AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 2003
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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HALLIBURTON COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 1389 76-2677995
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
1401 MCKINNEY STREET, SUITE 2400 ALBERT O. CORNELISON, JR.
HOUSTON, TEXAS 77010 EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
(713) 759-2600 HALLIBURTON COMPANY
(Address, including zip code, and telephone 1401 MCKINNEY STREET, SUITE 2400
number, including HOUSTON, TEXAS 77010
area code, of registrant's principal executive (713) 759-2600
offices) (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 OF THE SECURITIES TO THE
PUBLIC: As soon as practicable following the effectiveness of this registration
statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
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Senior Notes due 2005............. $300,000,000 100% $300,000,000 $24,270
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5 1/2% Senior Notes due 2010...... $750,000,000 100% $750,000,000 $60,675
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Total.......................................................................................... $84,945
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) under the Securities Act of 1933, as amended.
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 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. WE 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 IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED NOVEMBER 12, 2003
PROSPECTUS
(HALLIBURTON LOGO)
$1,050,000,000
HALLIBURTON COMPANY
OFFER TO EXCHANGE
REGISTERED REGISTERED
SENIOR NOTES DUE OCTOBER 17, 2005 5 1/2% SENIOR NOTES DUE OCTOBER 15, 2010
FOR ALL OUTSTANDING FOR ALL OUTSTANDING
SENIOR NOTES DUE OCTOBER 17, 2005 5 1/2% SENIOR NOTES DUE OCTOBER 15, 2010
THE NEW NOTES:
- will be freely tradeable;
- are otherwise substantially identical to the outstanding notes;
- will accrue interest at the same rates as the outstanding notes of the same
series, payable
-- semiannually in arrears on each April 15 and October 15, beginning April
15, 2003, in the case of the 5 1/2% Senior Notes due October 15, 2010, and
-- quarterly on each January 17, April 17, July 17 and October 17, beginning
January 17, 2004, in the case of the Senior Notes due October 17, 2005;
- will be unsecured senior obligations of Halliburton and will rank equally with
all of Halliburton's existing and future unsecured senior indebtedness;
- will have a junior position to the claims of creditors on the assets and
earnings of our subsidiaries; and
- will not be listed on any securities exchange or on any automated dealer
quotation system, but may be sold in the over-the-counter market, in
negotiated transactions or through a combination of those methods.
THE EXCHANGE OFFER:
- expires at 5:00 p.m., New York City time, on, 200 , unless extended; and
- is not conditioned on any minimum aggregate principal amount of outstanding
notes being tendered.
IN ADDITION, YOU SHOULD NOTE THAT:
- all outstanding notes that are validly tendered and not validly withdrawn will
be exchanged for an equal principal amount of new notes of like tenor that are
registered under the Securities Act of 1933;
- tenders of outstanding notes may be withdrawn any time before the expiration
of the exchange offer;
- the exchange of outstanding notes for new notes in the exchange offer will not
be a taxable event for U.S. federal income tax purposes; and
- the exchange offer is subject to customary conditions, which we may waive in
our sole discretion.
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 13 OF
THIS PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE NEW NOTES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 200 .
YOU SHOULD RELY ONLY ON THE INFORMATION WE HAVE PROVIDED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. 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 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
Prospectus Summary.......................................... 1
Risk Factors................................................ 13
Use of Proceeds............................................. 37
Capitalization.............................................. 37
The Exchange Offer.......................................... 38
Description of Settlement-Related Indebtedness.............. 48
Description of New Notes.................................... 54
Registration Rights Agreement............................... 67
Material United States Federal Income Tax Consequences...... 69
Certain ERISA Considerations................................ 73
Plan of Distribution........................................ 75
Transfer Restrictions on Outstanding Notes.................. 76
Legal Matters............................................... 76
Experts..................................................... 76
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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, June 30,
2003 and September 30, 2003 and our 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 Reports on Form 10-Q for the quarters ended March 31, 2003,
June 30, 2003 and September 30, 2003; and
- Our Current Report on Form 8-K dated as of October 28, 2003.
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
To obtain timely delivery of any of our documents, you must make your
request to us no later than , 200 . The exchange offer will expire at
5:00 p.m., New York City time, on , 200 . The exchange offer can be
extended by us in our sole discretion, but we currently do not intend to extend
the expiration date. See the caption "The Exchange Offer" for more detailed
information.
Notwithstanding the foregoing paragraph, if at any time during the two-year
period following the date of original issue of the notes we are not subject to
the information requirements of Section 13 or 15(d) of the Exchange Act, we will
furnish to holders of the notes the information required to be delivered
pursuant to Rule 144A(d)(4) under the Securities Act in order to permit
compliance with Rule 144A in connection with resales of such notes.
ii
PROSPECTUS 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 new notes as well
as the tax and other considerations that are important to you in making a
decision about whether to participate in the exchange offer. 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 nine months ended September 30, 2003 of approximately $10.8 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, of which we disposed
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. Our Baroid and cementing product lines, along
with our equity method investment in Enventure Global Technology, LLC, an
expandable casing joint venture, are included in this 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);
- completion products and services (including well completion equipment,
slickline and safety systems);
1
- tools and testing services (including underbalanced applications, tubular
conveyed perforating and 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 other 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
construction 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.
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 United States operations.
Subsequently, during 2003, DII Industries and Kellogg Brown & Root entered into
definitive written agreements finalizing the terms of the agreement in principle
with attorneys representing more than 90% of the current asbestos and silica
claimants.
The definitive agreements provide that:
- up to 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 trust;
- 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 United States
operations; and
2
- the funding of the trusts 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
United States operations in the Chapter 11 proceeding.
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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.
3
SUMMARY OF THE EXCHANGE OFFER
On October 17, 2003, we completed a private offering of $300.0 million of
senior notes due October 17, 2005, which we refer to as the "outstanding
floating rate notes," and $750.0 million of 5 1/2% senior notes due October 15,
2010, which we refer as the "outstanding 5 1/2% notes." Together, we refer to
the outstanding floating rate notes and the outstanding 5 1/2% notes as the
"outstanding notes." We are now offering to exchange registered and freely
tradeable notes with substantially identical terms as your outstanding notes in
exchange for properly tendered outstanding notes.
This prospectus and the accompanying documents contain detailed information
about us, the new notes and the exchange offer. You should read the discussion
under the heading "The Exchange Offer" for further information regarding the
exchange offer and resale of the new notes. You should read the discussion under
the headings "-- Summary of the Terms of the New Notes" and "Description of New
Notes" for further information regarding the new notes.
The Exchange Offer............ We are offering to issue to you:
- new registered senior notes due October 17,
2005 without transfer restrictions or
registration rights in exchange for your
outstanding unregistered senior notes due
October 17, 2005, and
- new registered 5 1/2% senior notes due
October 15, 2010 in exchange for your
outstanding unregistered 5 1/2% senior notes
due October 15, 2010.
Expiration Date............... Unless sooner terminated, the exchange offer
will expire at 5:00 p.m., New York City time,
on ,200 , or at a later date and
time to which we extend it. We do not currently
intend to extend the expiration date.
Conditions to the Exchange
Offer......................... We will not be required to accept outstanding
notes for exchange if the exchange offer would
violate applicable law or if any legal action
has been instituted or threatened that would
impair our ability to proceed with the exchange
offer. The exchange offer is not conditioned on
any minimum aggregate principal amount of
outstanding notes being tendered. The exchange
offer is subject to customary conditions, which
we may waive in our sole discretion. Please
read the section "The Exchange
Offer -- Conditions to the Exchange Offer" for
more information regarding the conditions to
the exchange offer.
Procedures for Tendering
Outstanding Notes............. If you wish to participate in the exchange
offer, you must complete, sign and date the
letter of transmittal and mail or deliver the
letter of transmittal, together with your
outstanding notes, to the exchange agent prior
to the expiration date. If your outstanding
notes are held through The Depository Trust
Company, or DTC, you may deliver your
outstanding notes by book-entry transfer.
In the alternative, if your outstanding notes
are held through DTC and you wish to
participate in the exchange offer, you may do
so through the automated tender offer program
of DTC. If you tender under this program, you
will agree to be bound by the letter of
transmittal that we are providing with this
prospectus as though you had signed the letter
of transmittal.
4
By signing or agreeing to be bound by the
letter of transmittal, you will represent to
us, among other things, that:
- you are not our "affiliate," as defined in
Rule 405 of the Securities Act of 1933, or a
broker-dealer tendering outstanding notes
acquired directly from us for your own
account;
- if you are not a broker-dealer or are a
broker-dealer but will not receive new notes
for your own account, you are not engaged in
and do not intend to participate in a
distribution of the new notes;
- you have no arrangement or understanding with
any person to participate in the distribution
of the new notes or the outstanding notes
within the meaning of the Securities Act;
- any new notes you receive will be acquired in
the ordinary course of your business; and
- if you are a broker-dealer that will receive
new notes in exchange for outstanding notes
that you acquired for your own account as a
result of market-making activities or other
trading activities, you will deliver a
prospectus, as required by law, in connection
with any resale of any new notes.
Please see "The Exchange Offer -- Purpose and
Effect of the Exchange Offer" and "The Exchange
Offer -- Your Representations to Us."
Withdrawal Rights............. You may withdraw outstanding notes that have
been tendered at any time prior to the
expiration date by sending a written or
facsimile withdrawal notice to the exchange
agent.
Procedures for Beneficial
Owners........................ Only a registered holder of the outstanding
notes may tender in the exchange offer. If you
beneficially own outstanding notes registered
in the name of a broker, dealer, commercial
bank, trust company or other nominee and you
wish to tender your outstanding notes in the
exchange offer, you should promptly contact the
registered holder and instruct it to tender the
outstanding notes on your behalf.
If you wish to tender your outstanding notes on
your own behalf, you must either arrange to
have your outstanding notes registered in your
name or obtain a properly completed bond power
from the registered holder before completing
and executing the letter of transmittal and
delivering your outstanding notes. The transfer
of registered ownership may take considerable
time.
Guaranteed Delivery
Procedures.................... If you wish to tender your outstanding notes
and cannot comply before the expiration date
with the requirement to deliver the letter of
transmittal and notes or use the applicable
procedures under the automated tender offer
program of DTC, you must tender your
outstanding notes according to the guaranteed
delivery procedures described in "The Exchange
Offer -- Guaranteed Delivery Procedures." If
you tender using the guaranteed delivery
procedures, the exchange agent must receive the
properly completed and executed letter of
transmittal or facsimile thereof, together with
your outstanding notes or a book-entry
confirmation
5
and any other documents required by the letter
of transmittal, within three New York Stock
Exchange trading days after the expiration
date.
Consequences of Failure to
Exchange Your Notes........... If you do not exchange your outstanding notes
in the exchange offer, you will no longer be
entitled to registration rights. You will not
be able to offer or sell the outstanding notes
unless they are later registered, sold pursuant
to an exemption from registration or sold in a
transaction not subject to the Securities Act
or state securities laws. Other than in
connection with the exchange offer or as
specified in the registration rights agreement,
we are not obligated to, nor do we currently
anticipate that we will register the
outstanding notes under the Securities Act. See
"The Exchange Offer -- Consequences of Failure
to Exchange."
U.S. Federal Income Tax
Considerations................ The exchange of new notes for outstanding notes
in the exchange offer will not be a taxable
event for U.S. federal income tax purposes.
Please read "Material United States Federal
Income Tax Consequences."
Use of Proceeds............... We will not receive any cash proceeds from the
issuance of new notes.
Plan of Distribution.......... All broker-dealers who receive new notes in the
exchange offer have a prospectus delivery
obligation.
Based on SEC no-action letters, broker-dealers
who acquired the outstanding notes as a result
of market-making or other trading activities
may use this exchange offer prospectus, as
supplemented or amended, in connection with the
resales of the new notes. We have agreed to
make this prospectus available to any
broker-dealer delivering a prospectus as
required by law in connection with resales of
the notes for up to 180 days.
Broker-dealers who acquired the outstanding
notes from us may not rely on SEC staff
interpretations in no-action letters.
Broker-dealers who acquired the outstanding
notes from us must comply with the registration
and prospectus delivery requirements of the
Securities Act, including being named as
selling noteholders, in order to resell the
outstanding notes or the new notes.
6
THE EXCHANGE AGENT
We have appointed JPMorgan Chase Bank as exchange agent for the exchange
offer. You should direct questions and requests for assistance, requests for
additional copies of this prospectus or of the letter of transmittal and
requests for the notice of guaranteed delivery to the exchange agent addressed
as follows:
JPMorgan Chase Bank
1-800-275-2048
For Delivery by Mail, Overnight Delivery or by Hand:
JPMorgan Chase Bank
600 Travis Suite 1150
Houston, Texas 77002
Attn: Frank McCreary
By Facsimile Transmission (for eligible institutions only):
713-577-5200
Attn: Frank McCreary
To Confirm Receipt:
713-216-4849
7
SUMMARY OF THE TERMS OF THE NEW NOTES
The new notes will be freely tradeable and otherwise substantially
identical to the outstanding notes. The new notes will not have registration
rights. The new floating rate notes will evidence the same debt as the
outstanding floating rate notes and the new 5 1/2% notes will evidence the same
debt as the outstanding 5 1/2% notes. The outstanding notes and the new notes
will be governed by the same indenture.
Issuer........................ Halliburton Company.
New Notes Offered............. $1,050,000,000 aggregate principal amount of
registered senior notes in two series
consisting of:
- $300,000,000 principal amount of new
registered senior notes due October 17, 2005;
and
- $750,000,000 principal amount of new
registered 5 1/2% senior notes due October
15, 2010.
Maturity Dates................ The new floating rate notes will mature on
October 17, 2005. The new 5 1/2% notes will
mature on October 15, 2010, unless earlier
redeemed by us.
Interest and Interest Payment
Dates......................... The new floating rate notes will bear interest
at a floating rate equal to three-month LIBOR
plus 1.5%. Interest on the new floating rate
notes will be payable quarterly on the 17th day
of January, April, July and October of each
year, beginning January 17, 2004.
The new 5 1/2% notes will bear interest at a
rate of 5 1/2% per year. Interest on the new
5 1/2% notes will be payable on the 15th day of
October and April of each year, beginning April
15, 2004.
Optional Redemption of 5 1/2%
Notes......................... At any time and from time to time, we have the
option to redeem for cash all or a portion of
the 5 1/2% notes that have not been previously
repurchased at the redemption prices set forth
in this prospectus, upon not less than 30 nor
more than 60 days' notice before the redemption
date by mail to the trustee and each holder of
5 1/2% notes, for a price equal to a make-whole
amount, plus any accrued and unpaid interest
and additional interest amounts owed, if any,
to the redemption date. See "Description of New
Notes -- Optional Redemption of 5 1/2% Notes."
Covenants..................... We will issue the new notes under an indenture
that contains covenants for your benefit. Among
other things, these covenants restrict our
ability to incur indebtedness secured by liens
under specified circumstances without equally
and ratably securing the new notes.
Ranking....................... The new notes will be our general, senior
unsecured indebtedness and will rank equally
with all of our existing and future senior
unsecured indebtedness. The new notes will
effectively rank junior to any existing or
future secured indebtedness, unless and to the
extent the new notes are entitled to be equally
and ratably secured. We had no outstanding
secured indebtedness at September 30, 2003. In
addition, the new notes will be effectively
subordinated to the existing and future
indebtedness and other liabilities of our
subsidiaries. At September 30, 2003, the
aggregate indebtedness of our subsidiaries was
approximately $402.0 million, and other
8
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
$4.3 billion, and accrued asbestos liabilities
were approximately $3.4 billion.
Subsequent to the end of third quarter 2003, we
entered into (1) a $1.0 billion delayed-draw
term facility to be available for cash funding
of the trusts for the benefit of asbestos and
silica claimants; (2) a master letter of credit
facility intended to ensure that existing
letters of credit supporting our contracts
remain in place during the Chapter 11 filing;
and (3) a $700.0 million three-year revolving
credit facility for general working purposes.
There are a number of conditions precedent that
must be met before these facilities will be
effective and available for our use, one of
which is the Chapter 11 filing for DII
Industries, Kellogg Brown & Root and some of
their subsidiaries with United States
operations. See "Description of
Settlement-Related Indebtedness." The terms of
the new notes and the terms of the new credit
facilities contemplate that the new 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 new credit facilities also
provide 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 United States operations,
which will be used to implement the proposed
settlement, and (2) satisfaction of the other
conditions described in "Description of
Settlement-Related Indebtedness -- Conditions
to Release of Collateral."
No Subsidiary Guarantees...... While the new notes will not be 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 new notes will be structurally
subordinated to the debt guaranteed by our
subsidiaries for the duration of the guarantee.
The terms of the new credit facilities provide
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 United States operations,
which will be used to implement the proposed
settlement, and (2) satisfaction of the other
conditions described in "Description of
Settlement-Related Indebtedness -- Conditions
to Release of Collateral."
Governing Law................. The indenture is and the new notes will be
governed by, and construed in accordance with,
the laws of the State of New York.
Trustee....................... JPMorgan Chase Bank.
9
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," before
participating in the exchange offer.
10
SUMMARY FINANCIAL DATA
The following table sets forth our summary consolidated financial data. We
derived the financial data for the nine months ended September 30, 2003 from our
unaudited condensed consolidated financial statements included in our Quarterly
Report on Form 10-Q for the quarter ended September 30, 2003. In the second
quarter 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 supplements our Annual
Report on Form 10-K for the year ended December 31, 2002. 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.
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
2003 2002
------------- ------------
(IN MILLIONS)
(UNAUDITED)
REVENUES:
Energy Services Group:
Drilling and Formation Evaluation......................... $ 1,226 $ 1,633
Fluids.................................................... 1,508 1,815
Production Optimization................................... 2,052 2,554
Landmark and Other Energy Services........................ 410 834
------- -------
Total Energy Services Group............................ 5,196 6,836
Engineering and Construction Group.......................... 5,611 5,736
------- -------
Total....................................................... $10,807 $12,572
======= =======
OPERATING INCOME (LOSS):
Energy Services Group:
Drilling and Formation Evaluation......................... $ 160 $ 160
Fluids.................................................... 178 202
Production Optimization................................... 305 384
Landmark and Other Energy Services........................ (58) (108)
------- -------
Total Energy Services Group............................ 585 638
Engineering and Construction Group.......................... (118) (685)
General corporate........................................... (50) (65)
------- -------
Total....................................................... $ 417 $ (112)
======= =======
Income (loss) from continuing operations before income taxes
and minority interest..................................... $ 352 $ (228)
Provision for income taxes.................................. (142) (80)
Minority interest in net income of consolidated
subsidiaries, net of tax.................................. (17) (38)
Income (loss) from continuing operations, net............... 193 (346)
Loss from discontinued operations, net of tax............... (58) (652)
Net income (loss)........................................... 127 (998)
OTHER FINANCIAL DATA:
Capital expenditures........................................ $ (371) $ (764)
Long-term borrowings (repayments), net...................... 887 (15)
Depreciation and amortization expense....................... 384 505
11
SEPTEMBER 30, DECEMBER 31,
2003 2002
------------- ------------
(IN MILLIONS)
(UNAUDITED)
FINANCIAL POSITION:
Net working capital......................................... $ 3,525 $ 2,288
Total assets................................................ 13,776 12,844
Property, plant and equipment, net.......................... 2,504 2,629
Long-term debt (including current maturities)............... 2,389 1,476
Shareholders' equity........................................ 3,577 3,558
Total capitalization and short-term debt.................... 5,989 5,083
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.
NINE MONTHS
ENDED YEARS ENDED DECEMBER 31,
SEPTEMBER 30, --------------------------------
2003 2002 2001 2000 1999 1998
------------- ---- ---- ---- ---- ----
4.2 --(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.
12
RISK FACTORS
You should carefully consider the risks described below before
participating in the exchange offer. 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 new
notes 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, June 30, 2003 and September
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 United States operations. Subsequently,
during 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:
- completion of our review of the current claims to establish that the
claimed injuries resulted from exposure to products of DII Industries,
Kellogg Brown & Root or their subsidiaries or former businesses or
subsidiaries (Product ID due diligence);
- completion of our medical review of the injuries alleged to have been
sustained by plaintiffs to establish a medical basis for payment of
settlement amounts;
- continued availability 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 in
order to allow 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 in order to complete the plan of
reorganization;
- 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.
In September 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
13
distribution procedures, has been mailed to asbestos and silica claimants
for the purpose of soliciting votes to approve the plan of reorganization
prior to filing a Chapter 11 proceeding.
As a result of an increase in the estimated number of current asbestos
claims, our estimate of the aggregate value of all claims before due
diligence considerations is $3.085 billion. In early November 2003, we
reached an agreement in principle to limit the cash required to settle
pending asbestos and silica claims currently subject to definitive
agreements to $2.775 billion. Under the agreement in principle, if at the
completion of medical due diligence for current claims, the cash amounts
provided under the current settlement agreements is greater than $2.775
billion, the total cash payment to each claimant would be reduced pro rata
so that the aggregate of payments would not exceed $2.775 billion.
DII Industries, Kellogg Brown & Root and our other affected
subsidiaries are preparing a supplement to the disclosure statement mailed
in late September for circulation to known current claimants for the
purpose of soliciting acceptances of a revised plan of reorganization that
incorporates the revised terms to effect the agreement in principle. The
additional time needed to solicit acceptances to the revised plan of
reorganization will likely delay any Chapter 11 filing until sometime in
December, assuming that the necessary acceptances are promptly received and
the remaining product identification due diligence is timely provided.
The terms of this revised settlement still must be approved by 75% of
known present asbestos claimants. Despite reaching the agreement in
principle, there can be no assurance that such approval will be obtained,
that all members of the asbestos claimants committee and other lawyers
representing affected claimants will support the revised settlement or that
claimants represented by members of the asbestos claimants committee and
other affected claimants will vote in favor of the revised plan of
reorganization.
The agreement in principle is conditioned on a Chapter 11 filing on or
before December 31, 2003, and there can be no assurance that a Chapter 11
filing can be made on or before that date. If a Chapter 11 filing is not
made on or before December 31, 2003, the agreement in principle will
terminate, and there can be no assurance that the proposed settlement can
proceed as proposed. Even if the proposed settlement does proceed after
December 31, 2003, there can be no assurance that the cash required to
settle pending asbestos and silica claims will not increase to at least
$3.085 billion.
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.
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 was stayed until November 1, 2003. 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 if a Chapter 11 filing
is made by DII Industries, Kellogg Brown & Root and some of their
subsidiaries with United States operations.
14
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 new 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
United States 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. While Halliburton's management intends to recommend
to its Board that Halliburton pursue the proposed settlement in lieu of
possible legislation, in determining whether to approve the proposed
settlement and proceed with the Chapter 11 filing of DII Industries,
Kellogg Brown & Root and some of their subsidiaries with United States
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.
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
15
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 new notes would not be materially and adversely affected by
the absence of a completed settlement.
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 September 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.
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
16
our insurance carriers, or if we were delayed significantly in our recoveries,
it could have a material adverse effect on our financial condition.
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. In addition, we may enter into agreements with all or
some of our insurance carriers to negotiate an overall accelerated payment of
anticipated insurance proceeds. In either of these circumstances, 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 UNITED STATES 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 United States 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 United States 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,
17
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 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.
Our agreement in principle reached in early November 2003 provides that of
the cash amount included as part of the proposed settlement, two-thirds of
approximately $486.0 million, or $326.0 million, of the $2.775 billion cash
amount will be paid on the earlier of (a) five days prior to the anticipated
Chapter 11 filing by the affected Halliburton subsidiaries and (b) December 31,
2003, so long as product identification due diligence information on those
claims has been timely provided and we believe that a satisfactory number of
claimants have provided acceptances to the proposed plan of reorganization prior
to time for payment. Subject to proration, the remaining one-third of these
claims will be guaranteed by Halliburton and paid on the earlier of (x) six
months after a Chapter 11 filing and (y) the date on which the order confirming
the proposed plan of reorganization becomes final and non-appealable. As such,
under the agreement in principle, we may pay $326.0 million prior to the Chapter
11 filing and we may not be entitled to reimbursement for that payment in the
event 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, and in
October 2003 we completed the private offering of $1.05 billion of the
outstanding notes. 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.
Subsequent to the end of third quarter 2003, we entered into (1) a $1.0
billion delayed-draw term facility to be available for cash funding of the
trusts for the benefit of asbestos and silica claimants; (2) a master letter of
credit facility intended to ensure that existing letters of credit supporting
our contracts remain in place during the Chapter 11 filing; and (3) a $700.0
million three-year revolving credit facility for general working purposes. There
are a number of conditions precedent that must be met before these facilities
will be effective and available for our use, one of which is the Chapter 11
filing for DII Industries, Kellogg Brown & Root and some of their subsidiaries
with United States operations. Moreover, these facilities are only 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, these 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.
18
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 September 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 when and if our existing credit facility is terminated.
Our existing credit facility will not be terminated until shortly before the
anticipated effectiveness of the new Revolving Credit Facility. See "Description
of Settlement-Related Indebtedness." Absent an agreed amendment within 60 days
of termination of our existing facility, amounts outstanding thereunder would be
declared due and payable.
If our debt ratings fall below investment grade, we would also be in
technical breach of a bank agreement covering $42.0 million of letters of credit
at September 30, 2003, which might entitle the bank to set-off rights. In
addition, a $151.0 million letter of credit line, of which the entire amount has
been issued as of September 30, 2003, 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 September
30, 2003, this amount was approximately $49.0 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 UNITED STATES 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 $267.0 million which relate to our joint ventures' operations
as of September 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 September 30, 2003, agreements with banks covering at least
$150.0 million of letters of credit allow the
19
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 September 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 September 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 United States 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.
We entered into a master letter of credit facility subsequent to the end of
the third quarter of 2003 that is 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 United States operations. See
"Description of Settlement-Related Indebtedness." If the conditions for
effectiveness of the master letter of credit facility are met, the master letter
of credit facility will also provide collateral for issuers of our existing
letters of credit if such letters of credit are drawn during the bankruptcy and
the bank issuing the letter of credit provides cash to collateralize or
reimburse for such draws, the letter of credit facility will provide the cash
needed for such draws, with any borrowings being converted into term loans.
Although this master letter of credit facility has been signed, there are a
number of condition precedents that must be met before the facility is effective
and available for our use. If we were required to cash collateralize letters of
credit prior to the facility becoming effective, we would be required to use
cash on hand or existing credit facilities. Substantial cash collateralization
requirements prior to the new master letter of credit facility becoming
effective may have a material adverse effect on our financial condition.
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 have obtained consents or
amendments to eliminate possible events of default for in excess of 90% of the
material agreements relating to letters of credit. There can be no assurance
that we
20
will obtain consents or amendments for the remaining letters of credit or other
credit agreements. 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 new notes. The use of payments made by DII Industries
to us for the purpose of making principal and interest payments to you on the
new 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 new notes are voided, a court may require you to return the
payments that you have received from us on the new 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 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 new notes.
21
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 NEW
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 United States 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 new 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.
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
22
- 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
outstanding notes and our 3 1/8% senior convertible notes due 2023, 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-United States
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.
Our operations in more than 100 countries other than the United States
accounted for approximately 70% of our consolidated revenues during the first
nine months of 2003, 67% of our consolidated revenues during 2002, 62% of our
consolidated revenues during 2001 and 66% of our consolidated revenues during
23
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, 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 threats of
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.
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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, 32 hydrocarbon
production wells, 22 water injection wells, and all sub-sea flow lines and
risers necessary to connect the underwater wells to the FPSOs.
25
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:
- performance letters of credit, which together have an available credit
of approximately $266.0 million as of September 30, 2003 and which
represent approximately 10% of the contract amount, as amended to date
by change orders;
- retainage letters of credit, which together have available credit of
approximately $152.0 million as of September 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 waivers are
obtained. 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
Settlement-Related Indebtedness -- Master LC Facility," these letters of
credit will be included in the Master LC Facility. As such, assuming the
conditions precedent to the effectiveness of the facility are met, 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 September 30, 2003, the project was approximately 78% complete
and Kellogg Brown & Root had recorded a pretax loss of $345.0 million
related to the project. The probable unapproved claims included in
determining the loss on the project were $182.0 million as of September 30,
2003. The claims for the project most likely will not be settled within one
year. Accordingly, based upon the costs incurred on the claims, probable
unapproved claims of $157.0 million at September 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 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
26
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. The original contract terms
require repayment of the $300.00 million in advance payments by crediting
the last $350.00 million of our invoices of Petrobras related to the
contract by that amount. 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.
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 September 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 that averages approximately 12 months,
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 if delayed beyond 18 months from the
original schedule (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
$69.0 million of Kellogg Brown & Root's disputed claims (which are included
in the $182.0 million of probable unapproved claims as of September 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.
The finalization of the heads of agreement is subject to project
lender approval. The parties have been in negotiations with the lenders and
based on these negotiations have agreed to certain modifications to the
original terms of the heads of agreement to conform to the lender's
requirements.
27
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 negotiations with the
lenders have been completed, and the final agreements have been sent to the
lenders for their approval and signature. We are also awaiting signature
from Petrobras on the final agreement. While we believe the lenders have an
incentive to approve the final agreement and complete the financing of the
project, and the parties have agreed to the modifications described above
to secure the lenders' approval, there is no assurance that the lenders
will approve the final agreement. If the lenders do not sign the final
agreements, 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 completion of the final 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. A failure to complete the final agreements
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 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.
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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. Petrobras and the project owner are 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 will be reimbursed 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 $144.0 million in VAT taxes may already be due on the
project and, in addition, 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 $40-$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.
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 19% of our revenues for the nine months ended September 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.
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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.
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.
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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.
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.
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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.
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.
32
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.
RISK FACTORS RELATING TO THE EXCHANGE OFFER
IF YOU FAIL TO EXCHANGE YOUR OUTSTANDING NOTES, THE EXISTING TRANSFER
RESTRICTIONS WILL REMAIN IN EFFECT AND THE MARKET VALUE OF YOUR OUTSTANDING
NOTES MAY BE ADVERSELY AFFECTED BECAUSE THEY MAY BE MORE DIFFICULT TO SELL.
If you do not exchange your outstanding notes for new notes under the
exchange offer, then you will continue to be subject to the existing transfer
restrictions on the outstanding notes. In general, the outstanding notes may not
be offered or sold unless they are registered or exempt from registration under
the Securities Act and applicable state securities laws. Except in connection
with this exchange offer or as required by the registration rights agreement, we
do not intend to register resales of the outstanding notes under the Securities
Act.
Tenders of outstanding notes under the exchange offer will reduce the
aggregate principal amount of the unregistered notes outstanding. This may have
an adverse effect upon, and increase the volatility of, the market price of any
outstanding notes that you continue to hold following completion of the exchange
offer due to a reduction in liquidity.
RISKS RELATING TO THE NEW 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 new 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.
33
YOU WILL HAVE NO RECOURSE AGAINST OUR SUBSIDIARIES IN THE EVENT OF A DEFAULT
ON THE NEW 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 new notes will
be able to look only to us for payments on the new notes. In addition, our right
to receive assets of any subsidiaries upon their liquidation or reorganization,
and the rights of the holders of the new notes to share in those assets, would
be subject to the satisfaction of claims of the subsidiaries' creditors.
Consequently, the new 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. Borrowings under the credit facilities we entered into in connection
with our proposed settlement will be guaranteed by some of our subsidiaries. See
"Description of Settlement-Related Indebtedness."
THE NEW NOTES WILL BE EFFECTIVELY JUNIOR TO ALL SECURED INDEBTEDNESS UNLESS
THEY ARE ENTITLED TO BE EQUALLY AND RATABLY SECURED.
The new notes will be our unsecured obligations and will rank equally with
all our other unsecured indebtedness. However, the new 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.
Subsequent to the end of the third quarter, we entered into (1) a $1.0 billion
delayed-draw term facility to be available for cash funding of the trusts for
the benefit of asbestos and silica claimants; (2) a master letter of credit
facility intended to ensure that existing letters of credit supporting our
contracts remain in place during the Chapter 11 filing; and (3) a $700.0 million
three-year revolving credit facility for general working purposes. There are a
number of conditions precedent that must be met before these facilities will be
effective and available for our use, one of which is the Chapter 11 filing for
DII Industries, Kellogg Brown & Root and some of their subsidiaries with United
States operations. See "Description of Settlement-Related Indebtedness." The
indenture governing the new notes permits us to incur an amount of secured
indebtedness up to 5% of our consolidated net tangible assets before the new
notes will be entitled to equal and ratable security and the new notes are
effectively junior to any secured indebtedness until the new notes are entitled
to be equally and ratably secured. In addition, certain of our notes, including
the outstanding notes, our 8.75% notes due 2021, our 3 1/8% convertible senior
notes due 2023, our medium-term notes and any of our 7.6% debentures due 2096
that we issue (see "Description of Settlement-Related Indebtedness") will, and
certain new issuances may, be entitled to be secured on the same basis as the
new notes.
In the event that we are declared bankrupt, become insolvent or are
liquidated or reorganized, any debt that ranks ahead of the new notes will be
entitled to be paid in full from our assets before any payment may be made with
respect to the new notes. Holders of the new notes will participate ratably with
all holders of our unsecured indebtedness that is deemed to be of the same class
as the new 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 new notes. As a result, holders of
the new notes may receive less, ratably, than holders of secured indebtedness.
BECAUSE WE ARE A HOLDING COMPANY, THE NEW NOTES WILL BE STRUCTURALLY
SUBORDINATED TO ALL OF THE INDEBTEDNESS OF OUR SUBSIDIARIES.
The new 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 new
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 new 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
34
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 September
30, 2003, the aggregate indebtedness of our subsidiaries was approximately
$402.0 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 $4.3 billion, and accrued asbestos liabilities were approximately
$3.4 billion. In addition, while the new 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 Settlement-Related 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 new notes. Accordingly, the new 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 NEW NOTES.
If we incur any additional debt that ranks equally with the new 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 September 30, 2003, we had approximately $2.412 billion of
indebtedness, representing a total debt to capitalization ratio of 40%. In
October 2003, we issued the outstanding floating and 5 1/2% notes in an
aggregate principal amount of $1.05 billion, and subsequent to the end of the
third quarter 2003, we entered into three new credit facilities, which are not
yet effective, to finance the remaining cash portion of our proposed settlement.
See "Description of Settlement-Related Indebtedness." Further, the indenture
that governs the new 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 new 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 new 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 new notes.
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THERE IS NO TRADING MARKET FOR EITHER SERIES OF THE NEW NOTES AND THERE MAY
NEVER BE ONE.
The new notes are new securities for which currently there are no trading
markets. We do not currently intend to apply for listing of the new notes on any
securities exchange. The liquidity of any market for the new notes will depend
on the number of holders of those new notes, the interest of securities dealers
in making a market in the new notes and other factors. Accordingly, we cannot
assure you as to the development of liquidity of any market for the new notes.
Further, if markets were to develop, the market price for the new 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.
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USE OF PROCEEDS
The exchange offer is intended to satisfy our obligations under the
registration rights agreement that we entered into in connection with the
private offering of the outstanding notes. We will not receive any cash proceeds
from the issuance of the new notes. In consideration for issuing the new notes,
we will receive in exchange a like principal amount of the outstanding notes of
like tenor. The outstanding notes surrendered in exchange for the new notes will
be retired and canceled, and cannot be reissued. Accordingly, issuance of the
new notes will not result in any change in our capitalization.
We intend to use a substantial portion of the net proceeds from the sale of
the outstanding notes and net proceeds from other borrowings described under
"Description of Settlement-Related Indebtedness," if and when the proposed
settlement is completed, to fund a portion of the cash required to be
contributed to the trusts for the benefit of the asbestos and silica claimants.
We may also use the net proceeds for general corporate purposes, which may
include repayment of debt, acquisitions, loans and advances to, and investments
in, our subsidiaries to provide funds for working capital and capital
expenditures. Until the net proceeds are utilized, it is expected that the net
proceeds will be placed in interest bearing time deposits or invested in
short-term marketable securities.
CAPITALIZATION
We have provided in the table below our consolidated cash and equivalents,
short-term debt and capitalization as of September 30, 2003. You should read
this table in conjunction with our condensed consolidated financial statements
and the related notes incorporated by reference in this prospectus.
AS OF
SEPTEMBER 30,
2003
-------------
(IN MILLIONS)
(UNAUDITED)
CASH AND EQUIVALENTS(1)..................................... $1,222
======
SHORT-TERM DEBT AND CURRENT MATURITIES OF LONG-TERM DEBT.... $ 44
------
LONG-TERM DEBT (EXCLUDING CURRENT MATURITIES)(2):
7.60% debentures due August 2096 of DII Industries,
LLC(3).................................................... 300
8.75% debentures due February 2021.......................... 200
Variable interest credit facility maturing September 2009... 51
Medium-term notes due through 2027.......................... 600
3 1/8% convertible senior notes due July 15, 2023........... 1,200
Effect of interest rate swaps............................... 10
Other notes with varying interest rates..................... 7
------
Total long-term debt...................................... 2,368
------
SHAREHOLDERS' EQUITY:
Common shares, par value $2.50 per share; 600 million shares
authorized; 457 million shares issued..................... 1,141
Paid-in capital in excess of par value...................... 270
Accumulated other comprehensive income...................... (326)
Retained earnings........................................... 3,073
Less 19 million shares of treasury stock, at cost........... 581
------
Total shareholders' equity................................ 3,577
------
Total capitalization and short-term debt.................. $5,989
======
---------------
(1) Does not include proceeds from the sale of the outstanding notes.
(2) Does not include the outstanding notes.
(3) On October 9, 2003, Halliburton commenced an exchange offer in which it is
offering to issue its new 7.6% debentures due 2096 in exchange for a like
amount of outstanding 7.60% debentures of DII Industries that are held by
holders qualified to participate in the exchange offer. See "Description of
Settlement-Related Indebtedness."
37
THE EXCHANGE OFFER
Participation in the exchange offer is voluntary, and you should carefully
consider whether to accept. You are urged to consult your financial and tax
advisors in making your own decision on what action to take.
We are offering to issue new registered senior notes due October 17, 2005
in exchange for a like principal amount of our outstanding unregistered senior
notes due October 17, 2005 that were issued on October 17, 2003, and new
registered 5 1/2% senior notes due October 15, 2010 for a like principal amount
of our outstanding unregistered 5 1/2% senior notes due October 15, 2010 that
were issued on October 17, 2003. We may extend, delay or terminate the exchange
offer. Holders of outstanding notes who wish to tender will need to complete and
timely submit the exchange offer documentation related to the exchange.
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
We entered into a registration rights agreement with the initial purchasers
of the outstanding notes in which we agreed to file a registration statement
relating to an offer to exchange the outstanding notes for new notes within 120
days after the closing of the offering and to use our reasonable best efforts to
have it declared effective within 210 days after issuing the outstanding notes.
We are offering the new notes under this prospectus to satisfy those obligations
under the registration rights agreement.
If the exchange offer is not permitted by applicable law or SEC policy or
in general if any holder of the outstanding notes notifies us that:
- on or prior to the time the exchange offer is completed, existing SEC
interpretations are changed such that the notes received in the exchange
offer would not be transferable without restriction under the Securities
Act;
- the exchange offer has not been completed within 255 days following the
date the notes were first issued; or
- the exchange offer is not available to any holder of notes,
we will file with the SEC a shelf registration statement to cover resales of
outstanding notes.
If we fail to comply with the applicable deadlines for filing the
registration statements or completion of the exchange offer, we may be required
to pay additional interest amounts to holders of the outstanding notes. Please
read the section captioned "Registration Rights Agreement -- Additional Interest
Amounts" for more details regarding the registration rights agreement.
To receive transferable new notes in exchange for your outstanding notes in
the exchange offer, you, as holder of the tendered outstanding notes, will be
required to make the following representations to us:
- you are not an "affiliate," as defined in Rule 405 of the Securities Act,
of us or a broker-dealer tendering outstanding notes acquired directly
from us for your own account;
- if you are not a broker-dealer or are a broker-dealer but will not
receive new notes for your own account in exchange for outstanding notes,
you are not engaged in and do not intend to participate in a distribution
of the new notes;
- you have no arrangement or understanding with any person to participate
in a distribution of the new notes or the outstanding notes within the
meaning of the Securities Act;
- you are acquiring the new notes in the ordinary course of your business;
and
- if you are a broker-dealer that will receive new notes in exchange for
outstanding note that you acquired for your own account as a result of
market-making activities or other trading activities, you will deliver a
prospectus meeting the requirements of the Securities Act in connection
with the resale of any new notes. It is understood that you are not
admitting that you are an "underwriter" within the meaning of the
Securities Act by acknowledging that you will deliver, and by delivery
of, a prospectus.
38
Based on interpretations of the SEC staff in "no action letters" issued to
third parties, we believe that each new note issued to a holder tendering in the
exchange offer may be offered for resale, resold and otherwise transferred by
you, the holder of that new note, without compliance with the registration and
prospectus delivery provisions of the Securities Act if:
- you are not our "affiliate" within the meaning of Rule 405 under the
Securities Act;
- the new note is acquired in the ordinary course of your business; and
- you do not intend to participate in the distribution of new notes.
However, the SEC has not considered the legality of our exchange offer in
the context of a "no action letter," and there can be no assurance that the
staff of the SEC would make a similar determination with respect to our exchange
offer as in other circumstances.
If you tender outstanding notes in the exchange offer with the intention of
participating in any manner in a distribution of the new notes, you:
- cannot rely on these interpretations by the SEC staff; and
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction.
Unless an exemption from registration is otherwise available, any holder
intending to distribute new notes should be covered by an effective registration
statement under the Securities Act containing the holder's information required
by Item 507 or Item 508, as applicable, of Regulation S-K under the Securities
Act. This prospectus may be used for an offer to resell, resale or other
transfer of new notes only as specifically described in this prospectus. We have
agreed to make this prospectus available in connection with resales of the new
notes for up to 180 days from the consummation of the exchange offer. Failure to
comply with the registration and prospectus delivery requirements by a holder
subject to these requirements could result in that holder incurring liability
for which it is not indemnified by us. Only broker-dealers that acquired the
outstanding notes as a result of market-making activities or other trading
activities may participate in the exchange offer. Please read the section
captioned "Plan of Distribution" for more details regarding the transfer of new
notes.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions described in this prospectus
and in the accompanying letter of transmittal, we will accept for exchange any
outstanding notes properly tendered and not withdrawn before the expiration
date. We will issue $1,000 principal amount of new notes in exchange for each
$1,000 principal amount of outstanding notes of like tenor surrendered under the
exchange offer. Outstanding notes may be tendered only in integral multiples of
$1,000. The exchange offer is not conditioned upon any minimum aggregate
principal amount of outstanding notes being tendered for exchange.
As of the date of this prospectus, $300.0 million aggregate principal
amount of the outstanding floating rate notes and $750.0 million aggregate
principal amount of the outstanding 5 1/2% notes are not yet registered. This
prospectus and the letter of transmittal accompanying this prospectus are being
sent to all registered holders of outstanding notes. There will be no fixed
record date for determining registered holders of outstanding notes entitled to
participate in the exchange offer.
We intend to conduct the exchange offer according to the provisions of the
registration rights agreement, the applicable requirements of the Securities Act
and the Securities Exchange Act of 1934, and the rules and regulations of the
SEC. Outstanding notes that are not tendered for exchange in the exchange offer
will remain outstanding and continue to accrue interest and will be entitled to
the rights and benefits the holders have under the indenture. However, these
outstanding notes will not be freely tradable. Other than in connection with the
exchange offer and as specified in the registration rights agreement, we are not
obligated
39
to, nor do we currently anticipate that we will, register the outstanding notes
under the Securities Act. See "-- Consequences of Failure to Exchange" below.
We will be deemed to have accepted for exchange properly tendered
outstanding notes when we have given oral or written notice of the acceptance to
the exchange agent and complied with the applicable provisions of the
registration rights agreement.
Holders tendering outstanding notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the exchange of
outstanding notes. We will pay all charges and expenses, other than certain
applicable taxes described below, in connection with the exchange offer. It is
important for holders to read the section labeled "-- Fees and Expenses" for
more details regarding fees and expenses incurred in the exchange offer.
We will return any outstanding notes that we do not accept for exchange for
any reason without expense to the tendering holder as promptly as practicable
after the expiration or termination of the exchange offer.
EXPIRATION DATE
The exchange offer will expire at 5:00 p.m., New York City time on
, 200 unless, in our sole discretion, we extend the exchange offer.
EXTENSIONS, DELAY IN ACCEPTANCE, TERMINATION OR AMENDMENT
We reserve the right, at any time or at various times, to extend the period
of time during which the exchange offer is open. During any extensions, all
outstanding notes previously tendered will remain subject to the exchange offer,
and we may accept them for exchange. We do not currently intend to extend the
expiration date.
To extend the exchange offer, we will notify the exchange agent orally or
in writing of any extension. We will also make a public announcement of the
extension no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date. Without limiting the manner in
which we may choose to make public announcements of any delay in acceptance,
extension, termination or amendment of the exchange offer, we will have no
obligation to publish, advertise or otherwise communicate any public
announcement, other than by making a timely release to the Dow Jones News
Service.
If any of the conditions described below under "-- Conditions to the
Exchange Offer" have not been satisfied, we reserve the right, in our sole
discretion:
- to delay accepting for exchange any outstanding notes;
- to extend the exchange offer; or
- to terminate the exchange offer
by giving oral or written notice of a delay, extension or termination to the
exchange agent. Subject to the terms of the registration rights agreement, we
also reserve the right to amend the terms of the exchange offer in any manner.
Any delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice to the registered
holders of the outstanding notes. If we amend the exchange offer in a manner we
determine to constitute a material change, we will promptly disclose the
amendment by means of a prospectus supplement. The supplement will be
distributed to the registered holders of the outstanding notes. Depending upon
the significance of the amendment and the manner of disclosure to the registered
holders, we may extend the exchange offer if the exchange offer would otherwise
expire during that period.
40
CONDITIONS TO THE EXCHANGE OFFER
If in our reasonable judgment the exchange offer, or the making of any
exchange by a holder of outstanding notes, would violate applicable law or any
applicable interpretation of the staff of the SEC:
- we will not be required to accept for exchange, or exchange any new notes
for, any outstanding notes; and
- we may terminate the exchange offer as provided in this prospectus before
accepting any outstanding notes for exchange.
In addition, we will not be obligated to accept for exchange the
outstanding notes of any holder that has not made to us the following
representations:
- the representations described under "-- Purpose and Effect of the
Exchange Offer," "-- Procedures for Tendering" and "Plan of
Distribution;" and
- other representations as may be reasonably necessary under applicable SEC
rules, regulations or interpretations to make available to us an
appropriate form for registration of the new notes under the Securities
Act.
We reserve the right to amend or terminate the exchange offer, and to
reject for exchange any outstanding notes not previously accepted for exchange,
upon the occurrence of any of the conditions to the exchange offer specified
above. We will give oral or written notice of any extension, amendment,
nonacceptance or termination to the holders of the outstanding notes as promptly
as practicable. These conditions are for our sole benefit, and we may assert
them or waive them in whole or in part at any time or at various times in our
sole discretion. If we fail at any time to exercise any of these rights, this
failure will not mean that we have waived our rights. Each right will be deemed
an ongoing right that we may assert at any time or at various times.
In addition, we will not accept for exchange any outstanding notes tendered
and will not issue new notes in exchange for any outstanding notes, if at that
time any stop order has been threatened or is in effect with respect to the
registration statement of which this prospectus constitutes a part or the
qualification of the indenture under the Trust Indenture Act of 1939.
PROCEDURES FOR TENDERING
HOW TO TENDER GENERALLY
Only a registered holder of outstanding notes may tender its outstanding
notes in the exchange offer. If you are a beneficial owner of outstanding notes
and wish to have the registered owner tender on your behalf, please see "-- How
to Tender if You Are a Beneficial Owner" below. To tender in the exchange offer,
you must either comply with the procedures for manual tender or comply with the
automated tender offer program procedures of DTC described below under
"-- Tendering Through DTC's Automated Tender Offer Program."
To complete a manual tender, you must:
- complete, sign and date the letter of transmittal, or a facsimile of the
letter of transmittal;
- have the signature on the letter of transmittal guaranteed if the letter
of transmittal so requires;
- mail or deliver the letter of transmittal or a facsimile of the letter of
transmittal to the exchange agent before the expiration date; and
- deliver, and the exchange agent must receive, before the expiration date:
-- the outstanding notes along with the letter of transmittal, or
41
-- a timely confirmation of book-entry transfer of the outstanding notes
into the exchange agent's account at DTC according to the procedure for
book-entry transfer described below under "-- Book-Entry Transfer."
If you wish to tender your outstanding notes and cannot comply with the
requirement to deliver the letter of transmittal and your outstanding notes or
use the automated tender offer program of DTC before the expiration date, you
must tender your outstanding notes according to the guaranteed delivery
procedures described below.
For a tender to be effective, the exchange agent must receive any physical
delivery of the letter of transmittal and other required documents at its
address provided above under "Prospectus Summary -- The Exchange Agent" before
the expiration date. Any tender by a holder that is not withdrawn before the
expiration date will constitute a legally binding agreement between the holder
and us according to the terms and subject to the conditions described in this
prospectus and in the letter of transmittal.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES, THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT YOUR ELECTION AND RISK.
RATHER THAN MAIL THESE ITEMS, WE RECOMMEND THAT YOU USE AN OVERNIGHT OR
HAND-DELIVERY SERVICE. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO ENSURE
DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. YOU SHOULD NOT SEND
THE LETTER OF TRANSMITTAL OR OUTSTANDING NOTES TO HALLIBURTON. YOU MAY REQUEST
YOUR BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE TO PERFORM
THE DELIVERIES ON YOUR BEHALF.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the outstanding notes at DTC for purposes of the exchange offer promptly
after the date of this prospectus. Any financial institution participating in
DTC's system may make book-entry delivery of outstanding notes by causing DTC to
transfer the outstanding notes into the exchange agent's account at DTC
according to DTC's procedures for transfer. Holders of outstanding notes who are
unable to deliver confirmation of the book-entry tender of their outstanding
notes into the exchange agent's account at DTC or all other documents required
by the letter of transmittal to the exchange agent on or before the expiration
date must tender their outstanding notes according to the guaranteed delivery
procedures described below.
TENDERING THROUGH DTC'S AUTOMATED TENDER OFFER PROGRAM
The exchange agent and DTC have confirmed that any financial institution
that is a participant in DTC's system may use DTC's automated tender offer
program to tender its outstanding notes. Participants in the program may
transmit their acceptance of the exchange offer electronically instead of
physically completing and signing the letter of transmittal and delivering it to
the exchange agent. Tendering through the automated tender offer program causes
DTC to transfer the outstanding notes to the exchange agent according to its
procedures for transfer. DTC will then send an agent's message to the exchange
agent.
The term "agent's message" means a message transmitted by DTC, received by
the exchange agent and forming part of the book-entry confirmation, stating
that:
- DTC has received an express acknowledgment from a participant in its
automated tender offer program that is tendering outstanding notes that
are the subject of book-entry confirmation;
- the participant has received and agrees to be bound by the terms of the
letter of transmittal or, in the case of an agent's message relating to
guaranteed delivery, that the participant has received and agrees to be
bound by the applicable notice of guaranteed delivery; and
- the agreement may be enforced against the participant.
HOW TO TENDER IF YOU ARE A BENEFICIAL OWNER
If you beneficially own outstanding notes that are registered in the name
of a broker, dealer, commercial bank, trust company or other nominee and you
wish to tender those notes, you should contact the registered
42
holder promptly and instruct it to tender on your behalf. If you are a
beneficial owner and wish to tender on your own behalf, you must, before
completing and executing the letter of transmittal and delivering your
outstanding notes, either:
- make appropriate arrangements to register ownership of the outstanding
notes in your name; or
- obtain a properly completed bond power from the registered holder of
outstanding notes.
The transfer of registered ownership may take considerable time and may not
be completed before the expiration date.
SIGNATURES AND SIGNATURE GUARANTEES
You must have signatures on a letter of transmittal or a notice of
withdrawal described below guaranteed by:
- a member firm of a registered national securities exchange;
- a member of the National Association of Securities Dealers, Inc.;
- a commercial bank or trust company having an office or correspondent in
the United States; or
- an "eligible guarantor institution" within the meaning of Rule 17 Ad-15
under the Exchange Act.
The above must be a member of one of the recognized signature guarantee
programs identified in the letter of transmittal, unless the outstanding notes
are tendered:
- by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the letter
of transmittal and the new notes are being issued directly to the
registered holder of the outstanding notes tendered in the exchange for
those new notes; or
- for the account of a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the
United States, or an eligible guarantor institution.
WHEN ENDORSEMENTS OR BOND POWERS ARE NEEDED
If the letter of transmittal is signed by a person other than the
registered holder of the outstanding notes, the outstanding notes to be tendered
must be endorsed or accompanied by a properly completed bond power. The bond
power must be signed by the registered holder as the registered holder's name
appears on the outstanding notes and a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States, or an eligible guarantor institution must guarantee the signature
on the bond power.
If the letter of transmittal or any outstanding notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, those persons should so indicate when signing. They should also submit
evidence of their authority to deliver the letter of transmittal satisfactory to
us unless we waive this requirement.
DETERMINATIONS UNDER THE EXCHANGE OFFER
We will determine in our sole discretion all questions as to the validity,
form, eligibility, time of receipt, acceptance of tendered outstanding notes and
withdrawal of tendered outstanding notes. Our determination will be final and
binding. We reserve the absolute right to reject any outstanding notes not
properly tendered or any outstanding notes our acceptance of which would, in the
opinion of our counsel, be unlawful. We also reserve the right to waive any
defects, irregularities or conditions of tender as to particular outstanding
notes. Our interpretation of the terms and conditions of the exchange offer,
including the instructions in the letter of transmittal, will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of outstanding notes must be cured within the time we
shall determine. Neither we, the exchange agent nor any other person will be
under any duty to give notification of defects or irregularities with respect
43
to tenders of outstanding notes, and none of the aforementioned will incur
liability for failure to give notification. Tenders of outstanding notes will
not be deemed made until any defects or irregularities have been cured or
waived. Any outstanding notes received by the exchange agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned to the tendering holder, unless otherwise
provided in the letter of transmittal, as soon as practicable following the
expiration date.
WHEN WE WILL ISSUE NEW NOTES
In all cases, we will issue new notes for outstanding notes that we have
accepted for exchange under the exchange offer only after the exchange agent
timely receives:
- delivery of the outstanding notes or a book-entry confirmation of the
tender of the outstanding notes into the exchange agent's account at DTC;
and
- a properly completed and duly executed letter of transmittal and all
other required documents or a properly transmitted agent's message.
RETURN OF OUTSTANDING NOTES NOT ACCEPTED OR EXCHANGED
If we do not accept any tendered outstanding notes for exchange for any
reason described in the terms and conditions of the exchange offer or if
outstanding notes are submitted for a greater principal amount than the holder
desires to exchange, the unaccepted or nonexchanged outstanding notes will be
returned without expense to their tendering holder. In the case of outstanding
notes tendered by book-entry transfer into the exchange agent's account at DTC
according to the procedures described below, the outstanding notes not accepted
for exchange will be credited to an account maintained with DTC. These actions
will occur as promptly as practicable after the expiration or termination of the
exchange offer.
YOUR REPRESENTATIONS TO US
By signing or agreeing to be bound by the letter of transmittal, you will
represent that, among other things:
- you are not an "affiliate," as defined in Rule 405 of the Securities Act,
of us or a broker-dealer tendering outstanding notes acquired directly
from us for your own account;
- if you are not a broker-dealer or are a broker-dealer but will not
receive new notes for your own account in exchange for outstanding notes,
you are not engaged in and do not intend to participate in a distribution
of the new notes;
- you have no arrangement or understanding with any person to participate
in a distribution of the outstanding notes or the new notes within the
meaning of the Securities Act;
- you are acquiring the new notes in the ordinary course of your business;
and
- if you are a broker-dealer that will receive new notes in exchange for
outstanding notes that you acquired for your own account as a result of
market-making activities or other trading activities, you will deliver a
prospectus meeting the requirements of the Securities Act in connection
with the resale of any new notes. It is understood that you are not
admitting that you are an "underwriter" within the meaning of the
Securities Act by acknowledging that you will deliver, and by delivery
of, a prospectus.
If you tender in the exchange offer for the purpose of participating in a
distribution of the new notes:
- you cannot rely on the applicable interpretations of the SEC; and
- you must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction.
44
GUARANTEED DELIVERY PROCEDURES
If you wish to tender your outstanding notes but your outstanding notes are
not immediately available or you cannot deliver your outstanding notes, the
letter of transmittal or any other required documents to the exchange agent or
comply with the applicable procedures under DTC's automated tender offer program
before the expiration date, you may tender if:
- the tender is made through a member firm of a registered national
securities exchange or of the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office or
correspondent in the United States or an eligible guarantor institution;
and
- before the expiration date, the exchange agent receives from the member
firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc., commercial bank or trust company
having an office or correspondent in the United States, or eligible
guarantor institution either a properly completed and duly executed
notice of guaranteed delivery by facsimile transmission, mail or hand
delivery or a properly transmitted agent's message and notice of
guaranteed delivery:
-- stating your name and address, the registered number(s) of your
outstanding notes and the principal amount of outstanding notes
tendered,
-- stating that the tender is being made, and
-- guaranteeing that, within three New York Stock Exchange trading days
after the expiration date, the letter of transmittal or facsimile
thereof, together with the outstanding notes or a book-entry
confirmation and any other documents required by the letter of
transmittal will be deposited by the eligible guarantor institution
with the exchange agent; and
- the exchange agent receives the properly completed and executed letter of
transmittal or facsimile thereof, as well as all tendered outstanding
notes in proper form for transfer or a book-entry confirmation and all
other documents required by the letter of transmittal, within three New
York Stock Exchange trading days after the expiration date.
Upon request to the exchange agent, the exchange agent will send you a
notice of guaranteed delivery if you wish to tender your outstanding notes using
the guaranteed delivery procedures described above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, you may withdraw your
tender at any time before 5:00 p.m., New York City time, on the expiration date
unless we have previously accepted your notes for exchange. For a withdrawal to
be effective:
- the exchange agent must receive a written notice of withdrawal at one of
the addresses listed above under "Prospectus Summary -- The Exchange
Agent;" or
- the withdrawing holder must comply with the appropriate procedures of
DTC's automated tender offer program system.
Any notice of withdrawal must:
- specify the name of the person (whom we refer to as the depositor) who
tendered the outstanding notes to be withdrawn;
- identify the outstanding notes to be withdrawn, including the
registration number or numbers and the principal amount of the
outstanding notes;
- be signed by the depositor in the same manner as the original signature
on the letter of transmittal used to deposit those outstanding notes or
be accompanied by documents of transfer sufficient to permit the trustee
for the outstanding notes to register the transfer into the name of the
depositor withdrawing the tender; and
45
- specify the name in which the outstanding notes are to be registered, if
different from that of the depositor.
If outstanding notes have been tendered under the procedure for book-entry
transfer described above, any notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawn outstanding notes
and otherwise comply with the procedures of DTC.
We will determine, in our sole discretion, all questions as to the
validity, form, eligibility and time of receipt of notice of withdrawal. Our
determination shall be final and binding on all parties. We will deem any
outstanding notes so withdrawn not to have been validly tendered for exchange
for purposes of the exchange offer.
Any outstanding notes that have been tendered for exchange but that are not
exchanged for any reason will be returned to their holder without cost to the
holder or, in the case of outstanding notes tendered by book-entry transfer into
the exchange agent's account at DTC according to the procedures described above,
the outstanding notes will be credited to an account maintained with DTC for the
outstanding notes. This return or crediting will take place as soon as
practicable after withdrawal, rejection of tender or termination of the exchange
offer. At any time on or before the expiration date, holders may re-tender
properly withdrawn outstanding notes by following one of the procedures
described under "-- Procedures for Tendering" above.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail, but we may make additional solicitation by telephone,
electronically or in person by the exchange agent, our officers and regular
employees and those of our affiliates.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and reimburse it for its related
reasonable out-of-pocket expenses. We may also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this prospectus, letters of transmittal
and related documents to the beneficial owners of the outstanding notes and in
handling or forwarding tenders for exchange.
We will pay the cash expenses to be incurred in connection with the
exchange offer, including:
- SEC registration fees;
- fees and expenses of the exchange agent and trustee;
- accounting and legal fees and printing costs; and
- related fees and expenses.
TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the exchange of
outstanding notes under the exchange offer. A tendering holder, however, will be
required to pay any transfer taxes, whether imposed on the registered holder or
any other person, if:
- certificates representing outstanding notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of
outstanding notes tendered;
- tendered outstanding notes are registered in the name of any person other
than the person signing the letter of transmittal; or
- a transfer tax is imposed for any reason other than the exchange of
outstanding notes under the exchange offer.
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If satisfactory evidence of payment of any transfer taxes payable by a
holder is not submitted with the letter of transmittal, the amount of the
transfer taxes will be billed directly to that tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
If you do not exchange your outstanding notes for new notes in the exchange
offer, your notes will remain subject to the existing restrictions on transfer.
In general, you may not offer or sell the outstanding notes unless they are
registered under the Securities Act or the offer or sale is exempt from
registration under the Securities Act and applicable state securities laws.
Except as required by the registration rights agreement, we do not intend to
register resales of the outstanding notes under the Securities Act. Based on
interpretations of the SEC staff, you may offer for resale, resell or otherwise
transfer new notes issued in the exchange offer without compliance with the
registration and prospectus delivery provisions of the Securities Act, if:
- you are not our "affiliate" within the meaning of Rule 405 under the
Securities Act;
- you acquired the new notes in the ordinary course of your business; and
- you have no arrangement or understanding with respect to the distribution
of the new notes to be acquired in the exchange offer.
We may, in the future, seek to acquire untendered outstanding notes in
open-market or privately negotiated transactions, through subsequent exchange
offers or otherwise. We have no present plans to acquire any outstanding notes
that are not tendered in the exchange offer or to file a registration statement
to permit resales of any untendered outstanding notes.
ACCOUNTING TREATMENT
We will not recognize a gain or loss for accounting purposes upon the
consummation of the exchange offer.
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DESCRIPTION OF SETTLEMENT-RELATED INDEBTEDNESS
In connection with the plan of reorganization contemplated by the proposed
settlement, subsequent to the end of third quarter 2003, we entered into (1) a
$1.0 billion delayed-draw term facility to be available for cash funding of the
trusts for the benefit of asbestos and silica claimants; (2) a master letter of
credit facility intended to ensure that existing letters of credit supporting
our contracts remain in place during the Chapter 11 filing; and (3) a $700.0
million three-year revolving credit facility for general working purposes. There
are a number of conditions precedent that must be met before these facilities
will be effective and available for our use, one of which is the Chapter 11
filing for DII Industries, Kellogg Brown & Root and some of their subsidiaries
with United States operations (the "Chapter 11 Filings"). Although we have
entered into these facilities, there can be no assurance that the conditions
precedent to the effectiveness of these facilities will be met. 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." The new 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 new 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 New Notes."
The following discussion is a summary of selected provisions of the
facilities described in the first paragraph of this "Description of
Settlement-Related Indebtedness." It does not restate the facilities in their
entirety and this summary is qualified in its entirety by reference to the full
and complete text of the facilities, which have been filed with our Quarterly
Report on Form 10-Q for the quarter ended September 30, 2003.
SENIOR UNSECURED CREDIT FACILITY
In connection with the plan of reorganization contemplated by the proposed
settlement, we entered into a senior unsecured delayed, multi-draw term loan
facility for $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 is available in up to 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 requires us to apply the following
proceeds to prepay amounts outstanding and/or reduce commitments under the
Senior Unsecured Credit Facility:
- net cash proceeds from any debt incurrence or equity issuance, subject to
certain exceptions;
- net cash proceeds from the sale of assets by us and our subsidiaries,
subject to certain exceptions; 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 first
drawdown date, such proceeds will ratably reduce the commitments under the
Senior Unsecured Credit Facility and to the extent such
48
proceeds are available to us after the first drawdown date, such proceeds will
be used to 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, Halliburton (and to the extent that they are account parties in
respect of specified existing letters of credit, DII Industries and Kellogg
Brown & Root) entered into a senior secured master 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 covers 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. In addition, the Master LC Facility provides a
discretionary facility for the issuance of up to $250.0 million of new letters
of credit. The existing letters of credit issued by the lenders entering into
the Master LC Facility and any additional letters of credit issued under the
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 before the plan of
reorganization has been confirmed and the related court orders have been entered
(the "Exit Date").
The purpose of the Master LC Facility is to provide a term-out for any
draws prior to June 30, 2004, 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
Term-Out 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 such
49
advance is repaid, 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 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 $250.0 million. 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 certain exceptions. 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, 3 1/8% convertible senior notes due 2023, medium term notes, 7.6%
debentures due 2096 issued in the exchange offer described above under
"Description of Settlement-Related Indebtedness," if it is consummated, the
outstanding notes and the new 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 $950.0 million 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 certain exceptions, 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) 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 Credit
Facility exceeds 5% of the consolidated net tangible assets of
50
Halliburton and its subsidiaries, such collateral would also be shared pro rata
with the holders of Halliburton's 8.75% notes due 2021, 3 1/8% convertible
senior notes due 2023, medium term notes, 7.6% debentures due 2096 issued in the
exchange offer described above under "Description of Settlement-Related
Indebtedness," if it is consummated, the outstanding notes and the new 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 $950.0
million 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 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"). Our Existing Credit Facility will
not be terminated until shortly before the anticipated effectiveness of the new
Revolving Credit Facility.
The Revolving Credit Facility provides 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 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 (a "Ratings Event"), 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 Revolving Credit
51
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) 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 Collateral Release Date, the Revolving Credit Facility would
be required to be cash collateralized with the net proceeds of any sales of
collateral, subject to certain exceptions. 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,
3 1/8% convertible senior notes due 2023, medium term notes, 7.6% debentures due
2096 issued in the exchange offer described above under "Description of
Settlement-Related Indebtedness," if it is consummated, the outstanding notes
and the new 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 $950.0 million of such New Issuance). Upon the occurrence of the Exit
Date and the satisfaction of other conditions (the "Collateral Release Date"),
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," borrowings under the Master LC Facility and the Revolving Credit
Facility are 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 "Prospectus 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 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;
52
- 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 NEW NOTES
We will issue the new notes under an indenture dated as of October 17,
2003, between us and JP Morgan Chase Bank, as trustee (the "base indenture"), as
supplemented by the First Supplemental Indenture thereto, dated as of October
17, 2003, establishing the terms of the notes between Halliburton and the
trustee (the "supplemental indenture" and together with the base indenture, the
"indenture"). The terms of the new notes include those stated in the indenture
and those made part of the indenture by reference to the Trust Indenture Act of
1939.
The following description is a summary of the material provisions of the
indenture. It does not restate the indenture in its entirety and this summary is
qualified in its entirety by reference to the full and complete text of the
indenture. We urge you to read the indenture and the new notes because they, and
not this description, define your rights as holders of the new notes. You may
request copies of those documents in substantially the form in which they have
been or will be executed by writing or telephoning us at our address and
telephone number shown under the caption "Where You Can Find More Information."
The outstanding floating rate notes, together with the new floating rate
notes issued in the exchange offer, will constitute a single series of
securities under the indenture, and the outstanding 5 1/2% notes, together with
the new 5 1/2% notes issued in the exchange offer, will constitute a separate
series of securities under the indenture. If the exchange offer for the notes is
consummated, holders of outstanding notes of one series who do not exchange
their outstanding notes will vote together with holders of the new notes of the
same series for all relevant purposes under the indenture. Accordingly, in
determining whether the required holders have given any notice, consent or
waiver or taken any other action permitted under the indenture, any outstanding
notes that remain outstanding after the exchange offer will be aggregated with
new notes of the same series, and the holders of the outstanding notes and new
notes of the same series will vote together as a single series.
The definitions of capitalized terms used in this section without
definition are set forth below under "-- Definitions." In this description, the
word "Halliburton," "we" or "us" means only Halliburton Company and not any of
its subsidiaries.
GENERAL
The floating rate notes and the 5 1/2% notes will each be a separate series
of securities issued under the indenture. Each of the floating rate notes and
5 1/2% notes offered hereby will be our senior unsecured obligations and will
rank equally with all our other existing and future senior unsecured
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.
The indenture does not contain any financial covenants. In addition, we are
not restricted under the indenture from paying dividends or issuing or
repurchasing our securities. The indenture does not restrict our ability to
incur additional indebtedness in the future. Halliburton may, without notice to
or consent of the holders or beneficial owners of the notes, issue additional
notes having the same ranking, interest rate, maturity and other terms as either
the floating rate notes or the 5 1/2% notes offered hereby. Any such additional
notes issued could be considered part of the same series of notes under the
indenture as the floating rate notes or the 5 1/2% notes, as applicable, offered
hereby.
You will not be afforded protection in the event of a highly leveraged
transaction, or a change in control of us under the indenture.
Holders are not required to pay a service charge for registration or
transfer of their new 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 of any notes
surrendered for redemption or repurchase by us but not withdrawn.
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PRINCIPAL; MATURITY; INTEREST
The new floating rate notes will initially be limited to an aggregate
principal amount of $300,000,000. The new 5 1/2% notes will initially be limited
to an aggregate principal amount of $750,000,000. Each series of new notes will
be issued only in fully registered form without coupons, in denominations of
$1,000 and whole multiples of $1,000.
The new floating rate notes will mature on October 17, 2005. The new 5 1/2%
notes will mature on October 15, 2010, unless earlier redeemed by us.
Interest on the new notes will accrue from the date of original issuance
or, if interest has already been paid, from the date it was most recently paid.
Interest on the new notes will be payable in arrears on the next scheduled
interest payment date and on the date the new notes mature. If interest is
payable on, or if the date of maturity is, a date that is not a business day,
that interest payment, or the payment of principal, as applicable, will be paid
on the next succeeding business day and no interest will accrue on that payment
during the period between the scheduled payment date and the next succeeding
business day.
We will maintain an office in Dallas, Texas, 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, with respect to global notes, 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.
INTEREST ON THE SENIOR NOTES DUE OCTOBER 17, 2005
The floating rate notes will bear interest at a floating rate. Interest on
the floating rate notes will be payable in cash quarterly on the 17th day of
January, April, July and October of each year, beginning January 17, 2004.
Interest on the floating rate notes will be payable to holders of record of the
floating rate notes on the immediately preceding 1st day of January, April, July
and October, as the case may be.
The floating rate notes will bear interest for each interest period at a
rate determined by J.P. Morgan Securities Inc., acting as calculation agent. The
interest rate on the floating rate notes for a particular interest period will
be a per annum rate equal to LIBOR as determined on the interest determination
date plus 1.5%. The interest determination date for an interest period will be
the second London business day preceding the commencement of such interest
period. The interest determination date for the floating rate notes for the
first interest period is October 15, 2003. Promptly upon determination, the
calculation agent will inform the trustee and Halliburton of the interest rate
for the next interest period. Absent manifest error, the determination of the
interest rate by the calculation agent shall be binding and conclusive on the
holders of new floating rate notes, the trustee and Halliburton.
"LIBOR" means the London interbank offered rates. London business day is a
day on which dealings in deposits in U.S. dollars are transacted in the London
interbank market.
On any interest determination date, LIBOR will be equal to the offered rate
for deposits in U.S. dollars having an index maturity of three months, in
amounts of at least $1 million, as such rate appears on Telerate Page 3750 at
approximately 11:00 a.m., London time, on such interest determination date. If
Telerate page 3750 is replaced by another service or ceases to exist, the
calculation agent will use the replacing service or such other service that may
be nominated by the British Bankers' Association for the purpose of displaying
LIBOR for U.S. dollar deposits.
If no offered rate appears on Telerate Page 3750 on an interest
determination date at approximately 11:00 a.m., London time, then the
calculation agent (after consultation with Halliburton) will select four major
banks in the London interbank market and shall request each of their principal
London offices to provide a quotation of the rate at which three-month deposits
in U.S. dollars in amounts of at least $1.0 million are offered by it to prime
banks in the London interbank market, on that date and at that time, that is
representative of single transactions at that time. If at least two quotations
are provided, LIBOR will
55
be the arithmetic average of the quotations provided. Otherwise, the calculation
agent will select three major banks in New York City and shall request each of
them to provide a quotation of the rate offered by them at approximately 11:00
a.m., New York City time, on the interest determination date for loans in U.S.
dollars to leading European banks having an index maturity of three months for
the applicable interest period in an amount of at least $1.0 million that is
representative of single transactions at that time. If three quotations are
provided, LIBOR will be the arithmetic average of the quotations provided.
Otherwise, the rate of LIBOR for next interest period will be set equal to the
rate of LIBOR for the then-current interest period.
Upon request from any floating rate noteholder, the calculation agent will
provide notice of the interest rate in effect on the floating rate notes for the
current interest period and, if it has been determined, the interest rate to be
in effect for the next interest period.
Interest on the floating rate notes will be calculated on the basis of the
actual number of days in an interest period and a 360-day year. Dollar amounts
resulting from such calculation will be rounded to the nearest cent, with
one-half cent being rounded upward.
INTEREST ON THE 5 1/2% SENIOR NOTES DUE OCTOBER 15, 2010
The 5 1/2% notes will bear interest at a rate of 5 1/2% per year. Interest
on the 5 1/2% notes, including any additional interest amounts, if any, will be
payable in cash on the 15th of October and April of each year, beginning April
15, 2004. Interest on the 5 1/2% notes will be payable to the holders of record
of the 5 1/2% notes on the immediately preceding 1st day of October and April,
as the case may be.
Interest on the 5 1/2% notes will be computed on the basis of a 360-day
year consisting of twelve 30-day months. Dollar amounts resulting from such
calculation will be rounded to the nearest cent, with one-half cent being
rounded upward.
OPTIONAL REDEMPTION OF THE 5 1/2% NOTES
No sinking fund is provided for the notes, which means that the indenture
will not require us to redeem or retire either series of the notes periodically.
However, the 5 1/2% notes will be redeemable at our option, in whole or in part,
at any time and from time to time, in principal amounts of $1,000 or any
integral multiple of $1,000 for an amount equal to the greater of:
- 100% of the principal amount of the 5 1/2% notes; or
- as determined by an Independent Investment Banker, the sum of the present
values of the Remaining Scheduled Payments on the 5 1/2% notes being
redeemed, discounted to the redemption date on a semiannual basis
(assuming a 360-day year consisting of twelve 30-day months) at the
Treasury Rate plus 25 basis points for the 5 1/2% notes.
In each case, we will pay accrued interest to the date of redemption.
"Treasury Rate" means the rate per year equal to:
- the yield, under the heading that represents the average for the
immediately preceding week, appearing in the most recently published
statistical release designated "H.15(519)" or any successor publication
that is published weekly by the Board of Governors of the Federal Reserve
System and that establishes yields on actively traded United States
Treasury securities adjusted to constant maturity under the caption
"Treasury Constant Maturities," for the maturity corresponding to the
Comparable Treasury Issue; provided that if no maturity is within three
months before or after the maturity date for the 5 1/2% notes, yields for
the two published maturities most closely corresponding to the Comparable
Treasury Issue will be determined and the Treasury Rate will be
interpolated or extrapolated from those yields on a straight line basis
rounding to the nearest month; or
- if that release, or any successor release, is not published during the
week preceding the calculation date or does not contain such yields, the
rate per year equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue, calculated using a price for the Comparable
Treasury Issue
56
(expressed as a percentage of its principal amount) equal to the
Comparable Treasury Price for that redemption date.
The Treasury Rate will be calculated on the third business day preceding
the redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker that would be used, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the remaining term
of the applicable series of notes.
"Comparable Treasury Price" is:
- the average of the bid and asked prices for the Comparable Treasury issue
(expressed as a percentage of its principal amount) on the third business
day preceding the redemption date, as set forth in the daily statistical
release (or any successor release) published by the Federal Reserve Bank
of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities;" or
- if such release (or any successor release) is not published or does not
contain such prices on such business day:
-- the average of the Reference Treasury Dealer Quotations for that
redemption date, after excluding the highest and lowest of the
Reference Treasury Dealer Quotations, or
-- if the trustee obtains fewer than three Reference Treasury Dealer
Quotations, the average of all Reference Treasury Dealer Quotations so
received.
"Independent Investment Banker" means one of the Reference Treasury Dealers
that we appoint.
"Reference Treasury Dealer" means each of Citigroup Global Markets Inc.
(and its successors), Goldman, Sachs & Co. (and its successors), J.P. Morgan
Securities Inc. (and its successors) and one other nationally recognized
investment banking firm that is a primary U.S. Government securities dealer
specified from time to time by us. If, however, any of them shall cease to be a
primary U.S. Government securities dealer in New York City, we will substitute
another nationally recognized investment banking firm that is such a dealer.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the trustee by such Reference Treasury Dealer as of 3:30 p.m., New
York time, on the third business day preceding the redemption date.
"Remaining Scheduled Payments" means the remaining scheduled payments of
the principal of and interest on each note to be redeemed that would be due
after the related redemption date but for such redemption. If the redemption
date is not an interest payment date with respect to the note being redeemed,
the amount of the next succeeding scheduled interest payment on the note will be
reduced by the amount of interest accrued thereon to that redemption date.
We will mail notice of a redemption not less than 30 days nor more than 60
days before the redemption date to the trustee and holders of 5 1/2% notes to be
redeemed.
If we are redeeming less than all the 5 1/2% notes, the trustee will select
the particular notes to be redeemed pro rata, by lot or by another method the
trustee deems fair and appropriate. Unless there is a default in payment of the
redemption amount, on and after the redemption date, interest will cease to
accrue on the 5 1/2% notes or portions thereof called for redemption. We will
pay 100% of the principal amount of the 5 1/2% notes at the maturity of those
notes.
Except as described above, the new 5 1/2% notes will not be redeemable by
us prior to maturity.
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RANKING
The notes will be senior unsecured obligations and will rank equally with
all of our existing and future unsecured senior indebtedness. In addition,
except as otherwise provided herein, the notes will be 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 September 30, 2003, we had outstanding approximately $2.4 billion of
unsecured indebtedness, no secured indebtedness and no subordinated
indebtedness. At September 30, 2003, the aggregate indebtedness of our
subsidiaries was approximately $402.0 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 $4.3 billion, and accrued asbestos liabilities
were approximately $3.4 billion. As of September 30, 2003, our subsidiaries had
no secured indebtedness and no subordinated indebtedness outstanding.
Subsequent to the end of third quarter 2003, we entered into (1) a $1.0
billion delayed-draw term facility to be available for cash funding of the
trusts for the benefit of asbestos and silica claimants; (2) a master letter of
credit facility intended to ensure that existing letters of credit supporting
our contracts remain in place during the Chapter 11 filing; and (3) a $700.0
million three-year revolving credit facility for general working purposes. There
are a number of conditions precedent that must be met before these facilities
will be effective and available for our use, one of which is the Chapter 11
filing for DII Industries, Kellogg Brown & Root and some of their subsidiaries
with United States operations. Borrowings under the letter of credit facility
and the revolving credit facility will be secured. The terms of the notes and
the new credit facilities contemplate that the notes offered hereby and certain
of our previously issued debt securities (including the outstanding notes) and
our new 7.6% debentures due 2096 to be issued in the exchange offer described
under "Description of Settlement-Related 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 terms of the new credit
facilities 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 United States operations, which will be used to implement the
proposed settlement, and (2) satisfaction of other conditions described in
"Description of Settlement-Related Indebtedness -- Conditions to Release of
Collateral."
The new 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 Settlement-Related Indebtedness" will be guaranteed by
some of our subsidiaries. Accordingly, the new notes will be structurally
subordinated to the debt guaranteed by our subsidiaries. The terms of the new
credit facilities provide 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 United
States operations, which will be used to implement the proposed settlement, and
(2) satisfaction of the other conditions described in "Description of
Settlement-Related 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
58
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 Settlement-Related
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 New
Notes -- 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." However, the indenture does
contain other covenants for your protection, including those described below.
The covenants summarized below will apply to the notes of each series (unless
waived or amended) as long as the notes of that series are outstanding.
RESTRICTIONS ON SECURED DEBT
Except as provided below, we will not, and will not cause, suffer or permit
any of our Restricted Subsidiaries to, create, incur or assume any Secured Debt
without equally and ratably securing the notes. In that circumstance, we must
also equally and ratably secure any of our other indebtedness or any
indebtedness of such Restricted Subsidiary then similarly entitled. However, 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 that
are assumed by us or our 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 us or a Restricted Subsidiary;
- mortgages in favor of governmental bodies to secure payments of
indebtedness; or
- extensions, renewals or replacement of the foregoing; provided that their
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 or assume Secured Debt
not otherwise permitted or excepted without equally and ratably securing the
notes if the sum of:
- the amount of the Secured Debt (not including Secured Debt permitted
under the foregoing exemptions) of us and our Restricted Subsidiaries,
plus
- the aggregate value of Sale and Leaseback Transactions in existence at
the time (subject to specific exceptions),
does not at the time exceed 5% of Consolidated Net Tangible Assets.
59
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 such sale or transfer secured by a mortgage on the property to be
leased without equally and ratably securing the notes; or
- Halliburton or a Restricted Subsidiary apply an amount equal to the value
of the property so leased to the retirement (other than mandatory
retirement), within 120 days of the effective date of any such
arrangement, of indebtedness for money borrowed by Halliburton or any
Restricted Subsidiary (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.
Provided, however, that the amount to be so applied to the retirement of such
indebtedness shall be reduced by:
- the aggregate principal amount of any notes delivered within 120 days of
the effective date of any such arrangement to the trustee for retirement
and cancellation; and
- the aggregate principal amount of such indebtedness (other than the
notes) retired by Halliburton or a Restricted Subsidiary within 120 days
of the effective date of such arrangement.
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 our company and our
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, in any transaction or series of transactions,
consolidate with or merge with or into, or sell, convey, transfer, lease or
otherwise dispose of all or substantially all its assets to, any person, unless:
(1) either (a) Halliburton shall be the continuing person or (b) the person
(if other than Halliburton) formed by such consolidation or into which
Halliburton is merged, or to which such sale, lease, conveyance,
transfer or other disposition shall be made is organized and validly
existing under the laws of the United States, any political subdivision
thereof or any State of the United States or the District of Columbia
and the successor company (if not Halliburton) will expressly assume,
by supplemental indenture, the due and punctual payment of the
principal of, premium (if any) and interest on the notes and the
performance of all the obligations of Halliburton under the notes and
the indenture;
(2) immediately after giving effect to such transaction or series of
transactions, no default or event of default (as described below) shall
have occurred and be continuing or would result from the transaction;
and
(3) Halliburton delivers 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.
The successor company will succeed to, and be substituted for, and may
exercise every right and power of, Halliburton under the indenture. In the case
of a sale, conveyance, transfer or other disposition (other than
60
a lease) of all or substantially all its assets, Halliburton will be released
from all of the obligations under the indenture and 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 with respect to either series of notes:
- failure to pay any interest or additional interest amounts, if any, when
due, continued for 30 days;
- failure to pay principal or premium, if any, when due;
- breach or failure to perform any other covenant or agreement in the
indenture applicable to that series of notes (other than any agreement or
covenant that has been included in the base indenture and any other
supplement thereto solely for the benefit of other series of debt
securities issued under the base indenture and any other supplement
thereto), continued for 60 days after written notice of such failure by
the trustee or the holders of at least 25% in aggregate principal amount
of the notes of that series then outstanding;
- failure to make any payment at maturity on any indebtedness, upon
redemption or otherwise, in the aggregate principal amount of $125
million or more, after the expiration of any applicable grace period, and
such amount has not been paid or discharged within 30 days after notice
is given in accordance with the terms of such indebtedness;
- a default by us on any indebtedness that results in the acceleration of
any such indebtedness in the aggregate principal amount of $125 million
or more so that it becomes due and payable prior to the date on which it
would otherwise become due and payable and such acceleration is not
rescinded within 30 days after notice is given in accordance with the
terms of such indebtedness;
- specific events relating to our bankruptcy, insolvency or reorganization,
whether voluntary or not.
A default under one series of notes will not necessarily be a default under
the other series or any other series of debt securities issued under the
indenture.
If any event of default occurs for either series of notes and continues for
the required amount of time, the trustee or the holders of not less than 25% of
the principal amount of the then-outstanding notes of a series affected by the
default (or, in some cases, 25% in principal amount of all securities issued
under the base indenture and any supplement thereto that are affected, voting as
one class) may declare the notes due and payable, together with all accrued and
unpaid interest, 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 in principal amount of the then-outstanding series of notes affected by
the default (or, in some cases, of all securities issued under the base
indenture and any supplement thereto that are affected, voting as one class),
may rescind the declaration under circumstances specified in the indenture.
No holder of a note of either series 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 for that series;
- the holders of at least 25% in principal amount of the then-outstanding
notes of that series 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
61
- 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 and during that 60 day period the holders of a
majority in principal amount of the then-outstanding notes of that series
do not give the trustee a direction inconsistent with the request.
The right of each holder of a note to receive payment of the principal of,
premium, if any, or interest on a note 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
then-outstanding notes of that series (or of all debt securities issued under
the base indenture and any other supplement thereto that are affected, voting as
a class) 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.
We will be required to furnish to the trustee annually a statement as to
the fulfillment of all of our obligations under the indenture.
DEFEASANCE
When we use the term defeasance, we mean discharge from some or all of our
obligations under the indenture. If any combination of funds or government
securities are deposited with the trustee sufficient to make payments on the
notes of either series on the dates those payments are due and payable, then, at
our option, either of the following will occur:
- we will be discharged from our obligations with respect to the notes of
that series ("legal defeasance"); or
- we will no longer have any obligation to comply with the restrictive
covenants, the merger covenant and other specified covenants under the
indenture, and the related events of default will no longer apply
("covenant defeasance").
If a series of notes is defeased, the holders of the notes of that series
will not be entitled to the benefits of the indenture, except for obligations to
register the transfer or exchange of notes, replace stolen, lost or mutilated
notes or maintain paying agencies and hold moneys for payment in trust. In the
case of covenant defeasance, our obligation to pay principal, premium and
interest on the notes will also survive.
We will be required to deliver to the trustee an opinion of counsel that
the deposit and related defeasance would not cause the holders of the notes to
recognize income, gain or loss for U.S. federal income tax purposes. If we elect
legal defeasance, that opinion of counsel must be based upon a ruling from the
U.S. Internal Revenue Service or a change in law to that effect.
MODIFICATIONS
We and the trustee may amend or supplement the indenture if holders of a
majority in principal amount of the then-outstanding notes of either series and
all other series of securities issued under the base indenture and any other
supplement thereto that are affected by the amendment or supplement (acting as
one class) consent to it. Without the consent of each holder of a note of any
series, however, no modification may, as to that series:
- reduce the percentage stated above of the holders who must consent to an
amendment or supplement to or waiver of the indenture;
- reduce the rate or change the time of payment of interest on that series
of notes;
- extend the stated maturity of the principal of that series of notes;
- reduce the amount of the principal of or premium, if any, on that series
of notes;
62
- reduce any premium payable on the redemption of any note or change the
time at which any note may be redeemed;
- change the coin or currency in which principal, premium, if any, and
interest are payable to the holder;
- impair or affect the right to institute suit for the enforcement of any
payment of principal of or interest on any note;
- make any change in the percentage of principal amount of notes necessary
to waive compliance with specified provisions of the indenture; or
- waive a continuing default or event of default in payment of principal or
premium, if any.
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:
- cure any ambiguity, omission, defect or any inconsistency in the
indenture;
- evidence the assumption by a successor entity of our obligations under
the indenture;
- provide for uncertificated notes in addition to or in place of
certificated notes;
- secure any series of notes or add guarantees of or additional obligors
on, any series of notes;
- comply with any requirement in order to effect or maintain the
qualification of the indenture under the Trust Indenture Act;
- add covenants or new events of default for the protection of the holders
of any series of notes;
- 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 of any series of notes; or
- evidence the acceptance of appointment by a successor trustee.
GOVERNING LAW
The indenture is and the new notes will be governed by, and construed in
accordance with, the laws of the State of New York.
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 property, 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 us and our Restricted Subsidiaries as a whole. As of the
date of this prospectus, our Board of Directors has not designated any property
of Halliburton or 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
or Canada, 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, and 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 mortgage or other lien on any Principal Property of Halliburton or a
Restricted Subsidiary; or
- a pledge, lien or other security interest on any shares of stock or
indebtedness of a Restricted Subsidiary.
"Subsidiary" of any person means (a) any corporation, association or other
business entity (other than a partnership, joint venture, limited liability
company or similar entity) of which more than 50% of the total ordinary voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof (or persons performing similar functions) or (b) any partnership, joint
venture, limited liability company or similar entity of which more than 50% of
the capital accounts, distribution rights, total equity and voting interests or
general or limited partnership interests, as applicable, is, in the case of
clauses (a) and (b), at the time owned or controlled, directly or indirectly, by
(1) such person, (2) such person and one or more Subsidiaries of such person or
(3) one or more Subsidiaries of such person. Unless otherwise specified herein,
each reference to a Subsidiary will refer to a Subsidiary of Halliburton. As
used herein, "Capital Stock" of any person means any and all shares (including
ordinary shares or American Depositary Shares), interests, rights to purchase,
warrants, options, participations or other equivalents of or interests in
(however designated) of capital stock or other equity participations 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.
INFORMATION CONCERNING THE TRUSTEE
JPMorgan Chase Bank is the trustee under the indenture, the paying agent,
the registrar and the 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
The new notes will be issued in the form of global certificates registered
in the name of the depositary or its nominee. Upon issuance, all book-entry
certificates will be represented by one or more fully registered global
certificates, without coupons. Each global certificate will be deposited with,
or on behalf of, the depositary, a securities depositary, and will be registered
in the name of the depositary or a nominee of the depositary. The depositary
will thus be the only registered holder of the notes.
Notes that are issued as described below under "-- Certificated Notes" will
be issued in definitive form. Upon the transfer of notes in definitive form,
such notes will, unless the global securities have previously been exchanged for
notes in definitive form, be exchanged for an interest in the global securities
representing the principal amount of notes being transferred.
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Purchasers of notes may hold interests in the global certificates through
the depositary if they are participants in the depositary system. Purchasers may
also hold interests through a securities intermediary -- banks, brokerage houses
and other institutions that maintain securities accounts for customers -- that
has an account with the depositary. The depositary will maintain accounts
showing the security holdings of its participants, and these participants will,
in turn, maintain accounts showing the security holdings of their customers.
Some of these customers may themselves be securities intermediaries holding
securities for their customers. Thus, each beneficial owner of a book-entry
certificate will hold that certificate indirectly through a hierarchy of
intermediaries, with the depositary at the "top" and the beneficial owner's own
securities intermediary at the "bottom."
The notes of each beneficial owner of a book-entry certificate will be
evidenced solely by entries on the books of the beneficial owner's securities
intermediary. The actual purchaser of notes will generally not be considered the
owner under the indenture. The book-entry system for holding securities
eliminates the need for physical movement of certificates and is the system
through which most publicly traded securities are held in the United States.
However, the laws of some jurisdictions require some purchasers of securities to
take physical delivery of their securities in definitive form. These laws may
impair the ability of a beneficial owner to transfer book-entry notes.
Investors who purchase notes in offshore transactions in reliance on
Regulation S under the Securities Act may hold their interests in the global
certificate indirectly through Euroclear Bank, S.A./N.V., as operator of the
Euroclear System ("Euroclear"), and Clearstream Banking, societe anonyme
("Clearstream"), if they are participants in such systems, or indirectly through
organizations that are participants in such systems. Euroclear and Clearstream
will hold interests in the global certificate on behalf of their participants
through their respective depositaries, which, in turn, will hold such interests
in the global certificate in the depositaries' names on the books of the
depositary.
Transfers between participants in Euroclear and Clearstream will be
effected in the ordinary way in accordance with their respective rules and
operating procedures. If a holder requires physical delivery of a definitive
certificate for any reason, including to sell certificates to persons in
jurisdictions that require delivery of such certificates or to pledge such
certificates, such holder must transfer its interest in the global certificate
in accordance with the normal procedures of the depositary and the procedures
set forth in the indenture.
Cross-market transfers between the depositary, on the one hand, and
directly or indirectly through Euroclear or Clearstream participants, on the
other, will be effected in the depositary in accordance with the depositary's
rules on behalf of Euroclear or Clearstream, as the case may be, by its
respective depositary; however, such cross-market transactions will require
delivery of instructions to Euroclear or Clearstream, as the case may be, by the
counterparty in such system in accordance with its rules and procedures and
within its established deadlines (Brussels time). Euroclear or Clearstream, 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 the global
certificate in the depositary, and making or receiving payment in accordance
with normal procedures for same- day funds settlement applicable to the
depositary. Euroclear participants and Clearstream participants may not deliver
instructions directly to the depositaries for Euroclear or Clearstream.
Because of time zone differences, the securities account of a Euroclear or
Clearstream participant purchasing an interest in the global certificate from a
depositary participant will be credited during the securities settlement
processing day (which must be a business day for Euroclear or Clearstream, as
the case may be) immediately following the depositary settlement date and such
credit or any interests in the global certificate settled during such processing
day will be reported to the relevant Euroclear or Clearstream participant on
such day. Cash received in Euroclear or Clearstream as a result of sales of
interests in the global certificate by or through a Euroclear or Clearstream
participant to a depositary participant will be received with value on the
depositary settlement date, but will be available in the relevant Euroclear or
Clearstream cash account only as of the business day following settlement in the
depositary.
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A beneficial owner of book-entry notes represented by a global certificate
may exchange the notes for definitive, certificated notes only if the conditions
for such an exchange, as described under "-- Certificated Notes" are met.
In this prospectus, references to actions taken by a holder of notes will
mean actions taken by the depositary upon instructions from its participants,
and references to payments means payments to the depositary, as registered
holder.
We expect that the depositary or its nominee, upon receipt of any payment
will credit immediately participants' accounts with payments in amounts
proportionate to their respective beneficial interest in the principal amount of
the relevant global note as shown on the records of the depositary or its
nominee. We also expect that payments by participants to owners of beneficial
interests in a global note held through these participants will be governed by
standing instructions and customary practices, as is the case with securities
held for the accounts of customers in bearer form or registered in "street
name," and will be the responsibility of the participants.
We will not have any responsibility or liability for any aspect of the
records relating to, or payments made on account of, beneficial ownership
interests in the book-entry securities or for maintaining, supervising or
reviewing any records relating to beneficial ownership interests.
In order to ensure that the depositary's nominee will timely exercise a
right conferred by the notes, the beneficial owner of that note must instruct
the broker or other direct or indirect participant through which it holds an
interest in that note to notify the depositary of its desire to exercise that
right. Different firms have different deadlines for accepting instructions from
their customers. Each beneficial owner should consult the broker or other direct
or indirect participant through which it holds an interest in the notes in order
to ascertain the deadline for ensuring that timely notice will be delivered to
the depositary.
The depositary is a limited purpose trust company organized under the laws
of the State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and a
"clearing agency" registered under Section 17A of the Exchange Act. The rules
applicable to the depositary and its participants are on file with the SEC.
The depositary may discontinue providing its services as securities
depositary at any time by giving reasonable notice. Under those circumstances,
in the event that a successor securities depositary is not appointed, definitive
certificates are required to be printed and delivered.
The information in this section concerning the depositary and the
depositary's book-entry system has been obtained form sources that we believe to
be reliable, but we do not take responsibility for the accuracy of that
information.
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;
- an event of default has occurred and is continuing, and the depositary
requests the issuance of certificated notes; 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.
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REGISTRATION RIGHTS AGREEMENT
The following description is a summary of the material provisions of the
registration rights agreement. It does not restate the registration rights
agreement in its entirety, and this summary is qualified in its entirety by
reference to the full and complete text of the registration rights agreement. We
urge you to read the registration rights agreement because it, and not this
description, defines your rights as holders of the notes. You may request copies
of the registration rights agreement in substantially the form in which it is to
be executed by writing or telephoning us at our address and telephone number
shown under the caption "Where You Can Find More Information."
EXCHANGE OFFER REGISTRATION STATEMENT
In connection with the issuance of outstanding notes, we and the initial
purchasers entered into a registration rights agreement. In the registration
rights agreement, we agreed to file an exchange offer registration statement
with the SEC as soon as practicable, but no later than 120 days following the
date the notes are first issued, and use our reasonable best efforts to have it
declared effective as soon as practicable, but in no event later than 210 days
following the date the notes are first issued. We also agreed to use our
reasonable best efforts to cause the exchange offer registration statement to be
effective continuously, to keep the exchange offer for the notes open for a
period of at least 30 days and cause the exchange offer to be consummated no
later than the 45th business day after the exchange offer registration statement
is declared effective by the SEC.
Under the exchange offer, holders of notes that constitute Registrable
Securities may exchange their Registrable Securities for registered notes. To
participate in an exchange offer, each holder must represent that:
- it is not our affiliate or a broker-dealer tendering notes acquired
directly from us for its own account;
- it is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a
distribution of the notes that are issued in the exchange offer; and
- that it is acquiring the notes in the exchange offer in its ordinary
course of business.
SHELF REGISTRATION STATEMENT
If:
- on or prior to the time the exchange offer is completed, existing SEC
interpretations are changed such that the notes received in the exchange
offer would not be transferable without restriction under the Securities
Act;
- the exchange offer has not been completed within 255 days following the
date the notes are first issued; or
- the exchange offer is not available to any holder of the notes,
then we will file, no later than 60 days after the time such obligation to file
arises, with the SEC a shelf registration statement to register for public
resale the Registrable Securities held by any such holder. A holder who sells
notes pursuant to the shelf registration statement generally will be required to
be named as a selling security holder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the registration rights agreement which are
applicable to such a holder (including certain indemnification obligations). In
addition, each holder of the notes will be required to deliver information to be
used in connection with the shelf registration statement in order to have its
notes included in the shelf registration statement.
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For the purposes of the registration rights agreement, "Registrable
Securities" means:
- each note until the earliest to occur of:
-- the date on which such note is exchanged in a registered exchange
offer,
-- the date on which such note has been disposed of pursuant to and in a
manner contemplated by the shelf registration statement,
-- the date on which such note is sold pursuant to Rule 144 under the
Securities Act under circumstances in which any legend borne by such
note relating to restrictions on transferability thereof is removed,
-- the note is eligible to be sold pursuant to Rule 144(k) under the
Securities Act, or
-- the note is no longer outstanding; and
- each exchange note issued to a broker-dealer in a registered exchange
offer until resale of such exchange note by the broker-dealer within the
180-day period contemplated by the registration rights agreement.
ADDITIONAL INTEREST AMOUNTS
The registration rights agreement also provides that:
- if we fail to file any registration statement on or prior to the
applicable deadline;
- if such registration statement is not declared effective by the SEC on or
before the applicable deadline;
- if the exchange offer is not consummated within 45 business days after
the exchange offer registration statement is declared effective; or
- if any registration statement is declared effective but thereafter ceases
to be effective or useable in connection with resales of the Registrable
Securities during the periods specified in the registration rights
agreement, for such time of non-effectiveness or non-usability (each, a
"Registration Default Period"),
we will pay to each holder of Registrable Securities affected thereby additional
interest amounts in an amount equal to 0.25% per annum for the first 90 days of
the Registration Default Period and an additional 0.25% per annum from and after
the 91st day following the Registration Default Period. In no event shall
additional interest amounts exceed 0.50% per annum. We shall not be required to
pay additional interest amounts for more than one registration default at any
given time. Following the cure of all registration defaults, the accrual of
additional interest amounts will cease.
We shall pay all accrued additional interest amounts to holders entitled
thereto in the same manner and at the same time as interest on the notes is
paid. The notes and any registered notes of like tenor issued in exchange for
the notes will constitute a single series of notes under the indenture. If a
registered exchange offer is consummated, holders of notes who do not exchange
their notes will vote together with the holders of the registered notes of like
tenor for all relevant purposes under the indenture.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income tax
consequences of the purchase, ownership and disposition of the notes. Unless
otherwise stated, this summary deals only with new notes held as capital assets
by a holder who purchased the outstanding notes upon their original issuance at
their issue price. The "issue price" of the outstanding notes is the first price
at which a substantial amount of such notes was sold, excluding sales to bond
houses, brokers or similar persons or organizations acting in the capacity of
underwriters, placement agents or wholesalers. As used in this summary, "U.S.
Holders" are any beneficial owners of the notes, that are, for United States
federal income tax purposes: (1) citizens or residents of the United States, (2)
corporations created or organized in or under the laws of the United States, any
state thereof or the District of Columbia, (3) estates, the income of which is
subject to United States federal income taxation regardless of its source or (4)
trusts if (a) a court within the United States is able to exercise primary
supervision over the administration of the trust and (b) one or more United
States persons have the authority to control all substantial decisions of the
trust. As used in this summary, "Non-U.S. Holders" means holders of the notes
that are not U.S. Holders. If a partnership (including for this purpose any
entity treated as a partnership for United States federal income tax purposes)
is a beneficial owner of notes, the treatment of a partner in the partnership
will generally depend upon the status of the partner and upon the activities of
the partnership. Holders of notes that are a partnership or partners in such
partnership should consult their tax advisors about the United States federal
income tax consequences of holding and disposing of the notes. This summary is
based on the Internal Revenue Code of 1986, as amended (the "Code"), the
Treasury regulations promulgated thereunder and administrative and judicial
interpretations thereof, all as of the date hereof, and all of which are subject
to change and differing interpretations, possibly on a retroactive basis. There
can be no assurance that the Internal Revenue Service (the "IRS") will not
challenge one or more of the conclusions described in this offering memorandum.
This summary does not deal with special classes of holders such as banks,
thrifts, real estate investment trusts, regulated investment companies,
insurance companies, dealers in securities or currencies, or tax-exempt
investors and does not discuss notes held as part of a hedge, straddle,
"synthetic security" or other integrated transaction. This summary also does not
address the tax consequences to certain former citizens or former long-term
residents of the United States, U.S. Holders that have a functional currency
other than the U.S. dollar or to shareholders, partners, members or
beneficiaries of a holder of the notes. Further, it does not include any
description of any alternative minimum tax consequences, United States federal
estate or gift tax laws or the tax laws of any state or local government or of
any foreign government that may be applicable to the notes.
YOU SHOULD CONSULT WITH YOUR OWN TAX ADVISOR REGARDING THE UNITED STATES
FEDERAL, STATE, LOCAL AND FOREIGN INCOME, FRANCHISE, PERSONAL PROPERTY, AND ANY
OTHER TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES.
EXCHANGE OF NOTES
The exchange of new notes for outstanding notes pursuant to this exchange
offer will not constitute a taxable event for United States federal income tax
purposes. Consequently, no gain or loss will be recognized by a holder of an
outstanding note upon receipt of a new note. A holder's adjusted tax basis in
the new note will be the same as the adjusted tax basis in the outstanding note
exchanged therefor. A holder's holding period of the new note will include the
holding period of the outstanding note exchanged therefor.
U.S. HOLDERS
INTEREST PAYMENTS
The interest paid on the notes will be taxable to a U.S. Holder as ordinary
interest income, as received or accrued, in accordance with the holder's United
States federal income tax method of accounting.
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ADDITIONAL INTEREST AMOUNTS
We intend to take the position that the possibility that holders of the
notes will be paid additional interest amounts as described under "Registration
Rights Agreement" is a remote and incidental contingency as of the issue date of
the notes within the meaning of the applicable Treasury regulations.
Accordingly, any such additional interest amounts should be taxable to a U.S.
Holder as ordinary income only at the time it accrues or is received in
accordance with such U.S. Holder's regular method of tax accounting. Our
determination that the payment of additional interest 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.
SALE, EXCHANGE OR REDEMPTION
Generally, the sale, exchange (excluding the exchange described above in
"-- Exchange of Notes") or redemption of notes will result in taxable gain or
loss to a U.S. Holder. The amount of gain or loss on a taxable sale, exchange or
redemption will be equal to the difference between (a) the amount of cash plus
the fair market value of any other property received by the U.S. Holder in the
sale, exchange or redemption (other than amounts attributable to accrued but
unpaid interest) and (b) the U.S. Holder's adjusted tax basis in the notes. A
U.S. Holder's adjusted tax basis in notes will generally be equal to the
holder's original purchase price for the notes.
Gain or loss recognized on the disposition of a note generally will be
capital gain or loss, and will be long-term capital gain or loss if, at the time
of such disposition, the U.S. Holder's holding period for the note is more than
one year. A reduced tax rate on capital gain generally will apply to an
individual U.S. Holder if such holder's holding period for the note is more than
one year at the time of disposition. Recently enacted legislation generally
reduces the maximum tax rate on the long-term capital gain of such holder to
15%. However, there are exceptions to the reduced rates. Individuals should
consult their tax advisors regarding the extent, if any, to which any exceptions
may apply to their particular factual situation. The deductibility of net
capital losses by individuals and corporations is subject to limitations.
NON-U.S. HOLDERS
The rules governing United States federal income taxation of Non-U.S.
Holders are complex and no attempt will be made in this offering circular to
provide more than a summary of such rules. Non-U.S. Holders should consult with
their own tax advisors to determine the effect of United States federal, state,
local and foreign income tax laws, as well as treaties, with regard to an
investment in the notes, including any reporting requirements and, in
particular, the proper application of the United States federal withholding tax
rules.
INTEREST PAYMENTS
Except as described below, United States federal withholding tax will not
apply to interest paid on the notes to a Non-U.S. Holder, provided that: (1) the
Non-U.S. Holder does not own, actually or constructively, 10% or more of the
total combined voting power of all classes of stock entitled to vote within the
meaning of section 871(h)(3) of the Code and Treasury regulations promulgated
thereunder; (2) the Non-U.S. Holder is not a controlled foreign corporation
related, directly or indirectly, to us or any of our constituent partners; (3)
the Non-U.S. Holder is not a bank which acquired the notes in consideration for
an extension of credit made pursuant to a loan agreement entered into in the
ordinary course of business; (4) interest paid on the notes is not effectively
connected with the beneficial owner's conduct of a trade or business in the
United States; and (5) either (a) the beneficial owner of notes certifies to us
or our paying agent on IRS Form W-8BEN (or successor form), under penalties of
perjury, that it is not a United States person and provides its name, address
and certain other information or (b) the beneficial owner holds its notes
through certain foreign intermediaries or certain foreign partnerships and such
holder satisfies certain certification requirements.
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To the extent a Non-U.S. Holder for any reason does not qualify for the
withholding exemption described above, payments of interest will be subject to
United States federal withholding tax unless the Non-U.S. Holder provides us or
our agent with a properly executed (1) IRS Form W-8BEN (or successor form)
claiming an exemption from or reduction in withholding under an applicable tax
treaty or (2) IRS Form W-8ECI (or successor form) stating that interest paid on
the notes is not subject to withholding tax because it is effectively connected
with the Non-U.S. Holder's conduct of a trade or business in the United States.
If a Non-U.S. Holder of the notes is engaged in a trade or business in the
United States, and if interest on the notes is effectively connected with the
conduct of such trade or business (and, if required by a tax treaty, the
interest is attributable to a permanent establishment maintained in the United
States), the Non-U.S. Holder, although exempt from the withholding tax discussed
in the preceding paragraphs, will generally be subject to regular United States
federal income tax on interest and any gain realized on the sale or exchange of
the notes in the same manner as if it were a U.S. Holder. In addition, if such a
Non-U.S. Holder is a foreign corporation, such Non-U.S. Holder may be subject to
a branch profits tax equal to 30% (or such lower tax rate provided by an
applicable treaty) of its effectively connected earnings and profits for the
taxable year, subject to certain adjustments.
SALE, EXCHANGE OR REDEMPTION
A Non-U.S. Holder will generally not be subject to United States federal
income or withholding tax with respect to gain upon the sale, exchange,
redemption or other disposition of notes, unless: (1) the income or gain is
"U.S. trade or business income," which means income or gain that is effectively
connected with the conduct by the Non-U.S. Holder of a trade or business, or, in
the case of a treaty resident, attributable to a permanent establishment
maintained in the United States; or (2) 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
disposition and certain other conditions are met.
U.S. trade or business income of a Non-U.S. Holder will generally be
subject to regular United States federal income tax in the same manner as if it
were realized by a U.S. Holder. Non-U.S. Holders that realize U.S. trade or
business income with respect to the notes should consult their tax advisors as
to the treatment of such income or gain. In addition, U.S. trade or business
income of a Non-U.S. Holder that is a corporation may be subject to a branch
profits tax equal to 30% (or such lower tax rate provided by an applicable
treaty).
BACKUP WITHHOLDING AND INFORMATION REPORTING
U.S. HOLDERS
Payments of interest made by us on, or the proceeds of the sale or other
disposition of, the notes will generally be subject to information reporting.
Additionally, United States federal backup withholding tax will apply if the
recipient of such payment 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 United States federal income tax, provided that the required
information is furnished to the IRS.
NON-U.S. HOLDERS
Generally, we must report annually to the IRS and to each Non-U.S. Holder
the amount of each payment of interest and the amount of tax, if any, that is
withheld with respect to such payments. 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 United States person.
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Payments of the proceeds of the sale of a note 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 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 to or through the United
States 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 will be allowed as a credit against such holder's
United States 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 UNITED STATES FEDERAL INCOME
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, INCLUDING THE APPLICABILITY
AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND OF ANY PROPOSED CHANGES
IN APPLICABLE LAWS.
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CERTAIN ERISA CONSIDERATIONS
The following is a summary of certain considerations associated with the
acquisition and/or holding of the new notes by employee benefit plans that are
subject to Title I of the U.S. 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 new notes with a portion of 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 may be subject to penalties and liabilities under ERISA and the
Code. The acquisition and/or holding of new 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 U.S. Department of Labor has issued prohibited transaction
class exemptions, or PTCEs, that may apply to the acquisition and holding of the
new notes. These class exemptions include, without limitation, PTCE 75-1
respecting transactions with broker-dealer parties in interest acting as
principals or agents, 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 new notes should not be acquired or held by
any person investing assets of any Plan, unless such acquisition and holding
will not constitute a non-exempt prohibited transaction under ERISA and the Code
or a violation of any applicable Similar Laws.
73
REPRESENTATION
Accordingly, by acceptance of any new notes (or any interest therein), each
holder and subsequent transferee of the new notes will be deemed to have
represented and warranted that either (1) no portion of the assets used by such
holder or transferee to acquire and hold the new notes (or any interest therein)
constitutes assets of any Plan or (2) the acquisition and holding of the new
notes by such holder or transferee or the redemption of the new 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 and holding of the new notes.
74
PLAN OF DISTRIBUTION
Based on interpretations by the staff of the SEC in no action letters
issued to third parties, we believe that you may transfer new notes issued under
the exchange offer in exchange for the outstanding notes if:
- you acquire the new notes in the ordinary course of your business; and
- you are not engaged in, and do not intend to engage in, and have no
arrangement or understanding with any person to participate in, a
distribution of new notes.
Broker-dealers receiving new notes in the exchange offer will be subject to
a prospectus delivery requirement with respect to resales of the new notes.
We believe that you may not transfer new notes issued under the exchange
offer in exchange for the outstanding notes if you are:
- our "affiliate" within the meaning of Rule 405 under the Securities Act;
- a broker-dealer that acquired outstanding notes directly from us; or
- a broker-dealer that acquired outstanding notes as a result of
market-making or other trading activities without compliance with the
registration and prospectus delivery provisions of the Securities Act.
To date, the staff of the SEC has taken the position that participating
broker-dealers may fulfill their prospectus delivery requirements with respect
to transactions involving an exchange of securities such as this exchange offer,
other than a resale of an unsold allotment from the original sale of the
outstanding notes, with the prospectus contained in the exchange offer
registration statement. In the registration rights agreement, we have agreed to
permit participating broker-dealers to use this prospectus in connection with
the resale of new notes. We have agreed that, for a period of up to 180 days
after the closing of the exchange offer, we will make this prospectus, and any
amendment or supplement to this prospectus, available to any broker-dealer that
requests these documents in the letter of transmittal. In addition, until
, 200 all dealers effecting transactions in the new notes may be
required to deliver a prospectus.
If you wish to exchange your outstanding notes for new notes in the
exchange offer, you will be required to make representations to us as described
in "The Exchange Offer -- Purpose and Effect of the Exchange Offer" and "The
Exchange Offer -- Your Representations to Us" of this prospectus and in the
letter of transmittal. In addition, if you are a broker-dealer who receives new
notes in exchange for outstanding notes that you acquired for your own account
as a result of market-making activities or other trading activities, you will be
required to acknowledge that you will deliver a prospectus in connection with
any resale by you of new notes.
We will not receive any proceeds from sale of new notes by broker-dealers.
Broker-dealers who receive new notes for their own account in the exchange offer
may sell them from time to time in one or more transactions either:
- in the over-the-counter market;
- in negotiated transactions;
- through the writing of options on the new notes or a combination of
methods of resale; or
- at market prices or negotiated prices.
Any resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any broker-dealer or the purchasers of any new notes. Any broker-dealer
that resells new notes it received for its own account in the exchange offer and
any broker or dealer that participates in a distribution of new notes may be
deemed to be an "underwriter" within the meaning of the Securities Act. Any
profit on any resale of new notes and any commissions or concessions received by
any persons may be deemed to be underwriting compensation under the Securities
Act. The letter of transmittal states that, by acknowledging that it will
deliver and by delivery a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning the Securities Act.
75
We have agreed to pay all expenses incidental to the exchange offer other
than commissions and concessions of any broker or dealers. We will indemnify
holders of the outstanding notes, including any broker-dealers, against some
liabilities, including liabilities under the Securities Act, as provided in the
registration rights agreement.
TRANSFER RESTRICTIONS ON OUTSTANDING NOTES
The outstanding notes were not registered under the Securities Act.
Accordingly, we offered and sold the outstanding notes only in private sales
exempt from or not subject to the registration requirements of the Securities
Act to "qualified institutional buyers" under Rule 144A under the Securities Act
and outside the United States in accordance with Regulation S under the
Securities Act. You may not offer or sell those outstanding notes in the United
States or to, or for the account or benefit of, U.S. persons except in
transactions exempt from or not subject to the Securities Act registration
requirements.
LEGAL MATTERS
Baker Botts L.L.P., Houston, Texas, our outside counsel, will issue
opinions about certain legal matters in connection with this offering of new
notes.
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 of Halliburton 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.
76
--------------------------------------------------------------------------------
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$1,050,000,000
HALLIBURTON COMPANY
$300,000,000 SENIOR NOTES DUE OCTOBER 17, 2005
$750,000,000 5 1/2% SENIOR NOTES DUE OCTOBER 15, 2010
LOGO
------------------------
PROSPECTUS
------------------------
, 200
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. 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;
- 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.
II-1
ITEM 21. 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.
1-3492).
4.1* Senior Indenture dated as of October 17, 2003 between
Halliburton and JPMorgan Chase Bank, as Trustee
(incorporated by reference to Exhibit 4.1 to Halliburton's
Form 10-Q for the quarter ended September 30, 2003, File No.
1-3492).
4.2* First Supplemental Indenture dated as of October 17, 2003
between Halliburton and JPMorgan Chase Bank, as Trustee
(incorporated by reference to Exhibit 4.2 to Halliburton's
Form 10-Q for the quarter ended September 30, 2003, File No.
1-3492).
4.3* Form of Senior Notes due 2005 (included as Exhibit A to
Exhibit 4.2 above).
4.4* Form of 5 1/2% Senior Notes due 2010 (included as Exhibit B
to Exhibit 4.2 above).
4.5 Registration Rights Agreement dated as of October 17, 2003
among Halliburton and J.P. Morgan Securities Inc., Citigroup
Global Markets, Inc. and Goldman, Sachs & Co., as
representatives of the several Purchasers named in Schedule
I of the Purchase Agreement dated as of October 14, 2003.
4.6* 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.
12.1 Statement of computation of ratio of earnings to fixed
charges.
23.1 Consent of KPMG LLP.
+23.2 Consent of Baker Botts L.L.P. (included in Exhibit 5.1).
24.1 Power of Attorney.
25.1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of the Trustee on Form T-1.
99.1 Form of Letter to DTC Participants for the Senior Notes due
2005.
99.2 Form of Letter to DTC Participants for the 5 1/2% Notes due
2010.
99.3 Form of Letter to Clients for the Senior Notes due 2005.
99.4 Form of Letter to Clients for the 5 1/2% Notes due 2010.
99.5 Form of Notice of Guaranteed Delivery for the Senior Notes
due 2005.
99.6 Form of Notice of Guaranteed Delivery for the 5 1/2% Notes
due 2010.
99.7 Form of Letter of Transmittal for the Senior Notes due 2005.
99.8 Form of Letter of Transmittal for the 5 1/2% Notes due 2010.
---------------
* Incorporated by reference as indicated.
+ To be filed with an amendment.
II-2
ITEM 22. 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 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 Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the 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
(d) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(e) The undersigned Registrant hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act, the Company 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 November 12, 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 November 12, 2003.
/s/ DAVID J. LESAR Chairman of the Board, President, Chief Executive
-------------------------------------- Officer and Director (Principal Officer)
David J. Lesar
/s/ C. CHRISTOPHER GAUT Executive Vice President and Chief Financial
-------------------------------------- Officer
C. Christopher Gaut (Principal Financial Officer)
/s/ MARK A. MCCOLLUM Senior Vice President and Chief Accounting Officer
-------------------------------------- (Principal Accounting Officer)
Mark A. McCollum
* Director
--------------------------------------
Robert L. Crandall
* Director
--------------------------------------
Kenneth T. Derr
* Director
--------------------------------------
Charles J. Dibona
* Director
--------------------------------------
W.R. Howell
* Director
--------------------------------------
Ray L. Hunt
* Director
--------------------------------------
Aylwin B. Lewis
* Director
--------------------------------------
J. Landis Martin
* Director
--------------------------------------
Jay A. Precourt
* Director
--------------------------------------
Debra L. Reed
* Director
--------------------------------------
C.J. Silas
*By: /s/ MARGARET E. CARRIERE
------------------------------
Margaret E. Carriere
Attorney-in-Fact
II-5
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.
1-3492).
4.1* Senior Indenture dated as of October 17, 2003 between
Halliburton and JPMorgan Chase Bank, as Trustee
(incorporated by reference to Exhibit 4.1 to Halliburton's
Form 10-Q for the quarter ended September 30, 2003, File No.
1-3492).
4.2* First Supplemental Indenture dated as of October 17, 2003
between Halliburton and JPMorgan Chase Bank, as Trustee
(incorporated by reference to Exhibit 4.2 to Halliburton's
Form 10-Q for the quarter ended September 30, 2003, File No.
1-3492).
4.3* Form of Senior Notes due 2005 (included as Exhibit A to
Exhibit 4.2 above).
4.4* Form of 5 1/2% Senior Notes due 2010 (included as Exhibit B
to Exhibit 4.2 above).
4.5 Registration Rights Agreement dated as of October 17, 2003
among Halliburton and J.P. Morgan Securities Inc., Citigroup
Global Markets, Inc. and Goldman, Sachs & Co., as
representatives of the several Purchasers named in Schedule
I of the Purchase Agreement dated as of October 14, 2003.
4.6* 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.
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 Power of Attorney.
25.1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of the Trustee on Form T-1.
99.1 Form of Letter to DTC Participants for the Senior Notes due
2005.
99.2 Form of Letter to DTC Participants for the 5 1/2% Notes due
2010.
99.3 Form of Letter to Clients for the Senior Notes due 2005.
99.4 Form of Letter to Clients for the 5 1/2% Notes due 2010.
99.5 Form of Notice of Guaranteed Delivery for the Senior Notes
due 2005.
99.6 Form of Notice of Guaranteed Delivery for the 5 1/2% Notes
due 2010.
99.7 Form of Letter of Transmittal for the Senior Notes due 2005.
99.8 Form of Letter of Transmittal for the 5 1/2% Notes due 2010.
---------------
* Incorporated by reference as indicated.
+ To be filed with an amendment.