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Filed pursuant to Rule 424(b)(3)
Registration No. 333-61648
PROSPECTUS
CHESAPEAKE ENERGY CORPORATION
OFFER TO EXCHANGE UP TO
$800,000,000 OF 8.125% SENIOR NOTES DUE 2011
FOR
$800,000,000 OF 8.125% SENIOR NOTES DUE 2011
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
TERMS OF THE EXCHANGE OFFER
- We are offering to exchange up to $800,000,000 of our outstanding 8.125%
Senior Notes due 2011 for new notes with substantially identical terms
that have been registered under the Securities Act and are freely
tradable.
- We will exchange all outstanding notes that you validly tender and do not
validly withdraw before the exchange offer expires for an equal principal
amount of new notes.
- The exchange offer expires at 5:00 p.m., New York City time, on July 12,
2001, unless extended. We do not currently intend to extend the exchange
offer.
- Tenders of outstanding notes may be withdrawn at any time prior to the
expiration of the exchange offer.
- The exchange of outstanding notes for new notes will not be a taxable
event for U.S. federal income tax purposes.
TERMS OF THE NEW 8.125% SENIOR NOTES OFFERED IN THE EXCHANGE OFFER
MATURITY
- The new notes will mature on April 1, 2011.
INTEREST
- Interest on the new notes is payable on April 1 and October 1 of each
year, beginning October 1, 2001.
- Interest will accrue from April 6, 2001.
REDEMPTION
- We may redeem some or all of the new notes at any time on or after April
1, 2006 at redemption prices listed in "Description of the New
Notes -- Optional Redemption," and we may redeem some or all of the new
notes before that date by the payment of a make-whole premium.
- We may also redeem up to 33 1/3% of the new notes using the proceeds of
certain equity offerings completed before April 1, 2004.
CHANGE OF CONTROL
- If we experience a change of control, subject to certain conditions, we
must offer to purchase the new notes.
RANKING
- The new notes are unsecured. The new notes rank equally with all of our
other existing and future senior debt and senior to all of our future
subordinated debt.
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SEE "RISK FACTORS" ON PAGE 6 FOR A DISCUSSION OF FACTORS YOU SHOULD
CONSIDER BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this prospectus is June 8, 2001.
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This prospectus is part of a registration statement we filed with the
Securities and Exchange Commission. In making your investment decision, you
should rely only on the information contained in this prospectus and in the
accompanying letter of transmittal. We have not authorized anyone to provide you
with any other information. If you receive any unauthorized information, you
must not rely on it. We are not making an offer to sell these securities in any
state where the offer is not permitted. You should not assume that the
information contained in this prospectus is accurate as of any date other than
the date on the front cover of this prospectus.
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TABLE OF CONTENTS
PROSPECTUS SUMMARY.......................................... 1
RISK FACTORS................................................ 6
EXCHANGE OFFER.............................................. 14
RATIO OF EARNINGS TO FIXED CHARGES.......................... 24
USE OF PROCEEDS............................................. 24
BUSINESS.................................................... 24
DESCRIPTION OF THE NEW NOTES................................ 25
FEDERAL INCOME TAX CONSIDERATIONS........................... 56
PLAN OF DISTRIBUTION........................................ 59
LEGAL MATTERS............................................... 60
EXPERTS..................................................... 60
WHERE YOU CAN FIND MORE INFORMATION......................... 60
FORWARD-LOOKING STATEMENTS.................................. 61
Item 20. Indemnification Of Officers And Directors.......... II-1
Item 21. Exhibits And Financial Statement Schedules......... II-1
Item 22. Undertakings....................................... II-6
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PROSPECTUS SUMMARY
This summary may not contain all the information that may be important to
you. You should read this entire prospectus and the documents to which we have
referred you before making an investment decision. You should carefully consider
the information set forth under "Risk Factors." In addition, certain statements
include forward-looking information which involves risks and uncertainties. See
"Forward-Looking Statements." Unless the context indicates otherwise, references
in this prospectus to Gothic are to Gothic Energy Corporation and its
subsidiary, Gothic Production Corporation, both of which we acquired in January
2001. Unless this prospectus otherwise indicates or the context otherwise
requires, the terms "we," "our," "us," "Chesapeake" or the "Company" as used in
this prospectus refer to Chesapeake Energy Corporation and its subsidiaries.
THE COMPANY
We are among the ten largest independent natural gas producers in the
United States, owning interests in approximately 6,700 producing oil and gas
wells with approximately 1.7 tcfe of proved reserves, of which 91% are natural
gas. Our primary operating area is the Mid-Continent region of the United
States, which includes Oklahoma, western Arkansas, southwestern Kansas and the
Texas Panhandle. Other core operating areas include: the Deep Giddings field in
Texas, which includes the Austin Chalk and Georgetown formations; the Helmet
area of northeastern British Columbia; and the Permian Basin region of
southeastern New Mexico.
Our executive offices are located at 6100 North Western Avenue, Oklahoma
City, Oklahoma 73118, and our telephone number is (408) 848-8000.
THE EXCHANGE OFFER
On April 6, 2001, we completed a private offering of the outstanding notes.
We entered into a registration rights agreement with the initial purchasers in
the private offering in which we agreed to deliver to you this prospectus and to
use our best efforts to complete the exchange offer within 240 days after the
date we issued the outstanding notes.
Exchange Offer...................... We are offering to exchange new notes
for outstanding notes.
Expiration Date..................... The exchange offer will expire at 5:00
p.m. New York City time, on July 12,
2001, unless we decide to extend it.
Condition to the Exchange Offer..... The registration rights agreement does
not require us to accept outstanding
notes for exchange if the exchange
offer or the making of any exchange by
a holder of the outstanding notes would
violate any applicable law or
interpretation of the staff of the
Securities and Exchange Commission. A
minimum aggregate principal amount of
outstanding notes being tendered is not
a condition to the exchange offer.
Procedures for Tendering Outstanding
Notes............................... To participate in the exchange offer,
you must complete, sign and date the
letter of transmittal, or a facsimile
of the letter of transmittal, and
transmit it together with all other
documents required by the letter of
transmittal, including the outstanding
notes that you wish to exchange, to
United States Trust Company of New
York, as exchange agent, at the address
indicated on the cover page of the
letter of
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transmittal. In the alternative, you
can tender your outstanding notes by
following the procedures for book-
entry transfer described in this
prospectus.
If your outstanding notes are held
through The Depository Trust Company
and you wish to participate in the
exchange offer, you may do so through
the automated tender offer program of
The Depository Trust Company. If you
tender under this program, you will
agree to be bound by the letter of
transmittal that we are providing with
this prospectus as though you had
signed the letter of transmittal.
If a broker, dealer, commercial bank,
trust company or other nominee is the
registered holder of your outstanding
notes, we urge you to contact that
person promptly to tender your
outstanding notes in the exchange
offer.
For more information on tendering your
outstanding notes, please refer to the
sections in this prospectus entitled
"Exchange Offer -- Terms of the
Exchange Offer," "-- Procedures for
Tendering" and "-- Book-Entry
Transfer."
Guaranteed Delivery Procedures...... If you wish to tender your outstanding
notes and you cannot get your required
documents to the exchange agent on
time, you may tender your outstanding
notes according to the guaranteed
delivery procedures described in
"Exchange Offer -- Guaranteed Delivery
Procedures."
Withdrawal of Tenders............... You may withdraw your tender of
outstanding notes at any time prior to
the expiration date. To withdraw, you
must have delivered a written or
facsimile transmission notice of
withdrawal to the exchange agent at its
address indicated on the cover page of
the letter of transmittal before 5:00
p.m. New York City time on the
expiration date of the exchange offer.
Acceptance of Outstanding Notes and
Delivery of New Notes............... If you fulfill all conditions required
for proper acceptance of outstanding
notes, we will accept any and all
outstanding notes that you properly
tender in the exchange offer on or
before 5:00 p.m. New York City time on
the expiration date. We will return any
outstanding note that we do not accept
for exchange to you without expense as
promptly as practicable after the
expiration date. We will deliver the
new notes as promptly as practicable
after the expiration date and
acceptance of the outstanding notes for
exchange. Please refer to the section
in this prospectus entitled "Exchange
Offer -- Terms of the Exchange
Offer."
Fees and Expenses................... We will bear all expenses related to
the exchange offer. Please refer to the
section in this prospectus entitled
"Exchange Offer -- Fees and Expenses."
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Use of Proceeds..................... The issuance of the new notes will not
provide us with any new proceeds. We
are making this exchange offer solely
to satisfy our obligations under our
registration rights agreement.
Consequences of Failure to Exchange
Outstanding Notes................... If you do not exchange your outstanding
notes in this exchange offer, you will
no longer be able to require us to
register the outstanding notes under
the Securities Act of 1933 except in
the limited circumstances provided
under our registration rights
agreement. In addition, you will not be
able to resell, offer to resell or
otherwise transfer the outstanding
notes unless we have registered the
outstanding notes under the Securities
Act of 1933, or unless you resell,
offer to resell or otherwise transfer
them under an exemption from the
registration requirements of, or in a
transaction not subject to, the
Securities Act of 1933.
U.S. Federal Income Tax
Considerations...................... The exchange of new notes for
outstanding notes in the exchange offer
should not be a taxable event for U.S.
federal income tax purposes. Please
read "Federal Income Tax
Considerations."
Exchange Agent...................... We have appointed United States Trust
Company of New York as exchange agent
for the exchange offer. You should
direct questions and requests for
assistance, requests for additional
copies of this prospectus or the letter
of transmittal and requests for the
notice of guaranteed delivery to the
exchange agent addressed as follows:
P.O. Box 84, Bowling Green Station, New
York, New York 10274-0084. Eligible
institutions may make requests by
facsimile at (646) 458-8111.
TERMS OF THE NEW NOTES
The new notes will be identical to the outstanding notes except that the
new notes are registered under the Securities Act of 1933 and will not have
restrictions on transfer, registration rights or provisions for additional
interest and will contain different administrative terms. The new notes will
evidence the same debt as the outstanding notes, and the same indenture will
govern the new notes and the outstanding notes.
The following summary contains basic information about the new notes and is
not intended to be complete. It does not contain all the information that is
important to you. For a more complete understanding of the new notes, please
refer to the section of this document entitled "Description of the New Notes."
Issuer.............................. Chesapeake Energy Corporation.
Notes Offered....................... $800 million in aggregate principal
amount of 8.125% Senior Notes due 2011.
Maturity............................ April 1, 2011.
Interest on the New Notes........... 8.125% annually.
Interest Payment Dates.............. April 1 and October 1 of each year,
commencing on October 1, 2001.
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Sinking Fund........................ None.
Optional Redemption................. On or after April 1, 2006, we may
redeem some or all of the new notes at
the redemption prices listed in the
"Description of the New Notes
-- Optional Redemption" section of
this prospectus, plus accrued but
unpaid interest to the date of
redemption.
Until April 1, 2004, we may choose to
redeem up to 33 1/3% of the original
principal amount of the new notes and
any additional notes issued under the
same indenture governing the new notes
with money we raise in certain equity
offerings, as long as:
- we pay the holders of new notes and
any such additional notes redeemed a
redemption price of 108.125% of the
principal amount of the new notes and
any such additional notes we redeem,
plus accrued but unpaid interest to
the date of redemption; and
- at least 66 2/3% of the original
aggregate principal amount of the new
notes and any additional notes
remains outstanding after such
redemption.
In addition to the preceding paragraph,
we may redeem some or all of the new
notes prior to April 1, 2006 by the
payment of a make-whole premium
described in the "Description of the
New Notes -- Optional Redemption"
section of this prospectus.
Change of Control................... If a change of control of Chesapeake
occurs, subject to certain conditions,
we must give holders of the new notes
an opportunity to sell to us the notes
at a purchase price of 101% of the
principal amount of the new notes, plus
accrued but unpaid interest to the date
of purchase. The term "Change of
Control" is defined in the "Description
of the New Notes -- Certain
Definitions" section of this
prospectus.
Guarantees.......................... The new notes will be unconditionally
guaranteed, jointly and severally, by
each of our existing and future
restricted subsidiaries. All of our
existing subsidiaries, other than
Chesapeake Energy Marketing, Inc. and
Carmen Acquisition Corporation, are
restricted subsidiaries.
Ranking............................. The new notes will be unsecured and
will rank equally in right of payment
to all of our existing and future
senior indebtedness. The new notes will
rank senior in right of payment to all
of our future subordinated
indebtedness. See "Description of the
New Notes -- Ranking."
Specified Covenants................. The indenture governing the new notes
contains, among other things,
limitations on our ability and the
ability of our restricted subsidiaries
to:
- incur additional indebtedness;
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- pay dividends on our capital stock or
redeem, repurchase or retire our
capital stock or subordinated
indebtedness;
- make investments and other restricted
payments;
- create restrictions on the payment of
dividends or other amounts to us from
our restricted subsidiaries;
- incur liens;
- engage in transactions with
affiliates;
- sell assets; and
- consolidate, merge or transfer
assets.
All of these limitations are subject to
a number of important exceptions and
qualifications, which are described in
the "Description of the New Notes --
Certain Covenants" section of this
prospectus.
Transfer Restrictions; Absence of a
Public Market for the Notes......... The new notes generally will be freely
transferable, but will also be new
securities for which there will not
initially be a market. There can be no
assurance as to the development or
liquidity of any market for the new
notes.
RISK FACTORS
See "Risk Factors," beginning on page 6 hereof, for a discussion of certain
factors that you should consider before participating in the exchange offer.
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RISK FACTORS
In addition to the other information set forth elsewhere or incorporated by
reference in this prospectus, the following factors relating to our company and
the exchange offer and the new notes should be considered carefully in deciding
whether to participate in the exchange offer.
RISKS RELATED TO OUR BUSINESS
Oil and Gas Prices Are Volatile. A Decline in Prices Could Adversely Affect
Our Financial Results, Cash Flows, Access to Capital and Ability to Grow.
Our revenues, operating results, profitability, future rate of growth and
the carrying value of our oil and gas properties depend primarily upon the
prices we receive for our oil and gas. Prices also affect the amount of cash
flow available for capital expenditures and our ability to borrow money or raise
additional capital. The amount we can borrow from banks is subject to
semi-annual redeterminations based on current prices at the time of
redetermination. In addition, we may have ceiling test writedowns if prices
decline significantly from present levels.
Historically, the markets for oil and gas have been volatile, and they are
likely to continue to be volatile. Wide fluctuations in oil and gas prices may
result from relatively minor changes in the supply of and demand for oil and
natural gas, market uncertainty and other factors that are beyond our control,
including:
- worldwide and domestic supplies of oil and gas;
- weather conditions;
- the level of consumer demand;
- the price and availability of alternative fuels;
- the availability of pipeline capacity;
- the price and level of foreign imports;
- domestic and foreign governmental regulations and taxes;
- the ability of the members of the Organization of Petroleum Exporting
Countries to agree to and maintain oil price and production controls;
- political instability or armed conflict in oil producing regions; and
- the overall economic environment.
These factors and the volatility of the energy markets make it extremely
difficult to predict future oil and gas price movements with any certainty.
Declines in oil and gas prices would not only reduce revenue, but could reduce
the amount of oil and gas that we can produce economically and, as a result,
could have a material adverse effect on our financial condition, results of
operations and reserves. Further, oil and gas prices do not necessarily move in
tandem. Because approximately 91% of our proved reserves are currently natural
gas reserves, we are more susceptible to movements in natural gas prices.
Our Level of Indebtedness May Adversely Affect Operations, and We May Have
Difficulty Repaying Long-Term Indebtedness as It Matures.
As of March 31, 2001, we had long-term indebtedness of $1.1 billion, which
included bank indebtedness of $14.5 million. Our long-term indebtedness
represented 72.6% of our total book
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capitalization at March 31, 2001. We will continue to be highly leveraged after
this exchange offer. Our level of indebtedness affects our operations in several
ways, including the following:
- a substantial portion of our cash flows must be used to service our
indebtedness, and we cannot assure you that our business will generate
sufficient cash flow from operations to enable us to continue to meet our
obligations under our indebtedness;
- a high level of indebtedness increases our vulnerability to general
adverse economic and industry conditions;
- the covenants contained in the agreements governing our outstanding
indebtedness limit our ability to borrow additional funds, dispose of
assets, pay dividends and make certain investments;
- our debt covenants may also affect our flexibility in planning for, and
reacting to, changes in the economy and in our industry; and
- a high level of indebtedness may impair our ability to obtain additional
financing in the future for working capital, capital expenditures,
acquisitions or general corporate and other purposes.
We may incur additional debt, including significant secured indebtedness,
in order to make future acquisitions or to develop our properties. A higher
level of indebtedness increases the risk that we may default on our debt
obligations. Our ability to meet our debt obligations and to reduce our level of
indebtedness depends on our future performance. General economic conditions, oil
and gas prices and financial, business and other factors affect our operations
and our future performance. Many of these factors are beyond our control. We
cannot assure you that we will be able to generate sufficient cash flow to pay
the interest on our debt or that future working capital, borrowings or equity
financing will be available to pay or refinance such debt. Factors that will
affect our ability to raise cash through an offering of our capital stock or a
refinancing of our debt include financial market conditions, the value of our
assets and our performance at the time we need capital.
In addition, our bank borrowing base is subject to semi-annual
redeterminations. We could be forced to repay a portion of our bank borrowings
due to redeterminations of our borrowing base. We cannot assure you that we will
have sufficient funds to make such repayments. If we do not have sufficient
funds and are otherwise unable to negotiate renewals of our borrowings or
arrange new financing, we may have to sell significant assets. Any such sale
could have a material adverse effect on our business and financial results.
Higher Oil and Gas Prices Adversely Affect the Cost and Availability of
Drilling and Production Services.
Higher oil and gas prices, such as those we are currently experiencing,
generally stimulate increased demand and result in increased prices for drilling
rigs, crews and associated supplies, equipment and services. We have recently
experienced significantly higher costs for drilling rigs and other related
services and expect such costs to continue to escalate in 2001.
Our Industry Is Extremely Competitive.
The energy industry is extremely competitive. This is especially true with
regard to exploration for, and development and production of, new sources of oil
and natural gas. As an independent producer of oil and natural gas, we
frequently compete against companies that are larger and financially stronger in
acquiring properties suitable for exploration, in contracting for drilling
equipment and other services and in securing trained personnel.
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Our Commodity Price Risk Management Activities Have Reduced the Realized
Prices Received for Our Oil and Gas Sales, and these Transactions May Limit
Our Realized Oil and Gas Sales Prices in the Future.
In order to manage our exposure to price volatility in marketing our oil
and gas, we enter into oil and gas price risk management arrangements for a
portion of our expected production. These transactions are limited in life.
While intended to reduce the effects of volatile oil and gas prices, commodity
price risk management transactions may limit the prices we actually realize. We
recorded reductions to oil and gas revenues related to commodity price risk
management activities of $30.6 million in 2000 and $30.5 million in the quarter
ended March 31, 2001. We cannot assure you that we will not experience
additional reductions to oil and gas revenues from our commodity price risk
management.
In addition, our commodity price risk management transactions may expose us
to the risk of financial loss in certain circumstances, including instances in
which:
- our production is less than expected;
- there is a widening of price differentials between delivery points for
our production and the delivery point assumed in the hedge arrangement;
or
- the counterparties to our contracts fail to perform the contracts.
Some of our commodity price risk management arrangements require us to
deliver cash collateral or other assurances of performance to the counterparties
in the event that our payment obligations with respect to our commodity price
risk management transactions exceed certain levels. Our collateral requirement
for these activities at March 13, 2001 was $12.0 million, represented by a
letter of credit. Future collateral requirements are uncertain, but will depend
on arrangements with our counterparties and highly volatile natural gas and oil
prices.
Estimates of Oil and Gas Reserves Are Uncertain and Inherently Imprecise.
This prospectus contains or incorporates by reference estimates of our
proved reserves and the estimated future net revenues from our proved reserves,
including those acquired in the Gothic acquisition. These estimates are based
upon various assumptions, including assumptions required by the Securities and
Exchange Commission relating to oil and gas prices, drilling and operating
expenses, capital expenditures, taxes and availability of funds. The process of
estimating oil and gas reserves is complex. The process involves significant
decisions and assumptions in the evaluation of available geological,
geophysical, engineering and economic data for each reservoir. Therefore, these
estimates are inherently imprecise.
Actual future production, oil and gas prices, revenues, taxes, development
expenditures, operating expenses and quantities of recoverable oil and gas
reserves most likely will vary from these estimates. Such variations may be
significant and could materially affect the estimated quantities and present
value of our proved reserves. In addition, we may adjust estimates of proved
reserves to reflect production history, results of exploration and development
drilling, prevailing oil and gas prices and other factors, many of which are
beyond our control. Our properties may also be susceptible to hydrocarbon
drainage from production by operators on adjacent properties.
At December 31, 2000, approximately 30% (27% on a pro forma basis for the
Gothic acquisition) by volume of our estimated proved reserves were undeveloped.
Recovery of undeveloped reserves requires significant capital expenditures and
successful drilling operations. The estimates of these reserves include the
assumption that we will make significant capital expenditures to develop the
reserves, including $216 million ($235 million on a pro forma basis for the
Gothic acquisition) in 2001. Although we have prepared estimates of our oil and
gas reserves and the costs associated with these reserves in accordance with
industry standards, we cannot assure you that the estimated costs are accurate,
that development will occur as scheduled or that the results will be as
estimated.
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You should not assume that the present values referred to or incorporated
by reference in this prospectus represent the current market value of our
estimated oil and gas reserves. In accordance with SEC requirements, the
estimates of our present values are based on prices and costs as of the date of
the estimates. The combined December 31, 2000 present values pro forma for
Gothic are based on combined weighted average oil and gas prices of $26.42 per
barrel of oil and $10.13 per mcf of natural gas, compared to our weighted
average prices of $24.72 per barrel of oil and $2.25 per mcf of natural gas used
in computing Chesapeakes's December 31, 1999 present value. Actual future prices
and costs may be materially higher or lower than the prices and costs as of the
date of an estimate. A change in price of $0.10 per mcf and $1.00 per barrel
would result in:
- a change in our December 31, 2000 present value of proved reserves of $62
million and $13 million, respectively; and
- a change in the December 31, 2000 present value of proved reserves for us
and Gothic combined of $75 million and $14 million, respectively.
If the present value of our combined pro forma proved reserves were
calculated using a more recent approximation of NYMEX spot prices of $24.00 per
barrel of oil and $5.00 per mcf of gas, adjusted for our price differentials,
the present value of our combined pro forma proved reserves at December 31, 2000
would have been $3.2 billion.
Any changes in consumption by oil and gas purchasers or in governmental
regulations or taxation will also affect actual future net cash flows.
The timing of both the production and the expenses from the development and
production of oil and gas properties will affect both the timing of actual
future net cash flows from proved reserves and their present value. In addition,
the 10% discount factor, which is required by the SEC to be used in calculating
discounted future net cash flows for reporting purposes, is not necessarily the
most accurate discount factor. The effective interest rate at various times and
the risks associated with our business or the oil and gas industry in general
will affect the accuracy of the 10% discount factor.
If We Are Not Able to Replace Reserves, We May Not Be Able to Sustain
Production.
Our future success depends largely upon our ability to find, develop or
acquire additional oil and gas reserves that are economically recoverable.
Unless we replace the reserves we produce through successful development,
exploration or acquisition, our proved reserves will decline over time. In
addition, approximately 30% (27% on a pro forma basis for the Gothic
acquisition) of our total estimated proved reserves at December 31, 2000 were
undeveloped. By their nature, undeveloped reserves are less certain. Recovery of
such reserves will require significant capital expenditures and successful
drilling operations. We cannot assure you that we can successfully find and
produce reserves economically in the future. In addition, we may not be able to
acquire proved reserves at acceptable costs.
If We Do Not Make Significant Capital Expenditures, We May Not Be Able to
Replace Reserves.
Our exploration, development and acquisition activities require substantial
capital expenditures. Historically, we have funded our capital expenditures
through a combination of cash flows from operations, our bank credit facility,
debt and equity issuances and the sale of non-core assets. Future cash flows are
subject to a number of variables, such as the level of production from existing
wells, prices of oil and gas and our success in developing and producing new
reserves. If revenue were to decrease as a result of lower oil and gas prices or
decreased production, and our access to capital were limited, we would have a
reduced ability to replace our reserves. If our cash flow from operations is not
sufficient to fund our capital expenditure budget, there can be no assurance
that additional bank debt, debt or equity issuances or other methods of
financing will be available to meet these requirements.
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Acquisitions Are Subject to the Uncertainties of Evaluating Recoverable
Reserves and Potential Liabilities.
Our recent growth is due in part to acquisitions of exploration and
production companies and producing properties. We expect acquisitions will also
contribute to our future growth. Successful acquisitions require an assessment
of a number of factors, many of which are beyond our control. These factors
include recoverable reserves, exploration potential, future oil and gas prices,
operating costs and potential environmental and other liabilities. Such
assessments are inexact and their accuracy is inherently uncertain. In
connection with our assessments, we perform a review of the acquired properties,
which we believe is generally consistent with industry practices. However, such
a review will not reveal all existing or potential problems. In addition, our
review may not permit us to become sufficiently familiar with the properties to
fully assess their deficiencies and capabilities. We do not inspect every well.
Even when we inspect a well, we do not always discover structural, subsurface
and environmental problems that may exist or arise.
We are generally not entitled to contractual indemnification for preclosing
liabilities, including environmental liabilities. Normally, we acquire interests
in properties on an "as is" basis with limited remedies for breaches of
representations and warranties. In addition, competition for producing oil and
gas properties is intense and many of our competitors have financial and other
resources which are substantially greater than those available to us. Therefore,
we cannot assure you that we will be able to acquire oil and gas properties that
contain economically recoverable reserves or that we will complete such
acquisitions on acceptable terms.
Additionally, significant acquisitions can change the nature of our
operations and business depending upon the character of the acquired properties,
which may have substantially different operating and geological characteristics
or be in different geographic locations than our existing properties. While it
is our current intention to continue to concentrate on acquiring properties with
development and exploration potential located in the Mid-Continent region, there
can be no assurance that in the future we will not decide to pursue acquisitions
or properties located in other geographic regions. To the extent that such
acquired properties are substantially different than our existing properties,
our ability to efficiently realize the economic benefits of such transactions
may be limited.
Oil and Gas Drilling and Producing Operations Are Hazardous and Expose Us to
Environmental Liabilities.
Oil and gas operations are subject to many risks, including well blowouts,
cratering and explosions, pipe failure, fires, formations with abnormal
pressures, uncontrollable flows of oil, natural gas, brine or well fluids, and
other environmental hazards and risks. Our drilling operations involve risks
from high pressures and from mechanical difficulties such as stuck pipes,
collapsed casings and separated cables. If any of these risks occurs, we could
sustain substantial losses as a result of:
- injury or loss of life;
- severe damage to or destruction of property, natural resources and
equipment;
- pollution or other environmental damage;
- clean-up responsibilities;
- regulatory investigations and penalties; and
- suspension of operations.
Our liability for environmental hazards includes those created either by
the previous owners of properties that we purchase or lease or by acquired
companies prior to the date we acquire them. In accordance with industry
practice, we maintain insurance against some, but not all, of the risks
described above. We cannot assure you that our insurance will be adequate to
cover casualty losses or liabilities. Also, we cannot predict the continued
availability of insurance at premium levels that justify its purchase.
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Exploration and Development Drilling May Not Result in Commercially Productive
Reserves.
We do not always encounter commercially productive reservoirs through our
drilling operations. We cannot assure you that the new wells we drill or
participate in will be productive or that we will recover all or any portion of
our investment in wells drilled. The seismic data and other technologies we use
do not allow us to know conclusively prior to drilling a well that oil or gas is
present or may be produced economically. The cost of drilling, completing and
operating a well is often uncertain, and cost factors can adversely affect the
economics of a project. Our efforts will be unprofitable if we drill dry wells
or wells that are productive but do not produce enough reserves to return a
profit after drilling, operating and other costs. Further, our drilling
operations may be curtailed, delayed or canceled as a result of a variety of
factors, including:
- unexpected drilling conditions;
- title problems;
- pressure or irregularities in formations;
- equipment failures or accidents;
- adverse weather conditions;
- compliance with environmental and other governmental requirements; and
- cost of, or shortages or delays in the availability of, drilling rigs and
equipment.
Canadian Operations Present the Risks Associated with Conducting Business
Outside the United States.
Our operations in Canada are subject to the risks associated with operating
outside of the United States. These risks include the following:
- adverse local political or economic developments;
- exchange controls;
- currency fluctuations;
- royalty and tax increases;
- retroactive tax claims;
- negotiations of contracts with governmental entities; and
- import and export regulations.
In addition, in the event of a dispute, we may be required to litigate the
dispute in Canadian courts since we may not be able to sue foreign persons in a
U.S. court.
The Loss of Key Personnel Could Adversely Affect Our Ability to Operate.
We depend, and will continue to depend in the foreseeable future, on the
services of our officers and key employees with extensive experience and
expertise in evaluating and analyzing producing oil and gas properties and
drilling prospects, maximizing production from oil and gas properties and
marketing oil and gas production. Our ability to retain our officers and key
employees is important to our continued success and growth. The unexpected loss
of the services of one or more of these individuals could have a detrimental
effect on our business. We have maintained $20 million key man life insurance
policies on each of our chief executive officer and chief operating officer but
do not intend to renew these policies when they expire on June 1, 2001.
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Transactions with Executive Officers May Create Conflicts of Interest.
Our chief executive officer and chief operating officer, Aubrey K.
McClendon and Tom L. Ward, have the right to participate in wells we drill,
subject to limitations in their employment contract. As a result of their
participation, they routinely have significant accounts payable to us for joint
interest billings and other related advances. As of March 31, 2001, Messrs.
McClendon and Ward had payables to us of $3.4 million and $3.2 million,
respectively, in connection with such participation.
RISKS RELATED TO THE EXCHANGE OFFER AND THE NEW NOTES
If You Do Not Properly Tender Your Outstanding Notes, You Will Continue to
Hold Unregistered Outstanding Notes and Your Ability to Transfer Outstanding
Notes Will Be Adversely Affected.
We will only issue new notes in exchange for outstanding notes that you
timely and properly tender. Therefore, you should allow sufficient time to
endure timely delivery of the outstanding notes and you should carefully follow
the instructions on how to tender your outstanding notes. Neither we nor the
exchange agent is required to tell you of any defects or irregularities with
respect to your tender of outstanding notes.
If you do not exchange your outstanding notes for new notes pursuant to the
exchange offer, the outstanding notes you hold will continue to be subject to
the existing transfer restrictions. 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 of 1933 and applicable state securities laws. We
do not plan to register outstanding notes under the Securities Act of 1933
unless our registration rights agreement with the initial purchasers of the
outstanding notes requires us to do so. Further, if you continue to hold any
outstanding notes after the exchange offer is consummated, you may have trouble
selling them because there will be fewer outstanding notes outstanding.
If an Active Trading Market Does Not Develop for the New Notes, You May Be
Unable to Sell the New Notes or to Sell the New Notes at a Price That You Deem
Sufficient.
The new notes will be new securities for which there currently is no
established trading market. Although we will register the new notes under the
Securities Act of 1933, we do not intend to apply for listing of the new notes
on any securities exchange or for quotation of the new notes in any automated
dealer quotation system. In addition, although the initial purchasers of the
outstanding notes have informed us that they intend to make a market in the new
notes after the exchange offer, the initial purchasers may stop making a market
at any time. Finally, if a large number of holders of outstanding notes do not
tender outstanding notes or tender outstanding notes improperly, the limited
amount of new notes that would be issued and outstanding after we consummate the
exchange offer could adversely affect the development of a market for these new
notes.
A Guarantee Could Be Voided if the Guarantor Fraudulently Transferred the
Guarantee at the Time it Incurred the Indebtedness, which Could Result in the
Noteholders Being Able to Rely on Only Chesapeake Energy Corporation to
Satisfy Claims.
Under U.S. bankruptcy law and comparable provisions of state fraudulent
transfer laws, a guarantee can be voided, or claims under a guarantee may be
subordinated to all other debts of that guarantor if, among other things, the
guarantor, at the time it incurred the indebtedness evidenced by its guarantee:
- intended to hinder, delay or defraud any present or future creditor or
received less than reasonably equivalent value or fair consideration for
the incurrence of the guarantee;
- was insolvent or rendered insolvent by reason of such incurrence;
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- was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay those debts as they mature.
In addition, any payment by that guarantor under a guarantee could be
voided and required to be returned to the guarantor or to a fund for the benefit
of the creditors of the guarantor.
The measures of insolvency for purposes of fraudulent transfer laws vary
depending upon the governing law. Generally, a guarantor would be considered
insolvent if:
- the sum of its debts, including contingent liabilities, was greater than
the fair saleable value of all of its assets;
- the present fair saleable value of its assets was less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they became absolute and
mature; or
- it could not pay its debts as they became due.
On the basis of historical financial information, recent operating history
and other factors, we believe that the subsidiary guarantees are being incurred
for proper purposes and in good faith and that each subsidiary guarantor, after
giving effect to its guarantee of the notes, will not be insolvent, have
unreasonably small capital for the business in which it is engaged or have
incurred debts beyond their ability to pay those debts as they mature. We cannot
be certain, however, that a court would agree with our conclusions in this
regard.
Holders of the New Notes Will Be Effectively Subordinated to All of Our and
the Subsidiary Guarantors' Secured Indebtedness and to All Liabilities of Our
Non-Guarantor Subsidiaries.
Holders of our secured indebtedness, including the indebtedness under our
credit facilities, have claims with respect to our assets constituting
collateral for their indebtedness that are prior to your claims under the new
notes. In the event of a default on the new notes or our bankruptcy, liquidation
or reorganization, those assets would be available to satisfy obligations with
respect to the indebtedness secured thereby before any payment could be made on
the new notes. Accordingly, the secured indebtedness would effectively be senior
to the new notes to the extent of the value of the collateral securing the
indebtedness. While the indenture governing the new notes places some
limitations on our ability to create liens, there are significant exceptions to
these limitations, including with respect to sale and leaseback transactions,
that will allow us to secure some kinds of indebtedness without equally and
ratably securing the new notes. To the extent the value of the collateral is not
sufficient to satisfy the secured indebtedness, the holders of that indebtedness
would be entitled to share with the holders of the new notes and the holders of
other claims against us with respect to our other assets.
In addition, the new notes are not guaranteed by all of our subsidiaries,
and our non-guarantor subsidiaries are permitted to incur additional
indebtedness under the indenture. As a result, holders of the new notes will be
effectively subordinated to claims of third party creditors, including holders
of indebtedness, and preferred shareholders of these non-guarantor subsidiaries.
Claims of those other creditors, including trade creditors, secured creditors,
authorities, holders of indebtedness or guarantees issued by the non-guarantor
subsidiaries and preferred shareholders of the non-guarantor subsidiaries, will
generally have priority as to the assets of the non-guarantor subsidiaries over
our claims and equity interests. As a result, holders of our indebtedness,
including the holders of the new notes, will be effectively subordinated to all
those claims.
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EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the issuance of the outstanding notes, we entered into a
registration rights agreement. Under the registration rights agreement, we
agreed to:
- within 60 days after the original issuance of the outstanding notes, file
a registration statement with the SEC with respect to a registered offer
to exchange each outstanding note for a new note having terms
substantially identical in all material respects to such note except that
the new note will not contain terms with respect to transfer
restrictions);
- use our best efforts to cause the registration statement to be declared
effective under the Securities Act of 1933 within 180 days after the
original issuance of the outstanding notes;
- promptly following the effectiveness of the registration statement, offer
the new notes in exchange for surrender of the outstanding notes; and
- keep the exchange offer open for not less than 20 business days (or
longer if required by applicable law) after the date notice of the
exchange offer is mailed to the holders of the outstanding notes.
We have fulfilled the agreements described in the first two of the
preceding bullet points, and as soon as practicable after this registration
statement becomes effective, we will offer eligible holders of the outstanding
notes the opportunity to exchange their outstanding notes for new notes
registered under the Securities Act. Holders are eligible if they are not
prohibited by any law or policy of the SEC from participating in this exchange
offer. The new notes will be substantially identical to the outstanding notes
except that the new notes will not contain terms with respect to transfer
restrictions, registration rights or additional interest.
Under limited circumstances, we agreed to use our best efforts to cause the
SEC to declare effective a shelf registration statement for the resale of the
outstanding notes. We also agreed to use our best efforts to keep the shelf
registration statement effective for up to two years after its effective date.
The circumstances include if:
- applicable interpretations of the staff of the SEC do not permit us to
effect the exchange offer; or
- for any other reason the exchange offer is not consummated within 240
days from April 6, 2001, the date of the original issuance of the
outstanding notes; or
- any of the initial purchasers notifies us following consummation of the
exchange offer that outstanding notes held by it are not eligible to be
exchanged for exchange notes in the exchange offer; or
- certain holders are prohibited by law or SEC policy from participating in
the exchange offer or may not resell the new notes acquired by them in
the exchange offer to the public without delivering a prospectus and this
prospectus is not available for such resales.
We will pay additional cash interest on the applicable outstanding notes,
subject to certain exceptions:
- if the exchange offer is not consummated on or before the 60th business
day after this registration statement is declared effective,
- if obligated to file a shelf registration statement, we fail to file the
shelf registration statement with the SEC on or prior to the 30th day
after the date on which the obligation to file a shelf registration
statement arises, or shelf filing date,
- if obligated to file a shelf registration statement, the shelf
registration statement is not declared effective on or prior to the 180th
day after the shelf filing date, or
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- after this registration statement or the shelf registration statement, as
the case may be, is declared effective, such registration statement
thereafter ceases to be effective or usable (subject to certain
exceptions) (each such event referred to in the preceding clauses being a
"registration default");
from and including the date on which any such registration default occurs to but
excluding the date on which all registration defaults have been cured.
The rate of the additional interest will be 0.5% per year for the first
90-day period immediately following the occurrence of a registration default,
and such rate will increase by an additional 0.5% per year with respect to each
subsequent 90-day period until all registration defaults have been cured, up to
a maximum additional interest rate of 2.0% per year. We will pay such additional
interest on regular interest payment dates. Such additional interest will be in
addition to any other interest payable from time to time with respect to the
outstanding notes and the new notes.
Upon the effectiveness of this registration statement, the consummation of
the exchange offer, the effectiveness of a shelf registration statement, or the
effectiveness of a succeeding registration statement, as the case may be, the
interest rate borne by the notes from the date of such effectiveness or
consummation, as the case may be, will be reduced to the original interest rate.
However, if after any such reduction in interest rate, a different event
specified in the clauses above occurs, the interest rate may again be increased
pursuant to the preceding provisions.
To exchange your outstanding notes for transferable new notes in the
exchange offer, you will be required to make the following representations:
- any new notes will be acquired in the ordinary course of your business;
- you have no arrangement or understanding with any person or entity to
participate in the distribution of the new notes;
- you are not engaged in and do not intend to engage in the distribution of
the new notes;
- if you are a broker-dealer that will receive new notes for your own
account in exchange for outstanding notes, you acquired those notes as a
result of market-making activities or other trading activities and you
will deliver a prospectus, as required by law, in connection with any
resale of such new notes; and
- you are not our "affiliate," as defined in Rule 405 of the Securities
Act.
In addition, we may require you to provide information to be used in
connection with the shelf registration statement to have your outstanding notes
included in the shelf registration statement and benefit from the provisions
regarding additional interest described in the preceding paragraphs. A holder
who sells outstanding notes under the shelf registration statement generally
will be required to be named as a selling securityholder in the related
prospectus and to deliver a prospectus to purchasers. Such a holder will also be
subject to the civil liability provisions under the Securities Act in connection
with such sales and will be bound by the provisions of the registration rights
agreement that are applicable to such a holder, including indemnification
obligations.
The description of the registration rights agreement contained in this
section is a summary only. For more information, you should review the
provisions of the registration rights agreement that we filed with the SEC as an
exhibit to the registration statement of which this prospectus is a part.
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RESALE OF NEW NOTES
Based on no action letters of the SEC staff issued to third parties, we
believe that new notes may be offered for resale, resold and otherwise
transferred by you without further compliance with the registration and
prospectus delivery provisions of the Securities Act if:
- you are not our "affiliate" within the meaning of Rule 405 under the
Securities Act;
- such new notes are acquired in the ordinary course of your business; and
- you do not intend to participate in a distribution of the new notes.
The SEC, however, has not considered the exchange offer for the new notes
in the context of a no action letter, and the SEC may not make a similar
determination as in the no action letters issued to these third parties.
If you tender in the exchange offer with the intention of participating in
any manner in a distribution of the new notes, you
- cannot rely on such interpretations by the SEC staff; and
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction.
Unless an exemption from registration is otherwise available, any security
holder intending to distribute new notes should be covered by an effective
registration statement under the Securities Act. This registration statement
should contain the selling security holder's information required by Item 507 of
Regulation S-K under the Securities Act. This prospectus may be used for an
offer to resell, resale or other retransfer of new notes only as specifically
described in this prospectus. Only broker-dealers that acquired the outstanding
notes as a result of market-making activities or other trading activities may
participate in the exchange offer. Each broker-dealer that receives new notes
for its own account in exchange for outstanding notes, where such outstanding
notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge in the letter of
transmittal that it will deliver a prospectus in connection with any resale of
the new notes. Please read the section captioned "Plan of Distribution" for more
details regarding the transfer of new notes.
TERMS OF THE EXCHANGE OFFER
Subject to the terms and conditions described in this prospectus and in the
letter of transmittal, we will accept for exchange any outstanding notes
properly tendered and not withdrawn prior to 5:00 p.m. New York City time on the
expiration date. We will issue new notes in principal amount equal to the
principal amount of outstanding notes surrendered under the exchange offer.
Outstanding notes may be tendered only for new notes and only in integral
multiples of $1,000.
The exchange offer is not conditioned upon any minimum aggregate principal
amount of outstanding notes being tendered for exchange.
As of the date of this prospectus, $800,000,000 in aggregate principal
amount of the outstanding notes are outstanding. This prospectus and the letter
of transmittal are being sent to all registered holders of outstanding notes.
There will be no fixed record date for determining registered holders of
outstanding notes entitled to participate in the exchange offer.
We intend to conduct the exchange offer in accordance with the provisions
of the registration rights agreement, the applicable requirements of the
Securities Act and the Securities Exchange Act of 1934 and the rules and
regulations of the SEC. Outstanding notes that the holders thereof do not tender
for exchange in the exchange offer will remain outstanding and continue to
accrue interest. These outstanding notes will be entitled to the rights and
benefits such holders have under the indenture relating to the notes and the
registration rights agreement.
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We will be deemed to have accepted for exchange properly tendered
outstanding notes when we have given oral or written notice of the acceptance to
the exchange agent and complied with the applicable provisions of the
registration rights agreement. The exchange agent will act as agent for the
tendering holders for the purposes of receiving the new notes from us.
If you tender outstanding notes in the exchange offer, you will not be
required to pay brokerage commissions or fees or, subject to the letter of
transmittal, transfer taxes with respect to the exchange of outstanding notes.
We will pay all charges and expenses, other than certain applicable taxes
described below, in connecting with the exchange offer. It is important that you
read the section labeled "-- Fees and Expenses" for more details regarding fees
and expenses incurred in the exchange offer.
We will return any outstanding notes that we do not accept for exchange for
any reason without expense to their tendering holder as promptly as practicable
after the expiration or termination of the exchange offer.
EXPIRATION DATE
The exchange offer will expire at 5:00 p.m. New York City time on July 12,
2001, unless, in our sole discretion, we extend it.
EXTENSIONS, DELAYS IN ACCEPTANCE, TERMINATION OR AMENDMENT
We expressly reserve the right, at any time or various times, to extend the
period of time during which the exchange offer is open. We may delay acceptance
of any outstanding notes by giving oral or written notice of such extension to
their holders. During any such extensions, all outstanding notes previously
tendered will remain subject to the exchange offer, and we may accept them for
exchange.
In order to extend the exchange offer, we will notify the exchange agent
orally or in writing of any extension. We will notify the registered holders of
outstanding notes of the extension no later than 9:00 a.m., New York City time,
on the business day after the previously scheduled expiration date.
If any of the conditions described below under "-- Conditions to the
Exchange Offer" have not been satisfied, we reserve the right, in our sole
discretion
- to delay accepting for exchange any outstanding notes,
- to extend the exchange offer, or
- to terminate the exchange offer,
by giving oral or written notice of such delay, extension or termination to the
exchange agent. Subject to the terms of the registration rights agreement, we
also reserve the right to amend the terms of the exchange offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
registered holders of outstanding notes. If we amend the exchange offer in a
manner that we determine to constitute a material change, we will promptly
disclose such amendment by means of a prospectus supplement. The supplement will
be distributed to the registered holders of the outstanding notes. Depending
upon the significance of the amendment and the manner of disclosure to the
registered holders, we will extend the exchange offer if the exchange offer
would otherwise expire during such period.
CONDITIONS TO THE EXCHANGE OFFER
We will not be required to accept for exchange, or exchange any new notes
for, any outstanding notes if the exchange offer, or the making of any exchange
by a holder of outstanding notes, would violate applicable law or any applicable
interpretation of the staff of the SEC. Similarly, we may terminate the
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exchange offer as provided in this prospectus before accepting outstanding notes
for exchange in the event of such a potential violation.
In addition, we will not be obligated to accept for exchange the
outstanding notes of any holder that has not made to us the representations
described under "-- Purpose and Effect of the Exchange Offer," "-- Procedures
for Tendering" and "Plan of Distribution" and such other representations as may
be reasonably necessary under applicable SEC rules, regulations or
interpretations to allow us to use an appropriate form to register the new notes
under the Securities Act.
We expressly reserve the right to amend or terminate the exchange offer,
and to reject for exchange any outstanding notes not previously accepted for
exchange, upon the occurrence of any of the conditions to the exchange offer
specified above. We will give oral or written notice of any extension,
amendment, non-acceptance or termination to the holders of the outstanding notes
as promptly as practicable.
These conditions are for our sole benefit, and we may assert them or waive
them in whole or in part at any time or at various times in our sole discretion.
If we fail at any time to exercise any of these rights, this failure will not
mean that we have waived our rights. Each such right will be deemed an ongoing
right that we may assert at any time or at various times.
In addition, we will not accept for exchange any outstanding notes
tendered, and will not issue new notes in exchange for any such outstanding
notes, if at such time any stop order has been threatened or is in effect with
respect to the registration statement of which this prospectus constitutes a
part or the qualification of the indenture relating to the notes under the Trust
Indenture Act of 1939.
PROCEDURES FOR TENDERING
How to Tender Generally
Only a holder of outstanding notes may tender such outstanding notes in the
exchange offer. To tender in the exchange offer, a holder must:
- complete, sign and date the letter of transmittal, or a facsimile of the
letter of transmittal;
- have the signature on the letter of transmittal guaranteed if the letter
of transmittal so requires; and
- mail or deliver such letter of transmittal or facsimile to the exchange
agent prior to 5:00 p.m. New York City time on the expiration date; or
- comply with the automated tender offer program procedures of The
Depository Trust Company, or DTC, described below.
In addition, either:
- the exchange agent must receive outstanding notes along with the letter
of transmittal;
- the exchange agent must receive, prior to 5:00 p.m. New York City time on
the expiration date, a timely confirmation of book-entry transfer of such
outstanding notes into the exchange agent's account at DTC according to
the procedure for book-entry transfer described below or a properly
transmitted agent's message; or
- the holder must comply with the guaranteed delivery procedures described
below.
To be tendered effectively, the exchange agent must receive any physical
delivery of the letter of transmittal and other required documents at its
address indicated on the cover page of the letter of transmittal. The exchange
agent must receive such documents prior to 5:00 p.m. New York City time on the
expiration date.
The tender by a holder that is not withdrawn prior to 5:00 p.m. New York
City time on the expiration date will constitute an agreement between the holder
and us in accordance with the terms and subject to the conditions described in
this prospectus and in the letter of transmittal.
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THE METHOD OF DELIVERY OF OUTSTANDING NOTES, THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT YOUR ELECTION AND RISK.
RATHER THAN MAIL THESE ITEMS, WE RECOMMEND THAT YOU USE AN OVERNIGHT OR HAND
DELIVERY SERVICE. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO ASSURE
DELIVERY TO THE EXCHANGE AGENT BEFORE 5:00 P.M. NEW YORK CITY TIME ON THE
EXPIRATION DATE. YOU SHOULD NOT SEND THE LETTER OF TRANSMITTAL OR OUTSTANDING
NOTES TO US. YOU MAY REQUEST YOUR BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR OTHER NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR YOU.
How to Tender if You Are a Beneficial Owner
If you beneficially own outstanding notes that are registered in the name
of a broker, dealer, commercial bank, trust company or other nominee and you
wish to tender those notes, you should contact the registered holder promptly
and instruct it to tender on your behalf. If you are a beneficial owner and wish
to tender on your own behalf, you must, prior to completing and executing the
letter of transmittal and delivering your outstanding notes, either:
- make appropriate arrangements to register ownership of the outstanding
notes in your name; or
- obtain a properly completed bond power from the registered holder of
outstanding notes.
The transfer of registered ownership, if permitted under the indenture for
the notes, may take considerable time and may not be completed prior to the
expiration date.
Signatures and Signature Guarantees
You must have signatures on a letter of transmittal or a notice of
withdrawal (as described below) guaranteed by a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States, or an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Securities Exchange Act. In
addition, such entity must be a member of one of the recognized signature
guarantee programs identified in the letter of transmittal. Signature guarantees
are not required, however, if the notes are tendered:
- by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the letter
of transmittal;
- for the account of a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondence in
the United States, or an eligible guarantor institution.
When You Need Endorsements or Bond Powers
If the letter of transmittal is signed by a person other than the
registered holder of any outstanding notes, the outstanding notes must be
endorsed or accompanied by a properly completed bond power. The bond power must
be signed by the registered holder as the registered holder's name appears on
the outstanding notes. A member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States, or an eligible guarantor institution must guarantee the signature on the
bond power.
If the letter of transmittal or any outstanding notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, those persons should so indicate when signing. Unless waived by us,
they should also submit evidence satisfactory to us of their authority to
deliver the letter of transmittal.
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Tendering Through DTC's Automated Tender Offer Program
The exchange agent and DTC have confirmed that any financial institution
that is a participant in DTC's system may use DTC's automated tender offer
program to tender. Participants in the program may, instead of physically
completing and signing the letter of transmittal and delivering it to the
exchange agent, transmit their acceptance of the exchange offer electronically.
They may do so by causing DTC to transfer the outstanding notes to the exchange
agent in accordance with its procedures for transfer. DTC will then send an
agent's message to the exchange agent.
The term "agent's message" means a message transmitted by DTC, received by
the exchange agent and forming part of the book-entry confirmation, to the
effect that:
- DTC has received an express acknowledgment from a participant in its
automated tender offer program that is tendering outstanding notes that
are the subject of such book-entry confirmation;
- such participant has received and agrees to be bound by the terms of the
letter of transmittal or, in the case of an agent's message relating to
guaranteed delivery, that such participant has received and agrees to be
bound by the applicable notice of guaranteed delivery; and
- the agreement may be enforced against such participant.
Determinations Under the Exchange Offer
We will determine in our sole discretion all questions as to the validity,
form, eligibility, time of receipt, acceptance of tendered outstanding notes and
withdrawal of tendered outstanding notes. Our determination will be final and
binding. We reserve the absolute right to reject any outstanding notes not
properly tendered or any outstanding notes our acceptance of which would, in the
opinion of our counsel, be unlawful. We also reserve the right to waive any
defect, irregularities or conditions of tender as to particular outstanding
notes. Our interpretation of the terms and conditions of the exchange offer,
including the instructions in the letter of transmittal, will be final and
binding on all parties. Unless waived, all defects or irregularities in
connection with tenders of outstanding notes must be cured within such time as
we shall determine. Although we intend to notify holders of defects or
irregularities with respect to tenders of outstanding notes, neither we, the
exchange agent nor any other person will incur any liability for failure to give
such notification. Tenders of outstanding notes will not be deemed made until
such defects or irregularities have been cured or waived. Any outstanding notes
received by the exchange agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned to
the tendering holder, unless otherwise provided in the letter of transmittal, as
soon as practicable following the expiration date.
When We Will Issue New Notes
In all cases, we will issue new notes for outstanding notes that we have
accepted for exchange under the exchange offer only after the exchange agent
timely receives:
- outstanding notes or a timely book-entry confirmation of such outstanding
notes into the exchange agent's account at DTC; and
- a properly completed and duly executed letter of transmittal and all
other required documents or a properly transmitted agent's message.
Return of Outstanding Notes Not Accepted or Exchanged
If we do not accept any tendered outstanding notes for exchange or if
outstanding notes are submitted for a greater principal amount than the holder
desires to exchange, the unaccepted or non-exchanged outstanding notes will be
returned without expense to their tendering holder. In the case of outstanding
notes tendered by book-entry transfer in the exchange agent's account at DTC
according to the procedures described below, such non-exchanged outstanding
notes will be credited to an account maintained with
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DTC. These actions will occur as promptly as practicable after the expiration or
termination of the exchange offer.
Your Representations to Us
By signing or agreeing to be bound by the letter of transmittal, you will
represent to us that, among other things:
- any new notes that you receive will be acquired in the ordinary course of
your business;
- you have no arrangement or understanding with any person or entity to
participate in the distribution of the new notes;
- you are not engaged in and do not intend to engage in the distribution of
the new notes;
- if you are a broker-dealer that will receive new notes for your own
account in exchange for outstanding notes, you acquired those notes as a
result of market-making activities or other trading activities and you
will deliver a prospectus, as required by law, in connection with any
resale of such new notes; and
- you are not our "affiliate," as defined in Rule 405 of the Securities
Act.
BOOK-ENTRY TRANSFER
The exchange agent will establish an account with respect to the
outstanding notes at DTC for purposes of the exchange offer promptly after the
date of this prospectus. Any financial institution participating in DTC's system
may make book-entry delivery of outstanding notes by causing DTC to transfer
such outstanding notes into the exchange agent's account at DTC in accordance
with DTC's procedures for transfer. Holders of outstanding notes who are unable
to deliver confirmation of the book-entry tender of their outstanding notes into
the exchange agent's account at DTC or all other documents required by the
letter of transmittal to the exchange agent on or prior to 5:00 p.m. New York
City time on the expiration date must tender their outstanding notes according
to the guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
If you wish to tender your outstanding notes but your outstanding notes are
not immediately available or you cannot deliver your outstanding notes, the
letter of transmittal or any other required documents to the exchange agent or
comply with the applicable procedures under DTC's automated tender offer program
prior to the expiration date, you may tender if:
- the tender is made through a member firm of a registered national
securities exchange or of the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office or
correspondent in the United States, or an eligible guarantor institution,
- prior to the expiration date, the exchange agent receives from such
member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., commercial bank or
trust company having a office or correspondent in the United States, or
eligible guarantor institution either a properly completed and duly
executed notice of guaranteed delivery by facsimile transmission, mail or
hand delivery or a properly transmitted agent's message and notice of
guaranteed delivery:
- setting forth your name and address, the registered number(s) of your
outstanding notes and the principal amount of outstanding notes
tendered,
- stating that the tender is being made thereby, and
- guaranteeing that, within three (3) New York Stock Exchange ("NYSE")
trading days after the expiration date, the letter of transmittal or
facsimile thereof, together with the outstanding notes
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or a book-entry confirmation, and any other documents required by the
letter of transmittal will be deposited by the eligible guarantor
institution with the exchange agent, and
- the exchange agent receives such properly completed and executed letter
of transmittal or facsimile thereof, as well as all tendered outstanding
notes in proper form for transfer or a book-entry confirmation, and all
other documents required by the letter of transmittal, within three (3)
NYSE trading days after the expiration date.
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent you if you wish to tender your outstanding notes according to the
guaranteed delivery procedures described above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, you may withdraw your
tender at any time prior to 5:00 p.m. New York City time on the expiration date.
For a withdrawal to be effective:
- the exchange agent must receive a written notice of withdrawal at the
address indicated on the cover page of the letter of transmittal or
- you must comply with the appropriate procedures of DTC's automated tender
offer program system.
Any notice of withdrawal must:
- specify the name of the person who tendered the outstanding notes to be
withdrawn, and
- identify the outstanding notes to be withdrawn, including the principal
amount of such outstanding notes.
If outstanding notes have been tendered under the procedure for book-entry
transfer described above, any notice of withdrawal must specify the name and
number of the account at DTC to be credited with withdrawn outstanding notes and
otherwise comply with the procedures of DTC.
We will determine all questions as to the validity, form, eligibility and
time of receipt of notice of withdrawal. Our determination shall be final and
binding on all parties. We will deem any outstanding notes so withdrawn not to
have been validly tendered for exchange for purposes of the exchange offer.
Any outstanding notes that have been tendered for exchange but that are not
exchanged for any reason will be returned to their holder without cost to the
holder. In the case of outstanding notes tendered by book-entry transfer into
the exchange agent's account at DTC according to the procedures described above,
such outstanding notes will be credited to an account maintained with DTC for
the outstanding notes. This return or crediting will take place as soon as
practicable after withdrawal, rejection of tender or termination of the exchange
offer. You may retender properly withdrawn outstanding notes by following one of
the procedures described under "-- Procedures for Tendering" above at any time
on or prior to the expiration date.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail; however, we may make additional solicitation by
telegraph, telephone or in person by our officers and regular employees and
those of our affiliates.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and reimburse it for its related
reasonable out-of-pocket expenses.
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We will pay the cash expenses to be incurred in connection with the
exchange offer. They include:
- SEC registration fees;
- fees and expenses of the exchange agent and trustee;
- accounting and legal fees and printing costs; and
- related fees and expenses.
TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the exchange of
outstanding notes under the exchange offer. The tendering holder, however, will
be required to pay any transfer taxes, whether imposed on the registered holder
or any other person, if:
- certificates representing outstanding notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of
outstanding notes tendered;
- tendered outstanding notes are registered in the name of any person other
than the person signing the letter of transmittal; or
- a transfer tax is imposed for any reason other than the exchange of
outstanding notes under the exchange offer.
If satisfactory evidence of payment of any transfer taxes payable by a note
holder is not submitted with the letter of transmittal, the amount of such
transfer taxes will be billed directly to that tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
If you do not exchange new notes for your outstanding notes under the
exchange offer, you will remain subject to the existing restrictions on transfer
of the outstanding notes. In general, you may not offer or sell the outstanding
notes unless they are registered under the Securities Act, or if the offer or
sale is exempt from the registration under the Securities Act and applicable
state securities laws. Except as required by the registration rights agreement,
we do not intend to register resales of the outstanding notes under the
Securities Act.
ACCOUNTING TREATMENT
We will record the new notes in our accounting records at the same carrying
value as the outstanding notes. This carrying value is the aggregate principal
amount of the outstanding notes less any bond discount, as reflected in our
accounting records on the date of exchange. Accordingly, we will not recognize
any gain or loss for accounting purposes in connection with the exchange offer.
OTHER
Participation in the exchange offer is voluntary, and you should carefully
consider whether to accept. You are urged to consult your financial and tax
advisors in making your 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 offer or to file a registration statement to permit
resales of any untendered outstanding notes.
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RATIOS OF EARNINGS TO FIXED CHARGES
For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as net income (loss) before income taxes, extraordinary
items, amortization of capitalized interest and fixed charges, less capitalized
interest. Fixed charges consist of interest (whether expensed or capitalized),
and amortization of debt expenses and discount or premium relating to any
indebtedness.
THREE MONTHS
YEAR ENDED SIX MONTHS YEAR ENDED ENDED
JUNE 30, ENDED DECEMBER 31, MARCH 31,
----------- DECEMBER 31, ------------------ ------------
1996 1997 1997 1998 1999 2000 2000
---- ---- ------------ ---- ---- ---- ------------
Ratio of earnings to fixed charges.............. 2.4x (a) (b) (c) 1.4x 3.1x 4.9x
---------------
(a) Earnings for such year were insufficient to cover fixed charges by
approximately $184.5 million.
(b) Earnings for such six month period were insufficient to cover fixed charges
by approximately $32.3 million.
(c) Earnings for such year were insufficient to cover fixed charges by
approximately $914.8 million.
USE OF PROCEEDS
The exchange offer is intended to satisfy our obligations under the
registration rights agreement. We will not receive any cash proceeds from the
issuance of the new notes in the exchange offer. In consideration for issuing
the new notes as contemplated by this prospectus, we will receive outstanding
notes in a like principal amount. The form and terms of the new notes are
identical in all respects to the form and terms of the outstanding notes, except
the new notes do not include certain transfer restrictions. Outstanding notes
surrendered in exchange for the new notes will be retired and cancelled and will
not be reissued. Accordingly, the issuance of the new notes will not result in
any change in our outstanding indebtedness.
BUSINESS
We are among the ten largest independent natural gas producers in the
United States, owning interests in approximately 6,700 producing oil and gas
wells with approximately 1.7 tcfe of proved reserves, of which 91% are natural
gas. Our primary operating area is the Mid-Continent region of the United
States, which includes Oklahoma, western Arkansas, southwestern Kansas and the
Texas Panhandle. Other core operating areas include: the Deep Giddings field in
Texas, which includes the Austin Chalk and Georgetown formations; the Helmet
area of northeastern British Columbia; and the Permian Basin region of
southeastern New Mexico.
Additional information concerning the Company is included in the Company
reports and other documents incorporated by reference in this prospectus. See
"Where You Can Find More Information."
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DESCRIPTION OF THE NEW NOTES
The new notes will be issued, and the outstanding notes were issued,
pursuant to an indenture dated as of April 6, 2001 (the "Indenture") among the
Company, as issuer, the Restricted Subsidiaries, as guarantors, and United
States Trust Company of New York, as trustee (the "Trustee"). The terms of the
new notes include those stated in the Indenture and those made part of the
Indenture by the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). The definitions of certain capitalized terms used in the following
summary are set forth below under "-- Certain Definitions." References to the
"notes" in this section of the prospectus include both the outstanding notes and
the new notes.
The following description is a summary of the material provisions of the
Indenture. It does not restate that agreement in its entirety. The Company urges
Holders to read the Indenture because it, and not this description, defines the
rights of Holders of these notes. The Company has filed the Indenture as an
exhibit to the registration statement which includes this prospectus.
If the exchange offer contemplated by this prospectus (the "Exchange
Offer") is consummated, Holders of outstanding notes who do not exchange those
notes for new notes in the Exchange Offer will vote together with Holders of new
notes for all relevant purposes under the Indenture. In that regard, the
Indenture requires that certain actions by the Holders thereunder (including
acceleration following an Event of Default) must be taken, and certain rights
must be exercised, by specified minimum percentages of the aggregate principal
amount of the outstanding securities issued under the Indenture. In determining
whether Holders of the requisite percentage in principal amount have given any
notice, consent or waiver or taken any other action permitted under the
Indenture, any outstanding notes that remain outstanding after the Exchange
Offer will be aggregated with the new notes, and the Holders of such outstanding
notes and the new notes will vote together as a single series for all such
purposes. Accordingly, all references herein to specified percentages in
aggregate principal amount of the notes outstanding shall be deemed to mean, at
any time after the Exchange Offer is consummated, such percentages in aggregate
principal amount of the outstanding notes and the new notes then outstanding.
BRIEF DESCRIPTION OF THE NOTES
The notes:
- are unsecured senior indebtedness of the Company;
- are limited to $1,000,000,000 in aggregate principal amount, of which
$800,000,000 are outstanding;
- are senior in right of payment to all future Subordinated Indebtedness of
the Company; and
- rank equally in right of payment with all existing and future Senior
Indebtedness.
The new notes will be issued, and the outstanding notes were issued, only
in registered form, without coupons, in denominations of $1,000 and integral
multiples thereof.
Any outstanding notes that remain outstanding after the completion of the
Exchange Offer, together with the new notes issued in connection with the
Exchange Offer, will be treated as a single class of securities under the
Indenture.
The Company may issue the notes from time to time with a maximum aggregate
principal amount of $1 billion, of which $800 million were issued on April 6,
2001. Any notes originally issued after the date of original issuance of the
outstanding notes (the "Add On Notes") will be subject to the debt incurrence
covenant described in the first paragraph of "-- Certain
Covenants -- Limitations on Incurrence of Additional Indebtedness." Any Add On
Notes that are actually issued will be treated as issued and outstanding notes
(as the same class as the notes) for all purposes of the Indenture and this
"Description of the New Notes," unless the context indicates otherwise.
Each note will mature on April 1, 2011 and will bear interest at the rate
of interest per annum indicated on the cover page of this prospectus.
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Interest on the new notes will accrue from the date of original issuance of
the outstanding notes, April 6, 2001, and will be payable semiannually in
arrears on April 1 and October 1 of each year, commencing October 1, 2001. We
will make each interest payment to the holders of record of the notes at the
close of business on the March 15 or September 15 preceding such interest
payment date. Interest will be computed on the basis of a 360-day year of twelve
30-day months. Principal, premium, if any, and interest will be payable at the
offices of the Trustee and the Paying Agent, provided that, at the option of the
Company, payment of interest on notes not in global form may be made by check
mailed to the address of the Person entitled thereto as it appears in the
register of the notes maintained by the Registrar. Initially, the Trustee will
also act as Paying Agent and Registrar for the notes.
GUARANTEES
The existing subsidiaries of the Company other than Chesapeake Energy
Marketing, Inc. and Carmen Acquisition Corp. will fully and unconditionally
guarantee, on a joint and several basis, the Company's obligations to pay
principal of, premium, if any, and interest on the new notes. Each Person that
becomes a Restricted Subsidiary after the date of original issuance of the
outstanding notes will guarantee the payment of the notes.
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. See "Risk Factors -- A guarantee could be voided if
the guarantor fraudulently transferred the guarantee at the time it incurred the
indebtedness, which could result in the noteholders being able to rely on only
Chesapeake to satisfy claims."
Subject to the next paragraph, no Subsidiary Guarantor may consolidate or
merge with or into (whether or not such Subsidiary Guarantor is the surviving
Person) another Person unless
(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,
(2) immediately after such transaction, no Default or Event of Default
exists,
(3) such Subsidiary Guarantor or the Person formed by or surviving any
such consolidation or merger will have Consolidated Tangible Net Worth
immediately after the transaction equal to or greater than the Consolidated
Tangible Net Worth of such Subsidiary Guarantor immediately preceding the
transaction, and
(4) the Company will, at the time of such transaction after giving pro
forma effect thereto as if such transaction had occurred at the beginning
of the Reference Period, be permitted to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the
"-- Limitation on Incurrence of Additional Indebtedness" covenant.
The preceding does not prohibit a merger between Subsidiary Guarantors or a
merger between the Company 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, or a Subsidiary Guarantor otherwise ceases
to be a
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Subsidiary Guarantor, then the Person acquiring the assets (in the event of a
sale or other disposition, by way of such a merger, consolidation or otherwise,
of all or substantially all of the assets of such Subsidiary Guarantor) or such
Subsidiary Guarantor (in any other event) will be released and relieved of any
obligations under its Guarantee.
RANKING
Senior Indebtedness versus New Notes. The Indebtedness evidenced by the
new notes and the Guarantees will be unsecured and will rank pari passu in right
of payment to all Senior Indebtedness of the Company and the Subsidiary
Guarantors, as the case may be.
The new notes will be unsecured obligations of the Company. Secured debt
and other secured obligations of the Company (including obligations with respect
to the Bank Credit Facility) will be effectively senior to the new notes to the
extent of the value of the assets securing such debt or other obligations.
Liabilities of Subsidiaries versus New Notes. A substantial portion of the
Company's operations is conducted through its subsidiaries. Claims of creditors
of such subsidiaries that are not Subsidiary Guarantors, including trade
creditors and creditors holding indebtedness or guarantees issued by such
subsidiaries, and claims of preferred stockholders of such subsidiaries will
have priority with respect to the assets and earnings of such subsidiaries over
the claims of the Company's creditors, including holders of the notes.
Accordingly, the new notes will be effectively subordinated to creditors
(including trade creditors) and preferred stockholders, if any, of the Company's
subsidiaries that are not Subsidiary Guarantors. Initially, all of the Company's
subsidiaries, other than Chesapeake Energy Marketing, Inc., will be Subsidiary
Guarantors.
Although the Indenture limits the incurrence of Indebtedness (including
preferred stock) of the Restricted Subsidiaries, such limitations are subject to
a number of significant qualifications. In addition, the Indenture does not
impose any limitations on the incurrence by the Restricted Subsidiaries of
liabilities that are not considered Indebtedness under the Indenture. See
"-- Certain Covenants -- Limitation on Incurrence of Additional Indebtedness."
Moreover, the Indenture does not impose any limitation on the incurrence by any
Unrestricted Subsidiary of Indebtedness (including preferred stock).
OPTIONAL REDEMPTION
At any time on or after April 1, 2006, the Company may, at its option,
redeem all or any portion of the notes at the applicable redemption prices
(expressed as percentages of the principal amount of the notes) described below,
plus, in each case, accrued but unpaid interest to the applicable redemption
date if the notes are redeemed during the twelve-month period beginning on April
1, of the years set forth below:
REDEMPTION
YEAR PRICE
---- ----------
2006..................................................... 104.063%
2007..................................................... 102.708%
2008..................................................... 101.354%
2009 and thereafter...................................... 100.000%
Notwithstanding the preceding paragraph, at any time prior to April 1,
2006, the Company may, at its option, redeem all or any portion of the notes at
the Make-Whole Price plus accrued and unpaid interest to the date of redemption.
In addition, in the event the Company consummates one or more Equity Offerings
on or prior to April 1, 2004, the Company, at its option, may redeem up to
33 1/3% of the aggregate principal amount of the notes (which includes Add On
Notes, if any) issued under the Indenture with all or a portion of the aggregate
net proceeds received by the Company from such Equity Offerings at a redemption
price of 108.125%, plus accrued and unpaid interest thereon to the redemption
date; provided, however, that
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- the date of such redemption occurs within the 90-day period after the
Equity Offering in respect of which such redemption is made and
- following each such redemption, at least 66 2/3% of the aggregate
principal amount of the notes (which includes Add On Notes, if any)
issued under the Indenture remain outstanding.
CHANGE OF CONTROL
Following the occurrence of any Change of Control, the Company must offer
to purchase all outstanding notes at a purchase price equal to 101% of the
aggregate principal amount of the notes, plus accrued and unpaid interest to the
date of purchase.
Within 15 days after any Change of Control, the Company will mail or cause
to be mailed to all Holders on the date of the Change of Control a Notice (the
"Change of Control Notice") of the occurrence of such Change of Control and of
the Holders' rights arising as a result thereof. The Change of Control Notice
shall state, among other things:
(1) that the change of control offer is being made pursuant to this
covenant;
(2) the purchase price and the change of control payment date;
(3) that any note not tendered will continue to accrue interest;
(4) that any note accepted for payment pursuant to the change of
control offer shall cease to accrue interest on the change of control
payment date; and
(5) the instructions, consistent with the covenant described
hereunder, that a Holder must follow in order to have such Holder's notes
purchased.
The change of control offer will be deemed to have commenced upon mailing
of a notice pursuant to the Indenture and will terminate 20 business days after
its commencement, unless a longer offering period is required by law. Promptly
after the termination of the change of control offer, the Company will purchase
and mail or deliver payment for all notes tendered in response to the change of
control offer.
On the change of control payment date, the Company will, to the extent
lawful,
(1) accept for payment notes or portions thereof tendered pursuant to
the change of control offer,
(2) deposit with the Paying Agent an amount equal to the change of
control payment in respect of all notes or portions thereof so tendered and
(3) deliver to the Trustee the notes so accepted together with an
officers' certificate stating the notes or portions thereof tendered to the
Company.
The Paying Agent will promptly mail or deliver to each Holder of notes 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 a new
note equal in principal amount to any unpurchased portion of the notes
surrendered, if any, provided that each such new note will be in a principal
amount of $1,000 or an integral multiple 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 change of control offer.
The Change of Control purchase feature of the notes may in certain
circumstances make more difficult or discourage a sale or takeover of the
Company. The change of control purchase feature is a result of negotiations
between the Company and the initial purchasers. The Company has no present
intention to engage in a transaction involving a Change of Control, although it
is possible that it could decide to do so in the future. Subject to the
limitations discussed below, the Company could, in the future,
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enter into certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of indebtedness outstanding at
such time or otherwise affect the Company's capital structure or credit ratings.
Restrictions on the Company's ability to incur additional Indebtedness are
contained in the covenants described under "-- Certain Covenants -- Limitation
on Incurrence of Additional Indebtedness," "-- Limitation on Liens" and
"-- Limitation on Sale/Leaseback Transactions." Under the Indenture, such
restrictions can only be waived with the consent of the holders of a majority in
principal amount of the notes then outstanding. Except for the limitations
contained in such covenants, however, the Indenture will not contain any
covenants or provisions that may afford holders of the related notes protection
in the event of a highly leveraged transaction.
Future indebtedness that the Company may incur may contain prohibitions on
the occurrence of certain events that would constitute a Change of Control or
require the repurchase of such indebtedness upon a Change of Control. Moreover,
the exercise by the Holders of their right to require the Company to repurchase
the notes could cause a default under such indebtedness, even if the Change of
Control itself does not, due to the financial effect of such repurchase on the
Company. Finally, the Company's ability to pay cash to the Holders of notes
following the occurrence of a Change of Control may be limited by the Company's
then existing financial resources. There can be no assurance that sufficient
funds will be available when necessary to make any required repurchases.
The provisions under the Indenture relative to the Company's obligation to
make an offer to repurchase the notes as a result of a Change of Control may be
waived or modified with the written consent of the holders of a majority in
principal amount of the notes.
CERTAIN COVENANTS
The following restrictive covenants are applicable to the Company and its
Restricted Subsidiaries.
Limitation on Indebtedness. The Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, issue, incur, assume,
guarantee, become liable, contingently or otherwise, with respect to or
otherwise become responsible for the payment of (collectively, "incur") any
Indebtedness; provided, however, that if no Default or Event of Default shall
have occurred and be continuing at the time or as a consequence of the
incurrence of such Indebtedness, the Company or its Restricted Subsidiaries may
incur Indebtedness if, on a pro forma basis, after giving effect to such
incurrence and the application of the proceeds therefrom, either of the
following tests shall have been satisfied:
(1) the Adjusted Consolidated EBITDA Coverage Ratio would have been at
least 2.25 to 1.0; or
(2) Adjusted Consolidated Net Tangible Assets would have been greater
than 200% of Indebtedness of the Company and its Restricted Subsidiaries.
Notwithstanding the preceding paragraph, if no Default or Event of Default
shall have occurred and be continuing at the time or as a consequence of the
incurrence of such Indebtedness, the Company and its Restricted Subsidiaries may
incur Permitted Indebtedness.
Any Indebtedness of a Person existing at the time such Person becomes a
Restricted Subsidiary (whether by merger, consolidation, acquisition or
otherwise) shall be deemed to be incurred by such Restricted Subsidiary at the
time it becomes a Restricted Subsidiary.
Limitation on Restricted Payments. The Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, make any
Restricted Payment, unless:
(1) no Default or Event of Default shall have occurred and be
continuing at the time of or immediately after giving effect to such
Restricted Payment;
(2) at the time of and immediately after giving effect to such
Restricted Payment, the Company would be able to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness)
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pursuant to the first paragraph of the covenant captioned "-- Limitation on
Incurrence of Additional Indebtedness"; and
(3) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the Reference
Date does not exceed the sum of:
(a) 50% of the Consolidated Net Income of the Company and its
Restricted Subsidiaries (or in the event such Consolidated Net Income
shall be a deficit, minus 100% of such deficit) during the period
(treated as one accounting period) subsequent to the Reference Date and
ending on the last day of the fiscal quarter immediately preceding the
date of such Restricted Payment;
(b) the aggregate Net Cash Proceeds, and the fair market value of
property other than cash (as determined in good faith by the Company's
Board of Directors, including a majority of the Company's Disinterested
Directors, and evidenced by a resolution of such Board), received by the
Company during such period from any Person other than a Subsidiary of
the Company as a result of the issuance or sale of Capital Stock of the
Company (other than any Disqualified Stock and other than Preferred
Stock issued in the Preferred Stock Offering), other than in connection
with the conversion of Indebtedness or Disqualified Stock;
(c) the aggregate Net Cash Proceeds, and the fair market value of
property other than cash (as determined in good faith by the Company's
Board of Directors, including a majority of the Company's Disinterested
Directors, and evidenced by a resolution of such Board), received by the
Company during such period from any Person other than a Subsidiary of
the Company as a result of the issuance or sale of any Indebtedness or
Disqualified Stock to the extent that at the time the determination is
made such Indebtedness or Disqualified Stock, as the case may be, has
been converted into or exchanged for Capital Stock of the Company (other
than Disqualified Stock);
(d) (1) in case any Unrestricted Subsidiary has been redesignated a
Restricted Subsidiary, an amount equal to the lesser of (x) the book
value (determined in accordance with GAAP) at the date of such
redesignation of the aggregate Investments made by the Company and its
Restricted Subsidiaries in such Unrestricted Subsidiary and (y) the fair
market value of such Investments in such Unrestricted Subsidiary at the
time of such redesignation (determined in good faith by the Company's
Board of Directors, including a majority of the Company's Disinterested
Directors, whose determination shall be conclusive and evidenced by a
resolution of such Board); or (2) in case any Restricted Subsidiary has
been redesignated an Unrestricted Subsidiary, minus the greater of (x)
the book value (determined in accordance with GAAP) at the date of
redesignation of the aggregate Investments made by the Company and its
Restricted Subsidiaries in such Restricted Subsidiary and (y) the fair
market value of such Investments in such Restricted Subsidiary at the
time of such redesignation (determined in good faith by the Company's
Board of Directors, including a majority of the Company's Disinterested
Directors, whose determination shall be conclusive and evidenced by a
resolution of such Board); and
(e) $25 million.
However, the above limitations will not prevent:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment complied
with the provisions hereof;
(2) the purchase, redemption, acquisition or retirement of any shares
of Capital Stock of the Company in exchange for, or out of the net proceeds
of the substantially concurrent sale (other than to a Restricted Subsidiary
of the Company) of, other shares of Capital Stock (other than Disqualified
Stock) of the Company; and
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(3) any dividend or other distribution payable from a Restricted
Subsidiary to the Company or any other Restricted Subsidiary.
Limitation on Sale of Assets. The Company will not, and will not permit
any Restricted Subsidiary to, make any Asset Sale unless:
(1) the Company (or its Restricted Subsidiaries, as the case may be)
receives consideration at the time of such sale or other disposition at
least equal to the fair market value thereof (as determined in good faith
by the Company's Board of Directors and evidenced by a resolution of such
Board, including a majority of the Company's Disinterested Directors, in
the case of any Asset Sales or series of related Asset Sales having a fair
market value of $20 million or greater);
(2) at least 75% of the proceeds from such Asset Sale consist of cash,
cash equivalents, or property, equipment, leasehold interests or other
assets used in the Oil and Gas Business; and
(3) the Net Available Proceeds received by the Company (or its
Restricted Subsidiaries, as the case may be) from such Asset Sale are
applied in accordance with the following two paragraphs.
The Company may apply such Net Available Proceeds, within 365 days
following the receipt of Net Available Proceeds from any Asset Sale, to:
(1) the repayment of Indebtedness of the Company under the Bank Credit
Facility or other Senior Indebtedness, including any mandatory redemption
or repurchase or optional redemption of the Existing Notes or the notes;
(2) make an Investment in assets used in the Oil and Gas Business; or
(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 of any Asset Sale 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 Asset Sale (such aggregate constituting "Excess
Proceeds"), exceed $15 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 to the date of repurchase. Upon the completion of the Net
Proceeds Offer, the amount of Excess Proceeds will be reset to zero.
Any Net Proceeds Offer will be conducted in substantially the same manner
as a change of control offer. 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.
During the period between any Asset Sale and the application of the Net
Available Proceeds therefrom in accordance with this covenant, all Net Available
Proceeds shall be maintained in a segregated account and shall be invested in
Permitted Financial Investments.
Notwithstanding the preceding paragraph of this covenant, the Company will
not, and will not permit any Restricted Subsidiary to, directly or indirectly,
make any Asset Sale of any of the Capital Stock of a Restricted Subsidiary
except pursuant to an Asset Sale of all of the Capital Stock of such Restricted
Subsidiary.
Limitation on Liens. The Company will not, and will not permit any
Restricted Subsidiary to, create, incur, assume or suffer to exist any Liens
(other than Permitted Liens) upon any of their
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respective properties securing any Indebtedness of the Company or any Restricted
Subsidiary, unless the notes are equally and ratably secured; provided that if
such Indebtedness is expressly subordinated to the notes or the Guarantees, the
Lien securing such Indebtedness will be subordinated and junior to the Lien
securing the notes or the Guarantees.
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 Wholly Owned
Restricted Subsidiary) unless:
(a) the Company or such Restricted Subsidiary would be entitled to
incur Indebtedness, in a principal amount equal to the Attributable
Indebtedness with respect to such Sale/Leaseback Transaction in accordance
with the covenant captioned "-- Limitation on Incurrence of Additional
Indebtedness"; or
(b) the Company or such Restricted Subsidiary receives proceeds from
such Sale/Leaseback Transactions at least equal to the fair market value
thereof (as determined in good faith by the Company's Board of Directors,
whose determination in good faith, evidenced by a resolution of such Board,
shall be conclusive) and such proceeds are applied in the same manner and
to the same extent as Net Available Proceeds and Excess Proceeds from an
Asset Sale.
Limitations on Mergers and Consolidations. The Company will not
consolidate or merge with or into any Person, or sell, convey, lease or
otherwise dispose of all or substantially all of its assets to any Person,
unless:
(1) the Person formed by or surviving such consolidation or merger (if
other than the Company), or to which such sale, lease, conveyance or other
disposition or assignment shall be made (collectively, the "Successor"), is
a corporation organized and existing under the laws of the United States or
any state thereof or the District of Columbia, or Canada or any province
thereof, and the Successor assumes by supplemental indenture in a form
satisfactory to the Trustee all of the obligations of the Company under the
Indenture and under the notes;
(2) immediately before and after giving effect to such transaction, no
Event of Default shall have occurred and be continuing;
(3) immediately after giving effect to such transaction on a pro forma
basis, the Consolidated Tangible Net Worth of the Company (or the
Successor) is equal to or greater than the Consolidated Tangible Net Worth
of the Company immediately before such transaction; and
(4) immediately after giving effect to such transaction on a pro forma
basis, the Company (or the Successor) would be able to incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to the
first paragraph of the covenant captioned "-- Limitation on Incurrence of
Additional Indebtedness."
Limitation on Payment Restrictions Affecting Subsidiaries. The Company
will not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective any
consensual encumbrance or consensual restriction on the ability of any
Restricted Subsidiary of the Company to:
(1) pay dividends or make any other distributions on its Capital Stock
to the Company or a Restricted Subsidiary;
(2) pay any Indebtedness owed to the Company or a Restricted
Subsidiary of the Company;
(3) make loans or advances to the Company or a Restricted Subsidiary
of the Company; or
(4) transfer any of its properties or assets to the Company or a
Restricted Subsidiary of the Company (each, a "Payment Restriction");
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except for:
(a) encumbrances or restrictions under a Bank Credit Facility,
provided that any Payment Restrictions thereunder (other than, with
respect to (4) above, customary restrictions in security agreements or
other loan documents thereunder securing or governing Indebtedness of a
Restricted Subsidiary) may be imposed only upon the acceleration of the
maturity of the Indebtedness thereunder;
(b) consensual encumbrances or consensual restrictions binding upon
any Person at the time such Person becomes a Restricted Subsidiary of
the Company (unless the agreement creating such consensual encumbrances
or consensual restrictions was entered into in connection with, or in
contemplation of, such entity becoming a Restricted Subsidiary);
(c) consensual encumbrances or consensual restrictions under any
agreement that refinances or replaces any agreement described in clauses
(a) and (b) above, provided that the terms and conditions of any such
restrictions are no less favorable to the Holders of notes than those
under the agreement so refinanced or replaced; and
(d) customary non-assignment provisions in leases, purchase money
financings and any encumbrance or restriction due to applicable law.
Limitation on Transactions with Affiliates. The Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly, enter
into any transaction or series of transactions (including, without limitation,
the sale, purchase or lease of any assets or properties or the rendering of any
services) with any Affiliate or beneficial owner (as defined in Rules 13d-3 and
13d-5 under the Exchange Act) of 10% or more of the Company's common stock
(other than with a Wholly Owned Restricted Subsidiary) (an "Affiliate
Transaction"), on terms that are less favorable to the Company or such
Restricted Subsidiary, as the case may be, than would be available in a
comparable transaction with an unrelated Person. In addition, the Company will
not, and will not permit any Restricted Subsidiary of the Company to, enter into
an Affiliate Transaction, or any series of related Affiliate Transactions having
a value of:
(a) more than $5 million, unless a majority of the Board of Directors
of the Company (including a majority of the Company's Disinterested
Directors) determines in good faith, as evidenced by a resolution of such
Board, that such Affiliate Transaction or series of related Affiliate
Transactions is fair to the Company; or
(b) more than $25 million, unless the Company receives a written
opinion from a nationally recognized investment banking firm with total
assets in excess of $1.0 billion that such transaction or series of
transactions is fair to the Company from a financial point of view.
SEC Reports. Notwithstanding that the Company may not be required to
remain subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, the Company will file with the SEC and provide the Trustee and
Holders with annual reports and such information, documents and other reports
specified in Sections 13 and 15(d) of the Exchange Act.
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.
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"Adjusted Consolidated EBITDA" means the Consolidated Net Income of the
Company and its Restricted Subsidiaries for the Reference Period,
(a) increased (to the extent deducted in determining Consolidated Net
Income) by the sum, without duplication, of:
(1) all income and state franchise taxes of the Company and its
Restricted Subsidiaries paid or accrued according to GAAP for such
period (other than income taxes attributable to extraordinary, unusual
or non-recurring gains or losses);
(2) all interest expense of the Company and its Restricted
Subsidiaries paid or accrued in accordance with GAAP for such period
(including amortization of original issue discount or premium);
(3) depreciation and depletion of the Company and its Restricted
Subsidiaries;
(4) amortization of the Company and its Restricted Subsidiaries
including, without limitation, amortization of capitalized debt issuance
costs;
(5) any loss realized in accordance with GAAP upon the sale or
other disposition of any property, plant or equipment of the Company or
its Restricted Subsidiaries (including pursuant to any Sale/Leaseback
Transaction) which is not sold or otherwise disposed of in the ordinary
course of business and any loss realized in accordance with GAAP upon
the sale or other disposition of any Capital Stock of any Person;
(6) any loss realized in accordance with GAAP from currency
exchange transactions not in the ordinary course of business consistent
with past practice;
(7) any loss net of income taxes realized in accordance with GAAP
attributable to extraordinary items;
(8) any charges associated solely with the prepayment of any
Indebtedness; and
(9) any other non-cash charges to the extent deducted from
Consolidated Net Income and
(b) decreased (to the extent included in determining Consolidated Net
Income) by the sum of:
(1) the amount of deferred revenues that are amortized during the
Reference Period and are attributable to reserves that are subject to
Volumetric Production Payments; and
(2) amounts recorded in accordance with GAAP as repayments of
principal and interest pursuant to Dollar-Denominated Production
Payments.
"Adjusted Consolidated EBITDA Coverage Ratio" means, for any Reference
Period, the ratio on a pro forma basis of (a) Adjusted Consolidated EBITDA for
the Reference Period to (b) Adjusted Consolidated Interest Expense for such
Reference Period; provided, that, in calculating Adjusted Consolidated EBITDA
and Adjusted Consolidated Interest Expense:
(1) acquisitions which occurred during the Reference Period or
subsequent to the Reference Period and on or prior to the date of the
transaction giving rise to the need to calculate the Adjusted Consolidated
EBITDA Coverage Ratio (the "Transaction Date") shall be assumed to have
occurred on the first day of the Reference Period;
(2) the incurrence of any Indebtedness (including the issuance of the
notes) or issuance of any Disqualified Stock during the Reference Period or
subsequent to the Reference Period and on or prior to the Transaction Date
shall be assumed to have occurred on the first day of such Reference
Period;
(3) any Indebtedness that had been outstanding during the Reference
Period that has been repaid on or prior to the Transaction Date shall be
assumed to have been repaid as of the first day of such Reference Period;
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(4) the Adjusted Consolidated Interest Expense attributable to
interest on any Indebtedness or dividends on any Disqualified Stock bearing
a floating interest (or dividend) rate shall be computed on a pro forma
basis as if the rate in effect on the Transaction Date were the average
rate in effect during the entire Reference Period; and
(5) in determining the amount of Indebtedness pursuant to the covenant
captioned "-- Limitation on Incurrence of Additional Indebtedness," the
incurrence of Indebtedness or issuance of Disqualified Stock giving rise to
the need to calculate the Adjusted Consolidated EBITDA Coverage Ratio and,
to the extent the net proceeds from the incurrence or issuance thereof are
used to retire Indebtedness, the application of the proceeds therefrom
shall be assumed to have occurred on the first day of the Reference Period.
"Adjusted Consolidated Interest Expense" means, with respect to the Company
and its Restricted Subsidiaries, for the Reference Period, the aggregate amount
(without duplication) of:
(a) interest expensed in accordance with GAAP (including, in
accordance with the following sentence, interest attributable to
Capitalized Lease Obligations, but excluding interest attributable to
Dollar-Denominated Production Payments and amortization of deferred debt
expense) during such period in respect of all Indebtedness of the Company
and its Restricted Subsidiaries (including (1) amortization of original
issue discount or premium on any Indebtedness (other than with respect to
the Existing notes and the notes), (2) the interest portion of all deferred
payment obligations, calculated in accordance with GAAP, and (3) all
commissions, discounts and other fees and charges owed with respect to
bankers' acceptance financings and currency and interest rate swap
arrangements, in each case to the extent attributable to such period); and
(b) dividend requirements of the Company and its Restricted
Subsidiaries with respect to any preferred stock dividends (whether in cash
or otherwise (except dividends paid solely in shares of Qualified Stock))
paid (other than to the Company or any of its Restricted Subsidiaries),
declared, accrued or accumulated during such period, divided by one minus
the applicable actual combined federal, state, local and foreign income tax
rate of the Company and its Subsidiaries (expressed as a decimal);
on a consolidated basis, for the four quarters immediately preceding the date of
the transaction giving rise to the need to calculate Consolidated Interest
Expense, in each case to the extent attributable to such period and excluding
items eliminated in consolidation. For purposes of this definition:
(a) interest on a Capitalized Lease Obligation shall be deemed to
accrue at an interest rate reasonably determined by the Company to be the
rate of interest implicit in such Capitalized Lease Obligation in
accordance with GAAP; and
(b) interest expense attributable to any Indebtedness represented by
the guarantee by the Company or a Restricted Subsidiary of the Company of
an obligation of another Person shall be deemed to be the interest expense
attributable to the Indebtedness guaranteed.
"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 Restricted Subsidiaries calculated in accordance with
SEC guidelines before any state or federal income taxes, as estimated by
independent petroleum 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 Restricted
Subsidiaries attributable to any acquisition consummated since the date of
such year-end reserve report and (B) estimated proved oil and gas reserves
of the Company and its Restricted 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
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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 Restricted
Subsidiaries produced or disposed of since the date of such year-end
reserve report and (D) reductions in the estimated oil and gas reserves of
the Company and its Restricted 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 shall be as estimated by the Company's
engineers;
(2) the capitalized costs that are attributable to oil and gas
properties of the Company and its Restricted 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 (I) the net book value on a date no earlier than
the date of the Company's latest annual or quarterly financial statements
and (II) the appraised value, as estimated by independent appraisers, of
other tangible assets (including Investments in unconsolidated
Subsidiaries) of the Company and its Restricted Subsidiaries, as of a date
no earlier than the date of the Company's latest audited financial
statements;
minus (b) the sum of:
(1) minority interests;
(2) any gas balancing liabilities of the Company and its Restricted
Subsidiaries reflected in the Company's latest annual or quarterly
financial statements;
(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 Restricted Subsidiaries with respect to Volumetric
Production Payments on the schedules specified with respect thereto;
(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)(i) 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 Restricted Subsidiaries
with respect to Dollar-Denominated Production Payments on the schedules
specified with respect thereto; and
(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.
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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 preceding.
"Asset Sale" means any sale, lease, transfer, exchange or other disposition
(or series of related sales, leases, transfers, exchanges or dispositions)
having a fair market value of $1,000,000 or more of shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares), or of property
or assets (including the creation of Dollar-Denominated Production Payments and
Volumetric Production Payments, other than Dollar-Denominated Production
Payments and Volumetric Production Payments created or sold in connection with
the financing of, and within 30 days after, the acquisition of the properties
subject thereto) or any interests therein (each referred to for purposes of this
definition as a "disposition") by the Company or any of its Restricted
Subsidiaries, including any disposition by means of a merger, consolidation or
similar transaction, other than any of the following dispositions:
(a) by the Company to a Wholly Owned Restricted Subsidiary or by a
Subsidiary to the Company or a Wholly Owned Restricted Subsidiary;
(b) a sale of oil, gas or other hydrocarbons or other mineral products
in the ordinary course of business of the Company's oil and gas production
operations;
(c) any abandonment, farm-in, farm-out, lease and sub-lease of
developed and/or undeveloped properties made or entered into in the
ordinary course of business, but excluding (x) any sale of a net profits or
overriding royalty interest, in each case conveyed from or burdening proved
developed or proved undeveloped reserves, and (y) any sale of hydrocarbons
or other mineral products as a result of the creation of Dollar-Denominated
Production Payments or Volumetric Production Payments, other than
Dollar-Denominated Production Payments and Volumetric Production Payments
created or sold in connection with the financing of, and within 30 days
after, the acquisition of the properties subject thereto);
(d) the disposition of all or substantially all of the assets of the
Company in compliance with the covenant captioned "-- Limitations on
Mergers and Consolidations;"
(e) Sale/Leaseback Transactions in compliance the covenant captioned
"-- Limitations on Sale/ Leaseback Transactions;"
(f) the provision of services and equipment for the operation and
development of the Company's oil and gas wells, in the ordinary course of
the Company's oil and gas service businesses, notwithstanding that such
transactions may be recorded as asset sales in accordance with full cost
accounting guidelines; and
(g) the issuance by the Company of shares of its Capital Stock.
"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,
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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.
"Average Life" means, as of the date of determination, with respect to any
Indebtedness, the quotient obtained by dividing (a) the product of (1) the
number of years from such date to the date of each successive scheduled
principal payment of such Indebtedness multiplied by (2) the amount of such
principal payment by (b) the sum of all such principal payments.
"Bank Credit Facility" means a revolving credit, term credit and/or letter
of credit facility, the proceeds of which are used for working capital and other
general corporate purposes to be entered into by one or more of the Company
and/or its Restricted Subsidiaries and financial institutions, as amended,
extended or refinanced from time to time.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of corporate
stock or partnership or limited liability company interests 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.
"Capitalized Lease Obligations" of any Person means the obligations of such
Person to pay rent or other amounts under a lease of property, real or personal,
that is required to be capitalized for financial reporting purposes in
accordance with GAAP, and the amount of such obligations shall be the
capitalized amount thereof determined in accordance with GAAP.
"Change of Control" means the occurrence of any of the following:
(a) the sale, lease or transfer, in one or a series of related
transactions, of all or substantially all of the Company's assets to any
Person or group (as such term is used in Section 13(d)(3) of the Exchange
Act), other than to Permitted Holders;
(b) the adoption of a plan relating to the liquidation or dissolution
of the Company;
(c) the acquisition, directly or indirectly, by any Person or group
(as such term is used in Section 13(d)(3) of the Exchange Act), other than
Permitted Holders, of beneficial ownership (as defined in Rule 13d-3 under
the Exchange Act, except that such Person shall be deemed to have
beneficial ownership of all shares that any such Person has the right to
acquire, whether such right is exercisable immediately or only after
passage of time) of more than 50% of the aggregate voting power of the
Voting Stock of the Company; provided, however, that the Permitted Holders
beneficially own (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act), directly or indirectly, in the aggregate a lesser percentage of the
total voting power of the Voting Stock of the Company than such other
Person and do not have the right or ability by voting power, contract or
otherwise to elect or designate for election a majority of the Board of
Directors of the Company (for the purposes of this definition, such other
Person shall be deemed to beneficially own any Voting Stock of a specified
corporation held by a parent corporation, if such other Person is the
beneficial owner (as defined above), directly or indirectly, of more than
35% of the voting power of the Voting Stock of such parent corporation and
the Permitted Holders beneficially own (as defined in this proviso),
directly or indirectly, in the aggregate a lesser percentage of the voting
power of the Voting Stock of such parent corporation and do not have the
right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the Board of Directors of such parent
corporation); or
(d) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of Directors
or whose nomination for election by the shareholders of the Company was
approved by a vote of 66 2/3% of the directors of the Company then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously
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so approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office.
"Consolidated Net Income" of the Company means, for any period, the
aggregate net income (or loss) of the Company and its Restricted Subsidiaries
for such period on a consolidated basis, determined in accordance with GAAP;
provided, however, that there shall not be included in such Consolidated Net
Income:
(a) any net income of any Person if such Person is not the Company or
a Restricted Subsidiary, except that (1) subject to the limitations
contained in clause (d) below, the Company's equity in the net income of
any such Person for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash or cash equivalents actually
distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the
case of a dividend or other distribution to a Restricted Subsidiary, to the
limitations contained in clause (c) below) and (2) the Company's equity in
a net loss of any such Person (other than an Unrestricted Subsidiary) for
such period shall be included in determining such Consolidated Net Income;
(b) any net income (or loss) of any Person acquired by the Company or
a Subsidiary in a pooling of interests transaction for any period prior to
the date of such acquisition;
(c) the net income of any Restricted Subsidiary to the extent that the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, is prohibited;
(d) any gain (but not loss) realized upon the sale or other
disposition of any property, plant or equipment of the Company or any
Restricted Subsidiary (including pursuant to any Sale/Leaseback
Transaction) which is not sold or otherwise disposed of in the ordinary
course of business and any gain (but not loss) realized upon the sale or
other disposition of any Capital Stock of any Person;
(e) any gain (but not loss) from currency exchange transactions not in
the ordinary course of business consistent with past practice;
(f) the cumulative effect of a change in accounting principles;
(g) to the extent deducted in the calculation of net income, the
non-cash charges associated with the repayment of Indebtedness with the
proceeds from the sale of the notes and the prepayment of any of the notes;
(h) any writedowns of non-current assets; provided, however, that any
"ceiling limitation" writedowns under SEC guidelines shall be treated as
capitalized costs, as if such writedowns had not occurred; and
(i) any gain (but not loss) attributable to extraordinary items.
"Consolidated Tangible Net Worth" means, with respect to the Company and
its Restricted Subsidiaries, as at any date of determination, the sum of Capital
Stock (other than Disqualified Stock) and additional paid-in capital plus
retained earnings (or minus accumulated deficit) minus all intangible assets,
including, without limitation, organization costs, patents, trademarks,
copyrights, franchises, research and development costs, and any amount reflected
in treasury stock, of the Company and its Restricted Subsidiaries determined on
a consolidated basis in accordance with GAAP.
"Currency Hedge Obligations" means, at any time as to the Company and its
Restricted Subsidiaries, the obligations of such Person at such time that were
incurred in the ordinary course of business pursuant to any foreign currency
exchange agreement, option or futures contract or other similar agreement or
arrangement designed to protect against or manage such Person's or any of its
Subsidiaries' exposure to fluctuations in foreign currency exchange rates.
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"Disinterested Director" means, with respect to an Affiliate Transaction or
series of related Affiliate Transactions, a member of the Board of Directors of
the Company who has no financial interest, and whose employer has no financial
interest, in such Affiliate Transaction or series of related Affiliate
Transactions.
"Disqualified Stock" means any Capital Stock of the Company or any
Restricted Subsidiary of the Company which, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable), or upon
the happening of any event or with the passage of time, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the Maturity Date or which is exchangeable or convertible into debt
securities of the Company or any Restricted Subsidiary of the Company, except to
the extent that such exchange or conversion rights cannot be exercised prior to
the Maturity Date.
"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 Offering" means any underwritten public offering of Capital Stock
(other than Disqualified Stock) of the Company pursuant to a registration
statement filed pursuant to the Securities Act of 1933 or any private placement
of Capital Stock (other than Disqualified Stock) of the Company (other than to
any Person who, prior to such private placement, was an Affiliate of the
Company) which offering or placement is consummated after the date of the
original issuance of the outstanding notes.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC hereunder.
"Existing Notes" means the Company's outstanding (1) 7.875% Senior Notes
due 2004, (2) 9.125% Senior Notes due 2006, (3) 9.625% Senior Notes due 2005 and
(4) 8.5% Senior Notes due 2012.
"GAAP" means generally accepted accounting principles as in effect in the
United States of America as of the date of the original issuance of the
outstanding notes.
"Gothic Notes" means Gothic Production Corporation's outstanding 11.125%
Senior Secured Notes due 2005.
"Guarantee" means, individually and collectively, the guarantees given by
the Subsidiary Guarantors pursuant to Article Ten of the Indenture.
"Holder" means a Person in whose name a note is registered on the
Registrar's books.
"Indebtedness" means, without duplication, with respect to any Person:
(a) all obligations of such Person (1) in respect of borrowed money
(whether or not the recourse of the lender is to the whole of the assets of
such Person or only to a portion thereof), (2) evidenced by bonds, notes,
debentures or similar instruments, (3) representing the balance deferred
and unpaid of the purchase price of any property or services (other than
accounts payable or other obligations arising in the ordinary course of
business), (4) evidenced by bankers' acceptances or similar instruments
issued or accepted by banks, (5) for the payment of money relating to a
Capitalized Lease Obligation, or (6) evidenced by a letter of credit or a
reimbursement obligation of such Person with respect to any letter of
credit;
(b) all net obligations of such Person in respect of Currency Hedge
Obligations, Interest Rate Hedge Agreements and Oil and Gas Hedging
Contracts, except to the extent such net obligations are taken into account
in the determination of future net revenues from proved oil and gas
reserves for purposes of the calculation of Adjusted Consolidated Net
Tangible Assets;
(c) all liabilities of others of the kind described in the preceding
clauses (a) or (b) that such Person has guaranteed or that are otherwise
its legal liability (including, with respect to any
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Production Payment, any warranties or guaranties of production or payment
by such Person with respect to such Production Payment but excluding other
contractual obligations of such Person with respect to such Production
Payment);
(d) 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 (1) the full amount of such obligations so
secured and (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;
(e) with respect to such Person, the liquidation preference or any
mandatory redemption payment obligations in respect of Disqualified Stock;
(f) the aggregate preference in respect of amounts payable on the
issued and outstanding shares of preferred stock of any of the Company's
Restricted Subsidiaries in the event of any voluntary or involuntary
liquidation, dissolution or winding up (excluding any such preference
attributable to such shares of preferred stock that are owned by such
Person or any of its Restricted Subsidiaries; provided, that if such Person
is the Company, such exclusion shall be for such preference attributable to
such shares of preferred stock that are owned by the Company or any of its
Restricted Subsidiaries); and
(g) any and all deferrals, renewals, extensions, refinancings and
refundings (whether direct or indirect) of, or amendments, modifications or
supplements to, any liability of the kind described in any of the preceding
clauses (a), (b), (c), (d), (e) or (f) or this clause (g), whether or not
between or among the same parties. Subject to clause (c) of the preceding
sentence, neither Dollar-Denominated Production Payments nor Volumetric
Production Payments shall be deemed to be Indebtedness.
"Interest Rate Hedging Agreements" means, with respect to the Company and
its Restricted Subsidiaries, the obligations of such Persons under (a) interest
rate swap agreements, interest rate cap agreements and interest rate collar
agreements and (b) other agreements or arrangements designed to protect any such
Person or any of its Subsidiaries against fluctuations in interest rates.
"Investment" of any Person means:
(a) all investments by such Person in any other Person in the form of
loans, advances or capital contributions;
(b) all guarantees of Indebtedness or other obligations of any other
Person by such Person;
(c) all purchases (or other acquisitions for consideration) by such
Person of assets, Indebtedness, Capital Stock or other securities of any
other Person; and
(d) all other items that would be classified as investments
(including, without limitation, purchases of assets outside the ordinary
course of business) or advances on a balance sheet of such Person prepared
in accordance with GAAP.
"Lien" means, with respect to any Person, any mortgage, pledge, lien,
encumbrance, easement, restriction, covenant, right-of-way, 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, any option, right of first refusal or other similar agreement to sell,
in each case securing obligations of such Person and any filing of or agreement
to give any financing statement under the Uniform Commercial Code (or equivalent
statute or statutes) of any jurisdiction).
"Make-Whole Amount" with respect to a note means an amount equal to the
excess, if any, of (a) the present value of the remaining interest, premium and
principal payments due on such note (excluding any portion of such payments of
interest accrued as of the redemption date) as if such note
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were redeemed on April 1, 2006, computed using a discount rate equal to the
Treasury Rate plus 50 basis points, over (b) the outstanding principal amount of
such note. "Treasury Rate" with respect to a note means the yield to maturity
(calculated on a semi-annual bond equivalent basis) at the time of the
computation of United States Treasury securities with a constant maturity (as
compiled by and published in the most recent Federal Reserve Statistical Release
H.15(519), which has become publicly available at least two business days prior
to the date of the redemption notice or, if such Statistical Release is no
longer published, any publicly available source of similar market data) most
nearly equal to the then remaining maturity of such note assuming that such note
will be redeemed on April 1, 2006; provided, however, that if the Make-Whole
Average Life of a note is not equal to the constant maturity of the United
States Treasury security for which a weekly average yield is given, the Treasury
Rate shall be obtained by linear interpolation (calculated to the nearest
one-twelfth of a year) from the weekly average yields of United States Treasury
securities for which such yields are given, except that if the Make-Whole
Average Life of such note is less than one year, the weekly average yield on
actually traded United States Treasury securities adjusted to a constant
maturity of one year shall be used. "Make-Whole Average Life" means, with
respect to a note, the number of years (calculated to the nearest one-twelfth of
a year) between the date of redemption of such note and April 1, 2006.
"Make-Whole Price" means the greater of (a) the sum of the outstanding
principal amount of the notes to be redeemed plus the Make-Whole Amount of such
notes and (b) the redemption price (expressed as a percentage of the principal
amount) of such notes on April 1, 2006.
"Maturity Date" means April 1, 2011.
"Net Available Proceeds" means, with respect to any Asset Sale or
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 Asset Sale or 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 Asset Sale or
Sale/Leaseback Transaction or by applicable law, be repaid out of the proceeds
from such Asset Sale or Sale/Leaseback Transaction and which is actually so
repaid.
"Net Cash Proceeds" means, in the case of any sale by the Company of
securities pursuant to clauses (3) (b) or (c) of the covenant captioned
"-- Limitation on Restricted Payments," the aggregate net cash proceeds received
by the Company, after payment of expenses, commissions, discounts and any other
transaction costs incurred in connection therewith.
"Net Working Capital" means (a) all current assets of the Company and its
Restricted Subsidiaries, minus (b) all current liabilities of the Company and
its Restricted Subsidiaries, except current liabilities included in
Indebtedness.
"Non-Recourse Indebtedness" means Indebtedness or that portion of
Indebtedness of a Non-Recourse Subsidiary as to which:
(a) neither the Company nor any other Subsidiary (other than a
Non-Recourse Subsidiary); (1) provides credit support, including any
undertaking, agreement or instrument which would constitute Indebtedness or
(2) is directly or indirectly liable for such Indebtedness; and
(b) no default with respect to such Indebtedness (including any rights
which the holders thereof may have to take enforcement action against a
Non-Recourse Subsidiary) would permit (upon notice, lapse of time or both)
any holder of any other Indebtedness (other than Non-Recourse Indebtedness)
of the Company or its Subsidiaries (other than a Non-Recourse Subsidiary)
to declare a default on such other Indebtedness or cause the payment
thereof to be accelerated or payable prior to its stated maturity.
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"Non-Recourse Subsidiary" means a Subsidiary or an Affiliate:
(a) established for the purpose of acquiring or investing in property
securing Non-Recourse Indebtedness,
(b) substantially all of the assets of which consist of property
securing Non-Recourse Indebtedness, and
(c) which shall have been designated as a Non-Recourse Subsidiary by a
Board Resolution adopted by the Board of Directors of the Company, as
evidenced by an officers' certificate delivered to the Trustee.
The Company may redesignate any Non-Recourse Subsidiary of the Company to be a
Subsidiary other than a Non-Recourse Subsidiary by a Board Resolution adopted by
the Board of Directors of the Company, as evidenced by an officers' certificate
delivered to the Trustee, if, after giving effect to such redesignation, the
Company could borrow $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the first paragraph of the covenant captioned
"Limitation on Incurrence of Additional Indebtedness" (such redesignation being
deemed an incurrence of additional Indebtedness (other than Non-Recourse
Indebtedness)).
"Oil and Gas Business" means the business of the exploration for, and
exploitation, development, production, processing (but not refining), marketing,
storage and transportation of, hydrocarbons, and other related energy and
natural resource businesses (including oil and gas services businesses related
to the preceding).
"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.
"Oil and Gas Securities" means the Voting Stock of a Person primarily
engaged in the Oil and Gas Business, provided that such Voting Stock shall
constitute a majority of the Voting Stock of such Person in the event that such
Voting Stock is not registered under Section 12 of the Exchange Act.
"Permitted Business Investments" means:
(a) Investments in assets used in the Oil and Gas Business;
(b) the acquisition of Oil and Gas Securities;
(c) the entry into operating agreements, joint ventures, processing
agreements, farm-out agreements, development agreements, area of mutual
interest agreements, contracts for the sale, transportation or exchange of
oil and natural gas, unitization agreements, pooling arrangements, joint
bidding agreements, service contracts, partnership agreements (whether
general or limited) or other similar or customary agreements, transactions,
properties, interests or arrangements, and Investments and expenditures in
connection therewith or pursuant thereto, in each case made or entered into
in the ordinary course of the Oil and Gas Business, excluding, however,
Investments in corporations;
(d) the acquisition of working interests, royalty interests or mineral
leases relating to oil and gas properties;
(e) Investments by the Company or any Wholly Owned Restricted
Subsidiary in any Person which, immediately prior to the making of such
Investment, is a Wholly Owned Restricted Subsidiary;
(f) Investments in the Company by any Wholly Owned Restricted
Subsidiary;
(g) Investments permitted under the covenants captioned "Limitation on
Sale of Assets" and "Limitation on Sale/Leaseback Transactions";
(h) Investments in any Person the consideration for which consists of
Qualified Stock; and
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(i) any other Investments in an amount not to exceed 10% of Adjusted
Consolidated Net Tangible Assets determined as of the date of the making or
incurrence of such Investment.
"Permitted Company Refinancing Indebtedness" means Indebtedness of the
Company, the net proceeds of which are used to renew, extend, refinance, refund
or repurchase outstanding Indebtedness of the Company, provided that:
(a) if the Indebtedness (including the notes) being renewed, extended,
refinanced, refunded or repurchased is pari passu with or subordinated in
right of payment to the notes, then such Indebtedness is pari passu or
subordinated in right of payment to, as the case may be, the notes at least
to the same extent as the Indebtedness being renewed, extended, refinanced,
refunded or repurchased;
(b) such Indebtedness is scheduled to mature no earlier than the
Indebtedness being renewed, extended, refinanced, refunded or repurchased;
and
(c) such Indebtedness has an Average Life at the time such
Indebtedness is incurred that is equal to or greater than the Average Life
of the Indebtedness being renewed, extended, refinanced, refunded or
repurchased;
provided, further, that such Indebtedness (to the extent that such Indebtedness
constitutes Permitted Company Refinancing Indebtedness) is in an aggregate
principal amount (or, if such Indebtedness is issued at a price less than the
principal amount thereof, the aggregate amount of gross proceeds therefrom is)
not in excess of the aggregate principal amount then outstanding of the
Indebtedness being renewed, extended, refinanced, refunded or repurchased (or if
the Indebtedness being renewed, extended, refinanced, refunded or repurchased
was issued at a price less than the principal amount thereof, then not in excess
of the amount of liability in respect thereof determined in accordance with
GAAP).
"Permitted Financial Investments" means the following kinds of instruments
if, in the case of instruments referred to in clauses (a) through (d) below, on
the date of purchase or other acquisition of any such instrument by the Company
or any Subsidiary, the remaining term to maturity is not more than one year:
(a) readily marketable obligations issued or unconditionally
guaranteed as to principal of and interest thereon by the United States of
America or by any agency or authority controlled or supervised by and
acting as an instrumentality of the United States of America;
(b) repurchase obligations for instruments of the type described in
clause (a) for which delivery of the instrument is made against payment;
(c) obligations (including, but not limited to, demand or time
deposits, bankers' acceptances and certificates of deposit) issued by a
depository institution or trust company incorporated or doing business
under the laws of the United States of America, any state thereof or the
District of Columbia or a branch or subsidiary of any such depository
institution or trust company operating outside the United States, provided,
that such depository institution or trust company has, at the time of the
Company's or such Subsidiary's investment therein or contractual commitment
providing for such investment, capital surplus or undivided profits (as of
the date of such institution's most recently published financial
statements) in excess of $500,000,000;
(d) commercial paper issued by any corporation, if such commercial
paper has, at the time of the Company's or any Subsidiary's investment
therein or contractual commitment providing for such investment, credit
ratings of A-1 (or higher) by Standard & Poor's Ratings Services and P-1
(or higher) by Moody's Investors Service, Inc.; and
(e) money market mutual or similar funds having assets in excess of
$500,000,000.
"Permitted Holders" means Aubrey K. McClendon and Tom L. Ward and their
respective Affiliates.
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"Permitted Indebtedness" means
(a) Indebtedness of the Company and its Restricted Subsidiaries under
a Bank Credit Facility as the same may be amended, refinanced, or replaced,
in a principal amount outstanding at any time not to exceed the greater of
(1) $300 million and (2) $100 million plus 20% of Adjusted Consolidated Net
Tangible Assets, less any Net Available Proceeds applied in accordance with
the covenant captioned "Limitation on Sale of Assets" to repay or prepay
such Indebtedness which repayment or prepayment results in a permanent
reduction in any revolving credit or other commitment relating thereto or
the maximum amount that may be borrowed thereunder;
(b) Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the date of the original issuance of the outstanding notes;
(c) other Indebtedness of the Company and its Restricted Subsidiaries
in a principal amount not to exceed $25 million at any one time
outstanding;
(d) Non-Recourse Indebtedness;
(e) Indebtedness of the Company to any Wholly-Owned Restricted
Subsidiary of the Company and Indebtedness of any Restricted Subsidiary of
the Company to the Company or another Wholly Owned Restricted Subsidiary of
the Company;
(f) Permitted Company Refinancing Indebtedness;
(g) Permitted Subsidiary Refinancing Indebtedness;
(h) obligations of the Company and its Restricted Subsidiaries under
Currency Hedge Obligations, Oil and Gas Hedging Contracts or Interest Rate
Hedging Agreements;
(i) Indebtedness under the notes (excluding any Add On Notes); and
(j) Indebtedness of a Subsidiary pursuant to a Guarantee of the notes
in accordance with the Indenture.
"Permitted Investments" means Permitted Business Investments and Permitted
Financial Investments.
"Permitted Liens" means:
(a) Liens existing on the date of the original issuance of the
outstanding notes;
(b) Liens under a Bank Credit Facility; provided, however, such Liens
are limited to Proved Developed Properties of the Company and its
Subsidiaries and such Liens secure Indebtedness in an amount not in excess
of that permitted to be incurred in accordance with clause (a) of the
definition of "Permitted Indebtedness";
(c) Liens now or hereafter securing any obligations under Interest
Rate Hedging Agreements so long as the related Indebtedness (1) constitutes
the Existing Notes or the notes (or any Permitted Company Refinancing
Indebtedness in respect thereof) or (2) is, or is permitted to be under the
Indenture, secured by a Lien on the same property securing such interest
rate hedging obligations;
(d) Liens securing Permitted Company Refinancing Indebtedness or
Permitted Subsidiary Refinancing Indebtedness; provided, that such Liens
extend to or cover only the property or assets currently securing the
Indebtedness being refinanced;
(e) Liens for taxes, assessments and governmental charges not yet
delinquent or being contested in good faith and for which adequate reserves
have been established to the extent required by GAAP;
(f) mechanics', worker's, materialmen's, operators' or similar Liens
arising in the ordinary course of business;
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(g) Liens in connection with worker's compensation, unemployment
insurance or other social security, old age pension or public liability
obligations;
(h) Liens, deposits or pledges to secure the performance of bids,
tenders, contracts (other than contracts for the payment of money), leases,
public or statutory obligations, surety, stay, appeal, indemnity,
performance or other similar bonds, or other similar obligations arising in
the ordinary course of business;
(i) survey exceptions, encumbrances, easements or reservations of, or
rights of others for, rights of way, zoning or other restrictions as to the
use of real properties, and minor defects in title which, in the case of
any of the preceding paragraph, were not incurred or created to secure the
payment of borrowed money or the deferred purchase price of property or
services, and in the aggregate do not materially adversely affect the value
of such properties or materially impair use for the purposes of which such
properties are held by the Company or any Restricted Subsidiaries;
(j) 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;
(k) Liens on pipeline or pipeline facilities which arise out of
operation of law;
(l) judgment and attachment Liens not giving rise to an Event of
Default or Liens created by or existing from any litigation or legal
proceeding that are currently being contested in good faith by appropriate
proceedings and for which adequate reserves have been made;
(m) (1) Liens upon any property of any Person existing at the time of
acquisition thereof by the Company or a Restricted Subsidiary, (2) Liens
upon any property of a Person existing at the time such Person is merged or
consolidated with the Company or any Restricted Subsidiary or existing at
the time of the sale or transfer of any such property of such Person to the
Company or any Restricted Subsidiary, or (3) Liens upon any property of a
Person existing at the time such Person becomes a Restricted Subsidiary;
provided, that in each case such Lien has not been created in contemplation
of such sale, merger, consolidation, transfer or acquisition, and provided
that in each such case no such Lien shall extend to or cover any property
of the Company or any Restricted Subsidiary other than the property being
acquired and improvements thereon;
(n) 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;
(o) 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;
(p) 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 (1) such Liens attach only to the
property so acquired with the purchase money indebtedness secured thereby
and (2) such Liens secure only Indebtedness that is not in excess of 100%
of the purchase price of such assets;
(q) Liens reserved in oil and gas mineral leases for bonus or rental
payments and for compliance with the terms of such leases;
(r) Liens arising under partnership agreements, oil and gas leases,
farm-out agreements, division orders, contracts for the sale, purchase,
exchange, transportation or processing (but not refining) 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;
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(s) Liens securing obligations of the Company or any of its Restricted
Subsidiaries under Currency Hedge Obligations or Oil and Gas Hedging
Contracts; and
(t) Liens to secure Dollar-Denominated Production Payments and
Volumetric Production Payments.
"Permitted Subsidiary Refinancing Indebtedness" means Indebtedness of any
Restricted Subsidiary, the net proceeds of which are used to renew, extend,
refinance, refund or repurchase outstanding Indebtedness of such Restricted
Subsidiary, provided that:
(a) if the Indebtedness (including the Guarantees) being renewed,
extended, refinanced, refunded or repurchased is pari passu with or
subordinated in right of payment to the Guarantees, then such Indebtedness
is pari passu with or subordinated in right of payment to, as the case may
be, the Guarantees at least to the same extent as the Indebtedness being
renewed, extended, refinanced, refunded or repurchased,
(b) such Indebtedness is scheduled to mature no earlier than the
Indebtedness being renewed, extended, refinanced, refunded or repurchased,
and
(c) such Indebtedness has an Average Life at the time such
Indebtedness is incurred that is equal to or greater than the Average Life
of the Indebtedness being renewed, extended, refinanced, refunded or
repurchased;
provided, further, that such Indebtedness (to the extent that such Indebtedness
constitutes Permitted Subsidiary Refinancing Indebtedness) is in an aggregate
principal amount (or, if such Indebtedness is issued at a price less than the
principal amount thereof, the aggregate amount of gross proceeds therefrom is)
not in excess of the aggregate principal amount then outstanding of the
Indebtedness being renewed, extended, refinanced, refunded or repurchased (or if
the Indebtedness being renewed, extended, refinanced, refunded or repurchased
was issued at a price less than the principal amount thereof, then not in excess
of the amount of liability in respect thereof determined in accordance with
GAAP); provided, however, that a Restricted Subsidiary shall not incur
refinancing Indebtedness to renew, extend, refinance, refund or repurchase
outstanding Indebtedness of the Company or another Subsidiary.
"Person" means any individual, corporation, partnership, joint venture,
trust, estate, unincorporated organization or government or any agency or
political subdivision thereof.
"Preferred Stock" means the 624,037 shares of 7% Cumulative Convertible
Preferred Stock of the Company having a par value of $0.01 per share and a
liquidation preference of $50 per share issued by the Company. All of these
shares have been redeemed as of May 1, 2001.
"Preferred Stock Offering" means the private placement of the Preferred
Stock that closed on or about April 22, 1998.
"Production Payments" means, collectively, Dollar-Denominated Production
Payments and Volumetric Production Payments.
"Proved Developed Properties" means working interests, royalty interests,
and other interests in oil, gas or mineral leases or other interests in oil, gas
or mineral properties to which reserves are attributed which may properly be
categorized as proved developed reserves under Regulation S-X under the
Securities Act; together with all contracts, agreements and contract rights
which cover, affect or otherwise relate to such interests; all hydrocarbons and
all payments of any type in lieu of production; all improvements, fixtures,
equipment, information, data and other property used in connection therewith or
in connection with the treating, handling, storing, processing, transporting or
marketing of such hydrocarbons; all insurance policies relating thereto or to
the operation thereof; all personal property related thereto; and all proceeds
thereof.
"Qualified Stock" means any Capital Stock that is not Disqualified Stock.
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"Reference Date" means March 31, 1998.
"Reference Period" means, with respect to any Person, the period of four
consecutive fiscal quarters ending with the last full fiscal quarter for which
financial information is available immediately preceding any date upon which any
determination is to be made pursuant to the terms of either Indenture or the
related notes.
"Restricted Payment" means, with respect to any Person, any of the
following:
(a) any dividend or other distribution in respect of such Person's
Capital Stock (other than (1) dividends or distributions payable solely in
Capital Stock (other than Disqualified Stock), (2) in the case of
Restricted Subsidiaries of the Company, dividends or distributions payable
to the Company or to a Restricted Subsidiary of the Company and (3) in the
case of the Company, cash dividends payable on the Preferred Stock);
(b) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock, or any option, warrant, or other right to
acquire shares of Capital Stock, of the Company or any of its Restricted
Subsidiaries;
(c) the making of any principal payment on, or the purchase,
defeasance, repurchase, redemption or other acquisition or retirement for
value, prior to any scheduled maturity, scheduled repayment or scheduled
sinking fund payment, of any Indebtedness which is subordinated in right of
payment to the notes; and
(d) the making by such Person of any Investment other than a Permitted
Investment.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary. The Board of Directors shall designate Gothic Energy
Corporation and Gothic Production Corporation as Restricted Subsidiaries on or
prior to May 14, 2001, and may designate any other Unrestricted Subsidiary to be
a Restricted Subsidiary; provided, however, that, immediately after giving
effect to such designation of any other Unrestricted Subsidiary, the Company
could incur at least $1.00 in additional Indebtedness (other than Permitted
Indebtedness) pursuant to the first paragraph of the covenant captioned
"-- Limitation on Incurrence of Additional Indebtedness."
"Sale/Leaseback Transaction" means with respect to the Company or any of
its Restricted Subsidiaries, any arrangement with any Person providing for the
leasing by the Company or any of its Restricted Subsidiaries of any principal
property, acquired or placed into service more than 180 days prior to such
arrangement, whereby such property has been or is to be sold or transferred by
the Company or any of its Restricted Subsidiaries to such Person.
"Senior Indebtedness" means any Indebtedness of the Company or a Subsidiary
Guarantor (whether outstanding on the date of the original issuance of the
outstanding notes or thereafter incurred), unless such Indebtedness is
contractually subordinate or junior in right of payment of principal, premium
and interest to the notes or the Guarantees, respectively.
"Subordinated Indebtedness of a Subsidiary Guarantor" means any
Indebtedness of such Subsidiary Guarantor, whether outstanding on the date of
the original issuance of the outstanding notes or thereafter created, incurred
or assumed, which is contractually subordinate or junior in right of payment of
principal, premium and interest to the Guarantees.
"Subordinated Indebtedness of the Company" means any Indebtedness of the
Company, whether outstanding on the date of the original issuance of the
outstanding notes or thereafter created, incurred or assumed, which is
contractually subordinate or junior in right of payment of principal, premium
and interest to the notes.
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"Subsidiary" means any subsidiary of the Company. A "subsidiary" of any
Person means:
(a) 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,
(b) 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
(c) any other Person (other than a corporation or partnership) in
which such Person, directly or indirectly, at the date of determination
thereof, has (1) at least a majority ownership interest or (2) the power to
elect or direct the election of a majority of the directors or other
governing body of such Person.
"Subsidiary Guarantor" means:
(a) each of the Subsidiaries that becomes a guarantor of the notes in
compliance with the provisions of the Indenture; and
(b) each of the Subsidiaries executing a supplemental indenture in
which such Subsidiary agrees to be bound by the terms of the Indenture.
"Unrestricted Subsidiary" means:
(a) Chesapeake Energy Marketing, Inc. and Carmen Acquisition Corp.
until such time as any such Subsidiary shall be designated as a Restricted
Subsidiary in accordance with the requirements of the Indenture;
(b) any Subsidiary of an Unrestricted Subsidiary; and
(c) any Subsidiary of the Company or of a Restricted Subsidiary that
is designated as an Unrestricted Subsidiary by a resolution adopted by the
Board of Directors in accordance with the requirements of the following
sentence.
The Company may designate any Subsidiary of the Company or of a Restricted
Subsidiary (including a newly acquired or newly formed Subsidiary or any
Restricted Subsidiary of the Company), to be an Unrestricted Subsidiary by a
resolution of the Board of Directors of the Company, as evidenced by written
notice thereof delivered to the Trustee, if immediately after giving effect to
such designation:
(a) the Company could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) pursuant to the first paragraph of the
covenant captioned "-- Limitation on Incurrence of Additional
Indebtedness;"
(b) the Company could make an additional Restricted Payment of $1.00
pursuant to the first paragraph of the covenant captioned "-- Limitation on
Restricted Payments;"
(c) such Subsidiary does not own or hold any Capital Stock of, or any
lien on any property of, the Company or any Restricted Subsidiary; and
(d) such Subsidiary is not liable, directly or indirectly, with
respect to any Indebtedness other than Unrestricted Subsidiary
Indebtedness.
"Unrestricted Subsidiary Indebtedness" of any Person means Indebtedness of
such Person:
(a) as to which neither the Company nor any Restricted Subsidiary is
directly or indirectly liable (by virtue of the Company's or such
Restricted Subsidiary's being the primary obligor, or guarantor of, or
otherwise liable in any respect on, such Indebtedness);
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(b) which, with respect to Indebtedness incurred after the date of the
original issuance of the outstanding notes by the Company or any Restricted
Subsidiary, upon the occurrence of a default with respect thereto, does not
result in, or permit any holder of any Indebtedness of the Company or any
Restricted Subsidiary to declare a default on such Indebtedness of the
Company or any Restricted Subsidiary; and
(c) which is not secured by any assets of the Company or of any
Restricted Subsidiary.
"U.S. Government Securities" means securities that are (a) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (b) 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 (a) or (b) 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" mean production payment obligations
recorded as deferred revenue in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"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 or other governing body of such Person.
"Wholly Owned Restricted Subsidiary" means a Restricted Subsidiary all the
Capital Stock (other than directors' qualifying shares, if applicable) of which
is owned by the Company or another Wholly Owned Restricted Subsidiary.
EVENTS OF DEFAULT
The following are "Events of Default" under the Indenture:
(1) default by the Company or any Subsidiary Guarantor in the payment
of principal of or premium, if any, on the notes when due and payable at
maturity, upon repurchase pursuant to the covenants described under
"-- Limitation on Sale of Assets" or "-- Change of Control," upon
acceleration or otherwise;
(2) default by the Company or any Subsidiary Guarantor for 30 days in
payment of any interest on the notes;
(3) default by the Company or any Subsidiary Guarantor in the deposit
of any optional redemption payment;
(4) default on any other Indebtedness (other than Non-Recourse
Indebtedness and Unrestricted Subsidiary Indebtedness) of the Company, any
Subsidiary Guarantor or any other Subsidiary (other than a Non-Recourse
Subsidiary or an Unrestricted Subsidiary) if either (a) such default
results in the acceleration of the maturity of any such Indebtedness having
a principal amount of $10.0 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 (b) such default
results from the failure to pay when due principal of, premium, if any, or
interest on, any such Indebtedness, after giving effect to any applicable
grace period (a "Payment Default"), having a principal amount of $10.0
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;
(5) default in the performance, or breach of, the covenants set forth
in the covenants captioned "-- Limitation on Restricted Payments" and
"-- Limitations on Mergers and Consolidations," or in
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the performance, or breach of, any other covenant or agreement of the
Company or any Subsidiary Guarantor in the Indenture and failure to remedy
such default within a period of 45 days after written notice thereof from
the Trustee or Holders of 25% of the principal amount of the outstanding
notes;
(6) the entry by a court of one or more judgments or orders for the
payment of money against the Company, any Subsidiary Guarantor or any other
Subsidiary (other than a Non-Recourse Subsidiary or an Unrestricted
Subsidiary, provided that neither the Company nor any Restricted Subsidiary
is liable, directly or indirectly, for such judgment or order) in an
aggregate amount in excess of $10.0 million (net of applicable insurance
coverage by a third party insurer which is acknowledged in writing by such
insurer) that has not been vacated, discharged, satisfied or stayed pending
appeal within 60 days from the entry thereof;
(7) 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
(8) certain events involving bankruptcy, insolvency or reorganization
of the Company or any Restricted Subsidiary of the Company.
The Trustee may withhold notice to the Holders of the notes of any default
(except in payment of principal of, or premium, if any, or interest on the
notes) if the Trustee considers it in the interest of the Holders of the notes
to do so.
If an Event of Default occurs and is continuing, the Trustee or the Holders
of not less than 25% in principal amount of the notes outstanding may declare
the principal of and premium, if any, and accrued but unpaid interest on all the
notes to be due and payable. Upon such a declaration, such principal, premium,
if any, 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 of the Company occurs and is continuing, the principal
of, and premium, if any, 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 Holders of the notes. The amount due and payable on the
acceleration of any note will be equal to 100% of the principal amount of the
note, plus accrued and unpaid interest to the date of payment. Under certain
circumstances, the Holders of a majority in principal amount of the outstanding
notes may rescind any such acceleration with respect to the notes and its
consequences.
No Holder of a note may pursue any remedy under the Indenture unless:
(1) the Trustee shall have received written notice of a continuing
Event of Default;
(2) the Trustee shall have received a request from Holders of at least
25% in principal amount of the notes to pursue such remedy;
(3) the Trustee shall have been offered indemnity reasonably
satisfactory to it;
(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
(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;
provided, however, such provision does not affect the right of a Holder of any
note to sue for enforcement of any overdue payment thereon.
The Holders of a majority in principal amount of the notes 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 Company must file annually
with the Trustee a written statement as to compliance with the covenants
contained in the Indenture.
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MODIFICATION AND WAIVER
Modifications and amendments to the Indenture or the notes may be made by
the Company, the Subsidiary Guarantors and the Trustee with the consent of the
Holders of a majority in principal amount of the notes then outstanding;
provided that no such modification or amendment may, without the consent of the
Holder of each note then outstanding affected thereby:
(1) reduce the percentage of principal amount of notes whose Holders
must consent to an amendment, supplement or waiver;
(2) reduce the rate or change the time for payment of interest,
including default interest, on any note;
(3) reduce the principal amount of any note or change the Maturity
Date;
(4) reduce the redemption price, including premium, if any, payable
upon redemption of any note or change the time at which any note may or
shall be redeemed;
(5) reduce the purchase price, including the premium, if any, payable
upon the repurchase of any note upon an Asset Sale or Change in Control, or
change the time at which any note may or shall be repurchased thereunder;
(6) make any note payable in money other than that stated in such
note;
(7) impair the right to institute suit for the enforcement of any
payment of principal of, or premium, if any, or interest on, any note;
(8) make any change in the percentage of principal amount of notes
necessary to waive compliance with certain provisions of the Indenture; or
(9) waive a continuing Default or Event of Default in the payment of
principal of, premium, if any, or interest on the notes.
Modifications and amendments of the Indenture may be made by the Company
and the Trustee without the consent of any Holders of the notes in certain
limited circumstances, including:
(1) to cure any ambiguity, omission, defect or inconsistency;
(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;
(3) to reflect the release of any Subsidiary Guarantor from its
Guarantee of the notes, or the addition of any Subsidiary of the Company as
a Subsidiary Guarantor, in the manner provided in the Indenture;
(4) to comply with any requirement of the SEC in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act;
or
(5) to make any change that would provide any additional benefit to
the Holders or that does not adversely affect the rights of any Holder of
the notes in any material respect.
Holders of a majority in aggregate principal amount of the notes then
outstanding may waive any past default under the Indenture, except a default in
the payment of principal, premium, if any, or interest.
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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 outstanding notes ("Legal
Defeasance"). Such Legal Defeasance means that the Company will be deemed to
have paid and discharged the entire Indebtedness represented by such notes,
except for:
(1) the rights of Holders of the notes to receive payments solely from
the trust fund described in the following paragraph in respect of the
principal of, premium, if any, and interest on the notes when such payments
are due;
(2) the Company's obligations with respect to the notes concerning the
issuance of temporary notes, transfers and exchanges of the notes,
replacement of mutilated, destroyed, lost or stolen notes, the maintenance
of an office or agency where the notes may be surrendered for transfer or
exchange or presented for payment, and duties of paying agents;
(3) the rights, powers, trusts, duties and immunities of the Trustee,
and the Company's obligations in connection therewith; and
(4) the Legal 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 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. In the event Covenant Defeasance occurs, certain events (not
including non-payment) described under "-- Events of Default" will no longer
constitute an Event of Default.
In order to exercise either Legal Defeasance or Covenant Defeasance under
the Indenture:
(1) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders of the notes, 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, premium, if any,
and interest on the outstanding amount of the notes on the Maturity Date or
on the applicable mandatory redemption date, as the case may be, of such
principal or installment of principal, premium, if any, or interest;
(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 (A) the Company has received from or there has been
published by, the Internal Revenue Service a ruling or (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 will not recognize
income, gain or loss for federal income tax purposes as a result of such
Legal 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 Legal Defeasance had not occurred;
(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 will not recognize
income, gain or loss for 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;
(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;
(5) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under the Indenture or any
other material agreement 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 the notes over other creditors of the
Company or with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and
(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.
GOVERNING LAW
The Indenture will be governed by, and construed in accordance with, the
laws of the State of New York.
THE TRUSTEE
United States Trust Company of New York is the Trustee under the Indenture.
Its address is 114 West 47th Street, New York, New York 10036-1532. The Company
has also appointed the Trustee as the initial Registrar, Transfer Agent and
Paying Agent under the Indenture.
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, unless such Holders have offered the Trustee indemnity
reasonably satisfactory to it.
BOOK ENTRY, DELIVERY AND FORM
The new notes will be issued in the form of one or more global securities.
The global securities will be deposited with, or on behalf of, the Depositary
and registered in the name of the Depositary or its nominee. Except as set forth
below, the global securities may be transferred, in whole and not in part, only
to the Depositary or another nominee of the Depositary. Investors may hold their
beneficial interests in the global securities directly through the Depositary if
they have an account with the Depositary or indirectly through organizations
which have accounts with the Depositary.
Notes that are issued as described below under "-- Certificated Notes" will
be issued in definitive form. Upon the transfer of notes in definitive form,
such notes will, unless the global securities have previously been exchanged for
notes in definitive form, be exchanged for an interest in the global securities
representing the aggregate principal amount of notes being transferred.
The Depositary has advised the Company as follows: The Depositary is a
limited-purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depositary was created to hold securities of institutions that have accounts
with the Depositary ("participants") and to facilitate the clearance and
settlement of securities transactions among its participants in such securities
through electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depositary's participants include securities brokers and dealers (which may
include the initial purchasers), banks, trust companies, clearing corporations
and certain other organizations. Access to the Depositary's book-entry system is
also available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
whether directly or indirectly.
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The Company expects that pursuant to procedures established by the
Depositary, upon the issuance of the global securities, the Depositary will
credit, on its book-entry registrations and transfer system, the aggregate
principal amount of new notes represented by such global securities to the
accounts of participants exchanging outstanding notes. Ownership of beneficial
interests in the global securities will be limited to participants or Persons
that may hold interests through participants. Ownership of beneficial interests
in the global securities will be shown on, and the transfer of those ownership
interests will be effected only through, records maintained by the Depositary
(with respect to participants' interest) and such participants (with respect to
the owners of beneficial interests in the global securities other than
participants). The laws of some jurisdictions may require that certain
purchasers of securities take physical delivery of such securities in definitive
form. Such limits and laws may impair the ability to transfer or pledge
beneficial interests in the global securities.
So long as the Depositary, or its nominee, is the Holder of the global
securities, the Depositary or such nominee, as the case may be, will be
considered the sole legal owner and Holder of the notes for all purposes of the
notes and the Indenture. Except as set forth below, you will not be entitled to
have the notes represented by the global securities registered in your name,
will not receive or be entitled to receive physical delivery of certificated
notes in definitive form and will not be considered to be the owner or Holder of
any notes under the global securities. The Company understands that under
existing industry practice, in the event an owner of a beneficial interest in
the global securities desires to take any action that the Depositary, as the
Holder of the global securities, is entitled to take, the Depositary will
authorize the participants to take such action, and that the participants will
authorize beneficial owners owning through such participants to take such action
or would otherwise act upon the instructions of beneficial owners owning through
them.
The Company will make all payments on notes represented by the global
securities registered in the name of and held by the Depositary or its nominee
to the Depositary or its nominee, as the case may be, as the owner and Holder of
the global securities.
The Company expects that the Depositary or its nominee, upon receipt of any
payment in respect of the global securities, will credit participants' accounts
with payments in amounts proportionate to their respective beneficial interests
in the aggregate principal amount of the global securities as shown on the
records of the Depositary or its nominee. The Company also expects that payments
by participants to owners of beneficial interest in the global securities held
through such participants will be governed by standing instructions and
customary practices and will be the responsibility of such participants. The
Company will not have any responsibility or liability for any aspect of the
records relating to, or payments made on account of, beneficial ownership
interests in the global securities for any notes or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests or for
any other aspect of the relationship between the Depositary and its participants
or the relationship between such participants and the owners of beneficial
interests in the global securities owning through such participants.
Although the Depositary has agreed to the preceding procedures in order to
facilitate transfers of interests in the global securities among participants of
the Depositary, it is under no obligations to perform or continue to perform
such procedures, and such procedures may be discontinued at any time. Neither
the Trustee nor the Company will have any responsibility for the performance by
the Depositary or its participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
CERTIFICATED NOTES
Subject to certain conditions, the notes represented by the global
securities will be exchangeable for certificated notes in definitive form of
like tenor as such notes if:
(1) the Depositary notifies the Company that it is unwilling or unable
to continue as Depositary for the global securities and a successor is not
promptly appointed or if at any time the Depositary ceases to be a clearing
agency registered under the Exchange Act; or
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(2) the Company in its discretion at any time determines not to have
all of the notes represented by the global securities. Any notes that are
exchangeable pursuant to the preceding sentence will be exchanged for
certificated notes issuable in authorized denominations and registered in
such names as the Depositary shall direct. Subject to the preceding, the
global securities are not exchangeable, except for global securities of the
same aggregate denominations to be registered in the name of the Depositary
or its nominee.
FEDERAL INCOME TAX CONSIDERATIONS
FEDERAL INCOME TAX CONSIDERATIONS OF THE EXCHANGE OF OUTSTANDING NOTES FOR NEW
NOTES
The following discussion is a summary of certain federal income tax
considerations relevant to the exchange of outstanding notes for new notes, but
does not purport to be a complete analysis of all potential tax effects. The
discussion is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury Regulations, Internal Revenue Service rulings and
pronouncements and judicial decisions now in effect, all of which may be subject
to change at any time by legislative, judicial or administrative action. These
changes may be applied retroactively in a manner that could adversely affect a
holder of new notes. The description does not consider the effect of any
applicable foreign, state, local or other tax laws or estate or gift tax
considerations.
We believe that the exchange of outstanding notes for new notes should not
be an exchange or otherwise a taxable event to a holder for United States
federal income tax purposes. Accordingly, a holder should have the same adjusted
issue price, adjusted basis and holding period in the new notes as it had in the
outstanding notes immediately before the exchange.
FEDERAL INCOME TAX CONSIDERATIONS TO NON-U.S. HOLDERS OF OWNERSHIP AND
DISPOSITION OF NEW NOTES
The following discussion summarizes certain U.S. federal income tax
consequences of the ownership and disposition of the new notes by an initial
holder of outstanding notes who is a non-U.S. holder. This discussion is based
upon the Code, existing and proposed Treasury Regulations, and judicial
decisions and administrative interpretations thereunder, as of the date hereof,
all of which are subject to change, possibly with retroactive effect, or are
subject to different interpretations. We cannot assure you that the Internal
Revenue Service (the "IRS") will not challenge one or more of the tax
consequences described herein, and we have not obtained, nor do we intend to
obtain, a ruling from the IRS or an opinion of counsel with respect to the U.S.
federal tax consequences of acquiring, holding or disposing of the notes.
In this discussion, we do not purport to address all tax considerations
that may be important to a particular non-U.S. holder in light of the non-U.S.
holder's circumstances, or to certain categories of investors (such as certain
financial institutions, insurance companies, tax-exempt organizations, dealers
in securities, persons who hold the notes through partnerships or other
pass-through entities, U.S. expatriates, or persons who hold the new notes as
part of a hedge, conversion transaction, straddle or other risk reduction
transaction) that may be subject to special rules. This discussion is limited to
initial non-U.S. holders who purchased the outstanding notes for cash at the
original offering price and who held those notes and will hold the new notes
received in exchange therefor as capital assets. This discussion also does not
address the tax considerations arising under the laws of any foreign, state or
local jurisdiction.
YOU SHOULD CONSULT YOUR OWN TAX ADVISORS AS TO THE PARTICULAR TAX
CONSEQUENCES TO YOU OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE NEW
NOTES, INCLUDING THE EFFECT AND APPLICABILITY OF STATE, LOCAL OR FOREIGN TAX
LAWS.
You are a non-U.S. holder for purposes of this discussion if you are not:
- an individual U.S. citizen or resident alien;
- a corporation, or other entity taxable as a corporation for U.S. federal
income tax purposes, that was created or organized in or under U.S. law
(federal or state);
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- an estate whose world-wide income is subject to U.S. federal income
taxation; or
- a trust that either is subject to the supervision of a court within the
United States and which has one or more U.S. persons with authority to
control all substantial decisions, or has a valid election in effect
under applicable U.S. Treasury regulation to be treated as a U.S. person.
If a partnership holds notes, the tax treatment of a partner generally will
depend upon the status of the partner and upon the activities of the
partnership. If you are a partner of a partnership holding outstanding notes, we
suggest that you consult your tax advisor.
U.S. Federal Withholding Tax
The 30% U.S. federal withholding tax will not apply to any payment of
principal or interest to you on the new notes provided that:
- you do not actually (or constructively) own 10% or more of the total
combined voting power of all classes of our voting stock within the
meaning of the Code and the U.S. Treasury regulations;
- you are not a controlled foreign corporation that is related to us
through stock ownership; and
- you are not a bank whose receipt of interest on the new notes is pursuant
to a loan agreement entered into in the ordinary course of business.
In each case, (a) you must provide your name and address on an IRS Form W-8BEN
(or successor form), and certify under penalty of perjury, that you are not a
U.S. person, (b) a financial institution holding the new notes on your behalf
must certify, under penalty of perjury, that it has received an IRS Form W-8BEN
(or successor form) from you and must provide us with a copy, or (c) you must
hold your new notes directly through a "qualified intermediary," and the
qualified intermediary must have sufficient information in its files indicating
that you are a non-U.S. holder. A qualified intermediary is a bank, broker or
other intermediary that is acting out of a non-U.S. branch or office and has
signed an agreement with the IRS providing that it will administer all or part
of the U.S. tax withholding rules under specified procedures.
If you cannot satisfy the requirements described above, payments of
principal and interest made to you will be subject to the 30% U.S. federal
withholding tax, unless you provide us with a properly executed (1) IRS Form
W-8BEN (or successor form) claiming an exemption from (or a reduction of)
withholding under the benefit of a tax treaty or (2) IRS Form W-8ECI (or
successor form) stating that interest paid on the new notes is not subject to
withholding tax because it is effectively connected with your conduct of a trade
or business in the United States.
The 30% U.S. federal withholding tax generally will not apply to any gain
or income that you realize on the sale, exchange, or other disposition of the
new notes.
U.S. Federal Estate Tax
If you are an individual, your estate will not be subject to U.S. federal
estate tax on new notes beneficially owned by you at the time of your death,
provided that (1) you do not own 10% or more of the total combined voting power
of all classes of our voting stock (within the meaning of the Code and the U.S.
Treasury Regulations) and (2) interest on such notes would not have been, if
received at the time of your death, effectively connected with the conduct by
you of a trade or business in the United States.
U.S. Federal Income Tax
If you are engaged in a trade or business in the United States and interest
on the new notes is effectively connected with the conduct of that trade or
business, you will be subject to U.S. federal income tax on the interest on a
net income basis (although exempt from the 30% withholding tax) in the same
manner as if you were a U.S. person as defined under the Code. In addition, if
you are a foreign
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corporation, you may be subject to a branch profits tax equal to 30% (or lower
applicable treaty rate) of your earnings and profits for the taxable year,
including earnings and profits from an investment in the new notes, that are
effectively connected with the conduct by you of a trade or business in the
United States.
Any gain or income realized on the sale, exchange, or redemption of the new
notes generally will not be subject to U.S. federal income tax unless:
- that gain or income is effectively connected with the conduct of a trade
or business in the United States by you,
- you are an individual who is present in the United States for 183 days or
more in the taxable year of that disposition, and certain other
conditions are present, or
- the gain represents accrued interest, in which case the rules for
interest would apply.
Backup Withholding and Information Reporting
Backup withholding and information reporting will not apply to payments of
principal and interest on the new notes by us or our agent to you if you certify
as to your non-U.S. holder status under penalties of perjury or you otherwise
qualify for an exemption (provided that neither we nor our agent know or have
reason to know that you are a U.S. person or that the conditions of any other
exemptions are not in fact satisfied).
The payment of the proceeds of the disposition of new notes to or through
the U.S. office of a U.S. or foreign broker will be subject to information
reporting and backup withholding unless you provide the certification described
above or you otherwise qualify for an exemption. The proceeds of a disposition
effected outside the United States by a non-U.S. holder to or through a foreign
office of a broker generally will not be subject to backup withholding or
information reporting. However, if such broker is a U.S. person, a controlled
foreign corporation for U.S. tax purposes, a foreign person 50% or more of whose
gross income from all sources for certain periods is effectively connected with
a trade or business in the United States, or a foreign partnership that is
engaged in the conduct of a trade or business in the United States or that has
one or more partners that are U.S. persons who in the aggregate hold more than
50 percent of the income or capital interests in the partnership, information
reporting requirements will apply unless such broker has documentary evidence in
its files of your non-U.S. status and has no actual knowledge or reason to know
to the contrary or unless you otherwise qualify for an exemption. Any amount
withheld under the backup withholding rules will be refunded or is allowable as
a credit against your federal income tax liability, if any, provided the
required information or appropriate claim for refund is provided to the IRS.
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PLAN OF DISTRIBUTION
Based on interpretations by the staff of the Securities and Exchange
Commission in no action letters issued to third parties, we believe that you may
transfer new notes issued under the exchange offer in exchange for the
outstanding notes if:
- you acquire the new notes in the ordinary course of your business; and
- you are not engaged in, and do not intend to engage in, and have no
arrangement or understanding with any person to participate in, a
distribution of such new notes.
You may not participate in the exchange offer if you are:
- our "affiliate" within the meaning of Rule 405 under the Securities Act
of 1933; or
- a broker-dealer that acquired outstanding notes directly from us.
Each broker-dealer that receives new notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such new notes. To date, the staff of the
Securities and Exchange Commission has taken the position that broker-dealers
may fulfill their prospectus delivery requirements with respect to transactions
involving an exchange of securities such as this exchange offer, other than a
resale of an unsold allotment from the original sale of the outstanding notes,
with the prospectus contained in this registration statement. This prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of new notes received in exchange for
outstanding notes where such outstanding notes were acquired as a result of
market-making activities or other trading activities. We have agreed that, for a
period of up to 180 days after the effective date of this registration
statement, we will make this prospectus, as amended or supplemented, available
to any broker-dealer for use in connection with any such resale. In addition,
until such date, all dealers effecting transactions in new notes may be required
to deliver a prospectus.
If you wish to exchange new notes for your outstanding notes in the
exchange offer, you will be required to make representations to us as described
in "Exchange Offer -- Purpose and Effect of the Exchange Offer" and
"-- Procedures for Tendering -- Your Representations to Us" in this prospectus
and in the letter of transmittal. In addition, if you are a broker-dealer who
receives new notes for your own account in exchange for outstanding notes that
were acquired by you as a result of market-making activities or other trading
activities, you will be required to acknowledge that you will deliver a
prospectus in connection with any resale by you of such new notes.
We will not receive any proceeds from any sale of new notes by
broker-dealers. New notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market:
- in negotiated transactions;
- through the writing of options on the new notes or a combination of such
methods of resale;
- at market prices prevailing at the time of resale; and
- at prices related to such prevailing market prices or negotiated prices.
Any such resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any such broker-dealer or the purchasers of any such new notes. Any
broker-dealer that resells new notes that were received by it for its own
account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such new notes may be deemed to be an
"underwriter" within the meaning of the Securities Act of 1933. The letter of
transmittal states that by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act of 1933.
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For a period of 180 days after the effective date of this registration
statement, we will promptly send additional copies of this prospectus and any
amendment or supplement to this prospectus to any broker-dealer that requests
such documents in the letter of transmittal. We have agreed to pay all expenses
incident to the exchange offer (including the expenses of one counsel for the
holders of the outstanding notes) other than commissions or concessions of any
broker-dealers and will indemnify the holders of the outstanding notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act of 1933.
LEGAL MATTERS
The validity of the new notes offered in this exchange offer will be passed
upon for us by Vinson & Elkins L.L.P. in reliance on the opinion of Commercial
Law Group, P.C. with respect to matters of Oklahoma law.
Shannon T. Self, a shareholder in Commercial Law Group, P.C., is a director
of Chesapeake, and he beneficially owns 431,242 shares of our common stock.
EXPERTS
The consolidated financial statements of Chesapeake Energy Corporation and
Gothic Energy Corporation, incorporated in this prospectus by reference to
Chesapeake's annual report on Form 10-K/A for the year ended December 31, 2000,
have been so incorporated in reliance on the reports of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
Estimates of the oil and gas reserves of Chesapeake Energy Corporation and
Gothic Energy Corporation and related future net cash flows and the present
values thereof, included in Chesapeake's annual report on Form 10-K for the year
ended December 31, 2000, were based upon reserve reports prepared by Williamson
Petroleum Consultants, Inc., Ryder Scott Company, L.P. and Lee Keeling and
Associates, Inc., independent petroleum engineers. We have incorporated these
estimates in reliance on the authority of each such firm as experts in such
matters.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may inspect and copy such material at the public
reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, as well as at the SEC's regional
offices at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7
World Trade Center, Suite 1300, New York, New York 10048. Please call the SEC at
1-800-SEC-0330 for more information on the public reference rooms. You can also
find our SEC filings at the SEC's website at www.sec.gov and on our website at
www.chkenergy.com. Information contained on our website is not part of this
prospectus.
In addition, reports, proxy statements and other information concerning us
can be inspected at the NYSE, 20 Broad Street, New York, New York 10005, where
our common stock is listed.
The following documents we filed with the SEC pursuant to the Exchange Act
are incorporated herein by reference:
1. Annual Report on Form 10-K, as amended, for the fiscal year ended
December 31, 2000;
2. Proxy Statement dated April 30, 2001 for our 2001 Annual Meeting of
Stockholders;
3. Current Reports on Form 8-K dated January 17, January 24, January
31, February 6 (two reports), February 13, February 20, March 27, March 29,
April 2 (two reports), April 3, April 9, April 16, April 17 and April 27,
2001; and
4. Quarterly Report on Form 10-Q for the quarter ended March 31, 2001.
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All documents filed by us pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this prospectus and prior to the
termination of the notes offering shall be deemed to be incorporated in this
prospectus and to be a part hereof from the date of the filing of such document.
Any statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for all purposes to the extent that a
statement contained in this prospectus, or in any other subsequently filed
document which is also incorporated or deemed to be incorporated by reference,
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this prospectus.
We will provide without charge to each person to whom this prospectus is
delivered, upon written or oral request of such person, a copy of any or all
documents incorporated by reference in this prospectus. Requests for such copies
should be directed to Marcus C. Rowland, Executive Vice President and Chief
Financial Officer, Chesapeake Energy Corporation, 6100 North Western Avenue,
Oklahoma City, Oklahoma 73118, by mail, and if by telephone at (405) 848-8000.
FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act.
Forward-looking statements give our current expectations or forecasts of future
events. They include statements regarding oil and gas reserve estimates, planned
capital expenditures, the drilling of oil and gas wells and future acquisitions,
expected oil and gas production, cash flow and anticipated liquidity, business
strategy and other plans and objectives for future operations and expected
future expenses and use of net operating loss carryforwards.
Although we believe the expectations and forecasts reflected in these and
other forward-looking statements are reasonable, we can give no assurance they
will prove to have been correct. They can be affected by inaccurate assumptions
or by known or unknown risks and uncertainties. Factors that could cause actual
results to differ materially from expected results are described under "Risk
Factors" and include:
- the volatility of oil and gas prices;
- our substantial indebtedness;
- our commodity price risk management activities;
- our ability to replace reserves;
- the availability of capital;
- uncertainties inherent in estimating quantities of oil and gas reserves;
- projecting future rates of production and the timing of development
expenditures;
- uncertainties in evaluating oil and gas reserves of acquired properties
and associated potential liabilities;
- drilling and operating risks;
- adverse effects of governmental and environmental regulation;
- losses possible from pending or future litigation;
- the strength and financial resources of our competitors;
- the loss of officers or key employees; and
- conflicts of interest our chief executive officer and chief operating
officer may have as a result of their participation in company wells.
We caution you not to place undue reliance on these forward-looking
statements, which speak only as of the date of this prospectus, and we undertake
no obligation to update this information. We urge you to carefully review and
consider the disclosures made in this prospectus and our reports filed with the
SEC and incorporated by reference herein that attempt to advise interested
parties of the risks and factors that may affect our business.
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