AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 19, 2004
REGISTRATION NO. 333-112977
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
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)
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ALBERT O. CORNELISON, JR.
1401 MCKINNEY STREET, SUITE 2400 EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
HOUSTON, TEXAS 77010 HALLIBURTON COMPANY
(713) 759-2600 1401 MCKINNEY STREET, SUITE 2400
(Address, including zip code, and telephone HOUSTON, TEXAS 77010
number, including (713) 759-2600
area code, of registrant's principal executive (Name, address, including zip code, and
offices) telephone number,
including area code, of agent for service)
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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. [ ]
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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 JULY 19, 2004
PROSPECTUS
(HALLIBURTON LOGO)
$500,000,000
HALLIBURTON COMPANY
OFFER TO EXCHANGE
REGISTERED
SENIOR NOTES DUE JANUARY 26, 2007
FOR ALL OUTSTANDING
SENIOR NOTES DUE JANUARY 26, 2007
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, payable
quarterly on each January 26, April 26, July 26 and October 26, beginning
April 26, 2004;
- 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 Halliburton's 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 , 2004, 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 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 , 2004.
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 THIS PROSPECTUS 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............................................. 34
Capitalization.............................................. 35
The Exchange Offer.......................................... 36
Description of Selected Settlement-Related Indebtedness..... 46
Description of New Notes.................................... 50
Registration Rights Agreement............................... 62
Material United States Federal Income Tax Consequences...... 64
Certain ERISA Considerations................................ 68
Plan of Distribution........................................ 70
Transfer Restrictions on Outstanding Notes.................. 71
Legal Matters............................................... 71
Experts..................................................... 71
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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, the accuracy of our forward-looking
information cannot 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," in
our Annual Report on Form 10-K for the year ended December 31, 2003, as amended
by Forms 10-K/A filed on March 15 and May 12, 2004, and in our Quarterly Report
on Form 10-Q for the quarter ended March 31, 2004.
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 our 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 participate in the exchange offer.
- Our Annual Report on Form 10-K for the year ended December 31, 2003, as
amended by Forms 10-K/A filed on March 15 and May 12, 2004;
- Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2004;
and
- The Item 5 disclosure in our Current Reports on Form 8-K dated May 5, May
18, June 11, June 18 and June 29, 2004.
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 or closing of the exchange offer 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 , 2004. The exchange offer will expire at
5:00 p.m., New York City time, on , 2004. 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, 2003 of approximately $16.3 billion and total revenues
for the three months ended March 31, 2004 of approximately $5.5 billion.
Our five business segments 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 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 wide
range of services and products, as well as integrated solutions to customers for
the exploration, development and production of oil and gas. The Energy Services
Group serves major, national and independent oil and gas companies throughout
the world. Our Engineering and Construction Group (known as KBR) provides a wide
range of services to energy and industrial customers and governmental entities
worldwide.
DRILLING AND FORMATION EVALUATION
Our Drilling and Formation Evaluation segment is primarily involved in
drilling and evaluating the formations related to bore-hole construction and
initial oil and gas formation evaluation. The products and services in this
segment incorporate integrated technologies, which offer synergies related to
drilling activities and data gathering. The segment consists of drilling
services, including directional drilling and
measurement-while-drilling/logging-while-drilling; logging services; and drill
bits. Included in this business segment are Sperry-Sun, logging and perforating
and Security DBS. Also included is our Mono Pumps business, which we disposed of
in the first quarter of 2003.
FLUIDS
Our Fluids segment focuses on fluid management and technologies to assist
in the drilling and construction of oil and gas wells. Drilling fluids are used
to provide for well control, drilling efficiency, and as a means of removing
wellbore cuttings. Cementing services provide zonal isolation to prevent fluid
movement between formations, ensure a bond to provide support for the casing,
and provide wellbore reliability. 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 (including well completion equipment, slickline and
safety systems);
1
- tools and testing services (including underbalanced applications,
tubing-conveyed perforating and testing services);
- subsea operations conducted in our 50% owned company, Subsea 7, Inc.; and
- intelligent well completion services conducted by our 51% owned joint
venture, WellDynamics.
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 and other integrated solutions. Included in this business
segment are Landmark Graphics, integrated solutions and Real Time Operations.
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 PLAN OF REORGANIZATION
DII Industries, LLC, Kellogg Brown & Root Inc. and six other subsidiaries
filed Chapter 11 proceedings on December 16, 2003 in bankruptcy court in
Pittsburgh, Pennsylvania. The cases have been assigned to the Honorable Judith
K. Fitzgerald. On May 10, 2004, the bankruptcy court completed hearings on
confirmation of the proposed plan of reorganization. On July 16, 2004, the
bankruptcy court issued an order confirming the plan of reorganization. We are
currently reviewing and may seek clarification of portions of the order. We
expect that, by the end of the summer 2004, the district court will affirm the
order issued by the bankruptcy court.
The bankruptcy court also issued an order denying standing to insurance
carriers' objections to confirmation of the plan of reorganization except on
limited issues. The insurers have the right to appeal this order. These appeals
could be withdrawn if proposed insurance settlements, including those discussed
below under "-- Other Recent Developments -- Agreements in Principle with
Insurance Carriers," become effective.
The proposed plan of reorganization provides that, if and when an order
confirming the proposed plan of reorganization becomes final and non-appealable:
- up to approximately $2.3 billion in cash, 59.5 million shares of
Halliburton common stock (valued at approximately $1.7 billion for
accrual purposes using a stock price of $29.37 per share, which is based
on the average trading price for the five days immediately prior to and
including March 31, 2004) and notes currently valued at approximately
$52.0 million will be contributed to trusts for the benefit of current
and future asbestos and silica personal injury claimants; and
2
- the trust for asbestos claimants will receive a payment equal to the
amount of insurance recoveries received by DII Industries and Kellogg
Brown & Root if and to the extent aggregate recoveries exceed $2.3
billion, subject to a cap of $700.0 million to be paid to the trust out
of insurance recoveries. However, if the proposed settlements with our
insurance carriers described below under "-- Other Recent
Developments -- Agreements in Principle with Insurance Carriers" are
completed on the terms announced or proposed, insurance recoveries will
not exceed $2.3 billion.
In connection with reaching an agreement with representatives of asbestos
and silica claimants to limit the cash required to settle pending claims to
$2.775 billion, DII Industries paid $311.0 million to the claimants in December
2003. Halliburton also agreed to guarantee the payment of certain claims, and,
in accordance with settlement agreements, Halliburton made additional payments
of $119.0 million (plus $4.0 million in additions in lieu of interest) in June
2004. We expect Halliburton to pay an additional approximately $50.0 million in
pending claims under these settlement agreements 30 days after the proposed plan
of reorganization becomes final and non-appealable. We may not be entitled to
reimbursement for these payments if the proposed plan of reorganization does not
become effective in accordance with its terms.
OTHER RECENT DEVELOPMENTS
AGREEMENTS IN PRINCIPLE WITH INSURANCE CARRIERS
In May 2004, we entered into non-binding agreements in principle with
representatives of the London Market insurance carriers that, if implemented,
would settle insurance disputes with substantially all the solvent London Market
insurance carriers for asbestos- and silica-related claims and all other claims
under the applicable insurance policies. These agreements in principle are
subject to board of directors' approval of all parties, agreement by all
remaining London Market insurers, and an order by the bankruptcy court
confirming our proposed plan of reorganization that has become final and
non-appealable.
We also expect to shortly enter into a non-binding agreement in principle
with our solvent domestic insurance carriers that, if implemented, would settle
asbestos- and silica-related claims and all other claims under the applicable
insurance policies and terminate all the applicable insurance policies. This
agreement in principle would be subject to board of directors' approval of all
parties, agreement by Federal-Mogul Products, Inc., approval by the
Federal-Mogul bankruptcy court, and an order by the bankruptcy court confirming
our proposed plan of reorganization that has become final and non-appealable.
These proposed settlements with our insurance carriers are subject to
numerous conditions, including the conditions of the previously announced
Equitas settlement, which includes the condition that the United States Congress
does not pass national asbestos litigation reform legislation before January 5,
2005. Although we are working toward implementation of these proposed
settlements, there can be no assurance that the transactions contemplated by
these agreements in principle can be completed on the terms announced.
Under the terms of our announced insurance settlements and proposed
insurance settlements, we expect to receive cash proceeds with a present value
of approximately $1.4 billion for our asbestos- and silica-related insurance
receivables. Our December 31, 2003 estimate of our asbestos- and silica-related
insurance receivables already included the charge for the settlement amount
under the Equitas agreement reached in January 2004, as well as certain other
probable settlements with carriers for which we could reasonably estimate the
amount of the settlement. In the second quarter of 2004, we reduced the amount
recorded as insurance receivables for asbestos- and silica-related liabilities
insured by domestic carriers, resulting in a pre-tax charge to discontinued
operations of approximately $680.0 million.
BARRACUDA-CARATINGA OPERATING LOSSES
In June 2004, we announced that we will take additional operating losses on
our Barracuda-Caratinga project in the second quarter of 2004 of approximately
$200.0 million after tax ($310.0 million before tax). The additional charge
follows a detailed review of the project, indicating higher cost estimates,
schedule delays and increased contingencies for the balance of the project until
completion. See "Risk Factors -- Risks
3
Relating to Our Business -- The Barracuda-Caratinga project is currently behind
schedule, has substantial cost overruns and will likely result in liquidated
damages payable by us and our inability to recover our costs associated with the
project."
NEW REVOLVING CREDIT FACILITY
In July 2004, we entered into a new secured $500.0 million 364-day
revolving credit facility for general working capital purposes with terms
substantially similar to our existing $700.0 million revolving credit facility.
See "Description of Selected Settlement-Related Indebtedness."
ESG SECURITIZATION FACILITY
In June 2004, we sold undivided interests in specified receivables totaling
$268.0 million under our Energy Services Group securitization facility. For
additional information about this, please see Note 6 of the consolidated
financial statements in our Annual Report on Form 10-K/A for the year ended
December 31, 2003 filed on May 12, 2004.
KBR RECEIVABLES PURCHASE AGREEMENT
In May 2004, Kellogg Brown & Root Services, Inc. entered into an agreement
to sell, assign and transfer its entire title and interest in specified accounts
receivable to a third party. The face value of the receivables sold to the third
party will be reflected as a reduction of accounts receivable in our
consolidated balance sheets. The amount of receivables that can be sold under
the facility varies based on the amount of eligible KBR receivables at any given
time and other factors. However, each receivable sold pursuant to this agreement
must have a net face value (as defined in this agreement) of at least $500,000,
and the maximum amount that may be outstanding under this agreement at any given
time is $650.0 million. The total amount of receivables sold under this
agreement as of July 15, 2004 was approximately $450.0 million.
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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.
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SUMMARY OF THE EXCHANGE OFFER
On January 26, 2004, we completed a private offering of $500.0 million of
unregistered senior notes due January 26, 2007. 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 January 26, 2007 without
transfer restrictions, which we sometimes refer
to as the "new notes," in exchange for a like
amount of your outstanding unregistered senior
notes due January 26, 2007, which we sometimes
refer to as the "outstanding notes."
Expiration Date............... Unless sooner terminated, the exchange offer
will expire at 5:00 p.m., New York City time,
on , 2004, 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.
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;
5
- 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;
- 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,
you acquired the outstanding notes to be
exchanged for new notes for your own account
as a result of market-making activities or
other trading activities, and you acknowledge
that 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 and any other documents required
by the letter of transmittal, within three New
York Stock Exchange trading days after the
expiration date.
6
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."
United States Federal Income
Tax Considerations............ The exchange of new notes for outstanding notes
in the exchange offer will not be a taxable
event for United States 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.
7
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
2001 Bryan Street
Floor 10
Dallas, Texas 75201
Attn: Frank Ivins
By Facsimile Transmission (for eligible institutions only):
(214) 468-6494
Attn: Frank Ivins
To Confirm Receipt:
(214) 468-6464
8
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 evidence the same debt as
the outstanding notes. The outstanding notes and the new notes will be governed
by the same indenture.
Issuer........................ Halliburton Company.
New Notes Offered............. $500,000,000 aggregate principal amount of
registered senior notes due January 26, 2007.
Maturity Date................. The new notes will mature on January 26, 2007,
unless earlier redeemed by us.
Interest and Interest Payment
Dates......................... The new notes will bear interest at a floating
rate equal to three-month LIBOR plus 0.75%.
Interest on the new notes will be payable
quarterly on the 26th day of January, April,
July and October of each year, beginning April
26, 2004.
Optional Redemption........... On January 26, 2005, or on any quarterly
interest payment date thereafter, we will have
the option to redeem for cash all or a portion
of the notes that have not been previously
repurchased upon not less than 30 nor more than
60 days' notice before the redemption date by
mail to the trustee and each holder of notes,
for a price equal to 100% of the aggregate
principal amount of the notes to be redeemed
plus any accrued and unpaid interest and
additional interest amounts owed, if any, to
the redemption date. See "Description of New
Notes -- Optional Redemption."
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. As of the date of this
prospectus, we had no outstanding advances
under our master letter of credit facility or
our revolving credit facilities and no other
outstanding secured indebtedness. In addition,
the new notes will be effectively subordinated
to the existing and future indebtedness and
other liabilities of our subsidiaries. At March
31, 2004, the aggregate indebtedness of our
subsidiaries was approximately $119.0 million,
and other liabilities of our subsidiaries,
including trade payables, accrued compensation,
advanced billings, income taxes payable and
other liabilities (other than asbestos and
intercompany liabilities) were approximately
$5.5 billion, and accrued asbestos and silica
liabilities were approximately $4.3 billion.
In the fourth quarter of 2003, we entered into
(1) a secured master letter of credit facility
intended to ensure that existing letters of
credit supporting our contracts remain in place
during the Chapter 11 proceedings and (2) a
secured $700.0 million revolving
9
credit facility for general working capital
purposes. In July 2004, we entered into an
additional secured $500.0 million 364-day
revolving credit facility for general working
capital purposes with terms substantially
similar to our existing $700.0 million
revolving credit facility (together with the
master letter of credit facility and the $700.0
million revolving credit facility, the "credit
facilities"). The terms of the new notes and
the terms of the credit facilities provide that
the new notes offered hereby and certain of our
outstanding debt securities will share in
collateral pledged to secure borrowings under
the credit facilities if and when the total of
all our Secured Debt (as defined in the new
notes) exceeds 5% of the consolidated net
tangible assets of Halliburton and its
subsidiaries. The terms of the credit
facilities currently limit the amount of
indebtedness we can issue in the future that
would be equally and ratably secured with
indebtedness under the credit facilities. The
credit facilities also provide that the
collateral pledged to secure borrowings under
the credit facilities will be released after
(1) completion of the Chapter 11 plan of
reorganization of DII Industries, Kellogg Brown
& Root and our other affected subsidiaries and
(2) satisfaction of the other conditions
described in this prospectus. For additional
information, see "Description of Selected
Settlement-Related Indebtedness."
No Subsidiary Guarantees...... While the new notes will not be guaranteed by
any of our subsidiaries, borrowings under the
credit facilities are 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 guarantees. The terms of the 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 and (2) satisfaction
of the other conditions described in this
prospectus. For additional information, see
"Description of Selected Settlement-Related
Indebtedness."
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.
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 three months ended March 31, 2004 from our
unaudited condensed consolidated financial statements included in our Quarterly
Report on Form 10-Q for the quarter ended March 31, 2004. We derived the
financial data for the year ended December 31, 2003 from our audited
consolidated financial statements included in our Annual Report on Form 10-K for
the year ended December 31, 2003, as amended by Forms 10-K/A filed on March 15
and May 12, 2004. You should read this information in conjunction with our
consolidated financial statements and the related notes in these reports, which
are incorporated into this prospectus by reference.
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
2004 2003
------------------ ------------
(IN MILLIONS)
REVENUES:
Energy Services Group
Drilling and Formation Evaluation......................... $ 444 $ 1,643
Fluids.................................................... 535 2,039
Production Optimization................................... 708 2,766
Landmark and Other Energy Services........................ 129 547
------ -------
Total Energy Services Group............................ 1,816 6,995
Engineering and Construction Group.......................... 3,703 9,276
------ -------
Total....................................................... $5,519 $16,271
====== =======
OPERATING INCOME (LOSS):
Energy Services Group:
Drilling and Formation Evaluation......................... $ 43 $ 177
Fluids.................................................... 60 251
Production Optimization................................... 82 421
Landmark and Other Energy Services........................ 29 (23)
------ -------
Total Energy Services Group............................ 214 826
Engineering and Construction Group.......................... (15) (36)
General corporate........................................... (24) (70)
------ -------
Total....................................................... $ 175 $ 720
====== =======
Income from continuing operations before income taxes,
minority interest, and change in accounting principle..... $ 131 $ 612
Provision for income taxes.................................. (49) (234)
Minority interest in net income of subsidiaries............. (6) (39)
Income from continuing operations before change in
accounting principle...................................... 76 339
Loss from discontinued operations, net of tax............... (141) (1,151)
Net loss.................................................... (65) (820)
OTHER FINANCIAL DATA:
Capital expenditures........................................ $ (130) $ (515)
Long-term borrowings (repayments), net...................... 490 1,896
Depreciation and amortization expense....................... 132 518
11
MARCH 31, DECEMBER 31,
2004 2003
--------- ------------
(IN MILLIONS)
FINANCIAL POSITION:
Net working capital......................................... $ 2,340 $ 1,377
Total assets................................................ 16,407 15,463
Property, plant and equipment, net.......................... 2,537 2,526
Long-term debt (including current maturities)............... 3,957 3,437
Shareholders' equity........................................ 2,472 2,547
Total capitalization and short-term debt.................... 6,438 6,002
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.
THREE MONTHS ENDED YEARS ENDED DECEMBER 31,
MARCH 31, --------------------------------
2004 2003 2002 2001 2000 1999
------------------ ---- ---- ---- ---- ----
3.0 4.4 --(a) 5.2 2.3 2.4
---------------
(a) For the year ended December 31, 2002, earnings were inadequate to cover
fixed charges by $283.0 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 and/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. See 'Where You Can Find More Information."
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.
The risks described herein that apply to the new notes also apply to any
outstanding notes not tendered in the exchange offer.
RISKS RELATING TO ASBESTOS AND SILICA LIABILITY
WE MAY BE UNABLE TO FULFILL THE CONDITIONS NECESSARY TO COMPLETE THE PROPOSED
PLAN OF REORGANIZATION, AND THERE IS NO ASSURANCE THAT THE PLAN OF
REORGANIZATION IN THE CHAPTER 11 PROCEEDINGS OF DII INDUSTRIES, KELLOGG BROWN
& ROOT AND OUR OTHER AFFECTED SUBSIDIARIES WILL BE APPROVED AND BECOME
EFFECTIVE.
As contemplated by our proposed plan of reorganization, DII Industries,
Kellogg Brown & Root and six other subsidiaries (collectively referred to herein
as the "debtors") filed Chapter 11 proceedings on December 16, 2003 in
bankruptcy court in Pittsburgh, Pennsylvania. Although the bankruptcy court in
July 2004 confirmed the proposed plan of reorganization, completion of the plan
of reorganization remains subject to several conditions, including the
requirements that the federal district court affirm the bankruptcy court's order
confirming the plan of reorganization, and that the bankruptcy court and federal
district court orders become final and non-appealable. Completion of the
proposed plan of reorganization is also conditioned on continued availability of
financing on terms acceptable to us in order to allow us to fund the cash
amounts to be paid in the plan of reorganization. There can be no assurance that
such conditions will be met.
The hearing on confirmation of the proposed plan of reorganization was
completed on May 10, 2004 and the bankruptcy court entered an order confirming
the plan of reorganization on July 16, 2004. Some of the insurance carriers of
DII Industries and Kellogg Brown & Root objected to confirmation of the proposed
plan of reorganization and to the extent announced or proposed settlements with
these insurance carriers are not finalized or approved by the bankruptcy court,
we believe that these insurance carriers may take additional steps to prevent or
delay effectiveness of a plan of reorganization, including appealing the rulings
of the bankruptcy court. In that event, there can be no assurance that the
insurance carriers would not be successful or that such efforts would not result
in delays in the reorganization process. There can be no assurance that we will
obtain the required judicial approval of the proposed plan of reorganization or
any amended plan of reorganization that we may propose if a final order
affirming the proposed plan of reorganization is not issued.
If the currently proposed plan of reorganization is not affirmed by the
district court and the Chapter 11 proceedings are not dismissed, the debtors
could propose a new plan of reorganization. Chapter 11 permits a company to
remain in control of its business, protected by a stay of all creditor action,
while that company attempts to negotiate and confirm a plan of reorganization
with its creditors. However, it is uncertain for how long a period of time the
bankruptcy court would permit the debtors to retain their exclusive right to
file an amended plan of reorganization. If the debtors are unsuccessful in
obtaining confirmation of the currently proposed plan of reorganization or an
amended plan of reorganization, the assets of the debtors could be liquidated in
the Chapter 11 proceedings, a third party may obtain the right to file a plan of
reorganization, the Chapter 11 proceedings could be converted to proceedings
under Chapter 7 of the United States
13
Bankruptcy Code or the cases could be dismissed. In the event of a liquidation
of the debtors, or a plan of reorganization proposed by a third party,
Halliburton could lose its controlling interest in DII Industries and Kellogg
Brown & Root. 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 because Halliburton guarantees
certain of the debtors' obligations.
IF PROPOSED FEDERAL LEGISLATION TO PROVIDE NATIONAL ASBESTOS LITIGATION REFORM
BECOMES LAW, WE MAY BE REQUIRED TO PAY MORE TO RESOLVE OUR ASBESTOS
LIABILITIES THAN WE WOULD HAVE PAID IF THE CHAPTER 11 FILING HAD NOT BEEN
MADE, AND OUR SETTLEMENT WITH EQUITAS AND POSSIBLE SETTLEMENTS WITH OTHER
INSURANCE CARRIERS MAY NOT BE COMPLETED IF SUCH LEGISLATION IS PASSED BY THE
UNITED STATES CONGRESS.
We understand that the United States Congress may consider adopting
legislation that would set up a national trust fund as the exclusive means for
recovery for asbestos-related disease. We are uncertain as to what contributions
we would be required to make to a national trust, if any, although it is
possible that they could be substantial and that they could continue for several
years. Our level of participation in and contribution to a national trust could
be greater or less than it otherwise would have been as a result of having
subsidiaries that have filed Chapter 11 proceedings due to asbestos liabilities.
Under the terms of our announced insurance settlements and proposed
insurance settlements (see "--Although we are working toward implementation of
settlements with our insurance carriers, there can be no assurance that such
settlements can be completed on the terms proposed" below), we expect to receive
cash proceeds with a present value of approximately $1.4 billion for our
asbestos- and silica-related insurance receivables. However, one of the
conditions to the effectiveness of our announced and proposed insurance
settlements is or, with respect to the proposed settlements, is expected to be,
that no law shall be passed by the United States Congress that relates to,
regulates, limits or controls the prosecution of asbestos claims in United
States state or federal courts or any other forum. If national asbestos
litigation legislation in the form presently being considered is passed by the
United States Congress on or before January 5, 2005 and becomes law, and our
plan of reorganization has become final and non-appealable before passage of the
new legislation, we would not receive the $1.4 billion in cash provided by these
settlements, but we would retain the rights we currently have against our
insurance carriers, which includes coverage with a face amount of more than $3.0
billion.
JUDICIAL RELIEF AGAINST ASBESTOS AND SILICA EXPOSURE MAY NOT BE AS BROAD AS IS
CONTEMPLATED BY THE PROPOSED PLAN OF REORGANIZATION, AND A COMPLETED PLAN OF
REORGANIZATION MAY NOT ADDRESS ALL ASBESTOS AND SILICA EXPOSURE.
Our proposed plan of reorganization includes resolution of 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 them. While the bankruptcy
court issued an order confirming the proposed plan of reorganization in July
2004, the plan of reorganization remains subject to approval by the federal
district court, which we expect to occur by the end of summer 2004. No assurance
can be given that the court reviewing and approving the plan of reorganization
will grant relief as broad as contemplated by the proposed plan of
reorganization.
In addition, a confirmed plan of reorganization and injunctions under
Section 524(g) and Section 105 of the United States Bankruptcy Code may not
apply to protect against all asbestos and silica claims asserted against us in
jurisdictions outside the United States. For example, while we have historically
not received a significant number of claims outside the United States, any such
future claims would be subject to the applicable legal system of the
jurisdiction where the claim was made. The enforceability of injunctions under
the United States Bankruptcy Code in such jurisdictions is uncertain. In
addition, the Section 524(g) injunction would not apply to some claims under
workers' compensation arrangements. Although we do not believe that we have
material exposure to foreign or workers' compensation claims, there can be no
assurance that material claims 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.
14
In addition, although we would have other significant affirmative defenses,
the injunctions issued under the United States Bankruptcy Code may not cover all
silica personal injury claims arising as a result of future silica exposure
after the effective date of the proposed plan of reorganization. Moreover, the
proposed plan of reorganization 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.
ALTHOUGH WE ARE WORKING TOWARD IMPLEMENTATION OF SETTLEMENTS WITH OUR
INSURANCE CARRIERS, THERE CAN BE NO ASSURANCE THAT SUCH SETTLEMENTS CAN BE
COMPLETED ON THE TERMS PROPOSED.
In January 2004, we reached a comprehensive agreement with Equitas to
settle our insurance claims against certain underwriters at Lloyd's of London,
reinsured by Equitas, for asbestos- and silica-related claims and all other
claims under the applicable insurance policies. There are conditions to
completion of the settlement with Equitas, and there can be no assurance that
this settlement will be completed on the terms announced. We are also
negotiating settlement agreements with other insurance carriers. In May 2004, we
entered into non-binding agreements in principle with representatives of the
London Market insurance carriers that, if implemented, would settle insurance
disputes with substantially all the solvent London Market insurance carriers for
asbestos- and silica-related claims and all other claims under the applicable
insurance policies. The agreements in principle with the London Market insurance
carriers are subject to board of directors' approval of all parties, agreement
by all remaining London Market insurers, and an order by the bankruptcy court
confirming our proposed plan of reorganization that has become final and
non-appealable. We also expect to shortly enter into a non-binding agreement in
principle with our solvent domestic insurance carriers that, if implemented,
would settle asbestos- and silica- related claims and all other claims under the
applicable insurance policies and terminate all the applicable insurance
policies. The agreement in principle with the domestic insurance carriers would
be subject to board of directors' approval of all parties, agreement by
Federal-Mogul Products, Inc., approval by the Federal-Mogul bankruptcy court,
and an order by the bankruptcy court confirming our proposed plan of
reorganization that has become final and non-appealable. These proposed
settlements with our insurance carriers are subject to numerous conditions,
including the conditions of the Equitas settlement, which include the condition
that the United States Congress does not pass national asbestos litigation
reform legislation before January 5, 2005.
Under the terms of our announced insurance settlements and proposed
insurance settlements, we expect to receive cash proceeds with a present value
of approximately $1.4 billion for our asbestos- and silica-related insurance
receivables. Our December 31, 2003 estimate of our asbestos- and silica-related
insurance receivables already included the charge for the settlement amount
under the Equitas agreement reached in January 2004, as well as certain other
probable settlements with carriers for which we could reasonably estimate the
amount of the settlement. In the second quarter of 2004, we reduced the amount
recorded as insurance receivables for asbestos- and silica-related liabilities
insured by domestic carriers, resulting in a pre-tax charge to discontinued
operations of approximately $680.0 million.
Although we are working toward implementation of these announced and
proposed insurance settlements, there can be no assurance that such settlements
can be completed on the terms as either announced or proposed. In addition, if
we are unable to complete our announced and proposed insurance settlements, we
may be unable to recover, or we may be delayed in recovering, insurance
reimbursements related to asbestos and silica claims due to, among other things:
- 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, Federal Mogul Products or others;
- the possible insolvency or reduced financial viability of our insurers;
- the cost of litigation to obtain insurance reimbursement; and
15
- possible adverse court decisions as to our rights to obtain insurance
reimbursement.
PROLONGED CHAPTER 11 PROCEEDINGS OF SOME OF OUR SUBSIDIARIES MAY NEGATIVELY
AFFECT THEIR ABILITY TO OBTAIN NEW BUSINESS AND CONSEQUENTLY MAY HAVE A
NEGATIVE IMPACT ON OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Because our financial condition and our results of operations depend on
distributions from our subsidiaries, any prolonged Chapter 11 proceedings of
those subsidiaries, including DII Industries and Kellogg Brown & Root, may have
a negative impact on our cash flow and distributions from those subsidiaries.
These subsidiaries are not able to make distributions of profits to Halliburton
during the Chapter 11 proceedings without court approval. In addition, the
Chapter 11 proceedings could materially and adversely affect the ability of our
subsidiaries in Chapter 11 proceedings to obtain new orders from current or
prospective customers. As a result of any prolonged Chapter 11 proceedings, 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 a Chapter 11 proceeding. Consequently, our
financial condition and results of operations could be materially and adversely
affected.
Further, prolonged Chapter 11 proceedings could materially and adversely
affect the relationship that DII Industries, Kellogg Brown & Root and their
subsidiaries involved in the Chapter 11 proceedings have with their customers,
suppliers and employees, which in turn could materially and adversely affect
their competitive positions, financial conditions and results of operations. A
weakening of their financial conditions and results of operations could
materially and 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.
Under federal bankruptcy law and various state fraudulent transfer laws,
payments and distributions made by our subsidiaries participating in the Chapter
11 proceedings prior to the Chapter 11 filing could, under specific
circumstances, be avoided as preferential transfers if the statutory
requirements with respect to the recovery of avoidable preferential transfers
are met. It is also possible that claims may be brought against transferees of
the debtors for the recovery of distributions made by such debtors under the
state fraudulent conveyance laws or the provisions for the recovery of
fraudulent conveyance contained in the United States Bankruptcy Code. 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 made to us by
our subsidiaries could limit our ability to make principal and interest payments
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 will 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.
A COURT COULD DETERMINE THAT THE DISTRIBUTION OF HALLIBURTON ENERGY SERVICES
STOCK TO HALLIBURTON WAS A FRAUDULENT TRANSFER UNDER STATE LAW OR FEDERAL
BANKRUPTCY LAW WHICH WOULD IMPAIR OUR ABILITY TO MAKE PAYMENTS ON THE NEW
NOTES.
Just prior to the filing of Chapter 11 proceedings, Halliburton Energy
Services, Inc. was a wholly owned subsidiary of DII Industries. As part of the
plan of reorganization, prior to its Chapter 11 filing, DII Industries
distributed all of the capital stock of Halliburton Energy Services to
Halliburton. Halliburton then distributed all of its ownership interests in DII
Industries to Halliburton Energy Services, after which DII Industries became a
wholly owned subsidiary of Halliburton Energy Services.
16
Although the transfer was disclosed in, among other documents, the
disclosure statement for the proposed plan of reorganization, which on July 16,
2004 was confirmed by the bankruptcy court, if the proposed plan of
reorganization does not become effective, it is possible that a claim may be
made by a person with standing to assert such claim that the transfer of
Halliburton Energy Services capital stock to Halliburton by DII Industries prior
to the Chapter 11 filing constitutes 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 creditors 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. It is also possible that other remedies may be fashioned by the court
adjudicating such fraudulent conveyance claims. Due to bankruptcy rules which
are applicable to DII Industries under the Chapter 11 proceedings and that 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 and our other
debt instruments.
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
- 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.
CERTAIN OF OUR LETTERS OF CREDIT HAVE TRIGGERING EVENTS (SUCH AS THE FILING OF
CHAPTER 11 PROCEEDINGS BY SOME OF OUR SUBSIDIARIES OR REDUCTIONS IN OUR CREDIT
RATINGS) THAT WOULD ALLOW THE BANKS TO REQUIRE CASH COLLATERALIZATION OR ALLOW
THE HOLDER TO DRAW UPON THE LETTER OF CREDIT.
We entered into a master letter of credit facility in the fourth 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
Chapter 11 proceedings of DII Industries and Kellogg Brown & Root and our other
filing
17
subsidiaries. The master letter of credit facility is now in effect and governs
at least 90% of the face amount of our existing letters of credit. See
"Description of Selected Settlement-Related Indebtedness."
Under the master letter of credit facility, if any letters of credit that
are covered by the facility are drawn on or before December 31, 2004, the
facility will provide the cash needed for such draws, as well as for any
collateral or reimbursement obligations, in respect thereof, with any such
borrowings being converted into term loans. However, with respect to the letters
of credit that are not subject to the master letter of credit facility, we could
be subject to reimbursement and cash collateral obligations. In addition, if the
proposed plan of reorganization does not become effective in accordance with its
terms by December 31, 2004 and we are unable to negotiate a renewal or extension
of the master letter of credit facility, the letters of credit that are now
governed by that facility will be governed by the arrangements with the banks
that existed prior to the effectiveness of the facility. In many cases, those
pre-existing arrangements impose reimbursement and/or cash collateral
obligations on us and/or our subsidiaries.
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.
A LOWERING OF OUR CREDIT RATINGS 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.
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. In December 2003, Standard &
Poor's revised its credit watch listing for us from "negative" to "developing"
in response to our announcement that DII Industries, Kellogg Brown & Root and
other of our subsidiaries filed Chapter 11 proceedings to implement the proposed
asbestos and silica settlement. In May 2004, Moody's Investors Services
confirmed its ratings, but revised its outlook from "positive" to "stable."
If our debt rating falls below investment grade, we will be required to
provide additional collateral to secure our credit facilities. With respect to
the outstanding letters of credit that are not subject to the master letter of
credit facility, we may be in technical breach of the bank agreements governing
those letters of credit and we may be required to reimburse the bank for any
draws or provide cash collateral to secure those letters of credit. In addition,
if the proposed plan of reorganization does not become effective in accordance
with its terms by December 31, 2004 and we are unable to negotiate a renewal or
extension of the terms of the master letter of credit facility, advances under
our master letter of credit facility will no longer be available and will no
longer override the reimbursement, cash collateral or other agreements or
arrangements relating to any of the letters of credit that existed prior to the
effectiveness of the master letter of credit facility. In that event, we may be
required to provide reimbursement for any draws or cash collateral to secure our
or our subsidiaries' obligations under arrangements in place prior to our
entering into the master letter of credit facility.
In addition, our elective deferral compensation 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 March 31, 2004, this amount was approximately $52.0 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. 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 costs of capital
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 plan of reorganization on terms that are acceptable to us, we may
be unable to complete the proposed plan of reorganization.
18
RISKS RELATING TO GEOPOLITICAL AND INTERNATIONAL EVENTS
INTERNATIONAL AND POLITICAL EVENTS MAY ADVERSELY AFFECT OUR OPERATIONS.
A significant portion of our revenue is derived from our non-U.S.
operations, which exposes us to risks inherent in doing business in each of the
more than 100 other countries in which we transact business. The occurrence of
any of the risks described below could have a material 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 76% of our consolidated revenues during the first
quarter of 2004 and approximately 73% of our consolidated revenues during 2003.
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, which is a significant producer 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: Argentina, Afghanistan, Algeria, Indonesia, Iran, Iraq, Nigeria, Russia
and Venezuela. 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. In
addition, investigations by governmental authorities (see "--Risks Relating to
Our Business -- A joint venture in which a Halliburton unit participates is
under investigation as a result of payments made in connection with a liquefied
natural gas project in Nigeria"), as well as the social, economic and political
climate in Nigeria, could materially and adversely affect our Nigerian business
and operations.
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 terrorist
attacks, threats of attacks and unrest, have caused instability in the world's
financial and commercial markets and have significantly increased political and
economic instability in some of the geographic areas in which we operate. 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
markets and our operations, including disruptions resulting from the evacuation
of personnel, cancellation of contracts or the loss of personnel or assets.
Such events may cause further disruption to financial and commercial
markets and may generate greater political and economic instability in some of
the geographic areas in which we operate. In addition, any possible reprisals as
a consequence of the war with and ongoing military action in Iraq, such as acts
of
19
terrorism in the United States or elsewhere, could materially and adversely
affect us in ways we cannot predict at this time.
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, including national oil
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, often reflected
as changes in rig counts. 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.
OUR GOVERNMENT CONTRACTS WORK HAS BEEN THE FOCUS OF ALLEGATIONS AND INQUIRIES,
AND THERE CAN BE NO ASSURANCE THAT ADDITIONAL ALLEGATIONS AND INQUIRIES WILL
NOT BE MADE OR THAT OUR GOVERNMENT CONTRACT BUSINESS MAY NOT BE ADVERSELY
AFFECTED.
We provide substantial work under our government contracts business to the
United States Department of Defense and other governmental agencies, including
worldwide United States Army logistics contracts, known as LogCAP, and contracts
to rebuild Iraq's petroleum industry, known as RIO I and RIO II. Our government
services revenue related to Iraq totaled approximately $2.4 billion in the first
quarter of 2004 and approximately $3.6 billion in 2003. Our units operating in
Iraq and elsewhere under government contracts such as LogCAP and RIO
consistently review the amounts charged and the services performed under these
contracts. Our operations under these contracts are also regularly reviewed and
audited by the Defense Contract Audit Agency (DCAA) and other governmental
agencies.
The results of a preliminary audit by the DCAA in December 2003 alleged
that we may have overcharged the Department of Defense by $61.0 million in
importing fuel into Iraq. After a review, the
20
Army Corps of Engineers, which is our client and oversees the project, concluded
that we obtained a fair price for the fuel. However, Department of Defense
officials thereafter referred the matter to the agency's inspector general,
which we understand has commenced an investigation. The Criminal Division of the
United States Department of Justice is also investigating this matter and had
issued a subpoena to a former employee of KBR. If criminal wrongdoing were
found, criminal penalties could range up to the greater of $500,000 in fines per
count for a corporation, or twice the gross pecuniary gain or loss.
We have had inquiries in the past by the DCAA and the civil fraud division
of the United States Department of Justice into possible overcharges for work
performed during 1996 through 2000 under a contract in the Balkans, which
inquiry has not yet been completed by the Department of Justice. Based on an
internal investigation, we credited our customer approximately $2.0 million
during 2000 and 2001 related to our work in the Balkans as a result of billings
for which support was not readily available. We believe that the preliminary
Department of Justice inquiry relates to potential overcharges in connection
with a part of the Balkans contract under which approximately $100.0 million in
work was done. The Department of Justice has not alleged any overcharges, and we
believe that any allegation of overcharges would be without merit.
In January 2004, we announced the identification by our internal audit
function of a potential overbilling of approximately $6.0 million by one of our
subcontractors under the LogCAP contract in Iraq for services performed during
2003. In accordance with our policy and government regulation, the potential
overcharge was reported to the Department of Defense Inspector General's office
as well as to our customer, the Army Materiel Command. In January 2004, we
issued a check in the amount of $6.0 million to the Army Materiel Command to
cover that potential overbilling while we conducted our own investigation into
the matter. Later in the first quarter of 2004, we determined the subcontractor
billing should have been $2.0 million for the services provided. An Assistant
U.S. Attorney based in Illinois is also investigating two former employees and
our subcontractor and has convened a grand jury and taken testimony in
connection with this matter. We are continuing to investigate whether
third-party subcontractors paid, or attempted to pay, one or two of our former
employees in connection with the billing.
During 2003, the DCAA raised issues relating to our invoicing to the Army
Materiel Command for food services for soldiers and supporting civilian
personnel in Iraq and Kuwait. We believe the issues raised by the DCAA relate to
the difference between the number of meals ordered by the Army Materiel Command
and the number of soldiers actually served at dining facilities for United
States troops and supporting civilian personnel in Iraq and Kuwait. In the first
quarter of 2004, we reviewed our dining facilities and administration centers
(DFACs) in our Iraq and Kuwait areas of operation and have billed and continue
to bill for all current DFAC costs. During the second quarter of 2004, we
received notice from the DCAA that it is recommending withholding a portion of
all our DFAC billings. The amount withheld totaled approximately $206.5 million
as of July 12, 2004. The DCAA is continuing to recommend withholding 19.35% of
payments on future DFAC billings relating to subcontracts entered into prior to
February 2004.
During the first quarter of 2004, the Army Materiel Command issued a
mandate that could cause it to withhold 15% from our invoices to be paid after
March 31, 2004 until our task orders under the LogCAP III contract are
definitized. The Army Materiel Command has now extended this period to August
15, 2004. We do not believe the potential 15% withholding will have a
significant or sustained impact on our liquidity because the withholding is
temporary and ends once the definitization process is complete.
During the second quarter of 2004, the Army Corps of Engineers withheld
$57.4 million of our invoices related to a portion of our RIO I contract until
we provide a revised estimate of the total costs related to certain task orders
in order to complete the definitization process. These withholdings represent
the amount invoiced in excess of 85% of the currently estimated amounts. The
Army Corps of Engineers also could withhold similar amounts from future invoices
under our RIO I contract until our task orders under the RIO I contract are
definitized.
All of these matters are still under review by the applicable government
agencies. Additional review is likely, and the dollar amounts at issue could
change significantly. We could also be subject to future DCAA inquiries for
other services we provide in Iraq under the current LogCAP contract or the RIO
contracts. For example, as a result of an increase in the level of work
performed in Iraq or the DCAA's review of additional
21
aspects of our services performed in Iraq, it is possible that we may, or may be
required to, withhold additional invoicing or make refunds to our customer, some
of which could be substantial, until these matters are resolved. This could
materially and adversely affect our liquidity.
Typically, when issues are found during the governmental agency audit
process, they are discussed and reviewed by the governmental agency with the
contractor in order to reach a resolution. However, to the extent we or our
subcontractors make mistakes in our government contract operations, even if
unintentional, insignificant or subsequently self-reported to the applicable
government agency, we have been and will likely continue to be subject to more
intense scrutiny. Some of this scrutiny is a result of the Vice President of the
United States being a former chief executive officer of Halliburton. This
scrutiny has recently centered on our government contracts work, especially in
Iraq and other parts of the Middle East. In part because of the heightened level
of scrutiny under which we operate, audit issues between us and government
auditors like the DCAA or the inspector general of the Department of Defense may
arise and are more likely to become public. We could be asked to reimburse
payments made to us that are determined to be in excess of those allowed by the
applicable contract, or we could agree to delay billing for an indefinite period
of time for work we have performed until any billing and cost issues are
resolved. Our ability to secure future government contracts business or renewals
of current government contracts business in the Middle East or elsewhere could
be materially and adversely affected. In addition, we may be required to expend
a significant amount of resources explaining and/or defending actions we have
taken under our government contracts.
THE BARRACUDA-CARATINGA PROJECT IS CURRENTLY BEHIND SCHEDULE, HAS SUBSTANTIAL
COST OVERRUNS AND WILL LIKELY RESULT IN LIQUIDATED DAMAGES PAYABLE BY US AND
OUR INABILITY TO RECOVER OUR COSTS ASSOCIATED WITH THE PROJECT.
In June 2000, Kellogg Brown & Root entered into a contract with Barracuda &
Caratinga Leasing Company B.V., the project owner, to develop the Barracuda and
Caratinga crude oilfields, which are located off the coast of Brazil. The
construction manager and project owner's representative is Petrobras, the
Brazilian national oil company. When completed, the project will consist of two
converted supertankers, Barracuda and Caratinga, which will be used as floating
production, storage, and offloading units, commonly referred to as FPSOs, 32
hydrocarbon production wells, 22 water injection wells, and all subsea flow
lines, umbilicals and risers necessary to connect the underwater wells to the
FPSOs. The original completion date for the Barracuda vessel was December 2003,
and the original completion date for the Caratinga vessel was April 2004. The
project is significantly behind the original schedule, due in large part to
change orders from the project owner as well as a significant reduction in
shipyard subcontractor productivity and vessel rework, and is in a financial
loss position. We expect that the Barracuda vessel will likely be completed by
June 2005, and the Caratinga vessel will likely be completed by November 2005.
However, there can be no assurance that further delays will not occur.
At June 30, 2004, the project was estimated to be approximately 87%
complete. To date, we have recorded an inception-to-date pretax loss of
approximately $762.0 million related to the project of which, based on June 2004
project forecasts, approximately $310.0 million was recorded in the second
quarter of 2004, $97.0 million was recorded in the first quarter of 2004, $238.0
million was recorded in 2003, and $117.0 million was recorded in 2002. In
determining the amount of the charge we recorded in the second quarter of 2004,
we assumed that the April 2004 agreement in principle (described below) will be
successfully finalized. If the April 2004 agreement in principle were not
finalized, based on June 2004 project forecasts, Kellogg Brown & Root could be
subject to an additional approximately $159.0 million in liquidated damages
beyond the $85.0 million of liquidated damages recorded as of June 30, 2004 in
the event that the delay in the project is determined to be attributable to us.
Kellogg Brown & Root and Petrobras continue to work toward finalization of a
definitive agreement but there can be no guarantee that a definitive agreement
will be achieved or approved.
22
Our performance under the contract is secured by:
- performance letters of credit, which together have an available credit of
approximately $272.0 million as of June 30, 2004 and which will continue
to be adjusted to 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 $170.0 million as of June 30, 2004 and which will increase
in order to continue to represent 10% of the cumulative cash amounts paid
to us; and
- a guarantee of Kellogg Brown & Root's performance under the agreement by
Halliburton in favor of the project owner.
April 2004 Agreement in Principle. In early April 2004, Kellogg Brown &
Root and Petrobras, on behalf of the project owner, entered into a non-binding
agreement in principle. The April 2004 agreement in principle is the basis for
settlement of the various claims between the parties and would amend existing
agreements, including the November 2003 agreements described below.
Implementation of the agreement in principle requires final approval of the
Board of Directors of Petrobras and Halliburton, the project lenders, and
possibly the bankruptcy court reviewing our proposed plan of reorganization.
Discussions among all parties, including the project lenders, are underway. The
April 2004 agreement in principle provides for:
- the release of all claims of all parties that arise prior to the
effective date of a final definitive agreement;
- the payment to us of $79.0 million as a result of change orders for
remaining claims;
- payment by Petrobras of any value added taxes on the project, except for
$8.0 million which has been paid by us;
- the assumption by Petrobras of certain work under the original contract;
- the repayment on December 7, 2004 by Kellogg Brown & Root of a portion of
$300.0 million of advance payments (as was agreed in the November 2003
agreements described below), without interest; and
- an extension of time to the original completion dates and other milestone
dates that average approximately 18 months, thereby granting an
additional approximately six months beyond the extensions granted in the
November 2003 agreements (described below) before liquidated damages for
project delays will be assessed.
November 2003 Agreements. If the April 2004 agreement in principle is not
implemented, we would remain subject to agreements entered into in November 2003
with the project owner in which the project owner agreed to:
- pay $69.0 million to settle a portion of our claims, thereby reducing the
amount of probable unapproved claims to $114.0 million;
- extend the original project completion dates and other milestone dates,
reducing our original exposure to liquidated damages; and
- delay Kellogg Brown & Root's repayment of approximately $300.0 million in
advance payments until December 2004, although we and the project owner
did not resolve whether Kellogg Brown & Root would be obligated to pay
interest on this amount.
In addition, we would remain subject to the following risks under the
November 2003 agreements:
Unapproved Claims. We have asserted claims for compensation
substantially in excess of the $114.0 million of probable unapproved
claims, as well as claims for additional time to complete the project
before liquidated damages become applicable. The project owner and
Petrobras asserted claims against us that are in addition to the project
owner's potential claims for liquidated damages. In the November 2003
agreements, the parties agreed to arbitrate these remaining disputed
claims. In addition,
23
we agreed to cap our financial recovery to a maximum of $375.0 million, and
the project owner and Petrobras agreed to cap their recovery to a maximum
of $380.0 million plus liquidated damages.
Liquidated Damages. In the event that any portion of the project
delay is determined to be attributable to us and any phase of the project
is completed after the milestone dates specified in the contract, we could
be required to pay liquidated damages. These damages were initially (prior
to the November 2003 agreements) calculated on an escalating basis rising
ultimately to approximately $1.0 million per day of delay caused by us,
subject to a total cap on liquidated damages of 10% of the final contract
amount, yielding a cap of approximately $272.0 million as of June 30, 2004.
Under the November 2003 agreements, the project owner granted an
extension of time to the original completion dates and other milestone
dates that average approximately 12 months. In addition, the project owner
agreed to delay any attempt to assess the original liquidated damages
against us for project delays beyond 12 months and up to 18 months and
delay any drawing of letters of credit with respect to such liquidated
damages until the earliest of December 7, 2004, the completion of any
arbitration proceedings or the resolution of all claims between the project
owner and us. Although the November 2003 agreements do not delay the
drawing of letters of credit for liquidated damages for delays beyond 18
months, our master letter of credit facility will provide funding for any
such draw before December 31, 2004. The November 2003 agreements also
provide 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. That amount is subject to the total cap
on liquidated damages of 10% of the final contract amount. Based upon the
November 2003 agreements and our June 2004 project forecasts, we estimate
that if we were to be completely unsuccessful in our claims for additional
time, we would be obligated to pay approximately $244.0 million in
liquidated damages. If the April 2004 agreement in principle were not
finalized, based on June 2004 project forecasts, Kellogg Brown & Root could
be subject to an additional approximately $159.0 million in liquidated
damages beyond the $85.0 million of liquidated damages recorded as of June
30, 2004 in the event that the delay in the project is determined to be
attributable to us. We have accrued $85.0 million for this exposure as of
June 30, 2004. There can be no assurance that further project delays will
not occur.
Value Added Taxes. On December 16, 2003, the State of Rio de Janeiro
issued a decree recognizing that Petrobras is entitled to a credit for the
value added taxes paid on the project. The decree also provided that value
added taxes that may have become due on the project, but which had not yet
been paid, could be paid in January 2004 without penalty or interest. In
response to the decree, Petrobras agreed to:
- directly pay the value added taxes due on all imports on the project
(including Petrobras' January 2004 payment of approximately $150.0
million); and
- reimburse us for value added taxes paid on local purchases, of which
approximately $100.0 million will become due during 2004.
Since the credit to Petrobras for these value added taxes is on a
delayed basis, the issue of whether we must bear the cost of money for the
period from payment by Petrobras until receipt of the credit has not been
determined.
The validity of the December 2003 decree has now been challenged in
court in Brazil. Our legal advisers in Brazil believe that the decree will
be upheld. If it is overturned or rescinded, or the Petrobras credits are
lost for any other reason not due to Petrobras, the issue of who must
ultimately bear the cost of the value added taxes will have to be
determined based upon the law prior to the December 2003 decree. We believe
that the value added taxes are reimbursable under the contract and prior
law, but, until the December 2003 decree was issued, Petrobras and the
project owner had been contesting the reimbursability of up to $227.0
million of value added taxes. There can be no assurance that we will not be
required to pay all or a portion of these value added taxes. In addition,
penalties and interest of $40.0 million to $100.0 million could be due if
the December 2003 decree is invalidated. We have paid $8.0 million for
these amounts as of June 30, 2004.
24
Default Provisions. In the event that we were determined to be in default
under the contract, and if the project was not completed by us as a result of
such default (i.e., our services are terminated as a result of such default),
the project owner may seek direct damages. Those damages could include
completion costs in excess of the contract price and interest on borrowed funds,
but would exclude consequential damages. The total damages could be up to $500.0
million plus the return of up to $300.0 million in advance payments previously
received by us to the extent they have not been repaid. The original contract
terms require repayment of the $300.0 million in advance payments by crediting
the last $350.0 million of our invoices related to the contract by that amount,
but the November 2003 agreements delay the repayment of any of the $300.0
million in advance payments until at least December 7, 2004. The April 2004
agreement in principle provides that interest on this amount is not due and
payable. A termination of the contract by the project owner could have a
material adverse effect on our financial condition and results of operations.
Cash Flow Considerations. The project owner has procured project finance
funding obligations from various lenders to finance the payments due to us under
the contract. In addition, the project financing includes borrowing capacity in
excess of the original contract amount.
Under the loan documents, the availability date for loan draws expired
December 1, 2003 and, therefore, the project owner drew down all remaining
available funds on that date. As a condition to the draw-down of the remaining
funds, the project owner was required to escrow the funds for the exclusive use
of paying project costs. The availability of the escrowed funds can be suspended
by the lenders if applicable conditions are not met. With limited exceptions,
these funds may not be paid to Petrobras or its subsidiary, which is funding the
drilling costs of the project, until all amounts due to us, including amounts
due for the claims, are liquidated and paid. While this potentially reduces the
risk that the funds would not be available for payment to us, we are 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 claims
and change orders.
We have begun to fund operating cash shortfalls on the project and are
obligated to fund total shortages over the remaining project life. Approximately
$342.0 million of this amount will be paid during the second half of 2004 (which
includes approximately half of the second quarter 2004 charge described
previously), and approximately $171.0 million of this amount will be paid during
2005. That funding level assumes that, pursuant to amended project agreements
implementing the April 2004 agreement in principle, neither we nor the project
owner recover additional claims against the other, other than liquidated damages
for project delays. The operating cash shortfalls set forth in this paragraph
may increase and we may be required to fund additional amounts over the
remaining project life.
A JOINT VENTURE IN WHICH A HALLIBURTON UNIT PARTICIPATES IS UNDER
INVESTIGATION AS A RESULT OF PAYMENTS MADE IN CONNECTION WITH A LIQUEFIED
NATURAL GAS PROJECT IN NIGERIA.
The SEC has commenced a formal investigation into payments made in
connection with the construction and subsequent expansion by TSKJ of a
multibillion dollar natural gas liquefaction complex and related facilities at
Bonny Island in Rivers State, Nigeria. A French magistrate has also been
investigating this matter. TSKJ and other similarly owned entities have entered
into various contracts to build and expand the liquefied natural gas project for
Nigeria LNG Limited, which is owned by the Nigerian National Petroleum
Corporation, Shell Gas B.V., Cleag Limited (an affiliate of Total), and Agip
International B.V. TSKJ is a private limited liability company registered in
Madeira, Portugal whose members are Technip SA of France, Snamprogetti
Netherlands B.V., which is an affiliate of ENI SpA of Italy, JGC Corporation of
Japan, and Kellogg Brown & Root, each of which owns 25% of the venture.
In June 2004, we terminated all relationships with Mr. A. Jack Stanley, who
most recently served as a consultant and chairman of Kellogg Brown & Root, and
another consultant and former employee of M.W. Kellogg, Ltd., a joint venture in
which Kellogg Brown & Root has a 55% interest. The terminations occurred because
of violations of Halliburton's code of business conduct that allegedly involve
the receipt of improper personal benefits in connection with TSKJ's construction
of the natural gas liquefaction facility in Nigeria. We understand that Mr.
Stanley has received a subpoena from the SEC. It has also been reported recently
in the French press that the French magistrate has officially placed an agent of
TSKJ under investigation for corruption of a foreign public official.
25
The United States Department of Justice and the SEC have met with
Halliburton to discuss these matters and have asked Halliburton for cooperation
and access to information in reviewing these matters in light of the
requirements of the United States Foreign Corrupt Practices Act. Halliburton has
engaged outside counsel to investigate any allegations and is cooperating with
the United States government's inquiries and will make its employees available
for testimony. While Halliburton does not believe it has violated the Foreign
Corrupt Practices Act, Halliburton's own internal investigation of these matters
is on-going and there can be no assurance that the government's or Halliburton's
investigation will not conclude otherwise. Representatives of Halliburton have
also recently met with the French magistrate to express their willingness to
cooperate with the magistrate's investigation. In Nigeria, a legislative
committee of the National Assembly and the Economic and Financial Crimes
Commission, which is organized as part of the executive branch of the
government, are also investigating these matters. Halliburton intends to
cooperate with these investigations as well. As of March 31, 2004, we had not
accrued any amounts related to this investigation.
WE ARE SUBJECT TO SEC INVESTIGATIONS, WHICH COULD MATERIALLY AFFECT US.
In addition to the SEC investigation described in the immediately preceding
risk factor, we are currently the subject of a formal investigation by the SEC,
which we believe is focused on the accuracy, adequacy and timing of our
disclosure of the change in our accounting practice for revenues associated with
estimated cost overruns and unapproved claims for specific long-term engineering
and construction projects. The resolution of these investigations could have a
material adverse effect on us and result in:
- the institution of administrative, civil or injunctive proceedings;
- sanctions and the payment of fines and penalties; and
- increased review and scrutiny of us by regulatory authorities, the media
and others.
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, businesses,
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 our common stock. These transactions may also affect our
consolidated 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 earnings, 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 a material 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. We also cannot control the
actions of our joint venture partners, including any nonperformance, default or
bankruptcy of our joint venture partners. These factors could potentially
materially and adversely affect the business and operations of the joint venture
and, in turn, our business and operations.
26
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 10% of KBR's revenues for the first quarter of 2004 and
approximately 24% for the year ended December 31, 2003. We bear the risk of cost
overruns, 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 and costs committed,
could have a material adverse effect on our business, results of operations and
financial condition.
CHANGES IN GOVERNMENTAL SPENDING AND CAPITAL SPENDING BY OUR CUSTOMERS MAY
ADVERSELY AFFECT US.
Our business is directly affected by changes in governmental spending and
capital expenditures by our customers. Some of the changes that may materially
and 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. For example,
the current level of government services being provided in the Middle
East may not continue for an extended period of time;
- an increase in the magnitude of governmental spending and outsourcing for
military and logistical support, which can materially and 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 governments for infrastructure projects
of the type that we undertake;
- the consolidation of our customers, which has (1) caused customers to
reduce their capital spending, which has in turn 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;
- adverse developments in the businesses and operations of our customers in
the oil and gas industry, including write-downs of reserves and
reductions in capital spending for exploration, development, production,
processing, refining, and pipeline delivery networks; and
- ability of our customers to timely pay the amounts due us.
THE LOSS OF ONE OR MORE SIGNIFICANT CUSTOMERS COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR BUSINESS AND OUR CONSOLIDATED RESULTS OF OPERATIONS.
Both our Energy Services Group and KBR depend on a limited number of
significant customers. While, except for the United States Government, none of
these customers represented more than 10% of consolidated revenues in any recent
period, the loss of one or more significant customers could have a material
adverse effect on our business and our consolidated results of operations.
WE ARE SUSCEPTIBLE TO ADVERSE WEATHER CONDITIONS IN OUR REGIONS OF OPERATIONS.
Our businesses could be materially and 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;
27
- 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 United States business,
warmer than normal winters in the United States are detrimental to the demand
for our services to gas producers.
WE ARE RESPONDING TO AN INQUIRY FROM THE OFFICE OF FOREIGN ASSETS CONTROL
REGARDING ONE OF OUR NON-UNITED STATES SUBSIDIARIES' OPERATIONS IN IRAN.
We have a Cayman Islands subsidiary with operations in Iran, and other
European subsidiaries that manufacture goods destined for Iran and/or render
services in Iran. The United States imposes trade restrictions and economic
embargoes that prohibit United States incorporated entities and United States
citizens and residents from engaging in commercial, financial or trade
transactions with some foreign countries, including Iran, unless authorized by
the Office of Foreign Assets Control (OFAC) of the United States Treasury
Department or exempted by statute.
We received and responded to an inquiry in mid-2001 from OFAC with respect
to the operations in Iran by a Halliburton subsidiary that is incorporated in
the Cayman Islands. The OFAC inquiry requested information with respect to
compliance with the Iranian Transaction Regulations. Our 2001 written response
to OFAC stated that we believed that we were in full compliance with applicable
sanction regulations. In January 2004, we received a follow-up letter from OFAC
requesting additional information. We responded fully to this request on March
19, 2004. We understand this matter has now been referred by OFAC to the
Department of Justice. In July 2004, Halliburton received from an Assistant U.S.
Attorney for the Southern District of Texas a grand jury subpoena requesting the
production of documents. We intend to cooperate with the government's
investigation. As of March 31, 2004, we had not accrued any amounts related to
this investigation.
Separate from the OFAC inquiry, we completed a study in 2003 of our
activities in Iran during 2002 and 2003 and concluded that these activities were
in full compliance with applicable sanction regulations. These sanction
regulations require isolation of entities that conduct activities in Iran from
contact with United States citizens or managers of United States companies.
We have been asked to and could be required to respond to other questions
and inquiries about operations in countries with trade restrictions and economic
embargoes.
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
28
- limitations on our ability to reinvest earnings from operations in one
country to fund the capital needs of our operations in other countries.
We conduct business in countries that have non-traded or "soft" currencies
which, because of their restricted or limited trading markets, may be more
difficult to exchange for "hard" currency. We may accumulate cash in soft
currencies and we may be limited in our ability to convert our profits into
United States 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 value of the derivative instruments could be impacted by:
- adverse movements in foreign exchange rates;
- interest rates;
- commodity prices; or
- the value and time period of the derivative being different than the
exposures or cash flows being hedged.
WE ARE SUBJECT TO A VARIETY OF ENVIRONMENTAL REQUIREMENTS THAT IMPOSE ON US
OBLIGATIONS OR RESULT IN OUR INCURRING LIABILITIES THAT WILL ADVERSELY AFFECT
OUR RESULTS OF OPERATIONS OR FOR WHICH OUR FAILURE TO COMPLY COULD ADVERSELY
AFFECT US.
Our businesses are subject to a variety of environmental laws, rules and
regulations in the United States and other countries, including those covering
hazardous materials and requiring emission performance standards for facilities.
For example, our well service operations routinely involve the handling of
significant amounts of waste materials, some of which are classified as
hazardous substances. We also use radioactive and explosive materials in certain
of our operations. Environmental requirements include, for example, those
concerning:
- the containment and disposal of hazardous substances, oilfield waste and
other waste materials;
- the importation and use of radioactive materials;
- the use of underground storage tanks; and
- the use of underground injection wells.
Environmental and other similar 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 to conduct business; 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 a material 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 could
have a material adverse effect on our business, financial condition, operating
results or cash flows.
29
We are exposed to claims under environmental requirements and from time to
time such claims have been made against us. In the United States, environmental
requirements 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.
Changes in environmental requirements may negatively impact demand for our
services. For example, 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
materially and adversely affect our competitive position.
IF WE DO NOT DEVELOP NEW COMPETITIVE TECHNOLOGIES AND PRODUCTS OR IF OUR
PROPRIETARY TECHNOLOGIES, EQUIPMENT, FACILITIES OR WORK PROCESSES BECOME
OBSOLETE, OR IF WE HAVE PROBLEMS IMPLEMENTING NEW TECHNOLOGY, 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
could be materially and 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 could be materially and adversely
affected.
WE MAY BE UNABLE TO EMPLOY A SUFFICIENT NUMBER OF TECHNICAL PERSONNEL.
Many of the services that we provide and the products that we sell are
complex and highly engineered and often must perform or be performed in harsh
conditions. We believe that our success depends upon our ability to employ and
retain technical personnel with the ability to design, utilize and enhance these
products and services. In addition, our ability to expand our operations depends
in part on our ability to increase our skilled labor force. The demand for
skilled workers is high and the supply is limited. A significant increase in the
wages paid by competing employers could result in a reduction of our skilled
labor force, increases in the wage rates that we must pay or both. If either of
these events were to occur, our cost structure could increase, our margins could
decrease and our growth potential could be impaired.
RISKS RELATING TO THE 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
30
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.
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 plan of reorganization are guaranteed by some of our
subsidiaries. See "Description of Selected 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. In
the fourth quarter of 2003, we entered into (1) a secured 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 (2) a secured
$700.0 million revolving credit facility for general working capital purposes.
In July 2004, we entered into an additional secured $500.0 million 364-day
revolving credit facility for general working capital purposes with terms
substantially similar to our existing $700.0 million revolving credit facility.
As of the date of this prospectus, we have no outstanding advances under the
credit facilities and no other outstanding secured indebtedness. Under the
credit facilities, the lenders have limited the amount of indebtedness we can
issue that would be equally and ratably secured with indebtedness under the
credit facilities. See "Description of Selected Settlement-Related
Indebtedness." The indenture governing the new notes permits us to incur an
amount of Secured Debt (as defined in the new notes) 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
31
2023, our medium-term notes, our 7.6% debentures due 2096, our senior notes due
2005 and our 5 1/2% senior notes due 2010 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
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 March 31,
2004, the aggregate indebtedness of our subsidiaries was approximately $119.0
million, and other liabilities of our subsidiaries, including trade payables,
accrued compensation, advanced billings, income taxes payable and other
liabilities (other than asbestos and intercompany liabilities) were
approximately $5.5 billion, and accrued asbestos and silica liabilities were
approximately $4.3 billion. In addition, while the new notes will not be
guaranteed by any of our subsidiaries, borrowings under our credit facilities
are 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 March 31, 2004, we had approximately $3.966 billion of indebtedness,
representing a total debt to capitalization ratio of 62%. We may need to incur
or issue additional indebtedness to finance the remaining cash portion of our
proposed plan of reorganization. Further, the indenture that governs the
outstanding notes
32
and the new notes does not restrict us from issuing additional indebtedness. Our
level of debt is substantial, and 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.
THERE IS NO TRADING MARKET FOR THE NEW NOTES AND THERE MAY NEVER BE ONE.
The new notes are new securities for which currently there is no trading
market. 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 the 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.
33
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.
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, some of which are
described under "Description of Selected Settlement-Related Indebtedness," if
and when the proposed plan of reorganization is confirmed by the bankruptcy
court and the federal district court affirms such confirmation, and the
bankruptcy court and federal district court orders become final and
non-appealable, 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.
34
CAPITALIZATION
We have provided in the table below our consolidated cash and equivalents,
short-term debt and capitalization as of March 31, 2004. You should read this
table in conjunction with our consolidated financial statements and the related
notes incorporated by reference in this prospectus.
AS OF
MARCH 31,
2004
--------------
(IN MILLIONS)
CASH AND EQUIVALENTS........................................ $1,933
======
SHORT-TERM DEBT AND CURRENT MATURITIES OF LONG-TERM DEBT.... $ 32
------
LONG-TERM DEBT (EXCLUDING CURRENT MATURITIES):
3 1/8% convertible senior notes due July 15, 2023........... 1,200
5 1/2% senior notes due October 15, 2010.................... 748
Medium-term notes due through 2027.......................... 600
Floating rate senior notes due January 26, 2007............. 500
Floating rate senior notes due October 17, 2005............. 300
7.6% debentures due August 2096............................. 294
7.60% debentures due August 2096 of DII Industries,
LLC(1).................................................... 6
8.75% debentures due February 2021.......................... 200
Variable interest credit facility maturing September 2009... 46
Variable interest revolving line of credit due April 2005... 27
Effect of interest rate swaps............................... 8
Other notes with varying interest rates..................... 5
------
Total long-term debt...................................... 3,934
------
SHAREHOLDERS' EQUITY:
Common shares, par value $2.50 per share; 600 million shares
authorized(2); 457 million shares issued.................. 1,143
Paid-in capital in excess of par value...................... 268
Accumulated other comprehensive income...................... (350)
Retained earnings........................................... 1,951
Less 17 million shares of treasury stock, at cost........... 540
------
Total shareholders' equity................................ 2,472
------
Total capitalization and short-term debt.................. $6,438
======
---------------
(1) Halliburton is a co-obligor of the DII Industries debentures.
(2) In May 2004, the number of our authorized shares increased to 1 billion.
35
THE EXCHANGE OFFER
Participation in the exchange offer is voluntary, and you should carefully
consider whether to participate. 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 January 26, 2007
in exchange for a like principal amount of our outstanding unregistered senior
notes due January 26, 2007. 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 the closing of the offering. 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" 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 represent to us that:
- you are not our "affiliate," as defined in Rule 405 of the Securities
Act, 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 notes, that you acquired the outstanding notes to be
exchanged for new notes for your own account as a result of market-making
activities or other trading activities, and you acknowledge that 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.
36
RESALES OF NEW NOTES
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 are not engaged in, and do not intend to participate in, and have no
arrangement or understanding 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 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, $500.0 million aggregate principal
amount of the outstanding 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 Exchange Act, 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 and will not have registration rights. Other
than in connection with the exchange offer and as specified in the registration
rights agreement, we are not
37
obligated to, nor do we currently anticipate that we will, register the
outstanding notes under the Securities Act. See "-- Consequences of Failure to
Exchange" below.
By signing or agreeing to be bound by the letter of transmittal, you
acknowledge that, upon request, you will execute and deliver any additional
documents deemed by the exchange agent or us to be necessary or desirable to
complete the exchange, assignment and transfer of the outstanding notes tendered
by you, including the transfer of your notes on the account books maintained by
DTC.
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. The exchange agent will act as agent for the
tendering holders for the purpose of receiving the new notes.
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" below
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
, 2004 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
38
disclosure to the registered holders, we may extend the exchange offer if the
exchange offer would otherwise expire during that period.
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" above and "-- Your Representations to Us" below, and in
the letter of transmittal 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
39
-- 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 US. 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
40
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 17Ad-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
41
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 our "affiliate," as defined in Rule 405 of the Securities
Act, 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, you acquired the outstanding notes to be exchanged for
new notes for your own account as a result of market-making activities or
other trading activities, and you acknowledge that 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.
42
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
43
- 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.
44
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. In addition,
if you fail to exchange your outstanding notes, the market value of your
outstanding notes may be adversely affected because they may be more difficult
to sell. The tender of outstanding notes under the exchange offer will reduce
the outstanding aggregate principal amount of the outstanding notes. This may
have an adverse effect upon, and increase the volatility of, the market price of
any outstanding notes that you continue to hold due to a reduction in liquidity.
See "Risk Factors -- Risks 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."
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.
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.
ACCOUNTING TREATMENT
We will not recognize a gain or loss for accounting purposes upon the
consummation of the exchange offer.
OTHER
Participation in the exchange offer is voluntary, and you should carefully
consider whether to accept. You are urged to consult your financial and tax
advisors in making your decision on what action to take.
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.
45
DESCRIPTION OF SELECTED SETTLEMENT-RELATED INDEBTEDNESS
In connection with the proposed plan of reorganization, in the fourth
quarter of 2003, we entered into (1) a secured master letter of credit facility
intended to ensure that existing letters of credit supporting our contracts
remain in place during the Chapter 11 proceedings, which allows advances until
December 31, 2004, and (2) a secured $700.0 million revolving credit facility
for general working capital purposes, which matures in October 2006. In July
2004, we entered into an additional secured $500.0 million 364-day revolving
credit facility for general working capital purposes with terms otherwise
substantially similar to our existing secured $700.0 million revolving credit
facility maturing in October 2006. The new notes will share in the collateral
pledged to secure the credit facilities at times when the threshold for Secured
Debt (as defined in the new notes) is exceeded by advances and letter of credit
drawings under the credit facilities.
The following discussion is a summary of selected provisions of the
facilities described in the first paragraph of this "Description of Selected
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 credit facilities.
MASTER LC FACILITY
In connection with the proposed plan of reorganization, 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
is now effective. The Master LC Facility covers at least 90% of the face amount
of certain of our existing letters of credit, such credit 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 new letters of credit, so long as the total facility does not exceed
an amount equal to the amount of the facility at closing plus $250.0 million.
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, Halliburton Energy Services and certain
domestic subsidiaries of Halliburton and Halliburton Energy Services will
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 an obligor 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 is determined after giving effect to the restructuring that occurred
immediately prior to the Chapter 11 filing and excludes 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 December 31, 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 will 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 will 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 advance is repaid, the terms
of the Master LC Facility will override any such agreement or arrangement
relating to any Facility LC which is drawn prior to the Term-Out Date. Each
lender has permanently waived 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, will become term loans
payable in full on June 30, 2005 (unless prepaid prior to such date) and all
undrawn Facility LCs shall cease to be subject to the terms of the Master LC
Facility.
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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.
Prior to the occurrence of the Collateral Release Date (as defined below),
the Master LC Facility must 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 Facilities (as
defined below). To the extent that the aggregate principal amount of all LC
Advances and borrowings under the Revolving Credit Facilities exceed 5% of the
consolidated net tangible assets of Halliburton and its subsidiaries, such cash
collateral will 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, senior notes due 2005, 5 1/2% senior notes due 2010,
the senior notes due 2007 (whether registered or unregistered) 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
creditors (provided that the amount of such New Issuance which may be so secured
does not exceed $500.0 million). 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, will be applied to
ratably prepay outstanding LC Advances at such time.
Until the date of satisfaction of the conditions for release of the
collateral identified below, the Master LC Facility will 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 prior to the Collateral Release Date 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 (with customary exceptions) 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 will be shared
pro rata with the lenders under the Revolving Credit Facilities and, to the
extent that the aggregate principal amount of all LC Advances under the Master
LC Facility and borrowings under the Revolving Credit Facilities exceed 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, senior notes due 2005, 5 1/2% senior notes due 2010,
the senior notes due 2007 (whether registered or unregistered) 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 (provided that the amount of such New Issuance which may be so secured
does not exceed $500.0 million). Upon the occurrence of the Exit Date and the
satisfaction of certain conditions, the Master LC Facility will be unsecured
(the "Collateral Release Date"). The granting and perfection of collateral
(including, without limitation, collateral consisting of foreign subsidiary
stock pledges) will 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 is the London interbank offered rate for deposits in U.S.
dollars at 11:00 A.M. (London time) for the two business
47
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 will 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 advances owing under the loan documentation would increase
by 2% per annum.
REVOLVING CREDIT FACILITIES
In connection with the proposed plan of reorganization, we entered into (1)
a secured revolving credit facility, which matures in October 2006 and provides
for a total commitment of up to $700.0 million, and (2) a secured revolving
credit facility, which matures in July 2005 and provides for a total commitment
of up to $500.0 million (together, the "Revolving Credit Facilities").
The entire commitment under each of the Revolving Credit Facilities is
available for standby and trade letters of credit (the "Letters of Credit").
For so long as the Revolving Credit Facilities are secured by any
collateral as set forth below, Halliburton Energy Services and certain domestic
subsidiaries of Halliburton and Halliburton Energy Services will guaranty the
obligations under the Revolving Credit Facilities. As used herein,
"subsidiaries" of Halliburton and Halliburton Energy Services is determined
after giving effect to the restructuring that occurred immediately prior to the
Chapter 11 filing and excludes 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 will 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 of
Halliburton and Halliburton Energy Services (other than Halliburton Affiliates
LLC), (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 prior to the Collateral Release Date
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 Revolving Credit Facilities are also secured
by a perfected, first priority lien on (a) the tangible and intangible assets
(with customary exceptions) 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
Facilities will be required to be cash collateralized with the net proceeds of
any sales of collateral, subject to certain exceptions. All collateral will 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
Facilities and advances under the Master LC Facility exceeds 5% of the
consolidated net tangible assets of Halliburton and its subsidiaries such
collateral will 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, senior notes due 2005, 5 1/2% senior notes due October
2010, the senior notes due 2007 (whether registered or unregistered) 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 (provided that the amount of
such New Issuance which may
48
be so secured does not exceed $500.0 million). Upon the occurrence of the
Collateral Release Date, the Revolving Credit Facilities will be unsecured.
The interest rate per annum (calculated on a 360-day basis) applicable to
the advances is (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 will 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
interest rate on all advances 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
Facilities," borrowings under the Master LC Facility and the Revolving Credit
Facilities are secured by a perfected, first-priority lien, on certain of our
assets. Any such liens will 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.
- 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
Facilities and Master LC Facility and disclosed to the lenders under the
Revolving Credit Facilities 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
Facilities and the Master LC Facility, and there shall have been no
material adverse change in the status or financial effect on us on a
consolidated basis of the disclosed litigation;
- our long-term senior unsecured debt is rated BBB or higher (stable
outlook) by Standard & Poor's and Baa2 or higher (stable outlook) by
Moody's and these ratings have been recently confirmed by Standard &
Poor's and Moody's;
- there is no material adverse change (which term shall not be deemed to
refer to the commencement of the Chapter 11 filing) since December 31,
2002 in our business, condition (financial or otherwise), operations,
performance, properties or prospects, except as disclosed in our June 30,
2003 quarterly report on Form 10-Q and except for the accounting charges
to be taken directly in connection with the plan of reorganization
payments; and
- we are not in default under either of the Revolving Credit Facilities 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 Third Supplemental Indenture thereto, dated as of January
26, 2004, establishing the terms of the notes between Halliburton and the
trustee (the "third 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."
If the exchange offer for the notes is consummated, holders of outstanding
notes who do not exchange their outstanding notes will vote together with
holders of the new notes for all relevant purposes under the indenture.
Accordingly, in determining whether the required holders have given any notice,
consent or waiver or taken any other action permitted under the indenture, any
outstanding notes that remain outstanding after the exchange offer will be
aggregated with new notes, and the holders of the outstanding notes and new
notes 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 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 the
notes offered hereby. Any such additional notes issued could be considered part
of the same series of notes under the indenture as the notes 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.
PRINCIPAL; MATURITY; INTEREST
The new notes will initially be limited to an aggregate principal amount of
$500,000,000. The 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 notes will mature on January 26, 2007 unless earlier redeemed by
us.
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The notes will bear interest at a floating rate. Interest on the notes will
be payable in cash quarterly on the 26th day of January, April, July and October
of each year, beginning April 26, 2004. Interest on the notes will be payable to
holders of record of the notes on the immediately preceding 1st day of January,
April, July and October, as the case may be.
The notes will bear interest for each interest period at a rate determined
by JPMorgan Chase Bank, acting as calculation agent. The interest rate on the
notes for a particular interest period will be a per annum rate equal to LIBOR
as determined on the interest determination date plus 0.75%. 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 notes for the first interest period is January 26, 2004. 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 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 $1.0 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 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 noteholder, the calculation agent will provide notice
of the interest rate in effect on the 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 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 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.
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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.
OPTIONAL REDEMPTION
No sinking fund is provided for the notes, which means that the indenture
will not require us to redeem or retire the notes periodically. However, the
notes will be redeemable at our option, in whole or in part, on each quarterly
interest payment date occurring on or after January 26, 2005, in principal
amounts of $1,000 or any integral multiple of $1,000 for an amount equal to 100%
of the principal amount of the notes to be redeemed, plus accrued and unpaid
interest to the date of redemption.
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 notes to be
redeemed.
If we are redeeming less than all the 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 notes or portions thereof called for redemption. We will pay 100%
of the principal amount of the notes at the maturity of those notes.
Except as described above, the new notes will not be redeemable by us prior
to maturity.
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 March 31, 2004, we had outstanding approximately $3.966 billion of
unsecured indebtedness, no secured indebtedness and no subordinated
indebtedness. As of the date of this prospectus, we had no outstanding advances
under our master letter of credit facility and our $700.0 million revolving
credit facility and no other outstanding secured indebtedness. At March 31,
2004, the aggregate indebtedness of our subsidiaries was approximately $119.0
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 $5.5
billion, and accrued asbestos and silica liabilities were approximately $4.3
billion. As of March 31, 2004, our subsidiaries had no secured indebtedness and
no subordinated indebtedness outstanding.
In the fourth quarter of 2003, we entered into (1) a secured master letter
of credit facility intended to ensure that existing letters of credit supporting
our contracts remain in place during the Chapter 11 proceedings, which allows
advances until December 31, 2004 and (2) a secured $700.0 million revolving
credit facility for general working capital purposes, which matures in October
2006. In July 2004, we entered into an additional secured $500.0 million 364-day
revolving credit facility for general working capital purposes with terms
substantially similar to our $700.0 million revolving credit facility. The terms
of the notes and the credit facilities provide that the notes offered hereby and
certain of our previously issued debt securities (including the outstanding
notes) and limited amounts of new issuances of debt, if similarly entitled, will
share in collateral pledged to secure borrowings under the credit facilities if
and when the total of all the Secured Debt (as defined in the new notes) exceeds
5% of the consolidated net tangible assets of Halliburton and its subsidiaries.
The terms of the credit facilities limit the amount of indebtedness we can issue
that would be equally and ratably secured with indebtedness under the credit
facilities. The terms of the credit facilities provide that collateral pledged
to secure borrowings under the credit facilities will be released after (1)
completion of the Chapter 11 plan of reorganization of DII Industries, Kellogg
Brown & Root and
52
some of their subsidiaries with U.S. operations, and (2) satisfaction of other
conditions described in this prospectus. For additional information, see
"Description of Selected Settlement-Related Indebtedness."
The new notes will not be guaranteed by any of our subsidiaries. Borrowings
under the credit facilities are 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 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 U.S. operations, and (2) satisfaction of the
other conditions described in this prospectus. For additional information, see
"Description of Selected Settlement-Related Indebtedness."
The notes are our exclusive obligation. Our cash flow and our ability to
service our indebtedness, including the notes, is dependent upon the earnings of
our subsidiaries. In addition, we are dependent on the distribution of earnings,
loans or other payments by our subsidiaries to us. Our subsidiaries are separate
and distinct legal entities. Our subsidiaries will not guarantee the notes or
have any obligation to pay any amounts due on the notes or to provide us with
funds for our payment obligations, whether by dividends, distributions, loans or
other payments. In addition, any payment of dividends, distributions, loans or
advances by our subsidiaries to us could be subject to statutory or contractual
restrictions. Payments to us by our subsidiaries will also be contingent upon
our subsidiaries' earnings and business considerations. Our right to receive any
assets of any subsidiary upon its liquidation or reorganization, and, therefore,
our right to participate in those assets, will be effectively subordinated to
the claims of that subsidiary's creditors, including trade creditors. In
addition, even if we were a creditor of any of our subsidiaries, our right as a
creditor would be subordinate to any security interest in the assets of our
subsidiaries and any indebtedness of our subsidiaries senior to that held by us.
See "Risk Factors -- Risks Relating to Asbestos and Silica
Liability -- Prolonged Chapter 11 proceedings of some of our subsidiaries may
negatively affect their ability to obtain new business and consequently may have
a negative impact on our financial condition and results of operations" and
"-- 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."
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 indebtedness and subsidiary guarantees
described above, see "Description of Selected 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 (unless waived or
amended) as long as the notes 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;
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- mortgages existing on property at the time of its acquisition by us or a
Restricted Subsidiary;
- mortgages existing on the property or on the outstanding shares or
indebtedness of a corporation at the time it becomes a Restricted
Subsidiary;
- mortgages on property of a corporation existing at the time the
corporation is merged or consolidated with 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 exceptions), plus
- the aggregate value of Sale and Leaseback Transactions in existence at
the time (not including Sale and Leaseback Transactions the proceeds of
which are or will be applied to the retirement of the notes or other
funded indebtedness of us and our Restricted Subsidiaries as described
below),
does not at the time exceed 5% of Consolidated Net Tangible Assets.
LIMITATIONS ON SALE AND LEASEBACK TRANSACTIONS
The indenture also prohibits Sale and Leaseback Transactions unless:
- Halliburton or the Restricted Subsidiary owning the Principal Property
would be entitled to incur Secured Debt equal to the amount realizable
upon the sale or transfer 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 us or a Restricted Subsidiary.
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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 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 the 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 the 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 affected
notes then outstanding;
- failure to make any payment at maturity on any indebtedness, upon
redemption or otherwise, in the aggregate principal amount of $125.0
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 $125.0 million
or more so that it becomes due and payable prior to the
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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
any other series of debt securities issued under the indenture.
If any event of default occurs for the 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 (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 notes (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 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 the notes;
- the holders of at least 25% in principal amount of the then-outstanding
notes have made a written request to the trustee to institute the suit,
action or proceeding and have offered to the trustee the reasonable
indemnity it may require; and
- the trustee for 60 days after its receipt of the notice, request and
offer of indemnity has neglected or refused to institute the requested
action, suit or proceeding, and during that 60 day period the holders of
a majority in principal amount of the then-outstanding notes 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 (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 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
("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").
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If notes are defeased, the holders of the notes 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 United States federal income tax purposes and
that holders will be subject to federal income tax in the same amount and in the
same manner and at the same times as would have been the case if such defeasance
had not occurred. If we elect legal defeasance, that opinion of counsel must be
based upon a ruling from the United States 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 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, however, no modification
may:
- 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 the notes;
- extend the stated maturity of the principal of the notes;
- reduce the amount of the principal of or premium, if any, on the notes;
- 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 the notes or add guarantees of or additional obligors on, the
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 the 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.
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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.
"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
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(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.
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
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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.
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.
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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 from 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 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.
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,
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-- 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 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 for all relevant
purposes under the indenture.
63
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 individuals, corporations, estates or trusts 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.
64
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.
65
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 (and,
if required by a tax treaty, the interest is 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, if any, or will be otherwise
refundable, provided that the required information is furnished to the IRS in a
timely manner.
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
66
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.
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.
67
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 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 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 United States 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.
68
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.
69
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
, 2004 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
under the sections "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;
- at market prices or negotiated prices; or
- a combination of methods of resale
The prices at which these sales occur may be:
- at market prices prevailing at the time of resale;
- at prices related to prevailing market prices; or
- at negotiated prices.
70
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.
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, 2003 and 2002 and for the years then ended, have been incorporated by
reference in this prospectus in reliance on the reports of KPMG LLP, independent
registered public accounting firm, and upon the authority of said firm as
experts in accounting and auditing.
KPMG's report dated February 18, 2004 refers to a change in the composition
of Halliburton's reportable segments in 2003. The amounts in the 2002 and 2001
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
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.
71
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.
72
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--------------------------------------------------------------------------------
$500,000,000
HALLIBURTON COMPANY
SENIOR NOTES DUE JANUARY 26, 2007
(HALLIBURTON LOGO)
------------------------
PROSPECTUS
------------------------
, 2004
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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.
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 May 21,
2004.
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).
II-1
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
-------- ----------------------
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 Third Supplemental Indenture dated as of January 26, 2004
between Halliburton and JPMorgan Chase Bank, as Trustee.
4.3 Form of Senior Notes due 2007 (included as Exhibit A to
Exhibit 4.2 above).
+4.4 Registration Rights Agreement dated as of January 26, 2004
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 January 21, 2004.
+5.1 Opinion of Baker Botts L.L.P.
Selected Material Contracts:
10.1* 3-Year Revolving Credit Agreement, dated as of October 31,
2003, among Halliburton, the Banks party thereto, Citicorp
North America, Inc., as Administrative Agent, JPMorgan Chase
Bank, as Syndication Agent, and ABN AMRO Bank N.V., as
Documentation Agent (incorporated by reference to Exhibit
10.2 to Halliburton's Form 10-Q for the quarter ended
September 30, 2003, File No. 1-3492).
10.1(a) Amendment No. 1 dated as of July 14, 2004 to the 3-Year
Revolving Credit Agreement, dated as of October 31, 2003,
among Halliburton, the Banks party thereto, Citicorp North
America, Inc., as Administrative Agent, JPMorgan Chase Bank,
as Syndication Agent, and ABN AMRO Bank N.V., as
Documentation Agent.
10.2* Master Letter of Credit Facility Agreement, dated as of
October 31, 2003, among Halliburton, Kellogg Brown & Root,
Inc., and DII Industries, LLC, as Account Parties, the Banks
party thereto, Citicorp North America, Inc., as
Administrative Agent, JPMorgan Chase Bank, as Syndication
Agent, and ABN AMRO Bank N.V., as Documentation Agent
(incorporated by reference to Exhibit 10.3 to Halliburton's
Form 10-Q for the quarter ended September 30, 2003, File No.
1-3492), as amended by Amendment No. 1 dated as of May 10,
2004 (incorporated by reference to Exhibit 10.4 of
Halliburton's Registration Statement on Form S-4 filed on
June 3, 2004, Registration No. 333-112977).
10.2(a) Amendment No. 2 dated as of July 14, 2004 to the Master
Letter of Credit Facility Agreement, dated as of October 31,
2003, among Halliburton, Kellogg Brown & Root, Inc., and DII
Industries, LLC, as Account Parties, the Banks party
thereto, Citicorp North America, Inc., as Administrative
Agent, JPMorgan Chase Bank, as Syndication Agent, and ABN
AMRO Bank N.V., as Documentation Agent, as amended.
10.3 364-Day Revolving Credit Agreement, dated as of July 14,
2004, among Halliburton, the Issuing Banks and Banks party
thereto, Citicorp North America, Inc., as Paying Agent and
as Co-Administrative Agent, JPMorgan Chase Bank, as
Co-Administrative Agent, ABN AMRO Bank N.V., as Syndication
Agent, and HSBC Bank USA, National Association and The Royal
Bank of Scotland plc, as Co-Documentation Agents.
12.1* Statement of computation of ratio of earnings to fixed
charges (incorporated by reference to Exhibit 12 to
Halliburton's Form 10-Q for the quarter ended March 31,
2004, File No. 1-3492).
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
2007.
+99.2 Form of Letter to Clients for the Senior Notes due 2007.
+99.3 Form of Notice of Guaranteed Delivery for the Senior Notes
due 2007.
II-2
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
-------- ----------------------
+99.4 Form of Letter of Transmittal for the Senior Notes due 2007.
---------------
* Incorporated by reference as indicated.
+ Previously filed.
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
II-3
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.
(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 July 19, 2004.
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 July 20, 2004.
/s/ David J. Lesar Chairman of the Board, President, Chief Executive
-------------------------------------- Officer and Director (Principal Executive Officer)
David J. Lesar
/s/ C. Christopher Gaut Executive Vice President and Chief Financial
-------------------------------------- Officer (Principal Financial Officer)
C. Christopher Gaut
/s/ Mark A. McCollum Senior Vice President and Chief Accounting Officer
-------------------------------------- (Principal Accounting Officer)
Mark A. McCollum
* 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 May 21,
2004.
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 Third Supplemental Indenture dated as of January 26, 2004
between Halliburton and JPMorgan Chase Bank, as Trustee.
4.3 Form of Senior Notes due 2007 (included as Exhibit A to
Exhibit 4.2 above).
+4.4 Registration Rights Agreement dated as of January 26, 2004
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 January 21, 2004.
+5.1 Opinion of Baker Botts L.L.P.
Selected Material Contracts:
10.1* 3-Year Revolving Credit Agreement, dated as of October 31,
2003, among Halliburton, the Banks party thereto, Citicorp
North America, Inc., as Administrative Agent, JPMorgan Chase
Bank, as Syndication Agent, and ABN AMRO Bank N.V., as
Documentation Agent (incorporated by reference to Exhibit
10.2 to Halliburton's Form 10-Q for the quarter ended
September 30, 2003, File No. 1-3492).
10.1(a) Amendment No. 1 dated as of July 14, 2004 to the 3-Year
Revolving Credit Agreement, dated as of October 31, 2003,
among Halliburton, the Banks party thereto, Citicorp North
America, Inc., as Administrative Agent, JPMorgan Chase Bank,
as Syndication Agent, and ABN AMRO Bank N.V., as
Documentation Agent.
10.2* Master Letter of Credit Facility Agreement, dated as of
October 31, 2003, among Halliburton, Kellogg Brown & Root,
Inc., and DII Industries, LLC, as Account Parties, the Banks
party thereto, Citicorp North America, Inc., as
Administrative Agent, JPMorgan Chase Bank, as Syndication
Agent, and ABN AMRO Bank N.V., as Documentation Agent
(incorporated by reference to Exhibit 10.3 to Halliburton's
Form 10-Q for the quarter ended September 30, 2003, File No.
1-3492), as amended by Amendment No. 1 dated as of May 10,
2004 (incorporated by reference to Exhibit 10.4 of
Halliburton's Registration Statement on Form S-4 filed on
June 3, 2004, Registration No. 333-112977).
10.2(a) Amendment No. 2 dated as of July 14, 2004 to the Master
Letter of Credit Facility Agreement, dated as of October 31,
2003, among Halliburton, Kellogg Brown & Root, Inc., and DII
Industries, LLC, as Account Parties, the Banks party
thereto, Citicorp North America, Inc., as Administrative
Agent, JPMorgan Chase Bank, as Syndication Agent, and ABN
AMRO Bank N.V., as Documentation Agent, as amended.
10.3 364-Day Revolving Credit Agreement, dated as of July 14,
2004, among Halliburton, the Issuing Banks and Banks party
thereto, Citicorp North America, Inc., as Paying Agent and
as Co-Administrative Agent, JPMorgan Chase Bank, as
Co-Administrative Agent, ABN AMRO Bank N.V., as Syndication
Agent, and HSBC Bank USA, National Association and The Royal
Bank of Scotland plc, as Co-Documentation Agents.
12.1* Statement of computation of ratio of earnings to fixed
charges (incorporated by reference to Exhibit 12 to
Halliburton's Form 10-Q for the quarter ended March 31,
2004, File No. 1-3492).
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.
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
-------- ----------------------
+99.1 Form of Letter to DTC Participants for the Senior Notes due
2007.
+99.2 Form of Letter to Clients for the Senior Notes due 2007.
+99.3 Form of Notice of Guaranteed Delivery for the Senior Notes
due 2007.
+99.4 Form of Letter of Transmittal for the Senior Notes due 2007.
---------------
* Incorporated by reference as indicated.
+ Previously filed.