AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 28, 2003
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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HALLIBURTON COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 1401 MCKINNEY, SUITE 2400 76-2677995
(State or other jurisdiction of HOUSTON, TEXAS 77010 (I.R.S. Employer
incorporation or organization) (713) 759-2600 Identification No.)
(Address, including zip code, and
telephone
number, including area code, of
registrant's principal executive
offices)
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ALBERT O. CORNELISON, JR.
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
HALLIBURTON COMPANY
1401 MCKINNEY, SUITE 2400
HOUSTON, TEXAS 77010
(713) 759-2600
(Name, address, including zip code, and
telephone number, including area code,
of agent for service)
COPY TO:
DARRELL W. TAYLOR ANDREW M. BAKER
BAKER BOTTS L.L.P. BAKER BOTTS L.L.P.
910 LOUISIANA STREET 2001 ROSS AVENUE
HOUSTON, TEXAS 77002-4995 DALLAS, TEXAS 75201-2980
(713) 229-1234 (214) 953-6500
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED
PROPOSED MAXIMUM MAXIMUM
AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
TITLE OF SHARES TO BE REGISTERED REGISTERED UNIT PRICE REGISTRATION FEE
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3 1/8% Convertible Senior Notes due 2023...... $ 1,200,000,000(1) 100% $1,200,000,000(1) $97,080
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Common Stock, par value $2.50 per share(2).... 31,869,960 shares(3) -- (3) -- (3) -- (4)
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(1) Estimated solely to compute the amount of the registration fee under Rule
457(o) under the Securities Act and exclusive of accrued interest.
(2) Includes the associated rights to purchase preferred stock, which initially
are attached to and trade with the shares of common stock being registered
hereby.
(3) Represents the number of shares of common stock that are currently issuable
upon conversion of the 3 1/8% Convertible Senior Notes due 2023, calculated
based on a conversion rate of 26.5583 shares per $1,000 principal amount of
the notes. Pursuant to Rule 416 under the Securities Act of 1933, we are
also registering an indeterminable number of shares of common stock as may
be issued in connection with a stock split, stock dividend, recapitalization
or similar event.
(4) Pursuant to Rule 457(i), there is no additional filing fee with respect to
the shares of common stock issuable upon conversion of the notes because no
additional consideration will be received in connection with the exercise of
the conversion privilege.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING SECURITYHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION DATED OCTOBER 28, 2003
PROSPECTUS
[HALLIBURTON LOGO]
$1,200,000,000
HALLIBURTON COMPANY
3 1/8% CONVERTIBLE SENIOR NOTES DUE JULY 15, 2023
AND
COMMON STOCK ISSUABLE UPON CONVERSION OF THE NOTES
This prospectus relates to $1,200,000,000 aggregate principal amount of our
3 1/8% Convertible Senior Notes due July 15, 2023. We originally issued and sold
the notes to Citigroup Global Markets Inc., Goldman, Sachs & Co., J.P. Morgan
Securities Inc., ABN AMRO Incorporated, HSBC and The Royal Bank of Scotland plc
in a private placement in June 2003. This prospectus will be used by selling
securityholders to resell their notes and the common stock issuable upon
conversion of the notes.
We will pay interest on the notes on January 15 and July 15 of each year.
The first interest payment will be made on January 15, 2004. The notes are not
guaranteed by any of our subsidiaries.
The notes will mature on July 15, 2023. Holders may convert the notes into
shares of our common stock (unless earlier redeemed or repurchased by us) under
the following circumstances: (1) if the price of our common stock issuable upon
conversion reaches specified thresholds described in this prospectus, (2) if we
call the notes for redemption, (3) upon the occurrence of specified corporate
transactions described in this prospectus or (4) if the credit ratings assigned
to the notes decline below the levels described in this prospectus. Upon
conversion, we will have the right to deliver, in lieu of common stock, cash or
a combination of cash and common stock. The initial conversion rate is 26.5583
shares of common stock per each $1,000 principal amount of notes. This is
equivalent to an initial conversion price of $37.65 per share. Our common stock
is listed on the New York Stock Exchange and the Swiss Exchange under the symbol
"HAL". On October 27, 2003, the closing price for our common stock on the New
York Stock Exchange was $24.34 per share.
On or after July 15, 2008, we have the option to redeem all or a portion of
the notes that have not been previously converted or repurchased at the
redemption prices set forth in this prospectus. You have the option, subject to
certain conditions, to require us to repurchase any notes held by you on July
15, 2008, July 15, 2013 and July 15, 2018 or upon a fundamental change as
described in this prospectus, at a price equal to 100% of the principal amount
of the notes plus accrued interest and additional amounts owed, if any, to the
date of repurchase.
The notes are our senior unsecured obligations and rank equally with all
our other existing and future senior unsecured indebtedness. The notes are
evidenced by global notes deposited with a custodian for and registered in the
name of a nominee of The Depository Trust Company. Except as described in this
prospectus, beneficial interests in a global note is shown on, and transfers
thereon will be effected only through, records maintained by The Depository
Trust Company and its direct and indirect participants.
INVESTING IN THE NOTES AND THE COMMON STOCK ISSUABLE UPON THEIR CONVERSION
INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 12.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED WHETHER
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is , 2003.
YOU SHOULD RELY ONLY ON THE INFORMATION WE HAVE PROVIDED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT. WE HAVE NOT
AUTHORIZED ANY PERSON (INCLUDING ANY SALESMAN OR BROKER) TO PROVIDE YOU WITH
ADDITIONAL OR DIFFERENT INFORMATION. WE ARE NOT MAKING AN OFFER OF THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD
ASSUME THAT THE INFORMATION IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT IS
ACCURATE ONLY AS OF THE DATE ON THE FRONT OF THAT DOCUMENT AND THAT ANY
INFORMATION WE HAVE INCORPORATED BY REFERENCE IS ACCURATE ONLY AS OF THE DATE OF
THE DOCUMENT INCORPORATED BY REFERENCE.
TABLE OF CONTENTS
PAGE
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FORWARD-LOOKING STATEMENTS.................................. i
WHERE YOU CAN FIND MORE INFORMATION......................... ii
SUMMARY..................................................... 1
RISK FACTORS................................................ 12
USE OF PROCEEDS............................................. 37
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY............. 37
DESCRIPTION OF ANTICIPATED INDEBTEDNESS..................... 38
DESCRIPTION OF NOTES........................................ 44
REGISTRATION RIGHTS......................................... 65
DESCRIPTION OF CAPITAL STOCK................................ 67
SELLING SECURITYHOLDERS..................................... 72
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES...... 78
CERTAIN ERISA CONSIDERATIONS................................ 85
PLAN OF DISTRIBUTION........................................ 87
LEGAL MATTERS............................................... 89
EXPERTS..................................................... 89
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FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides safe harbor
provisions for forward-looking information. Forward-looking information is based
on projections and estimates, not historical information. Some statements in
this prospectus and the documents incorporated by reference herein are
forward-looking and use words like "may," "may not," "believe," "do not
believe," "expect," "do not expect," "plan," "does not plan," "anticipate," "do
not anticipate," and other expressions. We may also provide oral or written
forward-looking information in other materials we release to the public.
Forward-looking information involves risks and uncertainties and reflects our
best judgment based on current information. Our results of operations can be
affected by inaccurate assumptions we make or by known or unknown risks and
uncertainties. In addition, other factors may affect the accuracy of our
forward-looking information. As a result, no forward-looking information can be
guaranteed. Actual events and the results of operations may vary materially.
While it is not possible to identify all factors, we continue to face many
risks and uncertainties that could cause actual results to differ from our
forward-looking statements, including the risks described in "Risk Factors" and
in our Annual Report on Form 10-K for the year ended December 31, 2002, our
Quarterly Reports on Form 10-Q for the quarters ended March 31, 2003 and June
30, 2003 and Current Report on Form 8-K dated as of October 28, 2003.
In addition, future trends for pricing, margins, revenues and profitability
remain difficult to predict in the industries we serve. We do not assume any
responsibility to publicly update any of our forward-looking statements
regardless of whether factors change as a result of new information, future
events or for any other reason. You should review any additional disclosures we
make in our press releases and our reports on Forms 10-K, 10-Q and 8-K filed
with or furnished to the SEC. We also suggest that you listen to our quarterly
earnings release conference calls with financial analysts.
i
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), pursuant to which we file annual,
quarterly and current reports, proxy statements and other information with the
SEC. You can read and copy any materials we file with the SEC at the SEC's
public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You
also can obtain additional information about the operation of the SEC's public
reference room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a
web site that contains information we file electronically with the SEC, which
you can access over the Internet at www.sec.gov, and our electronic SEC filings
are also available from our web site at www.halliburton.com. Information
contained on Halliburton's web site or any other web site is not incorporated
into this prospectus and does not constitute a part of this prospectus. You can
also obtain information about us at the offices of the New York Stock Exchange,
20 Broad Street, New York, New York 10005.
The following documents are incorporated into this prospectus by this
reference. They disclose important information that each holder should consider
when deciding whether to execute the letter of transmittal and consent.
- Our Annual Report on Form 10-K for the fiscal year ended December 31,
2002;
- Our Quarterly Report on Form 10-Q for the quarters ended March 31, 2003
and June 30, 2003;
- Our Current Report on Form 8-K dated as of October 28, 2003; and
- The description of our common stock (including the related preferred
share purchase rights) contained in our Form 8-B filed December 12, 1996,
as we may update that description from time to time.
All documents we file with the SEC pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this prospectus and prior to the
termination of the offering are also incorporated by reference in this
prospectus. Information incorporated by reference is considered to be a part of
this prospectus, and later information filed with the SEC prior to the
termination of the offering will automatically update and supersede this
information.
We will provide without charge to each person to whom a copy of this
prospectus has been delivered, upon the written or oral request of such person,
a copy of any and all of the documents that have been or may be incorporated by
reference in this prospectus, except that exhibits to such documents will not be
provided unless they are specifically incorporated by reference into such
documents. Requests for copies of any such document should be directed to:
Halliburton Company
1401 McKinney, Suite 2400
Houston, Texas 77010
Attention: Albert O. Cornelison, Jr.
Executive Vice President and General Counsel
Telephone: (713) 759-2600
ii
SUMMARY
The following summary should be read together with the information
contained in other parts of this prospectus and the documents we incorporate by
reference. You should carefully read this prospectus and the documents we
incorporate by reference to fully understand the terms of the notes as well as
the tax and other considerations that are important to you in making a decision
about whether to invest in the notes and the common stock issuable upon their
conversion. In this prospectus, we refer to Halliburton Company and its
subsidiaries as "we," "us," "our" or "Halliburton," unless we specifically
indicate otherwise or the context clearly indicates otherwise.
HALLIBURTON COMPANY
GENERAL DESCRIPTION OF BUSINESS
We are one of the world's largest oilfield services companies and a leading
provider of engineering and construction services. We had total revenues for the
year ended December 31, 2002 of approximately $12.6 billion, and total revenues
for the six months ended June 30, 2003 of approximately $6.7 billion. We have
five business segments that are organized around how we manage our business:
Drilling and Formation Evaluation, Fluids, Production Optimization, Landmark and
Other Energy Services and the Engineering and Construction Group. We sometimes
refer to the combination of the Drilling and Formation Evaluation, Fluids,
Production Optimization and Landmark and Other Energy Services segments as the
Energy Services Group. Through our Energy Services Group, we provide a
comprehensive range of discrete and integrated products and services for the
exploration, development and production of oil and gas. We serve major national
and independent oil and gas companies throughout the world. Our Engineering and
Construction Group (known as KBR) provides a wide range of services to energy
and industrial customers and governmental entities worldwide.
DRILLING AND FORMATION EVALUATION
Our Drilling and Formation Evaluation segment is primarily involved in
drilling and evaluating the formations related to bore-hole construction and
initial oil and gas formation evaluation. The products and services in this
segment incorporate integrated technologies, which offer synergies related to
drilling activities and data gathering. The segment consists of drilling
services, including directional drilling and
measurement-while-drilling/logging-while-drilling; logging services; and drill
bits. Included in this business segment are Sperry-Sun, logging and perforating
and Security DBS. Also included is our Mono Pumps business, which we disposed of
in the first quarter of 2003.
FLUIDS
Our Fluids segment focuses on fluid management and technologies to assist
in the drilling and construction of oil and gas wells. Drilling fluids are used
to provide for well control, drilling efficiency, and as a means of removing
wellbore cuttings. Cementing services provide zonal isolation to prevent fluid
movement between formations, ensure a bond to provide support for the casing,
and provide wellbore reliability. Baroid and cementing, along with our equity
method investment in Enventure Global Technology, LLC, an expandable casing
joint venture, are included in this business segment.
PRODUCTION OPTIMIZATION
Our Production Optimization segment primarily tests, measures and provides
means to manage and/or improve well production once a well is drilled and, in
some cases, after it has been producing. This segment consists of:
- production enhancement services (including fracturing, acidizing, coiled
tubing, hydraulic workover, sand control and pipeline and process
services);
1
- completion products and services (including well completing equipment,
slickline and safety systems);
- tools and testing services (including underbalanced applications and
tubular conveyed perforating testing services); and
- subsea operations conducted in our 50% owned company, Subsea 7, Inc.
LANDMARK AND OTHER ENERGY SERVICES
Our Landmark and Other Energy Services segment provides integrated
exploration and production software information systems, consulting services,
real-time operations, smartwells and integrated solutions. Included in this
business segment are Landmark Graphics, Integrated Solutions, Real Time
Operations and our equity method investment in WellDynamics B.V., an intelligent
well completions joint venture. Also included are Wellstream, Bredero-Shaw and
European Marine Contractors Ltd., all of which have been sold.
ENGINEERING AND CONSTRUCTION GROUP
Our Engineering and Construction Group provides engineering, procurement,
construction, project management and facilities operation and maintenance for
oil and gas and other industrial and governmental customers. Our Engineering and
Construction Group offers:
- onshore engineering and construction activities, including engineering
and construction of liquefied natural gas, ammonia and crude oil
refineries and natural gas plants;
- offshore deepwater engineering and marine technology and worldwide
fabrication capabilities;
- government operations, construction, maintenance and logistics activities
for government facilities and installations;
- plant operations, maintenance and start-up services for both upstream and
downstream oil, gas and petrochemical facilities as well as operations,
maintenance and logistics services for the power, commercial and
industrial markets; and
- civil engineering, consulting and project management services.
BUSINESS STRATEGY
Our business strategy is to maintain global leadership in providing energy
services and products and engineering and construction services. We provide
these services and products to our customers as discrete services and products
and, when combined with project management services, as integrated solutions.
Our ability to be a global leader depends on meeting four key goals:
- establishing and maintaining technological leadership;
- achieving and continuing operational excellence;
- creating and continuing innovative business relationships; and
- preserving a dynamic workforce.
MARKETS AND COMPETITION
We are one of the world's largest diversified energy services and
engineering and construction services companies. We believe that our future
success will depend in large part upon our ability to offer a wide array of
services and products on a global scale. The industries we serve are highly
competitive with many substantial competitors for each segment. Competitive
factors impacting sales of our services and products include: price, service
delivery (including the ability to deliver services and products on an "as
needed, where needed" basis), service quality, product quality, warranty and
technical proficiency. While we
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provide a wide range of discrete services and products, a number of customers
have indicated a preference for integrated services and solutions. In the case
of the Energy Services Group, integrated services and solutions relate to all
phases of exploration, development and production of oil, natural gas and
natural gas liquids. In the case of the Engineering and Construction Group,
integrated services and solutions relate to all phases of design, procurement,
construction, project management and maintenance of facilities primarily for
energy and government customers.
We conduct business worldwide in over 100 countries. In the first six
months of 2003, the United States represented 33% of our total revenue and the
United Kingdom represented 11%. No other country accounted for more than 10% of
our total revenue. Substantially all of our services and products are marketed
through our servicing and sales organizations.
RECENT DEVELOPMENTS
As we reported in our quarterly report on Form 10-Q for the quarter ended
June 30, 2003, we were sued in the District Court of Harris County, Texas by
Anglo Dutch (Tenge) L.L.C. and Anglo Dutch Petroleum International, Inc. for
allegedly breaching a confidentiality agreement related to an investment
opportunity we considered in the late 1990s in an oil field in the former Soviet
Republic of Kazakhstan. The plaintiffs claimed approximately $640.0 million in
damages. On October 24, 2003, a Harris County, Texas civil court jury returned a
verdict against a Halliburton subsidiary. The jury verdict plus attorney's fees
amount to approximately $77.0 million. We intend to file post-trial motions to
seek a reduction or elimination of the award. If the verdict becomes a judgment,
we intend to appeal the case. We will record a charge for the full amount
related to this case in the third quarter of 2003.
In October 2003, we closed an offering of $1.05 billion of floating and
fixed rate unsecured senior notes. The floating rate notes, with an aggregate
principal amount of $300.0 million, will mature on October 17, 2005 with an
interest rate equal to three-month LIBOR (London interbank offered rates) plus
1.5% paid quarterly. The fixed rate notes, with an aggregate principal amount of
$750.0 million, will mature on October 15, 2010 with an interest rate equal to
5 1/2% paid semi-annually. We intend to use a substantial portion of the net
proceeds ($1.041 billion) to fund a portion of the cash required to be
contributed to the trust for the benefit of the asbestos and silica claimants.
PROPOSED SETTLEMENT
In December 2002, we reached an agreement in principle that, if and when
consummated, would result in a settlement of asbestos and silica personal injury
claims against our subsidiaries DII Industries, Kellogg Brown & Root, Inc. and
their current and former subsidiaries with U.S. operations. Subsequently, in
2003, DII Industries and Kellogg Brown & Root entered into definitive written
agreements finalizing the terms of the agreements in principle with attorneys
representing more than 90% of the current asbestos and silica claimants.
The definitive agreements provide that:
- approximately $2.775 billion in cash, 59.5 million Halliburton shares
(valued at $1.4 billion using the stock price at September 30, 2003 of
$24.25 per share) and notes with a net present value of less than $100.0
million will be paid to one or more trusts for the benefit of current and
future asbestos and silica personal injury claimants upon receiving final
and non-appealable court confirmation of a plan of reorganization;
- DII Industries and Kellogg Brown & Root will retain rights to the first
$2.3 billion of any insurance proceeds with any proceeds received between
$2.3 billion and $3.0 billion going to the trusts;
- the agreement is to be implemented through a pre-packaged filing under
Chapter 11 of the United States Bankruptcy Code for DII Industries,
Kellogg Brown & Root and some of their subsidiaries with U.S. operations;
and
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- the funding of the settlement amounts would occur upon receiving final
and non-appealable court confirmation of a plan of reorganization for DII
Industries and Kellogg Brown & Root and some of their subsidiaries with
U.S. operations in the Chapter 11 proceeding.
Among the prerequisites for concluding the proposed settlement are:
- arrangement of financing, in addition to the proceeds of our recent
offerings of $1.2 billion principal amount of convertible senior notes
and $1.05 billion principal amount of senior debt securities, for the
proposed settlement on terms acceptable to us to fund the cash amounts to
be paid in the settlement;
- obtaining approval of a plan of reorganization from at least the required
75% of known present asbestos claimants and from a majority of known
present silica claimants;
- Halliburton board approval; and
- obtaining final and non-appealable bankruptcy court approval and federal
district court confirmation of the plan of reorganization.
Many of these prerequisites are subject to matters and uncertainties beyond
our control. There can be no assurance that we will be able to satisfy the
prerequisites for completion of the settlement. As a result of an increase in
the estimated number of current asbestos claims, the cash required to fund the
settlement may modestly exceed $2.775 billion. If it does, we would need to
reach an agreement with the claimants' representatives to adjust the settlement
matrices to reduce the overall amounts, or we would need to increase the amounts
we would be willing to pay to resolve the asbestos and silica liabilities,
resulting in an additional condition to the Chapter 11 filing.
Unless and until we reach agreement with the claimants' representatives to
adjust the settlement matrices or we increase the amounts we would be willing to
pay, the attorneys representing the current asbestos claimants may not proceed
with the settlement or may attempt to renegotiate the settlement amount to
increase the aggregate amount of the settlement. Conversely, an increase in the
amount of cash required may make completing the proposed settlement more
difficult.
In the event we elect to adjust the settlement matrices to reduce the
average amounts per claim, a supplemental disclosure statement may be required,
and if so, the claimants potentially adversely affected by the adjustment may
have an opportunity to change their votes. The additional time to make such
supplemental disclosure and opportunity to change votes may result in a delay in
the Chapter 11 filing.
The settlement agreements with attorneys representing current asbestos
claimants grant the attorneys a right to terminate their definitive agreement on
ten days' notice. While no right to terminate any settlement agreement has been
exercised to date, there can be no assurance that claimants' attorneys will not
exercise their right to terminate the settlement agreements.
In July 2003, we also reached agreement with Harbison-Walker and the
asbestos creditors committee in the Harbison-Walker bankruptcy to consensually
extend the period of the stay contained in the bankruptcy court's temporary
restraining order until September 30, 2003. The court's temporary restraining
order, which was originally entered on February 14, 2002, stayed more than
200,000 pending asbestos claims against DII Industries. The stay expired by its
terms on September 30, 2003. Discovery on the claims that had previously been
stayed may begin as early as November 1, 2003, and trials on any of the claims
that had previously been stayed may commence as early as January 1, 2004.
Notwithstanding expiration of the stay, asbestos and silica claims against DII
Industries will automatically be stayed upon a Chapter 11 filing of DII
Industries, Kellogg Brown & Root and some of their subsidiaries with U.S.
operations.
As of September 22, 2003, DII Industries, Kellogg Brown & Root and other
affected Halliburton subsidiaries began the solicitation process in connection
with the planned asbestos and silica settlement. A disclosure statement, which
incorporates and describes the Chapter 11 plan of reorganization and trust
distribution procedures, has been mailed to asbestos and silica claimants for
the purpose of soliciting votes
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to approve the plan of reorganization prior to filing a Chapter 11 proceeding.
We cannot predict the exact timing of the completion of the prerequisites to
making the Chapter 11 filing, but we expect that they could be completed on a
timeline that would allow the Chapter 11 filing to be made in November 2003. We
furnished a copy of the disclosure statement to the SEC by filing a Current
Report on Form 8-K with the SEC on September 23, 2003. You may obtain a copy of
the disclosure statement from our web site at www.halliburton.com and from the
SEC at www.sec.com.
We continue to track legislative proposals for asbestos reform pending in
the U.S. Congress. We understand that the U.S. Senate is currently working on
draft legislation that would set up a national trust fund as the exclusive means
for recovery for asbestos-related disease. We are not certain as to what
contributions we would be required to make to such a trust, although we
anticipate that they would be substantial and that they would continue for a
number of years. In determining whether to approve the proposed settlement and
proceed with the Chapter 11 filing of DII Industries and Kellogg Brown & Root
and some of their subsidiaries with U.S. operations, the Halliburton Board of
Directors will take into account the then-current status of these legislative
initiatives.
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We are a Delaware corporation. Our principal executive offices are located
at 1401 McKinney, Suite 2400, Houston, Texas 77010, and our telephone number at
that address is (713) 759-2600.
5
THE OFFERING
Issuer........................ Halliburton Company.
Securities Offered............ $1,200,000,000 principal amount of 3 1/8%
Convertible Senior Notes due July 15, 2023.
Maturity Date................. July 15, 2023.
Interest Payment Dates........ January 15 and July 15 of each year, beginning
January 15, 2004.
Conversion Rights............. You may convert your notes into shares of our
common stock (unless earlier redeemed or
repurchased) under any of the following
circumstances:
(1) during any calendar quarter (and only
during such calendar quarter) if the last
reported sale price of our common stock for
at least 20 trading days during the period
of 30 consecutive trading days ending on
the last trading day of the previous
calendar quarter is greater than or equal
to 120% of the conversion price per share
of our common stock on such last trading
day;
(2) if the notes have been called for
redemption;
(3) upon the occurrence of specified corporate
transactions described under "Description
of Notes -- Conversion of
Notes -- Conversion Upon Specified
Corporate Transactions;" or
(4) during any period in which the credit
ratings assigned to the notes by both
Moody's and Standard & Poor's are lower
than Ba1 and BB+, respectively, or the
notes are no longer rated by at least one
of these rating services or their
successors.
For each $1,000 principal amount of notes
surrendered for conversion, you initially will
be entitled to receive 26.5583 shares of our
common stock. This represents an initial
conversion price of $37.65 per share of common
stock. As described in this prospectus, the
conversion rate may be adjusted for certain
reasons. Except as otherwise described in this
prospectus, you will not receive any cash
payment representing accrued and unpaid
interest upon conversion of a note; however, we
will continue to pay additional amounts, if
any, on the notes and the common stock issuable
upon conversion thereof to the holder in
accordance with the registration rights
agreement. Notes called for redemption may be
surrendered for conversion prior to the close
of business on the second business day
immediately preceding the redemption date.
Upon conversion, we will have a right to
deliver, in lieu of shares of our common stock,
cash or a combination of cash and common stock.
6
For more information, see "Description of
Notes -- Conversion of Notes."
Optional Redemption........... Prior to July 15, 2008, the notes will not be
redeemable. On or after July 15, 2008, we may
redeem for cash all or part of the notes at any
time, upon not less than 30 nor more than 60
days' notice before the redemption date by mail
to the trustee, the paying agent and each
holder of notes, for a price equal to 100% of
the principal amount of the notes to be
redeemed plus any accrued and unpaid interest
and additional amounts owed, if any, to the
redemption date. See "Description of
Notes -- Optional Redemption."
Purchase of Notes by Us at the
Option of the Holder.......... Holders have the right to require us to
purchase all or any portion of the notes for
cash on July 15, 2008, July 15, 2013 and July
15, 2018. In each case, we will pay a purchase
price equal to 100% of the principal amount of
the notes to be purchased plus any accrued and
unpaid interest and additional amounts owed, if
any, to the purchase date. See "Description of
Notes -- Purchase of Notes by Us at the Option
of the Holder."
Fundamental Change............ If we undergo a Fundamental Change (as defined
under "Description of Notes -- Fundamental
Change Requires Purchase of Notes by Us at the
Option of the Holder") prior to July 15, 2008,
holders will have the right, at their option,
to require us to purchase any or all of their
notes for cash, or any portion of the principal
amount thereof. The cash price we are required
to pay is equal to 100% of the principal amount
of the notes to be purchased plus accrued and
unpaid interest and additional amounts owed, if
any, to the Fundamental Change purchase date.
See "Description of Notes -- Fundamental Change
Requires Purchase of Notes by Us at the Option
of the Holder."
Covenants..................... The notes were issued under an indenture
containing covenants for your benefit. Among
other things, these covenants restrict our
ability to incur indebtedness secured by liens
under specified circumstances.
Ranking....................... The notes are our general, senior unsecured
indebtedness and rank equally with all of our
existing and future senior unsecured
indebtedness. The notes effectively rank junior
to any existing or future secured indebtedness,
unless and to the extent the notes are entitled
to be equally and ratably secured. We had no
outstanding secured indebtedness at June 30,
2003. In addition, the notes are effectively
subordinated to the existing and future
indebtedness and other liabilities of our
subsidiaries. At June 30, 2003, the aggregate
indebtedness of our subsidiaries was
approximately $396.0 million, and other
liabilities of our subsidiaries, including
trade payables, accrued compensation, advanced
billings, income taxes payable and other
liabilities (other than asbestos and
intercompany liabilities) were approximately
$4.4 billion, and accrued asbestos liabilities
were approximately $3.4 billion.
7
We expect to enter into (1) a senior unsecured
credit facility for an amount up to
approximately $1.0 billion, subject to
reduction, (2) an approximately $1.4 billion
senior secured letter of credit facility and
(3) an up to $700.0 million senior secured
revolving credit facility in replacement of our
existing $350.0 million credit facility. See
"Description of Anticipated Indebtedness." The
terms of the notes and the anticipated terms of
the new credit facilities currently contemplate
that the notes offered hereby and certain of
our outstanding debt securities will share in
collateral pledged to secure borrowings under
the new credit facilities if and when the total
of all our secured debt exceeds 5% of the
consolidated net tangible assets of Halliburton
and its subsidiaries. The anticipated terms of
the new credit facilities also currently
contemplate that the collateral pledged to
secure borrowings under the new credit
facilities will be released after (1)
completion of the Chapter 11 plan of
reorganization of DII Industries, Kellogg Brown
& Root and some of their subsidiaries with U.S.
operations, which will be used to implement the
proposed settlement, and (2) satisfaction of
the other conditions described in "Description
of Anticipated Indebtedness -- Conditions to
Release of Collateral."
No Subsidiary Guarantees...... While the notes are not guaranteed by any of
our subsidiaries, borrowings under the letter
of credit facility and revolving credit
facility described under "-- Ranking" above
will be guaranteed by some of our subsidiaries.
Accordingly, the notes are structurally
subordinated to the debt guaranteed by our
subsidiaries for the duration of the guarantee.
The anticipated terms of the new credit
facilities currently contemplate that any of
these subsidiary guarantees will be released
after (1) completion of the Chapter 11 plan of
reorganization of DII Industries, Kellogg Brown
& Root and some of their subsidiaries with U.S.
operations, which will be used to implement the
proposed settlement, and (2) satisfaction of
the other conditions described in "Description
of Anticipated Indebtedness -- Conditions to
Release of Collateral." For more information,
see "Description of Anticipated Indebtedness."
Form and Denomination of
Notes......................... The notes are represented by global notes in
fully registered form, without coupons,
deposited with a custodian for, and registered
in the name of a nominee of, The Depository
Trust Company. Beneficial interests in a global
note are shown on, and transfers of the global
notes will be effected only through, records
maintained by DTC and its participants. See
"Description of Notes -- Book-Entry System."
Use of Proceeds............... We will not receive any proceeds from the sale
by the selling securityholders of the notes or
the common stock issuable upon conversion of
the notes. See "Use of Proceeds."
8
Listing....................... The notes sold to qualified institutional
buyers are eligible for trading in The
Portal(SM)Market, a subsidiary of The Nasdaq
Stock Market, Inc.; however, the notes resold
pursuant to this prospectus will no longer
trade in The Portal(SM) Market. We do not
intend to apply for listing of the notes on any
securities exchange or for inclusion of the
notes in any automated quotation system. Our
common stock is listed on the New York Stock
Exchange under the symbol "HAL".
RISK FACTORS
You should carefully consider all of the information set forth or
incorporated by reference in this prospectus and, in particular, the specific
factors in the section of this prospectus entitled "Risk Factors" for an
explanation of certain risks of investing in the notes.
9
SUMMARY FINANCIAL DATA
The following table sets forth our summary consolidated financial data. We
derived the financial data for the six months ended June 30, 2003 from our
unaudited condensed consolidated financial statements included in our Quarterly
Report on Form 10-Q for the quarter ended June 30, 2003. In the second quarter
of 2003, we restructured our Energy Services Group into four segments and
restated our prior period segment results to reflect this restructuring. We
derived the financial data for the year ended December 31, 2002 from our Current
Report on Form 8-K dated as of October 28, 2003 which restates our 2002 Annual
Report on Form 10-K to reflect the new segment structure retroactively. Both of
these reports are incorporated in this prospectus by reference. You should read
this information in conjunction with our consolidated financial statements and
the related notes.
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2003 2002
---------------- ------------
(IN MILLIONS)
(UNAUDITED)
REVENUES:
Energy Services Group:
Drilling and Formation Evaluation......................... $ 793 $ 1,633
Fluids.................................................... 998 1,815
Production Optimization................................... 1,322 2,554
Landmark and Other Energy Services........................ 278 834
------- -------
Total Energy Services Group............................ 3,391 6,836
Engineering and Construction Group.......................... 3,268 5,736
------- -------
Total....................................................... $ 6,659 $12,572
======= =======
OPERATING INCOME (LOSS):
Energy Services Group:
Drilling and Formation Evaluation......................... $ 115 $ 160
Fluids.................................................... 123 202
Production Optimization................................... 183 384
Landmark and Other Energy Services........................ (6) (108)
------- -------
Total Energy Services Group............................ 415 638
Engineering and Construction Group.......................... (167) (685)
General corporate........................................... (35) (65)
------- -------
Total....................................................... $ 213 $ (112)
======= =======
Income from continuing operations before income taxes and
minority interest......................................... $ 191 $ (228)
Provision for income taxes.................................. (79) (80)
Minority interest in net income of consolidated
subsidiaries.............................................. (11) (38)
Income (loss) from continuing operations.................... 101 (346)
Income (loss) from discontinued operations.................. (24) (652)
Net income (loss)........................................... 69 (998)
OTHER FINANCIAL DATA:
Capital expenditures........................................ $ (229) $ (764)
Long-term borrowings (repayments), net...................... 1,038 (15)
Depreciation and amortization expense....................... 252 505
JUNE 30, DECEMBER 31,
2003 2002
-------- ------------
(IN MILLIONS)
(UNAUDITED)
FINANCIAL POSITION:
Net working capital......................................... $ 3,458 $ 2,288
Total assets................................................ 14,022 12,844
Property, plant and equipment, net.......................... 2,498 2,629
Long-term debt (including current maturities)............... 2,540 1,476
Shareholders' equity........................................ 3,559 3,558
Total capitalization........................................ 6,115 5,083
10
RATIO OF EARNINGS TO FIXED CHARGES
We have presented in the table below our historical consolidated ratio of
earnings to fixed charges for the periods shown.
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31,
JUNE 30, --------------------------------
2003 2002 2001 2000 1999 1998
- ---------- ---- ---- ---- ---- ----
4.1 --(a) 5.2 2.3 2.4 --(a)
- ---------------
(a) For the year ended December 31, 2002, earnings were inadequate to cover
fixed charges by $283.0 million, and for the year ended December 31, 1998,
earnings were inadequate to cover fixed charges by $6.0 million.
For purposes of computing the ratio of earnings to fixed charges: (1) fixed
charges consist of interest on debt, amortization of debt discount and expenses
and a portion of rental expense determined to be representative of interest and
(2) earnings consist of income (loss) from continuing operations before income
taxes, minority interest, cumulative effects of accounting changes plus fixed
charges as described above, adjusted to exclude the excess or deficiency of
dividends over income of 50% or less owned entities accounted for by the equity
method.
11
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. If any of the following risks actually occurs, our
business, financial condition or results of operations could be materially and
adversely affected. In that case, the trading price of the notes and our common
stock could decline, and you could lose all or part of your investment. You
should also carefully consider all information we have included or incorporated
by reference into this prospectus, including, but not limited to, our Annual
Report on Form 10-K for the year ended December 31, 2002, our Quarterly Reports
on Form 10-Q for the quarters ended March 31, 2003 and June 30, 2003 and our
Current Report on Form 8-K dated as of October 28, 2003.
This prospectus and the documents we incorporate by reference also contain
forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including the risks faced by us
described below and elsewhere in this prospectus and in the documents we
incorporate by reference.
RISKS RELATING TO ASBESTOS AND SILICA LIABILITY
THERE CAN BE NO ASSURANCE THAT THE PROPOSED SETTLEMENT WILL BE COMPLETED.
In December 2002, we reached an agreement in principle that, if and when
consummated, would result in a settlement of asbestos and silica personal injury
claims against our subsidiaries DII Industries, Kellogg Brown & Root and their
current and former subsidiaries with U.S. operations. Subsequently, in 2003, DII
Industries and Kellogg Brown & Root entered into definitive written agreements
finalizing the terms of the agreements in principle with attorneys representing
more than 90% of the current asbestos and silica claimants.
WE MAY BE UNABLE TO FULFILL THE CONDITIONS NECESSARY TO COMPLETE THE
PROPOSED SETTLEMENT.
Among the prerequisites for concluding the proposed settlement are:
- arrangement of financing, in addition to the proceeds of our recent
offerings of $1.2 billion principal amount of convertible senior
notes and $1.05 billion principal amount of senior debt securities,
for the proposed settlement on terms acceptable to us to fund the
cash amounts to be paid in the settlement;
- obtaining approval of a plan of reorganization from at least the
required 75% of known present asbestos claimants and from a majority
of known present silica claimants;
- Halliburton board approval; and
- obtaining final and non-appealable bankruptcy court approval and
federal district court confirmation of the plan of reorganization.
Many of these prerequisites are subject to matters and uncertainties
beyond our control. There can be no assurance that we will be able to
satisfy the prerequisites for completion of the proposed settlement.
As of September 22, 2003, DII Industries, Kellogg Brown & Root and
other affected Halliburton subsidiaries began the solicitation process in
connection with the planned asbestos and silica settlement. A disclosure
statement, which incorporates and describes the Chapter 11 plan of
reorganization and trust distribution procedure, has been mailed to
asbestos and silica claimants for the purpose of soliciting votes to
approve the plan of reorganization. We cannot predict the exact timing of
the completion of the prerequisites to making the Chapter 11 filing, but we
expect that they could be completed on a timeline that would allow the
Chapter 11 filing to be made in November 2003.
12
THE ATTORNEYS REPRESENTING THE CURRENT ASBESTOS CLAIMANTS MAY
TERMINATE THE SETTLEMENT AGREEMENTS.
The settlement agreements with attorneys representing current asbestos
claimants grants the attorneys a right to terminate their definitive
agreement on ten days' notice. While no right to terminate any settlement
agreement has been exercised to date, there can be no assurance that
claimants' attorneys will not exercise their right to terminate the
settlement agreements.
As a result of an increase in the estimated number of current asbestos
claims, the cash required to fund the settlement may modestly exceed $2.775
billion. If it does, we would need to reach an agreement with the
claimants' representatives to adjust the settlement matrices to reduce the
overall amounts, or we would need to increase the amounts we would be
willing to pay to resolve the asbestos and silica liabilities resulting in
an additional condition to the Chapter 11 filing.
Unless and until we reach agreement with the claimants'
representatives to adjust the settlement matrices or we increase the
amounts we would be willing to pay, the attorneys representing the current
asbestos claimants may not proceed with the settlement or may attempt to
renegotiate the settlement amount to increase the aggregate amount of the
settlement. Conversely, an increase in the amount of cash required may make
completing the proposed settlement more difficult.
In the event we elect to adjust the settlement matrices to reduce the
average amounts per claim, a supplemental disclosure statement may be
required, and if so, the claimants potentially adversely affected by the
adjustment may have an opportunity to change their votes. The additional
time to make such supplemental disclosure and opportunity to change votes
may result in a delay in the Chapter 11 filing.
THE STAY ON PENDING ASBESTOS CLAIMS AGAINST DII INDUSTRIES IN THE
HARBISON-WALKER BANKRUPTCY HAS EXPIRED, AND WE MAY BE MATERIALLY AND
ADVERSELY AFFECTED.
In July 2003, we also reached agreement with Harbison-Walker and the
asbestos creditors committee in the Harbison-Walker bankruptcy to
consensually extend the period of the stay contained in the bankruptcy
court's temporary restraining order until September 30, 2003. The court's
temporary restraining order, which was originally entered on February 14,
2002, stayed more than 200,000 pending asbestos claims against DII
Industries. The stay expired by its terms on September 30, 2003. Discovery
on the claims that had previously been stayed may begin November 1, 2003,
and trials on any of the claims that had previously been stayed may
commence after January 1, 2004. Notwithstanding the expiration of the stay,
all asbestos and silica claims against DII Industries will be stayed
automatically upon the Chapter 11 filing of DII Industries, Kellogg Brown &
Root and some of their subsidiaries with U.S. operations.
It is unclear what effect, if any, the lifting of the stay in the
Harbison-Walker bankruptcy proceedings will have on our financial
condition. There can be no assurance that our stock price, our debt ratings
or the trading price of the notes will not be materially and adversely
affected by the expiration of the stay and the anticipated discovery
requests and trial settings with respect to asbestos claims against DII
Industries that may be filed prior to the Chapter 11 bankruptcy filing of
DII Industries, Kellogg Brown & Root and some of their subsidiaries with
U.S. operations.
IF PROPOSED FEDERAL LEGISLATION TO PROVIDE NATIONAL ASBESTOS
LITIGATION REFORM BECOMES LAW, WE MAY NOT PROCEED WITH THE PROPOSED
SETTLEMENT.
We continue to track legislative proposals for asbestos reform pending
in the U.S. Congress. We understand that the U.S. Senate is currently
working on legislation that would set up a national trust fund as the
exclusive means for recovery for asbestos-related disease. We are not
certain as to what contributions we would be required to make to such a
trust, although we anticipate that they would be substantial and that they
would continue for a significant number of years. There is no assurance
that any such legislative proposals will ultimately become law. In
determining whether to approve the
13
proposed settlement and proceed with the Chapter 11 filing of DII
Industries, Kellogg Brown & Root and some of their subsidiaries with U.S.
operations, the Halliburton Board of Directors will take into account the
then-current status of these legislative initiatives.
If we were unable to complete the proposed settlement for any of the
above-described reasons, we would be required to resolve current and future
asbestos and silica claims in the tort system or, in the case of
Harbison-Walker claims, possibly through the Harbison-Walker bankruptcy
proceedings. See "-- In the absence of a completed settlement, we would be
required to resolve current and future asbestos and silica claims in the
tort system, which may adversely affect our financial condition" below.
IN THE ABSENCE OF A COMPLETED SETTLEMENT, WE WOULD BE REQUIRED TO RESOLVE
CURRENT AND FUTURE ASBESTOS AND SILICA CLAIMS IN THE TORT SYSTEM, WHICH MAY
ADVERSELY AFFECT OUR FINANCIAL CONDITION.
If we were unable to complete the proposed settlement, we would be required
to resolve current and future asbestos claims in the tort system or, in the case
of Harbison-Walker claims, possibly through the Harbison-Walker bankruptcy
proceedings. If we were required to resolve asbestos claims in the tort system,
we would be subject to numerous uncertainties, including:
- continuing asbestos and silica litigation against us, which would include
the possibility of substantial adverse judgments, the timing of which
could not be controlled or predicted, and the obligation to provide
appeals bonds pending any appeal of any such judgment, some or all of
which may require us to post cash collateral;
- current and future asbestos claims settlement and defense costs,
including the inability to completely control the timing of such costs
and the possibility of increased costs to resolve personal injury claims;
- the possibility of an increase in the number and type of asbestos and
silica claims against us in the future; and
- any adverse changes to the tort system allowing additional claims or
judgments against us.
In addition, we believe that Harbison-Walker, formerly part of DII
Industries, is no longer financially able to perform its obligations to assume
liability for post spin-off refractory claims and defend DII Industries from
those claims. As such, these claims may be asserted against DII Industries.
There can be no assurance that our financial condition and results of operation
would not be materially and adversely affected by events subsequent to an
unconsummated settlement or subsequent to a lifting of the stay by the
Harbison-Walker bankruptcy court.
Substantial adverse judgments or substantial claims settlement and defense
costs could materially and adversely affect our liquidity, especially if
combined with a lowering of our credit ratings or other events. If an adverse
judgment were entered against us, we would usually be required to post a bond in
order to perfect an appeal of that judgment. If the bonds were not available
because of uncertainties in the bonding market or if, as a result of our
financial condition or credit rating, bonding companies would not provide a bond
on our behalf, we would be required to provide a cash bond in order to perfect
any appeal. As a result, a substantial judgment or judgments could require a
substantial amount of cash to be posted by us in order to appeal, which we may
not be able to provide from cash on hand or borrowings, or which we may only be
able to provide by incurring high borrowing costs. In such event, our ability to
pursue our legal rights to appeal may be adversely affected.
There can be no assurance that our stock price, our debt ratings or the
trading price of the notes would not be materially and adversely affected by the
absence of a completed settlement.
14
JUDICIAL RELIEF AGAINST ASBESTOS AND SILICA EXPOSURE MAY NOT BE AS BROAD AS IS
CONTEMPLATED BY THE PROPOSED SETTLEMENT, AND A COMPLETED SETTLEMENT MAY NOT
ADDRESS ALL ASBESTOS AND SILICA EXPOSURE.
Our proposed settlement of asbestos and silica claims would include all
asbestos and silica personal injury claims against DII Industries, Kellogg Brown
& Root and their current and former subsidiaries, as well as Halliburton and its
subsidiaries and the predecessors and successors of all of them. However, the
proposed settlement would be subject to bankruptcy court approval as well as
federal district court confirmation. No assurance can be given that a court
reviewing and approving the plan of reorganization that will be used to
implement the proposed settlement will grant relief as broad as contemplated by
the proposed settlement.
In addition, a Chapter 11 proceeding and an injunction under Section 524(g)
of the United States Bankruptcy Code may not apply to protect against asbestos
claims made outside of the United States. While we have historically not
received a significant number of such claims, any such future claims would be
subject to the applicable legal system of the jurisdiction where the claim was
made. Although we do not believe that we have material exposure to such claims,
there can be no assurance that material claims outside of the United States
would not be made in the future. Further, to our knowledge, the
constitutionality of an injunction under Section 524(g) of the United States
Bankruptcy Code has not been tested in a court of law. We can provide no
assurance that, if the constitutionality is challenged, the injunction would be
upheld.
Moreover, the proposed settlement does not resolve claims for property
damage as a result of materials containing asbestos. Accordingly, although we
have historically received no such claims, claims could still be made as to
damage to property or property value as a result of asbestos containing products
having been used in a particular property or structure.
WE MAY BE UNABLE TO RECOVER, OR BE DELAYED IN RECOVERING, INSURANCE
RECEIVABLES, WHICH WOULD ADVERSELY AFFECT OUR FINANCIAL CONDITION.
We have substantial insurance intended to reimburse us for portions of the
costs incurred in defending asbestos and silica claims and amounts paid to
settle claims and to satisfy court judgments. We had accrued $2.1 billion in
probable insurance recoveries as of June 30, 2003. We may be unable to recover,
or we may be delayed in recovering, insurance reimbursements in the amounts
anticipated to cover a part of the costs incurred in defending asbestos and
silica claims and amounts paid to settle claims or as a result of court
judgments due to:
- the inability or unwillingness of insurers to timely reimburse for claims
in the future;
- disputes as to documentation requirements for DII Industries, Kellogg
Brown & Root or other subsidiaries in order to recover claims paid;
- the inability to access insurance policies shared with, or the
dissipation of shared insurance assets by, Harbison-Walker Refractories
Company or others;
- the possible insolvency or reduced financial viability of our insurers;
- the cost of litigation to obtain insurance reimbursement; and
- possible adverse court decisions as to our rights to obtain insurance
reimbursement.
We may ultimately recover, or may agree in settlement of litigation to
recover, less insurance reimbursement than the insurance receivable recorded in
our financial statements. This could result in an incremental write-off of the
insurance receivable.
In the case of the proposed settlement, we could be required to contribute
approximately $2.775 billion in cash, but may be delayed in receiving our
expected reimbursement from our insurance carriers because of extended
negotiations or litigation with insurance carriers. If we were unable to recover
from one or more of our insurance carriers, or if we were delayed significantly
in our recoveries, it could have a material adverse effect on our financial
condition.
15
We may enter into agreements with all or some of our insurance carriers to
negotiate an overall accelerated payment of anticipated insurance proceeds. If
this were to happen, we would expect to recover less than the recorded amount of
anticipated insurance receivables, which would result in an additional charge to
the statement of operations.
THERE IS NO ASSURANCE THAT THE PLAN OF REORGANIZATION IN THE PROPOSED CHAPTER
11 PROCEEDINGS OF DII INDUSTRIES, KELLOGG BROWN & ROOT AND SOME OF THEIR
SUBSIDIARIES WITH U.S. OPERATIONS WILL BE CONFIRMED.
Under the terms of the proposed settlement, the settlement would be
implemented through a pre-packaged Chapter 11 filing for DII Industries, Kellogg
Brown & Root and some of their subsidiaries with U.S. operations. As part of any
proposed plan of reorganization, the debtors intend to seek approval of the
bankruptcy court for debtor-in-possession financing to provide for operating
needs and to provide additional liquidity during the Chapter 11 proceeding.
Halliburton intends, with the understanding of its lenders, to provide the
debtor-in-possession financing to DII Industries and Kellogg Brown & Root.
Arranging for debtor-in-possession financing is a condition precedent to the
filing of a Chapter 11 proceeding, and the bankruptcy court must approve any
such financing in order for the proposed settlement to be feasible.
After filing any Chapter 11 proceeding, DII Industries, Kellogg Brown &
Root and some of their subsidiaries with U.S. operations (referred to
collectively as the debtors) would seek an order of the bankruptcy court
scheduling a hearing to consider confirmation of the plan of reorganization. In
order to be confirmed, the United States Bankruptcy Code requires that impaired
classes of creditors vote to accept the plan of reorganization submitted by the
debtors. In order to carry a class, approval of over one-half in number and at
least two-thirds in amount are required. In addition, to obtain an injunction
under Section 524(g) of the United States Bankruptcy Code, at least 75% of
voting current asbestos claimants must vote to accept the plan of
reorganization. In addition to obtaining the required votes, the requirements
for a bankruptcy court to approve a plan of reorganization include, among other
judicial findings, that:
- the plan of reorganization complies with applicable provisions of the
Bankruptcy Code;
- the debtors have complied with the applicable provisions of the
Bankruptcy Code;
- the trusts will value and pay similar present and future claims in
substantially the same manner;
- the plan of reorganization has been proposed in good faith and not by any
means forbidden by law; and
- any payment made or promised by the debtors to any person for services,
costs or expenses in or in connection with the Chapter 11 proceeding or
the plan of reorganization has been or is reasonable.
There can be no assurance that we will obtain the required votes or the
required judicial approval to the proposed plan of reorganization. In such
event, a prolonged Chapter 11 proceeding could adversely affect the debtors'
relationships with customers, suppliers and employees, which in turn could
adversely affect the debtors' competitive position, financial condition and
results of operations. A weakening of the debtors' financial condition and
results of operations could adversely affect the debtors' ability to implement
the plan of reorganization.
In addition, if the plan of reorganization is not confirmed by the
bankruptcy court, the debtors may be forced to liquidate their assets. Chapter
11 permits a company to remain in control of its business, protected by a stay
of all creditor action, while the company attempts to negotiate and confirm a
plan of reorganization with its creditors. The debtors may be unsuccessful in
their attempts to confirm a plan of reorganization with their creditors, as many
Chapter 11 cases are unsuccessful and virtually all involve substantial expense
and damage to the business. If the debtors are unsuccessful in obtaining
confirmation of a plan or reorganization, the assets of the debtors will be
liquidated in the bankruptcy proceedings. In the event of a bankruptcy
liquidation of the debtors, Halliburton could lose its controlling interest in
DII Industries and Kellogg Brown & Root. As a result, the value of those
subsidiaries would no longer be
16
reflected in our common stock. Moreover, if the plan of reorganization is not
confirmed and the debtors have insufficient assets to pay the creditors,
Halliburton's assets could be drawn into the liquidation proceedings as a result
of Halliburton's guarantees of certain of the debtors' obligations.
Of the cash amount included as part of the proposed settlement,
approximately $450.0 million primarily relates to claims previously settled but
unpaid by Harbison-Walker, but not previously agreed to by us. As part of the
proposed settlement, we have agreed that, if a Chapter 11 filing by the debtors
were to occur, we would pay this amount within four years if not paid sooner
pursuant to a final bankruptcy court approved plan of reorganization. If the
Chapter 11 proceeding is filed, we would be obligated to pay this amount even if
the proposed settlement is abandoned or the proposed plan of reorganization is
not confirmed.
THERE CAN BE NO ASSURANCE THAT WE WILL BE ABLE TO FINANCE THE PROPOSED
SETTLEMENT ON ACCEPTABLE TERMS, IN WHICH CASE THE SETTLEMENT WOULD NOT BE
COMPLETED.
The plan of reorganization through which the proposed settlement will be
implemented will require us to contribute approximately $2.775 billion in cash
to the trusts established for the benefit of asbestos and silica claimants
pursuant to the United States Bankruptcy Code, which we will need to finance on
terms acceptable to us. In June 2003, we completed a private offering of $1.2
billion principal amount of 3 1/8% convertible senior notes due 2023 which are
being registered pursuant to the registration statement of which this prospectus
is a part, and in October 2003 we completed another private offering of $1.05
billion aggregate principal amount of floating rate notes due 2005 and fixed
rate notes due 2010. We intend to use a substantial portion of the net proceeds
from those offerings to finance a portion of the cash contribution required by
the proposed settlement. In addition, we are pursuing a number of financing
alternatives for the additional cash amount needed for contribution to the
trusts. The availability of these alternatives depends in large part on market
conditions.
We are currently negotiating with several banks and non-bank lenders over
the terms of multiple credit facilities. The currently anticipated credit
facilities would include:
- a senior unsecured credit facility for an amount up to approximately $1.0
billion, subject to reduction, to be available for cash funding of the
trusts for the benefit of the claimants;
- a senior secured letter of credit facility for approximately $1.4 billion
intended to ensure that existing letters of credit and bank guarantees
supporting the contracts of our company and its affiliates remain in
place during the filing; and
- a senior secured revolving credit facility for an amount up to $700.0
million in replacement of our existing $350.0 million credit facility,
that will be used for general working capital purposes.
For additional information, see "Description of Anticipated Indebtedness."
None of the new credit facilities are currently in place, and there can be
no assurances that we will complete these facilities in the form anticipated. We
are not obligated to enter into these facilities if the terms are not acceptable
to us. Moreover, these facilities would only be available for limited periods of
time. As a result, if the debtors were delayed in filing the Chapter 11
proceeding or delayed in completing the plan of reorganization after a Chapter
11 filing, the anticipated credit facilities may not provide us with the
necessary financing to complete the proposed settlement. Additionally, there may
be other conditions precedent to funding that we may be unable to satisfy. In
such circumstances, we would have to terminate the proposed settlement if
replacement financing were not available on acceptable terms.
In addition, we may experience increased working capital requirements from
time to time associated with our business. An increased demand for working
capital could affect our liquidity needs and could impair our ability to finance
the proposed settlement on acceptable terms, in which case the settlement would
not be completed.
17
A LOWERING OF OUR CREDIT RATINGS WOULD REQUIRE US TO OBTAIN ADDITIONAL CREDIT
FACILITIES TO MEET OUR CASH REQUIREMENTS AND LIQUIDITY NEEDS, WOULD INCREASE
OUR BORROWING COST AND MAY RESULT IN OUR INABILITY TO OBTAIN ADDITIONAL
FINANCING ON REASONABLE TERMS, TERMS ACCEPTABLE TO US OR AT ALL.
Late in 2001 and early in 2002, Moody's Investors Services lowered its
ratings of our long-term senior unsecured debt to Baa2 and our short-term credit
and commercial paper ratings to P-2. In addition, Standard & Poor's rating
service of the McGraw Hill Companies lowered its ratings of our long-term senior
unsecured debt to A- and our short-term credit and commercial paper ratings to
A-2 in late 2001. In December 2002, Standard & Poor's lowered these ratings to
BBB and A-3. These ratings were lowered primarily due to our asbestos exposure,
and both agencies have indicated that our credit ratings remain under
consideration for possible downgrade pending the results of the proposed
settlement. Although our long-term ratings continue at investment grade levels,
the cost of new borrowing is relatively higher and our access to the debt
markets is more volatile at these rating levels. Investment grade ratings are
BBB- or higher for Standard & Poor's and Baa3 or higher for Moody's. Our current
ratings are one level above BBB- on Standard & Poor's and one level above Baa3
on Moody's.
We have $350.0 million of committed lines of credit from banks that are
available if we maintain an investment grade rating. This facility expires on
August 16, 2006. As of June 30, 2003, no amounts have been borrowed under these
lines. If our credit ratings were to fall below investment grade, our credit
line would be unavailable absent a successful renegotiation with our banks. We
must enter into good faith negotiations to amend our receivables securitization
facility if our credit ratings were to fall below investment grade and/or after
execution of the new senior secured revolving credit facility described under
"Description of Anticipated Indebtedness." Absent an agreed amendment within 60
days, amounts outstanding thereunder would be declared due and payable. As of
June 30, 2003, the outstanding balance of our accounts receivable facility was
$180.0 million, which was subsequently reduced to zero in July 2003.
If our debt ratings fall below investment grade, we would also be in
technical breach of a bank agreement covering $52.0 million of letters of credit
at June 30, 2003, which might entitle the bank to set-off rights. In addition, a
$151.0 million letter of credit line, of which $141.0 million has been issued,
includes provisions that allow the banks to require cash collateralization for
the full line if debt ratings of either rating agency fall below the rating of
BBB by Standard & Poor's or Baa2 by Moody's, one downgrade from our current
ratings. These letters of credit and bank guarantees generally relate to our
guaranteed performance or retention payments under our long-term contracts and
self-insurance. In addition, our elective deferral plan has a provision which
states that if the Standard & Poor's credit rating falls below BBB the amounts
credited to participants' accounts will be paid to participants in a lump-sum
within 45 days. At June 30, 2003, this amount was approximately $48.0 million.
In the event our debt ratings are lowered by either agency, we may have to
issue additional debt or equity securities or obtain additional credit
facilities in order to meet our liquidity needs and satisfy cash
collateralization requirements for letters of credit and surety bonds. We
anticipate that any such new financing or credit facilities would not be on
terms as attractive as those we have currently and that we would also be subject
to increased borrowing costs and interest rates. We also may be required to
provide cash collateral to obtain surety bonds or letters of credit, which would
reduce our available cash or require additional financing. Further, if we are
unable to obtain financing for our proposed settlement on terms that are
acceptable to us, we may be unable to complete the proposed settlement.
WE HAVE LETTERS OF CREDIT THAT MAY BE DRAWN AT ANY TIME OR AS A RESULT OF THE
CONTEMPLATED CHAPTER 11 PROCEEDINGS OF DII INDUSTRIES AND KELLOGG BROWN & ROOT
AND SOME OF THEIR SUBSIDIARIES WITH U.S. OPERATIONS.
In the normal course of business, we have agreements with banks under which
approximately $1.3 billion of letters of credit or bank guarantees were issued,
including at least $195.0 million which relate to our joint ventures' operations
as of June 30, 2003. The agreements with these banks contain terms and
conditions that define when the banks can require cash collateralization of the
entire line. As of
18
June 30, 2003, agreements with banks covering at least $150.0 million of letters
of credit allow the bank to require cash collateralization for any reason, and
agreements covering another at least $890.0 million of letters of credit allow
the bank to require cash collateralization for the entire line in the event of a
bankruptcy or insolvency event involving one of our subsidiaries that will be
party to the proposed Chapter 11 bankruptcy proceedings.
Our letters of credit also contain terms and conditions that define when
they may be drawn. As of June 30, 2003, at least $230.0 million of letters of
credit permit the beneficiary of such letters of credit to draw for any reason,
and at least another $560.0 million of letters of credit permit the beneficiary
of such letters of credit to draw in the event of a bankruptcy or insolvency
event involving one of our subsidiaries that will be party to the proposed
reorganization proceedings.
In addition, agreements with banks under which $266.0 million of letters of
credit as of June 30, 2003 have been issued on the Barracuda-Caratinga project
includes provisions that require us to maintain ratios of debt to total capital
and of total earnings before interest, taxes, depreciation and amortization to
interest expense. The definition of debt includes our asbestos liability. The
definition of total earnings before interest, taxes, depreciation and
amortization excludes any non-cash charges related to the proposed settlement
through December 31, 2003.
As such, requirements for us to cash collateralize letters of credit and
surety bonds by issuers and beneficiaries of these instruments could be caused
by:
- our plans to place DII Industries, Kellogg Brown & Root and some of their
subsidiaries with U.S. operations into a pre-packaged Chapter 11
proceeding as part of the proposed settlement;
- in the absence of the proposed settlement, one or more substantial
adverse judgments;
- not being able to recover on a timely basis insurance reimbursement; or
- a reduction in credit ratings.
Uncertainty may also hinder our ability to access new letters of credit in
the future. This could impede our liquidity and/or our ability to conduct normal
operations.
Credit facilities that we are currently negotiating in connection with the
proposed asbestos and silica settlement would include a master letter of credit
facility intended to replace any cash collateralization rights of issuers of
substantially all our existing letters of credit during the pendency of the
anticipated Chapter 11 proceedings by DII Industries and Kellogg Brown & Root
and some of their subsidiaries with U.S. operations. The master letter of credit
facility would also provide collateral for issuers of our existing letters of
credit if such letters of credit are drawn and the issuing bank provides cash
for reimbursement. If any of such existing letters of credit are drawn, it is
anticipated that the master letter of credit facility would provide the cash
needed for such draws, with any advances being converted into term loans.
However, this master letter of credit facility is not currently in place, and,
if we were required to cash collateralize letters of credit prior to obtaining
the facility, we would be required to use cash on hand or existing credit
facilities. Substantial cash collateralization requirements prior to our being
able to enter into a new master letter of credit facility may have a material
adverse effect on our financial condition. We will not enter into the
pre-packaged Chapter 11 filing without having this or a similar letter of credit
facility in place. There can be no assurance that we will be able to enter into
such a facility on reasonable terms or on terms acceptable to us or at all.
THE ANTICIPATED CHAPTER 11 FILING OF SOME OF OUR SUBSIDIARIES AND THE PROPOSED
SETTLEMENT COULD CAUSE A DEFAULT UNDER OUR DEBT DOCUMENTS AND THE DEBT
DOCUMENTS OF OUR SUBSIDIARIES INVOLVED IN THE BANKRUPTCY PROCEEDING.
Some of the credit agreements and indentures to which we and our
subsidiaries are party, including the letters of credit relating to the
Barracuda-Caratinga project, contain default provisions that may be triggered by
the anticipated Chapter 11 filing of some of our material subsidiaries or the
proposed settlement and the consequences therefrom. We are attempting to obtain
consents or amendments to
19
eliminate possible events of default, but there can be no assurance that we will
obtain any such consents or amendments. If we are unable to obtain these
consents or amendments, a default may occur under some of these debt
instruments, which, unless waived, may trigger an obligation to immediately pay
any amounts due thereunder or cause the facility to terminate. Certain defaults
could, in turn, cause a default under other of our or our subsidiaries' debt
instruments. A default on some of our or our subsidiaries' indebtedness could
adversely affect our credit rating. The acceleration of a substantial amount of
our debt or the reduction in our debt's credit ratings may adversely affect our
financial condition and our ability to finance the proposed settlement.
THE ANTICIPATED CHAPTER 11 FILING OF SOME OF OUR SUBSIDIARIES MAY NEGATIVELY
AFFECT THEIR ABILITY TO OBTAIN NEW BUSINESS IN THE FUTURE AND CONSEQUENTLY MAY
HAVE A NEGATIVE IMPACT ON OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Because Halliburton's financial condition and its results of operations
depend on distributions from its subsidiaries, the anticipated Chapter 11 filing
of some of them, including DII Industries and Kellogg Brown & Root, may have a
negative impact on Halliburton's cash flow and distributions from those
subsidiaries. For example, a Chapter 11 filing may adversely affect the ability
of our subsidiaries in Chapter 11 proceedings to obtain new orders from current
or prospective customers. In addition, as a result of the proposed Chapter 11
proceeding, some current and prospective customers, suppliers and other vendors
may assume that our subsidiaries are financially weak and will be unable to
honor obligations, making those customers, suppliers and other vendors reluctant
to do business with our subsidiaries. In particular, some governments may be
unwilling to conduct business with a subsidiary in Chapter 11 or having recently
filed a Chapter 11 proceeding. The Chapter 11 proceeding also may affect
adversely their ability to negotiate favorable terms with customers, suppliers
and other vendors. DII Industries' and Kellogg Brown & Root's financial
condition and results of operations could be materially and adversely affected
if they cannot attract customers, suppliers and other vendors or obtain
favorable terms from customers, suppliers or other vendors. Consequently, our
financial condition and results of operations could be adversely affected.
Further, a prolonged Chapter 11 proceeding could adversely affect the
relationship that DII Industries, Kellogg Brown & Root and their subsidiaries
involved in the Chapter 11 proceeding have with their customers, suppliers and
employees, which in turn could adversely affect their competitive positions,
financial conditions and results of operations. A weakening of their financial
conditions and results of operations could adversely affect their ability to
implement the plan of reorganization.
FEDERAL BANKRUPTCY LAW AND STATE STATUTES MAY, UNDER SPECIFIC CIRCUMSTANCES,
VOID PAYMENTS MADE BY OUR SUBSIDIARIES TO US AND VOID PRINCIPAL AND INTEREST
PAYMENTS MADE BY US TO YOU ON THE NOTES AND YOU MAY BE FORCED TO RETURN SUCH
PAYMENTS.
Under federal bankruptcy law and various state fraudulent transfer laws,
payments and distributions made by DII Industries to us prior to its Chapter 11
filing could, under specific circumstances, be voided as preferential transfers
if such payments or distributions occur up to one year prior to DII Industries'
Chapter 11 filing. Since we rely primarily on dividends from our subsidiaries
and other intercompany transactions to meet our obligations for payment of
principal and interest on our outstanding debt obligations, any voidance of such
payments by our subsidiaries to us could limit our ability to make principal and
interest payments on the notes. The use of payments made by DII Industries to us
for the purpose of making principal and interest payments to you on the notes
during the period of 90 days prior to DII Industries' Chapter 11 filing can also
be similarly voided. If the principal and interest payments made by us to you on
the notes are voided, a court may require you to return the payments that you
have received from us on the notes. Dividend payments from DII Industries to us
could also, under specific circumstances, be voided as illegal dividends,
fraudulent transfers or conveyances to the extent that a court determines that
DII Industries was insolvent at the time these dividend payments were made.
Furthermore, during the DII Industries Chapter 11 proceeding, DII Industries
likely would be unable to
20
make any dividend or other payments to us. The occurrence of these events may
severely limit our ability to meet our obligations for payment of principal and
interest on the notes.
A COURT COULD DETERMINE THAT THE DISTRIBUTION OF HALLIBURTON ENERGY SERVICES
STOCK TO HALLIBURTON IS A FRAUDULENT TRANSFER UNDER STATE LAW OR FEDERAL
BANKRUPTCY LAW WHICH WOULD IMPAIR OUR ABILITY TO MAKE PAYMENTS ON THE NOTES.
Under the terms of the proposed settlement, we plan to implement a
pre-packaged Chapter 11 plan of reorganization for DII Industries and other of
our subsidiaries with U.S. operations. Currently, Halliburton Energy Services,
Inc. is a wholly owned subsidiary of DII Industries. As part of the plan of
reorganization, prior to its Chapter 11 filing, DII Industries intends to
distribute to Halliburton all of the capital stock of Halliburton Energy
Services, after which DII Industries will be a wholly owned subsidiary of
Halliburton Energy Services.
While we expect that asbestos and silica claimants will approve the plan of
reorganization, which includes the distribution of Halliburton Energy Services
stock by DII Industries to Halliburton, another creditor of DII Industries could
claim that the transfer of Halliburton Energy Services stock to Halliburton by
DII Industries prior to the Chapter 11 filing constitutes a fraudulent transfer.
While we are obtaining legal advice and solvency opinions that would support a
conclusion that the distribution does not constitute a fraudulent transfer, if a
court were to determine that the distribution of Halliburton Energy Services
stock by DII Industries to Halliburton constituted a fraudulent transfer, then
Halliburton Energy Services may be required to remain a subsidiary of DII
Industries or we may be required to pay the creditor the lesser of the relevant
value of (1) the avoided transfer (in this case the value of the Halliburton
Energy Services stock) or obligation and (2) the amount necessary to satisfy the
claims of the creditors. Due to bankruptcy rules which would be applicable to
DII Industries in the event of a Chapter 11 proceeding and that would limit or
prohibit the payment of dividends or other distributions by DII Industries and
its subsidiaries (including Halliburton Energy Services), if Halliburton Energy
Services were to remain a subsidiary of DII Industries, we would effectively be
prohibited from receiving funds from Halliburton Energy Services during any
period of time in which DII Industries is in Chapter 11 proceedings. The
occurrence of this event could severely limit our ability to meet our
obligations for payment of principal and interest on the notes.
The successful prosecution of a claim by or on behalf of a debtor or its
creditor under the applicable fraudulent transfer laws generally would require a
determination that the debtor effected a transfer of an asset or incurred an
obligation to an entity either:
- with an actual intent to hinder, delay or defraud its existing or future
creditors (a case of "actual fraud"); or
- in exchange otherwise than for a "reasonably equivalent" value or a "fair
consideration," and that the debtor:
-- was insolvent or rendered insolvent by reason of the transfer or
incurrence;
-- was engaged or about to engage in a business or transaction for
which its remaining assets would constitute unreasonably small
capital; or
-- intended to incur, or believed that it would incur, debts beyond
its ability to pay as they mature (a case of "constructive fraud").
In the case of either actual fraud or constructive fraud, the unsecured
creditors affected thereby might be entitled to equitable relief against the
transferee of the assets or the obligee of the incurred obligation in the form
of a recovery of the lesser of (1) the relevant value of the avoided transfer or
obligation or (2) the amount necessary to satisfy their claims.
21
The measure of insolvency for purposes of a constructive-fraud action would
depend on the fraudulent transfer law being applied. Generally, an entity would
be considered insolvent if either, at the relevant time:
- the sum of its debts and liabilities, including contingent liabilities,
was greater than the value of its assets, at a fair valuation; or
- the fair salable value of its assets was less than the amount required to
pay the probable liability on its total existing debts and other
liabilities, including contingent liabilities, as they become absolute
and mature.
The transactions of the debtors which could be subject to review and
possible avoidance under the applicable fraudulent transfer law would be limited
to those occurring within the relevant limitations period. In the case of
fraudulent transfer actions under the United States Bankruptcy Code, that period
would be the 12-month period ending on the petition date. In the case of actions
under a state fraudulent transfer law, the limitations period ranges from one
year to six years or more after the questioned transfer or incurrence of an
obligation is effected. Under most state laws, including the laws of
Pennsylvania and Texas, the limitations period generally would be four years.
RISKS RELATING TO OUR PENDING SEC INVESTIGATION
WE ARE SUBJECT TO AN SEC INVESTIGATION, WHICH COULD MATERIALLY AFFECT US.
We are currently the subject of a formal investigation by the SEC, which
has focused on the compliance with generally accepted accounting principles of
our recording of revenues associated with cost overruns and unapproved claims
for long-term engineering and construction projects, and the disclosure of our
accrual practices. Although we do not believe that the investigation has
expanded beyond these matters, there can be no assurance that the SEC will not
open additional lines of inquiry. In addition, although we believe that our
accounting for these matters was and is in accordance with generally accepted
accounting principles, we cannot predict the outcome of the SEC's investigation
or when the investigation will be resolved. An unexpected adverse outcome of
this investigation could have a material adverse effect on us and result in:
- the institution of administrative, civil, injunctive or criminal
proceedings;
- sanctions and the payment of fines and penalties;
- the restatement of our financial results for the years under review;
- additional shareholder lawsuits; and
- increased review and scrutiny of us by regulatory authorities, the media
and others.
From time to time, we enter into registration rights agreements in
connection with securities offerings with the initial purchasers of the offered
securities, including in connection with the private placement of the 3 1/8%
senior convertible notes, whereby we agree to use our reasonable best efforts to
have a registration statement declared effective within specified time periods.
We may not be able to have a registration statement declared effective within
the time period specified due in part to the pending SEC investigation. If we
are unable to have a registration statement declared effective within agreed
time periods, we may be obligated to pay additional interest amounts to the
holders of the securities that would otherwise have been registered, which
amounts could be substantial.
RISKS RELATING TO GEOPOLITICAL AND INTERNATIONAL EVENTS
INTERNATIONAL AND POLITICAL EVENTS MAY ADVERSELY AFFECT OUR OPERATIONS.
A significant portion of our revenue is derived from our non-U.S.
operations, which exposes us to risks inherent in doing business in each of the
more than 100 other countries in which we transact business. The occurrence of
any of the risks described below could have an adverse effect on our
consolidated results of operations and consolidated financial condition.
22
Our operations in more than 100 countries other than the United States
accounted for approximately 67% of our consolidated revenues during the first
six months of 2003 and during 2002, 62% of our consolidated revenues during 2001
and 66% of our consolidated revenues during 2000. Operations in countries other
than the United States are subject to various risks peculiar to each country.
With respect to any particular country, these risks may include:
- expropriation and nationalization of our assets in that country;
- political and economic instability;
- social unrest, acts of terrorism, force majeure, war or other armed
conflict;
- inflation;
- currency fluctuations, devaluations and conversion restrictions;
- confiscatory taxation or other adverse tax policies;
- governmental activities that limit or disrupt markets, restrict payments
or limit the movement of funds;
- governmental activities that may result in the deprivation of contract
rights; and
- trade restrictions and economic embargoes imposed by the United States
and other countries, including current restrictions on our ability to
provide products and services to Iran and Libya, both of which are
significant producers of oil and gas.
Due to the unsettled political conditions in many oil producing countries
and countries in which we provide governmental logistical support, our revenues
and profits are subject to the adverse consequences of war, the effects of
terrorism, civil unrest, strikes, currency controls and governmental actions.
Countries where we operate that have significant amounts of political risk
include: Afghanistan, Algeria, Angola, Colombia, Indonesia, Iraq, Libya,
Nigeria, Russia and Venezuela. For example, continued economic unrest and
general strikes in Venezuela, changes in the general economic policies and
regulations in Argentina, as well as seizures of offshore oil rigs by protestors
in Nigeria have disrupted our Energy Services Group's ability to provide
services and products to our customers in these countries. In addition, military
action or continued unrest in the Middle East could impact the demand and
pricing for oil and gas, disrupt our operations in the region and elsewhere and
increase our costs for security worldwide.
MILITARY ACTION, WAR, OTHER ARMED CONFLICTS OR TERRORIST ATTACKS COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
Military action in Iraq, increasing military tension involving North Korea,
as well as the terrorist attacks of September 11, 2001 and subsequent terrorist
attacks and unrest, have caused instability in the world's financial and
commercial markets, have significantly increased political and economic
instability in some of the geographic areas in which we operate and have
contributed to high levels of volatility in prices for oil and gas in recent
months. Recent acts of terrorism and threats of armed conflicts in or around
various areas in which we operate, such as the Middle East and Indonesia, could
limit or disrupt our markets and operations, including disruptions resulting
from the evacuation of personnel, cancellation of contracts or the loss of
personnel or assets.
Military action in Iraq, as well as threats of war or other armed conflict
elsewhere, may cause further disruption to financial and commercial markets
generally, may generate greater political and economic instability in some of
the geographic areas in which we operate and may contribute to even higher
levels of volatility in prices for oil and gas than those experienced in recent
months. In addition, any possible reprisals as a consequence of the war with and
ongoing military action in Iraq, such as acts of terrorism in the United States
or elsewhere, may materially adversely affect us in ways we cannot predict at
this time.
23
RISKS RELATING TO OUR BUSINESS
OUR BUSINESS DEPENDS ON THE LEVEL OF ACTIVITY IN THE OIL AND NATURAL GAS
INDUSTRY, WHICH IS SIGNIFICANTLY AFFECTED BY VOLATILE OIL AND GAS PRICES.
Demand for our services and products depends on oil and natural gas
industry activity and expenditure levels that are directly affected by trends in
oil and natural gas prices. A prolonged downturn in oil and gas prices could
have a material adverse effect on our consolidated results of operations and
consolidated financial condition.
Demand for our products and services is particularly sensitive to the level
of development, production and exploration activity of, and the corresponding
capital spending by, oil and natural gas companies. Prices for oil and natural
gas are subject to large fluctuations in response to relatively minor changes in
the supply of and demand for oil and natural gas, market uncertainty and a
variety of other factors that are beyond our control. Any prolonged reduction in
oil and natural gas prices will depress the level of exploration, development
and production activity. Lower levels of activity result in a corresponding
decline in the demand for our oil and natural gas well services and products
that could have a material adverse effect on our revenues and profitability.
Factors affecting the prices of oil and natural gas include:
- governmental regulations;
- global weather conditions;
- worldwide political, military and economic conditions, including the
ability of OPEC to set and maintain production levels and prices for oil;
- the level of oil production by non-OPEC countries;
- the policies of governments regarding the exploration for and production
and development of their oil and natural gas reserves;
- the cost of producing and delivering oil and gas; and
- the level of demand for oil and natural gas, especially demand for
natural gas in the United States.
Historically, the markets for oil and gas have been volatile and are likely
to continue to be volatile in the future.
Spending on exploration and production activities and capital expenditures
for refining and distribution facilities by large oil and gas companies have a
significant impact on the activity levels of our businesses.
THE BARRACUDA-CARATINGA PROJECT IS CURRENTLY BEHIND SCHEDULE, HAS SUBSTANTIAL
COST OVERRUNS AND MAY RESULT EITHER IN DAMAGES PAYABLE BY US OR OUR INABILITY
TO RECOVER OUR COSTS ASSOCIATED WITH THE PROJECT.
In June 2000, Kellogg Brown & Root entered into a fixed-price contract with
the project owner, Barracuda & Caratinga Leasing Company B.V., to develop the
Barracuda and Caratinga crude oil fields, which are located off the coast of
Brazil. The project manager and owner's representative is Petroleo Brasileiro SA
(Petrobras), the Brazilian national oil company. When completed, the project
will consist of two converted supertankers which will be used as floating
production, storage and offloading platforms, or FPSOs, 33 hydrocarbon
production wells, 18 water injection wells, and all sub-sea flow lines and
risers necessary to connect the underwater wells to the FPSOs.
24
THE LETTERS OF CREDIT RELATED TO THE BARRACUDA-CARATINGA PROJECT MAY
BE DRAWN IF WE DEFAULT UNDER THE CONTRACT OR AS A RESULT OF THE
CONTEMPLATED CHAPTER 11 PROCEEDINGS OF KELLOGG BROWN & ROOT.
Kellogg Brown & Root's performance under the contract is secured by:
- three performance letters of credit, which together have an
available credit of approximately $266.0 million as of June 30, 2003
and which represent approximately 10% of the contract amount, as
amended to date by change orders;
- a retainage letter of credit in an amount equal to $141.0 million as
of June 30, 2003 and which will increase in order to continue to
represent 10% of the cumulative cash amounts paid to Kellogg Brown &
Root; and
- a guarantee of Kellogg Brown & Root's performance of the agreement
by Halliburton Company in favor of the project owner.
In the event that Kellogg Brown & Root is alleged to be in default
under the contract, the project owner may assert a right to draw upon the
letters of credit. If the letters of credit were to be drawn, Kellogg Brown
& Root would be required to fund the amount of the draw to the issuing
banks. To the extent Kellogg Brown & Root cannot fund the amount of the
draw, Halliburton would be required to do so, which could have a material
adverse effect on Halliburton's financial condition and results of
operations.
In addition, the proposed Chapter 11 pre-packaged bankruptcy filing by
Kellogg Brown & Root in connection with the proposed settlement of its
asbestos claims would constitute an event of default under the contract
that would allow the owner (with the approval of the lenders financing the
project) to assert a right to draw the letters of credit unless we are able
to obtain a waiver. The proposed Chapter 11 filing would also constitute an
event of default under the owner's loan agreements with the lenders that
would allow the lenders to cease funding the project. We believe that it is
unlikely that the owner will make a draw on the letters of credit as a
result of the proposed Chapter 11 filing. We also believe it is unlikely
that the lenders will exercise any right to cease funding the project given
the current status of the project and the fact that a failure to pay
Kellogg Brown & Root may allow Kellogg Brown & Root to cease work on the
project without Petrobras having a readily available substitute contractor.
However, there can be no assurance that the lenders will continue to fund
the project or that the owner will not require funding of the letters of
credit by Kellogg Brown & Root.
Notwithstanding the foregoing, as described under "Description of
Anticipated Indebtedness -- Master LC Facility," we anticipate that the
letters of credit would be included in the Master LC Facility. As such, a
draw on such letters of credit prior to the Term-Out Date would become an
LC Advance subject to the terms of the Master LC Facility.
KELLOGG BROWN & ROOT MAY HAVE TO PAY DAMAGES AND OTHER AMOUNTS IN
EXCESS OF THE AMOUNTS CURRENTLY RECORDED.
As of June 30, 2003, the project was approximately 75% complete and
Kellogg Brown & Root had recorded a pretax loss of $345.0 million related
to the project, of which $173.0 million was recorded in the second quarter
of 2003. The second quarter 2003 charge was due to higher cost estimates,
schedule extensions, increased project contingencies and other factors
identified during the quarterly review of the project. The probable
unapproved claims included in determining the loss on the project were
$182.0 million as of June 30, 2003. The claims for the project most likely
will not be settled within one year. Accordingly, based upon the contract
being approximately 75% complete, probable unapproved claims of $134.0
million at June 30, 2003 have been recorded to long-term unbilled work on
uncompleted contracts. Kellogg Brown & Root has asserted claims for
compensation substantially in excess of $182.0 million. The project owner,
through its project manager, Petrobras, has denied responsibility for all
such claims. Petrobras has, however, issued formal change orders
25
worth approximately $61.0 million which are not included in the $182.0
million in probable unapproved claims.
In the event that Kellogg Brown & Root was determined after an
arbitration proceeding to have been in default under the contract with
Petrobras, and if the project was not completed by Kellogg Brown & Root as
a result of such default (i.e., Kellogg Brown & Root's services are
terminated as a result of such default), the project owner may seek direct
damages (including completion costs in excess of the contract price and
interest on borrowed funds, but excluding consequential damages) against
Kellogg Brown & Root for up to $500.0 million plus the return of up to
$300.0 million in advance payments previously received by Kellogg Brown &
Root to the extent they have not been repaid. A termination of the contract
by the project owner could have a material adverse effect on our financial
condition and results of operation.
IN ADDITION TO THE AMOUNTS DESCRIBED ABOVE, KELLOGG BROWN & ROOT MAY
HAVE TO PAY LIQUIDATED DAMAGES IF THE PROJECT IS DELAYED BEYOND THE
ORIGINAL CONTRACT COMPLETION DATE.
Kellogg Brown & Root expects that the project will likely be completed
at least 16 months later than the original contract completion date. In the
event that any portion of the delay is determined to be attributable to
Kellogg Brown & Root and any phase of the project is completed after the
milestone dates specified in the contract, Kellogg Brown & Root could be
required to pay liquidated damages. These damages would be calculated on an
escalating basis of approximately $1.0 million per day of delay caused by
Kellogg Brown & Root, subject to a total cap on liquidated damages of 10%
of the final contract amount (yielding a cap of approximately $266.0
million as of June 30, 2003). The amount of liquidated damages could have a
material adverse effect on our financial condition and results of
operations.
IF OUR AGREEMENT TO SETTLE AND/OR ARBITRATE CERTAIN CLAIMS IS NOT
FINALIZED, KELLOGG BROWN & ROOT MAY HAVE TO PAY SUBSTANTIAL ADDITIONAL
AMOUNTS AND MAY NOT RECOVER AMOUNTS IT EXPECTS TO RECOVER.
In June 2003, Halliburton, Kellogg Brown & Root and Petrobras, on
behalf of the project owner, entered into a non-binding heads of agreement
that would resolve some of the disputed issues between the parties, subject
to final agreement and lender approval. The original completion date for
the Barracuda project was December 2003 and the original completion date
for the Caratinga project was April 2004. Under the heads of agreement, the
project owner would grant an extension of time to the original completion
dates and other milestone dates, delay any attempt to assess the original
liquidated damages against Kellogg Brown & Root for project delays beyond
12 months and up to 18 months, delay any drawing of letters of credit with
respect to such liquidated damages and delay the return of any of the
$300.0 million in advance payments until after arbitration. The heads of
agreement also provides for a separate liquidated damages calculation of
$450,000 per day for each of the Barracuda and the Caratinga vessels for a
delay from the original schedule beyond 18 months (subject to the total cap
on liquidated damages of 10% of the final contract amount). The heads of
agreement does not delay the drawing of letters of credit for these
liquidated damages. The extension of the original completion dates and
other milestones would significantly reduce the likelihood of Kellogg Brown
& Root incurring liquidated damages on the project. Nevertheless, Kellogg
Brown & Root continues to have exposure for substantial liquidated damages
for delays in the completion of the project.
Under the heads of agreement, the project owner has agreed to pay
$59.0 million of Kellogg Brown & Root's disputed claims (which are included
in the $182.0 million of probable unapproved claims as of June 30, 2003)
and to arbitrate additional claims. The maximum recovery from the claims to
be arbitrated would be capped at $375.0 million. The heads of agreement
also allows the project owner or Petrobras to arbitrate additional claims
against Kellogg Brown & Root, not including liquidated damages, the maximum
recovery from which would be capped at $380.0 million.
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The finalization of the heads of agreement is subject to project
lender approval. The parties have had discussions with the lenders and
based on these discussions have agreed to certain modifications to the
original terms of the heads of agreement to conform to the lender's
requirements. They have agreed that the $300.0 million in advance payments
would be due on the earliest of December 7, 2004, the completion of any
arbitration or the resolution of all claims between the project owner and
Kellogg Brown & Root. Likewise, the project owner's obligation to defer
drawing letters of credit with respect to liquidated damages for the delays
between 12 and 18 months would extend only until December 7, 2004. The
discussions with the lenders are not yet complete, and no agreement for
their approval has yet been obtained. While we believe the lenders have an
incentive to approve the heads of agreement and complete the financing of
the project, and the parties have agreed to the modifications described
above to the heads of agreement to secure the lenders' approval, there is
no assurance that they will do so. If the lenders do not consent to the
heads of agreement, Petrobras may be forced to secure other funding to
complete the project. We cannot assure you that Petrobras will pursue or
will be able to secure such funding.
Absent finalization of the heads of agreement, Kellogg Brown & Root
could be subject to additional liquidated damages and other claims, be
subject to the letters of credit being drawn and be required to return the
$300.0 million in advance payments in accordance with the original contract
terms. The original contract terms require repayment through $300.0 million
of credits to the last $350.0 million of invoices on the contract.
Negotiation of the documents necessary to finalize the heads of agreement
is on-going with counsel for Petrobras (on behalf of the project owner) and
the lenders. We expect these negotiations to be concluded during the fourth
quarter of this year. Nevertheless, no assurance can be given that the
heads of agreement will be finalized or that the lenders will approve the
heads of agreement or that the lenders will approve the heads of agreement
without revisions that could adversely affect Kellogg Brown & Root. A
failure to complete and finalize the heads of agreement could have a
material adverse effect on our financial condition and results of
operation.
FUNDING OF THE PROJECT MAY BE INSUFFICIENT TO COVER ALL AMOUNTS
CLAIMED BY KELLOGG BROWN & ROOT.
The project owner has procured project finance funding obligations
from various lenders to finance the payments due to Kellogg Brown & Root
under the contract. The project owner currently has no other committed
source of funding on which we can necessarily rely other than the project
finance funding for the project. If the lenders cease to fund the project,
the project owner may not have the ability to continue to pay Kellogg Brown
& Root for its services. The original loan documents provide that the
lenders are not obligated to continue to fund the project if the project
has been delayed for more than 6 months. In November 2002, the lenders
agreed to extend the 6-month period to 12 months. Other provisions in the
loan documents may provide for additional time extensions. However, delays
beyond 12 months may require lender consent in order to obtain additional
funding. While we believe the lenders have an incentive to complete the
financing of the project, there is no assurance that they would do so. If
the lenders did not consent to extensions of time or otherwise ceased
funding the project, we believe that Petrobras would provide for or secure
other funding to complete the project, although there is no assurance that
it would do so. To date, the lenders have made funds available, and the
project owner has continued to disburse funds to Kellogg Brown & Root as
payment for its work on the project even though the project completion has
been delayed.
In addition, although the project financing includes borrowing
capacity in excess of the original contract amount, only $250.0 million of
this additional borrowing capacity is reserved for increases in the
contract amount payable to Kellogg Brown & Root and its subcontractors.
Under the loan documents, the availability date for loan draws expires
December 1, 2003. As a condition to approving the heads of agreement, the
lenders will require the project owner to draw all remaining available
funds prior to December 1, 2003, and to escrow the funds for the exclusive
use of paying project
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costs. No funds may be paid to Petrobras or its subsidiary (which is
funding the drilling costs of the project) until all amounts due to Kellogg
Brown & Root, including amounts due for the claims, are liquidated and
paid. While this potentially increases the funds available for payment to
Kellogg Brown & Root, Kellogg Brown & Root is not party to the arrangement
between the lenders and the project owner and can give no assurance that
there will be adequate funding to cover current or future Kellogg Brown &
Root claims and change orders.
Kellogg Brown & Root has now begun to fund operating cash shortfalls
on the project and would be obligated to fund such shortages over the
remaining project life in an amount we currently estimate to be
approximately $500.0 million (assuming generally that neither we nor the
project owner are successful in recovering claims against the other and
that no liquidated damages are imposed). Under the same assumptions, except
assuming that Kellogg Brown & Root recovers unapproved claims in the
amounts currently recorded on our books, the cash shortfall would be
approximately $320.0 million. There can be no assurance that Kellogg, Brown
& Root will recover amounts in excess of the amount of unapproved claims on
its books.
WE MAY BE REQUIRED TO PAY ADDITIONAL VAT TAXES RELATED TO THE
BARRACUDA-CARATINGA PROJECT.
Value added, or VAT, taxes of up to $293.0 million may be or become due on
the project. The project owner is contesting the reimbursability of up to $227.0
million of these potential VAT taxes. The contract provides that Kellogg Brown &
Root is responsible for taxes in effect on the contract date, but not for
increased costs due to changes in the tax laws that occur after the date of the
contract. The parties agree that certain changes in the tax laws occurred after
the date of the contract, but do not agree on how much of the increase in taxes
was due to that change or which party is responsible for ultimately paying these
taxes. Up to approximately $100.0 million of VAT taxes may be due in stages from
November 2003 through April 2004, with the balance due in stages later in 2004.
Depending on when the VAT taxes are deemed due and when they are paid, penalties
and interest on the taxes of between $50-$100 million may also be due, the
reimbursability of which the project owner may also contest. There can be no
assurance that we will not be required to pay all or a portion of these VAT
taxes and obligations.
WE MAY PURSUE ACQUISITIONS, DISPOSITIONS, INVESTMENTS AND JOINT VENTURES,
WHICH COULD AFFECT OUR RESULTS OF OPERATIONS.
We may actively seek opportunities to maximize efficiency and value through
various transactions, including purchases or sales of assets, investments or
contractual arrangements or joint ventures. These transactions would be intended
to result in the realization of savings, the creation of efficiencies, the
generation of cash or income or the reduction of risk. Acquisition transactions
may be financed by additional borrowings or by the issuance of common stock of
Halliburton. These transactions may also affect our results of operations.
These transactions also involve risks and we cannot assure you that:
- any acquisitions would result in an increase in income;
- any acquisitions would be successfully integrated into our operations;
- any disposition would not result in decreased revenue or cash flow;
- any dispositions, investments, acquisitions or integrations would not
divert management resources; or
- any dispositions, investments, acquisitions or integrations would not
have an adverse effect on our results of operations or financial
condition.
We conduct some operations through joint ventures, where control may be
shared with unaffiliated third parties. As with any joint venture arrangement,
differences in views among the joint venture participants may result in delayed
decisions or in failures to agree on major issues. This could potentially
adversely affect the business and operations of the joint venture and, in turn,
our business and operations.
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A SIGNIFICANT PORTION OF OUR ENGINEERING AND CONSTRUCTION PROJECTS IS ON A
FIXED-PRICE BASIS, SUBJECTING US TO THE RISKS ASSOCIATED WITH COST OVER-RUNS
AND OPERATING COST INFLATION.
We contract to provide services either on a time-and-materials basis or on
a fixed-price basis, with fixed-price (or lump sum) contracts accounting for
approximately 20% of our revenues for the six months ended June 30, 2003 and 21%
of our revenues for the year ended December 31, 2002. We bear the risk of cost
over-runs, operating cost inflation, labor availability and productivity and
supplier and subcontractor pricing and performance in connection with projects
covered by fixed-price contracts. Our failure to estimate accurately the
resources and time required for a fixed-price project, or our failure to
complete our contractual obligations within the time frame committed, could have
a material adverse effect on our business, results of operations and financial
condition.
CHANGES IN GOVERNMENTAL SPENDING AND CAPITAL SPENDING BY OUR CUSTOMERS MAY
ADVERSELY AFFECT US.
Our business is directly affected by changes in governmental spending and
capital expenditures by our customers. Some of the changes that may adversely
affect us include:
- a decrease in the magnitude of governmental spending and outsourcing for
military and logistical support of the type that we provide;
- an increase in the magnitude of governmental spending and outsourcing for
military and logistical support, which can adversely affect our liquidity
needs as a result of additional or continued working capital requirements
to support this work;
- a decrease in capital spending by customers in the oil and gas industry
for exploration, development, production, processing, refining and
pipeline delivery networks;
- a decrease in capital spending by governments for infrastructure projects
of the type that we undertake; and
- the consolidation of our customers, which has (1) caused customers to
reduce their capital spending, which has reduced the demand for our
services and products, and (2) resulted in customer personnel changes,
which in turn affects the timing of contract negotiations and settlements
of claims and claim negotiations with engineering and construction
customers on cost variances and change orders on major projects.
WE ARE SUSCEPTIBLE TO ADVERSE WEATHER CONDITIONS IN OUR REGIONS OF OPERATIONS.
Our business may be adversely affected by severe weather, particularly in
the Gulf of Mexico where we have significant operations. Repercussions of severe
weather conditions may include:
- evacuation of personnel and curtailment of services;
- weather related damage to offshore drilling rigs resulting in suspension
of operations;
- weather related damage to our facilities;
- inability to deliver materials to jobsites in accordance with contract
schedules; and
- loss of productivity.
Because demand for natural gas in the United States drives a
disproportionate amount of our Energy Services Group's U.S. business, warmer
than normal winters in the United States are detrimental to the demand for our
services to gas producers.
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WE ARE SUBJECT TO VARIOUS OPERATIONAL AND PERFORMANCE RISKS RELATED TO
PROJECTS WE UNDERTAKE AND SERVICES THAT WE PROVIDE.
We are subject to various operational and performance risks related to
projects we undertake and services that we provide. These risks include:
- changes in the price or the availability of commodities that we use;
- non-performance, default or bankruptcy of joint venture partners, key
suppliers or subcontractors;
- risks that result from performing fixed-price projects (see "-- A
significant portion of our engineering and construction projects is on a
fixed-price basis, subjecting us to the risks associated with cost
over-runs and operating cost inflation" above); and
- risks that result from entering into complex business arrangements for
technically demanding projects where failure by one or more parties could
result in monetary penalties.
OUR ABILITY TO COMPETE OUTSIDE OF THE UNITED STATES MAY BE ADVERSELY AFFECTED
BY GOVERNMENTAL REGULATIONS PROMULGATED IN NUMEROUS COUNTRIES IN WHICH WE
TRANSACT BUSINESS.
If the governmental regulations promulgated in the numerous countries in
which we transact business apply to us, they may require us to engage in
business practices that may not be to our benefit. Those kinds of regulations
frequently:
- encourage or mandate the hiring of local contractors or suppliers; and
- require foreign contractors to employ citizens of, or purchase supplies
from, a particular jurisdiction.
As a result, we may be required to engage in business practices that are
uneconomical and that could adversely impact our results of operations.
WE ARE SUBJECT TO TAXATION IN MANY JURISDICTIONS AND THERE ARE INHERENT
UNCERTAINTIES IN THE FINAL DETERMINATION OF OUR TAX LIABILITIES.
We have operations in more than 100 countries other than the United States
and as a result are subject to taxation in many jurisdictions. Therefore, the
final determination of our tax liabilities involves the interpretation of the
statutes and requirements of taxing authorities worldwide. Foreign income tax
returns of foreign subsidiaries, unconsolidated affiliates and related entities
are routinely examined by foreign tax authorities. These tax examinations may
result in assessments of additional taxes or penalties or both. Additionally,
new taxes, such as the proposed excise tax in the United States targeted at
heavy equipment of the type we own and use in our operations, could negatively
affect our results of operations.
WE ARE SUBJECT TO SIGNIFICANT FOREIGN EXCHANGE AND CURRENCY RISKS THAT COULD
ADVERSELY AFFECT OUR OPERATIONS AND OUR ABILITY TO REINVEST EARNINGS FROM
OPERATIONS.
A sizable portion of our consolidated revenues and consolidated operating
expenses are in foreign currencies. As a result, we are subject to significant
risks, including:
- foreign exchange risks resulting from changes in foreign exchange rates
and the implementation of exchange controls such as those experienced in
Argentina in late 2001 and early 2002; and
- limitations on our ability to reinvest earnings from operations in one
country to fund the capital needs of our operations in other countries.
We do business in countries that have non-traded or "soft" currencies which
have restricted or limited trading markets. We may accumulate cash in soft
currencies and we may be limited in our ability to convert our profits into U.S.
dollars or to repatriate the profits from those countries.
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OUR ABILITY TO LIMIT OUR FOREIGN EXCHANGE RISK THROUGH HEDGING TRANSACTIONS
MAY BE LIMITED.
We selectively use hedging transactions to limit our exposure to risks from
doing business in foreign currencies. For those currencies that are not readily
convertible, our ability to hedge our exposure is limited because financial
hedge instruments for those currencies are nonexistent or limited. Our ability
to hedge is also limited because pricing of hedging instruments, where they
exist, is often volatile and not necessarily efficient.
In addition, the risk inherent in the use of derivative instruments of the
sort that we use could cause a change in the value of the derivative instruments
as a result of:
- adverse movements in foreign exchange rates;
- interest rates;
- commodity prices; or
- the value and time period of the derivative being different than the
exposures or cash flows being hedged.
WE ARE SUBJECT TO A VARIETY OF ENVIRONMENTAL REQUIREMENTS THAT IMPOSE ON US
OBLIGATIONS OR RESULT IN OUR INCURRING LIABILITIES THAT WILL ADVERSELY AFFECT
OUR RESULTS OF OPERATIONS OR FOR WHICH OUR FAILURE TO COMPLY COULD ADVERSELY
AFFECT US.
Our businesses are subject to a variety of environmental laws, rules and
regulations in the United States and other countries, including those covering
hazardous materials and requiring emission performance standards for facilities.
For example, our well service operations routinely involve the handling of
significant amounts of waste materials, some of which are classified as
hazardous substances. Environmental requirements include, for example, those
concerning:
- the containment and disposal of hazardous substances, oilfield waste and
other waste materials;
- the use of underground storage tanks; and
- the use of underground injection wells.
Environmental requirements generally are becoming increasingly strict.
Sanctions for failure to comply with these requirements, many of which may be
applied retroactively, may include:
- administrative, civil and criminal penalties;
- revocation of permits; and
- corrective action orders, including orders to investigate and/or clean up
contamination.
Failure on our part to comply with applicable environmental requirements
could have an adverse effect on our consolidated financial condition. We are
also exposed to costs arising from environmental compliance, including
compliance with changes in or expansion of environmental requirements, such as
the potential regulation in the United States of our Energy Services Group's
hydraulic fracturing services and products as underground injection, which may
have a material adverse effect on our business, financial condition, operating
results or cash flows.
We are exposed to claims under environmental laws and from time to time
such claims have been made against us. In the United States, environmental laws
and regulations typically impose strict liability. Strict liability means that
in some situations we could be exposed to liability for cleanup costs, natural
resource damages and other damages as a result of our conduct that was lawful at
the time it occurred or the conduct of prior operators or other third parties.
Liability for damages arising as a result of environmental laws could be
substantial and could have a material adverse effect on our consolidated results
of operations.
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DEMAND FOR OUR SERVICES MAY BE ADVERSELY AFFECTED BY ENVIRONMENTAL
REQUIREMENTS.
Changes in environmental requirements may negatively impact demand for our
services. For example, activity by oil and natural gas exploration and
production may decline as a result of environmental requirements (including land
use policies responsive to environmental concerns). Such a decline, in turn,
could have a material adverse effect on us.
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS.
We rely on a variety of intellectual property rights that we use in our
products and services. We may not be able to successfully preserve these
intellectual property rights in the future and these rights could be
invalidated, circumvented or challenged. In addition, the laws of some foreign
countries in which our products and services may be sold do not protect
intellectual property rights to the same extent as the laws of the United
States. Our failure to protect our proprietary information and any successful
intellectual property challenges or infringement proceedings against us could
adversely affect our competitive position.
IF WE DO NOT DEVELOP NEW COMPETITIVE TECHNOLOGIES AND PRODUCTS OR IF OUR
PROPRIETARY TECHNOLOGIES, EQUIPMENT, FACILITIES OR WORK PROCESSES BECOME
OBSOLETE, OUR BUSINESS AND REVENUES MAY BE ADVERSELY AFFECTED.
The market for our products and services is characterized by continual
technological developments to provide better and more reliable performance and
services. If we are not able to design, develop and produce commercially
competitive products and to implement commercially competitive services in a
timely manner in response to changes in technology, our business and revenues
will be adversely affected and the value of our intellectual property may be
reduced. Likewise, if our proprietary technologies, equipment and facilities or
work processes become obsolete, we may no longer be competitive and our business
and revenues will be adversely affected.
WE MAY BE UNABLE TO EMPLOY A SUFFICIENT NUMBER OF TECHNICAL PERSONNEL.
Many of the services that we provide and the products that we sell are
complex and highly engineered and often must perform or be performed in harsh
conditions. We believe that our success depends upon our ability to employ and
retain technical personnel with the ability to design, utilize and enhance these
products and services. In addition, our ability to expand our operations depends
in part on our ability to increase our skilled labor force. The demand for
skilled workers is high and the supply is limited. A significant increase in the
wages paid by competing employers could result in a reduction of our skilled
labor force, increases in the wage rates that we must pay or both. If either of
these events were to occur, our cost structure could increase, our margins could
decrease and our growth potential could be impaired.
RISKS RELATING TO THE NOTES
OUR FINANCIAL CONDITION IS DEPENDENT ON THE EARNINGS OF OUR SUBSIDIARIES.
We are a holding company and our assets consist primarily of direct and
indirect ownership interests in, and our business is conducted substantially
through, our subsidiaries. Consequently, our ability to repay our debt,
including the notes, depends on the earnings of our subsidiaries, as well as our
ability to receive funds from our subsidiaries through dividends, repayment of
intercompany notes or other payments. The ability of our subsidiaries to pay
dividends, repay intercompany debt or make other advances to us is subject to
restrictions imposed by applicable laws (including bankruptcy laws), tax
considerations and the terms of agreements governing our subsidiaries. Our
foreign subsidiaries in particular may be subject to currency controls,
repatriation restrictions, withholding obligations on payments to us, and other
limits. If we do not receive such funds from our subsidiaries, our financial
condition would be materially adversely affected.
32
YOU WILL HAVE NO RECOURSE AGAINST OUR SUBSIDIARIES IN THE EVENT OF A DEFAULT
ON THE NOTES.
As a holding company, we rely primarily on dividends from our subsidiaries
to meet our obligations for payment of principal and interest on our outstanding
debt obligations and corporate expenses. See "-- Our financial condition is
dependent on the earnings of our subsidiaries" above. We are a legal entity
separate and distinct from our subsidiaries, and holders of the notes will be
able to look only to us for payments on the notes. In addition, our right to
receive assets of any subsidiaries upon their liquidation or reorganization, and
the rights of the holders of the notes to share in those assets, would be
subject to the satisfaction of claims of the subsidiaries' creditors.
Consequently, the notes will be subordinate to all liabilities, including their
guarantees of our other indebtedness and their trade payables, of any of our
subsidiaries and any subsidiaries that we may in the future acquire or
establish. We expect that the credit facilities that we enter into in connection
with our proposed settlement will be guaranteed by some of our subsidiaries. See
"Description of Anticipated Indebtedness."
THE NOTES WILL BE EFFECTIVELY JUNIOR TO ALL SECURED INDEBTEDNESS UNLESS THEY
ARE ENTITLED TO BE EQUALLY AND RATABLY SECURED.
The notes will be our unsecured obligations and will rank equally with all
our other unsecured indebtedness. However, the notes are structurally
subordinated to indebtedness of our subsidiaries and effectively subordinated to
our secured debt to the extent of the value of the assets securing such debt. As
of the date of this prospectus, we have no secured indebtedness outstanding.
However, we currently anticipate entering into (1) a senior unsecured credit
facility for an amount up to approximately $1.0 billion, subject to reduction,
(2) an approximately $1.4 billion senior secured letter of credit facility and
(3) an up to $700.0 million senior secured revolving credit facility in
replacement of our existing $350.0 million credit facility. See "Description of
Anticipated Indebtedness." The indenture governing the notes permits us to incur
an amount of secured indebtedness up to 5% of our consolidated net tangible
assets before the notes will be entitled to equal and ratable security and the
notes are effectively junior to any secured indebtedness until the notes are
entitled to be equally and ratably secured. In addition, certain of our notes,
including our 8.75% notes due 2021, our senior notes due 2005, our 5 1/2% senior
notes due 2010, our medium-term notes and any of our 7.6% debentures due 2096
that we issue (see "Description of Anticipated Indebtedness") will, and certain
new issuances may, be entitled to be secured on the same basis as the notes.
In the event that we are declared bankrupt, become insolvent or are
liquidated or reorganized, any debt that ranks ahead of the notes will be
entitled to be paid in full from our assets before any payment may be made with
respect to the notes. Holders of the notes will participate ratably with all
holders of our unsecured indebtedness that is deemed to be of the same class as
the notes, and potentially with all of our other general creditors, based upon
the respective amounts owed to each holder or creditor, in our remaining assets.
In any of the foregoing events, we cannot assure you that there will be
sufficient assets to pay amounts due on the notes. As a result, holders of the
notes may receive less, ratably, than holders of secured indebtedness.
BECAUSE WE ARE A HOLDING COMPANY, THE NOTES ARE STRUCTURALLY SUBORDINATED TO
ALL OF THE INDEBTEDNESS OF OUR SUBSIDIARIES.
The notes are a general unsecured obligation of Halliburton. We are a
holding company and our assets consist primarily of direct and indirect
ownership interests in, and our business is conducted substantially through, our
subsidiaries. As a consequence, any of our indebtedness, including the notes,
are structurally subordinated to all of the indebtedness of our subsidiaries. In
addition, because we are a holding company, our right to participate in any
distribution of assets of any subsidiary upon its liquidation or reorganization
or otherwise, and the ability of holders of the notes to benefit indirectly from
that kind of distribution, is subject to the prior claims of creditors of that
subsidiary, except to the extent that we are recognized as a creditor of that
subsidiary. All obligations of our subsidiaries will have to be satisfied before
any of the assets of such subsidiaries would be available for distribution, upon
a liquidation or otherwise, to us. At June 30, 2003, the aggregate indebtedness
of our subsidiaries was approximately
33
$396.0 million, other liabilities of our subsidiaries, including trade payables,
accrued compensation, advanced billings, income taxes payable and other
liabilities (other than asbestos and intercompany liabilities) were
approximately $4.4 billion, and accrued asbestos liabilities were approximately
$3.4 billion. In addition, while the notes will not be guaranteed by any of our
subsidiaries, borrowings under the letter of credit facility and revolving
credit facility described under "Description of Anticipated Indebtedness" will
be guaranteed by some of our subsidiaries. We also have joint ventures and
subsidiaries in which we own less than 100% of the equity so that, in addition
to the structurally senior claims of creditors of those entities, the equity
interests of our joint venture partners or other shareholders in any dividend or
other distribution made by these entities would need to be satisfied on a
proportionate basis with us. These joint ventures and less than wholly-owned
subsidiaries may also be subject to restrictions on their ability to distribute
cash to us in their financing or other agreements and, as a result, we may not
be able to access their cash flow to service our debt obligations, including in
respect of the notes. Accordingly, the notes are effectively subordinated to all
existing and future liabilities of our subsidiaries and all liabilities of any
of our future subsidiaries.
WE MAY INCUR ADDITIONAL INDEBTEDNESS RANKING EQUAL TO THE NOTES.
If we incur any additional debt that ranks equally with the notes,
including trade payables, the holders of that debt will be entitled to share
ratably with you in any proceeds distributed in connection with any insolvency,
liquidation, reorganization, dissolution or other winding-up of us. This may
have the effect of reducing the amount of proceeds paid to you.
WE WILL BE ABLE TO INCUR MORE INDEBTEDNESS AND THE RISKS ASSOCIATED WITH OUR
LEVERAGE, INCLUDING OUR ABILITY TO SERVICE OUR INDEBTEDNESS, WILL INCREASE AS
WE INCUR ADDITIONAL INDEBTEDNESS.
As of June 30, 2003, we had approximately $2.556 billion of indebtedness,
representing a total debt to capitalization ratio of 42%. In October 2003, we
issued additional unsecured indebtedness in an aggregate principal amount of
$1.05 billion, and we anticipate issuing additional indebtedness to finance the
remaining cash portion of our proposed settlement. See "Description of
Anticipated Indebtedness." Further, the indenture that governs the notes does
not restrict us from issuing additional indebtedness. If our level of debt
becomes substantial, the risks associated with our leverage could have important
consequences to you, including the following:
- our ability to obtain additional financing for working capital, capital
expenditures, acquisitions or general corporate purposes may be impaired;
- we would be obligated to use a substantial portion of our cash flow from
operations to pay interest and principal on the notes and other
indebtedness, which will reduce the funds available to us for other
purposes such as potential acquisitions and capital expenditures;
- we could potentially have a higher level of indebtedness than some of our
competitors, which may put us at a competitive disadvantage and reduce
our flexibility in planning for, or responding to, changing conditions in
our industry, including increased competition; and
- we would be more vulnerable to general economic downturns and adverse
developments in our business.
We expect to obtain money to pay our expenses and to pay the principal and
interest on the notes and other debt from cash flow from distributions from our
subsidiaries. Our ability to meet our expenses depends on our future
performance, which will be affected by financial, business, economic and other
factors. We will not be able to control many of these factors, such as economic
conditions in the markets where we operate and pressure from competitors. The
failure to generate sufficient cash flow could significantly adversely affect
the value of the notes.
34
THERE IS NO TRADING MARKET FOR THE NOTES AND THERE MAY NEVER BE ONE.
The notes are new securities for which currently there are no trading
markets. We do not currently intend to apply for listing of the notes on any
securities exchange. The liquidity of any market for the notes will depend on
the number of holders of those notes, the interest of securities dealers in
making a market in the notes and other factors. Accordingly, we cannot assure
you as to the development of liquidity of any market for the notes. Further, if
markets were to develop, the market price for the notes may be adversely
affected by changes in our financial performance, changes in the overall market
for similar securities and performance or prospects for companies in our
industry.
WE MAY NOT BE ABLE TO PURCHASE THE NOTES UPON AN AGREED PURCHASE DATE OR A
FUNDAMENTAL CHANGE, AND MAY NOT BE OBLIGATED TO PURCHASE THE NOTES UPON
CERTAIN CORPORATE TRANSACTIONS.
On July 15, 2008, July 15, 2013 and July 15, 2018, holders of the notes may
require us to purchase their notes for cash. In addition, before July 15, 2008,
holders of the notes may require us to purchase their notes upon a Fundamental
Change. However, it is possible that we would not have sufficient funds to make
the required purchase of the notes and we may be required to secure third-party
financing to do so. However, we may not be able to obtain such financing on
commercially reasonable terms, on terms acceptable to us or at all. A
Fundamental Change under the indenture may also result in an event of default
under our proposed credit facilities, which may cause the acceleration of our
other indebtedness, in which case, we would be required to repay in full our
secured indebtedness before we repay the notes. Our future indebtedness may also
contain restrictions on our ability to repurchase the notes upon certain events,
including transactions that could constitute a Fundamental Change under the
indenture. Our failure to repurchase the notes upon a Fundamental Change would
constitute an event of default under the indenture and would have a material
adverse effect on our financial condition. Further, certain important corporate
events, such as leveraged recapitalizations that would increase the level of our
indebtedness, may not constitute a Fundamental Change under the indenture and
would not trigger our obligation to repurchase the notes. See "Description of
Notes -- Purchase of Notes by Us at Option of the Holder" and "-- Fundamental
Change Requires Purchase of Notes by Us at the Option of the Holder."
The Fundamental Change and other provisions in the indenture relating to
consolidation, merger, sale or conveyance of all or substantially all assets may
not protect you in the event we consummate a highly leveraged transaction,
reorganization, restructuring, spin-off, merger or other similar transaction,
unless such transaction constitutes a Fundamental Change or a consolidation,
merger, sale or conveyance of all or substantially all assets under the
indenture. Such a transaction may not trigger your right to convert the notes or
our obligation to repurchase the notes. Except as described above, the indenture
does not contain provisions that permit the holders of the notes to convert the
notes or require us to repurchase or redeem the notes in an event of a takeover,
recapitalization, spin-off or similar transaction. There can be no assurance
that the trading price of the notes would not be materially and adversely
affected by such a transaction.
WE EXPECT THAT THE TRADING VALUE OF THE NOTES WILL BE SIGNIFICANTLY AFFECTED
BY THE PRICE OF OUR COMMON STOCK.
The market price of the notes is expected to be significantly affected by
the market price of our common stock. This may result in greater volatility in
the trading value of the notes than would be expected for nonconvertible debt
securities we issue.
THE AVAILABILITY OF SHARES OF OUR COMMON STOCK FOR FUTURE SALE COULD DEPRESS
OUR STOCK PRICE AND ADVERSELY AFFECT THE VALUE OF THE NOTES.
Under the proposed settlement, we would issue 59.5 million shares of our
common stock to one or more trusts for the benefit of asbestos and silica
personal injury claimants. These shares will likely have few or no restrictions
on their transfer. Sales by the trusts and other stockholders of a substantial
number of shares of our common stock in the public markets following this
offering, or the perception that such
35
sales might occur, could have a material adverse effect on the price of our
common stock or could impair our ability to obtain capital through an offering
of equity securities. Because the notes are convertible into our common stock,
any decline in our stock price could adversely affect the value of the notes.
WE MAY ISSUE PREFERRED STOCK WHOSE TERMS COULD ADVERSELY AFFECT THE VOTING
POWER OR VALUE OF OUR COMMON STOCK.
Our certificate of incorporation authorizes us to issue, without the
approval of our stockholders, one or more classes or series of preferred stock
having such preferences, powers and relative, participating, optional and other
rights, including preferences over our common stock respecting dividends and
distributions, as our board of directors may determine. The terms of one or more
classes or series of preferred stock could adversely impact the voting power or
value of our common stock which the notes are convertible into thereby adversely
affecting the value of the notes. For example, we might afford holders of
preferred stock the right to elect some number of our directors in all events or
on the happening of specified events or the right to veto specified
transactions. Similarly, the repurchase or redemption rights or liquidation
preferences we might assign to holders of preferred stock could affect the
residual value of our common stock which the notes are convertible into, thereby
adversely affecting the value of the notes.
OUR STOCKHOLDER RIGHTS PLAN AND PROVISIONS OF DELAWARE LAW COULD DELAY OR
PREVENT A CHANGE IN CONTROL OF US, EVEN IF THAT CHANGE WOULD BE BENEFICIAL TO
OUR STOCKHOLDERS.
We have adopted a stockholder rights plan that would cause extreme dilution
to any person or group who attempts to acquire a significant interest in us
without advance approval of our board of directors. In addition, the Delaware
General Corporation Law would impose some restrictions on mergers and other
business combinations between us and any holder of 15% or more of our
outstanding common stock. The stockholder rights plan and Delaware law could
delay or prevent a change in control of us, even if that change would be
beneficial to our stockholders. Since the notes are convertible into our common
stock this could adversely affect the value of the notes.
36
USE OF PROCEEDS
We will not receive any proceeds from the sale by the selling
securityholders of the notes or the underlying common stock.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock is traded on the New York Stock Exchange and on the Swiss
Exchange under the symbol "HAL". On October 27, 2003, the last reported sales
price of our common stock on the New York Stock Exchange was $24.34. The
following table presents the range of high and low quarterly sales prices of our
common stock on the New York Stock Exchange since January 1, 2001.
PRICE
---------------
HIGH LOW
------ ------
2001
First Quarter............................................... $45.91 $34.81
Second Quarter.............................................. 49.25 32.20
Third Quarter............................................... 36.79 19.35
Fourth Quarter.............................................. 28.90 10.94
2002
First Quarter............................................... $18.00 $ 8.60
Second Quarter.............................................. 19.63 14.60
Third Quarter............................................... 16.00 8.97
Fourth Quarter.............................................. 21.65 12.45
2003
First Quarter............................................... $22.10 $17.20
Second Quarter.............................................. 25.37 19.98
Third Quarter............................................... 25.90 20.50
Fourth Quarter (through October 22)......................... 26.70 23.20
Cash dividends on common stock in the amount of $0.125 per share were paid
in March, June, September and December of 2001 and 2002 and in March, June and
September of 2003 and a fourth quarter dividend of $0.125 per share has been
declared and will be paid in December 2003. Our board of directors intends to
consider the payment of quarterly dividends on the outstanding shares of our
common stock in the future. The declaration and payment of future dividends,
however, will be at the discretion of the board of directors and will depend
upon, among other things:
- future earnings;
- general financial condition and liquidity;
- success in business activities;
- capital requirements;
- debt covenants; and
- general business conditions.
At October 22, 2003, there were approximately 24,400 shareholders of
record. In calculating the number of shareholders, we consider clearing agencies
and security position listings as one shareholder for each agency or listing.
37
DESCRIPTION OF ANTICIPATED INDEBTEDNESS
In connection with the plan of reorganization contemplated by the proposed
settlement, we anticipate that prior to the Chapter 11 filing of DII Industries,
Kellogg Brown & Root and some of their subsidiaries with U.S. operations (the
"Chapter 11 Filings") (and subject to the satisfaction of certain conditions
precedent to effectiveness and funding), we will enter into (1) a senior
unsecured credit facility for an amount up to approximately $1.0 billion,
subject to reduction, (2) an approximately $1.4 billion senior secured letter of
credit facility and (3) an up to $700.0 million senior secured revolving credit
facility in replacement of our existing $350.0 million credit facility. The
following discussion describes the currently anticipated descriptions of the
foregoing. Although we have entered into term sheets with the agents on all
facilities and have entered into commitment letters covering the entire senior
unsecured facility and a portion of the other facilities, none of the new credit
facilities is currently in place nor do we have total commitments to enter into
such credit facilities, and there can be no assurance that we will complete
these facilities in the form anticipated. See "Risk Factors -- Risks Relating to
Asbestos and Silica Liability -- There can be no assurance that we will be able
to finance the proposed settlement on acceptable terms, in which case the
settlement would not be completed." We anticipate that the notes will share in
the collateral pledged to secure the new credit facilities at times when the
threshold for secured debt set forth in the notes is exceeded by advances and
letter of credit drawings under the new credit facilities. If we proceed with
the plan of reorganization contemplated by the proposed settlement, we will
issue up to $300.0 million aggregate principal amount of our new 7.6% debentures
due 2096 in exchange for a like amount of outstanding 7.60% debentures due 2096
of DII Industries. If issued, the new 7.6% debentures will be issued under an
indenture that contains similar covenants and events of default as those
described herein under "Description of Notes."
SENIOR UNSECURED CREDIT FACILITY
In connection with the plan of reorganization contemplated by the proposed
settlement, we anticipate that prior to the Chapter 11 Filings (and subject to
the satisfaction of certain conditions precedent) Halliburton will enter into a
senior unsecured delayed, multi-draw term loan facility for up to approximately
$1.0 billion (the "Senior Unsecured Credit Facility") to finance, if needed, the
payments to be made by Halliburton under the plan of reorganization and the
related transaction costs.
The Senior Unsecured Credit Facility would be available in two drawings.
Drawings under the Senior Unsecured Credit Facility are subject to
satisfaction of certain conditions precedent, including confirmation of the
contemplated plan of reorganization.
We may, upon at least five business days' notice, terminate or cancel, in
whole or in part, the unused portion of the Senior Unsecured Credit Facility;
provided that each partial reduction must be in an amount of $10.0 million or an
integral multiple of $1.0 million in excess thereof. We may also, upon at least
five business days' notice and at the end of any applicable interest period,
prepay, in full or in part, the Senior Unsecured Credit Facility without
penalty; provided, however, that each partial prepayment must be in an amount of
$10.0 million or an integral multiple of $1.0 million in excess thereof.
The Senior Unsecured Credit Facility would require us to apply the
following proceeds to prepay amounts outstanding and/or reduce commitments under
the Senior Unsecured Credit Facility:
- 100% of the net proceeds from any capital markets issuance (public or
private) at any time;
- net cash proceeds from the sale of assets of us and our subsidiaries,
subject to exceptions to be agreed upon; and
- all insurance proceeds received by us in respect of asbestos or silica
claims; provided that, to the extent such proceeds are available to us
before the plan of reorganization has been confirmed and the related
court orders have been entered (the "Exit Date"), such proceeds will
ratably reduce the commitments under the Senior Unsecured Credit Facility
and to the extent such insurance proceeds are available to us after the
Exit Date, such proceeds will be used to either reduce the
38
commitments under, or prepay, the Senior Unsecured Credit Facility, in
each case, with respect to any prepayment, without premium or penalty,
but with breakage costs if applicable.
The interest rate per annum (calculated on a 360-day basis) applicable to
the advances will be (1) the London interbank offered rate for deposits in U.S.
dollars at 11:00 a.m. (London time) two business days before the first day of
any interest period for a period equal to such interest period plus a margin
ranging from 0.875% to 1.875% which margin would be based on the lower of our
credit rating by Standard & Poor's and Moody's (the "Applicable Margin") or (2)
at our option, the highest of (a) the base rate of Citibank, N.A., (b) the
Federal Funds rate plus 0.50% and (c) the latest three-week moving average of
secondary market morning offering rates for three-month certificates of deposit,
as determined by Citibank and adjusted for the cost of reserves and FDIC
insurance assessments plus 0.50%, plus, in each case, a margin ranging from 0%
to 0.875% based on the lower of our credit rating by Standard & Poor's and
Moody's (the "Base Rate").
We may select interest periods of one, two, three or six months for LIBOR
rate advances. Interest based on the LIBOR rate would be payable in arrears at
the end of the selected interest period, but no less frequently than quarterly.
Interest based on the Base Rate would be payable monthly in arrears.
During the continuance of any default under the loan documentation, the
applicable margin on all obligations owing under the loan documentation would
increase by 2% per annum.
One half of the amount drawn (as reduced by any prepayments) would be due
and payable on the date which is 120 days from the date of the first draw, and
all other outstanding amounts will be due on the date which is 364 days from the
date of the first draw.
MASTER LC FACILITY
In connection with the plan of reorganization contemplated by the proposed
settlement, we anticipate that subject to the satisfaction of certain conditions
precedent, Halliburton (and to the extent that they are account parties in
respect of specified existing letters of credit, DII Industries and Kellogg
Brown & Root) will enter into an up to $1.4 billion senior secured letter of
credit facility (the "Master LC Facility") with a syndicate of banks made up of
those banks holding at least 90% of the face amount of certain of our then
existing letters of credit. The Master LC Facility would cover at least 90% of
the face amount of certain of our existing letters of credit (including renewals
thereof) to be provided by each lender to the extent of any draw on an existing
letter of credit issued by it. The existing letters of credit issued by the
lenders entering into the Master LC Facility are referred to herein as the
"Facility LCs."
For so long as the Master LC Facility is secured by any collateral, as
defined in the Master LC Facility, each U.S. entity that is required to be a
grantor of collateral or the stock of which is required to be pledged (excluding
Halliburton Affiliates LLC and its flow-through subsidiaries) will also guaranty
the obligations under the Master LC Facility. In any event, we shall remain at
all times during the term of the Master LC Facility a guarantor with respect to
any LC Advance (as defined below) in respect of which we are not the account
party. As used herein, "subsidiaries" of us and Halliburton Energy Services,
Inc. is determined after giving effect to the proposed restructuring and shall
exclude DII Industries and its subsidiaries during the period prior to the Exit
Date.
The purpose of the Master LC Facility is to provide a term-out for any
draws prior to a date to be agreed to, but no later than the Exit Date (the
"Term-Out Date") on Facility LCs, as well as to provide collateral for the
reimbursement obligations in respect thereof. During the term of the Master LC
Facility prior to the Term-Out Date, any draw on a Facility LC would be funded
by the lender that issued such Facility LC (each such funding, an "LC Advance").
Until the Exit Date, the terms of the Master LC Facility would override any
reimbursement, cash collateral or other agreements or arrangements between any
individual lender and the account party or any of its affiliates relating to the
Facility LCs, whether or not drawn, and until a date to be agreed to (unless any
such draw is prepaid prior to such time), the terms of the Master LC Facility
would override any such agreement or arrangement relating to any Facility LC
which is drawn prior to the Term-Out Date. Each lender would permanently waive
any right
39
that it might otherwise have pursuant to any such agreement or arrangement to
demand cash collateral as a result of the filing of Chapter 11 proceedings.
On the occurrence of the Term-Out Date, all LC Advances outstanding under
the Master LC Facility on the Term-Out Date, if any, would become term loans
payable in full on November 1, 2004 (unless prepaid prior to such date) and all
undrawn Facility LCs shall cease to be subject to the terms of the Master LC
Facility.
We may, upon at least five business days' notice and at the end of any
applicable interest period, prepay any portion of the LC Advances as follows:
(1) before the occurrence of the Exit Date, ratably among all lenders, with such
prepayment being used to prepay the outstanding LC Advances at such time and to
cash collateralize obligations at such time, and (2) after the occurrence of the
Exit Date, to prepay outstanding LC Advances ratably among all lenders that have
made LC Advances, in each case, without penalty.
The commitment of any lender would be automatically and permanently reduced
upon the expiration of any Facility LC issued by it by the amount of such
Facility LC if prior to the Term-Out Date no amounts have been drawn under such
Facility LC and such Facility LC is not replaced. The Master LC Facility will
permit the issuance of new letters of credit thereunder prior to the Term-Out
Date at the discretion of the proposed issuing bank, so long as the total
facility does not exceed an amount equal to the amount of the Master LC Facility
at closing plus an amount to be agreed. Prior to the occurrence of the Exit
Date, the Master LC Facility would be required to be cash collateralized with
the net proceeds of any sales of collateral and the net cash proceeds of any
sales of other assets, subject to exceptions to be agreed to. Such cash
collateral will be shared pro rata among the lenders and the lenders under the
Revolving Credit Facility (as defined below). To the extent that the holders of
Halliburton's 8.75% notes due 2021, senior notes due 2005, 5 1/2% senior notes
due 2010, medium term notes, 7.6% debentures due 2096 issued in the exchange
offer described below under "-- Exchange Offer for the DII Industries
Debentures," if it is consummated, and the notes offered hereby and any other
issue of debt of Halliburton that Halliburton may effect prior to the Exit Date
(a "New Issuance" to the extent that such New Issuance includes a requirement
that the holders thereof be equally and ratably secured with Halliburton's other
credits but not to exceed an aggregate of $1.0 billion of such New Issuance)
would be required to be secured as set forth below, such cash collateral would
also be shared with such holders on a pro rata basis. After the Exit Date, if
the conditions to release of collateral have been satisfied, any cash collateral
held pursuant to the preceding sentence, subject to exceptions to be agreed to,
would be applied first to ratably prepay outstanding LC Advances at such time
and second, to the extent required by the terms of the Senior Unsecured Credit
Facility, to ratably prepay and/or reduce commitments under the Senior Unsecured
Credit Facility.
Until the date of satisfaction of the conditions for release of the
collateral identified below, the Master LC Facility would be secured by a
perfected, first-priority lien on (1) 100% of the stock of Halliburton Energy
Services, (2) 100% of the stock or other equity interests owned by us and
Halliburton Energy Services of the first-tier domestic subsidiaries of
Halliburton and Halliburton Energy Services (other than Halliburton Affiliates
LLC), (3) 66% of the equity interests of Halliburton Affiliates LLC and (4) 66%
of the stock or other equity interests owned by us or Halliburton Energy
Services of the first-tier foreign subsidiaries of Halliburton and Halliburton
Energy Services (excluding, in each case, dormant subsidiaries). In addition, if
at any time our long-term senior unsecured debt is rated lower than BBB- by
Standard & Poor's or lower than Baa3 by Moody's, then we shall, within 20 days
in the case of personal property and within 45 days in the case of real
property, take all action necessary to ensure that the Master LC Facility is
also secured by a perfected, first priority lien on (a) the tangible and
intangible assets of Halliburton and Halliburton Energy Services and (b) the
tangible and intangible assets (with customary exceptions to be agreed) of
certain of Halliburton Energy Services' directly or indirectly, wholly-owned
domestic subsidiaries (except Halliburton Affiliates LLC, DII Industries LLC and
each of their respective subsidiaries) (excluding, in each case, dormant
subsidiaries). Such collateral would be shared pro rata with the lenders under
the Revolving Credit Facility and, to the extent that the aggregate principal
amount of all LC Advances under the Master LC Facility and borrowings under the
Revolving
40
Credit Facility exceeds 5% of the consolidated net tangible assets of
Halliburton and its subsidiaries, such collateral would also be shared pro rata
with the holders of Halliburton's 8.75% notes due 2021, senior notes due 2005,
5 1/2% senior notes due 2010, medium term notes, 7.6% debentures due 2096 issued
in the exchange offer described below under "-- Exchange Offer for the DII
Industries Debentures," if it is consummated, the notes offered hereby as well
as any New Issuance to the extent that such New Issuance includes a requirement
that the holders thereof be equally and ratably secured with Halliburton's other
creditors (but not to exceed an aggregate of $1.0 billion of such New Issuance).
Upon the occurrence of the Exit Date and the satisfaction of certain conditions,
the Master LC Facility would be unsecured. The granting and perfection of
collateral (including, without limitation, collateral consisting of foreign
subsidiary stock pledges) would be subject to cost efficiency determinations
reasonably made by the co-lead arrangers in consultation with us, taking into
account, among other things, adverse tax consequences, administrative procedures
required by local law or practice, and other parameters to be agreed.
The interest rate per annum (calculated on a 360-day basis) applicable to
the LC Advances will be the London interbank offered rate for deposits in U.S.
dollars at 11:00 A.M. (London time) for the two business days before the first
day of any interest period for a period equal to such interest period plus the
greater of (x) the sum of the per annum rate used to calculate any fee on
undrawn letters of credit payable pursuant to the original documents governing
the relevant Facility LC plus 0.50% or (y) a margin ranging from 1.00% to 2.00%,
which margin would be based on the lower of our credit rating by Standard &
Poor's and Moody's (the "Applicable LC Facility Margin").
We may select interest periods of one, two, three or six months for LIBOR
rate advances. Interest based on the LIBOR rate would be payable in arrears at
the end of the selected interest period, but no less frequently than quarterly.
During the continuance of any default under the loan documentation, the
interest rate on all obligations owing under the loan documentation would
increase by 2% per annum.
REVOLVING CREDIT FACILITY
In connection with the plan of reorganization contemplated by the proposed
settlement, we anticipate that we will replace our existing credit agreement
dated as of August 16, 2001 (the "Existing Credit Facility") with a new 3-year
revolving credit facility (the "Revolving Credit Facility").
We anticipate that the Revolving Credit Facility will provide a total
commitment of up to $700.0 million. The entire commitment will be available for
standby and trade letters of credit (the "Letters of Credit").
For so long as the Revolving Credit Facility is secured by any collateral
as set forth below, each U.S. subsidiary that is required to be a grantor of
collateral or the stock of which is required to be pledged (excluding
Halliburton Affiliates LLC and its flow through subsidiaries) would guaranty the
obligations under the Revolving Credit Facility. As used herein, "subsidiaries"
of Halliburton and Halliburton Energy Services would be determined after giving
effect to the proposed restructuring and exclude DII Industries and its
subsidiaries during the period prior to the Exit Date.
During the period from the closing date until satisfaction of the
conditions for release of the collateral identified below, the advances and
reimbursement obligations in respect of Letters of Credit would be secured by a
perfected, first priority lien on (1) 100% of the stock of Halliburton Energy
Services, (2) 100% of the stock or other equity interests owned by Halliburton
or Halliburton Energy Services in certain first-tier domestic subsidiaries
(other than Halliburton Affiliates LLC) of Halliburton and Halliburton Energy
Services, (3) 66% of the stock or other equity interests of Halliburton
Affiliates LLC and (4) 66% of the stock or other equity interests owned by
Halliburton or Halliburton Energy Services of the first-tier foreign
subsidiaries of Halliburton and Halliburton Energy Services (excluding, in each
case, dormant subsidiaries). In addition, if at any time our long-term senior
unsecured debt is rated lower than BBB- by Standard & Poor's or lower than Baa3
by Moody's, then we shall, within 20 days in the case of personal property and
within 45 days in the case of real property, take all action necessary to ensure
that
41
the Revolving Credit Facility is also secured by a perfected, first priority
lien on (a) the tangible and intangible assets of Halliburton and Halliburton
Energy Services and (b) the tangible and intangible assets (with customary
exceptions to be agreed) of all of Halliburton Energy Services' directly or
indirectly wholly-owned domestic subsidiaries (except Halliburton Affiliates
LLC, DII Industries and their respective subsidiaries) (excluding, in each case,
dormant subsidiaries). Prior to the occurrence of the Exit Date, the Revolving
Credit Facility would be required to be cash collateralized with the net
proceeds of any sales of collateral, subject to exceptions to be agreed to. All
collateral would be shared pro rata with the lenders under the Master LC
Facility and, to the extent that the aggregate principal amount of all loans
under the Revolving Credit Facility and advances under the Master LC Facility
exceeds 5% of the consolidated net tangible assets of Halliburton and its
subsidiaries such collateral would also be shared pro rata with the holders of
Halliburton's 8.75% notes due 2021, senior notes due 2005, 5 1/2% senior notes
due 2010, medium term notes, 7.6% debentures due 2096 issued in the exchange
offer described below under "-- Exchange Offer for the DII Industries
Debentures," if it is consummated, the notes offered hereby as well as any other
New Issuance to the extent that such New Issuance includes a requirement that
the holders thereof be equally and ratably secured with Halliburton's other
creditors (but not to exceed $1.0 billion of such New Issuance). Upon the
occurrence of the Exit Date and the satisfaction of other conditions, the
Revolving Credit Facility would be unsecured.
The interest rate per annum (calculated on a 360-day basis) applicable to
the advances will be (1) the London interbank offered rate for deposits in U.S.
dollars at 11:00 A.M. (London time) for the two business days before the first
day of any interest period for a period equal to such interest period plus a
margin ranging from prior to the Exit Date 1.00% to 2.00% and after the Exit
Date 0.875% to 1.875%, which margin would be based on the lower of our credit
rating by Standard & Poor's and Moody's (the "Applicable Revolving Facility
Margin") or (2) at our option, the highest of (a) the base rate of Citibank,
N.A., (b) the Federal Funds rate plus 0.50% and (c) the latest three-week moving
average of secondary market morning offering rates for three-month certificates
of deposit, as determined by Citibank and adjusted for the cost of reserves and
FDIC insurance assessments plus 0.50%, plus, in each case, a margin ranging from
0% to 0.875% based on the lower of our credit rating by Standard & Poor's and
Moody's, (the "Base Rate").
We may select interest periods of one, two, three or six months for LIBOR
rate advances. Interest based on the LIBOR rate would be payable in arrears at
the end of the selected interest period, but no less frequently than quarterly.
Interest based on the Base Rate would be payable monthly in arrears.
During the continuance of any default under the loan documentation, the
Applicable Revolving Facility Margin on all obligations owing under the loan
documentation would increase by 2% per annum.
CONDITIONS TO RELEASE OF COLLATERAL
As described above under "-- Master LC Facility" and "-- Revolving Credit
Facility," we anticipate that the Master LC Facility and the Revolving Credit
Facility will be secured by a perfected, first-priority lien, on certain of our
assets. Any such liens would be released upon satisfaction of all the following
conditions:
- completion of the Chapter 11 plan of reorganization of DII Industries,
Kellogg Brown & Root and some of their subsidiaries with U.S. operations,
which will be used to implement the proposed settlement. For additional
information about the proposed settlement, see "Summary -- Proposed
Settlement;"
- there is no proceeding pending or threatened in any court or before any
arbitrator or governmental instrumentality that (1) could reasonably be
expected to have a material adverse effect on our business, condition
(financial or otherwise), operations, performance, properties or
prospects on a consolidated basis except for litigation that is pending
or threatened prior to the effective date of the Revolving Credit
Facility and Master LC Facility and disclosed to the lenders under the
Revolving Credit Facility and the Master LC Facility or (2) purports to
affect the legality, validity or enforceability of our obligations or the
rights and remedies of any of the lenders under the
42
Revolving Credit Facility and the Master LC Facility, and there shall
have been no material adverse change in the status or financial effect on
us on a consolidated basis of the disclosed litigation;
- our long-term senior unsecured debt is rated BBB or higher (stable
outlook) by Standard & Poor's and Baa2 or higher (stable outlook) by
Moody's and these ratings have been recently confirmed by Standard &
Poor's and Moody's;
- there is no material adverse change (which term shall not be deemed to
refer to the commencement of the Chapter 11 filing) since December 31,
2002 in our business, condition (financial or otherwise), operations,
performance, properties or prospects, except as disclosed in our June 30,
2003 quarterly report on Form 10-Q and except for the accounting charges
to be taken directly in connection with the settlement payments; and
- we are not in default under the Revolving Credit Facility or the Master
LC Facility.
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DESCRIPTION OF NOTES
We issued the notes under an indenture dated as of June 30, 2003 between us
and JPMorgan Chase Bank, as trustee (the "indenture"). The terms of the notes
include those stated in the indenture and those made part of the indenture by
reference to the Trust Indenture Act of 1939.
The following description is a summary of the material provisions of the
indenture and the registration rights agreement dated as of June 30, 2003
between us and the initial purchasers of the notes. It does not restate the
indenture in its entirety. We urge you to read the indenture, the notes and the
registration rights agreement because they, and not this description, define
your rights as holders of the notes. You may request copies of those documents
in substantially the form in which they are to be executed by writing or
telephoning us at our address and telephone number shown under the caption
"Where You Can Find More Information."
The definitions of capitalized terms used in this section without
definition are set forth below under "-- Definitions." In this description, the
words "Halliburton" and "us" mean only Halliburton Company and not any of its
subsidiaries.
GENERAL
The notes are our senior unsecured obligations and rank equally with all
our other senior unsecured indebtedness. However, the notes are structurally
subordinated to indebtedness of our subsidiaries and effectively subordinated to
our secured debt to the extent of the value of the assets securing such debt.
The notes are convertible into common stock as described under the caption
"-- Conversion of Notes."
We issued $1,200,000,000 aggregate principal amount of notes. The notes
were issued only in denominations of $1,000 and multiples of $1,000. The notes
mature on July 15, 2023 unless earlier converted, redeemed or repurchased by us.
We are not subject to any financial covenants under the indenture. In
addition, we are not restricted under the indenture from paying dividends,
incurring debt or issuing or repurchasing our securities.
You are not afforded protection in the event of a highly leveraged
transaction, or a change in control of us under the indenture except to the
extent described below under the caption "-- Fundamental Change Requires
Purchase of Notes by Us at the Option of the Holder."
The notes bear interest at the annual rate of 3 1/8%. Interest will be
calculated on the basis of a 360-day year of twelve 30-day months. We will pay
interest on January 15 and July 15 of each year, beginning January 15, 2004 to
record holders at the close of business on the preceding January 1 and July 1,
as the case may be.
We will maintain an office in New York, New York, for the payment of
interest, which shall initially be an office or agency of the trustee.
We will pay interest either by check mailed to your address as it appears
in the note register or, at our option, by wire transfer in immediately
available funds. Payments to The Depository Trust Company, New York, New York,
which we refer to as DTC, or its nominee will be made by wire transfer of
immediately available funds to the account of DTC or its nominee.
Holders are not required to pay a service charge for registration or
transfer of their notes. We may, however, require holders to pay any tax or
other governmental charge in connection with the transfer. We are not required
to exchange or register the transfer of:
- any notes or portion surrendered for conversion; or
- any notes or portion surrendered for redemption or repurchase by us but
not withdrawn.
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CONVERSION OF NOTES
Subject to the conditions and during the periods and under the
circumstances described below, you may convert your notes into shares of our
common stock initially at a conversion rate of 26.5583 shares of common stock
per $1,000 principal amount of notes (equivalent to an initial conversion price
of $37.65 per share of common stock) at any time prior to the close of business
on July 15, 2023. The conversion rate and the equivalent conversion price in
effect at any given time are referred to as the "applicable conversion rate" and
the "applicable conversion price," respectively, and is subject to adjustment as
described below. You may convert fewer than all of your notes so long as the
notes converted are an integral multiple of $1,000 principal amount.
Upon conversion, we may choose to deliver, in lieu of shares of our common
stock, cash or a combination of cash and shares of our common stock, as
described below.
Except as otherwise described herein, you will not receive any cash payment
representing accrued and unpaid interest upon conversion of a note and we will
not adjust the conversion rate to account for the accrued and unpaid interest.
Upon conversion we will deliver to you a fixed number of shares of our common
stock and any cash payment to account for fractional shares. The cash payment
for fractional shares will be based on the last reported sale price of our
common stock on the trading day immediately prior to the conversion date.
Delivery of shares of common stock will be deemed to satisfy our obligation to
pay the principal amount of the notes, including accrued and unpaid interest.
Accrued and unpaid interest will be deemed paid in full rather than canceled,
extinguished or forfeited. The trustee will initially act as the conversion
agent. Notwithstanding conversion of any notes, the holders of the notes and any
common stock issuable upon conversion thereof will continue to be entitled to
receive additional amounts in accordance with the registration rights agreement.
See "Registration Rights."
If you convert notes, we will pay any documentary, stamp or similar issue
or transfer tax due on the issue of shares of our common stock upon the
conversion, unless the tax is due because you request the shares to be issued or
delivered to a person other than yourself, in which case you will be responsible
for that tax.
If you wish to exercise your conversion right, you must deliver a
conversion notice, together, if the notes are in certificated form, with the
certificated security, to the conversion agent along with appropriate
endorsements and transfer documents, if required, and pay any transfer or
similar tax, if required. The conversion agent will, on your behalf, convert the
notes into shares of our common stock. You may obtain copies of the required
form of the conversion notice from the conversion agent. A certificate for the
number of full shares of our common stock into which any notes are converted,
together with any cash payment for fractional shares, will be delivered through
the conversion agent as soon as practicable, but no later than the fifth
business day, following the conversion date.
If you have already delivered a purchase notice as described under either
'-- Purchase of Notes by Us at the Option of the Holder" or "-- Fundamental
Change Requires Purchase of Notes by Us at the Option of the Holder" with
respect to a note, you may not surrender that note for conversion until you have
withdrawn the purchase notice in accordance with the indenture.
Holders of notes at the close of business on a record date will receive
payment of interest on the corresponding interest payment date notwithstanding
the conversion of such notes at any time after the close of business on such
record date. If you surrender notes for conversion during the period from the
close of business on any regular record date to the opening of business on the
immediately following interest payment date, the surrendered notes must be
accompanied by payment of an amount equal to the interest that you are to
receive on the notes on the next following interest payment date.
Notwithstanding the foregoing, no such payment need be made if (1) we have
specified a redemption date that is after a record date and on or prior to the
immediately following interest payment date, (2) we have specified a purchase
date that is during such period whether following a Fundamental Change or
otherwise or (3) any overdue interest exists at the time of conversion with
respect to such notes to the extent of such overdue
45
interest. The holders of the notes and any common stock issuable upon conversion
thereof will continue to be entitled to receive additional amounts in accordance
with the registration rights agreement.
You may surrender your notes for conversion into shares of our common stock
prior to stated maturity in only the circumstances described below. For a
discussion of the federal income tax consequences of a conversion of the notes
into our common stock, see "Material United States Federal Income Tax
Consequences."
CONVERSION UPON SATISFACTION OF SALE PRICE CONDITION
You may surrender any of your notes for conversion into shares of our
common stock in any calendar quarter (and only during such calendar quarter) if
the last reported sale price of our common stock for at least 20 trading days
during the period of 30 consecutive trading days ending on the last trading day
of the previous calendar quarter is greater than or equal to 120% of the
conversion price.
CONVERSION UPON REDEMPTION
If we redeem the notes, you may convert your notes into our common stock at
any time prior to the close of business on the second business day immediately
preceding the redemption date, even if the notes are not otherwise convertible
at such time.
CONVERSION UPON SPECIFIED CORPORATE TRANSACTIONS
If we elect to:
- distribute to all holders of our common stock certain rights entitling
them to purchase, for a period expiring within 60 days after the date of
the distribution, shares of our common stock at less than the last
reported sale price of a share of our common stock on the trading day
immediately preceding the declaration date of the distribution; or
- distribute to all holders of our common stock our assets, debt securities
or certain rights to purchase our securities, which distribution has a
per share value as determined by our board of directors exceeding 15% of
the last reported sale price of a share of our common stock on the
trading day immediately preceding the declaration date for such
distribution,
we must notify you at least 20 business days prior to the ex-dividend date
for such distribution. Once we have given such notice, you may surrender your
notes for conversion at any time until the earlier of the close of business on
the business day immediately prior to the ex-dividend date or our announcement
that such distribution will not take place, even if the notes are not otherwise
convertible at such time; provided, however, that you may not exercise this
right to convert if you may participate in the distribution without conversion.
The "ex-dividend date" is the first date upon which a sale of the common stock
does not automatically transfer the right to receive the relevant dividend from
the seller of the common stock to its buyer.
In addition, if we are party to a consolidation, merger or binding share
exchange pursuant to which our common stock would be converted into cash or
property other than securities, you may surrender notes for conversion at any
time from and after the date which is 15 days prior to the anticipated effective
date of the transaction until 15 days after the actual effective date of such
transaction. If we engage in certain reclassifications of our common stock or
are a party to a consolidation, merger, binding share exchange or transfer of
all or substantially all of our assets pursuant to which our common stock is
converted into cash, securities or other property, then at the effective time of
the transaction, the right to convert a note into our common stock will be
changed into a right to convert a note into the kind and amount of cash,
securities or other property which you would have received if you had converted
your notes immediately prior to the transaction. If we engage in any transaction
described in the preceding sentence, the conversion rate will not be adjusted.
If the transaction also constitutes a Fundamental Change, as defined below, you
can require us to purchase all or a portion of your notes as described below
under "-- Funda-
mental Change Requires Purchase of Notes by Us at the Option of the Holder."
46
CONVERSION UPON CREDIT RATINGS EVENT
You may convert notes into our common stock during any period in which the
credit ratings assigned to the notes by both Moody's Investors Service, Inc. and
Standard & Poor's Ratings Services are lower than Ba1 and BB+, respectively, or
the notes are no longer rated by at least one of these ratings services or their
successors.
PAYMENT UPON CONVERSION
CONVERSION ON OR PRIOR TO THE FINAL NOTICE DATE
In the event that we receive your notice of conversion on or prior to the
day that is 20 days prior to maturity (the "final notice date"), the following
procedures will apply: if we choose to satisfy all or any portion of our
obligation (the "conversion obligation") in cash, we will notify you through the
trustee of the dollar amount to be satisfied in cash (which must be expressed
either as 100% of the conversion obligation or as a fixed dollar amount) at any
time on or before the date that is two business days following receipt of your
notice of conversion ("cash settlement notice period"). If we timely elect to
pay cash for any portion of the shares otherwise issuable to you, you may
retract the conversion notice at any time during the two business day period
beginning on the day after the final day of the cash settlement notice period
("conversion retraction period"); no such retraction can be made (and a
conversion notice shall be irrevocable) if we do not elect to deliver cash in
lieu of shares (other than cash in lieu of fractional shares). If the conversion
notice has not been retracted, then settlement (in cash and/or shares) will
occur on the business day following the final day of the 10 New York Stock
Exchange trading day period beginning on the day after the final day of the
conversion retraction period (the "cash settlement averaging period").
Settlement amounts will be computed as follows:
- If we elect to satisfy the entire conversion obligation in shares, we
will deliver to you a number of shares equal to (1) the aggregate
principal amount of notes to be converted divided by 1,000, multiplied by
(2) the conversion rate.
- If we elect to satisfy the entire conversion obligation in cash, we will
deliver to you cash in an amount equal to the product of:
-- a number equal to (1) the aggregate principal amount of notes to be
converted divided by 1,000, multiplied by (2) the conversion rate and
-- the average closing price of our common stock during the cash
settlement averaging period.
- If we elect to satisfy a fixed portion (other than 100%) of the
conversion obligation in cash, we will deliver to you such cash amount
("cash amount") and a number of shares equal to the greater of (1) zero
and (2) the excess, if any, of the number of shares equal to (i) the
aggregate principal amount of notes to be converted divided by 1,000,
multiplied by (ii) the conversion rate over the number of shares equal to
the sum, for each day of the cash settlement averaging period, of (x) 10%
of the cash amount, divided by (y) the closing price of our common stock.
In addition, we will pay cash for all fractional shares of common stock
as described above under "-- Conversion of Notes."
CONVERSION AFTER THE FINAL NOTICE DATE
In the event that we receive your notice of conversion after the final
notice date and we choose to satisfy all or any portion of the conversion
obligation in cash, we will have notified you through the trustee of the dollar
amount to be satisfied in cash (which must be expressed either as 100% of the
conversion obligation or as a fixed dollar amount) at any time on or before the
final notice date. Settlement amounts will be computed and settlement dates will
be determined in the same manner as set forth above under "-- Conversion on or
Prior to the Final Notice Date" except that the "cash settlement averaging
period" shall be the 10 New York Stock Exchange trading day period beginning on
the day after receipt of your notice of conversion (or in the event we receive
your notice of conversion on the business day prior to the
47
maturity date, the 10 New York Stock Exchange trading day period beginning on
the day after the maturity date). Settlement (in cash and/or shares) will occur
on the business day following the final day of such cash settlement averaging
period.
CONVERSION RATE ADJUSTMENTS
The conversion rate is subject to adjustment, without duplication, upon the
occurrence of any of the following events:
(1) Stock Dividends in Common Stock. If we, at any time or from time to
time after the issue date of the notes, pay a dividend or make a distribution on
our common stock, payable exclusively in shares of our common stock or our other
capital stock.
(2) Issuance of Rights or Warrants. If we, at any time or from time to
time after the issue date of the notes, issue to all holders of our common stock
rights or warrants that allow the holders to purchase shares of our common stock
for a period expiring within 60 days from the date of issuance of the rights or
warrants at less than the market price on the record date for the determination
of shareholders entitled to receive the rights or warrants.
(3) Stock Splits and Combinations. If we, at any time or from time to time
after the issue date of the notes:
- subdivide or split the outstanding shares of our common stock;
- combine or reclassify the outstanding shares of our common stock into a
smaller number of shares; or
- issue by reclassification of the shares of our common stock any shares of
our capital stock.
(4) Distribution of Indebtedness, Securities or Assets. If we distribute
to all holders of our common stock, whether by dividend or in a merger,
amalgamation or consolidation or otherwise, evidences of indebtedness, shares of
capital stock of any class or series, other securities, cash or assets (other
than common stock, rights or warrants referred to in paragraphs (1) and (2)
above, a dividend payable exclusively in cash, shares of capital stock or
similar equity interests in the case of a spin-off, as described in the second
succeeding paragraph, and other than any dividend or distribution paid
exclusively in cash described in paragraph (5) below), and if these
distributions, aggregated on a rolling 12-month basis, have a per share value
exceeding 15% of the market price of our common stock on the trading day
immediately preceding the declaration of the distribution, the conversion rate
in effect immediately before the close of business on the record date fixed for
determination of stockholders entitled to receive that distribution will be
increased by dividing:
- the conversion rate by
- a fraction, the numerator of which is the current market price of our
common stock and the denominator of which is the current market price of
the common stock plus the fair market value, as determined by our board
of directors, whose determination in good faith will be conclusive, of
the portion of those evidences of indebtedness, shares of capital stock,
other securities, cash and assets so distributed applicable to one share
of common stock.
This adjustment will be made successively whenever any such event occurs.
For purposes of this paragraph, current market price of our common stock means
the average of the sale prices of our common stock for the first 10 New York
Stock Exchange trading days from, and including, the first day that the common
stock trades "ex-distribution."
In respect of a dividend or other distribution of shares of capital stock
of any class or series, or similar equity interests, of or relating to a
subsidiary or other business unit, which we refer to as a spin-off, the
48
conversion rate in effect immediately before the close of business on the record
date fixed for determination of stockholders entitled to receive that
distribution will be increased by dividing:
- the conversion rate by
- a fraction, the numerator of which is the current market price of our
common stock and the denominator of which is the current market price of
the common stock plus the fair market value, determined as described
below, of the portion of those shares of capital stock or similar equity
interests so distributed applicable to one share of common stock.
The adjustment to the conversion rate under the preceding paragraph will
occur at the earlier of:
- the 10th New York Stock Exchange trading day from, and including, the
effective date of the spin-off and
- the date of the initial public offering of the securities being
distributed in the spin-off, if that initial public offering is effected
simultaneously with the spin-off.
For purposes of this section, "initial public offering" means the first
time securities of the same class or type as the securities being distributed in
the spin-off are bona fide offered to the public for cash.
In the event of a spin-off that is not effected simultaneously with an
initial public offering of the securities being distributed in the spin-off, the
fair market value of the securities to be distributed to holders of our common
stock means the average of the sale prices of those securities over the first 10
New York Stock Exchange trading days after the effective date of the spin-off.
Also, for purposes of a spin-off, the current market price of our common stock
means the average of the sale prices of our common stock over the first 10 New
York Stock Exchange trading days after the effective date of the spin-off.
If, however, an initial public offering of the securities being distributed
in the spin-off is to be effected simultaneously with the spin-off, the fair
market value of the securities being distributed in the spin-off means the
initial public offering price, while the current market price of our common
stock means the sale price of our common stock on the trading day on which the
initial public offering price of the securities being distributed in the
spin-off is determined.
Notwithstanding the foregoing, in cases where (a) the fair market value per
share of common stock of the assets, debt securities or rights or warrants to
purchase our securities distributed to shareholders equals or exceeds the market
price of our common stock on the record date for the determination of
shareholders entitled to receive such distribution, or (b) the market price of
our common stock on the record date for determining the shareholders entitled to
receive the distribution exceeds the fair market value per share of common stock
of the assets, debt securities or rights or warrants so distributed by less than
$1.00, rather than being entitled to an adjustment in the conversion rate, you
will be entitled to receive upon conversion, in addition to the shares of our
common stock, the kind and amount of assets, debt securities or rights or
warrants comprising the distribution that you would have received if you had
converted your notes immediately prior to the record date for determining the
shareholders entitled to receive the distribution; and
(5) Excess Cash Distributions. If we make a distribution during any of our
quarterly fiscal periods consisting exclusively of cash to all holders of
outstanding shares of common stock in an aggregate amount that, together with
(a) other all-cash distributions made during such quarterly fiscal period, and
(b) any cash and the fair market value, as of the expiration of the tender or
exchange offer (other than consideration payable in respect of any odd-lot
tender offer) by us or any of our subsidiaries for shares of common stock
concluded during such quarterly fiscal period, exceed the product of $0.125
(appropriately adjusted from time to time for any stock dividends on or
subdivisions or combinations of our common
49
stock) multiplied by the number of shares of common stock outstanding on the
record date for such distribution, in which event the conversion rate will be
adjusted by dividing:
- the conversion rate by
- a fraction, the numerator of which will be the current market price of
our common stock and the denominator of which is the current market price
of our common stock plus the amount per share of such dividend or
distribution, to the extent it exceeds $0.125 (appropriately adjusted
from time to time for any stock dividends on or subdivisions or
combinations of our common stock).
This adjustment will be made successively whenever any such event occurs.
For purposes of this paragraph, current market price of our common stock means
the average of the sale prices of our common stock for the first 10 New York
Stock Exchange trading days from, and including, the first day that the common
stock trades "ex-distribution."
Notwithstanding the foregoing, in the event of an adjustment pursuant to
paragraphs (4) and (5) above, the "maximum conversion rate" will equal 43.8212,
subject to adjustment pursuant to paragraphs (1), (2) and (3) above.
In addition to these adjustments, we may increase the conversion rate as
our board of directors considers advisable to avoid or diminish any income tax
to holders of our common stock or rights to purchase our common stock resulting
from any dividend or distribution of stock (or rights to acquire stock) or from
any event treated as such for income tax purposes. We may also, from time to
time, to the extent permitted by applicable law, increase the conversion rate by
any amount for any period of at least 20 days if our board of directors has
determined that such increase would be in our best interests. If our board of
directors makes such a determination, it will be conclusive. We will give you at
least 15 days' notice of such an increase in the conversion rate.
As used in this prospectus, "market price" means the average of the last
reported sale prices per share of our common stock for the 20 trading day period
ending on the applicable date of determination (if the applicable date of
determination is a trading day or, if not, then on the last trading day prior to
the applicable date of determination), appropriately adjusted to take into
account the occurrence, during the period commencing on the first of the trading
days during the 20 trading day period and ending on the applicable date of
determination, of any event that would result in an adjustment of the conversion
rate under the indenture.
No adjustment to the conversion rate or your ability to convert will be
made if you otherwise participate in the distribution without conversion or in
certain other cases.
The applicable conversion rate will not be adjusted:
- upon the issuance of any shares of our common stock pursuant to any
present or future plan providing for the reinvestment of dividends or
interest payable on our securities and the investment of additional
optional amounts in shares of our common stock under any plan;
- upon the issuance of any shares of our common stock or options or rights
to purchase those shares pursuant to any present or future employee,
director or consultant benefit plan or program of or assumed by us or any
of our subsidiaries;
- upon the issuance of any shares of our common stock pursuant to any
option, warrant, right or exercisable, exchangeable or convertible
security not described in the preceding bullet and outstanding as of the
date the notes were first issued;
- for a change in the par value of the common stock; or
- for accrued and unpaid interest and additional amounts owed, if any.
You will receive, upon conversion of your notes, in addition to common
stock, the rights under our stockholder rights plan or under any future rights
plan we may adopt, whether or not the rights have separated from the common
stock at the time of conversion unless, prior to conversion, the rights have
50
expired, terminated or been redeemed or exchanged. See "Description of Capital
Stock -- Stockholder Rights Plan."
No adjustment in the applicable conversion price will be required unless
the adjustment would require an increase or decrease of at least 1% of the
applicable conversion price. If the adjustment is not made because the
adjustment does not change the applicable conversion price by more than 1%, then
the adjustment that is not made will be carried forward and taken into account
in any future adjustment.
PURCHASE OF NOTES BY US AT THE OPTION OF THE HOLDER
You have the right to require us to purchase the notes on July 15, 2008,
July 15, 2013 and July 15, 2018 (each, a "purchase date"). Any note purchased by
us on a purchase date will be paid for in cash. We are required to purchase any
outstanding notes for which you deliver a written purchase notice to the paying
agent. This notice must be delivered during the period beginning at any time
from the opening of business on the date that is 20 business days prior to the
relevant purchase date until the close of business on the fifth business day
prior to the purchase date. If the purchase notice is given and withdrawn during
such period, we will not be obligated to purchase the related notes. Our
purchase obligation is subject to some additional conditions as described in the
indenture. Also, as described in the "Risk Factors" section of this prospectus
under the caption "Risk Factors -- Risks Relating to the Notes -- We may not be
able to purchase the notes upon an agreed purchase date or a Fundamental Change,
and may not be obligated to purchase the notes upon certain corporate
transactions," we may not have funds sufficient to purchase the notes when we
are required to do so. Our failure to purchase the notes when we are required to
do so will constitute an event of default under the indenture with respect to
the notes.
The purchase price payable will be equal to 100% of the principal amount of
the notes to be purchased plus any accrued and unpaid interest to such purchase
date.
On or before the 20th business day prior to each purchase date, we will
provide to the trustee, the paying agent and to all holders of the notes at
their addresses shown in the register of the registrar, and to beneficial owners
as required by applicable law, a notice stating, among other things:
- the purchase price;
- the name and address of the paying agent and the conversion agent; and
- the procedures that holders must follow to require us to purchase their
notes.
A notice electing to require us to purchase your notes must state:
- if certificated notes have been issued, the certificate numbers of the
notes;
- the portion of the principal amount of notes to be purchased, in integral
multiples of $1,000; and
- that the notes are to be purchased by us pursuant to the applicable
provisions of the notes and the indenture.
If the notes are not in certificated form, your notice must comply with
appropriate DTC procedures.
No notes may be purchased at the option of holders if there has occurred
and is continuing an event of default other than an event of default that is
cured by the payment of the purchase price of the notes.
You may withdraw any purchase notice in whole or in part by a written
notice of withdrawal delivered to the paying agent prior to the close of
business on the business day prior to the purchase date. The notice of
withdrawal must state:
- the principal amount of the withdrawn notes;
- if certificated notes have been issued, the certificate numbers of the
withdrawn notes; and
- the principal amount, if any, which remains subject to the purchase
notice.
If the notes are not in certificated form, your notice must comply with
appropriate DTC procedures.
You must either effect book-entry transfer or deliver the notes, together
with necessary endorsements, to the office of the paying agent after delivery of
the purchase notice to receive payment of the purchase
51
price. You will receive payment promptly following the later of the purchase
date or the time of book-entry transfer or the delivery of the notes. If the
paying agent holds money or securities sufficient to pay the purchase price of
the notes on the business day following the purchase date, then:
- the notes will cease to be outstanding and interest will cease to accrue
(whether or not book-entry transfer of the notes is made or whether or
not the note is delivered to the paying agent); and
- all other rights of the holder will terminate (other than the right to
receive the purchase price upon delivery or transfer of the notes).
FUNDAMENTAL CHANGE REQUIRES PURCHASE OF NOTES BY US AT THE OPTION OF THE HOLDER
If a Fundamental Change (as defined below in this section) occurs at any
time prior to July 15, 2008, you will have the right, at your option, to require
us to purchase any or all of your notes for cash, or any portion of the
principal amount thereof, that is equal to $1,000 or an integral multiple of
$1,000. The cash price we are required to pay is equal to 100% of the principal
amount of the notes to be purchased plus accrued and unpaid interest and
additional amounts owed, if any, to the Fundamental Change purchase date. If a
Fundamental Change occurs on or after July 15, 2008 no holder will have a right
to require us to purchase any notes, except as described above under "--
Purchase of Notes by Us at the Option of the Holder."
A "Fundamental Change" will be deemed to have occurred after the notes are
originally issued at the time any of the following occurs:
(1) our common stock or other common stock into which the notes are
convertible is neither listed for trading on a United States national securities
exchange nor approved for trading on the Nasdaq National Market or another
established automated over-the-counter trading market in the United States;
(2) a "person" or "group" within the meaning of Section 13(d) of the
Securities Exchange Act of 1934 other than us, our subsidiaries or our or their
employee benefit plans, files a Schedule TO or any schedule, form or report
under the Securities Exchange Act of 1934 disclosing that such person or group
has become the direct or indirect ultimate "beneficial owner," as defined in
Rule 13d-3 under the Securities Exchange Act of 1934, of our common equity
representing more than 50% of the voting power of our common equity entitled to
vote generally in the election of directors;
(3) consummation of any share exchange, consolidation or merger of us
pursuant to which our common stock will be converted into cash, securities or
other property or any sale, lease or other transfer in one transaction or a
series of transactions of all or substantially all of the consolidated assets of
us and our subsidiaries, taken as a whole, to any person other than us or one or
more of our subsidiaries; provided, however, that a transaction where the
holders of our common equity immediately prior to such transaction have directly
or indirectly, more than 50% of the aggregate voting power of all classes of
common equity of the continuing or surviving corporation or transferee entitled
to vote generally in the election of directors immediately after such event
shall not be a Fundamental Change; or
(4) continuing directors (as defined below in this section) cease to
constitute at least a majority of our board of directors.
A Fundamental Change will not be deemed to have occurred in respect of any
of the foregoing, however, if either:
(1) the last reported sale price of our common stock for any five trading
days within the 10 consecutive trading days ending immediately before the later
of the Fundamental Change or the public announcement thereof, equals or exceeds
105% of the conversion price of the notes in effect immediately before the
Fundamental Change or the public announcement thereof; or
(2) at least 90% of the consideration, excluding cash payments for
fractional shares, in the transaction or transactions constituting the
Fundamental Change consists of shares of capital stock traded on a national
securities exchange or quoted on the Nasdaq National Market or which will be so
traded or
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quoted when issued or exchanged in connection with a Fundamental Change (these
securities being referred to as "publicly traded securities") and as a result of
this transaction or transactions the notes become convertible into such publicly
traded securities, excluding cash payments for fractional shares.
For purposes of the above paragraph the term capital stock of any person
means any and all shares (including ordinary shares or American Depositary
Shares), interests, participations or other equivalents however designated of
corporate stock or other equity participations, including partnership interests,
whether general or limited, of such person and any rights (other than debt
securities convertible or exchangeable into an equity interest), warrants or
options to acquire an equity interest in such person.
"Continuing director" means a director who either was a member of our board
of directors on the date of this prospectus or who becomes a member of our board
of directors subsequent to that date and whose appointment, election or
nomination for election by our stockholders is duly approved by a majority of
the continuing directors on our board of directors at the time of such approval,
either by a specific vote or by approval of the proxy statement issued by us on
behalf of the board of directors in which such individual is named as nominee
for director.
On or before the 30th day after the occurrence of a Fundamental Change, we
will provide to all holders of the notes and the trustee and paying agent a
notice of the occurrence of the Fundamental Change and of the resulting purchase
right. Such notice shall state, among other things:
- the events causing a Fundamental Change;
- the date of the Fundamental Change;
- the last date on which a holder may exercise the purchase right;
- the Fundamental Change purchase price;
- the Fundamental Change purchase date;
- the name and address of the paying agent and the conversion agent;
- the conversion rate and any adjustments to the conversion rate;
- the notes with respect to which a Fundamental Change purchase notice has
been given by the holder may be converted only if the holder withdraws
the Fundamental Change purchase notice in accordance with the terms of
the indenture; and
- the procedures that holders must follow to require us to purchase their
notes.
To exercise the purchase right, you must deliver, on or before the 35th day
after the date of our notice of a Fundamental Change, subject to extension to
comply with applicable law, the notes to be purchased, duly endorsed for
transfer, together with a written purchase notice and the form entitled "Form of
Fundamental Change Purchase Notice" duly completed, to the paying agent. Your
purchase notice must state:
- if certificated, the certificate numbers of your notes to be delivered
for purchase;
- the portion of the principal amount of notes to be purchased, which must
be $1,000 or an integral multiple thereof; and
- that the notes are to be purchased by us pursuant to the applicable
provisions of the notes and the indenture.
If the notes are not in certificated form, your notice must comply with
appropriate DTC procedures.
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You may withdraw any purchase notice (in whole or in part) by a written
notice of withdrawal delivered to the paying agent prior to the close of
business on the business day prior to the Fundamental Change purchase date. The
notice of withdrawal must state:
- the principal amount of the withdrawn notes;
- if certificated notes have been issued, the certificate numbers of the
withdrawn notes; and
- the principal amount, if any, which remains subject to the purchase
notice.
If the notes are not in certificated form, your notice must comply with
appropriate DTC procedures.
We are required to purchase the notes no later than 35 business days after
the date of our notice of the occurrence of the relevant Fundamental Change
subject to extension to comply with applicable law. You will receive payment of
the Fundamental Change purchase price promptly following the later of the
Fundamental Change purchase date or the time of book-entry transfer or the
delivery of the notes. If the paying agent holds money or securities sufficient
to pay the Fundamental Change purchase price of the notes on the business day
following the Fundamental Change purchase date, then:
- the notes will cease to be outstanding and interest and additional
amounts, if any, will cease to accrue (whether or not book-entry transfer
of the notes is made or whether or not the note is delivered to the
paying agent); and
- all other rights of the holder will terminate (other than the right to
receive the Fundamental Change purchase price upon delivery or transfer
of the notes).
The rights of the holders to require us to purchase their notes upon a
Fundamental Change could discourage a potential acquirer of Halliburton. The
Fundamental Change purchase feature, however, is not the result of management's
knowledge of any specific effort to accumulate shares of our common stock, to
obtain control of us by any means or part of a plan by management to adopt a
series of anti-takeover provisions. Instead, the Fundamental Change purchase
feature is a standard term contained in other offerings of debt securities
similar to the notes that have been marketed by certain of the initial
purchasers. The terms of the Fundamental Change purchase feature resulted from
negotiations between the initial purchasers and us.
The term Fundamental Change is limited to specified transactions and may
not include other events that might adversely affect our financial condition. In
addition, the requirement that we offer to purchase the notes upon a Fundamental
Change may not protect holders in the event of a highly leveraged transaction,
reorganization, merger or similar transaction involving us.
No notes may be purchased at the option of holders upon a Fundamental
Change if there has occurred and is continuing an event of default other than an
event of default that is cured by the payment of the Fundamental Change purchase
price of the notes.
The definition of Fundamental Change includes a phrase relating to the
conveyance, transfer, sale, lease or disposition of "all or substantially all"
of our consolidated assets. There is no precise, established definition of the
phrase "substantially all" under applicable law. Accordingly, the ability of a
holder of the notes to require us to purchase its notes as a result of the
conveyance, transfer, sale, lease or other disposition of less than all of our
assets may be uncertain.
If a Fundamental Change were to occur, we may not have enough funds to pay
the Fundamental Change purchase price. See "Risk Factors -- Risks Relating to
the Notes -- We may not be able to purchase the notes upon an agreed purchase
date or a Fundamental Change, and may not be obligated to purchase the notes
upon certain corporate transactions." Our failure to purchase the notes when
required following a Fundamental Change will constitute an event of default
under the indenture with respect to the notes. In addition, we have, and may in
the future incur, other indebtedness with similar change in control provisions
permitting holders to accelerate or to require us to purchase our indebtedness
upon the occurrence of similar events or on some specific dates.
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OPTIONAL REDEMPTION
No sinking fund is provided for the notes, which means that the indenture
will not require us to redeem or retire the notes periodically. Prior to July
15, 2008, the notes will not be redeemable. On or after July 15, 2008, we may
redeem for cash all or part of the notes at any time, upon not less than 30 nor
more than 60 days' notice before the redemption date by mail to the trustee, the
paying agent and each holder of notes, for a price equal to 100% of the
principal amount of the notes to be redeemed plus any accrued and unpaid
interest and additional amounts owed, if any, to the redemption date.
If we decide to redeem fewer than all of the outstanding notes, the trustee
will select the notes to be redeemed (in principal amounts of $1,000 or integral
multiples thereof) by a method the trustee considers fair and appropriate.
If the trustee selects a portion of your note for partial redemption and
you convert a portion of the same note, the converted portion will be deemed to
be from the portion selected for redemption.
In the event of any redemption in part, we will not be required to:
- issue, register the transfer of or exchange any note during a period of
15 days before the mailing of the redemption notice; or
- register the transfer of or exchange any note so selected for redemption,
in whole or in part, except the unredeemed portion of any note being
redeemed in part.
RANKING
The notes are our senior unsecured obligations and rank equally with all of
our existing and future unsecured senior indebtedness. In addition, except as
otherwise provided herein, the notes are effectively subordinated to any secured
indebtedness to the extent of the value of the assets securing such indebtedness
and to any indebtedness of our subsidiaries to the extent of the assets of those
subsidiaries.
As of June 30, 2003, we had outstanding approximately $2.556 billion of
unsecured indebtedness, no secured indebtedness and no subordinated
indebtedness. In October 2003, we issued additional senior indebtedness in an
aggregate principal amount of $1.05 billion. At June 30, 2003, the aggregate
indebtedness of our subsidiaries was approximately $396.0 million and other
liabilities of our subsidiaries, including trade payables, accrued compensation,
advanced billings, income taxes payable, other liabilities (other than asbestos
and intercompany liabilities) were approximately $4.4 billion, and accrued
asbestos liabilities were approximately $3.4 billion. As of June 30, 2003, our
subsidiaries had no secured indebtedness and no subordinated indebtedness
outstanding.
We expect to enter into (1) a senior unsecured credit facility for an
amount up to approximately $1.0 billion, subject to reduction, (2) an
approximately $1.4 billion senior secured letter of credit facility and (3) an
up to $700.0 million senior secured revolving credit facility in replacement of
our existing $350.0 million credit facility. Borrowings under the letter of
credit facility and the revolving credit facility will be secured. The terms of
the notes and the anticipated terms of the new credit facilities currently
contemplate that the notes offered hereby and certain of our previously issued
debt securities and our new 7.6% debentures due 2096 to be issued in the
exchange offer described under "Description of Anticipated Indebtedness," if
consummated, will share in collateral pledged to secure borrowings under the new
credit facilities if and when the total of all the secured debt exceeds 5% of
the consolidated net tangible assets of Halliburton and its subsidiaries. The
anticipated terms of the new credit facilities currently contemplate collateral
pledged to secure borrowings under the new facilities will be released after (1)
completion of the Chapter 11 plan of reorganization of DII Industries, Kellogg
Brown & Root and some of their subsidiaries with U.S. operations, which will be
used to implement the proposed settlement, and (2) satisfaction of other
conditions described in "Description of Anticipated Indebtedness -- Conditions
to Release of Collateral."
The notes will not be guaranteed by any of our subsidiaries. Borrowings
under the letter of credit facility and revolving credit facility described
under "Description of Anticipated Indebtedness" will be
55
guaranteed by some of our subsidiaries. Accordingly, the notes will be
structurally subordinated to the debt guaranteed by our subsidiaries. The
anticipated terms of the new credit facilities currently contemplate that any of
these subsidiary guarantees will be released after (1) completion of the Chapter
11 plan of reorganization of DII Industries, Kellogg Brown & Root and some of
their subsidiaries with U.S. operations, which will be used to implement the
proposed settlement, and (2) satisfaction of the other conditions described in
"Description of Anticipated Indebtedness -- Conditions to Release of
Collateral."
The notes are our exclusive obligation. Our cash flow and our ability to
service our indebtedness, including the notes, is dependent upon the earnings of
our subsidiaries. In addition, we are dependent on the distribution of earnings,
loans or other payments by our subsidiaries to us. Our subsidiaries are separate
and distinct legal entities. Our subsidiaries will not guarantee the notes or
have any obligation to pay any amounts due on the notes or to provide us with
funds for our payment obligations, whether by dividends, distributions, loans or
other payments. In addition, any payment of dividends, distributions, loans or
advances by our subsidiaries to us could be subject to statutory or contractual
restrictions. Payments to us by our subsidiaries will also be contingent upon
our subsidiaries' earnings and business considerations. Our right to receive any
assets of any subsidiary upon its liquidation or reorganization, and, therefore,
our right to participate in those assets, will be effectively subordinated to
the claims of that subsidiary's creditors, including trade creditors. In
addition, even if we were a creditor of any of our subsidiaries, our right as a
creditor would be subordinate to any security interest in the assets of our
subsidiaries and any indebtedness of our subsidiaries senior to that held by us.
We are obligated to pay reasonable compensation to the trustee and
calculation agent and to indemnify the trustee and calculation agent against
certain losses, liabilities or expenses incurred by the trustee and calculation
agent in connection with its duties relating to the notes. The trustee's claims
for these payments will generally be senior to those of holders of notes in
respect of all funds collected or held by the trustee.
For more information regarding the anticipated indebtedness and subsidiary
guarantees described above, see "Description of Anticipated Indebtedness."
COVENANTS
Under the indenture, there are no covenants restricting our ability to
incur additional debt, issue additional securities, maintain any asset ratios or
create or maintain any reserves. See "Risk Factors -- Risks Relating to the
Notes -- We may able to incur more indebtedness and the risks associated with
our leverage, including our ability to service our indebtedness, will increase
as we incur additional indebtedness." However, the indenture contains the
covenants for your protection that are described below.
RESTRICTIONS ON SECURED DEBT
We will not, and will not permit any of our Restricted Subsidiaries to,
create, incur, assume or guarantee any Secured Debt without equally and ratably
securing the notes. In that circumstance, we must also equally and ratably
secure any other indebtedness of, or guaranteed by, us or any such Restricted
Subsidiary then similarly entitled. In any event, the foregoing restrictions
will not apply to:
- specified purchase money mortgages;
- specified mortgages to finance construction on unimproved property;
- mortgages existing on property at the time of its acquisition by us or a
Restricted Subsidiary;
- mortgages existing on the property or on the outstanding shares or
indebtedness of a corporation at the time it becomes a Restricted
Subsidiary;
- mortgages on property of a corporation existing at the time the
corporation is merged or consolidated with Halliburton or a Restricted
Subsidiary;
- mortgages in favor of governmental bodies to secure payments of
indebtedness; or
56
- extensions, renewals or replacement of the foregoing; provided that the
extension, renewal or replacement must secure the same property and does
not create Secured Debt in excess of the principal amount then
outstanding.
We and any Restricted Subsidiaries may create, incur, assume or guarantee
Secured Debt not otherwise permitted or excepted without equally and ratably
securing the notes if the sum of (a) the amount of the Secured Debt (not
including Secured Debt permitted under the foregoing exceptions), plus (b) the
aggregate value of Sale and Leaseback Transactions existing at such time (not
including Sale and Leaseback Transactions the proceeds of which are or will be
applied to the retirement of the notes or other funded indebtedness of
Halliburton and our Restricted Subsidiaries as described below), does not at the
time exceed 5% of Consolidated Net Tangible Assets.
LIMITATIONS ON SALE AND LEASEBACK TRANSACTIONS
The indenture also prohibits Sale and Leaseback Transactions unless:
- Halliburton or the Restricted Subsidiary owning the Principal Property
would be entitled to incur Secured Debt equal to the amount realizable
upon the sale or transfer of the property to be so leased secured by a
mortgage on the property without equally and ratably securing the notes;
or
- an amount equal to the value of the property so leased is applied to the
retirement (other than mandatory retirement), within 120 days of the
effective date of such arrangement, of the notes or other indebtedness of
Halliburton and its Restricted Subsidiaries (other than such indebtedness
owned by Halliburton or any Restricted Subsidiary) which was recorded as
funded debt as of the date of its creation and which, in the case of such
indebtedness of Halliburton, is not subordinate and junior in right of
payment to the prior payment of the notes or other indebtedness under the
indenture.
As of the date of this prospectus, our board of directors has not
designated any property of Halliburton or of any Restricted Subsidiary as a
Principal Property because, in the opinion of our management, no single property
or asset is of material importance to the total business of Halliburton and its
Restricted Subsidiaries taken as a whole. As a result, unless a Principal
Property is designated by our board of directors, the limitation on Sale and
Leaseback Transactions would not limit or prohibit any Sale and Leaseback
Transactions by Halliburton or a Restricted Subsidiary.
RESTRICTIONS ON CONSOLIDATION, MERGER, SALE OR CONVEYANCE
Halliburton will not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all its assets to, any person, unless:
(1) the resulting, surviving or transferee person (the "Successor Company")
will be a corporation, partnership, trust or limited liability company organized
and existing under the laws of the United States, any State of the United States
or the District of Columbia and the Successor Company (if not Halliburton) will
expressly assume, by supplemental indenture, executed and delivered to the
Trustee, in form satisfactory to the Trustee, all the obligations of Halliburton
under the notes and the indenture;
(2) immediately after giving effect to such transaction, no default or
event of default (as described below) shall have occurred and be continuing; and
(3) Halliburton shall have delivered to the trustee the certificates and
opinions required by the indenture.
For purposes of this covenant, the sale, lease, conveyance, assignment,
transfer or other disposition of all or substantially all of the properties and
assets of one or more subsidiaries of Halliburton, which properties and assets,
if held by Halliburton instead of such subsidiaries, would constitute all or
substantially all of the properties and assets of Halliburton on a consolidated
basis, shall be deemed to be the transfer of all or substantially all of the
properties and assets of Halliburton.
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The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, Halliburton under the indenture, but, in the
case of a lease of all or substantially all its assets, the predecessor company
will not be released from the obligation to pay the principal of and interest on
the notes.
Although there is a limited body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, in certain circumstances there may be a
degree of uncertainty as to whether a particular transaction would involve "all
or substantially all" of the property or assets of a person.
EVENTS OF DEFAULT
The following are events of default under the indenture:
- failure to pay any interest or additional amounts, if any, when due,
continued for 30 days;
- failure to pay principal or premium, if any, when due;
- failure to make any payment at maturity on any indebtedness in an amount
in excess of $125.0 million in the aggregate for all such indebtedness
and such amount has not been paid or discharged within 30 days after
notice is given in accordance with the indenture governing such
indebtedness;
- a default by us on any indebtedness that results in the acceleration of
any such indebtedness in an amount in excess of $125.0 million in the
aggregate for all such indebtedness, without this indebtedness being
discharged or the acceleration being rescinded or annulled for 30 days
after notice is given in accordance with the indenture governing such
indebtedness;
- failure to pay the repurchase price when required to do so in connection
with holders' exercise of their option to require us to repurchase their
notes;
- failure to deliver shares of common stock within 10 days after such
common stock is required to be delivered upon conversion of a note as
provided in the indenture;
- breach of or failure to perform any other covenant or agreement in the
indenture applicable to the notes, continued for 60 days after written
notice by the trustee or the holders of at least 25% in aggregate
principal amount of the notes then outstanding; and
- specific events relating to our bankruptcy, insolvency or reorganization.
If any event of default occurs and continues for the required amount of
time, the trustee or the holders of not less than 25% of the aggregate principal
amount of the notes then outstanding may declare the notes due and payable,
together with all accrued and unpaid interest, if any, and additional amounts,
if any, immediately by giving notice in writing to us (and to the trustee, if
given by the holders). Notwithstanding the preceding, in the case of an event of
default arising from certain events of bankruptcy, insolvency or reorganization
with respect to Halliburton, all outstanding notes will become due and payable
without further action or notice. The holders of a majority of the aggregate
principal amount of the notes then outstanding, may, however, by notice in
writing to us and the trustee, rescind the declaration if:
- we have paid or deposited with the trustee all amounts that have become
due, otherwise than through acceleration, for principal, premium, if any,
and interest, if any; and
- all defaults under the indenture are cured or waived.
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No holder of notes then outstanding may institute any suit, action or
proceeding with respect to, or otherwise attempt to enforce, the indenture,
unless:
- the holder has given to the trustee written notice of the occurrence and
continuance of a default;
- the holders of not less than 25% of the aggregate principal amount then
outstanding of the notes have made a written request to the trustee to
institute the suit, action or proceeding and have offered to the trustee
the reasonable indemnity it may require; and
- the trustee for 60 days after its receipt of the notice, request and
offer of indemnity has neglected or refused to institute the requested
action, suit or proceeding.
The right of each holder of notes to receive payment of the principal of,
premium, if any, interest or additional amounts, if any, on the notes on or
after the respective due dates and the right to institute suit for enforcement
of any payment obligation may not be impaired or affected without the consent of
that holder.
The holders of a majority in aggregate principal amount of the notes then
outstanding may direct the time, method and place of conducting any proceeding
for any remedy available to the trustee or exercising any trust power conferred
on the trustee if that direction is not in conflict with applicable law and
would not involve the trustee in personal liability (as determined in good faith
by the trustee's board or similar governing body).
In determining whether the holders of the requisite aggregate principal
amount of the notes outstanding have given any request, demand, authorization or
consent under the indenture, the principal amount of notes that will be deemed
to be outstanding will be the amount of the principal of the notes that would be
due and payable as of the date of the determination upon a declaration of
acceleration of the maturity of the notes.
We are required to furnish to the trustee annually a statement as to the
fulfillment of all of our obligations under the indenture.
DISCHARGE AND DEFEASANCE
The terms of the notes will provide that under specified conditions, we
will be discharged from any and all obligations in respect of the notes (other
than our obligations in respect of conversion of the notes into common stock and
except for obligations to register the transfer or exchange of notes, to replace
stolen, lost or mutilated notes, to maintain paying agencies and to hold moneys
for payment in trust) upon the deposit with the trustee, in trust for the
benefit of the holders of the notes, of money and/or U.S. government obligations
that, through the payment of interest and principal in accordance with their
terms, will provide money in an amount sufficient to pay principal (and premium,
if any), interest and additional amounts, if any, on, the notes on the stated
maturity of the payments in accordance with the terms of the notes. If we want
to defease the notes, we will also be required to deliver to the trustee an
opinion of counsel to the effect that the holders will be subject to United
States federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such defeasance had not occurred.
MODIFICATIONS
From time to time, we and the trustee may enter into supplemental
indentures without the consent of the holders of the notes to, among other
things:
- evidence the assumption by a successor entity of our obligations under
the indenture;
- add covenants or new events of default for the protection of the holders
of the notes;
- cure any ambiguity or correct any inconsistency in the indenture;
- evidence the acceptance of appointment by a successor trustee;
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- amend the indenture in any other manner that we may deem necessary or
desirable and that will not adversely affect the interests of the holders
of outstanding notes; or
- secure the notes.
We and the trustee, with the consent of the holders of not less than a
majority of the aggregate principal amount of the outstanding debt securities of
all series issued under the indenture and affected thereby, may add, change or
eliminate any of the provisions of the indenture. Similarly, with the consent of
the holders of at least a majority of the aggregate principal amount of notes
then outstanding, we may also modify in some manners the rights of the holders
of the notes. These rights are, however, limited. We and the trustee may not,
without the consent of the holder of each outstanding note:
- extend the stated maturity of the principal of any note;
- reduce the amount of the principal or premium, if any, of any note;
- reduce the rate or extend the time of payment of interest on any note;
- reduce or alter the method of computation of any amount payable on or at
redemption or repayment of any note;
- change the coin or currency in which principal, premium, if any, interest
and redemption or repurchase price are payable;
- change the terms applicable to redemption or repurchase in a manner
adverse to the holder;
- make any change that adversely affects the right to convert the notes, or
decrease the conversion rate with respect to the notes;
- impair or affect the right to institute suit for the enforcement of any
payment or repayment of any note; or
- reduce the percentage stated above of the holders of notes who must
consent to a modification to the indenture or the notes.
GOVERNING LAW
The laws of the State of New York govern the indenture and the notes.
DEFINITIONS
"Consolidated Net Tangible Assets" means the aggregate amount of assets
included on a consolidated balance sheet of Halliburton and its Restricted
Subsidiaries, less
- applicable reserves and other properly deductible items;
- all current liabilities; and
- all goodwill, trade names, trademarks, patents, unamortized debt discount
and expense and other like intangibles,
all in accordance with generally accepted accounting principles
consistently applied.
"Principal Property" means any real estate, manufacturing plant, warehouse,
office building or other physical facility, or any item of marine,
transportation or construction equipment or other like depreciable assets of
Halliburton or of any Restricted Subsidiary, whether owned at or acquired after
the date of the indenture, other than any pollution control facility, that in
the opinion of our board of directors is of material importance to the total
business conducted by Halliburton and its Restricted Subsidiaries as a whole. As
of the date of this prospectus, our board of directors has not designated any
property of Halliburton or of any Restricted Subsidiary as a Principal Property
because, in the opinion of our management, no single property or asset is of
material importance to the total business of Halliburton and its Restricted
Subsidiaries taken as a whole.
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"Restricted Subsidiary" means:
- any Subsidiary of ours existing at the date of the indenture, the
principal assets and business of which are located in the United States,
its territories, Canada or Puerto Rico, except sales financing, real
estate and other Subsidiaries so designated; and
- any other Subsidiary we designate as a Restricted Subsidiary.
"Sale and Leaseback Transaction" means the sale or transfer by Halliburton
or a Restricted Subsidiary (other than to Halliburton or any one or more of our
Restricted Subsidiaries, or both) of any Principal Property owned by it that has
been in full operation for more than 120 days prior to the sale or transfer with
the intention of taking back a lease on such property, other than a lease not
exceeding 36 months, where the use by Halliburton or the Restricted Subsidiary
of the property will be discontinued on or before the expiration of the term of
the lease.
"Secured Debt" means indebtedness (other than indebtedness among
Halliburton and Restricted Subsidiaries) for money borrowed by Halliburton or a
Restricted Subsidiary, or any other indebtedness of Halliburton or a Restricted
Subsidiary on which interest is paid or payable, which in any case is secured
by:
- a lien or other encumbrance on any Principal Property owned by
Halliburton or a Restricted Subsidiary;
- a pledge, lien or other security interest on any shares of stock or
indebtedness of a Restricted Subsidiary; or
- in the case of indebtedness of Halliburton, a guaranty by a Restricted
Subsidiary.
"Subsidiary" means any corporation of which Halliburton, or Halliburton and
one or more Subsidiaries, or any one or more Subsidiaries, directly or
indirectly own voting securities entitling any one or any one or more of
Halliburton and its Subsidiaries to elect a majority of the directors of such
corporation.
INFORMATION CONCERNING THE TRUSTEE
JPMorgan Chase Bank is the trustee under the indenture, and the paying
agent, conversion agent, registrar and custodian with regard to the notes. The
trustee or its affiliates may from time to time in the future provide banking
and other services to us in the ordinary course of their business.
BOOK-ENTRY SYSTEM
We originally issued the notes in the form of global notes. The global
notes have been deposited with, or on behalf of, the DTC and registered in the
name of its nominee. The notes sold under this prospectus will be represented by
a new unrestricted global security. Notes in definitive certificated form will
be issued only in limited circumstances described below.
Investors may hold their interests in a global note directly through DTC if
they are DTC participants or indirectly through organizations that are DTC
participants. Investors who purchased notes in offshore transactions in reliance
on Regulation S under the Securities Act may hold their interests in a global
note through Clearstream Banking, Societe Anonyme, Luxembourg ("Clearstream"),
or Euroclear Bank S.A./ N.V. (the "Euroclear Operator"), as operator of the
Euroclear System ("Euroclear"), either directly if they are participants in
these systems, or indirectly through organizations that are participants in
these systems. Clearstream and Euroclear will hold interests in a global note on
behalf of their participants through customers' securities accounts in
Clearstream's and Euroclear's names on the books of their respective U.S.
depositaries, which in turn will hold the interests in a global note in
customers' securities accounts in the U.S. depositaries' names on the books of
DTC.
Except as set forth below, a global note may be transferred, in whole or in
part, only to another nominee of DTC or to a successor of DTC or its nominee.
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DTC has advised us that 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;
- "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 of 1934.
DTC was created to hold securities of institutions that have accounts with
DTC and to facilitate the clearance and settlement of securities transactions
among its participants in securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical movement
of securities certificates. DTC's participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations.
Access to DTC's book-entry system is also available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, whether directly or indirectly. The
rules applicable to DTC and its participants are on file with the SEC.
Clearstream has advised us that it is incorporated under the laws of
Luxembourg as a professional depositary. Clearstream holds securities for its
customers and facilitates the clearance and settlement of securities
transactions between its customers through electronic book-entry changes in
accounts of its customers, thereby eliminating the need for physical movement of
certificates. Clearstream provides to its customers, among other things,
services for safekeeping, administration, clearance and settlement of
internationally traded securities and securities lending and borrowing.
Clearstream interfaces with domestic markets in several countries. As a
professional depositary, Clearstream is subject to regulation by the Luxembourg
Commission for the Supervision of the Financial Section. Clearstream customers
are recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and other organizations. Indirect access to Clearstream is also available to
others, such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Clearstream customer either directly
or indirectly.
Euroclear has advised us that it was created in 1968 to hold securities for
participants of Euroclear and to clear and settle transactions between Euroclear
participants through simultaneous electronic book-entry delivery against
payment, thereby eliminating the need for physical movement of certificates and
any risk from lack of simultaneous transfers of securities and cash. Euroclear
provides various other services, including securities lending and borrowing and
interfaces with domestic markets in several countries. Euroclear is operated by
the Euroclear Operator, under contract with Euroclear Clearance Systems S.C., a
Belgian cooperative corporation (the "Cooperative"). All operations are
conducted by the Euroclear Operator, and all Euroclear securities clearance
accounts and Euroclear cash accounts are accounts with the Euroclear Operator,
not the Cooperative. The Cooperative establishes policy for Euroclear on behalf
of Euroclear participants. Euroclear participants include banks (including
central banks), securities brokers and dealers and other professional financial
intermediaries and may include the underwriters. Indirect access to Euroclear is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear participant, either directly or indirectly.
The Euroclear Operator has advised us that it is licensed by the Belgian
Banking and Finance Commission to carry out banking activities on a global
basis. As a Belgian bank, it is regulated and examined by the Belgian Banking
Commission.
We have provided the following descriptions of the operations and
procedures of DTC, Clearstream and Euroclear solely as a matter of convenience.
These operations and procedures are solely within the control of those
organizations and are subject to change by them from time to time. Neither
Halliburton
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nor the trustee takes any responsibility for these operations or procedures, and
you are urged to contact DTC, Clearstream and Euroclear or their participants
directly to discuss these matters.
We expect that pursuant to the procedures established by DTC, ownership of
beneficial interests in a global note will be shown on, and the transfer of
those ownership interests will be effected only through, records maintained by
DTC (with respect to participants' interests) and the participants (with respect
to the owners of beneficial interests in the global note other than
participants). Ownership of beneficial interests in a global note is limited to
participants or persons that may hold interests through participants.
The laws of some jurisdictions may require that purchasers of securities
take physical delivery of those securities in definitive form. Accordingly, the
ability to transfer interests in the notes represented by a global note to those
persons may be limited. In addition, because DTC can act only on behalf of its
participants, who in turn act on behalf of persons who hold interests through
participants, the ability of a person having an interest in notes represented by
a global note to pledge or transfer those interests to persons or entities that
do not participate in DTC's system, or otherwise to take actions in respect of
such interest, may be affected by the lack of a physical definitive security in
respect of such interest.
So long as DTC or its nominee is the registered holder and owner of a
global note, DTC or its nominee, as the case may be, will be considered the sole
legal owner of the notes represented by the global note for all purposes under
the indenture and the notes. Except as set forth below, owners of beneficial
interests in a global note will not be entitled to receive definitive notes and
will not be considered to be the owners or holders of any notes under the global
note. We understand that under existing industry practice, in the event an owner
of a beneficial interest in a global note desires to take any action that DTC,
as the holder of the global note, is entitled to take, DTC would authorize the
participants to take the action, and that participants would authorize
beneficial owners owning through the participants to take the action or would
otherwise act upon the instructions of beneficial owners owning through them. No
beneficial owner of an interest in a global note will be able to transfer the
interest except in accordance with DTC's applicable procedures, in addition to
those provided for under the indenture and, if applicable, those of Euroclear
and Clearstream Banking.
Neither Halliburton nor the trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of notes by DTC, Clearstream or Euroclear, or for maintaining, supervising or
reviewing any records of those organizations relating to the notes.
We will make payments of the principal of, and interest on, the notes
represented by a global note registered in the name of and held by DTC or its
nominee to DTC or its nominee, as the case may be, as the registered owner and
holder of the global note.
We expect that DTC or its nominee, upon receipt of any payment of principal
or interest in respect of a global note, will credit participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of the global note as shown on the records of DTC or its
nominee. We also expect that payments by participants and indirect participants
to owners of beneficial interests in a global note held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for accounts of customers registered in
the names of nominees for these customers. The payments, however, will be the
responsibility of the participants and indirect participants, and neither we,
the trustee nor any paying agent will have any responsibility or liability for:
- any aspect of the records relating to, or payments made on account of,
beneficial ownership interests in a global note;
- maintaining, supervising or reviewing any records relating to the
beneficial ownership interests;
- any other aspect of the relationship between DTC and its participants; or
- the relationship between the participants and indirect participants and
the owners of beneficial interests in a global note.
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Distributions on the notes held beneficially through Clearstream will be
credited to cash accounts of its customers in accordance with its rules and
procedures, to the extent received by the U.S. depositary for Clearstream.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System, and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear participants and has no record of or relationship with persons holding
through Euroclear participants.
Distributions on the notes held beneficially through Euroclear will be
credited to the cash accounts of its participants in accordance with the Terms
and Conditions, to the extent received by the U.S. depositary for Euroclear.
Unless and until it is exchanged in whole or in part for definitive notes,
a global note may not be transferred except as a whole by DTC to a nominee of
DTC or by a nominee of DTC to DTC or another nominee of DTC.
Participants in DTC will effect transfers with other participants in the
ordinary way in accordance with DTC rules and will settle transfers in same-day
funds. Participants in Euroclear and Clearstream Banking will effect transfers
with other participants in the ordinary way in accordance with the rules and
operating procedures of Euroclear and Clearstream Banking, as applicable. If a
holder requires physical delivery of a definitive note for any reason, including
to sell notes to persons in jurisdictions which require physical delivery or to
pledge notes, the holder must transfer its interest in a global note in
accordance with the normal procedures of DTC and the procedures set forth in the
indenture.
Cross-market transfers between DTC, on the one hand, and directly or
indirectly through Euroclear or Clearstream Banking participants, on the other,
will be effected in DTC in accordance with DTC rules on behalf of Euroclear or
Clearstream Banking, as the case may be, by its respective depositary; however,
these cross-market transactions will require delivery of instructions to
Euroclear or Clearstream Banking, as the case may be, by the counterparty in the
system in accordance with its rules and procedures and within its established
deadlines (Brussels time). Euroclear or Clearstream Banking, as the case may be,
will, if the transaction meets its settlement requirements, deliver instructions
to its respective depositary to take action to effect final settlement on its
behalf by delivering or receiving interests in a global note in DTC, and making
or receiving payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. Euroclear participants and Clearstream Banking
participants may not deliver instructions directly to the depositaries for
Euroclear or Clearstream Banking.
Because of time zone differences, the securities account of a Euroclear or
Clearstream Banking participant purchasing an interest in a global note from a
DTC participant will be credited during the securities settlement processing day
(which must be a business day for Euroclear or Clearstream Banking, as the case
may be) immediately following the DTC settlement date, and the credit of any
transactions interests in a global note settled during the processing day will
be reported to the relevant Euroclear or Clearstream Banking participant on that
day. Cash received in Euroclear or Clearstream Banking as a result of sales of
interests in a global note by or through a Euroclear or Clearstream Banking
participant to a DTC participant will be received with value on the DTC
settlement date, but will be available in the relevant Euroclear or Clearstream
Banking cash account only as of the business day following settlement in DTC.
We expect that DTC will take any action permitted to be taken by a holder
of notes (including the presentation of notes for exchange as described below)
only at the direction of one or more participants to whose accounts at the DTC
interests in a global note are credited and only in respect of the portion of
the
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aggregate principal amount of the notes as to which the participant or
participants has or have given direction. Although we expect that DTC, Euroclear
and Clearstream Banking will agree to the foregoing procedures in order to
facilitate transfers of interests in global notes among participants of DTC,
Euroclear, and Clearstream Banking, DTC, Euroclear and Clearstream Banking are
under no obligation to perform or continue to perform these procedures, and
these procedures may be discontinued at any time. Neither we nor the trustee
have any responsibility for the performance by DTC, Euroclear or Clearstream
Banking or their participants or indirect participants of their obligations
under the rules and procedures governing their operations.
CERTIFICATED NOTES
The notes represented by the global securities are exchangeable for
certificated notes in definitive form of like tenor as such notes if:
- the depositary notifies us that it is unwilling or unable to continue as
depositary for the global securities or if at any time the depositary
ceases to be a clearing agency registered under the Exchange Act and, in
either case, a successor depositary is not appointed by us within 90 days
after the date of such notice; or
- we determine not to have the notes represented by a global note.
Any notes that are exchangeable pursuant to the preceding sentence are
exchangeable for certificated notes issuable in authorized denominations and
registered in such names as the depositary shall direct. Subject to the
foregoing, the global securities are not exchangeable, except for global
securities of the same aggregate principal amount to be registered in the name
of the depositary or its nominee. In addition, such certificates will bear the
legend referred to under "Notice to Investors" (unless we determine otherwise in
accordance with applicable law) subject, with respect to such notes, to the
provisions of such legend.
REGISTRATION RIGHTS
We entered into a registration rights agreement with the initial
purchasers. In the registration rights agreement we agreed, for the benefit of
the holders of the notes and our common stock issuable upon conversion of the
notes (together, the "registrable securities") that we will, at our expense:
- file with the SEC (which occurs pursuant to the filing of this shelf
registration statement), not later than the date 120 days after the
earliest date of original issuance of any of the notes, a registration
statement (a "shelf registration statement") on such form as we deem
appropriate covering resales by holders of all registrable securities;
- use our reasonable best efforts to cause the shelf registration statement
to be declared effective as promptly as is practicable, but in no event
later than 210 days after the earliest date of original issuance of any
of the notes; and
- use our reasonable best efforts to keep the shelf registration statement
effective until the earliest of:
- two years after the last date of original issuance of any of the notes;
- the date when non-affiliate holders of the registrable securities are
able to sell all such securities pursuant to paragraph (k) of Rule 144
under the Securities Act;
- the date when all of the holders of the registrable securities that
complete and deliver in a timely manner the selling securityholder
Notice and Questionnaire described below are registered under the shelf
registration statement and all registrable securities have been disposed
of in accordance with the shelf registration statement; and
- the date when there are no outstanding registrable securities.
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We have filed the registration statement of which this prospectus is a part
to satisfy our obligations under the registration rights agreement.
We will provide to each holder of registrable securities that has delivered
to us a completed Notice and Questionnaire as described below copies of the
prospectus that is part of the shelf registration statement, notify each such
holder when the shelf registration statement has become effective and take
certain other actions required to permit public resales of the registrable
securities of such holders. We may suspend the holder's use of the shelf
registration statement for a period not to exceed 45 days in any 90-day period,
and not to exceed an aggregate of 120 days in any 360-day period under certain
circumstances related to acquisition or divestiture of assets, pending corporate
developments or other similar events (a "suspension period"). Each holder, by
its acceptance of the notes, agrees to hold any communication by us in response
to a notice of a proposed sale in confidence.
If (1) the shelf registration statement has not been filed prior to or on
the 120th day following the earliest date of original issuance of any of the
notes; or (2) the shelf registration statement has not been declared effective
prior to or on the 210th day following the earliest date of original issuance of
any of the notes (the "effectiveness target date"); or (3) at any time after the
effectiveness date of the shelf registration statement and prior to the second
anniversary of the date on which any notes are issued, the registration
statement ceases to be effective or usable other than as a result of a
suspension period and (1) we do not restore the effectiveness of the shelf
registration statement within 10 business days by a post-effective amendment or
report filed pursuant to the Exchange Act or (2) if applicable, we do not
terminate the suspension period by the 45th day in any 90-day period, or if the
suspension periods exceed 120 days in the aggregate in any 360-day period (each,
a "registration default"), additional interest as additional amounts will accrue
on the notes, from and including the day following the registration default to
but excluding the day on which the registration default has been cured.
Additional amounts will be paid in cash semiannually in arrears, with the first
semiannual payment due on the first interest payment date, as applicable,
following the date on which such additional amounts begin to accrue, and will
accrue at a rate per year equal to (A) 0.25% of the Applicable Amount (as
defined below) to and including the 90th day following such registration
default; and (B) an additional 0.25% of the Applicable Amount from and after the
91st day following such registration default. In no event will additional
amounts at a rate per year exceed 0.50%. If a holder has converted some or all
of its notes into common stock, the holder will be entitled to receive
equivalent amounts based on the principal amount of the notes converted.
"Applicable Amount" means, (a) with respect to the notes, the principal amount
of the notes and (b) with respect to shares of common stock issued upon
conversion of the notes, the principal amount of notes that would then be
convertible into such shares.
A holder who elects to sell any registrable securities pursuant to the
shelf registration statement:
- will be required to be named as a selling securityholder;
- will be required to deliver a prospectus to purchasers;
- will be subject to the civil liability provisions under the Securities
Act in connection with any sales; and
- will be bound by the provisions of the registration rights agreement,
which are applicable, including indemnification and contribution
provisions.
To be named as a selling securityholder in the shelf registration statement
when it first becomes effective, holders must complete and deliver a
questionnaire, the form of which can be obtained from Halliburton upon request,
before the effectiveness of the shelf registration statement. If we receive from
a holder of registrable securities a completed questionnaire, together with such
other information as may be reasonably requested by us, after the effectiveness
of the shelf registration statement, we will we will include the registrable
securities covered thereby in the shelf registration statement, subject to
restrictions on the timing provided in the registration rights agreement. Any
holder that does not complete and deliver a questionnaire or provide such other
information will not be named as a selling securityholder in this prospectus and
therefore will not be permitted to sell any registrable securities under the
shelf registration statement.
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DESCRIPTION OF CAPITAL STOCK
The following description of our common stock, preferred stock, certificate
of incorporation, by-laws and stockholder rights plan is a summary only and is
subject to the complete text of our certificate of incorporation and by-laws and
the rights agreement we have entered into with Mellon Investor Services LLC, as
Rights Agent, which we have previously filed with the SEC. You should read our
certificate of incorporation, by-laws and rights agreement as currently in
effect for more details regarding the provisions we describe below and for other
provisions that may be important to you. You may request copies of these
documents by writing or telephoning us at our address and telephone number shown
under the caption "Where You Can Find More Information."
Our authorized capital stock currently consists of 600,000,000 shares of
common stock, par value $2.50 per share, and 5,000,000 shares of preferred
stock, without par value. As of October 22, 2003, there were 438,067,117 shares
of common stock issued and outstanding and approximately 24,400 shareholders of
record of our common stock. No shares of preferred stock are outstanding.
COMMON STOCK
The holders of our common stock are entitled to one vote per share on all
matters to be voted on by stockholders generally, including the election of
directors. There are no cumulative voting rights, meaning that the holders of a
majority of the shares voting for the election of directors can elect all of the
directors standing for election.
Our common stock carries no preemptive or other subscription rights to
purchase shares of our stock and is not convertible, redeemable or assessable or
entitled to the benefits of any sinking fund. Holders of our common stock will
be entitled to receive such dividends as may from time to time be declared by
our board of directors out of funds legally available for the payment of
dividends. If we issue preferred stock in the future, payment of dividends to
holders of our common stock may be subject to the rights of holders of our
preferred stock with respect to payment of preferential dividends, if any.
If we are liquidated, dissolved or wound up, the holders of our common
stock will share pro rata in our assets after satisfaction of all of our
liabilities and the prior rights of any outstanding class of our preferred
stock.
PREFERRED STOCK
Our board of directors has the authority, without stockholder approval, to
issue shares of preferred stock in one or more series and to fix the number of
shares and terms of each series. The board may determine the designation and
other terms of each series, including, among others:
- dividend rights;
- voting powers;
- preemptive rights;
- conversion rights;
- redemption rights, including pursuant to a sinking fund;
- our purchase obligations, including pursuant to a sinking fund; and
- liquidation preferences.
The issuance of preferred stock, while providing desired flexibility in
connection with possible acquisitions and other corporate purposes, could
adversely affect the voting power of holders of our common stock. It also could
affect the likelihood that holders of our common stock will receive dividend
payments and payments upon liquidation.
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For purposes of the rights plan described below, our board of directors has
designated 3,000,000 shares of preferred stock to constitute the Series A Junior
Participating Preferred Stock. For a description of the rights plan, please read
"-- Stockholder Rights Plan."
AUTHORIZED BUT UNISSUED STOCK
We have 600,000,000 authorized shares of common stock and 5,000,000
authorized shares of preferred stock of which 438,067,117 shares of common stock
were outstanding as of October 22, 2003. One of the consequences of our
authorized but unissued common stock and undesignated preferred stock may be to
enable our board of directors to make more difficult or to discourage an attempt
to obtain control of us. If, in the exercise of its fiduciary obligations, our
board of directors determined that a takeover proposal was not in our best
interest, the board could authorize the issuance of those shares without
stockholder approval. The shares could be issued in one or more transactions
that might prevent or make the completion of the change of control transaction
more difficult or costly by:
- diluting the voting or other rights of the proposed acquiror or insurgent
stockholder group;
- creating a substantial voting block in institutional or other hands that
might undertake to support the position of the incumbent board; or
- effecting an acquisition that might complicate or preclude the takeover.
In this regard, our certificate of incorporation grants our board of
directors broad power to establish the rights and preferences of the authorized
and unissued preferred stock. Our board could establish one or more series of
preferred stock that entitle holders to:
- vote separately as a class on any proposed merger or consolidation;
- cast a proportionately larger vote together with our common stock on any
transaction or for all purposes;
- elect directors having terms of office or voting rights greater than
those of other directors;
- convert preferred stock into a greater number of shares of our common
stock or other securities;
- demand redemption at a specified price under prescribed circumstances
related to a change of control of our company; or
- exercise other rights designed to impede a takeover.
STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS OF STOCKHOLDERS
Our certificate of incorporation does not prohibit action by written
consent of stockholders in lieu of a meeting. Special meetings of stockholders
may be called only by the board of directors, the chairman of the board, the
chief executive officer, the president (if a director) or by stockholders owning
a majority of our issued and outstanding stock with voting privileges.
AMENDMENT OF THE BY-LAWS
Under Delaware law, the power to adopt, amend or repeal by-laws is
conferred upon the stockholders entitled to vote. A corporation may, however, in
its certificate of incorporation also confer upon the board of directors the
power to adopt, amend or repeal its by-laws. Our certificate of incorporation
and by-laws grant our board of directors the power to alter and repeal our
by-laws at any regular or special meeting of the board on the affirmative vote
of a majority of the directors then in office. Our stockholders may also alter
or repeal our by-laws by the affirmative vote of a majority of the stockholders
entitled to vote.
REMOVAL OF DIRECTORS
Directors may be removed with or without cause by a vote of a majority of
the voting power of our outstanding voting stock. A vacancy on our board of
directors may be filled by a vote of a majority of the
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directors in office even if less than a quorum, and a director elected to fill a
vacancy serves until the next annual meeting of stockholders.
ADVANCE NOTICE PROCEDURE FOR DIRECTOR NOMINATIONS AND STOCKHOLDER PROPOSALS
Our by-laws provide the manner in which stockholders may give notice of
business to be brought before an annual meeting. In order for an item to be
properly brought before the meeting by a stockholder, the stockholder must be a
holder of record at the time of the giving of notice and must be entitled to
vote at the annual meeting. The item to be brought before the meeting must be a
proper subject for stockholder action, and the stockholder must have given
timely advance written notice of the item. For notice to be timely, it must be
delivered to, or mailed and received at, our principal executive office not less
than 90 days prior to the first anniversary date of the immediately preceding
annual meeting date.
The notice must set forth, as to each item to be brought before the annual
meeting, a description of the proposal and the reasons for conducting such
business at the annual meeting, the name and address, as they appear on our
books, of the stockholder proposing the item, the number of shares of each class
or series of capital stock beneficially owned by the stockholder as of the date
of the notice, a representation that the stockholder or a qualified
representative of the stockholder intends to appear in person at the meeting to
bring the proposed business before the annual meeting, and any material interest
of the stockholder in the proposal.
These procedures may limit the ability of stockholders to bring business
before a stockholders meeting, including the nomination of directors and the
consideration of any transaction that could result in a change in control and
that may result in a premium to our stockholders.
STOCKHOLDER RIGHTS PLAN
GENERAL
On December 11, 1996, our board of directors issued a dividend of one
preferred share purchase right (a "Right") for each outstanding share of our
common stock held of record on that date and approved the further issuance of
Rights with respect to all shares of our common stock that are subsequently
issued. The Rights were issued subject to a Rights Agreement dated as of
December 1, 1996 between us and ChaseMellon Shareholder Services, L.L.C., as
Rights Agent. Each Right now entitles the registered holder to purchase from us
one two-hundredth of a share of Series A Junior Participating Preferred Stock,
without par value ("Preferred Stock"), at a price of $75.00 in cash (the
"Purchase Price"), subject to adjustment. Until the occurrence of certain events
described below, the Rights are not exercisable, will be evidenced by the
certificates for our common stock and will not be transferable apart from our
common stock.
DETACHMENT OF RIGHTS; EXERCISE
The Rights are currently attached to all certificates representing
outstanding shares of our common stock and no separate Right certificates have
been distributed. The Rights will separate from our common stock and a
distribution date ("Distribution Date") will occur upon the earlier of (1) 10
business days following the public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person") has acquired beneficial
ownership of 15% or more of our outstanding Voting Shares (as defined in our
Rights Agreement) or (2) 10 business days following the commencement or
announcement of an intention to commence a tender offer or exchange offer, the
consummation of which would result in the beneficial ownership by a person or
group of 15% or more of such outstanding Voting Shares.
The Rights are not exercisable until the Distribution Date. 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 certificates alone
will thereafter evidence the Rights.
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If a person or group were to acquire 15% or more of our Voting Shares, each
Right then outstanding (other than Rights beneficially owned by the Acquiring
Person which would become null and void) would become a right to buy that number
of shares of our common stock (or, under certain circumstances, the equivalent
number of one two-hundredth of a share of Preferred Stock) that at the time of
such acquisition would have a market value of two times the Purchase Price of
the Right.
If we were acquired in a merger or other business combination transaction
or more than 50% of our consolidated assets or earning power were sold, proper
provision would be made so that each holder of a Right would 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
which at the time of such transaction would have a market value of two times the
Purchase Price of the Right.
ANTIDILUTION AND OTHER ADJUSTMENTS
The number of shares (or fractions thereof) of Preferred Stock or other
securities or property issuable upon exercise of the Rights, and the Purchase
Price payable, are subject to customary adjustments from time to time to prevent
dilution. The number of outstanding Rights and the number of shares (or
fractions thereof) of Preferred Stock issuable upon exercise of each Right are
also subject to adjustment in the event of a stock dividend on our common stock
payable in our common stock or any subdivision or combination of our common
stock occurring, in any such case, prior to the Distribution Date.
EXCHANGE OPTION
At any time after the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 15% or more of our outstanding
Voting Shares and before the acquisition by a person or group of 50% or more of
our outstanding Voting Shares, our board of directors may, at its option, issue
our common stock in mandatory redemption of, and in exchange for, all or part of
the then outstanding and 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 our common stock (or one two-hundredth of a share of Preferred Stock)
for each two shares of our common stock for which each Right is then
exercisable, subject to appropriate adjustment.
REDEMPTION OF RIGHTS
At any time prior to the first public announcement that a person or group
has become the beneficial owner of 15% or more of our outstanding Voting Shares,
our board of directors may redeem all but not less than all the then outstanding
rights at a price of $.01 per Right (the "Redemption Price"). 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 the 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.
EXPIRATION; AMENDMENT OF RIGHTS
The Rights will expire on December 15, 2005, unless earlier extended,
redeemed or exchanged. The terms of the Rights may be amended by our board of
directors without the consent of the holders of the Rights, including an
amendment to extend the expiration date of the Rights, and, provided a
Distribution Date has not occurred, to extend the period during which the Rights
may be redeemed, except that after the first public announcement that a person
or group has become or intends to become the beneficial owner of 15% or more of
the outstanding Voting Shares, no such amendment may materially and adversely
affect the interests of holders of the Rights.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire us without
the approval of our board of directors. The Rights should not, however,
interfere with any merger or other business combination that is approved by our
board of directors.
70
LIMITATION OF LIABILITY OF OFFICERS AND DIRECTORS
Our directors will not be personally liable to us or our stockholders for
monetary damages for breach of fiduciary duty as a director, except, if required
by Delaware law, for liability:
- for any breach of the duty of loyalty to us or our stockholders;
- for acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law;
- for unlawful payment of a dividend or unlawful stock purchases or
redemptions; and
- for any transaction from which the director derived an improper personal
benefit.
As a result, neither we nor our stockholders have the right, through
stockholders' derivative suits on our behalf, to recover monetary damages
against a director for breach of fiduciary duty as a director, including
breaches resulting from grossly negligent behavior, except in the situations
described above.
DELAWARE ANTI-TAKEOVER LAW
We are a Delaware corporation and are subject to Section 203 of the
Delaware General Corporation Law, which regulates corporate acquisitions.
Section 203 prevents an "interested stockholder," which is defined generally as
a person owning 15% or more of a corporation's voting stock, or any affiliate or
associate of that person, from engaging in a broad range of "business
combinations" with the corporation for three years after becoming an interested
stockholder unless:
- the board of directors of the corporation had previously approved either
the business combination or the transaction that resulted in the
stockholder's becoming an interested stockholder;
- upon completion of the transaction that resulted in the stockholder's
becoming an interested stockholder, that person owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding shares owned by persons who are directors and also
officers and shares owned in employee stock plans in which participants
do not have the right to determine confidentially whether shares held
subject to the plan will be tendered; or
- following the transaction in which that person became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and holders of at least two-thirds of the
outstanding voting stock not owned by the interested stockholder.
Under Section 203, the restrictions described above also do not apply to
specific business combinations proposed by an interested stockholder following
the announcement or notification of designated extraordinary transactions
involving the corporation and a person who had not been an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of a majority of the corporation's directors, if
such extraordinary transaction is approved or not opposed by a majority of the
directors who were directors prior to any person becoming an interested
stockholder during the previous three years or were recommended for election or
elected to succeed such directors by a majority of such directors.
Section 203 may make it more difficult for a person who would be an
interested stockholder to effect various business combinations with a
corporation for a three-year period.
71
SELLING SECURITYHOLDERS
We originally issued the notes in a private placement. The notes were
resold by the initial purchasers to qualified institutional buyers within the
meaning of Rule 144A under the Securities Act in transactions exempt from
registration under the Securities Act. The notes that may be offered under the
prospectus will be offered by the selling securityholders, which includes their
transferees, pledgees or donees or their successors. The following table sets
forth certain information concerning the principal amount at maturity of notes
beneficially owned by each selling securityholder that may be offered from time
to time pursuant to the prospectus, as supplemented.
The table below has been prepared based solely upon the information
furnished to us by the selling securityholders named therein. Information
concerning the selling securityholders may change from time to time and, if
necessary, we will supplement the prospectus accordingly.
The selling securityholders listed below may offer and sell, transfer or
otherwise dispose, from time to time, some or all of their notes. No offer or
sale, transfer or other disposition under this prospectus may be made by a
holder of the notes unless that holder is listed in the table below or until
that holder has notified us and a supplement to this prospectus has been filed
or an amendment to the related registration statement has become effective.
However, a selling securityholder may offer and sell, transfer or otherwise
dispose of some or all of its notes in transactions exempt from the registration
requirements of the Securities Act without notifying us. As a result, the same
restricted notes may be included in the table below as being held by more than
one holder, and the total amount of the notes listed in the column titled
"Principal Amount at Maturity of Notes Beneficially Owned That May be Sold" may
represent an amount of notes in excess of the $1,200,000,000 we issued. However,
the total principal amount at maturity of notes that may be sold hereunder will
not exceed the $1,200,000,000 we issued. Further, we cannot give an estimate as
to the amount of the notes that will be held by the selling securityholders upon
the termination of this offering because the selling securityholders may offer
some or all of their notes pursuant to the offering contemplated by the
prospectus or otherwise in transactions exempt from the registration
requirements of the Securities Act. See "Plan of Distribution."
PRINCIPAL AMOUNT AT
MATURITY OF NOTES PERCENTAGE OF NUMBER OF SHARES OF PERCENTAGE OF
BENEFICIALLY OWNED NOTES COMMON STOCK THAT COMMON STOCK
NAME THAT MAY BE SOLD OUTSTANDING MAY BE SOLD(1) OUTSTANDING(2)
- ---- ------------------- ------------- ------------------- --------------
1976 Distribution Trust FBO A.R.
Lauder/Zinterhofer............. $ 9,000 * 239.02 *
2000 Revocable Trust FBO A.R.
Lauder/Zinterhofer............. $ 9,000 * 239.02 *
Advisory Convertible Arbitrage
Fund (I) L.P. ................. $ 1,000,000 * 26,558.30 *
Aftra Health Fund................ $ 200,000 * 5,311.66 *
Akela Capital Master Fund,
Ltd. .......................... $ 10,000,000 * 265,583.00 *
Alcon Laboratories............... $ 465,000 * 12,349.61 *
Allentown City Firefighters
Pension Plan................... $ 14,000 * 371.82 *
Allentown City Officers &
Employees Pension Fund......... $ 20,000 * 531.17 *
Allentown City Police Pension
Plan........................... $ 280,000 * 7,436.32 *
Allstate Insurance Company(3).... $ 2,000,000 * 53,116.60 *
Allstate Life Insurance
Company(4)..................... $ 7,500,000 * 199,187.25 *
AM Investment D Fund (QP) LP..... $ 165,000 * 4,382.12 *
AM Investment E Fund Ltd ........ $ 945,000 * 25,097.59 *
Amaranth L.L.C.(5)............... $ 11,000,000 * 292,141.30 *
72
PRINCIPAL AMOUNT AT
MATURITY OF NOTES PERCENTAGE OF NUMBER OF SHARES OF PERCENTAGE OF
BENEFICIALLY OWNED NOTES COMMON STOCK THAT COMMON STOCK
NAME THAT MAY BE SOLD OUTSTANDING MAY BE SOLD(1) OUTSTANDING(2)
- ---- ------------------- ------------- ------------------- --------------
American AAdvantage Funds........ $ 210,000 * 5,577.24 *
American Investors Life Insurance
Co. ........................... $ 300,000 * 7,967.49 *
Amerisures Mutual Insurance
Company........................ $ 435,000 * 11,552.86 *
AmerUs Life Insurance Co. ....... $ 1,000,000 * 26,558.30 *
Arapahoe County Colorado......... $ 58,000 * 1,540.38 *
Arbitex Master Fund, L.P. ....... $ 32,000,000 2.67% 849,865.60 *
Argent Classic Convertible
Arbitrage (Bermuda) Fund
Ltd. .......................... $ 5,200,000 * 138,103.16 *
Argent Classic Convertible
Arbitrage Fund, LP............. $ 3,500,000 * 92,954.05 *
Argent LowLev Convertible
Arbitrage Fund LLC............. $ 3,300,000 * 87,642.39 *
Argent LowLev Convertible
Arbitrage Fund Ltd. ........... $ 11,100,000 * 29,4797.13 *
Arlington County Employees
Retirement System.............. $ 803,000 * 21,326.31 *
Asante Health Systems............ $ 121,000 * 3,213.55 *
Aventis Pension Master Trust..... $ 140,000 * 3,718.16 *
Banc of America Securities LLC... $ 1,000,000 * 26,558.30 *
Bankers Life Insurance Company of
New York....................... $ 100,000 * 26,55.83 *
BBT Fund, L.P. .................. $ 2,800,000 * 74,363.24 *
Bear, Stearns & Co. Inc. ........ $ 7,250,000 * 192,547.68 *
Black Diamond Convertible
Offshore LDC................... $ 3,265,000 * 86,712.85 *
Black Diamond Offshore Ltd. ..... $ 1,823,000 * 48,415.78 *
Boilermaker -- Blacksmith Pension
Trust.......................... $ 750,000 * 19,918.73 *
British Virgin Islands Social
Security Board................. $ 105,000 * 2,788.62 *
BTES -- Convertible ARB.......... $ 1,500,000 * 39,837.45 *
BTOP Growth Vs Value............. $ 6,000,000 * 159,349.80 *
CALAMOS Convertible Portfolio --
CALAMOS Advisors Trust......... $ 90,000 * 2,390.25 *
CALAMOS Convertible Fund --
CALAMOS Investment Trust....... $ 6,300,000 * 167,317.29 *
CEMEX Pension Plan............... $ 70,000 * 1,859.08 *
CGNU Life Fund................... $ 1,600,000 * 42,493.28 *
Cheyne Fund LP................... $ 13,963,000 1.16% 370,833.54 *
Cheyne Leveraged Fund LP......... $ 9,110,000 * 241,946.11 *
CIP Limited Duration Company..... $ 1,550,000 * 41,165.37 *
Citigroup Global Markets......... $ 265,000 * 7,037.95 *
73
PRINCIPAL AMOUNT AT
MATURITY OF NOTES PERCENTAGE OF NUMBER OF SHARES OF PERCENTAGE OF
BENEFICIALLY OWNED NOTES COMMON STOCK THAT COMMON STOCK
NAME THAT MAY BE SOLD OUTSTANDING MAY BE SOLD(1) OUTSTANDING(2)
- ---- ------------------- ------------- ------------------- --------------
City and County of San Francisco
Retirement System.............. $ 1,776,000 * 47,167.54 *
City of Knoxville Pension
System......................... $ 160,000 * 4,249.33 *
City of New Orleans.............. $ 245,000 * 6,506.78 *
City University of New York...... $ 181,000 * 4,807.05 *
Clinton Multistrategy Master
Fund, Ltd. .................... $ 15,195,000 1.27% 403,553.37 *
Clinton Riverside Convertible
Portfolio Limited.............. $ 19,045,000 1.59% 505,802.82 *
Commercial Union Life Fund....... $ 2,000,000 * 53,116.60 *
Concentrated Alpha Partners,
L.P. .......................... $ 700,000 * 18,590.81 *
Convertible Securities Fund...... $ 75,000 * 1,991.87 *
CQS Convertible & Quantitative
Strategies Master Fund
Limited........................ $ 9,000,000 * 239,024.70 *
Davidson Kempner Institutional
Partners....................... $ 3,825,000 * 101,585.50 *
Davidson Kempner International
Limited........................ $ 4,171,000 * 110,774.67 *
Davidson Kempner Partners........ $ 2,004,000 * 53,222.83 *
Delaware Public Employees
Retirement System.............. $ 1,862,000 * 49,451.55 *
Delta Airlines Master Trust...... $ 750,000 * 19,918.73 *
Delta Pilots Disability and
Survivorship Trust............. $ 225,000 * 5,975.62 *
Deutsche Bank Securities Inc. ... $ 2,650,000 * 70,379.50 *
Dodeca Fund, L.P. ............... $ 1,050,000 * 27,886.22 *
Dorinco Reinsurance Company...... $ 420,000 * 11,154.49 *
Double Black Diamond Offshore
LDC............................ $ 9,562,000 * 253,950.46 *
Gaia Offshore Master Fund
Ltd. .......................... $ 7,700,000 * 204,498.91 *
Georgia Municipal................ $ 837,000 * 22,229.30 *
GLG Global Convertible Fund...... $ 8,000,000 * 212,466.40 *
GLG Global Convertible UCITS
Fund........................... $ 3,000,000 * 79,674.90 *
GLG Market Neutral Fund.......... $ 10,000,000 * 265,583.00 *
Grady Hospital Foundation........ $ 159,000 * 4,222.77 *
Guggenheim Portfolio Co. XV,
LLC............................ $ 550,000 * 14,607.07 *
HBK Master Fund L.P. ............ $ 25,500,000 2.13% 677,236.65 *
IL Annuity and Insurance Co. .... $ 12,000,000 1.00% 318,699.60 *
Independence Blue Cross.......... $ 502,000 * 13,332.27 *
Inflective Convertible
Opportunity Fund I, L.P. ...... $ 50,000 * 1,327.92 *
Innovest Finanzdienstle.......... $ 1,000,000 * 26,558.30 *
JMG Capital Partners, LP......... $ 10,000,000 * 265,583.00 *
JMG Triton Offshore Fund,
Ltd. .......................... $ 8,000,000 * 212,466.40 *
74
PRINCIPAL AMOUNT AT
MATURITY OF NOTES PERCENTAGE OF NUMBER OF SHARES OF PERCENTAGE OF
BENEFICIALLY OWNED NOTES COMMON STOCK THAT COMMON STOCK
NAME THAT MAY BE SOLD OUTSTANDING MAY BE SOLD(1) OUTSTANDING(2)
- ---- ------------------- ------------- ------------------- --------------
Knoxville Utilities Board
Retirement System.............. $ 75,000 * 1,991.87 *
Lyxor Master Fund................ $ 2,600,000 * 69,051.58 *
Lyxor/AM Investment Fund Ltd. ... $ 255,000 * 6,772.37 *
Lyxor/Gaia II Fund Ltd. ......... $ 2,400,000 * 63,739.92 *
Macomb County Employees'
Retirement System.............. $ 160,000 * 4,249.33 *
Mainstay Convertible Fund........ $ 2,875,000 * 76,355.11 *
Mainstay VP Convertible Fund..... $ 1,340,000 * 35,588.12 *
Meadow IAM Limited............... $ 1,760,000 * 46,742.61 *
Merril Lynch Insurance Group..... $ 402,000 * 10,676.44 *
MLQA Convertible Securities
Arbitrage LTD.................. $ 5,000,000 * 132,791.50 *
Morgan Stanley Convertible
Securities Trust............... $ 2,500,000 * 66,395.75 *
Municipal Employees.............. $ 286,000 * 7,595.67 *
Nations Convertible Securities
Fund........................... $ 9,925,000 * 263,591.13 *
New Orleans Firefighters Pension/
Relief Fund.................... $ 163,000 * 4,329.00 *
New York Life Insurance Company
(Ordinary Life Post 1982)...... $ 4,730,000 * 125,620.76 *
New York Life Insurance Company
(Ordinary Life Pre 1982)....... $ 2,870,000 * 76,222.32 *
New York Life Separate Account
#7............................. $ 100,000 * 2,655.83 *
Nicholas Applegate Capital
Management Investment
Grade Convertible Mutual Fund.... $ 15,000 * 398.37 *
NMS Services (Cayman) Inc. ...... $ 20,000,000 1.67% 531,166.00 *
Nomura Securities Intl Inc.(6)... $ 40,000,000 3.33% 1,062,332.00 *
Norwich Union Life & Pensions.... $ 3,000,000 * 79,674.90 *
Occidental Petroleum
Corporation.................... $ 323,000 * 8,578.33 *
Ohio Bureau of Workers
Compensation................... $ 217,000 * 5,763.15 *
Oppenheimer Convertible
Securities Fund................ $ 4,000,000 * 106,233.20 *
Pearl -- CS Alternative Strategy
Limited........................ $ 858,000 * 22,787.02 *
Policeman and Firemen Retirement
System of the City of
Detroit........................ $ 675,000 * 17,926.85 *
Port Authority of Allegheny
County Retirement and
Disability Allowance Plan for
the Employees Represented by
Local 85 of the Amalgamated
Transit Union.................. $ 350,000 * 9,295.41 *
Privilege Portfolio SICAV........ $ 5,900,000 * 156,693.97 *
Pro-mutual....................... $ 902,000 * 23,955.59 *
75
PRINCIPAL AMOUNT AT
MATURITY OF NOTES PERCENTAGE OF NUMBER OF SHARES OF PERCENTAGE OF
BENEFICIALLY OWNED NOTES COMMON STOCK THAT COMMON STOCK
NAME THAT MAY BE SOLD OUTSTANDING MAY BE SOLD(1) OUTSTANDING(2)
- ---- ------------------- ------------- ------------------- --------------
Ramius Capital Group............. $ 1,000,000 * 26,558.30 *
Ramius Master Fund, LTD.......... $ 4,950,000 * 131,463.59 *
Ramius Partners II, LP........... $ 250,000 * 6,639.58 *
Ramius, LP....................... $ 100,000 * 2,655.83 *
RCG Baldwin, LP.................. $ 500,000 * 13,279.15 *
RCG Latitude Master Fund, LTD.... $ 6,450,000 * 171,301.04 *
RCG Multi Strategy Master Fund,
LTD............................ $ 1,400,000 * 37,181.62 *
S.A.C. Capital Associates,
LLC(7)......................... $ 8,000,000 * 212,466.40 *
SCI Endowment Care Common Trust
Fund -- First Union............ $ 20,000 * 531.17 *
SCI Endowment Care Common Trust
Fund -- National Fiduciary
Services....................... $ 100,000 * 2,655.83 *
SCI Endowment Care Common Trust
Fund -- Suntrust............... $ 45,000 * 1,195.12 *
Siemens Convertible Global
Markets........................ $ 1,250,000 * 33,197.88 *
Silverback Master, LTD........... $ 36,500,000 3.04% 969,377.95 *
South Dakota Retirement
System(8)...................... $ 2,000,000 * 53,116.60 *
State of Maryland Retirement
Agency......................... $ 3,843,000 * 102,063.55 *
Sunrise Partners Limited
Partnership(9)................. $ 4,500,000 * 119,512.35 *
SuttonBrook Capital Portfolio
LP............................. $ 46,000,000 3.83% 1,221,681.80 *
The California Wellness
Foundation..................... $ 220,000 * 5,842.83 *
The Cockrell Foundation.......... $ 75,000 * 1,991.87 *
The Dow Chemical Company
Employees' Retirement Plan..... $ 1,400,000 * 37,181.62 *
The Fondren Foundation........... $ 80,000 * 2,124.66 *
The Grable Foundation............ $ 97,000 * 2,576.16 *
Thrivent Financial for
Lutherans(10).................. $ 5,250,000 * 139,431.08 *
Topanga XI....................... $ 2,400,000 * 63,739.92 *
Trustmark Insurance.............. $ 409,000 * 10,862.34 *
Union Carbide Retirement
Account........................ $ 650,000 * 17,262.90 *
United Food and Commercial
Workers Local 1262 and
Employers Pension Fund......... $ 330,000 * 8,764.24 *
Univar USA Inc. Retirement
Plan........................... $ 165,000 * 4,382.12 *
Vanguard Convertible Securities
Fund, Inc. .................... $ 4,530,000 * 120,309.10 *
Wachovia Bank National
Association.................... $ 26,000,000 2.17% 690,515.80 *
White River Securities L.L.C..... $ 7,250,000 * 192,547.68 *
Wilmington Trust Co. as Owner and
Trustee for the Forrestal
Funding Master Trust........... $ 33,500,000 2.79% 889,703.05 *
Worldwide Transactions Ltd. ..... $ 350,000 * 9,295.41 *
Xavex Convertible Arbitrage 10
Fund........................... $ 1,000,000 * 26,558.30 *
76
PRINCIPAL AMOUNT AT
MATURITY OF NOTES PERCENTAGE OF NUMBER OF SHARES OF PERCENTAGE OF
BENEFICIALLY OWNED NOTES COMMON STOCK THAT COMMON STOCK
NAME THAT MAY BE SOLD OUTSTANDING MAY BE SOLD(1) OUTSTANDING(2)
- ---- ------------------- ------------- ------------------- --------------
Xavex Convertible Arbitrage 2
Fund........................... $ 1,400,000 * 37,181.62 *
Xavex Convertible Arbitrage 5
Fund........................... $ 800,000 * 21,246.64 *
Zurich Institutional Benchmark
Master Fund LTD................ $ 800,000 * 21,246.64 *
Any other holder of notes or
future transferee from any such
holder(11)(12)................. $571,196,000 47.60% 15,169,994.73 3.35%
- ---------------
* Less than 1%.
(1) Assumes conversion of all of the holder's notes at a conversion rate of
26.5583 shares of common stock per $1,000 principal amount of notes. This
conversion rate is subject to adjustment, however, as described under
"Description of the Notes--Conversion of Notes." As a result, the number of
shares of common stock issuable upon conversion of the notes may increase
or decrease in the future.
(2) Calculated based on Rule 13d-3(d)(1)(i) of the Exchange Act, using
438,067,117 shares of common stock outstanding as of October 22, 2003. In
calculating this amount for each holder, we treated as outstanding the
number of shares of common stock issuable upon conversion of all of that
holder's notes, but we did not assume conversion of any other holder's
notes.
(3) Allstate Corporation is the parent company of Allstate Insurance Company.
Allstate Insurance Company also beneficially owns 148,700 shares of common
stock. In addition, Allstate New Jersey Insurance Company, an indirect
subsidiary of Allstate Insurance Company, beneficially owns 8,100 shares of
common stock. Allstate Retirement Plan and Agents Pension Plan are
qualified ERISA plans maintained for the benefit of certain employees and
agents of Allstate Insurance Company. Allstate Retirement Plan beneficially
owns 47,600 shares of common stock and Agents Pension Plan beneficially
owns 15,100 shares of common stock. BNY Midwest Trust Company, as Trustee
for such plans, holds title to all plan investments. Allstate has informed
us that it disclaims any interest in securities held in such trusts,
although the Investment Committee for such plans consists of Allstate
Insurance Company officers.
(4) Allstate Life Insurance Company is a wholly owned subsidiary of Allstate
Insurance Company. See also footnote (3) above.
(5) Amaranth L.L.C. also beneficially owns 15,200 shares of common stock.
(6) Nomura Securities Intl Inc. also beneficially owns 551,868 shares of common
stock.
(7) S.A.C. Capital Associates, LLC also beneficially owns 40,000 shares of
common stock.
(8) South Dakota Retirement System also beneficially owns 113,000 shares of
common stock.
(9) Sunrise Partners Limited Partnership also beneficially owns 78,300 shares
of common stock.
(10) Thrivent Financial for Lutherans also beneficially owns 3,650 shares of
common stock.
(11) Information concerning other selling securityholders of notes or underlying
common stock will be set forth in prospectus supplements from time to time,
if required.
(12) Assumes that any other holders of notes, or any future transferees,
pledgees, donees or successors of or from any such other holders of notes
do not beneficially own any common stock other than the common stock
issuable upon conversion of the notes at the initial conversion rate.
To our knowledge, other than their ownership of the securities described
above, none of the selling securityholders has, or has had within the past three
years, any position, office or other material relationship with us or any of our
predecessors or affiliates, except that Citigroup Global Markets acted as one of
the initial purchasers of the notes and acts as an adviser to us from time to
time with respect to other matters.
77
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material U.S. federal income tax
considerations (and, in the case of non-U.S. holders, as defined below, certain
U.S. federal estate tax considerations) relating to the purchase, ownership and
disposition of the notes and common stock into which the notes may be converted.
This summary does not purport to be a complete analysis of all the potential tax
considerations relating thereto. The summary is based on laws, regulations,
rulings and decisions now in effect, all of which are subject to change or
differing interpretations, possibly with retroactive effect. Except as
specifically discussed below with regard to non-U.S. holders, this summary
applies only to beneficial owners that will hold notes and common stock into
which notes may be converted as "capital assets," within the meaning of the
Internal Revenue Code of 1986, as amended (the "Code"), and who, for U.S.
federal income tax purposes, are (1) individual citizens or residents of the
United States, (2) corporations (including any entity treated as a corporation
for U.S. federal income tax purposes) created or organized in or under the laws
of the United States or any political subdivision thereof, (3) estates, the
incomes of which are subject to U.S. federal income taxation regardless of the
source of such income or (4) trusts subject to the primary supervision of a U.S.
court and the control of one or more U.S. persons or any trust that has a valid
election in effect under applicable Treasury regulations to be treated as a U.S.
person ("U.S. holders"). In the case of a holder of notes or common stock which
is a partnership, the tax consequences will generally affect the partner rather
than the partnership, but special considerations not set forth herein may apply.
Persons other than U.S. holders ("non-U.S. holders") are subject to special U.S.
federal income tax considerations, some of which are discussed below.
This discussion does not address tax considerations applicable to an
investor's particular circumstances or to investors that may be subject to
special tax rules, such as banks or other financial institutions, holders
subject to the alternative minimum tax, tax-exempt organizations, insurance
companies, regulated investment companies, foreign persons or entities (except
to the extent specifically set forth below), dealers in securities, commodities
or currencies, initial holders whose "functional currency" is not the U.S.
dollar, persons that will hold notes as a position in a hedging transaction,
"straddle" or "conversion transaction" for tax purposes, traders in securities
that elect to use a mark-to-market method of accounting for their securities
holdings, persons deemed to sell notes or common stock under the constructive
sale provisions of the Code, partnerships or other pass-through entities, or
persons who have ceased to be U.S. citizens or to be taxed as resident aliens.
The discussion below deals only with holders who hold the notes (and the shares
of our common stock acquired upon conversion of the notes) as capital assets and
who acquire the notes from a selling securityholder as described under "Selling
Securityholders" pursuant to an offering of such notes under this prospectus in
the first sale of such notes by such selling securityholder after the notes are
first registered with the SEC. We have not sought any ruling from the Internal
Revenue Service (the "IRS") or an opinion of counsel with respect to the
statements made and the conclusions reached in the following summary, and there
can be no assurance that the IRS will agree with such statements and
conclusions. In addition, the IRS is not precluded from successfully adopting a
contrary position. This summary does not consider the effect of the U.S. federal
estate or gift tax laws (except as set forth below with respect to non-U.S.
holders) or the tax laws of any applicable foreign, state, local or other
jurisdiction.
Investors considering the purchase of notes should consult their own tax
advisors with respect to the application of the United States federal income tax
laws to their particular situations as well as any tax consequences arising
under the United States federal, estate or gift tax rules or under the laws of
any state, local or foreign taxing jurisdiction or under any applicable tax
treaty.
U.S. HOLDERS
TAXATION OF INTEREST
Interest paid on the notes will be included in the income of a U.S. holder
as ordinary income at the time it is received or accrued, in accordance with
such holder's regular method of accounting for U.S. federal income tax purposes.
78
MARKET DISCOUNT
If a U.S. holder purchases a note for an amount that is less than its
stated redemption price at maturity, such U.S. holder will be treated as having
purchased the note at a "market discount," unless such market discount is less
than a specified de minimis amount. Under the market discount rules, a U.S.
holder will be required to treat any partial principal payment on, or any gain
realized on the sale, exchange, redemption or other disposition of a note as
ordinary income to the extent of the lesser of:
- the amount of such payment or realized gain or
- the market discount which has not previously been included in the income
of the holder and is treated as having accrued on the note while held by
the holder through the time of such payment or disposition.
Market discount will be considered to accrue ratably during the period from
the date of acquisition to the maturity date of the note, unless the U.S. holder
elects to accrue market discount on the basis of semiannual compounding.
A U.S. holder may be required to defer the deduction of all or a portion of
the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry a note with market discount until the maturity of the note or
certain earlier dispositions, because a current deduction is only allowed to the
extent the interest expense exceeds an allocable portion of market discount.
A U.S. holder may elect to include market discount in income currently as
it accrues (on either a ratable or semiannual compounding basis), in which case
the rules described above regarding the treatment as ordinary income of gain
realized upon the disposition of the note and upon the receipt of certain cash
payments and regarding the deferral of interest deductions will not apply.
Generally, such currently included market discount is treated as ordinary
interest for United States federal income tax purposes. Such an election will
apply to all debt instruments acquired by the U.S. holder on or after the first
day of the taxable year to which such election applies and may be revoked only
with the consent of the IRS.
PREMIUM
If a U.S. holder purchases a note for an amount that is greater than the
sum of all amounts payable on the note after the purchase date other than
payments of qualified stated interest, the U.S. holder will be considered to
have purchased the note with "amortizable bond premium" equal in amount to such
excess. Subject to certain limitations, a U.S. holder may elect to amortize such
premium using a constant yield method over the remaining term of the note and
may offset interest otherwise required to be included in respect of the note
during any taxable year by the amortized amount of such excess for the taxable
year. Any election to amortize bond premium applies to all taxable debt
obligations then owned and thereafter acquired by the U.S. holder and may be
revoked only with the consent of the IRS.
SALE, EXCHANGE OR REDEMPTION OF THE NOTES
Upon the sale, exchange (other than a conversion for stock or a combination
of stock and cash) or redemption of a note, a U.S. holder generally will
recognize capital gain or loss equal to the difference between (1) the amount of
cash proceeds and the fair market value of any property received on the sale,
exchange or redemption (except to the extent such amount is attributable to
accrued interest not previously included in income, which will be taxable as
ordinary income, or is attributable to accrued interest that was previously
included in income, which amount may be received without generating further
income) and (2) such holder's adjusted tax basis in the note. A U.S. holder's
adjusted tax basis in a note generally will equal the cost of the note to such
holder. Such capital gain or loss will be long-term capital gain or loss if the
U.S. holder's holding period in the note is more than one year at the time of
sale, exchange or redemption. Long-term capital gains of noncorporate taxpayers
are generally taxed at a lower maximum marginal tax rate than the maximum
marginal tax rate applicable to ordinary income. The deductibility of capital
losses is subject to limitations.
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CONVERSION OF THE NOTES
If a U.S. holder converts its notes and receives solely common stock (plus
cash in lieu of a fractional share of common stock), the U.S. holder generally
will not recognize any income, gain or loss upon conversion of the note except
to the extent such receipt is attributable to accrued interest not previously
included in income (which will be taxable as ordinary income), and except with
respect to cash received in lieu of a fractional share of common stock (which
generally will result in capital gain or loss, measured by the difference
between the cash received for the fractional share and the holder's adjusted tax
basis in the fractional share). A U.S. holder's tax basis in the common stock
received on conversion of a note will be the same as such holder's adjusted tax
basis in the note at the time of conversion (reduced by any basis allocable to a
fractional share interest) except that such holder's tax basis in common stock
received with respect to accrued interest on the notes not previously included
in income will equal the then current fair market value of such common stock.
The holding period for the common stock received on conversion should generally
include the holding period of the note converted, except that the holding period
for common stock received with respect to accrued interest on the notes not
previously included in income will commence on the day immediately following the
date of conversion.
If a U.S. holder converts its notes and receives a combination of cash and
common stock (and such cash is not merely received in lieu of a fractional share
of common stock), the tax treatment to the holder is uncertain. The U.S. holder
may be required to recognize gain in an amount equal to the lesser of (1) the
cash payment (reduced for the portion of the payment which is attributable to
accrued and unpaid interest which will be taxed as ordinary income) or (2) the
excess of the fair market value of the common stock and cash payment (less the
amount attributable to accrued and unpaid interest) received in the conversion
over the U.S. holder's adjusted tax basis in the note at the time of conversion.
No loss would be recognized on the conversion. The U.S. holder's tax basis in
the common stock received would be the same as the U.S. holder's basis in the
note, increased by the amount of gain recognized, if any, and reduced by the
amount of the cash payment (less any amount attributable to accrued and unpaid
interest). Cash received in lieu of a fractional share of common stock would be
treated in the manner described above. Alternatively, the receipt of stock and
cash may be treated as a part conversion/part sale transaction. In such case,
the cash payment would be treated as proceeds from a sale of a portion of the
note, as described above under "-- Sale, Exchange or Redemption of the Notes,"
and stock would be treated as received upon conversion of a portion of the note,
as described above in the preceding paragraph. A U.S. holder's basis in the note
would be allocated pro rata between the common stock received (including any
fractional share treated as received) and the portion of the note that is
treated as sold for cash based upon the relative values of the shares received
and the cash payment. Under either treatment the holding period for the common
stock received on conversion should generally include the holding period of the
note converted, except that the holding period for common stock received with
respect to accrued interest on the notes not previously included in income will
commence on the day immediately following the date of conversion.
Holders should consult their tax advisors regarding the proper treatment to
them of the receipt of a combination of cash and common stock upon a conversion.
ADDITIONAL AMOUNTS
We may be required to make payments of additional amounts if the prospectus
is unavailable for periods in excess of those permitted by the registration
rights agreement, as described under "Registration Rights." We intend to take
the position for United States federal income tax purposes that the possibility
that holders of the notes will be paid such additional amounts is a remote and
incidental contingency as of the issue date of the notes within the meaning of
applicable Treasury regulations. Accordingly, any payments of additional amounts
should be taxable to U.S. holders as additional ordinary income when received or
accrued, in accordance with their method of tax accounting. Our determination
that the payment of additional amounts is a remote and incidental contingency is
binding upon all holders of the notes, unless a holder properly discloses to the
IRS that it is taking a contrary position.
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U.S. holders should consult their tax advisors concerning the appropriate
tax treatment of the payment of any additional amounts with respect to the
notes.
DISTRIBUTIONS ON COMMON STOCK
If, after a U.S. holder converts a note into our common stock, we make
distributions on our common stock, the distributions will constitute dividends
taxable to the holder as ordinary income for United States federal income tax
purposes to the extent of our current or accumulated earnings and profits as
determined under United States federal income tax principles. If a U.S. holder
is an individual and receives a distribution that is treated as a dividend,
recently enacted legislation generally reduces the maximum tax rate to 15%.
However, there are several exceptions and restrictions regarding the
availability of the reduced tax rates, such as restrictions relating to (i) the
U.S. holder's holding period of stock on which the dividends are received, (ii)
such holder's obligation, if any, to make related payments with respect to
positions in substantially similar or related property, and (iii) amounts the
U.S. holder takes into account as investment income under section 163(d)(4)(B)
of the Code. The reduced rates apply only to dividends received on or before
December 31, 2008. Individuals should consult their tax advisors regarding the
extent, if any, to which any exceptions and restrictions may apply to their
particular factual situation.
To the extent that a U.S. holder receives distributions on shares of common
stock that would otherwise constitute dividends for United States federal income
tax purposes but that exceed our current and accumulated earnings and profits,
such distributions will be treated first as a non-taxable return of capital
reducing the holder's tax basis in the shares of common stock. Any such
distributions in excess of the U.S. holder's tax basis in the shares of common
stock will generally be treated as capital gain. Subject to applicable
limitations, distributions on our common stock constituting dividends paid to
holders that are United States corporations will qualify for the dividends
received deduction.
ADJUSTMENT OF CONVERSION PRICE
Holders of convertible debt instruments such as the notes may, in certain
circumstances, be deemed to have received distributions of stock if the
conversion price of such instruments is adjusted. Adjustments to the conversion
price made pursuant to a bona fide reasonable adjustment formula which has the
effect of preventing the dilution of the interest of the holders of the debt
instruments, however, will generally not be considered to result in a
constructive distribution of stock. Certain of the possible adjustments provided
in the notes (including, without limitation, adjustments in respect of taxable
dividends to our stockholders) will not qualify as being pursuant to a bona fide
reasonable adjustment formula. If such adjustments are made, the U.S. holders of
notes will be deemed to have received constructive distributions taxable as
dividends to the extent of our current and accumulated earnings and profits even
though they have not received any cash or property as a result of such
adjustments. In certain circumstances, the failure to provide for such an
adjustment may result in taxable dividend income to the U.S. holders of common
stock. Generally, a U.S. holder's tax basis in a note will be increased to the
extent any such constructive distribution is treated as a dividend. Moreover, if
there is an adjustment (or a failure to make an adjustment) to the conversion
rate of the notes that increases the proportionate interest of the holders of
outstanding common stock in our assets or earnings and profits, then such
increase in the proportionate interest of the holders of the common stock
generally will be treated as a constructive distribution to such holders,
taxable as described above.
SALE OF COMMON STOCK
Upon the sale or exchange of common stock a U.S. holder generally will
recognize capital gain or loss equal to the difference between (1) the amount of
cash and the fair market value of any property received upon the sale or
exchange and (2) such U.S. holder's adjusted tax basis in the common stock. Such
capital gain or loss will be long-term capital gain or loss if the U.S. holder's
holding period in the common stock is more than one year at the time of the sale
or exchange. Long-term capital gains of noncorporate taxpayers are generally
taxed at a lower maximum marginal tax rate than the maximum marginal tax rate
applicable to ordinary income. A U.S. holder's basis and holding period in
common stock received upon
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conversion of a note are determined as discussed above under "-- Conversion of
the Notes." The deductibility of capital losses is subject to limitations.
If a U.S. holder is an individual, recently enacted legislation generally
reduces the maximum tax rate on such long-term capital gain to 15%. However,
there are exceptions to the reduced rates, including an exception for amounts
the U.S. holder takes into account as investment income under section
163(d)(4)(B) of the Code. The reduced rates apply only to tax years beginning on
or before December 31, 2008. Moreover, if such holder previously received, with
respect to such stock, one or more dividends that were taxed at the reduced rate
described above under "-- Distributions on Common Stock" any capital loss on a
subsequent disposition of the stock will, regardless of such holder's holding
period, be treated as long-term capital loss to the extent that the previous
dividends were extraordinary dividends within the meaning of section 1059(c) of
the Code. Individuals should consult their tax advisors regarding the extent, if
any, to which any exceptions may apply to their particular factual situation.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Payments of interest or dividends made by us on, or the proceeds of sale or
other disposition of, the notes or our common stock may be subject to
information reporting and U.S. federal backup withholding tax at the applicable
statutory rate if the recipient of those payments fails to supply an accurate
taxpayer identification number or otherwise fails to comply with applicable
United States information reporting or certification requirements. Any amount
withheld from a payment to a U.S. holder under the backup withholding rules is
allowable as a credit against the holder's U.S. federal income tax, provided the
required information is furnished to the IRS.
NON-U.S. HOLDERS
TAXATION OF INTEREST
Interest paid by us to non-U.S. holders will not be subject to United
States federal income or withholding tax provided the interest qualifies as
portfolio interest. Interest on a note will generally qualify as portfolio
interest if:
- interest paid on the note is not effectively connected with the non-U.S.
holder's conduct of a trade or business in the United States;
- such non-U.S. holder does not actually or by attribution own 10% or more
of the total combined voting power of all classes of our stock entitled
to vote;
- such non-U.S. holder is not a controlled foreign corporation for U.S.
federal income tax purposes that is related to us, actually or by
attribution, through stock ownership;
- such non-U.S. holder is not a bank receiving interest described in
section 881(c)(3)(A) of the Code; and
- the certification requirements, as described below, are satisfied.
To satisfy the certification requirements referred to above, either (1) the
beneficial owner of a note must certify, under penalties of perjury, to us or
our agent, as applicable, that such owner is a non-U.S. person and must provide
such owner's name and address, and TIN, if any, or (2) a securities clearing
organization, bank or other financial institution that holds customer securities
in the ordinary course of its trade or business, referred to as a "Financial
Institution," and holds the note on behalf of the beneficial owner thereof must
certify, under penalties of perjury, to us or our agent, as applicable, that
such certificate has been received from the beneficial owner and must furnish
the payor with a copy thereof. Such requirement will be fulfilled if the
beneficial owner of a note certifies on IRS Form W-8BEN (or successor form),
under penalties of perjury, that it is a non-U.S. person and provides its name
and address or any Financial Institution holding the note on behalf of the
beneficial owner files a statement with the withholding agent to the effect that
it has received such a statement from the beneficial owner (and furnishes the
withholding agent with a copy thereof). Special certification rules apply for
notes held by
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foreign partnerships and other intermediaries. The beneficial owner must inform
us or our agent, as applicable, or the financial institution, as applicable,
within 30 days of any change in information on the owner's statement.
If interest on the note is effectively connected with the conduct of a
trade or business in the United States by a non-U.S. holder (and, if certain tax
treaties apply, is attributable to a U.S. permanent establishment maintained by
the non-U.S. holder in the United States), the non-U.S. holder, although exempt
from U.S. federal withholding tax (provided that the certification requirements
discussed in the next sentence are met), will generally be subject to U.S.
federal income tax on such interest on a net income basis in the same manner as
if it were a U.S. holder. In order to claim an exemption from withholding tax,
such a non-U.S. holder will be required to provide us with a properly executed
IRS Form W-8ECI (or successor form) certifying, under penalties of perjury, that
the holder is a non-U.S. person and the interest is effectively connected with
the holder's conduct of a U.S. trade or business and is includable in the
holder's gross income. In addition, if such non-U.S. holder engaged in a U.S.
trade or business is a foreign corporation, it may be subject to a branch
profits tax equal to 30% (or such lower rate provided by an applicable treaty)
of its effectively connected earnings and profits for the taxable year, subject
to certain adjustments.
Interest on notes not effectively connected with a U.S. trade or business
and not excluded from U.S. federal withholding tax under the "portfolio
interest" exception described above generally will be subject to withholding at
a 30% rate, except where a non-U.S. holder can claim the benefits of an
applicable tax treaty to reduce or eliminate such withholding tax and
demonstrates such eligibility to us and the IRS.
CONVERSION OF THE NOTES
A non-U.S. holder generally will not be subject to U.S. federal withholding
tax on the conversion of a note into common stock. To the extent a non-U.S.
holder receives cash (including cash in lieu of a fractional share of common
stock) upon conversion, such cash may give rise to gain that would be subject to
the rules described below with respect to the sale or exchange of a note or
common stock. See "-- Sale, Exchange or Redemption of the Notes or Common Stock"
below.
ADJUSTMENT OF CONVERSION PRICE
The conversion price of the notes is subject to adjustment in certain
circumstances. Any such adjustment could, in certain circumstances, give rise to
a deemed distribution to non-U.S. holders of the notes. See "-- U.S.
Holders -- Adjustment of Conversion Price" above. In such case, the deemed
distribution would be subject to the rules below regarding withholding of U.S.
federal income tax on dividends in respect of common stock.
DISTRIBUTIONS ON COMMON STOCK
Distributions on common stock will constitute a dividend for U.S. federal
income tax purposes to the extent of our current and accumulated earnings and
profits as determined under U.S. federal income tax principles. Dividends paid
on common stock held by a non-U.S. holder will be subject to U.S. federal
withholding tax at a rate of 30% (or lower treaty rate, if applicable) unless
the dividend is effectively connected with the conduct of a United States trade
or business by the non-U.S. holder and, if required by an applicable treaty, is
attributable to a permanent establishment maintained by the non-U.S. holder in
the United States, in which case the dividend will be subject to U.S. federal
income tax on net income in the manner applied to U.S. persons generally (and
with respect to corporate holders under certain circumstances, the branch
profits tax). A non-U.S. holder may be required to satisfy certain requirements
in order to claim a reduction of or exemption from withholding under the
foregoing rules.
As more fully described under "Registration Rights," upon the occurrence of
certain enumerated events, we may be required to pay additional amounts which
may be subject to U.S. federal income and withholding tax.
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SALE, EXCHANGE OR REDEMPTION OF THE NOTES OR COMMON STOCK
A non-U.S. holder of a note or common stock will generally not be subject
to U.S. federal income tax on gains realized on the sale, exchange or other
disposition of such note or common stock unless (1) such non-U.S. holder is an
individual who is present in the United States for 183 days or more in the
taxable year of sale, exchange or other disposition, and certain conditions are
met, (2) such gain is effectively connected with the conduct by the non-U.S.
holder of a trade or business in the United States (and, if certain tax treaties
apply, is attributable to a permanent establishment maintained by the non-U.S.
holder in the United States), or (3) we are a U.S. real property holding
corporation under the "FIRPTA" rules adopted in 1980.
Generally, a corporation is a U.S. real property holding corporation if the
fair market value of its U.S. real property interests, as defined in the Code
and applicable regulations, equals or exceeds 50% of the aggregate fair market
value of its worldwide real property interests and its other assets used or held
for use in a trade or business. We do not believe that we are currently a U.S.
real property holding corporation or that we will become one in the future. If
we nevertheless did become a U.S. real property holding corporation then, among
other circumstances, an exemption would generally apply (1) to the sale of notes
by a non-U.S. holder if such non-U.S. holder at no time actually or
constructively owned more than 5% of the outstanding notes, or notes having a
fair market value greater than the fair market value of 5% of our outstanding
common stock, assuming our common stock is at all times regularly traded on an
established securities market, as prescribed by regulations, and (2) to the sale
of common stock by a non-U.S. holder if such non-U.S. holder at no time actually
or constructively owned more than 5% of our outstanding common stock, assuming
our common stock is at all times regularly traded on an established securities
market, as prescribed by regulations.
U.S. FEDERAL ESTATE TAX
A note held by an individual who at the time of death is not a citizen or
resident of the United States (as specially defined for U.S. federal estate tax
purposes) will not be subject to U.S. federal estate tax if the individual did
not actually or constructively own 10% or more of the total combined voting
power of all classes of our stock entitled to vote and, at the time of the
individual's death, payments with respect to such note would not have been
effectively connected with the conduct by such individual of a trade or business
in the United States. Common stock held by an individual who at the time of
death is not a citizen or resident of the United States (as specially defined
for U.S. federal estate tax purposes) generally will be included in such
individual's estate for U.S. federal estate tax purposes, unless an applicable
tax treaty provides otherwise.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Generally, we must report annually to the IRS and to each non-U.S. holder
(1) any interest or dividend that is subject to withholding, or that is exempt
from U.S. withholding tax pursuant to a tax treaty and (2) any payments of
portfolio interest. Copies of these information returns may also be made
available under the provisions of a specific treaty or agreement to the tax
authorities of the country in which the non-U.S. holder resides.
Generally, information reporting and backup withholding of United States
federal income tax at the applicable rate may apply to payments made by us or
our agent to a non-U.S. holder if such holder fails to make the appropriate
certification that the holder is a non-U.S. person or if we or our agent has
actual knowledge or reason to know that the payee is a U.S. person.
Payments of the proceeds of the sale of a note or common stock to or
through a foreign office of a U.S. broker or of a foreign broker that is a
"controlled foreign corporation" within the meaning of the Code, a foreign
person, 50% or more of whose gross income from all sources for the three-year
period ending with the close of its taxable year preceding the payment was
effectively connected with the conduct of a trade or business within the United
States, or, in certain cases, a foreign partnership will be subject to
information reporting requirements, but not backup withholding, unless the payee
is an exempt recipient or
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such broker has evidence in its records that the payee is a non-U.S. holder.
Both backup withholding and information reporting will apply to the proceeds of
such dispositions if the broker has actual knowledge or reason to know that the
payee is a U.S. holder.
Payments of the proceeds of a sale of a note or common stock to or through
the U.S. office of a broker will be subject to information reporting and
possible backup withholding unless the payee certifies under penalties of
perjury as to his or her status as a non-U.S. holder and satisfies certain other
qualifications (and no agent of the broker who is responsible for receiving or
reviewing such statement has actual knowledge or reason to know that it is
incorrect) and provides his or her name and address or the payee otherwise
establishes an exemption.
Any amounts withheld under the backup withholding rules from a payment to a
non-U.S. holder of a note or common stock will be allowed as a credit against
such holder's U.S. federal income tax, if any, or will be otherwise refundable,
provided that the required information is furnished to the IRS in a timely
manner.
The preceding discussion of certain U.S. federal income and estate tax
consequences is for general information only and is not tax advice. Accordingly,
you should consult your own tax adviser as to particular tax consequences to you
of purchasing, holding and disposing of the notes and our common stock,
including the applicability and effect of any state, local or foreign tax laws,
and of any proposed changes in applicable laws.
CERTAIN ERISA CONSIDERATIONS
The following is a summary of certain considerations associated with the
purchase of the notes by employee benefit plans that are subject to Title I of
the United States Employee Retirement Income Security Act of 1974, as amended
("ERISA"), plans, individual retirement accounts and other arrangements that are
subject to Section 4975 of the Code or provisions under any federal, state,
local, non-U.S. or other laws or regulations that are similar to such provisions
of ERISA or the Code (collectively, "Similar Laws"), and entities whose
underlying assets are considered to include "assets" of such plans, accounts and
arrangements (each, a "Plan").
GENERAL FIDUCIARY MATTERS
ERISA and the Code impose certain duties on persons who are fiduciaries of
a Plan subject to Title I of ERISA or Section 4975 of the Code (an "ERISA Plan")
and prohibit certain transactions involving the assets of an ERISA Plan and its
fiduciaries or other interested parties. Under ERISA and the Code, any person
who exercises any discretionary authority or control over the administration of
an ERISA Plan or the management or disposition of the assets of an ERISA Plan,
or who renders investment advice for a fee or other compensation with respect to
the assets of an ERISA Plan, is generally considered to be a fiduciary of the
ERISA Plan.
In considering an investment in the notes with the assets of any Plan, a
fiduciary should determine whether the investment is in accordance with the
documents and instruments governing the Plan and the applicable provisions of
ERISA, the Code or any Similar Law relating to a fiduciary's duties to the Plan
including, without limitation, the prudence, diversification and prohibited
transaction provisions of ERISA, the Code and any other applicable Similar Laws.
PROHIBITED TRANSACTION ISSUES
Section 406 of ERISA and Section 4975 of the Code prohibit ERISA Plans from
engaging in specified transactions involving plan assets with persons or
entities that are "parties in interest," within the meaning of ERISA, or
"disqualified persons," within the meaning of Section 4975 of the Code, unless
an exemption is available. A party in interest or disqualified person who
engages in a non-exempt prohibited transaction may be subject to excise taxes
and other penalties and liabilities under ERISA and the Code. In addition, the
fiduciary of the ERISA Plan that engages in such a non-exempt prohibited
transaction
85
may be subject to penalties and liabilities under ERISA and the Code. The
acquisition, holding and/or conversion of notes by (or with the assets of) an
ERISA Plan with respect to which Halliburton is considered a party in interest
or a disqualified person may constitute or result in a direct or indirect
prohibited transaction under Section 406 of ERISA and/or Section 4975 of the
Code, unless the investment is acquired and is held in accordance with an
applicable statutory, class or individual prohibited transaction exemption. In
this regard, the United States Department of Labor has issued prohibited
transaction class exemptions, or PTCEs, that may apply to the acquisition and
holding of the notes. These class exemptions include, without limitation, PTCE
84-14 respecting transactions determined by independent qualified professional
asset managers, PTCE 90-1 respecting insurance company pooled separate accounts,
PTCE 91-38 respecting bank collective investment funds, PTCE 95-60 respecting
life insurance company general accounts and PTCE 96-23 respecting transactions
determined by in-house asset managers, although there can be no assurance that
all of the conditions of any such exemptions will be satisfied.
Governmental plans and certain church plans and non-U.S. plans, while not
subject to the fiduciary responsibility provisions of ERISA or the provisions of
Section 4975 of the Code, may nevertheless be subject to Similar Laws.
Because of the foregoing, the notes should not be purchased or held by any
person investing assets of any Plan, unless such purchase, holding and/or
conversion will not constitute a non-exempt prohibited transaction under ERISA
and the Code or a violation of any applicable Similar Laws.
REPRESENTATION
Accordingly, by acceptance of a note, each purchaser and subsequent
transferee of a note will be deemed to have represented and warranted that
either (1) no portion of the assets used by such purchaser or transferee to
acquire and hold the notes constitutes assets of any Plan or (2) the purchase,
holding and conversion of the notes by such purchaser or transferee or the
redemption of the notes by Halliburton will not constitute a non-exempt
prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or
a violation under any applicable Similar Laws.
The foregoing discussion is general in nature and is not intended to be all
inclusive. Due to the complexity of these rules and the penalties that may be
imposed upon persons involved in non-exempt prohibited transactions, it is
particularly important that fiduciaries, or other persons considering purchasing
the notes on behalf of, or with the assets of, any Plan, consult with their
counsel regarding the potential applicability of ERISA, Section 4975 of the Code
and any Similar Laws to such investment and whether an exemption would be
applicable to the purchase, holding and/or conversion of the notes.
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PLAN OF DISTRIBUTION
We will not receive any of the proceeds of the sale of the notes and the
common stock issuable upon conversion of the notes offered by this prospectus.
The aggregate proceeds to the selling securityholders from the sale of the notes
or common stock issuable upon conversion of the notes will be the purchase price
of the notes or common stock issuable upon conversion of the notes less any
discounts and commissions. A selling securityholder reserves the right to accept
and, together with their agents, to reject, any proposed purchases of notes or
common stock to be made directly or through agents.
The notes and the common stock issuable upon conversion of the notes may be
sold from time to time to purchasers:
- directly by the selling securityholders and their successors, which
includes their transferees, pledgees or donees or their successor; or
- through underwriters, broker-dealers or agents, who may receive
compensation in the form of discounts, concessions or commissions from
the selling securityholders or the purchasers of the notes and the common
stock issuable upon conversion of the notes. These discounts, concessions
or commissions may be in excess of those customary in the types of
transactions involved.
The selling securityholders and any underwriters, broker-dealers or agents
who participate in the distribution of the notes and the common stock issuable
upon conversion of the notes may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933. As a result, any profits on the sale of
the notes and the common stock issuable upon conversion of the notes by selling
securityholders and any discounts, commissions or concessions received by any
such broker-dealers or agents may be deemed to be underwriting discounts and
commissions under the Securities Act. Selling securityholders who are
"underwriters" within the meaning of the Securities Act will be subject to
prospectus delivery requirements of the Securities Act. If the selling
securityholders were deemed to be underwriters, the selling securityholders may
be subject to certain statutory liabilities of the Securities Act and the
Securities Exchange Act of 1934. If the notes and the common stock issuable upon
conversion of the notes are sold through underwriters, broker-dealers or agents,
the selling securityholders will be responsible for underwriting discounts or
commissions or agent's commissions.
The notes and the common stock issuable upon conversion of the notes may be
sold in one or more transactions at:
- fixed prices;
- prevailing market prices at the time of sale;
- prices related to such prevailing market prices;
- varying prices determined at the time of sale; or
- negotiated prices.
These sales may be effected in transactions:
- on any national securities exchange or quotation service on which the
notes and common stock issuable upon conversion of the notes may be
listed or quoted at the time of the sale;
- in the over-the-counter market;
- in transactions otherwise than on such exchanges or services or in the
over-the-counter market;
- through the writing and exercise of options, whether such options are
listed on an options exchange or otherwise; or
- through the settlement of short sales.
These transactions may include block transactions or crosses. Crosses are
transactions in which the same broker acts as an agent on both sides of the
trade.
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In connection with the sales of the notes and the common stock issuable
upon conversion of the notes or otherwise, the selling securityholders may enter
into hedging transactions with broker-dealers or other financial institutions.
These broker-dealers or other financial institutions may in turn engage in short
sales of the notes or the common stock issuable upon conversion of the notes in
the course of hedging their positions. The selling securityholders may also sell
the notes and common stock issuable upon conversion of the notes short and
deliver notes and the common stock issuable upon conversion of the notes to
close out short positions, or loan or pledge notes or the common stock issuable
upon conversion of the notes to broker-dealers that in turn may sell the notes
and the common stock issuable upon conversion of the notes.
To our knowledge, there are currently no plans, arrangements or
understandings between any selling securityholders and any underwriter,
broker-dealer or agent regarding the sale of the notes and the common stock
issuable upon conversion of the notes by the selling securityholders.
Our common stock trades on the New York Stock Exchange under the symbol
"HAL." We do not intend to apply for listing of the notes on any securities
exchange or for inclusion of the notes in any automated quotation system.
Accordingly, no assurances can be given as to the development of liquidity or
any trading market for the notes. See "Risk Factors -- Risks Relating to the
Notes -- There is no trading market for the notes and there may never be one."
There can be no assurance that any selling securityholder will sell any or
all of the notes or the common stock issuable upon conversion of the notes
pursuant to this prospectus. Further, we cannot assure you that any such selling
securityholder will not transfer, devise or gift the notes and the common stock
issuable upon conversion of the notes by other means not described in this
prospectus. In addition, any notes or common stock issuable upon conversion of
the notes covered by this prospectus that qualify for sale pursuant to Rule 144
or Rule 144A of the Securities Act may be sold under Rule 144 or Rule 144A
rather than under this prospectus. The notes and the common stock issuable upon
conversion of the notes may be sold in some states only through registered or
licensed brokers or dealers. In addition, in some states the notes and common
stock issuable upon conversion of the notes may not be sold unless they have
been registered or qualified for sale or an exemption from registration or
qualification is available and complied with.
The selling securityholders and any other person participating in the sale
of notes or the common stock issuable upon conversion of the notes will be
subject to the Exchange Act. The Exchange Act rules include, without limitation,
Regulation M, which may limit the timing of purchases and sales of any of the
notes and the common stock issuable upon conversion of the notes by the selling
securityholders and any other such person. In addition, Regulation M may
restrict the ability of any person engaged in the distribution of the notes and
the common stock issuable upon conversion of the notes to engage in market-
making activities with respect to the particular notes and the common stock
issuable upon conversion of the notes being distributed. This may affect the
marketability of the notes and the common stock issuable upon conversion of the
notes and the ability of any person or entity to engage in market-making
activities with respect to the notes and the common stock issuable upon
conversion of the notes.
We have agreed to indemnify the selling securityholders against certain
liabilities, including liabilities under the Securities Act.
We have agreed to pay substantially all of the expenses incidental to the
registration, offering and sale of the notes and common stock issuable upon
conversion of the notes to the public other than commissions, fees and discounts
of underwriters, brokers, dealers and agents.
88
LEGAL MATTERS
Baker Botts L.L.P., Houston, Texas, our outside counsel, will issue
opinions about certain legal matters in connection with the offering of the
notes and the common stock issuable upon conversion of the notes for us.
EXPERTS
The consolidated financial statements of Halliburton Company as of December
31, 2002, and for the year then ended, have been incorporated by reference in
this prospectus in reliance on the report of KPMG LLP, independent accountants,
included in our Current Report on Form 8-K dated October 28, 2003, incorporated
by reference herein, and upon the authority of such firm as experts in
accounting and auditing.
The audit report covering the December 31, 2002 financial statements refers
to a change in the composition of the Company's reportable segments in 2003. The
amounts in the 2002, 2001 and 2000 consolidated financial statements related to
reportable segments have been restated to conform to the 2003 composition of
reportable segments.
CHANGE IN INDEPENDENT AUDITORS
The consolidated financial statements for December 31, 2001 and 2000
incorporated by reference in this prospectus were audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto.
On April 17, 2002, we dismissed Arthur Andersen LLP as our independent
auditors and engaged KPMG LLP to serve as our independent auditors for the year
ended December 31, 2002. The Arthur Andersen dismissal and the KPMG LLP
engagement were approved by our board of directors upon the recommendation of
our audit committee.
Arthur Andersen's reports on our consolidated financial statements for the
year ended December 31, 2001 did not contain an adverse opinion or disclaimer of
opinion, nor were such reports qualified or modified as to uncertainty, audit
scope or accounting principles.
During the fiscal year ended December 31, 2001 and through April 17, 2002,
there were no disagreements with Arthur Andersen on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which if not resolved to Arthur Andersen's satisfaction would have
caused Arthur Andersen to make a reference to the subject matter in connection
with Arthur Andersen's report.
Arthur Andersen ceased to practice before the SEC effective August 31,
2002. Because of Arthur Andersen's current financial position, you may not be
able to recover against Arthur Andersen for any claims you may have under
securities or other laws as a result of Arthur Andersen's activities during the
period in which it acted as our independent public accountants.
89
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses payable by
Halliburton Company, a Delaware corporation ("Halliburton"), in connection with
the offering described in this Registration Statement.
SEC registration fee........................................ $ 97,080
Printing expenses........................................... 50,000
Accounting fees and expenses................................ 100,000
Legal fees and expenses..................................... 100,000
Miscellaneous............................................... 2,920
--------
Total....................................................... $350,000
========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware or
DGCL, provides that a Delaware corporation has the power, under specified
circumstances, to indemnify its directors, officers, employees, and agents.
Indemnification is allowed in connection with threatened, pending, or completed
actions, suits, or proceedings, whether civil, criminal, administrative, or
investigative, other than an action by or in right of the corporation, brought
against them by reason of the fact that they were or are directors, officers,
employees, or agents, for:
- expenses, judgments, and fines; and
- amounts paid in settlement actually and reasonably incurred in any
action, suit, or proceeding.
Article X of Halliburton's restated certificate of incorporation together
with Section 47 of its by-laws provide for mandatory indemnification of each
person who is or was made a party to any actual or threatened civil, criminal,
administrative, or investigative action, suit, or proceeding because:
- the person is or was an officer or director of the registrant; or
- is a person who is or was serving at the request of Halliburton as a
director, officer, employee, or agent of another corporation or of a
partnership, joint venture, trust, or other enterprise,
to the fullest extent permitted by the DGCL as it existed at the time the
indemnification provisions of Halliburton's restated certificate of
incorporation and the by-laws were adopted or as each may be amended. Section 47
of Halliburton's by-laws and Article X of its restated certificate of
incorporation expressly provide that they are not the exclusive methods of
indemnification.
Section 47 of the by-laws provides that Halliburton may maintain insurance,
at its own expense, to protect itself and any director or officer of Halliburton
or of another entity against any expense, liability, or loss. This insurance
coverage may be maintained regardless of whether Halliburton would have the
power to indemnify the person against the expense, liability, or loss under the
DGCL.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director. However, that provision shall not eliminate or
limit the liability of a director:
- for any breach of the director's duty of loyalty to the corporation or
its stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
II-1
- under Section 174 of the DGCL, relating to liability for unauthorized
acquisitions or redemptions of, or dividends on, capital stock; or
- for any transaction from which the director derived an improper personal
benefit.
Article XV of Halliburton's restated certificate of incorporation contains
this type of provision.
ITEM 16. EXHIBITS.
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
3.1* Restated Certificate of Incorporation of Halliburton Company
filed with the Secretary of State of Delaware on July 23,
1998 (incorporated by reference to Exhibit 3(a) to
Halliburton's Form 10-Q for the quarter ended June 30, 1998,
File No. 1-3492).
3.2* By-laws of Halliburton revised effective February 12, 2003
(incorporated by reference to Exhibit 3.2 to Halliburton's
Form 10-K for the year ended December 31, 2002, File No.
1-3292).
4.1* Senior Indenture dated as of June 30, 2003 between
Halliburton and JPMorgan Chase Bank, as Trustee
(incorporated by reference to Exhibit 3.2 to Halliburton's
Form 10-Q for the quarter ended June 30, 2003, File No.
1-3292).
4.2* Form of note of 3.125% Convertible Senior Notes due July 15,
2023 (included as Exhibit A to Exhibit 4.1 above).
4.3 Registration Rights Agreement dated as of June 30, 2003
between Halliburton and Citigroup Global Markets, Inc.,
Goldman, Sachs & Co. and J.P. Morgan Securities Inc., as
representatives of the several Purchasers named in Schedule
I of the Purchase Agreement dated as of June 24, 2003.
4.4* Restated Rights Agreement dated as of December 1, 1996
between Halliburton and Mellon Investor Services LLC
(formerly ChaseMellon Shareholder Services, L.L.C.)
(incorporated by reference to Exhibit 4.4 of Halliburton's
Registration Statement on Form 8-B dated December 12, 1996,
File No. 1-3492).
+5.1 Opinion of Baker Botts L.L.P. as to the legality of the
securities.
12.1 Statement of computation of ratio of earnings to fixed
charges.
23.1 Consent of KPMG LLP.
+23.3 Consent of Baker Botts L.L.P. (included in Exhibit 5.1).
24.1 Powers of Attorney.
25.1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of the Trustee on Form T-1.
- ---------------
* Incorporated by reference as indicated.
+ To be filed with an amendment.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range
II-2
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) of the Securities Act of 1933 if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective Registration
Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement; provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii)
do not apply if the registration statement is on Form S-3 or Form S-8
and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed by
the registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas, on October 28, 2003.
HALLIBURTON COMPANY
By: /s/ DAVID J. LESAR
------------------------------------
David J. Lesar
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated and on October 28, 2003.
/s/ DAVID J. LESAR Chairman of the Board, President, Chief Executive
- -------------------------------------- Officer and Director (Principal Executive Officer)
David J. Lesar
/s/ C. CHRISTOPHER GAUT Executive Vice President and Chief Financial
- -------------------------------------- Officer (Principal Financial Officer)
C. Christopher Gaut
/s/ MARK A. MCCOLLUM Senior Vice President and Chief Accounting Officer
- -------------------------------------- (Principal Accounting Officer)
Mark A. McCollum
* ROBERT L. CRANDALL Director
- --------------------------------------
Robert L. Crandall
* KENNETH T. DERR Director
- --------------------------------------
Kenneth T. Derr
* CHARLES J. DIBONA Director
- --------------------------------------
Charles J. DiBona
* W. R. HOWELL Director
- --------------------------------------
W. R. Howell
* RAY L. HUNT Director
- --------------------------------------
Ray L. Hunt
* AYLWIN B. LEWIS Director
- --------------------------------------
Aylwin B. Lewis
* J. LANDIS MARTIN Director
- --------------------------------------
J. Landis Martin
* JAY A. PRECOURT Director
- --------------------------------------
Jay A. Precourt
* DEBRA L. REED Director
- --------------------------------------
Debra L. Reed
* C. J. SILAS Director
- --------------------------------------
C. J. Silas
*/s/ MARGARET E. CARRIERE
- --------------------------------------
Margaret E. Carriere,
Attorney-in-fact
II-4
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
3.1* Restated Certificate of Incorporation of Halliburton Company
filed with the Secretary of State of Delaware on July 23,
1998 (incorporated by reference to Exhibit 3(a) to
Halliburton's Form 10-Q for the quarter ended June 30, 1998,
File No. 1-3492).
3.2* By-laws of Halliburton revised effective February 12, 2003
(incorporated by reference to Exhibit 3.2 to Halliburton's
Form 10-K for the year ended December 31, 2002, File No.
1-3292).
4.1* Senior Indenture dated as of June 30, 2003 between
Halliburton and JPMorgan Chase Bank, as Trustee
(incorporated by reference to Exhibit 3.2 to Halliburton's
Form 10-Q for the quarter ended June 30, 2003, File No.
1-3292).
4.2* Form of note of 3.125% Convertible Senior Notes due July 15,
2023 (included as Exhibit A to Exhibit 4.1 above).
4.3 Registration Rights Agreement dated as of June 30, 2003
between Halliburton and Citigroup Global Markets, Inc.,
Goldman, Sachs & Co. and J.P. Morgan Securities Inc., as
representatives of the several Purchasers named in Schedule
I of the Purchase Agreement dated as of June 24, 2003.
4.4* Restated Rights Agreement dated as of December 1, 1996
between Halliburton and Mellon Investor Services LLC
(formerly ChaseMellon Shareholder Services, L.L.C.)
(incorporated by reference to Exhibit 4.4 of Halliburton's
Registration Statement on Form 8-B dated December 12, 1996,
File No. 1-3492).
+5.1 Opinion of Baker Botts L.L.P. as to the legality of the
securities.
12.1 Statement of computation of ratio of earnings to fixed
charges.
23.1 Consent of KPMG LLP.
+23.3 Consent of Baker Botts L.L.P. (included in Exhibit 5.1).
24.1 Powers of Attorney.
25.1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of the Trustee on Form T-1.
- ---------------
* Incorporated by reference as indicated.
+ To be filed with an amendment.
EXHIBIT 4.3
HALLIBURTON COMPANY
3 1/8% CONVERTIBLE SENIOR NOTES DUE 2023
REGISTRATION RIGHTS AGREEMENT
June 30, 2003
Citigroup Global Markets, Inc.
Goldman, Sachs & Co.,
J.P. Morgan Securities Inc.
As representatives of the several Purchasers
named in Schedule I of the Purchase Agreement
referred to below
c/o Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Ladies and Gentlemen:
Halliburton Company, a Delaware corporation (the "Company"), proposes
to issue and sell to the several parties named in Schedule I to the Purchase
Agreement (the "Purchasers") for whom you are acting as representatives, upon
the terms set forth in the purchase agreement dated June 24, 2003 (the "Purchase
Agreement") an aggregate of $1,000,000,000 principal amount of its 3 1/8%
Convertible Senior Notes due 2023, convertible into Common Stock, par value
$2.50 per share (the "Common Stock"), of the Company (the "Firm Securities")
and, at the election of the Purchasers, up to an aggregate of $200,000,000
additional aggregate principal amount thereof (the "Optional Securities") (the
Firm Securities and the Optional Securities which the Purchasers elect to
purchase are herein collectively referred to as the "Securities"). As an
inducement to the Purchasers to enter into the Purchase Agreement and in
satisfaction of a condition to the obligations of the Purchasers thereunder, the
Company agrees with the several Purchasers for the benefit of Holders (as
defined herein) from time to time of the Registrable Securities (as defined
herein) as follows:
1. Definitions.
(a) Capitalized terms used herein without definition shall have the
meanings ascribed to them in the Purchase Agreement. As used in this Agreement,
the following defined terms shall have the following meanings:
"Act" or "Securities Act" means the United States Securities Act of
1933, as amended.
"Additional Amounts" has the meaning assigned thereto in Section 7(a)
hereof.
"Affiliate" of any specified person means any other person which,
directly or indirectly, is in control of, is controlled by, or is under common
control with such specified person. For purposes of this definition, control of
a person means the power, direct or indirect, to direct or cause the direction
of the management and policies of such person whether by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Applicable Amount" means, (i) with respect to the Securities, the
principal amount of the Securities and, (ii) with respect to shares of Common
Stock issued upon conversion of the Securities pursuant to the Indenture, the
principal amount of Securities that would then be convertible into such shares.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in New York are
generally authorized or obligated by law or executive order to close.
"Closing Date" means the First Time of Delivery as defined in the
Purchase Agreement.
"Commission" means the United States Securities and Exchange
Commission, or any other federal agency at the time administering the Exchange
Act, the Securities Act or the Trust Indenture Act, whichever is the relevant
statute for the particular purpose.
"DTC" means The Depository Trust Company.
"Effectiveness Period" has the meaning assigned thereto in Section
2(b)(i) hereof.
"Effective Time" means the time at which the Commission declares the
Shelf Registration Statement effective or at which the Shelf Registration
Statement otherwise becomes effective.
"Electing Holder" has the meaning assigned thereto in Section 3(a)(iii)
hereof.
"Exchange Act" means the United States Securities Exchange Act of 1934,
as amended.
"Holder" means, any person that is the record owner of Registrable
Securities (and includes any person that has a beneficial interest in any
Registrable Security in book-entry form).
"Indenture" means the Indenture, dated as of June 30, 2003, between the
Company and JPMorgan Chase Bank, as trustee, as amended and supplemented from
time to time in accordance with its terms.
"Managing Underwriters" means the investment banker or investment
bankers and manager or managers that shall administer an underwritten offering,
if any, conducted pursuant to Section 6 hereof.
"NASD Rules" means the Rules of the National Association of Securities
Dealers, Inc., as amended from time to time.
"Notice and Questionnaire" means a Notice of Registration Statement and
Selling Securityholder Questionnaire substantially in the form of Appendix A
hereto.
The term "person" means an individual, partnership, corporation, trust
or unincorporated organization, or a government or agency or political
subdivision thereof.
"Prospectus" means the prospectus (including, without limitation, any
preliminary prospectus, any final prospectus and any prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A under the Act) included in the
Shelf Registration Statement, as amended or supplemented by any prospectus
supplement with respect to the terms of the offering of any portion of the
Registrable Securities covered by the Shelf Registration Statement and by all
other amendments and supplements to such prospectus, including all material
incorporated by reference in such prospectus and all documents filed after the
date of such prospectus by the Company under the Exchange Act and incorporated
by reference therein.
"Registrable Securities" means all or any portion of the Securities
issued from time to time under the Indenture in registered form and the shares
of Common Stock issuable upon conversion of such Securities; provided, however,
that a security ceases to be a Registrable Security when it is no longer a
Restricted Security.
"Registration Default" has the meaning assigned thereto in Section 7(a)
hereof.
"Restricted Security" means any Security or share of Common Stock
issuable upon conversion thereof except any such Security or share of Common
Stock that (i) has been effectively registered under the Securities Act and sold
in a manner contemplated by the Shelf Registration Statement, (ii) has been
transferred in compliance with Rule 144 under the Securities Act (or any
successor provision thereto) or is transferable pursuant to paragraph (k) of
such Rule 144 (or any successor provision thereto) (assuming that the Holder
thereto is not an Affiliate of the Company) or (iii) has otherwise been
transferred and a new Security or share of Common Stock not subject to transfer
restrictions under the Securities Act has been delivered by or on behalf of the
Company in accordance with the Indenture.
"Rules and Regulations" means the published rules and regulations of
the Commission promulgated under the Securities Act or the Exchange Act, as in
effect at any relevant time.
"Shelf Registration" means a registration effected pursuant to Section
2 hereof.
"Shelf Registration Statement" means a "shelf" registration statement
filed under the Securities Act providing for the registration of, and the sale
on a continuous or delayed basis by the Holders of, all of the Registrable
Securities pursuant to Rule 415 under the Securities Act and/or any similar rule
that may be adopted by the Commission, filed by the Company pursuant to the
provisions of Section 2 of this Agreement, including the Prospectus contained
therein, any amendments and supplements to such registration statement,
including post-effective amendments, and all exhibits and all material
incorporated by reference in such registration statement.
"Suspension Period" has the meaning assigned thereto in Section 2(c)
hereof.
"Trust Indenture Act" means the Trust Indenture Act of 1939, or any
successor thereto, and the rules, regulations and forms promulgated thereunder,
as the same shall be amended from time to time.
The term "underwriter" means any underwriter of Registrable Securities
in connection with an offering thereof under a Shelf Registration Statement.
(b) Wherever there is a reference in this Agreement to a percentage of
the "principal amount" of Registrable Securities or to a percentage of
Registrable Securities, Common Stock shall be treated as representing the
Applicable Amount with respect thereto.
2. Shelf Registration.
(a) The Company shall, no later than 120 calendar days following the
Closing Date, file with the Commission a Shelf Registration Statement relating
to the offer and sale of the Registrable Securities by the Holders from time to
time in accordance with the methods of distribution elected by such Holders and,
thereafter, shall use its best efforts to cause such Shelf Registration
Statement to be declared effective under the Act no later than 210 calendar days
following the Closing Date; provided, however, that the Company may, upon
written notice to all Electing Holders, postpone having the Shelf Registration
Statement declared effective for a reasonable period not to exceed 90 days if
the Company possesses material non-public information, the disclosure of which
would have a material adverse effect on the Company and its subsidiaries taken
as a whole; provided, further, however, that no Holder shall be entitled to be
named as a selling securityholder in the Shelf Registration Statement or to use
the Prospectus forming a part thereof for resales of Registrable Securities
unless such Holder is an Electing Holder.
(b) The Company shall use its reasonable best efforts:
(i) to keep the Shelf Registration Statement continuously
effective, supplemented and amended as required by the provisions of
Section 3(j) hereto, in order to permit the Prospectus forming a part
thereof to be usable by Holders until the earliest of (1) the sale of
all Registrable Securities registered under the Shelf Registration
Statement; (2) the expiration of the period referred to in Rule 144(k)
of the Act with respect to all Registrable Securities held by Persons
that are not Affiliates of the Company; (3) two years from the last
date of original issuance of any Registrable Securities; and (4) the
date when there are no Registrable Securities outstanding (such period
being referred to herein as the "Effectiveness Period").
(ii) after the Effective Time of the Shelf Registration
Statement, promptly upon the request of any Holder of Registrable
Securities that is not then an Electing Holder, to take any action
reasonably necessary to enable such Holder to use the Prospectus
forming a part thereof for resales of Registrable Securities,
including, without limitation, any action necessary to identify such
Holder as a selling securityholder in the Shelf Registration Statement;
provided, however, that nothing in this subparagraph shall relieve such
Holder of the obligation to return a completed and signed Notice and
Questionnaire to the Company in accordance with Section 3(a)(ii)
hereof; and
(iii) if at any time the Securities, pursuant to the
Indenture, are convertible into securities other than Common Stock, to
cause, or to cause any successor under the Indenture to cause, such
securities to be included in the Shelf Registration Statement no later
than the date on which the Securities may then be convertible into such
securities.
The Company shall be deemed not to have used its reasonable best efforts to keep
the Shelf Registration Statement effective during the Effectiveness Period if
the Company voluntarily takes any action that would result in Holders of
Registrable Securities covered thereby not being able to offer and sell any of
such Registrable Securities during that period, unless such action is (A)
required by applicable law and the Company thereafter promptly complies with the
requirements of paragraph 3(j) below or (B) permitted pursuant to Section 2(c)
below.
(c) The Company may suspend the use of the Prospectus for a period not
to exceed 45 days in any 90-day period or an aggregate of 120 days in any
360-day period, during the period beginning on the issue date and ending on or
prior to the second anniversary of the last issue date of any Securities (each,
a "Suspension Period") if the Company shall have determined in good faith that
because of valid business reasons (not including avoidance of the Company's
obligations hereunder), including the acquisition or divestiture of assets,
pending corporate developments and similar events, it is in the best interests
of the Company to suspend such use, and prior to suspending such use the Company
provides the Holders with written notice of such suspension, which notice need
not specify the nature of the event giving rise to such suspension. Each Holder,
by its acceptance of the Securities, agrees to hold any such communication by
the Company in confidence.
3. Registration Procedures. In connection with the Shelf Registration
Statement, the following provisions shall apply:
(a) (i) Not less than 30 calendar days prior to the Effective Time of
the Shelf Registration Statement, the Company shall mail the Notice and
Questionnaire to the Holders of Registrable Securities. Holders of Registrable
Securities shall have at least 20 calendar days from the date on which the
Notice and Questionnaire is first mailed to such Holders to return a completed
and signed Notice and Questionnaire to the Company. The Company shall take
action to name each Holder that is an Electing Holder as of the date that is
five Business Days prior to the effectiveness of the Shelf Registration
Statement as a selling securityholder in the Shelf Registration Statement at the
time of its effectiveness so that such Holder is permitted to deliver the
Prospectus forming a part thereof as of such time to purchasers of such Holder's
Registrable Securities in accordance with applicable law. The Company shall not
be required to take any action to name any Holder as a selling securityholder in
the Shelf Registration Statement or to enable any Holder to use the Prospectus
forming a part thereof for resales of Registrable Securities until such Holder
has returned a completed and signed Notice and Questionnaire to the Company.
(ii) After the Effective Time of the Shelf Registration
Statement, the Company shall, upon the request of any Holder of
Registrable Securities that is not then an Electing Holder, promptly
send a Notice and Questionnaire to such Holder. From and after the
Effective Time of the Shelf Registration Statement, the Company shall
(A) as promptly as is practicable after the date a completed and signed
Notice and Questionnaire is delivered to the Company, and in any event
within 10 Business Days after such date, prepare and file with the
Commission (x) a supplement to the Prospectus or, if required by
applicable law, a post-effective amendment to the Shelf Registration
Statement and (y) any other document required by applicable law, so
that the Holder delivering such Notice and Questionnaire is named as a
selling securityholder in the Shelf Registration Statement and is
permitted to deliver the Prospectus to purchasers of such Holder's
Registrable Securities in accordance with applicable law, and (B) if
the Company shall file a post-effective amendment to the Shelf
Registration Statement, use its reasonable best efforts to cause such
post-effective amendment to become effective under the Securities Act
as promptly as is practicable; provided, however, that if a Notice and
Questionnaire is delivered to the Company during a Suspension Period,
the Company shall not be obligated to take the actions set forth in
this clause (ii) until the termination of such Suspension Period.
(iii) The term "Electing Holder" shall mean any Holder of
Registrable Securities that has returned a completed and signed Notice
and Questionnaire to the Company in accordance with Section 3(a)(i) or
3(a)(ii) hereof.
(b) Upon written request by an Electing Holder, the Company shall
furnish to such Electing Holder, (i) prior to the Effective Time, a copy of the
Shelf Registration Statement initially filed with the Commission, and, (ii)
prior to the filing thereof with the Commission, copies of each amendment
thereto and each amendment or supplement, if any, to the Prospectus included
therein, and shall use its reasonable best efforts to reflect in each such
document, at the Effective Time or when so filed with the Commission, as the
case may be, such comments as such Holders and their respective counsel
reasonably may propose.
(c) The Company shall promptly take such action as may be necessary so
that (i) each of the Shelf Registration Statement and any amendment thereto and
the Prospectus forming a part thereof and any amendment or supplement thereto
(and each report or other document incorporated therein by reference in each
case) complies in all material respects with the Securities Act and the Exchange
Act and the respective rules and regulations thereunder, (ii) each of the Shelf
Registration Statement and any amendment thereto does not, when it becomes
effective, contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading and (iii) each of the Prospectus forming a part of the
Shelf Registration Statement, and any amendment or supplement to such
Prospectus, does not at any time during the Effectiveness Period include an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(d) The Company shall promptly advise each Electing Holder, and shall
confirm such advice in writing if so requested by any such Electing Holder:
(i) when a Shelf Registration Statement and any amendment
thereto has been filed with the Commission and when a Shelf
Registration Statement or any post-effective amendment thereto has
become effective, which may be accomplished by making a public
announcement thereof by release made to Dow Jones & Company, Inc.,
Reuters Economic Services and Bloomberg Business News if the Company so
elects;
(ii) of any request by the Commission for amendments or
supplements to the Shelf Registration Statement or the Prospectus
included therein or for additional information;
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Shelf Registration Statement or the
initiation of any proceedings for such purpose;
(iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the securities
included in the Shelf Registration Statement for sale in any
jurisdiction or the initiation of any proceeding for such purpose; and
(v) of the occurrence of any event or the existence of any
state of facts that requires the making of any changes in the Shelf
Registration Statement or the Prospectus included therein so that, as
of such date, such Shelf Registration Statement and Prospectus do not
contain an untrue statement of a material fact and do not omit to
state a material fact required to be stated therein or necessary to
make the statements therein (in the case of the Prospectus, in light of
the circumstances under which they were made) not misleading (which
advice shall be accompanied by an instruction to such Holders to
suspend the use of the Prospectus until the requisite changes have been
made which notice need not specify the nature of the event giving rise
to such suspension).
(e) The Company shall use its reasonable best efforts to prevent the
issuance, and if issued to obtain the withdrawal at the earliest possible time,
of any order suspending the effectiveness of the Shelf Registration Statement.
(f) The Company shall furnish to each Electing Holder who so requests
in writing, without charge, at least one copy of the Shelf Registration
Statement and all post-effective amendments thereto, including financial
statements and schedules, and, if so requested, all reports, other documents and
exhibits that are filed with or incorporated by reference in the Shelf
Registration Statement.
(g) The Company shall, during the Effectiveness Period, deliver to each
Electing Holder, without charge, as many copies of the Prospectus (including
each preliminary Prospectus) included in the Shelf Registration Statement and
any amendment or supplement thereto as such Electing Holder may reasonably
request; and the Company consents (except during a Suspension Period or during
the continuance of any event described in Section 3(d)(v) above) to the use of
the Prospectus and any amendment or supplement thereto by each of the Electing
Holders in connection with the offering and sale of the Registrable Securities
covered by the Prospectus and any amendment or supplement thereto during the
Effectiveness Period.
(h) Prior to any offering of Registrable Securities pursuant to the
Shelf Registration Statement, the Company shall (i) register or qualify or
cooperate with the Electing Holders and their respective counsel in connection
with the registration or qualification of such Registrable Securities for offer
and sale under the securities or "blue sky" laws of such jurisdictions within
the United States as any Electing Holder may reasonably request, (ii) keep such
registrations or qualifications in effect and comply with such laws so as to
permit the continuance of offers and sales in such jurisdictions for so long as
may be necessary to enable any Electing Holder or underwriter, if any, to
complete its distribution of Registrable Securities pursuant to the Shelf
Registration Statement, and (iii) take any and all other actions necessary or
advisable to enable the disposition in such jurisdictions of such Registrable
Securities; provided, however, that in no event shall the Company be obligated
to (A) qualify as a foreign corporation or as a dealer in securities in any
jurisdiction where it would not otherwise be required to so qualify but for this
Section 3(h) or (B) file any general consent to service of process in any
jurisdiction where it is not as of the date hereof so subject.
(i) Unless any Registrable Securities shall be in book-entry only form,
the Company shall cooperate with the Electing Holders to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold pursuant to the Shelf Registration Statement, which certificates, if so
required by any securities exchange upon which any Registrable Securities are
listed, shall be penned, lithographed or engraved, or produced by any
combination of such methods, on steel engraved borders, and which certificates
shall be free of any restrictive legends and in such permitted denominations and
registered in such names as Electing Holders may request in connection with the
sale of Registrable Securities pursuant to the Shelf Registration Statement.
(j) Upon the occurrence of any fact or event contemplated by paragraph
3(d)(v) above, subject to Section 2(c) hereof, the Company shall promptly, but
in any event within 5 Business Days following such occurrence, prepare, file
(and have declared effective) a post-effective amendment to any Shelf
Registration Statement or an amendment or supplement to the related Prospectus
included therein or file any other document with the Commission so that, as
thereafter delivered to purchasers of the Registrable Securities, the Prospectus
will not include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. If the Company
notifies the Electing Holders of the occurrence of any fact or event
contemplated by paragraph 3(d)(v) above, the Electing Holder shall suspend the
use of the Prospectus until the requisite changes to the Prospectus have been
made.
(k) Not later than the Effective Time of the Shelf Registration
Statement, the Company shall provide a CUSIP number for the Registrable
Securities that are debt securities.
(l) The Company shall use its reasonable best efforts to comply with
all applicable Rules and Regulations, and to make generally available to its
securityholders as soon as practicable, but in any event not later than eighteen
months after (i) the effective date (as defined in Rule 158(c) under the
Securities Act) of the Shelf Registration Statement, (ii) the effective date of
each post-effective amendment to the Shelf Registration Statement, and (iii) the
date of each filing by the Company with the Commission of an Annual Report on
Form 10-K that is incorporated by reference in the Shelf Registration Statement,
an earning statement of the Company and its subsidiaries complying with Section
11(a) of the Securities Act and the rules and regulations of the Commission
thereunder (including, at the option of the Company, Rule 158).
(m) Not later than the Effective Time of the Shelf Registration
Statement, the Company shall cause the Indenture to be qualified under the Trust
Indenture Act; in connection with such qualification, the Company shall
cooperate with the Trustee under the Indenture and the Holders (as defined in
the Indenture) to effect such changes to the Indenture as may be required for
such Indenture to be so qualified in accordance with the terms of the Trust
Indenture Act; and the Company shall execute, and shall use all reasonable
efforts to cause the Trustee to execute, all documents that may be required to
effect such changes and all other forms and documents required to be filed with
the Commission to enable such Indenture to be so qualified in a timely manner.
In the event that any such amendment or modification referred to in this Section
3(m) involves the appointment of a new trustee under the Indenture, the Company
shall appoint a new trustee thereunder pursuant to the applicable provisions of
the Indenture.
(n) In the event of an underwritten offering conducted pursuant to
Section 6 hereof, the Company shall, if requested, promptly include or
incorporate in a Prospectus supplement or post-effective amendment to the Shelf
Registration Statement such information as the Managing Underwriters reasonably
agree should be included therein and to which the Company does not reasonably
object and shall make all required filings of such Prospectus supplement or
post-effective amendment as soon as practicable after it is notified of the
matters to be included or incorporated in such Prospectus supplement or
post-effective amendment.
(o) The Company shall enter into such customary agreements (including
an underwriting agreement in customary form in the event of an underwritten
offering conducted pursuant to Section 6 hereof) and take all other appropriate
action in order to expedite and facilitate the registration and disposition of
the Registrable Securities, and in connection therewith, if an underwriting
agreement is entered into, cause the same to contain
indemnification provisions and procedures substantially identical to those set
forth in Section 5 hereof with respect to all parties to be indemnified pursuant
to Section 5 hereof.
(p) The Company shall:
(i) (A) make reasonably available for inspection by the
Electing Holders, any underwriter participating in any disposition
pursuant to the Shelf Registration Statement, and any attorney,
accountant or other agent retained by such Electing Holders or any such
underwriter all relevant financial and other records, pertinent
corporate documents and properties of the Company and its subsidiaries,
and (B) cause the Company's officers, directors and employees to supply
all information reasonably requested by such Electing Holders or any
such underwriter, attorney, accountant or agent in connection with the
Shelf Registration Statement, in each case, as is customary for similar
due diligence examinations; provided, however, that all records,
information and documents that are designated in writing by the
Company, in good faith, as confidential shall be kept confidential by
such Electing Holders and any such underwriter, attorney, accountant or
agent, unless such disclosure is made in connection with a court
proceeding or required by law, or such records, information or
documents become available to the public generally or through a third
party without an accompanying obligation of confidentiality; and
provided further that, if the foregoing inspection and information
gathering would otherwise disrupt the Company's conduct of its
business, such inspection and information gathering shall, to the
greatest extent possible, be coordinated on behalf of the Electing
Holders and the other parties entitled thereto by one counsel
designated by and on behalf of the Electing Holders and other parties;
(ii) in connection with any underwritten offering conducted
pursuant to Section 6 hereof, make such representations and warranties
to the Managing Underwriters, in form, substance and scope as are
customarily made by the Company to underwriters in primary underwritten
offerings of equity and convertible debt securities and covering
matters including, but not limited to, those set forth in the Purchase
Agreement;
(iii) in connection with any underwritten offering conducted
pursuant to Section 6 hereof, use reasonable best efforts to obtain
opinions of counsel to the Company (which counsel and opinions (in
form, scope and substance) shall generally be consistent with the
opinions of counsel of the Company under the Purchase Agreement and be
reasonably satisfactory to the Managing Underwriters) addressed to the
underwriters, covering such matters as are customarily covered in
opinions requested in primary underwritten offerings of equity and
convertible debt securities and such other matters as may be reasonably
requested by such Electing Holders and underwriters (it being agreed
that the matters to be covered by such opinions shall include, without
limitation, as of the date of the opinion and as of the Effective Time
of the Shelf Registration Statement or most recent post-effective
amendment thereto, as the case may be, the absence from the Shelf
Registration Statement and the Prospectus, including the documents
incorporated by reference therein, of an untrue statement of a material
fact or the omission of a material fact required to be stated therein
or necessary to make the statements therein (in the case of the
Prospectus, in the light of the circumstances under which they were
made) not misleading;
(iv) in connection with any underwritten offering conducted
pursuant to Section 6 hereof, use reasonable best efforts to obtain
"cold comfort" letters and updates thereof from the independent public
accountants of the Company (and, if necessary,
from the independent public accountants of any subsidiary of the
Company or of any business acquired by the Company for which financial
statements and financial data are, or are required to be, included in
the Shelf Registration Statement), addressed to each Electing Holder
participating in such underwritten offering (if such Electing Holder
has provided such letter, representations or documentation, if any,
required for such cold comfort letter to be so addressed) and the
underwriters, in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with
primary underwritten offerings;
(v) in connection with any underwritten offering conducted
pursuant to Section 6 hereof, deliver such documents and certificates
as may be reasonably requested by any Electing Holders participating in
such underwritten offering and the Managing Underwriters, if any,
including, without limitation, certificates to evidence compliance with
Section 3(j) hereof and with any conditions contained in the
underwriting agreement or other agreements entered into by the Company.
(q) The Company will use its best efforts to cause the Common Stock
issuable upon conversion of the Securities to be listed on the New York Stock
Exchange or other stock exchange or trading system on which the Common Stock
primarily trades on or prior to the Effective Time of the Shelf Registration
Statement hereunder.
(r) In the event that any broker-dealer registered under the Exchange
Act shall be an "affiliate" (as defined in Rule 2720(b)(1) of the NASD Rules (or
any successor provision thereto)) of the Company or has a "conflict of interest"
(as defined in Rule 2720(b)(7) of the NASD Rules (or any successor provision
thereto)) and such broker-dealer shall underwrite, participate as a member of an
underwriting syndicate or selling group or assist in the distribution of any
Registrable Securities covered by the Shelf Registration Statement, whether as a
Holder of such Registrable Securities or as an underwriter, a placement or sales
agent or a broker or dealer in respect thereof, or otherwise, the Company shall
assist such broker-dealer in complying with the requirements of the NASD Rules,
including, without limitation, by (A) engaging a "qualified independent
underwriter" (as defined in Rule 2720(b)(15) of the NASD Rules (or any successor
provision thereto)) to participate in the preparation of the registration
statement relating to such Registrable Securities, to exercise usual standards
of due diligence in respect thereto and to recommend the public offering price
of such Registrable Securities, (B) indemnifying such qualified independent
underwriter to the extent of the indemnification of underwriters provided in
Section 5 hereof, and (C) providing such information to such broker-dealer as
may be required in order for such broker-dealer to comply with the requirements
of the NASD Rules.
(s) The Company shall use its reasonable best efforts to take all other
steps necessary to effect the registration, offering and sale of the Registrable
Securities covered by the Shelf Registration Statement contemplated hereby.
4. Registration Expenses. Except as otherwise provided in Section 3,
the Company shall bear all fees and expenses incurred in connection with the
performance of its obligations under Sections 2, 3 and 6 hereof and shall bear
or reimburse the Electing Holders for the reasonable fees and disbursements of a
single counsel selected by a plurality of all Electing Holders who own an
aggregate of not less than 25% of the principal amount of the Registrable
Securities covered by the Shelf Registration Statement, or designated by the
Purchasers if Electing Holders have not so designated, to act as counsel
therefore in connection therewith. Each Electing Holder shall pay all
underwriting discounts and commissions and transfer taxes, if
any, relating to the sale or disposition of such Electing Holder's Registrable
Securities pursuant to the Shelf Registration Statement.
5. Indemnification and Contribution.
(a) Indemnification by the Company. Upon the registration of the
Registrable Securities pursuant to Section 2 hereof, the Company shall indemnify
and hold harmless each Electing Holder and each underwriter, selling agent or
other securities professional, if any, which facilitates the disposition of
Registrable Securities, and each of their respective officers and directors and
each person who controls such Electing Holder, underwriter, selling agent or
other securities professional within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act (each such person being sometimes referred
to as an "Indemnified Person") against any losses, claims, damages or
liabilities, joint or several, to which such Indemnified Person may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Shelf Registration Statement under which such Registrable
Securities are to be registered under the Securities Act, or any Prospectus
contained therein or furnished by the Company to any Indemnified Person, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and the
Company hereby agrees to reimburse such Indemnified Person for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such action or claim as such expenses are incurred; provided,
however, that the Company shall not be liable to any such Indemnified Person in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in such Shelf Registration Statement or
Prospectus, or amendment or supplement, in reliance upon and in conformity with
written information furnished to the Company by such Indemnified Person
expressly for use therein.
(b) Indemnification by the Electing Holders and any Agents and
Underwriters. Each Electing Holder agrees, as a consequence of the inclusion of
any of such Electing Holder's Registrable Securities in such Shelf Registration
Statement, and each underwriter, selling agent or other securities professional,
if any, which facilitates the disposition of Registrable Securities shall agree,
as a consequence of facilitating such disposition of Registrable Securities,
severally and not jointly, to (i) indemnify and hold harmless the Company, its
directors, officers who sign any Shelf Registration Statement and each person,
if any, who controls the Company within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, against any losses, claims,
damages or liabilities to which the Company or such other persons may become
subject, under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in such Shelf Registration Statement or Prospectus, or any amendment
or supplement, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such Electing
Holder, underwriter, selling agent or other securities professional expressly
for use therein, and (ii) reimburse the Company for any legal or other expenses
reasonably incurred by the Company in connection with investigating or defending
any such action or claim as such expenses are incurred.
(c) Notices of Claims, Etc. Promptly after receipt by an indemnified
party under subsection (a) or (b) above of notice of the commencement of any
action, such indemnified party shall, if a claim in respect thereof is to be
made against an indemnifying party under this Section 5, notify such
indemnifying party in writing of the commencement thereof; but the omission so
to notify the indemnifying party shall not relieve it from any liability which
it may have to any indemnified party otherwise than under the indemnification
provisions of or contemplated by subsection (a) or (b) above. In case any such
action shall be brought against any indemnified party and it shall notify an
indemnifying party of the commencement thereof, such indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, such indemnifying party shall
not be liable to such indemnified party under this Section 5 for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation. No indemnifying party shall, without the
written consent of the indemnified party, effect the settlement or compromise
of, or consent to the entry of any judgment with respect to, any pending or
threatened action or claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to, or an admission of, fault, culpability or a failure to act, by
or on behalf of any indemnified party.
(d) Contribution. If the indemnification provided for in this Section 5
is unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative fault of the indemnifying party and the indemnified party in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative fault of such indemnifying party and
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by
such indemnifying party or by such indemnified party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 5(d) were determined by
pro rata allocation (even if the Electing Holders or any underwriters, selling
agents or other securities professionals or all of them were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in this Section 5(d).
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
shall be deemed to include any legal or other fees or expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The obligations of the Electing Holders and any underwriters,
selling agents or other securities professionals in this Section 5(d) to
contribute shall be several in proportion to the percentage of
principal amount of Registrable Securities registered or underwritten, as the
case may be, by them and not joint.
(e) Notwithstanding any other provision of this Section 5, in no event
will any (i) Electing Holder be required to undertake liability to any person
under this Section 5 for any amounts in excess of the dollar amount of the
proceeds to be received by such Holder from the sale of such Holder's
Registrable Securities (after deducting any fees, discounts and commissions
applicable thereto) pursuant to any Shelf Registration Statement under which
such Registrable Securities are to be registered under the Securities Act and
(ii) underwriter, selling agent or other securities professional be required to
undertake liability to any person hereunder for any amounts in excess of the
discount, commission or other compensation payable to such underwriter, selling
agent or other securities professional with respect to the Registrable
Securities underwritten by it and distributed to the public.
(f) The obligations of the Company under this Section 5 shall be in
addition to any liability which the Company may otherwise have to any
Indemnified Person and the obligations of any Indemnified Person under this
Section 5 shall be in addition to any liability which such Indemnified Person
may otherwise have to the Company. The remedies provided in this Section 5 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to an indemnified party at law or in equity.
6. Underwritten Offering. Any Holder of Registrable Securities who
desires to do so may sell Registrable Securities (in whole or in part) in an
underwritten offering; provided that (i) the Electing Holders of at least
33 1/3% in aggregate principal amount of the Registrable Securities initially
covered by the Shelf Registration Statement shall request such an offering and
(ii) at least such aggregate principal amount of such Registrable Securities
shall be included in such offering. Upon receipt of such a request, the Company
shall provide all Holders of Registrable Securities written notice of the
request, which notice shall inform such Holders that they have the opportunity
to participate in the offering. In any such underwritten offering, the
investment banker or bankers and manager or managers that will administer the
offering will be selected by, and the underwriting arrangements with respect
thereto (including the size of the offering) will be approved by, the holders of
a majority of the Registrable Securities to be included in such offering;
provided, however, that such investment bankers and managers and underwriting
arrangements must be reasonably satisfactory to the Company. No Holder may
participate in any underwritten offering contemplated hereby unless (a) such
Holder agrees to sell such Holder's Registrable Securities to be included in the
underwritten offering in accordance with any approved underwriting arrangements,
(b) such Holder completes and executes all reasonable questionnaires, powers of
attorney, indemnities, underwriting agreements, lock-up letters and other
documents required under the terms of such approved underwriting arrangements,
and (c) if such Holder is not then an Electing Holder, such Holder returns a
completed and signed Notice and Questionnaire to the Company in accordance with
Section 3(a)(ii) hereof within a reasonable amount of time before such
underwritten offering. The Holders participating in any underwritten offering
shall be responsible for any underwriting discounts and commissions and fees
and, subject to Section 4 hereof, expenses of their own counsel. The Company
shall pay all expenses customarily borne by issuers in an underwritten offering,
including but not limited to filing fees, the fees and disbursements of its
counsel and independent public accountants and any printing expenses incurred in
connection with such underwritten offering. Notwithstanding the foregoing or the
provisions of Section 3(n) hereof, upon receipt of a request from the Managing
Underwriter or a representative of holders of a majority of the Registrable
Securities to be included in an underwritten offering to prepare and file an
amendment or supplement to the Shelf Registration Statement and Prospectus in
connection with an underwritten offering, the Company may delay the filing of
any such amendment or supplement for up to 90 days if the Board of Directors of
the Company shall have determined in good faith that the Company has a bona fide
business reason for such delay.
7. Additional Amounts.
(a) Notwithstanding any postponement of the effectiveness pursuant to
Section 2(a) hereof, if (i) on or prior to the 120th day following the Closing
Date, a Shelf Registration Statement has not been filed with the Commission,
(ii) on or prior to the 210th day following the Closing Date, such Shelf
Registration Statement is not declared effective by the Commission or (iii) if,
after the effectiveness date of the Shelf Registration Statement, and prior to
the second anniversary of the date hereof (x) the Shelf Registration Statement
ceases to be effective or usable for the offer and sale of Registrable
Securities (other than due to a Suspension Period), and the Company fails to
file (and have declared effective), within 5 Business Days, a post-effective
amendment to the Shelf Registration Statement or amendment or supplement to the
Prospectus contained therein or such other document with the SEC to make the
Shelf Registration Statement effective or such Prospectus usable, or (y)
Suspension Periods exceed 45 days, whether or not consecutive, in any 90-day
period, or more than 120 days, whether or not consecutive, during any 360-day
period during the Effectiveness Period (each, a "Registration Default"), the
Company shall be required to pay additional amounts ("Additional Amounts"), from
and including the day following such Registration Default until such
Registration Default is cured, at a rate per annum equal to one-quarter of one
percent (0.25%) of the Applicable Amount, to and including the 90th day
following such Registration Default and one-half of one percent (0.50%) thereof
from and after the 91st day following such Registration Default.
(b) A Holder will not be entitled to Additional Amounts unless it has
complied with such Holder's obligations under this Agreement.
(c) Any amounts to be paid as Additional Amounts pursuant to paragraph
(a) of this Section 7 shall be paid in cash semi-annually in arrears, with the
first semi-annual payment due on the first January 15 or July 15, as applicable,
following the date on which such Additional Amounts begin to accrue, to Holders
of record on the preceding January 1 or July 1, as the case may be.
(d) Except as provided in Section 8(b) hereof, the Additional Amounts
as set forth in this Section 7 shall be the exclusive monetary remedy available
to the Holders of Registrable Securities for such Registration Default. In no
event shall the Company be required to pay Additional Amounts in excess of the
applicable maximum amount of one-half of one percent (0.50%) set forth above,
regardless of whether one or multiple Registration Defaults exist.
8. Miscellaneous.
(a) Other Registration Rights. The Company may grant registration
rights that would permit any person that is a third party the right to
piggy-back on any Shelf Registration Statement, provided that if the Managing
Underwriter of any underwritten offering conducted pursuant to Section 6 hereof
notifies the Company and the Electing Holders that the total amount of
securities which the Electing Holders and the holders of such piggy-back rights
intend to include in any Shelf Registration Statement is so large as to
materially threaten the success of such offering (including the price at which
such securities can be sold), then the amount, number or kind of securities to
be offered for the account of holders of such piggy-back rights will be reduced
to the extent necessary to reduce the total amount of securities to be included
in
such offering to the amount, number and kind recommended by the Managing
Underwriter prior to any reduction in the amount of Registrable Securities to be
included in such Shelf Registration Statement.
(b) Specific Performance. The parties hereto acknowledge that there
would be no adequate remedy at law if the Company fails to perform any of its
obligations hereunder and that the Purchasers and the Holders from time to time
may be irreparably harmed by any such failure, and accordingly agree that the
Purchasers and such Holders, in addition to any other remedy to which they may
be entitled at law or in equity and without limiting the remedies available to
the Electing Holders under Section 7 hereof, shall be entitled to compel
specific performance of the obligations of the Company under this Registration
Rights Agreement in accordance with the terms and conditions of this
Registration Rights Agreement, in any court of the United States or any State
thereof having jurisdiction.
(c) Amendments and Waivers. This Agreement, including this Section
8(c), may be amended, and waivers or consents to departures from the provisions
hereof may be given, only by a written instrument duly executed by the Company
and the holders of a majority in Applicable Amount of Registrable Securities
then outstanding. Each Holder of Registrable Securities outstanding at the time
of any such amendment, waiver or consent or thereafter shall be bound by any
amendment, waiver or consent effected pursuant to this Section 8(c), whether or
not any notice, writing or marking indicating such amendment, waiver or consent
appears on the Registrable Securities or is delivered to such Holder.
(d) Notices. All notices and other communications provided for or
permitted hereunder shall be given as provided in the Indenture.
(e) Parties in Interest. The parties to this Agreement intend that all
Holders of Registrable Securities shall be entitled to receive the benefits of
this Agreement and that any Electing Holder shall be bound by the terms and
provisions of this Agreement by reason of such election with respect to the
Registrable Securities which are included in a Shelf Registration Statement. All
the terms and provisions of this Agreement shall be binding upon, shall inure to
the benefit of and shall be enforceable by the respective successors and assigns
of the parties hereto and any Holder from time to time of the Registrable
Securities to the aforesaid extent. In the event that any transferee of any
Holder of Registrable Securities shall acquire Registrable Securities, in any
manner, whether by gift, bequest, purchase, operation of law or otherwise, such
transferee shall, without any further writing or action of any kind, be entitled
to receive the benefits of and, if an Electing Holder, be conclusively deemed to
have agreed to be bound by and to perform all of the terms and provisions of
this Agreement to the aforesaid extent.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
(i) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in
any respect for any reason, the validity, legality and enforceability of any
such provision in every other respect and of the remaining provisions hereof
shall not be in any way impaired or affected thereby, it being intended that all
of the rights and privileges of the parties hereto shall be enforceable to the
fullest extent permitted by law.
(j) Survival. The respective indemnities, agreements, representations,
warranties and other provisions set forth in this Agreement or made pursuant
hereto shall remain in full force and effect, regardless of any investigation
(or any statement as to the results thereof) made by or on behalf of any
Electing Holder, any director, officer or partner of such Holder, any agent or
underwriter, any director, officer or partner of such agent or underwriter, or
any controlling person of any of the foregoing, and shall survive the transfer
and registration of the Registrable Securities of such Holder.
9. Submission to Jurisdiction; Appointment of Agent for Service
The Company agrees that any suit, action or proceeding against the
Company arising out of or based upon this Agreement or the transactions
contemplated hereby may be instituted in any State or Federal court in The City
of New York, New York, and waives any objection which it may now or hereafter
have to the laying of venue of any such proceeding, and irrevocably submits to
the non-exclusive jurisdiction of such courts in any suit, action or proceeding.
The Company has appointed CT Corporation as its authorized agent (the
"Authorized Agent") upon whom process may be served in any suit, action or
proceeding arising out of or based upon this Agreement or the transactions
contemplated herein which may be instituted in any State or Federal court in The
City of New York, New York, and expressly accepts the non-exclusive jurisdiction
of any such court in respect of any such suit, action or proceeding. The Company
hereby represents and warrants that the Authorized Agent has accepted such
appointment and has agreed to act as said agent for service of process, and the
Company and agrees to take any and all action, including the filing of any and
all documents that may be necessary to continue such appointment in full force
and effect as aforesaid.
Please confirm that the foregoing correctly sets forth the agreement
between the Company and you.
Very truly yours,
HALLIBURTON COMPANY
BY: /s/ C. CHRISTOPHER GAUT
-----------------------------------
Name: C. Christopher Gaut
Title: Executive Vice President and
Chief Financial Officer
Accepted as of the date hereof:
CITIGROUP GLOBAL MARKETS INC.
GOLDMAN, SACHS & CO.
J.P. MORGAN SECURITIES INC.
ABN AMRO INCORPORATED
HSBC
THE ROYAL BANK OF SCOTLAND
BY: /s/ Goldman, Sachs & Co.
-----------------------------------
(Goldman, Sachs & Co.)
On behalf of the several Purchasers
APPENDIX A
HALLIBURTON COMPANY
INSTRUCTION TO DTC PARTICIPANTS
(Date of Mailing)
URGENT - IMMEDIATE ATTENTION REQUESTED
DEADLINE FOR RESPONSE: __, 2003
The Depository Trust Company ("DTC") has identified you as a DTC
Participant through which beneficial interests in the Halliburton Company (the
"Company") 3 1/8% Convertible Senior Notes due July 15, 2023 (the "Securities")
are held.
The Company is in the process of registering the Securities under the
Securities Act of 1933 for resale by the beneficial owners thereof. In order to
have their Securities included in the registration statement, beneficial owners
must complete and return the enclosed Notice of Registration Statement and
Selling Securityholder Questionnaire.
It is important that beneficial owners of the Securities receive a copy
of the enclosed materials as soon as possible as their rights to have the
Securities included in the registration statement depend upon their returning
the Notice and Questionnaire by ______ __, 2003. Please forward a copy of the
enclosed documents to each beneficial owner that holds interests in the
Securities through you. If you require more copies of the enclosed materials or
have any questions pertaining to this matter, please contact [NAME, ADDRESS AND
TELEPHONE NUMBER OF CONTACT AT HALLIBURTON].
HALLIBURTON COMPANY
Notice of Registration Statement
and
Selling Securityholder Questionnaire
_______ __, 2003
The undersigned beneficial holder of 31/8% Convertible Senior Notes due
July 15, 2023 (the "Notes") of Halliburton Company (the "Company") and /or
common stock, par value $2.50 per share, of the Company (the "Common Stock" and,
together with the Notes, the "Registrable Securities") understands that the
Company has filed or intends to file with the Securities and Exchange Commission
(the "Commission") a registration statement on Form S-3 (the "Shelf Registration
Statement") for the registration and resale under Rule 415 of the Securities Act
of 1933, as amended (the "Securities Act"), of the Registrable Securities, in
accordance with the terms of the Registration Rights Agreement, dated as of June
30, 2003 (the "Registration Rights Agreement"), between the Company and the
initial purchasers named therein. A copy of the Registration Rights Agreement is
available from the Company upon request at the address set forth below. All
capitalized terms not otherwise defined herein shall have the meaning ascribed
thereto in the Registration Rights Agreement.
Each beneficial owner of Registrable Securities is entitled to the
benefits of the Registration Rights Agreement. In order to sell or otherwise
dispose of any Registrable Securities pursuant to the Shelf Registration
Statement, a beneficial owner of Registrable Securities generally will be
required to be named as a selling securityholder in the related prospectus,
deliver a prospectus to purchasers of Registrable Securities and be bound by
those provisions of the Registration Rights Agreement applicable to such
beneficial owner (including certain indemnification provisions, as described
below). Beneficial owners that do not complete this Notice and Questionnaire and
deliver it to the Company as provided below will not be named as selling
securityholders in the prospectus and therefore will not be permitted to sell
any Registrable Securities pursuant to the Shelf Registration Statement.
BENEFICIAL OWNERS ARE ENCOURAGED TO COMPLETE AND DELIVER THIS NOTICE AND
QUESTIONNAIRE AT LEAST FIVE BUSINESS DAYS PRIOR TO THE EFFECTIVENESS OF THE
SHELF REGISTRATION STATEMENT SO THAT SUCH BENEFICIAL OWNERS MAY BE NAMED AS
SELLING SECURITYHOLDERS IN THE RELATED PROSPECTUS AT THE TIME OF EFFECTIVENESS.
WE CURRENTLY ANTICIPATE THAT THE SHELF REGISTRATION STATEMENT WILL BE EFFECTIVE
ON __________ __, 20__.
Certain legal consequences arise from being named as a selling
securityholder in the Shelf Registration Statement and the related prospectus.
Accordingly, holders and beneficial owners of Registrable Securities are advised
to consult their own securities law counsel regarding the consequences of being
named or not being named as a selling securityholder in the Shelf Registration
Statement and the related prospectus.
NOTICE
The undersigned beneficial owner (the "Selling Securityholder") of
Registrable Securities hereby gives notice to the Company of its intention to
sell or otherwise dispose of Registrable Securities beneficially owned by it and
listed below in Item 3 (unless otherwise
specified under Item 3) pursuant to the Shelf Registration Statement. The
undersigned, by signing and returning this Notice and Questionnaire, understands
that it will be bound by the terms and conditions of this Notice and
Questionnaire and the Registration Rights Agreement.
Pursuant to the Registration Rights Agreement, the undersigned has
agreed to indemnify and hold harmless the Company's directors, the Company's
officers and each person, if any, who controls the Company within the meaning of
either Section 15 of the Securities Act or Section 20 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), from and against certain losses
arising in connection with statements concerning the undersigned made in the
Shelf Registration Statement or the related prospectus in reliance upon the
information provided in this Notice and Questionnaire.
Upon any sale of Registrable Securities pursuant to the Shelf
Registration Statement, the undersigned will be required to deliver to the
Company and Trustee a Notice of Transfer Pursuant to Registration Statement
(completed and signed) substantially in the form attached hereto as Exhibit I
and hereby undertakes to do so.
The undersigned hereby provides the following information to the
Company and represents and warrants that such information is accurate and
complete:
QUESTIONNAIRE
(1) (a) Full Legal Name of Selling Securityholder:
---------------------------------------------------------------------
(b) Full Legal Name of Registered Holder (if not the same as in (a)
above) of Registrable Securities Listed in Item (3) Below:
---------------------------------------------------------------------
(c) Full Legal Name of DTC Participant (if applicable and if not the same
as (b) above) Through Which Registrable Securities Listed in Item (3)
Below are Held:
---------------------------------------------------------------------
(2) Address for Notices to Selling Securityholder:
---------------------------------------
---------------------------------------
---------------------------------------
Telephone:
---------------------------------------
Fax:
---------------------------------------
Contact Person:
---------------------------------------
(3) Beneficial Ownership of Securities:
Except as set forth below in this Item (3), the undersigned Selling
Securityholder does not beneficially own any Securities or shares of
Common Stock issued upon conversion, repurchase or redemption of any
Securities.
(a) Principal amount of Registrable Securities (as defined in the
Registration Rights Agreement) beneficially owned:
---------------------------------------------------------------------
CUSIP No(s). of such Registrable Securities:
-------------------------
Number of shares of Common Stock (if any) issued upon conversion,
repurchase or redemption of Registrable Securities:
------------------
(b) Principal amount of Securities other than Registrable Securities
beneficially owned:
---------------------------------------------------------------------
CUSIP No(s). of such other Securities:
-------------------------------
Number of shares of Common Stock (if any) issued upon conversion of
such other Securities:
-----------------------------------------------
(c) Principal amount of Registrable Securities which the undersigned
wishes to be included in the Shelf Registration Statement:
---------------------------------------------------------------------
CUSIP No(s). of such Registrable Securities to be included in the
Shelf Registration Statement:
----------------------------------------
Number of shares of Common Stock (if any) issued upon conversion of
Registrable Securities which are to be included in the Shelf
Registration Statement:
----------------------------------------------
(4) Beneficial Ownership of Other Securities of the Company:
Except as set forth below in this Item (4), the undersigned Selling
Securityholder is not the beneficial or registered owner of any
shares of Common Stock or any other securities of the Company, other
than the Securities and shares of Common Stock listed above in Item
(3).
State any exceptions here:
(5) Relationships with the Company:
Except as set forth below, neither the Selling Securityholder nor any
of its affiliates, officers, directors or principal equity holders
(5% or more) has held any position or office or has had any other
material relationship with the Company (or its predecessors or
affiliates) during the past three years.
State any exceptions here:
(6) Nature of the Selling Securityholder:
(a) Is the selling Securityholder a reporting company under the
Securities Exchange Act, a majority owned subsidiary of a reporting
company under the Securities Exchange Act or a registered investment
company under the Investment Company Act? If so, please state which
one.
If the entity is a majority owned subsidiary of a reporting company,
identify the majority stockholder that is a reporting company.
If the entity is not any of the above, identify the natural person or
persons having voting and investment control over the Company's
securities that the entity owns.
(b) Is the Selling Securityholder a registered broker-dealer?
Yes ____ No ____
State whether the Selling Securityholder received the Registrable
Securities as compensation for underwriting activities and, if so,
provide a brief description of the transaction(s) involved.
State whether the Selling Securityholder is an affiliate of a
broker-dealer and if so, list the name(s) of the broker-dealer
affiliate(s).
Yes ____ No ____
IF THE ANSWER IS "YES," YOU MUST ANSWER THE FOLLOWING:
If the Selling Securityholder is an affiliate of a registered
broker-dealer, the Selling Securityholder purchased, the Registrable
Securities (i) in the ordinary course of business and (ii) at the
time of the purchase of the Registrable Securities, had no agreements
or understandings, directly or indirectly, with any person to
distribute the Registrable Securities.
Yes ____ No ____
If the answer is "No", state any exceptions here:
IF THE ANSWER IS "NO," THIS MAY AFFECT YOUR ABILITY TO BE INCLUDED IN
THE REGISTRATION STATEMENT.
(7) Plan of Distribution:
Except as set forth below, the undersigned Selling Securityholder
intends to distribute the Registrable Securities listed above in Item
(3) only as follows (if at all): Such Registrable Securities may be
sold from time to time directly by the undersigned Selling
Securityholder or, alternatively, through underwriters,
broker-dealers or agents. Such Registrable Securities may be sold in
one or more transactions at fixed prices, at prevailing market prices
at the time of sale, at varying prices determined at the time of sale
or at negotiated prices. Such sales may be effected in transactions
(which may involve crosses or block transactions) (i) on any national
securities exchange or quotation service on which the Registrable
Securities may be listed or quoted at the time of sale, (ii) in the
over-the-counter market, (iii) in transactions otherwise than on such
exchanges or services or in the over-the-counter market or (iv)
through the writing of options. In connection with sales of the
Registrable Securities or otherwise, the Selling Securityholder may
enter into transactions with broker-dealers, which may in turn engage
in short sales of the Registrable Securities in the course of hedging
the positions they assume. The Selling Securityholder may also sell
Registrable Securities short and deliver Registrable Securities to
close out such short positions, or loan or pledge Registrable
Securities to broker-dealers that in turn may sell such securities.
State any exceptions here:
NOTE: In no event will such methods of distribution take the form of an
underwritten offering of the Registrable Securities without the prior agreement
of the Company.
The undersigned acknowledges that it understands its obligation to
comply with the provisions of the Securities Act and Exchange Act and the rules
thereunder relating to stock manipulation, particularly Regulation M (or any
successor rules or regulations), in connection with any offering of Registrable
Securities pursuant to the Shelf Registration Agreement. The undersigned agrees
that neither it nor any person acting on its behalf will engage in any
transaction in violation of such provisions.
The Selling Securityholder hereby acknowledges its obligations under
the Registration Rights Agreement to indemnify and hold harmless certain persons
as set forth therein.
Pursuant to the Registration Rights Agreement, the Company has agreed
under certain circumstances to indemnify the Selling Securityholder against
certain liabilities.
In the event that the undersigned transfers all or any portion of the
Registrable Securities listed in Item (3) above after the date on which such
information is provided to the Company, the undersigned agrees to notify the
transferee at the time of the transfer of its rights and obligations under this
Notice and Questionnaire and the Registration Rights Agreement.
In accordance with the undersigned's obligation under the Registration
Rights Agreement to provide such information as may be required by law for
inclusion in the Shelf Registration Statement, the undersigned agrees to
promptly notify the Company of any inaccuracies or changes in the information
provided herein that may occur subsequent to the date hereof at any time while
the Shelf Registration Statement remains effective. All notices hereunder and
pursuant to the Registration Rights Agreement shall be made in writing, by
hand-delivery, first-class mail, or air courier guaranteeing overnight delivery
to the address set forth below.
By signing below, the undersigned consents to the disclosure of the
information contained herein in its answers to Items (1) through (6) above and
the inclusion of such information in the Shelf Registration Statement and the
related prospectus. The undersigned understands that such information will be
relied upon by the Company in connection with the preparation or amendment of
the Shelf Registration Statement and the related prospectus.
Once this Notice and Questionnaire is executed by the undersigned and
received by the Company, the terms of this Notice and Questionnaire, and the
representations and warranties contained herein, shall be binding on, shall
inure to the benefit of and shall be enforceable by the respective successors,
heirs, personal representatives and assigns of the Company and the undersigned
with respect to the Registrable Securities beneficially owned by the undersigned
and listed in Item (3) above. This Notice and Questionnaire shall be governed in
all respects by the laws of the State of New York.
IN WITNESS WHEREOF, the undersigned, by authority duly given, has
caused this Notice and Questionnaire to be executed and delivered either in
person or by its duly authorized agent.
Dated:
--------------------------
Beneficial Owner
By:
Name:
Title:
PLEASE RETURN THE COMPLETED AND EXECUTED NOTICE AND
QUESTIONNAIRE TO THE COMPANY AT:
HALLIBURTON COMPANY
1401 MCKINNEY, SUITE 2400
HOUSTON, TEXAS 77010
ATTENTION: GENERAL COUNSEL
(713) 759-2600
EXHIBIT 1
TO APPENDIX A
NOTICE OF TRANSFER PURSUANT TO REGISTRATION STATEMENT
Halliburton Company
1401 McKinney, Suite 2400
Houston, Texas 77010
Attention: General Counsel
JPMorgan Chase Bank
600 Travis
Houston, Texas 77002
Attention: Depository Trust Company
Re: Halliburton Company (the "Company")
3 1/8% Convertible Senior Notes due July 15, 2023 (the
"Securities")
Ladies and Gentlemen:
Please be advised that _____________________ has transferred
$___________ aggregate principal amount of the above-referenced Securities or
shares of the Company's common stock, issued upon conversion of Securities,
pursuant to an effective Registration Statement on Form S-3 (File No. 333-____)
filed by the Company.
We hereby certify that the prospectus delivery requirements, if any, of
the Securities Act of 1933, as amended, have been satisfied with respect to the
transfer described above and that the above-named beneficial owner of the
Securities or common stock is named as a selling securityholder in the
Prospectus dated ____ __, 2003, or in amendments or supplements thereto, and
that the aggregate principal amount of the Securities or number of shares of
common stock transferred are a portion of the Securities or shares of common
stock listed in such Prospectus as amended or supplemented opposite such owner's
name.
Dated:
Very truly yours,
------------------------
(Name)
By:
------------------------
(Authorized Signature)
.
.
.
EXHIBIT 12.1
HALLIBURTON COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(in millions of dollars, except for ratios)
(Unaudited)
For the six Year Ended December 31,
months ended ---------------------------------------------------------------
June 2003 2002 2001 2000 1999 1998
------------ ----- ------ ---- ---- ----
Earnings available for fixed charges:
Income (loss) from continuing operations
before income taxes, minority interests,
and cumulative effects or accounting
changes, net: $191 $(228) $ 954 $335 $307 $ 55
Add:
Distributed Earnings from equity in
unconsolidated affiliates 56 19 25 27 57 93
Fixed charges 80 168 209 203 194 185
---- ----- ------ ---- ---- ----
Subtotal $327 $ (41) $1,188 $565 $558 $343
Less:
Undistributed equity in earnings and
losses of unconsolidated affiliates 0 74 107 88 99 154
---- ----- ------ ---- ---- ----
Total $327 $(115) $1,081 $477 $459 $189
Fixed Charges:
Interest expense $ 52 $ 113 $ 147 $146 $141 $134
Rental expense representative of interest 28 55 62 57 53 61
---- ----- ------ ---- ---- ----
Total $ 80 $ 168 $ 209 $203 $194 $195
Ratio of Earnings to Fixed Charges 4.1 (a) 5.2 2.3 2.4 (a)
(a) For the years ended December 31, 2002 and 1998, earnings were inadequate to
cover fixed charges by $283 million and $6 million, respectively.
EXHIBIT 23.1
Independent Auditors' Consent
The Board of Directors
Halliburton Company:
We consent to the use of our report dated March 13, 2003, except for Notes 1, 2,
and 4, as to which the date is October 17, 2003, with respect to the
consolidated balance sheet of Halliburton Company as of December 31, 2002 and
the related consolidated statements of operations, shareholders' equity, and
cash flows for the year ended December 31, 2002, which report appears in the
Form 8-K of Halliburton Company dated October 28, 2003 and to the reference to
our firm under the heading "Experts" in the registration statement.
Our report contains an explanatory paragraph that states the Company changed the
composition of its reportable segments in 2003. The amounts in the 2002, 2001
and 2000 consolidated financial statements related to reportable segments have
been restated to conform to the 2003 composition of reportable segments.
Our report also refers to our audit of the adjustments that were applied to
Halliburton Company's reportable segments to revise the 2001 and 2000
consolidated financial statements, as more fully described in Note 4 to the
consolidated financial statements, as well as to our audit of the revisions to
include the transitional disclosures required by Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets, as more
fully described in Note 22 to the consolidated financial statements. However, we
were not engaged to audit, review, or apply any procedures to the 2001 and 2000
consolidated financial statements other than with respect to such adjustments.
(signed) KPMG LLP
Houston, TX
October 28, 2003
EXHIBIT 24.1
POWER OF ATTORNEY
WHEREAS, Halliburton Company, a Delaware corporation (the "Company"),
intends to file with the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Act"), a Registration
Statement on Form S-3, including a prospectus, with such amendment or amendments
thereto, whether pre-effective or post-effective, in each case as may be
necessary or appropriate, together with any and all exhibits and other documents
having relation to said Registration Statement (collectively, the "Registration
Statement");
NOW, THEREFORE, each of the undersigned, in his or her capacity as a
director of Company, does hereby appoint Albert O. Cornelison, Jr. and Margaret
E. Carriere, each of whom may act without the joinder of the other, as his or
her true and lawful attorneys-in-fact and agents with power to act and with full
power of substitution and resubstitution, to execute in his or her name, place
and stead, in his or her capacity as a director of the Company, the Registration
Statement and all instruments necessary or incidental in connection therewith,
with such amendment or amendments thereto in each case as said attorneys-in-fact
and agents or any of them shall deem necessary or appropriate, together with any
and all exhibits and other documents relating thereto as said attorneys-in-fact
and agents or any of them shall deem necessary or appropriate or incidental in
connection therewith, and to file the same or cause the same to be filed with
the Commission. Said attorneys-in-fact and agents shall have full power and
authority to do and perform in the name and on behalf of each of the
undersigned, in any and all capacities, every act whatsoever necessary or
desirable to be done to the premises, as fully and to all intents and purposes
as each of the undersigned might or could do in person, each of the undersigned
hereby ratifying and approving the acts of said attorneys-in-fact and agents or
any of them or their substitutes.
IN WITNESS WHEREOF, each of the undersigned has executed this
instrument on this 10th day of September, 2003.
/s/ Robert L. Crandall /s/ Kenneth T. Derr
- ---------------------------- ----------------------------
Robert L. Crandall Kenneth T. Derr
/s/ Charles J. DiBona /s/ W. R. Howell
- ---------------------------- ----------------------------
Charles J. DiBona W.R. Howell
/s/ Ray L. Hunt /s/ Aylwin B. Lewis
- ---------------------------- ----------------------------
Ray L. Hunt Aylwin B. Lewis
/s/ J. Landis Martin /s/ Jay A. Precourt
- ---------------------------- ----------------------------
J. Landis Martin Jay A. Precourt
/s/ Debra L. Reed /s/ C. J. Silas
- ---------------------------- ----------------------------
Debra L. Reed C. J. Silas
EXHIBIT 25.1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
-------------------------------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF
A TRUSTEE PURSUANT TO SECTION 305(b)(2) ________
----------------------------------------
JPMORGAN CHASE BANK
(Exact name of trustee as specified in its charter)
NEW YORK 13-4994650
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)
270 PARK AVENUE
NEW YORK, NEW YORK 10017
(Address of principal executive offices) (Zip Code)
WILLIAM H. MCDAVID
GENERAL COUNSEL
270 PARK AVENUE
NEW YORK, NEW YORK 10017
TELEPHONE: (212) 270-2611
(Name, address and telephone number of agent for service)
HALLIBURTON COMPANY
(Exact name of obligor as specified in its charter)
DELAWARE 76-2677995
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
1401 MCKINNEY, SUITE 2400
HOUSTON, TEXAS 77010
(Address of principal executive offices) (Zip Code)
3 1/8% CONVERTIBLE SENIOR NOTES DUE 2023
(Title of indenture securities)
================================================================================
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH
IT IS SUBJECT.
New York State Banking Department, State House, Albany, New York
12110.
Board of Governors of the Federal Reserve System, Washington, D.C.,
20551.
Federal Reserve Bank of New York, District No. 2, 33 Liberty Street,
New York, N.Y.
Federal Deposit Insurance Corporation, Washington, D.C., 20429.
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR AND GUARANTORS.
IF THE OBLIGOR OR ANY GUARANTOR IS AN AFFILIATE OF THE TRUSTEE,
DESCRIBE EACH SUCH AFFILIATION.
None.
ITEMS 3 THROUGH 15, INCLUSIVE, ARE NOT APPLICABLE BY VIRTUE OF T-1 GENERAL
INSTRUCTION B.
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ITEM 16. LIST OF EXHIBITS
LIST BELOW ALL EXHIBITS FILED AS A PART OF THIS STATEMENT OF
ELIGIBILITY.
1. A copy of the Restated Organization Certificate of the Trustee dated
March 25, 1997 and the Certificate of Amendment dated October 22, 2001 (see
Exhibit 1 to Form T-1 filed in connection with Registration Statement No.
333-76894, which exhibit is incorporated by reference).
2. A copy of the Certificate of Authority of the Trustee to Commence
Business (see Exhibit 2 to Form T-1 filed in connection with Registration
Statement No. 33-50010, which exhibit is incorporated by reference). On November
11, 2001, in connection with the merger of The Chase Manhattan Bank and Morgan
Guaranty Trust Company of New York, the surviving corporation was renamed
JPMorgan Chase Bank.
3. None, authorization to exercise corporate trust powers being
contained in the documents identified above as Exhibits 1 and 2.
4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to Form
T-1 filed in connection with Registration Statement No. 333-76894, which exhibit
is incorporated by reference.)
5. Not applicable.
6. The consent of the Trustee required by Section 321(b) of the Act
(see Exhibit 6 to Form T-1 filed in connection with Registration Statement No.
33-50010, which exhibit is incorporated by reference). On November 11, 2001, in
connection with the merger of The Chase Manhattan Bank and Morgan Guaranty Trust
Company of New York, the surviving corporation was renamed JPMorgan Chase Bank.
7. A copy of the latest report of condition of the Trustee, published
pursuant to law or the requirements of its supervising or examining authority.
8. Not applicable.
9. Not applicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, JPMorgan Chase Bank, a corporation organized and existing under the
laws of the State of New York, has duly caused this statement of eligibility to
be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of Houston and State of Texas, on the 23rd day of October, 2003.
JPMORGAN CHASE BANK
By: /s/ Frank W. McCreary
-------------------------------
Frank W. McCreary
Trust Officer
EXHIBIT 7 TO FORM T-1
Bank Call Notice
RESERVE DISTRICT NO. 2
CONSOLIDATED REPORT OF CONDITION OF
JPMorgan Chase Bank
of 270 Park Avenue, New York, New York 10017
and Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System,
at the close of business June 30, 2003,
in accordance with a call made by the Federal
Reserve Bank of this District pursuant to the
provisions of the Federal Reserve Act.
DOLLAR AMOUNTS
ASSETS IN MILLIONS
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin ................... $ 22,657
Interest-bearing balances ............................................ 10,600
Securities:
Held to maturity securities ............................................... 268
Available for sale securities ............................................. 76,771
Federal funds sold and securities purchased under agreements to resell ....
Federal funds sold in domestic offices ............................... 3,844
Securities purchased under agreements to resell ...................... 86,290
Loans and lease financing receivables:
Loans and leases held for sale ....................................... 31,108
Loans and leases, net of unearned income ............................. $166,046
Less: Allowance for loan and lease losses ............................ 3,735
Loans and leases, net of unearned income and allowance ............... 162,311
Trading Assets............................................................. 186,546
Premises and fixed assets (including capitalized leases) .................. 6,142
Other real estate owned ................................................... 133
Investments in unconsolidated subsidiaries and associated companies ....... 696
Customers' liability to this bank on acceptances outstanding .............. 225
Intangible assets
Goodwill .......................................................... 2,201
Other Intangible assets ........................................... 3,058
Other assets .............................................................. 68,983
TOTAL ASSETS .............................................................. $661,833
============================================================================================
LIABILITIES
Deposits
In domestic offices .................................................... $189,571
Noninterest-bearing .................................................... $ 82,747
Interest-bearing ....................................................... 106,824
In foreign offices, Edge and Agreement subsidiaries and IBF's .......... 125,990
Noninterest-bearing .................................................... $ 6,025
Interest-bearing ....................................................... 119,965
Federal funds purchased and securities sold under agreements to repurchase:
Federal funds purchased in domestic offices ............................ 4,978
Securities sold under agreements to repurchase ......................... 114,181
Trading liabilities ......................................................... 129,299
Other borrowed money (includes mortgage indebtedness
and obligations under capitalized leases) .............................. 10,186
Bank's liability on acceptances executed and outstanding .................... 225
Subordinated notes and debentures ........................................... 8,202
Other liabilities ........................................................... 41,452
TOTAL LIABILITIES ........................................................... 624,084
Minority Interest in consolidated subsidiaries .............................. 104
EQUITY CAPITAL
Perpetual preferred stock and related surplus ............................... 0
Common stock ................................................................ 1,785
Surplus (exclude all surplus related to preferred stock) .................... 16,304
Retained earnings ........................................................... 18,426
Accumulated other comprehensive income ...................................... 1,130
Other equity capital components ............................................. 0
TOTAL EQUITY CAPITAL ........................................................ 37,645
--------
TOTAL LIABILITIES, MINORITY INTEREST, AND EQUITY CAPITAL .................... $661,833
========
I, Joseph L. Sclafani, E.V.P. & Controller of the above-named bank, do hereby
declare that this Report of Condition has been prepared in conformance with the
instructions issued by the appropriate Federal regulatory authority and is true
to the best of my knowledge and belief.
JOSEPH L. SCLAFANI
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us, and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the appropriate Federal regulatory authority and is true and correct.
WILLIAM B. HARRISON, JR. )
HANS W. BECHERER )
FRANK A. BENNACK, JR. )
