Filed pursuant to Rule 424(b)(5)
Registration No. 333-103349
PROSPECTUS SUPPLEMENT
(To Prospectus dated April 4, 2003)
3,500,000 Shares
(NEWFIELD LOGO)
Newfield Exploration Company
COMMON STOCK
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NEWFIELD EXPLORATION COMPANY IS OFFERING 3,500,000 SHARES OF ITS COMMON STOCK.
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OUR COMMON STOCK IS LISTED ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL
"NFX." ON MAY 21, 2003, THE REPORTED LAST SALE PRICE OF OUR COMMON STOCK ON THE
NEW YORK STOCK EXCHANGE WAS $38.50 PER SHARE.
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INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 4 OF THE ACCOMPANYING PROSPECTUS.
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PRICE $37.70 A SHARE
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY
------------ -------------------------- ------------
Per Share......................... $37.70 $.16 $37.54
Total............................. $131,950,000 $560,000 $131,390,000
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved of these securities, or determined if this prospectus
supplement or the accompanying prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers on
May 27, 2003.
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MORGAN STANLEY
May 21, 2003
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT PAGE
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Newfield Exploration Company......... S-3
Use of Proceeds...................... S-4
Underwriting......................... S-5
Where You Can Find More Information.. S-6
Legal Matters........................ S-6
PROSPECTUS PAGE
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About This Prospectus................ 2
Where You Can Find More Information.. 2
Forward-Looking Statements........... 3
About Our Company.................... 4
Risk Factors......................... 4
Use of Proceeds...................... 11
Ratios of Earnings to Fixed Charges
and Earnings to Fixed Charges plus
Preferred Dividends.................. 11
Description of Debt Securities....... 11
Description of Common Stock and
Preferred Stock...................... 26
Description of Depositary Shares..... 31
Description of Securities Warrants... 33
Description of Stock Purchase
Contracts and Stock Purchase Units... 34
Plan of Distribution................. 34
Legal Matters........................ 35
Experts.............................. 35
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This document is in two parts. The first part is this prospectus supplement
which describes our business and the specific terms of this offering. The second
part is the prospectus which gives more general information, some of which may
not apply to this offering. If information varies between this prospectus
supplement and the accompanying prospectus, you should rely on the information
in this prospectus supplement. You should carefully read the entire prospectus
supplement, the accompanying prospectus and the other documents incorporated by
reference. You should pay special attention to "Risk Factors" beginning on page
4 of the accompanying prospectus to determine whether an investment in shares of
our common stock is appropriate for you. For purposes of this prospectus
supplement and the accompanying prospectus, unless the context otherwise
indicates, references to "us," "we," "our" or "Newfield" are to Newfield
Exploration Company and its subsidiaries. Unless otherwise noted, capitalized
terms used in this prospectus supplement have the same meanings as used in the
accompanying prospectus.
You should rely only on the information incorporated by reference or
provided in this prospectus supplement or in the accompanying prospectus. We
have not, and the underwriter has not, authorized anyone else to provide you
with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriter is not, making an offer to sell these securities in any jurisdiction
where the offer is not permitted. You should not assume that the information
incorporated by reference or provided in this prospectus supplement or in the
accompanying prospectus is accurate as of any date other than the date of those
documents. Our business, financial condition, results of operations and
prospects may have changed since that date.
S-2
NEWFIELD EXPLORATION COMPANY
We are an independent oil and gas company engaged in the exploration,
development and acquisition of crude oil and natural gas properties. Our company
was founded in 1989 and we acquired our first property in 1990. Our initial
focus area was the Gulf of Mexico. In the mid-1990s, we began to expand our
operations to other select areas. Our primary areas of operation now include the
onshore Gulf Coast, West Texas, the Anadarko Basin and offshore northwest
Australia. Over the last two years, we have acquired significant onshore assets.
Today, more than half of our reserves are located onshore in the U.S.
At year-end 2002, we had proved reserves of 1.2 Tcfe. Of those reserves:
-- 81% were natural gas;
-- 93% were proved developed;
-- 44% were located in the Gulf of Mexico;
-- 54% were located onshore in the U.S.; and
-- 2% were located offshore Australia.
Our strategy is based on the following elements:
-- balancing our efforts among exploration, the acquisition of proved
reserves and the development of proved properties;
-- growing reserves through the drilling of a balanced risk/reward
portfolio;
-- focusing on select geographic areas;
-- controlling operations and costs;
-- using 3-D seismic data and other advanced technologies; and
-- attracting and retaining a high quality work-force through equity
ownership and other performance-based incentives.
Our executive offices are located at 363 N. Sam Houston Parkway E., Suite
2020, Houston, Texas 77060, and our telephone number is (281) 847-6000.
S-3
USE OF PROCEEDS
The net proceeds from this offering, after deducting underwriting discounts
and commissions and estimated offering expenses payable by us, will be
approximately $131.3 million. We intend to use the net proceeds from the sale of
the shares to fund a portion of the redemption of the $143,750,000 outstanding
principal amount of our 6 1/2% Junior Subordinated Convertible Debentures due
2029 held by our subsidiary Newfield Financial Trust I. Pending that use, we
intend to use the net proceeds to repay outstanding borrowings under our credit
arrangements as described below.
In August 1999, the trust issued $143,750,000 liquidation preference of its
convertible preferred securities in an underwritten offering and used the
proceeds to purchase the debentures from us. Under the terms of the indenture
governing the debentures, we currently may redeem the debentures at a redemption
price equal to 104.55% of the principal amount plus any accrued but unpaid
interest. Immediately following redemption of the debentures, the trustee will
redeem the trust's preferred securities. We intend to deliver to the trustee of
the trust notice of redemption at the closing of this offering, and we expect
the redemption to occur on or about June 30, 2003. We expect the total
redemption price to be approximately $151.5 million (which equals 104.55% of the
outstanding principal amount of $143,750,000 plus accrued but unpaid interest
through June 30, 2003 of approximately $1.2 million).
The trust's preferred securities are convertible into shares of our common
stock. The expected redemption price of the preferred securities on a per share
of underlying common stock basis is approximately $38.60. If the amount required
to redeem the debentures is less than the net proceeds from this offering
because holders elect to convert their trust preferred securities into our
common stock, the excess net proceeds will instead be used to repay outstanding
borrowings under our revolving credit facility, which matures on January 23,
2005, and under our money market lines of credit, and for general corporate
purposes. As of May 21, 2003, we had approximately $150.0 million of borrowings
outstanding under our revolving credit facility and $13.0 million outstanding
under our money market lines of credit. At May 22, 2003, the applicable interest
rate for borrowings under our credit facility was 2.75% and under our money
market lines of credit was approximately 2.57%. The borrowings under our credit
arrangements primarily were incurred in connection with our repayment or
settlement of certain obligations of EEX Corporation following our acquisition
of EEX and for general corporate purposes.
S-4
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus supplement, Morgan Stanley & Co.
Incorporated, as the underwriter, has agreed to purchase, and we have agreed to
sell to the underwriter, 3,500,000 shares of our common stock.
The underwriter is offering the shares of common stock subject to its
acceptance of the shares from us and subject to prior sale. The underwriting
agreement provides that the obligation of the underwriter to pay for and accept
delivery of the shares of common stock offered by this prospectus supplement is
subject to the approval of certain legal matters by its counsel and to certain
other conditions. The underwriter is obligated to take and pay for all of the
shares of common stock offered by this prospectus supplement if any such shares
are purchased.
The underwriter initially proposes to offer part of the shares of common
stock directly to the public at the public offering price listed on the cover
page of this prospectus supplement and part to certain dealers at a price that
represents a concession not in excess of $.16 a share under the public offering
price. After the initial offering of the shares of our common stock, the
underwriter may from time to time vary the offering price and other selling
terms.
The following table shows the public offering price, underwriting discounts
and commissions and proceeds before expenses to us.
PER SHARE TOTAL
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Public offering price...................................... $37.70 $131,950,000
Underwriting discounts and commissions..................... .16 560,000
Proceeds, before expenses, to Newfield..................... 37.54 131,390,000
The expenses of this offering, not including the underwriting discounts and
commissions, are estimated at $100,000 and are payable by us.
We and each of our directors and executive officers have agreed not to,
without the prior written consent of the underwriter, during the period ending
60 days after the date of this prospectus supplement:
-- offer, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of, pledge or otherwise dispose of or
transfer any shares of our common stock or any securities convertible
into or exercisable or exchangeable for our common stock; or
-- enter into any swap or other arrangement that transfers to another,
in whole or in part, any of the economic consequences of ownership of
our common stock;
whether any transaction described above is to be settled by delivery of common
stock or such other securities, in cash or otherwise.
The restrictions described in the preceding paragraph do not apply to:
-- the sale of the shares to the underwriter pursuant to the
underwriting agreement;
-- the sale by certain of our directors and executive officers of an
aggregate of up to 100,000 shares of our common stock;
-- transactions by any person other than us relating to shares of our
common stock or other securities acquired in open market transactions
after the completion of this offering;
-- the grant of options or shares of common stock under our stock plans
as in effect at the date hereof;
-- the issuance by us of shares of our common stock upon the exercise of
an option or a warrant or the conversion of a security outstanding on
the date hereof; or
S-5
-- our agreement to issue, or the issuance by us of, securities in
connection with acquisitions wherein the holders are effectively
subject to such restrictions with respect to the securities acquired
or to be acquired in such acquisitions.
In order to facilitate the offering of the shares, the underwriter may
engage in transactions that stabilize, maintain or otherwise affect the price of
our common stock. Specifically, the underwriter may sell more shares than it is
obligated to purchase under the underwriting agreement, creating a short
position. The underwriter must close out any short position by purchasing shares
in the open market. As an additional means of facilitating the offering, the
underwriter may bid for and purchase shares of our common stock in the open
market to stabilize the price of our common stock. The underwriter may also
reclaim selling concessions allowed to a dealer for distributing the common
stock in the offering if the underwriter repurchases previously distributed
common stock to cover syndicate short positions or to stabilize the price of our
common stock. These activities may raise or maintain the market price of our
common stock above independent market levels or prevent or retard a decline in
the market price of our common stock. The underwriter is not required to engage
in these activities and may end any of these activities at any time.
In the ordinary course of its business, Morgan Stanley & Co. Incorporated
and its affiliates have provided, or may in the future provide, investment
banking and other financial services to us or our subsidiaries, including
underwriting and the provision of financial advice. Morgan Stanley & Co.
Incorporated and its affiliates have received, and may in the future receive,
customary fees and commissions for their services.
We have agreed to indemnify Morgan Stanley & Co. Incorporated against a
variety of liabilities, including liabilities under the Securities Act of 1933.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. The SEC allows us to "incorporate by reference" the
information we file with them, which means that we can disclose important
information to you by referring you to those documents. For information on how
to obtain copies of our filings with the SEC and the information incorporated by
reference into this prospectus supplement and the accompanying prospectus, see
"Where You Can Find More Information" in the accompanying prospectus.
In addition to the documents listed therein, we incorporate by reference
the documents listed below and any future filings made with the SEC under
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 (other
than information furnished to the SEC pursuant to Item 9 or Item 12 of Form 8-K)
until we sell all of the securities or until we terminate the offering:
-- our quarterly report on Form 10-Q for the three months ended March
31, 2003; and
-- our current reports on Form 8-K filed on February 13 and May 20,
2003.
LEGAL MATTERS
Vinson & Elkins L.L.P., Houston, Texas will pass upon the validity of the
shares for us. Baker Botts L.L.P., Houston, Texas will pass upon certain legal
matters for Morgan Stanley & Co. Incorporated. Baker Botts L.L.P. has in the
past represented us in matters unrelated to this offering.
S-6
PROSPECTUS
NEWFIELD EXPLORATION COMPANY
DEBT SECURITIES, COMMON STOCK, STOCK PURCHASE CONTRACTS,
STOCK PURCHASE UNITS, PREFERRED STOCK, DEPOSITARY SHARES AND
SECURITIES WARRANTS
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We may offer and sell from time to time:
o debt securities;
o shares of common stock;
o stock purchase contracts;
o stock purchase units;
o shares of preferred stock, which may be issued in the form of
depositary shares evidenced by depositary receipts; and
o securities warrants to purchase debt securities, common stock,
preferred stock or depositary shares.
The aggregate initial offering price of the securities that may be sold
pursuant to this prospectus will not exceed $575,000,000.
This prospectus provides you with a general description of the securities
that may be offered. Each time securities are sold, we will provide one or more
supplements to this prospectus that contain more specific information about the
offering and the terms of the securities. The supplements may also add, update
or change information contained in this prospectus. You should carefully read
this prospectus and any accompanying prospectus supplement before you invest in
any of our securities.
Our common stock is listed on the New York Stock Exchange under the symbol
"NFX."
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 4 OF THIS
PROSPECTUS BEFORE YOU MAKE AN INVESTMENT IN OUR SECURITIES.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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THIS PROSPECTUS IS DATED APRIL 4, 2003
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TABLE OF CONTENTS
ABOUT THIS PROSPECTUS.............................................................................................2
WHERE YOU CAN FIND MORE INFORMATION...............................................................................2
FORWARD-LOOKING STATEMENTS........................................................................................3
ABOUT OUR COMPANY.................................................................................................4
RISK FACTORS......................................................................................................4
USE OF PROCEEDS..................................................................................................11
RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO FIXED CHARGES PLUS PREFERRED DIVIDENDS.......................11
DESCRIPTION OF DEBT SECURITIES...................................................................................11
DESCRIPTION OF COMMON STOCK AND PREFERRED STOCK..................................................................26
DESCRIPTION OF DEPOSITARY SHARES.................................................................................31
DESCRIPTION OF SECURITIES WARRANTS...............................................................................33
DESCRIPTION OF STOCK PURCHASE CONTRACTS AND STOCK PURCHASE UNITS.................................................34
PLAN OF DISTRIBUTION.............................................................................................34
LEGAL MATTERS....................................................................................................35
EXPERTS..........................................................................................................35
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You should rely only on the information incorporated by reference or
provided in this prospectus and any accompanying prospectus supplement. We have
not authorized any dealer, salesman or other person to provide you with
additional or different information. This prospectus and any accompanying
prospectus supplement are not an offer to sell or the solicitation of an offer
to buy any securities other than the securities to which they relate and are not
an offer to sell or the solicitation of an offer to buy securities in any
jurisdiction to any person to whom it is unlawful to make an offer or
solicitation in that jurisdiction. You should not assume that the information in
this prospectus or any accompanying prospectus supplement or in any document
incorporated by reference in this prospectus or any accompanying prospectus
supplement is accurate as of any date other than the date of the document
containing the information.
i
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement on Form S-3 that we
filed with the Securities and Exchange Commission, which we refer to as the
"SEC," using a "shelf" registration process. Under this shelf process, we may,
over time, sell any combination of the securities described in this prospectus
in one or more offerings up to a total dollar amount of $575 million. This
prospectus provides you with a general description of the securities we may
offer pursuant to this prospectus. Each time we sell securities, we will provide
one or more prospectus supplements that will contain specific information about
the terms of that offering. This prospectus does not contain all of the
information included in the registration statement. For a complete understanding
of the offering of securities, you should refer to the registration statement
relating to this prospectus, including its exhibits. A prospectus supplement may
also add, update or change information contained in this prospectus. You should
read both this prospectus and any accompanying prospectus supplement together
with the additional information described under the heading "Where You Can Find
More Information."
Unless the context requires otherwise or unless otherwise noted, all
references in this prospectus or any accompanying prospectus supplement to
"Newfield," "we," "us" or "our" are to Newfield Exploration Company and its
subsidiaries.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file at the SEC's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549. You may obtain information on the operation of the
SEC's public reference room by calling the SEC at 1-800-SEC-0330.
Our common stock is listed on the New York Stock Exchange under the symbol
"NFX." Our reports, proxy statements and other information may be read and
copied at the New York Stock Exchange at 30 Broad Street, New York, New York
10005.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below and any future filings made with the SEC
under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
(other than information furnished to the SEC pursuant to Item 9 or Item 12 of
Form 8-K) until we sell all of the securities or until we terminate this
offering:
o our annual report on Form 10-K for the year ended December 31, 2002;
o our current report on Form 8-K/A filed on February 10, 2003;
o the description of our common stock contained in our Form 8-A
registration statement filed on November 4, 1993; and
2
o the description of our preferred share purchase rights contained in
our Form 8-A registration statement filed on February 18, 1999.
You may request a copy of these filings, at no cost, by writing us at the
following address or telephoning us at the following number:
Newfield Exploration Company
Attention: Stockholder Relations
363 N. Sam Houston Parkway E.,
Suite 2020
Houston, Texas 77060
(281) 847-6000
FORWARD-LOOKING STATEMENTS
This prospectus, any accompanying prospectus supplement and the documents
we incorporate by reference herein may include "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. All statements other than statements of
historical facts included in this prospectus, any accompanying prospectus
supplement and the documents we incorporate by reference herein, including
statements regarding estimated or anticipated operating and financial data,
production targets, anticipated production rates, planned capital expenditures,
the availability of capital resources to fund capital expenditures, estimates of
proved reserves, wells planned to be drilled in the future, our financial
position, business strategy and other plans and objectives for future
operations, are forward-looking statements. Although we believe that the
expectations reflected in these forward-looking statements are reasonable, these
statements are based upon assumptions and anticipated results that are subject
to numerous uncertainties. Actual results may vary significantly from those
anticipated due to many factors, including:
o drilling results;
o oil and gas prices;
o industry conditions;
o the prices of goods and services;
o the availability of drilling rigs and other support services; and
o the availability of capital resources.
The information contained in this prospectus and the documents incorporated
by reference into this prospectus identify additional factors that could affect
our operating results and performance. We urge you to carefully consider these
factors.
All forward-looking statements attributable to our company are expressly
qualified in their entirety by this cautionary statement.
3
ABOUT OUR COMPANY
We are an independent oil and gas company engaged in the exploration,
development and acquisition of crude oil and natural gas properties. Our company
was founded in 1989, and we acquired our first property in 1990. Our initial
focus area was the Gulf of Mexico. In the mid-1990s, we began to expand our
operations to other select areas. Our primary areas of operation now include the
U.S. onshore Gulf Coast, West Texas, the Anadarko Basin and offshore northwest
Australia.
Our executive offices are located at 363 N. Sam Houston Parkway E., Suite
2020, Houston, Texas 77060, and our telephone number is (281) 847-6000. We
maintain a website on the Internet at http://www.newfld.com.
RISK FACTORS
Your investment in our securities will involve risks. You should carefully
consider, in addition to the other information contained in, or incorporated by
reference into, this prospectus and any accompanying prospectus supplement, the
risks described below before deciding whether an investment in our securities is
appropriate for you.
RISKS ASSOCIATED WITH OUR DEBT SECURITIES
OUR DEBT SECURITIES WILL BE EFFECTIVELY SUBORDINATED TO OBLIGATIONS OF OUR
SUBSIDIARIES. All of our international and U.S. mid-continent properties and a
substantial portion of our U.S. onshore Gulf Coast properties are owned and
operated by our subsidiaries. As a result, distributions or advances from these
subsidiaries may be necessary to meet our debt service obligations. Contractual
provisions or laws, as well as our subsidiaries' financial condition and
operating requirements, may limit our ability to obtain cash from our
subsidiaries to pay our debt service obligations, including payments on debt
securities. Debt securities will be structurally subordinated to all obligations
of our subsidiaries, including trade payables. This means that holders of debt
securities will have a junior position to the claims of creditors of our
subsidiaries on their assets and earnings.
UNLESS OTHERWISE INDICATED IN AN ACCOMPANYING PROSPECTUS SUPPLEMENT, THERE
WILL BE NO PUBLIC MARKET FOR DEBT SECURITIES. We do not plan to list any debt
securities on any securities exchange. While the underwriters of a particular
offering of debt securities may advise us that they intend to make a market in
those debt securities, the underwriters will not be obligated to do so and may
stop their market making at any time. No assurance can be given:
o that a market for any series of debt securities will develop or
continue;
o as to the liquidity of any market that does develop; or
o as to your ability to sell any debt securities you may own or the
price at which you may be able to sell your debt securities.
RISKS ASSOCIATED WITH OUR COMMON STOCK
WE DO NOT INTEND TO PAY, AND ARE RESTRICTED IN OUR ABILITY TO PAY,
DIVIDENDS ON OUR COMMON STOCK. We have not paid cash dividends in the past and
do not intend to pay dividends on our common stock in the foreseeable future. We
currently intend to retain any earnings for the future operation and development
of our business. Our ability to make dividend payments in the future will depend
on our
4
future performance and liquidity. In addition, our credit facility contains
restrictions on our ability to pay cash dividends on our capital stock,
including our common stock.
OUR CERTIFICATE OF INCORPORATION, STOCKHOLDERS RIGHTS AGREEMENT AND BYLAWS
CONTAIN PROVISIONS THAT COULD DISCOURAGE AN ACQUISITION OR CHANGE OF CONTROL OF
OUR COMPANY. Our stockholders rights agreement, together with certain provisions
of our certificate of incorporation and bylaws, may make it more difficult to
effect a change in control of our company, to acquire us or to replace incumbent
management. These provisions could potentially deprive our stockholders of
opportunities to sell shares of our stock at above-market prices.
RISKS ASSOCIATED WITH OUR OPERATIONS
OIL AND GAS PRICES FLUCTUATE WIDELY, AND LOW PRICES FOR AN EXTENDED PERIOD
OF TIME ARE LIKELY TO HAVE A MATERIAL ADVERSE IMPACT ON OUR BUSINESS. Our
revenues, profitability and future growth depend substantially on prevailing
prices for oil and gas. These prices also affect the amount of cash flow
available for capital expenditures and our ability to borrow and raise
additional capital. The amount we can borrow under our credit facility is
subject to periodic redeterminations based in part on changing expectations of
future prices. Lower prices may also reduce the amount of oil and gas that we
can economically produce.
Among the factors that can cause fluctuations are:
o the domestic and foreign supply of oil and natural gas;
o the price and availability of alternative fuels;
o weather conditions;
o the level of consumer demand;
o the price of foreign imports;
o world-wide economic conditions;
o political conditions in oil and gas producing regions; and
o domestic and foreign governmental regulations.
OUR USE OF OIL AND GAS PRICE HEDGING CONTRACTS INVOLVES CREDIT RISK AND MAY
LIMIT FUTURE REVENUES FROM PRICE INCREASES AND RESULT IN SIGNIFICANT
FLUCTUATIONS IN OUR NET INCOME. We use hedging transactions with respect to a
portion of our oil and gas production to achieve more predictable cash flow and
to reduce our exposure to price fluctuations. While the use of hedging
transactions limits the downside risk of price declines, their use may also
limit future revenues from price increases. Hedging transactions also involve
the risk that the counterparty may be unable to satisfy its obligations.
5
OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO FIND, DEVELOP AND ACQUIRE OIL
AND GAS RESERVES. As is generally the case, our producing properties in the Gulf
of Mexico and the onshore Gulf Coast often have high initial production rates,
followed by steep declines. To maintain production levels, we must locate and
develop or acquire new oil and gas reserves to replace those depleted by
production. Without successful exploration or acquisition activities, our
reserves, production and revenues will decline rapidly. We may be unable to find
and develop or acquire additional reserves at an acceptable cost. In addition,
substantial capital is required to replace and grow reserves. If lower oil and
gas prices or operating difficulties result in our cash flow from operations
being less than expected or limit our ability to borrow under our credit
arrangements, we may be unable to expend the capital necessary to locate and
develop or acquire new oil and gas reserves.
ACTUAL QUANTITIES OF RECOVERABLE OIL AND GAS RESERVES AND FUTURE CASH FLOWS
FROM THOSE RESERVES MOST LIKELY WILL VARY FROM OUR ESTIMATES. Estimating
accumulations of oil and gas is complex. The process relies on interpretations
of available geologic, geophysic, engineering and production data. The extent,
quality and reliability of this data can vary. The process also requires certain
economic assumptions, some of which are mandated by the SEC, such as oil and gas
prices, drilling and operating expenses, capital expenditures, taxes and
availability of funds. The accuracy of a reserve estimate is a function of:
o the quality and quantity of available data;
o the interpretation of that data;
o the accuracy of various mandated economic assumptions; and
o the judgment of the persons preparing the estimate.
The proved reserve information incorporated by reference in this prospectus
is based on estimates we prepared. Estimates prepared by others might differ
materially from our estimates.
Actual quantities of recoverable oil and gas reserves, future production,
oil and gas prices, revenues, taxes, development expenditures and operating
expenses most likely will vary from our estimates. Any significant variance
could materially affect the quantities and present value of our reserves. In
addition, we may adjust estimates of proved reserves to reflect production
history, results of exploration and development and prevailing oil and gas
prices. Our reserves may also be susceptible to drainage by operators on
adjacent properties.
You should not assume that the present value of future net cash flows
incorporated by reference in this prospectus is the current market value of our
estimated proved oil and gas reserves. In accordance with SEC requirements, we
generally base the estimated discounted future net cash flows from proved
reserves on prices and costs on the date of the estimate. Actual future prices
and costs may be materially higher or lower than the prices and costs as of the
date of the estimate.
6
IF OIL AND GAS PRICES DECREASE, WE MAY BE REQUIRED TO TAKE WRITEDOWNS. We
may be required to writedown the carrying value of our oil and gas properties
when oil and 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.
We capitalize the costs to acquire, find and develop our oil and gas
properties under the full cost accounting method. The net capitalized costs of
our oil and gas properties may not exceed the present value of estimated future
net cash flows from proved reserves, using period-end oil and gas prices and a
10% discount factor, plus the lower of cost or fair market value for unproved
properties. If net capitalized costs of our oil and gas properties exceed this
limit, we must charge the amount of the excess to earnings. We review the
carrying value of our properties quarterly, based on prices in effect (including
the value of our hedge positions) as of the end of each quarter or as of the
time of reporting our results. The carrying value of oil and gas properties is
computed on a country-by-country basis. Therefore, while our properties in one
country may be subject to a writedown, our properties in other countries could
be unaffected. Once incurred, a writedown of oil and gas properties is not
reversible at a later date even if oil or gas prices increase.
WE MAY BE SUBJECT TO RISKS IN CONNECTION WITH ACQUISITIONS. The successful
acquisition of producing properties requires an assessment of several factors,
including:
o recoverable reserves;
o future oil and gas prices;
o operating costs; and
o potential environmental and other liabilities.
The accuracy of these assessments is inherently uncertain. In connection
with these assessments, we perform a review of the subject properties that we
believe to be generally consistent with industry practices. Our review will not
reveal all existing or potential problems nor will it permit us to become
sufficiently familiar with the properties to fully assess their deficiencies and
capabilities. Inspections may not always be performed on every platform or well,
and structural and environmental problems are not necessarily observable even
when an inspection is undertaken. Even when problems are identified, the seller
may be unwilling or unable to provide effective contractual protection against
all or part of the problems. We often are not entitled to contractual
indemnification for environmental liabilities and acquire properties on an "as
is" basis.
COMPETITIVE INDUSTRY CONDITIONS MAY NEGATIVELY AFFECT OUR ABILITY TO
CONDUCT OPERATIONS. Competition in the oil and gas industry is intense,
particularly with respect to the acquisition of producing properties and proved
undeveloped acreage. Major and independent oil and gas companies actively bid
for desirable oil and gas properties, as well as for the equipment and labor
required to operate and develop their properties. Many of our competitors have
financial resources that are substantially greater than ours, which may
adversely affect our ability to compete with these companies.
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DRILLING IS A HIGH-RISK ACTIVITY. Our future success will depend on the
success of our drilling programs. In addition to the numerous operating risks
described in more detail below, these activities involve the risk that no
commercially productive oil or gas reservoirs will be discovered. In addition,
we often are uncertain as to the future cost or timing of drilling, completing
and producing wells. Furthermore, our drilling operations may be curtailed,
delayed or canceled as a result of a variety of factors, including:
o unexpected drilling conditions;
o pressure or irregularities in formations;
o equipment failures or accidents;
o adverse weather conditions;
o compliance with governmental requirements; and
o shortages or delays in the availability of drilling rigs and the
delivery of equipment.
THE OIL AND GAS BUSINESS INVOLVES MANY OPERATING RISKS THAT CAN CAUSE
SUBSTANTIAL LOSSES; INSURANCE MAY NOT PROTECT US AGAINST ALL THESE RISKS. These
risks include:
o fires;
o explosions;
o blow-outs;
o uncontrollable flows of oil, gas, formation water or drilling fluids;
o natural disasters;
o pipe or cement failures;
o casing collapses;
o embedded oilfield drilling and service tools;
o abnormally pressured formations; and
o environmental hazards such as oil spills, natural gas leaks, pipeline
ruptures and discharges of toxic gases.
If any of these events occur, we could incur substantial losses as a result
of:
o injury or loss of life;
o severe damage to or destruction of property, natural resources and
equipment;
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o pollution and other environmental damage;
o investigatory and clean-up responsibilities;
o regulatory investigation and penalties;
o suspension of our operations; and
o repairs to resume operations.
If we experience any of these problems, our ability to conduct operations could
be adversely affected.
Offshore operations are subject to a variety of operating risks peculiar 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 our exploration and development programs and acquisitions, or result in loss
of properties.
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 and is not fully covered by
insurance, it could adversely affect us.
WE HAVE RISKS ASSOCIATED WITH OUR FOREIGN OPERATIONS. We currently have
international activities and we continue to evaluate and pursue new
opportunities for international expansion in select areas. Ownership of property
interests and production operations in areas outside the United States is
subject to the various risks inherent in foreign operations. These risks may
include:
o currency restrictions and exchange rate fluctuations;
o loss of revenue, property and equipment as a result of expropriation,
nationalization, war or insurrection;
o increases in taxes and governmental royalties;
o renegotiation of contracts with governmental entities and
quasi-governmental agencies;
o changes in laws and policies governing operations of foreign-based
companies;
o labor problems; and
o other uncertainties arising out of foreign government sovereignty over
our international operations.
Our international operations may also be adversely affected by laws and
policies of the United States affecting foreign trade, taxation and investment.
In addition, if a dispute arises with respect to our foreign operations, we may
be subject to the exclusive jurisdiction of foreign courts or may not be
successful in subjecting foreign persons to the jurisdiction of the courts of
the United States.
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EXPLORATION IN DEEPWATER INVOLVES GREATER OPERATING AND FINANCIAL RISKS
THAN EXPLORATION AT SHALLOWER depths. These risks could result in substantial
losses. Deepwater drilling and operations require the application of recently
developed technologies and involve a higher risk of mechanical failure. We will
likely experience significantly higher drilling costs for any deepwater wells
that we drill. In addition, much of the deepwater play lacks the physical and
oilfield service infrastructure present in shallower waters. As a result,
development of a deepwater discovery may be a lengthy process and require
substantial capital investment, resulting in significant financial and operating
risks.
In addition, as we carry out our drilling program in deepwater, it is
likely that we will not initially serve as operator of the wells. As a result,
we may have limited ability to exercise influence over operations for these
properties or their associated costs. Our dependence on the operator and other
working interest owners for these deepwater projects and our limited ability to
influence operations and associated costs could prevent the realization of our
targeted returns on capital in drilling or acquisition activities in the
deepwater of the Gulf of Mexico. The success and timing of drilling and
exploitation activities on properties operated by others therefore depend upon a
number of factors that will be largely outside of our control, including:
o the timing and amount of capital expenditures;
o the availability of suitable offshore drilling rigs, drilling
equipment, support vessels, production and transportation
infrastructure and qualified operating personnel;
o the operator's expertise and financial resources;
o approval of other participants in drilling wells; and
o selection of technology.
OTHER INDEPENDENT OIL AND GAS COMPANIES' LIMITED ACCESS TO CAPITAL MAY
CHANGE OUR EXPLORATION AND DEVELOPMENT PLANS. Many independent oil and gas
companies have limited access to the capital necessary to finance their
activities. As a result, some of the other working interest owners of our wells
may be unwilling or unable to pay their share of the costs of projects as they
become due. These problems could cause us to change, suspend or terminate our
drilling and development plans with respect to the affected project.
WE ARE SUBJECT TO COMPLEX LAWS THAT CAN AFFECT THE COST, MANNER OR
FEASIBILITY OF DOING BUSINESS. Exploration, development, production and sale of
oil and gas are subject to extensive federal, state, local and international
regulation. We may be required to make large expenditures to comply with
environmental and other governmental regulations. Matters subject to regulation
include:
o discharge permits for drilling operations;
o drilling bonds;
o reports concerning operations;
o the spacing of wells;
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o unitization and pooling of properties; and
o taxation.
Under these laws, we could be liable for personal injuries, property
damage, oil spills, discharge of hazardous materials, remediation and clean-up
costs and other environmental damages. Failure to comply with these laws also
may result in the suspension or termination of our operations and subject us to
administrative, civil and criminal penalties. Moreover, these laws could change
in ways that substantially increase our costs. Any such liabilities, penalties,
suspensions, terminations or regulatory changes could materially adversely
affect our financial condition and results of operations.
USE OF PROCEEDS
Except as may otherwise be described in an accompanying prospectus
supplement, the net proceeds from the sale of the securities offered pursuant to
this prospectus and any accompanying prospectus supplement will be used for
general corporate purposes. Any specific allocation of the net proceeds of an
offering of securities to a specific purpose will be determined at the time of
the offering and will be described in an accompanying prospectus supplement.
RATIOS OF EARNINGS TO FIXED CHARGES AND
EARNINGS TO FIXED CHARGES PLUS PREFERRED DIVIDENDS
We have calculated our ratios of earnings to fixed charges and earnings to
fixed charges plus preferred dividends as follows:
YEAR ENDED DECEMBER 31,
----------------------------------------
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
Ratio of earnings to fixed
charges ................. (1) 3.7x 8.9x 5.7x 3.2x
Ratio of earnings to fixed
charges plus preferred
dividends(2) ............ (1) 3.7x 8.9x 5.7x 3.2x
----------
(1) We had a loss for the year ended December 31, 1998 for purposes of
computing these ratios. Earnings for such year were insufficient to cover
fixed charges by approximately $92.7 million.
(2) As of the date of this prospectus, there are no outstanding shares of
preferred stock.
For purposes of computing the consolidated ratios of earnings to fixed
charges and earnings to fixed charges plus preferred dividends, earnings consist
of income before income taxes plus fixed charges (excluding capitalized
interest) and fixed charges consist of interest (both expensed and capitalized),
distributions on our convertible trust preferred securities and the estimated
interest component of rent expense.
DESCRIPTION OF DEBT SECURITIES
Any debt securities issued using this prospectus will be our direct
unsecured general obligations. The debt securities may be issued from time to
time in one or more series. The particular terms of each series that is offered
will be described in one or more prospectus supplements accompanying this
prospectus.
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The debt securities will be either senior debt securities or subordinated debt
securities. Any senior debt securities will be issued under the senior indenture
dated as of February 28, 2001 between us and Wachovia Bank, National Association
(formerly First Union National Bank), as trustee. Subordinated debt securities
will be issued under the subordinated indenture dated as of December 10, 2001
between us and Wachovia Bank, National Association (formerly First Union
National Bank), as trustee. We have filed the senior indenture and the
subordinated indenture as exhibits to the registration statement. We have
summarized selected provisions of these indentures below. The summary is not
complete. You should read the indentures for provisions that may be important to
you.
GENERAL
The indentures provide that debt securities in separate series may be
issued from time to time without limitation as to aggregate principal amount. We
may specify a maximum aggregate principal amount for any series of debt
securities. We will determine the terms and conditions of any series of debt
securities, including the maturity, principal and interest, but those terms must
be consistent with the applicable indenture. The terms and conditions of a
particular series of debt securities will be set forth in a supplemental
indenture or in a resolution of our board of directors.
Senior debt securities will rank equally with all of our other senior
unsecured and unsubordinated debt. Subordinated debt securities will be
subordinated in right of payment to the prior payment in full of all or some of
our senior debt as described under "--Subordinated Debt Securities."
A prospectus supplement relating to any series of debt securities being
offered will include specific terms related to that offering, including the
price or prices at which the debt securities will be issued. These terms will
include some or all of the following:
o the title of the debt securities;
o with respect to subordinated debt securities, any addition to or
change in the subordination provisions set forth in the subordinated
indenture;
o the total principal amount of the debt securities;
o the dates on which the principal of the debt securities will be
payable;
o the interest rate and interest payment dates for the debt securities;
o any change in (including the elimination of the applicability of) the
provisions set forth in the applicable indenture that provide the
terms upon which the debt securities may be redeemed at our option;
o any sinking fund or other provisions that would obligate us to
repurchase or otherwise redeem the debt securities;
o any change in (including the elimination of the applicability of) the
defeasance provisions set forth in the applicable indenture;
o any addition to or change in the events of default set forth in the
applicable indenture;
o if convertible into our common stock or any of our other securities,
the terms upon which such debt securities are convertible;
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o any addition to or change in the covenants set forth in the applicable
indenture;
o any other terms of the debt securities.
If so provided in an applicable prospectus supplement, we may issue debt
securities at a discount below their principal amount and may pay less than the
entire principal amount of debt securities upon declaration of acceleration of
their maturity. An applicable prospectus supplement will describe all material
U.S. federal income tax, accounting and other considerations applicable to debt
securities issued with original issue discount.
SENIOR DEBT SECURITIES
Senior debt securities will be our unsecured and unsubordinated obligations
and will rank equally with all of our existing and future unsecured and
unsubordinated debt. Senior debt securities will, however, be subordinated in
right of payment to all our secured indebtedness to the extent of the value of
the assets securing such indebtedness. Unless otherwise specified in an
applicable prospectus supplement, there will be no limit on:
o the amount of additional indebtedness that may rank equally with the
senior debt securities; or
o on the amount of indebtedness, secured or otherwise, that may be
incurred, or preferred stock that may be issued, by any of our
subsidiaries.
SUBORDINATED DEBT SECURITIES
Under the subordinated indenture, payment of the principal of and interest
and any premium on subordinated debt securities will generally be subordinated
in right of payment to the prior payment in full of all of our senior debt,
including any senior debt securities. A prospectus supplement relating to a
particular series of subordinated debt securities will summarize the
subordination provisions applicable to that series, including:
o the applicability and effect of such provisions to and on any payment
or distribution of our assets to creditors upon any liquidation,
bankruptcy, insolvency or similar proceedings;
o the applicability and effect of such provisions upon specified
defaults with respect to senior debt, including the circumstances
under which and the periods in which we will be prohibited from making
payments on subordinated debt securities; and
o the definition of "senior debt" applicable to the subordinated debt
securities of that series.
The failure to make any payment on any of the subordinated debt securities
because of the subordination provisions of the subordinated indenture will not
prevent the occurrence of an event of default under the subordinated debt
securities.
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OPTIONAL REDEMPTION
Unless otherwise specified in a prospectus supplement applicable to a
series of debt securities, a series of debt securities will be redeemable, at
our option, at any time in whole, or from time to time in part, at a price equal
to the greater of:
o 100% of the principal amount of the debt securities to be redeemed; or
o the sum of the present values of the remaining scheduled payments of
principal and interest (at the rate in effect on the date of
calculation of the redemption price) on the debt securities (exclusive
of interest accrued to the date of redemption) discounted to the date
of redemption on a semi-annual basis (assuming a 360-day year
consisting of twelve 30-day months) at the applicable treasury yield,
plus 50 basis points;
o plus, in either case, accrued interest to the date of redemption.
Debt securities called for redemption become due on the date fixed for
redemption. Notices of redemption will be mailed at least 30, but not more than
60, days before the redemption date to each holder of record of the debt
securities to be redeemed at its registered address. The notice of redemption
for the debt securities will state, among other things, the amount of debt
securities to be redeemed, the redemption date, the redemption price and the
place(s) that payment will be made upon presentation and surrender of debt
securities to be redeemed. Unless we default in payment of the redemption price,
interest will cease to accrue on any debt securities that have been called for
redemption at the redemption date. If less than all the debt securities of a
series are redeemed at any time, the trustee will select the debt securities to
be redeemed on a pro rata basis or by any other method the trustee deems fair
and appropriate.
For purposes of determining the optional redemption price, the following
definitions are applicable:
"APPLICABLE TREASURY YIELD" means, with respect to any redemption date
applicable to a series of debt securities, the rate per annum equal to the
semi-annual equivalent yield to maturity (computed as of the third business day
immediately preceding the redemption date) of the comparable treasury issue,
assuming a price for the comparable treasury issue (expressed as a percentage of
its principal amount) equal to the applicable comparable treasury price for the
redemption date.
"COMPARABLE TREASURY ISSUE" means the United States Treasury security
selected by an independent investment banker as having a maturity comparable to
the remaining term of debt securities that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the remaining
terms of the debt securities to be redeemed.
"COMPARABLE TREASURY PRICE" means, with respect to any redemption date:
o the bid price for the comparable treasury issue (expressed as a
percentage of its principal amount) at 4:00 p.m. on the third business
day preceding the redemption date as set forth on "Telerate Page 500"
(or such other page as may replace Telerate Page 500); or
o if such page (or any successor page) is not displayed or does not
contain such bid prices at such time:
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o the average of the reference treasury dealer quotations obtained
by the trustee for the redemption date, after excluding the
highest and lowest of all reference treasury dealer quotations
obtained; or
o if the trustee obtains fewer than four such reference treasury
dealer quotations, the average of all reference treasury dealer
quotations obtained by the trustee.
"INDEPENDENT INVESTMENT BANKER" means the investment banking firm that
acted as lead managing underwriter for the offering of the series of debt
securities or that we name in an accompanying prospectus supplement, or, if such
firm is unwilling or unable to select the applicable comparable treasury issue,
an independent investment banking institution of national standing appointed by
the trustee and reasonably acceptable to us.
"REFERENCE TREASURY DEALER" means any primary U.S. government securities
dealer in New York City named in an accompanying prospectus supplement or
selected by us.
"REFERENCE TREASURY DEALER QUOTATIONS" means, with respect to each
reference treasury dealer and any redemption date applicable to a series of debt
securities, an average, as determined by the trustee, of the bid and asked
prices for the comparable treasury issue for the series of debt securities
(expressed in each case as a percentage of its principal amount) quoted in
writing to the trustee by the reference treasury dealer at 5:00 p.m., New York
City time, on the third business day preceding such redemption date.
DEFEASANCE
Unless otherwise provided in a prospectus supplement relating to a
particular series of debt securities, we may elect, at our option at any time,
to have the provisions of the applicable indenture relating to defeasance and
discharge of indebtedness and to defeasance of certain restrictive covenants
applied to such series of debt securities, or to any specified part of such
series.
DEFEASANCE AND DISCHARGE. The indentures provide that, upon the exercise of
our option, we will be discharged from all our obligations with respect to the
applicable debt securities upon the deposit in trust for the benefit of the
holders of such debt securities of money or U.S. government obligations, or
both, which, through the payment of principal and interest in respect thereof in
accordance with their terms, will provide money in an amount sufficient to pay
the principal of and any premium and interest on such debt securities on the
respective stated maturities in accordance with the terms of the applicable
Indenture and such debt securities.
DEFEASANCE OF CERTAIN COVENANTS. The indentures provide that, upon the
exercise of our option, we may omit to comply with certain restrictive covenants
described in this prospectus, including those described below under "--Certain
Covenants" (if such covenants are applicable to a series of debt securities), or
an applicable prospectus supplement, the occurrence of certain events of default
as described in this prospectus or an applicable prospectus supplement will not
be deemed to either be or result in an event of default and, if such debt
securities are subordinated debt securities of such series, the provisions of
the subordinated indenture relating to subordination will cease to be effective,
in each case with respect to such debt securities. In order to exercise such
option, we must deposit, in trust for the benefit of the holders of debt
securities of such series, money or U.S. government obligations, or both, which,
through the payment of principal and interest in respect thereof in accordance
with their terms, will provide money in an amount sufficient to pay the
principal of and any premium and interest on such debt securities on the
respective stated maturities in accordance with the terms of the applicable
indenture and such debt securities.
15
In order to exercise either defeasance option, we must comply with certain
other conditions, including that no default has occurred and is continuing after
the deposit in trust and the delivery to the trustee of an opinion of counsel to
the effect that holders of the series of debt securities will not recognize
income, gain or loss for U.S. federal income tax purposes as a result of such
defeasance and will be subject to U.S. federal income tax on the same amount and
in the same manner and at the same times as would have been the case if such
deposit in trust and defeasance had not occurred. In the case of legal
defeasance only, such opinion of counsel must be based on a ruling of the
Internal Revenue Service or other change in applicable U.S. federal income tax
law.
CERTAIN COVENANTS
LIMITATION ON LIENS. Nothing in the indentures in any way limits the amount
of indebtedness or securities that we or any of our subsidiaries may incur or
issue. Unless otherwise specified in an accompanying prospectus supplement, we
may not, and may not permit any restricted subsidiary to, issue, assume or
guarantee any indebtedness for borrowed money secured by any lien on any
property or asset now owned or hereafter acquired by us or such restricted
subsidiary without making effective provision whereby any and all debt
securities of such series then or thereafter outstanding will be secured by a
lien equally and ratably with any and all other obligations thereby secured for
so long as any such obligations shall be so secured.
Unless otherwise stated in a prospectus supplement applicable to a series
of debt securities, the foregoing restriction will not, however, apply to:
o liens existing on the date on which the series of debt securities was
originally issued or provided for under the terms of agreements
existing on such date;
o liens on properties securing:
o all or any portion of the cost of exploration, drilling or
development of such properties;
o all or any portion of the cost of acquiring, constructing,
altering, improving or repairing any properties or assets used or
to be used in connection with such properties; or
o indebtedness incurred by us or any restricted subsidiary to
provide funds for the activities set forth in the two bullet
points immediately above with respect to such properties;
o liens securing indebtedness owed by a restricted subsidiary to us or
to any other restricted subsidiary;
o liens on property existing at the time of acquisition of such property
by us or a subsidiary or liens on the property of any corporation or
other entity existing at the time such corporation or other entity
becomes a restricted subsidiary or is merged with us in compliance
with the applicable indenture and in either case not incurred in
connection with the acquisition of such property or such corporation
or other entity becoming a restricted subsidiary or being merged with
us, provided that such liens do not cover any property or assets of
ours or any of our restricted subsidiaries other than the property so
acquired;
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o liens on any property securing:
o indebtedness incurred in connection with the construction,
installation or financing of pollution control or abatement
facilities or other forms of industrial revenue bond financing;
or
o indebtedness issued or guaranteed by the United States or any
state thereof;
o any lien extending, renewing or replacing (or successive extensions,
renewals or replacements of) any lien of any type permitted under any
bullet point above, provided that such lien extends to or covers only
the property that is subject to the lien being extended, renewed or
replaced;
o certain liens arising in the ordinary course of our business or that
of our restricted subsidiaries;
o any lien resulting from the deposit of moneys or evidences of
indebtedness in trust for the purpose of defeasing indebtedness of
ours or any restricted subsidiary; or
o liens (exclusive of any lien of any type otherwise permitted under any
bullet point above) securing our indebtedness or that of any
restricted subsidiary in an aggregate principal amount which, together
with the aggregate amount of attributable indebtedness deemed to be
outstanding in respect of all sale/leaseback transactions permitted
pursuant to the first bullet point under "--Limitation on
Sale/Leaseback Transactions" below (exclusive of any such
sale/leaseback transactions otherwise permitted under any bullet point
above), does not at the time such indebtedness is incurred exceed 7.5%
of our consolidated net tangible assets (as shown in the most recent
published quarterly or year-end consolidated balance sheet of our
company and its subsidiaries).
Unless otherwise specified in any prospectus supplement applicable to a
particular series of debt securities, the following types of transactions will
not be prohibited or otherwise limited by the foregoing covenant:
o the sale, granting of liens with respect to, or other transfer of,
crude oil, natural gas or other petroleum hydrocarbons in place for a
period of time until, or in an amount such that, the transferee will
realize therefrom a specified amount (however determined) of money or
of such crude oil, natural gas or other petroleum hydrocarbons;
o the sale or other transfer of any other interest in property of the
character commonly referred to as a production payment, overriding
royalty, forward sale or similar interest;
o the entering into of currency hedge obligations, interest rate hedging
agreements or oil and gas hedging contracts, although liens securing
any indebtedness for borrowed money that is the subject of any such
obligation shall not be permitted hereby unless permitted under the
provisions described above; and
o the granting of liens required by any contract or statute in order to
permit us or any restricted subsidiary to perform any contract or
subcontract made by it with or at the request of the United States or
any state thereof, or to secure partial, progress, advance or other
payments to us or any restricted subsidiary by such governmental unit
pursuant to the provisions of any contract or statute.
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LIMITATION ON SALE/LEASEBACK TRANSACTIONS. Unless otherwise stated in an
accompanying prospectus supplement, we will not, and will not permit any
restricted subsidiary to, enter into any sale/leaseback transaction with any
person (other than us or a restricted subsidiary) unless:
o we or such restricted subsidiary would be entitled to incur
indebtedness, in a principal amount equal to the attributable
indebtedness with respect to such sale/leaseback transaction, secured
by a lien on the property subject to such sale/leaseback transaction
pursuant to the covenant described in the last bullet point of the
second paragraph under "--Limitation on Liens" above without equally
and ratably securing such series of debt securities pursuant to such
covenant;
o after the date on which the series of debt securities is originally
issued and within a period commencing six months prior to the
consummation of such sale/leaseback transaction and ending six months
after the consummation thereof, we or such restricted subsidiary will
have expended for property used or to be used in the ordinary course
of our business or that of our restricted subsidiaries (including
amounts expended for the exploration, drilling or development thereof,
and for additions, alterations, repairs and improvements thereto) an
amount equal to all or a portion of the net proceeds of such
sale/leaseback transaction and we elect to designate such amount
pursuant to this bullet point with respect to such sale/leaseback
transaction (with any such amount not being so designated and not
permitted under the immediately preceding bullet point to be applied
as set forth in the bullet point that immediately follows); or
o we, during the 12-month period after the effective date of such
sale/leaseback transaction, apply to the voluntary defeasance or
retirement of debt securities of such series or any pari passu
indebtedness an amount equal to the greater of the net proceeds of the
sale or transfer of the property leased in such sale/leaseback
transaction and the fair value, as determined by the our board of
directors, of such property at the time of entering into such
sale/leaseback transaction (in either case adjusted to reflect the
remaining term of the lease and any amount designated by us as set
forth in the immediately preceding bullet point), less an amount equal
to the principal amount of such series of securities and pari passu
indebtedness voluntarily defeased or retired by us within such
12-month period and not designated with respect to any other
sale/leaseback transaction entered into by us or any restricted
subsidiary during such period.
SUBSIDIARY GUARANTORS. Initially, no series of debt securities will be
guaranteed by any of our subsidiaries. However, unless otherwise provided in an
accompanying prospectus supplement, if any of our subsidiaries guarantees any of
our funded indebtedness at any time in the future, then we will cause such
series of debt securities to be equally and ratably guaranteed by such
subsidiary.
OTHER COVENANTS. A series of debt securities may provide for other
covenants applicable to us and our subsidiaries. A description of any such
affirmative and negative covenants will be contained in a prospectus supplement
applicable to such series.
CERTAIN DEFINITIONS
"ATTRIBUTABLE INDEBTEDNESS," when used with respect to any sale/leaseback
transaction, means the present value (discounted at a rate equivalent to our
then current weighted average cost of funds for borrowed money, compounded on a
semi-annual basis) of the total obligations of the lessee for rental payments
during the remaining term of the lease included in such sale/leaseback
transaction (including any period for which such lease can be extended).
"CAPITALIZED LEASE OBLIGATION" means any obligation to pay rent or other
amounts under a lease of property that is required to be capitalized for
financial reporting purposes in accordance with generally
18
accepted accounting principles; and the amount of such obligation shall be the
capitalized amount thereof determined in accordance with generally accepted
accounting principles.
"CONSOLIDATED NET TANGIBLE ASSETS" means, for us and our restricted
subsidiaries on a consolidated basis determined in accordance with generally
accepted accounting principles, the aggregate amounts of assets (less
depreciation and valuation reserves and other reserves and items deductible from
gross book value of specific asset accounts under generally accepted accounting
principles) that would be included on a balance sheet after deducting therefrom
(a) all liability items except deferred income taxes, funded indebtedness and
other long-term liabilities and (b) all goodwill, trade names, trademarks,
patents, unamortized debt discount and expense and other like intangibles.
"CURRENCY HEDGE OBLIGATIONS" means obligations incurred in the ordinary
course of business pursuant to any foreign currency exchange agreement, option
or futures contract or other similar agreement or arrangement designed to
protect against or manage exposure to fluctuations in foreign currency exchange
rates.
"FUNDED INDEBTEDNESS" means all indebtedness that matures by its terms, or
that is renewable at the option of any obligor thereon to a date, more than one
year after the date on which such indebtedness is originally incurred.
"INDEBTEDNESS" means:
o all indebtedness for borrowed money (whether or not the recourse of
the lender is to the whole of the assets of the borrower or only to a
portion thereof);
o all obligations evidenced by bonds, debentures, notes or other similar
instruments;
o all obligations in respect of letters of credit or other similar
instruments (or reimbursement obligations with respect thereto), other
than standby letters of credit incurred in the ordinary course of
business;
o all obligations to pay the deferred and unpaid purchase price of
property or services, except trade payables and accrued expenses
incurred in the ordinary course of business;
o all capitalized lease obligations;
o all indebtedness of others secured by a lien on any asset of the
relevant entity, whether or not such indebtedness is assumed by such
entity;
o all indebtedness of others guaranteed by the relevant entity to the
extent of such guarantee; and
o all obligations in respect of currency hedge obligations, interest
rate hedging agreements and oil and gas hedging contracts.
"INTEREST RATE HEDGING AGREEMENTS" means obligations under:
o interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; and
o other agreements or arrangements designed to protect the relevant
entity or any of its subsidiaries against fluctuations in interest
rates.
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"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset
(including, any production payment, advance payment or similar arrangement with
respect to minerals in place), whether or not filed, recorded or otherwise
perfected under applicable law. For the purposes of the indentures, we or any
restricted subsidiary will be deemed to own subject to a lien any asset that we
or it has acquired or holds subject to the interest of a vendor or lessor under
any conditional sale agreement, capitalized lease obligation (other than any
capitalized lease obligation relating to property used or to be used in the
ordinary course of our business or that of any restricted subsidiary) or other
title retention agreement relating to such asset.
"OIL AND GAS HEDGING CONTRACTS" means any oil and gas purchase or hedging
agreement or other agreement or arrangement that is designed to provide
protection against oil and gas price fluctuations.
"PARI PASSU INDEBTEDNESS" means, with respect to any series of debt
securities, any indebtedness of ours, whether outstanding on the date on which
the series of debt securities were originally issued or thereafter incurred or
assumed, unless, in the case of any particular indebtedness, the instrument
governing the indebtedness expressly provides that such indebtedness shall be
subordinated in right of payment to such series of debt securities.
"RESTRICTED SUBSIDIARY" means any subsidiary the principal business of
which is carried on in, or the majority of the operating assets of which are
located in, the United States (including areas subject to its jurisdiction).
"SALE/LEASEBACK TRANSACTION" means any arrangement with another person
providing for the leasing by us or any restricted subsidiary, for a period of
more than three years, of any property that has been or is to be sold or
transferred by us or such restricted subsidiary to such other person in
contemplation of such leasing.
EVENTS OF DEFAULT
Unless otherwise specified in an accompanying prospectus supplement, each
of the following will constitute an event of default under the indentures with
respect to a series of debt securities:
o default by us for 30 days in payment when due of any interest on any
debt securities of such series;
o default by us in any payment when due of principal of or premium, if
any, on any debt securities of such series;
o default by us in performance of any other covenant or agreement
applicable to such series of debt securities that has not been
remedied within 90 days after written notice by the trustee or by the
holders of at least 25% in principal amount of the series of debt
securities then outstanding;
o the acceleration of the maturity of any of our indebtedness or that of
any restricted subsidiary (other than such series of debt securities)
(provided that such acceleration is not rescinded within a period of
10 days from the occurrence of such acceleration) having an
outstanding principal amount of $10 million or more individually or in
the aggregate, or a default in the payment of any principal of or
interest on any of our indebtedness or that of any restricted
subsidiary (other than such series of debt securities) having an
outstanding principal amount of $10 million or more individually or in
the aggregate and such default shall be continuing for a period of 30
days without us or such restricted subsidiary curing such default;
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o failure by us or any restricted subsidiary to pay final,
non-appealable judgments aggregating in excess of $10 million, which
judgments are not paid, discharged or stayed for a period of 60 days;
o certain events involving bankruptcy, insolvency or reorganization of
us or any restricted subsidiary; or
o any other event of default described in an accompanying prospectus
supplement.
If an event of default (other than as a result of bankruptcy, insolvency or
reorganization) for any series of debt securities occurs and continues, the
trustee or the holders of at least 25% in aggregate principal amount of the
outstanding debt securities of that series may declare the principal amount of
the debt securities of that series (or such portion of the principal amount of
such debt securities as may be specified in an accompanying prospectus
supplement) to be due and payable immediately. If an event of default results
from bankruptcy, insolvency or reorganization, the principal amount of all the
debt securities of a series (or such portion of the principal amount of such
debt securities as may be specified in an accompanying prospectus supplement)
will automatically become immediately due and payable. If an acceleration
occurs, subject to certain conditions, the holders of a majority of the
aggregate principal amount of the debt securities of that series can rescind the
acceleration.
Other than its duties in case of an event of default, a trustee is not
obligated to exercise any of its rights or powers under the applicable indenture
at the request of any of the holders, unless the holders offer the trustee
reasonable indemnity and certain other conditions are satisfied. Subject to
indemnification of the trustee and the satisfaction of certain other conditions,
the holders of a majority in aggregate principal amount of the outstanding debt
securities of any series may direct the time, method and place of conducting any
proceeding for any remedy available to the trustee or exercising any trust or
power conferred on the trustee with respect to the debt securities of that
series.
The holders of debt securities of any series will not have any right to
institute any proceeding with respect to the applicable indenture, unless:
o the holder has given written notice to the trustee of an event of
default;
o the holders of at least 25% in aggregate principal amount of the
outstanding debt securities of that series have made written request,
and such holder or holders have offered reasonable indemnity to the
trustee to institute such proceeding as trustee; and
o the trustee fails to institute such proceeding, and has not received
from the holders of a majority in aggregate principal amount of the
outstanding debt securities of that series a direction inconsistent
with such request, within 60 days after such notice, request and
offer.
Such limitations do not apply, however, to a suit instituted by a holder of
a debt security for the enforcement of payment of the principal of and interest
or premium on such debt security on or after the applicable due date specified
in such debt security.
Pursuant to each indenture, we are or will be required to furnish to the
trustee annually within 120 days of the end of each fiscal year a statement by
certain of our officers as to whether or not we are in default in the
performance of any of the terms of the applicable indenture.
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CONVERSION RIGHTS
Unless otherwise specified in an accompanying prospectus supplement, debt
securities will not be convertible into other securities. If a particular series
of debt securities may be converted into other securities, such conversion will
be according to the terms and conditions contained in an accompanying prospectus
supplement. Such terms will include the conversion price, the conversion period,
provisions as to whether conversion will be mandatory, at the option of the
holders of such series of debt securities or at our option, the events requiring
an adjustment of the conversion price and provisions affecting conversion if
such series of debt securities is called for redemption.
PAYMENT AND TRANSFER
Unless otherwise indicated in an accompanying prospectus supplement, the
debt securities of each series initially will be issued only in book-entry form
represented by one or more global notes initially registered in the name of Cede
& Co., as nominee of The Depository Trust Company (often referred to as DTC), or
such other name as may be requested by an authorized representative of DTC, and
deposited with DTC. Unless otherwise indicated in an accompanying prospectus
supplement, debt securities will be issued in denominations of $1,000 each or
multiples thereof.
Unless otherwise indicated in an accompanying prospectus supplement,
beneficial interests in debt securities in global form will be shown on, and
transfers of interests in debt securities in global form will be made only
through, records maintained by DTC and its participants. Debt securities in
definitive form, if any, may be registered, exchanged or transferred at the
office or agency maintained by us for such purpose (which initially will be the
corporate trust office of the trustee located at 5847 San Felipe, Suite 1050,
Houston, Texas 77057).
Unless otherwise indicated in an accompanying prospectus supplement, no
global security may be exchanged in whole or in part for debt securities
registered in the name of any person other than the depositary for such global
security or any nominee of such depositary unless:
o the depositary is unwilling or unable to continue as depositary;
o an event of default has occurred and is continuing; or
o as otherwise provided in an accompanying prospectus supplement.
Unless otherwise indicated in an accompanying prospectus supplement,
payment of principal of and premium, if any, and interest on debt securities in
global form registered in the name of or held by DTC or its nominee will be made
in immediately available funds to DTC or its nominee, as the case may be, as the
registered holder of such global debt security. However, if any of the debt
securities of such series are no longer represented by global debt securities,
payment of interest on such debt securities in definitive form may, at our
option, be made at the corporate trust office of the trustee or by check mailed
directly to registered holders at their registered addresses or by wire transfer
to an account designated by a registered holder.
No service charge will apply to any registration of transfer or exchange of
debt securities, but we may require payment of a sum sufficient to cover any
applicable transfer tax or other similar governmental charge. We are not
required to transfer or exchange any debt security selected for redemption for a
period of 15 days prior to the selection of the debt securities to be redeemed.
BOOK-ENTRY SYSTEM
DTC has advised us as follows:
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o DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New
York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial
Code, and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Securities Exchange Act.
o DTC holds securities that its participants deposit with DTC and
facilitates the settlement among direct participants of securities
transactions, such as transfers and pledges, in deposited securities,
through electronic computerized book-entry changes in direct
participants' accounts, thereby eliminating the need for physical
movement of securities certificates.
o Direct participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other
organizations.
o DTC is owned by a number of its direct participants and by the New
York Stock Exchange, the American Stock Exchange and the National
Association of Securities Dealers.
o Access to the DTC system is also available to others such as
securities brokers and dealers, banks, and trust companies that clear
through or maintain a custodial relationship with a direct
participant, either directly or indirectly.
o The rules applicable to DTC and its direct and indirect participants
are on file with the SEC.
Purchases of debt securities under the DTC system must be made by or
through direct participants, which will receive a credit for the debt securities
on DTC's records. The ownership interest of each actual purchaser of debt
securities is in turn to be recorded on the direct and indirect participants'
records. Beneficial owners of debt securities will not receive written
confirmation from DTC of their purchase, but beneficial owners are expected to
receive written confirmations providing details of the transaction, as well as
periodic statements of their holdings, from the direct or indirect participants
through which the beneficial owner entered into the transaction. Transfers of
ownership interests in debt securities are to be accomplished by entries made on
the books of direct and indirect participants acting on behalf of beneficial
owners. Beneficial owners will not receive certificates representing their
ownership interests in debt securities unless use of the book-entry system for
such series of debt securities is discontinued.
To facilitate subsequent transfers, all debt securities of a series
deposited by direct participants with DTC are registered in the name of DTC's
partnership nominee, Cede & Co., or such other name as may be requested by DTC.
The deposit of the debt securities with DTC and their registration in the name
of Cede & Co. or such other nominee do not effect any change in beneficial
ownership. DTC has no knowledge of the actual beneficial owners of a series of
debt securities; DTC's records reflect only the identity of the direct
participants to whose accounts such debt securities are credited, which may or
may not be the beneficial owners. The direct and indirect participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants and by direct
participants and indirect participants to beneficial owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote
with respect to debt securities in global form. Under its usual procedures, DTC
mails an omnibus proxy to the issuer as soon
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as possible after the record date. The omnibus proxy assigns Cede & Co.'s
consenting or voting rights to those direct participants to whose accounts the
debt securities are credited on the record date (identified in the listing
attached to the omnibus proxy).
All payments on the debt securities in global form will be made to Cede &
Co., or such other nominee as may be requested by an authorized representative
of DTC. DTC's practice is to credit direct participants' accounts upon DTC's
receipt of funds and corresponding detail information from us or the trustee on
payment dates in accordance with their respective holdings shown on DTC's
records. Payments by participants to beneficial owners will be governed by
standing instructions and customary practices, as is the case with securities
held for the accounts of customers in bearer form or registered in "street
name," and will be the responsibility of such participant and not of DTC, us or
the Trustee, subject to any statutory or regulatory requirements as may be in
effect from time to time.
Payment of principal and interest to Cede & Co. (or such other nominee as
may be requested by an authorized representative of DTC) shall be the
responsibility of us or the trustee. Disbursement of such payments to direct
participants shall be the responsibility of DTC, and disbursement of such
payments to the beneficial owners shall be the responsibility of direct and
indirect participants.
DTC may discontinue providing its service as securities depositary with
respect to a series of debt securities at any time by giving reasonable notice
to us or the trustee. In addition, we may decide to discontinue use of the
system of book-entry transfers through DTC (or a successor securities
depositary). Under such circumstances, in the event that a successor securities
depositary is not obtained, debt security certificates in fully registered form
are required to be printed and delivered to beneficial owners of the debt
securities previously held in global form representing such debt securities.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that we believe to be reliable (including DTC),
but we take no responsibility for its accuracy.
Neither we, the trustee nor any underwriters applicable to a series of debt
securities will have any responsibility or obligation to direct participants, or
the persons for whom they act as nominees, with respect to the accuracy of the
records of DTC, its nominee or any direct participant with respect to any
ownership interest in debt securities, or payments to, or the providing of
notice to direct participants or beneficial owners.
So long as debt securities are in DTC's book-entry system, secondary market
trading activity in the notes will settle in immediately available funds. All
applicable payments on debt securities issued in global form will be made by us
in immediately available funds.
CONSOLIDATION, MERGER AND SALE OF ASSETS
We may consolidate with or merge into, or sell or lease substantially all
of our properties to any person if:
o the successor person (if any) is a corporation, partnership, trust or
other entity organized and validly existing under the laws of any
domestic jurisdiction and assumes our obligations on the debt
securities and under the applicable indenture;
o immediately after giving effect to the transaction, no event of
default, and no event which, after notice or lapse of time or both,
would become an event of default, will have occurred and be
continuing; and
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o any other conditions (if any) specified in an accompanying prospectus
supplement are met.
MODIFICATION AND WAIVER
Under each indenture, our rights and obligations and the rights of holders
may be modified with the consent of the holders of a majority in aggregate
principal amount of the outstanding debt securities of each series affected by
the modification. No modification of the principal or interest payment terms,
and no modification reducing the percentage required for modifications, is
effective against any holder without its consent.
NOTICES
Notices to holders of debt securities will be given by mail to the
addresses of such holders as they may appear in the security register.
TITLE
We, the trustee and any agent of ours or of the trustee may treat the
person in whose name a debt security is registered as the absolute owner of the
debt security, whether or not such debt security may be overdue, for the purpose
of making payment and for all other purposes.
GOVERNING LAW
The indentures and the debt securities will be governed by, and construed
in accordance with, the law of the State of New York.
INFORMATION CONCERNING THE TRUSTEE
Wachovia Bank, National Association or one of its affiliates:
o serves as trustee under the indenture governing our 7.45% Senior Notes
due 2007;
o serves as trustee under our senior indenture pursuant to which we have
issued $175 million in principal amount of our 7 5/8% Senior Notes due
2011 and may issue additional senior debt securities;
o serves as trustee under our subordinated indenture pursuant to which
we have issued $250 million in principal amount of our 8 3/8% Senior
Subordinated Notes due 2012 and may issue additional subordinated debt
securities;
o serves as property trustee and Delaware trustee under the Amended and
Restated Trust Agreement, dated as of August 13, 1999, of Newfield
Financial Trust I, which has issued $143,750,000 in liquidation amount
of its 6 1/2% Cumulative Quarterly Income Convertible Preferred
Securities, Series A (the "QUIPS");
o serves as trustee under our Junior Subordinated Convertible Indenture,
dated as of August 13, 1999, pursuant to which we have issued, in
connection with the issuance by Newfield Financial Trust I of the
QUIPS, $143,750,000 in principal amount of our 6 1/2% Junior
Subordinated Convertible Debentures, Series A;
o serves as guarantee trustee under the Guarantee Agreement, dated as of
August 13, 1999, relating to the QUIPS;
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o provides us with a $15 million money market line of credit; and
o is a lender under our $425 million revolving credit facility.
Neither the senior indenture nor the subordinated indenture places a limit on
the principal amount of debt securities that may be issued thereunder.
DESCRIPTION OF COMMON STOCK AND PREFERRED STOCK
Pursuant to our certificate of incorporation, our authorized capital stock
consists of 100,000,000 shares of common stock and 5,000,000 shares of preferred
stock. As of March 31, 2003, we had 52,051,875 shares of common stock
outstanding and no shares of preferred stock outstanding.
COMMON STOCK
Our common stockholders are entitled to one vote per share in the election
of directors and on all other matters submitted to a vote of our common
stockholders. Our common stockholders do not have cumulative voting rights.
Our common stockholders are entitled to receive ratably any dividends
declared by our board of directors out of funds legally available for the
payment of dividends. Dividends on our common stock are, however, subject to any
preferential dividend rights of outstanding preferred stock. We do not intend to
pay cash dividends on our common stock in the foreseeable future. Upon our
liquidation, dissolution or winding up, our common stockholders are entitled to
receive ratably our net assets available after payment of all of our debts and
other liabilities. Any payment is, however, subject to the prior rights of any
outstanding preferred stock. Our common stockholders do not have any preemptive,
subscription, redemption or conversion rights.
PREFERRED STOCK
The following summary describes certain general terms of our authorized
preferred stock. If we offer preferred stock, a description will be filed with
the SEC and the specific terms of the preferred stock will be described in an
accompanying prospectus supplement, including the following terms:
o the series, the number of shares offered and the liquidation value of
the preferred stock;
o the price at which the preferred stock will be issued;
o the dividend rate, the dates on which the dividends will be payable
and other terms relating to the payment of dividends on the preferred
stock;
o the liquidation preference of the preferred stock;
o the voting rights of the preferred stock;
o whether the preferred stock is redeemable or subject to a sinking
fund, and the terms of any such redemption or sinking fund;
o whether the preferred stock is convertible or exchangeable for any
other securities, and the terms of any such conversion; and
o any additional rights, preferences, qualifications, limitations and
restrictions of the preferred stock.
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Our certificate of incorporation allows our board of directors to issue
preferred stock from time to time in one or more series, without any action
being taken by our stockholders. Subject to the provisions of our certificate of
incorporation and limitations prescribed by law, our board of directors may
adopt resolutions to issue shares of a series of our preferred stock, and
establish their terms. These terms may include:
o voting powers;
o designations;
o preferences;
o dividend rights;
o dividend rates;
o terms of redemption;
o redemption process;
o conversion rights; and
o any other terms permitted to be established by our certificate of
incorporation and by applicable law.
The preferred stock will, when issued, be fully paid and non-assessable.
ANTI-TAKEOVER PROVISIONS
Certain provisions in our certificate of incorporation and bylaws may
encourage persons considering unsolicited tender offers or other unilateral
takeover proposals to negotiate with our board of directors rather than pursue
non-negotiated takeover attempts.
STOCKHOLDER ACTION BY WRITTEN CONSENT. Under the Delaware General
Corporation Law, unless the certificate of incorporation of a corporation
specifies otherwise, any action that could be taken by stockholders at an annual
or special meeting may be taken without a meeting and without notice to or a
vote of other stockholders if a consent in writing is signed by the holders of
outstanding stock having voting power that would be sufficient to take such
action at a meeting at which all outstanding shares were present and voted. Our
certificate of incorporation and bylaws provide that stockholder action may be
taken in writing by the consent of holders of not less than 66 2/3% of the
outstanding shares entitled to vote at a meeting of stockholders. As a result,
stockholders may not act upon any matter except at a duly called meeting or by
the written consent of holders of 66 2/3% or more of the outstanding shares
entitled to vote.
SUPERMAJORITY VOTE REQUIRED FOR CERTAIN TRANSACTIONS. The affirmative vote
of the holders of at least 66 2/3% of the outstanding shares of common stock is
required to approve any merger or consolidation of our company or any sale or
transfer of all or substantially all of our assets.
BLANK CHECK PREFERRED STOCK. Our certificate of incorporation authorizes
blank check preferred stock. Our board of directors can set the voting,
redemption, conversion and other rights relating to such preferred stock and can
issue such stock in either a private or public transaction. The issuance of
preferred stock, while providing desired flexibility in connection with possible
acquisitions and other corporate
27
purposes, could adversely affect the voting power of holders of common stock and
the likelihood that holders will receive dividend payments and payments upon
liquidation and could have the effect of delaying, deferring or preventing a
change in control of our company.
BUSINESS COMBINATIONS UNDER DELAWARE LAW. We are a Delaware corporation and
are subject to Section 203 of the Delaware General Corporation Law. Section 203
prevents an interested stockholder (i.e., a person who owns 15% or more of our
outstanding voting stock) from engaging in certain business combinations with
our company for three years following the date that the person became an
interested stockholder. These restrictions do not apply if:
o before the person became an interested stockholder, our board of
directors approved either the business combination or the transaction
that resulted in the interested stockholder becoming an interested
stockholder;
o upon completion of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned
at least 85% of our outstanding voting stock at the time the
transaction commenced; or
o following the transaction in which the person became an interested
stockholder, the business combination is approved by both our board of
directors and the holders of at least two-thirds of our outstanding
voting stock not owned by the interested stockholder.
These restrictions do not apply to certain business combinations proposed
by an interested stockholder following the announcement of certain extraordinary
transactions involving our company and a person who was not an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of a majority of our directors, if that
extraordinary transaction is approved or goes unopposed by a majority of our
directors who were directors before any person became an interested stockholder
in the previous three years or who were recommended for election or elected to
succeed such directors by a majority of directors then in office.
STOCKHOLDER RIGHTS AGREEMENT. Our board of directors has adopted a
stockholder rights agreement. Under the rights agreement, each right entitles
the registered holder under the circumstances described below to purchase from
our company one one-thousandth of a share of our Junior Participating Preferred
Stock, par value $0.01 per share (the "preferred shares"), at a price of $85 per
one one-thousandth of a preferred share, subject to adjustment. The following is
a summary of certain terms of the rights agreement. The rights agreement is an
exhibit to the registration statement of which this prospectus is a part, and
this summary is qualified by reference to the specific terms of the rights
agreement.
Until the distribution date, the rights attach to all common stock
certificates representing outstanding shares. No separate right certificate will
be distributed. A right is issued for each share of common stock issued. The
rights will separate from the common stock and a distribution date will occur
upon the earlier of:
o 10 business days following a public announcement that a person or
group of affiliated or associated persons has acquired beneficial
ownership of 20% or more of our outstanding voting stock; or
o 10 business days following the commencement or announcement of an
intention to commence a tender offer or exchange offer the completion
of which would result in the beneficial ownership by a person or group
of 20% or more of our outstanding voting stock.
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Until the distribution date or the earlier of redemption or expiration of
the rights, the rights will be evidenced by the certificates representing the
common stock. As soon as practicable following the distribution date, separate
certificates evidencing the rights will be mailed to holders of record of our
common stock as of the close of business on the distribution date and such
separate rights certificates alone will thereafter evidence the rights.
The rights are not exercisable until the distribution date. The rights will
expire on February 22, 2009, unless the expiration date is extended or the
rights are earlier redeemed or exchanged.
If a person or group acquires 20% or more of our voting stock, each right
then outstanding, other than rights beneficially owned by the acquiring persons,
which would become null and void, becomes a right to buy that number of shares
of common stock, or under certain circumstances, the equivalent number of one
one-thousandths of a preferred share, that at the time of such acquisition has a
market value of two times the purchase price of the right.
If we are acquired in a merger or other business combination transaction or
assets constituting more than 50% of our consolidated assets or producing more
than 50% of our earning power or cash flow are sold, proper provision will be
made so that each holder of a right will thereafter have the right to receive,
upon the exercise thereof at the then current purchase price of the right, that
number of shares of common stock of the acquiring company that at the time of
such transaction has a market value of two times the purchase price of the
right.
The dividend and liquidation rights, and the non-redemption feature, of the
preferred shares are designed so that the value of one one-thousandth of a
preferred share purchasable upon exercise of each right will approximate the
value of one share of common stock. The preferred shares issuable upon exercise
of the rights will be non-redeemable and rank junior to all other series of our
preferred stock. Each whole preferred share will be entitled to receive a
quarterly preferential dividend in an amount per share equal to the greater of
(a) $1.00 in cash or (b) 1,000 times the aggregate per share dividend declared
on the common stock. In the event of liquidation, the holders of preferred
shares will be entitled to receive a preferential liquidation payment per whole
share equal to the greater of (a) $1,000 per share or (b) 1,000 times the
aggregate amount to be distributed per share of common stock. In the event of
any merger, consolidation or other transaction in which the shares of common
stock are exchanged for or changed into other stock or securities, cash or other
property, each whole preferred share will be entitled to 1,000 times the amount
received per share of common stock. Each whole preferred share will be entitled
to 1,000 votes on all matters submitted to a vote of our stockholders, and
preferred shares will generally vote together as one class with the common stock
and any other capital stock on all matters submitted to a vote of our
stockholders.
The purchase price and the number of one one-thousandths of a preferred
share or other securities or property issuable upon exercise of the rights may
be adjusted from time to time to prevent dilution.
At any time after a person or group of affiliated or associated persons
acquires beneficial ownership of 20% or more of our outstanding voting stock and
before a person or group acquires beneficial ownership of 50% or more of our
outstanding voting stock, our board of directors may, at its option, issue
common stock in mandatory redemption of, and in exchange for, all or part of the
then outstanding exercisable rights, other than rights owned by such person or
group, which would become null and void, at an exchange ratio of one share of
common stock, or one one-thousandth of a preferred share, for each two shares of
common stock for which each right is then exercisable, subject to adjustment.
At any time prior to the first public announcement that a person or group
has become the beneficial owner of 20% or more of our outstanding voting stock,
our board of directors may redeem all, but not less
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than all, of the then outstanding rights at a price of $0.01 per right. The
redemption of the rights may be made effective at such time, on such basis and
with such conditions as our board of directors in its sole discretion may
establish. Immediately upon the action of our board of directors ordering
redemption of the rights, the right to exercise the rights will terminate and
the only right of the holders of rights will be to receive the redemption price.
LIMITATION OF LIABILITY OF OFFICERS AND DIRECTORS
Delaware law authorizes corporations to limit or eliminate the personal
liability of officers and directors to corporations and their stockholders for
monetary damages for breach of officers' and directors' fiduciary duty of care.
The duty of care requires that, when acting on behalf of the corporation,
officers and directors must exercise an informed business judgment based on all
material information reasonably available to them. Absent the limitations
authorized by Delaware law, officers and directors are accountable to
corporations and their stockholders for monetary damages for conduct
constituting gross negligence in the exercise of their duty of care. Delaware
law enables corporations to limit available relief to equitable remedies such as
injunction or rescission.
Our certificate of incorporation limits the liability of our officers and
directors to our company and our stockholders to the fullest extent permitted by
Delaware law. Specifically, our officers and directors will not be personally
liable for monetary damages for breach of an officer's or director's fiduciary
duty in such capacity, except for liability
o for any breach of the officer's or director's duty of loyalty to our
company or our stockholders;
o for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General
Corporation law; or
o for any transaction from which the officer or director derived an
improper personal benefit.
The inclusion of this provision in our certificate of incorporation may
reduce the likelihood of derivative litigation against our officers and
directors, and may discourage or deter stockholders or management from bringing
a lawsuit against our officers and directors for breach of their duty of care,
even though such an action, if successful, might have otherwise benefited our
company and our stockholders. Both our certificate of incorporation and bylaws
provide indemnification to our officers and directors and certain other persons
with respect to certain matters to the maximum extent allowed by Delaware law as
it exists now or may hereafter be amended. These provisions do not alter the
liability of officers and directors under federal securities laws and do not
affect the right to sue, nor to recover monetary damages, under federal
securities laws for violations thereof.
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TRANSFER AGENT AND REGISTRAR
Our transfer agent and registrar for the common stock is American Stock
Transfer & Trust Company.
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
We may offer fractional shares of preferred stock, rather than full shares
of preferred stock. If we decide to offer fractional shares of preferred stock,
we will issue receipts for depositary shares. Each depositary share will
represent a fraction of a share of a particular series of preferred stock. An
accompanying prospectus supplement will indicate that fraction. The shares of
preferred stock represented by depositary shares will be deposited under a
deposit agreement between us and a depositary that is a bank or trust company
that meets certain requirements and is selected by us. Each owner of a
depositary share will be entitled to all of the rights and preferences of the
preferred stock represented by the depositary share. The depositary shares will
be evidenced by depositary receipts issued pursuant to the deposit agreement.
Depositary receipts will be distributed to those persons purchasing the
fractional shares of preferred stock in accordance with the terms of the
offering.
We have summarized selected provisions of the deposit agreement and the
depositary receipts.
DIVIDENDS AND OTHER DISTRIBUTIONS
If we pay a cash distribution or dividend on a series of preferred stock
represented by depositary shares, the depositary will distribute such dividends
to the record holders of such depositary shares. If the distributions are in
property other than cash, the depositary will distribute the property to the
record holders of the depositary shares. If, however, the depositary determines
that it is not feasible to make the distribution of property, the depositary
may, with our approval, sell such property and distribute the net proceeds from
such sale to the holders of the preferred stock.
REDEMPTION OF DEPOSITARY SHARES
If we redeem a series of preferred stock represented by depositary shares,
the depositary will redeem the depositary shares from the proceeds received by
the depositary in connection with the redemption. The redemption price per
depositary share will equal the applicable fraction of the redemption price per
share of the preferred stock. If fewer than all the depositary shares are
redeemed, the depositary shares to be redeemed will be selected by lot or pro
rata as the depositary may determine.
VOTING THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of the preferred
stock represented by depositary shares are entitled to vote, the depositary will
mail the notice to the record holders of the depositary shares relating to such
preferred stock. Each record holder of these depositary shares on the record
date, which will be the same date as the record date for the preferred stock,
may instruct the depositary as to how to vote the preferred stock represented by
such holder's depositary shares. The depositary will endeavor, insofar as
practicable, to vote the amount of the preferred stock represented by such
depositary shares in accordance with such instructions, and we will take all
action that the depositary deems necessary in order to enable the depositary to
do so. The depositary will abstain from voting shares of the preferred stock to
the extent it does not receive specific instructions from the holders of
depositary shares representing such preferred stock.
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AMENDMENT AND TERMINATION OF THE DEPOSITARY AGREEMENT
The form of depositary receipt evidencing the depositary shares and any
provision of the deposit agreement may be amended by agreement between the
depositary and us. Any amendment that materially and adversely alters the rights
of the holders of depositary shares will not, however, be effective unless such
amendment has been approved by the holders of at least a majority of the
depositary shares then outstanding. The deposit agreement may be terminated by
the depositary or us only if (a) all outstanding depositary shares have been
redeemed or (b) there has been a final distribution in respect of the preferred
stock in connection with any liquidation, dissolution or winding up of our
company and such distribution has been distributed to the holders of depositary
receipts.
CHARGES OF DEPOSITARY
We will pay all transfer and other taxes and governmental charges arising
solely from the existence of the depositary arrangements. We will pay charges of
the depositary in connection with the initial deposit of the preferred stock and
any redemption of the preferred stock. Holders of depositary receipts will pay
other transfer and other taxes and governmental charges and any other charges,
including a fee for the withdrawal of shares of preferred stock upon surrender
of depositary receipts, as are expressly provided in the deposit agreement to be
for their accounts.
WITHDRAWAL OF PREFERRED STOCK
Upon surrender of depositary receipts at the principal office of the
depositary, subject to the terms of the deposit agreement, the owner of the
depositary shares may demand delivery of the number of whole shares of preferred
stock and all money and other property, if any, represented by those depositary
shares. Partial shares of preferred stock will not be issued. If the depositary
receipts delivered by the holder evidence a number of depositary shares in
excess of the number of depositary shares representing the number of whole
shares of preferred stock to be withdrawn, the depositary will deliver to such
holder at the same time a new depositary receipt evidencing the excess number of
depositary shares. Holders of preferred stock thus withdrawn may not thereafter
deposit those shares under the deposit agreement or receive depositary receipts
evidencing depositary shares therefor.
MISCELLANEOUS
The depositary will forward to holders of depositary receipts all reports
and communications from us that are delivered to the depositary and that we are
required to furnish to the holders of the preferred stock.
Neither we nor the depositary will be liable if we are prevented or delayed
by law or any circumstance beyond our control in performing our obligations
under the deposit agreement. The obligations of the depositary and us under the
deposit agreement will be limited to performance in good faith of our duties
thereunder, and we will not be obligated to prosecute or defend any legal
proceeding in respect of any depositary shares or preferred stock unless
satisfactory indemnity is furnished. We may rely upon written advice of counsel
or accountants, or upon information provided by persons presenting preferred
stock for deposit, holders of depositary receipts or other persons believed to
be competent and on documents believed to be genuine.
RESIGNATION AND REMOVAL OF DEPOSITARY
The depositary may resign at any time by delivering notice to us of its
election to do so, and we may at any time remove the depositary. Any such
resignation or removal will take effect upon the appointment of a successor
depositary and its acceptance of such appointment. Such successor depositary
must be appointed within 60 days after delivery of the notice of resignation or
removal and must be a bank or trust
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company having its principal office in the United States and having a combined
capital and surplus of at least $100,000,000.
DESCRIPTION OF SECURITIES WARRANTS
We may issue securities warrants for the purchase of debt securities,
preferred stock, depositary shares or common stock. Securities warrants may be
issued independently or together with debt securities, preferred stock,
depositary shares or common stock offered by any prospectus supplement and may
be attached to or separate from any such offered securities. Each series of
securities warrants will be issued under a separate warrant agreement to be
entered into between us and a bank or trust company, as warrant agent, all as
set forth in a prospectus supplement relating to the particular issue of
securities warrants. The securities warrant agent will act solely as our agent
in connection with the securities warrants and will not assume any obligation or
relationship of agency or trust for or with any holders of securities warrants
or beneficial owners of securities warrants.
We have summarized selected provisions of the securities warrant
agreements. A prospectus supplement relating to a particular issue of securities
warrants will contain the terms of and information relating to that issue of
securities warrants, including, where applicable:
o the designation, aggregate principal amount, currencies, denominations
and terms of the series of debt securities purchasable upon exercise
of securities warrants to purchase debt securities and the price at
which such debt securities may be purchased upon such exercise;
o the number of shares of common stock purchasable upon the exercise of
securities warrants to purchase common stock and the price at which
such number of shares of common stock may be purchased upon such
exercise;
o the number of shares and series of preferred stock or depositary
shares purchasable upon the exercise of securities warrants to
purchase preferred stock or depositary shares and the price at which
such number of shares of such series of preferred stock or depositary
shares may be purchased upon such exercise;
o the date on which the right to exercise such securities warrants shall
commence and the date on which such right shall expire;
o United States federal income tax consequences applicable to such
securities warrants;
o the amount of securities warrants outstanding as of the most recent
practicable date; and
o any other terms of such securities warrants.
Securities warrants will be issued in registered form only. The exercise price
for securities warrants will be subject to adjustment in accordance with a
prospectus supplement relating to the particular issue of securities warranties.
Each securities warrant will entitle the holder thereof to purchase such
principal amount of debt securities or such number of shares of common stock,
preferred stock or depositary shares at such exercise price as shall in each
case be set forth in, or calculable from, a prospectus supplement relating to
the securities warrants, which exercise price may be subject to adjustment upon
the occurrence of certain events as set forth in such prospectus supplement.
After the close of business on the expiration date, or such later date to which
such expiration date may be extended by us, unexercised
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securities warrants will become void. The place or places where, and the manner
in which, securities warrants may be exercised shall be specified in a
prospectus supplement relating to such securities warrants.
Prior to the exercise of any securities warrants to purchase debt
securities, common stock, preferred stock or depositary shares, holders of such
securities warrants will not have any of the rights of holders of debt
securities, common stock, preferred stock or depositary shares, as the case may
be, purchasable upon such exercise, including the right to receive payments of
principal of, premium, if any, or interest, if any, on the debt securities
purchasable upon such exercise or to enforce covenants in any applicable
indenture, or to receive payments of dividends, if any, on the common stock,
preferred stock or depositary shares purchasable upon such exercise, or to
exercise any applicable right to vote.
DESCRIPTION OF STOCK PURCHASE CONTRACTS AND STOCK PURCHASE UNITS
We may issue stock purchase contracts, including contracts obligating
holders to purchase from us, and obligating us to sell to holders, a specified
number of shares of common stock or other securities at a future date or dates,
which we refer to in this prospectus as "stock purchase contracts." The price
per share of the securities and the number of shares of the securities may be
fixed at the time the stock purchase contracts are issued or may be determined
by reference to a specific formula set forth in the stock purchase contracts.
The stock purchase contracts may be issued separately or as part of units
consisting of a stock purchase contract and debt securities, preferred
securities, warrants or debt obligations of third parties, including U.S.
treasury securities, securing the holders' obligations to purchase the
securities under the stock purchase contracts, which we refer to herein as
"stock purchase units." The stock purchase contracts may require holders to
secure their obligations under the stock purchase contracts in a specified
manner. The stock purchase contracts also may require us to make periodic
payments to the holders of the stock purchase units or vice versa, and those
payments may be unsecured or refunded on some basis.
An accompanying prospectus supplement will describe the terms of the stock
purchase contracts or stock purchase units and, if applicable, collateral or
depositary arrangements relating to the stock purchase contracts or stock
purchase units. Material United States federal income tax considerations
applicable to the stock purchase units and the stock purchase contracts will
also be discussed in the applicable prospectus supplement.
PLAN OF DISTRIBUTION
We may sell the offered securities:
o through underwriters or dealers;
o through agents; or
o directly to one or more purchasers, including existing stockholders in
a rights offering.
BY UNDERWRITERS
If underwriters are used in the sale, the offered securities will be
acquired by the underwriters for their own account. The underwriters may resell
the securities in one or more transactions, including negotiated transactions,
at a fixed public offering price or at varying prices determined at the time of
sale. The obligations of the underwriters to purchase the securities will be
subject to certain conditions. Unless indicated in an accompanying prospectus
supplement, the underwriters must purchase all the securities
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offered if any of the securities are purchased. Any initial public offering
price and any discounts or concessions allowed or re-allowed or paid to dealers
may be changed from time to time.
BY AGENTS
Offered securities may also be sold through agents designated by us. Unless
indicated in an accompanying prospectus supplement, any such agent is acting on
a best efforts basis for the period of its appointment.
DIRECT SALES; RIGHTS OFFERINGS
Offered securities may also be sold directly by us. In this case, no
underwriters or agents would be involved. We may sell offered securities upon
the exercise of rights that may be issued to our securityholders.
DELAYED DELIVERY ARRANGEMENTS
We may authorize agents, underwriters or dealers to solicit offers by
certain institutional investors to purchase offered securities providing for
payment and delivery on a future date specified in an accompanying prospectus
supplement. Institutional investors to which such offers may be made, when
authorized, include commercial and savings banks, insurance companies, pension
funds, investment companies, education and charitable institutions and such
other institutions as may be approved by us. The obligations of any such
purchasers under such delayed delivery and payment arrangements will be subject
to the condition that the purchase of the offered securities will not at the
time of delivery be prohibited under applicable law. The underwriters and such
agents will not have any responsibility with respect to the validity or
performance of such contracts.
GENERAL INFORMATION
Underwriters, dealers and agents that participate in the distribution of
offered securities may be underwriters as defined in the Securities Act of 1933
and any discounts or commissions received by them from us and any profit on the
resale of the offered securities by them may be treated as underwriting
discounts and commissions under the Securities Act. Any underwriters or agents
will be identified and their compensation described in an accompanying
prospectus supplement.
We may have agreements with the underwriters, dealers and agents to
indemnify them against certain civil liabilities, including liabilities under
the Securities Act, or to contribute with respect to payments that the
underwriters, dealers or agents may be required to make.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, us or our subsidiaries in the ordinary course of their
businesses.
LEGAL MATTERS
The validity of securities will be passed upon for us by Vinson & Elkins
L.L.P., Houston, Texas. Legal counsel to any underwriters may pass upon legal
matters for such underwriters.
EXPERTS
The consolidated financial statements incorporated in this prospectus by
reference to our Annual Report on Form 10-K for the year ended December 31, 2002
have been so incorporated in reliance on the report (which contains an
explanatory paragraph relating to our change in method for assessing hedge
effectiveness, and our change in accounting method for our derivatives and
hedging activities and our crude oil inventories as described in Note 1 to the
consolidated financial statements) of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
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The consolidated financial statements of EEX Corporation appearing in EEX
Corporation's Annual Report (Form 10-K) for the year ended December 31, 2001
incorporated herein by reference have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon (which contains an
explanatory paragraph describing conditions that raise substantial doubt about
EEX's ability to continue as a going concern as described in Note 2 to the
consolidated financial statements) included therein. Such consolidated financial
statements are incorporated herein by reference in reliance upon such report
given on the authority of such firm as experts in accounting and auditing.
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