<PAGE> 1
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 1-13726
CHESAPEAKE ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
OKLAHOMA 73-1395733
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6100 NORTH WESTERN AVENUE
OKLAHOMA CITY, OKLAHOMA 73118
(Address of principal executive offices) (Zip Code)
(405) 848-8000
(Registrant's telephone number, including area code)
---------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
At April 30, 1998, there were 105,105,580 shares of the registrant's $.01
par value Common Stock outstanding.
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<PAGE> 2
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1998
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Item 1. Consolidated Financial Statements (Unaudited):
Consolidated Balance Sheets at March 31, 1998 and
December 31, 1997 3
Consolidated Statements of Operations for the Three Months Ended
March 31, 1998 and 1997 4
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 23
</TABLE>
2
<PAGE> 3
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
($ IN THOUSANDS)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ............................ $ 31,945 $ 123,860
Restricted cash ...................................... 2,001 --
Short-term investments ............................... 5,876 12,570
Accounts receivable:
Oil and gas sales ................................... 11,553 10,654
Oil and gas marketing sales ......................... 16,592 20,493
Joint interest and other, net of allowance
for doubtful accounts of $961,000 and $691,000 .... 26,773 38,781
Related parties ..................................... 5,502 4,246
Inventory ............................................ 5,217 5,493
Other ................................................ 5,053 1,624
----------- -----------
Total Current Assets .............................. 110,512 217,721
----------- -----------
PROPERTY AND EQUIPMENT:
Oil and gas properties, at cost based on full
cost accounting:
Evaluated oil and gas properties .................... 1,564,941 1,095,363
Unevaluated properties .............................. 144,403 125,155
Less: accumulated depreciation, depletion and
amortization ...................................... (883,734) (602,391)
----------- -----------
825,610 618,127
Other property and equipment ......................... 78,068 67,633
Less: accumulated depreciation and amortization ...... (7,528) (6,573)
----------- -----------
Total Property and Equipment ...................... 896,150 679,187
----------- -----------
OTHER ASSETS ........................................... 58,673 55,876
----------- -----------
TOTAL ASSETS ...................................... $ 1,065,335 $ 952,784
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ..................................... $ 100,135 $ 81,775
Accrued liabilities and other ........................ 53,519 42,733
Revenues and royalties due others .................... 26,020 28,972
----------- -----------
Total Current Liabilities ......................... 179,674 153,480
----------- -----------
LONG-TERM DEBT, NET .................................... 654,013 508,992
----------- -----------
REVENUES AND ROYALTIES DUE OTHERS ...................... 10,551 10,106
----------- -----------
DEFERRED INCOME TAXES .................................. -- --
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 10,000,000 shares
authorized; none issued ............................ -- --
Common Stock, 250,000,000 shares authorized;
$.01 par value; 100,102,270 and 74,298,061
shares issued and outstanding at March 31,
1998, and December 31, 1997, respectively .......... 1,001 743
Paid-in capital ...................................... 659,868 460,733
Accumulated deficit .................................. (439,772) (181,270)
----------- -----------
Total Stockholders' Equity ........................ 221,097 280,206
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............. $ 1,065,335 $ 952,784
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 4
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1998 1997
--------- --------
REVENUES:
<S> <C> <C>
Oil and gas sales ........................................ $ 50,241 $ 57,399
Oil and gas marketing sales .............................. 26,524 22,410
Interest and other ....................................... 224 3,277
--------- --------
Total revenues ....................................... 76,989 83,086
--------- --------
COSTS AND EXPENSES:
Production expenses ...................................... 7,894 3,158
Production taxes ......................................... 1,544 1,150
Oil and gas marketing expenses ........................... 26,261 21,747
Impairment of oil and gas properties ..................... 250,000 --
Oil and gas depreciation, depletion and amortization ..... 31,342 24,663
Depreciation and amortization of other assets ............ 1,380 873
General and administrative ............................... 4,380 2,481
Interest ................................................. 10,688 3,654
--------- --------
Total costs and expenses ............................. 333,489 57,726
--------- --------
INCOME (LOSS) BEFORE INCOME TAX AND EXTRAORDINARY ITEM .... (256,500) 25,360
--------- --------
INCOME TAX EXPENSE:
Current .................................................. -- --
Deferred ................................................. -- 9,255
--------- --------
Total income tax expense ............................. -- 9,255
--------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM ................... (256,500) 16,105
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt, net of applicable
income tax of $101 ................................... -- (177)
--------- --------
NET INCOME (LOSS) .................................... $(256,500) $ 15,928
========= ========
EARNINGS PER COMMON SHARE (BASIC)
Income (loss) before extraordinary item .................. $ (3.19) $ .23
Extraordinary item ....................................... -- --
--------- --------
Net income (loss) ........................................ $ (3.19) $ .23
========= ========
EARNINGS PER COMMON SHARE (ASSUMING DILUTION)
Income (loss) before extraordinary item .................. $ (3.19) $ .22
Extraordinary item ....................................... -- --
--------- --------
Net income (loss) ........................................ $ (3.19) $ .22
========= ========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING
Basic .................................................... 80,330 69,534
========= ========
Assuming dilution ........................................ 80,330 73,493
========= ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 5
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1998 1997
--------- ---------
($ IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ...................................... $(256,500) $ 15,928
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation, depletion and amortization .............. 32,326 25,236
Impairment of oil and gas assets ...................... 250,000 --
Deferred taxes ........................................ -- 9,154
Investments in securities, net ........................ -- 34,777
Amortization of loan costs ............................ 396 300
Amortization of bond discount ......................... 21 5
Loss on sale of fixed assets and other ................ 368 18
Extraordinary loss before income tax benefit .......... -- 278
Equity in (earnings) losses of equity investees ....... 22 (91)
Bad debt expense ...................................... 604 88
Changes in current assets and liabilities ............. 21,948 (46,007)
--------- ---------
Cash provided by operating activities ............... 49,185 39,686
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Exploration, development and acquisition of oil
and gas properties .................................. (149,002) (158,245)
Proceeds from sale of assets ........................... 220 2,850
Repayment of long-term loan ............................ 2,000 --
Additions to other property and equipment .............. (19,684) (4,712)
--------- ---------
Cash used in investing activities ................... (166,466) (160,107)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings ..................... 145,000 292,626
Payments on long-term borrowings ....................... (120,000) (12,664)
Cash received from exercise of stock options ........... 61 625
Other financing ........................................ 305 (95)
--------- ---------
Cash provided by financing activities ............... 25,366 280,492
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..... (91,915) 160,071
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ........... 123,860 140,739
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD ................. $ 31,945 $ 300,810
========= =========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1998 1997
--------- ------
($ IN THOUSANDS)
<S> <C> <C>
DETAILS OF ACQUISITION OF HUGOTON ENERGY CORPORATION:
Fair value of assets acquired .......................... $ 336,517 $ --
Liabilities acquired ................................... $(128,146) $ --
Stock issued ........................................... $(206,321) $ --
Fair value of Hugoton stock options converted
into Chesapeake stock options ........................ $ (2,050) $ --
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE> 6
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
1. ACCOUNTING PRINCIPLES
The accompanying unaudited consolidated financial statements of Chesapeake
Energy Corporation and Subsidiaries (the "Company") have been prepared in
accordance with the instructions to Form 10-Q as prescribed by the Securities
and Exchange Commission. All material adjustments (consisting solely of normal
recurring adjustments) which, in the opinion of management, are necessary for a
fair presentation of the results for the interim periods have been reflected.
The results for the three months ended March 31, 1998 are not necessarily
indicative of the results to be expected for the full fiscal year.
The Company has changed its fiscal year end from June 30 to December 31. This
Form 10-Q relates to the three months ended March 31, 1998 (the "Current
Quarter") and March 31, 1997 (the "Prior Quarter").
2. RECENT ACQUISITIONS
On December 16, 1997, the Company acquired AnSon Production Corporation
("AnSon"), a privately owned oil and gas producer based in Oklahoma City.
Consideration for the acquisition was approximately $43 million, which included
the issuance of 3,792,724 shares of Chesapeake's common stock and the payment
of $24.8 million on May 7, 1998, pursuant to a make-whole provision.
On January 30, 1998, the Company entered into a 40/60 alliance with Ranger Oil
Limited to jointly develop a 3.2 million acre area of mutual interest in the
Helmet area of northeastern British Columbia. As part of the transaction, the
Company paid approximately $48 million for proved oil and gas reserves,
undeveloped leasehold and a 40% interest in Ranger's infrastructure in the area.
On February 6, 1998, the Company purchased the Mid-Continent properties of
EnerVest Management Company, L.L.C. for $38 million.
On March 10, 1998, the Company acquired Hugoton Energy Corporation ("Hugoton")
pursuant to a merger by issuing approximately 25.8 million shares of the
Company's common stock in exchange for 100% of Hugoton's common stock.
See Consolidated Statements of Cash Flows.
On April 22, 1998, the Company issued $230 million (4.6 million shares) of its
7% Cumulative Convertible Preferred Stock, $50 per share liquidation preference,
and $500 million of its 9.625% Series A Senior Notes due 2005. Net proceeds from
these offerings were approximately $712 million.
On April 27, 1998, the Company acquired from Gothic Energy Corporation certain
proved oil and gas reserves for $20 million, purchased $50 million of Gothic 12%
preferred stock, acquired ten-year warrants to purchase 15% of Gothic's
currently outstanding common stock for $0.01 per share, acquired a 50% interest
in Gothic's undeveloped leasehold acreage and entered into a five-year drilling
and acquisitions participation agreement.
On April 27, 1998, Chesapeake acquired the British Columbia properties of
Sunoma Energy Corporation for $33 million.
On April 28, 1998 the Company acquired by merger the Mid-Continent operations of
DLB Oil & Gas, Inc. for $17.5 million in cash, 5,000,000 shares of the Company's
common stock, and the assumption of $90 million in outstanding debt and working
capital obligations.
On April 30, 1998, the Company acquired 100% of the stock of MC Panhandle Corp.,
a wholly-owned subsidiary of Occidental Petroleum Corporation, by paying
approximately $95 million, net of working capital adjustments.
Effective April 30, 1998, the Company purchased all of its outstanding 10.5%
Senior Notes due 2002. Of the $90,000,000 aggregate principal amount,
$89,830,000 was acquired pursuant to the Company's offer to purchase, which
commenced April 1, 1998, and the remaining $170,000 was acquired on the same
terms after the tender period. The cost to acquire the 10.5% Senior Notes was
approximately $99,000,000. The early retirement of these notes will result in
an extraordinary charge of approximately $12 million during the quarter ended
June 30, 1998.
6
<PAGE> 7
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
3. LEGAL PROCEEDINGS
The Company and certain of its officers and directors are defendants in a
consolidated class action suit alleging violations of the Securities Exchange
Act of 1934. The plaintiffs assert that the defendants made material
misrepresentations and failed to disclose material facts about the success of
the Company's exploration efforts in the Louisiana Trend. As a result, the
complaint alleges the price of the Company's common stock was artificially
inflated from January 25, 1996 until June 27, 1997, when the Company issued a
press release announcing disappointing drilling results in the Louisiana Trend
and a full-cost ceiling writedown to be reflected in its June 30, 1997 financial
statements. The plaintiffs further allege that certain of the named individual
defendants sold common stock during the class period when they knew or should
have known adverse nonpublic information. The plaintiffs seek a determination
that the suit is a proper class action and damages in an unspecified amount,
together with interest and costs of litigation, including attorneys' fees. The
Company and the individual defendants believe that these claims are without
merit, and intend to defend against them vigorously. No estimate of loss or
range of estimate of loss, if any, can be made at this time.
Various purported class actions alleging violations of the Securities Act of
1933 and the Oklahoma Securities Act have been filed against the Company and
others on behalf of investors who purchased common stock of Bayard Drilling
Technologies, Inc. ("Bayard") in its initial public offering in November 1997.
In May 1998, the plaintiffs in the two cases pursuing state claims dismissed
their state court suits and became co-lead plaintiffs in the remaining federal
case. Total proceeds of the offering were $254 million, of which the Company
received net proceeds of $90.2 million. Plaintiffs allege that the Company, a
major customer of Bayard's drilling services and the owner of 30.1% of Bayard's
common stock outstanding prior to the offering, was a controlling person of
Bayard. Plaintiffs assert that the Bayard prospectus contained material
omissions and misstatements relating to (i) the Company's financial "hardships"
and their significance on Bayard's business, (ii) increased costs associated
with Bayard's growth strategy, and (iii) undisclosed pending related-party
transactions between Bayard and third parties other than the Company. The
alleged defective disclosures are claimed to have resulted in a decline in
Bayard's share price following the public offering. The plaintiffs seek a
determination that the suit is a proper class action and damages in an
unspecified amount or rescission, together with interest and costs of
litigation, including attorney's fees. The Company believes that the claims are
without merit and intends to defend against them vigorously. No estimate of loss
or range of estimate of loss, if any, can be made at this time.
In October 1996, Union Pacific Resources Company ("UPRC") sued the Company
alleging infringement of a patent for a drilling method, tortious interference
with confidentiality contracts between UPRC and certain of its former employees
and misappropriation of proprietary information of UPRC. UPRC's claims against
the Company are based on services provided to the Company by a third party
vendor controlled by former UPRC employees. UPRC is seeking injunctive relief,
damages of an unspecified amount, including actual, enhanced, consequential and
punitive damages, interest, costs and attorneys' fees. The Company believes that
it has meritorious defenses to UPRC's allegations and has requested the court to
declare the UPRC patent invalid. The Company has also filed a motion to construe
UPRC's patent claims and various motions for summary judgment. No estimate of
loss or range of estimate of loss, if any, can be made at this time; however, in
reports filed in the proceeding, experts for UPRC
7
<PAGE> 8
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
claim that damages could be as much as $18 million while Company experts state
that the amount should not exceed $25,000, in each case based on a reasonable
royalty.
The Company is currently involved in various other routine disputes incidental
to its business operations. While it is not possible to determine the ultimate
disposition of these matters, management, after consultation with legal counsel,
is of the opinion that the final resolution of all such currently pending or
threatened litigation is not likely to have a material adverse effect on the
consolidated financial position or results of operations of the Company.
4. IMPAIRMENT OF OIL AND GAS PROPERTIES
The Company incurred an impairment of oil and gas properties charge of $250
million in the Current Quarter. This writedown was caused by several factors,
including the effects of accounting for the Hugoton acquisition using the
purchase accounting method, oil prices declining from $17.62 at December 31,
1997 to $13.92 at March 31, 1998, gas prices declining from $2.29 at December
31, 1997 to $2.01 at March 31, 1998 and higher drilling and completion costs
compared to previous estimates. Additionally, lower oil and gas prices at March
31, 1998 and higher drilling costs caused downward revisions in the Company's
proved reserves as certain proved undeveloped reserves previously estimated by
the Company were rendered uneconomic and therefore excluded by the Company from
its proved reserves.
The primary reason for the impairment charge was the completion of the
acquisition in March 1998 of Hugoton, which was accounted for using the purchase
method. The purchase price, which was established in November 1997 when the
acquisition was announced (based on a Chesapeake common stock price of $8.00 per
share), was allocated almost entirely to Hugoton's evaluated oil and gas
properties. Based upon reserve estimates as of March 31, 1998, the portion of
the purchase price which was allocated to evaluated oil and gas properties
exceeded the associated discounted future net revenues from Hugoton's estimated
proved reserves by approximately $150 million.
5. NET INCOME (LOSS) PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128"). SFAS
128 requires presentation of "basic" and "diluted" earnings per share, as
defined, on the face of the statement of operations for all entities with
complex capital structures. SFAS 128 is effective for financial statements
issued for periods ending after December 15, 1997 and requires restatement of
all prior period earnings per share amounts. The Company has adopted SFAS 128
and has restated all prior periods presented.
SFAS 128 requires a reconciliation of the numerators and denominators of the
basic and diluted EPS computations. For the Current Quarter there was no
difference between actual weighted average shares outstanding, which are used in
computing basic EPS and diluted weighted average shares, which are used in
computing diluted EPS. Options to purchase 10.2 million shares of common stock
at a weighted average exercise price of $5.69 were outstanding during the
Current Quarter but were not included in the computation of diluted EPS because
the effect of these outstanding options would be antidilutive. A reconciliation
for the Prior Quarter is as follows:
<TABLE>
<CAPTION>
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
<S> <C> <C> <C>
For the Quarter Ended March 31, 1997:
Basic EPS
Income available to common stockholders ... $15,928 69,534 $0.23
=====
Effect of Dilutive Securities
Employee stock options .................... -- 3,959
------- ------
Diluted EPS
Income available to common stockholders and
assumed conversions ..................... $15,928 73,493 $0.22
======= ====== =====
</TABLE>
8
<PAGE> 9
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
6. SENIOR NOTES
10.5% Notes
The Company had outstanding at March 31, 1998, $90 million in aggregate
principal amount of 10.5% Senior Notes due 2002. The 10.5% Notes were senior,
unsecured obligations of the Company and were fully and unconditionally
guaranteed, jointly and severally, by Guarantor Subsidiaries (as defined below).
All outstanding 10.5% Notes were acquired by the Company effective April 30,
1998. See Note 2.
9.125% Notes
The Company has outstanding $120 million in aggregate principal amount of 9.125%
Senior Notes which mature April 15, 2006. The 9.125% Notes bear interest at an
annual rate of 9.125%, payable semiannually on each April 15 and October 15. The
9.125% Notes are senior, unsecured obligations of the Company and are fully and
unconditionally guaranteed, jointly and severally, by the Guarantor
Subsidiaries.
7.875% Notes
The Company has outstanding $150 million in aggregate principal amount of 7.875%
Senior Notes which mature March 15, 2004. The 7.875% Notes bear interest at the
rate of 7.875%, payable semiannually on each March 15 and September 15. The
7.875% Notes are senior, unsecured obligations of the Company and are fully and
unconditionally guaranteed, jointly and severally, by the Guarantor
Subsidiaries.
8.5% Notes
The Company has outstanding $150 million in aggregate principal amount of 8.5%
Senior Notes which mature March 15, 2012. The 8.5% Notes bear interest at the
rate of 8.5%, payable semiannually on each March 15 and September 15. The 8.5%
Notes are senior, unsecured obligations of the Company and are fully and
unconditionally guaranteed, jointly and severally, by the Guarantor
Subsidiaries.
The Company is a holding company and owns no operating assets and has no
significant operations independent of its subsidiaries. The Company's
obligations under its Senior Notes have been fully and unconditionally
guaranteed, on a joint and several basis, by each of the Company's "Restricted
Subsidiaries" (as defined in the respective indentures governing the Senior
Notes) (collectively, the "Guarantor Subsidiaries"). Each of the Guarantor
Subsidiaries is a direct or indirect wholly-owned subsidiary of the Company.
The Senior Note Indentures contain certain covenants, including covenants
limiting the Company and the Guarantor Subsidiaries with respect to asset sales,
restricted payments, the incurrence of additional indebtedness and the issuance
of preferred stock, liens, sale and leaseback transactions, lines of business,
dividend and other payment restrictions affecting Guarantor Subsidiaries,
mergers or consolidations, and transactions with affiliates. The Company is
obligated to repurchase the 9.125% Senior Notes in the event of a change of
control or certain asset sales.
9
<PAGE> 10
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
Set forth below are condensed consolidating financial statements of the
Guarantor Subsidiaries, the Company's subsidiaries which are not guarantors of
the Senior Notes (the "Non-Guarantor Subsidiaries") and the Company. Separate
financial statements of each Guarantor Subsidiary have not been provided because
management has determined that they are not material to investors.
As of and for the three months ended March 31, 1998, the Non-Guarantor
Subsidiaries were Chesapeake Energy Marketing, Inc., Chesapeake Acquisition
Corporation and subsidiaries of those companies. As of and for the three months
ended March 31, 1997, the Non-Guarantor Subsidiaries were Chesapeake Energy
Marketing, Inc. and Chesapeake Canada Corporation. For both periods, the
remaining subsidiaries of the Company were Guarantor Subsidiaries.
10
<PAGE> 11
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF MARCH 31, 1998
($ IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
GUARANTOR NON-GUARANTOR COMPANY
SUBSIDIARIES SUBSIDIARIES (PARENT) ELIMINATIONS CONSOLIDATED
----------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ................ $ (15,466) $ 9,148 $ 40,264 $ -- $ 33,946
Short-term investments ................... -- -- 5,876 -- 5,876
Accounts receivable, net ................. 40,931 26,224 2 (6,737) 60,420
Inventory ................................ 5,143 74 -- -- 5,217
Other .................................... 4,771 277 5 -- 5,053
----------- --------- ----------- ----------- -----------
Total Current Assets .................. 35,379 35,723 46,147 (6,737) 110,512
----------- --------- ----------- ----------- -----------
PROPERTY AND EQUIPMENT:
Oil and gas properties ................... 1,165,645 399,296 -- -- 1,564,941
Unevaluated leasehold .................... 130,106 14,297 -- -- 144,403
Other property and equipment ............. 58,251 3,402 16,415 -- 78,068
Less: accumulated depreciation,
Depletion and amortization ............. (703,750) (186,454) (1,058) -- (891,262)
----------- --------- ----------- ----------- -----------
Total Property & Equipment ............ 650,252 230,541 15,357 -- 896,150
----------- --------- ----------- ----------- -----------
INVESTMENTS IN SUBSIDIARIES AND
INTERCOMPANY ADVANCES .................... 81,755 274,529 1,214,222 (1,570,506) --
----------- --------- ----------- ----------- -----------
OTHER ASSETS ............................... 4,418 9,283 44,972 -- 58,673
----------- --------- ----------- ----------- -----------
TOTAL ASSETS .......................... $ 771,804 $ 550,076 $ 1,320,698 $(1,577,243) $ 1,065,335
=========== ========= =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current maturities
of long-term debt ...................... $ -- $ -- $ -- $ -- $ --
Accounts payable and other ............... 119,679 30,677 36,250 (6,932) 179,674
----------- --------- ----------- ----------- -----------
Total Current Liabilities ............. 119,679 30,677 36,250 (6,932) 179,674
----------- --------- ----------- ----------- -----------
LONG-TERM DEBT ............................. -- 120,000 534,013 -- 654,013
REVENUES PAYABLE ........................... 10,106 445 -- -- 10,551
DEFERRED INCOME TAXES ...................... -- -- -- -- --
INTERCOMPANY PAYABLES ...................... 911,684 47,175 -- (958,859) --
STOCKHOLDERS' EQUITY:
Common Stock ............................. 10 4 991 (4) 1,001
Other .................................... (269,675) 351,775 749,444 (611,448) 220,096
----------- --------- ----------- ----------- -----------
Total Stockholders' Equity ............ (269,665) 351,779 750,435 (611,452) 221,097
----------- --------- ----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ................ $ 771,804 $ 550,076 $ 1,320,698 $(1,577,243) $ 1,065,335
=========== ========= =========== =========== ===========
</TABLE>
11
<PAGE> 12
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1997
($ IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
GUARANTOR NON-GUARANTOR COMPANY
SUBSIDIARIES SUBSIDIARIES (PARENT) ELIMINATIONS CONSOLIDATED
----------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ................ $ (589) $ 13,999 $ 110,450 $ -- $ 123,860
Short-term investments ................... -- -- 12,570 -- 12,570
Accounts receivable, net ................. 57,476 22,882 1,524 (7,708) 74,174
Inventory ................................ 4,918 575 -- -- 5,493
Other .................................... 1,613 1 10 -- 1,624
----------- --------- ----------- ----------- -----------
Total Current Assets .................. 63,418 37,457 124,554 (7,708) 217,721
----------- --------- ----------- ----------- -----------
PROPERTY AND EQUIPMENT:
Oil and gas properties ................... 1,056,118 39,245 -- -- 1,095,363
Unevaluated leasehold .................... 125,155 -- -- -- 125,155
Other property and equipment ............. 51,868 343 15,422 -- 67,633
Less: accumulated depreciation,
Depletion and amortization ............. (593,359) (14,650) (955) -- (608,964)
----------- --------- ----------- ----------- -----------
Total Property & Equipment ............ 639,782 24,938 14,467 -- 679,187
----------- --------- ----------- ----------- -----------
INVESTMENTS IN SUBSIDIARIES AND
INTERCOMPANY ADVANCES .................... 81,755 49,958 903,713 (1,035,426) --
----------- --------- ----------- ----------- -----------
OTHER ASSETS ............................... 10,189 6,918 38,769 -- 55,876
----------- --------- ----------- ----------- -----------
TOTAL ASSETS .......................... $ 795,144 $ 119,271 $ 1,081,503 $(1,043,134) $ 952,784
=========== ========= =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current maturities
of long-term debt ...................... $ -- $ -- $ -- $ -- $ --
Accounts payable and other ............... 104,259 29,649 27,280 (7,708) 153,480
----------- --------- ----------- ----------- -----------
Total Current Liabilities ............. 104,259 29,649 27,280 (7,708) 153,480
----------- --------- ----------- ----------- -----------
LONG-TERM DEBT ............................. -- -- 508,992 -- 508,992
REVENUES PAYABLE ........................... 10,106 -- -- -- 10,106
DEFERRED INCOME TAXES ...................... -- -- -- -- --
INTERCOMPANY PAYABLES ...................... 853,958 2,959 -- (856,917) --
STOCKHOLDERS' EQUITY:
Common Stock ............................. 10 3 733 (3) 743
Other .................................... (173,189) 86,660 544,498 (178,506) 279,463
----------- --------- ----------- ----------- -----------
Total Stockholders' Equity ............ (173,179) 86,663 545,231 (178,509) 280,206
----------- --------- ----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ................ $ 795,144 $ 119,271 $ 1,081,503 $(1,043,134) $ 952,784
=========== ========= =========== =========== ===========
</TABLE>
12
<PAGE> 13
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR COMPANY
SUBSIDIARIES SUBSIDIARIES (PARENT) ELIMINATIONS CONSOLIDATED
------------ ------------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
FOR THE THREE MONTHS ENDED MARCH 31, 1998
REVENUES:
Oil and gas sales .......................... $ 41,803 $ 7,812 $ -- $ 626 $ 50,241
Oil and gas marketing sales ................ -- 47,725 -- (21,201) 26,524
Interest and other ......................... (28) 142 20,035 (19,925) 224
--------- --------- -------- -------- ---------
Total Revenues .......................... 41,775 55,679 20,035 (40,500) 76,989
--------- --------- -------- -------- ---------
COSTS AND EXPENSES:
Production expenses and taxes .............. 6,901 2,537 -- -- 9,438
Oil and gas marketing expenses ............. -- 46,836 -- (20,575) 26,261
Impairment of oil and gas properties ....... 83,500 166,500 -- -- 250,000
Oil and gas depreciation, depletion
and amortization ......................... 26,121 5,221 -- -- 31,342
Other depreciation and amortization ........ 806 77 497 -- 1,380
General and administrative ................. 3,755 593 32 -- 4,380
Interest ................................... 17,482 1,741 11,390 (19,925) 10,688
--------- --------- -------- -------- ---------
Total Costs & Expenses .................. 138,565 223,505 11,919 (40,500) 333,489
--------- --------- -------- -------- ---------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM ..................... (96,790) (167,826) 8,116 -- (256,500)
INCOME TAX EXPENSE (BENEFIT) ................. -- -- -- -- --
--------- --------- -------- -------- ---------
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM ......................... (96,790) (167,826) 8,116 -- (256,500)
--------- --------- -------- -------- ---------
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt,
net of applicable income tax ............. -- -- -- -- --
--------- --------- -------- -------- ---------
NET INCOME (LOSS) ....................... $ (96,790) $(167,826) $ 8,116 $ -- $(256,500)
========= ========= ======== ======== =========
FOR THE THREE MONTHS ENDED MARCH 31, 1997
REVENUES:
Oil and gas sales .......................... $ 56,795 $ -- $ -- $ 604 $ 57,399
Gas marketing sales ........................ -- 45,568 -- (23,158) 22,410
Interest and other ......................... 177 197 2,903 -- 3,277
--------- --------- -------- -------- ---------
Total revenues .......................... 56,972 45,765 2,903 (22,554) 83,086
--------- --------- -------- -------- ---------
COSTS AND EXPENSES:
Production expenses and taxes .............. 4,308 -- -- -- 4,308
Gas marketing expenses ..................... -- 44,301 -- (22,554) 21,747
Oil and gas depreciation ................... 24,663 -- -- -- 24,663
Other depreciation and amortization ........ 508 20 345 -- 873
General and administrative ................. 1,757 235 489 -- 2,481
Interest ................................... 172 -- 3,482 -- 3,654
--------- --------- -------- -------- ---------
Total Costs & Expenses .................. 31,408 44,556 4,316 (22,554) 57,726
--------- --------- -------- -------- ---------
INCOME (LOSS) BEFORE INCOME TAX .............. 25,564 1,209 (1,413) -- 25,360
INCOME TAX EXPENSE ........................... 9,330 441 (516) -- 9,255
--------- --------- -------- -------- ---------
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM .................... 16,234 768 (897) -- 16,105
--------- --------- -------- -------- ---------
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt, net
of applicable income tax ................. (179) -- 2 -- (177)
--------- --------- -------- -------- ---------
NET INCOME (LOSS) ....................... $ 16,055 $ 768 $ (895) $ -- $ 15,928
========= ========= ======== ======== =========
</TABLE>
13
<PAGE> 14
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR COMPANY
SUBSIDIARIES SUBSIDIARIES (PARENT) ELIMINATIONS CONSOLIDATED
------------ ------------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
FOR THE THREE MONTHS ENDED MARCH 31, 1998
CASH FLOWS FROM OPERATING
ACTIVITIES: .................................. $(128,409) $ 161,162 $ 16,432 $ -- $ 49,185
CASH FLOWS FROM INVESTING ACTIVITIES:
Oil and gas properties ....................... (114,698) 4,938 -- -- (109,760)
Proceeds from sale of assets ................. 220 -- -- -- 220
Investment in service operations ............. -- (39,242) -- -- (39,242)
Other additions .............................. (19,538) 2,313 (459) -- (17,684)
--------- --------- --------- --------- ---------
(134,016) (31,991) (459) -- (166,466)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings ..................... -- -- 145,000 -- 145,000
Payments on borrowings ....................... -- -- (120,000) -- (120,000)
Cash received from exercise of stock
options .................................... -- -- -- -- --
Cash received from issuance of common
stock ...................................... -- -- 61 -- 61
Other financing .............................. -- 305 -- -- 305
Intercompany advances, net ................... 245,547 (134,327) (111,220) -- --
--------- --------- --------- --------- ---------
245,547 (134,022) (86,159) -- 25,366
--------- --------- --------- --------- ---------
Net increase (decrease) in cash .............. (16,878) (4,851) (70,186) -- (91,915)
Cash, beginning of period .................... (589) 13,999 110,450 -- 123,860
--------- --------- --------- --------- ---------
Cash, end of period .......................... $ (17,467) $ 9,148 $ 40,264 $ -- $ 31,945
========= ========= ========= ========= =========
FOR THE THREE MONTHS ENDED MARCH 31, 1997
CASH FLOWS FROM OPERATING
ACTIVITIES: .................................. $ 70,762 $ 2,085 $ (33,161) $ -- $ 39,686
CASH FLOWS FROM INVESTING ACTIVITIES:
Oil and gas properties ....................... (158,280) 35 -- -- (158,245)
Proceeds from sales .......................... 2,850 -- -- -- 2,850
Investment in gas marketing company .......... -- -- -- -- --
Other additions .............................. (859) -- (3,853) -- (4,712)
--------- --------- --------- --------- ---------
(156,289) 35 (3,853) -- (160,107)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings ........... -- -- 292,626 -- 292,626
Payments on borrowings ....................... (67,569) 1,710 53,195 -- (12,664)
Cash received from exercise of stock
options .................................... -- -- 625 -- 625
Other financing .............................. -- -- (95) -- (95)
Intercompany advances, net ................... 134,385 (3,350) (131,035) -- --
--------- --------- --------- --------- ---------
66,816 (1,640) 215,316 -- 280,492
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents ................................ (18,711) 480 178,302 -- 160,071
Cash, beginning of period .................... 4,782 6,182 129,775 -- 140,739
--------- --------- --------- --------- ---------
Cash, end of period .......................... $ (13,929) $ 6,662 $ 308,077 $ -- $ 300,810
========= ========= ========= ========= =========
</TABLE>
14
<PAGE> 15
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RECENT EVENTS
On December 16, 1997, the Company acquired AnSon Production Corporation
("AnSon"), a privately owned oil and gas producer based in Oklahoma City.
Consideration for the acquisition was approximately $43 million, which included
the issuance of 3,792,724 shares of Chesapeake's common stock and the payment of
$24.8 million on May 7, 1998, pursuant to a make-whole provision.
On January 30, 1998, the Company entered into a 40/60 alliance with Ranger Oil
Limited to jointly develop a 3.2 million acre area of mutual interest in the
Helmet area of northeastern British Columbia. As part of the transaction, the
Company paid approximately $48 million for proved oil and gas reserves,
undeveloped leasehold and a 40% interest in Ranger's infrastructure in the area.
On February 6, 1998, the Company purchased the Mid-Continent properties of
EnerVest Management Company, L.L.C. for $38 million.
On March 10, 1998, the Company acquired Hugoton Energy Corporation ("Hugoton")
pursuant to a merger by issuing approximately 25.8 million shares of the
Company's common stock in exchange for 100% of Hugoton's common stock.
See Consolidated Statements of Cash Flows.
On April 22, 1998, the Company issued $230 million (4.6 million shares) of its
7% Cumulative Convertible Preferred Stock, $50 per share liquidation preference,
and $500 million of its 9.625% Series A Senior Notes due 2005. Net proceeds from
these offerings were approximately $712 million.
On April 27, 1998, the Company acquired from Gothic Energy Corporation certain
proved oil and gas reserves for $20 million, purchased $50 million of Gothic 12%
preferred stock, acquired ten-year warrants to purchase 15% of Gothic's
currently outstanding common stock for $0.01 per share, acquired a 50% interest
in Gothic's undeveloped leasehold acreage and entered into a five-year drilling
and acquisitions participation agreement.
On April 27, 1998, Chesapeake acquired the British Columbia properties of
Sunoma Energy Corporation for $33 million.
On April 28, 1998, the Company acquired by merger the Mid-Continent operations
of DLB Oil & Gas, Inc. for $17.5 million in cash, 5,000,000 shares of the
Company's common stock, and the assumption of $90 million in outstanding debt
and working capital obligations.
On April 30, 1998, the Company acquired 100% of the stock of MC Panhandle Corp.,
a wholly-owned subsidiary of Occidental Petroleum Corporation, by paying
approximately $95 million, net of working capital adjustments.
Effective April 30, 1998, the Company purchased all of its outstanding 10.5%
Senior Notes due 2002. Of the $90,000,000 aggregate principal amount,
$89,830,000 was acquired pursuant to the Company's offer to purchase, which
commenced April 1, 1998, and the remaining $170,000 was acquired on the same
terms after the tender period. The cost to acquire the 10.5% Senior Notes was
approximately $99,000,000. The early retirement of these notes will result in an
extraordinary charge of approximately $12 million during the quarter ended June
30, 1998.
15
<PAGE> 16
RESULTS OF OPERATIONS - Three months ended March 31, 1998 vs. March 31, 1997
General. For the three months ended March 31, 1998 (the "Current Quarter"), the
Company realized a net loss of $256.5 million, or $3.19 per common share. This
compares to net income of $15.9 million, or $0.22 per common share, in the three
months ended March 31, 1997 (the "Prior Quarter"). The loss in the Current
Quarter was primarily caused by a $250.0 million asset writedown recorded under
the full-cost method of accounting and, to a much lesser extent, a $6.5 million
loss from recurring operations. The asset writedown was primarily caused by the
Hugoton acquisition in March 1998 for consideration in excess of the present
value (10% discount) of the future net revenues of the proved reserves acquired
as of March 31, 1998 (approximately $150 million of the writedown) and by
decreases in oil and gas prices from December 31, 1997 to March 31, 1998. See
Impairment of Oil and Gas Properties. No such writedown occurred in the Prior
Quarter.
Oil and Gas Sales. During the Current Quarter, oil and gas sales decreased 13%
to $50.2 million from $57.4 million in the Prior Quarter. The decrease resulted
from significantly lower oil and gas prices, partially offset by a 12% increase
in production volumes. For the Current Quarter, the Company produced 23.0
billion cubic feet equivalent ("bcfe"), consisting of 1.2 million barrels of oil
("mmbo") and 16 billion cubic feet of natural gas ("bcf"), compared to 0.8 mmbo
and 15.7 bcf, or 20.5 bcfe, in the Prior Quarter. Average oil prices realized
were $14.84 per barrel of oil ("bo") in the Current Quarter compared to $21.55
in the Prior Quarter, a decrease of 31%. Average gas prices realized were $2.06
per thousand cubic feet ("mcf") in the Current Quarter compared to $2.55 per mcf
in the Prior Quarter, a decrease of 19%.
For the Current Quarter, the Company realized an average price of $2.19 per
thousand cubic feet equivalent ("mcfe"), compared to $2.79 per mcfe in the Prior
Quarter. The Company's hedging activities resulted in increased oil and gas
revenues of $1.8 million, or $0.08 per mcfe, in the Current Quarter, compared to
decreases in oil and gas revenues of $0.2 million, or $0.01 per mcfe, in the
Prior Quarter.
The following table shows the Company's production by region for the Current
Quarter and the Prior Quarter:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
----------------------------------------
1998 1997
------------------ ------------------
OPERATING AREAS (MMCFE) PERCENT (MMCFE) PERCENT
------ ------- ------ -------
<S> <C> <C> <C> <C>
Mid-Continent ........... 7,646 33% 4,241 21%
Austin Chalk Trend ...... 12,054 53 15,017 73
Canada .................. 730 3 -- --
Other Areas ............. 2,533 11 1,290 6
------ --- ------ ---
Total .............. 22,963 100% 20,548 100%
====== === ====== ===
</TABLE>
Natural gas production represented approximately 69% of the Company's total
production volume on an equivalent basis in the Current Quarter, compared to 77%
in the Prior Quarter. This decrease in natural gas production as a percentage of
total production was primarily the result of new production in the Louisiana
portion of the Austin Chalk Trend, which tends to produce more oil than gas. The
Company anticipates that as a result of its recent acquisitions, increased
drilling in the Mid-Continent and Canada and decreased drilling in Louisiana,
natural gas will represent 70-75% of anticipated 1998 production.
Oil and Gas Marketing Sales. The Company realized $26.5 million in oil and gas
marketing sales for third parties in the Current Quarter, with corresponding oil
and gas marketing expenses of $26.3 million, for a margin of $0.2 million. This
compares to sales of $22.4 million, expenses of $21.7 million, and a margin of
$0.7 million in the Prior Quarter. The Company anticipates gross margins will
increase during 1998 as a result of the acquisition of certain gas gathering,
transportation and marketing assets completed in 1998.
Interest and Other. Interest and other revenues for the Current Quarter were
$0.2 million compared to $3.3 million in the Prior Quarter. The decrease was
primarily caused by the Company maintaining lower invested cash balances
resulting in reduced interest income.
16
<PAGE> 17
Production Expenses and Taxes. Production expenses increased to $7.9 million in
the Current Quarter, a $4.7 million increase from the $3.2 million incurred in
the Prior Quarter. On a production unit basis, production expenses were $0.34
and $0.16 per mcfe in the Current and Prior Quarters, respectively. The primary
reason for the increase in production expenses was the increased lifting costs
associated with the Louisiana production, which represented a higher proportion
of production in the Current Quarter than the Prior Quarter. Also contributing
to the increase was the addition of production obtained in the Hugoton and AnSon
acquisitions, which typically has higher production expense per Mcfe of
production than the Company's historical production base. The Company
anticipates production expenses will continue to rise during 1998 as the result
of additional acquisitions closed in April 1998, and expects production expenses
to average $0.35 to $0.40 per mcfe for 1998.
Production taxes, which consist primarily of wellhead severance taxes, were
$1.5 million and $1.2 million in the Current and Prior Quarters, respectively.
This increase, from $0.06 per mcfe to $0.07 per mcfe, was the result of the
higher tax rates associated with production obtained in the acquisitions as
compared to the Company's historical production base.
Impairment of Oil and Gas Properties. The Company utilizes the full-cost method
to account for its investments in oil and gas properties. Under this method, all
costs of acquisition, exploration and development of oil and gas reserves
(including such costs as leasehold acquisition costs, geological and geophysical
expenditures, certain capitalized internal costs, dry hole costs and tangible
and intangible development costs) are capitalized as incurred. These oil and gas
property costs, including the estimated future capital expenditures to develop
the proved undeveloped reserves, are depleted and charged to operations using
the unit-of-production method based on the ratio of current production to proved
oil and gas reserves as estimated by the Company's independent engineering
consultants and Company engineers. Costs directly associated with the
acquisition and evaluation of unproved properties are excluded from the
amortization computation until it is determined whether or not proved reserves
can be assigned to the property or whether impairment has occurred. To the
extent that capitalized costs of oil and gas properties, net of accumulated
depreciation, depletion and amortization and related deferred income taxes,
exceed the discounted future net revenues of proved oil and gas properties, such
excess costs are charged to operations.
The Company incurred an impairment of oil and gas properties charge of $250
million in the Current Quarter, compared to no impairment in the Prior Quarter.
This writedown was caused by several factors, including the Hugoton acquisition,
oil prices declining from $17.62 at December 31, 1997 to $13.92 at March 31,
1998, gas prices declining from $2.29 at December 31, 1997 to $2.01 at March 31,
1998 and higher drilling and completion costs compared to previous estimates.
Additionally, lower oil and gas prices at March 31, 1998 and higher drilling
costs caused downward revisions in the Company's proved reserves as certain
proved undeveloped reserves previously estimated by the Company were rendered
uneconomic and therefore not included in the Company's evaluation of its proved
reserves.
The primary reason for the impairment charge was the completion of the
acquisition in March 1998 of Hugoton, which was accounted for using the purchase
method. The purchase price, which was established in November 1997 when the
acquisition was announced (based on a Chesapeake common stock price of $8.00 per
share), was allocated almost entirely to Hugoton's evaluated oil and gas
properties. Based upon reserve estimates as of March 31, 1998, the portion of
the purchase price which was allocated to evaluated oil and gas properties
exceeded the associated discounted future net revenues from Hugoton's estimated
proved reserves by approximately $150 million.
Since March 31, 1998, oil and gas prices have declined further. If prices do not
increase from current levels by June 30, 1998, the Company could incur
additional impairment charges, reducing earnings and shareholders' equity.
Oil and Gas Depreciation, Depletion and Amortization. Depreciation, depletion
and amortization of oil and gas properties ("DD&A") for the Current Quarter was
$31.3 million, compared to $24.7 million in the Prior Quarter. This increase was
caused by increased production and an increase in the DD&A rate per mcfe from
$1.20 to $1.36 in the Prior and Current Quarters, respectively. The Company's
DD&A rate is expected to decrease to
17
<PAGE> 18
approximately $1.10-$1.15 per mcfe for the remainder of 1998 as the result of
the impairment charge, the acquisitions completed in April, and reduced
drilling in Louisiana.
Depreciation and Amortization of Other Assets. Depreciation and amortization of
other assets ("D&A") increased to $1.4 million in the Current Quarter compared
to $0.9 million in the Prior Quarter. This increase in D&A was caused by
increased investments in depreciable buildings and equipment and increased
amortization of debt issuance costs as a result of the issuance of Senior Notes
in March 1997. The Company anticipates an increase in D&A throughout 1998 as a
result of higher building depreciation expense on the Company's corporate
offices, additional equipment and depreciable assets added from the
acquisitions, and higher amortization caused by the increased offering costs
incurred in the Senior Notes issued in April 1998.
General and Administrative. General and administrative expenses ("G&A"), which
are net of capitalized internal payroll and non-payroll expenses, were $4.4
million in the Current Quarter compared to $2.5 million in the Prior Quarter.
This increase was primarily caused by increased employment levels associated
with the Company's continuing growth. The increase was also caused by increased
accounting, legal, reservoir engineering and other expenses incurred in the
Current Quarter as a result of the Company's change to a December 31 fiscal year
end reporting period for which there were no comparable expenses in the Prior
Quarter. The Company capitalized $2.1 million of internal costs in the Current
Quarter directly related to the Company's oil and gas exploration and
development efforts, compared to $1.4 million in the Prior Quarter. The Company
anticipates that G&A costs for 1998 will continue to increase as the result of
industry wage inflation, legal fees associated with litigation, and increases in
employment due to the acquisition program.
Interest and Other. Interest and other expense increased to $10.7 million in the
Current Quarter from $3.7 million in the Prior Quarter. This increase was a
result of a full quarter of interest expense in the Current Quarter on the $300
million principal amount of Senior Notes issued at the end of the Prior Quarter.
In addition to the interest expense reported, the Company capitalized $2.3
million of interest during the Current Quarter compared to $2.7 million
capitalized in the Prior Quarter. Interest expense will increase during the
remainder of 1998 as a result of the issuance of $500 million of Senior Notes in
April 1998.
Provision for Income Taxes. The Company recorded no income tax expense for the
Current Quarter, compared to income tax expense of $9.3 million in the Prior
Quarter. At March 31, 1998, the Company had a net operating loss carryforward of
approximately $383 million for regular federal income taxes which will expire in
future years beginning in 2007. Management believes that it cannot be
demonstrated at this time that it is more likely than not that the deferred
income tax assets, comprised primarily of the net operating loss carryforward,
will be realizable in future years, and therefore a valuation allowance of $174
million has been recorded. The Company does not expect to record any book income
tax expense for the remainder of 1998 based on information available at this
time.
RISK MANAGEMENT ACTIVITIES
Periodically the Company utilizes hedging strategies to hedge the price of a
portion of its future oil and gas production. These strategies include (1) swap
arrangements that establish an index-related price above which the Company pays
the counterparty and below which the Company is paid by the counterparty, (2)
the purchase of index-related puts that provide for a "floor" price below which
the counterparty pays the Company the amount by which the price of the commodity
is below the contracted floor, (3) the sale of index-related calls that provide
for a "ceiling" price above which the Company pays the counterparty the amount
by which the price of the commodity is above the contracted ceiling, and (4)
basis protection swaps, which are arrangements that guarantee the price
differential of oil or gas from a specified delivery point or points. Results
from hedging transactions are reflected in oil and gas sales to the extent
related to the Company's oil and gas production. The Company only enters into
hedging transactions related to the Company's oil and gas production volumes or
physical purchase or sale commitments of its oil and gas marketing subsidiaries.
18
<PAGE> 19
As of March 31, 1998, the Company had the following natural gas swap
arrangements for periods after March 1998:
<TABLE>
<CAPTION>
MONTHLY NYMEX-INDEX
VOLUME STRIKE PRICE
MONTHS (MMBTU) (PER MMBTU)
------ ------- ------------
<S> <C> <C> <C>
May 1998................... 5,270,000 $ 2.310
June 1998.................. 6,300,000 $ 2.356
July 1998.................. 6,510,000 $ 2.356
August 1998................ 6,510,000 $ 2.356
September 1998............. 6,300,000 $ 2.356
October 1998............... 4,030,000 $ 2.317
</TABLE>
The Company has closed a transaction for natural gas previously hedged for the
period April through November 1999 and received proceeds of $0.9 million, which
will be recognized as income during the corresponding months of production.
The Company does not currently have any oil hedge transactions in place.
Gains or losses on the crude oil and natural gas hedging transactions are
recognized as price adjustments in the months of related production.
LIQUIDITY AND CAPITAL RESOURCES
In April 1998, the Company completed an offering of $230 million of 7%
Cumulative Convertible Preferred Stock and $500 million principal amount of
9.625% Senior Notes due 2005. The net proceeds of these offerings were
approximately $712 million, of which $170 million was used to retire all of the
Company's commercial bank debt, approximately $100 million was used to retire
all $90 million principal amount of the Company's 10.5% Senior Notes due 2002,
$345 million was used to fund certain of the Company's acquisitions, with the
balance of the net proceeds increasing the Company's working capital.
As of March 31, 1998, the Company had a working capital deficit of approximately
$69 million which has been eliminated with the proceeds from the April 1998
Preferred Stock and Senior Note offerings. The Company estimates that its
capital expenditures (excluding acquisitions) for 1998 will be between $225
million and $250 million, including $200-$220 million for drilling and
completion expenditures, and the balance for acreage acquisition and
maintenance, seismic programs and capitalized general and administrative costs.
The capital expenditure budget is largely discretionary, and can be adjusted by
the Company based on operating results or other factors. The Company believes it
has sufficient capital resources from anticipated cash flow from operations and
working capital to fund its drilling program for 1998.
The Company is currently negotiating with its commercial bank group to obtain a
secured revolving bank loan. It is anticipated that this facility will be
completed by the end of May 1998 and will contain terms and conditions similar
to the bank facilities the Company has had in the past. It is anticipated that
the facility will be documented at $500 million, but will have collateral-based
borrowing limitations. The debt incurrence covenants of the Senior Note
indentures will also be a limiting factor. The primary purpose of the facility
will be to fund potential acquisitions of oil and gas reserves.
During April 1998, the Company received a senior debt credit rating decrease
from both Moody's Investors Service and Standard & Poor's Rating Services to B1
and B+, respectively. The rating agencies cited, among other factors, the
Company's long-term debt to total book capitalization, which, after the recent
Senior Notes and Preferred Stock offerings, is approximately 67%.
The Company's cash provided by operating activities increased 24% to $49.2
million during the Current Quarter compared to $39.7 million during the Prior
Quarter. The increase was due primarily to cash provided from changes in current
assets and current liabilities between periods.
19
<PAGE> 20
Cash used in investing activities increased to $166.5 million during the Current
Quarter from $160.1 million in the Prior Quarter. The Company completed several
acquisitions requiring cash in the Current Quarter which totaled $82 million,
compared to none in the Prior Quarter, offset by a significant decrease in
drilling activity and leasehold acquisitions in the Current Quarter compared to
the Prior Quarter. During the Current Quarter the Company expended approximately
$62 million to initiate drilling on 52 gross (32.9 net) wells and invested
approximately $5 million in leasehold acquisitions. This compares to $129
million to initiate drilling on 35 gross (17.1 net) wells and $30 million to
purchase leasehold in the Prior Quarter.
Cash provided by financing activities was $25.4 million in the Current Quarter,
compared to $280.5 million in the Prior Quarter. During the Current Quarter, the
Company retired $120 million in bank debt which it assumed at the completion of
the Hugoton acquisition. The Company refinanced the Hugoton debt and obtained
additional working capital of $25 million with proceeds from the Company's
commercial bank credit facility. During the Prior Quarter, the Company issued
$300 million in Senior Notes.
The Company is subject to certain routine legal proceedings, none of which are
expected to have a material adverse effect upon the Company's financial
condition or operations. The Company is also a defendant in other non-routine
lawsuits, which are described in Note 3 of the notes to the accompanying
financial statements. Also see Part II, Item 1 of this report. An adverse
outcome in one or more of such suits could have a material effect on the
Company, although management is unable to quantify the Company's exposure to
liability. No provision for litigation liability has been recorded in the
Company's financial statements.
FORWARD LOOKING STATEMENTS
This Form 10-Q includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than statements of historical facts included in this Form 10-Q,
including without limitation statements under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" regarding planned
capital expenditures, expected oil and gas production, the Company's financial
position, business strategy and other plans and objectives for future
operations, capital expenditures plans, and expected future expenses are forward
looking statements. Although the Company believes that the expectations
reflected in such forward-looking statement are reasonable, it can give no
assurance that such expectations will prove to have been correct. Factors that
could cause actual results to differ materially from those expected by the
Company, including, without limitation, factors discussed under Risk Factors in
the Company's Form 10-K for the period ended December 31, 1997 are concentration
of unevaluated leasehold in Louisiana, impairment of asset value, need to
replace reserves, substantial capital requirements, substantial indebtedness,
fluctuations in the prices of oil and gas, uncertainties inherent in estimating
quantities of oil and gas reserves and projecting future rates of production and
timing of development expenditures, competition, operating risks, acquisition
and integration of operation risks, restrictions imposed by lenders, liquidity
and capital requirements, the effects of governmental and environmental
regulation, patent and securities litigation and adverse changes in the market
for the Company's oil and gas production. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date hereof. The Company undertakes no obligation to release publicly the result
of any revisions to these forward-looking statements that may be made to reflect
events or circumstances after the date hereof, including, without limitation,
changes in the Company's business strategy or planned capital expenditures, or
to reflect the occurrence of unanticipated events.
20
<PAGE> 21
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to ordinary routine litigation incidental to its
business. In addition, the Company and its officers and directors are defendants
in certain purported class actions based on federal securities fraud claims.
Also the Company is defending claims of patent infringement, tortious
interference with confidentiality contracts and misappropriation of proprietary
information in another pending action. These matters are described in Item 3 of
the Company's Transition Report on Form 10-K for the six-month period ended
December 31, 1997. Subsequent developments are as follows:
On March 16, 1998, the Company and named officers and directors filed a motion
to dismiss in In re Chesapeake Energy Corporation Securities Litigation pending
in the U.S. District Court for the Western District of Oklahoma.
In May 1998, two purported class actions filed on behalf of investors who
purchased common stock of Bayard Drilling Technologies, Inc. in its initial
public offering on November 4, 1997 were dismissed without prejudice pursuant to
stipulation of all parties. These actions had been filed in the District Court
for Oklahoma County, Oklahoma alleging violations by the Company and others of
Sections 11 and 12 of the Securities Act of 1933 and Section 408 of the
Oklahoma Securities Act. The Company was a selling stockholder in the offering.
On May 12, 1998, the plaintiffs in the dismissed cases became co-lead plaintiffs
in the remaining federal case: Tom Yuan v. Bayard, et al. filed in the U.S.
District Court for the Western District of Oklahoma.
ITEM 2. CHANGES IN SECURITIES
On April 22, 1998, the Company sold 4,600,000 shares (the "Shares") of 7%
Cumulative Convertible Preferred Stock having a liquidation preference of $50
per share in a private placement to Donaldson, Lufkin & Jenrette Securities
Corporation, Morgan Stanley & Co. Incorporated, Bear, Stearns & Co. Inc., Lehman
Brothers Inc. and J.P. Morgan Securities Inc. (the "Initial Purchasers")
pursuant to the exemption from registration provided by Section 4 (2) of the
Securities Act of 1933 (the "Securities Act"). The Initial Purchasers resold the
shares to qualified institutional buyers, as defined in, and in reliance on the
exemption from registration provided by, Rule 144A under the Securities Act. The
aggregate offering price for the Shares was $230 million, and aggregate
discounts and commissions were $6.9 million.
Each of the Shares is convertible at the holders' option, exercisable at any
time unless previously redeemed, into shares of Company common stock at a
conversion price of $6.95 per Share (equivalent to a conversion rate of
approximately 7.1942 shares of common stock for each Share), subject to
adjustment pursuant to antidilution provisions.
The Shares are redeemable, in whole or in part, at the Company's option at any
time on or after May 1, 2001, initially at a price of $52.45 per share and
thereafter at prices declining to $50 per share on or after May 1, 2008, plus in
each case all accrued and unpaid dividends to the redemption date, which
redemption price may be paid in cash, by delivery of shares of Company common
stock or through a combination thereof. Upon any Change of Control (as defined
in the Certificate of Designation for the Shares), each holder of Shares will,
in the event that the Market Value (as defined) at such time is less than the
Conversion Price, have a one-time option to convert such holder's Shares into
common stock at an adjusted Conversion Price equal to the greater of (x) the
Market Value for the period ending on the Change of Control date and (y)
66 2/3% of the Market Value for the period ended April 16, 1998. In lieu of
issuing shares of common stock for Shares surrendered for conversion upon a
Change of Control, the Company may, at its option, make a cash payment equal to
the Market Value of the common stock otherwise issuable determined for the
period ending on the Change of Control date.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- - Not applicable
21
<PAGE> 22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held a special meeting of shareholders on March 10, 1998 to approve
the merger of Hugoton Energy Corporation into a subsidiary of the Company.
The proposal to approve and adopt the Agreement and Plan of Merger between the
Company and Hugoton Energy Corporation and the issuance of the Company's Common
Stock pursuant to the merger was approved by a vote of 54,018,852 shares for,
representing 73% of the outstanding shares of Common Stock; 542,797 shares voted
against the proposal; 132,847 shares abstained from voting; and 19,610,315
shares were broker non-votes.
ITEM 5. OTHER INFORMATION
- - Not applicable
22
<PAGE> 23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed as a part of this report:
Exhibit No.
-----------
3.1 Registrant's Certificate of Incorporation, as amended
4.3 Indenture dated as of April 1, 1998 among Chesapeake Energy
Corporation, its subsidiaries signatory thereto as Subsidiary
Guarantors and United States Trust Company of New York, as
Trustee, with respect to 9.625% Senior Notes due 2005.
4.11 Registration Rights Agreement dated as of April 22, 1998 by and
among Chesapeake Energy Corporation and Donaldson, Lufkin &
Jenrette Securities Corporation, Morgan Stanley & Co.
Incorporated, Bear, Stearns & Co. Inc., Lehman Brothers Inc. and
J.P. Morgan Securities, Inc., with respect to 7% Cumulative
Convertible Preferred Stock.
4.12 Registration Rights Agreement dated as of April 22, 1998 by and
among Chesapeake Energy Corporation, The Named Guarantors and
Donaldson, Lufkin & Jenrette Securities Corporation, Morgan
Stanley & Co. Incorporated, Bear, Stearns & Co. Inc., Lehman
Brothers Inc., J.P. Morgan Securities, Inc. and Morgan Stanley &
Co., Incorporated, with respect to 9.625% Senior Notes due 2005.
27 Financial Data Schedules
(b) Reports on Form 8-K
During the quarter ended March 31, 1998, the Company filed the
following Current Reports on Form 8-K dated:
January 15, 1998 announcing property acquisition in Western
Canada and in the Mid-Continent,
January 26, 1998 announcing successful negotiation of $500
million credit facility,
February 5, 1998 reporting on drilling activities and pending
transactions,
February 13, 1997 reporting renegotiated terms of the DLB merger
agreement,
March 5, 1998 announcing the Company and Hugoton Energy
Corporation set shareholder meetings seeking approval of merger,
March 5, 1998 announcing the Company enhances its position in the
Texas Panhandle, and agrees to purchase properties from
Occidental Petroleum Corporation,
March 5, 1998 announcing preliminary transition period results,
March 5, 1998 reporting on activity in Northeast British
Columbia,
March 20, 1998 announcing that shareholders of the Company and
Hugoton Energy Corporation has approved the merger,
23
<PAGE> 24
March 23, 1998 announcing cash dividend for shareholders,
March 25, 1998 announcing 1997 transition period results,
March 31, 1998 announcing senior notes and preferred stock
offerings,
March 31, 1998 announcing increased reserves in the Helmet Area
of Northeast British Columbia, and
March 31, 1998 announcing continuation of Mid-Continent
Consolidation, and announcing transaction with Gothic Energy
Corporation.
24
<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHESAPEAKE ENERGY CORPORATION
-----------------------------
(Registrant)
May 15, 1998 /s/ Aubrey K. McClendon
- --------------------- -----------------------------
Date Aubrey K. McClendon
Chairman and
Chief Executive Officer
May 15, 1998 /s/ Marcus C. Rowland
- --------------------- -----------------------------
Date Marcus C. Rowland
Vice President and
Chief Financial Officer
25
<PAGE> 26
Index to Exhibits
Exhibit No. Description Page
- ----------- ----------- ----
3.1 Registrant's Certificate of Incorporation as amended
4.3 Indenture dated as of April 1, 1998 among Chesapeake Energy
Corporation, its subsidiaries signatory thereto as Subsidiary
Guarantors and United States Trust Company of New York, as
Trustee, with respect to 9.625% Senior Notes due 2005.
4.11 Registration Rights Agreement dated as of April 22, 1998 by and
among Chesapeake Energy Corporation and Donaldson, Lufkin &
Jenrette Securities Corporation, Morgan Stanley & Co.
Incorporated, Bear, Stearns & Co. Inc., Lehman Brothers Inc. and
J.P. Morgan Securities, Inc., with respect to 7% Cumulative
Convertible Preferred Stock.
4.12 Registration Rights Agreement dated as of April 22, 1998 by and
among Chesapeake Energy Corporation, The Named Guarantors and
Donaldson, Lufkin & Jenrette Securities Corporation, Morgan
Stanley & Co. Incorporated, Bear, Stearns & Co. Inc., Lehman
Brothers Inc., J.P. Morgan Securities, Inc. and Morgan Stanley &
Co., Incorporated, with respect to 9.625% Senior Notes due 2005.
27.1 Financial Data Schedules
27.2 Financial Data Schedules Restated
27.3 Financial Data Schedules Restated
27.4 Financial Data Schedules Restated
27.5 Financial Data Schedules Restated
27.6 Financial Data Schedules Restated
27.7 Financial Data Schedules Restated
27.8 Financial Data Schedules Restated
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF DESIGNATION
OF
7% CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
CHESAPEAKE ENERGY CORPORATION
Pursuant to Section 1032(G) of the Oklahoma General Corporation Act
CHESAPEAKE ENERGY CORPORATION, an Oklahoma corporation (the
"Company"), does hereby certify that the following resolution was duly adopted
by action of the Board of Directors of the Company, with the provisions thereof
fixing the number of shares of the series, the dividend rate, and the optional
redemption prices being set by action of the Board of Directors of the Company:
RESOLVED that pursuant to the authority expressly granted to
and vested in the Board of Directors of the Company by the provisions of
Article IV, Section 1 of the Certificate of Incorporation of the Company, as
amended from time to time (the "Certificate of Incorporation"), and pursuant to
Section 1032(G) of the Oklahoma General Corporation Act, the Board of Directors
hereby creates a series of preferred stock of the Company and hereby states
that the voting powers, designations, preferences and relative, participating,
optional or other special rights of which, and qualifications, limitations or
restrictions thereof (in addition to the provisions set forth in the
Certificate of Incorporation which are applicable to the preferred stock of all
classes and series), shall be as follows:
1. Designation and Amount. There shall be created from the
10,000,000 shares of preferred stock, par value $0.01 per share, of the Company
authorized to be issued pursuant to the Certificate of Incorporation, a series
of preferred stock, designated as the "7% Cumulative Convertible Preferred
Stock," par value $0.01 per share (the "Preferred Stock"), and the number of
shares of such series shall be 4,600,000. Such number of shares may be
decreased by resolution of the Board of Directors; provided that no decrease
shall reduce the number of shares of Preferred Stock to a number less than that
of the shares of Preferred Stock then outstanding plus the number of shares
issuable upon exercise of options or rights then outstanding and, if any
portion of the over-allotment option granted by the Company pursuant to the
Purchase Agreement (as defined herein) expires unexercised, the Board of
Directors shall by resolution decrease the number of authorized shares of
Preferred Stock by the number of shares subject to the expired portion of such
over-allotment option. Any shares of Preferred Stock issued after the Issue
Date (as defined herein) pursuant to the over-allotment option granted by the
Company pursuant to the Purchase Agreement (as defined herein) shall, for all
purposes, including, without limitation, voting and dividend rights, be deemed
issued as of the Issue Date.
2. Definitions. As used herein, the following terms shall have
the following meanings:
2.1 "Accrued Dividends" shall mean, with respect to any
share of Preferred Stock, as of any date, the accrued and unpaid dividends on
such share from and including the most recent Dividend Payment Date (or the
Issue Date, if such date is prior to the first Dividend
<PAGE> 2
Payment Date) to but not including such date."Accumulated Dividends" shall
mean, with respect to any share of Preferred Stock, as of any date, the
aggregate accumulated and unpaid dividends on such share from the Issue Date
until the most recent Dividend Payment Date prior to such date. There shall be
no Accumulated Dividends with respect to any share of Preferred Stock prior to
the first Dividend Payment Date.
2.2 "Affiliate" shall have the meaning ascribed to it, on
the date hereof, under Rule 405 of the Securities Act of 1933, as amended.
2.3 "Board of Directors" shall mean the Board of
Directors of the Company or, with respect to any action to be taken by the
Board of Directors, any committee of the Board of Directors duly authorized to
take such action.
2.4 "Business Day" shall mean any day other than a
Saturday, Sunday or other day on which commercial banks in The City of New York
are authorized or required by law or executive order to close.
2.5 "Change of Control" shall mean any of the following
events: (i) 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; (ii) the adoption of a plan relating to the
liquidation or dissolution of the Company; (iii) the acquisition, directly or
indirectly, by any Person or group (as such term is used in Section 13(d)(3) of
the Exchange Act as in effect on the original date of issuance of the Preferred
Stock), other than Permitted Holders, of beneficial ownership (as defined in
Rule 13d-3 under the Exchange Act as in effect on the original date of issuance
of the Preferred Stock, 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 as in effect on the
original date of issuance of the Preferred Stock), 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 (iv) 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
-2-
<PAGE> 3
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 so approved) cease for any reason to constitute a majority of the
Board of Directors of the Company then in office. For purposes of the above
definition of "Change of Control," the term "Permitted Holders" means Aubrey K.
McClendon and Tom L. Ward and their respective Affiliates.
2.6 "Change of Control Date" shall mean the date on which
the Change of Control event occurs.
2.7 "Conversion Price" shall mean $6.95, subject to
adjustment as set forth in Section 9(c).
2.8 "Common Stock" shall mean the common stock, par value
$0.01 per share, of the Company, or any other class of stock resulting from
successive changes or reclassifications of such common stock consisting solely
of changes in par value, or from par value to no par value, or as a result of a
subdivision, combination, or merger, consolidation or similar transaction in
which the Company is a constituent corporation.
2.9 "Dividend Payment Date" shall mean February 1, May 1,
August 1 and November 1 of each year, commencing August 1, 1998.
2.10 "Dividend Record Date" shall mean, with respect to
each Dividend Payment Date, a date not more than 60 days nor less than 10 days
preceding a Dividend Payment Date, as shall be fixed by the Board of Directors.
2.11 "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated thereunder.
2.12 "Issue Date" shall mean April 22, 1998, the original
date of issuance of the Preferred Stock.
2.13 "Liquidation Preference" shall mean, with respect to
each share of Preferred Stock, $50.
2.14 "Market Value" shall mean the average closing price
of the Common Stock for a ten consecutive trading day period on the NYSE or
such other national securities exchange or automated quotation system on which
the Common Stock is then listed or authorized for quotation or, if the Common
Stock is not so listed or authorized for quotation, an amount determined in
good faith by the Board of Directors to be the fair value of the Common Stock.
2.15 "NYSE" shall mean the New York Stock Exchange, Inc.
-3-
<PAGE> 4
2.16 "Optional Redemption Price Per Share" shall mean, as
of any date, the price at which the Company may, at its option, redeem one
share of the Preferred Stock, payable, at the Company's option, in cash, by
delivery of fully paid and nonassessable shares of Common Stock or a
combination thereof.
2.17 "Person" shall mean any individual, corporation,
general partnership, limited partnership, limited liability partnership, joint
venture, association, joint-stock company, trust, limited liability company,
unincorporated organization or government or any agency or political
subdivision thereof.
2.18 "Purchase Agreement" shall mean that certain Purchase
Agreement with respect to the Preferred Stock, dated as of April 17, 1998,
among the Company, Donaldson, Lufkin & Jenrette Securities Corporation, Morgan
Stanley & Co. Incorporated, Bear, Stearns & Co. Inc., Lehman Brothers Inc. and
J.P. Morgan Securities Inc.
2.19 "Voting Rights Triggering Event" shall mean the
failure of the Company to pay dividends on the Preferred Stock with respect to
periods ending on more than six consecutive Dividend Payment Dates.
2.20 "Voting Stock" shall mean, 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. For purposes of this definition of "Voting Stock," "Capital Stock"
shall mean, with respect to any Person, any and all shares, interests,
participations or other equivalents (however designated) of corporate stock or
partnership 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.
3. Dividends.
3.1 The holders of shares of the outstanding Preferred
Stock shall be entitled, when, as and if declared by the Board of Directors out
of funds legally available therefor, to receive cumulative annual cash
dividends of $3.50 per share, payable quarterly in arrears (the "Dividend
Rate"). Dividends payable for each full dividend period will be computed by
dividing the Dividend Rate by four and shall be payable in arrears on each
Dividend Payment Date for the quarterly period ending immediately prior to such
Dividend Payment Date, to the holders of record of Preferred Stock at the close
of business on the Dividend Record Date applicable to such Dividend Payment
Date. Such dividends shall be cumulative from the Issue Date and shall accrue
on a day-to-day basis, whether or not earned or declared, from and after the
Issue Date. Dividends on the Preferred Stock which are not declared and paid
when due will compound quarterly on each Dividend Payment Date at the Dividend
Rate. Dividends payable for any partial dividend period shall be computed on
the basis of actual days elapsed over a 360-day year consisting of twelve
30-day months. Notwithstanding anything herein to the contrary, the initial
-4-
<PAGE> 5
Dividend Payment Date, which shall be for dividends accrued during the period
commencing on the Issue Date and ending on July 31, 1998, will be August 1,
1998.
3.2 Except to the extent specified herein, dividends paid
on the Preferred Stock shall be payable in cash.
3.3 No dividends or other distributions (other than a
dividend or distribution payable solely in stock of the Company ranking junior
to the Preferred Stock as to dividends and upon liquidation, including the
Common Stock, and other than cash paid in lieu of fractional shares) may be
declared, made or paid or set apart for payment on the Common Stock or upon any
other stock of the Company ranking junior to or pari passu with the Preferred
Stock as to dividends, and no Common Stock or any other stock of the Company
ranking junior to or pari passu with the Preferred Stock as to dividends or
upon liquidation, including the Preferred Stock, may be repurchased, exchanged,
redeemed or otherwise acquired for any consideration (or any money paid to or
made available for a sinking fund for the redemption of any shares of any such
stock) by the Company (except by conversion into or exchange for stock of the
Company ranking junior to the Preferred Stock as to dividends and upon
liquidation), nor may funds be set apart for payment with respect thereto,
unless full Accumulated Dividends shall have been or contemporaneously are paid
or declared and a sum sufficient for the payment thereof is set apart for such
payment on the Preferred Stock for all Dividend Payment Periods terminating on
or prior to the date of such declaration, payment, redemption, purchase or
acquisition. Notwithstanding the foregoing, if full dividends have not been
paid on the Preferred Stock or on any other preferred stock ranking pari passu
with the Preferred Stock as to dividends, dividends may be declared and paid on
the Preferred Stock and such other preferred stock so long as the dividends are
declared and paid pro rata so that the amounts of dividends declared per share
on the Preferred Stock and such other preferred stock will in all cases bear to
each other the same ratio that Accrued Dividends on the shares of Preferred
Stock and such other preferred stock bear to each other; provided, that if such
dividends are paid in cash on the other preferred stock, dividends will also be
paid in cash on the Preferred Stock.
3.4 Holders of shares of Preferred Stock shall not be
entitled to any dividends on the Preferred Stock, whether payable in cash,
property or stock, in excess of full cumulative dividends at the Dividend Rate
provided herein. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on the Preferred Stock
which may be in arrears (it being understood that the compounding of unpaid
dividends shall not constitute interest or money in lieu of interest).
3.5 The holders of shares of Preferred Stock at the close
of business on a Dividend Record Date will be entitled to receive the dividend
payment on those shares (except that holders of shares called for redemption on
a redemption date between the Dividend Record Date and the Dividend Payment
Date will be entitled to receive such dividend on such redemption date as
indicated in Section 3.1 hereof) on the corresponding Dividend Payment Date
notwithstanding the subsequent conversion thereof or the Company's default in
payment of the dividend due on that Dividend Payment Date. However, shares of
Preferred Stock surrendered
-5-
<PAGE> 6
for conversion during the period between the close of business on any Dividend
Record Date and the close of business on the day immediately preceding the
applicable Dividend Payment Date (except for shares called for redemption on a
redemption date during that period) must be accompanied by payment of an amount
equal to the dividend payable on the shares on that Dividend Payment Date. A
holder of shares of Preferred Stock on a Dividend Record Date who (or whose
transferee) tenders any shares for conversion on or before a Dividend Payment
Date will receive the dividend payable by the Company on the Preferred Stock on
that date, and the converting holder need not include payment in the amount of
such dividend upon surrender of shares of Preferred Stock for conversion.
Except as provided above and in Section 9(b) hereof, the Company shall make no
payment or allowance for unpaid dividends, whether or not in arrears, on
converted shares or for dividends on the shares of Common Stock issued upon
conversion.
4. Optional Redemption.
4.1 The Preferred Stock may not be redeemed prior to May
1, 2001. At any time on or after May 1, 2001, the Company may, at its sole
option, subject to Section 3.3, redeem, out of funds legally available
therefor, all or any part of the outstanding shares of Preferred Stock, in
cash, by delivery of fully paid and nonassessable shares of Common Stock or by
a combination thereof, upon not less than 30 days' nor more than 60 days'
notice provided in the manner specified in Section 5 hereof, during the
12-month periods commencing on May 1 of the years set forth below for the
amount per share of Preferred Stock set forth opposite such years, plus
Accumulated Dividends and Accrued Dividends thereon to the redemption date:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE PER SHARE
---- --------------------------
<S> <C>
2001 $52.45
2002 52.10
2003 51.75
2004 51.40
2005 51.05
2006 50.70
2007 50.35
2008 and thereafter 50.00
</TABLE>
4.2 If the Company elects to make redemption payments in
Common Stock, the number of shares of Common Stock to be delivered in exchange
for each share of Preferred Stock will be calculated by dividing the applicable
redemption price per share of Preferred Stock by the Market Value for the
period ending on the third Business Day immediately preceding the date the
notice of redemption is given. To the extent that the amount of the redemption
payment payable to a holder of Preferred Stock (in respect of all shares held
by such holder) does not equal a whole number of shares of Common Stock, such
fractional amount shall be paid in cash to such holder of Preferred Stock based
on the same Market Value. If any dividends on the
-6-
<PAGE> 7
Preferred Stock are in arrears, no shares of Preferred Stock shall be redeemed
unless all outstanding shares of Preferred Stock are simultaneously redeemed.
5. Procedure for Redemption.
5.1 In the event the Company shall elect to redeem shares
of Preferred Stock pursuant to Section 4 hereof, notice of such redemption
shall be given (i) by publication in a newspaper of general circulation in the
Borough of Manhattan, City and State of New York (if such publication shall be
required by applicable law, rule, regulation or securities exchange
requirement) or (ii) by first-class mail to each record holder of the shares to
be redeemed, at such holder's address as the same appears on the books of the
Company, in either case not less than 30 nor more than 60 days prior to the
redemption date. Each such notice shall state (i) the time and date as of
which the redemption shall occur; (ii) the total number of shares of Preferred
Stock to be redeemed and, if fewer than all the shares held by such holder are
to be redeemed, the number of such shares to be redeemed from such holder;
(iii) the redemption price (whether to be paid in cash or shares of Common
Stock or a combination thereof); (iv) the place or places where certificates
for such shares are to be surrendered for payment of the redemption price and
delivery of certificates representing shares of Common Stock (if the Company so
chooses); (v) that dividends on the shares to be redeemed will cease to accrue
on such redemption date unless the Company defaults in the payment of the
redemption price; and (vi) the name of any bank or trust company, if any,
performing the duties referred to in Section 5.3 below.
5.2 On or before any redemption date, each holder of
shares of Preferred Stock to be redeemed shall surrender the certificate or
certificates representing such shares of Preferred Stock to the Company, in the
manner and at the place designated in the notice of redemption and on the
redemption date, the full redemption price, payable in cash, fully paid and
nonassessable shares of Common Stock or a combination thereof, for such shares
of Preferred Stock shall be paid or delivered to the person whose name appears
on such certificate or certificates as the owner thereof, and the shares
represented by each surrendered certificate shall be returned to authorized but
unissued shares of preferred stock of any or no series. Upon surrender (in
accordance with the notice of redemption) of the certificate or certificates
representing any shares to be so redeemed (properly endorsed or assigned for
transfer, if the Company shall so require and the notice of redemption shall so
state), such shares shall be redeemed by the Company at the redemption price.
If fewer than all the shares represented by any such certificate are to be
redeemed, a new certificate shall be issued representing the unredeemed shares,
without costs to the holder thereof, together with the amount of cash, if any,
in lieu of fractional shares.
5.3 If a notice of redemption shall have been given as
provided in Section 5.1, dividends on the shares of Preferred Stock so called
for redemption shall cease to accrue, such shares shall no longer be deemed to
be outstanding, and all rights of the holders thereof as stockholders of the
Company with respect to shares so called of redemption (except for the right to
receive from the Company the redemption price) shall cease (including any right
to receive dividends otherwise payable on any Dividend Payment Date that would
have occurred after the time and date of redemption) either (i) from and after
the time and date fixed in the notice of
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redemption as the time and date of redemption (unless the Company shall default
in the payment of the redemption price, in which case such rights shall not
terminate at such time and date) or (ii) if the Company shall so elect and
state in the notice of redemption, from and after the time and date (which date
shall be the date fixed for redemption or an earlier date not less than 30 days
after the date of mailing of the redemption notice) on which the Company shall
irrevocably deposit in trust for the holders of the shares to be redeemed with
a designated bank or trust for the holders of the shares of Preferred Stock to
be redeemed with a designated bank or trust company doing business in the
Borough of Manhattan, City and State of New York, as paying agent, money or
such number of fully paid and nonassessable shares of Common Stock (or a
combination thereof) sufficient to pay at the office of such paying agent, on
the redemption date, the redemption price. Any money or shares of Common Stock
so deposited with any such paying agent which shall not be required for such
redemption shall be returned to the Company forthwith. Subject to applicable
escheat laws, any moneys so set aside by the Company and unclaimed at the end
of one year from the redemption date shall revert to the general funds of the
Company, after which reversion the holders of such shares so called for
redemption shall look only to the general funds of the Company for the payment
of the redemption price without interest. Any interest accrued on funds so
deposited shall be paid to the Company from time to time.
5.4 In the event that fewer than all the outstanding
shares of Preferred Stock are to be redeemed, the shares to be redeemed shall
be determined pro rata or by lot, as determined by the Company, except that the
Company may redeem such shares held by any holder of fewer than 100 shares (or
shares held by holders who would hold fewer than 100 shares as a result of such
redemption), as may be determined by the Company.
6. Change of Control.
6.1 Upon the occurrence of a Change of Control of the
Company, each holder of Preferred Stock shall, in the event that the Market
Value for the period ending on the Change of Control Date is less than the
Conversion Price, have a one-time option (the "Change of Control Option") to
convert all of such holder's shares of Preferred Stock into fully paid and
nonassessable shares of Common Stock at a conversion price equal to the greater
of (i) the Market Value for the period ending on the Change of Control Date and
(ii) 66 2/3 % of the Market Value for the period ended April 16, 1998. The
Change of Control Option must be exercised during the period of not less than
30 days nor more than 60 days (the actual number of days to be as specified in
the notice furnished in accordance with Section 6.2) commencing on the third
Business Day after notice of a Change in Control has been given by the Company
in accordance with Section 6.2. In lieu of issuing the shares of Common Stock
issuable upon conversion in the event of a Change of Control, the Company may,
at its sole option, make a cash payment equal to the Market Value determined
for the period ending on the Change of Control Date of the shares Common Stock
otherwise issuable.
6.2 In the event of a Change of Control, notice of such
Change of Control shall be given, within five Business Days of the Change of
Control Date, by the Company by first-
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class mail to each record holder of shares of Preferred Stock, at such holder's
address as the same appears on the books of the Company. Each such notice
shall state (i) that a Change of Control has occurred; (ii) the last day on
which the Change of Control Option may be exercised (the "Expiration Date");
(iii) the name and address of the paying agent; and (iv) the procedures that
holders must follow to exercise the Change of Control Option.
6.3 On or before the Expiration Date, each holder of
shares of Preferred Stock wishing to exercise the Change of Control Option
shall surrender the certificate or certificates representing the shares of
Preferred Stock to be converted, in the manner and at the place designated in
the notice described in Section 6.2, and on such date the cash or shares of
Common Stock due to such holder shall be delivered to the person whose name
appears on such certificate or certificates as the owner thereof and each
surrendered certificate shall be returned to authorized but unissued shares.
Upon surrender (in accordance with the notice described in Section 6.2 of the
certificate or certificates representing any shares to be so converted
(properly endorsed or assigned for transfer, if the Company shall so require
and the notice shall so state), such shares shall be converted by the Company
at the Conversion Price.
6.4 The rights of holders of Preferred Stock pursuant to
this Section 6 are in addition to, and not in lieu of, the rights of holders of
Preferred Stock provided for in Section 9 hereof.
7. Voting.
7.1 The shares of Preferred Stock shall have no voting
rights except as required by law or as set forth below:
(a) If and whenever at any time or times a Voting Rights
Triggering Event occurs, then the number of directors constituting the Board of
Directors shall be increased by two and the holders of shares of Preferred
Stock, voting separately as a class with any other preferred stock or
preference security having similar voting rights (the "Voting Rights Class"),
will be entitled at the next regular or special meeting of stockholders of the
Company to elect two directors of the Company to fill the newly created
directorships.
(b) Such voting rights may be exercised at a special
meeting of the holders of the shares of the Voting Rights Class, called as
hereinafter provided, or at any annual meeting of stockholders held for the
purpose of electing directors, and thereafter at each such annual meeting until
such time as all dividends in arrears on the shares of Preferred Stock shall
have been paid in full, at which time or times such voting rights and the term
of the directors elected pursuant to Section 7.1(a) shall terminate.
(c) At any time when such voting rights shall have vested
in holders of shares of the Voting Rights Class, a proper officer of the
Company may call, and, upon written request of the record holders of shares
representing twenty-five percent (25%) of the voting power of the shares then
outstanding of the Voting Rights Class, addressed to the Secretary of the
Company,
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shall call a special meeting of the holders of shares of the Voting Rights
Class. Such meeting shall be held at the earliest practicable date upon the
notice required for annual meetings of stockholders at the place for holding
annual meetings of stockholders of the Company, or, if none, at a place
designated by the Board of Directors. Notwithstanding the provisions of this
Section 7.1(c), no such special meeting shall be called during a period within
the 60 days immediately preceding the date fixed for the next annual meeting of
stockholders in which such case, the election of directors pursuant to Section
7.1(a) shall be held at such annual meeting of stockholders.
(d) At any meeting held for the purpose of electing
directors at which the holders of the Voting Rights Class shall have the right
to elect directors as provided herein, the presence in person or by proxy of
the holders of shares representing more than fifty percent (50%) in voting
power of the then outstanding shares of the Voting Rights Class shall be
required and shall be sufficient to constitute a quorum of such class for the
election of directors by such class. The affirmative vote of the holders of
shares of Preferred Stock constituting a majority of the shares of Preferred
Stock present at such meeting, in person or by proxy, shall be sufficient to
elect such director.
(e) Any director elected pursuant to the voting rights
created under this Section 7.1 shall hold office until the next annual meeting
of stockholders (unless such term has previously terminated pursuant to Section
7.1(b)) and any vacancy in respect of any such director shall be filled only by
vote of the remaining director so elected by holders of the Voting Rights
Class, or if there be no such remaining director, by the holders of shares of
the Voting Rights Class at a special meeting called in accordance with the
procedures set forth in this Section 7, or, if no such special meeting is
called, at the next annual meeting of stockholders. Upon any termination of
such voting rights, the term of office of all directors elected pursuant to
this Section 7 shall terminate.
(f) So long as any shares of Preferred Stock remain
outstanding, unless a greater percentage shall then be required by law, the
Company shall not, without the affirmative vote or consent of the holders of at
least 66 2/3% of the outstanding Preferred Stock voting or consenting, as the
case may be, separately as one class, (i) create, authorize or issue any class
or series of stock (or security convertible into stock) of the Company ranking
pari passu or senior to the Preferred Stock as to dividends, liquidation rights
or voting rights or (ii) amend the Certificate of Incorporation so as to affect
adversely the specified rights, preferences, privileges or voting rights of
holders of shares of Preferred Stock, including (x) increasing the authorized
number of shares of preferred stock and (y) issuing after the Issue Date any
shares of Preferred Stock in excess of such additional shares of Preferred
Stock as may be issued upon the exercise of the over-allotment option pursuant
to the Purchase Agreement. The holders of at least a majority of the
outstanding shares of Preferred Stock, voting separately as one class, may
waive compliance with any provision of this Certificate of Designation.
(g) In exercising the voting rights set forth in this
Section 7.1, each share of Preferred Stock shall be entitled to one vote.
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7.2 Except as set forth in Section 7.1, the Company may
create, authorize or issue any shares of Junior Stock or increase or decrease
the amount of authorized capital stock of any class other than the preferred
stock, without the consent of the holders of Preferred Stock constituting the
Voting Rights Class, and in taking such actions the Company shall not be deemed
to have affected adversely the rights, preferences, privileges or voting rights
of holders of shares of Preferred Stock.
8. Liquidation Rights.
8.1 In the event of any liquidation, dissolution or
winding-up of the Company, whether voluntary of involuntary, the holders of the
shares of Preferred Stock shall be entitled to receive out of the assets of the
Company available for distribution to stockholders up to the Liquidation
Preference plus Accumulated Dividends and Accrued Dividends thereon in
preference to the holders of, and before any distribution is made on, any other
class or series of stock of the Company ranking junior to the Preferred Stock
upon liquidation, including, without limitation, on any Common Stock.
8.2 Neither the sale, conveyance, exchange or transfer
(for cash, shares of stock, securities or other consideration) of all or
substantially all the property and assets of the Company nor the merger or
consolidation of the Company into or with any other corporation, or the merger
or consolidation of any other corporation into or with the Company, shall be
deemed to be a liquidation, dissolution or winding up, voluntary or
involuntary, for the purposes of this Section 8.
8.3 After the payment to the holders of the shares of
Preferred Stock of full preferential amounts provided for in this Section 8,
the holders of Preferred Stock as such shall have no right or claim to any of
the remaining assets of the Company.
8.4 In the event the assets of the Company available for
distribution to the holders of shares of Preferred Stock upon any liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary,
shall be insufficient to pay in full all amounts to which such holders are
entitled pursuant to Section 8.1, no such distribution shall be made on account
of any shares of any other stock of the Company ranking pari passu with the
Preferred Stock upon such liquidation, dissolution or winding up unless
proportionate distributable amounts shall be paid on account of the shares of
Preferred Stock, ratably, in proportion to the full distributable amounts for
which holders of all Preferred Stock and of any other stock of the Company
ranking pari passu with the Preferred Stock are entitled upon such liquidation,
dissolution or winding up.
9. Conversion.
(a) Each holder of Preferred Stock shall have the right,
at its option, exercisable at any time and from time to time from the Issue
Date to convert, subject to the terms and provisions of this Section 9, any or
all of such holder's shares of Preferred Stock. In such
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<PAGE> 12
case, the shares of Preferred Stock shall be converted into such whole number
of fully paid and nonassessable shares of Common Stock as is equal, subject to
Section 9(g), to the product of the number of shares of Preferred Stock being
so converted multiplied by the quotient of (i) the Liquidation Preference plus
any Accumulated Dividends and any Accrued Dividends to and including the date
of conversion divided by (ii) the Conversion Price (as defined below) then in
effect, except that with respect to any share which shall be called for
redemption such conversion right shall terminate at the close of business on
the date of redemption of such share, unless the Company shall default in
performance or payment due upon exchange or redemption thereof. The Conversion
Price shall be $6.95, subject to adjustment as set forth in Section 9(c).
The conversion right of a holder of Preferred Stock shall be exercised
by the holder by the surrender to the Company of the certificates representing
shares to be converted at any time during usual business hours at its principal
place of business or the offices of its duly appointed Transfer Agent (as
defined in Section 10) to be maintained by it, accompanied by written notice
that the holder elects to convert all or a portion of the shares of Preferred
Stock represented by such certificate and specifying the name or names (with
address) in which a certificate or certificates for shares of Common Stock are
to be issued and (if so required by the Company or its duly appointed Transfer
Agent) by a written instrument or instruments of transfer in form reasonably
satisfactory to the Company or its duly appointed Transfer Agent duly executed
by the holder or its duly authorized legal representative and transfer tax
stamps or funds therefor, if required pursuant to Section 9(i). Immediately
prior to the close of business on the date of receipt by the Company or its
duly appointed Transfer Agent of notice of conversion of shares of Preferred
Stock, each converting holder of Preferred Stock shall be deemed to be the
holder of record of Common Stock issuable upon conversion of such holder's
Preferred Stock notwithstanding that the share register of the Company shall
then be closed or that certificates representing such Common Stock shall not
then be actually delivered to such person. Upon notice from the Company, each
holder of Preferred Stock so converted shall promptly surrender to the Company,
at any place where the Company shall maintain a Transfer Agent, certificates
representing the shares so converted, duly endorsed in blank or accompanied by
proper instruments of transfer. On the date of any conversion, all rights with
respect to the shares of Preferred Stock so converted, including the rights, if
any, to receive notices, will terminate, except only the rights of holders
thereof to (i) receive certificates for the number of shares of Common Stock
into which such shares of Preferred Stock have been converted; (ii) the payment
of any Accumulated Dividends or Accrued Dividends thereon; and (iii) exercise
the rights to which they are entitled as holders of Common Stock.
If the last day for the exercise of the conversion right shall
not be a Business Day, then such conversion right may be exercised on the next
preceding Business Day.
(b) When shares of Preferred Stock are converted pursuant
to this Section 9, all Accumulated Dividends and all Accrued Dividends (whether
or not declared or currently payable) on the Preferred Stock so converted to
(and not including) the date of conversion less any amounts payable by the
Company in cash pursuant to Section 3.5. hereof shall be immediately due and
payable, at the Company's option, (i) in cash; (ii) in a number of fully paid
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and nonassessable shares of Common Stock equal to the quotient of (A) the
amount of Accumulated Dividends and Accrued Dividends payable to the holders of
Preferred Stock hereunder, divided by (B) the Market Value for the period
ending on the date of conversion; or (iii) a combination thereof.
(c) The Conversion Price shall be subject to adjustment
as follows:
(i) In case the Company shall at any time or from
time to time (A) make a redemption payment or pay a dividend (or other
distribution) payable in shares of Common Stock on any class of capital stock
(which, for purposes of this Section 9(c) shall include, without limitation,
any dividends or distributions in the form of options, warrants or other rights
to acquire capital stock) of the Company (other than the issuance of shares of
Common Stock in connection with the payment in redemption for, of dividends on
or the conversion of Preferred Stock); (B) subdivide the outstanding shares of
Common Stock into a larger number of shares; (C) combine the outstanding shares
of Common Stock into a smaller number of shares; (D) issue any shares of its
capital stock in a reclassification of the Common Stock; or (E) pay a dividend
or make a distribution to all holders of shares of Common Stock (other than a
dividend or distribution paid or made to holders of shares of Preferred Stock
in the manner provided in Section 9(b) or a dividend or distribution subject to
Section 9(c)(ii)) pursuant to a stockholder rights plan, "poison pill" or
similar arrangement then, and in each such case, the Conversion Price in effect
immediately prior to such event shall be adjusted (and any other appropriate
actions shall be taken by the Company) so that the holder of any share of
Preferred Stock thereafter surrendered for conversion shall be entitled to
receive the number of shares of Common Stock that such holder would have owned
or would have been entitled to receive upon or by reason of any of the events
described above, had such share of Preferred Stock been converted into shares
of Common Stock immediately prior to the occurrence of such event. An
adjustment made pursuant to this Section 9(c)(i) shall become effective
retroactively (x) in the case of any such dividend or distribution, to the day
immediately following the close of business on the record date for the
determination of holders of Common Stock entitled to receive such dividend or
distribution or (y) in the case of any such subdivision, combination or
reclassification, to the close of business on the day upon which such corporate
action becomes effective.
(ii) In case the Company shall at any time or from
time to time issue to all holders of its Common Stock rights, options or
warrants entitling the holders thereof to subscribe for or purchase shares of
Common Stock (or securities convertible into or exchangeable for shares of
Common Stock) at a price per share less than the Market Value for the period
ending on the date of issuance (treating the price per share of any security
convertible or exchangeable or exercisable into Common Stock as equal to (A)
the sum of the price paid to acquire such security convertible, exchangeable or
exercisable into Common Stock plus any additional consideration payable
(without regard to any anti-dilution adjustments) upon the conversion, exchange
or exercise of such security into Common Stock divided by (B) the number of
shares of Common Stock into which such convertible, exchangeable or exercisable
security is initially convertible, exchangeable or exercisable), other than (I)
issuances of such rights, options or warrants if the holder of Preferred Stock
would be entitled to receive such rights, options or
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<PAGE> 14
warrants upon conversion at any time of shares of Preferred Stock and (II)
issuances that are subject to certain triggering events (until such time as
such triggering events occur), then, and in each such case, the Conversion
Price then in effect shall be adjusted by dividing the Conversion Price in
effect on the day immediately prior to the record date of such issuance by a
fraction (y) the numerator of which shall be the sum of the number of shares of
Common Stock outstanding on such record date plus the number of additional
shares of Common Stock issued or to be issued upon or as a result of the
issuance of such rights, options or warrants (or the maximum number into or for
which such convertible or exchangeable securities initially may convert or
exchange or for which such options, warrants or other rights initially may be
exercised) and (z) the denominator of which shall be the sum of the number of
shares of Common Stock outstanding on such record date plus the number of
shares of Common Stock which the aggregate consideration for the total number
of such additional shares of Common Stock so issued (or into or for which such
convertible or exchangeable securities may convert or exchange or for which
such options, warrants or other rights may be exercised plus the aggregate
amount of any additional consideration initially payable upon the conversion,
exchange or exercise of such security) would purchase at the Market Value for
the period ending on the date of conversion; provided, that if the Company
distributes rights or warrants (other than those referred to above in this
subparagraph (c)(ii)) pro rata to the holders of Common Stock, so long as
such rights or warrants have not expired or been redeemed by the Company, (y)
the holder of any Preferred Stock surrendered for conversion shall be entitled
to receive upon such conversion, in addition to the shares of Common Stock then
issuable upon such conversion (the "Conversion Shares"), a number of rights or
warrants to be determined as follows: (i) if such conversion occurs on or prior
to the date for the distribution to the holders of rights or warrants of
separate certificates evidencing such rights or warrants (the "Distribution
Date"), the same number of rights or warrants to which a holder of a number of
shares of Common Stock equal to the number of Conversion Shares is entitled at
the time of such conversion in accordance with the terms and provisions
applicable to the rights or warrants and (ii) if such conversion occurs after
the Distribution Date, the same number of rights or warrants to which a holder
of the number of shares of Common Stock into which such Preferred Stock was
convertible immediately prior to such Distribution Date would have been
entitled on such Distribution Date had such Preferred Stock been converted
immediately prior to such Distribution Date in accordance with the terms and
provisions applicable to the rights and warrants, and (z) the Conversion Price
shall not be subject to adjustment on account of any declaration, distribution
or exercise of such rights or warrants.
(iii) In case the Company shall at any time or from
time to time (A) make a pro rata distribution to all holders of shares of its
Common Stock consisting exclusively of cash (excluding any cash portion of
distributions referred to in paragraph (c)(i) above, or cash distributed upon a
merger or consolidation to which paragraph (g) below applies), that, when
combined together with (x) all other such all-cash distributions made within
the then-preceding 12 months in respect of which no adjustment has been made
and (y) any cash and the fair market value of other consideration paid or
payable in respect of any tender offer by the Company or any of its
subsidiaries for shares of Common Stock concluded within the then-preceding 12
months in respect of which no adjustment pursuant to this Section 9(c) has been
made, in the
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aggregate exceeds 15% of the Company's market capitalization (defined as the
product of the Market Value for the period ending on the record date of such
distribution times the number of shares of Common Stock outstanding on such
record date) on the record date of such distribution; (B) complete a tender or
exchange offer by the Company or any of its subsidiaries for shares of Common
Stock that involves an aggregate consideration that, together with (I) any cash
and other consideration payable in a tender or exchange offer by the Company or
any of its subsidiaries for shares of Common Stock expiring within the
then-preceding 12 months in respect of which no adjustment pursuant to this
Section 9(c) has been made and (II) the aggregate amount of any such all-cash
distributions referred to in clause (A) above to all holders of shares of
Common Stock within the then-preceding 12 months in respect of which no
adjustments have been made, exceeds 15% of the Company's market capitalization
on the expiration of such tender offer; or (C) make a distribution to all
holders of its Common Stock consisting of evidences of indebtedness, shares of
its capital stock other than Common Stock or assets (including securities, but
excluding those dividends, rights, options, warrants and distributions referred
to in paragraphs (c)(i) or (c)(ii) above), then, and in each such case, the
Conversion Price then in effect shall be adjusted by dividing the Conversion
Price in effect immediately prior to the date of such distribution or
completion of such tender or exchange offer, as the case may be,) by a fraction
(x) the numerator of which shall be the Market Value for the period ending on
the record date referred to below, or, if such adjustment is made upon the
completion of a tender or exchange offer, on the payment date for such offer,
and (y) the denominator of which shall be such Market Value less the then fair
market value (as determined by the Board of Directors of the Company) of the
portion of the cash, evidences of indebtedness, securities or other assets so
distributed or paid in such tender or exchange offer, applicable to one share
of Common Stock (but such denominator not to be less than one); provided,
however, that no adjustment shall be made with respect to any distribution of
rights to purchase securities of the Company if the holder of shares of
Preferred Stock would otherwise be entitled to receive such rights upon
conversion at any time of shares of Preferred Stock into shares of Common Stock
unless such rights are subsequently redeemed by the Company, in which case such
redemption shall be treated for purposes of this Section 9(c)(iii) as a
dividend on the Common Stock. Such adjustment shall be made whenever any such
distribution is made or tender or exchange offer is completed, as the case may
be, and shall become effective retroactively to a date immediately following
the close of business on the record date for the determination of stockholders
entitled to receive such distribution.
(iv) In the case the Company at any time or from
time to time shall take any action affecting its Common Stock (it being
understood that the issuance or sale of shares of Common Stock (or securities
convertible into or exchangeable for shares of Common Stock, or any options,
warrants or other rights to acquire shares of Common Stock) to any Person at a
price per share less than the Conversion Price then in effect shall not be
deemed such an action), other than an action described in any of Section
9(c)(i) through Section 9(c)(iii), inclusive, or Section 9(g), then the
Conversion Price shall be adjusted in such manner and at such time as the Board
of Directors of the Company in good faith determines to be equitable in the
circumstances (such determination to be evidenced in a resolution, a certified
copy of which shall be mailed to the holders of the Preferred Stock).
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(v) Notwithstanding anything herein to the
contrary, no adjustment under this Section 9(c) need be made to the Conversion
Price unless such adjustment would require an increase or decrease of at least
1% of the Conversion Price then in effect. Any lesser adjustment shall be
carried forward and shall be made at the time of and together with the next
subsequent adjustment, if any, which, together with any adjustment or
adjustments so carried forward, shall amount to an increase or decrease of at
least 1% of such Conversion Price.
(vi) The Company reserves the right to make such
reductions in the Conversion Price in addition to those required in the
foregoing provisions as it considers advisable in order that any event treated
for Federal income tax purposes as a dividend of stock or stock rights will not
be taxable to the recipients. In the event the Company elects to make such a
reduction in the Conversion Price, the Company will comply with the
requirements of Rule 14e-1 under the Exchange Act, and any other securities
laws and regulations thereunder if and to the extent that such laws and
regulations are applicable in connection with the reduction of the Conversion
Price.
(d) If the Company shall take a record of the holders of
its Common Stock for the purpose of entitling them to receive a dividend or
other distribution, and shall thereafter (and before the dividend or
distribution has been paid or delivered to stockholders) legally abandon its
plan to pay or deliver such dividend or distribution, then thereafter no
adjustment in the Conversion Price then in effect shall be required by reason
of the taking of such record.
(e) Upon any increase or decrease in the Conversion
Price, then, and in each such case, the Company promptly shall deliver to each
registered holder of Preferred Stock a certificate signed by an authorized
officer of the Company, setting forth in reasonable detail the event requiring
the adjustment and the method by which such adjustment was calculated and
specifying the increased or decreased Conversion Price then in effect following
such adjustment.
(f) No fractional shares or scrip representing fractional
shares of Common Stock shall be issued upon the conversion of any shares of
Preferred Stock. If more than one share of Preferred Stock shall be
surrendered for conversion at one time by the same holder, the number of full
shares of Common Stock issuable upon conversion thereof shall be computed on
the basis of the aggregate Liquidation Preference of the shares of Preferred
Stock so surrendered. If the conversion of any share or shares of Preferred
Stock results in a fraction, an amount equal to such fraction multiplied by the
last reported sale price of the Common Stock on the NYSE (or on such other
national securities exchange or authorized quotation system on which the Common
Stock is then listed for trading or authorized for quotation or, if the Common
Stock is not then so listed or authorized for quotation, an amount determined
in good faith by the Board of Directors to be the fair value of the Common
Stock) at the close of business on the trading day next preceding the day of
conversion shall be paid to such holder in cash by the Company.
(g) In the event of any capital reorganization or
reclassification or other change of outstanding shares of Common Stock (other
than a change in par value, or from par value to no par value, or from no par
value to par value), or in the event of any consolidation
-16-
<PAGE> 17
or merger of the Company with or into another Person (other than a
consolidation or merger in which the Company is the resulting or surviving
Person and which does not result in any reclassification or change of
outstanding Common Stock), or in the event of any sale or other disposition to
another Person of all or substantially all of the assets of the Company (other
than any assets not owned directly or indirectly by the Company and its
subsidiaries) (computed on a consolidated basis) (any of the foregoing, a
"Transaction"), each share of Preferred Stock then outstanding shall, without
the consent of any holder of Preferred Stock, become convertible only into the
kind and amount of shares of stock or other securities (of the Company or
another issuer) or property or cash receivable upon such Transaction by a
holder of the number of shares of Common Stock into which such share of
Preferred Stock could have been converted immediately prior to such Transaction
after giving effect to any adjustment event. The provisions of this Section
9(g) and any equivalent thereof in any such certificate similarly shall apply
to successive Transactions. The provisions of this Section 9(g) shall be the
sole right of holders of Preferred Stock in connection with any Transaction and
such holders shall have no separate vote thereon.
(h) In the event of any distribution by the Company to
its stockholders of all or substantially all of its assets (other than any
assets not owned directly or indirectly by the Company and its subsidiaries)
(computed on a consolidated basis), each holder of Preferred Stock will
participate pro rata in such distribution based on the number of shares of
Common Stock into which such holders' shares of Preferred Stock would have been
convertible immediately prior to such distribution.
(i) The Company shall at all times reserve and keep
available for issuance upon the conversion of the Preferred Stock such number
of its authorized but unissued shares of Common Stock as will from time to time
be sufficient to permit the conversion of all outstanding shares of Preferred
Stock, and shall take all action required to increase the authorized number of
shares of Common Stock if at any time there shall be insufficient unissued
shares of Common Stock to permit such reservation or to permit the conversion
of all outstanding shares of Preferred Stock.
(j) The issuance or delivery of certificates for Common
Stock upon the conversion of shares of Preferred Stock shall be made without
charge to the converting holder of shares of Preferred Stock for such
certificates or for any tax in respect of the issuance or delivery of such
certificates or the securities represented thereby, and such certificates shall
be issued or delivered in the respective names of, or in such names as may be
directed by, the holders of the shares of Preferred Stock converted; provided,
however, that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
such certificate in a name other than that of the holder of the shares of
Preferred Stock converted, and the Company shall not be required to issue or
deliver such certificate unless or until the Person or Persons requesting the
issuance or delivery thereof shall have paid to the Company the amount of such
tax or shall have established to the reasonable satisfaction of the Company
that such tax has been paid.
-17-
<PAGE> 18
10. Transfer Agent and Registrar. The duly appointed transfer
agent and registrar (the "Transfer Agent") for the Preferred Stock shall be UMB
Bank, N.A. The Company may, in its sole discretion, remove the Transfer Agent
with 10 days' prior written notice to the Transfer Agent; provided, that the
Company shall appoint a successor Transfer Agent who shall accept such
appointment prior to the effectiveness of such removal.
11. Transfer Restrictions. The shares of Preferred Stock have not
be registered under the Securities Act of 1933, as amended (the "Securities
Act"), and, accordingly, may not be offered, sold, pledged or otherwise
transferred except (1) to a Person whom the seller reasonably believes is a
qualified institutional buyer within the meaning of Rule 144A under the
Securities Act purchasing for its own account or for the account of a qualified
institutional buyer in a transaction meeting the requirements of Rule 144A, (2)
in a transaction meeting the requirements of Rule 144 under the Securities Act,
(3) in accordance with another exemption from the registration requirements of
the Securities Act (and based upon opinion of counsel acceptable to the
Company), (4) to the Company or any of its subsidiaries, or (5) pursuant to an
effective registration statement under the Securities Act, and in each case, in
accordance with all applicable securities laws of any State of the United
States. The Transfer Agent shall refuse to register the transfer of any shares
of Preferred Stock that violates this Section 11.
12. Other Provisions.
12.1 With respect to any notice to a holder of shares of
Preferred Stock required to be provided hereunder, neither failure to mail such
notice, nor any defect therein or in the mailing thereof, to any particular
holder shall affect the sufficiency of the notice or the validity of the
proceedings referred to in such notice with respect to the other holders or
affect the legality or validity of any distribution, rights, warrant,
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding-up, or the vote upon any such action. Any notice which
was mailed in the manner herein provided shall be conclusively presumed to have
been duly given whether or not the holder receives the notice.
12.2 Shares of Preferred Stock issued and reacquired will
be retired and canceled promptly after reacquisition thereof and, upon
compliance with the applicable requirements of Oklahoma law, have the status of
authorized but unissued shares of preferred stock of the Company undesignated
as to series and may with any and all other authorized but unissued shares of
preferred stock of the Company be designated or redesignated and issued or
reissued, as the case may be, as part of any series of preferred stock of the
Corporation, except that any issuance or reissuance of shares of Preferred
Stock must be in compliance with this Certificate of Designation.
12.3 The shares of Preferred Stock shall be issuable only
in whole shares.
12.4 All notices periods referred to herein shall commence
on the date of the mailing of the applicable notice.
-18-
<PAGE> 19
IN WITNESS WHEREOF, the Company has caused this certificate to be
signed and attested this 21st day of April, 1998.
CHESAPEAKE ENERGY CORPORATION
By: /s/ Aubrey K. McClendon
------------------------------------
Aubrey K. McClendon
Chairman of the Board and
Chief Executive Officer
Attest:
/s/ Janice A. Dobbs
- ---------------------
Janice A. Dobbs
Corporate Secretary
-19-
<PAGE> 20
AMENDMENT TO
CERTIFICATE OF INCORPORATION
OF
CHESAPEAKE ENERGY CORPORATION
(AFTER RECEIPT OF PAYMENT FOR STOCK)
The undersigned, Aubrey K. McClendon, as Chairman of the Board and Chief
Executive Officer, and Janice A. Dobbs, as Secretary of Chesapeake Energy
Corporation, a corporation organized and existing under the laws of the State of
Oklahoma (the "Corporation"), hereby certify as follows:
A. The name of the Corporation is Chesapeake Energy Corporation.
B. The name under which the Corporation was originally incorporated is
Chesapeake Oklahoma Corporation. The original Certificate of Incorporation
of the Corporation was filed with the Secretary of State of Oklahoma on
November 19, 1996, as amended by that certain Certificate of Ownership and
Merger Merging Chesapeake Energy Corporation into Chesapeake Oklahoma
Corporation filed with the Secretary of State of Oklahoma on December 23,
1996, effective December 31, 1996 (the "Certificate of Incorporation").
C. This Amendment to Certificate of Incorporation was duly adopted in
accordance with the provisions of Section 1077 of the General Corporation
Act of Oklahoma (the "Act") at the Corporation's annual meeting by a
majority of the outstanding capital stock of the Corporation entitled to
vote thereon. Written notice of the Corporation's annual meeting was given
to the stockholders of the Corporation in accordance with the provisions
of Section 1067 of the Act.
D. The Certificate of Incorporation is hereby amended as follows:
1. Amendment to Article IV. The first sentence of Article IV of the
Certificate of Incorporation starting with the words "The total number of shares
of capital stock . . . " is hereby deleted in its entirety and the following
sentence is substituted therefor:
The total number of shares of capital stock which the Corporation
shall have authority to issue is Two Hundred Sixty Million
(260,000,000) shares, consisting of Ten Million (10,000,000) shares
of Preferred Stock, par value $0.01 per share, and Two Hundred Fifty
Million (250,000,000) shares of Common Stock, par value $0.01 per
share.
<PAGE> 21
IN WITNESS WHEREOF, this Amendment to Certificate of Incorporation was duly
adopted by the board of directors and the stockholders of the Corporation in
accordance with Section 1077 of the Act and executed this 9th day of December,
1997, by Aubrey K. McClendon, as Chairman of the Board and Chief Executive
Officer, and attested by Janice A. Dobbs, as Secretary.
/s/ Aubrey K. McClendon
----------------------------------------------
Aubrey K. McClendon, Chairman of the Board and
Chief Executive Officer
Attest:
/s/ Janice A. Dobbs
- -------------------------------
Janice A. Dobbs, Secretary
<PAGE> 22
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
CHESAPEAKE ENERGY CORPORATION
INTO
CHESAPEAKE OKLAHOMA CORPORATION
CHESAPEAKE ENERGY CORPORATION, a Delaware corporation
(the "Corporation"), DOES HEREBY CERTIFY:
FIRST: That it owns 100% of the issued and outstanding
shares of the capital stock of CHESAPEAKE OKLAHOMA CORPORATION, an
Oklahoma corporation ("Chesapeake Oklahoma").
SECOND: That its board of directors at a meeting held on
the 15th day of October, 1996, determined to merge the Corporation
into CHESAPEAKE OKLAHOMA CORPORATION, and did adopt the following
resolutions:
WHEREAS, the officers of the Corporation recommended that
the Corporation reincorporate under the laws of the State
of Oklahoma and the Board of Directors, after discussing
the issue, has determined that the reincorporation is in
the best interest of the shareholders and the
Corporation; and
WHEREAS, to facilitate the Corporation's reincorporation,
the officers of the Corporation recommended that the
Corporation form Chesapeake Oklahoma Corporation
("Chesapeake Oklahoma") to be organized and exist under
and by virtue of the laws of the State of Oklahoma, with
an authorized capitalization of (i) 100 million shares of
common stock, $.01 par value ("Chesapeake Oklahoma Common
Stock"), 10 shares of which will be issued and
outstanding prior to the reincorporation, and (ii) 10
million shares of preferred stock, $.01 par value, no
shares of which will be issued and outstanding prior to
the reincorporation (all shares of Chesapeake Oklahoma
Common Stock outstanding prior to the reincorporation
will be held of record and beneficially by the
Corporation).
NOW, THEREFORE, BE IT RESOLVED, that the officers of the
Corporation be, and each of them hereby is, authorized
and directed to take any and all actions required to
reincorporate the Corporation under the laws of the State
of Oklahoma, including without limitation, the forming of
Chesapeake Oklahoma as a new transitory subsidiary, in
accordance with the recitations set forth herein, the
listing of the shares of Chesapeake Oklahoma on the New
York Stock Exchange, the registration of such shares with
the Securities and Exchange Commission and any state
securities agency, the assumption by Chesapeake Oklahoma
of all existing plans and registration statements of the
Corporation and such other actions as may be necessary to
the effect that the rights and obligations of Chesapeake
Oklahoma will be virtually identical to the rights and
obligations of the Corporation.
WHEREAS, after the formation of Chesapeake Oklahoma, the
Board of Directors deems it advisable and in the best
interests of the Corporation and its shareholders that
the Corporation merge with and into Chesapeake Oklahoma
pursuant to Section 1083 of the Oklahoma General
Corporation Act and Section 253 of the Delaware General
Corporation Law (the "Merger") and immediately thereafter
for Chesapeake Oklahoma to change its name to Chesapeake
Energy Corporation; and
WHEREAS, the Corporation and Chesapeake Oklahoma will
hereinafter be know as the "Constituent Corporations;"
and
WHEREAS, the Board of Directors deems it advisable and in
the best interests of the Corporation and its
shareholders that the Corporation be merged with and into
Chesapeake Oklahoma in the manner contemplated herein
(the "Plan") and recommend that the Merger and the Plan
be approved and adopted by the shareholders of the
Corporation;
NOW, THEREFORE, BE IT RESOLVED, that the Constituent
Corporations will be merged into a single corporation by
the Corporation merging with and into Chesapeake
Oklahoma, which will survive the Merger, pursuant to the
provisions of Section 1083 of the Oklahoma General
Corporation Act and Section 253 of the Delaware General
Corporation Law. Upon such Merger, the separate
existence of the Corporation will cease, and Chesapeake
Oklahoma will become the owner, without transfer, of all
rights and property of the Constituent Corporations, and
will be subject to all the liabilities of the Constituent
Corporations in the same manner as if Chesapeake Oklahoma
had itself incurred such liabilities all as provided by
the Oklahoma General Corporation Act.
<PAGE> 23
FURTHER RESOLVED, that, on the Effective Date of the
Merger, which will be 5:00 p.m., CST, on December 31,
1996 (the "Effective Date of the Merger"), the
Certificate of Incorporation and Bylaws of Chesapeake
Oklahoma, as currently in effect, will be the Certificate
of Incorporation and Bylaws of Chesapeake Oklahoma until
they are duly amended, except that the name of Chesapeake
Oklahoma will be changed to Chesapeake Energy
Corporation.
FURTHER RESOLVED, that on the Effective Date of the
Merger, the directors and officers of the Corporation
will become the directors and officers of Chesapeake
Oklahoma until their successors are duly elected and
qualified.
FURTHER RESOLVED, that on the Effective Date of the
Merger (i) each share of Chesapeake Common Stock issued
and outstanding immediately prior to the Effective Date
of the Merger, by virtue of the Merger and without any
action on the part of the holder thereof, will be
converted into one share of Chesapeake Oklahoma Common
Stock, (ii) each share of Chesapeake Oklahoma Common
Stock issued and outstanding immediately prior to the
Effective Date of the Merger, by virtue of the Merger and
without any action on the part of the holder thereof,
will be cancelled and no payment will be made in respect
thereof, and (iii) upon surrender of any certificates
representing Chesapeake Common Stock, stock certificates
representing Chesapeake Oklahoma Common Stock will be
reissued to the holder thereof.
FURTHER RESOLVED, that this Plan will be submitted to the
shareholders of the Corporation for approval in the
manner provided by applicable Oklahoma and Delaware law.
After approval by the vote of the holders representing
not less than a majority of the issued and outstanding
shares of Chesapeake Common Stock entitled to vote on the
Merger, the officers are, and each of them hereby is,
authorized and directed to execute and file with the
Secretary of State of the States of Oklahoma and Delaware
a Certificate of Ownership and Merger and to make any
such further filings as may be necessary to effectuate
the Merger.
FURTHER RESOLVED, that the officers of the Corporation
are authorized and directed to execute any and all
agreements, documents or consents, and to take any and
all actions deemed necessary or desirable to permit the
consummation of the Merger as required by: (a) that
certain Indenture dated as of March 31, 1994, as
supplemented, among the Corporation, its subsidiaries
signatory thereto as Subsidiary Guarantors and United
States Trust Company of New York, as trustee; (b) that
certain Indenture dated as of May 15, 1995 among the
Corporation, its subsidiaries signatory thereto as
Subsidiary Guarantors and United States Trust Company of
New York, as trustee; and (c) that certain Indenture
dated as of April 1, 1996 among the Corporation, its
subsidiaries signatory thereto as Subsidiary Guarantors
and United States Trust Company of New York, as trustee.
The execution by the officers, or any one of them, of any
such document or agreement, or the doing by them of any
act in connection with the foregoing matter, will
conclusively establish their authority therefor from this
Board and from the Corporation and the approval,
ratification and adoption of any documents or agreements
executed and any action taken.
FURTHER RESOLVED, that the officers of the Corporation
be, and they hereby are, authorized and directed to
execute and deliver on behalf of the Corporation all
agreements and documents contemplated by the Plan,
together with any and all documents and related
agreements deemed necessary or desirable by said officer
or officers to effectuate the foregoing, each in
accordance with the recitations contained herein, and
containing such further and different terms and
conditions as said officer or officers will deem
necessary or desirable to accomplish the objectives set
forth herein, and further, that the execution by the
officers, or any one of them, of any such document or
agreement, or the doing by them of any act in connection
with the foregoing matter, will conclusively establish
their authority therefor from this Board and from the
Corporation and the approval, ratification and adoption
of any documents or agreements executed and any action
taken.
THIRD: The merger has been approved by a majority of the
outstanding stock of the Corporation entitled to vote thereon at a
meeting duly called and held after twenty days' notice of the
purpose of the meeting mailed to each such stockholder at his
address as it appears in the records of the Corporation.
<PAGE> 24
FOURTH: Chesapeake Oklahoma hereby agrees that it may be
served with process in the state of Delaware in any proceeding for
enforcement of any obligation of any constituent corporation of
Delaware, as well as for enforcement of any obligation of
Chesapeake Oklahoma arising from the merger, including any suit or
other proceeding to enforce the right of any shareholders as
determined in appraisal proceedings pursuant to the provisions of
Section 262 of the Delaware General Corporation Law, and hereby
irrevocably appoints the Secretary of State of the State of
Delaware as its agent to accept service of process in any such suit
or other proceeding. The address to which a copy of such process
shall be mailed by the Secretary of State of Delaware is 6100 N.
Western Avenue, Oklahoma City, OK 73118.
IN WITNESS WHEREOF, the Corporation has caused this
Certificate to be signed by its President and attested to by its
Secretary effective the 13th day of December, 1996.
CHESAPEAKE ENERGY CORPORATION
THOMAS L. WARD
Thomas L. Ward
President
ATTEST:
JANICE DOBBS
Janice Dobbs
Secretary
[Seal]
<PAGE> 25
CERTIFICATE OF INCORPORATION
OF
CHESAPEAKE OKLAHOMA CORPORATION
ARTICLE I
Name
The name of the Corporation is:
CHESAPEAKE OKLAHOMA CORPORATION
ARTICLE II
Registered Office and Agent
The address of the Corporation's registered office in the
State of Oklahoma is 6104 N. Western Avenue, Oklahoma City,
Oklahoma 73118. The Corporation's registered agent at such address
is Janice A. Dobbs.
ARTICLE III
Purposes
The nature of the business and the purpose of the
Corporation shall be to engage in any lawful act or activity and to
pursue any lawful purpose for which a corporation may be formed
under the Oklahoma General Corporation Act (the "Act"). The
Corporation is authorized to exercise and enjoy all powers, rights
and privileges which corporations organized under the Act may have
as in force from time to time, including, without limitation, all
powers, rights and privileges necessary or convenient to carry out
the purposes of the Corporation.
ARTICLE IV
Capital Stock
The total number of shares of capital stock which the
Corporation shall have authority to issue is One Hundred Ten
Million (110,000,000) shares, consisting of Ten Million
(10,000,000) shares of Preferred Stock, par value $0.01 per share
and One Hundred Million (100,000,000) shares of Common Stock, par
value $0.01 per share. The preferences, qualifications,
limitations, restrictions and the special or relative rights in
respect of the shares of each class are as follows:
Section 1. Preferred Stock. The Preferred
Stock may be issued from time to time in one or more series. All
shares of Preferred Stock shall be of equal rank and shall be
identical, except in respect of the matters that may be fixed and
determined by the board of directors as hereinafter provided, and
each share of each series shall be identical with all other shares
of such series, except as to the date from which dividends are
cumulative. The board of directors hereby is authorized to cause
such shares to be issued in one or more series and with respect to
each such series prior to the issuance thereof to fix and determine
the designation, powers, preferences and rights of the shares of
each such series and the qualifications, limitations or
restrictions thereof.
<PAGE> 26
The authority of the board with respect to each series
shall include but not be limited to, determination of the
following:
A. The number of shares
constituting a series, the distinctive designation of a
series and the stated value of the series, if different
from the par value;
B. Whether the shares of a series
are entitled to any fixed or determinable dividends, the
dividend rate (if any) on the shares, whether the
dividends are cumulative and the relative rights of
priority of dividends on shares of that series;
C. Whether a series has voting
rights in addition to the voting rights provided by law
and the terms and conditions of such voting rights;
D. Whether a series will have or
receive conversion or exchange privileges and the terms
and conditions of such conversion or exchange privileges;
E. Whether or not the shares of a
series are redeemable and the terms and conditions of
such redemption, including, without limitation, the
manner of selecting shares for redemption if less than
all shares are to be redeemed, the date or dates on or
after which the shares in the series will be redeemable
and the amount payable in case of redemption;
F. Whether a series will have a
sinking fund for the redemption or purchase of the shares
in the series and the terms and the amount of such
sinking fund;
G. The right of a series to the
benefit of conditions and restrictions on the creation of
indebtedness of the Corporation or any subsidiary, on the
issuance of any additional capital stock (including
additional shares of such series or any other series), on
the payment of dividends or the making of other
distributions on any outstanding stock of the Corporation
and the purchase, redemption or other acquisition by the
Corporation, or any subsidiary, of any outstanding stock
of the Corporation;
H. The rights of a series in the
event of voluntary or involuntary liquidation,
dissolution or winding up of the corporation and the
relative rights of priority of payment of a series; and
I. Any other relative,
participating, optional or other special rights,
qualifications, limitations or restrictions of such
series.
Dividends on outstanding shares of Preferred Stock shall
be paid or set apart for payment before any dividends shall be paid
or declared or set apart for payment on the common shares with
respect to the same dividend period.
<PAGE> 27
If upon any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation the assets available
for distribution to holders of shares of Preferred Stock of all
series shall be insufficient to pay such holders the full
preferential amount to which they are entitled, then such assets
shall be distributed ratably among the shares of all series in
accordance with the respective preferential amounts (including
unpaid cumulative dividends, if any) payable with respect thereto.
Section 2. Common Stock. The Common Stock
shall be subject to the express terms of the Preferred Stock and
any series thereof. Each share of Common Stock shall be equal to
every other share of Common Stock. The holders of shares of Common
Stock shall be entitled to one vote for each share of such stock
upon all matters presented to the shareholders. Shares of Common
Stock authorized hereby shall not be subject to preemptive rights.
The holders of shares of Common Stock now or hereafter outstanding
shall have no preemptive right to purchase or have offered to them
for purchase any of such authorized but unissued shares. The
holders of shares of Common Stock now or hereafter outstanding
shall have no preemptive right to purchase or have offered to them
for purchase any shares of Preferred Stock, Common stock, or other
equity securities issued or to be issued by the Company.
Subject to the preferential and other dividend rights
applicable to Preferred Stock, the holders of shares of Common
Stock shall be entitled to receive such dividends (payable in cash,
stock or otherwise) as may be declared on the Common Stock by the
Board of Directors at any time or from time to time out of any
funds legally available therefor.
In the event of any voluntary or involuntary liquidation,
distribution or winding up of the Corporation, after distribution
in full of the preferential and/or other amounts to be distributed
to the holders of shares of Preferred Stock, the holders of shares
of Common Stock shall be entitled to receive all of the remaining
assets of the Corporation available for distribution to its
shareholders, ratably in proportion to the number of shares of
Common Stock held by them.
ARTICLE V
Limitation of Director Liability
A director of the Corporation shall not be personally
liable to the Corporation or its shareholders for damages for
breach of fiduciary duty as a director, except for personal
liability for (i) acts or omissions by such director not in good
faith or which involve intentional misconduct or a knowing
violation of law; (ii) the payment of dividends or the redemption
or purchase of stock in violation of Section 1053 of the Act; (iii)
any breach of such director's duty of loyalty to the Corporation or
its shareholders; or (iv) any transaction from which such director
derived an improper personal benefit.
<PAGE> 28
ARTICLE VI
Certain Stock Purchases
Section 1. Certain Definitions. For the
purposes of this Article VI:
"Continuing Director" means any member of the Board of
Directors of the Corporation (the "Board") who is unaffiliated with
the Interested Shareholder and was a member of the Board prior to
the time that the Interested Shareholder became an Interested
Shareholder, and any successor of a Continuing Director who is
unaffiliated with the Interested Shareholder and is recommended to
succeed a Continuing Director by a majority of Continuing Directors
then on the Board.
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
"Fair Market Value" means: (1) in the case of stock, the
highest closing sale price during the 30-day period ending on the
date in question of a share of such stock on a principal United
States securities exchange registered under the Exchange Act on
which such stock is listed or in the national market system
maintained by the National Association of Securities Dealers, Inc.,
or, if the stock is not listed on any such exchange or designated
as a national market system security, the highest closing bid
quotation with respect to a share of such stock during the 30-day
period ending on the date in question on the National Association
of Securities Dealers, Inc. Automated Quotations system or any
system then in use, or if no such quotations are available, the
fair market value on the date in question of a share of such stock
as determined by the Board in good faith.
"Interested Shareholder" shall have the meaning ascribed
to such term under Section 1090.3 of the Act.
Section 2. Vote Required for Certain Stock
Purchases.
A. Any direct or indirect purchase by the Corporation, or
any subsidiary of the Corporation, of any capital stock from a
person or persons known by a majority of the Continuing Directors
of the Corporation to be an Interested Shareholder who has
beneficially owned such capital stock for less than three years
prior to the date of such purchase, or any agreement in respect
thereof, at a price in excess of the Fair Market Value shall
require the affirmative vote of no less than 66 2/3% of the votes
cast by the holders, voting together as a single class, of all then
outstanding shares of capital stock, excluding for this purpose the
votes by the Interested Shareholder, unless a greater vote shall be
required by law.
B. Such affirmative vote shall not be required for a
purchase or other acquisition of securities of the same class made
on substantially the same terms to all holders of such securities
and complying with the applicable requirements of the Exchange Act,
and the rules and regulations thereunder (or any subsequent
provisions replacing the Exchange Act, rules or regulations).
Furthermore, such affirmative vote shall not be required for any
purchase effected on the open market and not the result of a
privately-negotiated transaction.
Section 3. Powers of Continuing Directors.
The Continuing Directors of the Corporation shall have the power
and duty to determine for the purposes of this Article VI, on the
basis of information known to them after reasonable inquiry,
whether a person is an Interested Shareholder, and the number of
shares of capital stock owned beneficially by any person.
<PAGE> 29
ARTICLE VII
Board of Directors
Section 1. Management by Board of Directors.
The business and affairs of the Corporation shall be under the
direction of the Board of Directors.
Section 2. Number of Directors. The number
of Directors which shall constitute the whole board shall be not
less than three nor more than fifteen, and shall be determined by
resolution adopted by a vote of two-thirds (2/3) of the entire
board, or at an annual or special meeting of shareholders by the
affirmative vote of sixty-six and two-third percent (66 2/3%) of
the outstanding stock entitled to vote. No reduction in number
shall have the effect of removing any director prior to the
expiration of his term. The number of directors of the Corporation
may, from time to time, be increased or decreased in such manner as
may be provided in the bylaws of the Corporation.
Section 3. Classes of Directors; Election by
Shareholders; Vacancies. The directors shall be divided into three
classes, designated Class I, Class II and Class III. Each class
shall consist, as nearly as may be possible, of one-third of the
total number of directors constituting the entire Board of
Directors. The term of the initial Class I directors shall
terminate on the date of the 1997 annual meeting of shareholders;
the term of the initial Class II directors shall terminate on the
date of the 1998 annual meeting of shareholders and the term of the
initial Class III directors shall terminate on the date of the 1999
annual meeting of shareholders. At each annual meeting of
shareholders beginning in 1997, successors to the class of
directors whose term expires at that annual meeting shall be
elected for a three-year term. If the number of directors is
changed, any increase or decrease shall be apportioned among the
classes so as to maintain the number of directors in each class as
nearly equal as possible, and any additional directors of any class
elected to fill a vacancy resulting from an increase in such class
shall hold office for a term that shall coincide with the remaining
term of that class, but in no case will a decrease in the number of
directors shorten the term of any incumbent director. A director
shall hold office until the annual meeting for the year in which
his term expires and until his successor shall be elected and shall
qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office. Any vacancy on the Board
of directors, however resulting, may be filled by a majority of the
directors then in office, even if less than a quorum, or by a sole
remaining director. Any director elected to fill a vacancy shall
hold office for a term that shall coincide with the term of the
class to which such director shall have been elected. No election
of directors need be by written ballot.
Notwithstanding the foregoing,
whenever the holders of any one or more classes or series of
Preferred Stock issued by the Corporation shall have the right,
voting separately by class or series, to elect directors at an
annual or special meeting of shareholders, the election, term of
office, filling of vacancies and other features of such
directorships shall be governed by the terms of the Certificate of
Designation attributable to such Preferred stock or the resolution
or resolutions adopted by the Board of Directors pursuant to
Section 2 of this Article VII applicable thereto, and such
directors so elected shall not be divided into classes pursuant to
this Article VII unless expressly provided by such terms.
<PAGE> 30
ARTICLE VIII
Indemnity
Section 1. Third Party Claims. The
Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or
completed action, suit or proceeding whether civil, criminal,
administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he is or was
a director, officer, employee or agent of the Corporation or is or
was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture or other enterprise against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such
action, suit or proceeding, if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best
interest of the Corporation and, with respect to any criminal
action or proceeding, had no reasonable cause to believe that his
conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent shall not of itself
create a presumption that the person did not act in good faith and
in a manner which he reasonably believed to be in or not opposed to
the best interest of the Corporation and with respect to any
criminal action or proceeding had reasonable cause to believe that
his conduct was unlawful.
Section 2. Derivative Claims. The Corporation
shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment
in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation or is or was serving
at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust
or other enterprise against expenses (including attorney's fees)
actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit, if he acted in good
faith and in a manner he reasonably believed to be in or not
opposed to the best interest of the Corporation; except that no
indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the
court in which such action or suit was brought shall determine,
upon application, that despite the adjudication of liability, but
in the view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which
the court shall deem proper.
Section 3. Expenses. Expenses, including fees
and expenses of counsel, incurred in defending a civil, criminal,
administrative or investigative action, suit or proceeding may be
paid by the Corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay such
amount if it shall ultimately be determined that he is not entitled
to be indemnified by the Corporation as authorized herein.
Section 4. Insurance. The Corporation may
purchase (upon resolution duly adopted by the board of directors)
and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability.
<PAGE> 31
Section 5. Reimbursement. To the extent that
a director, officer, employee or agent of, or any other person
entitled to indemnity hereunder by, the Corporation has been
successful on the merits or otherwise in defense of any action,
suit, or proceeding referred to herein or in defense of any claim,
issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him
in connection therewith.
Section 6. Enforcement. Every such person
shall be entitled, without demand by him upon the Corporation or
any action by the Corporation, to enforce his right to such
indemnity in an action at law against the Corporation. The right
of indemnification and advancement of expenses hereinabove provided
shall not be deemed exclusive of any rights to which any such
person may now or hereafter be otherwise entitled and specifically,
without limiting the generality of the foregoing, shall not be
deemed exclusive of any rights pursuant to statute or otherwise, of
any such person in any such action, suit or proceeding to have
assessed or allowed in his favor against the Corporation or
otherwise, his costs and expenses incurred therein or in connection
therewith or any part thereof.
ARTICLE IX
Amendments; Bylaws; Control Shares Act; Written Consent
Section 1. Amendments to Certificate of
Incorporation. Notwithstanding anything contained in this
Certificate of Incorporation to the contrary, the affirmative vote
of the holders of at least sixty-six and two-thirds percent (66
2/3%) of the issued and outstanding stock having voting power,
voting together as a single class, shall be required to amend,
repeal or adopt any provision inconsistent with Articles V, VI,
VII, VIII and this Article IX of this Certificate of Incorporation.
Section 2. Bylaws. Prior to the receipt of
any payment for any of the Corporation's stock, the Bylaws of the
Corporation shall be adopted, amended or repealed by the
Incorporator. Thereafter, in furtherance and not in limitation of
the powers conferred by statute, the Board of Directors is
expressly authorized to adopt, repeal, alter, amend or rescind the
Bylaws of the Corporation. In addition, the Bylaws of the
Corporation may be adopted, repealed, altered, amended, or
rescinded by the affirmative vote of the holders of sixty-six and
two-thirds percent (66 2/3%) of the outstanding stock of the
Corporation entitled to vote thereon.
Section 3. Control Shares Act. The
Corporation shall not be subject to the Oklahoma Control Shares Act
as codified at Sections 1145-1155 of the Act. This election shall
be effective on the date of filing this Certificate.
Section 4. Action By Written Consent. Any
action required or permitted to be taken at a meeting of the
shareholders may be taken without a meeting, without prior notice
and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes which would
be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Prompt
notice of the taking of corporate action without a meeting by less
than unanimous written consent shall be given to those shareholders
who have not consented in writing.
<PAGE> 32
ARTICLE X
Incorporator
The name and mailing address of the Incorporator is as
follows:
W. Chris Coleman Tenth Floor
Two Leadership Square
Oklahoma City, OK 73102
I, the undersigned, for the purpose of forming a corpo-
ration under the laws of the State of Oklahoma, do make, file and
record this Certificate, and do certify that the facts herein
stated are true, and I have accordingly hereunto set my hand this
18th day of October, 1996.
W. CHRIS COLEMAN
W. Chris Coleman
<PAGE> 33
CONSENT TO SIMILAR NAME
TO THE SECRETARY OF STATE OF THE STATE OF OKLAHOMA;
Pursuant to 18 O.S. 1986 Supp. Section 1141 or 54 O.S. Supp.
1984, Section 303, whichever is applicable, the undersigned
corporation or limited partnership hereby consents to the use of
the name or a similar name.
1. The name of the consenting corporation or limited partnership
is:
CHESAPEAKE LIMITED PARTNERSHIP
and is organized under the laws of the State of Oklahoma.
2. The proposed name of the corporation or limited partnership to
which this consent is given is:
CHESAPEAKE OKLAHOMA CORPORATION
and is organized or is to be organized under the laws of the State
of Oklahoma.
3. In the event the proposed corporation name is identical to the
consenting corporation's name the consenting corporation is about
to:
A. Change its name _____.
B. Cease to do business X.
C. Withdraw from Oklahoma _____.
D. Be wound up _____.
IN WITNESS WHEREOF, this corporation or limited partnership
has caused this consent to be executed this 14th day of November,
1996.
CHESAPEAKE OPERATING, INC., General
Partner
By TOM L. WARD
Tom L. Ward, Chief Operating
Officer
ATTEST:
JANICE A. DOBBS
Janice A. Dobbs, Secretary
<PAGE> 1
EXHIBIT 4.3
================================================================================
CHESAPEAKE ENERGY CORPORATION
as Issuer,
THE SUBSIDIARY GUARANTORS,
as Guarantors,
AND
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee
____________________________
INDENTURE
DATED AS OF APRIL 1, 1998
____________________________
$500,000,000
SERIES A AND SERIES B
9 5/8% SENIOR NOTES DUE 2005
____________________________
================================================================================
<PAGE> 2
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA SECTION INDENTURE SECTION
<S> <C>
310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.08
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.08; 7.10
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.05
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.03
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.03
313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06; 12.02
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.02; 4.03; 12.02
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.04
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.04
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.05
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01(b)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.05; 12.02
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01(a)
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01(c)
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
316(a)(last sentence) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.09
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.05
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.02; 6.04; 9.02
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.07
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.08
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.09
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.04
318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.01
318(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.01
</TABLE>
- -------------------------
N.A. means Not Applicable
NOTE: This Cross-Reference table shall not, for any purpose, be deemed part of
this Indenture.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02. Other Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 1.03. Incorporation by Reference of Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 1.04. Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE TWO
THE SENIOR NOTES
SECTION 2.01. Form and Dating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 2.02. Execution and Authentication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.03. Registrar and Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.04. Paying Agent to Hold Money in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.05. Holder Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.06. Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.07. Replacement Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 2.08. Outstanding Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 2.09. Treasury Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 2.10. Temporary Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 2.11. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 2.12. Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.13. Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notice to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 3.02. Selection of Securities to Be Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 3.03. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 3.04. Effect of Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 3.05. Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 3.06. Securities Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 3.07. Optional Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 3.08. Equity Offering Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 3.09. Optional Redemption at Make-Whole Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 4.02. SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 4.03. Compliance Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 4.04. Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 4.05. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 4.06. Waiver of Stay, Extension or Usury Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
-i-
<PAGE> 4
<TABLE>
<S> <C> <C>
SECTION 4.07. Payment of Taxes and Other Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 4.08. Maintenance of Properties and Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 4.09. Limitation on Incurrence of Additional Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 4.10. Limitation on Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 4.11. Limitation on Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 4.12. Limitation on Liens Securing Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 4.13. Limitation on Sale/Leaseback Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 4.14. Limitation on Payment Restrictions Affecting Subsidiaries . . . . . . . . . . . . . . . . . . . . . 32
SECTION 4.15. Limitation on Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 4.16. Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. When Company May Merge, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 5.02. Successor Corporation Substituted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE SIX
DEFAULTS AND REMEDIES
SECTION 6.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 6.02. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 6.03. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 6.04. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 6.05. Control by Majority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 6.06. Limitation on Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 6.07. Rights of Holders to Receive Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 6.08. Collection Suit by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 6.09. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 6.10. Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 6.11. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 7.02. Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 7.03. Individual Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 7.04. Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 7.05. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 7.06. Reports by Trustee to Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 7.07. Compensation and Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 7.08. Replacement of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 7.09. Successor Trustee by Merger, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 7.10. Eligibility; Disqualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 7.11. Preferential Collection of Claims Against Company . . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE EIGHT
DISCHARGE OF INDENTURE
SECTION 8.01. Option to Effect Legal Defeasance or Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 8.02. Legal Defeasance and Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 8.03. Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 8.04. Conditions to Legal or Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 8.05. Deposited Money and U.S. Government Securities to be Held in Trust; Other Miscellaneous Provisions . 45
SECTION 8.06. Repayment to Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 8.07. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 9.02. With Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 9.03. Compliance with Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 9.04. Revocation and Effect of Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 9.05. Notation on or Exchange of Senior Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 9.06. Trustee Protected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE TEN
GUARANTEES
SECTION 10.01. Unconditional Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 10.02. Subsidiary Guarantors May Consolidate, etc., on Certain Terms . . . . . . . . . . . . . . . . . . . 49
SECTION 10.03. Addition of Subsidiary Guarantors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 10.04. Release of a Subsidiary Guarantor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 10.05. Limitation of Subsidiary Guarantor's Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 10.06. Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 10.07. Execution and Delivery of Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 10.08. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
ARTICLE ELEVEN
MISCELLANEOUS
SECTION 11.01. Trust Indenture Act Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 11.02. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 11.03. Communication by Holders with Other Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 11.04. Certificate and Opinion as to Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 11.05. Statements Required in Certificate or Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 11.06. Rules by Trustee and Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 11.07. Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 11.08. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 11.09. No Adverse Interpretation of Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 11.10. No Recourse Against Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 11.11. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 11.12. Duplicate Originals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 11.13. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
</TABLE>
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<TABLE>
<S> <C> <C>
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
EXHIBIT A FORM OF SENIOR NOTE A-1
EXHIBIT A-1 FORM OF NOTATION ON SENIOR NOTE RELATING
TO GUARANTEE A-1-1
EXHIBIT B-1 FORM OF CERTIFICATION FOR TRANSFER OR EXCHANGE
OF NON-GLOBAL RESTRICTED SECURITY TO
RESTRICTED GLOBAL SECURITY B-1
EXHIBIT C OFFICER'S CERTIFICATE OF NON-DEFAULT . . . . . . . . . . . . . . . . . . . . . . . C-1
</TABLE>
_________________
NOTE: This Table of Contents shall not, for any purpose, be deemed to be
a part of this Indenture.
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<PAGE> 7
INDENTURE, dated as of April 1, 1998, among CHESAPEAKE ENERGY
CORPORATION, an Oklahoma corporation (the "Company"), the SUBSIDIARY GUARANTORS
listed as signatories hereto, and United States Trust Company of New York, a
New York corporation, as Trustee.
Each party agrees as follows for the benefit of the other
parties and for the equal and ratable benefit of the holders of the Company's
Series A and Series B 9 5/8% Senior Notes due 2005:
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"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: (i) 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); (ii) 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); (iii)
depreciation and depletion of the Company and its Restricted Subsidiaries; (iv)
amortization of the Company and its Restricted Subsidiaries including, without
limitation, amortization of capitalized debt issuance costs; (v) 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; (vi) any loss realized in accordance with GAAP from currency
exchange transactions not in the ordinary course of business consistent with
past practice; (vii) any loss realized in accordance with GAAP attributable to
extraordinary items; (viii) any charges associated solely with the prepayment
of any Indebtedness; and (ix) 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 (i) 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 (ii) 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 (i) 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, (ii) the
incurrence of any Indebtedness (including the issuance of the Securities) 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, (iii) 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, (iv) 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 (v) in determining the amount of Indebtedness pursuant to Section
4.09, 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
<PAGE> 8
expense) during such period in respect of all Indebtedness of the Company and
its Restricted Subsidiaries (including (i) amortization of original issue
discount on any Indebtedness (other than with respect to the Existing Notes and
the Securities), (ii) the interest portion of all deferred payment obligations,
calculated in accordance with GAAP, and (iii) 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" means (without
duplication), as of the date of determination, (a) the sum of (i) 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 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, (ii) 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, (iii) the Net Working Capital on a date no earlier than
the date of the Company's latest annual or quarterly financial statements and
(iv) 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 (i)
minority interests, (ii) any gas balancing liabilities of the Company and its
Restricted Subsidiaries reflected in the Company's latest annual or quarterly
financial statements, (iii) 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, (iv) 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
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<PAGE> 9
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 (v) the
discounted future net revenue, calculated in accordance with SEC guidelines
(utilizing the same prices utilized in the Company's year-end reserve report),
attributable to reserves subject to participation interests, overriding royalty
interests or other interests of third parties, pursuant to participation,
partnership, vendor financing or other agreements then in effect, or which
otherwise are required to be delivered to third parties. If the Company
changes its method of accounting from the full cost method to the successful
efforts method or a similar method of accounting, Adjusted Consolidated Net
Tangible Assets will continue to be calculated as if the Company were still
using the full cost method of accounting.
"Adjusted Net Assets of a Subsidiary Guarantor" at any date
shall mean the lesser of (i) the amount by which the fair value of the property
of such Subsidiary Guarantor exceeds the total amount of liabilities,
including, without limitation, contingent liabilities (after giving effect to
all other fixed and contingent liabilities incurred or assumed on such date),
but excluding liabilities under the Guarantee of such Subsidiary Guarantor at
such date and (ii) the amount by which the present fair saleable value of the
assets of such Subsidiary Guarantor at such date exceeds the amount that will
be required to pay the probable liability of such Subsidiary Guarantor on its
debts (after giving effect to all other fixed and contingent liabilities
incurred or assumed on such date and after giving effect to any collection from
any Subsidiary of such Subsidiary Guarantor in respect of the obligations of
such Subsidiary under the Guarantee), excluding debt in respect of the
Guarantee, as they become absolute and matured.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person directly or indirectly,
whether through the ownership of Voting Stock, by contract or otherwise; and
the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agent" means any Registrar, Paying Agent or co-registrar.
"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 (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 Article Five, (e) Sale/Leaseback Transactions in compliance
with Section 4.13, (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
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<PAGE> 10
to any renewals at the option of the lessee, discounted from the respective due
dates thereof to such date at the rate of interest per annum implicit in the
terms of the lease. As used in the preceding sentence, the "net amount of rent"
under any lease for any such period shall mean the sum of rental and other
payments required to be paid with respect to such period by the lessee
thereunder excluding any amounts required to be paid by such lessee on account
of maintenance and repairs, insurance, taxes, assessments, water rates or
similar charges. In the case of any lease which is terminable by the lessee
upon payment of a penalty, such net amount of rent shall also include the
amount of such penalty, but no rent shall be considered as required to be paid
under such lease subsequent to the first date upon which it may be so
terminated.
"Average Life" means, as of the date of determination, with
respect to any Indebtedness, the quotient obtained by dividing (i) the product
of (x) the number of years from such date to the date of each successive
scheduled principal payment of such Indebtedness multiplied by (y) the amount
of such principal payment by (ii) 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 certain financial
institutions, as amended, extended or refinanced from time to time.
"Board of Directors" means, with respect to any Person, the
Board of Directors of such Person or any committee of the Board of Directors of
such Person duly authorized to act on behalf of the Board of Directors of such
Person.
"Board Resolution" means, with respect to any Person, a copy
of a resolution certified by the Secretary or an Assistant Secretary of such
Person to have been duly adopted by the Board of Directors or the managing
partner(s) of such Person and to be in full force and effect on the date of
such certification, and delivered to the Trustee.
"Book-Entry Security" means a Security represented by a Global
Security and registered in the name of the nominee of the Depositary.
"Business Day" means any day on which the New York Stock
Exchange, Inc. is open for trading and which is not a Legal Holiday.
"Capital Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
corporate stock or partnership 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: (i) 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; (ii) the adoption of a plan relating to the
liquidation or dissolution of the Company; (iii) 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
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<PAGE> 11
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 (iv) 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 so approved) cease for any
reason to constitute a majority of the Board of Directors of the Company then
in office.
"Company" means the party named as such above, until a
successor replaces such Person in accordance with the terms of this Indenture,
and thereafter means such successor.
"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 (i) 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 (ii) 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 Securities and the
prepayment of any of the Securities; and (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.
"Default" means any event which is, or after notice or passage
of time would be, an Event of Default.
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"Definitive Securities" means Securities that are in the form
of the Securities attached hereto as Exhibit A, that do not include the
information called for by footnotes 1 and 2 thereof.
"Depositary" means, with respect to the Securities issuable or
issued in whole or in part in global form, the Person specified in Section 2.03
hereof as the Depositary with respect to the Securities, until a successor
shall have been appointed and become such pursuant to the applicable provision
of this Indenture, and, thereafter, "Depositary" shall mean or include such
successor.
"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.
"Distribution Compliance Period" has the meaning specified in
Section 2.06.
"Dollar-Denominated Production Payments" mean production
payment obligations recorded as liabilities in accordance with GAAP, together
with all undertakings and obligations in connection therewith.
"8 1/2% Notes" means the Company's 8 1/2% Series B Senior
Notes due 2012 issued pursuant to the Existing 8 1/2% Note Indenture.
"Equity Offering" means any underwritten public offering of
common stock of the Company pursuant to a registration statement filed pursuant
to the Securities Act 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 Issue Date, excluding Preferred Shares issued in the
Preferred Stock Offering.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC thereunder.
"Exchange Offer" means the registration by the Company under
the Securities Act of all the Series B Notes pursuant to a registration
statement under which the Company offers each Holder of Series A Notes the
opportunity to exchange all Series A Notes held by such Holder for Series B
Notes in an aggregate principal amount equal to the aggregate principal amount
of Series A Notes held by such Holder, all in accordance with the terms and
conditions of the Registration Rights Agreement.
"Existing 8 1/2% Note Indenture" means the Indenture relating
to the 8 1/2% Notes, dated as of March 15, 1997, among the Company, as issuer,
the subsidiary guarantors named therein, as guarantors, and the United States
Trust Company of New York, as trustee, as same may be amended or supplemented.
"Existing 9 1/8% Note Indenture" means the Indenture, dated as
of April 1, 1996, among the Company, as issuer, the subsidiary guarantors named
therein, as guarantors, and the United States Trust Company of New York, as
trustee, as the same may be amended or supplemented.
"Existing Notes" means (i) the 10 1/2% Notes, (ii) the 9 1/8%
Notes, (iii) the 7 7/8% Notes and (iv) the 8 1/2% Notes.
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<PAGE> 13
"Existing 7 7/8% Note Indenture" means the Indenture relating
to the 7 7/8% Notes, dated as of March 15, 1997, among the Company, as issuer,
the subsidiary guarantors named therein, as guarantors, and the United States
Trust Company of New York, as trustee, as the same may be amended or
supplemented.
"Existing 10 1/2% Note Indenture" means the Indenture, dated
as of May 15, 1995, among the Company, as issuer, the subsidiary guarantors
named therein, as guarantors, and the United States Trust Company of New York,
as trustee, as the same may be amended or supplemented.
"GAAP" means generally accepted accounting principles as in
effect in the United States of America as of the Issue Date.
"Global Security" means a Security that is in the form of the
Security attached hereto as Exhibit A that contains the language referred to in
footnotes 1 and 2 thereof.
"Guarantee" means, individually and collectively, the
guarantees given by the Subsidiary Guarantors pursuant to Article Ten hereof,
including a notation in the Securities substantially in the form attached
hereto as Exhibit A-1.
"Holder" means a Person in whose name a Security is registered
on the Registrar's books.
"Indebtedness" means, without duplication, with respect to any
Person, (a) all obligations of such Person (i) 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), (ii) evidenced by bonds, notes,
debentures or similar instruments, (iii) 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), (iv)
evidenced by bankers' acceptances or similar instruments issued or accepted by
banks, (v) for the payment of money relating to a Capitalized Lease Obligation,
or (vi) 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 under Interest Rate Hedging Agreements, Oil and Gas Hedging Contracts
and Currency Hedge Obligations, 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 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 Board
Resolution, (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), (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.
"Indenture" means this Indenture, as amended or supplemented
from time to time in accordance with the terms hereof.
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<PAGE> 14
"Initial Purchasers" means, collectively, Donaldson, Lufkin &
Jenrette Securities Corporation, Bear, Stearns & Co. Inc., Lehman Brothers
Inc., J.P. Morgan Securities Inc. and Morgan Stanley & Co. Incorporated.
"Interest Rate Hedging Agreements" means, with respect to the
Company and its Restricted Subsidiaries, the obligations of such Persons under
(i) interest rate swap agreements, interest rate cap agreements and interest
rate collar agreements and (ii) 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 (i) all investments by such
Person in any other Person in the form of loans, advances or capital
contributions, (ii) all guarantees of Indebtedness or other obligations of any
other Person by such Person, (iii) all purchases (or other acquisitions for
consideration) by such Person of assets, Indebtedness, Capital Stock or other
securities of any other Person and (iv) 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.
"Issue Date" means April 22, 1998.
"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 Security means an amount
equal to the excess, if any, of (i) the present value of the remaining
interest, premium and principal payments due on such Security as if such
Security were redeemed on May 1, 2002, computed using a discount rate equal to
the Treasury Rate plus 50 basis points, over (ii) the outstanding principal
amount of such Security. As used herein, "Treasury Rate" is defined as the
yield to maturity 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 the Securities assuming redemption of the Securities on
May 1, 2002; provided, however, that if the Make-Whole Average Life of such
Security 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
Securities 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. As used herein, "Make-Whole Average Life" means the number of
years (calculated to the nearest one-twelfth) between the date of redemption
and May 1, 2002.
"Maturity Date" means May 1, 2005.
"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.
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<PAGE> 15
"Net Cash Proceeds" means, in the case of any sale by the
Company of securities pursuant to clauses (B) or (C) of Section 4.10(a)(iii),
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 (i) all current assets of the
Company and its Restricted Subsidiaries, minus (ii) all current liabilities of
the Company and its Restricted Subsidiaries, except current liabilities
included in Indebtedness.
"9 1/8% Notes" means the Company's 9 1/8% Senior Notes due
2006 issued pursuant to the Existing 9 1/8% Note Indenture.
"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) (i)
provides credit support, including any undertaking, agreement or instrument
which would constitute Indebtedness or (ii) 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.
"Non-Recourse Subsidiary" means a Subsidiary or an Affiliate
(i) established for the purpose of acquiring or investing in property securing
Non-Recourse Indebtedness, (ii) substantially all of the assets of which
consist of property securing Non-Recourse Indebtedness, and (iii) 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 pursuant to Section 4.09(a) (such
redesignation being deemed an incurrence of additional Indebtedness (other than
Non-Recourse Indebtedness)).
"Officer" means, with respect to any Person, the Chairman of
the Board, the President, any Vice President, the Chief Financial Officer or
the Treasurer of such Person.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by two Officers or by an Officer and either a Secretary,
Assistant Secretary or Assistant Treasurer of such Person. One of the Officers
signing an Officers' Certificate given pursuant to Section 4.03(a) shall be the
principal executive, financial or accounting officer of the Person delivering
such certificate.
"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 foregoing).
"Oil and Gas Hedging Contracts" means any oil and gas purchase
or hedging agreements, 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 (i) is not registered under Section 12 of the Exchange
Act and (ii) is not of a corporation that is not a reporting issuer in any of
the provinces of Canada or, even if such corporation is such a reporting
issuer, such Voting Stock is not of a class of securities that is traded on any
of the Alberta, Montreal, Ontario or Toronto Securities Exchange.
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<PAGE> 16
"Opinion of Counsel" means a written opinion from legal
counsel who is reasonably acceptable to the Trustee. The counsel may be an
employee of or counsel to the Company (or any Subsidiary Guarantor, if
applicable) or the Trustee.
"Permitted Business Investments" means (i) Investments in
assets used in the Oil and Gas Business; (ii) the acquisition of Oil and Gas
Securities; (iii) 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; (iv) the acquisition of working interests, royalty interests or
mineral leases relating to oil and gas properties; (v) 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; (vi) Investments in the Company by any Wholly Owned
Restricted Subsidiary; (vii) Investments permitted under Section 4.11 or
Section 4.13; (viii) Investments in any Person the consideration for which
consists of Qualified Stock and (ix) 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 at any one time
outstanding.
"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 (i) if the Indebtedness (including the Securities) being
renewed, extended, refinanced, refunded or repurchased is pari passu with or
subordinated in right of payment to the Securities, then such Indebtedness is
pari passu or subordinated in right of payment to, as the case may be, the
Securities at least to the same extent as the Indebtedness being renewed,
extended, refinanced, refunded or repurchased, (ii) such Indebtedness is
scheduled to mature no earlier than the Indebtedness being renewed, extended,
refinanced, refunded or repurchased, and (iii) 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 (i)-(iv)
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; (i) 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; (ii) repurchase obligations
for instruments of the type described in clause (i) for which delivery of the
instrument is made against payment; (iii) obligations (including, but not
limited to, demand or time deposits, bankers' acceptances and certificates of
deposit) issued by a depositary 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
depositary institution or trust company operating outside the United States,
provided, that such depositary 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; (iv) 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 Corporation and P-1 (or
higher) by Moody's Investors Services, Inc.; and (v) 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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<PAGE> 17
"Permitted Indebtedness" means (i) 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 (a) $300 million and (b) $100 million plus 20% of
Adjusted Consolidated Net Tangible Assets, less any Net Available Proceeds
applied in accordance with Section 4.11(b) hereof 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; (ii) Indebtedness of the Company and its
Restricted Subsidiaries outstanding on the Issue Date; (iii) other Indebtedness
of the Company and its Restricted Subsidiaries in a principal amount not to
exceed $25 million at any one time outstanding; (iv) Non-Recourse Indebtedness;
(v) 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; (vi)
Permitted Company Refinancing Indebtedness; (vii) Permitted Subsidiary
Refinancing Indebtedness; (viii) obligations of the Company and its Restricted
Subsidiaries under Currency Hedge Obligations, Oil and Gas Hedging Contracts or
Interest Rate Hedging Agreements; (ix) Indebtedness under the Securities; and
(x) Indebtedness of a Subsidiary pursuant to a Guarantee of the Securities in
accordance with Article Ten of this Indenture.
"Permitted Investments" means Permitted Business Investments
and Permitted Financial Investments.
"Permitted Liens" means (i) Liens existing on the Issue Date;
(ii) 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 (i) of the definition of "Permitted
Indebtedness"; (iii) Liens now or hereafter securing any Interest Rate Hedging
Agreements so long as the related Indebtedness (a) constitutes the Existing
Notes or the Securities (or any Permitted Company Refinancing Indebtedness in
respect thereof) or (b) is, or is permitted to be under this Indenture, secured
by a Lien on the same property securing such interest rate hedging obligations;
(iv) 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; (v) 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; (vi) mechanics',
worker's, materialmen's, operators' or similar Liens arising in the ordinary
course of business; (vii) Liens in connection with worker's compensation,
unemployment insurance or other social security, old age pension or public
liability obligations; (viii) 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; (ix) 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 foregoing, 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; (x) 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; (xi) Liens on pipeline or pipeline facilities
which arise out of operation of law; (xii) 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;
(xiii) (a) Liens upon any property of any Person existing at the time of
acquisition thereof by the Company or a Restricted Subsidiary, (b) 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 (c) 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; (xiv) 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; (xv) 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;
(xvi) purchase money security interests granted in connection with the
acquisition of assets in the ordinary course of business and consistent
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<PAGE> 18
with past practices, provided, that (A) such Liens attach only to the property
so acquired with the purchase money indebtedness secured thereby and (B) such
Liens secure only Indebtedness that is not in excess of 100% of the purchase
price of such assets; (xvii) Liens reserved in oil and gas mineral leases for
bonus or rental payments and for compliance with the terms of such leases;
(xviii) 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; (xix)
Liens securing obligations of the Company or any of its Restricted Subsidiaries
under Currency Hedge Obligations or Oil and Gas Hedging Contracts; and (xx)
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 (i) 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, (ii) such
Indebtedness is scheduled to mature no earlier than the Indebtedness being
renewed, extended, refinanced, refunded or repurchased, and (iii) 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 Shares" means the 4,600,000 shares (which includes
600,000 shares subject to purchase pursuant to an over-allotment option) 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 and offered for sale pursuant to the Preferred Stock Offering.
"Preferred Stock," as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however designated),
which is preferred as to the payment of dividends, or upon any voluntary or
involuntary liquidation or dissolution of such corporation, over shares of
Capital Stock of any other class of such corporation.
"Preferred Stock Offering" means the private placement of
Preferred Shares, which placement was effected concurrently with the private
placement of the Series A Notes.
"Production Payments" means, collectively, Dollar-Denominated
Production Payments and Volumetric Production Payments.
"pro forma" means, with respect to any calculation made or
required to be made pursuant to the terms of this Indenture, a calculation in
accordance with Article Eleven of Regulation S-X under the Securities Act.
"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
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<PAGE> 19
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 Institutional Buyer" or "QIB" shall have the
meaning specified in Rule 144A under the Securities Act.
"Qualified Stock" means any Capital Stock that is not
Disqualified Stock.
"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 the
Securities or this Indenture.
"Registration Rights Agreement" means the A/B Exchange
Registration Rights Agreement, dated as of April 22, 1998, by and among the
Company, the Subsidiary Guarantors and each of the purchasers named on the
signature pages thereto, as such agreement may be amended, modified or
supplemented from time to time.
"Restricted Payment" means, with respect to any Person, any of
the following: (i) any dividend or other distribution in respect of such
Person's Capital Stock (other than (a) dividends or distributions payable
solely in Capital Stock (other than Disqualified Stock) (b) 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 (c) in the case of
the Company, cash dividends payable on the Preferred Shares); (ii) 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; (iii) 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 Securities; and
(iv) the making by such Person of any Investment other than a Permitted
Investment.
"Restricted Security" has the meaning provided in Rule
144(a)(3) under the Securities Act.
"Restricted Subsidiary" means any Subsidiary of the Company
other than an Unrestricted Subsidiary. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that,
immediately after giving effect to such designation, the Company could incur at
least $1.00 in additional Indebtedness pursuant to Section 4.09(a). As of the
Issue Date, all of the Company's Subsidiaries other than Chesapeake Energy
Marketing, Inc. (which shall constitute an Unrestricted Subsidiary as of the
Issue Date) shall be Restricted Subsidiaries.
"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.
"SEC" means the Securities and Exchange Commission.
"Securities" means the Series A Notes and the Series B Notes
issued pursuant to this Indenture, as the same may be amended or supplemented
from time to time.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Securities Custodian" means the Trustee, as custodian with
respect to the Global Securities and any successor entity thereto.
"Senior Indebtedness" means any Indebtedness of the Company
(whether outstanding on the Issue Date or thereafter incurred), unless such
Indebtedness is contractually subordinate or junior in right of payment of
principal, premium and interest to the Securities.
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<PAGE> 20
"Senior Indebtedness of a Subsidiary Guarantor" means any
Indebtedness of such Subsidiary Guarantor (whether outstanding on the Issue
Date or thereafter incurred), unless such Indebtedness is contractually
subordinate or junior in right of payment of principal, premium and interest to
the Guarantees.
"Series A Notes" means the Company's 9 5/8% Series A Senior
Notes due 2005, as the same may be amended or supplemented from time to time in
accordance with the terms thereof, that are issued pursuant to this Indenture.
"Series B Notes" means the Company's 9 5/8% Series B Senior
Notes due 2005, as the same may be amended or supplemented from time to time in
accordance with the terms thereof, that are issued pursuant to this Indenture
in exchange for the Series A Notes in the Exchange Offer.
"7 7/8% Notes" means the Company's 7 7/8% Series B Senior
Notes due 2004 issued pursuant to the Existing 7 7/8% Note Indenture.
"Subordinated Indebtedness of a Subsidiary Guarantor" means
any Indebtedness of such Subsidiary Guarantor (whether outstanding on the Issue
Date or thereafter incurred) 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 Issue Date or
thereafter incurred) which is contractually subordinate or junior in right of
payment of principal, premium and interest to the Securities.
"Subsidiary" means any subsidiary of the Company. A
"subsidiary" of any Person means (i) 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, (ii) 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
(iii) any other Person (other than a corporation or partnership) in which such
Person, directly or indirectly, at the date of determination thereof, has (x)
at least a majority ownership interest or (y) the power to elect or direct the
election of a majority of the directors or other governing body of such Person.
"Subsidiary Guarantor" means (i) each of the Subsidiaries that
becomes a guarantor of the Securities in compliance with the provisions of
Article Ten of this Indenture and (ii) each of the Subsidiaries executing a
supplemental indenture in which such Subsidiary agrees to be bound by the terms
of this Indenture.
"10 1/2% Notes" means the Company's 10 1/2% Senior Exchange
Notes due 2002 issued pursuant to the Existing 10 1/2% Note Indenture.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code
Sections 77aaa-77bbbb) as in effect on the date of this Indenture, except as
provided in Section 9.03.
"Trust Officer" means any officer or assistant officer within
the corporate trust department of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"Trustee" means the party named as such above until a
successor replaces it in accordance with the applicable provisions of this
Indenture and thereafter means the successor.
"Unrestricted Subsidiary" means (a) any Subsidiary of an
Unrestricted Subsidiary or (b) any Subsidiary of the Company or of a Restricted
Subsidiary that is designated as an Unrestricted Subsidiary by a resolution
adopted
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<PAGE> 21
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, (i) the Company could incur $1.00 of additional Indebtedness
pursuant to Section 4.09(a), (ii) the Company could make an additional
Restricted Payment of $1.00 pursuant to Section 4.10(a), (iii) 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 (iv) such Subsidiary is not liable,
directly or indirectly, with respect to any Indebtedness other than
Unrestricted Subsidiary Indebtedness. As of the Issue Date, Chesapeake Energy
Marketing, Inc. is an Unrestricted Subsidiary.
"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), (b)
which, with respect to Indebtedness incurred after the Issue Date 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 (i)
direct obligations of the United States of America for the payment of which its
full faith and credit is pledged or (ii) 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 (i) or (ii) 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.
SECTION 1.02. Other Definitions.
<TABLE>
<CAPTION>
Term Defined in Section
<S> <C>
"Affiliate Transaction" . . . . . . . . . . . . . . . . . . . . . . . . 4 .15
"Bankruptcy Law" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 .01
"Change of Control Offer" . . . . . . . . . . . . . . . . . . . . . . . 4 .16
"Change of Control Notice" . . . . . . . . . . . . . . . . . . . . . . . 4 .16
"Change of Control Payment Date" . . . . . . . . . . . . . . . . . . . . 4 .16
"Covenant Defeasance" . . . . . . . . . . . . . . . . . . . . . . . . . 8 .03
"Custodian" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 .01
"Defaulted Interest" . . . . . . . . . . . . . . . . . . . . . . . . . . 2 .12
"Event of Default" . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 .01
"Excess Proceeds" . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 .11
"Funding Guarantor" . . . . . . . . . . . . . . . . . . . . . . . . . . 10.06
"incur" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 .09
"Legal Defeasance" . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 .02
"Legal Holiday" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.07
"Make-Whole Price" . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 .09
"Net Proceeds Offer" . . . . . . . . . . . . . . . . . . . . . . . . . . 4 .11
"Net Proceeds Offer Amount" . . . . . . . . . . . . . . . . . . . . . . 4 .11
"Net Proceeds Payment Date" . . . . . . . . . . . . . . . . . . . . . . 4 .11
"Paying Agent" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 .03
"Payment Default" . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 .01
"Payment Restriction" . . . . . . . . . . . . . . . . . . . . . . . . . 4 .14
"Registrar" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 .03
</TABLE>
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<PAGE> 22
SECTION 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms, if used in this Indenture, have the following
meanings:
"Commission" means the SEC.
"indenture securities" means the Securities and the Guarantees.
"indenture security holder" means a Holder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the
Trustee.
"obligor" on the indenture securities means the Company, the
Subsidiary Guarantors and any other obligor on the Securities or the
Guarantees.
All other TIA terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by SEC rule
have the meanings assigned to them therein.
SECTION 1.04. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has
the meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and
words in the plural include the singular;
(5) any gender used in this Indenture shall be
deemed to include the neuter, masculine or feminine genders;
(6) provisions apply to successive events and
transactions; and
(7) "herein," "hereof" and other words of similar
import refer to this Indenture as a whole and not to any
particular Article, Section or other Subdivision.
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<PAGE> 23
ARTICLE TWO
THE SENIOR NOTES
SECTION 2.01. Form and Dating.
The Securities and the certificate of authentication, and the
notation on the Securities relating to the Guarantee, shall be substantially in
the forms of Exhibits A and A-1, respectively. The Securities may also have
such insertions, omissions, substitutions and variations as are required or as
may be permitted by or consistent with this Indenture. The provisions of
Exhibits A and A-1 are part of this Indenture. The Securities may have
notations, legends and endorsements required by law or stock exchange rule or
usage. The Company shall approve the form of the Securities and any notation,
legend or endorsement on them. Each Security shall be dated the date of its
authentication.
The terms and provisions contained in the Securities and the
Guarantee shall constitute, and are hereby expressly made, a part of this
Indenture and, to the extent applicable, the Company and the Subsidiary
Guarantors, by their execution and delivery of this Indenture, expressly agree
to such terms and provisions and to be bound thereby.
Securities offered and sold in their initial distribution in
reliance on Rule 144A under the Securities Act and other than in reliance on
Rule 144A under the Securities Act or Regulation S shall be issued in the form
of one or more Global Securities (collectively, and, together with their
Successor Securities, the "Restricted Global Security") in fully registered
form without interest coupons, substantially in the form of Security set forth
in Exhibit A hereto, with such applicable legends as are provided for in
Exhibit A except as otherwise permitted herein. Such Restricted Global
Security shall be registered in the name of the Depositary or its nominee and
deposited with the Trustee, as custodian for the Depositary, duly executed by
the Company and authenticated by the Trustee as hereinafter provided, for
credit by the Depositary to the respective accounts of beneficial owners of the
securities represented thereby (or such other accounts as they may direct).
SECTION 2.02. Execution and Authentication.
Two Officers of the Company shall sign the Securities on
behalf of the Company, and one Officer of each Subsidiary Guarantor shall sign
the notation on the Securities relating to the Guarantee of such Subsidiary
Guarantor on behalf of such Subsidiary Guarantor, in each case by manual or
facsimile signature. The Company's seal shall be reproduced on the Securities.
If an Officer of the Company or any Subsidiary Guarantor whose
signature is on a Security no longer holds that office at the time such
Security is authenticated, such Security shall be valid nevertheless.
A Security shall not be valid until the Trustee or an
authenticating agent manually signs the certificate of authentication on the
Security. The signature shall be conclusive evidence that the Security has
been authenticated under this Indenture.
The Trustee or an authenticating agent shall authenticate
Securities for original issue in the aggregate principal amount of $500,000,000
upon a written order of the Company signed by two Officers of the Company. The
aggregate principal amount of Senior Notes outstanding at any time may not
exceed $500,000,000.
Series B Notes may be issued only in exchange for a like
principal amount of Series A Notes pursuant to an Exchange Offer.
The principal and interest on Book-Entry Securities shall be
payable to the Depositary or its nominee, as the case may be, as the sole
registered owner and the sole holder of the Book-Entry Securities represented
thereby. The principal and interest on Securities in certificated form shall
be payable at the office of the Paying Agent.
The Trustee may appoint an authenticating agent to
authenticate Securities. An authenticating agent may authenticate Securities
whenever the Trustee may do so except on original issuance. Each reference in
this Indenture
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<PAGE> 24
to authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company
or its Affiliates.
The Securities shall be issuable only in registered form
without coupons and only in denominations of $1,000 and any integral multiple
thereof.
If the Securities are to be issued in the form of one or more
Global Securities, then the Company shall execute and the Trustee shall
authenticate and deliver one or more Global Securities that shall represent and
shall be in minimum denominations of $1,000.
SECTION 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency where the
Securities may be presented for registration of transfer or for exchange (the
"Registrar") and an office or agency where Securities may be presented for
payment (the "Paying Agent"). The Registrar shall keep a register of the
Securities and of their transfer and exchange. Where the Trustee is acting as
or has been appointed Registrar and/or Paying Agent, the Company may appoint
one or more co- registrars and one or more additional paying agents with the
prior consent of the Trustee, whose consent shall not be unreasonably withheld.
The term "Paying Agent" includes any additional paying agent.
The Company shall enter into an appropriate agency agreement
with any Agent not a party to this Indenture. Such agency agreement shall
provide for reasonable compensation for such services. The agreement shall
implement the provisions of this Indenture that relate to such Agent. The
Company shall notify the Trustee of the name and address of any such Agent and
shall furnish the Trustee with an executed counterpart of any such agency
agreement. If the Company fails to maintain or act as Registrar or Paying
Agent, the Trustee shall act as such and shall be duly compensated therefor.
The Registrar or a co-registrar and a Paying Agent shall be
maintained by the Company in the Borough of Manhattan, the City of New York.
The Company initially designates the Trustee as the Registrar and Paying Agent.
The Company initially appoints The Depositary Trust Company
("DTC") to act as Depositary with respect to the Global Securities. Cede & Co.
has been appointed as the nominee of DTC.
The Company initially appoints the Trustee to act as the
Registrar and Paying Agent and to act as Securities Custodian with respect to
the Global Securities.
SECTION 2.04. Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent other than the
Trustee to hold in trust for the benefit of Holders or the Trustee all money
held by such Paying Agent for the payment of principal of, premium, if any, or
interest on the Securities (whether such money shall have been paid to it by
the Company or any Subsidiary Guarantor), and to notify the Trustee of any
Default by the Company or any Subsidiary Guarantor in making any such payment.
While any such Default continues, the Trustee may require the Paying Agent to
pay all money held by it to the Trustee. Except as provided in the immediately
preceding sentence, the Company at any time may require a Paying Agent to pay
all money held by it to the Trustee and to account for any funds disbursed and,
if the Company requires such payment, the Company shall give prior notice to
the Trustee and provide appropriate money transfer instructions to the Paying
Agent. Upon such payment over to the Trustee and accounting for any funds
disbursed, such Paying Agent (if other than the Company or a Subsidiary) shall
have no further liability for the money. If the Company or a Subsidiary acts
as Paying Agent, it shall segregate and hold as separate trust funds for the
benefit of the Holders all money held by it as Paying Agent.
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<PAGE> 25
SECTION 2.05. Holder Lists.
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of Holders and shall otherwise comply with TIA Section 312(a). If
the Trustee is not the Registrar, the Company shall furnish or cause to be
furnished to the Trustee at least 10 Business Days prior to each semiannual
interest payment date, and at such other times as the Trustee may request in
writing, a list in such form and as of such date as the Trustee may reasonably
require of the names and addresses of Holders, and the Company shall otherwise
comply with TIA Section 312(a).
SECTION 2.06. Transfer and Exchange.
(a) Exchange of Beneficial Interests in Global Security
for Certificated Security. Beneficial interests in a Global Security may,
subject to the restrictions on the transferability of the Securities, be
exchanged for certificated Securities upon request but only upon at least 20
days' prior written notice given to the Trustee by or on behalf of the
Depositary (in accordance with the Depositary's customary procedures) and will
bear the applicable legends set forth in Exhibit A hereto.
(b) Surrender for Exchange of Global Securities. If any
Global Security is to be exchanged for other Securities or canceled in whole,
it shall be surrendered by or on behalf of the Depositary or its nominee to the
Trustee, as Registrar, for exchange or cancellation as provided in this Article
Two. If any Global Security is to be exchanged for other Securities or
cancelled in part, or if another Security is to be exchanged in whole or in
part for a beneficial interest in any Global Security, such Global Security
shall be so surrendered for exchange or cancellation as provided in this
Article Two or, if the Trustee is acting as custodian for the Depositary or its
nominee (or is party to a similar arrangement) with respect to such Global
Security, the principal amount thereof shall be reduced or increased by an
amount equal to the portion thereof to be so exchanged or cancelled, or the
principal amount of such other Security to be so exchanged for a beneficial
interest therein, as the case may be, in each case by means of an appropriate
adjustment made on the records of the Trustee, whereupon the Trustee, in
accordance with the Applicable Procedures, shall instruct the Depositary or its
authorized representatives to make a corresponding adjustment to its records
(including by crediting or debiting any Agent Member's account as necessary to
reflect any transfer or exchange of a beneficial interest). Upon any such
surrender or adjustment of a Global Security, the Trustee shall, subject to
this Article Two, authenticate and deliver any Securities issuable in exchange
for such Global Security (or any portion thereof) to or upon the order of, and
registered in such names as may be directed by, the Depositary or its
authorized representative. Upon the request of the Trustee in connection with
the occurrence of any of the events specified in the preceding paragraph or in
clause (k) below, the Company shall promptly make available to the Trustee a
reasonable supply of Securities that are not in the form of Global Securities.
The Trustee shall be entitled to rely upon any order, direction or request of
the Depositary or its authorized representative which is given or made pursuant
to this Article Two if such order, direction or request is given or made in
accordance with the Applicable Procedures.
(c) Proxies by Registered Holder. Subject to the
provisions in the legends required by this Indenture, the registered Holder may
grant proxies and otherwise authorize any Person, including Agent Members, and
Persons who may hold interests in Agent Members to take any action that such
Holder is entitled to take under this Indenture.
(d) Interests of Agent Members and Depositary in Global
Security. Neither Agent Members nor any other Person on whose behalf Agent
Members may act shall have any rights under this Indenture with respect to any
Global Security held on their behalf by the Depositary or under the Global
Security, and the Depositary may be treated by the Company, the Trustee and any
agent of the Company or the Trustee as the absolute owner of such Global
Security for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the Company or
the Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or impair, as between the Depositary
and its Agent Members, the operation of customary practice governing the
exercise of the rights of a Holder of any Security.
(e) Transfers of Securities. Upon presentation for
transfer and exchange of any Security at the office of the Trustee, as
Registrar, located in The City of New York, accompanied by a written instrument
of transfer
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<PAGE> 26
or exchange in the form approved by the Company (it being understood that,
until notice to the contrary is given to Holders of Securities, the Company
shall be deemed to have approved the form of instrument of transfer or
exchange, if any, printed on any Security), executed by the registered Holder,
in person or by such Holder's attorney thereunto duly authorized in writing,
and upon compliance with this Section 2.06, such Security shall be transferred
upon the Register, and a new Security shall be authenticated and issued in the
name of the transferee. Notwithstanding any provision to the contrary herein
or in the Securities, transfers of a Global Security, in whole or in part, and
transfers of interests therein of the kind described in this Section 2.06,
shall only be made in accordance with this Section 2.06. Transfers and
exchanges subject to this Section 2.06 shall also be subject to the other
provisions of this Indenture that are not inconsistent with this Section 2.06.
(f) General. A Global Security may not be transferred,
in whole or in part, to any Person other than the Depositary or a nominee
thereof, and no such transfer to any such other Person may be registered;
provided, however, that this clause (f) shall not prohibit any transfer of a
Security that is issued in exchange for a Global Security but is not itself a
Global Security. No transfer of a Security to any Person shall be effective
under this Indenture or the Securities unless and until such Security has been
registered in the name of such Person. Nothing in this clause (f) shall
prohibit or render ineffective any transfer of a beneficial interest in a
Global Security effected in accordance with the other provisions of this
Section 2.06.
(g) Other Exchanges. Securities that are not Global
Securities may be exchanged (on transfer or otherwise) for Securities that are
not Global Securities or for beneficial interests in a Global Security (if any
is then outstanding) only in accordance with such procedures (including the
certification requirements intended to insure that transfers of beneficial
interests in a Global Security comply with Rule 144A under the Securities Act),
as may from time to time be adopted by the Company and the Trustee.
(h) Transfers of Certificated Securities. When
Securities in certificated form are presented to the Registrar with a request
to register the transfer of such Securities or to exchange such Securities for
an equal principal amount of Securities of other authorized denominations, the
Registrar shall register the transfer or make the exchange as requested if its
requirements for such transaction are met; provided, however, that the
Securities surrendered for transfer or exchange shall be duly endorsed or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Registrar, duly executed by the Holder thereof or its attorney
duly authorized in writing. To permit registrations of transfers and
exchanges, the Company shall execute and the Trustee shall authenticate
Securities at the Registrar's request. No service charge shall be made for any
registration of transfer or exchange, but the Company may require payment of a
sum sufficient to cover any transfer tax or similar governmental charge payable
in connection therewith (other than any such transfer taxes or similar
governmental charge payable upon exchanges or transfers pursuant to Sections
2.02, 2.10, 3.07 or 9.05). The Registrar shall not be required to register the
transfer of or exchange of any Security (i) during a period beginning at the
opening of business 15 days before the mailing of a notice of redemption of
Securities and ending at the close of business on the day of such mailing and
(ii) selected for redemption in whole or in part pursuant to Article Three,
except the unredeemed portion of any Security being redeemed in part.
(i) Exchange of Certificated Series A Notes for
Book-Entry Security. If a Series A Note is a Restricted Security in
certificated form, then as provided in this Indenture and subject to the
limitations herein set forth, the Holder, provided it is a Qualified
Institutional Buyer, may exchange such Security for a Global Security by
instructing the Trustee to arrange for such Series A Note to be represented by
a beneficial interest in a Global Security in accordance with the customary
procedures of the Depositary.
(j) Execution and Authentication of Certificated
Securities. Upon any exchange provided for in Section 2.06(a), the Company
shall execute and the Trustee shall authenticate, and deliver to the person
specified by the Depositary a new Series A Note or Notes registered in such
names and in such authorized denominations as the Depositary, pursuant to the
instructions of the beneficial owner of the Securities requesting the exchange,
shall instruct the Trustee. Thereupon, the beneficial ownership of such Global
Security shown on the records maintained by the Depositary or its nominee shall
be reduced by the amounts so exchanged and an appropriate endorsement be made
by and on behalf of the Trustee on the Global Security. Any such exchange
shall be effected through the Depositary in accordance with the procedures of
the Depositary therefor.
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(k) Registration of Global Security in Name Other than
Depositary. Notwithstanding the foregoing, no Global Security shall be
registered for transfer or exchange, or authenticated and delivered, whether
pursuant to this Section, Section 2.07, 2.10 or 3.06 or otherwise, in the name
of a person other than the Depositary for such Global Security or its nominee
until (i) the Depositary notifies the Company that it is unwilling or unable to
continue as Depositary for such Global Security or if at any time the
Depositary ceases to be a clearing agency registered under the Exchange Act,
and a successor depositary is not appointed by the Company within 30 days, (ii)
the Company executes and delivers to the Trustee a Company Order that all such
Global Securities shall be exchangeable or (iii) there shall have occurred and
be continuing an Event of Default. Upon the occurrence in respect of any
Global Security representing the Securities of any one or more of the
conditions specified in clause (i), (ii) or (iii) of the preceding sentence,
such Global Security may be registered for transfer or exchange for Securities
registered in the names of, authenticated and delivered to, such persons as the
Trustee or the Depositary, as the case may be, shall direct.
(l) Delivery of Securities Upon Transfer or Exchange of
Global Security. Except as provided above, any Security authenticated and
delivered upon registration of transfer of, or in exchange for, or in lieu of,
any Global Security, whether pursuant to this Section 2.07, 2.10 or 3.06 or
otherwise, shall also be a Global Security and bear the legend specified in
footnote 1 to Exhibit A.
SECTION 2.07. Replacement Securities.
If a mutilated Security is surrendered to the Trustee or if
the Holder of a Security claims that the Security has been lost, destroyed or
wrongfully taken, the Company shall issue and the Trustee shall authenticate a
replacement Security if the requirements of the Trustee are met. An indemnity
bond may be required by the Trustee, the Company or any Subsidiary Guarantor
that is sufficient in the judgment of the Company, the Subsidiary Guarantors
and the Trustee to protect the Company, the Subsidiary Guarantors, the Trustee
or any Agent from any loss which any of them may suffer if a Security is
replaced. The Company may charge for its expenses (including fees and expenses
of the Trustee) in replacing a Security.
SECTION 2.08. Outstanding Securities.
Securities outstanding at any time are all Securities
authenticated by the Trustee except for those canceled by it, those delivered
to it for cancellation, those reductions in the interest in a Global Security
effected by the Trustee in accordance with the provisions hereof, and those
described in this Section 2.08 as not outstanding. Except as set forth in
Section 2.09, a Security does not cease to be outstanding because the Company,
the Subsidiary Guarantors or any of their respective Subsidiaries or Affiliates
holds the Security.
If a Security is replaced pursuant to Section 2.07, it ceases
to be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Securities is held by a bona fide purchaser.
If the principal amount of any Security is considered paid
under Section 4.01, it ceases to be outstanding and interest on it ceases to
accrue.
SECTION 2.09. Treasury Securities.
In determining whether the Holders of the required principal
amount of Securities have concurred in any direction, waiver or consent,
Securities owned by the Company, any Subsidiary Guarantor or an Affiliate of
the Company shall be considered as though they are not outstanding, except that
for the purposes of determining whether the Trustee shall be protected in
relying on any such direction, waiver or consent, only Securities which the
Trustee knows are so owned shall be so disregarded.
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SECTION 2.10. Temporary Securities.
Until Definitive Securities are ready for delivery, the
Company may prepare and, upon written order of the Company, the Trustee shall
authenticate temporary Securities. Temporary Securities shall be substantially
in the form of Definitive Securities but may have variations that the Company
considers appropriate for temporary Securities. Without unreasonable delay,
the Company shall prepare and the Trustee shall authenticate and deliver
Definitive Securities in exchange for a like principal amount of temporary
Securities surrendered to it. Until so exchanged, temporary Securities shall
in all respects be entitled to the same benefits under this Indenture as
Definitive Securities.
SECTION 2.11. Cancellation.
The Company or any Subsidiary Guarantor at any time may
deliver Securities to the Trustee for cancellation. The Registrar and Paying
Agent shall forward to the Trustee any Securities surrendered to them for
transfer, exchange or payment. The Trustee shall cancel all Securities
surrendered for registration, transfer, exchange, payment or cancellation and
shall destroy canceled Securities unless the Company directs their return to
the Company. Except as provided in Section 2.07, the Company may not issue new
Securities to replace Securities that it has paid or delivered to the Trustee
for cancellation.
Securities that are redeemed by the Company, that are
repurchased by the Company pursuant to Section 4.11 or Section 4.16, or that
are otherwise acquired by the Company, will be surrendered to the Trustee for
cancellation.
SECTION 2.12. Defaulted Interest.
If the Company defaults in a payment of interest on the
Securities, it shall pay, or cause the Paying Agent to pay, the defaulted
interest in any lawful manner (plus interest on such defaulted interest to the
extent lawful) (taken together, the "Defaulted Interest") to the persons who
are Holders on a subsequent special record date, in each case at the rate
provided in the Securities and in Section 4.01 hereof. At least 15 days before
the special record date, the Company shall mail to each Holder a notice stating
the special record date, the payment date and the amount of Defaulted Interest
to be paid. In the event that the Company has elected to cause a Paying Agent
to pay the Defaulted Interest, the Company shall so notify the Paying Agent at
least 15 days before the special record date, which notice shall also set forth
the special record date, the payment date and the aggregate amount of Defaulted
Interest to be paid. At least five days before such payment date, the Company
shall deposit with the Paying Agent money sufficient to pay all of the
Defaulted Interest on the payment date therefor and instruct the Paying Agent
in writing to pay to specified Holders on the payment date. On the payment
date, the Paying Agent shall make the payments in accordance with the Company's
written instructions from funds deposited with the Paying Agent for the purpose
of making such Defaulted Interest payments.
SECTION 2.13. Persons Deemed Owners.
The Company, the Trustee, any Paying Agent and any
authenticating agent may treat the Person in whose name any Security
(including, without limitation, any Global Security) is registered as the owner
of such Security for the purpose of receiving payments of principal of,
premium, if any, or interest on such Security and for all other purposes. None
of the Company, the Trustee, any Paying Agent or any authenticating agent shall
be affected by any notice to the contrary.
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notice to Trustee.
If the Company elects to redeem Securities pursuant to the
optional redemption provisions of Paragraphs 6, 7 or 8 of the Securities, it
shall furnish to the Trustee and the Registrar, at least 45 days but not more
than 60 days before the redemption date (unless the Trustee consents to a
shorter period in writing), an Officers' Certificate
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setting forth the redemption date, the principal amount of Securities to be
redeemed and the redemption price, including the detail of the calculation of
the Make-Whole Price, if applicable.
SECTION 3.02. Selection of Securities to Be Redeemed.
If less than all of the Securities are to be redeemed at any
time, the Trustee shall select the Securities to be redeemed pro rata, by lot
or, if the Securities are listed on any securities exchange, by any other
method that the Trustee considers fair and appropriate and that complies with
the requirements of such exchange; provided, however, that no Securities with a
principal amount of $1,000 or less will be redeemed in part. The Trustee shall
make the selection from outstanding Securities not previously called for
redemption not less than 30 nor more than 45 days prior to the redemption date.
Securities and portions of them it selects shall be in amounts of $1,000 or
whole multiples of $1,000. Provisions of this Indenture that apply to
Securities called for redemption also apply to portions of Securities called
for redemption. The Trustee shall notify the Company promptly of the Securities
or portions of Securities selected for redemption.
SECTION 3.03. Notice of Redemption.
(a) At least 30 days but not more than 60 days before a
redemption date, the Company shall mail a notice of redemption by first-class
mail to each Holder of Securities to be redeemed at such Holder's registered
address.
The notice shall identify the Securities to be redeemed and
shall state:
(1) the redemption date;
(2) the redemption price;
(3) the aggregate principal amount of Securities
being redeemed;
(4) the name and address of the Paying Agent;
(5) that Securities called for redemption must be
surrendered to the Paying Agent at the address specified in
such notice to collect the redemption price;
(6) that, unless the Company defaults in the
payment of the redemption price or accrued interest, interest
on Securities called for redemption ceases to accrue on and
after the redemption date and the only remaining right of the
Holders is to receive payment of the redemption prices in
respect of the Securities upon surrender to the Paying Agent
of the Securities;
(7) if any Security is being redeemed in part,
the portion of the principal amount of such Security to be
redeemed and that, after the redemption date, upon surrender
of such Security, a new Security or Securities in principal
amount equal to the unredeemed portion will be issued in the
name of the Holder thereof upon cancellation of the Security
or Securities being redeemed;
(8) the paragraph of the Securities pursuant to
which the Securities called for redemption are being redeemed;
and
(9) the CUSIP number of the Securities.
(b) At the Company's request, the Trustee shall give the
notice of redemption required in Section 3.03(a) in the Company's name and at
the Company's expense; provided, however, that the Company shall deliver to the
Trustee, at least 45 days prior to the redemption date (unless the Trustee
consents to a shorter notice period in writing), an Officers' Certificate
requesting that the Trustee give such notice and setting forth the information
to be stated in such notice as provided in Section 3.03(a).
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SECTION 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section
3.03, Securities called for redemption become due and payable on the redemption
date at the redemption price. Upon surrender to the Paying Agent, such
Securities shall be paid at the redemption price, plus accrued and unpaid
interest to the redemption date.
SECTION 3.05. Deposit of Redemption Price.
Prior to the redemption date, the Company shall deposit with
the Paying Agent funds available on the redemption date sufficient to pay the
redemption price of, and accrued and unpaid interest on, the Securities to be
redeemed on that date. The Paying Agent shall promptly return to the Company
any money so deposited which is not required for that purpose upon the written
request of the Company, except with respect to monies owed as obligations to
the Trustee pursuant to Article Seven.
If any Security called for redemption shall not be so paid
upon redemption because of the failure of the Company to comply with the
preceding paragraph, interest will continue to be payable on the unpaid
principal and premium, if any, including from the redemption date until such
principal and premium, if any, is paid, and, to the extent lawful, on any
interest not paid on such unpaid principal, in each case at the rate provided
in the Securities and in Section 4.01 hereof.
SECTION 3.06. Securities Redeemed in Part.
Upon surrender of a Security that is to be redeemed in part,
the Company shall issue and the Trustee shall authenticate for the Holder, at
the expense of the Company, a new Security equal in aggregate amount to the
unredeemed portion of the Security surrendered.
SECTION 3.07. Optional Redemption.
Except as set forth in Sections 3.08 and 3.09 hereof, the
Company shall not have the option to redeem the Securities prior to May 1,
2002. The Securities may be redeemed at the option of the Company, in whole or
from time to time in part, at any time on or after May 1, 2002, at the
redemption prices set forth below (expressed as a percentage of the principal
amount of the Securities to be redeemed), together with accrued and unpaid
interest on the Securities so redeemed to the redemption date, if redeemed
during the 12-month period commencing on May 1 of the years indicated below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2002 . . . . . . . . . . . . . . . . . . . . 104.813%
2003 . . . . . . . . . . . . . . . . . . . . 102.406%
2004 and thereafter . . . . . . . . . . . . 100.000%
</TABLE>
Any redemption pursuant to this Section 3.07 shall be made, to
the extent applicable, pursuant to the provisions of Sections 3.01 through 3.06
hereof.
SECTION 3.08. Equity Offering Redemption.
In the event the Company consummates one or more Equity
Offerings on or prior to May 1, 2001, the Company may redeem, in its sole
discretion, up to $167,000,000 of the aggregate principal amount of the
Securities with all or a portion of the aggregate net proceeds received by the
Company from any such Equity Offering or Equity Offerings at a redemption price
of 109.625% of the aggregate principal amount of the Securities so redeemed,
plus accrued and unpaid interest on the Securities so redeemed to the
redemption date; provided, however, that (i) the date of any such redemption
occurs within the 90-day period after the Equity Offering in respect of which
such redemption
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is made and (ii) following each such redemption, at least $333,000,000 of the
aggregate principal amount of the Securities remains outstanding.
Any redemption pursuant to this Section 3.08 shall be made, to
the extent applicable, pursuant to the provisions of Sections 3.01 through 3.06
hereof.
SECTION 3.09. Optional Redemption at Make-Whole Price.
At any time prior to May 1, 2002, the Company may, at its
option, redeem all or any portion of the Securities at the "Make-Whole Price"
(hereinafter defined) plus accrued and unpaid interest on the Securities so
redeemed to the date of redemption. For purposes hereof, the term "Make-Whole
Price" means the greater of (i) the sum of (A) the outstanding principal amount
of the Securities to be redeemed plus (B) the Make-Whole Amount and (ii) the
redemption price (expressed as a percentage of the principal amount) of the
Securities on May 1, 2002 set forth in Section 3.07.
Any redemption pursuant to this Section 3.09 shall be made, to
the extent applicable, pursuant to the provisions of Sections 3.01 through 3.06
hereof.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Securities.
The Company shall pay the principal of, premium, if any, and
interest on, the Securities on the dates and in the manner provided in the
Securities and this Indenture. Principal, premium and interest shall be
considered paid on the date due if the Trustee or Paying Agent holds on that
date money deposited by the Company designated for and sufficient to pay all
principal, premium and interest then due. All references to interest in this
Indenture shall for all purposes be deemed to include any additional interest
payable as liquidated damages pursuant to the Registration Rights Agreement.
The Company shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue principal, and
premium, if any, at the rate borne by the Securities to the extent lawful; and
it shall pay interest (including post-petition interest in any proceeding under
any Bankruptcy Law) on overdue installments of interest (without regard to any
applicable grace period) at the same rate to the extent lawful.
SECTION 4.02. SEC Reports.
(a) The Company, within 15 days after it files the same
with the SEC, shall deliver to Holders, copies of the annual reports and the
information, documents and other reports (or copies of any such portions of any
of the foregoing as the SEC may by rules and regulations prescribe) that the
Company is required to file with the SEC pursuant to Section 13 or 15(d) of the
Exchange Act. 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 shall file with the SEC and provide Holders with such annual
reports and such information, documents and other reports specified in Sections
13 and 15(d) of the Exchange Act. The Company and each Subsidiary Guarantor
shall also comply with the provisions of TIA Section 314(a).
(b) The Company may request the Trustee on behalf of the
Company at the Company's expense to mail the foregoing to Holders. In such
case, the Company shall provide the Trustee with a sufficient number of copies
of all reports and other documents and information that the Trustee may be
required to deliver to Holders under this Section.
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SECTION 4.03. Compliance Certificates.
(a) The Company shall deliver to the Trustee, within 90
days after the end of each fiscal year of the Company, an Officers' Certificate
substantially in the form of Exhibit J hereto, stating that a review of the
activities of the Company and the Subsidiaries during the preceding fiscal year
has been made under the supervision of the signing Officers with a view to
determining whether the Company has kept, observed, performed and fulfilled its
obligations under this Indenture, and further stating, as to each such Officer
signing such certificate, that, to the best of such Officer's knowledge, the
Company and each Subsidiary Guarantor has kept, observed, performed and
fulfilled each and every covenant contained in this Indenture and is not in
default in the performance or observance of any of the terms, provisions and
conditions hereof (or, if a Default or Event of Default shall have occurred,
describing all such Defaults or Events of Default of which such Officer may
have knowledge and what action the Company is taking or proposes to take with
respect thereto) and that to the best of such Officer's knowledge, after
reasonable inquiry, no event has occurred and remains in existence by reason of
which payments on account of the principal of, premium, if any, or interest, if
any, on the Securities are prohibited or, if such event has occurred, a
description of the event and what action the Company and the Subsidiary
Guarantors are taking or propose to take with respect thereto. Such Officers'
Certificate shall comply with TIA Section 314(a)(4). The Company hereby
represents that, as of the Issue Date, its fiscal year ends December 31, and
hereby covenants that it shall notify the Trustee at least 30 days in advance
of any change in its fiscal year.
(b) So long as not contrary to the then current
recommendations of the American Institute of Certified Public Accountants, the
year-end financial statements delivered pursuant to Section 4.02 shall be
accompanied by a written statement of the Company's independent public
accountants (which shall be a firm of established national reputation) that in
making the examination necessary for certification of such financial statements
nothing has come to their attention that would lead them to believe that the
Company has violated any provisions of Sections 4.07, 4.09, 4.10, 4.11 or 4.15
of this Indenture (to the extent such provisions relate to accounting matters)
or, if any such violation has occurred, specifying the nature and period of
existence thereof. Where such financial statements are not accompanied by such
a written statement, the Company shall furnish the Trustee with an Officers'
Certificate stating that any such written statement would be contrary to the
then current recommendations of the American Institute of Certified Public
Accountants.
(c) The Company and the Subsidiary Guarantors will, so
long as any of the Securities are outstanding, deliver to the Trustee forthwith
upon any Officer becoming aware of any Default or Event of Default or default
in the performance of any covenant, agreement or condition contained in this
Indenture, an Officers' Certificate specifying such Default or Event of Default
and what action the Company or any Subsidiary Guarantor proposes to take with
respect thereto.
SECTION 4.04. Maintenance of Office or Agency.
The Company will maintain in the Borough of Manhattan, The
City of New York, an office or agency where Securities may be surrendered for
registration of transfer or exchange or for presentation for payment and where
notices and demands to or upon the Company in respect of the Securities and
this Indenture may be served. The Company will give prompt written notice to
the Trustee of the location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at
the address of the Trustee set forth in Section 11.02. If at any time the
Company shall fail to maintain any required office or agency or shall fail to
furnish the Trustee with the address thereof, such surrenders, presentations,
notices and demands may be made or served at the corporate trust office of the
Trustee.
Subject to Section 2.03, the Company may also from time to
time designate one or more other offices or agencies where the Securities may
be presented or surrendered for any or all such purposes and may from time to
time rescind such designations; provided, that no such designation or
rescission shall in any manner relieve the Company of its obligation to
maintain an office or agency in the Borough of Manhattan, The City of New York,
for such purposes. The Company will give prompt written notice to the Trustee
of any such designation or rescission and of any change in the location of any
such other office or agency.
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SECTION 4.05. Corporate Existence.
The Company will do or cause to be done all things necessary
to preserve and keep in full force and effect its corporate existence and the
corporate, partnership or other existence of each Subsidiary and all rights
(charter and statutory) and franchises of the Company and the Subsidiaries;
provided, that the Company shall not be required to preserve the corporate
existence of any Subsidiary, or any such right or franchise, if the Board of
Directors of the Company shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company and that the
loss thereof is not disadvantageous in any material respect to the Holders.
SECTION 4.06. Waiver of Stay, Extension or Usury Laws.
The Company and each Subsidiary Guarantor covenants (to the
extent that each may lawfully do so) that it will not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay, extension, or usury law or other law, which would prohibit or forgive
the Company or any Subsidiary Guarantor from paying all or any portion of the
principal of, premium, if any, or interest on the Securities as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may
affect the covenants or the performance of this Indenture; and (to the extent
that it may lawfully do so) each of the Company and the Subsidiary Guarantors
hereby expressly waives all benefit or advantage of any such law, and covenants
that it will not hinder, delay or impede the execution of any power herein
granted to the Trustee, but will suffer and permit the execution of every such
power as though no such law had been enacted.
SECTION 4.07. Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (a) all taxes, assessments
and governmental charges levied or imposed upon the Company or any Subsidiary
or upon the income, profits or property of the Company or any Subsidiary and
(b) all lawful claims for labor, materials and supplies which, if unpaid, might
by law become a Lien upon the property of the Company or any Subsidiary;
provided, however, that the Company shall not be required to pay or discharge
or cause to be paid or discharged any such tax, assessment, charge or claim
whose amount, applicability or validity is being contested in good faith by
appropriate proceedings.
SECTION 4.08. Maintenance of Properties and Insurance.
(a) The Company shall cause all properties used or held
for use in the conduct of its business or the business of any Subsidiary to be
maintained and kept in good condition, repair and working order (ordinary wear
and tear excepted) and supplied with all necessary equipment and shall cause to
be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Company may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times; provided, however, that nothing in this
Section shall prevent the Company from discontinuing the operation or
maintenance of any such property, or disposing of it, if such discontinuance or
disposal is, in the judgment of the Company, desirable in the conduct of its
business and not disadvantageous in any material respect to the Holders.
(b) The Company shall provide or cause to be provided,
for itself and each of its Subsidiaries, insurance (including appropriate
self-insurance) against loss or damage of the kinds that, in the reasonable,
good faith opinion of the Company, are adequate and appropriate for the conduct
of the business of the Company and such Subsidiaries in a prudent manner, with
reputable insurers or with the government of the United States or an agency or
instrumentality thereof, in such amounts, with such deductibles, and by such
methods as shall be customary, in the reasonable, good faith opinion of the
Company, for corporations similarly situated in the industry.
SECTION 4.09. Limitation on Incurrence of Additional Indebtedness.
(a) The Company will not, and will not permit any of its
Restricted Subsidiaries, directly or indirectly, to 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
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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: (i) the Adjusted
Consolidated EBITDA Coverage Ratio would have been at least 2.25 to 1.0; or
(ii) Adjusted Consolidated Net Tangible Assets would have been equal to or
greater than 200% of Indebtedness of the Company and its Restricted
Subsidiaries.
(b) Notwithstanding the foregoing, 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.
(c) 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.
SECTION 4.10. Limitation on Restricted Payments.
(a) The Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, make any Restricted
Payment, unless:
(i) 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;
(ii) 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) pursuant to Section 4.09(a); and
(iii) immediately after giving effect to such
Restricted Payment, the aggregate of all Restricted Payments
declared or made after the Issue 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 March 31, 1998 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 Shares 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 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)(i) 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, as 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
(ii) 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
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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, as 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) $25,000,000.
(b) Notwithstanding the foregoing, the above limitations
will not prevent (i) 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; (ii) 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 (iii) any dividend or other
distribution payable from a Subsidiary to the Company or any Restricted
Subsidiary.
SECTION 4.11. Limitation on Sale of Assets.
(a) The Company will not, and will not permit any
Restricted Subsidiary to, make any Asset Sale unless:
(i) 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 $20,000,000 or
greater);
(ii) 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
(iii) 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 paragraphs
(b) or (c) hereof.
(b) The Company may apply such Net Available Proceeds
within 365 days after receipt of Net Available Proceeds from any Asset Sale,
to: (i) the repayment of Indebtedness of the Company under a Bank Credit
Facility or other Senior Indebtedness, including any mandatory redemption or
repurchase or optional redemption of the Existing Notes or the Securities; (ii)
make an Investment in assets used in the Oil and Gas Business; or (iii) develop
by drilling the Company's oil and gas reserves.
(c) If, upon completion of the 365-day period referred to
above, any portion of the Net Available Proceeds of any Asset Sale shall not
have been applied by the Company as described in clauses (i), (ii) or (iii) of
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 $15,000,000, then the Company
will be obligated to make an offer (the "Net Proceeds Offer") to purchase the
Securities and any other Senior Indebtedness in respect of which such an offer
to purchase is 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 Senior Notes and other
Senior Indebtedness tendered in such Net Proceeds Offer) at a purchase price of
100% of the principal amount thereof plus accrued and unpaid interest on the
Securities and other Senior Indebtedness so repurchased to the date of
repurchase. Upon the completion of the Net Proceeds Offer, the amount of Excess
Proceeds will be reset to zero.
(d) The Company shall commence a Net Proceeds Offer by
preparing and mailing a notice to the Trustee, the Paying Agent and each Holder
as of such record date as the Company shall establish (upon written notice to
the Trustee). Notice of a Net Proceeds Offer to purchase the Securities will
be made on behalf of the Company not less than 25 Business Days nor more than
60 Business Days before the payment date of the Net Proceeds Offer (the "Net
Proceeds Payment Date"), and shall set forth the Net Proceeds Offer Amount and
the Net Proceeds Payment Date and refer to and summarize the material points
contained in Sections 4.11(d) and (e) hereof. Securities tendered to the
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Company pursuant to a Net Proceeds Offer will cease to accrue interest after
the Net Proceeds Payment Date. For purposes of this covenant, the term "Net
Proceeds Offer Amount" means the principal of outstanding Securities in an
aggregate principal amount equal to any remaining Net Available Proceeds
(rounded to the next lowest $1,000). If the Net Proceeds Payment Date is on or
after an interest payment record date and on or before the related interest
payment date, any accrued interest payable on such interest payment date will
be paid to the Person in whose name a Security is registered at the close of
business on such record date, and no additional interest will be payable to
Holders who tender Securities pursuant to the Net Proceeds Offer.
(e) On the Net Proceeds Payment Date, the Company will
(i) accept for payment Securities and any other Senior Indebtedness in respect
of which such an offer to purchase is required to be made concurrently with the
Net Proceeds Offer or portions thereof pursuant to the Net Proceeds Offer in
an aggregate principal amount equal to the Net Proceeds Offer Amount or such
lesser amount as has been tendered, (ii) deposit with the Paying Agent money
sufficient to pay the purchase price of all Securities and such other Senior
Indebtedness or portions thereof so tendered in an aggregate principal amount
equal to the Net Proceeds Offer Amount or such lesser amount, including any
accrued and unpaid interest thereon, and (iii) deliver or cause to be delivered
to the Trustee, Securities so accepted together with an Officers' Certificate
stating the Securities or portions thereof tendered to the Company. If the
aggregate principal amount of Securities and such other Senior Indebtedness
tendered exceeds the Net Proceeds Offer Amount, the Trustee will select the
Securities and other Senior Indebtedness to be purchased (in integral multiples
of $1,000) on a pro rata basis based on the principal amount of Securities and
other Senior Indebtedness so tendered and notify the Company, the Registrar and
the Paying Agent. The Paying Agent, upon instruction of the Company, will
promptly mail or deliver to Holders of Securities so accepted payment in an
amount equal to the purchase price (representing those funds received pursuant
to clause (ii) of this Section 4.11(e)), and the Company will execute and the
Trustee will promptly authenticate and mail or make available for delivery to
Holders a new Security equal in principal amount to any unpurchased portion of
the Security surrendered. Any Securities not so accepted will be promptly
mailed or delivered to the Holder thereof by the Company, or, if the Company so
directs the Trustee, by the Trustee on behalf of the Company at the Company's
expense. The Company will publicly announce the results of the Net Proceeds
Offer on or as soon as practicable after the Net Proceeds Payment Date. For
purposes of this Section 4.11, the Trustee will act as the Paying Agent.
(f) 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.
(g) 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.
(h) Notwithstanding the foregoing, 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.
SECTION 4.12. Limitation on Liens Securing Indebtedness.
The Company will not, and will not permit any of its
Restricted Subsidiaries to, create, incur, assume or suffer to exist any Liens
(other than Permitted Liens) upon any of their respective properties securing
(i) any Indebtedness of the Company, unless the Securities are equally and
ratably secured or (ii) any Indebtedness of any Restricted Subsidiary, unless
the Guarantees are equally and ratably secured; provided, that if such
Indebtedness is expressly subordinated to the Securities or the Guarantees, the
Lien securing such Indebtedness will be subordinated and junior to any Lien
securing the Securities or the Guarantees, with the same relative priority as
such Subordinated Indebtedness of the Company or Subordinated Indebtedness of a
Restricted Subsidiary will have with respect to the Securities or the
Guarantees, as the case may be.
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SECTION 4.13. Limitation on Sale/Leaseback Transactions.
The Company will not, and will not permit any of its
Restricted Subsidiaries to, enter into any Sale/Leaseback Transaction with any
Person (other than the Company or any Wholly Owned Restricted Subsidiary)
unless (i) the Company or such Restricted Subsidiary, as the case may be, would
be able to incur Indebtedness in a principal amount equal to the Attributable
Indebtedness with respect to such Sale/Leaseback Transaction in accordance with
Section 4.09 or (ii) the Company or such Restricted Subsidiary receives
proceeds from such Sale/Leaseback Transaction at least equal to the fair market
value thereof (as determined in good faith by the Company'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.
SECTION 4.14. 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 (i)
pay dividends or make any other distributions on its Capital Stock or on any
other interest or participation in the Company or a Restricted Subsidiary, (ii)
pay any Indebtedness owed to the Company or a Restricted Subsidiary of the
Company; (iii) make loans or advances to the Company or a Restricted Subsidiary
of the Company; or (iv) transfer any of its properties or assets to the Company
or a Restricted Subsidiary of the Company (each, a "Payment Restriction"),
except for (a) encumbrances or restrictions under a Bank Credit Facility;
provided, that any Payment Restrictions thereunder (other than, with respect to
(iv) 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 in the aggregate no less
favorable to the holders of the Securities 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.
SECTION 4.15. 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 of the Company) (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 $5,000,000 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 $25,000,000, 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.
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SECTION 4.16. Change of Control.
(a) Following the occurrence of any Change of Control,
the Company shall offer (a "Change of Control Offer") to purchase all
outstanding Securities at a purchase price equal to 101% of the aggregate
outstanding principal amount of the Securities, plus accrued and unpaid
interest on the Securities so purchased to the date of purchase. The Change of
Control Offer shall be deemed to have commenced upon mailing of the notice
described in the next succeeding paragraph and shall 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 "Change of
Control Payment Date"), the Company shall purchase and mail or deliver payment
for all Securities tendered in response to the Change of Control Offer. If the
Change of Control Payment Date is on or after an interest payment record date
and on or before the related interest payment date, any accrued interest
payable on such interest payment date will be paid to the Person in whose name
a Security is registered at the close of business on such record date, and no
additional interest will be payable to Holders who tender Securities pursuant
to the Change of Control Offer.
(b) Within 15 days after any Change of Control, the
Company (with notice to the Trustee and the Paying Agent), or the Trustee at
the Company's request and expense, will mail or cause to be mailed to all
Holders on the date of the Change of Control a notice prepared by the Company
(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 will contain all instructions and materials necessary to enable Holders
to tender their Securities to the Company. The Change of Control Notice, which
shall govern the terms of the Change of Control Offer, shall state: (1) that
the Change of Control Offer is being made pursuant to this Section 4.16; (2)
the purchase price and the Change of Control Payment Date; (3) that any
Security not tendered will continue to accrue interest at the stated rate; (4)
that any Security accepted for payment pursuant to the Change of Control Offer
shall cease to accrue interest on the Change of Control Payment Date; (5) that
Holders electing to have a Security purchased pursuant to any Change of Control
Offer will be required to surrender the Security, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Security completed,
to the Company, a depositary, if appointed by the Company, or a Paying Agent at
the address specified in the notice prior to termination of the Change of
Control Offer; (6) that Holders will be entitled to withdraw their election if
the Company, depositary or Paying Agent, as the case may be, receives, not
later than the expiration of the Change of Control Offer, or such longer period
as may be required by law, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of the Security the
Holder delivered for purchase and a statement that such Holder is withdrawing
its election to have the Security purchased; and (7) that Holders whose
Securities are purchased only in part will be issued Securities equal in
principal amount to the unpurchased portion of the Securities surrendered.
(c) On the Change of Control Payment Date, the Company
shall, to the extent permitted by applicable law, (i) accept for payment
Securities or portions thereof tendered pursuant to the Change of Control
Notice, (ii) if the Company appoints a depositary or Paying Agent, deposit with
such depositary or Paying Agent money sufficient to pay the purchase price of
all Securities or portions thereof so tendered and (iii) deliver to the Trustee
Securities so accepted together with an Officers' Certificate stating the
Securities or portions thereof tendered to the Company. The depositary, the
Company or the Paying Agent, as the case may be, shall promptly mail to the
Holders of Securities so accepted payment in an amount equal to the purchase
price (representing those funds received pursuant to clause (ii) of this
Section 4.16(c)), and the Trustee shall promptly authenticate and mail to each
such Holder a new Security equal in principal amount to any unpurchased portion
of the Security surrendered; provided that each such new Security will be in a
principal amount of $1,000 or an integral multiple thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date. For purposes of this
Section 4.16, the Trustee shall act as the Paying Agent.
(d) 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 offer by the Company
to purchase the Securities at the option of the Holders upon a Change of
Control.
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ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. When Company May Merge, etc.
The Company shall not consolidate with or merge with or into
any Person or sell, convey, lease, transfer or otherwise dispose of all or
substantially all of its assets to any Person, unless:
(1) the Company survives such merger or the
Person formed by such consolidation or into which the Company
is merged or that acquires by sale, conveyance, transfer or
other disposition, or which leases, all or substantially all
of the assets of the Company is a corporation organized and
existing under the laws of the United States of America, any
state thereof or the District of Columbia, or Canada or any
province thereof, and expressly assumes, by supplemental
indenture, the due and punctual payment of the principal of,
premium, if any, and interest on, all the Securities and the
performance of every other covenant and obligation of the
Company under this Indenture;
(2) immediately before and after giving effect to
such transaction no Default or Event of Default exists;
(3) immediately after giving effect to such
transaction on a pro forma basis, the Consolidated Tangible
Net Worth of the Company (or the surviving or transferee
entity) 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
surviving or transferee entity) would be able to incur $1.00
of additional Indebtedness under the test described in Section
4.09(a) (other than Permitted Indebtedness).
In connection with any consolidation, merger, sale,
conveyance, lease, transfer or other disposition contemplated by this Section
5.01, the Company shall deliver to the Trustee prior to the consummation of the
proposed transaction an Officers' Certificate to the foregoing effect and an
Opinion of Counsel stating that the proposed transaction and such supplemental
indenture comply with this Indenture.
SECTION 5.02. Successor Corporation Substituted.
Upon any consolidation, merger, lease, conveyance or transfer
in accordance with Section 5.01, the Trustee shall be notified by the Company
and the successor Person, and the successor Person formed by such consolidation
or into which the Company is merged or to which such lease, conveyance or
transfer is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under this Indenture with the same effect
as if such successor had been named as the Company herein and thereafter
(except in the case of a lease) the predecessor corporation will be relieved of
all further obligations and covenants under this Indenture and the Securities.
ARTICLE SIX
DEFAULTS AND REMEDIES
SECTION 6.01. Events of Default.
An "Event of Default" occurs upon:
(1) default by the Company or any Subsidiary
Guarantor in the payment of principal of, or premium, if any,
on the Securities when due and payable at maturity, upon
repurchase pursuant to Section 4.11 or 4.16, upon acceleration
or otherwise;
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(2) default by the Company or any Subsidiary
Guarantor in the payment of any installment of interest on the
Securities when due and payable and continuance of such
default for 30 days;
(3) default by the Company or any Subsidiary
Guarantor in the deposit of any optional redemption payment,
when and as due and payable pursuant to Article Three;
(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 Section 4.10 and Article V, or in the
performance, or breach of, any other covenant or agreement of
the Company or any Subsidiary Guarantor in this 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 Securities;
(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) a Guarantee by a Subsidiary Guarantor shall
cease to be in full force and effect (other than a release of
a Guarantee in accordance with Section 10.04) or any
Subsidiary Guarantor shall deny or disaffirm its obligations
with respect thereto;
(8) the Company or any Subsidiary (other than a
Non-Recourse Subsidiary or an Unrestricted Subsidiary)
pursuant to or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case or
proceeding,
(B) consents to the entry of an order
for relief against it in an involuntary case or
proceeding,
(C) consents to the appointment of a
Custodian of it or for all or substantially all of
its property,
(D) makes a general assignment for the
benefit of its creditors, or
(E) admits in writing that it generally
is unable to pay its debts as the same become due; or
(9) a court of competent jurisdiction enters an
order or decree under any Bankruptcy Law that:
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(A) is for relief (with respect to the
petition commencing such case) against the Company or
any Subsidiary (other than a Non-Recourse Subsidiary
or an Unrestricted Subsidiary) in an involuntary case
or proceeding,
(B) appoints a Custodian of the Company
or any Subsidiary (other than a Non- Recourse
Subsidiary or an Unrestricted Subsidiary) or for all
or substantially all of its property, or
(C) orders the liquidation of the
Company or any Subsidiary (other than a Non- Recourse
Subsidiary or an Unrestricted Subsidiary),
and the order or decree remains unstayed and in effect for 60
days.
The term "Bankruptcy Law" means Title 11, U.S. Code or any
similar federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law.
SECTION 6.02. Acceleration.
If an Event of Default (other than an Event of Default
specified in clauses (8) or (9)) under Section 6.01 occurs and is continuing,
then and in every such case the Trustee or the Holders of not less than 25% of
the principal amount of the outstanding Securities may declare the unpaid
principal of and premium, if any, or the Change of Control purchase price if
the Event of Default includes failure to pay the Change of Control purchase
price, and accrued and unpaid interest on, all the Securities then outstanding
to be due and payable, by a notice in writing to the Company (and to the
Trustee, if given by Holders), and upon any such declaration such principal,
premium, if any, and accrued and unpaid interest shall become immediately due
and payable, notwithstanding anything contained in this Indenture or the
Securities to the contrary. If an Event of Default specified in clauses 8 or 9
above occurs, all unpaid principal of, and premium, if any, and accrued and
unpaid interest on, the Securities then outstanding will become due and
payable, without any declaration or other act on the part of the Trustee or any
Holder.
The Holders of a majority of the principal amount of the
outstanding Securities, by written notice to the Company, the Subsidiary
Guarantors and the Trustee, may rescind and annul a declaration of acceleration
and its consequences if (1) the Company or any Subsidiary Guarantor has paid or
deposited with such Trustee a sum sufficient to pay (A) all overdue
installments of interest on all the Securities, (B) the principal of, and
premium, if any, on any Securities that have become due otherwise than by such
declaration of acceleration and interest thereon at the rate or rates
prescribed therefor in the Securities, (C) to the extent that payment of such
interest is lawful, interest on the defaulted interest at the rate or rates
prescribed therefor in the Securities, and (D) all money paid or advanced by
the Trustee thereunder and the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel; (2) all Events of Default,
other than the non-payment of the principal of any Securities that have become
due solely by such declaration of acceleration, have been cured or waived as
provided in this Indenture; and (3) the rescission would not conflict with any
judgment or decree of a court of competent jurisdiction. No such rescission
will affect any subsequent Event of Default or impair any right consequent
thereon.
SECTION 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee
may, but is not obligated to, pursue, in its own name and as trustee of an
express trust, any available remedy by proceeding at law or in equity to
collect the payment of principal or interest on the Securities or to enforce
the performance of any provision of the Securities or this Indenture. If an
Event of Default specified under clauses (8) or (9) of Section 6.01 occurs with
respect to the Company at a time when the Company is the Paying Agent, the
Trustee shall automatically assume the duties of Paying Agent.
The Trustee may maintain a proceeding even if it does not
possess any of the Securities or does not produce any of them in the
proceeding. A delay or omission by the Trustee or any Holder in exercising any
right or
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<PAGE> 42
remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. No remedy
is exclusive of any other remedy. All available remedies are cumulative.
SECTION 6.04. Waiver of Past Defaults.
Subject to Sections 6.07 and 9.02, the Holders of at least a
majority of the principal amount of the outstanding Securities by notice to the
Trustee may waive an existing Default or Event of Default and its consequences,
except a Default or Event of Default in payment of principal or interest on the
Securities, including any optional redemption payments or Change of Control or
Net Proceeds Offer payments.
SECTION 6.05. Control by Majority.
The Holders of a majority in principal amount of the
Securities will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on such Trustee, provided that (1) such direction
is not in conflict with any rule of law or with this Indenture and (2) the
Trustee may take any other action deemed proper by such Trustee that is not
inconsistent with such direction.
SECTION 6.06. Limitation on Remedies.
No Holder of any of the Securities will have any right to
institute any proceeding, judicial or otherwise, or for the appointment of a
receiver or trustee or pursue any remedy under this Indenture, unless:
(1) such Holder has previously given notice to
the Trustee of a continuing Event of Default,
(2) the Holders of not less than 25% of the
principal amount of the outstanding Securities have made
written request to such Trustee to institute proceedings in
respect of such Event of Default in its own name as Trustee
under this Indenture,
(3) such Holder or Holders have offered to such
Trustee reasonable indemnity against the costs, expenses and
liabilities to be incurred in compliance with such request,
(4) such Trustee for 60 days after its receipt of
such notice, request and offer of indemnity has failed to
institute any proceeding, and
(5) no direction inconsistent with such written
request has been given to such Trustee during such 60-day
period by the Holders of a majority of the principal amount of
the outstanding Securities.
A Holder may not use this Indenture to prejudice the rights of
another Holder or to obtain a preference or priority over other Holders.
SECTION 6.07. Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the
Holder of any Securities will have the right, which is absolute and
unconditional, to receive payment of the principal of and interest on such
Securities on the stated maturity therefor and to institute suit for the
enforcement of any such payment, and such right may not be impaired without the
consent of such Holder.
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SECTION 6.08. Collection Suit by Trustee.
If an Event of Default in payment of principal, premium, if
any, or interest specified in Section 6.01(1), (2) or (3) occurs and is
continuing, the Trustee may recover judgment in its own name and as trustee of
an express trust against the Company or any Subsidiary Guarantor for the whole
amount of principal, premium, if any, and interest remaining unpaid with
respect to the Securities, and interest on overdue principal and premium, if
any, and, to the extent lawful, interest on overdue interest, and such further
amounts as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation and expenses of the Trustee, its agents
and counsel.
SECTION 6.09. Trustee May File Proofs of Claim.
(a) The Trustee may file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the
claims of the Trustee and the Holders allowed in any judicial proceedings
relative to the Company, the Subsidiary Guarantors, their creditors or their
property and may collect and receive any money or securities or other property
payable or deliverable on any such claims and to distribute the same.
(b) Nothing herein contained shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on behalf of any
Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Securities or the rights of any Holder thereof, or to authorize
the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 6.10. Priorities.
If the Trustee collects any money pursuant to this Article
Six, it shall pay out the money in the following order:
First: to the Trustee for amounts due under Section
7.07;
Second: to Holders for amounts due and unpaid on the
Securities for principal and interest, ratably, without
preference or priority of any kind, according to the amounts
due and payable on the Securities for principal and interest,
respectively; and
Third: to the Company.
The Trustee may fix a record date and payment date for any
payment to Holders pursuant to this Section 6.10.
SECTION 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as Trustee, a court in its discretion may require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by
a Holder pursuant to Section 6.07, or a suit by Holders of more than 10% in
principal amount of the then outstanding Securities.
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ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing,
the Trustee shall exercise such rights and powers vested in it by
this Indenture and use the same degree of care and skill in such exercise as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties
that are specifically set forth (or incorporated by reference)
in this Indenture and no others.
(2) In the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture.
However, the Trustee shall examine such certificates and
opinions to determine whether or not they conform to the
requirements of this Indenture.
(c) The Trustee may not be relieved from liability for
its own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph (c) does not limit the effect
of paragraph (b) of this Section.
(2) The Trustee shall not be liable for any error
of judgment made in good faith by an officer of the Trustee,
unless it is proved that the Trustee was negligent in
ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect
to action it takes or omits to take in good faith in
accordance with a direction received by it pursuant to Section
6.05, and the Trustee shall be entitled from time to time to
request such a direction.
(d) Every provision of this Indenture that in any way
relates to the Trustee is subject to paragraphs (a), (b) and (c) of this
Section.
(e) The Trustee shall be under no obligation and may
refuse to perform any duty or exercise any right or power unless it receives
indemnity satisfactory to it against any loss, liability or expense. No
provision of this Indenture shall require the Trustee to expend or risk its own
funds or otherwise incur financial liability in the performance of any of its
duties hereunder or in the exercise of any of its rights or powers, if it shall
have reasonable grounds to believe that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
(f) The Trustee shall not be liable for interest on any
money received by it except as the Trustee may agree in writing with the
Company. Money held in trust by the Trustee need not be segregated from other
funds except to the extent required by law.
SECTION 7.02. Rights of Trustee.
Subject to Section 7.01:
(a) The Trustee may rely on and shall be protected in
acting or refraining from acting upon any document believed by it to be genuine
and to have been signed or presented by the proper person. The Trustee shall
not be bound to make any investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture or other paper or document,
but the Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit, and, if the Trustee
shall determine to make such further inquiry or investigation, it shall be
entitled to examine the books, records and premises of the Company, personally
or by agent or attorney, to the extent reasonably required by such inquiry or
investigation.
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(b) Before the Trustee acts or refrains from acting, it
may require an Officers' Certificate or an Opinion of Counsel. The Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on such certificate or opinion.
(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it
takes or omits to take in good faith which it believes to be authorized or
within its rights or powers.
SECTION 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Securities and may otherwise deal with the Company or
its Subsidiaries or Affiliates with the same rights it would have if it were
not Trustee. Any Agent may do the same with like rights. However, the Trustee
must comply with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or
adequacy of this Indenture or the Securities, it shall not be accountable for
the Company's use of the proceeds from the Securities or any prospectus,
offering or solicitation documents, and it shall not be responsible for any
statement in the Securities other than its certificate of authentication.
SECTION 7.05. Notice of Defaults.
If a Default occurs and is continuing and if it is known to
the Trustee, the Trustee shall mail to each Holder pursuant to Section 11.02 a
notice of the Default within 90 days after it occurs. Except in the case of a
Default in any payment on any Security, the Trustee may withhold the notice if
and so long as the board of directors, executive committee or a trust committee
of officers in good faith determines that withholding the notice is in the
interests of Holders.
SECTION 7.06. Reports by Trustee to Holders.
Within 60 days after each April 1, beginning with the April 1
following the date of this Indenture, the Trustee shall mail to each Holder a
brief report dated as of such April 1 that complies with TIA Section 313(a),
but only if such report is required in any year under TIA Section 313(a). The
Trustee also shall comply with TIA Sections 313(b) and 313(c).
A copy of each report at the time of its mailing to Holders
shall be filed with the SEC and each stock exchange on which the Securities are
listed. The Company shall notify the Trustee in writing when the Securities
become listed on any national securities exchange or of any delisting thereof.
SECTION 7.07. Compensation and Indemnity.
The Company and the Subsidiary Guarantors jointly and
severally agree to pay the Trustee from time to time reasonable compensation
for its services (which compensation shall not be limited by any provision of
law in regard to the compensation of a trustee of an express trust). The
Company and the Subsidiary Guarantors jointly and severally agree to reimburse
the Trustee upon request for all reasonable out-of-pocket expenses,
disbursements and advances incurred by it. Such expenses shall include when
applicable the reasonable compensation and expenses of the Trustee's agents and
counsel.
The Trustee shall not be under any obligation to institute any
suit, or take any remedial action under this Indenture, or to enter any
appearance or in any way defend any suit in which it may be a defendant, or to
take any steps in the execution of the trusts created hereby or thereby or in
the enforcement of any rights and powers under this Indenture, until it shall
be indemnified to its satisfaction against any and all reasonable expenses,
disbursements and
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advances incurred or made by the Trustee in accordance with any provisions of
this Indenture, including compensation for services, costs, expenses, outlays,
counsel fees and other disbursements, and against all liability not due to its
negligence or willful misconduct. The Company and the Subsidiary Guarantors
jointly and severally agree to indemnify the Trustee against any loss,
liability or expenses incurred by it arising out of or in connection with the
acceptance and administration of the trust and its duties hereunder as Trustee,
Registrar and/or Paying Agent, including the costs and expenses of enforcing
this Indenture against the Company (including with respect to this Section
7.07) and of defending itself against any claim or liability in connection with
the exercise or performance of any of its powers or duties hereunder. The
Trustee shall notify the Company and the Subsidiary Guarantors of any claim for
which it may seek indemnity; however, unless the position of the Company is
prejudiced by such failure, the failure of the Trustee to promptly notify the
Company shall not limit its right to indemnification. The Company shall defend
each such claim and the Trustee shall cooperate in the defense. The Trustee
may retain separate counsel and the Company shall reimburse the Trustee for the
reasonable fees and expenses of such counsel. The Company need not pay for any
settlement made without its consent.
Neither the Company nor the Subsidiary Guarantors shall be
obligated to reimburse any expense or indemnify against any loss or liability
incurred by the Trustee through the Trustee's negligence or willful misconduct.
To secure the payment obligations of the Company and the
Subsidiary Guarantors in this Section, the Trustee shall have a claim prior to
that of the Holders of the Securities on all money or property held or
collected by the Trustee, except that held in trust to pay principal of and
interest on particular Securities. The Trustee's right to receive payment of
any amounts due under this Section 7.07 shall not be subordinate to any other
liability or Indebtedness of the Company.
When the Trustee incurs expenses or renders services after the
occurrence of any Event of Default specified in Sections 6.01(8) or (9), the
expenses and the compensation for the services are intended to constitute
expenses of administration under any Bankruptcy Law.
SECTION 7.08. Replacement of Trustee.
The Trustee may resign by so notifying the Company and the
Subsidiary Guarantors. The Holders of a majority in principal amount of the
Securities may remove the Trustee by so notifying the Trustee, in writing. The
Company may remove the Trustee if:
(1) the Trustee fails to comply with Section
7.10;
(2) the Trustee is adjudged a bankrupt or an
insolvent;
(3) a receiver or other public officer takes
charge of the Trustee or its property; or
(4) the Trustee becomes incapable of acting as
Trustee hereunder.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office,
the Holders of a majority in principal amount of the Securities may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company and the Subsidiary
Guarantors. Immediately after that, the retiring Trustee shall transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.07, the resignation or removal of the retiring
Trustee shall become effective, and the successor Trustee shall have all the
rights, powers and duties of the Trustee under this Indenture. A successor
Trustee shall mail notice of its succession to each Holder.
If a successor Trustee does not take office within 30 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company or the Holders of a majority in principal amount of the Securities may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
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If the Trustee fails to comply with Section 7.10, any Holder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee. Any successor Trustee shall comply
with TIA Section 310(a)(5).
SECTION 7.09. Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust assets to, another
corporation, the successor corporation without any further act shall be the
successor Trustee; provided such corporation or association shall be otherwise
eligible and qualified under this Article.
SECTION 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee which satisfies the
requirements of TIA Section 310(a)(1). The Trustee shall always have a
combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition. The Trustee shall also comply
with TIA Section 310(b).
SECTION 7.11. Preferential Collection of Claims Against Company.
The Trustee shall comply with TIA Section 311(a), excluding
any creditor relationship listed in TIA Section 311(b). A Trustee who has
resigned or been removed shall be subject to TIA Section 311(a) to the extent
indicated therein.
ARTICLE EIGHT
DISCHARGE OF INDENTURE
SECTION 8.01. Option to Effect Legal Defeasance or Covenant Defeasance.
The Company may, at the option of its Board of Directors
evidenced by a resolution set forth in an Officers' Certificate, at any time,
with respect to the Securities, elect to exercise its rights pursuant to either
Section 8.02 or 8.03 with respect to all outstanding Securities upon compliance
with the conditions set forth below in this Article Eight.
SECTION 8.02. Legal Defeasance and Discharge.
Upon the Company's exercise under Section 8.01 of the option
applicable to this Section 8.02, the Company shall be deemed to have been
discharged from its obligations with respect to all outstanding Securities on
the date all conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, such Legal Defeasance means that the Company
shall be deemed to have paid and discharged the entire Indebtedness represented
by the outstanding Securities, which shall thereafter be deemed to be
"outstanding" only for the purposes of Section 8.05 and the other Sections of
this Indenture referred to in (a) and (b) below, and to have satisfied all its
other obligations under such Securities and this Indenture (and the Trustee, on
demand of and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following which shall survive until
otherwise terminated or discharged hereunder: (a) the rights of Holders of
outstanding Securities to receive solely from the trust fund described in
Section 8.04, and as more fully set forth in such Section, payments in respect
of the principal of, premium, if any, and interest on such Securities when such
payments are due, (b) the Company's obligations with respect to such Securities
under Sections 2.03, 2.04, 2.06, 2.07, 2.10 and 4.04, (c) the rights, powers,
trusts, duties and immunities of the Trustee hereunder and the Company's
obligations in connection therewith (including, but not limited to, Section
7.07) and (d) this Article Eight. Subject to compliance with this Article
Eight, the Company may exercise its option under this Section 8.02
notwithstanding the prior exercise of its option under Section 8.03 with
respect to the Securities.
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SECTION 8.03. Covenant Defeasance.
Upon the Company's exercise under Section 8.01 of the option
applicable to this Section 8.03, the Company shall be released from its
obligations under the covenants contained in the second sentence of Section
4.02, Sections 4.03, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, and
4.16 and Article Five with respect to the outstanding Securities on and after
the date the conditions set forth below are satisfied (hereinafter, "Covenant
Defeasance"), and the Securities shall thereafter be deemed not "outstanding"
for the purposes of any direction, waiver, consent or declaration or act of
Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "outstanding" for all other purposes
hereunder (it being understood that such Securities shall not be deemed
outstanding for accounting purposes). For this purpose, such Covenant
Defeasance means that, with respect to the outstanding Securities, the Company
may omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such covenant, whether directly or
indirectly, by reason of any reference elsewhere herein to any such covenant or
by reason of any reference in any such covenant to any other provision herein
or in any other document and such omission to comply shall not constitute a
Default or an Event of Default under Section 6.01(5), but, except as specified
above, the remainder of this Indenture and such Securities shall be unaffected
thereby. In addition, upon the Company's exercise under Section 8.01 of the
option applicable to this Section 8.03, Sections 6.01(4) through 6.01(9) shall
not constitute Events of Default.
SECTION 8.04. Conditions to Legal or Covenant Defeasance.
The following shall be the conditions to application of either
Section 8.02 or Section 8.03 to the outstanding Securities:
(a) The Company shall irrevocably have deposited or cause
to be deposited with the Trustee (or another trustee satisfying the
requirements of Section 7.10 who shall agree to comply with the provisions of
this Article Eight applicable to it) as trust funds in trust for the purpose of
making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Securities, (a) cash in
U.S. Legal Tender in an amount, or (b) non-callable U.S. Government Securities
which through the scheduled payment of principal and interest in respect
thereof in accordance with their terms will provide, not later than one day
before the due date of any payment, cash in U.S. Legal Tender in an amount, or
(c) a combination thereof, in such amounts, as will be sufficient, in the
opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee, to pay
and discharge and which shall be applied by the Trustee (or other qualifying
trustee) to pay and discharge the principal of, premium, if any, and interest
on the outstanding Securities on the Maturity Date or on the applicable
redemption date, as the case may be, of such principal or installment of
principal, premium, if any, or interest and in accordance with the terms of
this Indenture and of such Securities; provided that the Trustee shall have
been irrevocably instructed to apply such money or the proceeds of such non-
callable U.S. Government Securities to said payments with respect to the
Securities.
(b) In the case of an election under Section 8.02, the
Company shall have delivered to the Trustee an Opinion of Counsel confirming
that (i) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (ii) since the date hereof, there has been
a change in the applicable federal income tax law, in either case to the effect
that, and based thereon such opinion shall confirm that, the Holders of the
outstanding Securities 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;
(c) In the case of an election under Section 8.03, the
Company shall have delivered to the Trustee an Opinion of Counsel to the effect
that the Holders of the outstanding Securities 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;
(d) No Default or Event of Default with respect to the
Securities shall have occurred and be continuing on the date of such deposit
or, insofar as Subsection 6.01(8) or 6.01(9) is concerned, at any time in the
period
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ending on the 91st day after the date of such deposit (it being understood that
this condition shall not be deemed satisfied until the expiration of such
period);
(e) Such Legal Defeasance or Covenant Defeasance shall
not result in a breach or violation of, or constitute a default under, this
Indenture or any other material agreement or instrument to which the Company is
a party or by which the Company is bound;
(f) In the case of any election under Section 8.02 or
8.03, the Company shall have delivered to the Trustee an Officers' Certificate
stating that the deposit made by the Company pursuant to its election under
Section 8.02 or 8.03 was not made by the Company with the intent of preferring
the Holders over other creditors of the Company or with the intent of
defeating, hindering, delaying or defrauding creditors of the Company or
others; and
(g) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to either the Legal Defeasance under
Section 8.02 or the Covenant Defeasance under Section 8.03 (as the case may be)
have been complied with as contemplated by this Section 8.04.
SECTION 8.05. Deposited Money and U.S. Government Securities to be Held in
Trust; Other Miscellaneous Provisions.
Subject to Section 8.06, all money and non-callable U.S.
Government Securities (including the proceeds thereof) deposited with the
Trustee (or other qualifying trustee, collectively for purposes of this Section
8.05, the "Trustee") pursuant to Section 8.04 in respect of the outstanding
Securities shall be held in trust and applied by the Trustee, in accordance
with the provisions of such Securities and this Indenture, to the payment,
either directly or through any Paying Agent (including the Company or a
Subsidiary Guarantor, if any, acting as Paying Agent) as the Trustee may
determine, to the Holders of such Securities of all sums due and to become due
thereon in respect of principal, premium, if any, and interest, but such money
need not be segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the cash or
non-callable U.S. Government Securities deposited pursuant to Section 8.04 or
the principal and interest received in respect thereof other than any such tax,
fee or other charge which by law is for the account of the Holders of the
outstanding Securities.
Anything in this Article Eight to the contrary
notwithstanding, the Trustee shall deliver or pay to the Company from time to
time upon the Company's request any money or non-callable U.S. Government
Securities held by it as provided in Section 8.04 which, in the opinion of a
nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee (which may be the
opinion delivered under Section 8.04(a)), are in excess of the amount thereof
which would then be required to be deposited to effect an equivalent Legal
Defeasance or Covenant Defeasance.
SECTION 8.06. Repayment to Company.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of,
premium, if any, or interest on any Security which is not subject to the last
paragraph of Section 8.05 and has remained unclaimed for one year after such
principal, and premium, if any, or interest has become due and payable shall be
paid to the Company on its request or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Securities shall thereafter,
as an unsecured general creditor, look only to the Company for payment thereof,
and all liability of the Trustee or such Paying Agent with respect to such
trust money, and all liability of the Company as trustee thereof, shall
thereupon cease; provided, however, that the Trustee or such Paying Agent,
before being required to make any such repayment, may at the expense of the
Company cause to be published once, in the New York Times and The Wall Street
Journal (national edition), notice that such money remains unclaimed and that,
after a date specified therein, which shall not be less than 30 days from the
date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
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SECTION 8.07. Reinstatement.
If the Trustee or Paying Agent is unable to apply any U.S.
Legal Tender or non-callable U.S. Government Securities in accordance with
Section 8.02 or 8.03, as the case may be, by reason of any order or judgment of
any court or governmental authority enjoining, restraining, or otherwise
prohibiting such application, then the Company's obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to Section 8.02 or 8.03 until such time as the
Trustee or Paying Agent is permitted to apply all such money in accordance with
Section 8.02 or 8.03, as the case may be; provided, however, that, if the
Company makes any payment of principal of, premium, if any, or interest on any
Security following the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of such Securities to receive such
payment from the money held by the Trustee or Paying Agent.
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders.
The Company, the Subsidiary Guarantors and the Trustee may
amend or supplement this Indenture or the Securities without notice to or
consent of any Holder:
(1) to cure any ambiguity, defect or
inconsistency;
(2) to comply with Section 5.01;
(3) to reflect the addition or release of any
Subsidiary Guarantor, as provided for by this Indenture;
(4) to comply with any requirements of the SEC in
order to effect or maintain the qualification of this
Indenture under the TIA; or
(5) to make any change that would provide any
additional benefit or rights to the Holders or that does not
adversely affect the rights of any Holder in any material
respect.
Upon the request of the Company and the Subsidiary Guarantors,
accompanied by a Board Resolution of the Company and of each Subsidiary
Guarantor authorizing the execution of any such supplemental indenture, and
upon receipt by the Trustee of the documents described in Section 9.06, the
Trustee shall join with the Company and the Subsidiary Guarantors in the
execution of any supplemental indenture authorized or permitted by the terms of
this Indenture and make any further appropriate agreements and stipulations
that may be therein contained. After an amendment or waiver under this Section
becomes effective, the Company shall mail to the Holders of each Security
affected thereby a notice briefly describing the amendment or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such supplemental
indenture.
SECTION 9.02. With Consent of Holders.
Except as provided below in this Section 9.02, the Company,
the Subsidiary Guarantors and the Trustee may amend this Indenture or the
Securities with the written consent (including consents obtained in connection
with a tender offer or exchange offer for Securities or a solicitation of
consents in respect of Securities, provided that in each case such offer or
solicitation is made to all Holders of then outstanding Securities on equal
terms) of the Holders of at least a majority of the principal amount of the
outstanding Securities.
Upon the request of the Company and the Subsidiary Guarantors,
accompanied by a Board Resolution of the Company and each Subsidiary Guarantor
authorizing the execution of any such supplemental indenture, and upon the
filing with the Trustee of evidence of the consent of the Holders as aforesaid,
and upon receipt by the Trustee of the
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Opinion of Counsel described in Section 9.06, the Trustee shall join with the
Company and the Subsidiary Guarantors in the execution of such supplemental
indenture.
It shall not be necessary for the consent of the Holders under
this Section to approve the particular form of any proposed amendment or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
The Holders of a majority of the principal amount of the
outstanding Securities may waive compliance in a particular instance by the
Company or the Subsidiary Guarantors with any provision of this Indenture or
the Securities (including waivers obtained in connection with a tender offer or
exchange offer for Securities or a solicitation of consents in respect of
Securities, provided that in each case such offer or solicitation is made to
all Holders of the then outstanding Securities on equal terms). However,
without the consent of each Holder affected, an amendment or waiver under this
Section may not:
(1) reduce the percentage of principal amount of
Securities whose Holders must consent to an amendment,
supplement or waiver of any provision of this Indenture or the
Securities;
(2) reduce the rate or change the time for
payment of interest, including default interest, on the
Securities;
(3) reduce the principal amount of any Security
or change the Maturity Date of the Securities;
(4) reduce the redemption price, including
premium, if any, payable upon the redemption of any Security
or change the time at which any Security may be redeemed;
(5) reduce the repurchase price, including
premium, if any, payable upon the repurchase of any Security
pursuant to Sections 4.11 or 4.16, or change the time at which
any Security may or shall be repurchased thereunder;
(6) waive a Default or Event of Default in the
payment of the principal of, premium, if any, or interest on
the Securities;
(7) make any Security payable in money other than
that stated in the Security;
(8) impair the right to institute suit for the
enforcement of principal of, premium, if any, or principal on
any Security pursuant to Sections 6.07 or 6.08, except as
limited by Section 6.06; or
(9) make any change in Section 6.04 or Section
6.07 or in this sentence of this Section 9.02.
The right of any Holder to participate in any consent required
or sought pursuant to any provision of this Indenture (and the obligation of
the Company to obtain any such consent otherwise required from such Holder) may
be subject to the requirement that such Holder shall have been the Holder of
record of any Securities with respect to which such consent is required or
sought as of a date identified by the Trustee in a notice furnished to Holders
in accordance with the terms of this Indenture.
SECTION 9.03. Compliance with Trust Indenture Act.
Every amendment to or supplement of this Indenture or the
Securities shall comply with the TIA as then in effect.
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<PAGE> 52
SECTION 9.04. Revocation and Effect of Consents.
A consent to an amendment, supplement or waiver by a Holder of
a Security shall bind the Holder and every subsequent Holder of a Security or
portion of a Security that evidences the same debt as the consenting Holder's
Security, even if notation of the consent is not made on any Security.
However, until an amendment, supplement or waiver becomes effective, any such
Holder or subsequent Holder may revoke the consent as to its Security or
portion of a Security. For such revocation to be effective, the Trustee must
receive the notice of revocation before the date the amendment, supplement or
waiver becomes effective.
The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Holders entitled to consent to any
amendment or waiver. If the Company elects to fix a record date for such
purpose, the record date shall be fixed at (i) the later of 30 days prior to
the first solicitation of such consent or the date of the most recent list of
Holders furnished to the Trustee prior to such solicitation pursuant to Section
2.05, or (ii) such other date as the Company shall designate. If a record date
is fixed, then notwithstanding the provisions of the immediately preceding
paragraph, those Persons who were Holders at such record date (or their duly
designated proxies), and only those Persons, shall be entitled to consent to
such amendment or waiver or to revoke any consent previously given, whether or
not such Persons continue to be Holders after such record date. No consent
shall be valid or effective for more than 90 days after such record date unless
consent from the Holders of the principal amount of Securities required
hereunder for such amendment or waiver to be effective also shall have been
given and not revoked within such 90-day period.
After an amendment, supplement or waiver becomes effective, it
shall bind every Holder unless it makes a change described in any of clauses
(1) through (9) of Section 9.02. In that case the amendment, supplement or
waiver shall bind each Holder of a Security who has consented to it and every
subsequent Holder of a Security or portion of a Security that evidences the
same debt as the consenting Holder's Security.
SECTION 9.05. Notation on or Exchange of Senior Notes.
If an amendment, supplement or waiver changes the terms of a
Security, the Trustee may require the Holder of the Security to deliver it to
the Trustee. The Trustee may place an appropriate notation on the Security
about the changed terms and return it to the Holder. Alternatively, if the
Company or the Trustee so determines, the Company in exchange for the Security
shall issue and the Trustee shall authenticate a new Security that reflects the
changed terms.
SECTION 9.06. Trustee Protected.
The Trustee shall sign any amendment or supplement or waiver
authorized pursuant to this Article if the amendment or supplement or waiver
does not adversely affect the rights of the Trustee. If it does adversely
affect the rights of the Trustee, the Trustee may but need not sign it. In
signing such amendment or supplement or waiver the Trustee shall be entitled to
receive, and (subject to Article Seven) shall be fully protected in relying
upon, an Opinion of Counsel stating that such amendment or supplement or waiver
is authorized or permitted by and complies with this Indenture. The Company
may not sign an amendment or supplement until the Boards of Directors of the
Company and the Subsidiary Guarantors approve it.
ARTICLE TEN
GUARANTEES
SECTION 10.01. Unconditional Guarantee.
Each Subsidiary Guarantor hereby, jointly and severally, fully
and unconditionally guarantees, as principal obligor and not only as surety
(such guarantee to be referred to herein as the "Guarantee"), to each Holder
and to the Trustee the due and punctual payment of the principal of, premium,
if any, and interest on the Securities and all other amounts due and payable
under this Indenture and the Securities by the Company whether at maturity, by
acceleration, redemption, repurchase or otherwise, including, without
limitation, interest on the overdue principal of,
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<PAGE> 53
premium, if any, and interest on the Securities, to the extent lawful, all in
accordance with the terms hereof and thereof; subject, however, to the
limitations set forth in Section 10.05.
Failing payment when due of any amount so guaranteed for
whatever reason, the Subsidiary Guarantors will be jointly and severally
obligated to pay the same immediately. Each Subsidiary Guarantor hereby agrees
that its obligations hereunder shall be unconditional, irrespective of the
validity, regularity or enforceability of the Securities or this Indenture, the
absence of any action to enforce the same, any waiver or consent by any Holder
of the Securities with respect to any provisions hereof or thereof, the
recovery of any judgment against the Company, any action to enforce the same or
any other circumstance which might otherwise constitute a legal or equitable
discharge or defense of a guarantor. Each Subsidiary Guarantor hereby waives
diligence, presentment, demand of payment, filing of claims with a court in the
event of insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest, notice and all demands
whatsoever and covenants that this Guarantee will not be discharged except by
complete performance of the obligations contained in the Securities, this
Indenture and in this Guarantee. If any Holder or the Trustee is required by
any court or otherwise to return to the Company, any Subsidiary Guarantor, or
any custodian, trustee, liquidator or other similar official acting in relation
to the Company or any Subsidiary Guarantor, any amount paid by the Company or
any Subsidiary Guarantor to the Trustee or such Holder, this Guarantee, to the
extent theretofore discharged, shall be reinstated in full force and effect.
Each Subsidiary Guarantor agrees it shall not be entitled to any right of
subrogation in relation to the Holders in respect of any obligations guaranteed
hereby until payment in full of all obligations guaranteed hereby. Each
Subsidiary Guarantor further agrees that, as between each Subsidiary Guarantor,
on the one hand, and the Holders and the Trustee, on the other hand, (x) the
maturity of the obligations guaranteed hereby may be accelerated as provided in
Article Six for the purposes of this Guarantee, notwithstanding any stay,
injunction or other prohibition preventing such acceleration in respect of the
obligations guaranteed hereby, and (y) in the event of any acceleration of such
obligations as provided in Article Six, such obligations (whether or not due
and payable) shall forthwith become due and payable by each Subsidiary
Guarantor for the purpose of this Guarantee.
SECTION 10.02. Subsidiary Guarantors May Consolidate, etc., on Certain Terms.
(a) Subject to paragraph (b) of this Section 10.02, no
Subsidiary Guarantor may consolidate or merge with or into (whether or not such
Subsidiary Guarantor is the surviving entity or Person) another corporation,
entity or Person unless (i) the entity or Person formed by or surviving any
such consolidation or merger (if other than such Subsidiary Guarantor) assumes
all the obligations of such Subsidiary Guarantor pursuant to a supplemental
indenture, in a form reasonably satisfactory to the Trustee, under the
Securities and this Indenture, (ii) immediately after such transaction, no
Default or Event of Default exists, (iii) such Subsidiary Guarantor or the
entity or 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 (iv) 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 applicable Reference Period,
be permitted to incur at least $1.00 of additional Indebtedness pursuant to
Section 4.09(a). In connection with any consolidation or merger contemplated
by this Section 10.02, the Company shall deliver to the Trustee prior to the
consummation of the proposed transaction an Officers' Certificate to the
foregoing effect and an Opinion of Counsel stating that the proposed
transaction and such supplemental indenture comply with this Indenture. This
Section 10.02(a) will not prohibit a merger between Subsidiary Guarantors or a
merger between the Company and a Subsidiary Guarantor.
(b) In the event of a sale or other disposition of all or
substantially all of the assets of any Subsidiary Guarantor, by way of merger,
consolidation or otherwise, or a sale or other disposition of all of the
Capital Stock of such Subsidiary Guarantor, then such Subsidiary Guarantor (in
the event of a sale or other disposition, by way of such a merger,
consolidation or otherwise, of all of the Capital Stock of such Subsidiary
Guarantor) or the corporation acquiring the property (in the event of a sale or
other disposition of all or substantially all of the assets of such Subsidiary
Guarantor) will be released and relieved of any obligations under its
Guarantees; provided that in the event such sale or disposition constitutes an
Asset Sale, the Net Available Proceeds of such sale or other disposition are
applied in accordance with the provisions of this Indenture described under
Section 4.11.
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<PAGE> 54
SECTION 10.03. Addition of Subsidiary Guarantors.
(a) The Company agrees to cause each Subsidiary that
shall become a Restricted Subsidiary after the Issue Date to execute and
deliver a supplemental indenture pursuant to which such Restricted Subsidiary
shall guarantee the payment of the Securities pursuant to the terms hereof.
(b) Any Person that was not a Subsidiary Guarantor on the
Issue Date may become a Subsidiary Guarantor by executing and delivering to the
Trustee (i) a supplemental indenture in form and substance satisfactory to the
Trustee, which subjects such Person to the provisions (including the
representations and warranties) of this Indenture as a Subsidiary Guarantor and
(ii) an Opinion of Counsel and Officers' Certificate to the effect that such
supplemental indenture has been duly authorized and executed by such Person and
constitutes the legal, valid and binding obligation of such Person (subject to
such customary exceptions concerning creditors' rights and equitable principles
as may be acceptable to the Trustee in its discretion and provided that no
opinion need be rendered concerning the enforceability of the Guarantee).
SECTION 10.04. Release of a Subsidiary Guarantor.
Upon the sale or disposition of a Subsidiary Guarantor (or
substantially all of its assets), which is otherwise in compliance with the
terms of this Indenture, including but not limited to the provisions of Section
10.02, such Subsidiary Guarantor shall be deemed released from all of its
Guarantee and related obligations in this Indenture. The Trustee shall deliver
an appropriate instrument evidencing such release upon receipt of a request by
the Company accompanied by an Officers' Certificate and an Opinion of Counsel
certifying that such sale or other disposition was made by the Company in
accordance with the provisions of this Indenture. Any Subsidiary Guarantor not
so released remains liable for the full amount of principal of and interest on
the Securities as provided in this Article Ten.
SECTION 10.05. Limitation of Subsidiary Guarantor's Liability.
Each Subsidiary Guarantor, and by its acceptance hereof each
Holder, hereby confirms that it is the intention of all such parties that the
guarantee by such Subsidiary Guarantor pursuant to its Guarantee not constitute
a fraudulent transfer or conveyance for purposes of any federal, state or
foreign law. To effectuate the foregoing intention, the Holders and each
Subsidiary Guarantor hereby irrevocably agree that the obligations of each
Subsidiary Guarantor under the Guarantee shall be limited to the maximum amount
as will, after giving effect to all other contingent and fixed liabilities of
such Subsidiary Guarantor and after giving effect to any collections from or
payments made by or on behalf of any other Subsidiary Guarantor in respect of
the obligations of such other Subsidiary Guarantor under its Guarantee or
pursuant to Section 10.06, result in the obligations of such Subsidiary
Guarantor under the Guarantee not constituting a fraudulent conveyance or
fraudulent transfer under federal, state or foreign law. This Section 10.05 is
for the benefit of the creditors of each Subsidiary Guarantor, and, for
purposes of applicable fraudulent transfer and fraudulent conveyance law, any
Indebtedness of a Subsidiary Guarantor pursuant to a Bank Credit Facility shall
be deemed to have been incurred prior to the incurrence by such Subsidiary
Guarantor of its liability under the Guarantee.
SECTION 10.06. Contribution.
In order to provide for just and equitable contribution among
the Subsidiary Guarantors, the Subsidiary Guarantors agree, inter se, that in
the event any payment or distribution is made by any Subsidiary Guarantor (a
"Funding Guarantor") under the Guarantee, such Funding Guarantor shall be
entitled to a contribution from each other Subsidiary Guarantor in a pro rata
amount based on the Adjusted Net Assets of each Subsidiary Guarantor (including
the Funding Guarantor) for all payments, damages and expenses incurred by the
Funding Guarantor in discharging the Company's obligations with respect to the
Securities or any other Subsidiary Guarantor's obligations with respect to the
Guarantee.
SECTION 10.07. Execution and Delivery of Guarantee.
To further evidence the Guarantees set forth in Section 10.01,
each Subsidiary Guarantor hereby agrees that a notation relating to such
Guarantee, in substantially the form of Exhibit A-1, shall be endorsed on each
Security
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<PAGE> 55
authenticated and delivered by the Trustee and executed by either manual or
facsimile signature of one Officer of each Subsidiary Guarantor.
Each of the Subsidiary Guarantors hereby agrees that its
Guarantee set forth in Section 10.01 shall remain in full force and effect
notwithstanding any failure to endorse on each Security a notation relating to
such Guarantee.
If an Officer of a Subsidiary Guarantor whose signature is on
this Indenture or a Security no longer holds that office at the time the
Trustee authenticates such Security or at any time thereafter, such Subsidiary
Guarantor's Guarantee of such Security shall be valid nevertheless.
The delivery of any Security by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of any
Guarantee set forth in this Indenture on behalf of the Subsidiary Guarantor.
SECTION 10.08. Severability.
In case any provision of this Guarantee shall be invalid,
illegal or unenforceable, that portion of such provision that is not invalid,
illegal or unenforceable shall remain in effect, and the validity, legality,
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
ARTICLE ELEVEN
MISCELLANEOUS
SECTION 11.01. Trust Indenture Act Controls.
Whether prior to or following the qualification of this
Indenture under the TIA, if any provision of this Indenture limits, qualifies,
or conflicts with the duties imposed by operation of TIA Section 318(c) upon
an indenture qualified under the TIA, the imposed duties shall control under
this Indenture.
SECTION 11.02. Notices.
Any notice or communication shall be sufficiently given if in
writing and delivered in person or mailed by certified or registered mail
(return receipt requested), facsimile, telecopier or overnight air courier
guaranteeing next day delivery, addressed as follows:
If to the Company or any Subsidiary Guarantor:
Chesapeake Energy Corporation
6100 North Western Avenue
Oklahoma City, Oklahoma 73118
Attention: Chief Financial Officer
If to the Trustee:
United States Trust Company of New York
114 West 47th Street
New York, New York 10036
Attention: Corporate Trust Department
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<PAGE> 56
The Company or any Subsidiary Guarantor or the Trustee by
notice to the other may designate additional or different addresses for
subsequent notices or communications.
All notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five
Business Days after being deposited in the mail, postage prepaid, if mailed;
when receipt acknowledged, if faxed or telecopied; and the next Business Day
after timely delivery to the courier, if sent by overnight air courier
guaranteeing next day delivery.
Any notice or communication mailed to a Holder shall be mailed
by first-class mail to the address for such Holder appearing on the
registration books of the Registrar and shall be sufficiently given to such
Holder if so mailed within the time prescribed. Failure to mail a notice or
communication to a Holder or any defect in it shall not affect its sufficiency
with respect to other Holders.
If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it. If the
Company or any Subsidiary Guarantor mails notice or communications to Holders,
it shall mail a copy to the Trustee and each Agent at the same time.
SECTION 11.03. Communication by Holders with Other Holders.
Holders may communicate pursuant to TIA Section 312(b) with
other Holders with respect to their rights under this Indenture or the
Securities. The Company, the Subsidiary Guarantors, the Trustee, the Registrar
and anyone else shall have the protection of TIA Section 312(c).
SECTION 11.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company or any
Subsidiary Guarantor to the Trustee to take any action under this Indenture,
the Company or such Subsidiary Guarantor, as the case may be, shall furnish to
the Trustee:
(1) an Officers' Certificate (which shall include
the statements set forth in Section 11.05) stating that, in
the opinion of the signers, the conditions precedent, if any,
provided for in this Indenture relating to the proposed action
have been complied with; and
(2) an Opinion of Counsel stating that, in the
opinion of such counsel, such conditions precedent have been
complied with.
SECTION 11.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each person making such
certificate or opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope
of the examination or investigation upon which the statements
or opinions contained in such certificate or opinion are
based;
(3) a statement that, in the opinion of each such
person, he has made such examination or investigation as is
necessary to enable him to express an informed opinion as to
whether or not such covenant or condition has been complied
with; and
(4) a statement as to whether or not, in the
opinion of each such person, such covenant or condition has
been complied with.
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<PAGE> 57
SECTION 11.06. Rules by Trustee and Agents.
The Trustee may make reasonable rules for actions taken by, or
meetings or consents of, Holders. The Registrar or Paying Agent may make
reasonable rules for its functions.
SECTION 11.07. Legal Holidays.
A "Legal Holiday" is a Saturday, a Sunday, or a day on which
banks and trust companies in the City of New York are not required by law or
executive order to be open. If a payment date is a Legal Holiday at a place of
payment, payment may be made at the place on the next succeeding day that is
not a Legal Holiday, without additional interest.
SECTION 11.08. Governing Law.
THIS INDENTURE AND THE SECURITIES AND THE GUARANTEES SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS TO THE
EXTENT THAT THE APPLICATION OF THE LAW OF ANOTHER JURISDICTION WOULD BE
REQUIRED THEREBY.
SECTION 11.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture,
loan or debt agreement of the Company, any Subsidiary Guarantor or any other
Subsidiary. Any such indenture, loan or debt agreement may not be used to
interpret this Indenture.
SECTION 11.10. No Recourse Against Others.
All liability described in Paragraph 20 of the Securities of
any director, officer, employee or stockholder, as such, of the Company, the
Subsidiary Guarantors or the Trustee is waived and released.
SECTION 11.11. Successors.
All agreements of the Company and the Subsidiary Guarantors in
this Indenture, the Securities and the Guarantees shall bind their respective
successors. All agreements of the Trustee in this Indenture shall bind its
successor.
SECTION 11.12. Duplicate Originals.
The parties may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together represent the
same instrument.
SECTION 11.13. Severability.
In case any provision in this Indenture or in the Securities
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby, and a Holder shall have no claim therefor against any party
hereto.
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<PAGE> 58
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed as of the date first written above.
CHESAPEAKE ENERGY CORPORATION
By: /s/ AUBREY K. MCCLENDON
----------------------------------
Name: Aubrey K. McClendon
Title: Chairman and Chief
Executive Officer
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee
By: /s/ PETER C. GERRER
----------------------------------
Name: Peter C. Gerrer
Title: Vice President
<PAGE> 59
CHESAPEAKE OPERATING, INC.
By: /s/ MARCUS C. ROWLAND
----------------------------------
Name: Marcus C. Rowland
Title: Executive Vice President
SUBSIDIARY GUARANTORS
CHESAPEAKE ENERGY LOUISIANA CORPORATION
CHESAPEAKE ACQUISITION CORPORATION
CHESAPEAKE MID-CONTINENT CORP.
CHESAPEAKE GOTHIC CORP.
CHESAPEAKE MERGER CORP.
HUGOTON ENERGY CORPORATION
HUGOTON EXPLORATION CORPORATION
CHESAPEAKE CANADA CORPORATION
HEC TRADING COMPANY
AMGAS CORPORATION
TIFFANY GATHERING, INC.
For each of the above:
By: /s/ MARCUS C. ROWLAND
-----------------------------------
Name: Marcus C. Rowland
Title: Vice President
CHESAPEAKE EXPLORATION LIMITED
PARTNERSHIP CHESAPEAKE LOUISIANA, L.P.
For each of the above:
By: Chesapeake Operating, Inc.,
General Partner
By: /s/ MARCUS C. ROWLAND
-----------------------------
Name: Marcus C. Rowland
Title: Executive Vice
President
<PAGE> 60
ANSON GAS MARKETING, an Oklahoma General
Partnership
MID-CONTINENT GAS PIPELINE COMPANY
For each of the above:
By: Chesapeake Mid-Continent Corp.,
General Partner
By: /s/ MARCUS C. ROWLAND
------------------------------
Name: Marcus C. Rowland
Title: Vice President
<PAGE> 61
EXHIBIT A
[FACE OF SECURITY]
[THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY
OR A NOMINEE OR A DEPOSITARY OR A SUCCESSOR DEPOSITARY. THIS SECURITY IS NOT
EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITARY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS
SECURITY AS A WHOLE BY THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.](1)
[THIS SECURITY (OR ITS PREDECESSOR) AND ANY GUARANTEE THEREOF HAVE NOT
BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE NEXT SENTENCE. BY ITS
ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER:
(1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"),
(2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER
THIS SECURITY EXCEPT (A) TO A PERSON WHOM THE SELLER REASONABLY
BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF
A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (B) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES
ACT, (C) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY), (D) TO THE COMPANY OR ANY OF ITS
SUBSIDIARIES, OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION
AND
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM
THIS SECURITY OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO
REGISTER ANY TRANSFER OF THIS SECURITY IN VIOLATION OF THE FOREGOING.](2)
____________________________
(1) This paragraph should be included in any Global Security.
(2) This paragraph shall be included only if this Security is a
Restricted Security.
A-1
<PAGE> 62
CHESAPEAKE ENERGY CORPORATION
9 5/8% SERIES [A/B] SENIOR NOTE DUE 2005
No. $_________
CUSIP No.165167AP2
Chesapeake Energy Corporation, an Oklahoma corporation, promises to
pay to _______________________ or registered assigns the principal sum of
_________________ Dollars on April _______, 2005
Interest Payment Dates: May 1 and November 1, commencing November 1,
1998
Record Dates: April 15 and October 15
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officers and a facsimile of its
corporate seal to be affixed hereto or imprinted hereon.
Dated:
[Corporate Seal] CHESAPEAKE ENERGY CORPORATION
By:
---------------------------
By:
---------------------------
Trustee's Certificate of Authentication:
UNITED STATES TRUST COMPANY OF NEW YORK
as Trustee, certifies that this is one of the [Global]3
Securities referred to in the within-mentioned Indenture.
By
-----------------------------
Authorized Signatory
____________________________
(3) If the Security is issued in global form, the term Global
replaces the term Definitive.
A-2
<PAGE> 63
[REVERSE OF SECURITY]
CHESAPEAKE ENERGY CORPORATION
9 5/8% SERIES [A/B] SENIOR NOTE DUE 2005
1. Interest. Chesapeake Energy Corporation, an Oklahoma
corporation (the "Company"), promises to pay interest on the principal amount
of this Security at 9 5/8% per annum from the Issue Date until maturity. The
Company will pay interest semiannually on May 1 and November 1 of each year
(each an "Interest Payment Date"), or if any such day is not a Business Day, on
the next succeeding Business Day. Interest on the Securities will accrue from
the most recent Interest Payment Date on which interest has been paid or, if no
interest has been paid, from the Issue Date; provided, that if there is no
existing Default in the payment of interest, and if this Security is
authenticated between a record date referred to on the face hereof and the next
succeeding Interest Payment Date, interest shall accrue from such next
succeeding Interest Payment Date; provided, further, that the first Interest
Payment Date shall be November 1, 1998. The Company shall pay interest on
overdue principal and premium, if any, from time to time on demand at a rate
equal to the interest rate on the Securities then in effect; it shall pay
interest on overdue installments of interest (without regard to any applicable
grace periods) from time to time on demand at the same rate to the extent
lawful. Interest will be computed on the basis of a 360-day year of twelve
30-day months. All references herein to interest shall include additional
interest, if any, payable as liquidated damages pursuant to the Registration
Rights Agreement.
2. Method of Payment. The Company will pay interest on
the Securities to the persons who are registered holders of Securities at the
close of business on the record date immediately preceding the Interest Payment
Date, even if such Securities are canceled after the record date and on or
before the Interest Payment Date. Holders must surrender Securities to the
Paying Agent to collect principal payments. The Company will pay principal of,
premium, if any, and interest on the Securities in money of the United States
of America that at the time of payment is legal tender for payment of public
and private debts. However, the Company may pay such amounts by check payable
in such money. It may mail an interest check to a Holder's registered address.
Notwithstanding the foregoing, the Company shall pay or cause to be paid all
amounts payable with respect to Restricted Securities or non-DTC eligible
Securities by wire transfer of Federal funds to the account specified by the
Holders of such Securities or, if no such account is specified, by check to
each such Holder's address. If this Security is a Global Security, all
payments in respect of this Security will be made to the Depositary or its
nominee by wire transfer of immediately available funds to the account(s)
specified by the Depositary or its nominee and in accordance with customary
procedures established from time to time by the Depositary.
3. Paying Agent and Registrar. Initially, the Trustee
will act as Paying Agent and Registrar. The Company may change any Paying
Agent, Registrar or co-registrar without notice. The Company or any of its
Subsidiaries may act as Paying Agent or Registrar.
4. Indenture. The Company issued the Securities under
an Indenture, dated as of April 1, 1998 (the "Indenture"), among the Company,
the Subsidiary Guarantors and the Trustee. Capitalized terms herein are used
as defined in the Indenture unless otherwise defined herein. The terms of the
Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code
Sections 77aaa-77bbbb) as in effect on the date of the Indenture.
Notwithstanding anything to the contrary herein, the Securities are subject to
all such terms, and Holders are referred to the Indenture and such Act for a
complete statement of such terms. The Securities are limited to $500,000,000
aggregate principal amount.
5. Ranking and Guarantees. The Securities are general
senior unsecured obligations of the Company. The Company's obligation to pay
principal, premium, if any, and interest with respect to the Securities is
unconditionally guaranteed on a senior basis, jointly and severally, by the
Subsidiary Guarantors pursuant to Article Ten of the Indenture. Certain
limitations to the obligations of the Subsidiary Guarantors are set forth in
further detail in the Indenture.
A-3
<PAGE> 64
6. Optional Redemption. At any time on or after May 1,
2002, the Company may, at its option, redeem all or any portion of the
Securities at the redemption prices (expressed as a percentage of the principal
amount of the Securities to be redeemed) set forth below, plus, in each case,
accrued and unpaid interest thereon to the applicable redemption date, if
redeemed during the 12-month period beginning May 1 of the years indicated
below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2002 . . . . . . . . . . . . . . 104.813 %
2003 . . . . . . . . . . . . . . 102.406 %
2004 and thereafter . . . . . . . 100.000 %
</TABLE>
Any redemption pursuant to this Paragraph 6 shall be made pursuant to the
provisions of Sections 3.01 through 3.06 of the Indenture.
7. Equity Offering Redemption. In the event the Company
consummates one or more Equity Offerings on or prior to May 1, 2001, the
Company may, in its sole discretion, redeem up to $167,000,000 of the aggregate
principal amount of the Securities with all or a portion of the aggregate net
proceeds received by the Company from any such Equity Offering or Equity
Offerings at a redemption price of 109.625% of the aggregate principal amount
of Securities so redeemed, plus accrued and unpaid interest on the Securities
so redeemed to the redemption date; provided, however, that (i) the date of any
such redemption occurs within the 90-day period after the Equity Offering in
respect of which such redemption is made and (ii) following each such
redemption, at least $333,000,000 of the aggregate principal amount of the
Securities remains outstanding. Any redemption pursuant to this Paragraph 7
shall be made pursuant to the provisions of Sections 3.01 through 3.06 of the
Indenture.
8. Redemption at Make-Whole Price. At any time prior to
May 1, 2002, the Company may, at its option, redeem all or any portion of the
Securities at the Make-Whole Price plus accrued and unpaid interest on the
Securities so redeemed to the date of redemption. Any redemption pursuant to
this Paragraph 8 shall be made pursuant to the provisions of Sections 3.01
through 3.06 of the Indenture.
9. Notice of Redemption. Notice of redemption will be
mailed to the Holder's registered address at least 30 days but not more than 60
days before the redemption date to each Holder of Securities to be redeemed.
If less than all Securities are to be redeemed, the Trustee shall select pro
rata, by lot or, if the Securities are listed on any securities exchange, by
any other method that the Trustee considers fair and appropriate and that
complies with the requirements of such exchange, the Securities to be redeemed
in multiples of $1,000; provided, however, that no Securities with a principal
amount of $1,000 or less will be redeemed in part. Securities in denominations
larger than $1,000 may be redeemed in part. On and after the redemption date,
interest ceases to accrue on Securities or portions of them called for
redemption (unless the Company shall default in the payment of the redemption
price or accrued interest).
10. Change of Control Offer. In the event of a Change of
Control of the Company, the Company shall be required to make an offer to
purchase all or any portion of each Holder's Securities, at 101% of the
principal amount thereof, plus accrued and unpaid interest to the date of
purchase.
11. Net Proceeds Offer. In the event of certain Asset
Sales (and Sale/Leaseback Transactions), the Company may be required to make a
Net Proceeds Offer to purchase all or any portion of each Holder's Securities,
at 100% of the principal amount thereof, plus accrued and unpaid interest to
the Net Proceeds Payment Date.
12. Restrictive Covenants. The Indenture imposes certain
limitations on, among other things, the ability of the Company to merge or
consolidate with any other Person or sell, lease or otherwise transfer all or
substantially all of its properties or assets, the ability of the Company or
the Restricted Subsidiaries to dispose of assets, to pay dividends and make
certain other distributions and payments, to make certain investments or
redeem, retire, repurchase or acquire for value shares of Capital Stock, to
incur additional Indebtedness or incur encumbrances against
A-4
<PAGE> 65
certain property and to enter into certain transactions with Affiliates, all
subject to certain limitations described in the Indenture.
13. Denominations, Transfer, Exchange. The Securities
shall be issued in global form or in accordance with Section 2.06(f) of the
Indenture, in definitive registered form, without coupons in denominations of
$1,000 and whole multiples of $1,000. A Holder may transfer or exchange
Securities in accordance with the Indenture. The Registrar may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture. The Registrar need not transfer or exchange any Securities selected
for redemption. Also, it need not transfer or exchange any Securities for a
period of 15 days before a selection of Securities to be redeemed.
14. Persons Deemed Owners. The registered Holder of a
Security may be treated as the owner of it for all purposes and neither the
Company, any Subsidiary Guarantor, the Trustee nor any Agent shall be affected
by notice to the contrary.
15. Unclaimed Money. If money for the payment of principal
or interest remains unclaimed for one year, the Trustee or Paying Agent will
pay the money back to the Company at its request. After that, all liability of
the Trustee and such Paying Agent with respect to such money shall cease.
16. Amendment, Supplement, Waiver. Subject to certain
exceptions, the Indenture or the Securities may be amended or supplemented with
the consent of the Holders of at least a majority of the outstanding principal
amount of the Securities, and any past default or noncompliance with any
provision may be waived with the consent of the Holders of a majority in
principal amount of the Securities. Without the consent of any Holder, the
Company may amend or supplement the Indenture or the Securities to, among other
things, cure any ambiguity, defect or inconsistency or to make any change that
does not adversely affect the rights of any Holder.
17. Successor Corporation. When a successor corporation
assumes all the obligations of its predecessor under the Securities and the
Indenture, the predecessor corporation will be released from those obligations.
18. Defaults and Remedies. An Event of Default generally
is: default by the Company or any Subsidiary Guarantor for 30 days in payment
of interest on the Securities; default by the Company or any Subsidiary
Guarantor in payment of principal of, or premium, if any, on the Securities;
failure by the Company to make any offer to purchase; default by the Company or
any Subsidiary Guarantor in the deposit of any optional redemption payment when
due and payable; defaults resulting in acceleration prior to maturity of
certain other Indebtedness or resulting from payment defaults under certain
other Indebtedness; failure by the Company or any Subsidiary Guarantor for 45
days after notice to comply with any of its other agreements in the Indenture;
certain final judgments against the Company or Subsidiaries; a failure of any
Guarantee of a Subsidiary Guarantor to be in full force and effect or denial by
any Subsidiary Guarantor of its obligations with respect thereto; and certain
events of bankruptcy or insolvency. Subject to certain limitations in the
Indenture, if an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Securities
may declare all the Securities to be due and payable immediately, except that
in the case of an Event of Default arising from certain events of bankruptcy,
insolvency or reorganization relating to the Company, all outstanding
Securities shall become due and payable immediately without further action or
notice. Holders may not enforce the Indenture or the Securities except as
provided in the Indenture. The Trustee may require indemnity satisfactory to
it before it enforces the Indenture or the Securities. Subject to certain
limitations, Holders of a majority in principal amount of the Securities may
direct the Trustee in its exercise of any trust or power. The Company must
furnish an annual compliance certificate to the Trustee.
19. Trustee Dealings with Company and Subsidiary
Guarantors. The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with the Company, the Subsidiary Guarantors or their respective Subsidiaries or
Affiliates with the same rights it would have if it were not Trustee.
A-5
<PAGE> 66
20. No Recourse Against Others. A director, officer,
employee or stockholder, as such, of the Company, any Subsidiary Guarantor or
the Trustee shall not have any liability for any obligations of the Company,
any Subsidiary Guarantor or the Trustee under the Securities or the Indenture
or for any claim based on, in respect of or by reason of, such obligations or
their creation. Each Holder by accepting a Security waives and releases all
such liability. The waiver and release are part of the consideration for the
issue of the Security.
21. Authentication. This Security shall not be valid until
the Trustee or an authenticating agent signs the certificate of authentication
on the other side of this Security.
22. Abbreviations. Customary abbreviations may be used in
the name of a Holder or an assignee, such as: TEN COM (=tenants in common), TEN
ENT (=tenants by the entireties), JT TEN (=joint tenants with right of
survivorship and not as tenants in common), CUST (=Custodian), and U/G/M/A
(=Uniform Gifts to Minors Act).
23. CUSIP Numbers. Pursuant to a recommendation
promulgated by the Committee on Uniform Security Identification Procedures, the
Company will cause CUSIP numbers to be printed on the Securities as a
convenience to Holders of the Securities. No representation is made as to the
accuracy of such numbers as printed on the Securities and reliance may be
placed only on the other identification numbers printed hereon.
The Company will furnish to any Holder upon written request
and without charge a copy of the Indenture. Requests may be made to:
Chesapeake Energy Corporation, 6100 North Western Avenue, Oklahoma City,
Oklahoma 73118, Attention: Chief Financial Officer.
A-6
<PAGE> 67
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to:
- -------------------------------------------------------------------------------
(Insert assignee's social security or tax I.D. no.)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint __________ as agent to transfer this Security on the
books of the Company. The agent may substitute another to act for him.
- -------------------------------------------------------------------------------
Your Signature:
--------------------------------------------------------------
(Sign exactly as your name appears on the other side of this Security)
Date:
---------------
Signature Guarantee:
--------------------
A-7
<PAGE> 68
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.11 or Section 4.16 of the Indenture, check the
appropriate box:
Section 4.11 [ ] Section 4.16 [ ]
If you want to have only part of this Security purchased by the
Company pursuant to Section 4.11 or Section 4.16 of the Indenture, state the
amount in integral multiples of $1,000:
$
----------------
Date: Signature:
--------------------- --------------------------
(Sign exactly as your name
appears on the other side
of this Security)
Signature Guarantee:
-----------------------------------------------------------
A-8
<PAGE> 69
EXHIBIT A-1
FORM OF NOTATION ON SECURITY
RELATING TO GUARANTEE
Each Subsidiary Guarantor (as defined in the Indenture), jointly and
severally, has unconditionally guaranteed, as principal obligor and not only as
a surety, to the Holder of this Security the due and punctual payment in United
States dollars of the principal of, premium, if any, and interest (including
liquidated damages, if any, payable pursuant to the Registration Rights
Agreement) on the Securities, and all other amounts due and payable under the
Indenture and the Securities by the Company, whether at maturity, by
acceleration, redemption, repurchase or otherwise, including, without
limitation, the due and punctual payment of interest on the overdue principal
of, premium, if any, and interest on the Securities, to the extent lawful, all
in accordance with the terms of Article Ten of the Indenture. Capitalized
terms used herein but not defined shall have the meanings ascribed to them in
the Indenture, dated as of April 1, 1998 (the "Indenture") among Chesapeake
Energy Corporation, an Oklahoma corporation, the Subsidiary Guarantors named
therein and United States Trust Company of New York, as trustee (the
"Trustee"), or in the Securities of which this Guarantee is a part.
The obligations of the Subsidiary Guarantors pursuant to the Guarantee
are subject to the terms and limitations set forth in Article Ten of the
Indenture, and reference is made thereto for the precise terms of the
Guarantee.
CHESAPEAKE OPERATING, INC.
By:
--------------------------------------
Name: Marcus C. Rowland
Title: Executive Vice President
CHESAPEAKE ENERGY LOUISIANA CORPORATION
CHESAPEAKE ACQUISITION CORPORATION
CHESAPEAKE MID-CONTINENT CORP.
CHESAPEAKE GOTHIC CORP.
CHESAPEAKE MERGER CORP.
HUGOTON ENERGY CORPORATION
HUGOTON EXPLORATION CORPORATION
CHESAPEAKE CANADA CORPORATION
HEC TRADING COMPANY
AMGAS CORPORATION
TIFFANY GATHERING, INC.
For each of the above:
By:
--------------------------------------
Name: Marcus C. Rowland
Title: Vice President
A-1-1
<PAGE> 70
CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP
CHESAPEAKE LOUISIANA, L.P.
For each of the above:
By: Chesapeake Operating, Inc., General
Partner
By:
---------------------------------------
Name: Marcus C. Rowland
Title: Executive Vice President
ANSON GAS MARKETING, an Oklahoma General
Partnership MID-CONTINENT GAS PIPELINE
COMPANY
For each of the above:
By: Chesapeake Mid-Continent Corp.,
General Partner
By:
-------------------------------------
Name: Marcus C. Rowland
Title: Vice President
A-1-2
<PAGE> 71
EXHIBIT B
FORM OF CERTIFICATION FOR TRANSFER OR EXCHANGE OF NON-GLOBAL
RESTRICTED SECURITY TO RESTRICTED GLOBAL SECURITY
United States Trust Company of New York,
as Trustee
114 West 47th Street
New York, New York 10036
Attention: Corporate Trust Administration
Re: Chesapeake Energy Corporation
9 5/8% Senior Notes due 2005 (the "Securities")
Reference is hereby made to the Indenture, dated as of April 1, 1998
(the "Indenture"), among Chesapeake Energy Corporation, as Issuer, the
Subsidiary Guarantors and United States Trust Company of New York, as Trustee.
Capitalized terms used but not defined herein shall have the meanings given to
them in the Indenture.
This letter relates to $____________ principal amount of Restricted
Securities held in definitive form (CUSIP No. 165167AP2) by [insert name of
transferor] (the "Transferor"). The Transferor has requested an exchange or
transfer of such Securities.
In connection with such request and in respect of such Securities, the
Transferor does hereby certify that (i) such Securities are owned by the
Transferor and are being exchanged without transfer or (ii) such transfer has
been effected pursuant to and in accordance with Rule 144A or Rule 144 under
the United States Securities Act of 1933, as amended (the "Securities Act") and
accordingly the Transferor does hereby further certify that:
(1) if the transfer has been effected pursuant to Rule
144A:
(A) the Securities are being transferred to a
person that the Transferor reasonably believes is purchasing
the Securities for its own account, or for one or more
accounts with respect to which such Person exercises sole
investment discretion;
(B) such Person and each such account is a
"qualified institutional buyer" within the meaning of Rule
144A; and
(C) the Securities have been transferred in a
transaction meeting the requirements of Rule 144A and in
accordance with any applicable securities laws of any state of
the United States; or
(2) if the transfer has been effected pursuant to Rule
144:
(A) more than one year (or such shorter period as
set forth in Rule 144(d) or any amendment thereto) has elapsed
since the date of the closing of the initial placement of the
Securities pursuant to the Purchase Agreement; and
(B) the Securities have been transferred in a
transaction permitted by Rule 144 and made in accordance with
any applicable securities laws of any state of the United
States.
We understand that this certificate is required in connection with
certain securities laws of the United States. In connection therewith, if
administrative or legal proceedings are commenced or threatened in connection
with which this certificate is or would be relevant, we irrevocably authorize
you to produce this certificate to any interested party
B-1
<PAGE> 72
in such proceeding. This certificate and the statements contained herein are
made for your benefit and the benefit of the Issuer and the Initial Purchasers.
Dated:
-----------------
[Insert Name of Transferor]
By:
-------------------------------------
Name:
Title:
CC: Chesapeake Energy Corporation
B-2
<PAGE> 73
EXHIBIT C
OFFICERS' CERTIFICATE OF NON-DEFAULT
CHESAPEAKE ENERGY CORPORATION
This Officers' Certificate is provided pursuant to Section 4.03(a) of the
Indenture dated April 1, 1998 among Chesapeake Energy Corporation (the
"Company"), the Subsidiary Guarantors named therein and United States Trust
Company of New York, as Trustee (the "Indenture").
A review of the activities of the Company and the Subsidiaries during the
preceding fiscal year ended December 31, _________ has been made under the
supervision of the Officers signing below with a view to determining whether
the Company has kept, observed, performed and fulfilled its obligations under
the Indenture. In addition, each such Officer signing this certificate states
that, to the best of such Officer's knowledge, the Company and each Subsidiary
Guarantor has kept, observed, performed and fulfilled each and every covenant
contained in the Indenture and is not in default in the performance or
observance of any of the terms, provisions and conditions of the Indenture.
After reasonable inquiry, to the best of each such Officer's knowledge, no
event has occurred and remains in existence by reason of which payments on
account of the principal of, premium, if any, or interest, if any, on the
Securities are prohibited. This Officers' Certificate is intended to comply
with TIA 314(a)(4).
Additionally, each Officer signing below has read each covenant or condition
set forth in the Indenture and has made such examination or investigation as is
necessary, in the opinion of each such Officer, to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with, which examination or investigation was conducted in the course
of the Officers' routine operational management of the Company. In the opinion
of each such Officer, each such covenant or condition has been complied with.
EXECUTED THIS __________ day of ______________________, _________.
CHESAPEAKE ENERGY CORPORATION,
a Delaware corporation
*By:
------------------------------------
------------------------------------
By:
------------------------------------
------------------------------------
- -----------------
* This certificate must be signed by the principal executive, financial or
accounting officer (as well as one other Officer).
C-1
<PAGE> 1
EXHIBIT 4.11
================================================================================
7% CUMULATIVE CONVERTIBLE
PREFERRED STOCK
REGISTRATION RIGHTS AGREEMENT
Dated as of April 22, 1998
by and among
CHESAPEAKE ENERGY CORPORATION
AND
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MORGAN STANLEY & CO. INCORPORATED
BEAR, STEARNS & CO. INC.
LEHMAN BROTHERS INC.
J.P. MORGAN SECURITIES INC.
================================================================================
<PAGE> 2
This 7% Cumulative Convertible Preferred Stock Registration Rights
Agreement (this "AGREEMENT") is made and entered into as of April 22, 1998 by
and among Chesapeake Energy Corporation, an Oklahoma corporation (the
"COMPANY"), and Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"),
Morgan Stanley & Co. Incorporated, Bear, Stearns & Co. Inc., Lehman Brothers
Inc. and J.P. Morgan Securities Inc. (each an "INITIAL PURCHASER" and,
collectively, the "INITIAL PURCHASERS"), each of whom has agreed to purchase
shares of the Company's 7% Cumulative Convertible Preferred Stock (the
"SHARES") pursuant to the Purchase Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated
April 17, 1998 (the "PURCHASE AGREEMENT"), by and among the Company and the
Initial Purchasers. In order to induce the Initial Purchasers to purchase the
Shares, the Company has agreed to provide the registration rights set forth in
this Agreement. The execution and delivery of this Agreement is a condition to
the obligations of the Initial Purchasers set forth in Section 2 of the
Purchase Agreement. Capitalized terms used herein but not defined have the
respective meanings set forth in the Certificate of Designation for the 7%
Cumulative Convertible Preferred Stock (the "CERTIFICATE OF DESIGNATION") and
the Purchase Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
ACT: The Securities Act of 1933, as
amended.
AFFILIATE: As defined in Rule 144 of the Act.
BUSINESS DAY: Any day on which the New York Stock
Exchange is open for trading and which is not a legal United States holiday.
CERTIFICATED SECURITIES: Definitive certificates of Shares.
CLOSING DATE: The date hereof.
COMMON STOCK: Common Stock, $.01 par value per
share, of the Company.
COMMISSION: The Securities and Exchange
Commission.
EFFECTIVENESS DEADLINE: As defined in Section 3(a) hereof.
EXCHANGE ACT: The Securities Exchange Act of 1934,
as amended.
EXEMPT RESALES: The transactions in which the Initial
Purchasers propose to sell the Shares to certain "qualified institutional
buyers," as such term is defined in Rule 144A under the Act.
FILING DEADLINE: As defined in Section 3(a) hereof.
HOLDERS: As defined in Section 2 hereof.
PERSON: Any individual, corporation,
partnership, joint venture, trust, estate, unincorporated organization or
government or any agency or political subdivision thereof.
PROSPECTUS: The prospectus included in a
Registration Statement at the time such Registration Statement is declared
effective, as amended or supplemented by any prospectus supplement and by all
other amendments thereto, including post-effective amendments, all material
incorporated by reference into such Prospectus and any information previously
omitted in reliance upon Rule 430A of the Act.
-2-
<PAGE> 3
RECOMMENCEMENT DATE: As defined in Section 5(b) hereof.
REGISTRATION DEFAULT: As defined in Section 4 hereof.
RULE 144: Rule 144 promulgated under the Act.
SHARES: The 4,600,000 shares of 7% Cumulative
Convertible Preferred Stock of the Company being issued pursuant to the
Purchase Agreement.
SHELF REGISTRATION STATEMENT: As defined in Section 3 hereof.
SUSPENSION NOTICE: As defined in Section 5(b) hereof.
TRANSFER RESTRICTED SECURITIES: The Shares and the shares of Common
Stock issuable upon conversion or redemption of the Shares, upon original
issuance thereof and at all times subsequent thereto, until, in the case of any
such Shares or shares of Common Stock, (a) the date on which such Shares or
shares of Common Stock have been disposed of in accordance with the Shelf
Registration Statement, (b) the date on which such Shares or shares of Common
Stock are distributed to the public pursuant to Rule 144 or are saleable
pursuant to Rule 144 (or similar provisions then in effect) under the Act or
(c) the date on which such Shares or shares of Common Stock cease to be
outstanding.
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities
(each, a "HOLDER") whenever such Person owns Transfer Restricted Securities.
SECTION 3. SHELF REGISTRATION
(a) Shelf Registration. As soon as practicable after the Closing
Date but in no event later than 60 days after the Closing Date (such 60th day,
the "FILING DEADLINE"), the Company shall file with the Commission a shelf
registration statement pursuant to Rule 415 under the Act (the "SHELF
REGISTRATION STATEMENT"), relating to all Transfer Restricted Securities, and
shall use its best efforts to cause such Shelf Registration Statement to become
effective on or prior to 180 days after the Closing Date (such 180th day, the
"EFFECTIVENESS DEADLINE").
The Company shall use its best efforts to keep the Shelf Registration
Statement required by this Section 3(a) continuously effective, supplemented
and amended as required by and subject to the provisions of Section 5(a) hereof
to the extent necessary to ensure that it is available for sales of Transfer
Restricted Securities by the Holders thereof entitled to the benefit of this
Section 3(a), and to ensure that it conforms with the requirements of this
Agreement, the Act and the policies, rules and regulations of the Commission as
announced from time to time, for the shorter of (i) two years (as extended
pursuant to Section 5(b)) following the Closing Date or (ii) the date on which
all Transfer Restricted Securities covered by such Shelf Registration Statement
have been sold pursuant thereto.
(b) Provision by Holders of Certain Information in Connection with
the Shelf Registration Statement. No Holder of Transfer Restricted Securities
may include any of its Transfer Restricted Securities in the Shelf Registration
Statement pursuant to this Agreement unless such Holder furnishes to the
Company in writing, within 20 days after receipt of a request therefor, the
information specified in Item 507 or 508 of Regulation S-K, as applicable, of
the Act for use in connection with the Shelf Registration Statement or
Prospectus or preliminary Prospectus included therein. No Holder of Transfer
Restricted Securities shall be entitled to liquidated damages pursuant to
Section 4 hereof unless such Holder shall have timely provided all such
information. Each selling Holder agrees to promptly furnish additional
information required to be disclosed in order to make the information
previously furnished to the Company by such Holder not materially misleading.
SECTION 4. LIQUIDATED DAMAGES
If the Shelf Registration Statement (i) is not filed with the
Commission on or prior to the Filing Deadline, (ii) has not been declared
effective by the Commission on or prior to the Effectiveness Deadline, or (iii)
is filed and declared effective but shall thereafter cease to be effective or
fail to be usable for its intended purpose (other than as a result of
-3-
<PAGE> 4
a Suspension Notice) without being succeeded (a) within five Business Days by a
post-effective amendment to such Shelf Registration Statement or a supplement
to the Prospectus under Rule 424 of the Act or that cures such failure and that
is itself declared effective within ten days of filing such post-effective
amendment to the Shelf Registration Statement or (b) within 20 days by the
filing of an Exchange Act report incorporated by reference in such Shelf
Registration Statement that cures such failure (each such event referred to in
clauses (i) through (iii), a "REGISTRATION DEFAULT"), then the Company hereby
agrees to pay to each Holder of Transfer Restricted Securities affected thereby
liquidated damages in an amount equal to one-half of one percent (0.5%) per
annum of the liquidation preference amount of the Transfer Restricted
Securities held by such holder during the first 90-day period immediately
following the occurrence of the first such Registration Default, increasing by
an additional one-half of one percent (0.5%) per annum of the liquidation
preference amount of such Transfer Restricted Securities during each subsequent
90-day period, up to a maximum amount of liquidated damages equal to two
percent (2.0%) per annum of the liquidation preference of such Transfer
Restricted Securities, which provision for liquidated damages will continue
until such Registration Default has been cured; provided that the Company shall
in no event be required to pay liquidated damages for more than one
Registration Default at any given time. Notwithstanding anything to the
contrary set forth herein, (1) upon filing of the Shelf Registration Statement,
in the case of (i) above, (2) upon the effectiveness of the Shelf Registration
Statement, in the case of (ii) above, or (3) upon the filing of a (a)
post-effective amendment to the Shelf Registration Statement or a Prospectus
supplement or (b) an Exchange Act report that causes the Shelf Registration
Statement to again be declared effective or made usable, in the case of (iii)
above, the liquidated damages payable with respect to the Transfer Restricted
Securities as a result of such clause (i), (ii) or (iii), as applicable, shall
cease.
All accrued liquidated damages shall be paid to the Holders entitled
thereto, in the manner provided for the payment of dividends, on each Dividend
Payment Date as more fully set forth in the Certificate of Designation.
Notwithstanding the fact that any Shares and/or shares of Common Stock for
which liquidated damages are due cease to be Transfer Restricted Securities,
all obligations of the Company to pay liquidated damages with respect to any
such Shares and/or shares of Common Stock shall survive until such time as all
such obligations shall have been satisfied in full.
SECTION 5. SHELF REGISTRATION PROCEDURES
(a) Procedures. In connection with the Shelf Registration
Statement, the Company shall:
(i) use its best efforts to effect such registration to permit
the sale of the Transfer Restricted Securities being sold in
accordance with the intended method or methods of distribution
thereof (as indicated in the information furnished to the
Company pursuant to Section 3(b) hereof), and pursuant thereto
the Company will prepare and file with the Commission a Shelf
Registration Statement relating to the registration on any
appropriate form under the Act, which form shall be available
for the sale of the Transfer Restricted Securities in accordance
with the intended method or methods of distribution thereof
(including, without limitation, one or more underwritten
offerings) within the time periods and otherwise in accordance
with the provisions hereof. The Company shall not be permitted
to include in the Shelf Registration Statement any securities
other than the Transfer Restricted Securities;
(ii) use its best efforts to contact all Holders of Transfer
Restricted Securities and notify each Holder of its right to
include its Transfer Restricted Securities in such Shelf
Registration Statement;
(iii) use its best efforts to keep such Shelf Registration
Statement continuously effective and provide all requisite
financial statements for the period specified in Section 3 of
this Agreement. Upon the occurrence of any event that would
cause any such Shelf Registration Statement or the Prospectus
contained therein (i) to contain an untrue statement of a
material fact or omit to state any material fact necessary to
make the statements therein not misleading or (ii) not to be
effective and usable for resale of Transfer Restricted
Securities during the period required by this Agreement, the
Company shall file promptly (A) an appropriate amendment to such
Shelf Registration Statement curing such defect, and, if
Commission review is required, use its best efforts to cause
such amendment to be declared effective as soon as practicable,
(B) a supplement pursuant to Rule 424 under the Act curing such
defect or (C) an Exchange Act report incorporated by reference
curing such defect;
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(iv) prepare and file with the Commission such amendments and
post-effective amendments to the Shelf Registration Statement as
may be necessary to keep such Shelf Registration Statement
effective for the applicable period set forth in Section 3
hereof, cause the Prospectus to be supplemented by any required
Prospectus supplement, and as so supplemented to be filed
pursuant to Rule 424 under the Act, and to comply fully with
Rules 424, 430A and 462, as applicable, under the Act in a
timely manner; and comply with the provisions of the Act with
respect to the disposition of all Transfer Restricted Securities
covered by such Shelf Registration Statement during the
applicable period in accordance with the intended method or
methods of distribution by the sellers thereof set forth in such
Shelf Registration Statement or supplement to the Prospectus;
(v) advise the Holders and underwriters, if any, promptly and,
if requested by such Persons, confirm such advice in writing,
(A) when the Shelf Registration Statement or any Prospectus
supplement or post- effective amendment has been filed, and,
with respect to the Shelf Registration Statement or any post-
effective amendment thereto, when the same has become effective,
(B) of any request by the Commission for amendments to the Shelf
Registration Statement or amendments or supplements to the
Prospectus or for additional information relating thereto, (C)
of the issuance by the Commission of any stop order suspending
the effectiveness of the Shelf Registration Statement under the
Act or of the suspension by any state securities commission of
the qualification of the Transfer Restricted Securities for
offering or sale in any jurisdiction, or the initiation of any
proceeding for any of the preceding purposes, (D) of the
existence of any fact or the happening of any event that makes
any statement of a material fact made in the Shelf Registration
Statement, the Prospectus, any amendment or supplement thereto
or any document incorporated by reference therein untrue, or
that requires the making of any additions to or changes in the
Shelf Registration Statement in order to make the statements
therein not misleading, or that requires the making of any
additions to or changes in the Prospectus in order to make the
statements therein, in the light of the circumstances under
which they were made, not misleading. If at any time the
Commission shall issue any stop order suspending the
effectiveness of the Shelf Registration Statement, or any state
securities commission or other regulatory authority shall issue
an order suspending the qualification or exemption from
qualification of the Transfer Restricted Securities under state
securities or Blue Sky laws, the Company shall use its best
efforts to obtain the withdrawal or lifting of such order at the
earliest possible time;
(vi) subject to Section 5(a)(iii), if any fact or event
contemplated by Section 5(a)(v)(D) above shall exist or have
occurred, prepare a post-effective amendment or supplement to
the Shelf Registration Statement or related Prospectus or any
document incorporated therein by reference or file any other
required document so that, as thereafter delivered to the
purchasers of Transfer Restricted Securities, the Prospectus
will not contain an untrue statement of a material fact or omit
to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were
made, not misleading;
(vii) upon the request of counsel for the Holders and
underwriters, if any, furnish to such counsel before filing with
the Commission, copies of any Shelf Registration Statement or
any Prospectus included therein or any amendments or supplements
to any such Shelf Registration Statement or Prospectus
(including all documents incorporated by reference after the
initial filing of such Shelf Registration Statement), which
documents will be subject to the review and comment of such
counsel in connection with such sale, if any, for a period of at
least five Business Days, and the Company will not file any such
Shelf Registration Statement or Prospectus or any amendment or
supplement to any such Shelf Registration Statement or
Prospectus (including all such documents incorporated by
reference) to which such Persons shall reasonably object within
five Business Days after the receipt thereof. Any such Person
shall be deemed to have reasonably objected to such filing if
such Registration Statement, amendment, Prospectus or
supplement, as applicable, as proposed to be filed, contains an
untrue statement of a material fact or omits to state any
material fact necessary to make the statements therein not
misleading or fails to comply with the applicable requirements
of the Act;
(viii) upon the request of any Holder or underwriter, if any,
provide copies of any document filed with the Commission that is
incorporated by reference into the Shelf Registration Statement
or Prospectus
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<PAGE> 6
to such Holder or underwriter, and make the Company's
representatives available for discussion of such document and
other customary due diligence matters;
(ix) make available at reasonable times for inspection by the
Holders and underwriters, if any, and any attorney or accountant
retained by such Holders or underwriters, if any, all financial
and other records, pertinent corporate documents of the Company
and cause the Company's officers and employees to supply all
information reasonably requested by any such Holder,
underwriters, attorney or accountant in connection with the
Shelf Registration Statement or any post-effective amendment
thereto subsequent to the filing thereof and prior to its
effectiveness;
(x) if requested by any Holder or underwriter, if any, promptly
include in the Shelf Registration Statement or Prospectus,
pursuant to a supplement or post-effective amendment, if
necessary, such information as such Holder or underwriter may
reasonably request to have included therein, including, without
limitation, information relating to the "Plan of Distribution"
of the Transfer Restricted Securities; and make all required
filings of such Prospectus supplement or post-effective
amendment as soon as practicable after the Company is notified
of the matters to be included in such Prospectus supplement or
post-effective amendment;
(xi) upon the request of any Holder or underwriter, if any,
furnish such Holder or underwriter, if any, without charge, at
least one copy of the Shelf Registration Statement, as first
filed with the Commission, and of each amendment thereto;
(xii) deliver to each Holder and underwriter, if any, without
charge, as many copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement thereto
as such Holder or underwriter reasonably may request; the
Company hereby consents to the use (in accordance with law) of
the Prospectus and any amendment or supplement thereto by each
Holder and each underwriter, if any, in connection with the
offering and the sale of the Transfer Restricted Securities
covered by the Prospectus or any amendment or supplement
thereto;
(xiii) upon the request of any Holder or underwriter, if any,
enter into such agreements (including underwriting agreements)
and make such representations and warranties and take all such
other actions in connection therewith in order to expedite or
facilitate the disposition of the Transfer Restricted Securities
pursuant to the Shelf Registration Statement as may be
reasonably requested by such Holder or underwriter in connection
with any sale or resale pursuant to the Shelf Registration
Statement and in such connection, the Company shall:
(A) upon request of any such Holder or underwriter
furnish (or in the case of paragraphs (2) and (3) below, use its
best efforts to cause to be furnished) to each Holder or
underwriter upon the effectiveness of the Shelf Registration
Statement:
(1) a certificate, dated such date, signed on behalf of
the Company by the Chairman of the Board or President and
Financial Officer of the Company, confirming, as of the date
thereof, the matters set forth in Sections 6(v), 9(a) and 9(b)
of the Purchase Agreement and such other similar matters as such
Person may reasonably request;
(2) an opinion, dated the date of effectiveness of the
Shelf Registration Statement, of counsel for the Company
covering matters similar to those set forth in paragraph (e) of
Section 9 of the Purchase Agreement and such other matter as
such Holder or underwriter may reasonably request, and in any
event including a statement to the effect that such counsel has
participated in conferences with officers and other
representatives of the Company, representatives of the
independent public accountants for the Company and has
considered the matters required to be stated therein and the
statements contained therein, although such counsel has not
independently verified the accuracy, completeness or fairness of
such statements; and that such counsel advises that, on the
basis of the foregoing (relying as to materiality to the extent
such counsel deems appropriate upon the statements of officers
and other representatives of the Company and without independent
check or verification), no facts came to such counsel's
attention that caused such counsel to believe that the Shelf
Registration Statement and any
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<PAGE> 7
post-effective amendment thereto, at the time such Shelf
Registration Statement or any post-effective amendment thereto
became effective, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not
misleading, or that the Prospectus contained in such Shelf
Registration Statement, as of its date, contained an untrue
statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
Without limiting the foregoing, such counsel may state further
that such counsel assumes no responsibility for, and has not
independently verified the accuracy, completeness or fairness of
the financial statements, notes and schedules and other
financial data included in the Shelf Registration Statement or
the related Prospectus; and
(3) a customary comfort letter, dated as of the date of
effectiveness of the Shelf Registration Statement from the
Company's independent accountants, in the customary form and
covering matters of the type customarily covered in comfort
letters to underwriters in connection with underwritten
offerings, and affirming the matters set forth in the comfort
letters delivered pursuant to Section 9(i) of the Purchase
Agreement; and
(B) deliver such other documents and certificates as may
be reasonably requested by such Holder or underwriter to
evidence compliance with the matters set forth in clause (A)
above and with any customary conditions contained in any
agreement entered into by the Company pursuant to this clause
(xiii);
(xiv) prior to any public offering of Transfer Restricted
Securities, cooperate with the Holders, underwriters, if any,
and their respective counsel in connection with the registration
and qualification of the Transfer Restricted Securities under
the securities or Blue Sky laws of such jurisdictions as such
Persons may request and do any and all other acts or things
necessary or advisable to enable the disposition in such
jurisdictions of the Transfer Restricted Securities covered by
the Shelf Registration Statement; provided, however, that the
Company shall not be required to register or qualify as a
foreign corporation where it is not now so qualified or to take
any action that would subject it to the service of process in
suits or to taxation, other than as to matters and transactions
relating to the Shelf Registration Statement, in any
jurisdiction where it is not now so subject;
(xv) in connection with any sale of Transfer Restricted
Securities that will result in such securities no longer being
Transfer Restricted Securities, cooperate with the Holders to
facilitate the timely preparation and delivery of certificates
(including global certificates registered in the name of Cede &
Co. as nominee for The Depository Trust Company) representing
Transfer Restricted Securities to be sold and not bearing any
restrictive legends; and, in the case of certificated Transfer
Restricted Securities, to register such Transfer Restricted
Securities in such denominations and such names as the Holders
may request at least two Business Days prior to such sale of
Transfer Restricted Securities;
(xvi) list all shares of Common Stock covered by the Shelf
Registration Statement on any securities exchange on which the
Common Stock is then listed;
(xvii) use its best efforts to cause the disposition of the
Transfer Restricted Securities covered by the Shelf Registration
Statement to be registered with or approved by such other
governmental agencies or authorities as may be required to
enable the seller or sellers thereof to consummate the
disposition of such Transfer Restricted Securities, subject to
the provision contained in clause (xiv) above;
(xviii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make
generally available to its security holders with regard to the
Shelf Registration Statement, as soon as practicable, a
consolidated earnings statement meeting the requirements of Rule
158 (which need not be audited) covering a twelve-month period
beginning after the effective date of the Shelf Registration
Statement (as such term is defined in paragraph (c) of Rule 158
under the Act);
(xix) if underwritten, make appropriate officers of the Company
available to the underwriters for meetings with prospective
purchasers of the Transfer Restricted Securities and prepare and
present to
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<PAGE> 8
potential investors customary "road show" material in a manner
consistent with other new issuances of other securities similar
to the Transfer Restricted Securities; and
(b) Restrictions on Holders. Each Holder agrees by acquisition of a
Transfer Restricted Security that, upon receipt of (i) the notice referred to
in Section 5(a)(v)(C), (ii) any notice from the Company of the existence of any
fact of the kind described in Section 5(a)(v)(D) hereof or (iii) any notice
from the Company that (a) sales under any Registration Statement contemplated
by this Agreement would require the disclosure of material information which
the Company has a bona fide business purpose for preserving as confidential, or
(b) such disclosure would impede the Company's ability to consummate a material
transaction (in each case, a "SUSPENSION NOTICE"), such Holder will forthwith
discontinue disposition of Transfer Restricted Securities pursuant to the
applicable Registration Statement until (A) such Holder has received copies of
the supplemented or amended Prospectus contemplated by Section 5(a)(vi) hereof,
or (B) such Holder is advised in writing by the Company that the use of the
Prospectus may be resumed, and has received copies of any additional or
supplemental filings that are incorporated by reference in the Prospectus (in
each case, the "RECOMMENCEMENT DATE"), provided, that any suspension pursuant
to clause (iii) above shall not exceed 60 days in any twelve-month period.
Each Holder receiving a Suspension Notice hereby agrees that it will either (x)
destroy any Prospectuses, other than permanent file copies, then in such
Holder's possession which have been replaced by the Company with more recently
dated Prospectuses or (y) deliver to the Company (at the Company's expense) all
copies, other than permanent file copies, then in such Holder's possession of
the Prospectus covering such Transfer Restricted Securities that was current at
the time of receipt of the Suspension Notice. The time period regarding the
effectiveness of the Shelf Registration Statement set forth in Section 3 hereof
shall be extended by a number of days equal to the number of days in the period
from and including the date of delivery of the Suspension Notice to the date of
delivery of the Recommencement Date.
SECTION 6. REGISTRATION EXPENSES
(a) All expenses incident to the Company's performance of or
compliance with this Agreement will be borne by the Company, regardless of
whether a Shelf Registration Statement required by this Agreement becomes
effective, including without limitation: (i) all registration and filing fees
and expenses; (ii) all fees and expenses of compliance with federal securities
and state Blue Sky or securities laws; (iii) all expenses of printing
(including printing certificates for the Common Stock to be issued upon
conversion of the Shares and printing of Prospectuses), messenger and delivery
services and telephone; (iv) all fees and disbursements of counsel for the
Company and not more than one counsel for the Holders of Transfer Restricted
Securities as described in Section 6(b) below; (v) all application and filing
fees in connection with listing the Common Stock on a national securities
exchange pursuant to the requirements hereof; and (vi) all fees and
disbursements of independent certified public accountants of the Company
(including the expenses of any special audit and comfort letters required by or
incident to such performance).
The Company will, in any event, bear its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expenses of any annual
audit and the fees and expenses of any Person, including special experts,
retained by the Company.
(b) In connection with the Shelf Registration Statement required by
this Agreement, the Company will reimburse the Initial Purchasers and the
Holders selling Transfer Restricted Securities pursuant to the "Plan of
Distribution" contained in the Shelf Registration Statement, for the reasonable
fees and disbursements of not more than one counsel, who shall be Andrews &
Kurth L.L.P., unless another firm shall be chosen by the Holders of a majority
in liquidation preference of the Transfer Restricted Securities for whose
benefit such Shelf Registration Statement is being prepared.
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<PAGE> 9
SECTION 7. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless each Holder,
its directors, its officers and each Person, if any, who controls such Holder
(within the meaning of Section 15 of the Act and Section 20 of the Exchange
Act), from and against any and all losses, claims, damages, liabilities,
judgments, (including without limitation, any legal or other expenses incurred
in connection with investigating or defending any matter, including any action
that could give rise to any such losses, claims, damages, liabilities or
judgments) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Shelf Registration Statement, preliminary
prospectus or Prospectus (or any amendment or supplement thereto) provided by
the Company to any Holder or any prospective purchaser of registered Shares or
registered shares of Common Stock or caused by any omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, except insofar as such losses,
claims, damages, liabilities or judgments are caused by an untrue statement or
omission or alleged untrue statement or omission that is based upon information
relating to any of the Holders furnished in writing to the Company by any of
the Holders.
(b) Each Holder of Transfer Restricted Securities agrees, severally
and not jointly, to indemnify and hold harmless the Company and its directors
and officers, and each person, if any, who controls (within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act) the Company, to the
same extent as the foregoing indemnity from the Company set forth in section
(a) above, but only with reference to information relating to such Holder
furnished in writing to the Company by such Holder expressly for use in the
Shelf Registration Statement. In no event shall any Holder, its directors, its
officers or any Person, if any, who controls such Holder be liable or
responsible for any amount in excess of the amount by which the total amount
received by such Holder with respect to its sale of Transfer Restricted
Securities pursuant to the Shelf Registration Statement exceeds (i) the amount
paid by such Holder for such Transfer Restricted Securities and (ii) the amount
of any damages that such Holder, its directors, its officers or any Person, if
any, who controls such Holder has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission.
(c) In case any action shall be commenced involving any Person in
respect of which indemnity may be sought pursuant to Section 7(a) or 7(b) (the
"INDEMNIFIED PARTY"), the indemnified party shall promptly notify the Person
against whom such indemnity may be sought (the "INDEMNIFYING PERSON") in
writing and the indemnifying party shall assume the defense of such action,
including the employment of counsel reasonably satisfactory to the indemnified
party and the payment of all fees and expenses of such counsel, as incurred
(except that in the case of any action in respect of which indemnity may be
sought pursuant to both Sections 7(a) and 7(b), a Holder shall not be required
to assume the defense of such action pursuant to this Section 7(c), but may
employ separate counsel and participate in the defense thereof, but the fees
and expenses of such counsel, except as provided below, shall be at the expense
of the Holder). Any indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of the indemnified party
unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the indemnified party or (iii) the named parties to
any such action (including any impleaded parties) include both the indemnified
party and the indemnifying party, and the indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the indemnified party).
In any such case, the indemnifying party shall not, in connection with any one
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys
(in addition to any local counsel) for all indemnified parties and all such
fees and expenses shall be reimbursed as they are incurred. Such firm shall be
designated in writing by a majority of the Holders, in the case of the parties
indemnified pursuant to Section 7(a), and by the Company, in the case of
parties indemnified pursuant to Section 7(b). The indemnifying party shall
indemnify and hold harmless the indemnified party from and against any and all
losses, claims, damages, liabilities and judgments by reason of any settlement
of any action (i) effected with its written consent or (ii) effected without
its written consent if the settlement is entered into more than twenty business
days after the indemnifying party shall have received a request from the
indemnified party for reimbursement for the fees and expenses of counsel (in
any case where such fees and expenses are at the expense of the indemnifying
party) and, prior to the date of such settlement, the indemnifying party shall
have failed to comply with such reimbursement request. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement or compromise of, or consent to the entry of judgment with
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<PAGE> 10
respect to, any pending or threatened action in respect of which the
indemnified party is or could have been a party and indemnity or contribution
may be or could have been sought hereunder by the indemnified party, unless
such settlement, compromise or judgment (i) includes an unconditional release
of the indemnified party from all liability on claims that are or could have
been the subject matter of such action and (ii) does not include a statement as
to or an admission of fault, culpability or a failure to act, by or on behalf
of the indemnified party.
(d) To the extent that the indemnification provided for in this
Section 7 is unavailable to an indemnified party in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company, on the one hand, and the Holders, on the other hand, from their sale
of Transfer Restricted Securities or (ii) if the allocation provided by clause
7(d)(i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
7(d)(i) above but also the relative fault of the Company on the one hand, and
of the Holders, on the other hand, in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
judgments, as well as any other relevant equitable considerations. The
relative fault of the Company, on the one hand, and of the Holders, on the
other hand, shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company, on the one hand, or by the Holders, on the other hand, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The amount paid or payable by a
party as a result of the losses, claims, damages, liabilities and judgments
referred to above shall be deemed to include, subject to the limitations set
forth in the second paragraph of Section 6(a), any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim.
The Company and each Holder agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by pro
rata allocation (even if the Holders were treated as one entity for such
purpose) or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages, liabilities or judgments referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any
matter, including any action that could have given rise to such losses, claims,
damages, liabilities or judgments. Notwithstanding the provisions of this
Section 7, no Holder or its related Indemnified Holders shall be required to
contribute, in the aggregate, any amount in excess of the amount by which the
total received by such Holder with respect to the sale of its Transfer
Restricted Securities pursuant to the Shelf Registration Statement exceeds (i)
the amount paid by such Holder for such Transfer Restricted Securities and (ii)
the amount of any damages which such Holder has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Holders'
obligations to contribute pursuant to this Section 7(d) are several in
proportion to the respective liquidation preference of Transfer Restricted
Securities held by each of the Holders hereunder and not joint.
SECTION 8. RULE 144A AND RULE 144
The Company agrees with each Holder, for so long as any Transfer
Restricted Securities remain outstanding and during any period in which the
Company (i) is not subject to Section 13 or 15(d) of the Exchange Act, to make
available, upon request of any Holder of Transfer Restricted Securities, to any
Holder or beneficial owner of Transfer Restricted Securities in connection with
any sale thereof and any prospective purchaser of Transfer Restricted
Securities designated by such Holder or beneficial owner, the information
required by Rule 144(d)(4) under the Act in order to permit resales of such
Transfer Restricted Securities pursuant to Rule 144A, and (ii) is subject to
Section 13 or 15(d) of the Exchange Act, to make all filings required thereby
in a timely manner in order to permit resales of such Transfer Restricted
Securities pursuant to Rule 144 (if available).
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SECTION 9. UNDERWRITTEN REGISTRATIONS
(a) If any of the Transfer Restricted Securities covered by the
Shelf Registration Statement are to be sold in an underwritten offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Holders of a majority in
liquidation preference of such Transfer Restricted Securities included in such
offering, subject to the consent of the Company (which will not be unreasonably
withheld or delayed); provided, that any such underwritten offering shall
include a minimum of $50,000,000 in aggregate liquidation preference of
Transfer Restricted Securities.
No Holder of Transfer Restricted Securities may participate in any
underwritten registration hereunder unless such Holder (i) agrees to sell its
Transfer Restricted Securities on the basis reasonably provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
(b) Each Holder of Transfer Restricted Securities agrees, if
requested (pursuant to a timely written notice) by the managing underwriters in
an underwritten offering made pursuant to the Shelf Registration Statement, not
to effect any private sale or distribution (including a sale pursuant to Rule
144(k) and Rule 144A, but excluding non- public sales to any of its affiliates,
officers, directors, employees and controlling persons) of any of the Shares,
in the case of an underwritten offering of the Shares, or the Common Stock, in
the case of an underwritten offering of shares of Common Stock constituting
Transfer Restricted Securities, during the period beginning 10 days prior to,
and ending 90 days after, the closing date of such underwritten offering.
The foregoing provisions of Section 9(b) shall not apply to any
Holder of Transfer Restricted Securities if such Holder is prevented by
applicable statute or regulation from entering into any such agreement.
(c) If any of the Transfer Restricted Securities covered by any
Shelf Registration are to be sold in an underwritten offering, the
underwriters, their controlling persons and their respective officers,
directors, employees, representatives and agents shall be entitled to indemnity
(substantially similar to the indemnity set forth in Section 7 of this
Agreement) from the Company and the Holders, which indemnity may be set forth
in an underwriting agreement.
SECTION 10. MISCELLANEOUS
(a) Remedies. The Company acknowledges and agrees that any failure
by the Company to comply with its obligations under Section 3 hereof may result
in material irreparable injury to the Initial Purchasers or the Holders for
which there is no adequate remedy at law, that it will not be possible to
measure damages for such injuries precisely and that, in the event of any such
failure, the Initial Purchasers or any Holder may obtain such relief as may be
required to specifically enforce the Company's obligations under Section 3
hereof. The Company further agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not, on or after
the date of this Agreement, enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the Holders in this
Agreement or otherwise conflicts with the provisions hereof. The Company has
not previously entered into any agreement (which has not expired or been
terminated) granting any registration rights with respect to its securities to
any Person, except as disclosed in the Purchase Agreement. The rights granted
to the Holders hereunder do not in any way conflict with and are not
inconsistent with the rights granted to the holders of the Company's securities
under any agreement in effect on the date hereof.
(c) No Piggybacks on Shelf Registration Statement. The Company
shall not grant to any of its security holders (other than the holders of
Transfer Restricted Securities in such capacity) the right to include any of
its securities in the Shelf Registration Statement other than the Transfer
Restricted Securities.
(d) Amendments and Waivers. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers or consents to or
departures from the provisions hereof may not be given unless (i) in the case
of Section 4 hereof and this Section 10(d)(i), the Company has obtained the
written consent of Holders of all outstanding Transfer Restricted Securities
and (ii) in the case of all other provisions hereof, the Company has obtained
the written consent of Holders of Shares representing a majority of the
outstanding liquidation preference of Transfer Restricted Securities (excluding
Transfer Restricted Securities held by the Company or its Affiliates).
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<PAGE> 12
(e) Third Party Beneficiary. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company, on the one
hand, and the Initial Purchasers, on the other hand, and shall have the right
to enforce such agreements directly to the extent they may deem such
enforcement necessary or advisable to protect their rights hereunder.
(f) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, to the address set forth on the records of
either the Registrar with respect to the Shares or The
Depository Trust Company, as the case may be, with a copy to
Andrews & Kurth L.L.P., 4200 Chase Tower, Houston, Texas 77002;
(ii) if to the Company: to Chesapeake Energy Corporation, 6100
North Western Avenue, Oklahoma City, Oklahoma 73118, Attention:
Corporate Secretary, with a copy to McAfee & Taft, Two
Leadership Square, 10th Floor, Oklahoma City, Oklahoma 73102,
Attention: Connie S. Stamets; and
(iii) if the Initial Purchasers: to Donaldson, Lufkin & Jenrette
Securities Corporation, 277 Park Avenue, New York, New York
10172, Attention: Syndicate Department; to Morgan Stanley & Co.
Incorporated, 1585 Broadway, New York, New York 10036,
Attention: Corporate Finance Department; to Bear, Stearns & Co.
Inc., 245 Park Avenue, New York, New York 10172, Attention:
Corporate Finance Department; to Lehman Brothers Inc., 200 Vesey
Street, New York, New York 10285, Attention: Corporate Finance
Department; and to J.P. Morgan Securities Inc., 60 Wall Street,
New York, New York 10260, Attention: Equity Capital Markets; or
in any case to such other address as the person to be notified
may have requested in writing, with a copy to Andrews & Kurth
L.L.P., 4200 Chase Tower, Houston, Texas 77002.
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five
Business Days after being deposited in the mail, postage prepaid, if mailed;
when receipt acknowledged, if telecopied; and on the next business day, if
timely delivered to an air courier guaranteeing overnight delivery.
(g) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders of Transfer Restricted Securities; provided,
that nothing herein shall be deemed to permit any assignment, transfer or other
disposition of Transfer Restricted Securities in violation of the terms hereof
or of the Purchase Agreement or the Certificate of Designation. If any
transferee of any Holder shall acquire Transfer Restricted Securities in any
manner, whether by operation of law or otherwise, such Transfer Restricted
Securities shall be held subject to all of the terms of this Agreement, and by
taking and holding such Transfer Restricted Securities such Person shall be
conclusively deemed to have agreed to be bound by and to perform all of the
terms and provisions of this Agreement, including the restrictions on resale
set forth in this Agreement, the Certificate of Designation and, if applicable,
the Purchase Agreement, and such Person shall be entitled to receive the
benefits hereof.
(h) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(i) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(j) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICT OF LAW RULES THEREOF.
(k) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such
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<PAGE> 13
provision in every other respect and of the remaining provisions contained
herein shall not be affected or impaired thereby.
(l) Entire Agreement. This Agreement is intended by the parties as
a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted with respect to the
Transfer Restricted Securities. This Agreement supersedes all prior agreements
and understandings between the parties with respect to such subject matter.
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<PAGE> 14
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
CHESAPEAKE ENERGY CORPORATION
By: /s/ AUBREY K. McCLENDON
-----------------------------------
Name: Aubrey K. McClendon
Title: Chairman and Chief Executive
Officer
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MORGAN STANLEY & CO. INCORPORATED
BEAR, STEARNS & CO. INC.
LEHMAN BROTHERS INC.
J.P. MORGAN SECURITIES INC.
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ RALPH EADS
-------------------------------
Name: Ralph Eads
Title: Managing Director
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<PAGE> 1
EXHIBIT 4.12
================================================================================
A/B EXCHANGE
REGISTRATION RIGHTS AGREEMENT
Dated as of April 22, 1998
by and among
CHESAPEAKE ENERGY CORPORATION
THE GUARANTORS NAMED HEREIN
AND
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BEAR, STEARNS & CO. INC.
LEHMAN BROTHERS INC.
J.P. MORGAN SECURITIES INC.
MORGAN STANLEY & CO. INCORPORATED
================================================================================
<PAGE> 2
This A/B Exchange Registration Rights Agreement (this "AGREEMENT") is
made and entered into as of April 22, 1998 by and among Chesapeake Energy
Corporation, an Oklahoma corporation (the "COMPANY"), the Guarantors listed on
Schedule A hereto (the "GUARANTORS"), and Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ"), Bear, Stearns & Co. Inc., Lehman Brothers Inc.,
J.P. Morgan Securities Inc. and Morgan Stanley & Co. Incorporated, (each an
"INITIAL PURCHASER" and, collectively, the "INITIAL PURCHASERS"), each of whom
has agreed to purchase the Company's 9 5/8% Series A Senior Notes due 2005 (the
"SERIES A NOTES") pursuant to the Purchase Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated
April 17, 1998, (the "PURCHASE AGREEMENT"), by and among the Company, the
Guarantors and the Initial Purchasers with respect to the Series A Notes. In
order to induce the Initial Purchasers to purchase the Series A Notes, the
Company has agreed to provide the registration rights set forth in this
Agreement. The execution and delivery of this Agreement is a condition to the
obligations of the Initial Purchasers set forth in Section 2 of the Purchase
Agreement. Capitalized terms used herein and not otherwise defined shall have
the meaning assigned to them in the Indenture, dated as of April 1, 1998,
between the Company and United States Trust Company of New York, as Trustee,
relating to the Series A Notes and the Series B Notes (the "INDENTURE").
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
ACT: The Securities Act of 1933, as amended.
AFFILIATE: As defined in Rule 144 of the Act.
AFFILIATED MARKET MAKER: A Broker-Dealer who is deemed to be an
Affiliate of the Company.
BROKER-DEALER: Any broker or dealer registered under the Exchange
Act.
BUSINESS DAY: Any day on which the New York Stock Exchange is open
for trading and which is not a legal United States holiday.
CERTIFICATED SECURITIES: Definitive Securities, as defined in the
Indenture.
CLOSING DATE: The date hereof.
COMMISSION: The Securities and Exchange Commission.
CONSUMMATE: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Series B Notes to be issued in the Exchange Offer, (b) the
maintenance of such Exchange Offer Registration Statement continuously
effective and the keeping of the Exchange Offer open for a period not less than
the period required pursuant to Section 3(b) hereof and (c) the delivery by the
Company to the Registrar under the Indenture of Series B Notes in the same
aggregate principal amount as the aggregate principal amount of Series A Notes
tendered by Holders thereof pursuant to the Exchange Offer.
CONSUMMATION DEADLINE: As defined in Section 3(b) hereof.
EFFECTIVENESS DEADLINE: As defined in Section 3(a) and 4(a) hereof.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
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<PAGE> 3
EXCHANGE OFFER: The exchange and issuance by the Company of a
principal amount of Series B Notes (which shall be registered pursuant to the
Exchange Offer Registration Statement) equal to the outstanding principal
amount of Series A Notes that are tendered by such Holders in connection with
such exchange and issuance.
EXCHANGE OFFER REGISTRATION STATEMENT: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
EXEMPT RESALES: The transactions in which the Initial Purchasers
propose to sell the Series A Notes to certain "qualified institutional buyers,"
as such term is defined in Rule 144A under the Act.
FILING DEADLINE: As defined in Sections 3(a) and 4(a) hereof.
HOLDERS: As defined in Section 2 hereof.
PERSON: Any individual, corporation, partnership, joint venture,
trust, estate, unincorporated organization or government or any agency or
political subdivision thereof.
PROSPECTUS: The prospectus included in a Registration Statement at
the time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
RECOMMENCEMENT DATE: As defined in Section 6(d) hereof.
REGISTRATION DEFAULT: As defined in Section 5 hereof.
REGISTRATION STATEMENT: Any registration statement of the Company
and the Guarantors relating to (a) an offering of Series B Notes pursuant to an
Exchange Offer or (b) the registration for resale of Transfer Restricted
Securities pursuant to the Shelf Registration Statement, in each case, (i) that
is filed pursuant to the provisions of this Agreement and (ii) including the
Prospectus included therein, all amendments and supplements thereto (including
post-effective amendments) and all exhibits and material incorporated by
reference therein.
RULE 144: Rule 144 promulgated under the Act.
SERIES B NOTES: The Company's 9 5/8% Series B Senior Notes due 2005
to be issued pursuant to the Indenture (i) in the Exchange Offer or (ii) as
contemplated by Section 4 hereof.
SHELF REGISTRATION STATEMENT: As defined in Section 4 hereof.
SUSPENSION NOTICE: As defined in Section 6(d) hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section
77aaa-77bbbb) as in effect on the date of the Indenture.
TRANSFER RESTRICTED SECURITIES: Each Series A Note, until the
earliest to occur of (a) the date on which such Series A Note is exchanged in
the Exchange Offer for a Series B Note which is entitled to be resold to the
public by the Holder thereof without complying with the prospectus delivery
requirements of the Act, (b) the date on which such Series A Note has been
disposed of in accordance with a Shelf Registration Statement (and the
purchasers thereof have been issued Series B Notes) or (c) the date on which
such Series A Note is distributed to the public pursuant to Rule 144 under the
Act (and purchasers thereof have been issued Series B Notes), and each Series B
Note until the date on which such Series B Note is disposed of by a
Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the
Exchange Offer Registration Statement (including the delivery of the Prospectus
contained therein).
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<PAGE> 4
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities
(each, a "HOLDER") whenever such Person owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable
federal law (after the procedures set forth in Section 6(a)(i) below have been
complied with), the Company and the Guarantors shall (i) cause the Exchange
Offer Registration Statement to be filed with the Commission as soon as
practicable after the Closing Date, but in no event later than 60 days after
the Closing Date (such 60th day being the "FILING DEADLINE"), (ii) use their
best efforts to cause such Exchange Offer Registration Statement to become
effective at the earliest possible time, but in no event later than 180 days
after the Closing Date (such 180th day being the "EFFECTIVENESS DEADLINE"),
(iii) in connection with the foregoing, (A) file all pre-effective amendments
to such Exchange Offer Registration Statement as may be necessary in order to
cause it to become effective, (B) file, if applicable, a post-effective
amendment to such Exchange Offer Registration Statement pursuant to Rule 430A
under the Act and (C) cause all necessary filings, if any, in connection with
the registration and qualification of the Series B Notes to be made under the
Blue Sky laws of such jurisdictions as are necessary to permit Consummation of
the Exchange Offer, and (iv) upon the effectiveness of such Exchange Offer
Registration Statement, commence and Consummate the Exchange Offer. The
Exchange Offer shall be on the appropriate form permitting (1) registration of
the Series B Notes to be offered in exchange for the Series A Notes that are
Transfer Restricted Securities and (2) resales of Series B Notes by any
Broker-Dealer that tendered into the Exchange Offer Series A Notes that such
Broker-Dealer acquired for its own account as a result of market making
activities or other trading activities (other than Series A Notes acquired
directly from the Company or any of its Affiliates) as contemplated by Section
3(c) below.
(b) The Company and the Guarantors shall use their respective best
efforts to cause the Exchange Offer Registration Statement to be effective
continuously, and shall keep the Exchange Offer open for a period of not less
than the minimum period required under applicable federal and state securities
laws to Consummate the Exchange Offer; provided, however, that in no event
shall such period be less than 30 days nor more than 60 days. The Company and
the Guarantors shall cause the Exchange Offer to comply with all applicable
federal and state securities laws. No securities other than the Series B Notes
shall be included in the Exchange Offer Registration Statement. The Company
and the Guarantors shall use their respective best efforts to cause the
Exchange Offer to be Consummated on the earliest practicable date after the
Exchange Offer Registration Statement has become effective, but in no event
later than 60 days after commencement of the Exchange Offer (such 60th day
being the "CONSUMMATION DEADLINE").
(c) The Company shall include a "Plan of Distribution" section in
the Prospectus contained in the Exchange Offer Registration Statement and
indicate therein that any Broker-Dealer who holds Transfer Restricted
Securities that were acquired for the account of such Broker-Dealer as a result
of market-making activities or other trading activities (other than Series A
Notes acquired directly from the Company or any Affiliate of the Company) may
exchange such Transfer Restricted Securities pursuant to the Exchange Offer.
Such "Plan of Distribution" section shall also contain all other information
with respect to such sales by such Broker-Dealers that the Commission may
require in order to permit such sales pursuant thereto, but such "Plan of
Distribution" shall not name any such Broker-Dealer or disclose the amount of
Transfer Restricted Securities held by any such Broker-Dealer, except to the
extent required by the Commission as a result of a change in policy, rules or
regulations after the date of this Agreement. See the Shearman & Sterling
no-action letter (available July 2, 1993).
Because such Broker-Dealer may be deemed to be an "underwriter"
within the meaning of the Act and must, therefore, deliver a prospectus meeting
the requirements of the Act in connection with its initial sale of any Series B
Notes received by such Broker-Dealer in the Exchange Offer, the Company and
Guarantors shall permit the use of the Prospectus contained in the Exchange
Offer Registration Statement by such Broker-Dealer to satisfy such prospectus
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<PAGE> 5
delivery requirement. To the extent necessary to ensure that the prospectus
contained in the Exchange Offer Registration Statement is available for sales
of Series B Notes by Broker-Dealers, the Company and the Guarantors agree to
use their respective best efforts to keep the Exchange Offer Registration
Statement continuously effective, supplemented, amended and current as required
by and subject to the provisions of Section 6(a) and (c) hereof and in
conformity with the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to time, for a
period of 180 days from the Consummation Deadline or such shorter period as
will terminate when all Transfer Restricted Securities covered by such
Registration Statement have been sold pursuant thereto. The Company and the
Guarantors shall provide sufficient copies of the latest version of such
Prospectus to such Broker-Dealers, promptly upon request, and in no event later
than one day after such request, at any time during such period.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Exchange Offer is not permitted
by applicable law (after the Company and the Guarantors have complied with the
procedures set forth in Section 6(a)(i) below) or (ii) if any Holder of
Transfer Restricted Securities shall notify the Company within 20 Business Days
following the Consummation Deadline that (A) such Holder was prohibited by law
or Commission policy from participating in the Exchange Offer or (B) such
Holder may not resell the Series B Notes acquired by it in the Exchange Offer
to the public without delivering a prospectus and the Prospectus contained in
the Exchange Offer Registration Statement is not appropriate or available for
such resales by such Holder or (C) such Holder is a Broker-Dealer and holds
Series A Notes acquired directly from the Company or any of its Affiliates,
then the Company and the Guarantors shall:
(x) cause to be filed, on or prior to 30 days after the earlier
of (i) the date on which the Company determines that the Exchange
Offer Registration Statement cannot be filed as a result of clause
(a)(i) above and (ii) the date on which the Company receives the
notice specified in clause (a)(ii) above, (such earlier date, the
"FILING DEADLINE"), a shelf registration statement pursuant to Rule
415 under the Act (which may be an amendment to the Exchange Offer
Registration Statement (the "SHELF REGISTRATION STATEMENT")),
relating to all Transfer Restricted Securities, and
(y) shall use their respective best efforts to cause such Shelf
Registration Statement to become effective on or prior to 180 days
after the Filing Deadline for the Shelf Registration Statement (such
180th day the "EFFECTIVENESS DEADLINE").
If, after the Company has filed an Exchange Offer Registration
Statement that satisfies the requirements of Section 3(a) above, the Company is
required to file and make effective a Shelf Registration Statement solely
because the Exchange Offer is not permitted under applicable federal law (i.e.,
clause (a)(i) above), then the filing of the Exchange Offer Registration
Statement shall be deemed to satisfy the requirements of clause (x) above;
provided that, in such event, the Company shall remain obligated to meet the
Effectiveness Deadline set forth in clause (y).
To the extent necessary to ensure that the Shelf Registration
Statement is available for sales of Transfer Restricted Securities by the
Holders thereof entitled to the benefit of this Section 4(a) and the other
securities required to be registered therein pursuant to Section 6(b)(ii)
hereof, the Company and the Guarantors shall use their respective best efforts
to keep any Shelf Registration Statement required by this Section 4(a)
continuously effective, supplemented, amended and current as required by and
subject to the provisions of Sections 6(b) and (c) hereof and in conformity
with the requirements of this Agreement, the Act and the policies, rules and
regulations of the Commission as announced from time to time, for a period of
at least two years (as extended pursuant to Section 6(c)(i)) following the
Closing Date, or such shorter period as will terminate when all Transfer
Restricted Securities covered by such Shelf Registration Statement have been
sold pursuant thereto.
(b) Provision by Holders of Certain Information in Connection with
the Shelf Registration Statement. No Holder of Transfer Restricted Securities
may include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 15 days after receipt of a request therefor, the
information specified in Item 507 or 508 of Regulation S-K, as applicable, of
the Act for use in connection with any Shelf Registration Statement or
Prospectus or preliminary Prospectus included therein.
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<PAGE> 6
No Holder of Transfer Restricted Securities shall be entitled to liquidated
damages pursuant to Section 5 hereof until 30 days after such Holder shall have
provided all such information. Each selling Holder agrees to promptly furnish
additional information required to be disclosed in order to make the
information previously furnished to the Company by such Holder not materially
misleading.
SECTION 5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement is not
filed with the Commission on or prior to the applicable Filing Deadline, (ii)
any such Registration Statement has not been declared effective by the
Commission on or prior to the applicable Effectiveness Deadline, (iii) the
Exchange Offer has not been Consummated on or prior to the Consummation
Deadline or (iv) any Registration Statement required by this Agreement is filed
and declared effective but shall thereafter cease to be effective or fail to be
usable for its intended purpose without being succeeded (a) within 5 Business
Days by a post-effective amendment to such Registration Statement that cures
such failure and that is itself declared effective within 10 days of filing
such post-effective amendment to such Registration Statement or (b) within 20
days by the filing of a supplement to the Prospectus under Rule 424 of the Act
or an Exchange Act report incorporated by reference in such Registration
Statement that cures such failure (each such event referred to in clauses (i)
through (iv), a "REGISTRATION DEFAULT"), then the Company and the Guarantors
hereby jointly and severally agree to pay to each Holder of Transfer Restricted
Securities affected thereby liquidated damages in an amount equal to one-half
of one percent (0.5%) per annum of the principal amount of the Transfer
Restricted Securities held by such Holder during the first 90-day period
immediately following the occurrence of the first such Registration Default,
increasing by an additional one-half of one percent (0.5%) per annum of the
principal amount of such Transfer Restricted Securities during each subsequent
90-day period, up to a maximum amount of liquidated damages equal to two
percent (2.0%) per annum of the principal amount of such Transfer Restricted
Securities; provided that the Company and the Guarantors shall in no event be
required to pay liquidated damages for more than one Registration Default at
any given time. Notwithstanding anything to the contrary set forth herein, (1)
upon filing of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of (i) above, (2)
upon the effectiveness of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of (ii) above, (3)
upon Consummation of the Exchange Offer, in the case of (iii) above, or (4)
upon the filing of (a) a post-effective amendment to the Registration
Statement, a Prospectus supplement or an additional Registration Statement or
(b) a Prospectus supplement or an Exchange Act report incorporated by reference
that causes the Exchange Offer Registration Statement (and/or, if applicable,
the Shelf Registration Statement) to again be declared effective or made usable
in the case of (iv) above, the liquidated damages payable with respect to the
Transfer Restricted Securities as a result of such clause (i), (ii), (iii) or
(iv), as applicable, shall cease.
All accrued liquidated damages shall be paid to the Holders entitled
thereto, in the manner provided for the payment of interest in the Indenture,
on each Interest Payment Date, as more fully set forth in the Indenture and the
Series A Notes. Notwithstanding the fact that any securities for which
liquidated damages are due cease to be Transfer Restricted Securities, all
obligations of the Company and the Guarantors to pay liquidated damages with
respect to securities shall survive until such time as such obligations with
respect to such securities shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company and the Guarantors shall (x) comply with all
applicable provisions of Section 6(c) below, (y) use their respective best
efforts to effect such exchange and to permit the resale of Series B Notes by
any Broker-Dealer that tendered in the Exchange Offer Series A Notes that such
Broker-Dealer acquired for its own account as a result of its market making
activities or other trading activities (other than Series A Notes acquired
directly from the Company or any of its Affiliates) being sold in accordance
with the intended method or methods of distribution thereof, and (z) comply
with all of the following provisions:
(i) If, following the date hereof there has been announced a
change in Commission policy with respect to exchange offers such as the
Exchange Offer, that in the reasonable opinion of counsel to the Company
raises a substantial question as to whether the Exchange Offer is
permitted by applicable federal law, the Company and the
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<PAGE> 7
Guarantors hereby agree to seek a no-action letter or other favorable
decision from the Commission allowing the Company and the Guarantors to
Consummate an Exchange Offer for such Transfer Restricted Securities. The
Company and the Guarantors hereby agree to pursue the issuance of such a
decision to the Commission staff level. In connection with the foregoing,
the Company and the Guarantors hereby agree to take all such other actions
as may be requested by the Commission or otherwise required in connection
with the issuance of such decision, including without limitation (A)
participating in telephonic conferences with the Commission staff, (B)
delivering to the Commission staff an analysis prepared by counsel to the
Company setting forth the legal bases, if any, upon which such counsel has
concluded that such an Exchange Offer should be permitted and (C)
diligently pursuing a resolution (which need not be favorable) by the
Commission staff.
(ii) As a condition to its participation in the Exchange Offer,
each Holder of Transfer Restricted Securities (including, without
limitation, any Holder who is a Broker Dealer) shall furnish, upon the
request of the Company, prior to the Consummation of the Exchange Offer, a
written representation to the Company and the Guarantors (which may be
contained in the letter of transmittal contemplated by the Exchange Offer
Registration Statement) to the effect that (A) it is not an Affiliate of
the Company, (B) it is not engaged in, and does not intend to engage in,
and has no arrangement or understanding with any person to participate in,
a distribution of the Series B Notes to be issued in the Exchange Offer
and (C) it is acquiring the Series B Notes in its ordinary course of
business. Each Holder using the Exchange Offer to participate in a
distribution of the Series B Notes hereby acknowledges and agrees that, if
the resales are of Series B Notes obtained by such Holder in exchange for
Series A Notes acquired directly from the Company or an Affiliate thereof,
it (1) could not, under Commission policy as in effect on the date of this
Agreement, rely on the position of the Commission enunciated in Morgan
Stanley and Co., Inc. (available June 5, 1991) and Exxon Capital Holdings
Corporation (available May 13, 1988), as interpreted in the Commission's
letter to Shearman & Sterling (available July 2, 1993), and similar
no-action letters (including, if applicable, any no-action letter obtained
pursuant to clause (i) above), and (2) must comply with the registration
and prospectus delivery requirements of the Act in connection with a
secondary resale transaction and that such a secondary resale transaction
must be covered by an effective registration statement containing the
selling security holder and plan of distribution information required by
Item 507 or 508, as applicable, of Regulation S-K.
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company and the Guarantors shall provide a supplemental
letter to the Commission (A) stating that the Company and the Guarantors
are registering the Exchange Offer in reliance on the position of the
Commission enunciated in Exxon Capital Holdings Corporation (available May
13, 1988), Morgan Stanley and Co., Inc. (available June 5, 1991) as
interpreted in the Commission's letter to Shearman & Sterling (available
July 2, 1993), and, if applicable, any no-action letter obtained pursuant
to clause (i) above, (B) including a representation that neither the
Company nor any Guarantor has entered into any arrangement or
understanding with any Person to distribute the Series B Notes to be
received in the Exchange Offer and that, to the best of the Company's and
each Guarantor's information and belief, each Holder participating in the
Exchange Offer is acquiring the Series B Notes in its ordinary course of
business and has no arrangement or understanding with any Person to
participate in the distribution of the Series B Notes received in the
Exchange Offer and (C) any other undertaking or representation required by
the Commission as set forth in any no-action letter obtained pursuant to
clause (i) above, if applicable.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, (i) the Company and the Guarantors shall (x) comply
with all the provisions of Section 6(c) below and (y) use their respective best
efforts to effect such registration to permit the sale of the Transfer
Restricted Securities being sold in accordance with the intended method or
methods of distribution thereof (as indicated in the information furnished to
the Company pursuant to Section 4(b) hereof), and pursuant thereto the Company
and the Guarantors will prepare and file with the Commission a Registration
Statement relating to the registration on any appropriate form under the Act,
which form shall be available for the sale of the Transfer Restricted
Securities in accordance with the intended method or methods of distribution
thereof within the time periods and otherwise in accordance with the provisions
hereof; and (ii) issue, upon the request of any Holder or purchaser of Series A
Notes covered by any Shelf Registration Statement contemplated by this
Agreement, Series B Notes having an aggregate principal amount equal to the
aggregate principal amount of Series A Notes sold pursuant to the Shelf
Registration Statement and surrendered to the Company for cancellation; the
Company
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<PAGE> 8
shall register Series A Notes on the Shelf Registration Statement for this
purpose and issue the Series B Notes to the purchaser(s) of securities subject
to the Shelf Registration Statement in the names as such purchaser(s) shall
designate.
(c) General Provisions. In connection with any Registration
Statement and any related Prospectus required by this Agreement, the Company
and the Guarantors shall:
(i) use their respective best efforts to keep such Registration
Statement continuously effective and provide all requisite financial
statements for the period specified in Section 3 or 4 of this Agreement,
as applicable. Upon the occurrence of any event that would cause any such
Registration Statement or the Prospectus contained therein (A) to contain
an untrue statement of material fact or omit to state any material fact
necessary to make the statements therein not misleading or (B) not to be
effective and usable for resale of Transfer Restricted Securities during
the period required by this Agreement, the Company and the Guarantors
shall file promptly an appropriate (x) amendment to such Registration
Statement curing such defect, and, if Commission review is required, use
their respective best efforts to cause such amendment to be declared
effective as soon as practicable, (y) supplement pursuant to Rule 424
under the Act curing such default or (z) Exchange Act report incorporated
by reference curing such default;
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the applicable Registration Statement as may
be necessary to keep such Registration Statement effective for the
applicable period set forth in Section 3 or 4 hereof, as the case may be;
cause the Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 under
the Act, and to comply fully with Rules 424, 430A and 462, as applicable,
under the Act in a timely manner; and comply with the provisions of the
Act with respect to the disposition of all securities covered by such
Registration Statement during the applicable period in accordance with the
intended method or methods of distribution by the sellers thereof set
forth in such Registration Statement or supplement to the Prospectus;
(iii) advise each Holder and each Initial Purchaser who is
required to deliver a prospectus in connection with sales or market making
activities (an "AFFILIATED MARKET MAKER") promptly and, if requested by
such Person, confirm such advice in writing, (A) when a Registration
Statement or any Prospectus supplement or post- effective amendment has
been filed, and, with respect to any applicable Registration Statement or
any post- effective amendment thereto, when the same has become effective,
(B) of any request by the Commission for amendments to the Registration
Statement or amendments or supplements to the Prospectus or for additional
information relating thereto, (C) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement
under the Act or of the suspension by any state securities commission of
the qualification of the Transfer Restricted Securities for offering or
sale in any jurisdiction, or the initiation of any proceeding for any of
the preceding purposes, (D) of the existence of any fact or the happening
of any event that makes any statement of a material fact made in the
Registration Statement, the Prospectus, any amendment or supplement
thereto or any document incorporated by reference therein untrue, or that
requires the making of any additions to or changes in the Registration
Statement or the Prospectus in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
If at any time the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, or any state securities
commission or other regulatory authority shall issue an order suspending
the qualification or exemption from qualification of the Transfer
Restricted Securities under state securities or Blue Sky laws, the Company
and the Guarantors shall use their respective best efforts to obtain the
withdrawal or lifting of such order at the earliest possible time;
(iv) subject to Section 6(c)(i), if any fact or event
contemplated by Section 6(c)(iii)(D) above shall exist or have occurred,
prepare a post-effective amendment or supplement to the Registration
Statement or related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter
delivered to the purchasers of Transfer Restricted Securities, the
Prospectus will not contain an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
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<PAGE> 9
(v) upon the request of counsel for the Holders and for any
Affiliated Market Makers, furnish to such counsel or Affiliated Market
Maker before filing with the Commission, copies of any Registration
Statement or any Prospectus included therein or any amendments or
supplements to any such Registration Statement or Prospectus (including
all documents incorporated by reference after the initial filing of such
Registration Statement), which documents will be subject to the review and
comment of such counsel for a period of at least five Business Days, and
the Company will not file any such Registration Statement or Prospectus or
any amendment or supplement to any such Registration Statement or
Prospectus (including all such documents incorporated by reference) to
which such Persons shall reasonably object within five Business Days after
the receipt thereof. Such Person shall be deemed to have reasonably
objected to such filing if such Registration Statement, amendment,
Prospectus or supplement, as applicable, as proposed to be filed, contains
an untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading or fails to comply
with the applicable requirements of the Act;
(vi) upon the request of any Holder or Affiliated Market Maker,
provide copies of any document filed with the Commission that is
incorporated by reference into a Registration Statement or Prospectus, and
make the Company's and the Guarantors' representatives available for
discussion of such document and other customary due diligence matters;
(vii) make available, at reasonable times, for inspection by
each Holder and each Affiliated Market Maker and any attorney or
accountant retained by such Persons, all financial and other records,
pertinent corporate documents of the Company and the Guarantors and cause
the Company's and the Guarantors' officers and employees to supply all
information reasonably requested by any such Persons, attorney or
accountant in connection with such Registration Statement or any
post-effective amendment thereto subsequent to the filing thereof and
prior to its effectiveness;
(viii) if requested by any Holders or any Affiliated Market
Maker, promptly include in any Registration Statement or Prospectus,
pursuant to a supplement or post-effective amendment if necessary, such
information as such Persons may reasonably request to have included
therein including, without limitation, information relating to the "Plan
of Distribution" of the Transfer Restricted Securities and the use of the
Registration Statement or Prospectus for market making activities; and
make all required filings of such Prospectus supplement or post- effective
amendment as soon as practicable after the Company is notified of the
matters to be included in such Prospectus supplement or post-effective
amendment;
(ix) upon the request of any Holder or Affiliated Market Maker,
furnish to such Holder or Affiliated Market Maker, without charge, at
least one copy of the Registration Statement, as first filed with the
Commission, and of each amendment thereto;
(x) deliver to each Holder and each Affiliated Market Maker
without charge, as many copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement thereto as such
Persons reasonably may request; the Company and the Guarantors hereby
consent to the use (in accordance with law) of the Prospectus and any
amendment or supplement thereto by each selling Person in connection with
the offering and the sale of the Transfer Restricted Securities covered by
the Prospectus or any amendment or supplement thereto and all market
making activities of such Affiliated Market Maker, as the case may be;
(xi) upon the request of any Holder or Affiliated Market Maker,
enter into such agreements (including underwriting agreements) and make
such representations and warranties and take all such other actions in
connection therewith in order to expedite or facilitate the disposition of
the Transfer Restricted Securities pursuant to any applicable Registration
Statement contemplated by this Agreement as may be reasonably requested by
any Holder in connection with any sale or resale pursuant to any
applicable Registration Statement. In such connection, and also in
connection with market making activities by any Affiliated Market Maker,
the Company and the Guarantors shall:
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<PAGE> 10
(A) upon request of such Holder or Affiliated Market
Maker, furnish (or in the case of paragraphs (2) and (3), use its
best efforts to cause to be furnished) to each Person, upon
Consummation of the Exchange Offer or upon the effectiveness of the
Shelf Registration Statement, as the case may be:
(1) a certificate, dated such date, signed
on behalf of the Company and each Guarantor by (x) the Chairman
of the Board, President or any Vice President and (y) a
principal financial or accounting officer of the Company and
such Guarantor, confirming, as of the date thereof, the matters
set forth in Sections 6(y), 9(a) and 9(b) of the Purchase
Agreement and such other similar matters as such Person may
reasonably request;
(2) an opinion, dated the date of
Consummation of the Exchange Offer or the date of effectiveness
of the Shelf Registration Statement, as the case may be, of
counsel for the Company and the Guarantors covering matters
similar to those set forth in paragraph (e) of Section 9 of the
Purchase Agreement and such other matter as such Holder or
Affiliated Market Maker may reasonably request, and in any event
including a statement to the effect that such counsel has
participated in conferences with officers and other
representatives of the Company and the Guarantors,
representatives of the independent public accountants for the
Company and the Guarantors and has considered the matters
required to be stated therein and the statements contained
therein, although such counsel has not independently verified
the accuracy, completeness or fairness of such statements; and
that such counsel advises that, on the basis of the foregoing
(relying as to materiality to the extent such counsel deems
appropriate upon the statements of officers and other
representatives of the Company and the Guarantors and without
independent check or verification), no facts came to such
counsel's attention that caused such counsel to believe that the
applicable Registration Statement and any post-effective
amendment thereto, at the time such Registration Statement or
any post-effective amendment thereto became effective and, in
the case of the Exchange Offer Registration Statement, as of the
date of Consummation of the Exchange Offer, contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under
which they were made, not misleading, or that the Prospectus
contained in such Registration Statement as of its date and, in
the case of the opinion dated the date of Consummation of the
Exchange Offer, as of the date of Consummation, contained an
untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements therein,
in the light of the circumstances under which there were made,
not misleading. Without limiting the foregoing, such counsel
may state further that such counsel assumes no responsibility
for, and has not independently verified, the accuracy,
completeness or fairness of the financial statements, notes and
schedules and other financial data included in any Registration
Statement contemplated by this Agreement or the related
Prospectus; and
(3) a customary comfort letter, dated the
date of Consummation of the Exchange Offer, or as of the date of
effectiveness of the Shelf Registration Statement, as the case
may be, from the Company's independent accountants, in the
customary form and covering matters of the type customarily
covered in comfort letters to underwriters in connection with
underwritten offerings, and affirming the matters set forth in
the comfort letters delivered pursuant to Section 9(i) of the
Purchase Agreement; and
(B) deliver such other documents and certificates as
may be reasonably requested by such Persons to evidence compliance
with the matters covered in clause (A) above and with any customary
conditions contained in the any agreement entered into by the Company
and the Guarantors pursuant to this clause (xi);
(xii) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders and their counsel in
connection with the registration and qualification of the Transfer
Restricted Securities under the securities or Blue Sky laws of such
jurisdictions as the selling Holders may request and do any and all other
acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Transfer Restricted Securities covered by the
applicable Registration Statement; provided, however, that neither the
Company nor any Guarantor
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<PAGE> 11
shall be required to register or qualify as a foreign corporation where it
is not now so qualified or to take any action that would subject it to the
service of process in suits or to taxation, other than as to matters and
transactions relating to the Registration Statement, in any jurisdiction
where it is not now so subject;
(xiii) in connection with any sale of Transfer Restricted
Securities that will result in such securities no longer being Transfer
Restricted Securities, cooperate with the Holders to facilitate the timely
preparation and, subject to the Indenture, delivery of certificates
representing Transfer Restricted Securities to be sold and not bearing any
restrictive legends; and, subject to the Indenture, to register such
Transfer Restricted Securities in such denominations and such names as the
selling Holders may request at least two Business Days prior to such sale
of Transfer Restricted Securities;
(xiv) use their respective best efforts to cause the
disposition of the Transfer Restricted Securities covered by the
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be required to enable the
seller or sellers thereof to consummate the disposition of such Transfer
Restricted Securities, subject to the proviso contained in clause (xii)
above;
(xv) provide a CUSIP number for the Series B Notes not later
than the effective date of an Exchange Offer Registration Statement
covering such Transfer Restricted Securities and provide the Trustee under
the Indenture with printed certificates for the Transfer Restricted
Securities which are in a form eligible for deposit with The Depository
Trust Company;
(xvi) otherwise use their respective best efforts to comply
with all applicable rules and regulations of the Commission, and make
generally available to its security holders with regard to any applicable
Registration Statement, as soon as practicable, a consolidated earnings
statement meeting the requirements of Rule 158 (which need not be audited)
covering a twelve-month period beginning after the effective date of the
Registration Statement (as such term is defined in paragraph (c) of Rule
158 under the Act); and
(xvii) cause the Indenture to be qualified under the TIA not
later than the effective date of the first Registration Statement required
by this Agreement and, in connection therewith, cooperate with the Trustee
and the Holders to effect such changes to the Indenture as may be required
for such Indenture to be so qualified in accordance with the terms of the
TIA; and execute and use their best efforts to cause the Trustee to
execute, all documents that may be required to effect such changes and all
other forms and documents required to be filed with the Commission to
enable such Indenture to be so qualified in a timely manner.
(d) Restrictions on Holders. Each Holder agrees by acquisition of a
Transfer Restricted Security and each Affiliated Market Maker agrees that, upon
receipt of (i) the notice referred to in Section 6(c)(iii)(C), (ii) any notice
from the Company of the existence of any fact of the kind described in Section
6(c)(iii)(D) hereof or (ii) any notice from the Company that (a) sales under
any Registration Statement contemplated by this Agreement would require the
disclosure of material information which the Company has a bona fide business
purpose for preserving as confidential, or (b) such disclosure would impede the
Company's ability to consummate a material transaction (in each case, a
"SUSPENSION NOTICE"), such Person will forthwith discontinue disposition of
Transfer Restricted Securities pursuant to the applicable Registration
Statement until (A) such Holder or Affiliated Market Maker has received copies
of the supplemented or amended Prospectus contemplated by Section 6(c)(iv)
hereof, or (B) such Holder or Affiliated Market Maker is advised in writing by
the Company that the use of the Prospectus may be resumed, and has received
copies of any additional or supplemental filings that are incorporated by
reference in the Prospectus (in each case, the "RECOMMENCEMENT DATE"),
provided, that any suspension pursuant to clause (iii) above shall not exceed
60 days in any twelve-month period. Each Holder or Affiliated Market Maker
receiving a Suspension Notice hereby agrees that it will either (x) destroy any
Prospectuses, other than permanent file copies, then in such Person's
possession which have been replaced by the Company with more recently dated
Prospectuses or (y) deliver to the Company (at the Company's expense) all
copies, other than permanent file copies, then in such Holder's or Affiliated
Market Maker's possession of the Prospectus covering such Transfer Restricted
Securities that was current at the time of receipt of the Suspension Notice.
The time period regarding the effectiveness of such Registration Statement set
forth in Section 3 or 4 hereof, as applicable, shall be extended by a number of
days equal to the number of days in the period from and including the date of
delivery of the Suspension Notice to the date of delivery of the Recommencement
Date.
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<PAGE> 12
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's and the Guarantors'
performance of or compliance with this Agreement will be borne by the Company,
regardless of whether a Registration Statement becomes effective, including
without limitation: (i) all registration and filing fees and expenses; (ii) all
fees and expenses of compliance with federal securities and state Blue Sky or
securities laws; (iii) all expenses of printing (including printing
certificates for the Series B Notes to be issued in the Exchange Offer and
printing of Prospectuses whether for exchanges, sales, market making or
otherwise), messenger and delivery services and telephone; (iv) all fees and
disbursements of counsel for the Company and the Guarantors, and not more than
one counsel for the Holders of Transfer Restricted Securities as described in
Section 7(b) below; (v) all application and filing fees in connection with
listing the Series B Notes on a national securities exchange or automated
quotation system pursuant to the requirements hereof; and (vi) all fees and
disbursements of independent certified public accountants of the Company and
the Guarantors (including the expenses of any special audit and comfort letters
required by or incident to such performance).
The Company will, in any event, bear its and the Guarantors' internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expenses of
any annual audit and the fees and expenses of any Person, including special
experts, retained by the Company or the Guarantors.
(b) In connection with any Registration Statement required by this
Agreement, the Company and the Guarantors will reimburse the Initial Purchasers
and the Holders of Transfer Restricted Securities who are tendering Series A
Notes into in the Exchange Offer and/or selling or reselling Series A Notes or
Series B Notes pursuant to the "Plan of Distribution" contained in the Exchange
Offer Registration Statement or the Shelf Registration Statement, as
applicable, for the reasonable fees and disbursements of not more than one
counsel, who shall be Andrews & Kurth L.L.P., unless another firm shall be
chosen by the Holders of a majority in principal amount of the Transfer
Restricted Securities for whose benefit such Registration Statement is being
prepared.
SECTION 8. INDEMNIFICATION
(a) The Company and the Guarantors agree, jointly and severally, to
indemnify and hold harmless each Holder, its directors, officers and each
Person, if any, who controls such Holder (within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act), from and against any and all
losses, claims, damages, liabilities, judgments, (including without limitation,
any legal or other expenses incurred in connection with investigating or
defending any matter, including any action that could give rise to any such
losses, claims, damages, liabilities or judgments) caused by any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement, preliminary prospectus or Prospectus (or any amendment
or supplement thereto) provided by the Company to any Holder or any prospective
purchaser of Series B Notes or registered Series A Notes, or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or judgments are
caused by an untrue statement or omission or alleged untrue statement or
omission that is based upon information relating to any of the Holders
furnished in writing to the Company by any of the Holders.
(b) Each Holder of Transfer Restricted Securities agrees, severally
and not jointly, to indemnify and hold harmless the Company and the Guarantors,
and their respective directors and officers, and each person, if any, who
controls (within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act) the Company or the Guarantors to the same extent as the foregoing
indemnity from the Company and the Guarantors set forth in section (a) above,
but only with reference to information relating to such Holder furnished in
writing to the Company by such Holder expressly for use in any Registration
Statement. In no event shall any Holder, its directors, officers or any Person
who controls such Holder be liable or responsible for any amount in excess of
the amount by which the total amount received by such Holder with respect to
its sale of Transfer Restricted Securities pursuant to a Registration Statement
exceeds (i) the amount paid by such Holder for such Transfer Restricted
Securities and (ii) the amount of any damages that such Holder,
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<PAGE> 13
its directors, officers or any Person who controls such Holder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission.
(c) In case any action shall be commenced involving any Person in
respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"INDEMNIFIED PARTY"), the indemnified party shall promptly notify the Person
against whom such indemnity may be sought (the "INDEMNIFYING PERSON") in
writing and the indemnifying party shall assume the defense of such action,
including the employment of counsel reasonably satisfactory to the indemnified
party and the payment of all fees and expenses of such counsel, as incurred
(except that in the case of any action in respect of which indemnity may be
sought pursuant to both Sections 8(a) and 8(b), a Holder shall not be required
to assume the defense of such action pursuant to this Section 8(c), but may
employ separate counsel and participate in the defense thereof, but the fees
and expenses of such counsel, except as provided below, shall be at the expense
of the Holder). Any indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of the indemnified party
unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the indemnified party or (iii) the named parties to
any such action (including any impleaded parties) include both the indemnified
party and the indemnifying party, and the indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the indemnified party).
In any such case, the indemnifying party shall not, in connection with any one
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys
(in addition to any local counsel) for all indemnified parties and all such
fees and expenses shall be reimbursed as they are incurred. Such firm shall be
designated in writing by a majority of the Holders, in the case of the parties
indemnified pursuant to Section 8(a), and by the Company and Guarantors, in the
case of parties indemnified pursuant to Section 8(b). The indemnifying party
shall indemnify and hold harmless the indemnified party from and against any
and all losses, claims, damages, liabilities and judgments by reason of any
settlement of any action (i) effected with its written consent or (ii) effected
without its written consent if the settlement is entered into more than twenty
business days after the indemnifying party shall have received a request from
the indemnified party for reimbursement for the fees and expenses of counsel
(in any case where such fees and expenses are at the expense of the
indemnifying party) and, prior to the date of such settlement, the indemnifying
party shall have failed to comply with such reimbursement request. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement or compromise of, or consent to the entry of
judgment with respect to, any pending or threatened action in respect of which
the indemnified party is or could have been a party and indemnity or
contribution may be or could have been sought hereunder by the indemnified
party, unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability on claims
that are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
(d) To the extent that the indemnification provided for in this
Section 8 is unavailable to an indemnified party in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Guarantors, on the one hand, and the Holders, on the other
hand, from their sale of Transfer Restricted Securities or (ii) if the
allocation provided by clause 8(d)(i) is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause 8(d)(i) above but also the relative fault of the Company
and the Guarantors, on the one hand, and of the Holder, on the other hand, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative fault of the Company and the
Guarantors, on the one hand, and of the Holder, on the other hand, shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Company or such
Guarantor, on the one hand, or by the Holder, on the other hand, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The amount paid or payable by a
party as a result of the losses, claims, damages, liabilities and judgments
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<PAGE> 14
referred to above shall be deemed to include, subject to the limitations set
forth in the second paragraph of Section 7(a), any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim.
The Company, the Guarantors and each Holder agree that it would not
be just and equitable if contribution pursuant to this Section 8(d) were
determined by pro rata allocation (even if the Holders were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or judgments referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any
matter, including any action that could have given rise to such losses, claims,
damages, liabilities or judgments. Notwithstanding the provisions of this
Section 8, no Holder, its directors, its officers or any Person, if any, who
controls such Holder shall be required to contribute, in the aggregate, any
amount in excess of the amount by which the total received by such Holder with
respect to the sale of Transfer Restricted Securities pursuant to a
Registration Statement exceeds (i) the amount paid by such Holder for such
Transfer Restricted Securities and (ii) the amount of any damages which such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Holders' obligations to contribute pursuant
to this Section 8(d) are several in proportion to the respective principal
amount of Transfer Restricted Securities held by each Holder hereunder and not
joint.
(e) The Company and Guarantors agree that the indemnity and contribution
provisions of this Section 8 shall apply to Affiliated Market Makers to the
same extent, on the same conditions, as it applies to Holders.
SECTION 9. RULE 144A AND RULE 144
The Company and each Guarantor agree with each Holder, for so long as
any Transfer Restricted Securities remain outstanding and during any period in
which the Company or such Guarantor (i) is not subject to Section 13 or 15(d)
of the Exchange Act, to make available, upon request of any Holder, to such
Holder or beneficial owner of Transfer Restricted Securities in connection with
any sale thereof and any prospective purchaser of such Transfer Restricted
Securities designated by such Holder or beneficial owner, the information
required by Rule 144A(d)(4) under the Act in order to permit resales of such
Transfer Restricted Securities pursuant to Rule 144A, and (ii) is subject to
Section 13 or 15 (d) of the Exchange Act, to make all filings required thereby
in a timely manner in order to permit resales of such Transfer Restricted
Securities pursuant to Rule 144 (if available).
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SECTION 10. MISCELLANEOUS
(a) Remedies. The Company and the Guarantors acknowledge and agree
that any failure by the Company and/or the Guarantors to comply with their
respective obligations under Sections 3 and 4 hereof may result in material
irreparable injury to the Initial Purchasers or the Holders or Affiliated
Market Makers for which there is no adequate remedy at law, that it will not be
possible to measure damages for such injuries precisely and that, in the event
of any such failure, the Initial Purchasers or any Holder or Affiliated Market
Makers may obtain such relief as may be required to specifically enforce the
Company's and the Guarantors' obligations under Sections 3 and 4 hereof. The
Company and the Guarantors further agree to waive the defense in any action for
specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any
Guarantor will, on or after the date of this Agreement, enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. Neither the Company nor any Guarantor has previously
entered into any agreement granting any registration rights with respect to its
securities to any Person, except as disclosed in the Purchase Agreement. The
rights granted to the Holders hereunder do not in any way conflict with and are
not inconsistent with the rights granted to the holders of the Company's and
the Guarantors' securities under any agreement in effect on the date hereof.
(c) No Piggybacks on Shelf Registration Statement. The Company
shall not grant to any of its security holders (other than the holders of
Transfer Restricted Securities in such capacity) the right to include any of
its securities in any Registration Statement provided for in this Agreement
other than the Transfer Restricted Securities.
(d) Amendments and Waivers. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers or consents to or
departures from the provisions hereof may not be given unless (i) in the case
of Section 5 hereof and this Section 10(d)(i), the Company has obtained the
written consent of Holders of all outstanding Transfer Restricted Securities
and (ii) in the case of all other provisions hereof, the Company has obtained
the written consent of Holders of a majority of the outstanding principal
amount of Transfer Restricted Securities (excluding Transfer Restricted
Securities held by the Company or its Affiliates). Notwithstanding the
foregoing, a waiver or consent to departure from the provisions hereof that
relates exclusively to the rights of Holders whose Transfer Restricted
Securities are being tendered pursuant to the Exchange Offer, and that does not
affect directly or indirectly the rights of other Holders whose Transfer
Restricted Securities are not being tendered pursuant to such Exchange Offer,
may be given by the Holders of a majority of the outstanding principal amount
of Transfer Restricted Securities subject to such Exchange Offer.
(e) Third Party Beneficiary. The Holders and Affiliated Market
Makers shall be third party beneficiaries to the agreements made hereunder
between the Company and the Guarantors, on the one hand, and the Initial
Purchasers, on the other hand, and shall have the right to enforce such
agreements directly to the extent they may deem such enforcement necessary or
advisable to protect their rights hereunder.
(f) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of
either the Registrar under the Indenture or The Depository Trust
Company, as the case may be, with a copy to the Registrar under
the Indenture, with a copy to Andrews & Kurth, 4200 Chase Tower,
Houston, Texas 77002;
(ii) if to the Company or the Guarantors: to Chesapeake Energy
Corporation, 6100 North Western Avenue, Oklahoma City, Oklahoma
73118, Attention: Corporate Secretary, with a copy to McAfee &
Taft A Professional Corporation, Leadership Square, 211 North
Robinson, 10th Floor, Oklahoma City, Oklahoma 73102, Attention:
Connie Stamets; and
-15-
<PAGE> 16
(iii) if the Initial Purchasers: to Donaldson, Lufkin &
Jenrette Securities Corporation, 277 Park Avenue, New York, New
York 10172, Attention: Syndicate Department; to Morgan Stanley
& Co. Incorporated, 1585 Broadway, New York, New York 10036,
Attention: Corporate Finance Department; to Bear, Stearns & Co.
Inc., 245 Park Avenue, New York, New York 10172, Attention:
Corporate Finance Department; to Lehman Brothers Inc., 200 Vesey
Street, New York, New York 10285, Attention: Corporate Finance
Department; and to J.P. Morgan Securities Inc., 60 Wall Street,
New York, New York 10260, Attention: High Yield Capital Markets;
or in any case to such other address as the person to be
notified may have requested in writing, with a copy to Andrews &
Kurth, 4200 Chase Tower, Houston, Texas 77002.
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five
Business Days after being deposited in the mail, postage prepaid, if mailed;
when receipt acknowledged, if telecopied; and on the next Business Day, if
timely delivered to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
Upon the date of filing of the Exchange Offer or a Shelf Registration
Statement, as the case may be, notice shall be delivered to Donaldson, Lufkin &
Jenrette Securities Corporation, on behalf of the Initial Purchasers (in the
form attached hereto as Exhibit A) and shall be addressed to: Attention:
Louise Guarneri (Compliance Department), 277 Park Avenue, New York, New York
10172.
(f) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders; provided, that nothing herein shall be deemed
to permit any assignment, transfer or other disposition of Transfer Restricted
Securities in violation of the terms hereof or of the Purchase Agreement or the
Indenture. If any transferee of any Holder shall acquire Transfer Restricted
Securities in any manner, whether by operation of law or otherwise, such
Transfer Restricted Securities shall be held subject to all of the terms of
this Agreement, and by taking and holding such Transfer Restricted Securities
such Person shall be conclusively deemed to have agreed to be bound by and to
perform all of the terms and provisions of this Agreement, including the
restrictions on resale set forth in this Agreement, the Indenture and, if
applicable, the Purchase Agreement, and such Person shall be entitled to
receive the benefits hereof.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.
(k) Entire Agreement. This Agreement is intended by the parties as
a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted with respect to the
Transfer Restricted Securities. This Agreement supersedes all prior agreements
and understandings between the parties with respect to such subject matter.
-16-
<PAGE> 17
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
CHESAPEAKE ENERGY CORPORATION
By: /s/ AUBREY K. McCLENDON
-------------------------------------
Name: Aubrey K. McClendon
Title: Chairman of the Board and
Chief Executive Officer
SUBSIDIARY GUARANTORS:
AMGAS CORPORATION
CHESAPEAKE ACQUISITION CORPORATION
CHESAPEAKE GOTHIC CORP.
CHESAPEAKE MERGER CORP.
CHESAPEAKE MID-CONTINENT CORP.
HEC TRADING COMPANY
HUGOTON EXPLORATION CORPORATION
TIFFANY GATHERING, INC.
By: /s/ AUBREY K. McCLENDON
-------------------------------------
Name: Aubrey K. McClendon
Title: President
CHESAPEAKE CANADA CORPORATION
CHESAPEAKE ENERGY LOUISIANA
CORPORATION
CHESAPEAKE OPERATING, INC.
By: /s/ AUBREY K. McCLENDON
-------------------------------------
Name: Aubrey K. McClendon
Title: Chief Executive Officer
<PAGE> 18
CHESAPEAKE EXPLORATION LIMITED
PARTNERSHIP
CHESAPEAKE LOUISIANA, L.P.
By: CHESAPEAKE OPERATING, INC.,
General Partner
By: /s/ AUBREY K. MCCLENDON
---------------------------------
Name: Aubrey K. McClendon
Title: Chief Executive Officer
ANSON GAS MARKETING
MID-CONTINENT GAS PIPELINE
COMPANY
By: CHESAPEAKE MID-CONTINENT
CORP., General Partner
By: /s/ AUBREY K. MCCLENDON
---------------------------------
Name: Aubrey K. McClendon
Title: President
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BEAR, STEARNS & CO. INC.
LEHMAN BROTHERS INC.
J.P. MORGAN SECURITIES INC.
MORGAN STANLEY & CO. INCORPORATED
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ RALPH EADS
-------------------------------------
Name: Ralph Eads
Title: Managing Director
<PAGE> 19
SCHEDULE A
SUBSIDIARY GUARANTORS
Amgas Corporation
Chesapeake Acquisition Corporation
Chesapeake Canada Corporation
Chesapeake Energy Louisiana Corporation
Chesapeake Gothic Corp.
Chesapeake Merger Corp.
Chesapeake Mid-continent Corp.
Chesapeake Operating, Inc.
HEC Trading Company
Hugoton Exploration Corporation
Tiffany Gathering, Inc.
Chesapeake Exploration Limited Partnership
Chesapeake Louisiana, L.P.
Anson Gas Marketing
Mid-Continent Gas Pipeline Company
<PAGE> 20
EXHIBIT A
NOTICE OF FILING OF
A/B EXCHANGE OFFER REGISTRATION STATEMENT
To: Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Attention: Louise Guarneri (Compliance Department)
Fax: (212) 892-7272
From: Chesapeake Energy Corporation
9 5/8% Series B Senior Notes due 2005
Date: _____, 1998
For your information only (NO ACTION REQUIRED):
Today, ______, 199_, we filed [an A/B Exchange Registration
Statement/a Shelf Registration Statement] with the Securities and Exchange
Commission. We currently expect this registration statement to be declared
effective within __ business days of the date hereof.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AS OF MARCH 31, 1998, AND STATEMENT OF INCOME FOR THREE MONTHS ENDED MARCH
31, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 33,946
<SECURITIES> 5,876
<RECEIVABLES> 61,381
<ALLOWANCES> 961
<INVENTORY> 5,217
<CURRENT-ASSETS> 110,512
<PP&E> 1,787,412
<DEPRECIATION> 891,262
<TOTAL-ASSETS> 1,065,335
<CURRENT-LIABILITIES> 179,674
<BONDS> 654,013
0
0
<COMMON> 1,001
<OTHER-SE> 220,096
<TOTAL-LIABILITY-AND-EQUITY> 1,065,335
<SALES> 76,765
<TOTAL-REVENUES> 76,989
<CGS> 322,801
<TOTAL-COSTS> 333,489
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 604
<INTEREST-EXPENSE> 10,688
<INCOME-PRETAX> (256,500)
<INCOME-TAX> 0
<INCOME-CONTINUING> (256,500)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (256,500)
<EPS-PRIMARY> (3.19)
<EPS-DILUTED> (3.19)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AS OF DECEMBER 31, 1996, AND STATEMENT OF INCOME FOR SIX MONTHS ENDED
DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM 10-Q DECEMBER 31, 1996.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 140,739
<SECURITIES> 35,317
<RECEIVABLES> 66,370
<ALLOWANCES> 198
<INVENTORY> 7,071
<CURRENT-ASSETS> 250,273
<PP&E> 731,392
<DEPRECIATION> 132,843
<TOTAL-ASSETS> 860,597
<CURRENT-LIABILITIES> 127,092
<BONDS> 220,149
0
0
<COMMON> 693
<OTHER-SE> 483,369
<TOTAL-LIABILITY-AND-EQUITY> 860,597
<SALES> 120,186
<TOTAL-REVENUES> 122,702
<CGS> 77,240
<TOTAL-COSTS> 83,456
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,216
<INCOME-PRETAX> 83,456
<INCOME-TAX> 14,325
<INCOME-CONTINUING> 24,921
<DISCONTINUED> 0
<EXTRAORDINARY> 6443
<CHANGES> 0
<NET-INCOME> 18,478
<EPS-PRIMARY> .29
<EPS-DILUTED> .27
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) BALANCE
SHEET AS OF SEPTEMBER 30, 1996, AND STATEMENT OF INCOME FOR 3 MONTHS ENDED
SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
(B) FORM 10-Q SEPTEMBER 30 ,1996.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 2,444
<SECURITIES> 2,912
<RECEIVABLES> 45,991
<ALLOWANCES> 340
<INVENTORY> 10,461
<CURRENT-ASSETS> 63,250
<PP&E> 633,443
<DEPRECIATION> 113,107
<TOTAL-ASSETS> 595,551
<CURRENT-LIABILITIES> 109,657
<BONDS> 277,323
0
0
<COMMON> 3,013
<OTHER-SE> 183,644
<TOTAL-LIABILITY-AND-EQUITY> 595,551
<SALES> 48,937
<TOTAL-REVENUES> 49,785
<CGS> 34,048
<TOTAL-COSTS> 36,865
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,817
<INCOME-PRETAX> 12,920
<INCOME-TAX> 4,716
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,204
<EPS-PRIMARY> .14
<EPS-DILUTED> .13
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AS OF JUNE 30, 1996, AND STATEMENT OF INCOME FOR 12 MONTHS ENDED JUNE 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K, JUNE
30, 1996.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 51,638
<SECURITIES> 0
<RECEIVABLES> 50,554
<ALLOWANCES> 340
<INVENTORY> 5,163
<CURRENT-ASSETS> 109,173
<PP&E> 546,816
<DEPRECIATION> 95,642
<TOTAL-ASSETS> 572,335
<CURRENT-LIABILITIES> 108,834
<BONDS> 268,431
3,008
0
<COMMON> 0
<OTHER-SE> 174,759
<TOTAL-LIABILITY-AND-EQUITY> 572,335
<SALES> 145,591
<TOTAL-REVENUES> 149,422
<CGS> 99,534
<TOTAL-COSTS> 113,213
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,679
<INCOME-PRETAX> 36,209
<INCOME-TAX> 12,854
<INCOME-CONTINUING> 23,555
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,355
<EPS-PRIMARY> .43
<EPS-DILUTED> .40
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AS OF MARCH 31, 1996 AND STATEMENT OF OPERATIONS FOR 9 MONTHS ENDED
MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q,
MARCH 31, 1996.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 25,948
<SECURITIES> 0
<RECEIVABLES> 47,653
<ALLOWANCES> 237
<INVENTORY> 7,066
<CURRENT-ASSETS> 82,228
<PP&E> 378,438
<DEPRECIATION> 82,886
<TOTAL-ASSETS> 384,719
<CURRENT-LIABILITIES> 117,128
<BONDS> 184,084
1,784
0
<COMMON> 0
<OTHER-SE> 62,973
<TOTAL-LIABILITY-AND-EQUITY> 384,719
<SALES> 97,899
<TOTAL-REVENUES> 99,940
<CGS> 65,422
<TOTAL-COSTS> 65,422
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,717
<INCOME-PRETAX> 24,801
<INCOME-TAX> 8,804
<INCOME-CONTINUING> 15,997
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,997
<EPS-PRIMARY> .30
<EPS-DILUTED> .27
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AS OF DECEMBER 31, 1995 AND STATEMENT OF INCOME FOR SIX MONTHS ENDED
DECEMBER 31, 1995.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 58,194
<SECURITIES> 0
<RECEIVABLES> 91,376
<ALLOWANCES> 669
<INVENTORY> 10,479
<CURRENT-ASSETS> 162,623
<PP&E> 550,409
<DEPRECIATION> 126,239
<TOTAL-ASSETS> 600,130
<CURRENT-LIABILITIES> 163,630
<BONDS> 0
1,830
0
<COMMON> 0
<OTHER-SE> 101,015
<TOTAL-LIABILITY-AND-EQUITY> 600,130
<SALES> 53,754
<TOTAL-REVENUES> 55,545
<CGS> 36,018
<TOTAL-COSTS> 42,562
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 11
<INTEREST-EXPENSE> 1,912
<INCOME-PRETAX> 12,983
<INCOME-TAX> 4,609
<INCOME-CONTINUING> 8,374
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,374
<EPS-PRIMARY> .16
<EPS-DILUTED> .14
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AS OF SEPTEMBER 30, 1995 AND STATEMENT OF INCOME FOR THREE MONTHS
ENDED SEPTEMBER 30, 1995.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 29,281
<SECURITIES> 0
<RECEIVABLES> 38,519
<ALLOWANCES> 352
<INVENTORY> 4,881
<CURRENT-ASSETS> 75,070
<PP&E> 252,223
<DEPRECIATION> 56,974
<TOTAL-ASSETS> 276,655
<CURRENT-LIABILITIES> 70,662
<BONDS> 145,136
0
0
<COMMON> 59
<OTHER-SE> 47,945
<TOTAL-LIABILITY-AND-EQUITY> 276,655
<SALES> 21,988
<TOTAL-REVENUES> 23,502
<CGS> 15,620
<TOTAL-COSTS> 18,983
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,363
<INCOME-PRETAX> 4,519
<INCOME-TAX> 1,604
<INCOME-CONTINUING> 2,915
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,915
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AS OF JUNE 30, 1995, AND STATEMENT OF INCOME FOR 12 MONTHS ENDED JUNE 30,
1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K JUNE 30,
1995.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 55,535
<SECURITIES> 0
<RECEIVABLES> 41,799
<ALLOWANCES> 452
<INVENTORY> 8,926
<CURRENT-ASSETS> 106,441
<PP&E> 209,742
<DEPRECIATION> 45,941
<TOTAL-ASSETS> 276,693
<CURRENT-LIABILITIES> 74,905
<BONDS> 145,754
58
0
<COMMON> 0
<OTHER-SE> 44,917
<TOTAL-LIABILITY-AND-EQUITY> 276,693
<SALES> 65,819
<TOTAL-REVENUES> 67,343
<CGS> 42,756
<TOTAL-COSTS> 49,383
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 308
<INTEREST-EXPENSE> 6,627
<INCOME-PRETAX> 17,960
<INCOME-TAX> 6,299
<INCOME-CONTINUING> 11,661
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,661
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
</TABLE>
