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any change in our present Board or management, including, but not limited to, any plans or proposals to change the number or the term of directors or to fill any existing vacancies on the board or to change any material term of the employment contract of any executive officer;
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any other material change in our corporate structure or business;
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any class of our equity securities to be delisted from NASDAQ;
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any class of our equity securities becoming eligible for termination of registration under section 12(g)(4) of the Exchange Act;
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the suspension of our obligation to file reports under Section 15(d) of the Exchange Act;
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the acquisition or disposition by any person of our securities, except pursuant to our $2 billion share repurchase plan; or
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any changes in our Certificate of Incorporation or other governing instruments or other actions that could impede the acquisition of control of our company.
We recently disclosed that we now view our Eagle Ford assets as “non-core” to our future capital allocation strategy. As a result, we may pursue a strategic exit from the Eagle Ford basin in the future, although we cannot provide any assurance that we will be able to find a suitable purchaser or purchasers for these assets.
Registration Under the Exchange Act
The warrants are currently registered under the Exchange Act. Registration of warrants of the applicable series may be terminated upon application by us to the SEC if there are fewer than 300 record holders of such series of warrants, and we delist from NASDAQ. We currently do not exchange yourintend to deregister or delist the warrants, if any, that remain outstanding notes for exchange notes underafter completion of the exchange offers,Offers. Notwithstanding any termination of the outstanding notes you holdregistration of our warrants, we will continue to be subject to the existing restrictionsreporting requirements under the Exchange Act as a result of the continuing registration of our Common Stock.
Accounting Treatment
The warrants are currently reflected on transfer,our consolidated balance sheet within additional paid-in capital. If the fair value of our Common Stock is equal to the fair value of the warrants exchanged, an additional incentive is not considered to be present and the consolidated financial statements will continuereflect the additional shares issued as an allocation from paid-in-capital to accrue interest butpar. If the fair value of our Common Stock is greater than the fair value of the warrants exchanged, an incentive is considered to be present in addition to the exchange of our Common Stock. The difference in fair value between our Common Stock issued and the warrants exchanged will be recorded in the consolidated financial statements as a non-cash deemed dividend for the incremental value provided to the holders of the warrants. No fractional shares will be issued pursuant to the Offers. In lieu of issuing fractional shares, any holder of warrants who would otherwise have been entitled to receive fractional shares pursuant to an Offer will receive an amount of Common Stock calculated in accordance with the definitions of Class A Exchange Consideration, Class B Exchange Consideration or Class C Exchange Consideration, as applicable. The Offers will not retainmodify the current accounting treatment for any un-exchanged warrants.
Absence of Appraisal Or Dissenters’ Rights
Holders of the warrants do not have any appraisal or dissenters’ rights under the applicable registration rights agreement, except as otherwise provided in that agreement. In general, you may not offer or sell the outstanding notes except under an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. Chesapeake and the subsidiary guarantors do not intend to register outstanding notes under the Securities Act unless the applicable registration rights agreement requires them to do so.
Accounting Treatment
We will record the exchange notes in our accounting records at the same carrying value as the respective outstanding notes. Accordingly, we will not recognize any gain or loss for accounting purposeslaw in connection with the exchange offers, other than the recognition of the fees and expenses of the offerings as stated under “—Fees and Expenses.”
Other
Participation in the exchange offers is voluntary, and you should consider carefully whether to accept. You are urged to consult your financial and tax advisors in making your own decision on what action to take.
We may in the future seek to acquire untendered outstanding notes in open market or privately negotiated transactions, through subsequent exchange offers or otherwise. We have no present plans to acquire any outstanding notes that are not tendered in the exchange offers or to file a registration statement to permit resales of any untendered outstanding notes.
DESCRIPTION OF THE NOTES
We have summarized selected provisions of the exchange notes below. We will issue the exchange notes, and we issued the outstanding notes, under the Indenture, dated as of April 24, 2014 (the “base indenture”), between us, the subsidiary guarantors named therein and Deutsche Bank Trust Company Americas, as trustee, as supplemented by the Sixth Supplemental Indenture, dated as of December 20, 2016 (the “sixth supplemental indenture”), establishing the terms of the outstanding 2025 notes and 2025 exchange notes (collectively, the “2025 notes”), and the Seventh Supplemental Indenture, dated as of June 6, 2017 (the “seventh supplemental indenture” and, together with the sixth supplemental indenture, the “supplemental indentures”), establishing the terms of the outstanding 2027 notes and the 2027 exchange notes (collectively, the “2027 notes”). We have filed the base indenture and the supplemental indentures as exhibits to the registration statement of which this prospectus is a part. In this “Description of the Notes” section, when we refer to the “indenture,” we mean the base indenture as supplemented by the applicable supplemental indenture. The terms of the exchange notes and the outstanding notes include those stated in the indentures and those made part of the indentures by reference to the Trust Indenture Act of 1939, as amended (the “Trust Indenture Act”).
The 2025 notes and the 2027 notes are two separate series of senior debt securities under the indentures. We urge you to read the base indenture and the supplemental indentures because they, and not this description, define your rights as holders of the notes. Our Floating Rate Senior Notes due 2019, 4.875% Senior Notes due 2022, 8.00% Senior Notes due 2025 and 8.00% Senior Notes due 2027 are currently outstanding under the base indenture.
If the exchange offers are consummated, holders of outstanding notes who do not exchange their outstanding notes for exchange notes will vote together with the holders of such exchange notes for all relevant purposes under the applicable indenture. In that regard, the indentures require that certain actions by the holders under the indentures (including acceleration after an Event of Default) may be taken, and certain rights may only be exercised, by specified minimum percentages of the aggregate principal amount of all outstanding notes and exchange notes of a series issued under the applicable indenture. In determining whether holders of the requisite percentage in principal amount have given any notice, direction, waiver, consent or taken any other action permitted under the applicable indenture, any outstanding notes that remain outstanding after the exchange offers will be aggregated with the corresponding series of exchange notes, and the holders of these outstanding notes and exchange notes will vote together as a single series for all such purposes. Accordingly, all references in this “Description of the Notes” to specified percentages in aggregate principal amount of the notes mean, at any time after the exchange offers are consummated, such percentage in aggregate principal amount of such outstanding notes and the exchange notes then outstanding of the applicable series.
Offers.
In this description, the words “Chesapeake,” “Company,” “our,” “us” and “we” refer only to Chesapeake Energy Corporation and not to any of its subsidiaries.Unless the context otherwise requires, references to the notes herein include the outstanding notes and the exchange notes.
In addition, we have used in this description capitalized and other terms that we have defined below under “—Certain Definitions Related to the Notes” and in other parts of this description.
General
The notes will be general unsecured senior obligations of Chesapeake and will be guaranteed by the subsidiary guarantors as described below under “—Guarantees.” The indebtedness evidenced by the notes and the guarantees will rank pari passu in right of payment to all senior indebtedness of Chesapeake and the subsidiary guarantors, as the case may be.
The 2025 notes will mature on January 15, 2025. The 2027 notes will mature on June 15, 2027. We issued the outstanding notes, and will issue the exchange notes, in denominations of $2,000 or integral multiples of $1,000 in excess thereof.
Interest on the Notes
Interest on the 2025 exchange notes will accrue at an annual rate of 8.00% and will be payable semiannually in arrears on January 15 and July 15 of each year to the holders of record of the 2025 exchange notes at the close of business on January 1 and July 1 preceding such interest payment dates, respectively. No interest will be paid on either the 2025 exchange notes or the outstanding 2025 notes at the time of exchange. Interest on the 2025 exchange notes will accrue from January 15, 2018 or, if interest has since been paid on the outstanding 2025 notes, from the date it was most recently paid. Assuming the 2025 exchange notes are issued prior to July 15, 2018, holders of outstanding 2025 notes that are accepted for exchange will be deemed to have waived the right, if any, to receive any payment in respect of interest accrued on the outstanding 2025 notes from January 15, 2018 until the date of the issuance of the 2025 exchange notes. Holders of the 2025 exchange notes will receive the same interest payments that they would have received had they not accepted the exchange offer.
Interest on the 2027 exchange notes will accrue at an annual rate of 8.00% and will be payable semiannually in arrears on June 15 and December 15 of each year to the holders of record of the 2027 exchange notes at the close of business on June 1 and December 1 preceding such interest payment dates, respectively. No interest will be paid on either the 2027 exchange notes or the outstanding 2027 notes at the time of exchange. Interest on the 2027 exchange notes will accrue from December 15, 2017 or, if interest has since been paid on the outstanding 2027 notes, from the date it was most recently paid. Assuming the 2027 exchange notes are issued prior to June 15, 2018, holders of outstanding 2027 notes that are accepted for exchange will be deemed to have waived the right, if any, to receive any payment in respect of interest accrued on the outstanding 2027 notes from December 15, 2017 until the date of the issuance of the 2027 exchange notes. Holders of the 2027 exchange notes will receive the same interest payments that they would have received had they not accepted the exchange offer.
Interest on the notes will be computed on the basis of a 360-day year consisting of twelve 30-day months.
Initially, the Trustee will act as paying agent and registrar for the notes.
Payment and Transfer
Initially, the notes will be issued only in global form registered in the name of Cede & Co., as nominee of DTC. Beneficial interests in notes in global form will be shown on, and transfers of interests in notes in global form will be made only through, records maintained by DTC and its participants. Any notes in definitive form may be presented for registration of transfer or exchange at the office or agency maintained by us for such purpose (which initially will be the corporate trust office of the Trustee).
Payment of principal, or any premium or interest on notes in global form registered in the name of DTC’s nominee will be made in immediately available funds to DTC’s nominee, as the registered holder of such global notes. If any of the notes is no longer represented by a global note, payment of interest on such notes in definitive form may, at our option, be made at the corporate trust office of the Trustee indicated above or by check mailed directly to holders at their respective registered addresses or by wire transfer to an account designated by a holder.
If any interest payment date, maturity date or redemption date falls on a day that is not a Business Day, the payment will be made on the next Business Day with the same force and effect as if made on the relevant interest payment date, maturity date or redemption date. No interest will accrue on such payment for the period from and after the applicable interest payment date, maturity date or redemption date. The notes may be transferred or exchanged, and they may be presented for payment, at the office of the Trustee indicated in the indenture, subject to the limitations provided in the indenture, without the payment of any service charge, other than any applicable tax or governmental charge.
The registered holder of a note will be treated as the owner of it for all purposes, and all references in this “Description of the Notes” to “holders” mean holders of record, unless otherwise indicated.
Further Issuances
We may from time to time, without notice or the consent of the holders of the notes, create and issue further notes of either series ranking equally and ratably with the original notes of such series in all respects (or in all respects except for the payment of interest accruing prior to the issue date of such additional notes, the public offering price and the issue date), so that such additional notes of such series (together with any exchange notes issued in respect of any original notes or additional notes) form a single series with the original notes of such series) and have the same terms as to status, redemption or otherwise as the original notes of such series, provided that if the additional notes of such series are not fungible with the original notes of such series, such additional notes shall have a separate CUSIP number.
Optional Redemption
2025 Notes
Except as set forth in the following paragraphs, we may not redeem the 2025 notes prior to January 15, 2020. On and after such date, we may redeem the 2025 notes, in whole or in part, at our option, at the following redemption prices (expressed as percentages of the principal amount thereof), plus accrued and unpaid interest, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period (or, in the case of the period commencing January 15, 2020, such 12-month period and thereafter) commencing on January 15 of the years set forth below:
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| Year | Percentage |
| 2020 | 106.00% |
| 2021 | 104.00% |
| 2022 | 102.00% |
| 2023 and thereafter | 100.00% |
Prior to January 15, 2020, we will be entitled at our option to redeem the 2025 notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the 2025 notes to be redeemed plus the Make-Whole Premium as of, and accrued and unpaid interest, if any, to, the redemption date (subject to the right of holders on the relevant record date to receive interest due on the relevant interest payment date).
In addition, any time prior to January 15, 2020, we will be entitled at our option on any one or more occasions to redeem up to 35% of the aggregate principal amount of 2025 notes issued under the indenture at a redemption price equal to 108.00% of the principal amount of the 2025 notes redeemed, plus accrued and unpaid interest, if any, to the redemption date (subject to the right of holders on the relevant record date to receive interest due on the relevant interest payment date), with an amount of cash not greater than the net cash proceeds of one or more Equity Offerings by the Company; provided that:
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(1) | at least 65% of the aggregate principal amount of 2025 notes issued under the indenture (excluding notes held by the Company and the Subsidiaries) remains outstanding immediately after the occurrence of such redemption; and |
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(2) | the redemption occurs within 180 days of the date of the closing of such Equity Offering. |
Notice of redemption of the 2025 notes must be given to each holder of the 2025 notes not less than 30 nor more than 60 days prior to the redemption date in accordance with the indenture.
2027 Notes
Except as set forth in the following paragraphs, we may not redeem the 2027 notes prior to June 15, 2022. On and after such date, we may redeem the 2027 notes, in whole or in part, at our option, at the following redemption prices (expressed as percentages of the principal amount thereof), plus accrued and unpaid interest, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period (or, in the case of the period commencing June 15, 2025, such 12-month period and thereafter) commencing on June 15 of the years set forth below:
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| Year | Percentage |
| 2022 | 104.000% |
| 2023 | 102.667% |
| 2024 | 101.333% |
| 2025 and thereafter | 100.000% |
Prior to June 15, 2022, we will be entitled at our option to redeem the 2027 notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the 2027 notes to be redeemed plus the Make-Whole Premium as of, and accrued and unpaid interest, if any, to, the redemption date (subject to the right of holders on the relevant record date to receive interest due on the relevant interest payment date).
In addition, any time prior to June 15, 2020, we will be entitled at our option on any one or more occasions to redeem up to 35% of the aggregate principal amount of 2027 notes issued under the indenture at a redemption price equal to 108.00% of the principal amount of the 2027 notes redeemed, plus accrued and unpaid interest, if any, to the redemption date (subject to the right of holders on the relevant record date to receive interest due on the relevant interest payment date), with an amount of cash not greater than the net cash proceeds of one or more Equity Offerings by the Company; provided that:
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(1) | at least 65% of the aggregate principal amount of 2027 notes issued under the indenture (excluding notes held by the Company and the Subsidiaries) remains outstanding immediately after the occurrence of such redemption; and |
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(2) | the redemption occurs within 180 days of the date of the closing of such Equity Offering. |
Notice of redemption of the 2027 notes must be given to each holder of the 2027 notes not less than 30 nor more than 60 days prior to the redemption date in accordance with the indenture.
Notice and Selection
Once a notice of redemption is given in accordance with the indenture, subject to the satisfaction of any conditions set forth therein, notes called for redemption become due and payable on the applicable redemption date at the applicable redemption price. Any notice of redemption will state, among other things, the aggregate principal amount of notes to be redeemed, the redemption date, the redemption price, the CUSIP number and the name and address of the paying agent. Notice of any redemption, including, without limitation, upon an Equity Offering, may, at our discretion, be subject to one or more conditions precedent, including, but not limited to, completion of the related Equity Offering. In addition, if such redemption is subject to satisfaction of one or more conditions precedent, such notice shall state that, in our discretion, the redemption date may be delayed until such time as any or all such conditions shall be satisfied, or such redemption may not occur and such notice may be rescinded in the event that any or all such conditions shall not have been satisfied by the redemption date, or by the redemption date so delayed. In addition, we may provide in such notice that payment of the redemption price and performance of our obligations with respect to such redemption may be performed by another Person.
If less than all of the notes of a series are redeemed at any time, the Trustee will select the notes of such series to be redeemed on a pro rata basis or by lot, in each case, in accordance with the procedures of the DTC, or, if the notes of such series are listed on any securities exchange, by any other method that complies with the requirements of such exchange; provided, however, that no notes with a principal amount of $2,000 or less will be redeemed in part. Unless we default in payment of the applicable redemption price, interest on the notes to be redeemed will cease to accrue on the applicable redemption date, whether or not such notes are presented for payment.
Certain Definitions Related to the Notes
“Adjusted Treasury Rate” means, with respect to any redemption date applicable to the notes of a series, the yield, under the heading which represents the average for the immediately preceding week, appearing in the most recently publishedMaterial U.S. Federal Reserve Statistical Release H.15 or any successor publication which is published weekly by the Board of Governors of the Federal Reserve System (or, if such release (or any successor release) is not published, any publicly available source of similar market data) and which establishes yields on actively traded United States Treasury securities adjusted to constant maturity under the caption “Treasury Constant Maturities,” for the maturity corresponding to the Comparable Treasury Issue (if no maturity is within three months before or after January 15, 2020, in the case of the 2025 notes, or June 15, 2022, in the case of the 2027 notes, yields for the two published maturities most closely corresponding to the Comparable Treasury Issue shall be determined and the Adjusted Treasury Rate shall be interpolated or extrapolated from such yields on a straight line basis, rounding to the nearest month), calculated on the third Business Day immediately preceding the redemption date, plus 50 basis points.Income Tax Consequences
“Business Day” means any day on which the New York Stock Exchange is open for trading and which is not a Legal Holiday.
“Comparable Treasury Issue” means the United States Treasury security selected by the Company as having a maturity comparable to the remaining term of the notes of the applicable series from the redemption date to January 15, 2020, in the case of the 2025 notes, and June 15, 2022, in the case of the 2027 notes, that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of a maturity most nearly equal to January 15, 2020, in the case of the 2025 notes, and June 15, 2022, in the case of the 2027 notes.
“Legal Holiday” is a Saturday, a Sunday or a day on which banks and trust companies in The City of New York are not required by law or executive order to be open.
“Make-Whole Premium” means, at any applicable redemption date, the excess of (i) the present value at such redemption date of (A) the redemption price of such note on January 15, 2020, in the case of the 2025 notes, or June 15, 2022, in the case of the 2027 notes (such redemption price being described in the first paragraph under “—Optional Redemption”) exclusive of any accrued interest plus (B) all required remaining scheduled interest payments due on such note through January 15, 2020, in the case of the 2025 notes, and June 15, 2022, in the case of the 2027 notes (but excluding accrued and unpaid interest to the redemption date), computed using a discount rate equal to the Adjusted Treasury Rate, over (ii) the principal amount of such note on such redemption date.
Guarantees
Our payment obligations under the notes and the indenture will be jointly and severally, fully and unconditionally guaranteed by the subsidiary guarantors, subject to the limitations described in the following paragraphs. As of the Issue Date, the subsidiary guarantors include each of our subsidiaries that guarantee our Credit Facility, Term Loan and Second Lien Notes. As of December 31, 2017, our non-guarantor subsidiaries held less than 1% of our consolidated total assets and had no third-party indebtedness, and for the year ended December 31, 2017, had revenues representing less than 1% of our consolidated revenues.
The indenture provides that each Person that becomes a domestic Subsidiary of the Company after the Issue Date and that guarantees any other Indebtedness of ours or a subsidiary guarantor in excess of a De Minimis Guaranteed Amount will guarantee the payment of the notes within 180 days after the later of (i) the date it becomes a domestic Subsidiary and (ii) the date it guarantees such other Indebtedness, provided that no guarantee shall be required if the Subsidiary merges into us or merges into an existing subsidiary guarantor and the surviving entity remains a subsidiary guarantor.
The obligations of each subsidiary guarantor under its Guarantee will be limited as necessary to prevent that Guarantee from constituting a fraudulent conveyance or fraudulent transfer under federal, state or foreign law. Each subsidiary guarantor that makes a payment or distribution under a Guarantee shall be entitled to a contribution from each other subsidiary guarantor in a pro rata amount based on the respective net assets of each subsidiary guarantor at the time of such payment determined in accordance with GAAP.
If a Guarantee were rendered voidable, it could be subordinated by a court to all other indebtedness (including guarantees and other contingent liabilities) of the applicable subsidiary guarantor, and, depending on the amount of such indebtedness, a subsidiary guarantor’s liability on its Guarantee could be reduced to zero. Please read “Risk Factors—Risks Related to the Exchange Notes—A subsidiary guarantee could be voided if it constitutes a fraudulent transfer under federal bankruptcy law or similar state law, which would prevent the holders of the exchange notes from relying on that subsidiary to satisfy claims.”
Subject to the next succeeding paragraph, no subsidiary guarantor may consolidate or merge with or into (whether or not such subsidiary guarantor is the surviving Person) another Person unless:
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(1) | the Person formed by or surviving any such consolidation or merger (if other than such subsidiary guarantor) assumes all the obligations of such subsidiary guarantor under the indenture and the notes pursuant to a supplemental indenture, in a form reasonably satisfactory to the Trustee, and |
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(2) | immediately after such transaction, no Default or Event of Default exists. |
The preceding does not prohibit a merger between subsidiary guarantors or a merger between us and a subsidiary guarantor.
In the event of a sale or other disposition of all or substantially all of the assets of any subsidiary guarantor, or a sale or other disposition of all the Capital Stock of such subsidiary guarantor, in any case whether by way of merger, consolidation or otherwise, then such subsidiary guarantor (in the event of a sale or other disposition by way of such a merger, consolidation or otherwise, of all of the Capital Stock of such subsidiary guarantor) or the Person acquiring the assets (in the event of a sale or other disposition of all or substantially all of the assets of such subsidiary guarantor) will be automatically released and relieved of any obligations under its Guarantee.
Further, a subsidiary guarantor will be automatically released and relieved from any obligations under its Guarantee if it ceases to guarantee any other Indebtedness of us or any other subsidiary guarantor other than a De Minimis Guaranteed Amount.
Ranking
Senior Indebtedness versus Notes. The Indebtedness evidenced by the notes and the Guarantees will be unsecured and will rank pari passu in right of payment to all Senior Indebtedness of us and the subsidiary guarantors, as the case may be.
Secured Indebtedness versus Notes. Secured debt and other secured obligations of us and the subsidiary guarantors (including obligations with respect to our Credit Facility, Term Loan and Second Lien Notes) will be effectively senior to the notes and the subsidiary guarantors’ Guarantee thereof to the extent of the value of the assets securing such debt or other obligations.
Although the indenture limits the incurrence of certain Funded Debt that is secured Indebtedness, such limitations are subject to a number of significant qualifications, and the indenture does not limit the incurrence of secured obligations other than certain Funded Debt or the incurrence of unsecured Indebtedness.
Liabilities of Subsidiaries versus Notes. Substantially all of our operations are conducted through our subsidiaries. Claims of creditors of any subsidiaries that are not subsidiary guarantors, including trade creditors and creditors holding indebtedness or guarantees issued by such subsidiaries, and claims of preferred security holders of such subsidiaries will have priority with respect to the assets and earnings of such subsidiaries over the claims of our creditors and the claims of any creditors of any subsidiary guarantor that is a parent company to any such subsidiary, including holders of the notes. Accordingly, the notes will be structurally subordinated to creditors (including trade creditors) and any preferred security holders of our subsidiaries that are not subsidiary guarantors, and each Guarantee of the notes will be structurally subordinated to creditors (including trade creditors) and any preferred security holders of any subsidiary of a subsidiary guarantor that is not itself a subsidiary guarantor.
No Sinking Fund
We are not required to make any mandatory redemption in sinking fund payments with respect to the notes.
Certain Covenants
Limitation on Liens Securing Funded Debt. The Company (1) will not, and will not permit any Restricted Subsidiary to, create, incur or assume any Funded Debt secured by any Liens (other than Permitted Liens) upon any of the properties of the Company or any Restricted Subsidiary and (2) will not, and will not permit any Subsidiary to, create, incur or assume any Funded Debt secured by any Liens (other than Permitted Liens) upon the Capital Stock of any Restricted Subsidiary or the Capital Stock of any Subsidiary that owns, directly or indirectly through ownership in another Subsidiary, the Capital Stock of any Restricted Subsidiary, unless (as to each of clauses (1) and (2)) the notes or the Guarantee (if any) of such Restricted Subsidiary, as applicable, (together with, if the Company shall so determine, any other Indebtedness or other obligation of the Company or such Restricted Subsidiary which is not subordinate in right of payment to the prior payment in full of the notes) are equally and ratably secured for so long as such Funded Debt shall be so secured; provided, that if such Funded Debt is expressly subordinated to the notes or a related Guarantee, if any, the Lien securing such Funded Debt will be subordinated and junior to the Lien securing such notes or such Guarantee. Notwithstanding the foregoing provisions, the Company or any Subsidiary may create, incur or assume Funded Debt secured by Liens which would otherwise be subject to the restrictions of such section, if the aggregate principal amount of such Funded Debt and all other Funded Debt of the Company and any Subsidiary theretofore created, incurred or assumed pursuant to the exception in this sentence and outstanding at such time does not exceed 15% of the Adjusted Consolidated Net Tangible Assets of the Company (the “Secured Debt Basket”).
Limitation on Sale/Leaseback Transactions. The Company will not, and will not permit any Restricted Subsidiary to, enter into any Sale/Leaseback Transaction with any Person (other than the Company or any other Subsidiary) unless:
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(A) | the Company or such Restricted Subsidiary would be entitled to incur Funded Debt secured by Liens in a principal amount equal to the Attributable Indebtedness (treated as if such Attributable Indebtedness were Funded Debt) with respect to such Sale/Leaseback Transaction in accordance with the covenant captioned “—Limitation on Liens Securing Funded Debt”; provided, however, that Attributable Indebtedness in respect of any Sale/Leaseback Transaction entered into pursuant to this clause (A) shall not count against the amount of Funded Debt permitted under the Secured Debt Basket for any other purpose, including when determining the amount available thereunder for future Sale/Leaseback Transactions or any Funded Debt transactions; or |
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(B) | the Company or such Restricted Subsidiary receives proceeds from such Sale/Leaseback Transaction at least equal to the fair market value thereof (as determined in good faith by the Company) and such proceeds are applied in accordance with the following two paragraphs: |
The Company may apply Net Available Proceeds from such Sale/Leaseback Transaction, within 365 days following the receipt of Net Available Proceeds from the Sale/Leaseback Transaction, to:
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(1) | the repayment of Indebtedness of the Company or a Restricted Subsidiary under Credit Facilities or other Senior Indebtedness, including any mandatory redemption or repurchase or make-whole redemption of the Existing Notes or the notes; |
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(2) | make an Investment in assets used in the Oil and Gas Business; or |
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(3) | develop by drilling the Company’s oil and gas reserves. |
If, upon completion of the 365-day period, any portion of the Net Available Proceeds shall not have been applied by the Company as described in clauses (1), (2) or (3) in the immediately preceding paragraph and such remaining Net Available Proceeds, together with any remaining net cash proceeds from any prior Sale/Leaseback Transaction (such aggregate constituting “Excess Proceeds”), exceed $60 million, then the Company will be obligated to make an offer (the “Net Proceeds Offer”) to purchase the notes and any other Senior Indebtedness in respect of which such an offer to purchase is also required to be made concurrently with the Net Proceeds Offer having an aggregate principal amount equal to the Excess Proceeds (such purchase to be made on a pro rata basis if the amount available for such repurchase is less than the principal amount of the notes and other such Senior Indebtedness tendered in such Net Proceeds Offer) at a purchase price of 100% of the principal amount thereof plus accrued interest thereon to the date of repurchase. Upon the completion of the Net Proceeds Offer, the amount of Excess Proceeds will be reset to zero.
Within 15 days after the Company becomes obligated to make a Net Proceeds Offer (a “Net Proceeds Offer Triggering Event”), the Company will mail or cause to be mailed to all holders on the date of the Net Proceeds Offer Triggering Event a notice of the occurrence of such Net Proceeds Offer Triggering Event and of the holders’ rights arising as a result thereof.
The Net Proceeds Offer will be deemed to have commenced upon mailing of the Offer Notice and will terminate 20 Business Days after its commencement, unless a longer offering period is required by law. Promptly after the termination of the offer, the Company will purchase and mail or deliver payment for all notes tendered in response to the offer.
On the payment date, the Company will, to the extent lawful, (a) accept for payment notes or portions thereof tendered pursuant to the Net Proceeds Offer, (b) deposit with the paying agent an amount equal to the payment in respect of all notes or portions thereof so tendered and (c) deliver to the Trustee the notes so accepted together with an officers’ certificate stating the notes or portions thereof tendered to the Company. The depositary, the Company or the paying agent will promptly mail or deliver to each holder of notes of the applicable series so accepted payment in an amount equal to the purchase price for such notes, and the Trustee will promptly authenticate and mail or deliver to each holder notes equal in principal amount to any unpurchased portion of the notes surrendered, if any, provided that each such notes will be in a principal amount of $2,000 or integral multiples of $1,000 in excess thereof.
The Company will comply with Section 14 of the Exchange Act and the provisions of Regulation 14E and any other tender offer rules under the Exchange Act and any other federal and state securities laws, rules and regulations which may then be applicable to any Net Proceeds Offer.
Limitations on Mergers and Consolidations. The indenture will provide that we will not consolidate or merge with or into any Person, or sell, convey, lease or otherwise dispose of all or substantially all of our assets to any Person, unless: (1) the Person formed by or surviving such consolidation or merger (if other than us), or to which such sale, lease, conveyance or other disposition shall be made (collectively, the “successor”), is a corporation, limited liability company, general partnership or limited partnership organized and existing under the laws of the United States or any state thereof or the District of Columbia, and the successor assumes by supplemental indenture in a form satisfactory to the Trustee all of our obligations under the indenture and the notes; provided, that unless the successor is a corporation, a corporate co-issuer of the notes will
be added to the indenture by such supplemental indenture; and (2) immediately after giving effect to such transaction, no Event of Default shall have occurred and be continuing.
Upon any such consolidation, merger, lease, conveyance or transfer, the Trustee shall be notified by us or the successor, and the successor formed by such consolidation or into which we are merged or to which such lease, conveyance or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, ours under the indenture with the same effect as if such successor had been named as the Company under the indenture and thereafter (except in the case of a lease) we will be relieved of all further obligations and covenants under the indenture and the notes.
SEC Reports. We will, within 15 days after we file the same with the SEC, deliver to the Trustee copies of the annual reports and the information, documents and other reports (or copies of any such portions of any of the foregoing as the SEC may by rules and regulations prescribe) that we are required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act; provided that any such annual reports, information, documents or other reports filed or furnished with the SEC pursuant to its Electronic Data Gathering, Analysis and Retrieval (or “EDGAR”) system shall be deemed to be delivered to the Trustee as of the time such information, documents or reports are filed or furnished via EDGAR; provided, however, that the Trustee shall have no obligation whatsoever to determine whether or not such information, documents or reports have been filed pursuant to the EDGAR system (or its successor). Notwithstanding that we may not be required to remain subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, we will file with the SEC (to the extent such filings are accepted by the SEC) and provide the Trustee with such annual reports and such information, documents and other reports specified in Sections 13 and 15(d) of the Exchange Act, subject to the proviso in the immediately preceding sentence.
Rule 144A Information
At any time we are not subject to Section 13 or 15(d) of the Exchange Act, we will, so long as any of the notes will, at such time, constitute “restricted securities” within the meaning of Rule 144(a)(3) under the Securities Act, promptly provide to the Trustee and will, upon written request, provide to any holder, beneficial owner or prospective purchaser of such notes the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act to facilitate the resale of such notes pursuant to Rule 144A under the Securities Act. We will take such further action as any holder or beneficial owner of such notes may reasonably request to the extent from time to time required to enable such holder or beneficial owner to sell such notes in accordance with Rule 144A under the Securities Act, as such rule may be amended from time to time.
Events of Default
The following will be Events of Default with respect to each series of notes:
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(1) | default by the Company or any subsidiary guarantor in the payment of principal of or any premium on the notes of such series when due and payable at Maturity; |
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(2) | default by the Company or any subsidiary guarantor in the payment of any installment of interest on the notes of such series when due and payable and continuance of such default for 30 days; |
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(3) | default by the Company or any subsidiary guarantor with respect to any other Indebtedness of the Company or any subsidiary guarantor if either |
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(A) | such default results in the acceleration of the maturity of any such Indebtedness having a principal amount of $75.0 million or more individually or, taken together with the principal amount of any other such Indebtedness the maturity of which has been so accelerated, in the aggregate, or |
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(B) | such default results from the failure to pay when due principal of any such Indebtedness, after giving effect to any applicable grace period (a “Payment Default”), having a principal amount of |
$75.0 million or more individually or, taken together with the principal amount of any other Indebtedness under which there has been a Payment Default, in the aggregate;
provided that if any such default is cured or waived or any such acceleration is rescinded, or such Indebtedness is repaid, within a period of 30 days from the continuation of such default beyond any applicable grace period or the occurrence of such acceleration, as the case may be, such Event of Default and any consequent acceleration of the notes shall be rescinded, so long as any such rescission does not conflict with any judgment or decree or applicable provision of law;
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(4) | default in the performance, or breach of, any covenant or agreement of the Company or any subsidiary guarantor in the indenture applicable to such series of notes and, in each such case, failure to remedy such default within a period of 60 days after written notice thereof from the Trustee or holders of 25% of the principal amount of the notes; provided, however, that the Company will have 90 days (rather than 60 days) following such written notice to remedy or receive a waiver for any failure to comply with its obligations under the indenture so long as the Company is attempting to remedy any such failure as promptly as reasonably practicable; |
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(5) | the failure of a Guarantee by a subsidiary guarantor to be in full force and effect, or the denial or disaffirmance by such entity thereof; or |
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(6) | certain events involving bankruptcy, insolvency or reorganization of the Company or any subsidiary guarantor. |
The indenture provides that the Trustee may withhold notice to the holders of each series of notes of any default (except in payment of principal of, or any premium or interest on, any note of such series) if the Trustee determines in good faith that it is in the interest of the holders of such series of notes to do so.
If an Event of Default occurs and is continuing with respect to the notes of either series, the Trustee or the holders of not less than 25% in principal amount of the notes of such series then outstanding may declare the unpaid principal of, and any premium and accrued but unpaid interest on, all of the notes of such series then outstanding to be due and payable. Upon such a declaration, such principal (or other specified amount), and any premium and interest will be due and payable immediately. If an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of the Company or any subsidiary guarantor occurs and is continuing, the principal of, and any premium and interest on, all the notes will become and be immediately due and payable without any declaration or other act on the part of the Trustee or any holder. Under certain circumstances, the holders of a majority in principal amount of the notes of the series with respect to which a declaration of acceleration has been made may rescind any such acceleration with respect to the notes of such series and its consequences.
No holder of the notes of either series may pursue any remedy under the indenture unless:
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(1) | the Trustee shall have received written notice of a continuing Event of Default, |
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(2) | the Trustee shall have received a request from holders of at least 25% in principal amount of the notes of such series to pursue such remedy, |
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(3) | the Trustee shall have been offered indemnity reasonably satisfactory to it, |
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(4) | the Trustee shall have failed to act for a period of 60 days after receipt of such notice, request and offer of indemnity, and |
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(5) | no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the holders of a majority in principal amount of the notes of such series; |
provided, however, such provision does not affect the right of a holder of any notes to sue for enforcement of any overdue payment thereon.
The holders of a majority in principal amount of the notes of each series then outstanding will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain limitations specified in the indenture. The Trustee shall be under no obligation and may refuse to perform any duty or exercise any right, duty or power hereunder unless it receives indemnity reasonably satisfactory to it against any loss, liability, claim, damage or expense.
Modification and Waiver
Supplements and amendments to the indenture or the notes of the applicable series may be made by the Company, the subsidiary guarantors and the Trustee with the consent of the holders of a majority in aggregate principal amount of the notes of such series and all other series of Debt Securities outstanding under the indenture affected by such amendment or supplement, considered together as a single class; provided that no such modification or amendment may, without the consent of each holder of notes of such series affected thereby,
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(1) | reduce the percentage of principal amount of notes of such series whose holders must consent to an amendment, supplement or waiver of any provision of the indenture or the notes of such series; |
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(2) | reduce the rate or change the time for payment of interest, including default interest, if any, on the notes of such series; |
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(3) | reduce the principal amount of any note of such series or change the Maturity Date of the notes of such series; |
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(4) | reduce the amount payable upon redemption of any note of such series; |
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(5) | waive any Event of Default in the payment of principal of, any premium or interest on the notes of such series; |
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(6) | make any note payable in money other than that stated in such note of such series; |
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(7) | impair the right of holders of notes of such series to receive payment of the principal of and interest on the notes of such series on the respective due dates therefor and to institute suit for the enforcement of any such payment; or |
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(8) | make any change in the percentage of principal amount of the notes of such series necessary to waive compliance with certain provisions of the indenture. |
Supplements and amendments of the indenture or the notes of the applicable series may be made by the Company, the subsidiary guarantors and the Trustee without the consent of any holders of such series in certain limited circumstances, including:
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(1) | to cure any ambiguity, omission, defect or inconsistency; provided that such modification shall not adversely affect the holders of the notes of such series in any material respect; |
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(2) | to provide for the assumption of the obligations of the Company or any subsidiary guarantor under the indenture upon the merger, consolidation or sale or other disposition of all or substantially all of the assets of the Company or such subsidiary guarantor; |
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(3) | to add to, change or eliminate any of the provisions of the indenture; provided that any such addition, change or elimination shall become effective only after there are no such notes entitled to the benefit of such provision outstanding; |
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(4) | to evidence the acceptance or appointment by a separate Trustee or successor Trustee with respect to the notes of such series or otherwise; |
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(5) | to reflect the addition or release of any subsidiary guarantor from its Guarantee of the notes of such series, in the manner provided in the indenture, or to secure the notes of such series or the Guarantees; |
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(6) | to comply with any requirement of the SEC in order to effect or maintain the qualification of the indenture under the Trust Indenture Act; |
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(7) | to provide for uncertificated notes of such series in addition to certificated notes of such series; or |
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(8) | to make any change that would provide any additional benefit to the holders of the notes of such series or that does not adversely affect the rights of any holder of the notes of such series in any material respect. |
The holders of a majority in aggregate principal amount of the notes of a series then outstanding may waive any past default under the indenture, except a default in the payment of principal, or any premium or interest.
Each holder shall have the right to receive payment of the principal of and interest on the notes of the applicable series at Maturity, or to institute suit for the enforcement of any such payment, and such right may not be impaired without the consent of such holder. Notwithstanding the foregoing and for the avoidance of doubt, no amendment to, or deletion or waiver of any of, the covenants set forth in the indenture or any action taken by the Company or any subsidiary guarantor not prohibited by the indenture (in each case other than with respect to actions described above that require the consent of each holder of a note of the applicable series affected then outstanding) shall be deemed to impair or affect any rights of any holder to receive such payment.
Legal Defeasance and Covenant Defeasance
The Company may, at its option and at any time, elect to have its obligations discharged with respect to the notes of either series (“Legal Defeasance”). Such Legal Defeasance means that the Company and any subsidiary guarantor will be deemed to have paid and discharged the entire Indebtedness represented by the notes of such series then outstanding and any Guarantees thereof, except for:
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(1) | the rights of holders of notes of such series then outstanding to receive payments solely from the trust fund described in the following paragraph in respect of the principal of, and any premium and interest on, such notes when such payments are due; |
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(2) | the Company’s obligations with respect to such notes concerning the issuance of temporary notes, transfers and exchanges of the notes of such series, replacement of mutilated, destroyed, lost or stolen notes of such series, the maintenance of an office or agency where the notes of such series may be surrendered for transfer or exchange or presented for payment, and duties of paying agents; |
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(3) | the rights, powers, trusts, duties and immunities of the Trustee, and the Company’s obligations in connection therewith; and |
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(4) | the Defeasance provisions of the indenture. |
In addition, the Company may, at its option and at any time, elect to have the obligations of the Company under either series of notes released with respect to certain covenants described under “—Certain Covenants” (“Covenant Defeasance”), and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to such series of notes. In the event Covenant Defeasance occurs with respect to a series of notes, certain events (not including non-payment) described under “—Events of Default” will no longer constitute an Event of Default with respect to such series. If we exercise our Legal Defeasance or Covenant Defeasance option with respect to a series of notes, each subsidiary guarantor will be released from all its obligations under the indenture and its Guarantee of such notes.
In order to exercise either Legal Defeasance or Covenant Defeasance under the indenture:
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(1) | the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the holders of the notes of the applicable series, cash in U.S. Legal Tender, U.S. Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, and any premium and interest on, the outstanding notes of such series on each date on which such principal and any premium and interest is due and payable or on any redemption date established pursuant to the indenture; |
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(2) | in the case of Legal Defeasance, the Company must deliver to the Trustee an opinion of counsel reasonably acceptable to the Trustee confirming that |
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(A) | the Company has received from or there has been published by, the Internal Revenue Service a ruling or |
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(B) | since the date of the indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the holders of the notes of the applicable series then outstanding will not recognize income, gain or loss for U.S. Federal income tax purposes as a result of such Legal Defeasance and will be subject to U.S. Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; |
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(3) | in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an opinion of counsel reasonably acceptable to the Trustee to the effect that the holders of the notes of the applicable series then outstanding will not recognize income, gain or loss for U.S. Federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; |
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(4) | no Default or Event of Default shall have occurred and be continuing on the date of such deposit or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit; |
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(5) | such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any other material agreement, other than the indenture, or instrument to which the Company is a party or by which the Company is bound; |
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(6) | the Company shall have delivered to the Trustee an officers’ certificate stating that the deposit was not made by the Company with the intent of preferring the holders of notes of such series over other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and |
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(7) | the Company shall have delivered to the Trustee an officers’ certificate and an opinion of counsel each stating that the Company has complied with all conditions precedent provided for relating to the Legal Defeasance or the Covenant Defeasance. |
Satisfaction and Discharge
The Company may discharge all its obligations under the indenture with respect to the notes of a series, other than its obligation to register the transfer and exchange of notes of such series, provided that it either:
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(1) | delivers all notes of such series then outstanding to the Trustee for cancellation; or |
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(2) | all such notes not so delivered for cancellation have either become due and payable or will become due and payable at their Maturity within one year or are called for redemption within one year, and in the case of this bullet point the Company has deposited with the Trustee in trust an amount of cash sufficient to pay the entire indebtedness of such notes, including any premium and interest to the Maturity Date or applicable redemption date. |
Governing Law
The indenture will provide that it, the notes of the applicable series and the Guarantees will be governed by, and construed in accordance with, the laws of the State of New York.
The Trustee
We may maintain banking and other commercial relationships with the Trustee and its affiliates in the ordinary course of business, and the Trustee may own our Debt Securities, including the notes.
The Trustee is permitted to become an owner or pledgee of the notes and may otherwise deal with the Company or its Subsidiaries or Affiliates with the same rights it would have if it were not Trustee. If, however, the Trustee acquires any conflicting interest (as defined in the Trust Indenture Act) after an Event of Default has occurred and is continuing, it must eliminate such conflict or resign.
In case an Event of Default shall occur (and be continuing), the Trustee will be required to use the degree of care and skill of a prudent person in the conduct of such person’s own affairs. The Trustee will be under no obligation to exercise any of its powers under the indenture at the request of any of the holders of the notes of the applicable series, unless such holders have offered the Trustee indemnity reasonably satisfactory to it.
Certain Definitions
The following is a summary of certain defined terms used in the indenture. Reference is made to the indenture for the full definition of all such terms and for the definitions of capitalized terms used in this prospectus and not defined below.
“Adjusted Consolidated Net Tangible Assets” or “ACNTA” means, without duplication, as of the date of determination, (a) the sum of
(1) discounted future net revenue from proved oil and gas reserves of the Company and its Subsidiaries calculated in accordance with SEC guidelines before any state or federal income taxes, as estimated by petroleum engineers (which may include the Company’s internal engineers) in a reserve report prepared as of the end of the Company’s most recently completed fiscal year, as increased by, as of the date of determination, the discounted future net revenue of (A) estimated proved oil and gas reserves of the Company and its Subsidiaries attributable to any acquisition consummated since the date of such yearend reserve report and (B) estimated proved oil and gas reserves of the Company and its Subsidiaries attributable to extensions, discoveries and other additions
and upward revisions of estimates of proved oil and gas reserves due to exploration, development or exploitation, production or other activities conducted or otherwise occurring since the date of such year-end reserve report which, in the case of sub-clauses (A) and (B), would, in accordance with standard industry practice, result in such increases as calculated in accordance with SEC guidelines (utilizing the prices utilized in such year-end reserve report), and decreased by, as of the date of determination, the discounted future net revenue of (C) estimated proved oil and gas reserves of the Company and its Subsidiaries produced or disposed of since the date of such yearend reserve report and (D) reductions in the estimated oil and gas reserves of the Company and its Subsidiaries since the date of such year-end reserve report attributable to downward revisions of estimates of proved oil and gas reserves due to exploration, development or exploitation, production or other activities conducted or otherwise occurring since the date of such year-end reserve report which, in the case of sub-clauses (C) and (D) would, in accordance with standard industry practice, result in such decreases as calculated in accordance with SEC guidelines (utilizing the prices utilized in such year-end reserve report); provided that, in the case of each of the determinations made pursuant to clauses (A) through (D), such increases and decreases may be estimated by the Company’s engineers,
(2) the capitalized costs that are attributable to oil and gas properties of the Company and its Subsidiaries to which no proved oil and gas reserves are attributable, based on the Company’s books and records as of a date no earlier than the date of the Company’s latest annual or quarterly financial statements,
(3) the Net Working Capital on a date no earlier than the date of the Company’s latest annual or quarterly financial statements, and
(4) the greater of (A) the net book value on a date no earlier than the date of the Company’s latest annual or quarterly financial statements and (B) the appraised value, as estimated by independent appraisers, of other tangible assets (including Investments in unconsolidated Subsidiaries) of the Company and its Subsidiaries, as of a date no earlier than the date of the Company’s latest audited financial statements, minus (b) the sum of
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(2) | any gas balancing liabilities of the Company and its Subsidiaries reflected as a long-term liability in the Company’s latest annual or quarterly financial statements, |
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(3) | the discounted future net revenue, calculated in accordance with SEC guidelines (utilizing the prices utilized in the Company’s year-end reserve report), attributable to reserves which are required to be delivered to third parties to fully satisfy the obligations of the Company and its Subsidiaries with respect to Volumetric Production Payments on the schedules specified with respect thereto, |
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(4) | the discounted future net revenue, calculated in accordance with SEC guidelines, attributable to reserves subject to Dollar-Denominated Production Payments which, based on the estimates of production included in determining the discounted future net revenue specified in (a)(1) above (utilizing the same prices utilized in the Company’s year-end reserve report), would be necessary to fully satisfy the payment obligations of the Company and its Subsidiaries with respect to Dollar-Denominated Production Payments on the schedules specified with respect thereto, and |
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(5) | the discounted future net revenue, calculated in accordance with SEC guidelines (utilizing the same prices utilized in the Company’s year-end reserve report), attributable to reserves subject to participation interests, overriding royalty interests or other interests of third parties, pursuant to participation, partnership, vendor financing or other agreements then in effect, or which otherwise are required to be delivered to third parties. |
If the Company changes its method of accounting from the full cost method to the successful efforts method or a similar method of accounting, ACNTA will continue to be calculated as if the Company were still using the full cost method of accounting.
“Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, “control” when used with respect to any specified Person means the power to direct the management and policies of such Person directly or indirectly, whether through the ownership of Voting Stock, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.
“Attributable Indebtedness” means, with respect to any particular lease under which any Person is at the time liable and at any date as of which the amount thereof is to be determined, the present value of the total net amount of rent required to be paid by such Person under the lease during the primary term thereof, without giving effect to any renewals at the option of the lessee, discounted from the respective due dates thereof to such date at the rate of interest per annum implicit in the terms of the lease. As used in the preceding sentence, the “net amount of rent” under any lease for any such period shall mean the sum of rental and other payments required to be paid with respect to such period by the lessee thereunder excluding any amounts required to be paid by such lessee on account of maintenance and repairs, insurance, taxes, assessments, water rates or similar charges. In the case of any lease which is terminable by the lessee upon payment of a penalty, such net amount of rent shall also include the amount of such penalty, but no rent shall be considered as required to be paid under such lease subsequent to the first date upon which it may be so terminated.
“Board of Directors” means, with respect to any Person, the Board of Directors or other governing body of such Person or any committee thereof duly authorized to act on behalf of such Board of Directors or such other governing body.
“Capital Stock” means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated) of corporate stock, partnership or limited liability company interests or other equity securities (including, without limitation, beneficial interests in or other securities of a trust) and any and all warrants, options and rights with respect thereto (whether or not currently exercisable), including each class of common stock and preferred stock of such Person.
“Credit Facilities” means, one or more debt facilities (including, without limitation, the Company’s existing credit facility and term loan) or commercial paper facilities, in each case with banks, investment banks, insurance companies, mutual funds and/or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from (or sell receivables to) such lenders against such receivables) or letters of credit, in each case, as amended, extended, restated, renewed, refunded, replaced (whether contemporaneously or otherwise) or refinanced (in each case with Credit Facilities), supplemented or otherwise modified (in whole or in part and without limitation as to amount, terms, conditions, covenants and other provisions) from time to time.
“De Minimis Guaranteed Amount” means a principal amount of Indebtedness that does not exceed $25 million.
“Debt Securities” means the Company’s debentures, notes, bonds or other evidence of indebtedness in one or more series.
“Disqualified Stock” means, with respect to a series of notes, any Capital Stock that, by its terms (or by the terms of any security or other Equity Interests into which it is convertible or for which it is exchangeable), or upon the happening of any event or condition (1) matures or is mandatorily redeemable (other than solely for Qualified Equity Interests), pursuant to a sinking fund obligation, scheduled redemption or otherwise (except as a result of a change of control or asset sale), (2) is redeemable at the option of the holder thereof (other than solely for Qualified Equity Interests and other than as a result of a change of control or asset sale), or (3) is or becomes convertible into or exchangeable for Indebtedness or any other Equity Interests that would otherwise constitute Disqualified Stock, in the case of each of clauses (1), (2) and (3), prior to the date
that is 91 days after the maturity date of the notes of such series at the time of issuance of such Equity Interests; provided that if such Equity Interests are issued pursuant to any plan for the benefit of future, current or former employees, directors, officers, members of management or consultants of the Company or the Subsidiaries or by any such plan to such employees, directors, officers, members of management or consultants, such Equity Interests shall not constitute Disqualified Stock solely because they may be required to be repurchased by the Company or the Subsidiaries in order to satisfy applicable statutory or regulatory obligations, or as a result of such employee’s, director’s, officer’s, management member’s or consultant’s termination, death or disability; provided, further, that any Equity Interests held by any future, current or former employee, director, officer, member of management or consultant of the Company, any Subsidiary, or any other Person in which the Company or a Subsidiary has an Investment and is designated in good faith as an “affiliate” by the Board of Directors of the Company (or the compensation committee thereof), in each case pursuant to any stock subscription or shareholders’ agreement, management equity plan or stock option plan or any other management or employee benefit plan or agreement shall not constitute Disqualified Stock solely because it may be required to be repurchased by the Company or the Subsidiaries in order to satisfy applicable statutory or as a result of such employee’s, director’s, officer’s, management member’s or consultant’s termination, death or disability.
“Dollar-Denominated Production Payments” mean production payment obligations recorded as liabilities in accordance with GAAP, together with all undertakings and obligations in connection therewith.
“Equity Interests” means Capital Stock and all warrants, options or other rights to acquire Capital Stock; provided that any instrument evidencing Indebtedness convertible or exchangeable into Capital Stock, whether or not such Indebtedness includes any right of participation with Capital Stock, shall not be deemed to be an Equity Interest unless and until such instrument is so converted or exchanged.
“Equity Offering” means any public or private sale after the Issue Date of Capital Stock of the Company (other than Disqualified Stock) other than:
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(1) | public offerings with respect to the Company’s common stock registered on Form S-4 or Form S-8; and |
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(2) | issuances to any Subsidiary. |
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC thereunder.
“Existing Notes” means (a) with respect to the 2025 notes, the Company’s outstanding (a) 7.25% Senior Notes due 2018, (b) Floating Rate Senior Notes due 2019, (c) 6.625% Senior Notes due 2020, (d) 6.875% Senior Notes due 2020, (e) 6.125% Senior Notes due 2021, (f) 5.375% Senior Notes due 2021, (g) 4.875% Senior Notes due 2022, (h) 8.00% Senior Secured Second Lien Notes due 2022, (i) 5.75% Senior Notes due 2023, (j) 5.5% Convertible Senior Notes due 2026 and (k) 2.25% Contingent Convertible Senior Notes due 2038 and (b) with respect to the 2027 notes, the Company’s outstanding (a) 7.25% Senior Notes due 2018, (b) Floating Rate Senior Notes due 2019, (c) 6.625% Senior Notes due 2020, (d) 6.875% Senior Notes due 2020, (e) 6.125% Senior Notes due 2021, (f) 5.375% Senior Notes due 2021, (g) 4.875% Senior Notes due 2022, (h) 8.00% Senior Secured Second Lien Notes due 2022, (i) 5.75% Senior Notes due 2023, (j) 8.00% Senior Notes due 2025, (k) 5.5% Convertible Senior Notes due 2026 and (l) 2.25% Contingent Convertible Senior Notes due 2038.
“Funded Debt” means, with regard to any Person, all Indebtedness incurred, created, assumed or guaranteed by such Person, which matures, or is renewable by such Person to a date, more than one year after the date as of which Funded Debt is being determined.
“GAAP” means generally accepted accounting principles as in effect in the United States of America from time to time.
“Guarantee” means, with respect to the notes of a series, individually and collectively, the guarantees given by the subsidiary guarantors pursuant to the indenture.
“Indebtedness” means, without duplication, with respect to any Person,
(a) all obligations of such Person, including those evidenced by bonds, notes, debentures or similar instruments, for the repayment of money borrowed (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof);
(b) all liabilities of others of the kind described in the preceding clause (a) that such Person has guaranteed; and
(c) Indebtedness (as otherwise defined in this definition) of another Person secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person, the amount of such obligations being deemed to be the lesser of
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(1) | the full amount of such obligations so secured, and |
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(2) | the fair market value of such asset, as determined in good faith by the Board of Directors of such Person, which determination shall be evidenced by a resolution of such Board. |
Neither Dollar-Denominated Production Payments nor Volumetric Production Payments shall be deemed to be Indebtedness.
“Investment” of any Person means (i) all investments by such Person in any other Person in the form of loans, advances or capital contributions, (ii) all guarantees of Indebtedness of any other Person by such Person, (iii) all purchases (or other acquisitions for consideration) by such Person of Indebtedness, Capital Stock or other securities of any other Person and (iv) all other items that would be classified as investments or advances on a balance sheet of such Person prepared in accordance with GAAP.
“Issue Date” means December 20, 2016 with respect to the 2025 notes and June 6, 2017 with respect to the 2027 notes.
“Lien” means, with respect to any Person, any mortgage, pledge, lien, encumbrance, easement, restriction, charge or adverse claim affecting title or resulting in an encumbrance against real or personal property of such Person, or a security interest of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof or other similar agreement to sell, in each case securing obligations of such Person).
“Maturity” means, with respect to the notes of a series, the date on which the principal of the notes of such series or an installment of principal becomes due and payable as provided therein or by the indenture, whether at the Maturity Date or by declaration of acceleration, call for redemption or otherwise.
“Maturity Date” means, with respect to the 2025 notes, January 15, 2025, and with respect to the 2027 notes, June 15, 2027.
“Net Available Proceeds” means, with respect to any Sale/Leaseback Transaction of any Person, cash proceeds received (including any cash proceeds received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, and excluding any other consideration until such time as such consideration is converted into cash) therefrom, in each case net of all legal, title and recording tax expenses, commissions and other fees and expenses incurred, and all federal, state or local taxes required to be accrued as a liability as a consequence of such Sale/Leaseback Transaction, and in each case net of all Indebtedness which is secured by such assets, in accordance with the terms of any Lien upon or with respect to such assets, or which must, by its terms or in order to obtain a necessary consent to such Sale/Leaseback Transaction or by applicable law, be repaid out of the proceeds from such Sale/Leaseback Transaction and which is actually so repaid.
“Net Working Capital” means (i) all current assets of the Company and its Subsidiaries, minus (ii) all current liabilities of the Company and its Subsidiaries, except current liabilities included in Indebtedness.
“Oil and Gas Business” means the business of the exploration for, and exploitation, development, production, processing, marketing, storage and transportation of, hydrocarbons, and other related energy and natural resource businesses (including oil and gas services businesses related to the foregoing).
“Oil and Gas Hedging Contracts” means any oil and gas purchase or hedging agreement, and other agreement or arrangement, in each case, that is designed to provide protection against price fluctuations of oil, gas or other commodities.
“Permitted Liens” means
(1) Liens existing on the Issue Date;
(2) Liens securing Indebtedness under Credit Facilities;
(3) Liens securing any renewal, extension, substitution, refinancing or replacement of secured Indebtedness; provided, that such Liens extend to or cover only the property or assets then securing the Indebtedness being refinanced and that the Indebtedness being refinanced was not incurred under the Credit Facilities;
(4) Liens on, or related to, properties to secure all or part of the costs incurred in the ordinary course of business of exploration, drilling, development or operation thereof;
(5) Liens upon (i) any property of or any interests in any Person existing at the time of acquisition of such property or interests by the Company or a Subsidiary, (ii) any property of or interests in a Person existing at the time such Person is merged or consolidated with the Company or any Subsidiary or existing at the time of the sale or transfer of any such property of or interests in such Person to the Company or any Subsidiary, or (iii) any property of or interests in a Person existing at the time such Person becomes a Subsidiary; provided, that in each case such Lien has not been created in contemplation of such sale, merger, consolidation, transfer or acquisition, and provided further that in each such case no such Lien shall extend to or cover any property of the Company or any Subsidiary other than the property being acquired and improvements thereon;
(6) Liens on deposits to secure public or statutory obligations or in lieu of surety or appeal bonds entered into in the ordinary course of business;
(7) Liens in favor of collecting or payor banks having a right of setoff, revocation, refund or chargeback with respect to money or instruments of the Company or any Subsidiary on deposit with or in possession of such bank;
(8) purchase money security interests granted in connection with the acquisition of assets in the ordinary course of business and consistent with past practices, provided, that (i) such Liens attach only to the property so acquired with the purchase money indebtedness secured thereby and (ii) such Liens secure only Indebtedness that is not in excess of 100% of the purchase price of such assets;
(9) Liens reserved in oil and gas mineral leases for bonus or rental payments and for compliance with the terms of such leases;
(10) Liens arising under partnership agreements, oil and gas leases, farm-out agreements, division orders, contracts for the sale, purchase, exchange, transportation or processing of oil, gas or other hydrocarbons, unitization and pooling declarations and agreements, development agreements, operating agreements, area of mutual interest agreements, and other similar agreements which are customary in the Oil and Gas Business;
(11) Liens securing obligations of the Company or any of its Subsidiaries under Oil and Gas Hedging Contracts;
(12) Liens in favor of the United States, any state thereof, any foreign country or any department, agency or instrumentality or political subdivision of any such jurisdiction, to secure partial, progress, advance or other payments pursuant to any contract or statute or to secure any indebtedness incurred for the purpose of financing all or any part of the purchase price or the cost of constructing or improving the property subject to such Liens, including without limitation, Liens to secure Funded Debt of the pollution control or industrial revenue bond type; and
(13) Liens in favor of the Company or any subsidiary guarantor.
“Person” means any individual, corporation, partnership, limited liability company, joint venture, trust, estate, association, unincorporated organization or government or any agency or political subdivision thereof.
“Principal Property” means any property interest in oil and gas reserves located in the United States owned by the Company or any Subsidiary and which is capable of producing crude oil, condensate, natural gas, natural gas liquids or other similar hydrocarbon substances in paying quantities, the net book value of which property interest or interests exceeds two percent of Adjusted Consolidated Net Tangible Assets, except any such property interest or interests that in the opinion of the Board of Directors of the Company is not of material importance to the total business conducted by the Company and its Subsidiaries taken as a whole.
Without limitation, the term “Principal Property” shall not include:
(1) property or assets employed in gathering, treating, processing, refining, transportation, distribution or marketing,
(2) accounts receivable and other obligations of any obligor under a contract for the sale, exploration, production, drilling, development, processing or transportation of crude oil, condensate, natural gas, natural gas liquids or other similar hydrocarbon substances by the Company or any of its Subsidiaries, and all related rights of the Company or any of its Subsidiaries, and all guarantees, insurance, letters of credit and other agreements or arrangements of whatever character supporting or securing payment of such receivables or obligations, or
(3) the production or any proceeds from production of crude oil, condensate, natural gas, natural gas liquids or other similar hydrocarbon substances.
“Qualified Equity Interests” means any Equity Interests that are not Disqualified Stock.
“Restricted Subsidiary” means any Subsidiary that, as of the applicable date of determination, (i) is a subsidiary guarantor or (ii) directly owns or leases any Principal Property.
“Sale/Leaseback Transaction” means with respect to the Company or any Restricted Subsidiary, any arrangement with any Person providing for the leasing by the Company or any of its Restricted Subsidiaries of any Principal Property which was acquired or placed into service more than one year prior to such arrangement, whereby such property has been or is to be sold or transferred by the Company or such Restricted Subsidiary to such Person; provided, that the term “Sale/Leaseback Transaction” shall not include any such arrangement that does not provide for a lease by the Company or any of its Restricted Subsidiaries with a period, including renewals, of more than three years. For the avoidance of doubt, a transaction primarily involving Dollar-Denominated Production Payments or Volumetric Production Payments shall not be deemed to be a Sale/Leaseback Transaction.
“Senior Indebtedness” means any Debt Securities or other Indebtedness of the Company or a Subsidiary Guarantor (whether outstanding on the date of the indenture or thereafter incurred), unless such Debt Securities or Indebtedness is
contractually subordinate or junior in right of payment of principal of, and any premium and interest on, the notes or the Guarantees, respectively.
“Subsidiary” means any subsidiary of the Company. A “subsidiary” of any Person means
(1) a corporation a majority of whose Voting Stock is at the time, directly or indirectly, owned by such Person, by one or more subsidiaries of such Person or by such Person and one or more subsidiaries of such Person,
(2) a partnership in which such Person or a subsidiary of such Person is, at the date of determination, a general or limited partner of such partnership, but only if such Person or its subsidiary is entitled to receive more than 50 percent of the assets of such partnership upon its dissolution, or
(3) any other Person (other than a corporation or partnership) in which such Person, directly or indirectly, at the date of determination thereof, has (x) at least a majority ownership interest or (y) the power to elect or direct the election of a majority of the Board of Directors of such Person.
“subsidiary guarantor” means, with respect to notes of a series, (i) each of the Subsidiaries that executes the indenture as a subsidiary guarantor until such time as such Subsidiary shall no longer be a subsidiary guarantor pursuant to the indenture; and (ii) each other Subsidiary that becomes a guarantor of the notes of such series in compliance with the provisions of the indenture until such time as such Subsidiary shall no longer be a subsidiary guarantor pursuant to the indenture.
“U.S. Government Securities” means securities that are (1) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (2) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case under clauses (1) or (2) are not callable or redeemable at the option of the issuer thereof.
“U.S. Legal Tender” means such coin or currency of the United States as at the time of payment shall be legal tender for the payment of public and private debts.
“Volumetric Production Payments” means sales of limited-term overriding royalty interests in natural gas and oil reserves that (i) entitle the purchaser to receive scheduled production volumes over a period of time from specific lease interests; (ii) are free and clear of all associated future production costs and capital expenditures; (iii) are nonrecourse to the seller (i.e., the purchaser’s only recourse is to the reserves acquired); (iv) transfer title of the reserves to the purchaser; and (v) allow the seller to retain all production beyond the specified volumes, if any, after the scheduled production volumes have been delivered.
“Voting Stock” means, with respect to any Person, securities of any class or classes of Capital Stock in such Person entitling the holders thereof (whether at all times or only so long as no senior class of stock has voting power by reason of contingency) to vote in the election of members of the Board of Directors of such Person.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, each series of exchange notes will be represented by one or more permanent global notes in registered form without interest coupons (“global notes”). The global notes will be deposited upon issuance with the trustee as custodian for DTC, in New York, New York, and registered in the name of DTC’s nominee, Cede & Co., for credit to an account of a direct or indirect participant in DTC as described below.
Except as set forth below, the global notes of the applicable series may be transferred, in whole and not in part, only to another nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in the global notes may not be exchanged for definitive notes of the applicable series in registered certificated form (“certificated notes”) except in the limited circumstances described below. Except in the limited circumstances described below, owners of beneficial interests in the global notes will not be entitled to receive physical delivery of such series of notes in certificated form.
Transfers of beneficial interests in the global notes will be subject to the applicable rules and procedures of DTC and its direct or indirect participants, which may change from time to time.
Depository Procedures
The following description of the operations and procedures of DTC is provided solely as a matter of convenience. These operations and procedures are solely within the control of DTC and are subject to changes by it. We take no responsibility for these operations and procedures and urge investors to contact DTC or its participants directly to discuss these matters.
DTC has advised us that DTC is a limited-purpose trust company organized under the laws of the State of New York, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the Uniform Commercial Code and a “clearing agency” registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its participating organizations (collectively, the “participants”) and to facilitate the clearance and settlement of transactions in those securities between participants through electronic book-entry changes in accounts of its participants. The participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. Access to DTC’s system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly (collectively, the “indirect participants”). Persons who are not participants may beneficially own securities held by or on behalf of DTC only through the participants or the indirect participants. The ownership interests in, and transfers of ownership interests in, each security held by or on behalf of DTC are recorded on the records of the participants and indirect participants.
DTC has also advised us that, pursuant to procedures established by it:
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(1) | upon deposit of the global notes, DTC will credit the accounts of participants with portions of the principal amount of the global notes; and |
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(2) | ownership of these interests in global notes will be shown on, and the transfer of ownership of these interests will be effected only through, records maintained by DTC (with respect to the participants) or by the participants and the indirect participants (with respect to other owners of beneficial interests in global notes). Investors in the global notes who are participants in DTC’s system may hold their interests therein directly through DTC. Investors in global notes who are not participants may hold their interests therein indirectly through organizations that are participants in DTC’s system. All interests in the global notes are subject to the procedures and requirements of DTC. |
The laws of some jurisdictions require that certain persons take physical delivery in definitive form of securities that they own and the ability to transfer beneficial interests in a global note to persons that are subject to those requirements will be
limited to that extent. Because DTC can act only on behalf of participants, which in turn act on behalf of indirect participants, the ability of a person having beneficial interests in a global note to pledge those interests to persons that do not participate in the DTC system, or otherwise take actions in respect of those interests, may be affected by the lack of a physical certificate evidencing those interests.
Except as described below, owners of an interest in global notes will not have exchange notes registered in their names, will not receive physical delivery of certificated exchange notes and will not be considered the registered owners or “holders” thereof under the indenture for any purpose.
Payments in respect of the principal of and any premium and interest on a global note registered in the name of DTC or its nominee will be payable to DTC in its capacity as the registered holder under the indenture. Under the terms of the indenture, we and the trustee will treat the persons in whose names the exchange notes, including global notes, are registered as the owners of such exchange notes for the purpose of receiving payments and for all other purposes. Consequently, neither we, the trustee nor any agent of us or the trustee has or will have any responsibility or liability for:
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(1) | any aspect of DTC’s records or any participant’s or indirect participant’s records relating to or payments made on account of beneficial ownership interests in global notes or for maintaining, supervising or reviewing any of DTC’s records or any participant’s or indirect participant’s records relating to the beneficial ownership interests in global notes; or |
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(2) | any other matter relating to the actions and practices of DTC or any of its participants or indirect participants. |
DTC has advised us that its current practice, upon receipt of any payment in respect of securities such as the exchange notes (including principal and interest), is to credit the accounts of the relevant participants with the payment on the payment date unless DTC has reason to believe it will not receive payment on that payment date. Each relevant participant is credited with an amount proportionate to its beneficial ownership of an interest in the principal amount of exchange notes as shown on the records of DTC. Payments by the participants and the indirect participants to the beneficial owners of exchange notes will be governed by standing instructions and customary practices and will be the responsibility of the participants or the indirect participants and will not be the responsibility of DTC, the trustee or us. Neither we nor the trustee will be liable for any delay by DTC or any of its participants in identifying the beneficial owners of any exchange notes, and we and the trustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee for all purposes.
Transfers between participants in DTC will be effected in accordance with DTC’s procedures, and will be settled in same-day funds.
DTC has advised us that it will take any action permitted to be taken by a holder of exchange notes only at the direction of one or more participants to whose account DTC has credited the interests in the global notes and only in respect of the portion of the aggregate principal amount of the exchange notes as to which that participant or those participants has or have given the relevant direction.
Although DTC has agreed to the foregoing procedures in order to facilitate transfers of interests in global notes among participants in DTC, it is under no obligation to perform those procedures, and may discontinue or change those procedures at any time. None of us, the subsidiary guarantors or the trustee or any of our respective agents will have any responsibility for the performance by DTC or its participants or indirect participants of its obligations under the rules and procedures governing its operations.
Exchange of Global Notes for Certificated Notes
A Global Note is exchangeable for a certificated note in minimum denominations of $2,000 and in integral multiples of $1,000 in excess thereof, if:
DTC (1) notifies us that it is unwilling or unable to continue as depositary for the applicable Global Notes or (2) has ceased to be a clearing agency registered under the Exchange Act and, in either case, we fail to appoint a successor depositary within 90 days;
we, at our option and subject to the procedures of DTC, notify the trustee in writing that we elect to cause the issuance of certificated notes; or
there has occurred and is continuing an event of default with respect to the exchange notes and DTC requests the issuance of certificated notes.
In all cases, certificated notes delivered in exchange for any Global Note or beneficial interests in a Global Note will be registered in the names, and issued in any approved denominations, requested by or on behalf of the depositary (in accordance with its customary procedures) and will bear the applicable restrictive legend unless that legend is not required by applicable law.
CERTAIN U.S. FEDERAL TAX CONSEQUENCES
The following discussion is a summary of the material U.S. federal income tax considerations,consequences of (i) the receipt of our Common Stock in exchange for our warrants pursuant to the Offers, and (ii) the ownership and disposition of our Common Stock, but does not purport to be a complete analysis of all potential tax effects. The effects of other U.S. federal tax laws, such as estate and gift tax laws, and any applicable state,
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