Filed pursuant to Rule 424(b)(3)
Registration No. 333-110035
PROSPECTUS
[HALLIBURTON LOGO]
$1,200,000,000
HALLIBURTON COMPANY
3 1/8% CONVERTIBLE SENIOR NOTES DUE JULY 15, 2023
AND
COMMON STOCK ISSUABLE UPON CONVERSION OF THE NOTES
This prospectus relates to $1,200,000,000 aggregate principal amount of our
3 1/8% Convertible Senior Notes due July 15, 2023. We originally issued and sold
the notes to Citigroup Global Markets Inc., Goldman, Sachs & Co., J.P. Morgan
Securities Inc., ABN AMRO Incorporated, HSBC and The Royal Bank of Scotland plc
in a private placement in June 2003. This prospectus will be used by selling
securityholders to resell their notes and the common stock issuable upon
conversion of the notes.
We will pay interest on the notes on January 15 and July 15 of each year.
The first interest payment was made on January 15, 2004. The notes are not
guaranteed by any of our subsidiaries.
The notes will mature on July 15, 2023. Holders may convert the notes into
shares of our common stock (unless earlier redeemed or repurchased by us) under
the following circumstances: (1) if the price of our common stock issuable upon
conversion of the notes reaches specified thresholds described in this
prospectus, (2) if we call the notes for redemption, (3) upon the occurrence of
specified corporate transactions described in this prospectus or (4) if the
credit ratings assigned to the notes decline below the levels described in this
prospectus. Upon conversion, we will have the right to deliver, in lieu of
common stock, cash or a combination of cash and common stock. The initial
conversion rate is 26.5583 shares of common stock per each $1,000 principal
amount of notes. This is equivalent to an initial conversion price of $37.65 per
share. Our common stock is listed on the New York Stock Exchange and the Swiss
Exchange under the symbol "HAL". On February 5, 2004, the closing price for our
common stock on the New York Stock Exchange was $29.40 per share.
The notes trade in the Private Offerings, Resales and Trading through
Automatic Linkages Market commonly referred to as the Portal Market; however,
the notes resold pursuant to this prospectus will no longer trade in the Portal
Market.
On or after July 15, 2008, we have the option to redeem all or a portion of
the notes that have not been previously converted or repurchased at the
redemption prices set forth in this prospectus. You have the option, subject to
certain conditions, to require us to repurchase any notes held by you on July
15, 2008, July 15, 2013 and July 15, 2018 or, prior to July 15, 2008, upon a
fundamental change as described in this prospectus, at a price equal to 100% of
the principal amount of the notes plus accrued interest and additional amounts
owed, if any, to the date of repurchase.
The notes are our senior unsecured obligations and rank equally with all
our other existing and future senior unsecured indebtedness. The notes are
evidenced by global notes deposited with a custodian for and registered in the
name of a nominee of The Depository Trust Company. Except as described in this
prospectus, beneficial interests in a global note is shown on, and transfers
thereon will be effected only through, records maintained by The Depository
Trust Company and its direct and indirect participants.
INVESTING IN THE NOTES AND THE COMMON STOCK ISSUABLE UPON THEIR CONVERSION
INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 12.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED WHETHER
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is February 9, 2004.
YOU SHOULD RELY ONLY ON THE INFORMATION WE HAVE PROVIDED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT. WE HAVE NOT
AUTHORIZED ANY PERSON (INCLUDING ANY SALESMAN OR BROKER) TO PROVIDE YOU WITH
ADDITIONAL OR DIFFERENT INFORMATION. WE ARE NOT MAKING AN OFFER OF THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD
ASSUME THAT THE INFORMATION IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT IS
ACCURATE ONLY AS OF THE DATE ON THE FRONT OF THAT DOCUMENT AND THAT ANY
INFORMATION WE HAVE INCORPORATED BY REFERENCE IS ACCURATE ONLY AS OF THE DATE OF
THE DOCUMENT INCORPORATED BY REFERENCE.
TABLE OF CONTENTS
PAGE
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Forward-Looking Statements.................................. i
Where You Can Find More Information......................... ii
Prospectus Summary.......................................... 1
Risk Factors................................................ 12
Use of Proceeds............................................. 36
Price Range of Common Stock and Dividend Policy............. 36
Description of Selected Settlement-Related Indebtedness..... 37
Description of Notes........................................ 43
Registration Rights Agreement............................... 65
Description of Capital Stock................................ 67
Selling Securityholders..................................... 72
Material United States Federal Income Tax Consequences...... 80
Certain ERISA Considerations................................ 87
Plan of Distribution........................................ 89
Legal Matters............................................... 91
Experts..................................................... 91
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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" and
in our Annual Report on Form 10-K, as amended by Form 10-K/A filed on January
15, 2004, for the year ended December 31, 2002, our Quarterly Reports on Form
10-Q for the quarters ended March 31, 2003, as amended by Form 10-Q/A filed on
January 15, 2004, June 30, 2003 and September 30, 2003 and our Current Report on
Form 8-K filed on October 28, 2003.
In addition, future trends for pricing, margins, revenues and profitability
remain difficult to predict in the industries we serve. We do not assume any
responsibility to publicly update any of our forward-looking statements
regardless of whether factors change as a result of new information, future
events or for any other reason. You should review any additional disclosures we
make in our press releases and our reports on Forms 10-K, 10-Q and 8-K filed
with or furnished to the SEC. We also suggest that you listen to our quarterly
earnings release conference calls with financial analysts.
i
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), pursuant to which we file annual,
quarterly and current reports, proxy statements and other information with the
SEC. You can read and copy any materials we file with the SEC at the SEC's
public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You
also can obtain additional information about the operation of the SEC's public
reference room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a
web site that contains information we file electronically with the SEC, which
you can access over the Internet at www.sec.gov, and our electronic SEC filings
are also available from our web site at www.halliburton.com. Information
contained on Halliburton's web site or any other web site is not incorporated
into this prospectus and does not constitute a part of this prospectus. You can
also obtain information about us at the offices of the New York Stock Exchange,
20 Broad Street, New York, New York 10005.
The following documents are incorporated into this prospectus by this
reference. They disclose important information that each holder should consider
when deciding whether to execute the letter of transmittal and consent.
- Our Annual Report on Form 10-K, as amended by Form 10-K/A filed on
January 15, 2004, for the year ended December 31, 2002;
- Our Quarterly Report on Form 10-Q for the quarters ended March 31, 2003,
as amended by Form 10-Q/A filed on January 15, 2004, June 30, 2003 and
September 30, 2003;
- Our Current Report on Form 8-K filed on October 28, 2003; and
- The description of our common stock (including the related preferred
share purchase rights) contained in our Form 8-B filed December 12, 1996,
as we may update that description from time to time.
All documents we file with the SEC pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this prospectus and prior to the
termination of the offering are also incorporated by reference in this
prospectus. Information incorporated by reference is considered to be a part of
this prospectus, and later information filed with the SEC prior to the
termination of the offering will automatically update and supersede this
information.
We will provide without charge to each person to whom a copy of this
prospectus has been delivered, upon the written or oral request of such person,
a copy of any and all of the documents that have been or may be incorporated by
reference in this prospectus, except that exhibits to such documents will not be
provided unless they are specifically incorporated by reference into such
documents. Requests for copies of any such document should be directed to:
Halliburton Company
1401 McKinney, Suite 2400
Houston, Texas 77010
Attention: Albert O. Cornelison, Jr.
Executive Vice President and General Counsel
Telephone: (713) 759-2600
ii
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 notes as well as
the tax and other considerations that are important to you in making a decision
about whether to invest in the notes and the common stock issuable upon their
conversion. In this prospectus, we refer to Halliburton Company and its
subsidiaries as "we," "us," "our" or "Halliburton," unless we specifically
indicate otherwise or the context clearly indicates otherwise.
HALLIBURTON COMPANY
GENERAL DESCRIPTION OF BUSINESS
We are one of the world's largest oilfield services companies and a leading
provider of engineering and construction services. We had total revenues for the
year ended December 31, 2002 of approximately $12.6 billion, and total revenues
for the nine months ended September 30, 2003 of approximately $10.8 billion.
We have five business segments that are organized around how we manage our
business: Drilling and Formation Evaluation, Fluids, Production Optimization,
Landmark and Other Energy Services and the Engineering and Construction Group.
We have been reporting these five segments since the second quarter of 2003. We
sometimes refer to the combination of the Drilling and Formation Evaluation,
Fluids, Production Optimization and Landmark and Other Energy Services segments
as the Energy Services Group. Through our Energy Services Group, we provide a
comprehensive range of discrete and integrated products and services for the
exploration, development and production of oil and gas. We serve major national
and independent oil and gas companies throughout the world. Our Engineering and
Construction Group (known as KBR) provides a wide range of services to energy
and industrial customers and governmental entities worldwide.
DRILLING AND FORMATION EVALUATION
Our Drilling and Formation Evaluation segment is primarily involved in
drilling and evaluating the formations related to bore-hole construction and
initial oil and gas formation evaluation. The products and services in this
segment incorporate integrated technologies, which offer synergies related to
drilling activities and data gathering. The segment consists of drilling
services, including directional drilling and
measurement-while-drilling/logging-while-drilling; logging services; and drill
bits. Included in this business segment are Sperry-Sun, logging and perforating
and Security DBS. Also included is our Mono Pumps business, which we disposed of
in the first quarter of 2003.
FLUIDS
Our Fluids segment focuses on fluid management and technologies to assist
in the drilling and construction of oil and gas wells. Drilling fluids are used
to provide for well control, drilling efficiency, and as a means of removing
wellbore cuttings. Cementing services provide zonal isolation to prevent fluid
movement between formations, ensure a bond to provide support for the casing,
and provide wellbore reliability. 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.
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PRODUCTION OPTIMIZATION
Our Production Optimization segment primarily tests, measures and provides
means to manage and/or improve well production once a well is drilled and, in
some cases, after it has been producing. This segment consists of:
- production enhancement services (including fracturing, acidizing, coiled
tubing, hydraulic workover, sand control and pipeline and process
services);
- completion products and services (including well completion equipment,
slickline and safety systems);
- tools and testing services (including underbalanced applications,
tubing-conveyed perforating and testing services); and
- subsea operations conducted in our 50% owned company, Subsea 7, Inc.
LANDMARK AND OTHER ENERGY SERVICES
Our Landmark and Other Energy Services segment provides integrated
exploration and production software information systems, consulting services,
real-time operations, smartwells and other integrated solutions. Included in
this business segment are Landmark Graphics, integrated solutions, Real Time
Operations and our equity method investment in WellDynamics B.V., an intelligent
well completions joint venture. Also included are Wellstream, Bredero-Shaw and
European Marine Contractors Ltd., all of which have been sold.
ENGINEERING AND CONSTRUCTION GROUP
Our Engineering and Construction Group provides engineering, procurement,
construction, project management and facilities operation and maintenance for
oil and gas and other industrial and governmental customers. Our Engineering and
Construction Group offers:
- onshore engineering and construction activities, including engineering
and construction of liquefied natural gas, ammonia and crude oil
refineries and natural gas plants;
- offshore deepwater engineering and marine technology and worldwide
construction capabilities;
- government operations, construction, maintenance and logistics activities
for government facilities and installations;
- plant operations, maintenance and start-up services for both upstream and
downstream oil, gas and petrochemical facilities as well as operations,
maintenance and logistics services for the power, commercial and
industrial markets; and
- civil engineering, consulting and project management services.
PROPOSED SETTLEMENT
As contemplated by our proposed settlement of asbestos and silica personal
injury claims, DII Industries, LLC, Kellogg Brown & Root Inc. and our other
affected 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. The bankruptcy court has scheduled a hearing
on confirmation of the proposed plan of reorganization for May 10 through 12,
2004. The affected subsidiaries will continue to be wholly owned by Halliburton
Company and will continue their normal operations. None of Halliburton Company,
Halliburton's Energy Services Group or Kellogg Brown & Root's government
services businesses are included in the Chapter 11 filing.
Prior to proceeding with the Chapter 11 filing, the affected subsidiaries
solicited acceptances from known present asbestos and silica claimants to a
proposed plan of reorganization. Valid votes were received from over 386,000
asbestos claimants and over 21,000 silica claimants, representing substantially
all known
2
claimants. Of the votes validly cast, over 97% of voting asbestos claimants and
over 99% of voting silica claimants voted to accept the proposed plan of
reorganization, meeting the voting requirements of Chapter 11 of the U.S.
Bankruptcy Code for approval of the proposed plan. The proposed plan of
reorganization on which the claimants voted was filed as part of the Chapter 11
proceedings.
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 $2.775 billion in cash, 59.5 million Halliburton shares (valued at
approximately $1.5 billion using a stock price of $24.87 per share, which
is based on an average trading price immediately prior to the filing of
the Chapter 11 proceedings) and notes with a face value totaling $157.0
million will be contributed to trusts for the benefit of current and
future asbestos and silica personal injury claimants; and
- the trust for asbestos claimants will receive a payment equal to the
amount of insurance recoveries received 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.
As a result of the filing of the Chapter 11 proceedings, we increased our
accrual for current and future asbestos and silica claims to reflect the full
amount of the proposed settlement, which, together with related expenses,
resulted in a before and after tax charge of approximately $1.1 billion in the
fourth quarter of 2003. The tax effect on this charge was minimal, as a
valuation allowance was established for the net operating loss carryforward
created by the charge. We will reclassify a portion of our asbestos and silica
related liabilities from long-term to short-term, resulting in an increase of
short-term liabilities by approximately $2.464 billion (which represents the
cash portion of the settlement less the $311.0 million we paid in December
2003), because we believe we will be required to fund the remainder of the cash
portion of the settlement within one year.
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 of the $2.775 billion cash
amount prior to the Chapter 11 filing. This payment was made on December 16,
2003. Halliburton also agreed to guarantee the payment of an additional $160.0
million of the original $2.775 billion cash amount, which must be paid on the
earlier to occur of (a) June 17, 2004 and (b) the date on which an order
confirming the proposed plan of reorganization becomes final and non-appealable.
OTHER RECENT DEVELOPMENTS
SEGMENT REPORTING
As described above in "-- General Description of Business," since the
second quarter of 2003 we have been reporting, and will continue to report, the
following five segments:
- Drilling and Formation Evaluation;
- Fluids;
- Production Optimization;
- Landmark and Other Energy Services; and
- Engineering and Construction Group.
Our current report on Form 8-K filed on October 28, 2003 contains information on
our current five segments as of and for the years ended December 31, 2000, 2001
and 2002.
On January 15, 2004, we amended the segment presentation in our Form 10-K
for the year ended December 31, 2002 and in our Form 10-Q for the quarter ended
March 31, 2003 to reflect eight segments. The eight segments are: Pressure
Pumping, Drilling and Formation Evaluation, Other Energy Services, Onshore
Operations, Offshore Operations, Government Operations, Operations and
Maintenance Services, and Infrastructure Operations. In our annual report on
Form 10-K for the year ended December 31, 2002 filed on March 28, 2003 and our
quarterly report on Form 10-Q for the quarter ended March 31, 2003
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filed on May 7, 2003, we reported two segments: the Energy Services Group and
the Engineering and Construction Group. However, as described above, our current
report on Form 8-K filed on October 28, 2003 reflects the five segments we
currently report and will continue to report.
ANGLO-DUTCH (TENGE) LITIGATION
As we reported in our quarterly report on Form 10-Q for the quarter ended
September 30, 2003, on October 24, 2003, a jury in the 61st District Court of
Harris County, Texas returned a verdict finding Halliburton Energy Services,
Inc. liable to Anglo-Dutch (Tenge) L.L.C. and Anglo-Dutch Petroleum
International, Inc. for breaching a confidentiality agreement related to an
investment opportunity we considered in the late 1990s in an oil field in the
former Soviet Republic of Kazakhstan. The jury awarded $70.4 million to
Anglo-Dutch (Tenge) and Anglo-Dutch Petroleum International. On January 21,
2004, the District Court judge upheld this verdict and awarded an additional
$9.8 million in attorney's fees and $25.9 million in pre-judgment interest on
all damages, bringing the total judgment to $106.1 million. In January 2004, we
posted security in the amount of $25.0 million in order to postpone execution on
the judgment until after all appeals have been exhausted. We intend to
vigorously prosecute our appeals. A charge in the amount of $77.0 million was
recorded in the third quarter of 2003 related to this matter in our Landmark and
Other Energy Services segment. No additional charge is being recorded at this
time as a result of the judgment.
SENIOR NOTES OFFERING
On January 26, 2004, we issued $500.0 million aggregate principal amount of
senior notes due 2007 bearing interest at a floating rate equal to three-month
LIBOR plus 0.75%. If the proposed settlement is consummated, we intend to use a
substantial portion of the $497.4 million of net proceeds from this offering to
contribute to the trusts for the benefit of the asbestos and silica claimants.
The net proceeds may also be used 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. The senior notes were offered only to qualified institutional
buyers and other eligible purchasers in a private placement offering. The notes
are not registered under the Securities Act of 1933 and may not be offered or
sold in the United States absent registration or an applicable exemption from
registration.
SETTLEMENT OF ASBESTOS INSURANCE CLAIMS
On January 28, 2004, we announced that we reached a comprehensive agreement
with Equitas to settle our insurance claims against certain Underwriters at
Lloyd's of London, reinsured by Equitas. The settlement will resolve all
asbestos-related claims made against Lloyd's Underwriters by us and by each of
our subsidiary and affiliated companies, including DII Industries, Kellogg Brown
& Root and their subsidiaries that have filed Chapter 11 bankruptcy proceedings
as part of our proposed asbestos and silica settlement. Our claims against our
London Market Company Insurers are not affected by this settlement. Provided
that there is final confirmation of the plan of reorganization in the Chapter 11
bankruptcy proceeding and the current U.S. Congress does not pass national
asbestos litigation reform legislation, we will be paid a total of $575.0
million. The first payment of $500.0 million will occur within 15 working days
of the later of (1) January 5, 2005 and (2) the date on which the order of the
bankruptcy court confirming DII Industries' plan of reorganization becomes
final. A second payment of $75.0 million will be made eighteen months after the
first payment.
FOURTH QUARTER RESULTS (UNAUDITED)
On January 29, 2004, we announced fourth quarter 2003 results. Fourth
quarter 2003 income from continuing operations was $146.0 million, or $0.34 per
diluted share. The net loss for the fourth quarter of 2003 was $947.0 million,
or $2.17 per diluted share, and includes a net loss from discontinued operations
of $1.1 billion, or $2.51 per diluted share, for the proposed asbestos and
silica settlement. Our revenues were $5.5 billion in the fourth quarter of 2003,
up 63% from the fourth quarter 2002. This increase is
4
largely attributable to additional activity on government services projects in
the Middle East in the Engineering and Construction Group. Our operating income
was $303.0 million in the fourth quarter of 2003 compared to a $21.0 million
loss in the fourth quarter 2002. Fourth quarter 2002 results included a $234.0
million loss related to the proposed asbestos and silica settlement and $29.0
million in restructuring charges.
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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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THE OFFERING
Issuer........................ Halliburton Company.
Securities Offered............ $1,200,000,000 principal amount of 3 1/8%
Convertible Senior Notes due July 15, 2023.
Maturity Date................. July 15, 2023.
Interest Payment Dates........ January 15 and July 15 of each year, beginning
January 15, 2004.
Conversion Rights............. You may convert your notes into shares of our
common stock (unless earlier redeemed or
repurchased) under any of the following
circumstances:
(1) during any calendar quarter (and only
during such calendar quarter) if the last
reported sale price of our common stock for
at least 20 trading days during the period
of 30 consecutive trading days ending on
the last trading day of the previous
calendar quarter is greater than or equal
to 120% of the conversion price per share
of our common stock on such last trading
day;
(2) if the notes have been called for
redemption;
(3) upon the occurrence of specified corporate
transactions described under "Description
of Notes -- Conversion of
Notes -- Conversion Upon Specified
Corporate Transactions;" or
(4) during any period in which the credit
ratings assigned to the notes by both
Moody's and Standard & Poor's are lower
than Ba1 and BB+, respectively, or the
notes are no longer rated by at least one
of these rating services or their
successors.
For each $1,000 principal amount of notes
surrendered for conversion, you initially will
be entitled to receive 26.5583 shares of our
common stock. This represents an initial
conversion price of $37.65 per share of common
stock. As described in this prospectus, the
conversion rate may be adjusted for certain
reasons. Except as otherwise described in this
prospectus, you will not receive any cash
payment representing accrued and unpaid
interest upon conversion of a note; however, we
will continue to pay additional amounts, if
any, on the notes and the common stock issuable
upon conversion thereof to the holder in
accordance with the registration rights
agreement. Notes called for redemption may be
surrendered for conversion prior to the close
of business on the second business day
immediately preceding the redemption date.
Upon conversion, we will have a right to
deliver, in lieu of shares of our common stock,
cash or a combination of cash and common stock.
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For more information, see "Description of
Notes -- Conversion of Notes."
Optional Redemption........... Prior to July 15, 2008, the notes will not be
redeemable. On or after July 15, 2008, we may
redeem for cash all or part of the notes at any
time, upon not less than 30 nor more than 60
days' notice before the redemption date by mail
to the trustee, the paying agent and each
holder of notes, for a price equal to 100% of
the principal amount of the notes to be
redeemed plus any accrued and unpaid interest
and additional amounts owed, if any, to the
redemption date. See "Description of
Notes -- Optional Redemption."
Purchase of Notes by Us at the
Option of the Holder.......... Holders have the right to require us to
purchase all or any portion of the notes for
cash on July 15, 2008, July 15, 2013 and July
15, 2018. In each case, we will pay a purchase
price equal to 100% of the principal amount of
the notes to be purchased plus any accrued and
unpaid interest and additional amounts owed, if
any, to the purchase date. See "Description of
Notes -- Purchase of Notes by Us at the Option
of the Holder."
Fundamental Change............ If we undergo a Fundamental Change (as defined
under "Description of Notes -- Fundamental
Change Requires Purchase of Notes by Us at the
Option of the Holder") prior to July 15, 2008,
holders will have the right, at their option,
to require us to purchase any or all of their
notes for cash, or any portion of the principal
amount thereof. The cash price we are required
to pay is equal to 100% of the principal amount
of the notes to be purchased plus accrued and
unpaid interest and additional amounts owed, if
any, to the Fundamental Change purchase date.
See "Description of Notes -- Fundamental Change
Requires Purchase of Notes by Us at the Option
of the Holder."
Covenants..................... The notes were issued under an indenture
containing covenants for your benefit. Among
other things, these covenants restrict our
ability to incur indebtedness secured by liens
under specified circumstances without equally
and ratably securing the notes.
Ranking....................... The notes are our general, senior unsecured
indebtedness and rank equally with all of our
existing and future senior unsecured
indebtedness. The notes effectively rank junior
to any existing or future secured indebtedness,
unless and to the extent the notes are entitled
to be equally and ratably secured. As of the
date of this prospectus, we had no outstanding
advances under our new master letter of credit
facility and our new revolving credit facility
described below and no other outstanding
secured indebtedness. In addition, the notes
are effectively subordinated to the existing
and future indebtedness and other liabilities
of our subsidiaries. At September 30, 2003, the
aggregate indebtedness of our subsidiaries was
approximately $402.0 million, and other
liabilities of our subsidiaries, including
trade payables, accrued compensation, advanced
billings, income taxes payable and other
liabilities (other than asbestos and
intercompany liabilities) were
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approximately $4.3 billion, and accrued
asbestos liabilities were approximately $3.4
billion. Subsequent to September 30, 2003, we
completed an exchange offer in which we issued
approximately $294.0 million of our new 7.6%
debentures due 2096 in exchange for a like
amount of outstanding 7.60% debentures due 2096
of DII Industries, which reduced the aggregate
indebtedness of our subsidiaries to
approximately $108.0 million.
Subsequent to September 30, 2003, we entered
into (1) a delayed-draw term facility for up to
$1.0 billion, which has been reduced to
approximately $500.0 million by the net
proceeds of our recent issuance of senior notes
due 2007 and is subject to further reduction,
to be available for cash funding of the trusts
for the benefit of asbestos and silica
claimants; (2) a master letter of credit
facility intended to ensure that existing
letters of credit supporting our contracts
remain in place during the Chapter 11 filing;
and (3) a $700.0 million three-year revolving
credit facility for general working capital
purposes. Although the master letter of credit
facility and the $700.0 million revolving
credit facility are now effective, there are a
number of conditions precedent that must be met
before the delayed-draw term facility will
become effective and available for our use,
including bankruptcy court approval and federal
district court confirmation of the plan of
reorganization. See "Description of Selected
Settlement-Related Indebtedness." The terms of
the notes and the terms of the new credit
facilities provide that the notes offered
hereby and certain of our outstanding debt
securities will share in collateral pledged to
secure borrowings under the new credit
facilities if and when the total of all our
Secured Debt (as defined in the notes) exceeds
5% of the consolidated net tangible assets of
Halliburton and its subsidiaries. The terms of
the new credit facilities limit to $950.0
million the amount of indebtedness we can issue
after October 31, 2003 that would be equally
and ratably secured with indebtedness under the
new credit facilities. On January 26, 2004, we
issued $500.0 million aggregate principal
amount of senior notes due 2007, reducing this
amount to $450.0 million. The new credit
facilities also provide that the collateral
pledged to secure borrowings under the new
credit facilities will be released after (1)
completion of the Chapter 11 plan of
reorganization of DII Industries, Kellogg Brown
& Root and our other affected subsidiaries
which is being used to implement the proposed
settlement, and (2) satisfaction of the other
conditions described in "Description of
Selected Settlement-Related
Indebtedness -- Conditions to Release of
Collateral."
No Subsidiary Guarantees...... While the notes are not guaranteed by any of
our subsidiaries, borrowings under the letter
of credit facility and revolving credit
facility described under "-- Ranking" above are
guaranteed by some of our subsidiaries.
Accordingly, the notes are structurally
subordinated to the debt guaranteed by our
subsidiaries for the duration of the
guarantees. The terms of the new credit
facilities provide that any of these subsidiary
guarantees will be released after (1)
completion of the Chapter 11 plan of
reorganization of
8
DII Industries, Kellogg Brown & Root and some
of their subsidiaries with U.S. operations,
which is being used to implement the proposed
settlement, and (2) satisfaction of the other
conditions described in "Description of
Selected Settlement-Related
Indebtedness -- Conditions to Release of
Collateral."
Form and Denomination of
Notes......................... The notes are represented by global notes in
fully registered form, without coupons,
deposited with a custodian for, and registered
in the name of a nominee of, The Depository
Trust Company. Beneficial interests in a global
note are shown on, and transfers of the global
notes will be effected only through, records
maintained by DTC and its participants. See
"Description of Notes -- Book-Entry System."
Use of Proceeds............... We will not receive any proceeds from the sale
by the selling securityholders of the notes or
the common stock issuable upon conversion of
the notes. See "Use of Proceeds."
Listing....................... The notes sold to qualified institutional
buyers are eligible for trading in The
Portal(SM)Market, a subsidiary of The Nasdaq
Stock Market, Inc.; however, the notes resold
pursuant to this prospectus will no longer
trade in The Portal(SM) Market. We do not
intend to apply for listing of the notes on any
securities exchange or for inclusion of the
notes in any automated quotation system. Our
common stock is listed on the New York Stock
Exchange under the symbol "HAL".
RISK FACTORS
You should carefully consider all of the information set forth or
incorporated by reference in this prospectus and, in particular, the specific
factors in the section of this prospectus entitled "Risk Factors" for an
explanation of certain risks of investing in the notes.
9
SUMMARY FINANCIAL DATA
The following table sets forth our summary consolidated financial data. We
derived the financial data for the nine months ended September 30, 2003 from our
unaudited condensed consolidated financial statements included in our Quarterly
Report on Form 10-Q for the quarter ended September 30, 2003. Beginning in the
second quarter of 2003, we have been and are reporting five segments, four
within our Energy Services Group and one in our Engineering and Construction
Group. We have restated our prior period segment results to reflect these
changes. We derived the financial data for the year ended December 31, 2002 from
our audited consolidated financial statements in our current report on Form 8-K
filed on October 28, 2003. 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.
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
2003 2002
----------------- ------------
(UNAUDITED)
(IN MILLIONS)
REVENUES:
Energy Services Group:
Drilling and Formation Evaluation......................... $ 1,226 $ 1,633
Fluids.................................................... 1,508 1,815
Production Optimization................................... 2,052 2,554
Landmark and Other Energy Services........................ 410 834
------- -------
Total Energy Services Group............................ 5,196 6,836
Engineering and Construction Group.......................... 5,611 5,736
------- -------
Total....................................................... $10,807 $12,572
======= =======
OPERATING INCOME (LOSS):
Energy Services Group:
Drilling and Formation Evaluation......................... $ 160 $ 160
Fluids.................................................... 178 202
Production Optimization................................... 305 384
Landmark and Other Energy Services........................ (58) (108)
------- -------
Total Energy Services Group............................ 585 638
Engineering and Construction Group.......................... (118) (685)
General corporate........................................... (50) (65)
------- -------
Total....................................................... $ 417 $ (112)
======= =======
Income (loss) from continuing operations before income taxes
and minority interest and change in accounting principle,
net....................................................... $ 352 $ (228)
Provision for income taxes.................................. (142) (80)
Minority interest in net income of consolidated
subsidiaries, net of tax.................................. (17) (38)
Income (loss) from continuing operations.................... 193 (346)
Loss from discontinued operations, net of tax............... (58) (652)
Net income (loss)........................................... 127 (998)
OTHER FINANCIAL DATA:
Capital expenditures........................................ $ (371) $ (764)
Long-term borrowings (repayments), net...................... 887 (15)
Depreciation and amortization expense....................... 384 505
SEPTEMBER 30, DECEMBER 31,
2003 2002
------------- ------------
(UNAUDITED)
(IN MILLIONS)
FINANCIAL POSITION:
Net working capital......................................... $ 3,525 $ 2,288
Total assets................................................ 13,776 12,844
Property, plant and equipment, net.......................... 2,504 2,629
Long-term debt (including current maturities)............... 2,389 1,476
Shareholders' equity........................................ 3,577 3,558
Total capitalization and short-term debt.................... 5,989 5,083
10
RATIO OF EARNINGS TO FIXED CHARGES
We have presented in the table below our historical consolidated ratio of
earnings to fixed charges for the periods shown.
NINE MONTHS
ENDED YEARS ENDED DECEMBER 31,
SEPTEMBER 30, --------------------------------
2003 2002 2001 2000 1999 1998
------------- ---- ---- ---- ---- ----
4.2 --(a) 5.2 2.3 2.4 --(a)
---------------
(a) For the year ended December 31, 2002, earnings were inadequate to cover
fixed charges by $283.0 million, and for the year ended December 31, 1998,
earnings were inadequate to cover fixed charges by $6.0 million.
For purposes of computing the ratio of earnings to fixed charges: (1) fixed
charges consist of interest on debt, amortization of debt discount and expenses
and a portion of rental expense determined to be representative of interest and
(2) earnings consist of income (loss) from continuing operations before income
taxes, minority interest, cumulative effects of accounting changes plus fixed
charges as described above, adjusted to exclude the excess or deficiency of
dividends over income of 50% or less owned entities accounted for by the equity
method.
11
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. If any of the following risks actually occurs, our
business, financial condition and/or results of operations could be materially
and adversely affected. In that case, the trading price of the notes and our
common stock could decline, and you could lose all or part of your investment.
You should also carefully consider all information we have included or
incorporated by reference into this prospectus, including, but not limited to,
our Annual Report on Form 10-K, as amended by our Form 10-K/A, for the year
ended December 31, 2002, our Quarterly Reports on Form 10-Q for the quarters
ended March 31, 2003, as amended by our Form 10-Q/A, June 30, 2003 and September
30, 2003 and our Current Report on Form 8-K filed on October 28, 2003.
This prospectus and the documents we incorporate by reference also contain
forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including the risks faced by us
described below and elsewhere in this prospectus and in the documents we
incorporate by reference.
RISKS RELATING TO ASBESTOS AND SILICA LIABILITY
WE MAY BE UNABLE TO FULFILL THE CONDITIONS NECESSARY TO COMPLETE THE PROPOSED
SETTLEMENT, 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 CONFIRMED.
As contemplated by our proposed settlement of asbestos and silica personal
injury claims, DII Industries, Kellogg Brown & Root and our other affected
subsidiaries (collectively referred to herein as the "debtors") filed Chapter 11
proceedings on December 16, 2003 in bankruptcy court in Pittsburgh,
Pennsylvania. Although the debtors have filed Chapter 11 proceedings and we are
proceeding with the proposed settlement, completion of the settlement remains
subject to several conditions, including the requirements that the bankruptcy
court confirm the plan of reorganization and the federal district court affirm
such confirmation, and that the bankruptcy court and federal district court
orders become final and non-appealable. Completion of the proposed settlement 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 settlement.
There can be no assurance that such conditions will be met.
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 of the $2.775 billion cash
amount prior to the Chapter 11 filing. This payment was made on December 16,
2003. Halliburton also agreed to guarantee the payment of an additional $160.0
million of the original $2.775 billion cash amount, which must be paid on the
earlier to occur of (a) June 17, 2004 and (b) the date on which an order
confirming the proposed plan of reorganization becomes final and nonappealable.
The requirements for a bankruptcy court to approve a plan of reorganization
include, among other judicial findings, that:
- the plan of reorganization complies with applicable provisions of the
U.S. Bankruptcy Code;
- the debtors have complied with the applicable provisions of the U.S.
Bankruptcy Code;
- the trusts will value and pay similar present and future claims in
substantially the same manner;
- the plan of reorganization has been proposed in good faith and not by any
means forbidden by law; and
- any payment made or promised by the debtors to any person for services,
costs or expenses in or in connection with the Chapter 11 proceeding or
the plan of reorganization has been or is reasonable.
The bankruptcy court presiding over the Chapter 11 proceedings has
scheduled a hearing on confirmation of the proposed plan of reorganization for
May 10 through 12, 2004. Some of the insurers of DII Industries and Kellogg
Brown & Root have filed various motions in and objections to the Chapter 11
12
proceedings in an attempt to seek dismissal of the Chapter 11 proceedings or to
delay the proposed plan of reorganization. The motions and objections filed by
the insurers include a request that the court grant the insurers standing in the
Chapter 11 proceedings to be heard on a wide range of matters, a motion
objecting to the proposed legal representative for future asbestos and silica
claimants and a motion to dismiss the Chapter 11 proceedings. The insurers
allege that they should have standing, among other reasons, because the proposed
plan of reorganization is not "insurance neutral" and adversely affects their
rights under the applicable insurance policies. The insurers allege that the
motion to dismiss is proper because the insurers claim that the debtors lack
good faith in filing the Chapter 11 proceeding, that the debtors could have paid
the asbestos and silica personal injury claims and that Halliburton and its
affiliates are solvent. The debtors have objected to the insurers' standing to
seek such relief, and the bankruptcy court has indicated that it will issue a
ruling on the standing question on February 11, 2004. If the insurers are
granted standing, they could be given the right to conduct discovery, which
could delay the completion of the proposed plan of reorganization. A grant of
standing also may result in substantial revision to or renegotiation of the plan
of reorganization. Regardless of the outcome, we believe that these insurers
will take additional steps to prevent or delay confirmation of a plan of
reorganization, and there can be no assurance that the insurers will not be
successful or that such efforts will 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 a revised plan of
reorganization acceptable to us. In such event, a prolonged Chapter 11
proceeding could adversely affect the debtors' relationships with customers,
suppliers and employees, which in turn could adversely affect the debtors'
competitive position, financial condition and results of operations. A weakening
of the debtors' financial condition and results of operations or a substantial
decrease in the trading price of Halliburton's common stock could adversely
affect the debtors' ability to implement a plan of reorganization.
In addition, if a plan of reorganization is not confirmed by the bankruptcy
court and the Chapter 11 proceedings are not dismissed, the debtors may be
forced to liquidate their assets. Chapter 11 permits a company to remain in
control of its business, protected by a stay of all creditor action, while that
company attempts to negotiate and confirm a plan of reorganization with its
creditors. The debtors may be unsuccessful in their attempts to confirm a plan
of reorganization with their creditors. If the debtors are unsuccessful in
obtaining confirmation of a plan of reorganization, the assets of the debtors
could be liquidated in the bankruptcy proceedings. In the event of a bankruptcy
liquidation of the debtors, Halliburton could lose its controlling interest in
DII Industries and Kellogg Brown & Root. As a result, the value of those
subsidiaries would no longer be reflected in our common stock. Moreover, if the
plan of reorganization is not confirmed and the debtors have insufficient assets
to pay the creditors, Halliburton's assets could be drawn into the liquidation
proceedings because Halliburton guarantees certain of the debtors' obligations.
IF OUR CHAPTER 11 PROCEEDINGS ARE DISMISSED WITHOUT CONFIRMATION OF A PLAN
OF REORGANIZATION, WE WOULD BE REQUIRED TO RESOLVE CURRENT AND FUTURE
ASBESTOS AND SILICA CLAIMS IN THE TORT SYSTEM, WHICH MAY ADVERSELY AFFECT
OUR FINANCIAL CONDITION.
If our Chapter 11 proceedings are dismissed without confirmation of a plan
of reorganization, we would be required to resolve current and future asbestos
claims in the tort system or, in the case of the Harbison-Walker Refractories
Company claims described below, possibly through the Harbison-Walker bankruptcy
proceedings.
If we were required to resolve asbestos claims in the tort system, we would
be subject to numerous uncertainties, including:
- continuing asbestos and silica litigation against us, which would include
the possibility of substantial adverse judgments, the timing of which
could not be controlled or predicted, and the obligation to provide
appeals bonds pending any appeal of any such judgment, some or all of
which may require us to post cash collateral;
13
- current and future asbestos claims settlement and defense costs,
including the inability to completely control the timing of such costs
and the possibility of increased costs to resolve personal injury claims;
- the possibility of an increase in the number and type of asbestos and
silica claims against us in the future; and
- any adverse changes to the tort system allowing additional claims or
judgments against us.
Asbestos was used in products manufactured or sold by Harbison-Walker, a
former division of DII Industries (then named Dresser Industries, Inc.).
Harbison-Walker was spun-off by DII Industries in July 1992. At that time,
Harbison-Walker assumed liability for asbestos claims filed after the spin-off
and it agreed to defend and indemnify DII Industries from liability for those
claims, although DII Industries continues to have direct liability to tort
claimants for all post spin-off refractory claims. In February 2002,
Harbison-Walker filed a Chapter 11 proceeding. We believe that Harbison-Walker
is no longer financially able to perform its obligations to assume liability for
post spin-off refractory claims and defend DII Industries from those claims. As
such, these claims may be asserted against DII Industries. All Harbison-Walker
claims are currently covered by the proposed plan of reorganization.
Substantial adverse judgments or substantial claims settlement and defense
costs could materially and adversely affect our liquidity, especially if
combined with a lowering of our credit ratings or other events. If an adverse
judgment were entered against us, we would usually be required to post a bond in
order to perfect an appeal of that judgment. If the bonds were not available
because of uncertainties in the bonding market or if, as a result of our
financial condition or credit rating, bonding companies would not provide a bond
on our behalf, we would be required to provide a cash bond in order to perfect
any appeal. As a result, a substantial judgment or judgments could require a
substantial amount of cash to be posted by us in order to appeal, which we may
not be able to provide from cash on hand or borrowings, or which we may only be
able to provide by incurring high borrowing costs. In such event, our ability to
pursue our legal rights to appeal may be adversely affected.
There can be no assurance that our financial condition and results of
operations, our stock price, our debt ratings or the trading price of the notes
would not be materially and adversely affected in the absence of a completed
settlement or by events subsequent to an unconsummated settlement.
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 MAY NOT BE COMPLETED IF SUCH
LEGISLATION IS PASSED BY THE U.S. CONGRESS.
We understand that the U.S. Congress may consider adopting legislation that
would set up a national trust fund as the exclusive means for recovery for
asbestos-related disease. Although we would be required to fund a trust for the
benefit of our asbestos claimants pursuant to our proposed settlement, if the
legislation is consummated, we may be required to pay additional funds into a
national trust. As a result, we may be required to pay more to resolve our
asbestos liabilities under such legislation than we would have paid if the
Chapter 11 filing had not been made. We are uncertain as to what contributions
we would be required to make to such a national trust, if any, although it is
possible that they could be substantial and that they could continue for a
significant number of years.
It is a condition to the effectiveness of our settlement with Equitas that
no law shall be passed by the U.S. Congress on or before January 3, 2005 that
relates to, regulates, limits or controls the prosecution of asbestos claims in
U.S. state or federal courts or any other forum. If national asbestos litigation
legislation is passed by the U.S. Congress, we would not receive the $575.0
million in cash provided by the Equitas settlement.
14
JUDICIAL RELIEF AGAINST ASBESTOS AND SILICA EXPOSURE MAY NOT BE AS BROAD AS IS
CONTEMPLATED BY THE PROPOSED SETTLEMENT, AND A COMPLETED SETTLEMENT MAY NOT
ADDRESS ALL ASBESTOS AND SILICA EXPOSURE.
Our proposed settlement of asbestos and silica claims includes all asbestos
and silica personal injury claims against DII Industries, Kellogg Brown & Root
and their current and former subsidiaries, as well as Halliburton and its
subsidiaries and the predecessors and successors of all of them. However, the
proposed settlement is subject to bankruptcy court approval as well as federal
district court confirmation. No assurance can be given that the court reviewing
and approving the plan of reorganization that is being used to implement the
proposed settlement will grant relief as broad as contemplated by the proposed
settlement.
In addition, a Chapter 11 proceeding and an injunction under Section 524(g)
of the U.S. Bankruptcy Code may not apply to protect against asbestos claims
made outside of the United States. While we have historically not received a
significant number of such claims, any such future claims would be subject to
the applicable legal system of the jurisdiction where the claim was made.
Although we do not believe that we have material exposure to such claims, there
can be no assurance that material claims outside of the United States would not
be made in the future. Further, to our knowledge, the constitutionality of an
injunction under Section 524(g) of the U.S. Bankruptcy Code has not been tested
in a court of law. We can provide no assurance that, if the constitutionality is
challenged, the injunction would be upheld.
Moreover, the proposed settlement does not resolve claims for property
damage as a result of materials containing asbestos. Accordingly, although we
have historically received no such claims, claims could still be made as to
damage to property or property value as a result of asbestos containing products
having been used in a particular property or structure.
WE MAY BE UNABLE TO RECOVER, OR BE DELAYED IN RECOVERING, INSURANCE
RECEIVABLES, WHICH WOULD ADVERSELY AFFECT OUR FINANCIAL CONDITION.
We have substantial insurance intended to reimburse us for portions of the
costs incurred in defending asbestos and silica claims and amounts paid to
settle claims and to satisfy court judgments. We had accrued $2.1 billion in
probable insurance recoveries as of September 30, 2003. We may be unable to
recover, or we may be delayed in recovering, insurance reimbursements in the
amounts anticipated to cover a part of the costs incurred in defending asbestos
and silica claims and amounts paid to settle claims or as a result of court
judgments due to, 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 or others;
- the possible insolvency or reduced financial viability of our insurers;
- the cost of litigation to obtain insurance reimbursement; and
- possible adverse court decisions as to our rights to obtain insurance
reimbursement.
In the case of the proposed settlement, we would be required to contribute
approximately $2.775 billion in cash (less the $311.0 million we paid in
December 2003), but may be delayed in receiving our expected reimbursement from
our insurance carriers because of extended negotiations or litigation with
insurance carriers. If we were unable to recover from one or more of our
insurance carriers, or if we were delayed significantly in our recoveries, it
could have a material adverse effect on our financial condition.
We may ultimately recover, or may agree in settlement of litigation to
recover, less insurance reimbursement than the insurance receivable recorded in
our financial statements. In addition, we may enter into agreements with all or
some of our insurance carriers to negotiate an overall accelerated
15
payment of anticipated insurance proceeds. In either of these circumstances, we
could recover less than the recorded amount of anticipated insurance
receivables, which would result in an additional charge to the statement of
operations.
OUR CREDIT FACILITIES MAY NOT PROVIDE US WITH THE NECESSARY FINANCING TO
COMPLETE THE PROPOSED SETTLEMENT.
The plan of reorganization through which the proposed settlement would be
implemented will require us to contribute approximately $2.775 billion in cash
(less the $311.0 million we paid in December 2003) to the trusts established for
the benefit of asbestos and silica claimants pursuant to the U.S. Bankruptcy
Code. We may need to finance additional amounts in connection with the
settlement.
Subsequent to the end of third quarter 2003, we entered into (1) a
delayed-draw term facility for up to $1.0 billion, which has been reduced to
approximately $500.0 million by the net proceeds of our recent issuance of
senior notes due 2007 and is subject to further reduction, to be available for
cash funding of the trusts for the benefit of asbestos and silica claimants; (2)
a master letter of credit facility intended to ensure that existing letters of
credit supporting our contracts remain in place during the Chapter 11 filing;
and (3) a $700.0 million three-year revolving credit facility for general
working capital purposes. Although the master letter of credit facility and the
$700.0 million revolving credit facility are now effective, there are a number
of conditions that must be met before the delayed-draw term facility will become
effective and available for our use, including bankruptcy court approval and
federal district court confirmation of the plan of reorganization. Moreover,
these facilities are only available for limited periods of time. As a result, if
the debtors are delayed in completing the plan of reorganization, these credit
facilities may not provide us with the necessary financing to complete the
proposed settlement. Additionally, there may be other conditions to funding that
we may be unable to satisfy. In such circumstances, we would have to terminate
the proposed settlement if replacement financing were not available on
acceptable terms.
In addition, we may experience increased working capital requirements from
time to time associated with our business. An increased demand for working
capital could affect our liquidity needs and could impair our ability to finance
the proposed settlement on acceptable terms, in which case the settlement would
not be completed.
THE CHAPTER 11 FILING OF SOME OF OUR SUBSIDIARIES MAY NEGATIVELY AFFECT THEIR
ABILITY TO OBTAIN NEW BUSINESS IN THE FUTURE AND CONSEQUENTLY MAY HAVE A
NEGATIVE IMPACT ON OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Because Halliburton's financial condition and its results of operations
depend on distributions from its subsidiaries, the Chapter 11 filing of some of
them, including DII Industries and Kellogg Brown & Root, may have a negative
impact on Halliburton's cash flow and distributions from those subsidiaries.
These subsidiaries will not be able to make distributions to Halliburton during
the Chapter 11 proceedings without court approval. The Chapter 11 proceedings
may also hinder the subsidiaries' ability to take actions in the ordinary
course. In addition, the Chapter 11 filing may adversely affect the ability of
our subsidiaries in Chapter 11 proceedings to obtain new orders from current or
prospective customers. As a result of the 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 Chapter 11 or having recently filed a
Chapter 11 proceeding. The Chapter 11 proceedings also may affect adversely
their ability to negotiate favorable terms with customers, suppliers and other
vendors. DII Industries' and Kellogg Brown & Root's financial condition and
results of operations could be materially and adversely affected if they cannot
attract customers, suppliers and other vendors or obtain favorable terms from
customers, suppliers or other vendors. Consequently, our financial condition and
results of operations could be adversely affected.
Further, prolonged Chapter 11 proceedings could adversely affect the
relationship that DII Industries, Kellogg Brown & Root and their subsidiaries
involved in the Chapter 11 proceeding have with their
16
customers, suppliers and employees, which in turn could adversely affect their
competitive positions, financial conditions and results of operations. A
weakening of their financial conditions and results of operations could
adversely affect their ability to implement the plan of reorganization.
FEDERAL BANKRUPTCY LAW AND STATE STATUTES MAY, UNDER SPECIFIC CIRCUMSTANCES,
VOID PAYMENTS MADE BY OUR SUBSIDIARIES TO US AND VOID PRINCIPAL AND INTEREST
PAYMENTS MADE BY US TO YOU ON THE NOTES AND YOU MAY BE FORCED TO RETURN SUCH
PAYMENTS.
Under federal bankruptcy law and various state fraudulent transfer laws,
payments and distributions made by our subsidiaries participating in the Chapter
11 proceedings prior to the Chapter 11 filing could, under specific
circumstances, be voided as preferential transfers if such payments or
distributions occurred up to one year prior to the Chapter 11 filing. Since we
rely primarily on dividends from our subsidiaries and other intercompany
transactions to meet our obligations for payment of principal and interest on
our outstanding debt obligations, any voidance of such payments made to us by
our subsidiaries could limit our ability to make principal and interest payments
on the notes. Dividend payments from DII Industries to us could also, under
specific circumstances, be voided as illegal dividends, fraudulent transfers or
conveyances to the extent that a court determines that DII Industries was
insolvent at the time these dividend payments were made. Furthermore, during the
DII Industries Chapter 11 proceeding, DII Industries likely 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 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 NOTES.
Under the terms of the proposed settlement, we would implement a
pre-packaged Chapter 11 plan of reorganization for DII Industries, Kellogg,
Brown and Root and other of our subsidiaries with U.S. operations. 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.
Although the requisite number of asbestos and silica claimants have
approved the plan of reorganization, which includes the distribution of
Halliburton Energy Services stock by DII Industries to Halliburton, another
creditor of DII Industries could claim that the transfer of Halliburton Energy
Services stock to Halliburton by DII Industries prior to the Chapter 11 filing
constitutes a fraudulent transfer. 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.
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
notes and our other debt instruments.
17
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.
The transactions of the debtors which could be subject to review and
possible avoidance under the applicable fraudulent transfer law would be limited
to those occurring within the relevant limitations period. In the case of
fraudulent transfer actions under the U.S. Bankruptcy Code, that period would be
the 12-month period ending on the petition date. The petition date for the
Chapter 11 filing of DII Industries, Kellogg Brown & Root and our other affected
subsidiaries is December 16, 2003. In the case of actions under a state
fraudulent transfer law, the limitations period ranges from one year to six
years or more after the questioned transfer or incurrence of an obligation is
effected. Under most state laws, including the laws of Pennsylvania and Texas,
the limitations period generally would be four years.
WE HAVE LETTERS OF CREDIT THAT MAY BE DRAWN AT ANY TIME OR AS A RESULT OF THE
CHAPTER 11 PROCEEDINGS OF DII INDUSTRIES AND KELLOGG BROWN & ROOT AND OUR OTHER
FILING SUBSIDIARIES.
Our letters of credit contain terms and conditions that define when they
may be drawn. As of September 30, 2003, at least $230.0 million of letters of
credit permit the beneficiary of such letters of credit to draw for any reason,
and at least another $560.0 million of letters of credit permit the beneficiary
of such letters of credit to draw in the event of a bankruptcy or insolvency
event involving one of our subsidiaries that is party to the proposed
reorganization proceedings.
We entered into a master letter of credit facility subsequent to the end of
the third quarter of 2003 that is intended to replace any cash collateralization
rights of issuers of substantially all our existing letters of credit during the
pendency of the Chapter 11 proceedings by DII Industries and Kellogg Brown &
Root and our other filing 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."
18
Under the master letter of credit facility, if any letters of credit that
are covered by the facility are drawn during the bankruptcy, 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 may continue to be
subject to certain reimbursement and cash collateral obligations. In addition,
if our proposed plan of reorganization is not confirmed by June 30, 2004 and we
are unable to renegotiate 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.
Late in 2001 and early in 2002, Moody's Investors Services lowered its
ratings of our long-term senior unsecured debt to Baa2 and our short-term credit
and commercial paper ratings to P-2. In addition, Standard & Poor's rating
service of the McGraw Hill Companies lowered its ratings of our long-term senior
unsecured debt to A- and our short-term credit and commercial paper ratings to
A-2 in late 2001. In December 2002, Standard & Poor's lowered these ratings to
BBB and A-3. These ratings were lowered primarily due to our asbestos exposure.
In December 2003, Moody's confirmed our ratings with a positive outlook and
Standard & Poor's revised its Credit Watch listing for us from "negative" to
"developing" in response to our announcement that DII Industries and Kellogg
Brown & Root and other of our subsidiaries filed Chapter 11 proceedings to
implement the proposed settlement. Although our long-term ratings continue at
investment grade levels, the cost of new borrowing is relatively higher and our
access to the debt markets is more volatile at these rating levels. Investment
grade ratings are BBB- or higher for Standard & Poor's and Baa3 or higher for
Moody's. Our current ratings are one level above BBB- on Standard & Poor's and
one level above Baa3 on Moody's.
If our debt ratings fall below investment grade, we will be required to
provide additional collateral to secure our new master letter of credit facility
and our new revolving credit facility. See "Description of Selected
Settlement-Related Indebtedness." With respect to the outstanding letters of
credit that are not subject to the new 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 we do not receive
confirmation of the proposed plan of reorganization on or before June 30, 2004
and we are unable to renegotiate the terms of the master letter of credit
facility, the master letter of credit facility will no longer be in effect 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 plan has a provision which states that
if the Standard & Poor's credit rating falls below BBB, the amounts credited to
participants' accounts will be paid to participants in a lump-sum within 45
days. At September 30, 2003, this amount was approximately $49.0 million.
In the event our debt ratings are lowered by either agency, we may have to
issue additional debt or equity securities or obtain additional credit
facilities in order to meet our liquidity needs. We anticipate that any such new
financing or credit facilities would not be on terms as attractive as those we
have currently and that we would also be subject to increased borrowing costs
and interest rates. We also may be required to provide cash collateral to obtain
surety bonds or letters of credit, which would reduce our available cash or
require additional financing. Further, if we are unable to obtain financing for
our
19
proposed settlement on terms that are acceptable to us, we may be unable to
complete the proposed settlement.
RISKS RELATING TO OUR PENDING SEC INVESTIGATION
WE ARE SUBJECT TO AN SEC INVESTIGATION, WHICH COULD MATERIALLY AFFECT US.
We are currently the subject of a formal investigation by the SEC, which
has focused on the compliance with generally accepted accounting principles of
our recording of revenues associated with cost overruns and unapproved claims
for long-term engineering and construction projects, and the disclosure of our
accrual practices. Although we do not believe that the investigation has
expanded beyond these matters, there can be no assurance that the SEC will not
open additional lines of inquiry. In addition, although we believe that our
accounting for these matters was and is in accordance with generally accepted
accounting principles, we cannot predict the outcome of the SEC's investigation
or when the investigation will be resolved. An adverse outcome of this
investigation could have a material adverse effect on us and result in:
- the institution of administrative, civil, injunctive or criminal
proceedings;
- sanctions and the payment of fines and penalties;
- the restatement of our financial results for the years under review;
- additional shareholder lawsuits; and
- increased review and scrutiny of us by regulatory authorities, the media
and others.
From time to time, we enter into registration rights agreements in
connection with securities offerings with the initial purchasers of the offered
securities, including in connection with the private placement of the 3 1/8%
senior convertible notes, whereby we agree to use our reasonable best efforts to
have a registration statement declared effective within specified time periods.
We may not be able to have a registration statement declared effective within
the time period specified due in part to the pending SEC investigation. If we
are unable to have a registration statement declared effective within agreed
time periods, we may be obligated to pay additional interest amounts to the
holders of the securities that would otherwise have been registered, which
amounts could be substantial.
RISKS RELATING TO GEOPOLITICAL AND INTERNATIONAL EVENTS
INTERNATIONAL AND POLITICAL EVENTS MAY ADVERSELY AFFECT OUR OPERATIONS.
A significant portion of our revenue is derived from our non-U.S.
operations, which exposes us to risks inherent in doing business in each of the
more than 100 other countries in which we transact business. The occurrence of
any of the risks described below could have an adverse effect on our
consolidated results of operations and consolidated financial condition.
Our operations in more than 100 countries other than the United States
accounted for approximately 70% of our consolidated revenues during the first
nine months of 2003, 67% of our consolidated revenues during 2002, 62% of our
consolidated revenues during 2001 and 66% of our consolidated revenues during
2000. Operations in countries other than the United States are subject to
various risks peculiar to each country. With respect to any particular country,
these risks may include:
- expropriation and nationalization of our assets in that country;
- political and economic instability;
- social unrest, acts of terrorism, force majeure, war or other armed
conflict;
- inflation;
- currency fluctuations, devaluations and conversion restrictions;
- confiscatory taxation or other adverse tax policies;
20
- governmental activities that limit or disrupt markets, restrict payments
or limit the movement of funds;
- governmental activities that may result in the deprivation of contract
rights; and
- trade restrictions and economic embargoes imposed by the United States
and other countries, including current restrictions on our ability to
provide products and services to Iran and Libya, both of which are
significant producers of oil and gas.
Due to the unsettled political conditions in many oil producing countries
and countries in which we provide governmental logistical support, our revenues
and profits are subject to the adverse consequences of war, the effects of
terrorism, civil unrest, strikes, currency controls and governmental actions.
Countries where we operate that have significant amounts of political risk
include: Afghanistan, Algeria, Angola, Colombia, Indonesia, Iraq, Libya,
Nigeria, Russia and Venezuela. For example, continued economic unrest and
general strikes in Venezuela, changes in the general economic policies and
regulations in Argentina, as well as seizures of offshore oil rigs by protestors
in Nigeria have disrupted our Energy Services Group's ability to provide
services and products to our customers in these countries. In addition, military
action or continued unrest in the Middle East could impact the demand and
pricing for oil and gas, disrupt our operations in the region and elsewhere and
increase our costs for security worldwide.
MILITARY ACTION, OTHER ARMED CONFLICTS OR TERRORIST ATTACKS COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
Military action in Iraq, increasing military tension involving North Korea,
as well as the terrorist attacks of September 11, 2001 and subsequent threats of
terrorist attacks and unrest, have caused instability in the world's financial
and commercial markets, have significantly increased political and economic
instability in some of the geographic areas in which we operate. 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.
Military action in Iraq, as well as threats of war or other armed conflict
elsewhere, may cause further disruption to financial and commercial markets
generally 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 terrorism in the United States or elsewhere, may materially 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. Prices for oil and natural
gas are subject to large fluctuations in response to relatively minor changes in
the supply of and demand for oil and natural gas, market uncertainty and a
variety of other factors that are beyond our control. Any prolonged reduction in
oil and natural gas prices will depress the level of exploration, development
and production activity. Lower levels of activity result in a corresponding
decline
21
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
under world-wide U.S. Army logistics contracts, known as LogCAP, and under
contracts to rebuild Iraq's petroleum industry. Our units operating in Iraq and
elsewhere under government contracts such as LogCAP consistently review the
amounts charged and the services performed under these contracts, and our
operations under these contracts are regularly reviewed and audited by the
Defense Contract Audit Agency, or DCAA, and other governmental agencies. When
issues are found during the governmental agency audit process, these issues are
typically discussed and reviewed with us in order to reach a resolution.
The results of a preliminary audit by the DCAA in December 2003 said that a
Halliburton unit may have overcharged the Department of Defense by $61.0 million
in importing fuel into Iraq. Department of Defense officials have referred the
matter to the agency's inspector general with a request for additional
investigation by the agency's criminal division. We have also in the past had
inquiries by the DCAA and the civil fraud division of the U.S. Department of
Justice into possible overcharges for work under a contract performed in the
Balkans. On January 22, 2004, we announced the identification by our internal
audit function of a potential over billing of approximately $6.0 million by one
of our subcontractors under the LogCAP contract in Iraq. 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 the contract
customer, the Army Materiel Command. On January 23, 2004, we announced that we
issued a check in the amount of $6.3 million to the Army Materiel Command to
cover potential over billing charges while we conduct our investigation into the
matter. Relatedly, we are continuing to review possible improper payments by
third party subcontractors to one or two former Kellogg Brown & Root employees.
Additionally, the DCAA is reviewing the methodology used to calculate the
invoicing for the number of meals to be prepared and delivered by a
subcontractor engaged by Kellogg Brown & Root to U.S. troops and supporting
civilian personnel in Iraq and Kuwait under the LogCAP contract. We are
currently reviewing past invoicing to determine whether the use of projected
headcounts was the proper basis for invoicing the U.S. government for dining
facility services performed in Kuwait and Iraq. On January 30, 2004, and again
on February 2, 2004 and February 5, 2004, we advised the DCAA that Kellogg Brown
& Root has agreed to temporarily grant a credit for charges for some meals while
Kellogg Brown & Root,
22
the DCAA and the Army Materiel Command collectively agree on the process to be
used for invoicing for food services provided by Kellogg Brown & Root in Iraq
and Kuwait. The amount of the credit as of February 6, 2004 is $34.5 million. We
cannot assure you that a methodology will be developed quickly, and consequently
the amounts for which we credit may increase.
All of these matters are still under review by the applicable government
agencies and additional review and allegations are possible. We could also be
subject to future inquiries for work done in Iraq under the current LogCAP
contract or the contract to rebuild Iraq's petroleum industry.
To the extent we or our subcontractors make mistakes in our government
contracts operations, even if unintentional, insignificant or subsequently
self-reported to the applicable government agency, we will likely be subject to
intense scrutiny. Some of this scrutiny is as 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 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 are more likely to
arise, are more likely to become public and may be more difficult to resolve. As
a result, our ability to secure future government contracts business or renewals
of current government contracts business in the Middle East or elsewhere could
be adversely affected. We could also be asked to reimburse payments made to us
and 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. If
overcharges occurred and informal resolution were not achieved, we could, if
appropriate proof were shown, be subject to fines and penalties under the U.S.
False Claims Act, and treble damages could be sought. 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. There can be no assurance
that these and any additional allegations made under our government contracts
would not have a material adverse effect on our business and results of
operations.
THE BARRACUDA-CARATINGA PROJECT IS CURRENTLY BEHIND SCHEDULE, HAS SUBSTANTIAL
COST OVERRUNS AND MAY RESULT EITHER IN DAMAGES PAYABLE BY US OR OUR INABILITY
TO RECOVER OUR COSTS ASSOCIATED WITH THE PROJECT.
In June 2000, Kellogg Brown & Root entered into a fixed-price contract with
the project owner, Barracuda & Caratinga Leasing Company B.V., to develop the
Barracuda and Caratinga crude oil fields, which are located off the coast of
Brazil. The project manager and owner's representative is Petroleo Brasileiro SA
(Petrobras), the Brazilian national oil company. When completed, the project
will consist of two converted supertankers that will be used as floating
production, storage and offloading platforms, or FPSOs, 32 hydrocarbon
production wells, 22 water injection wells, and all sub-sea flow lines and
risers necessary to connect the underwater wells to the FPSOs.
THE LETTERS OF CREDIT RELATED TO THE BARRACUDA-CARATINGA PROJECT MAY
BE DRAWN IF WE DEFAULT UNDER THE CONTRACT.
Kellogg Brown & Root's performance under the contract is secured by:
- performance letters of credit, which together have an available
credit of approximately $266.0 million as of September 30, 2003 and
which represent approximately 10% of the contract amount, as amended
to date by change orders;
- retainage letters of credit, which together have available credit of
approximately $152.0 million as of September 30, 2003 and which will
increase in order to continue to represent 10% of the cumulative
cash amounts paid to Kellogg Brown & Root; and
- a guarantee of Kellogg Brown & Root's performance under the
agreement by Halliburton Company in favor of the project owner.
In the event that Kellogg Brown & Root is alleged to be in default
under the contract, the project owner may assert a right to draw upon the
letters of credit. As described under "Description
23
of Selected Settlement-Related Indebtedness -- Master LC Facility," these
letters of credit are included in the Master LC Facility. As such, a draw
on such letters of credit prior to the Term-Out Date would become a LC
Advance subject to the terms of the Master LC Facility.
However, after the Master LC Facility is no longer in effect, if the
letters of credit were to be drawn, Kellogg Brown & Root's reimbursement
obligation would be stayed by the bankruptcy proceedings. If Kellogg Brown
& Root could not fund the amount of the draw and the Master LC Facility
were not then in effect, Halliburton would be required to do so, which
could have a material adverse effect on Halliburton's financial condition
and results of operations.
KELLOGG BROWN & ROOT MAY HAVE TO PAY DAMAGES AND OTHER AMOUNTS IN
EXCESS OF THE AMOUNTS CURRENTLY RECORDED.
As of September 30, 2003, the project was approximately 78% complete
and Kellogg Brown & Root had recorded a pretax loss of $345.0 million
related to the project. The probable unapproved claims included in
determining the loss on the project were $182.0 million as of September 30,
2003. The claims for the project most likely will not be settled within one
year. Accordingly, based upon costs incurred on the claims, probable
unapproved claims of $157.0 million at September 30, 2003 have been
recorded to long-term unbilled work on uncompleted contracts. Kellogg Brown
& Root has asserted claims for compensation substantially in excess of
$182.0 million. The project owner, through its project manager, Petrobras,
has denied responsibility for all such claims. Petrobras has, however,
issued formal change orders worth approximately $61.0 million which are not
included in the $182.0 million in probable unapproved claims.
In the event that Kellogg Brown & Root was determined after an
arbitration proceeding to have been in default under the contract with
Petrobras, and if the project was not completed by Kellogg Brown & Root as
a result of such default (i.e., Kellogg Brown & Root's services are
terminated as a result of such default), the project owner may seek direct
damages (including completion costs in excess of the contract price and
interest on borrowed funds, but excluding consequential damages) against
Kellogg Brown & Root for up to $500.0 million plus the return of up to
$300.0 million in advance payments previously received by Kellogg Brown &
Root to the extent they have not been repaid. The original contract terms
require repayment of the $300.0 million in advance payments by crediting
the last $350.0 million of our invoices related to the contract by that
amount. A termination of the contract by the project owner could have a
material adverse effect on our financial condition and results of
operations.
IN ADDITION TO THE AMOUNTS DESCRIBED ABOVE, KELLOGG BROWN & ROOT MAY
HAVE TO PAY LIQUIDATED DAMAGES IF THE PROJECT IS DELAYED BEYOND THE
ORIGINAL CONTRACT COMPLETION DATE.
Kellogg Brown & Root expects that the project will likely be completed
at least 16 months later than the original contract completion date. In the
event that any portion of the delay is determined to be attributable to
Kellogg Brown & Root and any phase of the project is completed after the
milestone dates specified in the contract, Kellogg Brown & Root could be
required to pay liquidated damages. These damages would be calculated on an
escalating basis of approximately $1.0 million per day of delay caused by
Kellogg Brown & Root, subject to a total cap on liquidated damages of 10%
of the final contract amount (yielding a cap of approximately $266.0
million as of September 30, 2003). The amount of liquidated damages could
have a material adverse effect on our financial condition and results of
operations.
ALTHOUGH WE HAVE IMPLEMENTED AN AGREEMENT TO SETTLE AND/OR ARBITRATE
CERTAIN CLAIMS, KELLOGG BROWN & ROOT MAY HAVE TO PAY SUBSTANTIAL
ADDITIONAL AMOUNTS AND MAY NOT RECOVER AMOUNTS IT EXPECTS TO RECOVER.
In June 2003, Halliburton, Kellogg Brown & Root and Petrobras, on
behalf of the project owner, entered into a non-binding heads of agreement
that would resolve some of the disputed issues between
24
the parties, subject to final agreement and lender approval. In November
2003, final agreements implementing the terms of the heads of agreement, as
well as lender approval and successful completion of all conditions
precedent were completed. The original completion date for the Barracuda
project was December 2003 and the original completion date for the
Caratinga project was April 2004. Under the agreements implementing the
heads of agreement, 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 owner has agreed to delay any
attempt to assess the original liquidated damages against Kellogg Brown &
Root for project delays beyond 12 months and up to 18 months, delay any
drawing of letters of credit with respect to such liquidated damages and
delay the return of any of the $300.0 million in advance payments. The
agreements implementing the heads of agreement 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 (subject to the total cap on liquidated damages of 10% of
the final contract amount). Although the agreements implementing the heads
of agreement do not delay the drawing of letters of credit for these
liquidated damages, the master letter of credit facility will provide for
any such draw while it is in effect. The extension of the original
completion dates and other milestones reduces the likelihood of Kellogg
Brown & Root incurring liquidated damages on the project. Nevertheless,
Kellogg Brown & Root continues to have exposure for substantial liquidated
damages for delays in the completion of the project.
Under the agreements implementing the heads of agreement, the project
owner has agreed to pay $69.0 million of Kellogg Brown & Root's disputed
claims (which are included in the $182.0 million of probable unapproved
claims as of September 30, 2003) and to arbitrate additional claims. The
maximum recovery from the claims to be arbitrated is capped at $375.0
million. The agreements implementing the heads of agreement also allow the
project owner or Petrobras to arbitrate additional claims against Kellogg
Brown & Root, not including liquidated damages, the maximum recovery from
which is capped at $380.0 million.
Kellogg Brown & Root is also continuing discussions with Petrobras in
an effort to resolve most remaining open issues between them. However,
there can be no assurance that those issues will be resolved.
Notwithstanding finalization of the agreements implementing the heads of
agreement and the discussions with Petrobras, Kellogg Brown & Root
continues to be at risk for the recovery of the amounts of its claims, for
the payment of substantial liquidated damages and for the letters of credit
being drawn. Should any of these events occur, they could have a material
adverse effect on our financial condition and results of operations.
FUNDING OF THE PROJECT MAY BE INSUFFICIENT TO COVER ALL AMOUNTS
CLAIMED BY KELLOGG BROWN & ROOT.
The project owner has procured project finance funding obligations
from various lenders to finance the payments due to Kellogg Brown & Root
under the contract. The project owner currently has no other committed
source of funding on which we can necessarily rely other than the project
finance funding for the project. In addition, although the project
financing includes borrowing capacity in excess of the original contract
amount, only $250.0 million of this additional borrowing capacity is
reserved for increases in the contract amount payable to Kellogg Brown &
Root and its subcontractors.
Under the loan documents, the availability date for loan draws expired
December 1, 2003, and the project owner drew down all remaining available
funds on that date. As a condition precedent 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. 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 Kellogg Brown &
Root, 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 Kellogg Brown & Root, Kellogg Brown & Root is not party to the
arrangement between the lenders and the project
25
owner and can give no assurance that there will be adequate funding to
cover current or future Kellogg Brown & Root claims and change orders.
Kellogg Brown & Root has now begun to fund operating cash shortfalls
on the project and would be obligated to fund such shortages over the
remaining project life in an amount we currently estimate to be
approximately $500.0 million (assuming generally that neither we nor the
project owner are successful in recovering claims against the other and
that no liquidated damages are imposed). Under the same assumptions, except
assuming that Kellogg Brown & Root recovers unapproved claims in the
amounts currently recorded on our books, the cash shortfall would be
approximately $320.0 million. There can be no assurance that Kellogg, Brown
& Root will recover the amount of unapproved claims on its books, or any
amounts in excess of that amount.
WE MAY BE REQUIRED TO PAY ADDITIONAL VALUE ADDED TAXES RELATED TO THE
BARRACUDA-CARATINGA PROJECT.
Value added taxes of up to $293.0 million may be or become due on the
project. Petrobras and the project owner are contesting the reimbursability
of up to $227.0 million of these potential value added taxes. The contract
provides that Kellogg Brown & Root is responsible for taxes in effect on
the contract date, but will be reimbursed for increased costs due to
changes in the tax laws that occur after the date of the contract. The
parties agree that certain changes in the tax laws occurred after the date
of the contract, but do not agree on how much of the increase in taxes was
due to that change or which party is responsible for ultimately paying
these taxes. Prior to the issuance of Decree 34,524 discussed below, up to
approximately $144.0 million of value added taxes may have already become
due on the project and, in addition, up to approximately $100.0 million of
value added taxes may be due in stages from January 2004 through April
2004, with the balance due in stages later in 2004. Without Decree 34,524,
depending on when the value added taxes are deemed due and when they are
paid, penalties and interest on the taxes of between $40-$100 million may
also be due, the reimbursability of which the project owner may also
contest.
On December 16, 2003, the State of Rio de Janeiro issued Decree
34,524. This decree recognizes that Petrobras is entitled to a credit for
the value added taxes paid on the project. The decree also provides that
the value added taxes that may have become due on the project, but which
had not yet been paid, may be paid in January 2004 without penalty or
interest. In response to the decree, Kellogg Brown & Root and Petrobras
have entered into an agreement whereby Petrobras has agreed to (1) directly
pay the value added taxes due on all imports on the project (including a
payment in January 2004 of approximately $150.0 million for imports on the
project to date) and (2) reimburse Kellogg Brown & Root for value added
taxes paid on local purchases (approximately $100.0 million of which will
become due in 2004).
It is unclear whether Kellogg Brown & Root may be required to
reimburse Petrobras for the cost of the time value of money on the value
added tax that Petrobras paid. In addition, the validity of Decree 34,524
has been challenged in court in Brazil. If Decree 34,524 is overturned or
rescinded, or if the Petrobras credits are lost for any other reason not
due to actions by Petrobras, the issue of who must ultimately bear the cost
of the value added taxes is to be decided on the basis of the law as it
existed prior to Decree 34,524. There can be no assurance that we will not
be required to pay all or a portion of these value added taxes and
obligations.
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.
It has been reported that a French magistrate is investigating $180.0
million in payments made by TSKJ in connection with a multi-billion dollar
project to build and expand a liquefied natural gas plant in Nigeria. TSKJ is a
joint venture registered in Madeira, Portugal whose members are Technip SA of
France, ENI SpA of Italy, Japan Gasoline Corp. and Kellogg Brown & Root, which
owns 25% of the venture. The Paris public prosecutor's office is probing whether
the payments were illegal.
26
The U.S. Department of Justice and the SEC have asked Halliburton for
cooperation and access to information in reviewing these matters and are
reviewing the allegations in light of the requirements of the U.S. Foreign
Corrupt Practices Act. Halliburton has engaged outside counsel to investigate
any allegations and is cooperating with the government's inquiries. However,
there can be no assurance that this matter will not lead to additional
allegations or that the joint venture or we will not have to defend against
these and other similar allegations. There can be no assurance that our current
view of these matters will be correct. If illegal payments were made, this
matter could have a material adverse affect on our business and results of
operations.
WE MAY PURSUE ACQUISITIONS, DISPOSITIONS, INVESTMENTS AND JOINT VENTURES,
WHICH COULD AFFECT OUR RESULTS OF OPERATIONS.
We may actively seek opportunities to maximize efficiency and value through
various transactions, including purchases or sales of assets, investments or
contractual arrangements or joint ventures. These transactions would be intended
to result in the realization of savings, the creation of efficiencies, the
generation of cash or income or the reduction of risk. Acquisition transactions
may be financed by additional borrowings or by the issuance of common stock of
Halliburton. These transactions may also affect our results of operations.
These transactions also involve risks and we cannot assure you that:
- any acquisitions would result in an increase in income;
- any acquisitions would be successfully integrated into our operations;
- any disposition would not result in decreased revenue or cash flow;
- any dispositions, investments, acquisitions or integrations would not
divert management resources; or
- any dispositions, investments, acquisitions or integrations would not
have an adverse effect on our results of operations or financial
condition.
We conduct some operations through joint ventures, where control may be
shared with unaffiliated third parties. As with any joint venture arrangement,
differences in views among the joint venture participants may result in delayed
decisions or in failures to agree on major issues. This could potentially
adversely affect the business and operations of the joint venture and, in turn,
our business and operations.
A SIGNIFICANT PORTION OF OUR ENGINEERING AND CONSTRUCTION PROJECTS IS ON A
FIXED-PRICE BASIS, SUBJECTING US TO THE RISKS ASSOCIATED WITH COST OVER-RUNS
AND OPERATING COST INFLATION.
We contract to provide services either on a time-and-materials basis or on
a fixed-price basis, with fixed-price (or lump sum) contracts accounting for
approximately 19% of our revenues for the nine months ended September 30, 2003
and 21% of our revenues for the year ended December 31, 2002. We bear the risk
of cost over-runs, operating cost inflation, labor availability and productivity
and supplier and subcontractor pricing and performance in connection with
projects covered by fixed-price contracts. Our failure to estimate accurately
the resources and time required for a fixed-price project, or our failure to
complete our contractual obligations within the time frame committed, could have
a material adverse effect on our business, results of operations and financial
condition.
CHANGES IN GOVERNMENTAL SPENDING AND CAPITAL SPENDING BY OUR CUSTOMERS MAY
ADVERSELY AFFECT US.
Our business is directly affected by changes in governmental spending and
capital expenditures by our customers. Some of the changes that may adversely
affect us include:
- a decrease in the magnitude of governmental spending and outsourcing for
military and logistical support of the type that we provide;
27
- an increase in the magnitude of governmental spending and outsourcing for
military and logistical support, which can adversely affect our liquidity
needs as a result of additional or continued working capital requirements
to support this work;
- a decrease in capital spending by customers in the oil and gas industry
for exploration, development, production, processing, refining and
pipeline delivery networks;
- a decrease in capital spending by governments for infrastructure projects
of the type that we undertake; and
- the consolidation of our customers, which has (1) caused customers to
reduce their capital spending, which has 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.
WE ARE SUSCEPTIBLE TO ADVERSE WEATHER CONDITIONS IN OUR REGIONS OF OPERATIONS.
Our business may be adversely affected by severe weather, particularly in
the Gulf of Mexico where we have significant operations. Repercussions of severe
weather conditions may include:
- evacuation of personnel and curtailment of services;
- weather related damage to offshore drilling rigs resulting in suspension
of operations;
- weather related damage to our facilities;
- inability to deliver materials to jobsites in accordance with contract
schedules; and
- loss of productivity.
Because demand for natural gas in the United States drives a
disproportionate amount of our Energy Services Group's United States business,
warmer than normal winters in the United States are detrimental to the demand
for our services to gas producers.
WE ARE SUBJECT TO VARIOUS OPERATIONAL AND PERFORMANCE RISKS RELATED TO
PROJECTS WE UNDERTAKE AND SERVICES THAT WE PROVIDE.
We are subject to various operational and performance risks related to
projects we undertake and services that we provide. These risks include:
- changes in the price or the availability of commodities that we use;
- non-performance, default or bankruptcy of joint venture partners, key
suppliers or subcontractors;
- risks that result from performing fixed-price projects (see "-- A
significant portion of our engineering and construction projects is on a
fixed-price basis, subjecting us to the risks associated with cost
over-runs and operating cost inflation" above); and
- risks that result from entering into complex business arrangements for
technically demanding projects where failure by one or more parties could
result in monetary penalties.
OUR ABILITY TO COMPETE OUTSIDE OF THE UNITED STATES MAY BE ADVERSELY AFFECTED
BY GOVERNMENTAL REGULATIONS PROMULGATED IN NUMEROUS COUNTRIES IN WHICH WE
TRANSACT BUSINESS.
Governmental regulations promulgated in the numerous countries in which we
transact business may require us to engage in business practices that may not be
to our benefit. Those kinds of regulations frequently:
- encourage or mandate the hiring of local contractors or suppliers; and
- require foreign contractors to employ citizens of, or purchase supplies
from, a particular jurisdiction.
28
As a result, we may be required to engage in business practices that are
uneconomical and that could adversely impact our results of operations.
SOME OF OUR NON-U.S. SUBSIDIARIES OPERATE IN IRAN AND LIBYA, AND WE ARE
RESPONDING TO AN INQUIRY FROM THE OFFICE OF FOREIGN ASSETS CONTROL REGARDING
ONE OF OUR NON-U.S. 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 to Iran, and we have several non-U.S. subsidiaries and/or non-U.S.
joint ventures that operate in or manufacture goods destined for, or render
services to, Libya. The United States imposes trade restrictions and economic
embargoes that prohibit U.S. incorporated entities and U.S. citizens and
residents from engaging in commercial, financial or trade transactions with some
foreign countries, including Iran and Libya, unless authorized by the Office of
Foreign Assets Control, or OFAC, of the U.S. Treasury Department or exempted by
statute. Criminal penalties for violations range up to $500,000 in fines per
count for corporations, or twice the gross pecuniary gain or loss, if greater.
Civil penalties of up to $11,000 per count may also be imposed by OFAC.
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 are making further investigations based on
questions raised in the most recent letter.
WE ARE SUBJECT TO TAXATION IN MANY JURISDICTIONS AND THERE ARE INHERENT
UNCERTAINTIES IN THE FINAL DETERMINATION OF OUR TAX LIABILITIES.
We have operations in more than 100 countries other than the United States
and as a result are subject to taxation in many jurisdictions. Therefore, the
final determination of our tax liabilities involves the interpretation of the
statutes and requirements of taxing authorities worldwide. Foreign income tax
returns of foreign subsidiaries, unconsolidated affiliates and related entities
are routinely examined by foreign tax authorities. These tax examinations may
result in assessments of additional taxes or penalties or both. Additionally,
new taxes, such as the proposed excise tax in the United States targeted at
heavy equipment of the type we own and use in our operations, could negatively
affect our results of operations.
WE ARE SUBJECT TO SIGNIFICANT FOREIGN EXCHANGE AND CURRENCY RISKS THAT COULD
ADVERSELY AFFECT OUR OPERATIONS AND OUR ABILITY TO REINVEST EARNINGS FROM
OPERATIONS.
A sizable portion of our consolidated revenues and consolidated operating
expenses are in foreign currencies. As a result, we are subject to significant
risks, including:
- foreign exchange risks resulting from changes in foreign exchange rates
and the implementation of exchange controls such as those experienced in
Argentina in late 2001 and early 2002; and
- limitations on our ability to reinvest earnings from operations in one
country to fund the capital needs of our operations in other countries.
We do business in countries that have non-traded or "soft" currencies which
have restricted or limited trading markets. We may accumulate cash in soft
currencies and we may be limited in our ability to convert our profits into U.S.
dollars or to repatriate the profits from those countries.
OUR ABILITY TO LIMIT OUR FOREIGN EXCHANGE RISK THROUGH HEDGING TRANSACTIONS
MAY BE LIMITED.
We selectively use hedging transactions to limit our exposure to risks from
doing business in foreign currencies. For those currencies that are not readily
convertible, our ability to hedge our exposure is limited because financial
hedge instruments for those currencies are nonexistent or limited. Our ability
to
29
hedge is also limited because pricing of hedging instruments, where they exist,
is often volatile and not necessarily efficient.
In addition, the risk inherent in the use of derivative instruments of the
sort that we use could cause a change in the value of the derivative instruments
as a result of:
- adverse movements in foreign exchange rates;
- interest rates;
- commodity prices; or
- the value and time period of the derivative being different than the
exposures or cash flows being hedged.
WE ARE SUBJECT TO A VARIETY OF ENVIRONMENTAL REQUIREMENTS THAT IMPOSE ON US
OBLIGATIONS OR RESULT IN OUR INCURRING LIABILITIES THAT WILL ADVERSELY AFFECT
OUR RESULTS OF OPERATIONS OR FOR WHICH OUR FAILURE TO COMPLY COULD ADVERSELY
AFFECT US.
Our businesses are subject to a variety of environmental laws, rules and
regulations in the United States and other countries, including those covering
hazardous materials and requiring emission performance standards for facilities.
For example, our well service operations routinely involve the handling of
significant amounts of waste materials, some of which are classified as
hazardous substances. Environmental requirements include, for example, those
concerning:
- the containment and disposal of hazardous substances, oilfield waste and
other waste materials;
- the use of underground storage tanks; and
- the use of underground injection wells.
Environmental requirements generally are becoming increasingly strict.
Sanctions for failure to comply with these requirements, many of which may be
applied retroactively, may include:
- administrative, civil and criminal penalties;
- revocation of permits; and
- corrective action orders, including orders to investigate and/or clean up
contamination.
Failure on our part to comply with applicable environmental requirements
could have an adverse effect on our consolidated financial condition. We are
also exposed to costs arising from environmental compliance, including
compliance with changes in or expansion of environmental requirements, such as
the potential regulation in the United States of our Energy Services Group's
hydraulic fracturing services and products as underground injection, which may
have a material adverse effect on our business, financial condition, operating
results or cash flows.
We are exposed to claims under environmental 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.
DEMAND FOR OUR SERVICES MAY BE ADVERSELY AFFECTED BY ENVIRONMENTAL
REQUIREMENTS.
Changes in environmental requirements may negatively impact demand for our
services. For example, activity by oil and natural gas exploration and
production may decline as a result of environmental requirements (including land
use policies responsive to environmental concerns). Such a decline, in turn,
could have a material adverse effect on us.
30
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS.
We rely on a variety of intellectual property rights that we use in our
products and services. We may not be able to successfully preserve these
intellectual property rights in the future and these rights could be
invalidated, circumvented or challenged. In addition, the laws of some foreign
countries in which our products and services may be sold do not protect
intellectual property rights to the same extent as the laws of the United
States. Our failure to protect our proprietary information and any successful
intellectual property challenges or infringement proceedings against us could
adversely affect our competitive position.
IF WE DO NOT DEVELOP NEW COMPETITIVE TECHNOLOGIES AND PRODUCTS OR IF OUR
PROPRIETARY TECHNOLOGIES, EQUIPMENT, FACILITIES OR WORK PROCESSES BECOME
OBSOLETE, OUR BUSINESS AND REVENUES MAY BE ADVERSELY AFFECTED.
The market for our products and services is characterized by continual
technological developments to provide better and more reliable performance and
services. If we are not able to design, develop and produce commercially
competitive products and to implement commercially competitive services in a
timely manner in response to changes in technology, our business and revenues
will be adversely affected and the value of our intellectual property may be
reduced. Likewise, if our proprietary technologies, equipment and facilities or
work processes become obsolete, we may no longer be competitive and our business
and revenues will be adversely affected.
WE MAY BE UNABLE TO EMPLOY A SUFFICIENT NUMBER OF TECHNICAL PERSONNEL.
Many of the services that we provide and the products that we sell are
complex and highly engineered and often must perform or be performed in harsh
conditions. We believe that our success depends upon our ability to employ and
retain technical personnel with the ability to design, utilize and enhance these
products and services. In addition, our ability to expand our operations depends
in part on our ability to increase our skilled labor force. The demand for
skilled workers is high and the supply is limited. A significant increase in the
wages paid by competing employers could result in a reduction of our skilled
labor force, increases in the wage rates that we must pay or both. If either of
these events were to occur, our cost structure could increase, our margins could
decrease and our growth potential could be impaired.
RISKS RELATING TO THE NOTES
OUR FINANCIAL CONDITION IS DEPENDENT ON THE EARNINGS OF OUR SUBSIDIARIES.
We are a holding company and our assets consist primarily of direct and
indirect ownership interests in, and our business is conducted substantially
through, our subsidiaries. Consequently, our ability to repay our debt,
including the notes, depends on the earnings of our subsidiaries, as well as our
ability to receive funds from our subsidiaries through dividends, repayment of
intercompany notes or other payments. The ability of our subsidiaries to pay
dividends, repay intercompany debt or make other advances to us is subject to
restrictions imposed by applicable laws (including bankruptcy laws), tax
considerations and the terms of agreements governing our subsidiaries. Our
foreign subsidiaries in particular may be subject to currency controls,
repatriation restrictions, withholding obligations on payments to us, and other
limits. If we do not receive such funds from our subsidiaries, our financial
condition would be materially adversely affected.
YOU WILL HAVE NO RECOURSE AGAINST OUR SUBSIDIARIES IN THE EVENT OF A DEFAULT
ON THE NOTES.
As a holding company, we rely primarily on dividends from our subsidiaries
to meet our obligations for payment of principal and interest on our outstanding
debt obligations and corporate expenses. See "-- Our financial condition is
dependent on the earnings of our subsidiaries" above. We are a legal entity
separate and distinct from our subsidiaries, and holders of the notes will be
able to look only to us for payments on the notes. In addition, our right to
receive assets of any subsidiaries upon their liquidation or reorganization, and
the rights of the holders of the notes to share in those assets, would be
subject to the satisfaction of claims of the subsidiaries' creditors.
Consequently, the notes will be subordinate to all
31
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 that we
entered into in connection with our proposed settlement are guaranteed by some
of our subsidiaries. See "Description of Selected Settlement-Related
Indebtedness."
THE NOTES WILL BE EFFECTIVELY JUNIOR TO ALL SECURED INDEBTEDNESS UNLESS THEY
ARE ENTITLED TO BE EQUALLY AND RATABLY SECURED.
The notes will be our unsecured obligations and will rank equally with all
our other unsecured indebtedness. However, the notes are structurally
subordinated to indebtedness of our subsidiaries and effectively subordinated to
our secured debt to the extent of the value of the assets securing such debt. As
of the date of this prospectus, we have no outstanding advances under our new
master letter of credit facility and our new revolving credit facility and no
other outstanding secured indebtedness. Under our new master letter of credit
facility and our new revolving credit facility, the lenders have limited the
amount of indebtedness we can issue after October 31, 2003 that would be equally
and ratably secured with indebtedness under the master letter of credit facility
and the revolving credit facility to $950.0 million. This amount has been
reduced to $450.0 million as a result of our issuance of $500.0 million
aggregate principal amount of senior notes due 2007 on January 26, 2004.
Subsequent to the end of the third quarter, we entered into (1) a delayed-draw
term facility for up to $1.0 billion, which has been reduced to approximately
$500.0 million by the net proceeds of our recent issuance of senior notes due
2007 and is subject to further reduction, to be available for cash funding of
the trusts for the benefit of asbestos and silica claimants; (2) a master letter
of credit facility intended to ensure that existing letters of credit supporting
our contracts remain in place during the Chapter 11 filing; and (3) a $700.0
million three-year revolving credit facility for general working capital
purposes. Although the master letter of credit facility and the $700.0 million
revolving credit facility are now effective, there are a number of conditions
precedent that must be met before the delayed-draw term facility will become
effective and available for our use, including bankruptcy court approval and
federal district court confirmation of the plan of reorganization. See
"Description of Selected Settlement-Related Indebtedness." The indenture
governing the notes permits us to incur an amount of Secured Debt (as defined in
the notes) up to 5% of our consolidated net tangible assets before the notes
will be entitled to equal and ratable security and the notes are effectively
junior to any secured indebtedness until the notes are entitled to be equally
and ratably secured. In addition, certain of our notes, including our 8.75%
notes due 2021, our senior notes due 2005, our 5 1/2% senior notes due 2010, our
medium-term notes, our 7.6% debentures due 2096 and our senior notes due 2007
will, and certain new issuances may, be entitled to be secured on the same basis
as the notes.
In the event that we are declared bankrupt, become insolvent or are
liquidated or reorganized, any debt that ranks ahead of the notes will be
entitled to be paid in full from our assets before any payment may be made with
respect to the notes. Holders of the notes will participate ratably with all
holders of our unsecured indebtedness that is deemed to be of the same class as
the notes, and potentially with all of our other general creditors, based upon
the respective amounts owed to each holder or creditor, in our remaining assets.
In any of the foregoing events, we cannot assure you that there will be
sufficient assets to pay amounts due on the notes. As a result, holders of the
notes may receive less, ratably, than holders of secured indebtedness.
BECAUSE WE ARE A HOLDING COMPANY, THE NOTES ARE STRUCTURALLY SUBORDINATED TO
ALL OF THE INDEBTEDNESS OF OUR SUBSIDIARIES.
The notes are a general unsecured obligation of Halliburton. We are a
holding company and our assets consist primarily of direct and indirect
ownership interests in, and our business is conducted substantially through, our
subsidiaries. As a consequence, any of our indebtedness, including the notes,
are structurally subordinated to all of the indebtedness of our subsidiaries. In
addition, because we are a holding company, our right to participate in any
distribution of assets of any subsidiary upon its liquidation or reorganization
or otherwise, and the ability of holders of the notes to benefit indirectly from
that kind of
32
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 September 30, 2003, the aggregate
indebtedness of our subsidiaries was approximately $402.0 million, and other
liabilities of our subsidiaries, including trade payables, accrued compensation,
advanced billings, income taxes payable and other liabilities (other than
asbestos and intercompany liabilities) were approximately $4.3 billion, and
accrued asbestos liabilities were approximately $3.4 billion. Subsequent to
September 30, 2003, we completed an exchange offer in which we issued
approximately $294.0 million of our new 7.6% debentures due 2096 in exchange for
a like amount of outstanding 7.60% debentures due 2096 of DII Industries, which
reduced the aggregate indebtedness of our subsidiaries to approximately $108.0
million. In addition, while the notes will not be guaranteed by any of our
subsidiaries, borrowings under the letter of credit facility and revolving
credit facility described under "Description of Selected Settlement-Related
Indebtedness" will be guaranteed by some of our subsidiaries. We also have joint
ventures and subsidiaries in which we own less than 100% of the equity so that,
in addition to the structurally senior claims of creditors of those entities,
the equity interests of our joint venture partners or other shareholders in any
dividend or other distribution made by these entities would need to be satisfied
on a proportionate basis with us. These joint ventures and less than wholly
owned subsidiaries may also be subject to restrictions on their ability to
distribute cash to us in their financing or other agreements and, as a result,
we may not be able to access their cash flow to service our debt obligations,
including in respect of the notes. Accordingly, the notes are effectively
subordinated to all existing and future liabilities of our subsidiaries and all
liabilities of any of our future subsidiaries.
WE MAY INCUR ADDITIONAL INDEBTEDNESS RANKING EQUAL TO THE NOTES.
If we incur any additional debt that ranks equally with the notes,
including trade payables, the holders of that debt will be entitled to share
ratably with you in any proceeds distributed in connection with any insolvency,
liquidation, reorganization, dissolution or other winding-up of us. This may
have the effect of reducing the amount of proceeds paid to you.
WE WILL BE ABLE TO INCUR MORE INDEBTEDNESS AND THE RISKS ASSOCIATED WITH OUR
LEVERAGE, INCLUDING OUR ABILITY TO SERVICE OUR INDEBTEDNESS, WILL INCREASE AS
WE INCUR ADDITIONAL INDEBTEDNESS.
As of September 30, 2003, we had approximately $2.412 billion of
indebtedness, representing a total debt to capitalization ratio of 40%. In
October 2003, we issued additional indebtedness in an aggregate principal amount
of $1.05 billion, in January 2004, we issued additional indebtedness in an
aggregate principal amount of $500.0 million, and we anticipate issuing
additional indebtedness to finance the remaining cash portion of our proposed
settlement. Until we are able to issue additional securities as necessary to
fund the remaining cash contribution requirement of the proposed settlement, we
will use the funds available under the $500.0 million delayed-draw term facility
that we entered into subsequent to the third quarter 2003, if it has become
effective. In December 2003, our new Master LC Facility and our new Revolving
Credit Facility became effective. See "Description of Selected
Settlement-Related Indebtedness." Further, the indenture that governs the notes
does not restrict us from issuing additional indebtedness. If our level of debt
becomes substantial, the risks associated with our leverage could have important
consequences to you, including the following:
- our ability to obtain additional financing for working capital, capital
expenditures, acquisitions or general corporate purposes may be impaired;
- we would be obligated to use a substantial portion of our cash flow from
operations to pay interest and principal on the notes and other
indebtedness, which will reduce the funds available to us for other
purposes such as potential acquisitions and capital expenditures;
- we could potentially have a higher level of indebtedness than some of our
competitors, which may put us at a competitive disadvantage and reduce
our flexibility in planning for, or responding to, changing conditions in
our industry, including increased competition; and
33
- we would be more vulnerable to general economic downturns and adverse
developments in our business.
We expect to obtain money to pay our expenses and to pay the principal and
interest on the notes and other debt from cash flow from distributions from our
subsidiaries. Our ability to meet our expenses depends on our future
performance, which will be affected by financial, business, economic and other
factors. We will not be able to control many of these factors, such as economic
conditions in the markets where we operate and pressure from competitors. The
failure to generate sufficient cash flow could significantly adversely affect
the value of the notes.
THERE IS NO TRADING MARKET FOR THE NOTES AND THERE MAY NEVER BE ONE.
The notes are new securities for which currently there is no trading
market. We do not currently intend to apply for listing of the notes on any
securities exchange. The liquidity of any market for the notes will depend on
the number of holders of the notes, the interest of securities dealers in making
a market in the notes and other factors. Accordingly, we cannot assure you as to
the development of liquidity of any market for the notes. Further, if markets
were to develop, the market price for the notes may be adversely affected by
changes in our financial performance, changes in the overall market for similar
securities and performance or prospects for companies in our industry.
WE MAY NOT BE ABLE TO PURCHASE THE NOTES UPON AN AGREED PURCHASE DATE OR A
FUNDAMENTAL CHANGE AND MAY NOT BE OBLIGATED TO PURCHASE THE NOTES UPON CERTAIN
CORPORATE TRANSACTIONS.
On July 15, 2008, July 15, 2013 and July 15, 2018, holders of the notes may
require us to purchase their notes for cash. In addition, before July 15, 2008,
holders of the notes may require us to purchase their notes upon a Fundamental
Change. However, it is possible that we would not have sufficient funds to make
the required purchase of the notes and we may be required to secure third-party
financing to do so. However, we may not be able to obtain such financing on
commercially reasonable terms, on terms acceptable to us or at all. A
Fundamental Change under the indenture may also result in an event of default
under our new credit facilities, which may cause the acceleration of our other
indebtedness, in which case, we would be required to repay in full our secured
indebtedness before we repay the notes. Our future indebtedness may also contain
restrictions on our ability to repurchase the notes upon certain events,
including transactions that could constitute a Fundamental Change under the
indenture. Our failure to repurchase the notes upon a Fundamental Change would
constitute an event of default under the indenture and would have a material
adverse effect on our financial condition. Further, certain important corporate
events, such as leveraged recapitalizations that would increase the level of our
indebtedness, may not constitute a Fundamental Change under the indenture and
would not trigger our obligation to repurchase the notes. See "Description of
Notes -- Purchase of Notes by Us at Option of the Holder" and "-- Fundamental
Change Requires Purchase of Notes by Us at the Option of the Holder."
The Fundamental Change and other provisions in the indenture relating to
consolidation, merger, sale or conveyance of all or substantially all assets may
not protect you in the event we consummate a highly leveraged transaction,
reorganization, restructuring, spin-off, merger or other similar transaction,
unless such transaction constitutes a Fundamental Change or a consolidation,
merger, sale or conveyance of all or substantially all assets under the
indenture. Such a transaction may not trigger your right to convert the notes or
our obligation to repurchase the notes. Except as described above, the indenture
does not contain provisions that permit the holders of the notes to convert the
notes or require us to repurchase or redeem the notes in an event of a takeover,
recapitalization, spin-off or similar transaction. There can be no assurance
that the trading price of the notes would not be materially and adversely
affected by such a transaction.
34
WE EXPECT THAT THE TRADING VALUE OF THE NOTES WILL BE SIGNIFICANTLY AFFECTED
BY THE PRICE OF OUR COMMON STOCK.
The market price of the notes is expected to be significantly affected by
the market price of our common stock. This may result in greater volatility in
the trading value of the notes than would be expected for nonconvertible debt
securities we issue.
THE AVAILABILITY OF SHARES OF OUR COMMON STOCK FOR FUTURE SALE COULD DEPRESS
OUR STOCK PRICE AND ADVERSELY AFFECT THE VALUE OF THE NOTES.
Under the proposed settlement, we would issue 59.5 million shares of our
common stock to one or more trusts for the benefit of asbestos and silica
personal injury claimants. Although the shares will initially have transfer
restrictions, the shares may be registered under certain circumstances in which
case they would have few or no restrictions on their transfer. Sales by the
trusts and other stockholders of a substantial number of shares of our common
stock in the public markets following this offering, or the perception that such
sales might occur, could have a material adverse effect on the price of our
common stock or could impair our ability to obtain capital through an offering
of equity securities. Because the notes are convertible into our common stock,
any decline in our stock price could adversely affect the value of the notes.
WE MAY ISSUE PREFERRED STOCK WHOSE TERMS COULD ADVERSELY AFFECT THE VOTING
POWER OR VALUE OF OUR COMMON STOCK.
Our certificate of incorporation authorizes us to issue, without the
approval of our stockholders, one or more classes or series of preferred stock
having such preferences, powers and relative, participating, optional and other
rights, including preferences over our common stock respecting dividends and
distributions, as our board of directors may determine. The terms of one or more
classes or series of preferred stock could adversely impact the voting power or
value of our common stock which the notes are convertible into thereby adversely
affecting the value of the notes. For example, we might afford holders of
preferred stock the right to elect some number of our directors in all events or
on the happening of specified events or the right to veto specified
transactions. Similarly, the repurchase or redemption rights or liquidation
preferences we might assign to holders of preferred stock could affect the
residual value of our common stock which the notes are convertible into, thereby
adversely affecting the value of the notes.
OUR STOCKHOLDER RIGHTS PLAN AND PROVISIONS OF DELAWARE LAW COULD DELAY OR
PREVENT A CHANGE IN CONTROL OF US, EVEN IF THAT CHANGE WOULD BE BENEFICIAL TO
OUR STOCKHOLDERS.
We have adopted a stockholder rights plan that would cause extreme dilution
to any person or group who attempts to acquire a significant interest in us
without advance approval of our board of directors. In addition, the Delaware
General Corporation Law would impose some restrictions on mergers and other
business combinations between us and any holder of 15% or more of our
outstanding common stock. The stockholder rights plan and Delaware law could
delay or prevent a change in control of us, even if that change would be
beneficial to our stockholders. Since the notes are convertible into our common
stock this could adversely affect the value of the notes.
35
USE OF PROCEEDS
We will not receive any proceeds from the sale by the selling
securityholders of the notes or the underlying common stock.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock is traded on the New York Stock Exchange and on the Swiss
Exchange under the symbol "HAL". On February 5, 2004, the last reported sales
price of our common stock on the New York Stock Exchange was $29.40. The
following table presents the range of high and low quarterly sales prices of our
common stock on the New York Stock Exchange since January 1, 2002.
PRICE
-----------------
HIGH LOW
------- -------
2002
First Quarter............................................... $ 18.00 $ 8.60
Second Quarter.............................................. 19.63 14.60
Third Quarter............................................... 16.00 8.97
Fourth Quarter.............................................. 21.65 12.45
2003
First Quarter............................................... $ 22.10 $ 17.20
Second Quarter.............................................. 25.37 19.98
Third Quarter............................................... 25.90 20.50
Fourth Quarter.............................................. 27.20 22.23
2004
First Quarter (through February 5).......................... $ 30.68 $ 25.80
Cash dividends on common stock in the amount of $0.125 per share were paid
in March, June, September and December of 2001, 2002 and 2003. Our board of
directors intends to consider the payment of quarterly dividends on the
outstanding shares of our common stock in the future. The declaration and
payment of future dividends, however, will be at the discretion of the board of
directors and will depend upon, among other things:
- future earnings;
- general financial condition and liquidity;
- success in business activities;
- capital requirements;
- debt covenants; and
- general business conditions.
At December 31, 2003, there were approximately 24,143 shareholders of
record. In calculating the number of shareholders, we consider clearing agencies
and security position listings as one shareholder for each agency or listing.
36
DESCRIPTION OF SELECTED SETTLEMENT-RELATED INDEBTEDNESS
In connection with the plan of reorganization contemplated by the proposed
settlement, subsequent to the end of third quarter 2003, we entered into (1) a
delayed-draw term facility for up to $1.0 billion, which has been reduced to
approximately $500.0 million by the net proceeds of our recent issuance of
senior notes due 2007 and is subject to further reduction, to be available for
cash funding of the trusts for the benefit of asbestos and silica claimants; (2)
a master letter of credit facility intended to ensure that existing letters of
credit supporting our contracts remain in place during the Chapter 11 filing;
and (3) a $700.0 million three-year revolving credit facility for general
working capital purposes. Although the master letter of credit facility and the
$700.0 million revolving credit facility are now effective, there are a number
of conditions that must be met before the delayed-draw term facility will become
effective and available for our use, including bankruptcy court approval and
federal district court confirmation of the plan of reorganization. See "Risk
Factors -- Risks Relating to Asbestos and Silica Liability -- Our credit
facilities may not provide us with the necessary financing to complete the
proposed settlement." The notes will share in the collateral pledged to secure
the new credit facilities at times when the threshold for Secured Debt (as
defined in the notes) is exceeded by advances and letter of credit drawings
under the new secured 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 facilities, which have been filed with our Quarterly
Report on Form 10-Q for the quarter ended September 30, 2003.
SENIOR UNSECURED CREDIT FACILITY
In connection with the plan of reorganization contemplated by the proposed
settlement, we entered into a senior unsecured delayed, multi-draw term loan
facility for up to $1.0 billion, which has been reduced to approximately $500.0
million by the net proceeds of our recent issuance of senior notes due 2007 and
is subject to further reduction (the "Senior Unsecured Credit Facility"), to
finance, if needed, the payments to be made by Halliburton under the plan of
reorganization and the related transaction costs.
When and if effective, the Senior Unsecured Credit Facility will be
available in two drawings.
Drawings under the Senior Unsecured Credit Facility are subject to
satisfaction of certain conditions precedent, including confirmation of the
contemplated plan of reorganization.
We may, upon at least five business days' notice, terminate or cancel, in
whole or in part, the unused portion of the Senior Unsecured Credit Facility;
provided that each partial reduction must be in an amount of $10.0 million or an
integral multiple of $1.0 million in excess thereof. We may also, upon at least
five business days' notice and at the end of any applicable interest period,
prepay, in full or in part, the Senior Unsecured Credit Facility without
penalty; provided, however, that each partial prepayment must be in an amount of
$10.0 million or an integral multiple of $1.0 million in excess thereof.
The Senior Unsecured Credit Facility would require us to apply the
following proceeds to prepay amounts outstanding and/or reduce commitments under
the Senior Unsecured Credit Facility:
- net cash proceeds from any debt incurrence or equity issuance, subject to
certain exceptions;
- net cash proceeds from the sale of assets by us and our subsidiaries,
subject to certain exceptions; and
- all insurance proceeds received by us in respect of asbestos or silica
claims;
provided that, to the extent such proceeds are available to us before the first
drawdown date, such proceeds will ratably reduce the commitments under the
Senior Unsecured Credit Facility and to the extent such proceeds are available
to us after the first drawdown date, such proceeds will be used to
37
prepay, the Senior Unsecured Credit Facility, in each case, with respect to any
prepayment, without premium or penalty, but with breakage costs if applicable.
The interest rate per annum (calculated on a 360-day basis) applicable to
the advances is (1) the London interbank offered rate for deposits in U.S.
dollars at 11:00 a.m. (London time) two business days before the first day of
any interest period for a period equal to such interest period, plus a margin
ranging from 0.875% to 1.875% which margin will be based on the lower of our
credit rating by Standard & Poor's and Moody's (the "Applicable Margin") or (2)
at our option, the highest of (a) the base rate of Citibank, N.A., (b) the
Federal Funds rate plus 0.50% and (c) the latest three-week moving average of
secondary market morning offering rates for three-month certificates of deposit,
as determined by Citibank and adjusted for the cost of reserves and FDIC
insurance assessments plus 0.50%, plus, in each case, a margin ranging from 0%
to 0.875% based on the lower of our credit rating by Standard & Poor's and
Moody's (the "Base Rate").
We may select interest periods of one, two, three or six months for LIBOR
rate advances. Interest based on the LIBOR rate would be payable in arrears at
the end of the selected interest period, but no less frequently than quarterly.
Interest based on the Base Rate would be payable monthly in arrears.
During the continuance of any default under the loan documentation, the
interest rate on all advances owing under the loan documentation would increase
by 2% per annum.
One half of the amount drawn (as reduced by any prepayments) would be due
and payable on the date which is 120 days from the date of the first draw, and
all other outstanding amounts will be due on the date which is 364 days from the
date of the first draw.
MASTER LC FACILITY
In connection with the plan of reorganization contemplated by the proposed
settlement, Halliburton (and to the extent that they are account parties in
respect of specified existing letters of credit, DII Industries and Kellogg
Brown & Root) entered into a senior secured master letter of credit facility
(the "Master LC Facility") with a syndicate of banks made up of those banks
holding at least 90% of the face amount of certain of our then existing letters
of credit. The Master LC Facility 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 June 30, 2004, but no later than the Exit Date (the "Term-Out
Date") on Facility LCs, as well as to provide collateral for the reimbursement
obligations in respect thereof. During the term of the Master LC Facility prior
to the Term-Out Date, any draw on a Facility LC 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
38
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 November 1, 2004 (unless prepaid prior to such date) and all
undrawn Facility LCs shall cease to be subject to the terms of the Master LC
Facility.
We may, upon at least five business days' notice and at the end of any
applicable interest period, prepay any portion of the LC Advances as follows:
(1) before the occurrence of the Exit Date, ratably among all lenders, with such
prepayment being used to prepay the outstanding LC Advances at such time and to
cash collateralize obligations at such time, and (2) after the occurrence of the
Exit Date, to prepay outstanding LC Advances ratably among all lenders that have
made LC Advances, in each case, without penalty.
Prior to the occurrence of the Collateral Release Date, 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 Facility (as defined below).
To the extent that the aggregate principal amount of all LC Advances and
borrowings under the revolving credit facility exceeds 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, senior notes due 2005, 5 1/2% senior notes due 2010, medium term notes,
7.6% debentures due 2096, senior notes due 2007, the 3 1/8% convertible senior
notes due 2023 (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 $450.0 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 first to
ratably prepay outstanding LC Advances at such time and second, to the extent
required by the terms of the Senior Unsecured Credit Facility, to ratably prepay
and/or reduce commitments under the Senior Unsecured Credit Facility.
Until the date of satisfaction of the conditions for release of the
collateral identified below, the Master LC Facility 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 Facility and, to the extent
that the aggregate principal amount of all LC Advances under the Master LC
Facility and borrowings under the Revolving Credit Facility exceeds 5% of the
consolidated net tangible assets of Halliburton and its subsidiaries, such
collateral would also be shared pro rata with the holders of
39
Halliburton's 8.75% notes due 2021, senior notes due 2005, 5 1/2% senior notes
due 2010, medium term notes, 7.6% debentures due 2096, senior notes due 2007,
the 3 1/8% convertible senior notes due 2023 (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 $450.0 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 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 FACILITY
In connection with the plan of reorganization contemplated by the proposed
settlement, we have replaced our existing credit agreement dated as of August
16, 2001 with a new 3-year revolving credit facility (the "Revolving Credit
Facility").
The Revolving Credit Facility provides a total commitment of up to $700.0
million. The entire commitment is available for standby and trade letters of
credit (the "Letters of Credit").
For so long as the Revolving Credit Facility is secured by any collateral
as set forth below, Halliburton Energy Services and certain domestic
subsidiaries of Halliburton and Halliburton Energy Services will guaranty the
obligations under the Revolving Credit Facility. 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 Facility is also secured by
a perfected, first priority lien on (a) the tangible and intangible assets (with
customary exceptions) of Halliburton and Halliburton
40
Energy Services and (b) the tangible and intangible assets (with customary
exceptions) of all of Halliburton Energy Services' directly or indirectly
wholly-owned domestic subsidiaries (except Halliburton Affiliates LLC, DII
Industries and their respective subsidiaries) (excluding, in each case, dormant
subsidiaries). Prior to the occurrence of the Collateral Release Date, the
Revolving Credit Facility 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 Facility 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, senior notes due 2005, 5 1/2% senior notes due 2010, medium term
notes, 7.6% debentures due 2096, senior notes due 2007, the 3 1/8% convertible
senior notes due 2023 (whether registered or unregistered) 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 be so secured
does not exceed $450.0 million). Upon the occurrence of the Collateral Release
Date, the Revolving Credit Facility 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
Facility," borrowings under the Master LC Facility and the Revolving Credit
Facility are secured by a perfected, first-priority lien on certain of our
assets. Any such liens 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,
which is being used to implement the proposed settlement. For additional
information about the proposed settlement, see "Prospectus Summary --
Proposed Settlement;"
- there is no proceeding pending or threatened in any court or before any
arbitrator or governmental instrumentality that (1) could reasonably be
expected to have a material adverse effect on our business, condition
(financial or otherwise), operations, performance, properties or
prospects on a consolidated basis except for litigation that is pending
or threatened prior to the effective date of the Revolving Credit
Facility and Master LC Facility and disclosed to the lenders under the
Revolving Credit Facility and the Master LC Facility or (2) purports to
affect the legality, validity or enforceability of our obligations or the
rights and remedies of any of the lenders under the Revolving Credit
Facility and the Master LC Facility, and there shall have been no
material
41
adverse change in the status or financial effect on us on a consolidated
basis of the disclosed litigation;
- our long-term senior unsecured debt is rated BBB or higher (stable
outlook) by Standard & Poor's and Baa2 or higher (stable outlook) by
Moody's and these ratings have been recently confirmed by Standard &
Poor's and Moody's;
- there is no material adverse change (which term shall not be deemed to
refer to the commencement of the Chapter 11 filing) since December 31,
2002 in our business, condition (financial or otherwise), operations,
performance, properties or prospects, except as disclosed in our June 30,
2003 quarterly report on Form 10-Q and except for the accounting charges
to be taken directly in connection with the settlement payments; and
- we are not in default under the Revolving Credit Facility or the Master
LC Facility.
42
DESCRIPTION OF NOTES
We issued the notes under an indenture dated as of June 30, 2003 between us
and JPMorgan Chase Bank, as trustee (the "indenture"). The terms of the notes
include those stated in the indenture and those made part of the indenture by
reference to the Trust Indenture Act of 1939.
The following description is a summary of the material provisions of the
indenture and the registration rights agreement dated as of June 30, 2003
between us and the initial purchasers of the notes. It does not restate the
indenture in its entirety. We urge you to read the indenture, the notes and the
registration rights agreement because they, and not this description, define
your rights as holders of the notes. You may request copies of those documents
in substantially the form in which they are to be executed by writing or
telephoning us at our address and telephone number shown under the caption
"Where You Can Find More Information."
The definitions of capitalized terms used in this section without
definition are set forth below under "-- Definitions." In this description, the
words "Halliburton" and "us" mean only Halliburton Company and not any of its
subsidiaries.
GENERAL
The notes are our senior unsecured obligations and rank equally with all
our other senior unsecured indebtedness. However, the notes are structurally
subordinated to indebtedness of our subsidiaries and effectively subordinated to
our secured debt to the extent of the value of the assets securing such debt,
unless and to the extent that the notes are entitled to be equally and ratably
secured. The notes are convertible into common stock as described under the
caption "-- Conversion of Notes."
We issued $1,200,000,000 aggregate principal amount of notes. The notes
were issued only in denominations of $1,000 and multiples of $1,000. The notes
mature on July 15, 2023 unless earlier converted, redeemed or repurchased by us.
We are not subject to any financial covenants under the indenture. In
addition, we are not restricted under the indenture from paying dividends,
incurring debt or issuing or repurchasing our securities.
You are not afforded protection in the event of a highly leveraged
transaction, or a change in control of us under the indenture except to the
extent described below under the caption "-- Fundamental Change Requires
Purchase of Notes by Us at the Option of the Holder."
The notes bear interest at the annual rate of 3 1/8%. Interest will be
calculated on the basis of a 360-day year of twelve 30-day months. We will pay
interest on January 15 and July 15 of each year, beginning January 15, 2004 to
record holders at the close of business on the preceding January 1 and July 1,
as the case may be.
We will maintain an office in New York, New York, for the payment of
interest, which shall initially be an office or agency of the trustee.
We will pay interest either by check mailed to your address as it appears
in the note register or, at our option, by wire transfer in immediately
available funds. Payments to The Depository Trust Company, New York, New York,
which we refer to as DTC, or its nominee will be made by wire transfer of
immediately available funds to the account of DTC or its nominee.
Holders are not required to pay a service charge for registration or
transfer of their notes. We may, however, require holders to pay any tax or
other governmental charge in connection with the transfer. We are not required
to exchange or register the transfer of:
- any notes or portion surrendered for conversion; or
- any notes or portion surrendered for redemption or repurchase by us but
not withdrawn.
43
CONVERSION OF NOTES
Subject to the conditions and during the periods and under the
circumstances described below, you may convert your notes into shares of our
common stock initially at a conversion rate of 26.5583 shares of common stock
per $1,000 principal amount of notes (equivalent to an initial conversion price
of $37.65 per share of common stock) at any time prior to the close of business
on July 15, 2023. The conversion rate and the equivalent conversion price in
effect at any given time are referred to as the "applicable conversion rate" and
the "applicable conversion price," respectively, and is subject to adjustment as
described below. You may convert fewer than all of your notes so long as the
notes converted are an integral multiple of $1,000 principal amount.
Upon conversion, we may choose to deliver, in lieu of shares of our common
stock, cash or a combination of cash and shares of our common stock, as
described below.
Except as otherwise described herein, you will not receive any cash payment
representing accrued and unpaid interest upon conversion of a note and we will
not adjust the conversion rate to account for the accrued and unpaid interest.
Upon conversion we will deliver to you a fixed number of shares of our common
stock and any cash payment to account for fractional shares. The cash payment
for fractional shares will be based on the last reported sale price of our
common stock on the trading day immediately prior to the conversion date.
Delivery of shares of common stock will be deemed to satisfy our obligation to
pay the principal amount of the notes, including accrued and unpaid interest.
Accrued and unpaid interest will be deemed paid in full rather than canceled,
extinguished or forfeited. The trustee will initially act as the conversion
agent. Notwithstanding conversion of any notes, the holders of the notes and any
common stock issuable upon conversion thereof will continue to be entitled to
receive additional amounts in accordance with the registration rights agreement.
See "Registration Rights Agreement."
If you convert notes, we will pay any documentary, stamp or similar issue
or transfer tax due on the issue of shares of our common stock upon the
conversion, unless the tax is due because you request the shares to be issued or
delivered to a person other than yourself, in which case you will be responsible
for that tax.
If you wish to exercise your conversion right, you must deliver a
conversion notice, together, if the notes are in certificated form, with the
certificated security, to the conversion agent along with appropriate
endorsements and transfer documents, if required, and pay any transfer or
similar tax, if required. The conversion agent will, on your behalf, convert the
notes into shares of our common stock. You may obtain copies of the required
form of the conversion notice from the conversion agent. A certificate for the
number of full shares of our common stock into which any notes are converted,
together with any cash payment for fractional shares, will be delivered through
the conversion agent as soon as practicable, but no later than the fifth
business day, following the conversion date.
If you have already delivered a purchase notice as described under either
"-- Purchase of Notes by Us at the Option of the Holder" or "-- Fundamental
Change Requires Purchase of Notes by Us at the Option of the Holder" with
respect to a note, you may not surrender that note for conversion until you have
withdrawn the purchase notice in accordance with the indenture.
Holders of notes at the close of business on a record date will receive
payment of interest on the corresponding interest payment date notwithstanding
the conversion of such notes at any time after the close of business on such
record date. If you surrender notes for conversion during the period from the
close of business on any regular record date to the opening of business on the
immediately following interest payment date, the surrendered notes must be
accompanied by payment of an amount equal to the interest that you are to
receive on the notes on the next following interest payment date.
Notwithstanding the foregoing, no such payment need be made if (1) we have
specified a redemption date that is after a record date and on or prior to the
immediately following interest payment date, (2) we have specified a purchase
date that is during such period whether following a Fundamental Change or
otherwise or (3) any overdue interest exists at the time of conversion with
respect to such notes to the extent of such overdue
44
interest. The holders of the notes and any common stock issuable upon conversion
thereof will continue to be entitled to receive additional amounts in accordance
with the registration rights agreement.
You may surrender your notes for conversion into shares of our common stock
prior to stated maturity in only the circumstances described below. For a
discussion of the federal income tax consequences of a conversion of the notes
into our common stock, see "Material United States Federal Income Tax
Consequences."
CONVERSION UPON SATISFACTION OF SALE PRICE CONDITION
You may surrender any of your notes for conversion into shares of our
common stock in any calendar quarter (and only during such calendar quarter) if
the last reported sale price of our common stock for at least 20 trading days
during the period of 30 consecutive trading days ending on the last trading day
of the previous calendar quarter is greater than or equal to 120% of the
conversion price.
CONVERSION UPON REDEMPTION
If we redeem the notes, you may convert your notes into our common stock at
any time prior to the close of business on the second business day immediately
preceding the redemption date, even if the notes are not otherwise convertible
at such time.
CONVERSION UPON SPECIFIED CORPORATE TRANSACTIONS
If we elect to:
- distribute to all holders of our common stock certain rights entitling
them to purchase, for a period expiring within 60 days after the date of
the distribution, shares of our common stock at less than the last
reported sale price of a share of our common stock on the trading day
immediately preceding the declaration date of the distribution; or
- distribute to all holders of our common stock our assets, debt securities
or certain rights to purchase our securities, which distribution has a
per share value as determined by our board of directors exceeding 15% of
the last reported sale price of a share of our common stock on the
trading day immediately preceding the declaration date for such
distribution,
we must notify you at least 20 business days prior to the ex-dividend date for
such distribution. Once we have given such notice, you may surrender your notes
for conversion at any time until the earlier of the close of business on the
business day immediately prior to the ex-dividend date or our announcement that
such distribution will not take place, even if the notes are not otherwise
convertible at such time; provided, however, that you may not exercise this
right to convert if you may participate in the distribution without conversion.
The "ex-dividend date" is the first date upon which a sale of the common stock
does not automatically transfer the right to receive the relevant dividend from
the seller of the common stock to its buyer.
In addition, if we are party to a consolidation, merger or binding share
exchange pursuant to which our common stock would be converted into cash or
property other than securities, you may surrender notes for conversion at any
time from and after the date which is 15 days prior to the anticipated effective
date of the transaction until 15 days after the actual effective date of such
transaction. If we engage in certain reclassifications of our common stock or
are a party to a consolidation, merger, binding share exchange or transfer of
all or substantially all of our assets pursuant to which our common stock is
converted into cash, securities or other property, then at the effective time of
the transaction, the right to convert a note into our common stock will be
changed into a right to convert a note into the kind and amount of cash,
securities or other property which you would have received if you had converted
your notes immediately prior to the transaction. If we engage in any transaction
described in the preceding sentence, the conversion rate will not be adjusted.
If the transaction also constitutes a Fundamental Change, as defined below, you
can require us to purchase all or a portion of your notes as described below
under "-- Funda-
mental Change Requires Purchase of Notes by Us at the Option of the Holder."
45
CONVERSION UPON CREDIT RATINGS EVENT
You may convert notes into our common stock during any period in which the
credit ratings assigned to the notes by both Moody's Investors Service, Inc. and
Standard & Poor's Ratings Services are lower than Ba1 and BB+, respectively, or
the notes are no longer rated by at least one of these ratings services or their
successors.
PAYMENT UPON CONVERSION
CONVERSION ON OR PRIOR TO THE FINAL NOTICE DATE
In the event that we receive your notice of conversion on or prior to the
day that is 20 days prior to maturity (the "final notice date"), the following
procedures will apply: if we choose to satisfy all or any portion of our
obligation (the "conversion obligation") in cash, we will notify you through the
trustee of the dollar amount to be satisfied in cash (which must be expressed
either as 100% of the conversion obligation or as a fixed dollar amount) at any
time on or before the date that is two business days following receipt of your
notice of conversion ("cash settlement notice period"). If we timely elect to
pay cash for any portion of the shares otherwise issuable to you, you may
retract the conversion notice at any time during the two business day period
beginning on the day after the final day of the cash settlement notice period
("conversion retraction period"); no such retraction can be made (and a
conversion notice shall be irrevocable) if we do not elect to deliver cash in
lieu of shares (other than cash in lieu of fractional shares). If the conversion
notice has not been retracted, then settlement (in cash and/or shares) will
occur on the business day following the final day of the 10 New York Stock
Exchange trading day period beginning on the day after the final day of the
conversion retraction period (the "cash settlement averaging period").
Settlement amounts will be computed as follows:
- If we elect to satisfy the entire conversion obligation in shares, we
will deliver to you a number of shares equal to (1) the aggregate
principal amount of notes to be converted divided by 1,000, multiplied by
(2) the conversion rate.
- If we elect to satisfy the entire conversion obligation in cash, we will
deliver to you cash in an amount equal to the product of:
-- a number equal to (1) the aggregate principal amount of notes to be
converted divided by 1,000, multiplied by (2) the conversion rate and
-- the average closing price of our common stock during the cash
settlement averaging period.
- If we elect to satisfy a fixed portion (other than 100%) of the
conversion obligation in cash, we will deliver to you such cash amount
("cash amount") and a number of shares equal to the greater of (1) zero
and (2) the excess, if any, of the number of shares equal to (i) the
aggregate principal amount of notes to be converted divided by 1,000,
multiplied by (ii) the conversion rate over the number of shares equal to
the sum, for each day of the cash settlement averaging period, of (x) 10%
of the cash amount, divided by (y) the closing price of our common stock.
In addition, we will pay cash for all fractional shares of common stock
as described above under "-- Conversion of Notes."
CONVERSION AFTER THE FINAL NOTICE DATE
In the event that we receive your notice of conversion after the final
notice date and we choose to satisfy all or any portion of the conversion
obligation in cash, we will have notified you through the trustee of the dollar
amount to be satisfied in cash (which must be expressed either as 100% of the
conversion obligation or as a fixed dollar amount) at any time on or before the
final notice date. Settlement amounts will be computed and settlement dates will
be determined in the same manner as set forth above under "-- Conversion on or
Prior to the Final Notice Date" except that the "cash settlement averaging
period" shall be the 10 New York Stock Exchange trading day period beginning on
the day after receipt of your notice of conversion (or in the event we receive
your notice of conversion on the business day prior to the
46
maturity date, the 10 New York Stock Exchange trading day period beginning on
the day after the maturity date). Settlement (in cash and/or shares) will occur
on the business day following the final day of such cash settlement averaging
period.
CONVERSION RATE ADJUSTMENTS
The conversion rate is subject to adjustment, without duplication, upon the
occurrence of any of the following events:
(1) Stock Dividends in Common Stock. If we, at any time or from time to
time after the issue date of the notes, pay a dividend or make a distribution on
our common stock, payable exclusively in shares of our common stock or our other
capital stock.
(2) Issuance of Rights or Warrants. If we, at any time or from time to
time after the issue date of the notes, issue to all holders of our common stock
rights or warrants that allow the holders to purchase shares of our common stock
for a period expiring within 60 days from the date of issuance of the rights or
warrants at less than the market price on the record date for the determination
of shareholders entitled to receive the rights or warrants.
(3) Stock Splits and Combinations. If we, at any time or from time to time
after the issue date of the notes:
- subdivide or split the outstanding shares of our common stock;
- combine or reclassify the outstanding shares of our common stock into a
smaller number of shares; or
- issue by reclassification of the shares of our common stock any shares of
our capital stock.
(4) Distribution of Indebtedness, Securities or Assets. If we distribute
to all holders of our common stock, whether by dividend or in a merger,
amalgamation or consolidation or otherwise, evidences of indebtedness, shares of
capital stock of any class or series, other securities, cash or assets (other
than common stock, rights or warrants referred to in paragraphs (1) and (2)
above, a dividend payable exclusively in cash, shares of capital stock or
similar equity interests in the case of a spin-off, as described in the second
succeeding paragraph, and other than any dividend or distribution paid
exclusively in cash described in paragraph (5) below), and if these
distributions, aggregated on a rolling 12-month basis, have a per share value
exceeding 15% of the market price of our common stock on the trading day
immediately preceding the declaration of the distribution, the conversion rate
in effect immediately before the close of business on the record date fixed for
determination of stockholders entitled to receive that distribution will be
increased by dividing:
- the conversion rate by
- a fraction, the numerator of which is the current market price of our
common stock and the denominator of which is the current market price of
the common stock plus the fair market value, as determined by our board
of directors, whose determination in good faith will be conclusive, of
the portion of those evidences of indebtedness, shares of capital stock,
other securities, cash and assets so distributed applicable to one share
of common stock.
This adjustment will be made successively whenever any such event occurs.
For purposes of this paragraph, current market price of our common stock means
the average of the sale prices of our common stock for the first 10 New York
Stock Exchange trading days from, and including, the first day that the common
stock trades "ex-distribution."
In respect of a dividend or other distribution of shares of capital stock
of any class or series, or similar equity interests, of or relating to a
subsidiary or other business unit, which we refer to as a spin-off, the
47
conversion rate in effect immediately before the close of business on the record
date fixed for determination of stockholders entitled to receive that
distribution will be increased by dividing:
- the conversion rate by
- a fraction, the numerator of which is the current market price of our
common stock and the denominator of which is the current market price of
the common stock plus the fair market value, determined as described
below, of the portion of those shares of capital stock or similar equity
interests so distributed applicable to one share of common stock.
The adjustment to the conversion rate under the preceding paragraph will
occur at the earlier of:
- the 10th New York Stock Exchange trading day from, and including, the
effective date of the spin-off and
- the date of the initial public offering of the securities being
distributed in the spin-off, if that initial public offering is effected
simultaneously with the spin-off.
For purposes of this section, "initial public offering" means the first
time securities of the same class or type as the securities being distributed in
the spin-off are bona fide offered to the public for cash.
In the event of a spin-off that is not effected simultaneously with an
initial public offering of the securities being distributed in the spin-off, the
fair market value of the securities to be distributed to holders of our common
stock means the average of the sale prices of those securities over the first 10
New York Stock Exchange trading days after the effective date of the spin-off.
Also, for purposes of a spin-off, the current market price of our common stock
means the average of the sale prices of our common stock over the first 10 New
York Stock Exchange trading days after the effective date of the spin-off.
If, however, an initial public offering of the securities being distributed
in the spin-off is to be effected simultaneously with the spin-off, the fair
market value of the securities being distributed in the spin-off means the
initial public offering price, while the current market price of our common
stock means the sale price of our common stock on the trading day on which the
initial public offering price of the securities being distributed in the
spin-off is determined.
Notwithstanding the foregoing, in cases where (a) the fair market value per
share of common stock of the assets, debt securities or rights or warrants to
purchase our securities distributed to shareholders equals or exceeds the market
price of our common stock on the record date for the determination of
shareholders entitled to receive such distribution, or (b) the market price of
our common stock on the record date for determining the shareholders entitled to
receive the distribution exceeds the fair market value per share of common stock
of the assets, debt securities or rights or warrants so distributed by less than
$1.00, rather than being entitled to an adjustment in the conversion rate, you
will be entitled to receive upon conversion, in addition to the shares of our
common stock, the kind and amount of assets, debt securities or rights or
warrants comprising the distribution that you would have received if you had
converted your notes immediately prior to the record date for determining the
shareholders entitled to receive the distribution; and
(5) Excess Cash Distributions. If we make a distribution during any of our
quarterly fiscal periods consisting exclusively of cash to all holders of
outstanding shares of common stock in an aggregate amount that, together with
(a) other all-cash distributions made during such quarterly fiscal period, and
(b) any cash and the fair market value, as of the expiration of the tender or
exchange offer (other than consideration payable in respect of any odd-lot
tender offer) by us or any of our subsidiaries for shares of common stock
concluded during such quarterly fiscal period, exceed the product of $0.125
(appropriately adjusted from time to time for any stock dividends on or
subdivisions or combinations of our common
48
stock) multiplied by the number of shares of common stock outstanding on the
record date for such distribution, in which event the conversion rate will be
adjusted by dividing:
- the conversion rate by
- a fraction, the numerator of which will be the current market price of
our common stock and the denominator of which is the current market price
of our common stock plus the amount per share of such dividend or
distribution, to the extent it exceeds $0.125 (appropriately adjusted
from time to time for any stock dividends on or subdivisions or
combinations of our common stock).
This adjustment will be made successively whenever any such event occurs.
For purposes of this paragraph, current market price of our common stock means
the average of the sale prices of our common stock for the first 10 New York
Stock Exchange trading days from, and including, the first day that the common
stock trades "ex-distribution."
Notwithstanding the foregoing, in the event of an adjustment pursuant to
paragraphs (4) and (5) above, the "maximum conversion rate" will equal 43.8212,
subject to adjustment pursuant to paragraphs (1), (2) and (3) above.
In addition to these adjustments, we may increase the conversion rate as
our board of directors considers advisable to avoid or diminish any income tax
to holders of our common stock or rights to purchase our common stock resulting
from any dividend or distribution of stock (or rights to acquire stock) or from
any event treated as such for income tax purposes. We may also, from time to
time, to the extent permitted by applicable law, increase the conversion rate by
any amount for any period of at least 20 days if our board of directors has
determined that such increase would be in our best interests. If our board of
directors makes such a determination, it will be conclusive. We will give you at
least 15 days' notice of such an increase in the conversion rate.
As used in this prospectus, "market price" means the average of the last
reported sale prices per share of our common stock for the 20 trading day period
ending on the applicable date of determination (if the applicable date of
determination is a trading day or, if not, then on the last trading day prior to
the applicable date of determination), appropriately adjusted to take into
account the occurrence, during the period commencing on the first of the trading
days during the 20 trading day period and ending on the applicable date of
determination, of any event that would result in an adjustment of the conversion
rate under the indenture.
No adjustment to the conversion rate or your ability to convert will be
made if you otherwise participate in the distribution without conversion or in
certain other cases.
The applicable conversion rate will not be adjusted:
- upon the issuance of any shares of our common stock pursuant to any
present or future plan providing for the reinvestment of dividends or
interest payable on our securities and the investment of additional
optional amounts in shares of our common stock under any plan;
- upon the issuance of any shares of our common stock or options or rights
to purchase those shares pursuant to any present or future employee,
director or consultant benefit plan or program of or assumed by us or any
of our subsidiaries;
- upon the issuance of any shares of our common stock pursuant to any
option, warrant, right or exercisable, exchangeable or convertible
security not described in the preceding bullet and outstanding as of the
date the notes were first issued;
- for a change in the par value of the common stock; or
- for accrued and unpaid interest and additional amounts owed, if any.
You will receive, upon conversion of your notes, in addition to common
stock, the rights under our stockholder rights plan or under any future rights
plan we may adopt, whether or not the rights have separated from the common
stock at the time of conversion unless, prior to conversion, the rights have
49
expired, terminated or been redeemed or exchanged. See "Description of Capital
Stock -- Stockholder Rights Plan."
No adjustment in the applicable conversion price will be required unless
the adjustment would require an increase or decrease of at least 1% of the
applicable conversion price. If the adjustment is not made because the
adjustment does not change the applicable conversion price by more than 1%, then
the adjustment that is not made will be carried forward and taken into account
in any future adjustment.
PURCHASE OF NOTES BY US AT THE OPTION OF THE HOLDER
You have the right to require us to purchase the notes on July 15, 2008,
July 15, 2013 and July 15, 2018 (each, a "purchase date"). Any note purchased by
us on a purchase date will be paid for in cash. We are required to purchase any
outstanding notes for which you deliver a written purchase notice to the paying
agent. This notice must be delivered during the period beginning at any time
from the opening of business on the date that is 20 business days prior to the
relevant purchase date until the close of business on the fifth business day
prior to the purchase date. If the purchase notice is given and withdrawn during
such period, we will not be obligated to purchase the related notes. Our
purchase obligation is subject to some additional conditions as described in the
indenture. Also, as described in the "Risk Factors" section of this prospectus
under the caption "Risk Factors -- Risks Relating to the Notes -- We may not be
able to purchase the notes upon an agreed purchase date or a Fundamental Change
and may not be obligated to purchase the notes upon certain corporate
transactions," we may not have funds sufficient to purchase the notes when we
are required to do so. Our failure to purchase the notes when we are required to
do so will constitute an event of default under the indenture with respect to
the notes.
The purchase price payable will be equal to 100% of the principal amount of
the notes to be purchased plus any accrued and unpaid interest to such purchase
date.
On or before the 20th business day prior to each purchase date, we will
provide to the trustee, the paying agent and to all holders of the notes at
their addresses shown in the register of the registrar, and to beneficial owners
as required by applicable law, a notice stating, among other things:
- the purchase price;
- the name and address of the paying agent and the conversion agent; and
- the procedures that holders must follow to require us to purchase their
notes.
A notice electing to require us to purchase your notes must state:
- if certificated notes have been issued, the certificate numbers of the
notes;
- the portion of the principal amount of notes to be purchased, in integral
multiples of $1,000; and
- that the notes are to be purchased by us pursuant to the applicable
provisions of the notes and the indenture.
If the notes are not in certificated form, your notice must comply with
appropriate DTC procedures.
No notes may be purchased at the option of holders if there has occurred
and is continuing an event of default other than an event of default that is
cured by the payment of the purchase price of the notes.
You may withdraw any purchase notice in whole or in part by a written
notice of withdrawal delivered to the paying agent prior to the close of
business on the business day prior to the purchase date. The notice of
withdrawal must state:
- the principal amount of the withdrawn notes;
- if certificated notes have been issued, the certificate numbers of the
withdrawn notes; and
- the principal amount, if any, which remains subject to the purchase
notice.
If the notes are not in certificated form, your notice must comply with
appropriate DTC procedures.
You must either effect book-entry transfer or deliver the notes, together
with necessary endorsements, to the office of the paying agent after delivery of
the purchase notice to receive payment of the purchase
50
price. You will receive payment promptly following the later of the purchase
date or the time of book-entry transfer or the delivery of the notes. If the
paying agent holds money or securities sufficient to pay the purchase price of
the notes on the business day following the purchase date, then:
- the notes will cease to be outstanding and interest will cease to accrue
(whether or not book-entry transfer of the notes is made or whether or
not the note is delivered to the paying agent); and
- all other rights of the holder will terminate (other than the right to
receive the purchase price upon delivery or transfer of the notes).
FUNDAMENTAL CHANGE REQUIRES PURCHASE OF NOTES BY US AT THE OPTION OF THE HOLDER
If a Fundamental Change (as defined below in this section) occurs at any
time prior to July 15, 2008, you will have the right, at your option, to require
us to purchase any or all of your notes for cash, or any portion of the
principal amount thereof, that is equal to $1,000 or an integral multiple of
$1,000. The cash price we are required to pay is equal to 100% of the principal
amount of the notes to be purchased plus accrued and unpaid interest and
additional amounts owed, if any, to the Fundamental Change purchase date. If a
Fundamental Change occurs on or after July 15, 2008 no holder will have a right
to require us to purchase any notes, except as described above under "--
Purchase of Notes by Us at the Option of the Holder."
A "Fundamental Change" will be deemed to have occurred after the notes are
originally issued at the time any of the following occurs:
(1) our common stock or other common stock into which the notes are
convertible is neither listed for trading on a United States national securities
exchange nor approved for trading on the Nasdaq National Market or another
established automated over-the-counter trading market in the United States;
(2) a "person" or "group" within the meaning of Section 13(d) of the
Securities Exchange Act of 1934 other than us, our subsidiaries or our or their
employee benefit plans, files a Schedule TO or any schedule, form or report
under the Securities Exchange Act of 1934 disclosing that such person or group
has become the direct or indirect ultimate "beneficial owner," as defined in
Rule 13d-3 under the Securities Exchange Act of 1934, of our common equity
representing more than 50% of the voting power of our common equity entitled to
vote generally in the election of directors;
(3) consummation of any share exchange, consolidation or merger of us
pursuant to which our common stock will be converted into cash, securities or
other property or any sale, lease or other transfer in one transaction or a
series of transactions of all or substantially all of the consolidated assets of
us and our subsidiaries, taken as a whole, to any person other than us or one or
more of our subsidiaries; provided, however, that a transaction where the
holders of our common equity immediately prior to such transaction have directly
or indirectly, more than 50% of the aggregate voting power of all classes of
common equity of the continuing or surviving corporation or transferee entitled
to vote generally in the election of directors immediately after such event
shall not be a Fundamental Change; or
(4) continuing directors (as defined below in this section) cease to
constitute at least a majority of our board of directors.
A Fundamental Change will not be deemed to have occurred in respect of any
of the foregoing, however, if either:
(1) the last reported sale price of our common stock for any five trading
days within the 10 consecutive trading days ending immediately before the later
of the Fundamental Change or the public announcement thereof, equals or exceeds
105% of the conversion price of the notes in effect immediately before the
Fundamental Change or the public announcement thereof; or
(2) at least 90% of the consideration, excluding cash payments for
fractional shares, in the transaction or transactions constituting the
Fundamental Change consists of shares of capital stock traded on a national
securities exchange or quoted on the Nasdaq National Market or which will be so
traded or
51
quoted when issued or exchanged in connection with a Fundamental Change (these
securities being referred to as "publicly traded securities") and as a result of
this transaction or transactions the notes become convertible into such publicly
traded securities, excluding cash payments for fractional shares.
For purposes of the above paragraph the term capital stock of any person
means any and all shares (including ordinary shares or American Depositary
Shares), interests, participations or other equivalents however designated of
corporate stock or other equity participations, including partnership interests,
whether general or limited, of such person and any rights (other than debt
securities convertible or exchangeable into an equity interest), warrants or
options to acquire an equity interest in such person.
"Continuing director" means a director who either was a member of our board
of directors on the date of this prospectus or who becomes a member of our board
of directors subsequent to that date and whose appointment, election or
nomination for election by our stockholders is duly approved by a majority of
the continuing directors on our board of directors at the time of such approval,
either by a specific vote or by approval of the proxy statement issued by us on
behalf of the board of directors in which such individual is named as nominee
for director.
On or before the 30th day after the occurrence of a Fundamental Change, we
will provide to all holders of the notes and the trustee and paying agent a
notice of the occurrence of the Fundamental Change and of the resulting purchase
right. Such notice shall state, among other things:
- the events causing a Fundamental Change;
- the date of the Fundamental Change;
- the last date on which a holder may exercise the purchase right;
- the Fundamental Change purchase price;
- the Fundamental Change purchase date;
- the name and address of the paying agent and the conversion agent;
- the conversion rate and any adjustments to the conversion rate;
- the notes with respect to which a Fundamental Change purchase notice has
been given by the holder may be converted only if the holder withdraws
the Fundamental Change purchase notice in accordance with the terms of
the indenture; and
- the procedures that holders must follow to require us to purchase their
notes.
To exercise the purchase right, you must deliver, on or before the 35th day
after the date of our notice of a Fundamental Change, subject to extension to
comply with applicable law, the notes to be purchased, duly endorsed for
transfer, together with a written purchase notice and the form entitled "Form of
Fundamental Change Purchase Notice" duly completed, to the paying agent. Your
purchase notice must state:
- if certificated, the certificate numbers of your notes to be delivered
for purchase;
- the portion of the principal amount of notes to be purchased, which must
be $1,000 or an integral multiple thereof; and
- that the notes are to be purchased by us pursuant to the applicable
provisions of the notes and the indenture.
If the notes are not in certificated form, your notice must comply with
appropriate DTC procedures.
52
You may withdraw any purchase notice (in whole or in part) by a written
notice of withdrawal delivered to the paying agent prior to the close of
business on the business day prior to the Fundamental Change purchase date. The
notice of withdrawal must state:
- the principal amount of the withdrawn notes;
- if certificated notes have been issued, the certificate numbers of the
withdrawn notes; and
- the principal amount, if any, which remains subject to the purchase
notice.
If the notes are not in certificated form, your notice must comply with
appropriate DTC procedures.
We are required to purchase the notes no later than 35 business days after
the date of our notice of the occurrence of the relevant Fundamental Change
subject to extension to comply with applicable law. You will receive payment of
the Fundamental Change purchase price promptly following the later of the
Fundamental Change purchase date or the time of book-entry transfer or the
delivery of the notes. If the paying agent holds money or securities sufficient
to pay the Fundamental Change purchase price of the notes on the business day
following the Fundamental Change purchase date, then:
- the notes will cease to be outstanding and interest and additional
amounts, if any, will cease to accrue (whether or not book-entry transfer
of the notes is made or whether or not the note is delivered to the
paying agent); and
- all other rights of the holder will terminate (other than the right to
receive the Fundamental Change purchase price upon delivery or transfer
of the notes).
The rights of the holders to require us to purchase their notes upon a
Fundamental Change could discourage a potential acquirer of Halliburton. The
Fundamental Change purchase feature, however, is not the result of management's
knowledge of any specific effort to accumulate shares of our common stock, to
obtain control of us by any means or part of a plan by management to adopt a
series of anti-takeover provisions. Instead, the Fundamental Change purchase
feature is a standard term contained in other offerings of debt securities
similar to the notes that have been marketed by certain of the initial
purchasers. The terms of the Fundamental Change purchase feature resulted from
negotiations between the initial purchasers and us.
The term Fundamental Change is limited to specified transactions and may
not include other events that might adversely affect our financial condition. In
addition, the requirement that we offer to purchase the notes upon a Fundamental
Change may not protect holders in the event of a highly leveraged transaction,
reorganization, merger or similar transaction involving us.
No notes may be purchased at the option of holders upon a Fundamental
Change if there has occurred and is continuing an event of default other than an
event of default that is cured by the payment of the Fundamental Change purchase
price of the notes.
The definition of Fundamental Change includes a phrase relating to the
conveyance, transfer, sale, lease or disposition of "all or substantially all"
of our consolidated assets. There is no precise, established definition of the
phrase "substantially all" under applicable law. Accordingly, the ability of a
holder of the notes to require us to purchase its notes as a result of the
conveyance, transfer, sale, lease or other disposition of less than all of our
assets may be uncertain.
If a Fundamental Change were to occur, we may not have enough funds to pay
the Fundamental Change purchase price. See "Risk Factors -- Risks Relating to
the Notes -- We may not be able to purchase the notes upon an agreed purchase
date or a Fundamental Change and may not be obligated to purchase the notes upon
certain corporate transactions." Our failure to purchase the notes when required
following a Fundamental Change will constitute an event of default under the
indenture with respect to the notes. In addition, we have, and may in the future
incur, other indebtedness with similar change in control provisions permitting
holders to accelerate or to require us to purchase our indebtedness upon the
occurrence of similar events or on some specific dates.
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OPTIONAL REDEMPTION
No sinking fund is provided for the notes, which means that the indenture
will not require us to redeem or retire the notes periodically. Prior to July
15, 2008, the notes will not be redeemable. On or after July 15, 2008, we may
redeem for cash all or part of the notes at any time, upon not less than 30 nor
more than 60 days' notice before the redemption date by mail to the trustee, the
paying agent and each holder of notes, for a price equal to 100% of the
principal amount of the notes to be redeemed plus any accrued and unpaid
interest and additional amounts owed, if any, to the redemption date.
If we decide to redeem fewer than all of the outstanding notes, the trustee
will select the notes to be redeemed (in principal amounts of $1,000 or integral
multiples thereof) by a method the trustee considers fair and appropriate.
If the trustee selects a portion of your note for partial redemption and
you convert a portion of the same note, the converted portion will be deemed to
be from the portion selected for redemption.
In the event of any redemption in part, we will not be required to:
- issue, register the transfer of or exchange any note during a period of
15 days before the mailing of the redemption notice; or
- register the transfer of or exchange any note so selected for redemption,
in whole or in part, except the unredeemed portion of any note being
redeemed in part.
RANKING
The notes are our senior unsecured obligations and rank equally with all of
our existing and future unsecured senior indebtedness. In addition, except as
otherwise provided herein, the notes are effectively subordinated to any secured
indebtedness to the extent of the value of the assets securing such indebtedness
and to any indebtedness of our subsidiaries to the extent of the assets of those
subsidiaries.
As of September 30, 2003, we had outstanding approximately $2.4 billion of
unsecured indebtedness, no secured indebtedness and no subordinated
indebtedness. In October 2003, we issued additional senior indebtedness in an
aggregate principal amount of $1.05 billion, and, in January 2004, we issued
additional senior indebtedness in an aggregate principal amount of $500.0
million. As of the date of this prospectus, we had no outstanding advances under
our new master letter of credit facility and our new revolving credit facility
described below and no other outstanding secured indebtedness. At September 30,
2003, the aggregate indebtedness of our subsidiaries was approximately $402.0
million and other liabilities of our subsidiaries, including trade payables,
accrued compensation, advanced billings, income taxes payable, other liabilities
(other than asbestos and intercompany liabilities) were approximately $4.3
billion, and accrued asbestos liabilities were approximately $3.4 billion.
Subsequent to September 30, 2003, we completed an exchange offer in which we
issued approximately $294.0 million of our new 7.6% debentures due 2096 in
exchange for a like amount of outstanding 7.60% debentures due 2096 of DII
Industries, which reduced the aggregate indebtedness of our subsidiaries to
approximately $108.0 million. As of September 30, 2003, our subsidiaries had no
secured indebtedness and no subordinated indebtedness outstanding.
Subsequent to the end of third quarter 2003, we entered into (1) a
delayed-draw term facility for up to $1.0 billion, which has been reduced to
approximately $500.0 million by the net proceeds of our recent issuance of
senior notes due 2007 and is subject to further reduction, to be available for
cash funding of the trusts for the benefit of asbestos and silica claimants; (2)
a master letter of credit facility intended to ensure that existing letters of
credit supporting our contracts remain in place during the Chapter 11 filing;
and (3) a $700.0 million three-year revolving credit facility for general
working capital purposes. Although the master letter of credit facility and the
$700.0 million revolving credit facility are now effective, there are a number
of conditions that must be met before the delayed-draw term facility will become
effective and available for our use, including bankruptcy court approval and
federal district court confirmation of the plan of reorganization. Borrowings
under the letter of credit facility and the revolving credit facility are
secured. The terms of the notes and the new credit facilities provide that the
notes offered hereby and
54
certain of our previously issued debt securities and limited amounts of new
issuances of debt, if similarly entitled, will share in collateral pledged to
secure borrowings under the new credit facilities if and when the total of all
the Secured Debt (as defined in the notes) exceeds 5% of the consolidated net
tangible assets of Halliburton and its subsidiaries. The terms of the new credit
facilities limit to $950.0 million the amount of indebtedness we can issue after
October 31, 2003 that would be equally and ratably secured with indebtedness
under the new credit facilities. In January 2004, we issued $500.0 million
aggregate principal amount of senior notes due 2007, reducing this amount to
$450.0 million. The terms of the new credit facilities provide that collateral
pledged to secure borrowings under the new facilities will be released after (1)
completion of the Chapter 11 plan of reorganization of DII Industries, Kellogg
Brown & Root and some of their subsidiaries with U.S. operations, which is being
used to implement the proposed settlement, and (2) satisfaction of other
conditions described in "Description of Selected Settlement-Related
Indebtedness -- Conditions to Release of Collateral."
The notes will not be guaranteed by any of our subsidiaries. Borrowings
under the letter of credit facility and revolving credit facility described
under "Description of Selected Settlement-Related Indebtedness" are guaranteed
by some of our subsidiaries. Accordingly, the notes will be structurally
subordinated to the debt guaranteed by our subsidiaries. The terms of the new
credit facilities provide that these subsidiary guarantees will be released
after (1) completion of the Chapter 11 plan of reorganization of DII Industries,
Kellogg Brown & Root and some of their subsidiaries with U.S. operations, which
is being used to implement the proposed settlement, and (2) satisfaction of the
other conditions described in "Description of Selected Settlement-Related
Indebtedness -- Conditions to Release of Collateral."
The notes are our exclusive obligation. Our cash flow and our ability to
service our indebtedness, including the notes, is dependent upon the earnings of
our subsidiaries. In addition, we are dependent on the distribution of earnings,
loans or other payments by our subsidiaries to us. Our subsidiaries are separate
and distinct legal entities. Our subsidiaries will not guarantee the notes or
have any obligation to pay any amounts due on the notes or to provide us with
funds for our payment obligations, whether by dividends, distributions, loans or
other payments. In addition, any payment of dividends, distributions, loans or
advances by our subsidiaries to us could be subject to statutory or contractual
restrictions. Payments to us by our subsidiaries will also be contingent upon
our subsidiaries' earnings and business considerations. Our right to receive any
assets of any subsidiary upon its liquidation or reorganization, and, therefore,
our right to participate in those assets, will be effectively subordinated to
the claims of that subsidiary's creditors, including trade creditors. In
addition, even if we were a creditor of any of our subsidiaries, our right as a
creditor would be subordinate to 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 -- The
Chapter 11 filing of some of our subsidiaries may negatively affect their
ability to obtain new business in the future and consequently may have a
negative impact on our financial condition and results of operations" 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 to you on the notes and you may be forced to return such
payments."
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
Notes -- We may able to incur more indebtedness and the risks associated with
our leverage, including our ability to service our indebtedness, will increase
as we incur additional
55
indebtedness." However, the indenture does contain other covenants for your
protection, including those described below.
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, assume or guarantee 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 of, or guaranteed by, us or any indebtedness of such Restricted
Subsidiary then similarly entitled. However, the foregoing restrictions will not
apply to:
- specified purchase money mortgages;
- specified mortgages to finance construction on unimproved property;
- mortgages existing on property at the time of its acquisition by us 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, assume or guarantee
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 so
leased secured 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
56
- 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.
RESTRICTIONS ON CONSOLIDATION, MERGER, SALE OR CONVEYANCE
Halliburton will not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all its assets to, any person, unless:
(1) the resulting, surviving or transferee person (the "Successor Company")
will be a corporation, partnership, trust or limited liability company organized
and existing under the laws of the United States, any State of the United States
or the District of Columbia and the Successor Company (if not Halliburton) will
expressly assume, by supplemental indenture, executed and delivered to the
Trustee, in form satisfactory to the Trustee, all the obligations of Halliburton
under the notes and the indenture;
(2) immediately after giving effect to such transaction, no default or
event of default (as described below) shall have occurred and be continuing; and
(3) Halliburton shall have delivered to the trustee the certificates and
opinions required by the indenture.
For purposes of this covenant, the sale, lease, conveyance, assignment,
transfer or other disposition of all or substantially all of the properties and
assets of one or more subsidiaries of Halliburton, which properties and assets,
if held by Halliburton instead of such subsidiaries, would constitute all or
substantially all of the properties and assets of Halliburton on a consolidated
basis, shall be deemed to be the transfer of all or substantially all of the
properties and assets of Halliburton.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, Halliburton under the indenture, but, in the
case of a lease of all or substantially all its assets, the predecessor company
will not be released from the obligation to pay the principal of and interest on
the notes.
Although there is a limited body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, in certain circumstances there may be a
degree of uncertainty as to whether a particular transaction would involve "all
or substantially all" of the property or assets of a person.
EVENTS OF DEFAULT
The following are events of default under the indenture:
- failure to pay any interest or additional amounts, if any, when due,
continued for 30 days;
- failure to pay principal or premium, if any, when due;
- failure to make any payment at maturity on any indebtedness, upon
redemption or otherwise, in an 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 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;
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- failure to pay the repurchase price when required to do so in connection
with holders' exercise of their option to require us to repurchase their
notes;
- failure to deliver shares of common stock within 10 days after such
common stock is required to be delivered upon conversion of a note as
provided in the indenture;
- breach of or failure to perform any other covenant or agreement in the
indenture applicable to the notes, continued for 60 days after written
notice by the trustee or the holders of at least 25% in aggregate
principal amount of the notes then outstanding; and
- specific events relating to our bankruptcy, insolvency or reorganization.
If any event of default occurs and continues for the required amount of
time, the trustee or the holders of not less than 25% of the aggregate principal
amount of the notes then outstanding may declare the notes due and payable,
together with all accrued and unpaid interest, if any, and additional amounts,
if any, immediately by giving notice in writing to us (and to the trustee, if
given by the holders). Notwithstanding the preceding, in the case of an event of
default arising from certain events of bankruptcy, insolvency or reorganization
with respect to Halliburton, all outstanding notes will become due and payable
without further action or notice. The holders of a majority of the aggregate
principal amount of the notes then outstanding, may, however, by notice in
writing to us and the trustee, rescind the declaration if:
- we have paid or deposited with the trustee all amounts that have become
due, otherwise than through acceleration, for principal, premium, if any,
and interest, if any; and
- all defaults under the indenture are cured or waived.
No holder of notes then outstanding may institute any suit, action or
proceeding with respect to, or otherwise attempt to enforce, the indenture,
unless:
- the holder has given to the trustee written notice of the occurrence and
continuance of a default;
- the holders of not less than 25% of the aggregate principal amount then
outstanding of the notes have made a written request to the trustee to
institute the suit, action or proceeding and have offered to the trustee
the reasonable indemnity it may require; and
- the trustee for 60 days after its receipt of the notice, request and
offer of indemnity has neglected or refused to institute the requested
action, suit or proceeding.
The right of each holder of notes to receive payment of the principal of,
premium, if any, interest or additional amounts, if any, on the notes on or
after the respective due dates and the right to institute suit for enforcement
of any payment obligation may not be impaired or affected without the consent of
that holder.
The holders of a majority in aggregate principal amount of the notes then
outstanding may direct the time, method and place of conducting any proceeding
for any remedy available to the trustee or exercising any trust power conferred
on the trustee if that direction is not in conflict with applicable law and
would not involve the trustee in personal liability (as determined in good faith
by the trustee's board or similar governing body).
In determining whether the holders of the requisite aggregate principal
amount of the notes outstanding have given any request, demand, authorization or
consent under the indenture, the principal amount of notes that will be deemed
to be outstanding will be the amount of the principal of the notes that would be
due and payable as of the date of the determination upon a declaration of
acceleration of the maturity of the notes.
We are required to furnish to the trustee annually a statement as to the
fulfillment of all of our obligations under the indenture.
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DISCHARGE AND DEFEASANCE
The terms of the notes will provide that under specified conditions, we
will be discharged from any and all obligations in respect of the notes (other
than our obligations in respect of conversion of the notes into common stock and
except for obligations to register the transfer or exchange of notes, to replace
stolen, lost or mutilated notes, to maintain paying agencies and to hold moneys
for payment in trust) upon the deposit with the trustee, in trust for the
benefit of the holders of the notes, of money and/or U.S. government obligations
that, through the payment of interest and principal in accordance with their
terms, will provide money in an amount sufficient to pay principal (and premium,
if any), interest and additional amounts, if any, on, the notes on the stated
maturity of the payments in accordance with the terms of the notes. If we want
to defease the notes, we will also be required to deliver to the trustee an
opinion of counsel to the effect that the holders will be subject to United
States federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such defeasance had not occurred.
MODIFICATIONS
From time to time, we and the trustee may enter into supplemental
indentures without the consent of the holders of the notes to, among other
things:
- evidence the assumption by a successor entity of our obligations under
the indenture;
- add covenants or new events of default for the protection of the holders
of the notes;
- cure any ambiguity or correct any inconsistency in the indenture;
- evidence the acceptance of appointment by a successor trustee;
- amend the indenture in any other manner that we may deem necessary or
desirable and that will not adversely affect the interests of the holders
of outstanding notes; or
- secure the notes.
We and the trustee, with the consent of the holders of not less than a
majority of the aggregate principal amount of the outstanding debt securities of
all series issued under the indenture and affected thereby, may add, change or
eliminate any of the provisions of the indenture. Similarly, with the consent of
the holders of at least a majority of the aggregate principal amount of notes
then outstanding, we may also modify in some manners the rights of the holders
of the notes. These rights are, however, limited. We and the trustee may not,
without the consent of the holder of each outstanding note:
- extend the stated maturity of the principal of any note;
- reduce the amount of the principal or premium, if any, of any note;
- reduce the rate or extend the time of payment of interest on any note;
- reduce or alter the method of computation of any amount payable on or at
redemption or repayment of any note;
- change the coin or currency in which principal, premium, if any, interest
and redemption or repurchase price are payable;
- change the terms applicable to redemption or repurchase in a manner
adverse to the holder;
- make any change that adversely affects the right to convert the notes, or
decrease the conversion rate with respect to the notes;
- impair or affect the right to institute suit for the enforcement of any
payment or repayment of any note; or
- reduce the percentage stated above of the holders of notes who must
consent to a modification to the indenture or the notes.
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GOVERNING LAW
The laws of the State of New York govern the indenture and the notes.
DEFINITIONS
"Consolidated Net Tangible Assets" means the aggregate amount of assets
included on a consolidated balance sheet of Halliburton and its Restricted
Subsidiaries, less
- applicable reserves and other properly deductible items;
- all current liabilities; and
- all goodwill, trade names, trademarks, patents, unamortized debt discount
and expense and other like intangibles,
all in accordance with generally accepted accounting principles consistently
applied.
"Principal Property" means any real 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 Halliburton and its Restricted Subsidiaries as a whole. As
of the date of this prospectus, our board of directors has not designated any
property of Halliburton or of any Restricted Subsidiary as a Principal Property
because, in the opinion of our management, no single property or asset is of
material importance to the total business of Halliburton and its Restricted
Subsidiaries taken as a whole.
"Restricted Subsidiary" means:
- any Subsidiary of ours existing at the date of the indenture, the
principal assets and business of which are located in the United States,
its territories, Canada or Puerto Rico, except sales financing, real
estate and other Subsidiaries so designated; and
- any other Subsidiary we designate as a Restricted Subsidiary.
"Sale and Leaseback Transaction" means the sale or transfer by Halliburton
or a Restricted Subsidiary (other than to Halliburton or any one or more of our
Restricted Subsidiaries, or both) of any Principal Property owned by it that has
been in full operation for more than 120 days prior to the sale or transfer with
the intention of taking back a lease on such property, other than a lease not
exceeding 36 months, 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;
- a pledge, lien or other security interest on any shares of stock or
indebtedness of a Restricted Subsidiary; or
- in the case of indebtedness of Halliburton, a guaranty by a Restricted
Subsidiary.
"Subsidiary" 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
60
limited partnership interests, as applicable, is, in the case of clauses (a) and
(b), at the time owned or controlled, directly or indirectly, by (1) such
person, (2) such person and one or more Subsidiaries of such person or (3) one
or more Subsidiaries of such person. Unless otherwise specified herein, each
reference to a Subsidiary will refer to a Subsidiary of Halliburton. As used
herein, "Capital Stock" of any person means any and all shares (including
ordinary shares or American Depositary Shares), interests, rights to purchase,
warrants, options, participations or other equivalents of or interests in
(however designated) of capital stock or other equity participations of such
person and any rights (other than debt securities convertible or exchangeable
into an equity interest), warrants or options to acquire an equity interest in
such person.
INFORMATION CONCERNING THE TRUSTEE
JPMorgan Chase Bank is the trustee under the indenture, and the paying
agent, conversion agent, registrar and custodian with regard to the notes. The
trustee or its affiliates may from time to time in the future provide banking
and other services to us in the ordinary course of their business.
BOOK-ENTRY SYSTEM
We originally issued the notes in the form of global notes. The global
notes have been deposited with, or on behalf of, the DTC and registered in the
name of its nominee. The notes sold under this prospectus will be represented by
a new unrestricted global security. Notes in definitive certificated form will
be issued only in limited circumstances described below.
Investors may hold their interests in a global note directly through DTC if
they are DTC participants or indirectly through organizations that are DTC
participants. Investors who purchased notes in offshore transactions in reliance
on Regulation S under the Securities Act may hold their interests in a global
note through Clearstream Banking, Societe Anonyme, Luxembourg ("Clearstream"),
or Euroclear Bank S.A./ N.V. (the "Euroclear Operator"), as operator of the
Euroclear System ("Euroclear"), either directly if they are participants in
these systems, or indirectly through organizations that are participants in
these systems. Clearstream and Euroclear will hold interests in a global note on
behalf of their participants through customers' securities accounts in
Clearstream's and Euroclear's names on the books of their respective U.S.
depositaries, which in turn will hold the interests in a global note in
customers' securities accounts in the U.S. depositaries' names on the books of
DTC.
Except as set forth below, a global note may be transferred, in whole or in
part, only to another nominee of DTC or to a successor of DTC or its nominee.
DTC has advised us that DTC is:
- a limited-purpose trust company organized under the New York Banking Law;
- a "banking organization" within the meaning of the New York Banking Law;
- a member of the Federal Reserve System;
- "clearing corporation" within the meaning of the New York Uniform
Commercial Code; and
- a "clearing agency" registered pursuant to the provisions of Section 17A
of the Securities Exchange Act of 1934.
DTC was created to hold securities of institutions that have accounts with
DTC and to facilitate the clearance and settlement of securities transactions
among its participants in securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical movement
of securities certificates. DTC's participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations.
Access to DTC's book-entry system is also available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, whether directly or indirectly. The
rules applicable to DTC and its participants are on file with the SEC.
61
Clearstream has advised us that it is incorporated under the laws of
Luxembourg as a professional depositary. Clearstream holds securities for its
customers and facilitates the clearance and settlement of securities
transactions between its customers through electronic book-entry changes in
accounts of its customers, thereby eliminating the need for physical movement of
certificates. Clearstream provides to its customers, among other things,
services for safekeeping, administration, clearance and settlement of
internationally traded securities and securities lending and borrowing.
Clearstream interfaces with domestic markets in several countries. As a
professional depositary, Clearstream is subject to regulation by the Luxembourg
Commission for the Supervision of the Financial Section. Clearstream customers
are recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and other organizations. Indirect access to Clearstream is also available to
others, such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Clearstream customer either directly
or indirectly.
Euroclear has advised us that it was created in 1968 to hold securities for
participants of Euroclear and to clear and settle transactions between Euroclear
participants through simultaneous electronic book-entry delivery against
payment, thereby eliminating the need for physical movement of certificates and
any risk from lack of simultaneous transfers of securities and cash. Euroclear
provides various other services, including securities lending and borrowing and
interfaces with domestic markets in several countries. Euroclear is operated by
the Euroclear Operator, under contract with Euroclear Clearance Systems S.C., a
Belgian cooperative corporation (the "Cooperative"). All operations are
conducted by the Euroclear Operator, and all Euroclear securities clearance
accounts and Euroclear cash accounts are accounts with the Euroclear Operator,
not the Cooperative. The Cooperative establishes policy for Euroclear on behalf
of Euroclear participants. Euroclear participants include banks (including
central banks), securities brokers and dealers and other professional financial
intermediaries and may include the underwriters. Indirect access to Euroclear is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear participant, either directly or indirectly.
The Euroclear Operator has advised us that it is licensed by the Belgian
Banking and Finance Commission to carry out banking activities on a global
basis. As a Belgian bank, it is regulated and examined by the Belgian Banking
Commission.
We have provided the following descriptions of the operations and
procedures of DTC, Clearstream and Euroclear solely as a matter of convenience.
These operations and procedures are solely within the control of those
organizations and are subject to change by them from time to time. Neither
Halliburton nor the trustee takes any responsibility for these operations or
procedures, and you are urged to contact DTC, Clearstream and Euroclear or their
participants directly to discuss these matters.
We expect that pursuant to the procedures established by DTC, ownership of
beneficial interests in a global note will be shown on, and the transfer of
those ownership interests will be effected only through, records maintained by
DTC (with respect to participants' interests) and the participants (with respect
to the owners of beneficial interests in the global note other than
participants). Ownership of beneficial interests in a global note is limited to
participants or persons that may hold interests through participants.
The laws of some jurisdictions may require that purchasers of securities
take physical delivery of those securities in definitive form. Accordingly, the
ability to transfer interests in the notes represented by a global note to those
persons may be limited. In addition, because DTC can act only on behalf of its
participants, who in turn act on behalf of persons who hold interests through
participants, the ability of a person having an interest in notes represented by
a global note to pledge or transfer those interests to persons or entities that
do not participate in DTC's system, or otherwise to take actions in respect of
such interest, may be affected by the lack of a physical definitive security in
respect of such interest.
So long as DTC or its nominee is the registered holder and owner of a
global note, DTC or its nominee, as the case may be, will be considered the sole
legal owner of the notes represented by the global note for all purposes under
the indenture and the notes. Except as set forth below, owners of beneficial
interests in a global note will not be entitled to receive definitive notes and
will not be considered to be the owners or holders of any notes under the global
note. We understand that under existing industry practice,
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in the event an owner of a beneficial interest in a global note desires to take
any action that DTC, as the holder of the global note, is entitled to take, DTC
would authorize the participants to take the action, and that participants would
authorize beneficial owners owning through the participants to take the action
or would otherwise act upon the instructions of beneficial owners owning through
them. No beneficial owner of an interest in a global note will be able to
transfer the interest except in accordance with DTC's applicable procedures, in
addition to those provided for under the indenture and, if applicable, those of
Euroclear and Clearstream Banking.
Neither Halliburton nor the trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of notes by DTC, Clearstream or Euroclear, or for maintaining, supervising or
reviewing any records of those organizations relating to the notes.
We will make payments of the principal of, and interest on, the notes
represented by a global note registered in the name of and held by DTC or its
nominee to DTC or its nominee, as the case may be, as the registered owner and
holder of the global note.
We expect that DTC or its nominee, upon receipt of any payment of principal
or interest in respect of a global note, will credit participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of the global note as shown on the records of DTC or its
nominee. We also expect that payments by participants and indirect participants
to owners of beneficial interests in a global note held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for accounts of customers registered in
the names of nominees for these customers. The payments, however, will be the
responsibility of the participants and indirect participants, and neither we,
the trustee nor any paying agent will have any responsibility or liability for:
- any aspect of the records relating to, or payments made on account of,
beneficial ownership interests in a global note;
- maintaining, supervising or reviewing any records relating to the
beneficial ownership interests;
- any other aspect of the relationship between DTC and its participants; or
- the relationship between the participants and indirect participants and
the owners of beneficial interests in a global note.
Distributions on the notes held beneficially through Clearstream will be
credited to cash accounts of its customers in accordance with its rules and
procedures, to the extent received by the U.S. depositary for Clearstream.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System, and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear participants and has no record of or relationship with persons holding
through Euroclear participants.
Distributions on the notes held beneficially through Euroclear will be
credited to the cash accounts of its participants in accordance with the Terms
and Conditions, to the extent received by the U.S. depositary for Euroclear.
Unless and until it is exchanged in whole or in part for definitive notes,
a global note may not be transferred except as a whole by DTC to a nominee of
DTC or by a nominee of DTC to DTC or another nominee of DTC.
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Participants in DTC will effect transfers with other participants in the
ordinary way in accordance with DTC rules and will settle transfers in same-day
funds. Participants in Euroclear and Clearstream Banking will effect transfers
with other participants in the ordinary way in accordance with the rules and
operating procedures of Euroclear and Clearstream Banking, as applicable. If a
holder requires physical delivery of a definitive note for any reason, including
to sell notes to persons in jurisdictions which require physical delivery or to
pledge notes, the holder must transfer its interest in a global note in
accordance with the normal procedures of DTC and the procedures set forth in the
indenture.
Cross-market transfers between DTC, on the one hand, and directly or
indirectly through Euroclear or Clearstream Banking participants, on the other,
will be effected in DTC in accordance with DTC rules on behalf of Euroclear or
Clearstream Banking, as the case may be, by its respective depositary; however,
these cross-market transactions will require delivery of instructions to
Euroclear or Clearstream Banking, as the case may be, by the counterparty in the
system in accordance with its rules and procedures and within its established
deadlines (Brussels time). Euroclear or Clearstream Banking, as the case may be,
will, if the transaction meets its settlement requirements, deliver instructions
to its respective depositary to take action to effect final settlement on its
behalf by delivering or receiving interests in a global note in DTC, and making
or receiving payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. Euroclear participants and Clearstream Banking
participants may not deliver instructions directly to the depositaries for
Euroclear or Clearstream Banking.
Because of time zone differences, the securities account of a Euroclear or
Clearstream Banking participant purchasing an interest in a global note from a
DTC participant will be credited during the securities settlement processing day
(which must be a business day for Euroclear or Clearstream Banking, as the case
may be) immediately following the DTC settlement date, and the credit of any
transactions interests in a global note settled during the processing day will
be reported to the relevant Euroclear or Clearstream Banking participant on that
day. Cash received in Euroclear or Clearstream Banking as a result of sales of
interests in a global note by or through a Euroclear or Clearstream Banking
participant to a DTC participant will be received with value on the DTC
settlement date, but will be available in the relevant Euroclear or Clearstream
Banking cash account only as of the business day following settlement in DTC.
We expect that DTC will take any action permitted to be taken by a holder
of notes (including the presentation of notes for exchange as described below)
only at the direction of one or more participants to whose accounts at the DTC
interests in a global note are credited and only in respect of the portion of
the aggregate principal amount of the notes as to which the participant or
participants has or have given direction. Although we expect that DTC, Euroclear
and Clearstream Banking will agree to the foregoing procedures in order to
facilitate transfers of interests in global notes among participants of DTC,
Euroclear, and Clearstream Banking, DTC, Euroclear and Clearstream Banking are
under no obligation to perform or continue to perform these procedures, and
these procedures may be discontinued at any time. Neither we nor the trustee
have any responsibility for the performance by DTC, Euroclear or Clearstream
Banking or their participants or indirect participants of their obligations
under the rules and procedures governing their operations.
CERTIFICATED NOTES
The notes represented by the global securities are exchangeable for
certificated notes in definitive form of like tenor as such notes if:
- the depositary notifies us that it is unwilling or unable to continue as
depositary for the global securities or if at any time the depositary
ceases to be a clearing agency registered under the Exchange Act and, in
either case, a successor depositary is not appointed by us within 90 days
after the date of such notice;
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- 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. In addition, such certificates will bear the
legend referred to under "Notice to Investors" (unless we determine otherwise in
accordance with applicable law) subject, with respect to such notes, to the
provisions of such legend.
REGISTRATION RIGHTS AGREEMENT
We entered into a registration rights agreement with the initial
purchasers. In the registration rights agreement we agreed, for the benefit of
the holders of the notes and our common stock issuable upon conversion of the
notes (together, the "registrable securities") that we will, at our expense:
- file with the SEC (which occurs pursuant to the filing of this shelf
registration statement), not later than the date 120 days after the
earliest date of original issuance of any of the notes, a registration
statement (a "shelf registration statement") on such form as we deem
appropriate covering resales by holders of all registrable securities;
- use our best efforts to cause the shelf registration statement to be
declared effective as promptly as is practicable, but in no event later
than 210 days after the earliest date of original issuance of any of the
notes; and
- use our reasonable best efforts to keep the shelf registration statement
effective until the earliest of:
- two years after the last date of original issuance of any of the notes;
- the date when non-affiliate holders of the registrable securities are
able to sell all such securities pursuant to paragraph (k) of Rule 144
under the Securities Act;
- the date when all of the holders of the registrable securities that
complete and deliver in a timely manner the selling securityholder
Notice and Questionnaire described below are registered under the shelf
registration statement and all registrable securities have been disposed
of in accordance with the shelf registration statement; and
- the date when there are no outstanding registrable securities.
We have filed the registration statement of which this prospectus is a part
to satisfy our obligations under the registration rights agreement.
We will provide to each holder of registrable securities that has delivered
to us a completed Notice and Questionnaire as described below copies of the
prospectus that is part of the shelf registration statement, notify each such
holder when the shelf registration statement has become effective and take
certain other actions required to permit public resales of the registrable
securities of such holders. We may suspend the holder's use of the shelf
registration statement for a period not to exceed 45 days in any 90-day period,
and not to exceed an aggregate of 120 days in any 360-day period under certain
circumstances related to acquisition or divestiture of assets, pending corporate
developments or other similar events (a "suspension period"). Each holder, by
its acceptance of the notes, agrees to hold any communication by us in response
to a notice of a proposed sale in confidence.
If (1) the shelf registration statement has not been filed prior to or on
the 120th day following the earliest date of original issuance of any of the
notes; or (2) the shelf registration statement has not been declared effective
prior to or on the 210th day following the earliest date of original issuance of
any of the notes (the "effectiveness target date"); or (3) at any time after the
effectiveness date of the shelf
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registration statement and prior to the second anniversary of the date on which
any notes are issued, the registration statement ceases to be effective or
usable other than as a result of a suspension period and (1) we do not restore
the effectiveness of the shelf registration statement within 10 business days by
a post-effective amendment or report filed pursuant to the Exchange Act or (2)
if applicable, we do not terminate the suspension period by the 45th day in any
90-day period, or if the suspension periods exceed 120 days in the aggregate in
any 360-day period (each, a "registration default"), additional interest as
additional amounts will accrue on the notes, from and including the day
following the registration default to but excluding the day on which the
registration default has been cured. Additional amounts will be paid in cash
semiannually in arrears, with the first semiannual payment due on the first
interest payment date, as applicable, following the date on which such
additional amounts begin to accrue, and will accrue at a rate per year equal to
(A) 0.25% of the Applicable Amount (as defined below) to and including the 90th
day following such registration default; and (B) an additional 0.25% of the
Applicable Amount from and after the 91st day following such registration
default. In no event will additional amounts at a rate per year exceed 0.50%. If
a holder has converted some or all of its notes into common stock, the holder
will be entitled to receive equivalent amounts based on the principal amount of
the notes converted. "Applicable Amount" means, (a) with respect to the notes,
the principal amount of the notes and (b) with respect to shares of common stock
issued upon conversion of the notes, the principal amount of notes that would
then be convertible into such shares.
A holder who elects to sell any registrable securities pursuant to the
shelf registration statement:
- will be required to be named as a selling securityholder;
- will be required to deliver a prospectus to purchasers;
- will be subject to the civil liability provisions under the Securities
Act in connection with any sales; and
- will be bound by the provisions of the registration rights agreement,
which are applicable, including indemnification and contribution
provisions.
To be named as a selling securityholder in the shelf registration statement
when it first becomes effective, holders must complete and deliver a
questionnaire, the form of which can be obtained from Halliburton upon request,
before the effectiveness of the shelf registration statement. If we receive from
a holder of registrable securities a completed questionnaire, together with such
other information as may be reasonably requested by us, after the effectiveness
of the shelf registration statement, we will include the registrable securities
covered thereby in the shelf registration statement, subject to restrictions on
the timing provided in the registration rights agreement. Any holder that does
not complete and deliver a questionnaire or provide such other information will
not be named as a selling securityholder in this prospectus and therefore will
not be permitted to sell any registrable securities under the shelf registration
statement.
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DESCRIPTION OF CAPITAL STOCK
The following description of our common stock, preferred stock, certificate
of incorporation, by-laws and stockholder rights plan is a summary only and is
subject to the complete text of our certificate of incorporation and by-laws and
the rights agreement we have entered into with Mellon Investor Services LLC, as
Rights Agent, which we have previously filed with the SEC. You should read our
certificate of incorporation, by-laws and rights agreement as currently in
effect for more details regarding the provisions we describe below and for other
provisions that may be important to you. You may request copies of these
documents by writing or telephoning us at our address and telephone number shown
under the caption "Where You Can Find More Information."
Our authorized capital stock currently consists of 600,000,000 shares of
common stock, par value $2.50 per share, and 5,000,000 shares of preferred
stock, without par value. As of December 31, 2003, there were 438,321,454 shares
of common stock issued and outstanding and approximately 24,143 shareholders of
record of our common stock. No shares of preferred stock are outstanding.
COMMON STOCK
The holders of our common stock are entitled to one vote per share on all
matters to be voted on by stockholders generally, including the election of
directors. There are no cumulative voting rights, meaning that the holders of a
majority of the shares voting for the election of directors can elect all of the
directors standing for election.
Our common stock carries no preemptive or other subscription rights to
purchase shares of our stock and is not convertible, redeemable or assessable or
entitled to the benefits of any sinking fund. Holders of our common stock will
be entitled to receive such dividends as may from time to time be declared by
our board of directors out of funds legally available for the payment of
dividends. If we issue preferred stock in the future, payment of dividends to
holders of our common stock may be subject to the rights of holders of our
preferred stock with respect to payment of preferential dividends, if any.
If we are liquidated, dissolved or wound up, the holders of our common
stock will share pro rata in our assets after satisfaction of all of our
liabilities and the prior rights of any outstanding class of our preferred
stock.
PREFERRED STOCK
Our board of directors has the authority, without stockholder approval, to
issue shares of preferred stock in one or more series and to fix the number of
shares and terms of each series. The board may determine the designation and
other terms of each series, including, among others:
- dividend rights;
- voting powers;
- preemptive rights;
- conversion rights;
- redemption rights, including pursuant to a sinking fund;
- our purchase obligations, including pursuant to a sinking fund; and
- liquidation preferences.
The issuance of preferred stock, while providing desired flexibility in
connection with possible acquisitions and other corporate purposes, could
adversely affect the voting power of holders of our common stock. It also could
affect the likelihood that holders of our common stock will receive dividend
payments and payments upon liquidation.
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For purposes of the rights plan described below, our board of directors has
designated 3,000,000 shares of preferred stock to constitute the Series A Junior
Participating Preferred Stock. For a description of the rights plan, please read
"-- Stockholder Rights Plan."
AUTHORIZED BUT UNISSUED STOCK
We have 600,000,000 authorized shares of common stock and 5,000,000
authorized shares of preferred stock of which 438,321,454 shares of common stock
were outstanding as of December 31, 2003. One of the consequences of our
authorized but unissued common stock and undesignated preferred stock may be to
enable our board of directors to make more difficult or to discourage an attempt
to obtain control of us. If, in the exercise of its fiduciary obligations, our
board of directors determined that a takeover proposal was not in our best
interest, the board could authorize the issuance of those shares without
stockholder approval. The shares could be issued in one or more transactions
that might prevent or make the completion of the change of control transaction
more difficult or costly by:
- diluting the voting or other rights of the proposed acquiror or insurgent
stockholder group;
- creating a substantial voting block in institutional or other hands that
might undertake to support the position of the incumbent board; or
- effecting an acquisition that might complicate or preclude the takeover.
In this regard, our certificate of incorporation grants our board of
directors broad power to establish the rights and preferences of the authorized
and unissued preferred stock. Our board could establish one or more series of
preferred stock that entitle holders to:
- vote separately as a class on any proposed merger or consolidation;
- cast a proportionately larger vote together with our common stock on any
transaction or for all purposes;
- elect directors having terms of office or voting rights greater than
those of other directors;
- convert preferred stock into a greater number of shares of our common
stock or other securities;
- demand redemption at a specified price under prescribed circumstances
related to a change of control of our company; or
- exercise other rights designed to impede a takeover.
STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS OF STOCKHOLDERS
Our certificate of incorporation does not prohibit action by written
consent of stockholders in lieu of a meeting. Special meetings of stockholders
may be called only by the board of directors, the chairman of the board, the
chief executive officer, the president (if a director) or by stockholders owning
a majority of our issued and outstanding stock with voting privileges.
AMENDMENT OF THE BY-LAWS
Under Delaware law, the power to adopt, amend or repeal by-laws is
conferred upon the stockholders entitled to vote. A corporation may, however, in
its certificate of incorporation also confer upon the board of directors the
power to adopt, amend or repeal its by-laws. Our certificate of incorporation
and by-laws grant our board of directors the power to alter and repeal our
by-laws at any regular or special meeting of the board on the affirmative vote
of a majority of the directors then in office. Our stockholders may also alter
or repeal our by-laws by the affirmative vote of a majority of the stockholders
entitled to vote.
REMOVAL OF DIRECTORS
Directors may be removed with or without cause by a vote of a majority of
the voting power of our outstanding voting stock. A vacancy on our board of
directors may be filled by a vote of a majority of the
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directors in office even if less than a quorum, and a director elected to fill a
vacancy serves until the next annual meeting of stockholders or his earlier
death, resignation or removal.
ADVANCE NOTICE PROCEDURE FOR DIRECTOR NOMINATIONS AND STOCKHOLDER PROPOSALS
Our by-laws provide the manner in which stockholders may give notice of
business to be brought before an annual meeting. In order for an item to be
properly brought before the meeting by a stockholder, the stockholder must be a
holder of record at the time of the giving of notice and must be entitled to
vote at the annual meeting. The item to be brought before the meeting must be a
proper subject for stockholder action, and the stockholder must have given
timely advance written notice of the item. For notice to be timely, it must be
delivered to, or mailed and received at, our principal executive office not less
than 90 days prior to the first anniversary date of the immediately preceding
annual meeting date.
The notice must set forth, as to each item to be brought before the annual
meeting, a description of the proposal and the reasons for conducting such
business at the annual meeting, the name and address, as they appear on our
books, of the stockholder proposing the item, the number of shares of each class
or series of capital stock beneficially owned by the stockholder as of the date
of the notice, a representation that the stockholder or a qualified
representative of the stockholder intends to appear in person at the meeting to
bring the proposed business before the annual meeting, and any material interest
of the stockholder in the proposal.
These procedures may limit the ability of stockholders to bring business
before a stockholders meeting, including the nomination of directors and the
consideration of any transaction that could result in a change in control and
that may result in a premium to our stockholders.
STOCKHOLDER RIGHTS PLAN
GENERAL
On December 11, 1996, our board of directors issued a dividend of one
preferred share purchase right (a "Right") for each outstanding share of our
common stock held of record on that date and approved the further issuance of
Rights with respect to all shares of our common stock that are subsequently
issued. The Rights were issued subject to a Rights Agreement dated as of
December 1, 1996 between us and ChaseMellon Shareholder Services, L.L.C., as
Rights Agent. Each Right now entitles the registered holder to purchase from us
one two-hundredth of a share of Series A Junior Participating Preferred Stock,
without par value ("Preferred Stock"), at a price of $75.00 in cash (the
"Purchase Price"), subject to adjustment. Until the occurrence of certain events
described below, the Rights are not exercisable, will be evidenced by the
certificates for our common stock and will not be transferable apart from our
common stock.
DETACHMENT OF RIGHTS; EXERCISE
The Rights are currently attached to all certificates representing
outstanding shares of our common stock and no separate Right certificates have
been distributed. The Rights will separate from our common stock and a
distribution date ("Distribution Date") will occur upon the earlier of (1) 10
business days following the public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person") has acquired beneficial
ownership of 15% or more of our outstanding Voting Shares (as defined in our
Rights Agreement) or (2) 10 business days following the commencement or
announcement of an intention to commence a tender offer or exchange offer, the
consummation of which would result in the beneficial ownership by a person or
group of 15% or more of such outstanding Voting Shares.
The Rights are not exercisable until the Distribution Date. As soon as
practicable following the Distribution Date, separate certificates evidencing
the Rights will be mailed to holders of record of our common stock as of the
close of business on the Distribution Date and such separate certificates alone
will thereafter evidence the Rights.
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If a person or group were to acquire 15% or more of our Voting Shares, each
Right then outstanding (other than Rights beneficially owned by the Acquiring
Person which would become null and void) would become a right to buy that number
of shares of our common stock (or, under certain circumstances, the equivalent
number of one two-hundredth of a share of Preferred Stock) that at the time of
such acquisition would have a market value of two times the Purchase Price of
the Right.
If we were acquired in a merger or other business combination transaction
or more than 50% of our consolidated assets or earning power were sold, proper
provision would be made so that each holder of a Right would thereafter have the
right to receive, upon the exercise thereof at the then current Purchase Price
of the Right, that number of shares of common stock of the acquiring company
which at the time of such transaction would have a market value of two times the
Purchase Price of the Right.
ANTIDILUTION AND OTHER ADJUSTMENTS
The number of shares (or fractions thereof) of Preferred Stock or other
securities or property issuable upon exercise of the Rights, and the Purchase
Price payable, are subject to customary adjustments from time to time to prevent
dilution. The number of outstanding Rights and the number of shares (or
fractions thereof) of Preferred Stock issuable upon exercise of each Right are
also subject to adjustment in the event of a stock dividend on our common stock
payable in our common stock or any subdivision or combination of our common
stock occurring, in any such case, prior to the Distribution Date.
EXCHANGE OPTION
At any time after the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 15% or more of our outstanding
Voting Shares and before the acquisition by a person or group of 50% or more of
our outstanding Voting Shares, our board of directors may, at its option, issue
our common stock in mandatory redemption of, and in exchange for, all or part of
the then outstanding and exercisable Rights (other than Rights owned by such
person or group which would become null and void) at an exchange ratio of one
share of our common stock (or one two-hundredth of a share of Preferred Stock)
for each two shares of our common stock for which each Right is then
exercisable, subject to appropriate adjustment.
REDEMPTION OF RIGHTS
At any time prior to the first public announcement that a person or group
has become the beneficial owner of 15% or more of our outstanding Voting Shares,
our board of directors may redeem all but not less than all the then outstanding
rights at a price of $.01 per Right (the "Redemption Price"). The redemption of
the Rights may be made effective at such time, on such basis and with such
conditions as our board of directors in its sole discretion may establish.
Immediately upon the action of the board of directors ordering redemption of the
Rights, the right to exercise the Rights will terminate and the only right of
the holders of Rights will be to receive the Redemption Price.
EXPIRATION; AMENDMENT OF RIGHTS
The Rights will expire on December 15, 2005, unless earlier extended,
redeemed or exchanged. The terms of the Rights may be amended by our board of
directors without the consent of the holders of the Rights, including an
amendment to extend the expiration date of the Rights, and, provided a
Distribution Date has not occurred, to extend the period during which the Rights
may be redeemed, except that after the first public announcement that a person
or group has become or intends to become the beneficial owner of 15% or more of
the outstanding Voting Shares, no such amendment may materially and adversely
affect the interests of holders of the Rights.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire us without
the approval of our board of directors. The Rights should not, however,
interfere with any merger or other business combination that is approved by our
board of directors.
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LIMITATION OF LIABILITY OF OFFICERS AND DIRECTORS
Our directors will not be personally liable to us or our stockholders for
monetary damages for breach of fiduciary duty as a director, except, if required
by Delaware law, for liability:
- for any breach of the duty of loyalty to us or our stockholders;
- for acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law;
- for unlawful payment of a dividend or unlawful stock purchases or
redemptions; and
- for any transaction from which the director derived an improper personal
benefit.
As a result, neither we nor our stockholders have the right, through
stockholders' derivative suits on our behalf, to recover monetary damages
against a director for breach of fiduciary duty as a director, including
breaches resulting from grossly negligent behavior, except in the situations
described above.
DELAWARE ANTI-TAKEOVER LAW
We are a Delaware corporation and are subject to Section 203 of the
Delaware General Corporation Law, which regulates corporate acquisitions.
Section 203 prevents an "interested stockholder," which is defined generally as
a person owning 15% or more of a corporation's voting stock, or any affiliate or
associate of that person, from engaging in a broad range of "business
combinations" with the corporation for three years after becoming an interested
stockholder unless:
- the board of directors of the corporation had previously approved either
the business combination or the transaction that resulted in the
stockholder's becoming an interested stockholder;
- upon completion of the transaction that resulted in the stockholder's
becoming an interested stockholder, that person owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding shares owned by persons who are directors and also
officers and shares owned in employee stock plans in which participants
do not have the right to determine confidentially whether shares held
subject to the plan will be tendered; or
- following the transaction in which that person became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and holders of at least two-thirds of the
outstanding voting stock not owned by the interested stockholder.
Under Section 203, the restrictions described above also do not apply to
specific business combinations proposed by an interested stockholder following
the announcement or notification of designated extraordinary transactions
involving the corporation and a person who had not been an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of a majority of the corporation's directors, if
such extraordinary transaction is approved or not opposed by a majority of the
directors who were directors prior to any person becoming an interested
stockholder during the previous three years or were recommended for election or
elected to succeed such directors by a majority of such directors.
Section 203 may make it more difficult for a person who would be an
interested stockholder to effect various business combinations with a
corporation for a three-year period.
71
SELLING SECURITYHOLDERS
We originally issued the notes in a private placement. The notes were
resold by the initial purchasers to qualified institutional buyers within the
meaning of Rule 144A under the Securities Act in transactions exempt from
registration under the Securities Act. The notes that may be offered under the
prospectus will be offered by the selling securityholders, which includes their
transferees, pledgees or donees or their successors. The following table sets
forth certain information concerning the principal amount at maturity of notes
beneficially owned by each selling securityholder that may be offered from time
to time pursuant to the prospectus, as supplemented.
The table below has been prepared based solely upon the information
furnished to us by the selling securityholders named therein. Information
concerning the selling securityholders may change from time to time and, if
necessary, we will supplement the prospectus accordingly.
The selling securityholders listed below may offer and sell, transfer or
otherwise dispose, from time to time, some or all of their notes. No offer or
sale, transfer or other disposition under this prospectus may be made by a
holder of the notes unless that holder is listed in the table below or until
that holder has notified us and a supplement to this prospectus has been filed
or an amendment to the related registration statement has become effective.
However, a selling securityholder may offer and sell, transfer or otherwise
dispose of some or all of its notes in transactions exempt from the registration
requirements of the Securities Act without notifying us. As a result, the same
restricted notes may be included in the table below as being held by more than
one holder, and the total amount of the notes listed in the column titled
"Principal Amount at Maturity of Notes Beneficially Owned That May be Sold" may
represent an amount of notes in excess of the $1,200,000,000 we issued. However,
the total principal amount at maturity of notes that may be sold hereunder will
not exceed the $1,200,000,000 we issued. Further, we cannot give an estimate as
to the amount of the notes that will be held by the selling securityholders upon
the termination of this offering because the selling securityholders may offer
some or all of their notes pursuant to the offering contemplated by the
prospectus or otherwise in transactions exempt from the registration
requirements of the Securities Act. See "Plan of Distribution."
PRINCIPAL AMOUNT AT
MATURITY OF NOTES PERCENTAGE OF NUMBER OF SHARES OF PERCENTAGE OF
BENEFICIALLY OWNED NOTES COMMON STOCK THAT COMMON STOCK
NAME THAT MAY BE SOLD OUTSTANDING MAY BE SOLD(1) OUTSTANDING(2)
---- ------------------- ------------- ------------------- --------------
1976 Distribution Trust FBO A.R.
Lauder/Zinterhofer............. $ 9,000 * 239.02 *
2000 Revocable Trust FBO A.R.
Lauder/Zinterhofer............. $ 9,000 * 239.02 *
ADI Alternative Investments...... $ 2,500,000 * 66,395.75 *
ADI Alternative Investments C/O
Kallista Master Fund........... $ 1,000,000 * 26,558.30 *
Advisory Convertible Arbitrage
Fund (I) L.P. ................. $ 1,000,000 * 26,558.30 *
Aftra Health Fund................ $ 200,000 * 5,311.66 *
Akela Capital Master Fund,
Ltd. .......................... $10,000,000 * 265,583.00 *
Alcon Laboratories............... $ 465,000 * 12,349.61 *
Allentown City Firefighters
Pension Plan................... $ 14,000 * 371.82 *
Allentown City Officers &
Employees Pension Fund......... $ 20,000 * 531.17 *
Allentown City Police Pension
Plan........................... $ 280,000 * 7,436.32 *
Allstate Insurance Company(3).... $ 2,000,000 * 53,116.60 *
Allstate Life Insurance
Company(4)..................... $ 7,500,000 * 199,187.25 *
72
PRINCIPAL AMOUNT AT
MATURITY OF NOTES PERCENTAGE OF NUMBER OF SHARES OF PERCENTAGE OF
BENEFICIALLY OWNED NOTES COMMON STOCK THAT COMMON STOCK
NAME THAT MAY BE SOLD OUTSTANDING MAY BE SOLD(1) OUTSTANDING(2)
---- ------------------- ------------- ------------------- --------------
AM Investment D Fund (QP) LP..... $ 165,000 * 4,382.12 *
AM Investments E Fund Ltd. ...... $ 945,000 * 25,097.59 *
Amaranth L.L.C.(5)............... $11,000,000 * 292,141.30 *
American AAdvantage Funds........ $ 210,000 * 5,577.24 *
American Investors Life Insurance
Co. ........................... $ 300,000 * 7,967.49 *
Amerisures Mutual Insurance
Company........................ $ 550,000 * 14,607.07 *
AmerUs Life Insurance Co. ....... $ 1,000,000 * 26,558.30 *
Arapahoe County Colorado......... $ 58,000 * 1,540.38 *
Arbitex Master Fund, L.P. ....... $32,000,000 2.67% 849,865.60 *
Argent Classic Convertible
Arbitrage (Bermuda) Fund
Ltd. .......................... $11,300,000 * 300,108.79 *
Argent Classic Convertible
Arbitrage Fund II, L.P. ....... $ 900,000 * 23,902.47 *
Argent Classic Convertible
Arbitrage Fund LP.............. $ 3,700,000 * 98,265.71 *
Argent LowLev Convertible
Arbitrage Fund LLC............. $ 3,500,000 * 92,954.05 *
Argent LowLev Convertible
Arbitrage Fund Ltd. ........... $15,300,000 1.28% 406,341.99 *
Arlington County Employees
Retirement System.............. $ 803,000 * 21,326.31 *
Astante Health Systems........... $ 121,000 * 3,213.55 *
Aventis Pension Master Trust..... $ 140,000 * 3,718.16 *
Banc of America Securities LLC... $10,200,000 * 270,894.66 *
Bankers Life Insurance Company of
New York....................... $ 100,000 * 2,655.83 *
BBT Fund, L.P. .................. $ 2,800,000 * 74,363.24 *
Bear, Stearns & Co. Inc. ........ $ 8,500,000 * 225,745.55 *
Black Diamond Offshore
Convertible LDC................ $ 3,265,000 * 86,712.85 *
Black Diamond Offshore Ltd. ..... $ 1,823,000 * 48,415.78 *
Boilmaker -- Blacksmith Pension
Trust.......................... $ 750,000 * 19,918.73 *
British Virgin Islands Social
Security Board................. $ 105,000 * 2,788.62 *
BTES -- Convertible ARB.......... $ 1,500,000 * 39,837.45 *
BTOP Growth Vs Value............. $ 6,000,000 * 159,349.80 *
CALAMOS Convertible Portfolio --
CALAMOS Investment Trust....... $ 6,300,000 * 167,317.29 *
CEMEX Pension Plan............... $ 70,000 * 1,859.08 *
CGNU Life Fund................... $ 1,600,000 * 42,493.28 *
Cheyne Fund LP................... $13,963,000 1.16% 370,833.54 *
Cheyne Leveraged Fund LP......... $ 9,885,000 * 262,528.80 *
73
PRINCIPAL AMOUNT AT
MATURITY OF NOTES PERCENTAGE OF NUMBER OF SHARES OF PERCENTAGE OF
BENEFICIALLY OWNED NOTES COMMON STOCK THAT COMMON STOCK
NAME THAT MAY BE SOLD OUTSTANDING MAY BE SOLD(1) OUTSTANDING(2)
---- ------------------- ------------- ------------------- --------------
CIP Limited Duration Company..... $ 1,550,000 * 41,165.37 *
Citigroup Global Markets......... $ 1,973,000 * 52,399.53 *
City and County of San Francisco
Retirement System.............. $ 1,776,000 * 47,167.54 *
City of Knoxville Pension
System......................... $ 160,000 * 4,249.33 *
City of New Orleans.............. $ 245,000 * 6,506.78 *
City University of New York...... $ 181,000 * 4,807.05 *
Class C Trading Company, Ltd. ... $ 2,700,000 * 71,707.41 *
Clinton Multistrategy Master
Fund, Ltd. .................... $15,195,000 1.27% 403,553.37 *
Clinton Riverside Convertible
Portfolio Limited.............. $19,045,000 1.59% 505,802.82 *
CNH CA Master Account, L.P. ..... $ 3,000,000 * 79,674.90 *
CODA Capital Management, LLC..... $ 410,000 * 10,888.90 *
Commercial Union Life Fund....... $ 2,000,000 * 53,116.60 *
Concentrated Alpha Partners,
L.P. .......................... $ 700,000 * 18,590.81 *
Convertible Securities Fund...... $ 75,000 * 1,991.87 *
CQS Convertible & Quantitative
Strategies Master Fund
Limited........................ $ 9,000,000 * 239,024.70 *
Credit Suisse First Boston Europe
Limited........................ $35,200,000 2.93% 934,852.16 *
Credit Suisse First Boston LLC... $ 3,000,000 * 79,674.90 *
Davidson Kempner Institutional
Partners....................... $ 3,825,000 * 101,585.50 *
Davidson Kempner International
Limited........................ $ 4,171,000 * 110,774.67 *
Davidson Kempner Partners........ $ 2,004,000 * 53,222.83 *
Delaware Public Employees
Retirement System.............. $ 1,862,000 * 49,451.55 *
Delta Airlines Master Trust...... $ 750,000 * 19,918.73 *
Delta Pilots Disability and
Survivorship Trust............. $ 225,000 * 5,975.62 *
Deutsche Bank Securities Inc. ... $ 2,650,000 * 70,379.50 *
Dodeca Fund, L.P. ............... $ 1,050,000 * 27,886.22 *
Dorinco Reinsurance Company...... $ 420,000 * 11,154.49 *
DKR SoundShore Strategic Holding
Fund Ltd. ..................... $ 2,500,000 * 66,395.75 *
Double Black Diamond Offshore
LDC............................ $ 9,562,000 * 253,950.46 *
FrontPoint Convertible Arbitrage
Fund, L.P. .................... $ 4,000,000 * 106,233.20 *
Gaia Offshore Master Fund
Ltd. .......................... $ 7,700,000 * 204,498.91 *
Georgia Municipal................ $ 837,000 * 22,229.30 *
GLG Global Convertible Fund...... $ 8,000,000 * 212,466.40 *
74
PRINCIPAL AMOUNT AT
MATURITY OF NOTES PERCENTAGE OF NUMBER OF SHARES OF PERCENTAGE OF
BENEFICIALLY OWNED NOTES COMMON STOCK THAT COMMON STOCK
NAME THAT MAY BE SOLD OUTSTANDING MAY BE SOLD(1) OUTSTANDING(2)
---- ------------------- ------------- ------------------- --------------
GLG Global Convertible UCITS
Fund........................... $ 3,000,000 * 79,674.90 *
GLG Market Neutral Fund.......... $70,000,000 5.83% 1,859,081.00 *
Global Bermuda Limited
Partnership.................... $20,000,000 1.67% 531,166.00 *
Goldman, Sachs & Co.(6).......... $ 1,722,000 * 45,733.39 *
Grace Convertible Arbitrage Fund,
Ltd. .......................... $ 6,000,000 * 159,349.80 *
Grady Hospital Foundation........ $ 159,000 * 4,222.77 *
Guggenheim Portfolio Co. XV,
LLC............................ $ 550,000 * 14,607.07 *
HBK Master Fund L.P.(7).......... $ 8,000,000 * 212,466.40 *
HFR CA Select Fund............... $ 300,000 * 7,967.49 *
IL Annuity and Insurance Co. .... $12,000,000 1.00% 318,699.60 *
Independence Blue Cross.......... $ 502,000 * 13,332.27 *
Inflective Convertible
Opportunity Fund I, L.P. ...... $ 50,000 * 1,327.92 *
Innovest Finanzdienstle.......... $ 1,880,000 * 49,929.60 *
JMG Capital Partners, LP......... $10,000,000 * 265,583.00 *
JMG Triton Offshore Fund Ltd. ... $ 8,000,000 * 212,466.40 *
JP Morgan Securities Inc. ....... $ 4,128,000 * 109,632.66 *
KBC Convertible Arbitrage Fund... $54,785,000 4.57% 1,454,996.47 *
KBC Convertible Opportunities
Fund........................... $29,550,000 2.46% 784,797.77 *
KBC Convertible Mac28 Fund,
Ltd. .......................... $12,285,000 1.02% 326,268.72 *
KBC Financial Products USA
Inc. .......................... $ 6,330,000 * 168,114.04 *
KBC MultiStrategy Arbitrage
Fund........................... $17,565,000 1.46% 466,496.54 *
Knoxville Utilities Board
Retirement System.............. $ 75,000 * 1,991.87 *
Lakeshore International
Limited........................ $80,000,000 6.67% 2,124,664.00 *
Lehman Brothers Inc. ............ $11,535,000 * 306,349.99 *
Lyxor Master Fund................ $ 2,600,000 * 69,051.58 *
Lyxor Master Fund (Arbitex)...... $ 500,000 * 13,279.15 *
Lyxor/AM Investment Fund Ltd. ... $ 255,000 * 6,772.37 *
Lyxor/Gaia II Fund Ltd. ......... $ 2,400,000 * 63,739.92 *
Macomb County Employees'
Retirement System.............. $ 160,000 * 4,249.33 *
Mainstay Convertible Fund........ $ 2,875,000 * 76,355.11 *
Mainstay Strategic Value
Convertible Fund............... $ 155,000 * 4,116.54 *
Mainstay VP Convertible Fund..... $ 1,635,000 * 43,422.82 *
McMahan Securities Co. L.P. ..... $ 2,840,000 * 75,425.57 *
Meadow IAM Limited............... $ 1,760,000 * 46,742.61 *
Melody IAM, Ltd. ................ $ 1,815,000 * 48,203.31 *
75
PRINCIPAL AMOUNT AT
MATURITY OF NOTES PERCENTAGE OF NUMBER OF SHARES OF PERCENTAGE OF
BENEFICIALLY OWNED NOTES COMMON STOCK THAT COMMON STOCK
NAME THAT MAY BE SOLD OUTSTANDING MAY BE SOLD(1) OUTSTANDING(2)
---- ------------------- ------------- ------------------- --------------
Merrill Lynch Insurance Group.... $ 402,000 * 10,676.44 *
MLQA Convertible Securities
Arbitrage LTD.................. $ 5,000,000 * 132,791.50 *
Morgan Stanley Convertible
Securities Trust............... $ 2,500,000 * 66,395.75 *
Municipal Employees.............. $ 286,000 * 7,595.67 *
Nations Convertible Securities
Fund........................... $ 9,925,000 * 263,591.13 *
New Orleans Firefighters Pension/
Relief Fund.................... $ 163,000 * 4,329.00 *
New York Life Insurance Company
(Ordinary Life Post 1982)...... $ 4,730,000 * 125,620.76 *
New York Life Insurance Company
(Ordinary Life Pre 1982)....... $ 2,870,000 * 76,222.32 *
New York Life Separate
Account #7..................... $ 100,000 * 2,655.83 *
Nicholas Applegate Capital
Management -- Investment Grade
Convertible Mutual Fund........ $ 20,000 * 531.17 *
NMS Services (Cayman) Inc. ...... $20,000,000 1.67% 531,166.00 *
Nomura Securities Intl Inc.(8)... $40,000,000 3.33% 1,062,332.00 *
Norwich Union Life & Pensions.... $ 3,000,000 * 79,674.90 *
Occidental Petroleum
Corporation.................... $ 323,000 * 8,578.33 *
Ohio Bureau of Workers
Compensation................... $ 217,000 * 5,763.15 *
Oppenheimer Convertible
Securities Fund................ $ 4,000,000 * 106,233.20 *
Pearl -- CS Alternative Strategy
Limited........................ $ 858,000 * 22,787.02 *
Plexus Fund Ltd. ................ $18,000,000 1.50% 478,049.40 *
Policeman and Firemen Retirement
System of the City of
Detroit........................ $ 675,000 * 17,926.85 *
Port Authority of Allegheny
County Retirement and
Disability Allowance Plan for
the Employees Represented by
Local 85 of the Amalgamated
Transit Union.................. $ 350,000 * 9,295.41 *
Privilege Portfolio SICAV........ $ 5,900,000 * 156,693.97 *
Pro-mutual....................... $ 902,000 * 23,955.59 *
Radian Asset Assurance, Inc...... $ 2,000,000 * 53,116.60 *
Radian Group Convertible
Securities..................... $ 1,200,000 * 31,869.96 *
Radian Guaranty.................. $ 4,300,000 * 114,200.69 *
Ramius Capital Group............. $ 1,000,000 * 26,558.30 *
Ramius Master Fund, LTD.......... $ 4,950,000 * 131,463.59 *
Ramius Partners II, LP........... $ 250,000 * 6,639.58 *
Ramius, LP....................... $ 100,000 * 2,655.83 *
76
PRINCIPAL AMOUNT AT
MATURITY OF NOTES PERCENTAGE OF NUMBER OF SHARES OF PERCENTAGE OF
BENEFICIALLY OWNED NOTES COMMON STOCK THAT COMMON STOCK
NAME THAT MAY BE SOLD OUTSTANDING MAY BE SOLD(1) OUTSTANDING(2)
---- ------------------- ------------- ------------------- --------------
RCG Baldwin, LP.................. $ 500,000 * 13,279.15 *
RCG Latitude Master Fund, LTD.... $ 6,450,000 * 171,301.04 *
RCG Multi Strategy Master Fund,
LTD............................ $ 1,400,000 * 37,181.62 *
S.A.C. Capital Associates,
LLC(9)......................... $13,000,000 1.08% 345,257.90 *
San Diego County Employee
Retirement Associates.......... $ 1,650,000 * 43,821.20 *
SCI Endowment Care Common Trust
Fund -- First Union............ $ 20,000 * 531.17 *
SCI Endowment Care Common Trust
Fund -- National Fiduciary
Services....................... $ 100,000 * 2,655.83 *
SCI Endowment Care Common Trust
Fund -- Suntrust............... $ 45,000 * 1,195.12 *
Siemens Convertible Global
Markets........................ $ 2,000,000 * 53,116.60 *
Silver Convertible Arbitrage
Fund, LDC...................... $ 1,700,000 * 45,149.11 *
Silverback Master, LTD........... $36,500,000 3.04% 969,377.95 *
South Dakota Retirement
System(10)..................... $ 2,000,000 * 53,116.60 *
State of Maryland Retirement
Agency......................... $ 3,843,000 * 102,063.55 *
Sunrise Partners Limited
Partnership(11)................ $ 4,500,000 * 119,512.35 *
Sutton Brook Capital Portfolio
LP............................. $46,000,000 3.83% 1,221,681.80 *
Swiss Re Financial Products
Corporation.................... $10,000,000 * 265,583.0 *
The California Wellness
Foundation..................... $ 220,000 * 5,842.83 *
The Cockrell Foundation.......... $ 75,000 * 1,991.87 *
The Dow Chemical Company
Employees' Retirement Plan..... $ 1,400,000 * 37,181.62 *
The Fondren Foundation........... $ 80,000 * 2,124.66 *
The Grable Foundation............ $ 97,000 * 2,576.16 *
Thrivent Financial for
Lutherans(12).................. $ 5,250,000 * 139,431.08 *
Topanga XI....................... $ 2,400,000 * 63,739.92 *
Tredia Performance Fund, Ltd..... $ 200,000 * 5,311.66 *
Triborough Partners International
Ltd. .......................... $ 3,500,000 * 92,954.05 *
Triborough Partners LLC.......... $ 1,500,000 * 39,837.45 *
Trustmark Insurance.............. $ 409,000 * 10,862.34 *
UBS AG London Cut. Prop.......... $40,000,000 3.33% 1,062,332.00 *
UBS O'Connor LLC f/b/o O'Connor
Global Convertible Arbitrage
Master Limited................. $30,800,000 2.57% 817,995.64 *
Union Carbide Retirement
Account........................ $ 650,000 * 17,262.90 *
77
PRINCIPAL AMOUNT AT
MATURITY OF NOTES PERCENTAGE OF NUMBER OF SHARES OF PERCENTAGE OF
BENEFICIALLY OWNED NOTES COMMON STOCK THAT COMMON STOCK
NAME THAT MAY BE SOLD OUTSTANDING MAY BE SOLD(1) OUTSTANDING(2)
---- ------------------- ------------- ------------------- --------------
United Food and Commercial
Workers Local 1262 and
Employers Pension Fund......... $ 330,000 * 8,764.24 *
United Overseas Bank Convertible
Bond (SGD)..................... $ 400,000 * 10,623.32 *
United Overseas Bank Convertible
Bond (USD)..................... $ 170,000 * 4,514.91 *
Univar USA Inc. Retirement
Plan........................... $ 165,000 * 4,382.12 *
Value Line Convertible Fund,
Inc. .......................... $ 400,000 * 10,623.32 *
Van Eck Worldwide Absolute Return
Fund -- CODA................... $ 90,000 * 2,390.25 *
Wachovia Bank National
Association.................... $26,000,000 2.17% 690,515.80 *
White River Securities L.L.C. ... $ 8,500,000 * 225,745.55 *
Wilmington Trust Company as Owner
and Trustee for the Forrestal
Funding Master Trust........... $33,500,000 2.79% 889,703.05 *
Worldwide Transactions Ltd. ..... $ 350,000 * 9,295.41 *
Xavex Convertible Arbitrage 10
Fund........................... $ 1,100,000 * 29,214.13 *
Xavex Convertible Arbitrage 2
Fund........................... $ 1,400,000 * 37,181.62 *
Xavex Convertible Arbitrage 5
Fund........................... $ 800,000 * 21,246.64 *
Zazove Convertible Arbitrage
Fund, L.P. .................... $ 6,000,000 * 159,349.80 *
Zazove Hedged Convertible Fund,
L.P. .......................... $ 4,000,000 * 106,233.20 *
Zazove Income Fund, L.P. ........ $ 2,350,000 * 62,412.01 *
Zola Partners, L.P. ............. $ 1,500,000 * 39,837.45 *
Zurich Institutional Benchmark
Master Fund LTD................ $ 800,000 * 21,246.64 *
Zurich Institutional Benchmark
Master Fund LTD c/o Bear
Stearns........................ $ 1,900,000 * 50,460.77 *
Any other holder of notes or
future transferee from any such
holder(13)(14)................. $64,908,000 5.41% 1,723,846.14 *
---------------
* Less than 1%.
(1) Assumes conversion of all of the holder's notes at a conversion rate of
26.5583 shares of common stock per $1,000 principal amount of notes. This
conversion rate is subject to adjustment, however, as described under
"Description of the Notes -- Conversion of Notes." As a result, the number
of shares of common stock issuable upon conversion of the notes may
increase or decrease in the future.
(2) Calculated based on Rule 13d-3(d)(1)(i) of the Exchange Act, using
438,321,454 shares of common stock outstanding as of December 31, 2003. In
calculating this amount for each holder, we
78
treated as outstanding the number of shares of our common stock issuable upon
conversion of all of that holder's notes, but we did not assume conversion of
any other holder's notes.
(3) Allstate Corporation is the parent company of Allstate Insurance Company.
Allstate Insurance Company also beneficially owns 148,700 shares of our
common stock. In addition, Allstate New Jersey Insurance Company, an
indirect subsidiary of Allstate Insurance Company, beneficially owns 8,100
shares of our common stock. Allstate Retirement Plan and Agents Pension
Plan are qualified ERISA plans maintained for the benefit of certain
employees and agents of Allstate Insurance Company. Allstate Retirement
Plan beneficially owns 47,600 shares of our common stock and Agents Pension
Plan beneficially owns 15,100 shares of our common stock. BNY Midwest Trust
Company, as Trustee for such plans, holds title to all plan investments.
Allstate has informed us that it disclaims any interest in securities held
in such trusts, although the Investment Committee for such plans consists
of Allstate Insurance Company officers.
(4) Allstate Life Insurance Company is a wholly owned subsidiary of Allstate
Insurance Company. See also footnote (3) above.
(5) Amaranth L.L.C. also beneficially owns 15,200 shares of our common stock.
(6) Goldman, Sachs & Co. informed us that as of February 6, 2004, it
beneficially owns 2,269,131 shares of our common stock and has outstanding
options to purchase 14,090 shares of our common stock.
(7) HBK Master Fund L.P. also beneficially owns 16,900 shares of our common
stock.
(8) Nomura Securities Intl Inc. also beneficially owns 551,868 shares of our
common stock.
(9) S.A.C. Capital Associates, LLC also beneficially owns 690,200 shares of our
common stock.
(10) South Dakota Retirement System also beneficially owns 113,000 shares of our
common stock.
(11) Sunrise Partners Limited Partnership also beneficially owns 78,300 shares
of our common stock.
(12) Thrivent Financial for Lutherans also beneficially owns 3,650 shares of our
common stock.
(13) Information concerning other selling securityholders of notes or underlying
common stock will be set forth in prospectus supplements from time to time,
if required.
(14) Assumes that any other holders of notes, or any future transferees,
pledgees, donees or successors of or from any such other holders of notes
do not beneficially own any common stock other than our common stock
issuable upon conversion of the notes at the initial conversion rate.
79
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income tax
considerations (and, in the case of non-U.S. holders, as defined below, certain
United States federal estate tax considerations) relating to the purchase,
ownership and disposition of the notes and common stock into which the notes may
be converted. This summary does not purport to be a complete analysis of all the
potential tax considerations relating thereto. The summary is based on laws,
regulations, rulings and decisions now in effect, all of which are subject to
change or differing interpretations, possibly with retroactive effect. Except as
specifically discussed below with regard to non-U.S. holders, this summary
applies only to beneficial owners that will hold notes and common stock into
which notes may be converted as "capital assets," within the meaning of the
Internal Revenue Code of 1986, as amended (the "Code"), and who, for United
States federal income tax purposes, are (1) individual citizens or residents of
the United States, (2) corporations (including any entity treated as a
corporation for United States federal income tax purposes) created or organized
in or under the laws of the United States or any political subdivision thereof,
(3) estates, the incomes of which are subject to United States federal income
taxation regardless of the source of such income or (4) trusts subject to the
primary supervision of a United States court and the control of one or more U.S.
persons or any trust that has a valid election in effect under applicable
Treasury regulations to be treated as a U.S. person ("U.S. holders"). In the
case of a holder of notes or common stock which is a partnership, the tax
consequences will generally affect the partner rather than the partnership, but
special considerations not set forth herein may apply. Persons other than U.S.
holders ("non-U.S. holders") are subject to special United States federal income
tax considerations, some of which are discussed below.
This discussion does not address tax considerations applicable to an
investor's particular circumstances or to investors that may be subject to
special tax rules, such as banks or other financial institutions, holders
subject to the alternative minimum tax, tax-exempt organizations, insurance
companies, regulated investment companies, foreign persons or entities (except
to the extent specifically set forth below), dealers in securities, commodities
or currencies, initial holders whose "functional currency" is not the U.S.
dollar, persons that will hold notes as a position in a hedging transaction,
"straddle" or "conversion transaction" for tax purposes, traders in securities
that elect to use a mark-to-market method of accounting for their securities
holdings, persons deemed to sell notes or common stock under the constructive
sale provisions of the Code, partnerships or other pass-through entities, or
persons who have ceased to be United States citizens or to be taxed as resident
aliens. The discussion below deals only with holders who hold the notes (and the
shares of our common stock acquired upon conversion of the notes) as capital
assets and who acquire the notes from a selling securityholder as described
under "Selling Securityholders" pursuant to an offering of such notes under this
prospectus in the first sale of such notes by such selling securityholder after
the notes are first registered with the SEC. We have not sought any ruling from
the Internal Revenue Service (the "IRS") or an opinion of counsel with respect
to the statements made and the conclusions reached in the following summary, and
there can be no assurance that the IRS will agree with such statements and
conclusions. In addition, the IRS is not precluded from successfully adopting a
contrary position. This summary does not consider the effect of the United
States federal estate or gift tax laws (except as set forth below with respect
to non-U.S. holders) or the tax laws of any applicable foreign, state, local or
other jurisdiction.
Investors considering the purchase of notes should consult their own tax
advisors with respect to the application of the United States federal income tax
laws to their particular situations as well as any tax consequences arising
under the United States federal, estate or gift tax rules or under the laws of
any state, local or foreign taxing jurisdiction or under any applicable tax
treaty.
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U.S. HOLDERS
TAXATION OF INTEREST
Interest paid on the notes will be included in the income of a U.S. holder
as ordinary income at the time it is received or accrued, in accordance with
such holder's regular method of accounting for United States federal income tax
purposes.
MARKET DISCOUNT
If a U.S. holder purchases a note for an amount that is less than its
stated redemption price at maturity, such U.S. holder will be treated as having
purchased the note at a "market discount," unless such market discount is less
than a specified de minimis amount. Under the market discount rules, a U.S.
holder will be required to treat any partial principal payment on, or any gain
realized on the sale, exchange, redemption or other disposition of a note as
ordinary income to the extent of the lesser of:
- the amount of such payment or realized gain; or
- the market discount which has not previously been included in the income
of the holder and is treated as having accrued on the note while held by
the holder through the time of such payment or disposition.
Market discount will be considered to accrue ratably during the period from
the date of acquisition to the maturity date of the note, unless the U.S. holder
elects to accrue market discount on the basis of semiannual compounding.
A U.S. holder may be required to defer the deduction of all or a portion of
the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry a note with market discount until the maturity of the note or
certain earlier dispositions, because a current deduction is only allowed to the
extent the interest expense exceeds an allocable portion of market discount.
A U.S. holder may elect to include market discount in income currently as
it accrues (on either a ratable or semiannual compounding basis), in which case
the rules described above regarding the treatment as ordinary income of gain
realized upon the disposition of the note and upon the receipt of certain cash
payments and regarding the deferral of interest deductions will not apply.
Generally, such currently included market discount is treated as ordinary
interest for United States federal income tax purposes. Such an election will
apply to all debt instruments acquired by the U.S. holder on or after the first
day of the taxable year to which such election applies and may be revoked only
with the consent of the IRS.
PREMIUM
If a U.S. holder purchases a note for an amount that is greater than the
sum of all amounts payable on the note after the purchase date other than
payments of qualified stated interest, the U.S. holder will be considered to
have purchased the note with "amortizable bond premium" equal in amount to such
excess. Subject to certain limitations, a U.S. holder may elect to amortize such
premium using a constant yield method over the remaining term of the note and
may offset interest otherwise required to be included in respect of the note
during any taxable year by the amortized amount of such excess for the taxable
year. Any election to amortize bond premium applies to all taxable debt
obligations then owned and thereafter acquired by the U.S. holder and may be
revoked only with the consent of the IRS.
SALE, EXCHANGE OR REDEMPTION OF THE NOTES
Upon the sale, exchange (other than a conversion for stock or a combination
of stock and cash) or redemption of a note, a U.S. holder generally will
recognize capital gain or loss equal to the difference between (1) the amount of
cash proceeds and the fair market value of any property received on the sale,
exchange or redemption (except to the extent such amount is attributable to
accrued interest not previously included in income, which will be taxable as
ordinary income, or is attributable to accrued
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interest that was previously included in income, which amount may be received
without generating further income), and (2) such holder's adjusted tax basis in
the note. A U.S. holder's adjusted tax basis in a note generally will equal the
cost of the note to such holder. Such capital gain or loss generally will be
long-term capital gain or loss if the U.S. holder's holding period in the note
is more than one year at the time of sale, exchange or redemption. Long-term
capital gains of noncorporate taxpayers are generally taxed at a lower maximum
marginal tax rate than the maximum marginal tax rate applicable to ordinary
income. The deductibility of capital losses is subject to limitations.
CONVERSION OF THE NOTES
If a U.S. holder converts its notes and receives solely common stock (plus
cash in lieu of a fractional share of common stock), the U.S. holder generally
will not recognize any income, gain or loss upon conversion of the note except
to the extent such receipt is attributable to accrued interest not previously
included in income (which will be taxable as ordinary income), and except with
respect to cash received in lieu of a fractional share of common stock (which
generally will result in capital gain or loss, measured by the difference
between the cash received for the fractional share and the holder's adjusted tax
basis in the fractional share). A U.S. holder's tax basis in the common stock
received on conversion of a note will be the same as such holder's adjusted tax
basis in the note at the time of conversion (reduced by any basis allocable to a
fractional share interest) except that such holder's tax basis in common stock
received with respect to accrued interest on the notes not previously included
in income will equal the then current fair market value of such common stock.
The holding period for the common stock received on conversion should generally
include the holding period of the note converted, except that the holding period
for common stock received with respect to accrued interest on the notes not
previously included in income will commence on the day immediately following the
date of conversion.
If a U.S. holder converts its notes and receives a combination of cash and
common stock (and such cash is not merely received in lieu of a fractional share
of common stock), the tax treatment to the holder is uncertain. The U.S. holder
may be required to recognize gain in an amount equal to the lesser of (1) the
cash payment (reduced for the portion of the payment which is attributable to
accrued and unpaid interest which will be taxed as ordinary income) or (2) the
excess of the fair market value of the common stock and cash payment (less the
amount attributable to accrued and unpaid interest) received in the conversion
over the U.S. holder's adjusted tax basis in the note at the time of conversion.
No loss would be recognized on the conversion. The U.S. holder's tax basis in
the common stock received would be the same as the U.S. holder's basis in the
note, increased by the amount of gain recognized, if any, and reduced by the
amount of the cash payment (less any amount attributable to accrued and unpaid
interest). Cash received in lieu of a fractional share of common stock would be
treated in the manner described above. Alternatively, the receipt of stock and
cash may be treated as a part conversion/part sale transaction. In such case,
the cash payment would be treated as proceeds from a sale of a portion of the
note, as described above under "-- Sale, Exchange or Redemption of the Notes,"
and stock would be treated as received upon conversion of a portion of the note,
as described above in the preceding paragraph. A U.S. holder's basis in the note
would be allocated pro rata between the common stock received (including any
fractional share treated as received) and the portion of the note that is
treated as sold for cash based upon the relative values of the shares received
and the cash payment. Under either treatment the holding period for the common
stock received on conversion should generally include the holding period of the
note converted, except that the holding period for common stock received with
respect to accrued interest on the notes not previously included in income will
commence on the day immediately following the date of conversion.
Holders should consult their tax advisors regarding the proper treatment to
them of the receipt of a combination of cash and common stock upon a conversion.
ADDITIONAL AMOUNTS
We may be required to make payments of additional amounts if the prospectus
is unavailable for periods in excess of those permitted by the registration
rights agreement, as described under "Registration
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Rights Agreement." We intend to take the position for United States federal
income tax purposes that the possibility that holders of the notes will be paid
such additional amounts is a remote and incidental contingency as of the issue
date of the notes within the meaning of applicable Treasury regulations.
Accordingly, any payments of additional amounts should be taxable to U.S.
holders as additional ordinary income when received or accrued, in accordance
with their method of tax accounting. Our determination that the payment of
additional amounts is a remote and incidental contingency is binding upon all
holders of the notes, unless a holder properly discloses to the IRS that it is
taking a contrary position.
U.S. holders should consult their tax advisors concerning the appropriate
tax treatment of the payment of any additional amounts with respect to the
notes.
DISTRIBUTIONS ON COMMON STOCK
If, after a U.S. holder converts a note into our common stock, we make
distributions on our common stock, the distributions will constitute dividends
taxable to the holder as ordinary income for United States federal income tax
purposes to the extent of our current or accumulated earnings and profits as
determined under United States federal income tax principles. If a U.S. holder
is an individual and receives a distribution that is treated as a dividend,
recently enacted legislation generally reduces the maximum tax rate to 15%.
However, there are several exceptions and restrictions regarding the
availability of the reduced tax rates, such as restrictions relating to (1) the
U.S. holder's holding period of stock on which the dividends are received, (2)
such holder's obligation, if any, to make related payments with respect to
positions in substantially similar or related property, and (3) amounts the U.S.
holder takes into account as investment income under section 163(d)(4)(B) of the
Code. The reduced rates apply only to dividends received on or before December
31, 2008. Individuals should consult their tax advisors regarding the extent, if
any, to which any exceptions and restrictions may apply to their particular
factual situation.
To the extent that a U.S. holder receives distributions on shares of common
stock that would otherwise constitute dividends for United States federal income
tax purposes but that exceed our current and accumulated earnings and profits,
such distributions will be treated first as a non-taxable return of capital
reducing the holder's tax basis in the shares of common stock. Any such
distributions in excess of the U.S. holder's tax basis in the shares of common
stock will generally be treated as capital gain. Subject to applicable
limitations, distributions on our common stock constituting dividends paid to
holders that are United States corporations will qualify for the dividends
received deduction.
ADJUSTMENT OF CONVERSION PRICE
Holders of convertible debt instruments such as the notes may, in certain
circumstances, be deemed to have received distributions of stock if the
conversion price of such instruments is adjusted. Adjustments to the conversion
price made pursuant to a bona fide reasonable adjustment formula which has the
effect of preventing the dilution of the interest of the holders of the debt
instruments, however, will generally not be considered to result in a
constructive distribution of stock. Certain of the possible adjustments provided
in the notes (including, without limitation, adjustments in respect of taxable
dividends to our stockholders) will not qualify as being pursuant to a bona fide
reasonable adjustment formula. If such adjustments are made, the U.S. holders of
notes will be deemed to have received constructive distributions taxable as
dividends to the extent of our current and accumulated earnings and profits even
though they have not received any cash or property as a result of such
adjustments. In certain circumstances, the failure to provide for such an
adjustment may result in taxable dividend income to the U.S. holders of common
stock. Generally, a U.S. holder's tax basis in a note will be increased to the
extent any such constructive distribution is treated as a dividend. Moreover, if
there is an adjustment (or a failure to make an adjustment) to the conversion
rate of the notes that increases the proportionate interest of the holders of
outstanding common stock in our assets or earnings and profits, then such
increase in the proportionate interest of the holders of the common stock
generally will be treated as a constructive distribution to such holders,
taxable as described above.
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SALE OF COMMON STOCK
Upon the sale or exchange of common stock a U.S. holder generally will
recognize capital gain or loss equal to the difference between (1) the amount of
cash and the fair market value of any property received upon the sale or
exchange and (2) such U.S. holder's adjusted tax basis in the common stock. Such
capital gain or loss will be long-term capital gain or loss if the U.S. holder's
holding period in the common stock is more than one year at the time of the sale
or exchange. Long-term capital gains of noncorporate taxpayers are generally
taxed at a lower maximum marginal tax rate than the maximum marginal tax rate
applicable to ordinary income. A U.S. holder's basis and holding period in
common stock received upon conversion of a note are determined as discussed
above under "-- Conversion of the Notes." The deductibility of capital losses is
subject to limitations.
If a U.S. holder is an individual, recently enacted legislation generally
reduces the maximum tax rate on such long-term capital gain to 15%. However,
there are exceptions to the reduced rates, including an exception for amounts
the U.S. holder takes into account as investment income under section
163(d)(4)(B) of the Code. The reduced rates apply only to tax years beginning on
or before December 31, 2008. Moreover, if such holder previously received, with
respect to such stock, one or more dividends that were taxed at the reduced rate
described above under "-- Distributions on Common Stock" any capital loss on a
subsequent disposition of the stock will, regardless of such holder's holding
period, be treated as long-term capital loss to the extent that the previous
dividends were extraordinary dividends within the meaning of section 1059(c) of
the Code. Individuals should consult their tax advisors regarding the extent, if
any, to which any exceptions may apply to their particular factual situation.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Payments of interest or dividends made by us on, or the proceeds of sale or
other disposition of, the notes or our common stock may be subject to
information reporting and U.S. federal backup withholding tax at the applicable
statutory rate if the recipient of those payments fails to supply an accurate
taxpayer identification number or otherwise fails to comply with applicable
United States information reporting or certification requirements. Any amount
withheld from a payment to a U.S. holder under the backup withholding rules is
allowable as a credit against the holder's U.S. federal income tax, if any, or
will be otherwise refundable, provided the required information is furnished to
the IRS.
NON-U.S. HOLDERS
TAXATION OF INTEREST
Interest paid by us to non-U.S. holders will not be subject to United
States federal income or withholding tax provided the interest qualifies as
portfolio interest. Interest on a note will generally qualify as portfolio
interest if:
- interest paid on the note is not effectively connected with the non-U.S.
holder's conduct of a trade or business in the United States;
- such non-U.S. holder does not actually or by attribution own 10% or more
of the total combined voting power of all classes of our stock entitled
to vote;
- such non-U.S. holder is not a controlled foreign corporation for United
States federal income tax purposes that is related to us, actually or by
attribution, through stock ownership;
- such non-U.S. holder is not a bank receiving interest described in
section 881(c)(3)(A) of the Code; and
- the certification requirements, as described below, are satisfied.
To satisfy the certification requirements referred to above, either (1) the
beneficial owner of a note must certify, under penalties of perjury, to us or
our agent, as applicable, that such owner is a non-U.S. person and must provide
such owner's name and address, and TIN, if any, or (2) a securities clearing
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organization, bank or other financial institution that holds customer securities
in the ordinary course of its trade or business, referred to as a "Financial
Institution," and holds the note on behalf of the beneficial owner thereof must
certify, under penalties of perjury, to us or our agent, as applicable, that
such certificate has been received from the beneficial owner and must furnish
the payor with a copy thereof. Such requirement will be fulfilled if the
beneficial owner of a note certifies on IRS Form W-8BEN (or successor form),
under penalties of perjury, that it is a non-U.S. person and provides its name
and address or any Financial Institution holding the note on behalf of the
beneficial owner files a statement with the withholding agent to the effect that
it has received such a statement from the beneficial owner (and furnishes the
withholding agent with a copy thereof). Special certification rules apply for
notes held by foreign partnerships and other intermediaries. The beneficial
owner must inform us or our agent, as applicable, or the financial institution,
as applicable, within 30 days of any change in information on the owner's
statement.
If interest on the note is effectively connected with the conduct of a
trade or business in the United States by a non-U.S. holder (and, if certain tax
treaties apply, is attributable to a United States permanent establishment
maintained by the non-U.S. holder in the United States), the non-U.S. holder,
although exempt from United States federal withholding tax (provided that the
certification requirements discussed in the next sentence are met), will
generally be subject to United States federal income tax on such interest on a
net income basis in the same manner as if it were a U.S. holder. In order to
claim an exemption from withholding tax, such a non-U.S. holder will be required
to provide us with a properly executed IRS Form W-8ECI (or successor form)
certifying, under penalties of perjury, that the holder is a non-U.S. person and
the interest is effectively connected with the holder's conduct of a U.S. trade
or business and is includable in the holder's gross income. In addition, if such
non-U.S. holder engaged in a U.S. trade or business is a foreign corporation, it
may be subject to a branch profits tax equal to 30% (or such lower rate provided
by an applicable treaty) of its effectively connected earnings and profits for
the taxable year, subject to certain adjustments.
Interest on notes not effectively connected with a United States trade or
business and not excluded from United States federal withholding tax under the
"portfolio interest" exception described above generally will be subject to
withholding at a 30% rate, except where a non-U.S. holder can claim the benefits
of an applicable tax treaty to reduce or eliminate such withholding tax and
demonstrates such eligibility to us and the IRS.
CONVERSION OF THE NOTES
A non-U.S. holder generally will not be subject to United States federal
withholding tax on the conversion of a note into common stock. To the extent a
non-U.S. holder receives cash (including cash in lieu of a fractional share of
common stock) upon conversion, such cash may give rise to gain that would be
subject to the rules described below with respect to the sale or exchange of a
note or common stock. See "-- Sale, Exchange or Redemption of the Notes or
Common Stock" below.
ADJUSTMENT OF CONVERSION PRICE
The conversion price of the notes is subject to adjustment in certain
circumstances. Any such adjustment could, in certain circumstances, give rise to
a deemed distribution to non-U.S. holders of the notes. See "-- U.S.
Holders -- Adjustment of Conversion Price" above. In such case, the deemed
distribution would be subject to the rules below regarding withholding of United
States federal income tax on dividends in respect of common stock.
DISTRIBUTIONS ON COMMON STOCK
Distributions on common stock will constitute a dividend for United States
federal income tax purposes to the extent of our current and accumulated
earnings and profits as determined under United States federal income tax
principles. Dividends paid on common stock held by a non-U.S. holder will be
subject to United States federal withholding tax at a rate of 30% (or lower
treaty rate, if applicable)
85
unless the dividend is effectively connected with the conduct of a United States
trade or business by the non-U.S. holder and, if required by an applicable
treaty, is attributable to a permanent establishment maintained by the non-U.S.
holder in the United States, in which case the dividend will be subject to
United States federal income tax on net income in the manner applied to U.S.
persons generally (and with respect to corporate holders under certain
circumstances, the branch profits tax). A non-U.S. holder may be required to
satisfy certain requirements in order to claim a reduction of or exemption from
withholding under the foregoing rules.
As more fully described under "Registration Rights Agreement," upon the
occurrence of certain enumerated events, we may be required to pay additional
amounts which may be subject to United States federal income and withholding
tax.
SALE, EXCHANGE OR REDEMPTION OF THE NOTES OR COMMON STOCK
A non-U.S. holder of a note or common stock will generally not be subject
to United States federal income tax on gains realized on the sale, exchange or
other disposition of such note or common stock unless (1) such non-U.S. holder
is an individual who is present in the United States for 183 days or more in the
taxable year of sale, exchange or other disposition, and certain conditions are
met, (2) such gain is effectively connected with the conduct by the non-U.S.
holder of a trade or business in the United States (and, if certain tax treaties
apply, is attributable to a permanent establishment maintained by the non-U.S.
holder in the United States), or (3) we are a United States real property
holding corporation under the "FIRPTA" rules adopted in 1980.
Generally, a corporation is a United States real property holding
corporation if the fair market value of its United States real property
interests, as defined in the Code and applicable regulations, equals or exceeds
50% of the aggregate fair market value of its worldwide real property interests
and its other assets used or held for use in a trade or business. We do not
believe that we are currently a United States real property holding corporation
or that we will become one in the future. If we nevertheless did become a United
States real property holding corporation then, among other circumstances, an
exemption would generally apply (1) to the sale of notes by a non-U.S. holder if
such non-U.S. holder at no time actually or constructively owned more than 5% of
the outstanding notes, or notes having a fair market value greater than the fair
market value of 5% of our outstanding common stock, assuming our common stock is
at all times regularly traded on an established securities market, as prescribed
by regulations, and (2) to the sale of common stock by a non-U.S. holder if such
non-U.S. holder at no time actually or constructively owned more than 5% of our
outstanding common stock, assuming our common stock is at all times regularly
traded on an established securities market, as prescribed by regulations.
U.S. FEDERAL ESTATE TAX
A note held by an individual who at the time of death is not a citizen or
resident of the United States (as specially defined for United States federal
estate tax purposes) will not be subject to United States federal estate tax if
the individual did not actually or constructively own 10% or more of the total
combined voting power of all classes of our stock entitled to vote and, at the
time of the individual's death, payments with respect to such note would not
have been effectively connected with the conduct by such individual of a trade
or business in the United States. Common stock held by an individual who at the
time of death is not a citizen or resident of the United States (as specially
defined for United States federal estate tax purposes) generally will be
included in such individual's estate for United States federal estate tax
purposes, unless an applicable tax treaty provides otherwise.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Generally, we must report annually to the IRS and to each non-U.S. holder
(1) any interest or dividend that is subject to withholding, or that is exempt
from United States withholding tax pursuant to a tax treaty and (2) any payments
of portfolio interest. Copies of these information returns may also be
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made available under the provisions of a specific treaty or agreement to the tax
authorities of the country in which the non-U.S. holder resides.
Generally, information reporting and backup withholding of United States
federal income tax at the applicable rate may apply to payments made by us or
our agent to a non-U.S. holder if such holder fails to make the appropriate
certification that the holder is a non-U.S. person or if we or our agent has
actual knowledge or reason to know that the payee is a U.S. person.
Payments of the proceeds of the sale of a note or common stock to or
through a foreign office of a U.S. broker or of a foreign broker that is a
"controlled foreign corporation" within the meaning of the Code, a foreign
person, 50% or more of whose gross income from all sources for the three-year
period ending with the close of its taxable year preceding the payment was
effectively connected with the conduct of a trade or business within the United
States, or, in certain cases, a foreign partnership will be subject to
information reporting requirements, but not backup withholding, unless the payee
is an exempt recipient or such broker has evidence in its records that the payee
is a non-U.S. holder. Both backup withholding and information reporting will
apply to the proceeds of such dispositions if the broker has actual knowledge or
reason to know that the payee is a U.S. holder.
Payments of the proceeds of a sale of a note or common stock to or through
the 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 or common stock 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 and estate
tax consequences is for general information only and is not tax advice.
Accordingly, you should consult your own tax adviser as to particular tax
consequences to you of purchasing, holding and disposing of the notes and our
common stock, including the applicability and effect of any state, local or
foreign tax laws, and of any proposed changes in applicable laws.
CERTAIN ERISA CONSIDERATIONS
The following is a summary of certain considerations associated with the
acquisition and/or holding of the 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.
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In considering an investment in the notes with 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, holding and/or conversion of notes by (or with the assets
of) an ERISA Plan with respect to which Halliburton is considered a party in
interest or a disqualified person may constitute or result in a direct or
indirect prohibited transaction under Section 406 of ERISA and/or Section 4975
of the Code, unless the investment is acquired and is held in accordance with an
applicable statutory, class or individual prohibited transaction exemption. In
this regard, the United States Department of Labor has issued prohibited
transaction class exemptions, or PTCEs, that may apply to the acquisition and
holding of the notes. These class exemptions include, without limitation, PTCE
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 notes should not be acquired or held by any
person investing assets of any Plan, unless such acquisition, holding and/or
conversion will not constitute a non-exempt prohibited transaction under ERISA
and the Code or a violation of any applicable Similar Laws.
REPRESENTATION
Accordingly, by acceptance of any note (or an interest therein), each
holder and subsequent transferee of a note will be deemed to have represented
and warranted that either (1) no portion of the assets used by such holder or
transferee to acquire and hold the notes (or an interest therein) constitutes
assets of any Plan or (2) the acquisition, holding and conversion of the notes
by such purchaser or transferee or the redemption of the notes by Halliburton
will not constitute a non-exempt prohibited transaction under Section 406 of
ERISA or Section 4975 of the Code or a violation under any applicable Similar
Laws.
The foregoing discussion is general in nature and is not intended to be all
inclusive. Due to the complexity of these rules and the penalties that may be
imposed upon persons involved in non-exempt prohibited transactions, it is
particularly important that fiduciaries, or other persons considering purchasing
the notes on behalf of, or with the assets of, any Plan, consult with their
counsel regarding the potential applicability of ERISA, Section 4975 of the Code
and any Similar Laws to such investment and whether an exemption would be
applicable to the acquisition, holding and/or conversion of the notes.
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PLAN OF DISTRIBUTION
We will not receive any of the proceeds of the sale of the notes and the
common stock issuable upon conversion of the notes offered by this prospectus.
The aggregate proceeds to the selling securityholders from the sale of the notes
or common stock issuable upon conversion of the notes will be the purchase price
of the notes or common stock issuable upon conversion of the notes less any
discounts and commissions. A selling securityholder reserves the right to accept
and, together with their agents, to reject, any proposed purchases of notes or
common stock to be made directly or through agents.
The notes and the common stock issuable upon conversion of the notes may be
sold from time to time to purchasers:
- directly by the selling securityholders and their successors, which
includes their transferees, pledgees or donees or their successor; or
- through underwriters, broker-dealers or agents, who may receive
compensation in the form of discounts, concessions or commissions from
the selling securityholders or the purchasers of the notes and the common
stock issuable upon conversion of the notes. These discounts, concessions
or commissions may be in excess of those customary in the types of
transactions involved.
The selling securityholders and any underwriters, broker-dealers or agents
who participate in the distribution of the notes and the common stock issuable
upon conversion of the notes may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933. As a result, any profits on the sale of
the notes and the common stock issuable upon conversion of the notes by selling
securityholders and any discounts, commissions or concessions received by any
such broker-dealers or agents may be deemed to be underwriting discounts and
commissions under the Securities Act. Selling securityholders who are
"underwriters" within the meaning of the Securities Act will be subject to
prospectus delivery requirements of the Securities Act. If the selling
securityholders were deemed to be underwriters, the selling securityholders may
be subject to certain statutory liabilities of the Securities Act and the
Securities Exchange Act of 1934. If the notes and the common stock issuable upon
conversion of the notes are sold through underwriters, broker-dealers or agents,
the selling securityholders will be responsible for underwriting discounts or
commissions or agent's commissions.
The notes and the common stock issuable upon conversion of the notes may be
sold in one or more transactions at:
- fixed prices;
- prevailing market prices at the time of sale;
- prices related to such prevailing market prices;
- varying prices determined at the time of sale; or
- negotiated prices.
These sales may be effected in transactions:
- on any national securities exchange or quotation service on which the
notes and common stock issuable upon conversion of the notes may be
listed or quoted at the time of the sale;
- in the over-the-counter market;
- in transactions otherwise than on such exchanges or services or in the
over-the-counter market;
- through the writing and exercise of options, whether such options are
listed on an options exchange or otherwise; or
- through the settlement of short sales.
These transactions may include block transactions or crosses. Crosses are
transactions in which the same broker acts as an agent on both sides of the
trade.
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In connection with the sales of the notes and the common stock issuable
upon conversion of the notes or otherwise, the selling securityholders may enter
into hedging transactions with broker-dealers or other financial institutions.
These broker-dealers or other financial institutions may in turn engage in short
sales of the notes or the common stock issuable upon conversion of the notes in
the course of hedging their positions. The selling securityholders may also sell
the notes and common stock issuable upon conversion of the notes short and
deliver notes and the common stock issuable upon conversion of the notes to
close out short positions, or loan or pledge notes or the common stock issuable
upon conversion of the notes to broker-dealers that in turn may sell the notes
and the common stock issuable upon conversion of the notes.
To our knowledge, there are currently no plans, arrangements or
understandings between any selling securityholders and any underwriter,
broker-dealer or agent regarding the sale of the notes and the common stock
issuable upon conversion of the notes by the selling securityholders.
Our common stock trades on the New York Stock Exchange under the symbol
"HAL." We do not intend to apply for listing of the notes on any securities
exchange or for inclusion of the notes in any automated quotation system.
Accordingly, no assurances can be given as to the development of liquidity or
any trading market for the notes. See "Risk Factors -- Risks Relating to the
Notes -- There is no trading market for the notes and there may never be one."
There can be no assurance that any selling securityholder will sell any or
all of the notes or the common stock issuable upon conversion of the notes
pursuant to this prospectus. Further, we cannot assure you that any such selling
securityholder will not transfer, devise or gift the notes and the common stock
issuable upon conversion of the notes by other means not described in this
prospectus. In addition, any notes or common stock issuable upon conversion of
the notes covered by this prospectus that qualify for sale pursuant to Rule 144
or Rule 144A of the Securities Act may be sold under Rule 144 or Rule 144A
rather than under this prospectus. The notes and the common stock issuable upon
conversion of the notes may be sold in some states only through registered or
licensed brokers or dealers. In addition, in some states the notes and common
stock issuable upon conversion of the notes may not be sold unless they have
been registered or qualified for sale or an exemption from registration or
qualification is available and complied with.
The selling securityholders and any other person participating in the sale
of notes or the common stock issuable upon conversion of the notes will be
subject to the Exchange Act. The Exchange Act rules include, without limitation,
Regulation M, which may limit the timing of purchases and sales of any of the
notes and the common stock issuable upon conversion of the notes by the selling
securityholders and any other such person. In addition, Regulation M may
restrict the ability of any person engaged in the distribution of the notes and
the common stock issuable upon conversion of the notes to engage in market-
making activities with respect to the particular notes and the common stock
issuable upon conversion of the notes being distributed. This may affect the
marketability of the notes and the common stock issuable upon conversion of the
notes and the ability of any person or entity to engage in market-making
activities with respect to the notes and the common stock issuable upon
conversion of the notes.
We have agreed to indemnify the selling securityholders against certain
liabilities, including liabilities under the Securities Act.
We have agreed to pay substantially all of the expenses incidental to the
registration, offering and sale of the notes and common stock issuable upon
conversion of the notes to the public other than commissions, fees and discounts
of underwriters, brokers, dealers and agents.
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LEGAL MATTERS
Baker Botts L.L.P., Houston, Texas, our outside counsel, will issue
opinions about certain legal matters in connection with the offering of the
notes and the common stock issuable upon conversion of the notes for us.
EXPERTS
The consolidated financial statements of Halliburton Company as of December
31, 2002 and for the year then ended, have been incorporated by reference in
this prospectus in reliance on the report of KPMG LLP, independent accountants,
included in our Current Report on Form 8-K dated October 28, 2003, incorporated
by reference herein, and upon the authority of such firm as experts in
accounting and auditing.
The audit report covering the consolidated financial statements as of and
for the year ended December 31, 2002 and included in the Current Report on Form
8-K filed on October 28, 2003 refers to a change in the composition of
Halliburton's reportable business segments in 2003. The amounts in the 2002,
2001 and 2000 consolidated financial statements related to reportable business
segments have been restated to conform to the 2003 composition of reportable
segments.
CHANGE IN INDEPENDENT AUDITORS
The consolidated financial statements of Halliburton for December 31, 2001
and 2000 incorporated by reference in this prospectus were audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports with
respect thereto.
On April 17, 2002, we dismissed Arthur Andersen LLP as our independent
auditors and engaged KPMG LLP to serve as our independent auditors for the year
ended December 31, 2002. The Arthur Andersen dismissal and the KPMG LLP
engagement were approved by our board of directors upon the recommendation of
our audit committee.
Arthur Andersen's reports on our consolidated financial statements for the
year ended December 31, 2001 did not contain an adverse opinion or disclaimer of
opinion, nor were such reports qualified or modified as to uncertainty, audit
scope or accounting principles.
During the fiscal year ended December 31, 2001 and through April 17, 2002,
there were no disagreements with Arthur Andersen on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which if not resolved to Arthur Andersen's satisfaction would have
caused Arthur Andersen to make a reference to the subject matter in connection
with Arthur Andersen's report.
Arthur Andersen ceased to practice before the SEC effective August 31,
2002. Because of Arthur Andersen's current financial position, you may not be
able to recover against Arthur Andersen for any claims you may have under
securities or other laws as a result of Arthur Andersen's activities during the
period in which it acted as our independent public accountants.
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