our ability to compete could be adversely affected.
OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO REPLACE RESERVES THAT WE PRODUCE.
Because the rate of production from oil and natural gas properties
generally declines as reserves are depleted, our future success depends upon our
ability to find or acquire additional oil and natural gas reserves that are
economically recoverable. Except to the extent that we acquire additional
properties containing proved reserves, conduct successful exploration and
development activities or, through engineering studies, identify additional
behind-pipe zones or secondary recovery reserves, our proved reserves will
decline materially as reserves are produced. Future oil and natural gas
production is, therefore, highly dependent upon our level of success in
acquiring or finding additional reserves that are economically recoverable. We
cannot assure you that we will be able to find and develop or acquire additional
reserves at an acceptable cost.
A PORTION OF OUR BUSINESS IS SUBJECT TO SPECIAL RISKS RELATED TO OFFSHORE
OPERATIONS GENERALLY AND IN THE GULF OF MEXICO SPECIFICALLY.
Offshore operations are subject to a variety of operating risks specific to
the marine environment, such as capsizing, collisions and damage or loss from
hurricanes or other adverse weather conditions. These conditions can cause
substantial damage to facilities and interrupt production. As a result, we could
incur substantial liabilities that could reduce or eliminate the funds available
for exploration, development or leasehold acquisitions, or result in loss of
equipment and properties.
Production of reserves from reservoirs in the Gulf of Mexico generally
declines more rapidly than from reservoirs in many other producing regions of
the world. This results in recovery of a relatively higher percentage of
reserves from properties in the Gulf of Mexico during the initial few years of
production. As a result, reserve replacement needs from new prospects are
greater and require us to incur significant capital expenditure to replace
production.
NEW TECHNOLOGIES MAY CAUSE OUR CURRENT EXPLORATION AND DRILLING METHODS TO
BECOME OBSOLETE.
The oil and natural gas industry is subject to rapid and significant
advancements in technology, including the introduction of new products and
services using new technologies. As competitors use or develop new technologies,
we may be placed at a competitive disadvantage, and competitive pressures may
force us to implement new technologies at a substantial cost. In addition,
competitors may have greater financial, technical and personnel resources that
allow them to enjoy technological advantages and may in the future allow them to
implement new technologies before we can. We cannot be certain that we will be
able to implement technologies on a timely basis or at a cost that is acceptable
to us. One or more of the technologies that we currently use or that we may
implement in the future may become obsolete, and we may be adversely affected.
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OUR BUSINESS DEPENDS ON OIL AND NATURAL GAS TRANSPORTATION FACILITIES, SOME OF
WHICH ARE OWNED BY OTHERS.
The marketability of our oil and natural gas production depends in part on
the availability, proximity and capacity of pipeline systems owned by third
parties. The unavailability of or lack of available capacity on these systems
and facilities could result in the shut-in of producing wells or the delay or
discontinuance of development plans for properties. Although we have some
contractual control over the transportation of our product, material changes in
these business relationships could materially affect our operations. Federal and
state regulation of oil and natural gas production and transportation, tax and
energy policies, changes in supply and demand, pipeline pressures, damage to or
destruction of pipelines and general economic conditions could adversely affect
our ability to produce, gather and transport oil and natural gas.
RISKS RELATED TO THE EXCHANGE OFFER AND THE NEW NOTES
IF YOU DO NOT PROPERLY TENDER YOUR OLD NOTES, YOU WILL CONTINUE TO HOLD
UNREGISTERED OLD NOTES AND YOUR ABILITY TO TRANSFER OLD NOTES WILL BE
ADVERSELY AFFECTED.
We will only issue new notes in exchange for old notes that you timely and
properly tender. Therefore, you should allow sufficient time to ensure timely
delivery of the old notes and carefully follow the instructions on how to tender
your old notes. Neither we nor the exchange agent are required to tell you of
any defects or irregularities with respect to your tender of the old notes.
If you do not exchange your old notes for new notes pursuant to the
exchange offer, the old notes you hold will continue to be subject to the
existing transfer restrictions. In general, you may not offer or sell the old
notes except under an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. We do not plan to register
old notes under the Securities Act. Further, if you continue to hold any old
notes after the exchange offer is consummated, you may not be able to sell the
old notes because there will be fewer old notes outstanding.
OUR SIGNIFICANT INDEBTEDNESS COULD LIMIT OUR ABILITY TO SUCCESSFULLY OPERATE
OUR BUSINESS AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE NEW
NOTES.
We are substantially leveraged, and our exploration and development program
will require substantial capital resources, estimated to range from $100 to $130
million per year over the next three years, and the operation of our existing
operations will also require ongoing capital expenditures.
The degree to which we are leveraged could have other important
consequences to you, including the following:
- we must dedicate a substantial portion of our cash flows from operations
to the payment of our indebtedness, reducing the funds available to pay
principal and interest on the new notes and for our operations;
- a portion of our borrowings are at variable rates of interest, making us
vulnerable to increases in interest rates;
- we may be more highly leveraged than some of our competitors, which could
place us at a competitive disadvantage;
- our degree of leverage may make us more vulnerable to a downturn in our
business or the economy generally;
- the terms of our existing credit arrangements and the indenture governing
the new notes contain numerous financial and other restrictive covenants;
- our debt level could limit our flexibility in planning for, or reacting
to, changes in our business and the industry in which we operate; and
- we may have difficulties borrowing money in the future.
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DESPITE OUR CURRENT LEVELS OF INDEBTEDNESS WE STILL MAY BE ABLE TO INCUR
SUBSTANTIALLY MORE DEBT. THIS COULD FURTHER INCREASE THE RISKS DESCRIBED
ABOVE.
We may be able to incur substantial additional indebtedness in the future.
The terms of the indenture relating to the new notes do not prohibit us from
doing so. As of June 30, 2003, our senior credit facility would permit
additional borrowings of $59.4 million and all of those borrowings would be
senior to the new notes. If new debt is added to our current debt levels, the
related risks that we now face could intensify. See "Capitalization."
ANY FAILURE TO MEET OUR DEBT OBLIGATIONS COULD HARM OUR BUSINESS, FINANCIAL
CONDITION AND RESULT OF OPERATIONS.
If our cash flow and capital resources are insufficient to fund our debt
obligations, we may be forced to sell assets, seek additional equity or debt
capital or restructure our debt. In addition, any failure to make scheduled
payments of interest and principal on our outstanding indebtedness would likely
result in a reduction of our credit rating, which could harm our ability to
incur additional indebtedness on acceptable terms. Our cash flow and capital
resources may be insufficient for payment of interest on and principal of our
debt in the future, including payments on the new notes, and any such
alternative measures may be unsuccessful or may not permit us to meet scheduled
debt service obligations, which could cause us to default on our obligations and
impair our liquidity.
YOUR RIGHT TO RECEIVE PAYMENTS ON THE NEW NOTES IS SUBORDINATED TO THE RIGHTS
OF OUR SENIOR INDEBTEDNESS AND EFFECTIVELY SUBORDINATED TO THE RIGHTS OF
EXISTING AND FUTURE CREDITORS OF ANY SUBSIDIARIES THAT ARE NOT GUARANTORS ON
THE NEW NOTES.
Holders of our senior indebtedness will have claims that are prior to your
claims as holders of the new notes. In the event of any distribution of our
assets in any foreclosure, dissolution, winding-up, liquidation, reorganization,
or other bankruptcy proceeding, holders of senior indebtedness will have prior
claim to all of our assets. Holders of the new notes will participate ratably
with all holders of our senior subordinated indebtedness that is deemed to be of
the same class as the new notes, based upon the respective amounts owed to each
holder or creditor, in our remaining assets. In any of the foregoing events, we
cannot assure you that there will be sufficient assets to pay amounts due on the
new notes. As a result, holders of new notes may receive less, ratably, than
holders of senior indebtedness.
As of June 30, 2003, we had total senior indebtedness of approximately
$184.1 million, including our 50% portion of indebtedness owed by our Great
Lakes joint venture under its credit facility. We may incur additional
indebtedness in the future under the terms of the indenture.
We conduct substantially all of our operations through our subsidiaries and
some of our subsidiaries do not guarantee the new notes. In addition, we may be
able to designate one or more subsidiaries in the future as unrestricted
subsidiaries. As a result, holders of the new notes will be effectively
subordinated to the indebtedness and other liabilities of any such subsidiaries,
including trade creditors. Therefore, in the event of the insolvency or
liquidation of an unrestricted subsidiary, following payment by such subsidiary
of its liabilities, such subsidiary may not have sufficient remaining assets to
make payments to us as a shareholder or otherwise. In the event of a default by
any such subsidiary under any credit arrangement or other indebtedness, its
creditors could accelerate such debt, prior to such subsidiary distributing
amounts to us that we could have used to make payments on the new notes.
WE MAY NOT BE ABLE TO REPURCHASE THE NEW NOTES.
You may require us to repurchase all or a portion of your new notes on
certain dates or in the event of a change in control. We may not have enough
funds to pay the repurchase price on a purchase date. Our existing and any
future credit agreements or other debt agreements to which we become a party may
provide that our obligation to repurchase the new notes would be an event of
default under such agreement. As a result, we may be restricted or prohibited
from repurchasing the new notes. If we are prohibited from repurchasing the new
notes, we could seek the consent of our then-existing lenders to
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repurchase the new notes or we could attempt to refinance the borrowings that
contain such prohibition. If we are unable to obtain a consent or refinance the
debt, we could not repurchase the new notes. Our failure to repurchase tendered
new notes would constitute a default under the indenture and might constitute a
default under the terms of other indebtedness that we incur.
The term "change in control" is limited to certain specified transactions
and may not include other events that might adversely affect our financial
condition. Our obligation to repurchase the new notes upon a change in control
would not necessarily afford holders of new notes protection in the event of a
highly leveraged transaction, reorganization, merger or similar transaction
involving us.
THE NEW NOTES MAY NOT BE RATED OR MAY RECEIVE A LOWER RATING THAN ANTICIPATED.
We believe it is unlikely that the new notes will be rated. However, if one
or more rating agencies rates the new notes and assigns the new notes a rating
lower than the rating expected by investors, or reduces their rating in the
future, the market price of the new notes would be harmed.
YOU MAY FIND IT DIFFICULT TO SELL YOUR NEW NOTES.
You may find it difficult to sell your new notes because an active trading
market for the new notes may not develop. There is no existing trading market
for the new notes issued in this exchange offer. We do not know the extent to
which investor interest will lead to the development of a trading market or how
liquid that market might be. As a result, the market price of the new notes
could be adversely affected.
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EXCHANGE OFFER
We sold the old notes on July 21, 2003 pursuant to a purchase agreement
dated July 16, 2003, by and among us and the initial purchasers named therein.
The old notes were subsequently offered by the initial purchasers to qualified
institutional buyers pursuant to Rule 144A under the Securities Act and outside
the United States to persons other than U.S. persons in reliance on Regulation S
under the Securities Act.
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the issuance of the old notes, we entered into a
registration rights agreement under which we agreed to:
- within 90 days after the issue date of the old notes, file a registration
statement with the Securities and Exchange Commission with respect to a
registered offer to exchange the old notes for new notes of ours having
terms substantially identical in all material respects to the old notes
except with respect to transfer restrictions;
- use our best efforts to cause the registration statement to be declared
effective under the Securities Act within 180 days after the issue date
of the old notes;
- use our reasonable best efforts to consummate the exchange offer within
210 days after the issue date of the old notes;
- keep the exchange offer open for not less than 30 days (or longer if
required by applicable law) after the date notice of the exchange offer
is mailed to the holders of the old notes; and
- to file a shelf registration for the resale of the old notes if we cannot
consummate the exchange offer within the time period listed above and
certain other circumstances described in this prospectus.
For each old note tendered to us pursuant to the exchange offer, we will
issue to the holder of such old note a new note having a principal amount equal
to that of the surrendered old note. Interest on each new note will accrue from
the last date upon which we paid interest on the old note, unless no interest
has been paid on the old note, in which case, interest shall be paid from the
original issuance date of the old note.
Under existing interpretations of the staff of the Securities and Exchange
Commission issued to third parties, the new notes will be freely transferable by
holders other than our affiliates after the exchange offer without further
registration under the Securities Act if the holder of the new notes represents
to us in the exchange offer that it is acquiring the new notes in the ordinary
course of its business, that it has no arrangement or understanding with any
person to participate in the distribution of the new notes and that it is not
our affiliate, as such terms are interpreted by the Securities and Exchange
Commission; provided, however that broker-dealers receiving new notes in the
exchange offer will have a prospectus delivery requirement with respect to
resales of such new notes. The staff of the Securities and Exchange Commission
has taken the position in interpretations issued to third parties that
participating broker-dealers may fulfill their prospectus delivery requirements
with respect to new notes (other than a resale of an unsold allotment from the
original sale of the old notes) with the prospectus contained in the
registration statement covering the new notes. Each broker-dealer that receives
new notes for its own account in exchange for old notes, where such old notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such new notes. See "Plan of Distribution."
Under the registration rights agreement, we are required to allow
participating broker-dealers and other persons, if any, with similar prospectus
delivery requirements to use the prospectus contained in the registration
statement in connection with the resale of the new notes for 180 days following
the effective date of such registration statement (or such shorter period during
which participating broker-dealers are required by law to deliver such
prospectus).
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A holder of old notes (other than certain specified holders) who wishes to
exchange old notes for new notes in the exchange offer will be required to
represent that any new notes to be received by it will be acquired in the
ordinary course of its business and that at the time of the commencement of the
exchange offer it has no arrangement or understanding with any person to
participate in the distribution (within the meaning of the Securities Act) of
the new notes and that it is not our "affiliate," as defined in Rule 405 of the
Securities Act, or if it is an affiliate, that it will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable.
In the event that:
- any change of law or in applicable interpretations thereof by the staff
of the Securities and Exchange Commission do not permit us to effect an
exchange offer;
- for any other reason the exchange offer is not consummated within 210
days after the issue date of the old notes;
- any holder of old notes, other than the initial purchasers, notifies us
prior to the 20th business day following the consummation of the exchange
offer it is prohibited by law or the applicable interpretations of the
staff of the Securities and Exchange Commission from participating in the
exchange offer;
- in the case of any holder of old notes who participates in the exchange
offer, such holder does not receive new notes on the date of the exchange
that may be sold without restriction under state and federal securities
laws (other than due solely to the status of such holders as an affiliate
of ours within the meaning of the Securities Act); or
- an initial purchaser so requests with respect to old notes or private
exchange notes that have, or that are reasonably likely to be determined
to have, the status of unsold allotments in an initial distribution;
then we will, at our cost, use our reasonable best efforts to file and use our
reasonable best efforts to have declared effective a shelf registration
statement covering resales of the old notes on or prior to the later of 180
calendar days after the issue date of the old notes or 90 days after the shelf
registration statement is required to be filed with the Securities and Exchange
Commission.
We will use our reasonable best efforts to keep the shelf registration
statement effective until two years after the issue date of the old notes,
subject to certain exceptions. We will, if we file a shelf registration
statement, among other things, provide to each holder for whom such shelf
registration statement was filed copies of the prospectus which is a part of the
shelf registration statement, notify each such holder when the shelf
registration statement has become effective and take certain other actions as
are required to permit unrestricted resales of the old notes or the new notes,
as the case may be. A holder selling such old notes or new notes pursuant to the
shelf registration statement generally would be required to be named as a
selling security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the registration rights agreement which are applicable to such
holder (including certain indemnification obligations).
The registration rights agreement obligates us to pay additional cash
interest on the principal amount of the applicable old notes and new notes (in
addition to the stated interest on the old notes and the new notes) upon the
occurrence of any of the following events:
- if the registration statement of which this prospectus forms a part is
not declared effective by the Securities and Exchange Commission on or
prior to the 180th day after the issue date of the old notes (the
"effectiveness deadline");
- if the exchange offer is not consummated on or prior to the earlier of
the 30th business day following the effectiveness deadline or the 210th
day following the issue date of the old notes;
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- if obligated to file the shelf registration statement, it is not declared
effective by the later of 180 calendar days after the issue date of the
old notes or 90 days after the shelf registration statement is required
to be filed with the Securities and Exchange Commission; or
- after the shelf registration statement is declared effective it ceases to
be effective or usable (subject to some exceptions);
from and including the date on which any registration default shall occur to,
but excluding, the earlier of (1) the date on which all registration defaults
have been cured or (2) the date on which all the old notes and the new notes
otherwise become freely transferable by holders other than our affiliates
without further registration under the Securities Act. The additional cash
interest will accrue at a rate of .25% per annum during the 90 day period
immediately following the occurrence of a registration default and shall
increase by an additional .25% per annum with respect to each subsequent 90 day
period, up to a maximum amount of additional interest of .50% per annum.
RESALE OF NEW NOTES
Based on no action letters of the staff of the Securities and Exchange
Commission issued to third parties, we believe that new notes may be offered for
resale, resold and otherwise transferred by you without further compliance with
the registration and prospectus delivery provisions of the Securities Act if:
- you are not our "affiliate" within the meaning of Rule 405 under the
Securities Act;
- such new notes are acquired in the ordinary course of your business; and
- you do not intend to participate in the distribution of such new notes.
The staff of the Securities and Exchange Commission, however, has not
considered the exchange offer for the new notes in the context of a no action
letter, and the staff of the Securities and Exchange Commission may not make a
similar determination as in the no action letters issued to these third parties.
If you tender in the exchange offer with the intention of participating in
any manner in a distribution of the new notes:
- you cannot rely on such interpretations by the Securities and Exchange
Commission staff issued to third parties; and
- you must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction.
Unless an exemption from registration is otherwise available, any security
holder intending to distribute new notes should be covered by an effective
registration statement under the Securities Act. This registration statement
should contain the selling security holder's information required by Item 507 of
Regulation S-K under the Securities Act. This prospectus may be used for an
offer to resell, resale or other retransfer of new notes only as specifically
described in this prospectus. Only broker-dealers that acquired the old notes as
a result of market-making activities or other trading activities may participate
in the exchange offer. Each broker-dealer that receives new notes for its own
account in exchange for old notes, where such old notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of the new notes. Please read the section captioned "Plan of
Distribution" for more details regarding the transfer of new notes.
TERMS OF THE EXCHANGE OFFER
Subject to the terms and conditions described in this prospectus and in the
letter of transmittal, we will accept for exchange any old notes properly
tendered and not withdrawn prior to the expiration date. We will issue new notes
in principal amount equal to the principal amount of old notes surrendered under
the exchange offer. Old notes may be tendered only for new notes and only in
integral multiples of $1,000.
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The exchange offer is not conditioned upon any minimum aggregate principal
amount of old notes being tendered for exchange.
As of the date of this prospectus, $100,000,000 aggregate principal amount
of the old notes is outstanding. This prospectus and the letter of transmittal
are being sent to all registered holders of old notes. There will be no fixed
record date for determining registered holders of old notes entitled to
participate in the exchange offer.
We intend to conduct the exchange offer in accordance with the provisions
of the registration rights agreement, the applicable requirements of the
Securities Act and the Securities Exchange Act of 1934 and the rules and
regulations of the Securities and Exchange Commission. Old notes that the
holders thereof do not tender for exchange in the exchange offer will remain
outstanding and continue to accrue interest. These old notes will be entitled to
the rights and benefits such holders have under the indenture relating to the
old notes and the registration rights agreement.
We will be deemed to have accepted for exchange properly tendered old notes
when we have given oral or written notice of the acceptance to the exchange
agent and complied with the applicable provisions of the registration rights
agreement. The exchange agent will act as agent for the tendering holders for
the purposes of receiving the new notes from us.
If you tender old notes in the exchange offer, you will not be required to
pay brokerage commissions or fees or, subject to the letter of transmittal,
transfer taxes with respect to the exchange of old notes. We will pay all
charges and expenses, other than certain applicable taxes described below, in
connection with the exchange offer. It is important that you read the section
labeled "-- Fees and Expenses" for more details regarding fees and expenses
incurred in the exchange offer.
We will return any old notes that we do not accept for exchange for any
reason without expense to their tendering holder promptly after the expiration
or termination of the exchange offer.
Each broker-dealer that receives new notes for its own account in exchange
for old notes, where such old notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such new
notes. See "Plan of Distribution."
EXPIRATION DATE
The exchange offer will expire at 5:00 p.m., New York City time, on October
22, 2003 unless, in our sole discretion, we extend it.
EXTENSIONS, DELAYS IN ACCEPTANCE, TERMINATION OR AMENDMENT
We expressly reserve the right, at any time or various times, to extend the
period of time during which the exchange offer is open. We may delay acceptance
of any old notes by giving oral or written notice of such extension to their
holders if the exchange offer is so extended. During any such extensions, all
old notes previously tendered will remain subject to the exchange offer, and we
may accept them for exchange upon the expiration of the extended exchange offer.
In order to extend the exchange offer, we will notify the exchange agent
orally or in writing of any extension. We will notify the registered holders of
old notes of the extension no later than 9:00 a.m., New York City time, on the
business day after the previously scheduled expiration date.
If any of the conditions described below under "-- Conditions to the
Exchange Offer" have not been satisfied, we reserve the right, in our sole
discretion
- to delay accepting for exchange any old notes,
- to extend the exchange offer, or
- to terminate the exchange offer,
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by giving oral or written notice of such delay, extension or termination to the
exchange agent. However, we may not delay acceptance for exchange of any old
notes after the expiration of the exchange offer. Subject to the terms of the
registration rights agreement, we also reserve the right to amend the terms of
the exchange offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed promptly by oral or written notice thereof to the registered holders of
old notes. If we amend the exchange offer in a manner that we determine to
constitute a material change, we will promptly disclose such amendment by means
of a prospectus supplement. The supplement will be distributed to the registered
holders of the old notes. Depending upon the significance of the amendment and
the manner of disclosure to the registered holders, we will extend the exchange
offer if the exchange offer would otherwise expire during such period.
CONDITIONS TO THE EXCHANGE OFFER
We will not be required to accept for exchange, or exchange any new notes
for, any old notes if the exchange offer, or the making of any exchange by a
holder of old notes, would violate applicable law or any applicable
interpretation of the staff of the Securities and Exchange Commission.
Similarly, we may terminate the exchange offer as provided in this prospectus
before accepting old notes for exchange in the event of such a potential
violation.
In addition, we will not be obligated to accept for exchange the old notes
of any holder that has not made to us the representations described under
"-- Purpose and Effect of the Exchange Offer," "-- Procedures for Tendering" and
"Plan of Distribution" and such other representations as may be reasonably
necessary under applicable Securities and Exchange Commission rules, regulations
or staff interpretations to allow us to use an appropriate form to register the
new notes under the Securities Act.
We expressly reserve the right to amend or terminate the exchange offer,
and to reject for exchange any old notes not previously accepted for exchange,
upon the occurrence of any of the conditions to the exchange offer specified
above. We will give oral or written notice of any extension, amendment, non-
acceptance or termination to the holders of the old notes as promptly as
practicable.
These conditions are for our sole benefit, and we may assert them or waive
them in whole or in part at any time prior to or on the expiration of the offer
in our sole discretion. If we fail at any time to exercise any of these rights,
this failure will not mean that we have waived our rights. Each such right will
be deemed an ongoing right that we may assert at any time prior to or on the
expiration of the offer.
In addition, we will not accept for exchange any old notes tendered, and
will not issue new notes in exchange for any such old notes, if at such time any
stop order has been threatened or is in effect with respect to the registration
statement of which this prospectus constitutes a part or the qualification of
the indenture relating to the new notes under the Trust Indenture Act of 1939.
PROCEDURES FOR TENDERING
HOW TO TENDER GENERALLY
To participate in the exchange offer, you must properly tender your old
notes to the exchange agent as described below. We will only issue new notes in
exchange for old notes that you timely and properly tender. Therefore, you
should allow sufficient time to ensure timely delivery of the old notes, and you
should follow carefully the instructions on how to tender your old notes. It is
your responsibility to properly tender your old notes. We have the right to
waive any defects. However, we are not required to waive defects, and neither we
nor the exchange agent is required to notify you of defects in your tender.
If you have any questions or need help in exchanging your old notes, please
call the exchange agent whose address and phone number are described in the
letter of transmittal.
All of the old notes were issued in book-entry form, and all of the old
notes are currently represented by a global certificate held by Cede & Co. for
the account of DTC. We have confirmed with DTC that the old notes may be
tendered using ATOP. The exchange agent will establish an account with DTC for
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purposes of the exchange offer promptly after the commencement of the exchange
offer, and DTC participants may electronically transmit their acceptance of the
exchange offer by causing DTC to transfer their old notes to the exchange agent
using the ATOP procedures. In connection with the transfer, DTC will send an
"agent's message" to the exchange agent. The agent's message will state that DTC
has received instructions from the participant to tender old notes and that the
participant agrees to be bound by the terms of the letter of transmittal.
By using the ATOP procedures to exchange old notes, you will not be
required to deliver a letter of transmittal to the exchange agent. However, you
will be bound by its terms just as if you had signed it.
There is no procedure for guaranteed late delivery of the old notes.
DETERMINATIONS UNDER THE EXCHANGE OFFER
We will determine in our sole discretion all questions as to the validity,
form, eligibility, time of receipt, acceptance of tendered old notes and
withdrawal of tendered old notes. Our determinations will be final and binding.
We reserve the absolute right to reject any old notes not properly tendered or
any old notes our acceptance of which would, in the opinion of our counsel, be
unlawful. We also reserve the rights to waive any defects, irregularities or
conditions of tender as to particular old notes. Our interpretation of the terms
and conditions of the exchange offer, including the instructions in the letter
of transmittal, will be final and binding on all parties. Unless waived, all
defects or irregularities in connection with tenders of old notes must be cured
within such time as we shall determine. Although we intend to notify holders of
defects or irregularities with respect to tenders of old notes, neither we, the
exchange agent nor any other person will incur any liability for failure to give
such notification. Tenders of old notes will not be deemed made until such
defects or irregularities have been cured or waived. Any old notes received by
the exchange agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned to the tendering
holder as soon as practicable following the expiration date.
WHEN WE WILL ISSUE NEW NOTES
In all cases, we will issue new notes for old notes that we have accepted
for exchange under the exchange offer only after the exchange agent timely
receives:
- a book-entry confirmation of such old notes into the exchange agent's
account at DTC; and
- a properly transmitted agent's message.
RETURN OF OLD NOTES NOT ACCEPTED OR EXCHANGED
If we do not accept any tendered old notes for exchange or if old notes are
submitted for a greater principal amount than the holder desires to exchange,
the unaccepted or non-exchanged old notes will be returned without expense to
their tendering holder. Such non-exchanged old notes will be credited to an
account maintained with DTC. These actions will occur promptly after the
expiration or termination of the exchange offer.
YOUR REPRESENTATIONS TO US
By agreeing to be bound by the letter of transmittal, you will represent to
us that, among other things:
- any new notes that you receive will be acquired in the ordinary course of
your business;
- you have no arrangement or understanding with any person or entity to
participate in the distribution of the new notes within the meaning of
the Securities Act;
- if you are not a broker-dealer that you are not engaged in and do not
intend to engage in the distribution of the new notes;
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- if you are a broker-dealer that will receive new notes for your own
account in exchange for old notes, you acquired those notes as a result
of market-making activities or other trading activities and you will
deliver a prospectus, as required by law, in connection with any resale
of such new notes;
- you are not our "affiliate," as defined in Rule 405 of the Securities Act
or if you are our "affiliate" that you will comply with the registration
and prospectus delivery requirements of the Securities Act to the extent
applicable; and
- you have full power and authority to transfer the old notes in exchange
for the new notes and we will acquire good and unencumbered title thereto
free and clear of any liens, restrictions, charges or encumbrances and
not subject to any adverse claims.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, you may withdraw your
tender at any time prior to the expiration date. For a withdrawal to be
effective you must comply with the appropriate ATOP procedures. Any notice of
withdrawal must specify the name and number of the account at DTC to be credited
with withdrawn old notes and otherwise comply with the ATOP procedures.
We will determine all questions as to the validity, form, eligibility and
time of receipt of notice of withdrawal. Our determination shall be final and
binding on all parties. We will deem any old notes so withdrawn not to have been
validly tendered for exchange for purposes of the exchange offer.
Any old notes that have been tendered for exchange but that are not
exchanged for any reason will be credited to an account maintained with DTC for
the old notes. This crediting will take place as soon as practicable after
withdrawal, rejection of tender or termination of the exchange offer. You may
retender properly withdrawn old notes by following the procedures described
under "-- Procedures for Tendering" above at any time on or prior to the
expiration date.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail; however, we may make additional solicitation by
telegraph, telephone or in person by our officers and regular employees and
those of our affiliates.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and reimburse it for its related
reasonable out-of-pocket expenses.
We will pay the cash expenses to be incurred in connection with the
exchange offer. They include:
- Securities and Exchange Commission registration fees;
- fees and expenses of the exchange agent and trustee;
- accounting and legal fees and printing costs; and
- related fees and expenses.
TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the exchange of old
notes under the exchange offer. The tendering holder, however, will be required
to pay any transfer taxes, whether imposed on the registered holder or any other
person, if a transfer tax is imposed for any reason other than the exchange of
old notes under the exchange offer.
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CONSEQUENCES OF FAILURE TO EXCHANGE
If you do not exchange new notes for your old notes under the exchange
offer, you will remain subject to the existing restrictions on transfer of the
old notes. In general, you may not offer or sell the old notes unless they are
registered under the Securities Act or unless the offer or sale is exempt from
the registration under the Securities Act and applicable state securities laws.
Except as required by the registration rights agreement, we do not intend to
register resales of the old notes under the Securities Act.
ACCOUNTING TREATMENT
We will record the new notes in our accounting records at the same carrying
value as the old notes. This carrying value is the aggregate principal amount of
the old notes, as reflected in our accounting records on the date of exchange.
Accordingly, we will not recognize any gain or loss for accounting purposes in
connection with the exchange offer. The expenses of the exchange offer will be
amortized over the term of the new notes.
OTHER
Participation in the exchange offer is voluntary, and you should carefully
consider whether to accept. You are urged to consult your financial and tax
advisors in making your own decision on what action to take.
We may in the future seek to acquire untendered old notes in open market or
privately negotiated transactions, through subsequent exchange offers or
otherwise. We have no present plans to acquire any old notes that are not
tendered in the exchange offer or to file a registration statement to permit
resales of any untendered old notes.
Each broker-dealer that receives new notes for its own account in exchange
for old notes, where such old notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such new
notes. See "Plan of Distribution."
USE OF PROCEEDS
The exchange offer is intended to satisfy our obligations under the
registration rights agreement. We will not receive any cash proceeds from the
issuance of the new notes in the exchange offer. In consideration for issuing
the new notes as contemplated by this prospectus, we will receive old notes in a
like principal amount. The form and terms of the new notes are identical in all
respects to the form and terms of the old notes, except the new notes are
registered under the Securities Act and will not have restrictions on transfer,
registration rights or provisions for additional cash interest. Old notes
surrendered in exchange for the new notes will be retired and cancelled and will
not be reissued. Accordingly, the issuance of the new notes will not result in
any increase in our outstanding indebtedness.
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CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2003 on an
actual basis and as adjusted to give effect to the offering of the old notes and
the application of the net proceeds therefrom including:
- the redemption on August 20, 2003 of approximately $68.8 million
aggregate principal amount of 8 3/4% senior subordinated notes due 2007;
- the related redemption premium of $2.0 million; and
- the repayment of $26.3 million of indebtedness outstanding under our
senior credit facility.
You should read this table in conjunction with our consolidated financial
statements and related notes incorporated by reference in this prospectus.
AS OF JUNE 30, 2003
--------------------------
ACTUAL AS ADJUSTED(1)
--------- --------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
CASH AND CASH EQUIVALENTS.................................. $ 1,309 $ 1,309
========= =========
LONG-TERM DEBT:
Senior credit facility................................... 110,600 84,287
Great Lakes credit facility.............................. 73,500 73,500
8 3/4% senior subordinated notes due 2007(2)............. 68,781 --
7 3/8% senior subordinated notes due 2013, net of
discount.............................................. -- 98,272
6% convertible subordinated debentures due 2007.......... 20,740 20,740
--------- ---------
Total long-term debt.................................. $ 273,621 $ 276,799
--------- ---------
5 3/4% trust convertible preferred securities............ 84,440 84,440
--------- ---------
Total long-term debt and trust preferred.............. $ 358,061 $ 361,239
--------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, $1 par value; 10,000,000 shares
authorized; none issued and outstanding.................. -- --
Common stock, $.01 par value; 100,000,000 shares
authorized; 55,952,379 issued and outstanding(3)......... 559 559
Capital in excess of par value............................. 396,302 396,302
Stock held by employee benefit trust, 1,605,992 shares at
cost..................................................... (7,867) (7,867)
Retained earnings (deficit)................................ (144,014) (145,568)
Deferred compensation expense.............................. (157) (157)
Other comprehensive income................................. (51,638) (51,638)
--------- ---------
Total stockholders' equity............................ $ 193,185 $ 191,631
--------- ---------
Total capitalization.................................. $ 551,246 $ 552,870
========= =========
- ---------------
(1) Includes approximately $97.1 million of net proceeds from the offering of
the old notes.
(2) Redeemed in full on August 20, 2003.
(3) Outstanding common stock does not include (i) options to purchase 4,072,971
shares of common stock outstanding under our stock option plans as of June
30, 2003 and (ii) shares of our common stock reserved for issuance upon
conversion of our 6% convertible subordinated debentures due 2007 and 5 3/4%
trust convertible preferred securities outstanding as of June 30, 2003.
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DESCRIPTION OF THE NEW NOTES
GENERAL
The form and terms of the new notes are the same as the form and terms of
the old notes, except that the new notes have been registered under the
Securities Act, will not bear legends restricting the transfer thereof, will not
be entitled to registration rights under the registration rights agreement, and
will not contain provisions relating to additional interest. Range Resources
Corporation will issue the new notes under an indenture among itself, the
Subsidiary Guarantors and Bank One, National Association, as trustee. The terms
of the new notes include those stated in the indenture and those made part of
the indenture by reference to the Trust Indenture Act of 1939.
Certain terms used in this description are defined under the subheading
"-- Certain Definitions." In this description, the words "Range Resources" or
"the Company" refer only to Range Resources Corporation, and any successor
obligor on the notes, and not to any of its subsidiaries. As used in this
section, the term "notes" refers to both old notes and new notes.
The old notes, the new notes and any additional notes issued from time to
time in accordance with the terms of the indenture will constitute a single
class of debt securities under the indenture. If the exchange offer is
consummated, holders of old notes who do not exchange new notes for their old
notes will vote together with holders of the new notes and, if applicable, any
holders of additional notes for all relevant purposes under the indenture.
Accordingly, in determining whether the required holders have given any notice,
consent or waiver or taken any other action permitted under the indenture, any
old notes that remain outstanding after the exchange offer will be aggregated
with the new notes and, if applicable, any additional notes, and the holders of
the old notes, the new notes and the additional notes will vote together as a
single class. All references in this prospectus to specified percentages in
aggregate principal amount of the notes that are outstanding means, at any time
after the exchange is consummated, the percentage in aggregate principal amount
of the old notes, the new notes and the additional notes then outstanding.
The following description is a summary of the provisions of the indenture
that we believe to be material and of interest to you and does not restate that
agreement in its entirety. We encourage you to read the indenture because that
agreement, and not this description, will define your rights as a holder of the
notes. We have filed a copy of the indenture as an exhibit to the registration
statement of which this prospectus is a part.
BASIC TERMS OF NOTES
The notes
- are unsecured senior subordinated obligations of Range Resources,
subordinated in right of payment to all existing and future Senior Debt
of Range Resources in accordance with the subordination provisions of the
indenture;
- are jointly, severally and unconditionally guaranteed on a senior
subordinated basis by each of the Restricted Subsidiaries of the Company
and any future Restricted Subsidiary of the Company. The obligations of
the Subsidiary Guarantors under the Guarantees will be general unsecured
obligations of each of the Subsidiary Guarantors and will be subordinated
in right of payment to all obligations of the Subsidiary Guarantors in
respect of Senior Debt.
- are issued in an original aggregate principal amount of $100,000,000;
- mature on July 15, 2013;
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- bear interest commencing the date of issue at 7 3/8%, payable
semiannually in arrears on each January 15 and July 15, commencing
January 15, 2004 to holders of record on the January 1 or July 1
immediately preceding the interest payment date; and
- bear interest on overdue principal, and, to the extent lawful, pay
interest on overdue interest, at 1.0% per annum higher than 7 3/8%.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
ADDITIONAL NOTES
Subject to the covenants described below, the Company may issue additional
notes under the indenture having the same terms in all respects as the notes
except that interest will accrue on the additional notes from their date of
issuance.
Any old notes not exchanged in the exchange offer, any new notes and any
additional notes would be treated as a single class for all purposes under the
indenture and will vote together as one class on all matters under the
indenture.
OPTIONAL REDEMPTION
Except as otherwise described below, the notes will not be redeemable at
the Company's option prior to July 15, 2008. Thereafter, the notes will be
subject to redemption at the option of the Company, in whole or in part, upon
not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest thereon to the applicable redemption date, if redeemed during
the twelve-month period beginning on July 15 of the years indicated below:
% OF
PRINCIPAL
YEAR AMOUNT
- ---- ---------
2008........................................................ 103.688%
2009........................................................ 102.458%
2010........................................................ 101.229%
2011 and thereafter......................................... 100.000%
Prior to July 15, 2006, the Company may, at its option, on any one or more
occasions, redeem up to 35% of the original aggregate principal amount of the
notes at a redemption price equal to 107.375% of the principal amount thereof,
plus accrued and unpaid interest, if any, thereon to the redemption date, with
all or a portion of the net proceeds of public sales of Equity Interests of the
Company; provided that at least 65% of the original aggregate principal amount
of the notes remains outstanding immediately after the occurrence of such
redemption; and provided, further, that such redemption shall occur within 60
days of the date of the closing of the related sale of such Equity Interests.
NO MANDATORY REDEMPTION OR SINKING FUND
Except as set forth below under "-- Repurchase at the Option of Holders,"
the Company is not required to make mandatory redemption or sinking fund
payments with respect to the notes.
GUARANTEES
The Company's payment obligations under the notes will be jointly,
severally and unconditionally guaranteed (the "Guarantees") by each Restricted
Subsidiary of the Company and any future Restricted Subsidiary of the Company.
The Subsidiary Guarantors shall initially be Range Energy I, Inc., Range HoldCo,
Inc., Range Production Company, Range Energy Ventures Corporation, Gulfstar
Energy, Inc. and Range Energy Finance Corporation. The Guarantees will be
subordinated to Indebtedness of the Subsidiary Guarantors to the same extent and
in the same manner as the notes are subordinated to the
24
Senior Debt. Each Guarantee by a Subsidiary Guarantor will be limited in an
amount not to exceed the maximum amount that can be guaranteed by the applicable
Subsidiary Guarantor without rendering such Guarantee, as it relates to such
Subsidiary Guarantor, voidable under applicable law relating to fraudulent
conveyance or fraudulent transfer or similar laws affecting rights of creditors
generally.
The indenture provides that no Subsidiary Guarantor may consolidate with or
merge with or into (whether or not such Subsidiary Guarantor is the surviving
Person), another Person whether or not affiliated with such Subsidiary
Guarantor, unless (i) subject to the provisions of the following paragraph, the
Person formed by or surviving any such consolidation or merger (if other than
such Subsidiary Guarantor) assumes all the obligations of such Subsidiary
Guarantor pursuant to a supplemental indenture in form and substance reasonably
satisfactory to the Trustee in respect of the notes, the indenture and the
Guarantees; (ii) immediately after giving effect to such transaction, no Default
or Event of Default exists; and (iii) such transaction does not violate any of
the covenants described under the heading "-- Certain Covenants."
The indenture provides that in the event of a sale or other disposition of
all or substantially all of the assets of a Subsidiary Guarantor to a third
party or an Unrestricted Subsidiary in a transaction that does not violate any
of the covenants in the indenture, by way of merger, consolidation or otherwise,
or a sale or other disposition of all of the capital stock of a Subsidiary
Guarantor, then such Subsidiary Guarantor (in the event of a sale or other
disposition, by way of such a merger, consolidation or otherwise, of all of the
capital stock of such Subsidiary Guarantor) or the Person acquiring the property
(in the event of a sale or other disposition of all or substantially all of the
assets of such Subsidiary Guarantor) will be released from and relieved of any
obligations under its Guarantee; provided that the Net Proceeds of such sale or
other disposition are applied in accordance with the covenant described under
the caption "-- Repurchase at the Option of Holders -- Asset sales."
Any Subsidiary Guarantor that is designated an Unrestricted Subsidiary in
accordance with the terms of the indenture shall be released and relieved of its
obligations under its Guarantee and any Unrestricted Subsidiary and any newly
formed or newly acquired Subsidiary that becomes a Restricted Subsidiary will be
required to execute a Guarantee in accordance with the terms of the indenture.
The Company is a holding company, owns no operating assets and has no
significant operations independent of its subsidiaries. The Guarantees are full
and unconditional and joint and several, and any subsidiaries of the Company
other than the Subsidiary Guarantors are minor.
SUBORDINATION
The payment of principal of, premium, if any, and interest on the notes and
any other payment obligations of the Company in respect of the notes (including
any obligation to repurchase the notes) will be subordinated in certain
circumstances in right of payment, as set forth in the indenture, to the prior
payment in full in cash of all Senior Debt, whether outstanding on the date of
the indenture or thereafter incurred.
Upon any payment or distribution of property or securities to creditors of
the Company in a liquidation or dissolution of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or its property, or in an assignment for the benefit of creditors or any
marshalling of the Company's assets and liabilities, the holders of Senior Debt
will be entitled to receive payment in full of all Obligations due in respect of
such Senior Debt (including interest after the commencement of any such
proceeding at the rate specified in the applicable Senior Debt, whether or not a
claim for such interest would be allowed in such proceeding) before the Holders
of notes will be entitled to receive any payment with respect to the notes, and
until all Obligations with respect to Senior Debt are paid in full, any
distribution to which the Holders of notes would be entitled shall be made to
the holders of Senior Debt (except in each case that Holders of notes may
receive securities that are subordinated at least to the same extent as the
notes are subordinated to Senior Debt and any securities issued in exchange for
Senior Debt and payments made from the trust described under "-- Legal
Defeasance and Covenant Defeasance").
25
The Company may not make any payment (whether by redemption, purchase,
retirement, defeasance or otherwise) upon or in respect of the notes (except in
such subordinated securities or from the trust described under "-- Legal
Defeasance and Covenant Defeasance") if (i) a default in the payment of the
principal of, premium, if any, or interest on Designated Senior Debt occurs or
(ii) any other default occurs and is continuing with respect to Designated
Senior Debt that permits, or with the giving of notice or passage of time or
both (unless cured or waived) will permit, holders of the Designated Senior Debt
as to which such default relates to accelerate its maturity and the Trustee
receives a notice of such default (a "Payment Blockage Notice") from the Company
or the holders of any Designated Senior Debt. Cash payments on the notes shall
be resumed (a) in the case of a payment default, upon the date on which such
default is cured or waived and (b) in case of a nonpayment default, the earliest
of the date on which such nonpayment default is cured or waived, the date on
which the applicable Payment Blockage Notice is retracted by written notice to
the Trustee or 90 days after the date on which the applicable Payment Blockage
Notice is received, unless the maturity of any Designated Senior Debt has been
accelerated or a default of the type described in clause (ix) under the caption
"Events of Default" has occurred and is continuing. No new period of payment
blockage may be commenced unless and until 360 days have elapsed since the date
of commencement of the payment blockage period resulting from the immediately
prior Payment Blockage Notice. No nonpayment default in respect of Designated
Senior Debt that existed or was continuing on the date of delivery of any
Payment Blockage Notice to the Trustee shall be, or be made, the basis for a
subsequent Payment Blockage Notice.
The indenture will further require that the Company promptly notify holders
of Senior Debt if payment of the notes is accelerated because of an Event of
Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency of the Company, Holders of notes may recover less
ratably than creditors of the Company who are holders of Senior Debt. As of June
30, 2003, we had $184.1 million of Senior Debt outstanding, including our 50%
portion of indebtedness owed by our Great Lakes joint venture under its credit
facility. The indenture will limit, subject to certain financial tests, the
amount of additional Indebtedness, including Senior Debt, that the Company and
its Subsidiaries can incur. See "-- Certain Covenants -- Incurrence of
indebtedness and issuance of disqualified stock."
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of notes will have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such Holder's notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount of the notes plus accrued and unpaid
interest, if any, thereon to the date of purchase (the "Change of Control
Payment"). Within 30 days following any Change of Control, the Company will mail
a notice to each Holder describing the transaction or transactions that
constitute the Change of Control and offer to repurchase the notes pursuant to
the procedures required by the indenture and described in such notice. The
Change of Control Payment shall be made on a business day not less than 30 days
nor more than 60 days after such notice is mailed (the "Change of Control
Payment Date"). The Company will comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of the notes as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all the notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all the
notes or portions thereof so tendered and (iii) deliver or cause to be delivered
to the Trustee the notes so accepted together with an Officers' Certificate
stating the aggregate principal amount of such notes or portions thereof being
purchased by the Company. The Paying Agent will promptly mail to each Holder of
26
notes so tendered the Change of Control Payment for such notes, and the Trustee
will promptly authenticate and mail (or cause to be transferred by book entry)
to each Holder a new note equal in principal amount to any unpurchased portion
of the notes surrendered, if any; provided that each such new note will be in a
principal amount of $1,000 or an integral multiple thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
Except as described above with respect to a Change of Control, the
indenture does not contain provisions that permit the Holders of notes to
require that the Company repurchase or redeem the notes in the event of a
takeover, recapitalization or similar transaction.
The Company will not be required to make a Change of Control Offer if a
third party makes the Change of Control Offer in the manner, at the times and
otherwise in compliance with the requirements set forth in the indenture
applicable to a Change of Control Offer made by the Company and purchases all
notes (or portions thereof) validly tendered and not withdrawn under such Change
of Control Offer.
The Credit Agreement prohibits the Company from repurchasing any notes
pursuant to a Change of Control Offer prior to the repayment in full of the
Senior Debt under the Credit Agreement. Moreover, the occurrence of certain
change of control events identified in the Credit Agreement will constitute a
default under the Credit Agreement. Any future Credit Facilities or other
agreements relating to the Senior Debt to which the Company becomes a party may
contain similar restrictions and provisions. If a Change of Control were to
occur, the Company may not have sufficient available funds to pay the Change of
Control Payment for all notes that might be delivered by Holders of notes
seeking to accept the Change of Control Offer after first satisfying its
obligations under the Credit Agreement or other agreements relating to Senior
Debt, if accelerated. The failure of the Company to make or consummate the
Change of Control Offer or pay the Change of Control Payment when due will
constitute a Default under the indenture and will otherwise give the Trustee and
the Holders of notes the rights described under "-- Events of Default and
Remedies."
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a Holder of notes to require the Company to
repurchase such notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company and its
Subsidiaries taken as a whole to another Person or group may be uncertain.
ASSET SALES
The indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, engage in an Asset Sale unless (i) the
Company or the Restricted Subsidiary, as the case may be, receives consideration
at the time of such Asset Sale at least equal to the fair market value (as
determined in good faith by a resolution of the Board of Directors set forth in
an Officers' Certificate delivered to the Trustee, which determination shall be
conclusive evidence of compliance with this provision) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 85% of the
consideration therefor received by the Company or such Restricted Subsidiary in
such Asset Sale, plus all other Asset Sales since the date of the indenture, on
a cumulative basis, is in the form of cash or Cash Equivalents; provided that
the amount of any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet) of the Company or any Restricted
Subsidiary (other than contingent liabilities and liabilities that are by their
terms subordinated to the notes or any guarantee thereof) are assumed by the
transferee of any such assets pursuant to a customary novation agreement that
releases the Company or such Restricted Subsidiary from further liability.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (a) to reduce Senior
Debt, (b) to acquire a controlling interest in another Oil and Gas Business, (c)
to make capital expenditures in respect of the Company's or its
27
Restricted Subsidiaries' Oil and Gas Business, (d) to purchase long-term assets
that are used or useful in such Oil and Gas Business or (e) to repurchase any
notes. Pending the final application of any such Net Proceeds, the Company may
temporarily reduce Senior Debt that is revolving debt or otherwise invest such
Net Proceeds in any manner that is not prohibited by the indenture. Any Net
Proceeds from Asset Sales that are not applied as provided in the first sentence
of this paragraph will (after the expiration of the periods specified in this
paragraph) be deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $10 million, the
Company will be required to make an offer to all Holders of notes and, to the
extent required by the terms thereof, to all holders or lenders of Pari Passu
Indebtedness (an "Asset Sale Offer") to purchase the maximum principal amount of
the notes and any such Pari Passu Indebtedness to which the Asset Sale Offer
applies that may be purchased out of the Excess Proceeds, at an offer price in
cash equal to 100% of the principal amount thereof plus accrued and unpaid
interest thereon to the date of purchase, or, in the case of any other Pari
Passu Indebtedness, 100% of the principal amount thereof (or with respect to
discount Pari Passu Indebtedness, the accreted value thereof) on the date of
purchase, in each case in accordance with the procedures set forth in the
indenture or the agreements governing the Pari Passu Indebtedness, as
applicable. To the extent that the aggregate principal amount (or accreted
value, as the case may be) of the notes and Pari Passu Indebtedness tendered
pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company
may use any remaining Excess Proceeds for general corporate purposes. If the
aggregate principal amount of the notes surrendered by Holders thereof and the
aggregate principal amount or accreted value of other Pari Passu Indebtedness
surrendered by holders or lenders thereof, collectively, exceeds the amount of
Excess Proceeds, the Trustee and the trustee or other lender representatives for
the Pari Passu Indebtedness shall select the notes and other Pari Passu
Indebtedness to be purchased on a pro rata basis, based on the aggregate
principal amount (or accreted value, as applicable) thereof surrendered in such
Asset Sale Offer. Upon completion of such Asset Sale Offer, the amount of Excess
Proceeds shall be reset at zero.
The Credit Agreement prohibits the Company from purchasing any notes from
the Net Proceeds of Asset Sales. Any future credit agreements or other
agreements relating to Senior Debt to which the Company becomes a party may
contain similar restrictions and provisions. In the event an Asset Sale Offer
occurs at a time when the Company is prohibited from purchasing the notes, the
Company could seek the consent of its lenders to the purchase or could attempt
to refinance the Senior Debt that contain such prohibition. If the Company does
not obtain such a consent or repay such Senior Debt, 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 the indenture
which would, in turn, constitute a default under the Credit Agreement and
possibly a default under other agreements relating to Senior Debt. In such
circumstances, the subordination provisions in the indenture would likely
restrict payments to the Holders of the notes.
CERTAIN COVENANTS
The indenture contains covenants including, among others, the following:
RESTRICTED PAYMENTS
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(i) declare or pay any dividend or make any other payment or
distribution on account of the Company's Equity Interests (including,
without limitation, any payment to holders of the Company's Equity
Interests in connection with any merger or consolidation involving the
Company) to the direct or indirect holders of the Company's Equity
Interests in their capacity as such (other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of the
Company);
(ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company or any direct or indirect parent or other
Affiliate of the Company that is not a Wholly Owned Restricted Subsidiary
of the Company;
28
(iii) make any principal payment on, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is subordinated
to the notes, except at final maturity; or
(iv) make any Restricted Investment (all such payments and other
actions set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments"), unless, at the time of and after
giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have
been permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described below under the caption
"-- Incurrence of indebtedness and issuance of disqualified stock"; and
(c) such Restricted Payment, together with the aggregate of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of the indenture (excluding Restricted
Payments permitted by clauses (2), (3), (5), (6) and (7) of the next
succeeding paragraph), is less than the sum of (i) 50% of the
Consolidated Net Income of the Company for the period (taken as one
accounting period) from the beginning of the first fiscal quarter
commencing prior to the date of the indenture to the end of the
Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a
deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net
cash proceeds received by the Company from the issue and sale since the
date of the indenture of Equity Interests of the Company or of debt
securities of the Company that have been converted into or exchanged for
such Equity Interests (other than Equity Interests (or convertible debt
securities) sold to a Subsidiary of the Company and other than
Disqualified Stock or debt securities that have been converted into
Disqualified Stock), plus (iii) to the extent that any Restricted
Investment that was made after the date of the indenture is sold for
cash or otherwise liquidated or repaid for cash, the lesser of (A) the
net proceeds of such sale, liquidation or repayment and (B) the initial
amount of such Restricted Investment; provided, however, that the
foregoing provisions of this paragraph (c) will not prohibit Restricted
Payments in an aggregate amount not to exceed $20 million.
The foregoing provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of the indenture;
(2) the redemption, repurchase, retirement or other acquisition of any
Equity Interests of the Company in exchange for, or out of the proceeds of,
the substantially concurrent sale (other than to a Subsidiary of the
Company) of other Equity Interests of the Company (other than any
Disqualified Stock); provided that the amount of any such net cash proceeds
that are utilized for any such redemption, repurchase, retirement or other
acquisition shall be excluded from clause (c)(ii) of the preceding
paragraph;
(3) the defeasance, redemption or repurchase of Subordinated
Indebtedness with the net cash proceeds from an incurrence of subordinated
Permitted Refinancing Debt or the substantially concurrent sale (other than
to a Subsidiary of the Company) of Equity Interests of the Company (other
than Disqualified Stock); provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase, retirement
or other acquisition shall be excluded from clause (c)(ii) of the preceding
paragraph;
(4) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of the Company or any Subsidiary of the
Company held by any of the Company's (or any of
29
its Subsidiaries') employees pursuant to any management equity subscription
agreement or stock option agreement in effect as of the date of the
indenture; provided that the aggregate price paid for all such repurchased,
redeemed, acquired or retired Equity Interests shall not exceed $2 million
in any twelve-month period; and provided further that no Default or Event
of Default shall have occurred and be continuing immediately after such
transaction;
(5) repurchases of Equity Interests deemed to occur upon exercise of
stock options if such Equity Interests represent a portion of the exercise
price of such options;
(6) cash payments made by the Company for the repurchase, redemption
or other acquisition or retirement of the 8 3/4% Senior Subordinated Notes;
and
(7) cash payments made by the Company, not to exceed $25 million in
the aggregate, for the repurchase, redemption or other acquisition or
retirement of the 6% Convertible Subordinated Debentures and the 5 3/4%
Trust Convertible Preferred Securities.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (as determined in good faith by a resolution of the Board of
Directors set forth in an Officers' Certificate delivered to the Trustee, which
determination shall be conclusive evidence of compliance with this provision) on
the date of the Restricted Payment of the asset(s) proposed to be transferred by
the Company or the applicable Restricted Subsidiary, as the case may be,
pursuant to the Restricted Payment. Not later than five days after the date of
making any Restricted Payment, the Company shall deliver to the Trustee an
Officers' Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by the covenant
"Restricted Payments" were computed.
DESIGNATION OF UNRESTRICTED SUBSIDIARIES
The Board of Directors of the Company may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if such designation would not cause
a Default. For purposes of making such determination, all outstanding
Investments by the Company and its Restricted Subsidiaries (except to the extent
repaid in cash) in the Subsidiary so designated will be deemed to be Restricted
Payments at the time of such designation and will reduce the amount available
for Restricted Payments under clause (c) of the first paragraph of the covenant
"Restricted Payments." All such outstanding Investments will be deemed to
constitute Investments in an amount equal to the greater of the fair market
value or the book value of such Investments at the time of such designation.
Such designation will only be permitted if such Restricted Payment would be
permitted at such time and if such Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED STOCK
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt) and the Company will not issue any Disqualified Stock and will not permit
any of its Restricted Subsidiaries to issue any shares of preferred stock;
provided, however, that the Company may incur Indebtedness (including Acquired
Debt) or issue shares of Disqualified Stock if:
(i) the Fixed Charge Coverage Ratio for the Company's most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have
been at least 2.5 to 1, determined on a pro forma basis as set forth in the
definition of Fixed Charge Coverage Ratio; and
(ii) no Default or Event of Default shall have occurred and be
continuing at the time such additional Indebtedness is incurred or such
Disqualified Stock is issued or would occur as a consequence of the
incurrence of the additional Indebtedness or the issuance of the
Disqualified Stock.
30
Notwithstanding the foregoing, the indenture does not prohibit any of the
following (collectively, "Permitted Indebtedness"):
(a) the Indebtedness evidenced by the notes;
(b) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness pursuant to Credit Facilities, so long as the
aggregate principal amount of all Indebtedness outstanding under all Credit
Facilities does not, at any one time, exceed the greater of (i) $225
million (or, if there is any permanent reduction in the aggregate principal
amount permitted to be borrowed under the Credit Agreement, such lesser
aggregate principal amount) and (ii) an amount equal to the sum of (A) $50
million plus (B) 30% of Adjusted Consolidated Net Tangible Assets
determined after the incurrence of such Indebtedness (including the
application of the proceeds therefrom);
(c) the guarantee by any Subsidiary Guarantor of any Indebtedness that
is permitted by the indenture to be incurred by the Company;
(d) all Indebtedness of the Company and its Restricted Subsidiaries in
existence as of the date of the indenture;
(e) intercompany Indebtedness between or among the Company and any of
its Wholly Owned Restricted Subsidiaries; provided, however, that (i) if
the Company is the obligor on such Indebtedness, such Indebtedness is
expressly subordinate to the payment in full of all Obligations with
respect to the notes and (ii)(A) any subsequent issuance or transfer of
Equity Interests that results in any such Indebtedness being held by a
Person other than the Company or a Wholly Owned Restricted Subsidiary and
(B) any sale or other transfer of any such Indebtedness to a Person that is
not either the Company or a Wholly Owned Restricted Subsidiary shall be
deemed, in each case, to constitute an incurrence of such Indebtedness by
the Company or such Restricted Subsidiary, as the case may be;
(f) Indebtedness in connection with one or more standby letters of
credit, guarantees, performance bonds or other reimbursement obligations,
in each case, issued in the ordinary course of business and not in
connection with the borrowing of money or the obtaining of advances or
credit (other than advances or credit on open account, includible in
current liabilities, for goods and services in the ordinary course of
business and on terms and conditions which are customary in the Oil and Gas
Business, and other than the extension of credit represented by such letter
of credit, guarantee or performance bond itself), not to exceed in the
aggregate at any given time 5% of Total Assets;
(g) Indebtedness under Interest Rate Hedging Agreements entered into
for the purpose of limiting interest rate risks, provided that the
obligations under such agreements are related to payment obligations on
Indebtedness otherwise permitted by the terms of this covenant and that the
aggregate notional principal amount of such agreements does not exceed 105%
of the principal amount of the Indebtedness to which such agreements
relate;
(h) Indebtedness under Oil and Gas Hedging Contracts, provided that
such contracts were entered into in the ordinary course of business for the
purpose of limiting risks that arise in the ordinary course of business of
the Company and its Restricted Subsidiaries;
(i) the incurrence by the Company of Indebtedness not otherwise
permitted to be incurred pursuant to this paragraph, provided that the
aggregate principal amount (or accreted value, as applicable) of all
Indebtedness incurred pursuant to this clause (i), together with all
Permitted Refinancing Debt incurred pursuant to clause (j) of this
paragraph in respect of Indebtedness previously incurred pursuant to this
clause (i), does not exceed $10 million at any one time outstanding;
(j) Permitted Refinancing Debt incurred in exchange for, or the net
proceeds of which are used to refinance, extend, renew, replace, defease or
refund, Indebtedness that was permitted by the indenture to be incurred
(including Indebtedness previously incurred pursuant to this clause (j));
31
(k) accounts payable or other obligations of the Company or any
Restricted Subsidiary to trade creditors created or assumed by the Company
or such Restricted Subsidiary in the ordinary course of business in
connection with the obtaining of goods or services;
(l) Indebtedness consisting of obligations in respect of purchase
price adjustments, guarantees or indemnities in connection with the
acquisition or disposition of assets; and
(m) production imbalances that do not, at any one time outstanding,
exceed 2% of the Total Assets of the Company.
The Company will not permit any Unrestricted Subsidiary to incur any
Indebtedness other than Non-Recourse Debt; provided, however, if any such
Indebtedness ceases to be Non-Recourse Debt, such event shall be deemed to
constitute an incurrence of Indebtedness by the Company.
NO LAYERING
The indenture provides that (i) the Company will not incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior Debt and senior in any
respect in right of payment to the notes and (ii) the Subsidiary Guarantors will
not directly or indirectly incur, create, issue, assume, guarantee or otherwise
become liable for any Indebtedness that is subordinate or junior in right of
payment to any Senior Debt and senior in any respect in right of payment to the
Guarantees, provided, however, that the foregoing limitations will not apply to
distinctions between categories of Indebtedness that exist by reason of any
Liens arising or created in respect of some but not all such Indebtedness.
LIENS
The Company will not, and will not permit any of its Restricted
Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or
become effective any Lien securing Indebtedness of any kind (other than
Permitted Liens) upon any of its property or assets, now owned or hereafter
acquired, unless all payments under the notes are secured by such Lien prior to,
or on an equal and ratable basis with, the Indebtedness so secured for so long
as such Indebtedness is secured by such Lien.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (i)(x) pay dividends or make any other distributions to
the Company or any of its Restricted Subsidiaries (1) on its Capital Stock or
(2) with respect to any other interest or participation in, or measured by, its
profits, or (y) pay any indebtedness owed by it to the Company or any of its
Restricted Subsidiaries, (ii) make loans or advances to the Company or any of
its Restricted Subsidiaries or (iii) transfer any of its properties or assets to
the Company or any of its Restricted Subsidiaries, except for such encumbrances
or restrictions existing under or by reason of (a) the Credit Agreement as in
effect as of the date of the indenture, and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings thereof or any other Credit Facility, provided that such
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements, refinancings or other Credit Facilities are no more
restrictive taken as a whole with respect to such dividend and other payment
restrictions than those contained in the Credit Agreement as in effect on the
date of the indenture, (b) the indenture and the notes, (c) applicable law, (d)
any instrument governing Indebtedness or Capital Stock of a Person acquired by
the Company or any of its Restricted Subsidiaries as in effect at the time of
such acquisition (except, in the case of Indebtedness, to the extent such
Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets
32
of any Person, other than the Person and its Subsidiaries, or the property or
assets of the Person and its Subsidiaries, so acquired, provided that, in the
case of Indebtedness, such Indebtedness was permitted by the terms of the
indenture to be incurred, (e) by reason of customary non-assignment provisions
in leases and customary provisions in other agreements that restrict assignment
of such agreement or rights thereunder, entered into in the ordinary course of
business and consistent with past practices, (f) purchase money obligations for
property acquired in the ordinary course of business that impose restrictions of
the nature described in clause (iii) above on the property so acquired, or (g)
Permitted Refinancing Debt, provided that the restrictions contained in the
agreements governing such Permitted Refinancing Debt are no more restrictive
than those contained in the agreements governing the Indebtedness being
refinanced.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Company may not consolidate or merge with or into (whether or not the
Company is the surviving corporation), or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its properties or assets, in
one or more related transactions, to another Person, and the Company may not
permit any of its Restricted Subsidiaries to enter into any such transaction or
series of transactions if such transaction or series of transactions would, in
the aggregate, result in a sale, assignment, transfer, lease, conveyance, or
other disposition of all or substantially all of the properties or assets of the
Company to another Person, in either case unless
(i) the Company is the surviving corporation or the Person formed by
or surviving any such consolidation or merger (if other than the Company)
or to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made (the "Surviving Entity") is a corporation
organized or existing under the laws of the United States, any state
thereof or the District of Columbia;
(ii) the Surviving Entity (if the Company is not the continuing
obligor under the indenture) assumes all the obligations of the Company
under the notes and the indenture pursuant to a supplemental indenture in a
form reasonably satisfactory to the Trustee;
(iii) immediately before and after giving effect to such transaction
or series of transactions no Default or Event of Default exists;
(iv) immediately after giving effect to such transaction or a series
of transactions on a pro forma basis (and treating any Indebtedness not
previously an obligation of the Company and its Subsidiaries which becomes
the obligation of the Company or any of its Subsidiaries as a result of
such transaction or series of transactions as having been incurred at the
time of such transaction or series of transactions), the Consolidated Net
Worth of the Company and its Subsidiaries or the Surviving Entity (if the
Company is not the continuing obligor under the indenture) is equal to or
greater than the Consolidated Net Worth of the Company and its Subsidiaries
immediately prior to such transaction or series of transactions and
(v) the Company or the Surviving Entity (if the Company is not the
continuing obligor under the indenture) will, at the time of such
transaction or series of transactions and after giving pro forma effect
thereto as if such transaction or series of transactions had occurred at
the beginning of the applicable four-quarter period, be permitted to incur
at least $1.00 of additional Indebtedness pursuant to the test set forth in
the first paragraph of the covenant described above under the caption
"-- Incurrence of indebtedness and issuance of disqualified stock."
Notwithstanding the restrictions described in the foregoing clauses (iv) and
(v), any Restricted Subsidiary may consolidate with, merge into or transfer all
or part of its properties and assets to the Company, and any Wholly Owned
Restricted Subsidiary may consolidate with, merge into or transfer all or part
of its properties and assets to another Wholly Owned Restricted Subsidiary.
33
TRANSACTIONS WITH AFFILIATES
The Company will not, and will not permit any of its Subsidiaries to, make
any payment to, or sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
or make or amend any contract, agreement, understanding, loan, advance or
guarantee with, or for the benefit of, any of its Affiliates (each of the
foregoing, an "Affiliate Transaction"), unless
(i) such Affiliate Transaction is on terms that are no less favorable
to the Company or the relevant Subsidiary than those that would have been
obtained in a comparable transaction by the Company or such Subsidiary with
an unrelated Person and
(ii) the Company delivers to the Trustee
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$1.0 million but less than or equal to $5.0 million, an Officers'
Certificate certifying that such Affiliate Transaction complies with
clause (i) above,
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$5.0 million but less than or equal to $10.0 million, a resolution of
the Board of Directors set forth in an Officers' Certificate certifying
that such Affiliate Transaction or series of Affiliate Transactions
complies with clause (i) above and that such Affiliate Transaction or
series of Affiliate Transactions has been approved in good faith by a
majority of the members of the Board of Directors who are disinterested
with respect to such Affiliate Transaction or series of related
Affiliate Transactions, which resolution shall be conclusive evidence of
compliance with this provision, and
(c) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$10.0 million, (x) a resolution of the Board of Directors set forth in
an Officers' Certificate certifying that such Affiliate Transaction or
series of related Affiliate Transactions complies with clause (i) above
and that such Affiliate Transaction or series of related Affiliate
Transactions has been approved in good faith by a resolution adopted by
a majority of the members of the Board of Directors of the Company who
are disinterested with respect to such Affiliate Transaction or series
of related Affiliate Transactions and (y) an opinion as to the fairness
to the Company or such Subsidiary of such Affiliate Transaction or
series of related Affiliate Transactions from a financial point of view
issued by an accounting, appraisal, engineering or investment banking
firm of national standing (which resolution and fairness opinion shall
be conclusive evidence of compliance with this provision);
provided that the following shall not be deemed Affiliate Transactions:
(1) transactions contemplated by any employment agreement or other
compensation plan or arrangement entered into by the Company or any of its
Subsidiaries in the ordinary course of business and consistent with the past
practice of the Company or such Subsidiary,
(2) transactions between or among the Company and/or its Restricted
Subsidiaries,
(3) Restricted Payments and Permitted Investments that are permitted by the
provisions of the indenture described above under the caption "-- Restricted
payments," and
(4) indemnification payments made to officers, directors and employees of
the Company or any Subsidiary pursuant to charter, bylaw, statutory or
contractual provisions.
ADDITIONAL SUBSIDIARY GUARANTEES
If the Company or any of its Restricted Subsidiaries acquires or creates
another Restricted Subsidiary after the date of the indenture, then such newly
acquired or created Restricted Subsidiary will be required to execute a
Guarantee and deliver an opinion of counsel, in accordance with the terms of the
indenture.
34
BUSINESS ACTIVITIES
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any material respect in any business other than the Oil and Gas
Business.
COMMISSION REPORTS
Notwithstanding that the Company may not be required to remain subject to
the reporting requirements of Section 13 or 15(d) of the Exchange Act, to the
extent permitted by the Exchange Act the Company will file with the Commission
and provide, within 15 days after such filing, the Trustee and Holders and
prospective Holders (upon request) with the annual reports and the information,
documents and other reports which are specified in Sections 13 and 15(d) of the
Exchange Act (but without exhibits in the case of the Holders and prospective
Holders). In the event that the Company is not permitted to file such reports,
documents and information with the Commission, the Company will provide
substantially similar information to the Trustee, the Holders, and prospective
Holders (upon request) as if the Company were subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act. The Company also will
comply with the other provisions of Section 314(a) of the Trust Indenture Act.
EVENTS OF DEFAULT AND REMEDIES
Each of the following constitutes an Event of Default:
(i) a default for 30 days in the payment when due of interest on the
notes (whether or not prohibited by the subordination provisions of the
indenture);
(ii) a default in payment when due of the principal of or premium, if
any, on the notes (whether or not prohibited by the subordination
provisions of the indenture);
(iii) the failure by the Company to comply with its obligations under
"Certain Covenants -- Merger, consolidation or sale of assets" above;
(iv) the failure by the Company for 30 days after notice from the
Trustee or the Holders of at least 25% in principal amount of the notes
then outstanding to comply with the provisions described under the captions
"Repurchase at the Option of Holders" and "Certain Covenants" other than
the provisions described under "-- Merger, consolidation or sale of
assets";
(v) failure by the Company for 60 days after notice from the Trustee
or the Holders of at least 25% in principal amount of the notes then
outstanding to comply with any of its other agreements in the indenture or
the notes;
(vi) except as permitted by the indenture, any Guarantee shall be held
in any judicial proceeding to be unenforceable or invalid or shall cease
for any reason to be in full force and effect or a Subsidiary Guarantor, or
any Person acting on behalf of such Subsidiary Guarantor, shall deny or
disaffirm its obligations under its Guarantee;
(vii) a default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any
of its Restricted Subsidiaries) whether such Indebtedness or guarantee
existed on the date of the indenture or was created thereafter, which
default
(a) is caused by a failure to pay principal of or premium, if any,
or interest on such Indebtedness prior to the expiration of the grace
period provided in such Indebtedness on the date of such default (a
"Payment Default"), or
(b) results in the acceleration of such Indebtedness prior to its
express maturity,
and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under
which there is then existing a Payment Default or
35
the maturity of which has been so accelerated, aggregates $10 million or
more; provided, that if any such default is cured or waived or any such
acceleration is 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;
(viii) the failure by the Company or any of its Restricted
Subsidiaries to pay final, non-appealable judgments aggregating in excess
of $10 million, which judgments remain unpaid or discharged for a period of
60 days; and
(ix) certain events of bankruptcy or insolvency with respect to the
Company or any of its Significant Subsidiaries or any group of Subsidiaries
that, taken together, would constitute a Significant Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the notes then outstanding may
declare the principal of and accrued but unpaid interest on such notes to be due
and payable immediately. Notwithstanding the foregoing, in the case of an Event
of Default arising from certain events of bankruptcy or insolvency, with respect
to the Company or any Significant Subsidiary or any group of Subsidiaries that,
taken together, would constitute a Significant Subsidiary, all outstanding notes
will become due and payable without further action or notice. Holders of notes
may not enforce the indenture or notes except as provided in the indenture.
Subject to certain limitations, Holders of a majority in principal amount of the
notes then outstanding may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders of notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal or interest) if it determines that withholding notice
is in their interest.
The Holders of a majority in principal amount of the notes then outstanding
by notice to the Trustee may on behalf of the Holders of all of the notes waive
any existing Default or Event of Default and its consequences under the
indenture except a continuing Default or Event of Default in the payment of
interest or premium on, or the principal of, the notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the indenture, and the Company is required, within
five business days of becoming aware of any Default or Event of Default, to
deliver to the Trustee a statement specifying such Default or Event of Default.
NO LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATORS, MEMBERS AND
STOCKHOLDERS
No director, officer, employee, incorporator, member or stockholder of the
Company or any Guarantor, as such, will have any liability for any obligations
of the Company or such Guarantor under the notes, any Note Guaranty or the
indenture or for any claim based on, in respect of, or by reason of, such
obligations. Each holder of notes by accepting a note waives and releases all
such liability. The waiver and release are part of the consideration for
issuance of the notes. This waiver may not be effective to waive liabilities
under the federal securities laws and it is the view of the Commission that such
a waiver is against public policy.
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Except as provided in the next two succeeding paragraphs, the indenture,
the notes or the Guarantees may be amended or supplemented with the consent of
the Holders of at least a majority in principal amount of the notes then
outstanding (including, without limitation, consents obtained in connection with
a purchase of, or tender offer or exchange offer for, the notes), and any
existing default or compliance with any provision of such indenture, the notes
or the Guarantees may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding notes (including consents obtained in
connection with a tender offer or exchange offer for the notes).
36
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any the notes held by a non-consenting Holder):
(i) reduce the principal amount of the notes whose Holders must
consent to an amendment, supplement or waiver,
(ii) reduce the principal of or change the fixed maturity of any note
or alter the provisions with respect to the redemption of the notes (other
than provisions relating to the covenants described above under the caption
"--Repurchase at the Option of Holders"),
(iii) reduce the rate of or change the time for payment of interest on
any note,
(iv) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest on the notes (except a recision of
acceleration of the notes by the Holders of at least a majority in
principal amount of such notes and a waiver of the payment default that
resulted from such acceleration),
(v) make any note payable in money other than that stated in the
notes,
(vi) make any change in the provisions of the indenture relating to
waivers of past Defaults or the rights of Holders of notes to receive
payments of principal of or premium, if any, or interest on the notes, or
(vii) make any change in the foregoing amendment and waiver
provisions.
In addition, any amendment to the provisions described under "-- Repurchase at
the Option of Holders" or the provisions of Article 10 of the indenture (which
relate to subordination) will require the consent of the Holders of at least
66 2/3% in principal amount of the notes then outstanding if such amendment
would adversely affect the rights of Holders of such notes. However, no
amendment may be made to the subordination provisions of the indenture that
adversely affects the rights of any holder of Senior Debt then outstanding
unless the holders of such Senior Debt (or any group or representative thereof
authorized to give a consent) consents to such change.
Notwithstanding the foregoing, without the consent of any Holder of the
notes the Company and the Trustee may amend or supplement the indenture or the
notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated notes in addition to or in place of certificated notes, to
provide for the assumption of the Company's obligations to Holders of the notes
in the case of a merger or consolidation, to make any change that would provide
any additional rights or benefits to the Holders of the notes or that does not
adversely affect the legal rights under the indenture of any such Holder, to
secure the notes or to comply with requirements of the Commission in order to
effect or maintain the qualification of the indenture under the Trust Indenture
Act.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding notes ("Legal
Defeasance") except for
(i) the rights of Holders of such outstanding notes to receive
payments in respect of the principal of, premium, if any, or interest on
such notes when such payments are due from the trust referred to below,
(ii) the Company's obligations with respect to such notes concerning
issuing temporary notes, registration of such notes, mutilated, destroyed,
lost or stolen notes and the maintenance of an office or agency for payment
and money for security payments held in trust,
(iii) the rights, powers, trusts, duties and immunities of the
Trustee, and the Company's obligations in connection therewith, and
(iv) the Legal Defeasance provisions of the indenture.
37
In addition, the Company may, at its option and at any time, elect to have
the obligations of the Company released with respect to certain covenants that
are described in the indenture ("Covenant Defeasance") and thereafter any
omission to comply with such obligations shall not constitute a Default or Event
of Default. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation and insolvency
events) described under "Events of Default and Remedies" will no longer
constitute an Event of Default.
In order to exercise either Legal Defeasance or Covenant Defeasance,
(i) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders of notes, cash in U.S. dollars, non-callable
Government Securities, 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, and interest
on the outstanding notes on the stated maturity or on the applicable
redemption date, as the case may be, and the Company must specify whether
the notes are being defeased to maturity or to a particular redemption
date;
(ii) in the case of Legal Defeasance, the Company shall have delivered
to the Trustee an opinion of counsel in the United States reasonably
acceptable to such Trustee confirming that
(A) the Company has received from, or there has been published by,
the Internal Revenue Service a ruling, or
(B) since the date of the indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that,
and based thereon such opinion of counsel shall confirm 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 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;
(iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to such Trustee confirming that the Holders of the
outstanding notes 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;
(iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day
after the date of deposit;
(v) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the indenture) to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
(vi) the Company must have delivered to the Trustee an opinion of
counsel to the effect that after the 91st day following the deposit, the
trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;
(vii) the Company must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by the Company with the intent of
preferring the Holders of notes over the other creditors of the Company, or
with the intent of defeating, hindering, delaying or defrauding creditors
of the Company or others; and
(viii) the Company must deliver to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that all conditions
precedent provided for relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
38
CONCERNING THE TRUSTEE
Bank One, National Association is the Trustee under the indenture. The
Trustee and its affiliates also perform and may in the future perform certain
banking and other services for us in the ordinary course of their business. The
Trustee is also the paying agent and transfer agent for the notes.
The Trustee assumes no responsibility for this prospectus and has not
reviewed or undertaken to verify any information contained in this prospectus.
GOVERNING LAW
The indenture, the notes and the Guarantees provide that they will be
governed by the laws of the State of New York.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full definition of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person,
(i) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such specified
Person, including, without limitation, Indebtedness incurred in connection
with, or in contemplation of, such other Person merging with or into or
becoming a Subsidiary of such specified Person, and
(ii) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person.
"Adjusted Consolidated Net Tangible Assets" means (without duplication), as
of the date of determination,
(i) the sum of
(a) discounted future net revenues from proved oil and gas reserves
of the Company and its Restricted Subsidiaries calculated in accordance
with the Commission's guidelines before any state or federal income
taxes, with no less than 80% of the discounted future net revenues
estimated by one or more nationally recognized firms 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
(1) estimated proved oil and gas reserves acquired since the
date of such year-end reserve report, and
(2) estimated oil and gas reserves attributable to upward
revisions of estimates of proved oil and gas reserves since the date
of such year-end reserve report due to exploration, development or
exploitation activities, in each case calculated in accordance with
the Commission's guidelines (utilizing the prices utilized in such
year-end reserve report) increased by the accretion of the discount
from the date of the reserve report to the date of determination, and
decreased by, as of the date of determination, the estimated
discounted future net revenues from
(3) estimated proved oil and gas reserves produced or disposed
of since the date of such year-end reserve report and
(4) 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 the Commission's guidelines (utilizing the prices
utilized in such year-end reserve report);
39
provided that, in the case of each of the determinations made
pursuant to clause (1) through (4), such increases and decreases shall
be as estimated by the Company's petroleum engineers, unless in the
event that 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 (i)(a) shall be confirmed in
writing by one or more nationally recognized firms of independent
petroleum engineers,
(b) the capitalized costs that are attributable to oil and gas
properties of the Company and its Restricted Subsidiaries to which no
proved oil and gas reserves are attributable, based on the Company's
books and records as of a date no earlier than the date of the Company's
latest annual or quarterly financial statements,
(c) the Net Working Capital on a date no earlier than the date of
the Company's latest annual or quarterly financial statements and
(d) the greater of
(1) the net book value on a date no earlier than the date of the
Company's latest annual or quarterly financial statements or
(2) the book value of other tangible assets (including, without
duplication, investments in unconsolidated Restricted Subsidiaries
and mineral rights held under lease or other contractual
arrangements) of the Company and its Restricted Subsidiaries, as of
the date no earlier than the date of the Company's latest annual or
quarterly financial statements, minus
(ii) the sum of
(a) minority interests,
(b) any gas balancing liabilities of the Company and its Restricted
Subsidiaries reflected in the Company's latest audited financial
statements, and
(c) the discounted future net revenues, calculated in accordance
with the Commission's guidelines, attributable to reserves subject to
Dollar-Denominated Production Payments which, based on the estimates of
production and price assumptions included in determining the discounted
future net revenues specified in (i)(a) above, would be necessary to
fully satisfy the payment obligations of the Company and its Restricted
Subsidiaries with respect to Dollar-Denominated Production Payments 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 was still using the successful efforts method of accounting.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Asset Sale" means
(i) the sale, lease, conveyance or other disposition (but excluding
the creation of a Lien) of any assets including, without limitation, by way
of a sale and leaseback (provided that the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company and
its Subsidiaries taken as a whole will be governed by the provisions of the
indenture described above under the caption "-- Repurchase at the Option of
Holders -- Change of control" and/or the provisions described above under
the caption "-- Certain Covenants -- Merger, consolidation, or sale
40
of assets" and not by the provisions described above under "-- Repurchase
at the Option of Holders -- Asset sales"), and
(ii) the issuance or sale by the Company or any of its Restricted
Subsidiaries of Equity Interests of any of the Company's Subsidiaries
(including the sale by the Company or a Restricted Subsidiary of Equity
Interests in an Unrestricted Subsidiary), in the case of either clause (i)
or (ii), whether in a single transaction or a series of related
transactions
(a) that have a fair market value in excess of $5 million or
(b) for net proceeds in excess of $5 million.
Notwithstanding the foregoing, the following shall not be deemed to be
Asset Sales:
(i) a transfer of assets by the Company to a Wholly Owned Restricted
Subsidiary of the Company or by a Wholly Owned Restricted Subsidiary of the
Company to the Company or to another Wholly Owned Restricted Subsidiary of
the Company,
(ii) an issuance of Equity Interests by a Wholly Owned Restricted
Subsidiary of the Company to the Company or to another Wholly Owned
Restricted Subsidiary of the Company,
(iii) the making of a Restricted Payment or Permitted Investment that
is permitted by the covenant described above under the caption "-- Certain
Covenants -- Restricted payments,"
(iv) the abandonment, farm-out, lease or sublease of oil and gas
properties in the ordinary course of business,
(v) the trade or exchange by the Company or any Restricted Subsidiary
of the Company of any oil and gas property owned or held by the Company or
such Restricted Subsidiary for any oil and gas property owned or held by
another Person, which the Board of Directors of the Company determines in
good faith to be of approximately equivalent value,
(vi) the trade or exchange by the Company or any Subsidiary of the
Company of any oil and gas property owned or held by the Company or such
Subsidiary for Equity Interests in another Person engaged primarily in the
Oil and Gas Business which, together with all other such trades or
exchanges (to the extent excluded from the definition of Asset Sale
pursuant to this clause (vi)) since the date of the indenture, do not
exceed 5% of Adjusted Consolidated Net Tangible Assets determined after
such trade or exchange and
(vii) the sale or transfer of hydrocarbons or other mineral products
or surplus or obsolete equipment in the ordinary course of business.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Borrowing Base" means, as of any date, the aggregate amount of borrowing
availability as of such date under all Credit Facilities that determine
availability on the basis of a borrowing base or other asset-based calculation.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
41
"Capital Stock" means
(i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock,
(iii) in the case of a partnership, partnership interests (whether
general or limited),
(iv) in the case of a limited liability company or similar entity, any
membership or similar interests therein and
(v) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means
(i) United States dollars,
(ii) securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality thereof
having maturities of not more than six months from the date of acquisition,
(iii) certificates of deposit and eurodollar time deposits with
maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any lender party to the Credit Agreement or
with any domestic commercial bank having capital and surplus in excess of
$500 million and a Thompson Bank Watch Rating of "B" or better,
(iv) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clauses (ii) and (iii)
above entered into with any financial institution meeting the
qualifications specified in clause (iii) above,
(v) commercial paper having a rating of at least P1 from Moody's
Investors Service, Inc. (or its successor) and a rating of at least A1 from
Standard & Poor's Ratings Group (or its successor) and
(vi) investments in money market or other mutual funds substantially
all of whose assets comprise securities of the types described in clauses
(ii) through (v) above.
"Change of Control" means the occurrence of any of the following:
(i) the sale, lease, transfer, conveyance or other disposition (other
than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Company and
its Subsidiaries taken as a whole to any "person" or group of related
"persons" (a "Group") (as such terms are used in Section 13(d)(3) of the
Exchange Act),
(ii) the adoption of a plan relating to the liquidation or dissolution
of the Company,
(iii) the consummation of any transaction (including, without
limitation, any purchase, sale, acquisition, disposition, merger or
consolidation) the result of which is that any "person" (as defined above)
or Group becomes the "beneficial owner" (as such term is defined in Rule
13d-3 and Rule 13d-5 under the Exchange Act) of more than 40% of the
aggregate voting power of all classes of Capital Stock of the Company
having the right to elect directors under ordinary circumstances or
(iv) the first day on which a majority of the members of the Board of
Directors of the Company are not Continuing Directors.
"Commission" means the Securities and Exchange Commission.
42
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person and its Restricted Subsidiaries for
such period plus
(i) an amount equal to any extraordinary loss, plus any net loss
realized in connection with an Asset Sale (together with any related
provision for taxes), to the extent such losses were included in computing
such Consolidated Net Income, plus
(ii) provision for taxes based on income or profits of such Person and
its Restricted Subsidiaries for such period, to the extent that such
provision for taxes was included in computing such Consolidated Net Income,
plus
(iii) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease
Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of
letters of credit or bankers' acceptance financings, and net payments (if
any) pursuant to Interest Rate Hedging Agreements), to the extent that any
such expense was included in computing such Consolidated Net Income, plus
(iv) depreciation, depletion and amortization expenses (including
amortization of goodwill and other intangibles) for such Person and its
Restricted Subsidiaries for such period to the extent that such
depreciation, depletion and amortization expenses were included in
computing such Consolidated Net Income, plus
(v) exploration expenses for such Person and its Restricted
Subsidiaries for such period to the extent such exploration expenses were
included in computing such Consolidated Net Income, plus
(vi) other non-cash charges (excluding any such non-cash charge to the
extent that it represents an accrual of or reserve for cash charges in any
future period or amortization of a prepaid cash expense that was paid in a
prior period) of such Person and its Restricted Subsidiaries for such
period to the extent that such other non-cash charges were included in
computing such Consolidated Net Income, in each case, on a consolidated
basis and determined in accordance with GAAP.
Notwithstanding the foregoing, the provision for taxes on the income or
profits of, and the depreciation, depletion and amortization and other non-cash
charges and expenses of, a Restricted Subsidiary of the referent Person shall be
added to Consolidated Net Income to compute Consolidated Cash Flow only to the
extent (and in the same proportion) that the Net Income of such Restricted
Subsidiary was included in calculating the Consolidated Net Income of such
Person and only if a corresponding amount would be permitted at the date of
determination to be dividended to the referent Person by such Restricted
Subsidiary without prior governmental approval (that has not been obtained), and
without direct or indirect restriction pursuant to the terms of its charter and
all agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Restricted Subsidiary or its
stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that
(i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends
or distributions paid in cash to the referent Person or a Wholly Owned
Restricted Subsidiary thereof,
(ii) the Net Income of any Restricted Subsidiary shall be excluded to
the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by operation of
the terms of its charter or any
43
agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary or its
stockholders,
(iii) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded,
(iv) the cumulative effect of a change in accounting principles shall
be excluded,
(v) any impairments or write-downs of oil and natural gas assets,
shall be excluded, provided, however, that ceiling limitation write-downs
in accordance with GAAP shall be treated as capitalized costs, as if such
write-downs had not occurred,
(vi) extraordinary non-cash losses shall be excluded,
(vii) any non-cash compensation expenses realized for grants of
performance shares, stock options or stock awards to officers, directors
and employees of the Company or any of its Restricted Subsidiaries shall be
excluded and
(viii) any unrealized non-cash gains or losses or charges in respect
of hedge or non-hedge derivatives (including those resulting from the
application of SFAS 133) shall be excluded.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its consolidated Restricted Subsidiaries,
determined on a consolidated basis in accordance with GAAP, as of the end of the
most recent fiscal quarter of the Company ending prior to the taking of any
action for the purpose of which the determination is being made and for which
internal financial statements are available (but in no event ending more than
135 days prior to the taking of such action), as
(i) the par or stated value of all outstanding Capital Stock of the
Company, plus
(ii) paid-in capital or capital surplus relating to such Capital Stock
plus
(iii) any retained earnings or earned surplus less
(A) any accumulated deficit and
(B) any amounts attributable to Disqualified Stock.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who
(i) was a member of such Board of Directors on the date of original
issuance of the notes or
(ii) was nominated for election or elected to such Board of Directors
with the approval of a majority of the Continuing Directors who were
members of such Board at the time of such nomination.
"Credit Agreement" means that certain Amended and Restated Credit
Agreement, dated as of May 2, 2002, by and among the Company, Bank One, NA, and
the institutions named therein, as lenders, Bank One, NA, as administrative
agent and Banc One Capital Markets, Inc., as joint lead arranger and joint
bookrunner and JPMorgan Chase Bank, as joint lead arranger and joint bookrunner
providing for up to $225 million of Indebtedness, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, restated, modified, renewed,
refunded, replaced or refinanced, in whole or in part, from time to time,
whether or not with the same lenders or agents.
"Credit Facilities" means, with respect to the Company, one or more debt
facilities (including, without limitation, the Credit Agreement) or commercial
paper facilities with banks or other institutional lenders providing for
revolving credit loans, term loans, production payments, receivables financing
(including through the sale of receivables to such lenders or to special purpose
entities formed to borrow from such lenders against such receivables) or letters
of credit, in each case, as amended, restated, modified, renewed, refunded,
replaced or refinanced in whole or in part from time to time. Indebtedness
44
under Credit Facilities outstanding on the date on which the notes are first
issued and authenticated under the indenture (after giving effect to the use of
proceeds thereof) shall be deemed to have been incurred on such date in reliance
on the exception provided by clause (b) of the definition of Permitted
Indebtedness.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Debt" means
(i) the Credit Agreement and
(ii) any other Senior Debt permitted under the indenture the principal
amount of which is $25 million or more and that has been designated by the
Company as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock to the extent that, by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
redeemable at the option of the holder thereof, in whole or in part, on or prior
to the date that is 91 days after the date on which the notes mature.
"Dollar-Denominated Production Payments" means production payment
obligations recorded as liabilities in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Restricted Subsidiaries incurs, assumes, guarantees or
redeems any Indebtedness (other than revolving credit borrowings) or issues
preferred stock subsequent to the commencement of the period for which the Fixed
Charge Coverage Ratio is being calculated but prior to the date on which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above,
(i) acquisitions that have been made by the referent Person or any of
its Restricted Subsidiaries, including through mergers or consolidations
and including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to
the Calculation Date (including, without limitation, any acquisition to
occur on the Calculation Date) shall be deemed to have occurred on the
first day of the four-quarter reference period and Consolidated Cash Flow
for such reference period shall be calculated without giving effect to
clause (iii) of the proviso set forth in the definition of Consolidated Net
Income,
(ii) the net proceeds of Indebtedness incurred or Disqualified Stock
issued by the referent Person pursuant to the first paragraph of the
covenant described under the caption "-- Certain Covenants -- Incurrence of
indebtedness and issuance of disqualified stock" during the four-quarter
reference period or subsequent to such reference period and on or prior to
the Calculation Date shall be deemed to have been received by the referent
Person or any of its Restricted Subsidiaries on the first day of the
four-quarter reference period and applied to its intended use on such date,
(iii) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and operations or
businesses disposed of prior to the Calculation Date, shall be excluded,
and
(iv) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed
of prior to the Calculation Date, shall be excluded, but
45
only to the extent that the obligations giving rise to such Fixed Charges
will not be obligations of the referent Person or any of its Restricted
Subsidiaries following the Calculation Date.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of
(i) the consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued
(including, without limitation, amortization of original issue discount,
non-cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net payments (if
any) pursuant to Interest Rate Hedging Agreements),
(ii) the consolidated interest expense of such Person and its
Restricted Subsidiaries that was capitalized during such period,
(iii) any interest expense on Indebtedness of another Person that is
guaranteed by such Person or any of its Restricted Subsidiaries or secured
by a Lien on assets of such Person or any of its Restricted Subsidiaries
(whether or not such guarantee or Lien is called upon) and
(iv) the product of
(a) all cash dividend payments (and non-cash dividend payments in
the case of a Person that is a Restricted Subsidiary) on any series of
preferred stock of such Person or any of its Restricted Subsidiaries,
times
(b) a fraction, the numerator of which is one and the denominator
of which is one minus the then current combined federal, state and local
statutory tax rate of such Person, expressed as a decimal, in each case,
on a consolidated basis and in accordance with GAAP.
"GAAP" means generally accepted accounting principles 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 have been approved by a significant segment of the accounting
profession, which are in effect on the date of the indenture.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Indebtedness" means, with respect to any Person, without duplication,
(a) any indebtedness of such Person, whether or not contingent,
(i) in respect of borrowed money,
(ii) evidenced by bonds, notes, debentures or similar instruments,
(iii) evidenced by letters of credit (or reimbursement agreements
in respect thereof) or banker's acceptances,
(iv) representing Capital Lease Obligations,
(v) representing the balance deferred and unpaid of the purchase
price of any property, except any such balance that constitutes an
accrued expense or trade payable,
(vi) representing any obligations in respect of Interest Rate
Hedging Agreements or Oil and Gas Hedging Contracts, and
46
(vii) in respect of any Production Payment,
(b) all indebtedness of others secured by a Lien on any asset of such
Person (whether or not such indebtedness is assumed by such Person),
(c) obligations of such Person in respect of production imbalances,
(d) Attributable Debt of such Person, and
(e) to the extent not otherwise included in the foregoing, the
guarantee by such Person of any indebtedness of any other Person, provided
that the indebtedness described in clauses (a)(i), (ii), (iv) and (v) shall
be included in this definition of Indebtedness only if, and to the extent
that, the indebtedness described in such clauses would appear as a
liability upon a balance sheet of such Person prepared in accordance with
GAAP.
"Interest Rate Hedging Agreements" means, with respect to any Person, the
obligations of such Person under
(i) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements and
(ii) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations, but
excluding trade credit and other ordinary course advances customarily made in
the oil and gas industry), advances or capital contributions (excluding
commission, travel and similar advances to officers and employees made in the
ordinary course of business), purchases or other acquisitions for consideration
of Indebtedness, Equity Interests or other securities, together with all items
that are or would be classified as investments on a balance sheet prepared in
accordance with GAAP; provided that the following shall not constitute
Investments:
(i) an acquisition of assets, Equity Interests or other securities by
the Company for consideration consisting of common equity securities of the
Company,
(ii) Interest Rate Hedging Agreements entered into in accordance with
the limitations set forth in clause (g) of the second paragraph of the
covenant described under the caption "-- Certain Covenants -- Incurrence of
indebtedness and issuance of disqualified stock,"
(iii) Oil and Gas Hedging Agreements entered into in accordance with
the limitations set forth in clause (h) of the second paragraph of the
covenant described under the caption "-- Certain Covenants -- Incurrence of
indebtedness and issuance of disqualified stock" and
(iv) endorsements of negotiable instruments and documents in the
ordinary course of business.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction other
than a precautionary financing statement with respect to a lease not intended as
a security agreement).
"Material Change" means an increase or decrease (excluding changes that
result solely from changes in prices) of more than 20% 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
47
clause (i)(a) 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 one or more nationally recognized firms of
independent petroleum engineers and on which a report or reports exist and
(ii) any disposition of properties existing at the beginning of such
quarter that have been disposed of as provided in the "Asset Sales"
covenant.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however,
(i) any gain (but not loss), together with any related provision for
taxes on such gain (but not loss), realized in connection with
(a) any Asset Sale (including, without limitation, dispositions
pursuant to sale and leaseback transactions) or
(b) the disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness of
such Person or any of its Restricted Subsidiaries and
(ii) any extraordinary or nonrecurring gain (but not loss), together
with any related provision for taxes on such extraordinary or nonrecurring
gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale, but excluding cash amounts
placed in escrow, until such amounts are released to the Company), net of the
direct costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees and expenses, and sales commissions) and
any relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness (other than Indebtedness under any Credit
Facility) secured by a Lien on the asset or assets that were the subject of such
Asset Sale and any reserve for adjustment in respect of the sale price of such
asset or assets established in accordance with GAAP and any reserve established
for future liabilities.
"Net Working Capital" means
(i) all current assets of the Company and its Restricted Subsidiaries,
minus
(ii) 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 (excluding any adjustments made pursuant to FASB 133).
"Non-Recourse Debt" means Indebtedness
(i) as to which neither the Company nor any of its Restricted
Subsidiaries
(a) provides any guarantee or credit support of any kind (including
any undertaking, guarantee, indemnity, agreement or instrument that
would constitute Indebtedness), or
(b) is directly or indirectly liable (as a guarantor or otherwise);
and
(ii) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit (upon notice, lapse of time or both) any holder of
any other Indebtedness of the Company or any of its Restricted Subsidiaries
to declare a default on such other Indebtedness or cause the payment
thereof to be accelerated or payable prior to its stated maturity; and
48
(iii) the explicit terms of which provide that there is no recourse
against any of the assets of the Company or its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Oil and Gas Business" means
(i) the acquisition, exploration, development, operation and
disposition of interests in oil, gas and other hydrocarbon properties,
(ii) the gathering, marketing, treating, processing, storage,
distribution, selling and transporting of any production from such
interests or properties,
(iii) any business relating to exploration for or development,
production, treatment, processing, storage, transportation or marketing of
oil, gas and other minerals and products produced in association therewith
and
(iv) any activity that is ancillary to or necessary or appropriate for
the activities described in clauses (i) through (iii) of this definition.
"Oil and Gas Hedging Contracts" means any oil and gas purchase or hedging
agreement, and other agreement or arrangement, in each case, that is designed to
provide protection against oil and gas price fluctuations.
"Pari Passu Indebtedness" means Indebtedness that ranks pari passu in right
of payment to the notes.
"Permitted Indebtedness" has the meaning given in the covenant described
under the caption "-- Certain Covenants -- Incurrence of indebtedness and
issuance of disqualified stock."
"Permitted Investments" means
(a) any Investment in the Company or in a Wholly Owned Restricted
Subsidiary of the Company;
(b) any Investment in Cash Equivalents or securities issued or
directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than
one year from the date of acquisition;
(c) any Investment by the Company or any Restricted Subsidiary of the
Company in a Person if, as a result of such Investment and any related
transactions that at the time of such Investment are contractually mandated
to occur,
(i) such Person becomes a Wholly Owned Restricted Subsidiary of the
Company or
(ii) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys all or substantially all of its assets to,
or is liquidated into, the Company or a Wholly Owned Restricted
Subsidiary of the Company;
(d) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption
"-- Repurchase at the Option of Holders -- Asset sales";
(e) other Investments in any Person or Persons having an aggregate
fair market value (measured on the date each such Investment was made and
without giving effect to subsequent changes in value), when taken together
with all other Investments made pursuant to this clause (e) that are at the
time outstanding, not to exceed $10 million;
(f) any Investment acquired by the Company in exchange for Equity
Interests in the Company (other than Disqualified Stock);
49
(g) shares of Capital Stock received in connection with any good faith
settlement of a bankruptcy proceeding involving a trade creditor;
(h) 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, production
sharing agreements or other similar or customary agreements, transactions,
properties, interests or arrangements, and Investments and expenditures in
connection therewith or pursuant thereto, in each case made or entered into
the ordinary course of the Oil and Gas Business, excluding, however,
Investments in corporations other than any Investment received pursuant to
the Asset Sale provision and
(i) the acquisition of any Equity Interests pursuant to a transaction
of the type described in clause (vi) of the exclusions from the definition
of "Asset Sale."
"Permitted Liens" means
(i) Liens securing Indebtedness of a Subsidiary or Liens securing
Senior Debt that is outstanding on the date of issuance of the notes and
Liens securing Senior Debt that are permitted by the terms of the indenture
to be incurred;
(ii) Liens in favor of the Company;
(iii) Liens on property existing at the time of acquisition thereof by
the Company or any Subsidiary of the Company and Liens on property or
assets of a Subsidiary existing at the time it became a Subsidiary,
provided that such Liens were in existence prior to the contemplation of
the acquisition and do not extend to any assets other than the acquired
property;
(iv) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
or other kinds of social security, or to secure the payment or performance
of tenders, statutory or regulatory obligations, surety or appeal bonds,
performance bonds or other obligations of a like nature incurred in the
ordinary course of business (including lessee or operator obligations under
statutes, governmental regulations or instruments related to the ownership,
exploration and production of oil, gas and minerals on state or federal
lands or waters);
(v) Liens existing on the date of the indenture;
(vi) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
(vii) statutory liens of landlords, mechanics, suppliers, vendors,
warehousemen, carriers or other like Liens arising in the ordinary course
of business;
(viii) judgment Liens not giving rise to an Event of Default so long
as any appropriate legal proceeding that 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;
(ix) Liens on, or related to, properties or assets to secure all or
part of the costs incurred in the ordinary course of the Oil and Gas
Business for the exploration, drilling, development, or operation thereof;
(x) Liens in pipeline or pipeline facilities that arise under
operation of law;
(xi) Liens arising under operating agreements, joint venture
agreements, partnership agreements, oil and gas leases, farm-out
agreements, division orders, contracts for the sale, transportation or
exchange of oil or natural gas, unitization and pooling declarations and
agreements, area of mutual interest agreements and other agreements that
are customary in the Oil and Gas Business,
50
(xii) Liens reserved in oil and gas mineral leases for bonus or rental
payments and for compliance with the terms of such leases,
(xiii) Liens securing the notes and
(xiv) Liens not otherwise permitted by clauses (i) through (xiii) that
are incurred in the ordinary course of business of the Company or any
Subsidiary of the Company with respect to obligations that do not exceed
$5.0 million at any one time outstanding.
"Permitted Refinancing Debt" means any Indebtedness of the Company or any
of its Restricted Subsidiaries issued in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness (other than Indebtedness incurred under a Credit Facility) of the
Company or any of its Restricted Subsidiaries; provided that:
(i) the principal amount of such Permitted Refinancing Indebtedness
does not exceed the principal amount of the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus the amount of
reasonable expenses incurred in connection therewith);
(ii) such Permitted Refinancing Indebtedness has a final maturity date
on or later than the final maturity date of, and has a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded;
(iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the
notes, such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and is subordinated in right of
payment to, the notes on terms at least as favorable taken as a whole to
the Holders of notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and
(iv) such Indebtedness is incurred either by the Company or by the
Restricted Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Production Payments" means Dollar-Denominated Production Payments and
Volumetric Production Payments, collectively.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means any direct or indirect Subsidiary of the
Company that is not an Unrestricted Subsidiary.
"Senior Debt" means
(i) Indebtedness of the Company or any Subsidiary of the Company under
or in respect of any Credit Facility, whether for principal, interest
(including interest accruing after the filing of a petition initiating any
proceeding pursuant to any bankruptcy law, whether or not the claim for
such interest is allowed as a claim in such proceeding), reimbursement
obligations, fees, commissions, expenses, indemnities or other amounts, and
(ii) any other Indebtedness permitted under the terms of the
indenture, unless the instrument under which such Indebtedness is incurred
expressly provides that it is on a parity with or subordinated in right of
payment to the notes. Notwithstanding anything to the contrary in the
foregoing sentence, Senior Debt will not include
(w) any liability for federal, state, local or other taxes owed or
owing by the Company,
(x) any Indebtedness of the Company to any of its Subsidiaries or
other Affiliates,
(y) any trade payables or
51
(z) any Indebtedness that is incurred in violation of the indenture
(other than Indebtedness under
(i) any Credit Agreement or
(ii) any other Credit Facility that is incurred on the basis of
a representation by the Company to the applicable lenders that it is
permitted to incur such Indebtedness under the indenture).
"Significant Subsidiary" any Subsidiary of the Company that would be a
"significant subsidiary" as defined in Article I, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Exchange Act, as such Regulation is in effect on the
date hereof.
"Subsidiary" means, with respect to any Person,
(i) any corporation, association or other business entity of which
more than 50% of the total voting power of shares of Capital Stock,
entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by such Person or one or more
of the other Subsidiaries of that Person (or a combination thereof) and
(ii) any partnership
(a) the sole general partner or the managing general partner of
which is such Person or a Subsidiary of such Person or
(b) the only general partners of which are such Person or of one or
more Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantors" means each Restricted Subsidiary of the Company
existing on the date of the indenture (such Subsidiaries being Range Energy I,
Inc., Range HoldCo, Inc., Range Production Company, Range Energy Ventures
Corporation, Gulfstar Energy, Inc. and Range Energy Finance Corporation), any
other future Restricted Subsidiary of the Company that executes a Guarantee in
accordance with the provisions of the indenture, and, in each case, their
respective successors and assigns, provided that, in no event shall any future
acquired foreign Subsidiary be a Subsidiary Guarantor under the indenture.
"Total Assets" means, with respect to any Person, the total consolidated
assets of such Person and its Restricted Subsidiaries, as shown on the most
recent balance sheet of such Person.
"Unrestricted Subsidiary" means
(i) any Subsidiary of the Company which at the time of determination
shall be an Unrestricted Subsidiary (as designated by the Board of
Directors of the Company, as provided below) and
(ii) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors of the Company may designate any Subsidiary of the
Company (including any newly acquired or newly formed Subsidiary or a Person
becoming a Subsidiary through merger or consolidation or Investment therein) to
be an Unrestricted Subsidiary only if
(a) such Subsidiary does not own any Capital Stock of, or own or hold
any Lien on any property of, any other Subsidiary of the Company which is
not a Subsidiary of the Subsidiary to be so designated or otherwise an
Unrestricted Subsidiary;
(b) all the Indebtedness of such Subsidiary shall, at the date of
designation, and will at all times thereafter, consist of Non-Recourse
Debt;
(c) the Company certifies that such designation complies with the
"Limitation on Restricted Payments" covenant;
52
(d) such Subsidiary, either alone or in the aggregate with all other
Unrestricted Subsidiaries, does not operate, directly or indirectly, all or
substantially all of the business of the Company and its Subsidiaries;
(e) such Subsidiary does not, directly or indirectly, own any
Indebtedness of or Equity Interest in, and has no investments in, the
Company or any Restricted Subsidiary;
(f) such Subsidiary is a Person with respect to which neither the
Company nor any of its Restricted Subsidiaries has any direct or indirect
obligation
(1) to subscribe for additional Equity Interests or
(2) to maintain or preserve such Person's financial condition or to
cause such Person to achieve any specified levels of operating results;
and
(g) on the date such Subsidiary is designated an Unrestricted
Subsidiary, such Subsidiary is not a party to any agreement, contract,
arrangement or understanding with the Company or any Restricted Subsidiary
with terms substantially less favorable to the Company than those that
might have been obtained from Persons who are not Affiliates of the
Company. Any such designation by the Board of Directors of the Company
shall be evidenced to the Trustee by filing with the Trustee a resolution
of the Board of Directors of the Company giving effect to such designation
and an Officers' Certificate certifying that such designation complied with
the foregoing conditions.
If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of the indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred as of such date.
The Board of Directors of the Company may designate any Unrestricted Subsidiary
to be Restricted Subsidiary; provided, that
(i) immediately after giving effect to such designation, no Default or
Event of Default shall have occurred and be continuing or would occur as a
consequence thereof and the Company could incur at least $1.00 of
additional Indebtedness (excluding Permitted Indebtedness) pursuant to the
first paragraph of the "Incurrence of indebtedness and issuance of
disqualified stock" covenant on a pro forma basis taking into account such
designation and
(ii) such Subsidiary executes a Guarantee pursuant to the terms of the
indenture.
"Volumetric Production Payments" means production payment obligations
recorded as deferred revenue in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing
(i) the sum of the products obtained by multiplying
(a) the amount of each then remaining installment, sinking fund,
serial maturity or other required payments of principal, including
payment at final maturity, in respect thereof, by
(b) the number of years (calculated to the nearest-twelfth) that
will elapse between such date and the making of such payment, by
(ii) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned, directly or indirectly, by such Person or by one or more
Wholly Owned Restricted Subsidiaries of such Person.
53
FORM, DENOMINATION AND REGISTRATION OF THE NOTES
The new notes will be issued in registered form, without interest coupons,
in denominations of $1,000 and integral multiples thereof, in the form of both
global notes and certificated notes, as further provided below.
The trustee is not required (i) to issue, register the transfer of or
exchange any note for a period of 15 days before a selection of notes to be
redeemed or repurchased, (ii) to register the transfer of or exchange any note
so selected for redemption or repurchase in whole or in part, except, in the
case of a partial redemption or repurchase, that portion of any note not being
redeemed or repurchased, or (iii) if a redemption or a repurchase is to occur
after a regular record date but on or before the corresponding interest payment
date, to register the transfer or exchange of any note on or after the regular
record date and before the date of redemption or repurchase. See "-- Global
Notes" and "-- Certificated Notes" for a description of additional transfer
restrictions applicable to the notes.
No service charge will be imposed in connection with any transfer or
exchange of any note, but the Company may in general require payment of a sum
sufficient to cover any transfer tax or similar governmental charge payable in
connection therewith.
GLOBAL NOTES
Global notes representing the new notes will be deposited with a custodian
for DTC, and registered in the name of a nominee of DTC. Beneficial interests in
the global notes will be shown on records maintained by DTC and its direct and
indirect participants. So long as DTC or its nominee is the registered owner or
holder of a global note, DTC or such nominee 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. No owner of a beneficial interest in a global note
will be able to transfer such interest except in accordance with DTC's
applicable procedures and the applicable procedures of its direct and indirect
participants.
The Company will apply to DTC for acceptance of the global notes in its
book-entry settlement system. Investors may hold their beneficial interests in
the global notes directly through DTC if they are participants in DTC, or
indirectly through organizations which are participants in DTC.
Payments of principal and interest under each global note will be made to
DTC's nominee as the registered owner of such global note. The Company expects
that the nominee, upon receipt of any such payment, will immediately credit DTC
participants' accounts with payments proportional to their respective beneficial
interests in the principal amount of the relevant global note as shown on the
records of DTC. The Company also expects that payments by DTC participants to
owners of beneficial interests 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, and none of the Company, the
Trustee, the custodian or any paying agent or registrar will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial interests in any global note or for
maintaining or reviewing any records relating to such beneficial interests.
CERTIFICATED NOTES
If DTC notifies the Company that it is unwilling or unable to continue as
depositary for a global note and a successor depositary is not appointed by the
Company within 90 days of such notice, or an Event of Default has occurred and
the trustee has received a request from DTC, the trustee will exchange each
beneficial interest in that global note for one or more certificated notes
registered in the name of the owner of such beneficial interest, as identified
by DTC. Neither the Company nor the trustee will be liable for any delay by DTC
or any participant or indirect participant in DTC in identifying the beneficial
owners of the related notes and each of those person may conclusively rely on,
and will be protected in relying on, instructions from DTC for all purposes,
including with respect to the registration and delivery, and the respective
principal amounts, of the notes to be issued.
54
SAME DAY SETTLEMENT AND PAYMENT
The indenture requires that payments in respect of the notes represented by
the global notes be made by wire transfer of immediately available funds to the
accounts specified by holders of the global notes. With respect to notes in
certificated form, the Company will make all payments by wire transfer of
immediately available funds to the accounts specified by the holders thereof or,
if no such account is specified, by mailing a check to each holder's registered
address.
The new notes represented by the global notes are expected to trade in
DTC's Same-Day Funds Settlement System, and any permitted secondary market
trading activity in such notes will, therefore, be required by DTC to be settled
in immediately available funds. The Company expects that secondary trading in
any certificated notes will also be settled in immediately available funds.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the material federal income tax
considerations relevant to the exchange of new notes for old notes but does not
purport to be a complete analysis of all potential tax effects. This discussion
is based upon the provisions of the Internal Revenue Code of 1986, as amended,
applicable Treasury Regulations promulgated and proposed thereunder, judicial
authority and administrative interpretations, as of the date hereof, all of
which are subject to change, possibly with retroactive effect or are subject to
different interpretations. This discussion does not address the tax
considerations arising under the laws of any foreign, state, local, or other
jurisdiction.
We believe that the exchange of new notes for old notes should not be an
exchange or otherwise a taxable event to a holder for United States federal
income tax purposes. Accordingly, a holder should have the same adjusted issue
price, adjusted basis and holding period in the new notes as it had in the old
notes immediately before the exchange.
PLAN OF DISTRIBUTION
Based on interpretations by the staff of the Securities and Exchange
Commission in no action letters issued to third parties, we believe that you may
transfer new notes issued in the exchange offer in exchange for the old notes
if:
- you acquire the new notes in the ordinary course of your business; and
- you are not engaged in, and do not intend to engage in, and have no
arrangement or understanding with any person to participate in, a
distribution of the new notes.
You may not participate in the exchange offer if you are:
- our "affiliate" within the meaning of Rule 405 under the Securities Act;
or
- a broker-dealer that acquired old notes directly from us.
Each broker-dealer that receives new notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such new notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of new notes received in exchange for old notes where
such old notes were acquired as a result of market-making activities or other
trading activities. We and the subsidiary guarantors have agreed that, starting
on the expiration date of the exchange offer and ending on the close of business
180 days after the date of such expiration date, we will make this prospectus,
as amended or supplemented, available to any broker-dealer for use in connection
with any such resale.
If you wish to exchange new notes for your old notes in the exchange offer,
you will be required to make representations to us as described in "Exchange
Offer -- Purpose and Effect of the Exchange Offer" and "-- Procedures for
Tendering -- Your representations to us" in this prospectus and in the letter of
transmittal. In addition, if you are a broker-dealer who receives new notes for
your own account in
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exchange for old notes that were acquired by you as a result of market-making
activities or other trading activities, you will be required to acknowledge that
you will deliver a prospectus in connection with any resale by you of the new
notes.
We will not receive any proceeds from any resale of new notes by
broker-dealers. New notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the new notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or 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 commission or concessions from any such
broker-dealer and/or the purchasers of any such new notes. Any broker-dealer
that resells new notes that were received by it for its own account pursuant to
the exchange offer and any broker or dealer that participates in a distribution
of such new notes may be deemed to be an "underwriter" within the meaning of the
Securities Act, and any profit on any such resale of new notes and any
commission or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the expiration date of the exchange offer,
we and the subsidiary guarantors will promptly send additional copies of this
prospectus and any amendment or supplement to this prospectus to any
broker-dealer that requests such documents in the letter of transmittal. We have
agreed to pay all expenses incident to the exchange offer (including the
expenses of one counsel for the holders of the old notes) other than commission
or concession of any brokers or dealers and will indemnify the holders of the
old notes (including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
The validity of the new notes offered in this exchange offer will be passed
upon for us by Vinson & Elkins L.L.P., Austin, Texas.
EXPERTS
The consolidated financial statements of Range Resources Corporation and
subsidiaries as of December 31, 2002 and 2001, and for each of the years in the
three-year period ended December 31, 2002, have been incorporated by reference
herein in reliance upon the reports of KPMG LLP, independent accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
We proportionately consolidate our 50% interest in Great Lakes Energy
Partners L.L.C., and the results are included in the financial statements of
Range Resources Corporation incorporated by reference in this prospectus from
the annual report on Form 10-K of Range Resources Corporation as of and for the
year ended December 31, 2002. The consolidated financial statements of Great
Lakes Energy Partners L.L.C. as of and for the year ended December 31, 2002 have
been audited by Ernst & Young, LLP, independent auditors, as set forth in their
report thereon which is incorporated by reference from the annual report on Form
10-K as of and for the year ended December 31, 2002. We have proportionately
consolidated the 2002 financial statements of Great Lakes Energy Partners L.L.C.
in reliance on the report of Ernst & Young, LLP as independent auditors given on
the authority of such firm as experts in accounting and auditing.
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RESERVE ENGINEERS
Certain information incorporated by reference in this prospectus regarding
estimated quantities of oil and natural gas reserves owned by us, the future net
revenues from those reserves and their present value is based on estimates of
the reserves and present values prepared by or derived from estimates prepared
by H.J. Gruy and Associates, Inc., Degolyer and MacNaughton and Wright and
Company.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement under the Securities Act of 1933, with respect to the new notes
offered hereby. As permitted by the rules and regulations of the Securities and
Exchange Commission, this prospectus does not contain all of the information set
forth in the registration statement. For further information with respect to us
and the new notes offered hereby, reference is made to the registration
statement, including the exhibits and schedules filed therewith. Statements
contained in this prospectus concerning the provisions of any contract,
agreement or other document referred to herein or therein are not necessarily
complete, but contain a summary of the material terms of such contracts,
agreements or other documents. With respect to each contract, agreement or other
document filed as an exhibit to the registration statement, reference is made to
the exhibit for the complete contents of the exhibit, and each statement
concerning its provisions is qualified in its entirety by such reference. We
file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission. The registration
statement and our other filings with the Securities and Exchange Commission may
be read and copied at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such materials may also be obtained by mail at
prescribed rates from the Public Reference Room of the Securities and Exchange
Commission at that address. You may obtain information on the operation of the
Public Reference Room by calling the Securities and Exchange Commission at
1-800-SEC-0330. Copies of such materials may also be obtained from the web site
that the Securities and Exchange Commission maintains at www.sec.gov.
We maintain an internet web site at www.rangeresources.com. The information
on this site does not form a part of this prospectus. Our common stock is listed
and traded on the New York Stock Exchange under the trading symbol "RRC."
Pursuant to the indenture under which the new notes will be issued, we have
agreed that, whether or not we are required to do so by the rules and
regulations of the Securities and Exchange Commission, for so long as any of the
new notes remain outstanding, we will furnish to the holders of the new notes
copies of the annual reports and any other information, documents and other
reports which we would be required to file with the Securities and Exchange
Commission if we were subject to Section 13 or 15(d) of the Securities Exchange
Act of 1934. In addition, whether or not required by the rules and regulations
of the Securities and Exchange Commission, we will also agree to file a copy of
all such information and reports with the Securities and Exchange Commission for
public availability (unless the Securities and Exchange Commission will not
accept such a filing) and make such information available to securities analysts
and prospective investors upon request. Any request of this nature should be
directed to our Corporate Secretary, 777 Main Street, Suite 800, Ft. Worth,
Texas 76102 (telephone (817) 870-2601).
INCORPORATION BY REFERENCE
In this prospectus, we have incorporated by reference certain information
we have filed, or will file, with the Securities and Exchange Commission. The
information incorporated by reference is an important part of this prospectus,
and information that we file later with the Securities and Exchange Commission
will automatically update and supersede this information. Any statement
contained in any document incorporated 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 in or omitted from this
prospectus, or in any other subsequently filed document which also is or is
deemed to be incorporated
57
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.
We incorporate by reference the documents listed below and any further
filings made with the Securities and Exchange Commission under Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act until we terminate this exchange offer:
(a) Our Annual Report on Form 10-K for the year ended December 31,
2002;
(b) The portions of the Proxy Statement for our annual meeting of
stockholders that were incorporated by reference into our December 31, 2002
Form 10-K;
(c) Our Quarterly Reports on Form 10-Q for the periods ended March 31,
2003 and June 30, 2003; and
(d) Our Current Reports on Form 8-K filed April 2, 2003, July 11,
2003, July 17, 2003, July 22, 2003, August 21, 2003 and August 28, 2003.
All documents filed by us under Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 before the termination of this exchange offer
shall be deemed to be incorporated by reference into this prospectus from the
respective dates of filing such documents.
We will provide without charge to any person to whom this prospectus is
delivered, on the written or oral request of such person, a copy of any or all
of the documents incorporated by reference (other than exhibits to such
documents unless the exhibits are specifically incorporated by reference in the
documents). Requests should be directed to Range Resources Corporation,
Attention: Corporate Secretary, 777 Main Street, Suite 800, Fort Worth, Texas
76102 (telephone number (817) 870-2601).
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ANNEX A
LETTER OF TRANSMITTAL
TO TENDER
OUTSTANDING 7 3/8% SENIOR SUBORDINATED NOTES DUE 2013
OF
RANGE RESOURCES CORPORATION
PURSUANT TO THE EXCHANGE OFFER AND PROSPECTUS
DATED SEPTEMBER 18, 2003
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON OCTOBER 22, 2003 (THE "EXPIRATION DATE"), UNLESS THE EXCHANGE OFFER IS
EXTENDED BY THE COMPANY.
The Exchange Agent for the Exchange Offer is:
Bank One, National Association
Mail Code TX1-1306
420 Throckmorton, 4th Floor
Fort Worth, Texas 76102
Attention: Bill Barber
Telephone: (817) 884-4371
or Bondholder Relations at
1-800-346-5153
IF YOU WISH TO EXCHANGE CURRENTLY OUTSTANDING 7 3/8% SENIOR SUBORDINATED
NOTES DUE 2013 (THE "OLD NOTES") FOR AN EQUAL AGGREGATE PRINCIPAL AMOUNT OF NEW
7 3/8% SENIOR SUBORDINATED NOTES DUE 2013 PURSUANT TO THE EXCHANGE OFFER, YOU
MUST VALIDLY TENDER (AND NOT WITHDRAW) OLD NOTES TO THE EXCHANGE AGENT PRIOR TO
5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE BY CAUSING AN AGENT'S
MESSAGE TO BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO SUCH TIME.
---------------------
The undersigned hereby acknowledges receipt and review of the Prospectus,
dated September 18, 2003 (the "Prospectus"), of Range Resources Corporation, a
Delaware corporation (the "Company"), and this Letter of Transmittal (the
"Letter of Transmittal"), which together describe the Company's offer to
exchange (the "Exchange Offer") its 7 3/8% Senior Subordinated Notes due 2013
(the "New Notes") that have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), for a like principal amount of its issued and
outstanding 7 3/8% Senior Subordinated Notes due 2013 (the "Old Notes").
Capitalized terms used but not defined herein have the respective meaning given
to them in this Prospectus.
The Company reserves the right, at any time or from time to time, to extend
the Exchange Offer at its discretion, in which event the term "Expiration Date"
shall mean the latest date to which the Exchange Offer is extended. The Company
shall notify the Exchange Agent and each registered holder of the Old Notes of
any extension by oral or written notice prior to 9:00 a.m., New York City time,
on the next business day after the previously scheduled Expiration Date.
This Letter of Transmittal is to be used by holders of the Old Notes. Tender
of Old Notes is to be made according to the Automated Tender Offer Program
("ATOP") of the Depository Trust Company ("DTC") pursuant to the procedures set
forth in the Prospectus under the caption "The Exchange Offer -- Procedures for
Tendering." DTC participants that are accepting the Exchange Offer must transmit
their acceptance to DTC, which will verify the acceptance and execute a
book-entry delivery to the Exchange Agent's DTC account. DTC will then send a
computer generated message known as an "agent's message" to the exchange agent
for its acceptance. For you to validly tender your Old Notes in the Exchange
Offer, the Exchange Agent must receive prior to the Expiration Date, an agent's
message under the ATOP procedures that confirms that:
- DTC has received your instructions to tender your Old Notes; and
- You agree to be bound by the terms of this Letter of Transmittal.
BY USING THE ATOP PROCEDURES TO TENDER OLD NOTES, YOU WILL NOT BE REQUIRED
TO DELIVER THIS LETTER OF TRANSMITTAL TO THE EXCHANGE AGENT. HOWEVER, YOU WILL
BE BOUND BY ITS TERMS, AND YOU WILL BE DEEMED TO HAVE MADE THE ACKNOWLEDGMENTS
AND THE REPRESENTATIONS AND WARRANTIES IT CONTAINS, JUST AS IF YOU HAD SIGNED
IT.
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PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
Ladies and Gentlemen:
1. By tendering Old Notes in the Exchange Offer, you acknowledge receipt of
the Prospectus and this Letter of Transmittal.
2. By tendering Old Notes in the Exchange Offer, you represent and warrant
that you have full power and authority to transfer the Old Notes described above
and will, upon request, execute and deliver any additional documents deemed by
the Company to be necessary or desirable to complete the tender of Old Notes.
3. The tender of the Old Notes pursuant to all of the procedures set forth
in the Prospectus will constitute an agreement between you and the Company as to
the terms and conditions set forth in the Prospectus.
4. The Exchange Offer is being made in reliance upon interpretations
contained in no-action letters issued to third parties by the staff of the
Securities and Exchange Commission (the "SEC"), including Exxon Capital Holdings
Corp., SEC No-Action Letter (available May 13, 1988), Morgan Stanley & Co.,
Inc., SEC No-Action Letter (available June 5, 1991) and Shearman & Sterling, SEC
No-Action Letter (available July 2, 1993), that the New Notes issued in exchange
for the Old Notes pursuant to the Exchange Offer may be offered for resale,
resold and otherwise transferred by holders thereof (other than a broker-dealer
who purchased Old Notes exchanged for such New Notes directly from the Company
to resell pursuant to Rule 144A or any other available exemption under the
Securities Act of 1933, as amended (the "Securities Act") and any such holder
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 New Notes are
acquired in the ordinary course of such holders' business and such holders are
not participating in, and have no arrangement with any person to participate in,
the distribution of such New Notes.
5. By tendering Old Notes in the Exchange Offer, you represent and warrant
that:
a. the New Notes acquired pursuant to the Exchange Offer are being
acquired in the ordinary course of your business, whether or not you are
the holder;
b. neither you nor any such other person is engaging in or intends to
engage in a distribution of such New Notes;
c. neither you nor any such other person has an arrangement or
understanding with any person to participate in the distribution (within
the meaning of the Securities Act) of such New Notes in violation of the
provisions of the Securities Act;
d. neither you nor any such other person is an "affiliate," as such
term is defined under Rule 405 promulgated under the Securities Act, of the
Company or if you are an "affiliate," you will comply with the registration
and prospectus delivery requirements of the Securities Act to the extent
applicable; and
e. the Company will acquire good and unencumbered title to the Old
Notes upon exchange for the New Notes, free and clear of any liens,
restrictions, charges or encumbrances and not subject to any adverse
claims.
6. You may, if you are unable to make all of the representations and
warranties contained in Item 5 above and as otherwise permitted in the
Registration Rights Agreement (as defined below), elect to have your Old Notes
registered in the shelf registration statement described in the Registration
Rights Agreement, dated as of July 21, 2003 (the "Registration Rights
Agreement"), by and among the Company and the Initial Purchasers (as defined
therein). Such election may be made only by notifying the Company in writing at
777 Main Street, Suite 800, Forth Worth, Texas 76102, Attention: Corporate
Secretary. By making such election, you agree, as a holder of Old Notes
participating in a shelf registration, to indemnify and hold harmless the
Company, each of the directors of the Company, each of the officers of the
Company who signs such shelf registration statement, each person who controls
the Company within the meaning of either the Securities Act or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and each other holder of
Old Notes, from and against any and all losses, liabilities, claims, damages and
expenses caused by any untrue statement or alleged untrue statement of a
material fact contained in any shelf registration statement or prospectus, or in
any supplement thereto or amendment thereof, or caused by the
A-2
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; but only with respect
to information relating to the undersigned furnished in writing by or on behalf
of the undersigned expressly for use in a shelf registration statement, a
prospectus or any amendments or supplements thereto. Any such indemnification
shall be governed by the terms and subject to the conditions set forth in the
Registration Rights Agreement, including, without limitation, the provisions
regarding notice, retention of counsel, contribution and payment of expenses set
forth therein. The above summary of the indemnification provision of the
Registration Rights Agreement is not intended to be exhaustive and is qualified
in its entirety by the Registration Rights Agreement.
7. If you are a broker-dealer that will receive New Notes for its own
account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities, you acknowledge, by
tendering Old Notes in the Exchange Offer, that you will deliver a prospectus in
connection with any resale of such New Notes; however, by so acknowledging and
by delivering a prospectus, you will not be deemed to admit that you are an
"underwriter" within the meaning of the Securities Act. If you are a
broker-dealer and Old Notes held for your own account were not acquired as a
result of market-making or other trading activities, such Old Notes cannot be
exchanged pursuant to the Exchange Offer.
8. Any of your obligations hereunder shall be binding upon your successors,
assigns, executors, administrators, trustees in bankruptcy and legal and
personal representatives of the undersigned.
A-3
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. BOOK-ENTRY CONFIRMATIONS.
Any confirmation of a book-entry transfer to the Exchange Agent's account
at DTC of Old Notes tendered by book-entry transfer (a "Book-Entry
Confirmation"), as well as an agent's message, and any other documents required
by this Letter of Transmittal, 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.
2. PARTIAL TENDERS.
Tenders of Old Notes will be accepted only in integral multiples of $1,000.
THE ENTIRE PRINCIPAL AMOUNT OF OLD NOTES DELIVERED TO THE EXCHANGE AGENT WILL BE
DEEMED TO HAVE BEEN TENDERED UNLESS OTHERWISE COMMUNICATED TO THE EXCHANGE
AGENT. IF THE ENTIRE PRINCIPAL AMOUNT OF ALL OLD NOTES IS NOT TENDERED, THEN OLD
NOTES FOR THE PRINCIPAL AMOUNT OF OLD NOTES NOT TENDERED AND NOTES ISSUED IN
EXCHANGE FOR ANY OLD NOTES ACCEPTED WILL BE DELIVERED TO THE HOLDER VIA THE
FACILITIES OF DTC PROMPTLY AFTER THE OLD NOTES ARE ACCEPTED FOR EXCHANGE.
3. VALIDITY OF TENDERS.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance, and withdrawal of 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 or all tenders
not in proper form or the acceptance for exchange of which may, in the opinion
of counsel for the Company, be unlawful. The Company also reserves the absolute
right to waive any of the conditions of the Exchange Offer or any defect or
irregularity in the tender of any Old Notes. The Company's interpretation of the
terms and conditions of the Exchange Offer (including the instructions on this
Letter of Transmittal) will be final and binding on all parties. Unless waived,
any defects or irregularities in connection with tenders of Old Notes must be
cured within such time as the Company shall determine. Although the Company
intends to notify holders of defects or irregularities with respect to tenders
of Old Notes, neither the Company, the Exchange Agent, nor any other person
shall be under any duty to give such notification of any defects or
irregularities in tenders or incur any liability for failure to give such
notification. Tenders of Old Notes will not be deemed to have been made until
such defects or irregularities have been cured or waived. Any Old Notes received
by the Exchange Agent that are not properly tendered and as to which the defects
or irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders via the facilities of DTC, as soon as practicable
following the Expiration Date.
4. WAIVER OF CONDITIONS.
The Company reserves the absolute right to waive, in whole or part, up to
the expiration of the exchange offer any of the conditions of the Exchange Offer
set forth in the Prospectus or in this Letter of Transmittal.
5. NO CONDITIONAL TENDER.
No alternative, conditional, irregular or contingent tender of Old Notes
will be accepted.
6. REQUEST FOR ASSISTANCE OR ADDITIONAL COPIES.
Requests for assistance or for additional copies of the Prospectus or this
Letter of Transmittal may be directed to the Exchange Agent at the address or
telephone number set forth on the cover page of this Letter of Transmittal.
Holders may also contact their broker, dealer, commercial bank, trust company or
other nominee for assistance concerning the Exchange Offer.
7. WITHDRAWAL.
Tenders may be withdrawn only pursuant to the limited withdrawal rights set
forth in the Prospectus under the caption "Exchange Offer -- Withdrawal of
Tenders."
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8. NO GUARANTEE OF LATE DELIVERY.
There is no procedure for guarantee of late delivery in the Exchange Offer.
IMPORTANT: BY USING THE ATOP PROCEDURES TO TENDER OLD NOTES, YOU WILL NOT
BE REQUIRED TO DELIVER THIS LETTER OF TRANSMITTAL TO THE EXCHANGE AGENT.
HOWEVER, YOU WILL BE BOUND BY ITS TERMS, AND YOU WILL BE DEEMED TO HAVE MADE THE
ACKNOWLEDGEMENTS AND THE REPRESENTATIONS AND WARRANTIES IT CONTAINS, JUST AS IF
YOU HAD SIGNED IT.
A-5
[RANGE RESOURCES LOGO]
RANGE RESOURCES CORPORATION
OFFER TO EXCHANGE UP TO
$100,000,000 7 3/8% SENIOR SUBORDINATED NOTES DUE 2013
FOR
$100,000,000 7 3/8% SENIOR SUBORDINATED NOTES DUE 2013
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
SEPTEMBER 18, 2003
[RANGE RESOURCES]
